Q4 2020 Fulgent Genetics Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to afford that and genetics.
And it's quiet 2020 earnings conference call at this time all participant lines are on a listen only mode. After the speaker's presentation, there will be and question answer session.
And then session will need to press star one on the telephone please.
Please be advised that today's conference is being recorded and if you.
And finished.
Criticized and you though on that.
And the conference and speaking to.
Good day.
Paul Borja. Please go ahead and.
Great. Thanks, very much good afternoon, and welcome to the full genetics fourth quarter and full year 2020 financial results conference call on the call today are have been Shea Chief Executive Officer, Paul Kim Chief Financial Officer, and Brian and Perth is the company's Chief commercial officer. The company's press release discussing its financial results is available on the Investor Relations SEC.
On the company's website Fulgent genetics dotcom and audio replay of this call will be available. Shortly after the call concludes please visit the Investor Relations section on 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 and any forward looking statements are subject to risks uncertainties and changes in circumstances that may cause actual results to differ from those described and 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 and expectations.
Listeners should not rely on any forward looking statements.
Predication of future events and should listen to management's remarks today with the understanding that actual results, 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 the discussions of some of the risk factors that may cause results to differ from those described and the forward looking statements contained in the company's filings with the Securities and Exchange Commission, including the previously filed 10-Q for the quarter ended September 30th 'twenty, and 'twenty, which is available on the Companys and that's relationship.
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.
And that's where it 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 for or superior to the company's financial results prepared in accordance with GAAP.
Please see the company's press release discussing its financial results for the fourth quarter and full year, 2020 for more information, including the description of how the company calculates non-GAAP net income and earnings per share and a reconciliation of these financial measures to income and income per share and most directly comparable GAAP financial measures.
With that I'd now like to turn the call over to me.
Yeah.
Thank you Nicole.
Good afternoon.
And thank you for joining on.
Our call today to discuss our fourth quarter and the full year of 2020 results.
And we're poised for some opening remarks.
And on a year or two hour cheaper and Merck.
And so officer Brendan proteins to price.
Update on our.
Commercial success.
And finally poking.
And we'll discuss our partner share.
We though and the outlook in detail.
Before I start and would like to say that all worth though.
With those who have been impacted by this.
Pandemics.
And the construction and it has caused weighs heavy on our hearts.
But I will continue to find a way.
To do our part in combating the spread of this virus and there have been in the forefront collision to provide testing and the support for our customers.
Throughout this challenging time.
We look forward.
And to leverage and our success.
And expertise.
So the greater goods.
As we continue to battle this pandemic.
Is that the you can say it.
2020 was truly a hallmark year for Fulgent genetics.
Well the financial trajectory of our business.
<unk> formed significantly.
Over the last 12 months.
Our weighted you.
Remain consistent.
And our genetics has been pipeline has expanded.
And the work to meet the challenges that COVID-19 has presented.
And wanted to go through the details on each day.
And we took compared to where we.
Our today.
As I have discussed much in detail on prior at Kohl's.
And I will see that.
We have emerged in 2021.
As a stronger.
Mortal bus business than we were a year ago.
And we are extremely low position.
And to continue.
Driving growth across our business.
Through 2021.
And the deal.
However results in the fourth quarter.
Were truly outstanding.
Our fourth quarter and revenue.
Over 295 and Neely.
And is almost three times the revenue.
We generated and the third quarter of this year, and then more than 35 times and our fourth quarter revenue over last year.
We did more than 3 million tests in.
And the quarter.
And the over $4 4 million pets in.
And the year.
Compared to about 60000 tests.
In all of 2019.
And the same thing.
Demonstrate incredible leverage and are generally the more then.
$6 per share in non-GAAP income.
And the fourth quarter and more than $90 per share and none co net.
Non-GAAP income in the full year.
And Hunter.
Country.
$105 5 million.
And free cash flow.
Paul will cover financial details.
Want to emphasize and stuff.
And this leverage.
Phil will not have been possible, we sell to our fundamental genetic testing technology, our pro party.
That operation.
And reporting system.
Our ability to rapidly secure multiple reimbursement agreements.
And that conclusion.
Capabilities.
And our sales and the lab team.
I'm extremely proud of what we have.
Able to accomplish this year.
And future Oh, who Fujian.
And where it Brian.
Years ahead.
Throw the challenge landscapes.
And the challenges in 2020.
Our team has not only right and.
To meet the demand.
And that came our way.
Oh God.
Above and beyond too.
These tablets Fujian is a true leader, who has the genetic testing and the screen market.
He is damaged in two ways, both by the customer and the.
Contracts.
That we have won competitively.
But perhaps more importantly by the way.
We haven't done two point and your new approaches to lab operation.
And the test the management's too.
And he could testing more accessible and the fishing.
I would like to highlight.
Examples of this.
First.
On the leadership front.
And was recognized as the number one per wider.
COVID-19 test.
And the state of California by California, The Permian.
Property held.
In late January.
Cause and soon.
The highest volume and tests.
With over 90% of the results.
Turn to patient within 24 hours and at 97% return, we've seen and 48 hours.
We have what loans, whereas wins and partnerships.
The seats over the last year.
And so we'll see.
And a top at least goes Oh, COVID-19 testing provides us in California.
He is a truly a testament to our PDP to execute and the service customer and successfully.
We did that drive them to choose Fujian, but we're somewhat.
The largest testing per wages in the country.
Our approach is fundamentally different.
And the proof is in the protein.
And you'll see the success okay.
And the most populous state.
Yeah Nishu.
Other highlights on the leadership front, Inc.
And for the multiple large testing contracts that we have and continue with the Tucson.
So there's terrific wins and.
New contracts with the department of Homeland Security.
As well as a change and our testing partnership with the New York City Public School system.
Brendan will it be Scott is partnerships in more details you know few minutes.
In terms of Poe 19 testing capabilities.
We have a close eye on the new wearers mutations that.
Emerged and I'm pleased to announce that our tests are detecting all major tissues.
Oh the alert.
We are also leveraging our next generation sequencing capability to support COVID-19 research on the wearers and the potential infusions, which Brendan will elaborate on.
Woman hindered.
In terms of appointing new approaches to the market.
Haven't done some exciting things with our sulfur and technology program.
And if that's a new way to service our customers.
On a silver offering, including our vaccine instrument solutions and.
Community testing software platform.
Which in April our customer two bedroom units and they're testing and the vaccine work tools programs and policies.
We already have several customers who purchase of such offerings.
Well this programs are still very much in the early stage of Oh do.
We are optimistic that we were able to languish and our sulfur platforms.
And everything to servicing and then maintaining customers in the months and the years ahead.
Aside from COVID-19.
Our next generation sequencing business.
The growth in 2020.
These spec where is lockdowns across the country volume from Ngls.
Tests World almost 59000 in 2019 to 72000 in 2020.
Looking ahead in 2021.
And we said our board and she has business will grow about 19, 2% year over year to $17 million.
And then looking at our sales.
Overall, we expect revenue to almost doubled in 2021 compared to the Great Park.
Revenue.
In 2020.
And <unk>.
Our technology platform.
We expect to continue to see strong growth.
And operating margins due to our best in class.
And structure.
We also believe our technology profile set a higher bar in the market by bringing this is.
Disciplines.
And our statistical win.
And so rubles competitive bid process and the sustained low value for our customers through our ability to continue drive down the cost.
March it.
And the same time, we've reduced debt by applying our technology and the.
Operational execution into adjacent area will be able to join us largely on market.
Fusion.
Going forward.
Throughout the balance of 2021, we plan to invest in sales marketing and Nishu as well as it was.
International expansion efforts to continue driving the momentum.
We also view and then eight has the potential and.
To expand our addressable market into wider screening and diagnosis and capabilities.
And last point I would like to make here.
Is there and Rhonda FID on trunk.
Capex efforts that we.
Undertaken and the recent months in response to the pandemic.
And the wins in engineering.
And important part of the response to the challenges presented by Covid.
COVID-19.
And whether they need to be careful note and to address.
Current circumstance.
To promote the future.
Productivity and collaboration.
Engagement.
In the fourth quarter.
Cogent on either $1 million to National Academy and Julien.
The National Academy of Engineering in collaboration with the China National Academy of Engineering, and United Kingdom Royal Academy older. Jimmy We will use the phone to identify vitalize and <unk> per milkmaid.
And is the thinking on engineered systems and solutions to COVID-19.
We also made that and initial donation of 250000.
As a part of a 1 million dollar commitment to USG to support the cancer research and niche abuse.
We believe.
Supporting this.
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And we coaching closer to bids premier institutions and.
And the organization.
As we become a larger company with a wider reach than our existing addressable market.
Ultra and the <unk>.
We have remained focused on building a business.
We have long term growth potential.
Potential and the IBD.
And that this year.
The ear or do we have and meet.
With the new customers.
On the ships that have a service for the reimbursement.
Skill.
Read it was our lab operations.
And as of our sulfur application into the customer use and ramp.
Our picture.
That's on them together created the significant sustainable tailwind.
For our business.
We are excited about the future.
Hose and the look forward, who reported on our success and.
And the quarters ahead.
With that I would like to turn the call over to blend and too deep into more on customer dynamics, we saw.
This quarter.
Brendan.
Thanks me, we'd like to again express our sympathy to those had been impacted by this terrible virus and it's been a difficult time for many families and our country and general <unk>.
Spike and cases and testing and that was predicted by medical experts to happen in the fall and D became a reality during.
During the fourth quarter, we against all locked down and creates across many states, which did flow our momentum and our non COVID-19 business. However, we have seen increasing strength in our business outside of COVID-19.
Our non COVID-19 business grew approximately 43% year over year in the fourth quarter and we find on over 15 contracts with new customers for services, such as hereditary cancer cardiovascular genetics carrier screening and neuro degenerative genetics during the fourth quarter. We worked tirelessly to increased COVID-19 testing could.
<unk> maintained our best in class turnaround time, and expand our testing footprint nationally. These efforts led to a quarter, we were able to service over 3 million patients with COVID-19 testing.
At this time, we have the capacity to handle north of 100000 tests per day across our two laboratories with the ability to continue to scale during the fourth quarter, we handled accelerating volume while maintaining our best in class RT PCR turnaround time, delivering approximately 90% of tests within 24 hours.
We believe our ability to scale our business to roughly 228 times that of what we were handling just one year ago is almost unprecedented in our industry and is indicative of everything pulls it represents.
We are a technology platform company with the ability to excel in many areas of health care. We are a team of engineers geneticist genetic counselors and business operators with a fierce motivation to make pools and a dominant force we have proven with our platform and infrastructure that we can run a laboratory that far outpaces many genomic labs.
In terms of efficiency and scalability, which translates to best in class gross and operating margins, which Paul will elaborate on per minute.
Early in the pandemic or COVID-19 patient volume was concentrated around drive through testing sites and with somewhat limited to select regions in and around Southern California.
Today, our COVID-19 customer base is incredibly diverse with a national reach at this point, we have direct agreements with 11 counties for our services. Many large corporations testing organization sports team sports conferences cruise lines hundreds of nursing homes and assisted living facility just to name a few.
We announced during the fourth quarter and extension of our New York City Department of Education, and test and trade contract and New York City Department of Education selected Fulgent other partner after evaluating a number of different COVID-19 testing providers through a competitive bid process our ability to retain this business through the 2021 school year demonstrates that our platform.
And because not only capable of meeting the stringent needs of the school system, but our service and doing so resulting in a very positive customer experience and the New York City Public School system.
We believe we have built an incredible system for back to school testing and.
And we have now had months of experience and many thousands of students tested.
We believe that early start and and emerging testing market will help drive additional opportunities for Fulgent and thought we were excited to announce we were recently selected by Clark County, and the Las Vegas School district to be their back to school testing partner, we look forward to continuing to deploy our resources across the U S to help students return to school.
Safely.
One other exciting announcement with me and me briefly mention is opposed it was selected by the department of Homeland Security and that's one of core lab's chosen for a $2 billion five year indefinite delivery indefinite quantity contract for COVID-19 testing. This is the largest contract we had been awarded to date.
We believe with our industry, leading turnaround time capacity and delivery platforms. We have the ability to take on a meaningful portion of this contract and help our country's first responders and stay healthy and safe.
The demand for our RT PCR COVID-19 test remains strong for both existing clients and new opportunities. We continue to build a robust sales funnel and a variety of different areas as the country continues to view testing as a critical tool to fight the virus and reopen our country and RT PCR remains the gold standard <unk>.
Rapid sensor available and being used they cannot replace the accuracy, meaning sensitivity and specificity of Archie PCR. Many organizations government entities and counties are requiring RT PCR results. However, we do see and opportunity for rapid testing and RT PCR results to work together.
To this day, many labs are struggling with turnaround time, which limits the usefulness of RT. PCR. However, we continue to provide results and generally less than 24 hours. We believe it fast RT PCR test continues to be the best option for testing.
We continue to monitor the situation regarding new mutations and strains of the virus importantly, we want to make sure our RT PCR test can detect these new strain, which we had been able to do.
Recently, there was information released by the CDC debt warrant debt some of the new variant maybe missed and testing and then where and in fact, some labs, who had an issue based on the RT PCR targets used we were pleased to report that our RT PCR test can detect the various published to date.
While almost all of our COVID-19 testing volume has been RT PCR base I'll remind you that we actually introduced a next generation sequencing based tests prior to launching RT Pcr.
We realized quickly that the rapid turnaround time of RT PCR is critical and controlling the spread of the virus. Therefore, we did not commercialize the next generation sequencing test as a diagnostic test that.
Fast forward to today net.
<unk> raised and sequencing is now on the spotlight on this pandemic due to its ability to identify strains and the mutations and screen for potential new mutations.
We have now hit a perfect intersection of Folgers core competencies.
We are primed and ready to take on massive EES testing volume, but our secrets and capacity and expertise. We can handle approximately 10000 NGF tests per day. We are currently working with local and federal government on genomic studies of this virus, which are just getting started we believe our ability to offer both NGL.
<unk> and RT PCR puts us and our leading position the partner organization doing these studies.
Another key area of opportunity for US has been our picture at home COVID-19 tests. This has proven to be an important differentiator for fulgent and.
And it has helped many people by providing convenient access to testing.
Pictures being used for employee testing students testing pre travel testing and athletes just to name a few.
Highlighting a couple of specific use cases, we partner with the New York City and Jetblue to provide testing kits to travelers, leaving New York airports during the holiday season, and response to the testing travel mandated by the state.
Also during the holidays and La County launched a new COVID-19 hometown collection program, which allow certain county residents to do complementary testing from home and Fisher platform is more than just the COVID-19 testing and there's a platform designed to change the way genomic testing and other testing and delivery.
We believe patients become increasingly proactive and their health care and consumer initiated testing will be a rapidly growing market.
With the Fisher platform seamlessly integrating with telemedicine, we are uniquely positioned to expand the service offering by adding many new tests and the future. We also believe we have dramatically expanded pitchers and visibility and brand recognition due to the role of the platform in place and COVID-19 tests.
While COVID-19 testing has been unwavering and the demand on our business. We have continued to invest time and resources and our non COVID-19 operations.
We are excited to announce that we have launched a next generation sequencing based pharmacogenomic test, our pharmacogenomics test and we'll talk to 40, <unk> and more than 140 drugs to enable personalized dosing and health care and we will determine if a patient is a rapid metabolize or a certain drugs or slow metabolize or <unk>.
Adjusting dosing accordingly, or perhaps a different drug altogether can be recommended.
While both Pharmacogenomic test or RT PCR based and includes limited targets and information applying our expertise and next generation sequencing allows us to unlock much more information and provide patients a more comprehensive report.
We look forward to commercializing this product in 2020, one and beyond.
In addition to our new Pharmacogenomic test and we continue to expand the number of disease specific panels, and we offer and the number of conditions. We test board has published and the N C. B I genetic testing registry GTR.
We now offer over 19000 genetic test, making the fulgent menu one of the largest and the world.
We intend to 2020 to be the year, we dramatically expanded our commercial sales team. However, COVID-19 through with and unexpected curve ball that said, we intend to dramatically increase our sales team head count by the end of 2021, we believe we know how the product menu turnaround time and cost structure to drive significant expansion and the.
United States and overseas.
In addition to a vastly expanded sales team and an important part of our go to market strategy has been increasing on managed care contracts and incremental benefit of COVID-19 testing has been our increased exposure to payers and the fourth quarter. We built over one 8 million more insurance claims and we did and the fourth quarter of 2019.
We have become an in network laboratory with several regional payers and now have close working relationships with several large national payers.
We believe we will continue to make meaningful progress, becoming an in network provider for our services.
Another opportunity for us to the extension of our software platforms to customers, which means briefly touched on your recently launched two new software products. The Fulgent vaccine management platform and a full day community testing software as a service product.
With both which both leverage the testing platforms, we have built to support our matches COVID-19 testing operations.
The vaccine management platform is a layer added to our extremely successful technology platform, which is used by drive thru walk up and other testing operations.
Now on the same web based platform patients are able to schedule their vaccination pick a location arrived preregister with a QR code and get a digital confirmation and other first injection and reminders for their second and this will be a fee per click product.
The second product for the community software as a service is a completely novel approach for us some counties and municipalities have their own laboratory and testing operations, but lack the platform technology to scale and effectively manage testing in.
In this case they can now take a license to our Fulgent community software as a service product.
Sensually full debt front, and but instead of pointing to orders our laboratory at what point it to our customers. This will be a subscription service billed annually along with a fee per click.
We have a number of irons and the fire as we work to emerge on the other side of this pandemic and we look forward to what the future holds for Fulgent and.
I would now like to turn the call over to Paul Kim who will walk you through our fourth quarter and full year 2020 financial performance.
Thanks Brandon.
Record fourth quarter revenue totaled almost 295 million and increase of more than 3004 hundred per cent compared to the fourth quarter of 2019, billable tests and the quarter totaled almost $3 2 million and growing more than 200 times the volume on Q4 last year.
Majority of this volume was from our business related to COVID-19.
Despite the re emergence of a state wide lockdown and California.
And stay at home orders elsewhere, we saw stable demand for our traditional genetic testing business and Q4, our card business and Q4 was at 43% year over year and 17% sequentially from Q3, we finished the year and almost $37 million and revenues from our core business, which was slightly lower than our original.
And before the pandemic hit overall.
Overall, our Q4 results far exceeded our expectations largely due to the unwavering demand for arch and covered capabilities.
Our customer base continued to diversify and and the fourth quarter. We added six major customers, who are contributing and multi million dollars each and quarterly revenues are.
Our ASP and the fourth quarter was $93 slightly lower than the $98. We saw on the third quarter, while our ASP has largely remained stable over the last few quarters. A modest decrease is due to the increasing mix of tests are covered versus non COVID-19.
Cost per test for the quarter was a record low $16 and improvement of approximately 36% compared to the last quarter.
Gross margin continue to improve and was up more than eight percentage points sequentially and <unk>.
Margin improvement, we've seen is a further testament and.
And to the scalability and leverage on our platform as revenue increased almost threefold sequentially and we drove further efficiencies and our lab operations and unit economics.
Now turning to operating expenses total GAAP operating expenses were $17 3 million and the fourth quarter up from $11 9 million and a third quarter non-GAAP operating expenses totaled $14 8 million up from $9 2 million last quarter our.
Our non-GAAP operating margins improved 12 percentage points sequentially to 77, 6%, we continue to make meaningful investments across all our departments and the quarter on our top line outperformance and increasing operating efficiencies continue to outpace the investments into our business based on our profit.
We recorded a 26% tax rate in Q4 adjusted.
Adjusted EBITDA for the fourth quarter was $230 million compared to $1 1 million and the fourth quarter of 2019.
On a non-GAAP basis, and excluding equity based compensation expense income for the quarter was $167 5 million or $6 20 per share based on 27 million weighted average diluted shares outstanding.
Turning over to the balance sheet. We ended the fourth quarter was $432 million and cash cash equivalents in marketable securities.
During the fourth quarter, our equity shelf program enabled us to sell approximately $4 7 million more shares raising almost 204 million in cash net of issuance costs.
We have not executed on on any shelf program.
12, 31 is to minimize dilution to our shareholder base.
On the other side of the balance sheet our contract liabilities.
And at $26 6 million.
I'll also quickly touch on our financial highlights for full year of 2020 revenue totaled 422 million up almost 1200% year over year operating income totaled 219 million versus an operating loss of 420000 last year.
Non-GAAP EPS was $9.10 based on $24 1 million weighted average diluted shares outstanding.
Now moving onto our outlook.
We see significant opportunity in 2020, one to extend our leadership with Covid testing, while our genetic testing business.
<unk> continued to expand as we look at revenue screened for 2020, one with E on more diverse mix of revenue drivers and attributable to COVID-19.
In addition to RT PCR testing, we see growth potential from our NGL space and kind of a test as they continue to win more customers, who on sequencing to understand the characteristics of COVID-19.
As well as a growing number of variants.
We also expect to generate revenue on <unk>.
Revenues from our software licensing of customers, who are beginning to purchase our software to be utilized and their own environments for various applications.
Further we see continued growth and our at home platform picture genetics for both Covid and non Covid stuff.
On a non Covid front, we continue to add content and introduced more tests and to multiple areas, including oncology and reproductive health.
In addition to the outboard mentioned and momentum we continue to benefit from the expanded partnerships on the reimbursement front by being able to anticipate payment for tests delivered.
Based on our initial outlook for a momentum in 2020. One we expect test volume in 2020, one could be over $8 5 million, which translate to approximately $800 million and revenue representing a growth of 90% year over year and the first quarter of 2021, and we expect revenue to be approximately three <unk>.
Third and $25 million.
Of the 800 million, we estimate approximately 70 million and revenues from Ngls testing and $730 million and revenues from RT PCR art non NGF path.
We define Ngls revenue as revenue from our traditional genetic testing business plus revenues from our NGL space Covid sequencing. These on G. S. Past agreements include long term contracts with major regulatory organization, which provide important baseline information on COVID-19 and other.
Texas disease, and it's for National and state level surveillance defining important changes on transmission identifying unusual our emerging variants and ultimately improving the public health response, and the decision, making with better laboratory data on a going forward basis, we believe our revenues from Ngls testing will be more.
Our sustainable and there is less vial volatile and the evolving COVID-19 testing market, which is driving our revenues from non Ngls testing.
And we also know that 70 million represents a 92% growth and our NGL business compared to 2020.
From a profitability standpoint, and we expect to show ongoing leverage on our business, which drops to the bottom line and drive cash flow generation.
We continue to rely on our foundational technology are operating our business, which is producing gross margins above 80% and operating margins above 70%.
Even with aggressive hiring and investments and our business, we anticipate growth and operating margin will remain extremely strong.
As such for full year 2021, utilizing an estimated 27 per cent tax rate.
And and estimated share count on $31 million, we expect net income of approximately $380 million or approximately $12 50 per share for our shareholders excluding stock based compensation.
Before we turn it over to questions I'd like to make a few comments on our balance sheet and capital structure.
As of.
The date of our earnings report our cash balance has grown from 432 million at year end two $625 million.
From our operations on January and February.
That plus our accounts receivable, we spent which stand at over $200 million.
Combined our guidance of 800 million on revenue and 300 and and $80 million.
And profits.
Positioning the company to have a cash position above a billion dollars sooner rather than later on.
We're proud of Poles and capital structure.
As we achieve the steep organically with minimal dilution to our shareholders.
By capitalizing on opportunities armed with our technology platform. We believe we're much stronger than we were a year ago with the expanded capabilities that address a much larger market as such we continue to assess strategic M&A targets on a regular basis. We also planning we also plan on opening up new Mark.
And Asia, and Europe, and the future.
Thank you for joining our call today, operator, you can now open it up for questions.
And as a reminder, and the question you will need to press star one on your telephone and toy draw your question.
The penalty phase.
And by while we compile the Q&A roster.
Our first question will come from the line of Steven Mah from Piper Sandler.
They begin.
Oh, great. Thank you and congratulations on the quarter and and the full year of all that.
Thank you Steven.
So just a couple of questions on on California, and then also on the 'twenty 'twenty One guide.
And from our internal channel checks you seem to be pretty overweight and California. So should we think that that trend continuing and in 2020 one and.
How how that's been trending and the first months of.
Of the year as well and then secondly on the on the cadence of the guide.
You know your Q1 guide implies about 40% of total 2021 revenues.
Just maybe a little bit of details on that do you expect a drop in.
And Covid testing volumes in Q2, and just maybe a little bit more color on that thank you.
And thank you for their questions Steven.
<unk>.
And in terms of the concentration in California.
Because we are.
Possession.
And loss.
Los Angeles, and Los Angeles County.
It is true that a meaningful amount of revenue.
And from.
And that county, but having said that.
We have continued and diversify our business with them.
And the state to various other counties as well as a number of other states.
And if you take a look at the characteristics of our Q4 revenue at about 295 million.
Only about a quarter of that came from L. A county.
The other thing that I would also say and and.
In terms of the guidance that back in 2020.
We were one of the few company to have.
Have guidance on throughout the course of the year and were pleased to exceed the expectations.
And each one of those quarters and for the year.
And looking out at 2021.
We're a company that is largely centered around COVID-19 and COVID-19 testing.
We believe that we have confidence and our market share as well as on our positioning to have a formal guidance, even best early on and a year.
And if you take a look at our confident that based on the contracts that we have and the outlook even as deep as Q3 and Q4 that can certainly change after testing landscape changes.
On a conservative basis, we feel confident with the $800 million and revenue.
You break out the $800 million of revenues and for two components on it.
And J F and versus non NGF.
We see the non NGL portion or approximately $730 million of revenue.
And 65 35 split that can certainly change if our market position and the testing environment changes.
And as we got deeper on through the year, but that's what we feel comfortable and on the flip side on the NGL side and.
And based on the progress that we've made.
From a number of different fun and creating reimbursement.
And corporate customers that we have been introduced to through Covid and some of those customers are very well aware of our capabilities and we have executed on contracts, which bolsters, our confidence and being able to hit that $70 million in terms of a grade of about $70 million while.
Play out, we see Q1, and GFS revenue being flat to slightly up but that should accelerate nicely as we get up and our future quarters throughout 2021.
Okay, great. Thanks for that color and maybe just if I can sneak in one quick one on the department of Homeland Security's contract can you give us a little bit more details such as you.
You know how many other parties are within that contract and what proportion of that $2 billion can you get give us a sense as it is at all of that all the testing that you can handle or is there. Some other structure and terms of the volumes you might get from that.
Yeah.
Yeah, I think Steve and it's Brendan.
So again and the department of and on security contract $2 billion over five years, and I D. IQ contract, where one of our four laboratories and better named in that contract. So.
It's gonna have pretty far reaching and the department of Homeland security and multiple departments a lot of employees.
And as essentially driven by the demand for testing. So these are task orders from the government that come in that need testing services and testing kit.
I think with Folgers delivery platform and our reach our turnaround time other labs that are a part of it.
Think we stand out a little bit.
Do have the capacity to take on and a meaningful portion of that I had mentioned and kind of where we are today north of a 100000 per day capacity and.
Between our two labs, and we can continue to grow that so.
It'll be entirely driven by the demand for testing and.
Some of these departments are still back to work full time so to speak.
I think and.
The country begins to reopen and we start thinking about back to work and and back to a sense of normalcy testing and with the department Homeland Security.
We will continue to be a growing area for fulgent and testing in general.
Okay, great. Thank you.
Our next question will come from the line of Kevin and the Gaeta from Oppenheimer maybe.
And again.
Hi, This is Susan calling on for Kevin.
On the first question I actually just wanted to tack on to.
The geographic split between California, and other areas.
Based on our model it looks like the percentage and California increases and one Q.
Is that correct.
On the.
Our percentage of business that we have on our California that should be pretty consistent with what we saw on the fourth quarter. If you take a look at our major customers that.
And that are providing say over a $10 million on revenue and what and the fourth quarter, we have a number of different counties.
That's it.
Driving gross revenue aside from L. A county, San Bernardino County, we have Santa Clara County Long Beach Anaheim.
And several others and you know what.
We see the level of testing and the demand for services being pretty consistent within those customers compared to the fourth quarter.
Great.
One more on related to Covid do you guys have a sense of how large the market is for COVID-19 and characterization.
So the market definitely is there.
And I'll make a few comments and then I'll turn it over to your brands and.
On a and B market.
Is there and a bigger way for their variant beside from the testing on the NGL side, and that's what and you know how the.
Really excited because if you take a look at the Ngls and the contracts that we have signed these are major.
These are major.
Organizations that are in the business of policy and standard setting.
It's a very very competitive bed and these are sizeable contract and day.
Chose a fault and based on our quality capabilities and the value that we have and the value that we have is really unique because.
You know the amount of Covid volume that we do is obvious.
And what is not so obvious and the.
And the capabilities of the company before Covid.
Cause word genetic testing company and that was at the highest and of pest and capabilities for next generation sequencing. We were at a perfect spot to capitalize on some of those opportunities and growth.
Contracts, we believe that these contracts will.
And have very good legs, because it is more predictable and sustainable and less volatile and it's not.
You know tied directly to the demand for testing and we see these contracts.
And something.
That will have the years of growth for the company.
We also compete we are also bidding on.
Several projects with low, whereas the pharmaceutical companies.
We lead and G S test for COVID-19.
So I'll steer them to answer your question right I mean, how does the market luck.
Our debt for testing goes up and down through each one of the ways and we're in a different environment now and.
Because the vaccine distribution, so we fully recognize that and that's the reason why we have confidence and the $800 million.
But.
We're anticipating just the immediate and testing revenues from say like drive thru sites to go down.
And if it doesn't go down then we can certainly change our guidance.
But what we are excited about and our positioning within that testing market. We believe that we're gaining market share and we can clearly see that and.
The other thing that we see.
And the testing area and I think that you won't begin to see that the concentration not only in L. A county, and bought and the state of California being more diversified.
You know we have talked about the state of New York and bought other Big States like Texas and Florida.
We believe that the testing.
<unk> share the testing revenues and those states. They would increase and then if you combine what that.
I need to do work, but the variance and analysis.
First centers around Covid.
But you know it really is about highly infectious diseases.
We believe that we can offer a tremendous amount of value to governmental bodies finally being invited.
Two exits.
Execute on false seek one thing.
And then the other thing that Nick just mentioned and as from a commercial basis, we are being invited more to do full sequencing for a pharmaceutical organization.
And if you take a look at the testing environment, we think that it's a better characterization too.
Court.
You know not just COVID-19 and non program, we think a better way to characterize it would be Ngls.
Also non NGL and then.
The software revenue, which we're very very excited about because if you take a look at the foundation of our company.
And you know our previous a publicly traded company with a software company.
You know, if if we get more and meaningful traction within our software applications and our software sales and.
We certainly look forward to updating the investment community based on that model.
Oh, Thank you for all that color.
If I may sorry that was very good long answer a couple of questions on your core business.
Keybank has.
On a priority listing and mine for the different things that you mentioned for business development and our future.
Yeah. So let me let me take a shot at that and then.
I'll turn it over to Matt about.
And this development. So you know in terms of the Covid landscape. If you take a look at how we considered it a business.
The amount that we invested and COVID-19 from a dollar perspective with very very minimal.
So.
In terms of a priority and we believe or.
We believe I'm on.
Our ability to run our business efficiently and bye.
By our ability to show our capabilities, we can certainly have a very good position and what kind of corporate marketplace.
What we are mark.
Concentrated on is to be on G. S side, and really utilizing our technologies to bring better business discipline value costs and sustainable adoption into the marketplace.
And that includes things like next generation sequencing that will more fully comfortable launch. We are also evaluating other kinds of modalities to address a wider market and I'll turn it over to min who will.
And we'll make comments on business development and investment and certain areas and the future.
Thank you Paul.
So.
I think we talk about a.
A little bit about the COVID-19.
Most of our fourth quarter and the fourth quarter's.
Revenue com or through the drive through tests.
Test.
And as the schools reopening.
And people go back to work.
Total travel.
We will see the revenues will shape the thumb drive thru total.
Turn back to normal situations.
So that's related to the COVID-19 aside.
In terms on Ngls Brendan.
Brendan mentioned about.
War from genomic testing.
And the asthma, new product and we also which is also go towards a war on their channels to offer the St and juice, we should think of the customers.
Who use our products for the Ah patient treatment.
And it makes it the precise prestige.
Precision medicine.
So Brendan your privacy and color there would be more regarding both of our product lines.
No I mean, I think that covers it adequately and.
Move on to the next question.
Thank you.
Our next question on comes from the line of Erin Wright from credit.
<unk> Suisse and maybe.
And then.
Great. Thanks.
Just to clarify and sorry, if you said this already but in terms of the 70 million and NGF testing revenue how much of that is related to COVID-19 testing and birthday.
Yeah.
A minor portion is related to Covid testing some of these contracts are new.
We're very excited about it we think that you know those new contracts.
Certainly have a lot of upside that we have and incorporate it into that $70 million.
Okay. That's helpful and then.
And what is your guidance is seen now in terms of reimbursement for Covid PCR testing I guess, how are you thinking about the sustainability of ESP.
Yeah, Hey, Eric it's Brendan.
And our expectation for Isps to say generally flat.
They are and a sweet spot and we haven't heard.
Vinny.
We expect to changes and that so you know our model would keep asp's pretty flat and then the collection experience there and has been very very good.
Written off hardly any.
Any any any receivables that we have on the balance sheet. So.
And the reimbursement experience.
And has been fast because over half our revenues are to a reimbursement right now and the experience has been very very good and we feel very good what the rate as well as what will encounter in 2020 one yeah.
And it's evolving but and it looks like the NGL COVID-19 is going on.
It's a bit more of a premium in terms of and fees as well. So we'll see how that folds into the mix.
Okay, great and if and when we think about so many partnerships that they exports teens cruise lines are they largely exclusive relationships or have any sort of minimum volume commitments and how are you thinking about the competitive landscape with like antigen testing and training.
Some of them are ear and some are exclusive some are semi exclusive.
Some are multi year somehow minimums and some don't I mean with the number of clients and we have a number.
The volume we're doing you can imagine it's pretty dynamic in terms of what these what these terms look like.
But there's a lot of competition out there, but I do think we stand.
Out of the crowd you know quite a bit I think we have the complete service offering our customers love on and we deliver immediate turnaround time, we make their life easier with our technology platform.
We had the capacity.
And so we're confident and the contracts, we have and will continue to be their preferred partner.
Antigen testing it pops up.
Some of our largest municipalities.
I've tried some of those kits that were given to them by the federal government. They don't use them very much and and it's just the accuracy is not there it's faster.
But I think people want to get the answer right. So.
Feedback we receive from our customers that have sort of run those in parallel.
Continue to see RT PCR is the gold standard, especially when pools you can turn it around you know lessons and 24 hours, depending upon when we get to sample some of our RT PCR results around eight hours and so.
I think that's it.
Pretty powerful tool that we have to continue to offer.
Okay, Great and then it seemed like that.
Oh, sorry go ahead.
Yeah and in.
And as a comment.
I think the people are ignored the importance over the back and so.
And so for tracking system.
If you take a look and revealed Oh.
All accretion and results.
We handle a $4 4 million pets last year.
You can hear the labs, whereas the labs from the largest labs to the news.
Homeowners.
Oh, we've had issues dealing with the customer.
The museum the samples.
Not accurate test.
But the cogent genetics last year.
And it's been a standout amount on club.
Now moving toward the loss of the single sample.
And the way and there were.
And the person with the failures.
So I think because of the low.
And looking forward and the Oh.
Our platform will be continue to expand and.
And that will continue to deliver in this market and the also addressed a new market that we see emerging.
Okay. That's helpful and then in light of like new markets and in what you're contemplating I mean, how should we be thinking about your revenue mix in 2020, two and you think a huge component of it will be non N. G. S testing will it be meaningful in 2020, two or does it just become one and yet casting or.
Is there another started like debt, we don't and yoga, Yeah, Let me, let I'll tee, it up and and all.
Turn it over to me.
I'll comment on.
How how how how the mix might look.
After this year.
Hum.
We believe I mean, the short answer is we believe that will have both.
And he asks as well as non and Jeff.
If you take a look at how we laid out and the guidance that we talked about the 70 million and what that includes and why we're excited about that $70 million.
On the cover.
On the cover testing front.
There are different categories of cover testing and there are the drive thru sites.
And then there are other cats and contra.
We have signed on and that is largely post the vaccine.
Environment. These include.
Things like school and they include travel and leisure they include opening up on corporations.
And so when you take a look at what they want to do in terms of testing that's part of the policy.
And we believe that that has business extension beyond 2021, now to the extent on how much that would be we see what we have signed on and we feel comfortable with the guidance that we have you know, Kevin but theres a potential that you know that that that market.
Might you know still continue to be healthy.
Have more confidence and regardless of how the landscape looks like is our positioning within that market. We believe that we're continuing to capture market share. What then the COVID-19 testing space, even today as vaccines are being administered.
Yes.
So and even karl's comments.
We do believe the COVID-19 tests will be remaining.
And for our businesses and for all four.
For a while.
University of the Hong Kong Research team yesterday published a paper on the Lucent and <unk> and <unk>.
Thanks.
He has identified the even though individual.
And it works next.
And that person will.
And we'll have a capability to transmit the virus. So theres a brings a new challenge put US society is how do we do the prevention even the people.
Being recognized and this person still continue could be the transmitter.
For the.
Infections.
Without even sales.
And the return back to travel.
That's what the airlines airlines the required.
So.
The travelers to be and Penn state with the COVID-19, that's true and we're gonna start.
The people go back to work go.
Go back to school.
Still need to make sure.
There is no infections.
So we do PD.
COVID-19.
The test will be still there and Dave.
And where it really for us to make our predictions we do not at all those things.
And with our guidance the.
The same thing for the Brendan mentioned, the third at D. A chance a contract and when we.
We did not at that one as a part of our estimate.
So.
And as Paul mentioned.
Is that early on.
And the bulk of the year.
We are and <unk> technology.
And and our capabilities not only to address the COVID-19 market, though our.
Capabilities far beyond what we could do for the COVID-19.
And we're working on aggressively.
Florida.
The new R&D day weapon.
Invest heavily and cancer and cancer relief to the diagnostics. So we do believe we.
We have a sustained power and does the market to continue to earn and creating the market shares well protect the.
Our.
The shareholders.
Okay. That's helpful. Thank you.
Thank you Alright, and last question on comes from the line of cell and gene <unk> from BTG.
And again.
Hi, Thanks for taking the questions hopefully a couple of quick ones one on Covid surveillance going forward.
Just a clarification on the department of Homeland Security contract does that entail next gen sequencing solely or is that a combination of both PCR and next gen sequencing and are you seeing and it's great to see interest from local and state governments around surveillance of Covid pandemic, but are you.
Seeing kind of any concerted effort at the at the national level.
In terms of building out infrastructure for.
Not only COVID-19 surveillance, rather pandemic surveillance and down the road on it are you seeing anything internationally in terms of you know potential interest or demand there.
I thought Gee, it's Brendan.
On the homeland security contract and strictly RT PCR so.
And they're looking to screen their employees.
Enable early detection and get people out of the work force keep your rest of the work force healthy minimize the spread I think it's exactly what RT PCR and meant to do and are asymptomatic screening typesetting.
We are seeing national effort around Ngls.
On the CDC has involved HHS is involved.
We're involved at that level.
Ohmic testing again, and the spotlight right now I see monitoring these variant.
And how they're responding to therapies being how they're responding to vaccine or the vaccine is working on these variance and we see some homegrown variance pop up and the United States.
And I also see you know.
We're going to learn a lot about therapeutics and the future.
And I see RT PCR also playing a role is on a bit of a companion diagnostic and you know as as we.
We differentiate between the flu and COVID-19, those symptoms are very similar.
But perhaps those treatments could be vastly different so we do need a definitive diagnosis more so than just dumped on so I think we'll continue to see a push to do more genomic studies and applaud the money that's being set aside and as part of the budget and the CDC and HHS his involvement.
Yes.
Great that's helpful and then right.
And.
And Brendan.
<unk> comments.
I think <unk> and <unk>.
If you pick and look the where we were last year we're on.
And all the involved in the reservoir.
Infection.
These things and protections and everything.
Sales are no worthy the leader in that area not only the COVID-19, all respiratory tract infection disease, we will be and at the market.
Great. That's very helpful. And then just lastly, you know in terms of your international opportunities are investing and international opportunities going forward could you talk about what that could look like without it largely mirror, what you're doing and the U S or are there distinct opportunities outside the U S debt you're considering thank you.
And then do you want to take that last one thank you.
Yeah, I think is on Sunday.
We are looking on the expansions in Europe.
And we are looking expansions in Asia.
So, we'll we'll up to update that you in the coming quarters above and improvements.
Okay. Thank you.
And again and I'm not showing any further questions and the queue I'd like to turn the call back over to the speakers for any closing remarks.
Thanks, so much share looking forward to.
Speaking to investors and then we go ahead.
Good day.
Thank you. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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