Q3 2020 Fulgent Genetics Inc Earnings Call
Thank you for calling me I have your conference I'd number please.
Oh, yes, it's one or 6654 rate.
Thank you.
Matt the spelling of your first and last name please.
David Brown D.R.W.
Thank you Sir you May have your company name please.
Hi, Rob.
He our AG.
Thank you.
And there have you weren't email address please.
David I had are those car.
And that is a I.E.R.A. correct.
Yes, correct.
Thank you I will join you now Sir.
Thank you.
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 full genetics earnings conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session into essay question, you will need to press star one on your telephone keypad. Please.
Be advised that today's conference is being recorded at night of November 20, Twond. If you require any further assistance. Please press star zero or.
I would now like to try to conference on would you first speaker for today, the head of Investor Relations.
This is Nicole bullshit. Thank.
Thank you. Please go ahead ma'am.
Great. Thanks, very much good afternoon, and welcome to the Fulgent genetics third quarter 2020 financial results conference call on the call today are Mick Jay Chief Executive Officer, Paul can Chief Financial Officer, and Brendan pursues Chief Commercial officer. The Companys press release discussing its financial results is available in the Investor Relations section of the company's website.
Well, it's a genetic dotcom an audio replay of this call will be available. Shortly after the call concludes please visit the Investor Relations section of the company's website to access the audio replay management's prepared remarks and answers to your questions on today's call will contain forward looking statements. These forward looking statements represent managements estimates based on current views and assumptions.
Which may prove to be incorrect as a result matters discussed in any forward looking statements are subject to risks uncertainties and changes in circumstances that may cause actual results to differ from those described in the forward looking statements.
The company assumes no obligation to update any of the forward looking statements. It may make today to reflect actual results or changes in expectations.
Nurse should not rely on any forward looking statements as predictions of future events and should listen to management's remarks today with the understanding that actual events, including the company's actual future results may be materially different and what is described in or implied by these forward looking statements. Please review the more detailed discussions related to these forward looking statements including.
Discussions with some of the risk factors that may cause results to differ from those described in these forward looking statements contained in the Companys filings with the Securities and Exchange Commission.
Putting that previously filed 10-Q for the quarter ended June Thirtyth 2020, which is available on the company's Investor Relations website.
Management's prepared remarks, including discussions of earnings and earnings per share contain financial measures not prepared in accordance with accounting principles generally accepted in the United States or GAAP management has presented these non-GAAP financial measures because it believes they may be useful to investors for various reasons, but they should not be viewed as a substitute or superior to.
The Companys financial results prepared in accordance with GAAP.
Please see the company's press release discussing its financial results for the third quarter of 2020 for more information, including the description of how the company calculate non-GAAP earnings and earnings per share and a reconciliation of these financial measures to income and income per share the most directly comparable GAAP financial metrics.
With that I'd now like to turn to turn the call over to me.
Thank you Nicole.
And thank you for joining our repo today to discuss our third quarter 2020 results.
I will review the highlights from our third quarter.
Before handing it over to our Chief commercial officer, Brendan perceives to provide further updates on our commercial success and the go to market strategy.
And finally, Paul will discuss our financial results and the ultimate in detail.
The cone 19, Pandemics has continued to try to answer both Rocco.
Are we open <unk> this year.
Or the food.
Too early action to leverage our technology platform to build all the comprehensive.
Hosting offering to meet the increased demand for reliable testing solutions.
Well, we have come a long way.
Together our airport to combat this is condemning we've.
We still have a long road ahead of us.
As we.
Look to return to normalcy will.
Continued to do our part at a full June to help to get a testing solutions to individuals and organizations that need them. So.
So the business school.
School Sports Union wins.
I will and the social engagement can resume safely.
Our record growth in the third quarter is true Testament to the scalability of our technology platform.
With you Scott last quarter.
Oh, the open season events of this apparent then.
He has really proven cogent you never use.
Yes, as a company and as a result of that we discussed would be to go one step further to demonstrate how the.
Restroom is truly unmatched in the genetic testing industry.
It was a modest level of your investment in the infrastructure and the higher comp <unk>.
We were able to grow our test warning almost.
50 times or 5000 pro sense Oh.
With that.
In the third quarter of last year.
And the borrowing more than five times over 500% overtime in the second quarter of this year.
At a certain time.
Our gross margin improved by 19 percentage points sequentially with the operating expense only roughly doubling.
On a GAAP basis.
Which translates into operating income of six $3.5 million.
And the record adjusted EBITDA of $67.4 million.
This growth and the profitability were made possible by.
The efficiencies we have a crazy occur.
Across to our business.
From our life operations and our information management.
And the reporting system to have our own partly biochemistry and the reagents.
Our enhanced reimbursement capabilities and our sales team, who have we'll cover that a significant amount of growth.
Assigning a number was substantial agreements.
The cream large volume of test in the quarter ahead.
I have a group of world have come from 151 at the beginning of 2022, approximately 500 employees income those sockets to the.
No this was done overnight.
And then we'd be we have a strong bond lesions on which to grow our core business.
In the years ahead.
To that end.
We'd be the U.S. and we made to build our co 19, Pes initiatives will continue benefit to our business.
In long term.
There were three.
Particular areas of strength I would like to elaborate on.
Especially.
In the quality and the skill of our customer base.
The traction we have.
Insurance provider.
On reimbursement.
And the.
We haven't seen that our commercial in issue at home test offering picture genetic.
On the customer front, we have made the meaningful strike.
In signing large agreements Wizard brinjal commercial organizations.
Municipalities and the mental institutions.
Some would there's really no publicly but I would have won a number of additional strategic customers.
No we have not publicly disclosed.
Many of these institutions.
Have never heard of fortune genetic before depended on it.
No we have proven our ability to de view, where large volumes of high quality tests.
A quick and efficient manner, well have to see increased the volume of our pores genetic test for a number of new customers.
And then we will elaborate further on some of this customer dynamics.
Second point and one.
His own with reimbursement.
Historically, our customers, who predominant being cash paying customers, which were literally revenue coming from.
Through the reimbursement.
Given our rapid expansion in.
The new customers combined with poultry pests award him, which should now exceed the one maybe test this.
This has accelerated the need of reimbursement agreement with insurance providers.
We believe that having this reimbursement agreement increase will continue to drive business from the customers in the way that the we haven't seen prior to the Pandemics.
The third area is I want to highlight as and when you have fewer both gross is a war consumer.
Offering picture.
Picture genetic.
We had lunch with the pipe on in 2019 to make a clinical breed genetic testing in the wearable to individuals in the comfort of their home, we don't need to visit a doctor office.
Our regional operating consists of three test.
Sorry screening numerous screen and adult where we'll use.
As at home coal 19 test service to the point up on in late June and since then we have seen worse strong demand for this at home test.
As we stated repeatedly on previous.
Earning calls.
The cornerstone of our business is our technology and the split vote platform, which will allow us to develop very deep customized and lunch our products and services.
He went through maybe in our technology stretch bags to almost a decade and the you April all the effects of our business.
Which produced notable efficiency and the scalability.
We plan to getting even more aggressive you Oh, we're continuing to invest in the technology.
In two further separate us from our peers in the future.
We welcome the news about the worry promised back simply one of them from a pfizer to be so.
Since we have made the 2.5 million.
Dollar investment you know probably with a company called Boston molecules during this quarter.
It is we'd be with this.
Could the enhanced and the lead Fujian genetics to develop an enhanced our when neutralizing antibody test for Colm 19 immunity.
Expansionary for the people, who gets the vaccine oh patients recovered from cold 19.
In the meantime, we continue the added.
Accountants and add additional test for our core business to address the growing needs for the genetic testing market.
In sum arm them with our technology, the transformation of our business and the weak spend that could be really will allow us to make a notable footprint in the screening and the generic takes the market in the years ahead.
With that.
The call over to Brendan to dig into more about the customer doesn't make we've seen in this quarter.
And the labor on the long term driver for our momentum.
Brendan.
Thanks, Mike as Mike mentioned, we delivered more than 1 million reports during the third quarter and almost 50 fold increase year over year normal fivefold Inc., we increased sequentially.
Despite massive increase in volume that we experienced we delivered results to our customers without any issues and with best in class turnaround time for RT PCR results.
During the third quarter greater than 90% of our COVID-19 results were delivered within 24 hours some as fast as eight to 10 hours, which our customers would agree it's pretty incredible.
This was all possible because how we built this company and how we have leverage technology and operational excellence. We are genetic testing laboratory built by engineers founded in technology for years, we described ourselves as a technology company, providing clinical genetic testing and we have continually emphasize the power of our technology.
Platform in the third quarter I think we have proven it in practice not only that we have done it the hard way building our business organically from the ground up.
Before we get into our COVID-19 business I would first like to highlight the strong quarter, we had in our core genetic testing business, while we projected a slight decline in our core business due to the pandemic. It has rebounded much faster than we thought and grew 57% sequentially from a revenue standpoint.
This has been in large part due to our ability to win new clients, while maintaining relationships with existing clients, even though some of those clients experienced lower test volumes amid the pandemic.
To further emphasize this point, we looked at our top core business customers in the third quarter this year compared to the third quarter of last year.
Oh those top customers.
[laughter], where new this demonstrates how our core business has continued to strengthen with new customers we've been winning.
Both new and existing clients are increasingly taking advantage of our expanded product portfolio, which now include almost 19000 tests.
Customers are using project for hereditary cancer cardiovascular genetics neurological genetics reproductive health and other newer test that we've launched in the last 12 to 18 months.
At this point, we have one of the largest most diversified genomic test menus in the industry and we plan to continue to launch new tests.
Switching to our COVID-19 business during the third quarter, we brought on almost 80, new clients representing thousands of individual users. These wins included dried through operations for the county of Los Angeles, Alameda, Orange, Santa Clara San Bernardino Miami Day.
Hey, the state of Utah, the city of long Beach and others.
In addition to the Hughes drive through operation wins, we announced our partnership with New York City Health and hospital and their test and trace program for K through 12 testing both on site and at home.
Regarding the on site testing for New York City, We now have over 60 pairs of boots on the ground to help with school site operations. This program went live in October and we're now collecting thousands of samples per week throughout New York City.
We also announced in the third quarter and we want a competitive bid for the entire state of Ohio prison system to provide testing to their 12000 employees.
In addition to the agreements we announced there were a few other public announcements from our clients describing their partnerships with full Jan those included northwestern University using our picture at home test for their students were returned to school program and the Pac 12 conference using our test for Athletic program and sports officials, while we haven't announced all of our way.
Since we will continue to publicly announce large strategic wins to the extent we can.
Overall, I'm very pleased with the execution of our sales team in the quarter as we consistently one any competitive opportunities clients are choosing for zinc coated setting offerings for a variety of reasons, including our rapid turnaround time supply chain availability capacity anyway approval, our technology platforms and user friendly systems I like spaces.
A few minutes to discuss each of these in detail.
Regarding turnaround time, it's been widely publicized that laps have struggled with turnaround time and patients have experienced delays receiving test results in.
Initially somewhat after taking five to seven days and sometimes longer to return results to patients.
However, since the day, we launched our Carbonite team to we have delivered results within 24 hours and even with the explosive growth. We have seen we have continued to improve this has really been important for patient care and contact tracing and has been a huge differentiator for fulgent.
Second supply chain, while many lives have seen shortages in critical supplies such as reagent transportation media. The SWOBS, we've had no such issues.
We've been able to get these kits to our clients usually within one day of their request, we remain well start to continue to fuel our growth plan.
Third our capacity at this time between our headquarters and simple City, California, and our new lab in Houston, Texas, We have a maximum daily capacity of 60000 test per day. This has allowed us to serve our existing business when new accounts and continue to build a robust pipeline of new opportunities at the same time our CLI.
Since we're confident using full agent.
Volume as.
As needed we could quickly scale to handle 80000 test per day and more.
Fourth our two easy way approvals getting easy way for our standard physician administered RT PCR test was critical as it served at the validation and stamp of approval for our quality.
It has been important when it comes to winning RSP in government contracts.
Our second anyway with fire pits are at home test, which has been instrumental for our growth. We are one of a limited number of providers with this approval and at home testing is proven to be a differentiator in an important testing tool to help in the fight against this pandemic.
Furthermore, we have submitted an easy way for our next generation sequencing based COVID-19 test, which is still pending with the FDA.
Last but certainly not least the technology platforms. We have built to support COVID-19 testing have been critical to our success we.
We have discussed these in detail on previous calls, but the platforms include the folded enterprise and for that community, which support corporate testing and drive through testing respectively.
These have made managing large volumes of tap much easier for our clients and connecting them to the force platform, creating deep relationships that go just beyond being a RT PCR test provider our.
Our clients are using our applications to run their daily operations.
One other point of differentiation on October 19th at offering, which we announced in September is that we will give our clients an option to add influenza a and B. This is done on a same sample with no need for clients to make any collection protocol changes in the future. We plan to add additional pathogens to our panel to provide comprehensive testing for patients with respiratory.
Infections it.
It is not just influenza in carbonite team that can cause respiratory infections. In addition to those there are approximately 500 million non influenza respiratory infections occurring annually the symptoms of respiratory infections, including COVID-19 are very similar and it can be difficult to differentiate.
Yes treatment plan a comprehensive panel of pathogens can help provide an accurate diagnosis, therefore, allowing for a more personalized treatment plan.
The success, we have had with COVID-19 testing has allowed us to expand our go to market strategy more so than ever we're working closely with the payers and are making progress becoming an in network provider during the third quarter. We filed over 590000 insurance claims an increase of almost 9000%.
Over Q2 with this increased visibility with the payers. We can now tell the whole story and show the value of having our services in their network.
As Mike mentioned COVID-19 has also serve as a springboard for our consumer initiated platform pitcher genetics.
Obtaining the at home you away from the FDA and formally launching our pitcher test for Cobi 19 in mid June we have had significant demand. We believe picture is now well known and rapidly growing brand that will continue to deliver for us going forward as we expand the number of test being offered on the platform.
It's quite common for families to have to wait many weeks or even months to see a pediatric genetics specialist and usually the first up is order a genetic test we.
We see a day where families can get the testing they need through pitcher ahead of the visit and then spend the time with the specialists discussing results prognosis treatment plans et cetera.
Lastly, we are seeing Coca 19 bring us many many new clients. These include huge hospital systems. Some of the largest specialty care clinics government agencies large companies et cetera.
Our relationship with these clients are very deep in many will be able to use our core products and services in the future.
To that end during the third quarter, we engaged with one of the largest biotech companies in the United States in a competitive bid for their employee testing.
I'm excited to announce today, we have one the opportunity.
Pulls it will test many thousands of their employed weekly on our enterprise platform from their several locations across the United States testing is expected to begin January 2021, and will continue for at least 18 months, we're very happy to partner with such an amazing company and we look forward to helping keep their workforce safe.
Switching gears I'd like to briefly touch on the opening of our Houston Lab, which we announced in August. This facility is a great example of the power and portability of the for the technology platform. We are able to launch this high capacity lab in record time, a building on top of our foundational for that technology.
The Houston lives.
The way from the Tech Medical Center, the largest medical center in the World. This puts our new lab in close proximity to an amazing talent pool as well as world renowned cancer centers in pediatric hospitals, both Houston will students or are they fully operational second sight.
And finally I'd like to take a moment to clarify some confusion that has existed regarding the types of COVID-19 test available and how they are intended to be used.
There have been some attention grabbing headlines regarding cheapened fast antigen testing, we wanted to be clear antigen testing is not a replacement for RT PCR in fact, it's hardly a competitor antigen testing is intended to be used for only symptomatic patients within seven days of symptom onset. However data presented an antigen anyways show that a day six.
In setting the sensitivity drops measurably and positive cases are already being missed this would lead to false negative results, which are particularly troublesome.
To evaluate several antigen test state that a negative result should be followed up by RT PCR and the CDC has been clear the RT PCR is the gold standard to detect Sars CRB too.
[noise] RT PCR provides the highest level sensitivity and specificity simply put it's the best test early detection screening testing of asymptomatic and Presymptomatic RT PCR is currently the only viable option.
Coupling the gold standard test with our industry best turnaround time make the fullest solution a powerful tool to fight against the spread of Koby 19.
I would like to now turn the call over to Paul Kim who will walk you through our third quarter financial performance.
Thanks, Brandon third quarter revenues totaled 101.7 million, an organic increase of 883% compared to the third quarter of 2000 2019.
Billable tests in the quarter totaled 1.040 million growing almost 5000% over Q3 of last year. The vast majority of this volume was from our business related to COVID-19.
The majority of volume and revenues in the quarter were related to covered we saw a sharp rebound in our traditional genetic testing business compared to Q2, our traditional genetic testing business grew by more than 57%.
The breadth of our customer base was impressive during the quarter with over a dozen companies contributing over $1 million have revenues.
Our ASP in the third quarter was $90 higher than the $96. We saw in the second quarter. The increase is attributable to the vast majority of our test now going through reimbursement and our favorable payment experience today Cogs per test for the quarter was $25 an improvement of approximately 42% compared to the second.
Third quarter gross.
Gross margin improved almost 19% point.
Points sequentially. The primary reasons for the decrease in Cogs per test work continued automation efficiency and in general the utilization of our technology platform.
Turning over to operating expenses total GAAP operating expenses were $11.9 million for the third quarter up from 6.9 million in the second quarter non-GAAP operating expenses totaled 9.2 million up from six.
Corridor.
As many mentioned we made a small investment in a company.
Okay.
Oh, sorry.
As well as assisting and the developing landscape for therapeutics. This translated to approximately 2.6 million charge below operating expenses.
Non-GAAP operating margin improved approximately 44 percentage points sequentially to 65.5%.
We continue to make meaningful investments across all our departments in the quarter.
But our top line outperformance on increasing operating efficiencies are outstripping our investments into our business.
Based on our profit we recorded a 23% tax rate in Q3 this rate release as our valuation allowance on our deferred tax assets and incorporates our projected annual tax rate for the year.
Adjusted EBITDA for the third quarter was $67.4 million compared to $3 million in the third quarter of 2019 on a non-GAAP basis, and excluding equity based compensation expense income for the quarter was 49 million or $2, an eight cents per share based on $23.5 million.
Weighted average diluted shares outstanding.
[noise] third quarter with 140 million in cash cash equivalents.
With no debt during.
During Q3, we had an equity shelf program in place, which enable us to sell approximately 1.3 million shares in the open market raising 42.3 million in cash.
With the momentum in our business.
Revenues of 17.8 million from a customer who wanted to secure their position and delivering our services in the future.
Moving onto our outlook, we see the second half of 2020 as a continuation of our inflection point in our business which began.
Last quarter.
In addition to the momentum we had with our Carla tests, our core genetic testing business and sequencing as a service business have remained strong.
We have expanded our partnerships on the reimbursement front and are seeing high demand for tests across our picture platform.
Most of all we're seeing our customers appreciating that clear differentiation by the application of our technology platform.
And based on the explosive demand, we're continuing to see from the market and the quality of our customer base, we believe the fourth quarter.
Well cap what has been a transformative year for our company. We now project test volumes for the year to be well over 2 million, which translates into over $235 million in revenues more.
More specifically, we anticipate Q4 revenues to be at least 110 million.
With a powerful leverage in our model. This translates into GAAP net income and excluding stock based compensation, we expect non-GAAP net income of approximately a $100 million or approximately $4 per share for our shareholders in 2020.
As a final note. We appreciate the patient shareholders, who have faith in our business over the past four plus years and look forward to sharing updates to our business and future quarters.
Operator, now you can open it up for questions.
Thank you, ladies and gentlemen, Q and Avis now open if you would like to register a question. Please press star followed by the number one on your telephone keypad.
If your question has been answered and you would like to withdraw your registration. Please press the pound key.
Please stand by while we compile the cumulative roster.
Our first question is from the line of Rachel.
Lance Dahl from fiber Sandler your line is now open.
Great Hi, this is rates entre is congrats on the nice quarter you guys.
Thank you.
Yes, so that was that substantial guidance increase can you just walk us through how we should think of the core business first Kobe revenue in that guide and then a little more forward thinking can you walk us through what you guys are thinking about for testing demand over the next year or two with an effective vaccine and the market calling that news we saw this morning.
So I'll take the first part of your question on the core business.
Then I'll turn it over to matching followed by Brandon goes to you know their thoughts on the landscape comment a development front the vaccine news from today.
So on the core business, we were extremely pleased with how the core business performed during the quarter as I indicated a card business grew 57% sequentially.
Which translates into approximately 20000 path.
And revenues of approximately $10 million to $11 million, which had a record for the company that's not consistent levels with what we posted in the third quarter of 2019, which was the high point before Tom before next quarter.
And looking out into Q4, we anticipate that our volume for the core business to be approximately 25000 with revenues being in the low teens.
And the core business, that's performing better than we had hoped and that's because we find on many new customers. We also added content to our genetic testing menu across the board whether it be cancer women's reproductive health for pediatrics.
And as you remember we ended last year with approximately $32 million of revenues all non covered than before trial that had we guided industry to $40 million of business for the year.
And then during the earlier on part of this year and March April and May during the first lock down that impacted.
The core or the genetic testing business across the industry.
But because of the additional capabilities that we made in terms of reimbursement can be great traction that we've seen and reimbursement because we signed on so many more customers and we've proven ourselves.
Yeah as a cutback.
You do or the capabilities and the efficiencies that we've had angle in the lab, we seen a tremendous uptick and our core business in the back half of this year. So we're still on track to meet a $40 million, but that $40 million of business that we had in the card business hasn't been linear we had a law.
In the spring time of the year, but we came back roaring into back half the year. So what that tells us as if we continue along with the momentum and our capabilities as a company.
Our outlook for our core business and 2021 should be very very favorable and I'll turn it over to man, who can give commentaries on the vaccine.
I think this in terminal so for a wake seen the wealth Wyndham, we welcome to the news.
Also well vaccine development, because we do see that continues Oh 30 minutes.
For the full June genetics to prices.
Oh faster quicker and cheaper test in terms of diagnostic the pull 19.
Test.
He edition as the work seemed the weapons have come in at.
Adding additional.
Requirement for the test.
Southern cheaper and quicker and more accurate ties Ford.
For the the antibody test neutralizes antigen test.
So I think this is a decrease of the new opportunity for Fujian genetics in this space.
I do not believe with the co 19.
We'll go away easily.
Further as long as there is a requirement in this space footprint.
Put engine entities will be there to provide faster and quicker a more equities test.
Two responses of Pandemics.
And Brendan gave you some details, yes, certainly a ritual Brandon.
We continue to believe that the COVID-19 testing is quite durable right. We think is going to stretch well into 2021.
At the same levels, who knows we don't have that Crystal ball no. One does right, but we think we're extremely well positioned.
To be a major player in this market. So we think it's going to be around with us for a while at these levels that we are forecasting in Q4 and Q1 we.
Well, we'll see right.
But should testing even begin to slow down a little bit the way we position. This company with our technology platforms, we're going to continue to take market share from other people right lot of our wins have been organic that's a fact.
The same time, you know we are taking market share from other people. So we think we can play a dominant role in the testing.
We think is quite durable.
And I think the the other platforms, we've built the turnaround time.
The systems I think we're going to be a player for a deep into 2021.
Great. Thank you for all that color and now can you just give us more details on some of the contract terms that you guys have wine on for example, what are the terms and how long are they and do you have any exclusivity agreements.
All of the above a Rachel so some are exclusive summer not we look at the contracts they range from month to month to 24 months I think our long as when we signed so far has been 24 months. These contracts have been with government agencies and municipalities Big companies you name it colleges.
Sports comp.
Brendan Rachel I'm, so a lot of these contracts or a laboratory services agreements like I said, some some exclusivity some don't and most of them I would say a majority of them.
You have some legs to them to where they're going to stretch many months in deepening 2021.
Great and then last question for me is that you guys have quite a bit of cash following the call. There 19, Tailwinds can you talk about your plans for using the money to invest in the business. Thanks for so that's an excellent question.
Yes, we generated a lot of cash you know based on the momentum that we had and the business and we believe and capping off this year you know it would demonstrate.
Several things one the viability and.
The proven us of our business model to the efficiency as well as the scale scalability, Oh, Fulgent genetics and we believe.
The our traditional genetic testing space or in the wider screening market that we will be one of the consolidators to 'em take a look at businesses and technologies that we can incorporate or potentially incorporate as our own to.
Enhance our technological lead in addition to making a stronger company.
Yeah, Ed the pop a pause points will continue to you as the car carefully to enhance our position in terms of our technology and also our market positions.
Great. That's it for me Thank you guys.
Right right. Thank you Roger.
Our next question is from the line of Erin Wright of.
Credit Suisse. Your line is now open.
Great. Thanks, and you have all these obviously been very nimble here with the coveted response, which has been impressive but I guess, how can you be purpose. Some of the capacity expansion you know like a post vaccine kind of course, Khalid sort of world and how does that fit into your longer term plan furnace capacity Sam.
Thanks.
Aaron This is a were good or to the questions as I mentioned, the the co nineteens not going be goes away completely.
Our investment in terms of capacity. It is always a multiple use where not only to use of the AR were tested for the cold night team, but the do we own.
For our other genetic tests as we continue seems Uh huh.
An increase for the D. Mensa, we increased our automation. This autumn machines that can use it for multiple different purposes. As you read recall old our lab management system and sulfur has the work with the in house, So we definitely could Uh huh.
Graham on re purpose some of those equipments gilly into though make the AR were completely automation for the lab automation. So.
Aaron <unk> from a numbers perspective. This is Paul So you can break out the you can break out the investments that we made as well as the spending in a couple of different buckets. So number one our total fixed assets and the equipment purchases for the year is going to be between 10 and $15 million.
And then we have added a number of people to the organization, but not all of our employees. Many of them are consultant consultants and the operational lab area. So if you take a look at the amount that we're spending for covered averse says what covered has brought US just for this year, we're going to be Joe.
Operating approximately $200 million of code business on top of massive profit we've already gotten massive returns on those investments now covered if not going to go away at the end of 2020, we see these contracts going deep into 2021, we believe will have a material level I've covered present.
Yes, so whatever investments that were making we believe that we will have immediate returns on that and then from an operational sense. We can quickly deviate the resources into other areas that we believe will be fruitful for the company.
Okay. That's helpful and then on the reimbursement front, obviously, we had favorable reimbursement for Kobe testing and CMS has extended that through late January how how long do you think that last year. There I mean do you feel comfortable I assume you feel comfortable now based on sort of here.
Prepared remarks in terms of your turnaround time to meet their two days requirements.
Yeah racial sorry, Aaron we were happy to see what they did actually to reward those laboratories that can actually deliver on turnaround time, and we think that's incredibly important when it comes to contact tracing.
The turnaround time needs to be 24 hours or less for this test to be as powerful as possible.
Other their decision to do that we hope that that in reimbursement rate will continue deep into 2021.
We'll see how it plays out I think as Paul mentioned, we do have some.
Additional leverage in our in our Cogs there so.
So we were all also on the private side as well not just the Medicare and Medicaid from the CMS perspective on the private side also is a satisfactory reimbursement. So we hope that it will stick around we think it will and yes in terms of.
Meeting the turnaround time to get that extra reimbursement, we are incredibly confident in our ability to do that.
In the area remember the cone that in terms of starter as a $50 most liquid none of the so why are we set the price the CMS or increase the rig Oh.
Oh and most of the labs could not meet the response time to see going as cable to two rigs $100 for the 24 hour results 40 hours. The response time over the $75 a week from now that neither 40, our response time.
Folded in genetics, another position well positioned to meet the pine challenges, but there also will be able to reform in this market at any price to compete in this market I think is a fortune genetics, the when we get to you.
Were another highlight the the provider we provide to the low cost competitive bid in the old our efforts not only were windows.
As of the effectively but does it also we are able to de lever the bottom line at the at the the result that we TV. We're today, we'll continue enhanced our position in this area because of our technology because of our biochemistry and because.
Also our pipelines.
And just to give you a point of reference on the reimbursement.
We had $90 million of accounts receivable.
At 930 as of today, we collected on more than $60 million or about $90 million balance and the reason why we've been able to get that kind of collection is because of the efficiency.
As well as the enhanced capabilities that we have as a company in the area of reimbursement.
And as Mike indicated the CMS reimbursement rate at $100, an ounce starting January one it stays at $100 as long as you're able to meet the turnaround time, but because our turnaround time is just getting quicker what the additional volume we don't have a whole lot of doubt whether we can meet that.
Meet meet that threshold starting on January one 2021.
Okay all right. Thank you.
Yes.
Next we have Kevin Degeeter from of the open Hyman. Your line is now open.
Great. Thanks, guys I want to revisit a genetic testing and Paul some of your comments with regard to how to think about that that portion of business for the year I believe I heard you correctly, you feel comfortable kind of.
You know at that $40 million over.
Reported revenue for genetic testing for the year, if our math is right that suggests somewhere around $15 million for Fourq here are another 40% sequential growth in our business on top of a 57% in the current quarter. So can you just comment a little bit more.
So what's driving that and what portion of the business is that right is very cancer as a carrier and how should we think about if our math is right that 15 million as a.
Good baseline to think about building growth into 2021.
Yes, that's an excellent that's an excellent point. So we are on track with our original guidance, which is quite a feat because a lot of the diagnostics companies 2020. It was essentially a throwaway year, but oddly enough. It seems like we're on track to meet the awake.
Our guidance, even before I cover has had and the reason why its accelerating in the back half the year as because starting to lock down period, and even with the momentum of the Calvin business. We continue to sign on additional customers and it's across the board in cancer and women's reproductive health as well.
Wallace and pediatrics and we believe.
Things open up more and shed people get more comfortable going to clinics I'm having UBS.
Genetic you know that the comfort nest of returning to some kind of normalcy for the generic tasks that that'll just open up the doors for even more enhanced governance for our core ngs testing and I'll turn it over to Brandon who can give more commentary both in terms of the number of customers across.
Any other customers as well as the size of the program that they're thinking about for our core business.
Hi, Kevin Yeah, I think in the script to read.
Customers in Q3, this year versus last year, and actually got a text said I cut out a little bit so I'll reemphasize, what I said.
In the third quarter this year greater than half of those customers were new right. We looked at our largest customers in Q3 more than half of those were new this year. So falls right. We've continued to bring on new customers. We continue to win business. These customers are not running at full speed, let's make no mistake.
Not impacted by this pandemic, we're still not back open like we need to be we want to be but this growth has been fueled by continuing to win new customers. So we think when our expanded portfolio of customers is running at full speed when they're seeing the same number.
Patients they saw pre pandemic can be a pretty powerful turning point for our company.
And the last thing is on the cost side.
Only if we talk about.
The efficiencies that we have for covered but our core business. That's also gaining a lot of benefit from the automation and the efficiency, meaning that our Cogs per test and tying up Q3 on a full GAAP basis was 25 bucks on a non-GAAP basis, it's even lower than that.
But that includes our core genetic test.
Cash on top of car that.
So you know you can just estimate what our cost structure as whether it be for covered or non covered or not calling our anywhere and we believe we can compete and any kind of environment.
Okay, Great no that's super helpful and and as we think about your continued man menu expansion.
Yeah, you did call out some opportunities with regard to infectious disease side of the portfolio, but are there.
Important or meaningful your menu expansion opportunities and Jack testing as you think you have continue to fuel.
This type of growth too.
Year to existing customers as they expand.
Yeah, the breadth of their ordering into a broader menu for genetic testing.
Well Kevin.
If we throw away a $100 million that can use a bit by a $20 million to $30 million of business.
That's another way we grew.
Definitely we see the of the business opportunities as we walk into the each opportunities we need to make sure we have a.
So the business model, we need to make sure it is beneficial to the.
The fact that the our clients, but in addition, we need to make sure that we also provide the returns to our shareholders.
So.
With this organic sales growth of pricing, we are going to focus in the area of cancer.
In the end the wins the cancer treatment are hardly to provide the precision medicine forgings continue the list in these areas.
We will introduce the products in this area are due to the cold 19, I think you slow down a little bit our intra introduction in this kind.
And though for products, but it definitely does have the areas that we will be focused on.
Yes, you know I think we've been on a test launch craze for the last year year, and a half mean and now the test menu is over 19000 test. So we continue to pump out new test, we think thats important looking at different disease, a different phenotypes. So yes, we continue to develop new tests I.
I guess sort of tactically speaking you know a couple of weeks ago, We did launch a pharmacogenomics test, which we're pretty excited about we have not played a major role in pharmacogenetics in the past.
You know with our technology, our capture set our pipelines, we were able to develop that pretty quickly. So we will be.
Let the market, which will help in personalized therapy and drug treatment.
So very exciting thank you for taking my questions. Thanks.
Thanks, Karen.
Ladies and gentlemen, if you would like to ask a question simply press star one on your telephone keypad now.
Once again that is star one on your telephone keypad.
[laughter].
Okay.
[noise].
And there are no further questions asked of the.
This time I will now turn the call back to Nicole.
For any final comments.
Great. Thanks, everyone for joining our call today, we look forward to keeping in touch with you in the days and weeks ahead have a great day.
Ladies and gentlemen. This concludes today's conference call. Thank you all for participating enjoy the rest of your day keep safe.
And you may now disconnect.
[music].
Oh.
[music].
[music].