Q4 2025 Fulgent Genetics Inc Earnings Call

February 27, 2026

Speaker #1: Greetings. Welcome to Fulgent Genetics, fourth quarter 2025 conference call and webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

Speaker #1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Lauren Sloane, Investor Relations.

Speaker #1: Thank you. You may begin.

Speaker #2: Good morning and welcome to the Fulgent fourth quarter and fiscal year 2025 financial results conference call. On the call are Ming Hsieh, Chief Executive Officer; Paul Kim, Chief Financial Officer; and Brandon Perthuis, Chief Commercial Officer.

Lauren Sloane: Good morning, welcome to the Fulgent Q4 and fiscal year 2025 Financial Results Conference Call. On the call are Ming Hsieh, Chief Executive Officer; Paul Kim, Chief Financial Officer; and Brandon Perthuis, Chief Commercial Officer. The company's press release discussing the financial results is available on the investor relations section of the company's website, ir.fulgentgenetics.com. A replay of this call will be available shortly after the call concludes on the investor relations section of the company's website. Management's prepared remarks and answers to your questions on today's call will contain forward-looking statements. These forward-looking statements represent management's estimates based on current views, expectations, 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.

Speaker #2: The company's press release discussing the financial results is available on the Investor Relations section of the company's website, ir.fulgentgenetics.com. A replay of this call will be available shortly after the call concludes on the Investor Relations section of the company's website.

Speaker #2: Management's prepared remarks and answers to your questions on today's call will contain forward-looking statements. These forward-looking statements represent management's estimates based on current views, expectations, and assumptions, which may prove to be incorrect.

Speaker #2: 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.

Speaker #2: The company assumes no obligation to update any of the forward-looking statements it makes today to reflect actual results or changes in expectations. Listeners should not rely on any forward-looking statements as predictions of future events and should listen to management's remarks today with the understanding that actual events included in the company's actual future results may be materially different from what is described in or implied by these forward-looking statements.

Lauren Sloane: The company assumes no obligation to update any of the forward-looking statements it makes today to reflect actual results or changes in expectations. Listeners should not rely on any forward-looking statements as predictions of future events and should listen to management's remarks today with the understanding that actual events included in the company's actual future results may be materially different than 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 the 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 31 December 2024, and subsequently filed reports, which are available on the company's investor relations website.

Speaker #2: 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 the 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, 2024, and subsequently filed reports, which are available on the company's Investor Relations website.

Speaker #2: Management's prepared remarks including discussions of profit, loss, margin, earnings, and earnings per share contain financial measures not prepared in accordance with accounting principles generally accepted in the United States or GAAP.

Lauren Sloane: Management's prepared remarks, including discussions of profit, loss, margin, 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 these measures should not be viewed as a substitute for or superior to the company's financial results prepared in accordance with GAAP.

Speaker #2: Management has presented these non-GAAP financial measures because it believes they may be useful to investors for various reasons, and that these measures should not be viewed as a substitute for or superior to the company's financial results prepared in accordance with GAAP.

Speaker #2: Please see the company's press release discussing its financial results for the fourth quarter 2025 for more information, including the description of how the company calculates non-GAAP income and loss, non-GAAP earnings and loss per share, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating profit and loss, and margin and adjusted EBITDA, and a reconciliation of these financial measures to income and loss, earnings and loss per share, and operating margin.

Lauren Sloane: Please see the company's press release discussing its financial results for Q4 2025 for more information, including the description of how the company calculates non-GAAP income and loss, non-GAAP earnings and loss per share, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating profit and loss and margin, and adjusted EBITDA, and a reconciliation of these financial measures to income and loss, earnings and loss per share, and operating margin, the most directly comparable GAAP financial measures. The company does not provide reconciliations of forward-looking non-GAAP measures to the most directly comparable GAAP measures, because the information necessary to calculate such reconciliations is unavailable on a forward-looking basis without unreasonable effort. With that, I'd now like to turn the call over to Ming. Please go ahead.

Speaker #2: The most directly comparable GAAP financial measures. The company does not provide reconciliations of forward-looking non-GAAP measures to the most directly comparable GAAP measures because the information necessary to calculate such reconciliations is unavailable on a forward-looking basis without unreasonable effort.

Speaker #2: With that, I'd now like to turn the call over to Ming. Please go ahead.

Speaker #3: Thank you, Lauren. I'm pleased with the progress we have made this year. As we execute our strategic objectives, in both our laboratory services and the therapeutic development business, in 2025, the laboratory services business sustained momentum.

Ming Hsieh: Thank you, Lauren Sloane. I'm pleased with the progress we have made this year as we execute our strategic objectives in both our laboratory services and the therapeutic development business. In 2025, the laboratory services business sustained the momentum as we delivered growth and executed our strategic and product innovation roadmap. We have implemented the best-in-class technology across our platform and the investment we have made in digital pathology and AI are paying off. We are seeing the advantage of moving to digital and using AI-enabled workflow with increased quality, turnaround time, and throughput. We have launched our own proprietary imaging management system, Eziopath, which integrates the best-in-class AI tools developed in-house, giving us even greater control in the technology services. We also excelled our product innovation in 2025 with the launch of RNA-integrated whole genome sequencing and ultra-rapid whole genome sequencing.

Speaker #3: As we delivered growth and executed our strategic and product innovation roadmap, we have implemented the best-in-class technology across our platform and have the investment we have made in digital pathology and AI are paying off.

Speaker #3: We are seeing the advantage of moving to digital and using AI-enabled workflow with increased quality turnaround time and throughput. We have launched our own proprietary imaging management system, EasioPlus, which integrates the best-in-class AI tools developed in-house giving us even greater control and technology services.

Speaker #3: We also accelerated our product innovation in 2025 with the launch of RNA-integrated whole genome sequencing and ultra-rapid whole genome sequencing. The investment in AI and digital pathology solutions coupled with our innovations across our laboratory service platform will deliver the revenue and margin improvement in 2025.

Ming Hsieh: The investment in AI and digital pathology solutions, coupled with our innovations across our laboratory service platform, we delivered the revenue and the margin improvement in 2025. We see the first half of 2026 in a transition period as our business adjusts to the impact from our largest customer moving significant volume in-house. We believe our technology platform will continue to get stronger, and the strategic investment and the innovations we have made will continue to work at an accelerated pace, offering new and expanded opportunity for growth and improve the operating leverage in future. We also accelerated the progress of our therapeutic development pipeline in 2025, and expect continued progress this year. Starting with our first clinical candidate, FID-007, advanced through the phase 2 with 46 patients enrolled.

Speaker #3: We see the first half of 2026 in a transition period, as our business adjusts to the impact from our largest customer moving significant volume in-house.

Speaker #3: We believe our technology platform will continue to get stronger and strategic investment and innovations we have made will continue to work at an accelerated pace.

Speaker #3: Offering new and expanded opportunity for growth and improved operating leverage in the future. We also accelerate the progress of our therapeutic development pipeline in 2025 and expect continued progress this year.

Speaker #3: Starting with our first clinical candidate, FID07, advanced through the phase two with 46 patients enrolled. The trial enrollment closed on time on December 29, 2025.

Ming Hsieh: The trial enrollment closed on time on 29 December 2025. We are encouraged by the early efficacy and safety data. FID-007, combined with cetuximab, demonstrates a meaningful anticancer efficacy and a favorable tolerable profile at both dose levels for the second-line treatment of recurrent metastatic head and neck squamous cell carcinoma. phase three protocol development is long ongoing, with the trial initiation planned as early as the first half of 2027. This year, we are planning to submit a new request to FDA in Q2 2026, and hope to have a phase two meeting with FDA in Q3 2026. We anticipate presenting our interim findings at the ASCO in June 2026, and expect a full data readout by the second half of 2027.

Speaker #3: We are encouraged by the early efficacy and safety data. FID07 combined with cytosine demonstrated meaningful anti-cancer efficacy and favorable tolerable profile at both dose levels for the second-line treatment of recurrence metastatic head and neck sequamous cell carcinoma.

Speaker #3: Phase three protocol development is a long ongoing with trial initiation planned as early as the first half of 2027. This year, we are planning to submit a new request to FDA in the second quarter of 2026 and hope to have a phase two meeting with FDA in the third quarter of 2026.

Speaker #3: We anticipate presenting our interim findings at the ASCO in June 2026 and expect a full data readout by the second half of 2027. We are encouraged by our clinical trial progress achieved so far and believe entering into the phase three registration trial will further increase the probability of the success of commercialization FID07 for the treatment of recurrence metastatic head and neck sequamous cell carcinoma patients.

Ming Hsieh: We are encouraged by our clinical trial progress achieved so far, and believe entering into the phase 3 registration trial will further increase the probability of the success of commercialization FID-007 for the treatment of recurrence metastatic head and neck squamous cell carcinoma patients currently having very few effective treatment options. Our second clinical candidate, FID-022, is progressing through the phase 1 dose escalation, with the first dose level successfully completed at the end of December 2025, and the second dose level successfully completed on 28 January 2026. The third dose level begins on 2 February 2026. We expect to finish the study and determine the maximum tolerable dose level later this year. FID-022 is a nanoencapsulated SN-38 for the treatment of solid tumors, including potentially colon, pancreatic, ovarian, and bile duct cancers.

Speaker #3: Currently, there are very few effective treatment options. Our second clinical candidate, FID022, is progressing through the Phase 1 dose escalation, with the first dose level successfully completed at the end of December 2025.

Speaker #3: And the second dose level successfully completed on January 28, 2026. The third dose level begins on February 2, 2026. We expect to finish the study and determine the maximum later this year.

Speaker #3: FID022 is a nano-encapsulated SN38 for the treatment of solid tumors, potentially including colon, pancreatic, and bile duct cancers. Overall, I'm pleased with the progress we have made this year.

Ming Hsieh: Overall, I'm pleased with the progress we have made this year. Our pharma R&D efforts are progressing faster, better, and more cost-effective than planned it. Additional, our laboratory services business is greatly benefiting from our investment of AI technology, which makes our services more efficient and precise. Although our revenue of 2025 slightly short of our updated expectations, we are exceeded our non-GAAP EPS guidance. I'm proud of the progress we have made and believe our business is intact. As we look to 2026, we believe that the first half of the year will be impacted by our largest customer moving a significant volume of his work in-house, but also the strategic initiative we have made may help offset this impact over the long term.

Speaker #3: Our pharma R&D efforts are progressing faster, better, and more cost-effectively than planned. Additionally, our laboratory service business has greatly benefited from our investment in AI technology, which makes our service more efficient and precise.

Speaker #3: And although our revenue of 2025 was slightly short of our updated expectation, we exceeded our non-GAAP EPS guidance and are proud of the progress we have made, and believe our business is intact.

Speaker #3: As we look to 2026, we believe the first half of the year will be impacted by our largest customer moving a significant volume of his work in-house.

Speaker #3: But also the strategic initiative we have made may help offset this impact over the long term. I would like to thank our employees, partners, and stakeholders for your hard work and loyalty.

Ming Hsieh: I would like to thank our employees, partners, and stakeholders for your hard work and loyalty in a great quarter of our business. We look forward to further progress in 2026. I will now turn over the call over to Brandon Perthuis, our Chief Commercial Officer, to talk more about our laboratory services business. Brandon?

Speaker #3: In a great quarter of our business, we look forward to further progress in 2026. I will now turn the call over to Brandon Perthuis, our chief commercial officer, to talk more about our laboratory service business.

Speaker #3: Brandon.

Speaker #4: Thanks, Ming. We ended the fourth quarter at $83.3 million, which was an increase of 9% year over year and a slight decrease quarter over quarter.

Brandon Perthuis: Thanks, Ming. We ended Q4 at $83.3 million, which was an increase of 9% year-over-year and a slight decrease quarter-over-quarter. Looking at how we closed the year, total revenue came in at $322.7 million, which was an increase of approximately 14% year-over-year. Looking closer at our three areas of business, precision diagnostics revenue for Q4 was $48.2 million, an increase of 11% year-over-year, however, down 5% sequentially, driven primarily by lower than anticipated volume from our largest customer, who has begun transitioning the testing in-house. AP revenue for Q4 was $27 million, an increase of 3% year-over-year and up 4% sequentially.

Speaker #4: Looking at how we closed the year, total revenue came in at $322.7 million, which was an increase of approximately 14% year over year.

Speaker #4: Looking closer at our three areas of business, precision diagnostics revenue for the fourth quarter was 48.2 million dollars, an increase of 11% year over year.

Speaker #4: However, down 5% sequentially. Driven primarily by lower than anticipated volume from our largest customer, who has begun transitioning the testing in-house. AP revenue for the fourth quarter was 27 million dollars, an increase of 3% year over year, and up 4% sequentially.

Speaker #4: For biopharma services, revenue was 8.1 million dollars, an increase of 32% year over year, and 10% sequentially. For the year, precision diagnostics revenue was 190.5 million dollars, a 14% increase over 2024.

Brandon Perthuis: For biopharma services, revenue was $8.1 million, an increase of 32% year-over-year and 10% sequentially. For the year, precision diagnostics revenue was $190.5 million, a 14% increase over 2024. AP revenue, or anatomic pathology revenue, was $106.4 million, an increase of 10% over 2024, and biopharma services was $25.8 million, a 58% increase. Overall, we are pleased with the performance in 2025, delivering double-digit year-over-year growth. During the quarter, we announced our intention to acquire Bako Diagnostics and StrataDx, pending regulatory approvals for a total purchase price of $55.5 million. This proposed acquisition will add new anatomic pathology services, proprietary PCR tests, and a national client base.

Speaker #4: AP revenue, or anatomic pathology revenue, was $106.4 million, an increase of 10% over 2024. Biopharma services was $25.8 million, a 58% increase.

Speaker #4: Overall, we are pleased with the performance in 2025, delivering double-digit year-over-year growth. During the quarter, we announced our intention to acquire Baco Diagnostics and Strada DX, pending regulatory approvals for a total purchase price of 55.5 million dollars.

Speaker #4: This proposed acquisition will add new anatomic pathology services, proprietary PCR tests, and a national client base. Baco Diagnostics is a premier national provider of specialty laboratory testing services which offers a comprehensive testing menu including complete anatomic pathology services, proprietary molecular genetic testing, and peripheral neuropathy immunohistochemical testing.

Brandon Perthuis: Bako Diagnostics is a premier national provider of specialty laboratory testing services, which offers a comprehensive testing menu, including complete anatomic pathology services, proprietary molecular genetic testing, and peripheral neuropathy immunohistochemical testing. Bako Diagnostics is CLIA certified, CAP accredited, and licensed by the Georgia Department of Public Health. StrataDx is a premier national provider of dermatopathology testing services. StrataDx is CLIA certified, CAP accredited, and licensed by the State of Massachusetts. With these acquisitions, we will further strengthen our laboratory services business by adding new products and services and further expand our national client base, national sales team, and team of expert pathologists. We expect to close the transaction in March. We are excited to announce that during Q4, we received approval from New York State for both our proprietary NIPT offering, KNOVA, as well as our whole genome sequencing test.

Speaker #4: Baco Diagnostics is CLIA-certified, CAP-accredited, and licensed by the Georgia Department of Public Health. Strada DX is a premier national provider of dermatopathology testing services.

Speaker #4: Strada DX is CLIA-certified, CAP-accredited, and licensed by the state of Massachusetts. With these acquisitions, we will further strengthen our laboratory services business by adding new products and services, and further expand our national client base, national sales team, and team of expert pathologists.

Speaker #4: We expect to close the transaction in March. We are excited to announce that during the fourth quarter, we received approval from New York State for both our proprietary NIPT offering, Nova, as well as our whole genome sequencing test.

Speaker #4: These are significant approvals and a high validation of our quality services. These approvals open a new market for us to commercialize these tests in New York.

Brandon Perthuis: These are significant approvals and a high validation of our quality services. These approvals open a new market for us to commercialize these tests in New York. We look forward to servicing New York clients and patients in both the rare disease and reproductive markets. We mentioned on previous calls the investments we are making in digital pathology, specifically our new in-house developed platform, Eziopath. Digital pathology is changing the dynamics of our laboratory, enabling remote reading, remote consults, and most importantly, the use of AI modules for certain disease subtypes. As of today, we are approximately 100% digital across all of our cases. They are being read on Eziopath as we transition off our previous third-party platform. In AI development, we have launched several internally developed modules, including tissue region detection, eosinophil counting, and eosinophilic esophagitis, and lymphocyte ratio in duodenal intraepithelial lymphocytosis.

Speaker #4: And we look forward to servicing New York clients and patients in both the rare disease and reproductive markets. We mentioned on previous calls the investments we are making in digital pathology, specifically our new in-house developed platform, Eziopath.

Speaker #4: Digital pathology is changing the dynamics of our laboratory, enabling remote reading, remote consults, and, most importantly, the use of AI modules for certain disease subtypes.

Speaker #4: As of today, we are approximately 100% digital across all of our cases, and they are being read on Eziopath as we transition off our previous third-party platform.

Speaker #4: In AI development, we have launched several internally developed modules, including tissue region detection, eosinophil counting, eosinophilic esophagitis, lymphocyte ratio, and duodenal intraepithelial lymphocytosis.

Speaker #4: Eziopath also supports third-party AI modules such as Page AI Prostate and MindPeak for HER2 and breast cancer. In our 2026 AI R&D pipeline, we have a dozen AI modules planned, and we expect to significantly improve our medical team's operational efficiency once deployed.

Brandon Perthuis: Eziopath also supports third-party AI modules, such as Paige Prostate and Miontiq for HER2 in breast cancer. In our 2026 AI R&D pipeline, we have 12 AI modules planned, and we expect to significantly improve our medical team's operational efficiency once deployed. Fulgent has always viewed itself as a technology company, and we have developed most of the systems that support our business. Eziopath is just another example. With in-house clinical AI, R&D, and software engineering teams, a large group of medical pathologists across various specialties, and most importantly, clinical data with diagnostic outcomes, we believe Fulgent is well-positioned to become a major player in the AI-enabled digital pathology field. Within our oncology business, we see great potential in leveraging AI technology to improve clinical diagnosis for patients.

Speaker #4: Fulgent has always viewed itself as a technology company, and we have developed most of the systems that support our business. Eziopath is just another example.

Speaker #4: With in-house clinical AI R&D and software engineering teams, a large group of medical pathologists across various specialties, and, most importantly, clinical data with diagnostic outcomes, we believe Fulgent is well positioned to become a major player in the AI-enabled digital pathology field.

Speaker #4: Within our oncology business, we see great potential in leveraging AI technology to improve clinical diagnosis for patients. Fulgent is one of the very few companies that provide end-to-end diagnostic services for cancer patients, including flow cytometry, IHC, FISH, cytogenetics, and NGS.

Brandon Perthuis: Fulgent is one of the very few companies that provide end-to-end diagnostic services for cancer patients, including flow cytometry, IHC, FISH, cytogenetics, and NGS. Our team is currently working on a project to develop AI modules that analyze data across multiple modalities and provide summary diagnostic information for our medical team to review before final reporting. We believe this could be a game changer in cancer diagnosis. Overall, we are pleased with our progress in 2025. We believe the investments we have made in our technology and capabilities will continue to pay dividends as we strive to expand our market reach. I'd like to thank our employees for their hard work and dedication throughout the year, I'm thankful to have such a strong team in place as we kick off the new year. I'll now turn the call over to our Chief Financial Officer, Paul Kim. Paul?

Speaker #4: Our team is currently working on a project to develop AI modules that analyze data across multiple modalities and provide summary diagnostic information for our medical team to review before final reporting.

Speaker #4: We believe this could be a game changer in cancer diagnosis. Overall, we are pleased with our progress in 2025. We believe the investments we have made in our technology and capabilities will continue to pay dividends as we strive to expand our market reach.

Speaker #4: I'd like to thank our employees for their hard work and dedication throughout the year. And I'm thankful to have such a strong team in place as we kick off the new year.

Speaker #4: I'll now turn the call over to our chief financial officer, Paul Kim. Paul?

Speaker #2: Thank you, Brandon. Full year revenue for 2025 totaled $322.7 million, growing approximately 14% compared to revenue of $283.5 million in 2024, which fell slightly short of the updated guidance we provided on last quarter's earnings call.

Paul Kim: Thank you, Brandon. Full-year revenue for 2025 totaled $322.7 million, growing approximately 14% compared to revenue of $283.5 million in 2024, which fell slightly short of the updated guidance we provided on last quarter's earnings call, ahead of the original guidance we provided at the beginning of 2025. Revenue in Q4 2025 totaled $83.3 million, compared to $84.1 million in Q3 2025. The decrease in our Q4 revenue was primarily the result of lower than anticipated volume from our largest customer, who has begun transitioning the test in-house. Gross margin for Q4 on a non-GAAP basis was 41% and a GAAP basis was 39.1%.

Speaker #2: But ahead of the original guidance we provided at the beginning of 2025. Revenue in the fourth quarter of 2025 totaled $83.3 million, compared to $84.1 million in the third quarter of 2025.

Speaker #2: The decrease in our Q4 revenue was primarily the result of lower-than-anticipated volume from our largest customer, who has begun transitioning. Gross margin for the fourth quarter on a non-GAAP basis was 41%, and on a GAAP basis was 39.1%.

Speaker #2: Full-year gross margins improved year over year due to streamlined operations and from the enhanced efficiencies we achieved as a result of our investment in scaling and centralizing lab operations.

Paul Kim: Full-year gross margins improved year-over-year due to streamlined operations and from the enhanced efficiencies we achieved as a result of our investment in scaling and centralizing lab operations. Turning over to operating expenses. Total GAAP operating expenses were $68.8 million in Q4, which increased when compared to $50.9 million in the prior quarter. The increase in operating expenses was partially driven by acquisition-related costs, payroll-related expenses, and a one-time professional liability expense. Non-GAAP operating expenses totaled $43.1 million, compared to $40.7 million in the previous quarter. We remain committed to R&D spending to support both our laboratory testing services and our clinical studies, and to sales and marketing spending to expand the sales team. Non-GAAP operating margin decreased sequentially to a -10.7%.

Speaker #2: Now turning over to operating expenses. Total gap operating expenses were $68.8 million in the fourth quarter, which increased when compared to $50.9 million in the prior quarter.

Speaker #2: The increase in operating expenses was partially driven by acquisition-related costs, payroll-related expenses, and a one-time professional liability expense. Non-gap operating expenses totaled $43.1 million, compared to $40.7 million in the previous quarter.

Speaker #2: We remain committed to R&D spending to support both our laboratory testing services and our clinical studies and to sales and marketing spending to expand the sales team.

Speaker #2: Non-gap operating margin decreased sequentially to a minus 10.7%. Our gap loss in the current quarter was 23.4 million, an increase from the prior quarter gap loss of 6.6 million.

Paul Kim: Our GAAP loss in Q4 was $23.4 million, an increase from the prior Q3 GAAP loss of $6.6 million. Adjusted EBITDA for Q4 was a loss of approximately $4.5 million, compared to a gain of $700,000 in Q3 2025. On a non-GAAP basis, excluding equity-based compensation expense, intangible asset amortization, acquisition-related costs, and a one-time professional liability expense, income for Q4 was approximately $5.2 million, or $0.16 per share, based on 31.7 million weighted average diluted shares outstanding.

Speaker #2: Adjusted EBITDA for the fourth quarter was a loss of approximately $4.5 million, compared to a gain of $700,000 in Q3 2025. On a non-GAAP basis, and excluding equity-based compensation expense, intangible asset amortization, acquisition-related costs, and a one-time professional liability expense, income for the quarter was approximately $5.2 million, or $0.16 per share based on 31.7 million weighted average diluted shares outstanding.

Speaker #2: Looking at the full year 2025 on a non-gap basis and excluding equity-based compensation expense, intangible asset amortization acquisition-related costs and a one-time professional liability expense income was approximately $13.2 million, or 42 cents per share based on 31.1 million weighted average shares outstanding.

Paul Kim: Looking at the full year 2025 on a non-GAAP basis and excluding equity-based compensation expense, intangible asset amortization, acquisition-related costs, and a one-time professional liability expense, income was approximately $13.2 million, or $0.42 per share, based on 31.1 million weighted average shares outstanding, beating the updated guidance we provided on last quarter's earnings call. Turning to the balance sheet. We ended the Q4 and full year with approximately $705.5 million in cash equivalents, restricted cash, and marketable securities. The decrease in cash from the previous quarter is driven by the purchase of income tax credits and capital expenditures. As of year-end, we have not yet received the $106 million in federal income tax refund, which has been delayed due to government shutdown in the Q4 2025.

Speaker #2: Beating the updated guidance we provided on last quarter's earnings call. Turning to the balance sheet, we ended the fourth quarter and full year with approximately $705.5 million in cash, cash equivalents, restricted cash, and marketable securities.

Speaker #2: The decrease in cash from the previous quarter is driven by the purchase of income tax credits and capital expenditures. As of year-end, we have not yet received the $106,00,0 in federal income tax refund, which has been delayed due to government shutdown in the fourth quarter of 2025.

Paul Kim: Excluding the delay in the income tax refund, we beat the updated cash guidance we provided on our last quarter's earnings call. Before providing our guidance for 2026, I would like to talk through certain drivers shaping our expectations for the first and second half of the year and the anticipated impact from the acquisition of Bako and StrataDx. As Ming mentioned, we expect revenue in the first half of the year to be impacted by a significant decrease in volume from our largest customer, moving their testing capabilities in-house. We anticipate revenue from this customer, which was $70.8 million, or 22% in 2025, to decline sharply quarter-over-quarter through Q2 2026 and potentially stabilize in the second half of the year. The revenue from our largest customer in 2025 was all classified as precision diagnostics.

Speaker #2: Excluding the delay in the income tax refund, we beat the updated cash guidance we provided on our last quarter's earnings call. Before providing our guidance for 2026, I would like to talk through certain drivers shaping our expectations for the first and second half of the year and the anticipated impact from the acquisition of Baco and Stratadex.

Speaker #2: As Ming mentioned, we expect revenue in the first half of the year to be impacted by a significant decrease in volume from our largest customer moving their testing capabilities in-house.

Speaker #2: We anticipate revenue from this customer, which was $70.8 million or 22% in 2025, to decline sharply quarter over quarter through Q2 2026 and potentially stabilize in the second half of the year.

Speaker #2: The revenue from our largest customer in 2025 was all classified as precision diagnostics. We believe this decrease in revenue will be partially or fully offset by the anticipated contribution of approximately $50 to $55 million from the acquisition of Baco and Stratadex, which we expect to close in March of 2026, contributing to an overall revenue growth in the second half of the year.

Paul Kim: We believe this decrease in revenue will be partially or fully offset by the anticipated contribution of approximately $50 to $55 million from the acquisition of Bako and StrataDx, which we expect to close in March of 2026, contributing to an overall revenue growth in the second half of the year. Bako's revenue is expected to primarily be categorized as anatomic pathology. Assuming we're able to close Bako and StrataDx acquisitions in a timely manner and that these acquired businesses perform as we currently expect, we're forecasting that in 2026, no single customer will account for more than 10% of our total revenue, reflecting an improvement in our customer concentration profile. We would also expect total revenues to be approximately $350 million for 2026, representing an 8.5% year-over-year growth.

Speaker #2: Baco's revenue is expected to primarily be categorized as anatomic pathology. So, assuming we're able to close the Baco and Stratadex acquisitions in a timely manner, and that these acquired businesses perform as we currently expect, we're forecasting that in 2026, no single customer will account for more than 10% of our total revenue, reflecting an improvement in our customer concentration profile.

Speaker #2: We would also expect total revenues to be approximately $350 million for 2026, representing an 8.5% year-over-year growth. Excluding our largest customer's revenue and assuming that Baco and Stratadex acquisitions timely close an acquired business's perform as expected, the net estimated growth in precision diagnostics would be approximately 31% from 2025 to 2026, and our pipeline for customer opportunities with precision diagnostics would remain strong.

Paul Kim: Excluding our largest customer's revenue and assuming that Bako and StrataDx acquisitions timely close and acquired businesses perform as expected, the net estimated growth in precision diagnostics would be approximately 31% from 2025 to 2026, and our pipeline for customer opportunities with precision diagnostics would remain strong. With these acquisitions, 2026 anatomic pathology revenue would be expected to increase to an aggregate of $162 million, up 53% from $106 million in 2025, largely driven by the Bako acquisition. biopharma revenue is expected to decrease from $25.8 million to $20 million, reflecting a long sales cycle as we see in this area.

Speaker #2: With these acquisitions, 2026 anatomic pathology revenue would be expected to increase to an aggregate of $162,000,000, up 53% from $106,000,000 in in 2025, largely driven by the Baco acquisition.

Speaker #2: Biopharma revenue is expected to decrease from $25.8 million to $20 million reflecting a long sales cycle as we see in this area. As we move through the year, we expect to see continued momentum from our laboratory services business as it continues to benefit from the investment of AI and anatomic pathology, which is making our services more efficient and precise.

Paul Kim: As we move through the year, we expect to see continued momentum from our laboratory services business as it continues to benefit from the investment of AI and anatomic pathology, which is making our services more efficient and precise. We expect non-GAAP gross margins for the full year to be slightly above 40% as the product mix shifts with the changes in our customer composition. We anticipate the gross margins to be lower in the first half of the year due to the impact of cost of sales charges being allocated across a smaller revenue base.

Speaker #2: We expect non-gap gross margins for the full year to be slightly above 40% as the product mix shifts with the changes in our customer composition.

Speaker #2: We anticipate the gross margins to be lower in the first half of the year due to the impact of cost of sales charges being allocated across a smaller revenue base.

Speaker #2: We expect non-gap operating margins to decrease from a minus 8% to a minus 8% for the year largely driven by the incremental expenses from the Baco and Stratadex acquisitions are continued investment in expanding our sales team and our ongoing commitment to research and development for both our laboratory services business and therapeutic development business.

Paul Kim: We expect non-GAAP operating margins to decrease from -8% to -18% for the year, largely driven by the incremental expenses from the Bako and Strata acquisitions, our continued investment in expanding our sales team, and our ongoing commitment to research and development for both our laboratory services business and therapeutic development business. Our strategy for success centers on scaling efficiently and driving innovation across our service offerings, while carefully managing spend and integrating our expected strategic acquisitions effectively. The anticipated spend for the therapeutic development business is approximately $26 million in 2026, as we continue advancing clinical trials for FID-002 and FID-007. We will continue to invest in business expansion, further improving our laboratory operations and upgrading laboratory facilities. We believe that our foundational technology platform supports a strong long-term margin.

Speaker #2: Our strategy for success centers on scaling efficiently and driving innovation across our service offerings while carefully managing spend and integrating our expected strategic acquisitions effectively.

Speaker #2: The anticipated spend for the therapeutic development business is approximately $26 million in 2026, as we continue advancing clinical trials for FID-002 and FID-007. We will continue to invest in business expansion, further improving our laboratory operations and upgrading laboratory facilities.

Speaker #2: We believe that our foundational technology platform supports a strong long-term margin using an average share count of 32 million. We expect our full year 2026 non-gap EPS guidance to be a loss of $1.45 per share excluding stock-based compensation impairment loss acquisition-related costs and amortization of intangible assets as well as any one-time charges.

Paul Kim: Using an average share count of 32 million, we expect our full year 2026 non-GAAP EPS guidance to be a loss of $1.45 per share, excluding stock-based compensation, impairment loss, acquisition-related costs, and amortization of intangible assets, as well as any one-time charges. Finally, our cash position continues to be strong. We remain confident to efficient capital allocation to support future growth as we invest in key initiatives and look for opportunities to expand.

Speaker #2: Finally, our cash position continues to be strong. We remain confident to efficient capital allocation to support future growth as we invest in key initiatives and look for opportunities to expand.

Speaker #2: Assuming the close of Baco and Stratadex acquisition with the purchase price of approximately $56,000,000, capital purchases approximately $12,000,000, spend on our therapeutic development business of 26 million, $14.5 million for the one-time professional liability expense, and excluding any future stock repurchases or other expenditures outside the ordinary course, which could include other M&A, we anticipate ending 2026 with approximately $685,000,000 of cash cash equivalents restricted cash and investments in marketable securities.

Paul Kim: Assuming the close of Bako and StrataDx acquisition, with a purchase price of approximately $56 million, capital purchases approximately $12 million, spend on our therapeutic development business of $26 million, $14.5 million for the one-time professional liability expense, and excluding any future stock repurchases or other expenditures outside the ordinary course, which could include other M&A, we anticipate ending 2026 with approximately $685 million of cash equivalents, restricted cash and investments in marketable securities. This number assumes receipt of approximately $106 million in tax refunds, which have been delayed as a result of the Q4 2025 government shutdown.

Speaker #2: This number assumes receipt of approximately $106,000,000 in tax refunds which have been delayed as a result of the Q4 2025 government shutdown. Overall, we're proud for the organic growth that we have achieved over the past couple of years and we believe that our strong technology platform, we're well positioned for longer-term growth and our strategic investments and innovations deliver value.

Paul Kim: Overall, we're proud for the organic growth that we have achieved over the past couple of years. We believe that our strong technology platform we're well positioned for longer term growth and our strategic investments and innovations deliver value. Thank you for joining our call today. Operator, now you may open it up for questions.

Speaker #2: Thank you for joining our call today, Operator. Now you may open it up for questions.

Speaker #1: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Lu Li with UBS. Please proceed.

Speaker #1: You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker #1: Our first question is from Lu Li with UBS. Please proceed.

Speaker #3: Great. Thank you for taking my question. I think the first question on your largest customer. So if I'm doing my math correct, I think the very new laws for that customer is about 70% for 2026.

Operator: Great. Thank you for taking my question. I think the first question on your largest customer. If I'm doing my math correct, I think the revenue loss for that customer is about 70% for 2026. I'm just wondering if you can confirm the math, also how conservative, if there's, like, any risks that they can come by in-house more?

Lu Li: Great. Thank you for taking my question. I think the first question on your largest customer. If I'm doing my math correct, I think the revenue loss for that customer is about 70% for 2026. I'm just wondering if you can confirm the math, also how conservative, if there's, like, any risks that they can come by in-house more?

Speaker #3: I'm just wondering if you can confirm the math and then also how conservative is this. Any risk that they can kind of in-house more?

Speaker #4: Yeah. Thank you for that question. I'll take you through the numbers. And then I'll turn it over to Brandon, who can give further color into the dynamics regarding this customer.

Paul Kim: Yeah, thank you for that question. I'll take you through the numbers, and then I'll turn it over to Brandon, who can give further color into the dynamics regarding this customer. You are correct. The revenue from our largest customer was $70.8 million in 2025, and when we lay out the plan for 2026, the $350 million, we assume that we're gonna be getting about $11.8 million from this customer. $70.8 million minus $11.8 million is $59 million. The impact of the loss of this customer was a decrease of $59 million to our business, and then you add to that the impact of the Bako acquisition, which should provide approximately $50 to $55 million of revenues for the year.

Speaker #4: So, you are correct. The revenue from our largest customer was $70.8 million in 2025. And when we lay out the plan for 2026, the $350 million, we assumed that we're going to be getting about $11.8 million from this customer.

Speaker #4: So $70.8 minus $11.8 is $59,000,000. So the impact of the loss of this customer was a decrease of $59,000,000 to our business. And then you add to that the impact of the Baco acquisition, which should provide approximately 50 to 55 million of revenues for the year.

Speaker #4: So for 2025, we achieved $322 million of revenues, and in 2026, we're guiding to $350 million. So the minus $59 million, plus the partial or almost all offset from the Baco, still provides a nice organic growth for our business, including precision diagnostics.

Paul Kim: For 2025, we achieved $322 million of revenues. In 2026, we're guiding to $350 million. The -59 plus the partial or almost all offset from the Bako, still provides a nice organic growth for our business, including precision diagnostics. I'll turn it over to Brandon, who can comment on this customer taking this testing in-house.

Speaker #4: I'll turn it over to Brandon, who can comment on this customer taking this testing in-house.

Speaker #5: Yeah, Lu, thank you for the question. I think Paul did a good job there describing the impact. I think, in terms of what we have modeled for 2026, we have pretty good visibility into that.

Brandon Perthuis: Yeah, Lu Li, thank you for the question. I think Paul Kim did a good job there describing the impact. I think in terms of what we have modeled for 2026, we have pretty good visibility into that. We, you know, we think that's a number that, you know, we can live with and that our customer has committed to. You know, there are some contractual arrangements that still need to be met for the year. Again, you know, we have pretty good visibility into that number.

Speaker #5: So, we think that's a number that we can live with and that our customer has committed to. There are some contractual arrangements that still need to be met for the year.

Speaker #5: So again, we have pretty good visibility into that number.

Speaker #3: Got it. And then just following along with that—you talk about there are some ways to mitigate by growing your customer pipeline. I'm just wondering, can you give a little bit more color in terms of how you can kind of grow your own brand diagnostic?

Operator: Got it. Just follow on that. You talk about there are some ways to mitigate by growing your customer pipeline. I'm just wondering, can you give a little bit more color in terms of, like, how you can kind of, like, grow your own brand diagnostic? Related to that, can you also sizing how much of your business right now is actually running the other company's assays?

Lu Li: Got it. Just follow on that. You talk about there are some ways to mitigate by growing your customer pipeline. I'm just wondering, can you give a little bit more color in terms of, like, how you can kind of, like, grow your own brand diagnostic? Related to that, can you also sizing how much of your business right now is actually running the other company's assays?

Speaker #3: And then, related to that, can you also size how much of your business right now is actually running the other company's assays?

Speaker #4: Yeah. I mean, certainly, I can talk about some of the drivers for precision diagnostics in 2026. I mean, we think we have several. It's sort of a no particular order.

Brandon Perthuis: Yeah, I mean, certainly, I can talk about some of the drivers for precision diagnostics in 2026. I mean, we think we have several, you know, in sort of in no particular order, we're still growing market share for expanded carrier screening tests, our Beacon test. I think we've mentioned on the previous calls, we've done a great job building a brand and reputation for Beacon, best-in-class turnaround time. The largest panel out there now with over 1,000 genes, and we continue to improve our connectivity with EMRs. We still see a lot of momentum in Beacon. We think that's gonna be important for 2026. In addition, you know, we've invested a lot in our whole genome sequencing test, bundling it with transcriptomic or RNA sequencing.

Speaker #4: And we're still growing market share for expanding carrier screening tests, our Beacon test. I think we've mentioned on previous calls, we've done a great job building a brand and reputation for Beacon.

Speaker #4: Best-in-class turnaround time. The largest panel out there now with over 1,000 genes. And we continue to improve our connectivity with EMRs. So we still see a lot of momentum in beacon.

Speaker #4: We think that's going to be important for 2026. In addition, we've invested a lot in our whole genome sequencing test, bundling it with transcriptomic, or RNA, sequencing.

Speaker #4: And we are seeing some really exciting data when we're bundling whole genome sequencing with RNA. We're making diagnoses by combining those that would otherwise be missed in the absence of having that RNA data.

Brandon Perthuis: We are seeing some really exciting data when we're bundling whole genome sequencing with RNA. We're making diagnoses by combining those that would otherwise be missed in the absence of having that RNA data. We've expanded that sales team some in 2025. We continue to do so in 2026, and we think we're gonna continue to gain market share for whole genome sequencing with RISE, our RNA-Integrated Sequence Evaluation. Looking on a sort of a month-to-month basis, we continue to set new records in terms of our volume for whole genome sequencing, so we like the momentum there. We're pretty excited with what we're doing on the somatic side as well. As we've mentioned, we have MolDx approval for our somatic assay, which we branded LumiraDx.

Speaker #4: We've expanded that sales team some in 2025. We continue to do so in 2026. And we think we're going to continue to gain market share for whole genome sequencing with Rise, our RNA-integrated sequencing evaluation.

Speaker #4: Looking on a sort of a month-to-month basis, we continue to set new records in terms of our volume for whole genome sequencing. So we like the momentum there.

Speaker #4: In addition, we're pretty excited with what we're doing on the somatic side as well. As we've mentioned, we have multi-X approval for our somatic assay, which we branded Lumera.

Brandon Perthuis: We're, you know, starting now to incorporate, you know, our somatic testing into our pathology business and learning and operationalizing how to leverage our somatic testing with our AP business. Our somatic test, you know, great coverage, great turnaround time. It has all the right genes. You know, we think we're gonna see some pretty significant improvement in our somatic oncology volume in 2026. You know, another area, you're sort of seeing just genetics taking a bigger role in healthcare. You're seeing ASCO announce that, you know, patients that are going through certain chemos need to be treated with DPYD testing. Well, that's a gene that we offer, that's a service we provide, and that seems to be something that's gonna drive some demand, you know, in 2026.

Speaker #4: And we're starting now to incorporate our somatic testing into our pathology business and learning and operationalizing how to leverage our somatic testing with our AP business.

Speaker #4: Our somatic test great coverage, great turnaround time. It has all the right genes. So we think we're going to see some pretty significant improvement in our somatic oncology volume in 2026.

Speaker #4: And another area you sort of seeing just genetics taking a bigger role in healthcare. You're seeing ASCO announce that patients that are going through certain chemos need to be treated with DPYD testing.

Speaker #4: Well, that's a gene that we offer as a service we provide. And that seems to be something that's going to drive some demand in 2026.

Speaker #4: So we see several different drivers for precision diagnostics. And we think we're going to deliver a pretty nice growth year. Lu, this is Paul.

Brandon Perthuis: We see several, you know, different drivers for precision diagnostics and, you know, we think we're gonna deliver a pretty nice growth year.

Paul Kim: Lu Li, this is Paul Kim. As Brandon Perthuis mentioned, the richness and the diversity of our offering, we feel more excited than ever for 2026. The incorporation of technology into our businesses, combined with the additional scale we're gonna be getting, particularly in the second half of the year, with the incorporation of Bako Diagnostics. What does that mean, you know, in terms of percentages and numbers? Well, to take an example, the gross margins, you know, with the impact of this large customer, yes, we are anticipating gross margins to be slightly lower in Q1 and Q2 of 2026. As we end the year, particularly in Q4 of 2026, our forecasted gross margins should be pretty consistent with the record levels that we have achieved in the middle of 2025.

Speaker #4: As Brandon mentioned, the richness and the diversity they're offering, we feel more excited than ever. For 2026, the incorporation of technology into our businesses combined with the additional scale we're going to be getting, particularly in the second half of the year, with the incorporation of Baco, and what does that mean?

Speaker #4: In terms of percentages and numbers, well, to take an example, the gross margins with the impact of this large customer, yes, we are anticipating gross margins to be slightly lower in Q1 and Q2 of 2026.

Speaker #4: But as we end the year, particularly in Q4 of 2026, our forecasted gross margins should be pretty consistent with the record levels that we have achieved in the middle of 2025.

Speaker #6: So Lu, in your as both of Paul and Brandon mentioned, we do need to take the lessons from losing this customer. We still have a reasonable relationship with the customer on they still have the other tests from us.

Operator: Lou, as both of Paul and Brandon mentioned, we do need to take the lessons for losing this customer.

Ming Hsieh: Lou, as both of Paul and Brandon mentioned, we do need to take the lessons for losing this customer.

Paul Kim: ... We still have a reasonable relationship with the customer, and they still have the other tests from us. In addition, we have been accelerating the internal R&D development. We will introduce the new products, and new techs will be differentiated from the market. We are feeling pretty strong at the present time, given the technology and the R&D effort we have. We do believe we will recover from this loss.

Ming Hsieh: ... We still have a reasonable relationship with the customer, and they still have the other tests from us. In addition, we have been accelerating the internal R&D development. We will introduce the new products, and new techs will be differentiated from the market. We are feeling pretty strong at the present time, given the technology and the R&D effort we have. We do believe we will recover from this loss.

Speaker #6: But in addition, we have been accelerating the internal R&D development. We will introduce the new products and new techs will be the differentiated from the market.

Speaker #6: So we are feeling pretty strong at the present time, giving the technology and the R&D effort we have we do believe is recover from this loss.

Speaker #3: Great. That's very helpful. Final question me. I'm just wondering what will be your kind of capital allocation strategy. I think in the prepared remark, you kind of framed it like could have some potential M&A.

Operator: Great, that's very helpful. Final question from me. Just wondering what will be your kind of like capital allocation strategy. I think in the prepared remark, you kind of like frame it like could have some potential M&A. Just wondering, what kind of areas that you planning to target after your acquisition of Bako and StrataDx? Like, are you going to do more in precision diagnostics? Then how that balance with your organic investment that you just mentioned. Thank you.

Lu Li: Great, that's very helpful. Final question from me. Just wondering what will be your kind of like capital allocation strategy. I think in the prepared remark, you kind of like frame it like could have some potential M&A. Just wondering, what kind of areas that you planning to target after your acquisition of Bako and StrataDx? Like, are you going to do more in precision diagnostics? Then how that balance with your organic investment that you just mentioned. Thank you.

Speaker #3: So, just wondering what kind of areas that you're planning to target after your acquisition of Darco and Strada. Are you going to do more in precision diagnostics?

Speaker #3: And then how that balance with your organic investment that you just mentioned? Thank you.

Speaker #4: Yeah. I think Lu, this will be an area of the AI we have a lot of capability internal where also we'll be looking for the synergies we may have in the field for the companies that we should provide us the AI-enabled discoveries.

Paul Kim: Yeah, I think it will look to be an area of AI. We have a lot of capability internal. We also will be looking for the synergies we may have in the field for the companies which provide us the AI-enabled discoveries.

Ming Hsieh: Yeah, I think it will look to be an area of AI. We have a lot of capability internal. We also will be looking for the synergies we may have in the field for the companies which provide us the AI-enabled discoveries.

Operator: Our next question is from David Westenberg with Piper Sandler. Please proceed.

Speaker #1: Our next question is from David Westenberg with Piper Sandler. Please proceed.

David Westenberg: Hi, thanks for taking the question. I'm just gonna actually expand on some of Lu Li's question. Can you confirm, I think you actually said this was, could be a gross margin headwind, the loss of customer? I believe, secondly, you did do a ton, I thought, carrier screening for this customer, and you have Beacon, which is a great product on your own. I just wanna see if there would have been any loss of cost synergies associated with, you know, running that plus your own carrier screening project. I just wanted to follow on, I think there was a question about like the second, if there's like a second Compass Oncology customer that's anywhere the size of this, like, still outstanding to just kind of think about.

Speaker #5: Hi, thanks for taking the question. I'm just going to actually expand on some of Louis's questions. Can you confirm—I think you actually said this was going to be a gross margin headwind, the loss of customer?

Speaker #5: And I believe secondly, you did do a ton, I thought, carrier screenings for this customer. And you have beacon, which is a great product on your own.

Speaker #5: I just want to see if there would have been any loss of cost synergies associated with running that plus your own carrier screening project.

Speaker #5: And then I just wanted to follow on. I think there was a question about the second, if there's a second customer that's anywhere the size of this, still outstanding to just kind of think about.

David Westenberg: I have a couple of questions unrelated. Thank you.

Speaker #5: And then I have a couple of questions unrelated. Thank you.

David Westenberg: I have a couple of questions unrelated. Thank you.

Speaker #4: Gross margin headwinds, Paul, you want to take that?

Brandon Perthuis: Gross margin headwinds, Paul, you wanna take that?

Paul Kim: Yeah, yeah. I'll take the gross margin headwinds. In addition to the revenues we anticipate for the first half of the year, you know, compared to the second half. Of the $350 million, we anticipate in the first half of the year, revenues would be approximately $158 or $159 million. The second half of the year, we anticipate revenues to be approximately $191 to $192 million.

Speaker #5: Yeah. Yeah. I'll take the gross margins headwinds. In addition to the revenues we anticipate for the first half of the year, compared to the second half.

Speaker #5: So of the 350 million, we anticipate in the first half of the year revenues would be approximately 158 or 159 million. The second half of the year, we anticipate revenues to be approximately 191 to 192 million dollars.

Paul Kim: The reason why it's back-end loaded is because in the second half of the year, we anticipate, you know, increased momentum for our organic growth, excluding this largest customer, combined with the fact that we're gonna be getting the full impact of the Bako acquisition. The reason why it's lower in the first half of the year is because of the fast decline of the impact of the loss of this customer. What that does to our gross margins is, on a non-GAAP basis, we posted gross margins of approximately 41% in Q4 of 2025.

Speaker #5: And the reason why it's back-end loaded is because, in the second half of the year, we anticipate increased momentum for our organic growth—excluding this largest customer—combined with the fact that we're going to be getting the full impact of the Baco acquisition.

Speaker #5: The reason why it's lower in the first half of the year is because of the fast decline of the impact of the loss of this customer.

Speaker #5: And what that does to our gross margins is, on a non-GAAP basis, we posted gross margins of approximately 41% in Q4 of 2025. We anticipate that to go down by approximately 4 points in the first quarter, and about 2 points in the second quarter.

Paul Kim: We anticipate that to go down by approximately 4 points in Q1, about 2 points in Q2, but having it, you know, rebound in Q3 and Q4, and the rebound being quite significant. We anticipate that the gross margins on a non-GAAP basis would be in excess of 41% in Q3, and then, you know, rising even higher than that in Q4. I'll turn it over to Brandon, who can address, you know, your other questions.

Speaker #5: But having it rebound in the third and the fourth quarter and the rebound being quite significant we anticipate that the gross margins on a non-gap basis would be in excess of 41% in Q3.

Speaker #5: And then rising even higher than that in Q4. And I'll turn it over to Brandon, who can address your other questions.

Speaker #7: Yeah. David, thanks for the question. No, we do not have another customer that would be greater than 10%. We do not.

Brandon Perthuis: Yeah, David, thanks for the question. No, we do not have another customer that would be greater than 10%. We do not.

Speaker #4: Got it. Okay. No, thanks. Paul, that was incredibly good amount of transparency and detail there. So thanks so much. Just in terms of the acquisition of Baco, you kind of mentioned this you kind of mentioned this sales synergies or additional sales reps that you might be taking on.

David Westenberg: Got it. Okay. No, thanks, Paul, that was an incredibly good amount of transparency and detail there, so thanks so much. Just in terms of the acquisition of Bako, you kind of mentioned this sales synergies or like additional sales reps that you might be taking on. You know, are there additional sales synergies to sell your existing products? I think you've traditionally been, and correct me if I'm wrong, a lot more oriented on kind of selling to the overall institution, more than kind of on a physician, pathologist basis. You know, with this additional scale, do you have kind of opportunity to kind of diversify the way you're going after kind of the sales approach?

Speaker #4: Are there additional sales synergies to sell your existing products? And I think you've traditionally been—and correct me if I'm wrong—a lot more oriented on kind of selling to the overall institution, more than kind of on a physician, pathologist, pathologist basis.

Speaker #4: With this additional scale, do you have kind of opportunity to kind of diversify the way you're going after kind of the sales approach? Not just one more.

David Westenberg: Not just one more.

Speaker #7: Yeah. Yeah. Thanks for the question, David. On the anatomic pathology side, it is more physician-level sales versus sort of large system sales. That said, our AP team has been subscale.

Brandon Perthuis: Yeah. Yeah, thanks for the question, David. You know, on the anatomic pathology side, it is more physician-level sales versus sort of large system sales. That said, our AP team has been subscale. We know that team wasn't big enough. This does get us somewhere between 20 and 30 new sales representatives, and the cross-selling sort of synergies are absolutely there. We will be able to use our existing team to sell Bako products and the Bako team to sell Fulgent products. A lot of the call points are very similar, and, you know, at the end of the day, this gives us more boots on the street, which is really what we need.

Speaker #7: We know that team wasn't big enough. So this does get us somewhere between 20 and 30 new sales representatives. And the cross-selling sort of synergies are absolutely there.

Speaker #7: We will be able to use our existing team to sell Baco products and the Baco team to sell Fulgent products. A lot of the call points are very similar.

Speaker #7: And at the end of the day, this gives us more boots on the streets, which is really what we need. I mean, there's a lot of call points for anatomic pathology, whether it's surgery centers, dermatologists, other types of practicing physicians.

Brandon Perthuis: I mean, there's a lot of call points for anatomic pathology, whether it's surgery centers, dermatologists, you know, other types of practicing physicians, and we've just been subscale there. With the investments that we've made in AI, we've been able to tackle any sort of capacity constraints.

Speaker #7: And we've just been subscale there. So with the investments that we've made in AI, we've been able to tackle any sort of capacity constraints.

Speaker #7: Which is always an issue in pathology, especially back when we were reading glass slides and microscopes and capacity has always been an issue. But the investments we've made in digital pathology in AI has allowed us to really expand that capacity so we're really looking forward to having this much larger sales team, nearly double the size in 2026, and really setting them loose to go out there and sell.

Paul Kim: ... which is always an issue in pathology, especially back when, you know, reading glass slides and microscopes, you know, capacity has always been an issue. The investments we've made in digital pathology in AI has allowed us to really expand that capacity. We're really looking forward to having this much larger sales team, nearly double the size in 2026, and really setting them loose to go out there and sell.

Brandon Perthuis: ... which is always an issue in pathology, especially back when, you know, reading glass slides and microscopes, you know, capacity has always been an issue. The investments we've made in digital pathology in AI has allowed us to really expand that capacity. We're really looking forward to having this much larger sales team, nearly double the size in 2026, and really setting them loose to go out there and sell.

Speaker #4: Got it. I'll just ask one last one on precision oncology here. How did Beacon's carrier screening do in the quarter? I mean, has that been a continued area of strength?

David Westenberg: Got it. I'll just ask one last one on precision oncology here. How did Beacon carrier screening do in the quarter? I mean, has that been a continued area of strength, and do you see that as a continued area of strength in 2026? Thank you very much.

Speaker #4: And do you see that as a continued area of strength in 2026? And thank you very much.

Speaker #7: Yeah. We do. I mean, Beacon has been doing very well for us. Some of the Beacon volume has been impacted by this large customer dropping off faster than we anticipated.

Paul Kim: Yeah, we do. I mean, Beacon has been doing very well for us. You know, some of the Beacon volume has been impacted by this, you know, large customer dropping off faster than we anticipated. You know, our organic Beacon volume and the pipeline for Beacon opportunities remains very strong. It's still, you know, one of the most important tests within the company. You know, to that, to the oncology side of things, I mean, what we're doing with LumiraDx, post MolDx approval and getting our pricing and approvals there, and how we're going to begin to leverage that across our pathology division, you know, we're often the laboratory that's making the initial diagnosis of cancer. I mean, that biopsy, whether it's a breast biopsy, colon biopsy, skin biopsy, you know, that's coming to our laboratory.

Brandon Perthuis: Yeah, we do. I mean, Beacon has been doing very well for us. You know, some of the Beacon volume has been impacted by this, you know, large customer dropping off faster than we anticipated. You know, our organic Beacon volume and the pipeline for Beacon opportunities remains very strong. It's still, you know, one of the most important tests within the company. You know, to that, to the oncology side of things, I mean, what we're doing with LumiraDx, post MolDx approval and getting our pricing and approvals there, and how we're going to begin to leverage that across our pathology division, you know, we're often the laboratory that's making the initial diagnosis of cancer. I mean, that biopsy, whether it's a breast biopsy, colon biopsy, skin biopsy, you know, that's coming to our laboratory.

Speaker #7: But our organic Beacon volume in the pipeline for Beacon opportunities remains very strong. So it's still one of the most important tests within the company.

Speaker #7: But to that to the oncology side of things, I mean, what we're doing with Lumera post-mold DX approval and getting our pricing and approvals there, and how we're going to begin to leverage that across our pathology division, we're often the laboratory that's making the initial diagnosis of cancer.

Speaker #7: I mean, that biopsy—whether it's a breast biopsy, colon biopsy, skin biopsy—that's coming to our laboratory. We're performing H&E staining. We're making a cancer diagnosis.

Paul Kim: We're performing, you know, H&E staining. We're making a cancer diagnosis. Now we're going to try to take it to the next level, where we're going to do NGS. We're going to profile that tumor, not just perform pathology. We've been talking about bridging our divisions together for some time, but we think 2026 is going to be the year that it actually happens, and we're going to be able to provide better cancer diagnosis, better care, and timelier care, for these patients.

Brandon Perthuis: We're performing, you know, H&E staining. We're making a cancer diagnosis. Now we're going to try to take it to the next level, where we're going to do NGS. We're going to profile that tumor, not just perform pathology. We've been talking about bridging our divisions together for some time, but we think 2026 is going to be the year that it actually happens, and we're going to be able to provide better cancer diagnosis, better care, and timelier care, for these patients.

Speaker #7: Now we're going to try to take it to the next level where we're going to do NGS. We're going to profile that tumor, not just perform pathology.

Speaker #7: And we've been talking about bridging our divisions together for some time but we think 2026 is going to be the year that it actually happens.

Speaker #7: And we're going to be able to provide better cancer diagnosis, better care, and timelier care for these patients.

David Westenberg: Thank you.

Speaker #4: Thank you.

Operator: Our next question is from Andrew Cooper with Raymond James. Please proceed. We have just lost Andrew. Andrew, if you would still like to ask a question, please press star one. Here we go. Go ahead, Andrew, your line is live.

Speaker #8: Oh, our next question is from Andrew Cooper with Raymond James. Please proceed. We have just lost Andrew. Andrew, if you would still like to ask a question, please press star one.

Speaker #8: Okay. Here we go. Go ahead, Andrew. Your line is live.

Andrew Cooper: Hey, everybody. Sorry, not sure what happened there. Appreciate the questions. Maybe first, a little bit of a numbers question here. Thinking about the cash burn and cash dynamics you talk about, if my math is right, you're looking at sort of the core business, ex CapEx, ex the acquisitions, and ex, kind of the moving parts you've called out, burning about $33 million for the year. Kind of curious, is that math right? How do we think about sort of the change here, given that's a little bit bigger than we would have expected, I think even with the customer loss, just giving you net to a pretty similar revenue number overall?

Speaker #9: Hey, everybody. Sorry. Not sure what happened there. Appreciate the questions. Maybe first, a little bit of a numbers question here. So just thinking about the cash burn and cash dynamics you talk about, if my math is right, you're looking at sort of the core business, XCAPX, X, the acquisitions, and X kind of the moving parts million for the year.

Speaker #9: So just kind of curious, is that math right? And how do we think about sort of the change here given that's a little bit bigger than we would have expected?

Speaker #9: I think even with the customer loss, just giving you net to a pretty similar revenue number

Speaker #1: Overall .

Speaker #2: Yeah , I think your math is largely correct . And the reason why . We're burning , you know , slightly more than we anticipated is because our operating expenses are going to be slightly to nominal , nominally higher as a result of the Barco acquisition .

Paul Kim: Yeah, I think your math is largely correct. The reason why we're burning, you know, slightly more than we anticipated is because our operating expenses are going to be slightly to nominally higher as a result of the Bako acquisition. That's a fully functioning asset that we're very, very happy with, you know, in terms of what it would do to our product profile, our reach for the markets, as well as our overall capabilities. Our intention is to, you know, keep those businesses, to invest in those businesses, because we anticipate, you know, additional growth and momentum to come from that, as well as our overall business, you know, into 2027.

Speaker #2: That's a fully functioning asset that we're very , very happy with . You know , in terms of what it would do to our product profile , our reach for the markets as well as our overall capabilities .

Speaker #2: So our intention is to , you know , keep those businesses to invest in those businesses because we anticipate , you know , additional growth of momentum to come from that , as well as our overall business .

Speaker #2: You know , into 2027 . But kind of like taking a step back and looking at , you . Our cash burn . We ended the year we ended the year with , you know , approximately $800 million .

Paul Kim: Kind of like taking a step back and looking at, you know, our cash burn, we ended the year with, you know, approximately $800 million. If you include the receivables that we're going to be getting from the IRS tax refund, and now we're forecasting our cash at the end of 2026 to be $685 million. A huge chunk of that delta of $115 million are costs and a cash outlay that's not associated with the laboratory services business. For example, of the $115 million, at least $56 million is going to be associated with the cash outlay that we have for the Bako acquisition.

Speaker #2: If you if you include the receivables that we're going to be getting from the IRS tax refund , and now we're forecasting our cash at the end of 2026 to be 685 million .

Speaker #2: But a huge chunk of that delta of 115 million are costs and a cash outlay . That's not associated with the laboratory services business .

Speaker #2: So , for example , of the 115 million , at least 56 million is going to be associated with the cash outlay that we have for the Barco acquisition .

Speaker #2: We have another 26 million of outlay that's associated with the spend for our biotech asset . The oh seven and the 002 . We also have capital purchases of approximately $12 million .

Paul Kim: We have another $26 million of outlay that's associated with the spend for our biotech asset, the FID-007 and the FID-002. We also have capital purchases of approximately $12 million and a one-time professional liability settlement of $14.5 million. If you take a step back, and even if you take into account the impact of the loss of this customer, our laboratory services business is going to be using cash, but not that much, which leaves a lot of cash for us to deploy for M&A, investment in our, you know, overall business, as well as other opportunities that can serve the shareholders.

Speaker #2: And the one time professional liability settlement of 14.5 million . So if you kind of like take a step back and even if you take into account the impact of the loss of this customer , our laboratory services business is going to be using cash , but not that much , which leaves a lot of cash for us to deploy for M&A investment in our , you know , overall business .

Speaker #2: As well as other opportunities that can serve the shareholders

Speaker #1: Okay . Helpful . And touching on something you touched on there at the start of that answer . You know , the digital pathology piece and I assume , I guess , that Barco and Strada aren't maybe as far along as you are at at basically 100% digital at this point .

Andrew Cooper: Okay, helpful. Touching on something you touched on there at the start of that answer, you know, the digital pathology piece, I assume, I guess, that Bako and Strata aren't maybe as far along as you are at basically 100% digital at this point. What sort of additional kind of volume are those two or volume capacity capabilities are those two deals adding? How much incremental volume will you be able to handle, thanks to that digital pathology kind of capability, without needing to add materially more pathologists that I know are, you know, expensive to add at this stage?

Speaker #1: So what sort of additional kind of volume are those two or volume capacity capabilities ? Are those two deals adding and how much incremental volume will you be able to handle thanks to that digital pathology kind of capability , without needing to add materially more pathologists that that I know are , you know , expensive to add at this stage .

Speaker #3: Yeah . Thanks for the question , Andrew . I don't know that anyone is where we are when it comes to digital pathology .

Brandon Perthuis: Yeah, thanks for the question, Andrew. I don't know that anyone is where we are when it comes to digital pathology. I think we're significantly ahead of the game here, especially developing our own in-house developed viewer and image management system. Really proud of our R&D team and how quickly we've accelerated our AI and digital pathology reach here. You're correct, Bako, is not highly digital yet, but this stuff is quite portable. There, you know, there are some protocols that we need to improve based on certain sample types and certain biopsies, but it's mostly portable. You know, we will do our best to bring them up to speed in terms of digital, in terms of using AI. It is a, you know, a nice improvement in efficiency, ultimately leading to capacity. You're right.

Speaker #3: I think we're significantly ahead of the game here , especially developing our own in-house developed viewer and image management system . Really proud of our R&D team and how quickly we've accelerated our AI and digital pathology reach here .

Speaker #3: You're correct . Barco is not highly digital yet , but this stuff is quite portable . There . You know , there are some protocols that we need to improve based on certain sample types and certain biopsies , but it's mostly portable .

Speaker #3: So , you know , we will do our best to bring them up to speed in terms of digital , in terms of using AI .

Speaker #3: It is , you know , a nice improvement in efficiency , ultimately leading to capacity . You're right . I mean , for a long time , often you are your bottleneck of capacity .

Brandon Perthuis: I mean, for a long time, often your bottleneck of capacity was hiring pathologists and getting enough pathologists in the office to read. Remote does 2 things: It makes them more efficient, also allows us to hire pathologists all across the country. We don't need to relocate these people to Dallas or Boston, or now perhaps Alpharetta, once we close the acquisition of Bako. It really has changed the game in how we run our business, we're going to hopefully be able to bring a lot of that to Bako to help them as well. Again, these sales teams, a lot of synergies exist within the sales teams, now we have one that's roughly twice the size that can sell products for both Fulgent and Bako.

Speaker #3: Was hiring pathologists and getting enough pathologists in the office to read remote does two things . It makes them more efficient , but also allows us to hire pathologists all across the country .

Speaker #3: We don't need to relocate these people to Dallas or Boston or now perhaps Alpharetta . Once we close the acquisition of Barco . So it's really has changed the game in how we run our business , and we're going to hopefully be able to bring a lot of that to to help them as well .

Speaker #3: And again , these sales teams , a lot of synergies exist within these sales teams . So now we have one that's roughly twice the size that can sell products for both Fulgent and Barco .

Speaker #4: Yeah, I think the brand is on point. The digital pathology does give us more efficiency, and it also helps us to reduce the errors.

Ming Hsieh: Yeah, adding the Brandon's point, the Digital Pathology do give us more efficiency. In addition, all this pathologists work becomes strong data for us to continue to train the AI and make it even better. We do see the lot of synergies between the, this acquisition, and also we do see the benefit of AI or how our pathology works.

Speaker #4: And in addition , all these pathologists work becomes a strong data for us to continue to train the AI and make it even better .

Speaker #4: So we do see the a lot of synergies between the this acquisition and also we do see the benefit of AI or pathology works

Speaker #1: Okay , helpful . And maybe just one last one , you know , with this this large customer in housing , do you have an opportunity to maybe shrink , whether it's physical footprint or at least kind of pull down the the labor spend component of things given , you know , call it 20% of revenues , I assume , you know , a pretty big chunk of volumes that are coming out of that precision diagnostics business .

Andrew Cooper: Okay, helpful. Maybe just one last one. You know, with this large customer in-housing, do you have an opportunity to maybe shrink, whether it's physical footprint or at least kind of pull down the labor spend component of things, given, you know, call it 20% of revenues, I assume, you know, a pretty big chunk of volumes that are coming out of that precision diagnostics business? I know you want to grow the remaining piece, but just would love a sense for sort of whether you're right-size for the business at this stage once they're out of the equation.

Speaker #1: I know you want to grow the the remaining piece , but just would love a sense for sort of whether you're you're right size for the business at this stage .

Speaker #1: Once they're out of the equation .

Speaker #2: Yeah . So for the 2026 plan , excluding Barco , the overall headcount for the organization , we kept relatively flat . We have some , nominal increases , particularly in the , you know , sales organization .

Paul Kim: Yeah. For the 2026 plan, excluding Bako, the overall headcount for the organization, we kept relatively flat. We have some, you know, nominal increases, particularly at the, you know, sales organization. The reason why we did that, instead of, you know, having it, you know, go deeper or considering cuts, is because we view the impact of this customer as a one-time event. We fully believe in this market. We believe in our, you know, capabilities, and we will get back to, you know, growth, we believe at a decent trajectory. Combined with the fact that, you know, when we take a look at our laboratory services business, as I mentioned, you know, even with the impact of this customer, it's not consuming, you know, that much cash.

Speaker #2: And the reason why we did that instead of , you know , having it , you know , go deeper or considering cuts is because we view the impact of this customer is a one time event .

Speaker #2: We fully believe in this market . We believe in our capabilities , and we will get back to , you know , growth .

Speaker #2: We believe at a decent trajectory . So , you know , combined with the fact that , you know , when we take a look at our laboratory services business , as I mentioned , you know , even with the impact of this customer , it's not consuming , you know , that much cash .

Paul Kim: You know, we like where our organization sits and you know, we look to return to, you know, accelerated growth here in the future.

Speaker #2: So , you know , we like where organization sits . And , you know , we look to return to , you know , accelerated growth here in the future .

Paul Kim: You know, we like where our organization sits and you know, we look to return to, you know, accelerated growth here in the future.

Speaker #1: Okay, I'll stop there. Thank you.

Andrew Cooper: Okay, I'll stop there. Thank you.

Speaker #3: Thank you Andrew

Brandon Perthuis: Thank you, Andrew.

Speaker #5: There are no further questions . This will conclude today's conference . You may disconnect your lines at this time . And thank you for your participation .

Operator: There are no further questions. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Brandon Perthuis: Thank you.

Paul Kim: Thank you.

Q4 2025 Fulgent Genetics Inc Earnings Call

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