Fulgent Genetics, Inc. Q3 FY2025 earnings call

Ming's Comments - Pleased with third quarter results and sustained momentum in business. - Both laboratory services and therapeutic development businesses are making progress. - Therapeutic development pipeline is on track, with FID-007 in Phase II and FID-022 in Phase I. ### Brandon's Updates - Launched ultrarapid whole genome sequencing service for NICU with preliminary report in 48 hours and comprehensive report in 5 days. - Expanded Beacon carrier screening service to Beacon K with 1,000 genes. - Developed and launched proprietary IMS system EZOPath for digital pathology. ### Paul's Financials - Third quarter revenue was $84.1 million. - Non-GAAP gross margin was 44.3%, non-GAAP operating margin improved to -4.2%. - Adjusted EBITDA was approximately $0.7 million. - Revised full year 2025 revenue outlook upward to $325 million, expecting non-GAAP gross margins to exceed 40% and non-GAAP operating margins to improve from -15% to -10%.

In the third quarter of 2025, laboratory services revenue was nearly $84 million. Precision Diagnostics saw a sequential increase of $3.4 million (7.3%) and a year-over-year increase of $7.2 million (16.4%). Biopharma was up $1 million sequentially (15.4%) and $3.3 million year-over-year (83.4%). Anatomic Pathology had a sequential decrease of $2.1 million (7.6%) but a year-over-year increase of $1.8 million (7.2%).

• Revised full year 2025 revenue outlook upward to $325 million, representing a 15% year-over-year growth. - Expect non-GAAP gross margins for the full year to exceed 40%. - Anticipate non-GAAP operating margins to improve from -15% to -10% for the year, driven by increased revenue. - Expect adjusted full year 2025 non-GAAP EPS to improve from a loss of $0.35 per share to a positive $0.30 per share, excluding certain items.

• Forward-looking statements are subject to risks, uncertainties and changes in circumstances that may cause actual results to differ. - Government shutdown may delay receipt of approximately $106 million in tax refunds.

Q: First one on the margin. I appreciate the new disclosure on the margin by segment. It seems like the lab is turning positive margin in the quarter. I wonder, Paul, like how do you think about the going forward path in terms of like what will be the ultimate operating margin target that you're looking for?

A: Thank you for the question, Lu. We were really pleased with what we saw in the gross margins for this quarter. As you remember, we had high margins in Q3, but Q3, we had an impact, a favorable impact to the margins of about $1.6 million, $1.7 million that was due to our capitalization policy. But in this quarter, in the third quarter, even without that, our margins, they came in just as high at 44.3%, actually a little bit higher than what we achieved in Q2. And that's due to the overall efficiencies of the organization, continued automation that we have for the business and streamlining our policies. I'll turn it over to Ming, who can talk about what we see directionally for margins in our business without giving out specific numbers because there are particular technologies that we are beginning to utilize, which might enhance our margins going forward.

Q: Second question on the AP. Brandon, I think you mentioned there are some timing issues in the quarter. I'm wondering if you can give a little bit more color and whether that will be a catch-up in Q4? And then I have a follow-up.

A: Yes, certainly, thanks for the question. Yes, it was a timing issue. It was mostly related to the collections in the quarter, which did reduce the amount of revenue we could recognize. But already in this quarter, we're beginning to see an improvement in the collections, and we think that that's going to continue to improve in the next couple of quarters. So no material weakness in the business, just a timing issue around collections.

Q: Brandon, with the KNOVA product, are you finding that physicians prefer to order kind of the bundle of tests versus just a single NIPT test or carrier microdeletions all in one? Is that favoring you? And can you give us a reminder on how those are reimbursed again if they're reimbursed kind of in a bundle, if they're reimbursed separately?

A: Yes. Thanks for the question, David. I mean, certainly, in the OB/GYN and MFM market, NIPT and carrier screening is often ordered bundled together, not always, but very frequently. So I think we've established a really good brand for Beacon, our carrier screening product in the marketplace. I think we've become sort of the go-to laboratory for carrier screening, our turnaround time, our quality, the number of genes, the customization. We've really fired on all cylinders as it relates to carrier screening. And then not too long ago, we decided to launch KNOVA, a novel NIPT test. And the strategy there is to sell those together. But they are 2 independent tests, right? Testing for completely different things. You asked, is it bundled billing? No. I mean it's a separate orderable test. So we get an order for KNOVA, we bill for KNOVA. We get an order for Beacon, we bill for Beacon, not bundled together from a billing perspective, but clinically, they're very often ordered together.

Q: Maybe just first, I want to dive in on the Anatomic Pathology collections dynamic. We're not necessarily seeing that in the receivables. So just if you could unpack a little bit more sort of what's going on there and what gives you the confidence that it is just collections timing, if there's any volume stats or anything like that, that you could share to help us get a little bit better understanding, that would be great.

A: Andrew, it's Brandon. Thanks for the question. No, it really was a timing issue. So I mean, at a high level, we made a change in our billing software. It takes a little bit of time to implement the new software. Software has been implemented. Things are going well. We're seeing collections begin to improve. So it was just around changing a billing software.

Q: Another good quarter, Precision Diagnostics. You were up $3.5 million or so sequentially, I think, like $7 million year-over-year. Can you just ring-fence for us kind of the growth contributions you're getting there? How much of that is Beacon versus KNOVA versus other parts of the portfolio to help at least kind of rank order or give some flavor for the traction there?

A: Yes. I mean Beacon continues to be a really important test for the company, and it's continued to grow. We're winning new customers. We're moving into new markets. So really pleased with the progress of Beacon. And hopefully, launching Beacon K takes it to the next level and certainly keeping our turnaround times where they are has just been hugely important for the company. KNOVA is not yet a meaningful contributor to revenue. We're still trying to break into that OB/GYN marketplace. A lot of the Beacon business historically has been from the fertility side of things, REIs and fertility clinics. So Beacon continues to be quite important. We are seeing great momentum in our exomes and genomes as well. Our oncology business is doing well, especially on the heme side. So I think overall, I mean, you look at all the different sort of divisions of the company, they're all doing well, all firing on all cylinders, and we see great momentum.