Q4 2021 Fulgent Genetics Inc Earnings Call
Please standby.
Good day and welcome to the fourth quarter of 2021, Fulgent Genetics earnings Conference call.
Today's conference is being recorded.
I would like to turn the conference over to Nicole for shot with Investor Relations. Please go ahead.
Great. Thank you good afternoon, and welcome to the Fulgent genetics fourth quarter 2021 financial results conference call on the call today are being shaped Chief Executive Officer, Paul Kim Chief Financial Officer, Dr. Larry Weiss, our Chief Medical Officer, Brendan Murphy, Chief Commercial Officer Company's press release discussing its financial results.
It's available in the Investor Relations section of the company's website Ultra genetics Dot com 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.
That management's 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 listeners should not rely on any forward looking statements as predictions of future events.
Management's remarks today with the understanding that actual events.
The company's actual future results may be materially materially different in 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 in these forward looking statements contained in the company's filings with the Securities and Exchange Commission, including.
The previously filed 10-K for the year ended December 31, 2021, 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 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 of 2021 for more information, including.
The description of how the company calculates non-GAAP income and earnings per share and a reconciliation of these financial measures to income and income per share.
Most directly comparable GAAP financial measures with that I'd now like to turn the call over to me.
Thank you very much Nicole good afternoon.
And thank you for joining our call today.
Our fourth quarter 2021 results.
For the year.
Very strong note.
Continued growth in <unk>.
Core revenue.
Extra region, our call Covid.
<unk> revenue.
I will cover some of the highlights from the year in the fourth quarter before turning the call to our Chief commercial officer, Brendan proteins to discuss product.
Ongoing.
Update.
And Paul will discuss our financial results and the outlook in <unk>.
Take a look at it.
Our fourth quarter results, which exceeded our guidance in both core and cope with the revenue.
Revenue totaled 252 million compared with 295.
The fourth quarter last year.
Up 10% compared to third quarter in 2021.
We delivered approximately $2 5 million tests.
Quarter.
13% compared to third quarter 2021.
And threw down.
Though down from $3 2 million in the fourth quarter last year.
Paul will cover.
The breakout between our core and the core business in more detail in a moment.
But on the highlight our core business grew 234% year over year to $41 million.
Strength in our core business was driven by the momentum.
Across the key areas, including CSI, our JV in China, and the contribution from our NGL co with contract with the CDC.
We continue to drive strong profitability in January three.
$8 34 per share and GAAP EPS.
And the $77 1 million in operating cash flow in the quarter.
The first quarter.
For the year with a tremendous growth for forging.
We finished the year with just shy of $1 billion in revenue.
135% year over year in the January of about $16.
<unk> per share in GAAP EPS.
And the $538 6 billion.
I'll put it in cash flow.
2021 was truly a tremendous transplant.
<unk> for the our business well.
We'll always being cheap generic business.
At our core we're now.
Worldwide, the possibly of opportunity to grow and expand our business into new and exciting area of genomics.
Larry with your large cash position, we have built over the last two years.
We remain active in our COVID-19 test businesses as market demand.
Demand decreased.
But our long term vision for the company have never been more exciting with opportunities wherever you editing and executing on the broader genomic testing market.
The acquisition of CSI.
<unk> first significant.
Acquisition has it become a bright spot for our business.
We'll still have a very early stage over the integrating the scaling the operation and the capabilities of our CSI, but the world.
Good about the.
Early progress, we had seen and the opportunity for the future.
Our investment in.
<unk> Health has also been good progress with the official launch of the Helio rework, which is now commercially available in the U S exclusive through Cogent genetics.
We are we're very early in our partnership with <unk> health.
<unk> is the only at the beginning we have additional would be welcome in the commercial.
Commercialization opportunities for the other diseases with helio in the future.
We also announced the exciting.
Strategic investment and partnership with spatial genomics today.
We believe <unk> is taking a novel and Union work.
Our approach to seek fish technology, and we look for to add in there.
Key to our private loan to further expand our portfolio over the number of testing solutions.
Brendan will you ever be led to believe on the progress of this initiative.
<unk>.
As we look ahead.
We mainly focus on two areas.
To drive growth. So first is integrating and scaling our existing partnership with acquisitions and the second part.
Pursuing additional M&A opportunities.
We have a significant amount of dry powder at our disposal and plan to broaden and the more aggressive on future acquisitions and partnership initiatives.
As we look at the acquisition, we remain disciplined in our approach and are seeking generate tangible ROI and drive real synergies.
While being efficient with capital deployment.
We have been very successful in executing our M&A strategy this year.
Our acquisition of CSI and the inland from the Hulu and the spatial genomics feed the world with our M&A philosophy.
We're very proud of the whether we competition in 2021, our strategy two <unk>.
Spend on.
Our core business.
Oh nicely.
The excess.
Our authorizations Oh.
So from the well.
There is meaningful opportunity to expand into different areas in genomic testing and to build a partnership that established our war.
Go to one stop shop for genomic testing needs for the future strategy strategic move.
Throughout the Covid pandemic.
We have proven our.
Ability to scale, our operation and infrastructure will support our customer through periods of fluctuating demand. We are ideally suited to replicate this model in our core genomic testing business we.
We are where we were really just getting started on this long term opportunity in the Polish market.
Genomic testing the future is bright.
<unk>.
We have a great team in place.
And to have a moment in our side as well.
We head into 2022 and the P M.
Now I'll turn it over to Brendan <unk>, our Chief commercial Officer Brendan.
Thanks, Ming our fourth quarter brought yet another unexpected COVID-19 surge and perhaps more so than previous surges stress tested our system technology and operation.
These massive swings in testing demand presents significant operational challenges. However, we have proven we can be nimble enough to adapt in real time, while it is an incredibly difficult to predict where COVID-19 goes from here, we can say clients all over the United States No entrust project will be here to help.
While the pandemic has challenged us all in many ways. It has been an opportunity portfolio and to step up and forge deep strong relationships with many organizations across the U S.
We hope to build on these relationships with additional partnership opportunities in the future.
In addition to these commercial relationship we have increased brand recognition and awareness of our consumer initiated platform pitcher.
Hundreds of thousands of patients and consumers who had used the platform for COVID-19 testing.
Starting with an update on our helio liver liquid biopsy tests for <unk> cellular carcinoma helio.
Give me your liver is a multi analyte blood test that utilizes both cell free DNA methylation pattern and protein tumor markers to detect early stage HCC with high accuracy.
Helio liver has the potential to reduce morbidity and mortality and HCC patients as there are more curative treatment option. When the cancer is found at early stage.
A highly sensitive blood test can drive patient adherence to surveilling surveillance program and provides a more convenient and cost effective way to detect ACC.
We were excited to launch the test clinically in the fourth quarter, we first announced our investment in heel you'll help in April in just eight months later, we were able to complete the technology transfer the CLIA validation and commercial launch.
Also during the quarter for getting Helio health presented data at the liver meeting in a late breaking presentation.
Data presented showed helio liver to have a sensitivity of 76% in early stage, HCC and 85% and overall HCC demonstrating superior performance over Alpha-fetoprotein alone and the Gal AD model.
It also showed significantly better sensitivity than ultrasound, which is considered standard of care today.
Published data suggest ultrasound has an early stage sensitivity of around 47% much lower than the 76% we presented.
As part of the launch we needed to hire specialized sales team since the call points are new or a new market to <unk>.
While helio liver is in oncology test is ordered upstream of the oncologist by Herpetologist and Gastroenterologists. We now have this foundational sales team and regional managers regional managers in place.
The data presented thus far has been part of our encore clinical trial, which was a case control study however.
However, we are making significant progress with our climb study, which is a prospective clinical trial, comparing helio liver ultrasound real world prospective study.
The size of this study is 1500 patients of which 1100 have been enrolled we aim to complete patient recruitment in the third quarter of this year.
We are excited to bring this novel test the market and changing the way HCC is diagnosed and monitored we will continue to update the investment community as we make progress with healy of liver.
Turning now to progress with CSI during the fourth quarter, we continued to focus on expansion of the sales team to support company growth goals.
Three new sales representatives were hired to focus on hospital pathologists based sales and their Onboarding was successfully completed.
Additional positions are expected to be filled in the first quarter with hires with extensive experience in hospital based sales.
With the projected opening of our new oncology based lab El Monte, California in the second quarter, we will further expand our sales team with the addition of a sales leader and additional sales representatives.
This team will focus on oncologists based sale in the western markets initially with the potential to expand into new market as a laboratory ramped up.
Adding new sales representatives, coupled with the expansion of in network contracting has opened up 15 states that legacy CSI did not have a sales presence in.
All legacy and new sales team members are operating on our existing CRM platform for tracking and logging of contact and opportunities in our sales pipeline.
<unk> is also continuing to focus on turnaround time across all testing methodologies turnaround time is an important measure of performance and our turnaround time has remained constant or even improved in some areas throughout the pandemic.
We continue to see competitor laboratories, with worsening turnaround time, which is causing frustration for their existing customers and opening new opportunities for CSI to gain market share that we hope to capitalize on in 2022.
We announced today, an equity investment and strategic partnership with spatial genomics.
Spatial genomics sequential fluorescence in situ hybridization seek fish is a revolutionary technology that emerges imaging with molecular barcoding seekers can decode complex molecular identities and location directly within single cell and intact tissue micro environment.
Big fish enable highly multiplexed single cell analysis of RNA, DNA and proteins beyond the capabilities of other types of spatial analysis.
Big fish determined cell types state and relationships by detecting and identifying dozens to tens of thousands of bio molecule, while preserving intact single cell and spatial tissue organization seek.
<unk> allows researchers to identify novel cell type, Matt genomic organization and nuclear architecture and analyzed cell trajectories.
Seek fish enabled combined approaches for direct multi omics analysis using RNA seek this per transfer transcript telmex DNA seek bids for genomic organization and nuclear architecture and sequential immuno fluorescence for proteomics.
This technology can be used include neuroscience developmental biology oncology and immunology. We are very excited about this brand new area for <unk> and we look forward to layering on our expertise with clinical genomics to deliver what we believe to be a transformational product for our company.
Switching to COVID-19 for most of the fourth quarter, we saw cases trending down as we recovered from the Delta wave. However in early December the United States was hit hard by the Omicron variant that's highly infectious variant drove tremendous demand for testing at a pace, we hadn't seen before.
On December 1st the seven day average for cases in the U S was approximately 85000 and by the end of December It rose to nearly 400000.
For the fourth quarter, we performed approximately $2 3 million COVID-19 test of which approximately 924000 were in the month of December .
While most of the demand with the symptomatic Tufting. We also saw our screening program increase the percentages of employees and students being tested.
In the midst of this demand Spike we also rolled out a program with La County, offering our picture kit directly to consumers at no cost to them.
By the end of December this unprecedented demand for COVID-19 testing challenged our capacity for the first time since the beginning of the pandemic.
Specifically with a pitcher test kit.
We were forced to pause ordering for picture test kits for a couple of weeks, but we were quickly able to ramp up production and fulfillment.
Get back on track this capacity issue wasn't due to lab staffing shortages and didn't impact our commercial testing business. This was really a function of not being able to ship kits fast enough as we were receiving the orders.
We are optimistic that the meaningful role picture has played in COVID-19 testing and a large user base, we have and that will lead to opportunities in the future as we transition to focusing on delivering genetic testing through pitcher.
Finally on the NGL side, it was a robust quarter for NGL COVID-19 testing with the positivity rate being driven higher by the omicron variant.
<unk> continues to be one of the top sequencing producers for the Cdc's genomics surveillance program and we appreciate the opportunity to contribute to these important study.
As Ming mentioned, we plan to be aggressive with M&A to expand our business and reach new markets and technology.
While we are very excited about our investment in CSI Helio health and spatial genomics.
We're just getting started.
It's safe to say that the intense omicron weight of the fourth quarter forced us to focus on our COVID-19 business more than M&A. However, it also provided us with additional capital to fuel our M&A strategy going forward.
Over the course of 2022, we intend to diligently assess asset and deploy capital in areas that will fuel growth for <unk>.
Armed with technology scale, multiple large addressable market capital and a team from top to bottom dedicated to growing our business. We believe the <unk> story is just getting started.
I'll now turn the call over to our Chief Financial Officer, Paul counts. Thanks, Brandon revenue in the fourth quarter totaled $252 million compared with $295 million in the fourth quarter of 2020.
While exceeding our guidance of approximately 189 million billable tests in the quarter totaled $2 5 million compared to $3 2 million in Q4 of last year.
The decline was due to Covid testing dynamics are still in the fourth quarter as Brendan mentioned.
Testing search results.
The variance charges.
Yes.
As in spikes in Covid testing will continue to be unpredictable in the future and we remain.
Peter in the market with customers, who value our accuracy turnaround times and hands on service.
Looking down the revenue a bit further of roughly 212 million came from cover PCR testing, which exceeded our expectations for revenue from our corn business totaled $40 1 million.
We exceeded our guidance of $32 million and grew 234% year over year.
Just as a reminder, our core revenue includes our Ngls business contribution from our Chinese JV contributions.
It also.
From our CDC covered NGF test agreement, which was again elevated due to increasing program productivity rates.
Across various outbreak.
Going forward, we plan to get core revenue guidance, which exclude NTS COVID-19 testing from the CDC. If we exclude the impact of the revenue from the CDC in the quarter. Our Q4 core revenue totaled $28 2 million, an increase of 134% year over year compared to Q4 of 2020.
As the demand for Covid testing remains volatile and unpredictable we continue to take a conservative stance unexpected revenue from Covid testing.
Main focus on executing on our cost covered growth opportunities, which include expanding the reach of CSI capabilities executing on additional investment and partnership opportunities such as spatial genomics, which Brandon discussed.
With helio on our joint commercialization opportunities in the growing footprint of our China operations.
Our ASP in the fourth quarter was $103 slightly lower than the $105.
Quarter.
<unk> remained relatively stable past few quarters, fluctuating higher and lower as Covid testing absence spikes.
Cost per test for the quarter was $25 slightly higher than the third quarter due to shoring up reserves and the write off of some excess inventory at year end.
Gross margins were $75 three.
Sure.
110 basis points.
Year over year, and 560 basis points sequentially.
Now turning to operating expenses.
Total GAAP operating expenses were $38 7 million in the fourth quarter up from $25 1 million in the third quarter non-GAAP operating expenses totaled $34 million up from $20 9 million last quarter, our operating expenses increased primarily due to ongoing investments in our strategic head count across our organization.
Station fees and services associated with our heightened M&A activity.
Showing up reserve at year end.
Our non-GAAP operating margin decreased 10 percentage points from the third quarter of $2 62, 3%.
On structure remains very lean.
Willing us to drive significant profitability from revenue outperformance.
Being said our investments in people and business integration impacted our margin in the fourth quarter. Ultimately we believe these investments will drive outsized future growth in our core business.
Main pleased with strength and operating leverage were able to demonstrate even through M&A.
Adjusted EBITDA for the fourth quarter was $159 8 million compared to $230 million in the fourth quarter of 2020.
On a non-GAAP basis, and excluding equity based compensation expense and intangible asset amortization income for the quarter was $108 $70 million or $3 48.
Our diluted share based on $31 2 million weighted average shares.
Turning to the balance sheet, we ended the fourth quarter with $935 5 million of cash and cash equivalent to marketable securities. We generated 77 1 million of cash from operations during the quarter further adding to our cash balance.
This year, we have invested more than $81 9 million in partnerships and strategic investments to expand our core genomic testing business.
Adding these investments.
At the year, achieving our goal of reaching $1 billion in cash and cash equivalents.
Now moving onto our outlook for 2022.
Starting with the covered revenue as we discussed covered revenue continues to be volatile due to many factors outside our control.
We saw unprecedented demand for testing and the beginning of the first quarter as over Kroger and spread however, we're expecting the testing to return to more normalized levels as a search subsides.
We expect covered revenues for the full year to be at least $480 million with more than 45% of their revenue expected in Q1 going forward. Our total covered revenues will include revenues from both RT PCR testing as well as Ngls Covid testing, which is conducted primarily through our <unk>.
The relationship we recognize that and you kind of a testing has similar volatility as PCR testing that in creating these past within our current revenues kept a better indication of the true performance of our core non COVID-19 business.
While demand for Covid testing will remain hard to predict when we do believe we'll see a modest floor for testing demand for the foreseeable future as COVID-19, because more of it endemic in regular testing programs remain in place lending.
Moving onto our core revenue guidance, which now includes revenues from NGL testing CSI, China, JV and Helio, we expect our core revenues will total approximately $120 million for 2022, representing a growth of 28% year over year on an apples to apples basis excluding.
Yes.
With $480 million and covered revenues and with the $120 million and core revenue. We expect the total revenue will be approximately 600 million for the year. We expect there will be continued volatility with Cowen testing and remain focused on executing our strategy to drive momentum in our core business.
From a profitability standpoint, we remain focused on investing in our business to drive sustainable long term growth.
As we integrated acquisitions and ramp our new initiatives, we will see some fluctuations in our margins.
Okay.
That being said our foundational technology platform supports a strong margin profile and we will continue to manage our spending with discretion to drive operating leverage in the long term as we have done in the past.
For full year 2022, utilizing a 27% effective tax rate and a share count of $32 9 million, we expect non-GAAP income of approximately $230 million or $7 per share for our shareholders excluding stock based compensation.
For the first quarter of 2022, specifically, we expect total revenues of $245 million, that's breaks down in the core revenues of $22 million, excluding covered test volumes, representing a growth of 39% year over year on an apples to apples basis, excluding covered NGL.
<unk> testing.
And we expect approximately $223 million impairment testing, which included approximately $10 million in revenue contribution from covenant testing from the CEC.
While we are forecasting a year over year decline in Q1, our revenues. This is due to the dramatic drop off we're expecting kind of a testing demand.
Our updated guidance is posted in the slides on our Investor Relations website, which shows a detailed breakout I just discussed we're pleased with our ability to execute on our strategic initiatives.
Sure to drive growth in our core business, while capitalizing on cash generated from Covid testing, we're well positioned on.
Momentum.
Well into 2022 and beyond operator, you can open it up for questions.
Ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad. Please ensure that the mute function of your telephone is switched off to allow your signal to reach our equipment again. Please press star one to ask a question.
And our first question today comes from Kevin <unk> of Oppenheimer.
Hey, guys congratulations on the quarter, maybe just a question.
2022 core guidance.
I think if I adjust for Q, it's kind of a 28.2 excluding.
The CDC or Youre kind of guiding the 120 for the full year I think youre off that 2008 or two we might have expected a more aggressive guide so just kind of walk us through.
Sequentially kind of what else might've been in floor care that we should be thinking about that's impacting.
Does that base core run rate going into.
2022.
Sure.
So.
First and foremost.
We did experience Omnicom health care in the U S as well as internationally.
<unk> is still out there and until we're falling back to.
Business from the scenario.
We believe that it's more prudent to be conservative.
Giving this guidance and the other point that I'll make is this is just the first.
<unk> that we're getting given the fact that it's February and as we get additional comfort behind.
The current environment is going to look combined with getting additional comfort.
Behind the synergistic aspect of some of the acquisitions that we made.
We believe that the $120 million conservative guidance is the right way to approach it.
At this point in time.
Have been known to beat estimates in the past and that certainly is in the cards in the quarters to come.
And then.
The spatial genomics our equity investment is very attractive and interesting can you just kind of maybe just walk us through really two things kind of how that product makes it into the specifically from a commercial testing perspective to fall again portfolio in the future and at least your own assessment as to.
<unk>.
Timeline as to when that technology.
Might be viable from a commercial perspective and apologize.
Hey, Kevin It's Brandon I'll Tee, it up and turn it over Doctor Weiss here, but.
Our biopharma business has become a meaningful portion of our revenue and more importantly, a meaningful focus for us.
We think the.
Special genomics technology is going to further open up opportunities for us in that market.
When will be commercially available for Biopharma, we think sometime in 2022, maybe on the back end of 2022.
Clinical applications are probably a bit further out.
But we do see it becoming available to market to our biopharma clients sometime in 2022.
We're incredibly excited about the investment we do believe it's a new frontier in molecular biology.
We invested in spatial genomics based on their technology incredibly impressed with your technology.
<unk> resolution now their ability to have much higher multiplexing, the multi ohmic facet of the technology.
So it is going to be an exciting area for fulgent.
A lot of applications in the future Larry.
Well as you know next generation sequencing is dominated at least the last five years of genomic testing. We think the next generation. The next wave of interest is going to be within the area of <unk>.
Our spatial genomics.
With this technology it identifies as Brandon said dozens of tens of thousands of biomarker molecules, while preserving the architecture. So you can do this with single cells and in tissues, and what Biomarkers that you're looking at RNA for tranche transcriptome DNA for looking at mutations and.
<unk> of the genome as well as immunofluorescence for proteomics. So its really the complete package, it's almost a holy Grail.
We are just as excited for next generation sequencing five to 10 years ago.
I think it will be a very powerful tool for drug discovery for pharma as for clinical applications.
It remains to be proved but these always will follow the discovery that goes on in pharma and I have no doubt that there will be clinical applications, if not in the next year or so at some point.
So Kevin I think you probably know my background.
As the Intrapreneur I'll be sitting on the board with the speedboats.
Spatial genomics work hand in hand, with the team and try to bring this product to the market. So we're already excited that was this the opportunity and.
The proposal is quite long.
Still working either call tech wishes to the field.
<unk> minutes away from our headquarters.
We are very excited with this opportunity and look even worse much forward to bring this innovation and the products to the market.
Okay.
Thanks for taking my questions.
Thanks, Kevin.
The next question comes from sung <unk> Nam of BTG.
Hi, Thanks for taking the question Paul.
Paul could you break out I know you broke it out for the fourth quarter could you break out what the Covid NGF testing like for the full year 2021.
Sure the covenant testing for the full year was approximately $30 million. So if you take out the covered Mds testing for the entirety of the year.
<unk>.
<unk>.
Revenues for the core ex that amount was approximately $93 million.
In the initial guidance that we're giving for 2022 was $120 million.
Great. That's super helpful. And then for Helio liver I'm, obviously very exciting there with the launch and then also the ongoing prospective trial Cline would you be kind of able to talk about what the commercial strategy.
Launched that's an L. D T and then what the timeline might be for I know you talked about enrollment being completed by the third quarter, but when this might you know.
The data might be available from the prospective trial and also your thoughts you know.
And behind them, how to let you know whether this will be an IBD product down the road or if you could talk about that.
Yes, or at least the Brandon So we brought the product to market as an ODT most genomic test or <unk>. So we started with the value long term and taking the productivity FDA path, but that doesn't prevent us from going to market and as an OTT. So I think we've executed at a high level regarding our go to market strategy.
We believe hepatic cellular carcinoma is an area that is underserved.
The fact that ultrasound diagnosis of Palo cellular carcinoma. So few times early stage is just an unacceptable tool for monitoring this disease. We know the survivability of ACC is much much higher in stage, one and stage two.
However, it's just not diagnosed frequently another stage one stage two.
Ultrasounds arent sensitive enough, we know that there's a lot of variability amongst ultrasound. So we've created a much better tool for clinicians to monitor and diagnose ACC.
Like any test that.
That's changing the way medicine is practiced.
It's a marathon.
But the feedback we've received from our key opinion leaders are early adopters has been fantastic.
Blood draw that is marketed markedly better than the current standard of care has been a powerful message for our sales team to take the market. So we still have a lot of work to do ahead of us make no mistake about it as we.
Our CPT code to be published here in the near future as we expected as we expect to wrap up our client study.
But I think we're exactly where we want to be as I mentioned earlier the call point for this is herpetologist. So we had to go out and build out specialized sales team, but we were able to recruit some amazing talent.
And we can we will continue to build that team over time.
So I think you'd be alere is going to be an important test reporting going forward and we really look forward to improving patient outcomes in the future one additional point.
Is that the ultrasound may not have the best compliance, but a simple blood draw.
We expect to have better compliance.
Gotcha Super helpful. And then just on the spatial genomics.
Side.
Does that technology have its own proprietary instrument or instrument.
Some of that yes. It does has.
Oney instrument so.
We will be from.
<unk> genomics, they too will reduce the release of its products.
In this year.
Forging genetics will be hot.
<unk> through to our clinical related to space.
Got it.
I might be able to squeeze one more question.
The antibody testing that you guys launched a it sounds obviously very interesting with curious how that's tracking whether there is.
There is demand for that.
Thanks, Rajeev, it's Brandon we do see demand.
I think.
It's not yet to be fully implemented like we believe it should be obviously testing is incredibly important it has been since day, one, but I think we're getting to a point, where we need to think about what is in <unk> state of this virus look like and we believe monitoring your antibody levels is going to be an important aspect whether.
That through acquired immunity from infection or from vaccines.
We believe antibody testing can help guide people when they should get boosters.
Globally speaking, we haven't seen the adoption, yet, but perhaps to come as we learn more about these buyers and the best way to fight it going forward.
Great. Thank you so much.
Thank you.
And we can go to David Westenburg of Piper Sandler.
Hi.
Thank you for the question and congrats on the numbers.
As we're.
Dealing with the tail end of the omni omicron vary and can you talk about maybe some of the exits youre seeing from competitors that are refocusing on their existing business and whether there is an opportunity to capture market share from some of them.
Okay.
Yeah, I can take that one thanks for the question Paul They never stopped focusing on their existing business. So to the extent other companies have to refocus on it.
Too bad for them I suppose.
We've continued to focus on our base business our base business has been healthy throughout the pandemic and we were able to respond in a big way to the pandemic without losing that focus as I mentioned earlier.
On the oncology side, we have heard from the field competitor labs, not performing as well as they should.
The area of turnaround time for example, so we do believe there is a window of opportunity for <unk> to execute on the commercial side to gain market share from some of our competitors.
So we'll see how quickly they are able to I guess as you mentioned kind of pivot back to the focus.
But we are certainly being aggressive on the commercial front as you've seen with our hires we're hoping those higher coupled with this window of opportunity will allow us to gain further market share I think backing what Brandon.
David If you take a look at.
Our business ex covered even if you strip out Ngls.
<unk> grown our base business throughout this whole pandemic, but I think from a strategic standpoint.
That focus has never stop actually probably accelerated for the additional capital that we have been able to garner through the COVID-19 experience. So a number of things that we have.
The ounce last year CSI being one of them.
We have almost completed the integration and now we're at the synergistic stage really capitalizing on incorporating that asset so from a strategic focus basis, it's always been.
Stay throughout the covenant violent that.
<unk>.
Focus on.
Expanding our core capabilities, if you take a look at where we sit right now from a capital structure standpoint, so on top of the cash balance that we have we are guiding the year initially at $600 million. So that will produce additional capital on our balance sheet and what we have noticed is on the streets.
<unk> side, we have a number of different projects that are happening right now, but the valuations are becoming closer aligned to real business prospects rather than.
Some of these long dated assets with colorful stories.
The other thing is we have shown to the street, our ability to execute with precision and efficiency of scaling up a business from $30 million.
Pre cover to close to $1 billion within two years now with the M&A journey, we are ready to.
Capitalized and get more active on that front.
And we are looking forward to showing the street.
We do have.
Just as much ability to integrate assets and show synergies not just from the expense side from the but from the revenue side as well all leading to our reach into wider in bigger markets.
Yeah, adding.
Policy.
So the answer.
David was probably reveal what we did in 2021.
In April last year, we announced the.
Our contracts.
For CVC $43 million of contracts was it.
Two phases. Please one of phase two.
Not only we executed a contract with Davita with solid revenue.
Last year.
So the CDC made.
We made the visit or a competitive bid we compete with the old institution top and institutions nonprofit organizations hospitals.
The genetic testing company.
One that the company competition.
Not only we wonder the completion we delivered.
Our results.
So with our own technology, we designed this multiplex.
PCR tool.
With the CPUC to detect.
Dynamics, where regions is to become successful.
Successful projects now we reached the end, but by March that the contract will be re compete again.
We will be a compete in that space again.
Got it.
The results, we'll update the street, whether it's the upcoming year in 2022, what is that revenue will be for.
For the Ngls services. So we're we're a bunch of looking forward.
<unk> continually bringing the innovation to this space.
As we walk into the poser.
Pandemic World.
With our new entry into the spatial genomics.
Much and looking forward of bringing the new challenges and the new solutions to the market.
So we're excited for the opportunity.
I appreciate all the color.
So maybe I'll just ask one more.
And I'm.
Sorry, if I missed this.
But I do think that needs a little bit more attention if I did miss it and thats on the on the gross margin.
It was down it looks like close to 600 basis points from Q3 to Q4. Despite the fact that revenue was up and even if we look at like the low point of Q2, you're still off from there and you might have given a little bit of commentary, but if you can give us maybe a more complete bridge or.
A lengthier kind of bridge on why that.
Why does it step down.
In my opinion at least optically a pretty big thank you.
Yeah. So.
Gross margins.
Throughout the course of last year, it was almost like a software company.
80%.
I think the focus of our company throughout the Covid experience was too.
Make sure that our customers are satisfied as much as possible.
Given the fact that <unk>.
Given the fact that utilizing our technology and our operational platform matter, what's pretty clear that.
Our margins, whether it be gross or operating would be at a pretty high level. So as they kind of shore that up.
Towards the end of the year there were some reserves and some write offs that we had a tech went down our inventory balances that impact of that going forward since you're asking questions about the gross margins.
We anticipate that the gross margins will eventually.
Normalized and it will get.
Little bit closer to what the gross margins are for our traditional genetic testing business. So as we get into.
Each of the quarters in 2022, that's the current.
The situation continues to dissipate, we anticipate that the gross margins.
At slightly lower in each one of those quarters.
The other thing is.
We continue to invest in our operations as we have a larger scale company, which is also impacting the gross margin somewhat.
I.
Great. Thank you very much.
And there are no further questions that now concludes the fourth quarter of 2021, Fulgent Genetics earnings Conference call. We thank you for your participation you may notice.
[music].