Good afternoon, ladies and gentlemen, and welcome to the Q3 2019 Fulgent Genetics Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Nicole Borsje from Investor Relations. Ma'am, please go ahead.
Great, thank you. Good afternoon, and welcome to the Fulgent Genetics Second Quarter 2019 Financial Results Conference Call. On the call today is Ming Hsieh, Chief Executive Officer, and Paul Kim, Chief Financial Officer. The company's press release discussing its financial results is available in the investor relations section of the company's website, fulgentgenetics.com. An audio replay of this call will be available shortly after the call concludes. Please visit the investor relations section of the company's website to access the audio replay. Management's prepared remarks and answers to your questions on today's call will contain forward-looking statements. These forward-looking statements represent management's estimates based on current views and assumptions, which may prove to be incorrect. As a result, matters discussed in any forward-looking statements are subject to risks, uncertainties, and changes in circumstances that may cause actual results to differ from those described in the forward-looking statements.
The company assumes no obligation to update any of the forward-looking statements it may make today to reflect actual results or changes in expectations. Listeners should not rely on any forward-looking statements as predictions of future events and should listen to management's remarks today with the understanding that actual results, including the company's actual future results, may be materially different 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 discussions of some of the risk factors that may cause results to differ from those described in these forward-looking statements contained in the company's filings with the Securities and Exchange Commission, including the previously filed 10-Q for the first quarter of 2019, which is available on the company's investor relations website.
Management's prepared remarks, including discussions of earnings and earnings per share, contain financial measures not prepared in accordance with the accounting principles generally accepted in the United States, or GAAP. Management has presented these non-GAAP financial measures because it believes they may be useful to investors for various reasons, but they should not be viewed as a substitute for or superior to the company's financial results prepared in accordance with GAAP. Please see the company's press release discussing its financial results for the second quarter of 2019 for more information, including the description of how the company calculates non-GAAP earnings and earnings per share, and a reconciliation of these financial measures to income and income per share, the most directly comparable GAAP financial measures. With that, I'd now like to turn the call over to Ming.
Thank you, Nicole. Good afternoon, and thank you for joining us on our call today to discuss our second quarter 2019 results. I will review the highlights from the second quarter before Paul discuss our financial results and our outlook in detail. We had a record second quarter, easily achieving quarterly results for both tests volume and revenue. At the same time, we saw an improvement in gross margin and achieved a record cost per test, which leads to leveraging and GAAP profitability in the quarter. Specifically, revenue grew 56% year-over-year to a record $8.4 million. Billable tests increased 187% year-over-year to a new record high of 16,369, far exceeding the commitment we gave last quarter for at least 10,000 tests. With the strong volume, we have now reported more tests in the first half of 2019 than we did in all of 2018.
Our GAAP was $516. Our ASP was $516, down 28% compared to the first quarter of 2019. However, this was offset by the record low cost per test of $221, which was an improvement of 44% compared to the first quarter. The lower ASP continued to improve product mix, volume, and efficiency, which will be discussed further in a moment. Non-GAAP gross margin in the second quarter was 69%, up approximately 330 basis points from the second quarter last year, and up approximately 12% sequentially. GAAP income was at $331,000, and the non-GAAP income was at $1.2 million. Non-GAAP earnings per share was $0.06 in the second quarter.
Adjusted EBITDA was positive at $1.5 million in the second quarter. The strong results that was demonstrated in the second quarter were achieved of the ongoing traction we're having in the breadth of our offerings across our growing customer base, and with our collaboration agreement. The majority of growth in the test volume that we saw this quarter was driven by demand from our core clinical business. We are seeing increasing level of momentum with our oncology test, while our reproductive health and service for sequencing and research data analysis continues to work. The large volume tests we were able to, especially in the quarter, demonstrate how our investment in technology capabilities and infrastructure have set us well for the future success.
In addition to the strong volume growth we have generated in this quarter, we are particularly pleased with the leverage we saw in our business, which resulted in better profitability. We saw a meaningful improvement in gross margin result from our improved cost per test, which benefited from scale, automation, and efficiency with ramping volume. Our cost per test, excluding stock-based compensation, was a record low of $211. We believe this enable us to chase more opportunities, as well as we distinguish Fulgent to compete in any environment. We also saw great leverage with operating expense, generating volume and revenue with a minimum incremental sales and overhead cost. As we have discussed in the past, we have invested meaningfully in our technology, infrastructure, and talent in the last few years to create a scalable business capable handling higher volume.
Now that we are catching the demand for the incremental test volume, we are pleased with our ability to meet this demand in an efficient manner without having to operationally spend more to achieve this result. The market for the next generation sequencing and genetic tests is large and growing. We are uniquely positioned to capture this market share with our differentiated technology and approach. The collaboration agreement that we have continued to announce demonstrates that organizations and institutions value our offering because our unique technology and ability offer a wide range of customized tests that meet individual needs. With the flexibility of our offering, partners are able to better leverage our sequencing capabilities to deliver more informed and expert care for their patients on a timely basis. Another example of a partnership agreement that we have announced recently was with the Parkinson's Foundation.
The foundation was looking for a genetic testing partner to help them with a nationwide initiative that they will launch to provide eligible individuals with a genetic test for clinically relevant Parkinson-related genes. After a competitive process, the foundation selected partner with Fulgent, because we offered the best customized solution and overall value for the organization. We'll be compensated for the processing, sequencing, analyzing, and storing each DNA sample for the patients in the initiative. In addition to supporting the individual test, we were able to use the data that we gathered to assist the Parkinson's Foundation in research and development of a new treatment for the disease. We are having ongoing dialogues with a number of other large organizations and institutions for potential future collaboration. We are pleased with the diverse scope and geographical reach that we are seeing with this opportunity.
The increased number of opportunities that we are seeing is a testament of our superior technology capabilities and our ability to offer partners flexible and cost-effective solutions. We believe this type of partnership will continue to drive momentum of our business. We also have executed several collaboration agreements with our sequencing-as-a-service business with various biopharma and research institutions, and we expect to see revenue from this collaboration in the second half of this year. Moreover, we have made additional progress with our reproductive health care, I mean, with introducing new offerings to the market in the later part of this year. Moving on, one more recent highlight to discuss. Last week, we were very excited to announce that we have received approval from New York State Department of Health for NGS testing in the state of New York.
This approval is notarized, the difficulty to achieve, and we are pleased that we have a process and approach meet the rigorous standards set by the state. A testament to our refreshing technology, we believe it will expand our presence in the Northeast U.S. and open up additional opportunities for collaboration with our partners and institutions in New York. Finally, we are pleased to welcome Linda Marsh to our board of directors, which we announced in a press release this morning. We are excited to have Linda join us. Her knowledge and expertise in the healthcare industry, government relations, and with investments will bring great insight to our board. We look forward to working with Linda in the years ahead. In summary, we had a very strong start to the year. As we look ahead the rest of 2019, we feel confident in our market position and opportunities.
We have established a very solid platform to build upon, and we expect to continue to see strong test volume growth and profitability in the quarters ahead. I would like to now turn over the call to Paul to provide details on our financial performance in the second quarter. He also provide update on our financial outlook for the full year 2019. Paul.
Thanks, Ming. Second quarter revenues totaled $8.4 million, an increase of 56% compared to the second quarter of 2019. While our international business remains stable, our U.S. business has continued to be a significant driver of our momentum. Revenue from the U.S. grew 103% year-over-year in the second quarter, accelerating from 43% year-over-year growth in the first quarter of 2019. Revenue from the U.S. represented 79% of total revenue in the second quarter, up from 67% in the first quarter. Billable tests reached a new record high of 16,369 in the second quarter, growing 187% over Q2 of last year and increasing 117% from the first quarter of 2019. Our average selling price was $515, down from the first quarter as our non-pediatric business represented the majority of revenue in the quarter.
While our ASP has declined due to product mix, the cost associated with these tests has continued to decrease proportionately at a greater speed, at greater pace as we scaled. Cost per test for the quarter was a record low $221 on a GAAP basis, and $211 excluding equity-based compensation of $167,000. We're pleased with the improvements we've seen in our cost per test, which has increasingly benefited from operational efficiency, higher test volume, better productivity, and the use of our proprietary technology, including probes. The leverage we generated from a lower average cost per test has resulted in a meaningful improvement in our gross margin. Non-GAAP gross margin improved 12 percentage points sequentially, and 330 basis points year-over-year.
We expect that we reach the new normal with quarterly test volumes well exceeding 10,000 tests per quarter. With this volume, we expect that our gross margin should remain strong in the coming quarters. Turning to operating expenses. We remain committed to managing expenses while investing in future growth. Our top-line outperformance this quarter resulted in the first positive operating margin that we've seen in over two years. Non-GAAP operating margin was 12.3% in Q2, an improvement of more than 20 percentage points year-over-year and 35 percentage points sequentially. We will continue to see quarterly fluctuations in this figure, in the near term as we scale. Sales and marketing expense on a GAAP basis was $1.3 million in the quarter, flat with what we saw in the first quarter. R&D expense in Q2 was $1.6 million, up slightly from $1.4 million in the first quarter.
We continue to invest in all areas of R&D, from engineered chemistry to comprehensive analytics powered by artificial intelligence and machine learning, to the speed of development for our next product and service offerings. Our results this quarter demonstrate that we have the ability to be aggressive in our R&D investments while still maintaining a business model that demonstrates improving leverage over time. Lastly, total G&A expense was $1.6 million, up from $1.5 million in the first quarter. Total GAAP operating expenses were $4.5 million in the second quarter, up from $4.2 million in the first quarter. Non-GAAP operating expenses totaled $3.9 million, up from $3.8 million last quarter. We're very pleased we've been able to demonstrate strong momentum on the top line while only marginally increasing expenses. A testament to the long-term sustainability of our model and shows that discipline we've had in building our business is finally paying off.
Adjusted EBITDA for the second quarter was a positive $1.5 million, compared to $99,000 in the second quarter of 2018. On a non-GAAP basis and excluding equity-based compensation expense, income for the quarter was $1.2 million, or $0.06 per share on 19 million weighted average common shares outstanding. The effective tax rate at the end of the second quarter was a benefit of 1%, and non-GAAP tax rate was zero due to a full valuation allowance recorded earlier this year. Turning to the balance sheet. We generated strong cash flow in the second quarter on strong results. Cash provided by operating activities was approximately $675,000. That we reach profitability, it's our intention to generate cash from operations during each reporting period. We ended the second quarter with $38.7 million in cash equivalents, and marketable securities with no debt.
This equates to $2.03 in cash equivalents, and marketable securities per share. Moving on to outlook. As Ming discussed, we've seen strong momentum across our business, and we expect test volumes to build through the end of the year. Given the outperformance we demonstrated in the second quarter, as well as the confidence we have in our pipeline for the second half of the year and our growing network of partnerships, we're raising our full-year revenue guidance. We now expect revenues for the full-year to be at least $29 million, which represents a year-over-year organic growth of approximately 40%. We also remain focused on improving leverage while investing for growth. While we're pleased with the positive operating margin and net income that we generated, we may see near-term fluctuations in profitability.
We remain confident in our ability to demonstrate sustainable GAAP profitability by the end of the year. We're excited about the momentum we've been seeing and the opportunities ahead for Fulgent. The results we demonstrated this quarter validate that our technology and operational differentiation and approach to the market is sustainable longer term in this growing but competitive environment. We look forward to continuing on this momentum in the second half of the year. Thank you again for joining our call. Operator, now you can open it up for questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star then the number one key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question is from Erin Wright from Credit Suisse. Your line is open.
Great, thanks. Can you speak to some of the key factors that drove that sizable acceleration in volume in the quarter? Were there any of your new partnerships or collaborations that were a notable, meaningful contributor, or were there any sort of timing factors that we should be thinking about in terms of the quarterly progression, or do you think you hit a longer-term inflection point here? Thanks.
Erin, thank you for the question. We have several collaboration partners which contributed a significant amount of revenue for this quarter. As I talked about earlier, we continue expanding our reach, and we have some more of our new partners who will be joining us, and to continue, we provide the service for them.
Yeah, Erin, as you very well know, we've made a significant expansion in the product and the service offerings that we've had over the course of the last 12 months, whether it be in the area of cancer or reproductive health. It took the market some time to digest that we do have those capabilities. The second thing is, with the new sales organization and the success that they've had, forming these long-term collaborations and partnerships, that takes time. The other thing that we've done is, because we need a calibration of our operations, we made the pricing in this very competitive environment competitive. Whether it be service offerings, the result of a test, the quality of the test, the turnaround time, the prices, we made all those things available, and we believe that's what's causing the inflection point.
As far as sustainability, we feel confident enough based on the pipeline that we see and the traction that we have with these collaboration agreements for us to be confident about raising our outlook for the year. We believe the second half of the year is going to be even more successful than what we achieved in the first half of the year.
Okay. That's really helpful. You're clearly seeing some of the leverage here with the building volume. I did want to ask on the ASP front. I think you just mentioned some of that. How much of that was a proactive effort versus test mix in terms of the decline in the ASP? It just was a little bit lower than what we were expecting. Clearly, you're seeing the leverage thereon. Curious what the dynamics were from an ASP perspective. Is that a rate that we should kind of continue going forward, or how should we be thinking about that?
Erin, thank you for this. This is a tough question. As everybody worried about the decline in ASP, I think for the drop of the ASP, it is a proactive act from our end to respond to the market change in the industry. You haven't seen some of our competitors have been lowered their cost per test significantly, regardless, they are losing tens of millions of USD per quarter. From our end, due to the efficiency of our cost reduction, we would like to share some of those success with our partners. We have lowered our average cost to make our product more competitive, but we are not lowering the cost to satisfy the quality and the service. We reduced our turnaround time, and we increased our volume, and also we lowered our cost.
I think overall, our partners were happy to see we respond to market demand and provide the service that the industry was looking for. I think if you take a look at the overall, as we continue to increase our test volume, we will continue to see the cost reduction in terms of cost from our side. We're continuing to invest in new technology, new artificial intelligence, to make more automation for the entire process. We could stay in this market and compete with anybody.
Okay. That's helpful. Thank you.
All right. Thank you, Erin.
Your next question is from Bill Kirk of Piper Jaffray. Your line is open.
Great. Thanks, and good afternoon. Couple of questions. I guess with respect to the volumes, is there any way to break out what the new lower ASPs did in terms of driving some of that volume as compared with, say, looking at same-store sales with existing customers, as an example?
Bill, as you probably know, our test design is pretty flexible. Almost every test that comes in is customized from our workflow. We couldn't track that much in terms of which they come, what test. Overall, our test, the combination of the clinical, the test, our collaboration test, and the research sample, they are all mixed together.
I see. Okay. Maybe a different way of asking the question, Ming, would be, is there any way to talk about the volume growth from, say, new customers versus existing customers?
Yes. I think, Bill, for this quarter, the majority of our tests are cancer tests. We see that area has provided the most increase. Some of the quarter, depending on quarter to quarter, if you recall the last few quarters, we have a strong demand in terms of reproductive carrier screening test. This quarter, compared to the test, the more tests will come from the cancer-related test.
I see. Okay. The two additional ones for me is, I guess one for Paul. The guidance implies that the third and fourth quarter, I guess the low end of guidance, so at the $29 million, that you have a slight sequential decline in revenue. I guess I'd be curious as to why we would see a scenario like that given the really nice momentum you're seeing with volumes. Separately, and perhaps for Ming, any update on the latest with respect to your China joint venture? Thanks, guys.
Bill, we did, in the first half of the year, close to $14 million of revenues. I think what you're commenting on is if we did $14 million, and if you're guiding to $29 million, then doesn't that equate to a sequential increase of sales? The short answer is no. We don't anticipate that that's going to happen. Based on what we see, we think business will continue to grow in each of the quarters that we have for the year. That's the reason why we said the guidance is at least $29 million. We certainly expect internally here at the company that our overall business will be greater than $29 million. We are being very cautious because we've missed estimates during the past couple of years, and we certainly don't want to see that going forward.
Understood. Thank you. Ming, just the question on the latest with respect to the China joint venture.
Yes. Thank you, Bill. For the China joint venture, we do need to go through a couple of review periods. This year, as you see from our financial results, the loss has been narrowed in China's operation. We continue seeing the growth and the new opportunities arise in our China joint venture. We're looking forward to this year's sales in China as an independent entity will be at least double or triple in this year. However, as you may know, last year's revenue wasn't that high. It's about $1.5 million. This year, we expect a significant increase in that market. The JV in China has signed up several major institutions to start to ramp up their clinical tests. We do see that business will grow. Last year was stable. I think this year we'll see the growth.
Okay, got it. Thanks very much, guys.