Fulgent Genetics, Inc. Q2 FY2026 earnings call

Therapeutic Development Pipeline Progress

• FID-07, a novel nanoencapsulated paclitaxel developed via the company's proprietary Clean Chemo platform, completed Phase 2 trials, which demonstrated encouraging activity in patients with recurrent or metastatic head and neck squamous cell carcinoma.
• The end-of-Phase-2 meeting with the FDA is scheduled for late summer 2026, and the company is preparing a Phase 3 registration trial, which it expects to enter in the first half of 2027.
• The second clinical candidate, FID-022 (nanoencapsulated SN-38 for solid tumor treatment), completed the fourth dose level in Phase 1 dose escalation, with maximum tolerated dose expected to be determined by the end of 2026.
• Both candidates are fully owned by Fulgent, and the company has sufficient capital to advance development independently while remaining open to strategic collaborations aligned with its long-term goals.

Laboratory Services Innovation and Acquisitions

• Launched a novel stain-aware AI algorithm for automated mast cell quantification in gastrointestinal biopsies, which overcomes historical limitations of traditional AI approaches and creates a foundation for future advanced spatial biomarker analysis.
• Completed full integration of Bako Diagnostics and StrataDx (the company's fourth and fifth acquisitions) with minimal operational disruption; cross-trained the combined sales team to offer the full portfolio of services, expanding the anatomic pathology team to nearly double its pre-acquisition size.
• Completed product upgrade of whole genome sequencing service to the Illumina TruePath platform, increasing mean sequencing coverage from 40x to 60-70x and expanding covered repeat expansions from 21 to 64, broadening diagnostic scope for neurological and neuromuscular conditions.
• Integration with Epic's ARA specialty diagnostics platform is on track to go live with early adopters in Q3 2026, which will streamline ordering and result delivery within electronic medical records.

Operational Priorities

• The ongoing transition to a new revenue cycle management (RCM) and billing system caused billing delays, reduced collection rates, and lowered recognized revenue in Q2; resolving RCM issues is the company's top operational priority. Customizations missing from the new system are being implemented, and the company expects collection rates to recover once work is complete.

Total Q2 2026 revenue was $85.4 million, up 4% year-over-year (YoY) and 20% quarter-over-quarter (QoQ), with $16.9 million of revenue contributed by newly acquired Baco Diagnostics and StrataDx.

• Precision diagnostics: $41.5 million in revenue, down 13% YoY and up 3% QoQ, accounting for 48.6% of total Q2 revenue.
• Anatomic pathology: $37.5 million in revenue, up 33% YoY and 50% QoQ, accounting for 43.9% of total Q2 revenue.
• Biopharma services: $6.4 million in revenue, up 3% YoY and 11% QoQ, accounting for 7.5% of total Q2 revenue.

Therapeutic development segment recorded a $2.2 million one-time impairment charge on customer relationship and tangible assets tied to the loss of a customer in the segment. Overall GAAP gross margin for the company was 30.1%, non-GAAP gross margin was 31.3%. GAAP operating margin was -42.3% (improved from -48.7% in Q1 2026), non-GAAP operating margin was -26.2% (improved sequentially from -27.7% in Q1 2026). GAAP net loss was $29.5 million ($1.05 per diluted share), non-GAAP net loss was $16.2 million ($0.58 per diluted share), adjusted EBITDA loss was $17.1 million.

• Full year 2026 total revenue guidance is revised downward to $330-$340 million, from the prior guidance of $350 million, representing 2.3% to 5.4% YoY growth. The revised guidance reflects lower collection rates from the RCM transition, moderated new business growth expectations, and declining revenue from the largest customer that is moving testing in-house, which is partially offset by $53 million in expected contribution from Bako and StrataDx.
• Segment-specific 2026 revenue guidance: $161-$166 million for precision diagnostics, $146-$150 million for anatomic pathology, and $23-$24 million for biopharma services. No single customer is expected to account for more than 10% of full-year 2026 revenue, an improvement in customer concentration.
• Full-year 2026 non-GAAP gross margin guidance is mid-30%, and non-GAAP operating margin guidance is mid-minus 20%, reflecting product mix shifts and temporary lower collection rates from the RCM transition.
• Total 2026 spending on therapeutic development is maintained at $26 million, to advance FID-07 and FID-022 clinical trials.
• Full-year 2026 non-GAAP EPS guidance is a loss of $2.22 to $2.35 per diluted share, based on an updated average fully diluted share count of 28 million (down from 29 million due to share repurchases).
• Excluding future share repurchases, extra M&A, and extraordinary items, the company expects to end 2026 with approximately $510 million in cash, cash equivalents, restricted cash and marketable securities, down from the prior forecast of $636 million due to recent share repurchases and lower expected revenue.

• The ongoing RCM transition has created persistent billing and collection issues that have reduced near-term recognized revenue, and the timing of a full return to historical collection rates cannot be accurately predicted.
• Clinical trial success is not guaranteed, and interactions with the FDA may not result in a path to approval that meets the company's current timelines or expectations.
• Revenue continues to decline from the company's former largest customer that is moving testing in-house, which creates ongoing top-line pressure that may not be fully offset by new acquisitions in all quarters.
• A $106.1 million expected federal income tax refund has been delayed due to resource constraints at the IRS, creating temporary uncertainty around near-term cash balances.
• Forward-looking financial performance depends on successful integration of new acquisitions and successful development of the therapeutic pipeline, both of which carry inherent execution risk.

Q: What specific issues are causing delays in the RCM transition, what is the timeline for resolution, what share of Q2 revenue was suppressed by lower collection rates, and are delayed collections recoverable? / A: Missing customizations that existed in the legacy billing system were not carried over to the new platform, which are required to maximize reimbursement. The company has identified all missing features and is working to implement them. Without the RCM collection issues, Q2 results would have met original expectations and full-year guidance would have been reiterated; underlying test volume and core business demand remains on track, with only recognized revenue impacted by lower current collection rates. The company expects to return to historical collection rates over the coming quarters, and any recovery would potentially create upside if collection rates exceed historical levels after fixes are complete.

Q: Is the transition of the large customer moving testing in-house fully complete, and what is the expected residual revenue run rate going forward? / A: The transition is nearly fully complete. Only a very small amount of residual revenue remains from this customer, and negligible revenue from this customer is included in back-half 2026 projections, aligning with the company's pre-existing guidance assumptions.