Earnings Call: Q4 2020

Mar 4, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the ForGen Genetics 4th Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference to your speaker today, Nicole Borsha. Please go ahead, ma'am. Great. Thanks very much. Good afternoon, and welcome to the Fulgent Genetics 4th quarter and full year 2020 financial results conference call. On the call today are Ming Hsieh, Chief Executive Officer Paul Kim, Chief Financial Officer and Brandon Purtheus, the company's Chief Commercial 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 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, we will conduct 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 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 and 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 Q for the quarter ended September 30, 2020, which is available on the company's Investor Relations website. Management's prepared remarks, including discussions of earnings and earnings per share, contain financial measures not prepared in accordance with accounting principles generally exempt 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 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 Q4 and full year 2020 More information, including the description of how the company calculates non GAAP income and earnings per share and a reconciliation of these financial measures to income and income per share, 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 our call today to discuss our Q4 and full year of 2020 results. I will provide some opening remarks Before handing it over to our Chief Commercial Officer, Brandon Pertus, to provide updates on our commercial success. And finally, Paul Kin will discuss our financial results and outlook in detail. Before I start, I would like to say that our thoughts with those who have been impacted by this pandemic and The disruption it has caused weighs heavy on our hearts. We will continue to find a way to do our part in combating the spread of this virus and have been in the forefront position to provide testing and support for our customers throughout this challenging time. We look forward to leveraging our success and expertise to the greater good as we continue to battle this pandemic. With that being said, 2020 was truly a hallmark year for Forgent Genetics. While the financial trajectory of our business transformed significantly over the last 12 months, Our value remained consistent and our genetic testing platform has expanded and evolved to meet the challenges that COVID-nineteen has presented. I want to go through the details of each steps that we took to get where we are today. As I have discussed much this in detail on prior calls, but I will say that We have emerged in 2021 as a stronger motor bus business than we were a year ago, and that we are extremely well positioned to continue driving growth across our business through 2021 and beyond. Our results in the 4th quarter were truly outstanding. Our 4th quarter revenue of $295,000,000 is almost 3 times the revenue We generated in the Q3 of this year and more than 35 times our 4th quarter revenue of last year. We did more than 3,000,000 tests in the quarter and over 4,400,000 tests in the year compared to about 60,000 tests in all of 2019. At the same time, we demonstrate incredible leverage and generate more than $6 per share in non GAAP income in the 4th quarter and more than $9 per share in non GAAP income in the full year and $105,500,000 in free cash flow. Paul will cover financial details, But I want to emphasize that this leverage scale would not have been possible We saw our fundamental genetic testing technology, our proprietary lab operation and reporting system. Our ability to directly secure multiple reimbursement agreement and the execution capabilities of our sales and lapping. I'm extremely proud of what we have able to accomplish this year And the future of Fusion looks very bright for years ahead. Throughout the challenging landscapes and challenges in 2020, Our team has not only risen to meet the demands that came our way, but have gone above or beyond to Established Fusion as a true leader with the genetic testing and the screening market. This demonstrated in two ways, both by the customer and the contracts that we have won competitively, but perhaps more importantly, by the work we have done to pioneer new approaches to lab operations and test management to make testing more accessible and efficient. I would like to highlight few examples of this. 1st, on the leadership front, Foragen was recognized As the number one provider of COVID-nineteen tests in the state of California by California Department of Public Health in late January, processing The highest volume in tests with over 90% of results returned to patients within 24 hours and 97% retained within 48 hours. We have announced various wins and partnerships in the states over the last year. But To see Flosion at top list of all COVID-nineteen testing providers in California is truly a testament to our ability to execute and service customers successfully in a way that drives them to choose Fusion over some of the largest testing providers in the country. Our approach is fundamentally different. And the proof is in the Putting where you see the success that we are in the most popular state in our nation. Other highlights on the leadership front include multiple large testing contracts We have continued to sign to specific wins and new contracts with the Department of Homeland Security, as well as the extension of our testing partnership with the New York City Public School System. Brandon will discuss this partnership in more details in a In terms of COVID-nineteen testing capabilities, we have kept a close eye on the new virus mutations that have emerged and I'm pleased to announce that Our tests are detecting all major mutations of the world. We are also leveraging our next generation sequencing capability to support COVID-nineteen research on the various and the potential implications, which Brandon will elaborate on momentarily. In terms of pointing out new approaches to the market, we have done some exciting things with our software and technology program are using it as a new way to service our customers. Our software offering includes our vaccine management solutions and community testing software platform, which enable our customer to better manage their testing and the vaccine workflows, programs and policies. We already have several customers who purchased such offerings. While these programs are still very much In the early stage of our roll up, we are optimistic that we were able to leverage our software platforms as an avenue to servicing and maintaining customers in the month and the years ahead. Aside from COVID-nineteen, our next generation sequencing business continued to grow in 2020. Despite various lockdowns across the country, volume from NGS tests grew from 59 1,000 in 2019 to 72,000 in 2020. Looking ahead in 2021, we expect our NGS business will grow about 92% year over year to $70,000,000 And looking at our business overall, We expect revenue to almost double in 2021 compared to the record Revenue achieved in 2020, armed with our technology platform, We expect to continue to see strong growth and operating margins Due to our best in class cost structure, we also believe our technology platform set higher bar in the market by bringing business distance as our strategic wins have been through Rugo's competitive bid process and the sustainable value for our customers Through our ability to continue to drive down the cost for the market, at the same time, We believe that by applying our technology and operational execution into adjacent area, We'll be able to address larger market for fusion going forward. Throughout the balance of 2021, we plan to invest in sales, marketing initiatives as well as invest International expansion efforts to continue driving the momentum. We also view M and A as a potential avenue to expand our addressable market into Wider screening and the diagnostic capabilities. On last point, I would like to make It's around the philanthropic efforts that we have undertaken in the recent months in response to the pandemic. Advanced in engineering An important part of the response to the challenges presented by the COVID-nineteen, But they need to be careful applying not only to address current circumstances, but to promote Future productive collaboration engagement. In the 4th quarter, Suezheng donated $1,000,000 to National Academy of Engineering, the National Academy of Engineering in Collaboration with China National Academy of Engineering and United Kingdom Royal Academy of Engineering We will use the funds to identify, highlight and promulgate the best thinking on engineering system solutions to COVID-nineteen. We also made an initial donation of 250,000 As a part of a $1,000,000 commitment to USC to support the cancer research initiatives, We believe supporting these projects will bring Fortune closer to these Premier institutions and organizations as we become a larger company with a wider reach than our existing addressable market. Ultimately, We have remained focused on building a business with long term growth potential, And I believe we prudent that this year, the inroad we have made With the new customers, the partnerships we have serviced for the reimbursement, the Scale we have created with our lab operations, the extensions of our software application into the customer use and ramp of our picture platform together creates significant forward to reporting on our success in the quarters ahead. With that, I would like to turn the call Over to Brandon to dig into more on customers' dynamics we saw this quarter. Brendan? Thanks Ming. We'd like to again express our sympathy to those who have been impacted by this terrible virus. It has been a difficult time for many families in our country in general. The spike in cases and testing that was predicted by medical experts to happen in the fall indeed became a reality. During the Q4, we again saw lockdowns increase across many states, which did slow our momentum in our non COVID-nineteen business. However, we have seen increasing strength in our business outside of COVID-nineteen. Our non COVID-nineteen business grew approximately 40 3% year over year in the Q4 and we signed on over 15 contracts with new customers for services such as hereditary cancer, cardiovascular genetics, carrier screening and neurodegenerative genetics. During the Q4, we worked tirelessly increase COVID-nineteen testing capacity, maintain our best in class turnaround time and expand our testing footprint nationally. These efforts led to a quarter we were able to service over 3,000,000 patients with COVID-nineteen testing. At this time, we have the capacity to handle north of 100,000 tests per day across our 2 laboratories with the ability to continue to scale. During the Q4, we handled accelerating volume while Maintaining our best in class RT PCR turnaround time, delivering approximately 90% of tests within 24 hours. We believe our ability to scale our business So roughly 228x that of what we were handling just 1 year ago is almost unprecedented in our industry and is indicative of everything Fulgent represents. We are a technology platform company with the ability to excel in many areas of healthcare. We are a team of engineers, geneticists, genetic counselors and business operators with a fierce motivation to make Fulgent a dominant force. We have proven with our platform and infrastructure that we can run a laboratory that far outpaces many genomic labs in terms of efficiency and scalability, which translates to best in class growth and operating margin, which Paul will elaborate on in a minute. Early in the pandemic, our COVID-nineteen patient volume was concentrated around drive through testing sites and was somewhat limited to select regions in and around Southern California. Today, our COVID-nineteen customer base is incredibly diverse with a national reach. At this point, we have direct agreements with 11 counties for our Many large corporations, testing organizations, sports teams, sports conferences, cruise lines, Hundreds of nursing homes and assisted living facilities, just to name a few. We announced during the 4th quarter an extension of our New York City Department of Education and Test and Trace contract. The New York City Department of Education selected PulseChain as a partner after evaluating a number of different COVID-nineteen testing Through a competitive bid process, our ability to retain this business through the 2021 school year demonstrates that our platform is not only capable of meeting the stringent needs of the school system, but our service in doing so resulted in a very positive customer experience for the New York City Public School System. We believe we have built an incredible system for back to school testing and we have now had months of experience and many thousands of students tested. We believe this early start in an emerging testing market will help drive additional opportunities for Fulgent. In fact, we are excited to announce We were recently selected by Clark County and the Las Vegas School District to be their back to school testing partner. We look forward to continuing to deploy our resources across the U. S. To help students return to school safely. One other exciting announcement, which Ming briefly mentioned is that Fulgent was selected by the Department of Homeland Security as one of 4 labs chosen for a $2,000,000,000 5 year indefinite delivery, Definite quantity contract for COVID-nineteen testing. This is the largest contract we have been awarded to date. We believe with our industry leading turnaround time, Capacity and delivery platforms, we have the ability to take on a meaningful portion of this contract and help our country's first responders stay healthy and safe. The demand for our RT PCR COVID-nineteen test remains strong for both existing clients and new opportunities. We continue to build a robust sales funnel in a variety of different areas as the country continues to view testing as a critical tool And being used, they cannot replace the accuracy, meaning sensitivity and specificity of RT PCR. Many organizations, Government entities and counties are requiring RT PCR results. However, we do see an opportunity for rapid testing RT PCR results to work together. To this day, many labs are struggling with turnaround time, which limits the usefulness of RT PCR. However, we continue to provide results In generally less than 24 hours, we believe that fast RT PCR test continues to be the best option for testing. We continue to monitor the situation regarding new mutations and strains of the virus. Importantly, we want to make sure our RT The variance published to date. While almost all of our COVID-nineteen testing volume has been RT PCR based, I will remind you that we actually introduced Next generation sequencing based test prior to launching RT PCR. We realized quickly that the rapid turnaround time of RT PCR is critical in controlling the spread of the virus. Therefore, we did not commercialize the next generation sequencing test as a diagnostic test. Fast forward to today, Next generation sequencing is now in the spotlight of this pandemic due to its ability to identify strains and mutations and screen for potential new mutations. We have now hit a perfect intersection of Fulgent's core competencies. We are And ready to take on massive NGS testing volume. With our sequencing capacity and expertise, we can handle approximately 10,000 NGS We are currently working with local and federal government on genomic studies of this virus, which are just getting started. We believe our ability To offer both NGS and RT PCR puts us in a leading position to partner with organizations doing these studies. Another key area of opportunity for us has been our Pitcher at home COVID-nineteen test. This has proven to be an important differentiator for and has helped many people by providing convenient access to testing. Pitcher is being used for employee testing, student testing, pre travel testing And athletes, just to name a few. Highlighting a couple of specific use cases, we partner with the New York City and JetBlue to provide testing kits Travelers leaving New York airports during the holiday season in response to the testing travel mandates by the state. Also during the holidays, LA County launched a new COVID-nineteen home test collection program, which allows certain county residents to do complementary testing The FITR platform is more than just a COVID-nineteen testing. It is a platform designed to change the way genomic testing and other testing is delivered. We believe patients become increasingly proactive in their healthcare and consumer initiated testing will be a rapidly growing market. With the Fisher platform Seamlessly integrated with telemedicine, we are uniquely positioned to expand the service offering by adding many new tests in the future. We also believe we have dramatically expanded Pitcher's visibility and brand recognition due to the role the platform has played in COVID-nineteen testing. While COVID-nineteen testing has been unwavering in the demand on our business, we have continued to invest time and resources in our non COVID-nineteen operations. We are excited to announce that we have launched a next generation sequencing based pharmacogenomic test. Our pharmacogenomic test will target 44 genes And more than 140 drugs to enable personalized dosing in healthcare and will determine if a patient is a rapid metabolizer certain drugs or a slow metabolizer, adjusting dosing accordingly or perhaps a different drug altogether to be recommended. While both pharmacogenomic tests Our RT PCR base includes limited targets and information, applying our expertise in next generation sequencing allows us to unlock much more information and We look forward to commercializing this product in 2021 and beyond. In addition to our new pharmacogenomic test, Continue to expand the number of disease specific panels we offer and the number of conditions we test for. As published In the NCBI Genetic Testing Registry, GTR, we now offer over 19,000 genetic tests, making the Follett menu one of the largest in the world. We intended 2020 to be the year we dramatically expanded our commercial sales team. However, COVID-nineteen threw us an unexpected curveball. That said, we intend to dramatically increase our sales team headcount by the end of 2021. We believe we now have the product menu, turnaround time and cost structure to drive significant expansion in the United States and overseas. In addition to a vastly expanded sales team, an important part of our go to market strategy has been increasing our managed care contracts. An incremental benefit of COVID-nineteen testing has been our increased exposure to payers. In the 4th quarter, We've built over 1,800,000 more insurance claims than we did in the Q4 of 2019. We have become an in network laboratory with Several regional payers and now have close working relationships with several large national payers. We believe we will continue to make meaningful progress Another opportunity for us is the extension of our software platforms to customers, which Ming briefly touched on. We recently launched 2 new software products, the Fulgent vaccine management platform and the Fulgent community testing software as a service product, with both which both leverage the testing platforms we have built to support our MAPFRE's COVID-nineteen testing operation. The vaccine management platform is a layer added to our extremely successful technology platform, which is used by drive through, Walk up and other testing operations. Now on the same web based platform, patients are able to schedule their vaccination, Pick a location, arrive pre register with a QR code, get a digital confirmation of their first injection and reminders for their second. This will be a fee The second product, the Foldit Community Software as a Service is a completely novel approach for us. Some counties and municipalities Have their own laboratory and testing operations, but lack the platform technology to scale and effectively manage testing. In this case, they can now take a license to our Fulgent Community Software as a Service product. Essentially, it's a Fulgent front end, but instead Pointing the orders to our laboratory, it will point it to our customers. This will be a subscription service built annually along with a We have a number of irons in the fire as we work to emerge on the other side of this pandemic And we look forward to what the future holds for Fulgent. I would now like to turn the call over to Paul Kim, who will walk you through our 4th quarter and full year 2020 financial performance. Thanks, Brandon. Record 4th quarter revenues totaled Almost $295,000,000 an increase of more than 3,400 percent compared to the Q4 of 2019. Billable tests in the quarter totaled almost $3,200,000 growing more than 200 times the volume of Q4 last year. The vast majority of this volume was from our business related to COVID-nineteen. Despite the reemergence of a statewide lockdown in California and stay at home orders elsewhere, we saw stable demand for our traditional and testing business in Q4. Our core business in Q4 was up 43% year over year and 17% sequentially from Q3. We finished the year at almost $37,000,000 in revenues from our core business, which was slightly lower than our original projection before the pandemic hit. Overall, our Q4 results far exceeded our expectations largely due to the unwavering demand for our service capabilities. Our customer base Our ASP in the 4th quarter was $93 slightly lower than the $98 we saw in the 3rd quarter. While our ASP has largely remained stable over the last few quarters, a modest decrease is due to the increasing mix of tests for COVID versus non COVID. Cost per test for the quarter was a record low $16 an improvement of approximately 36% compared to the last quarter. Gross margin continued to improve and was up more than 8 percentage points sequentially. The gross margin improvement we've seen is a further testament into the scalability and leverage in our platform as revenue increased almost threefold sequentially and we drove further efficiencies in our lab operations and unit Now turning to operating expenses. Total GAAP operating expenses were $17,300,000 in the 4th quarter, up from $11,900,000 in the 3rd quarter. Non GAAP operating expenses totaled $14,800,000 up from $9,200,000 last quarter. Our non GAAP operating margins improved 12 percentage points sequentially to 77.6%. We continue to make meaningful investments across all our departments in the quarter, but our top line outperformance and increasing operating efficiencies continue to outpace the investments into our business. Based on our profits, we recorded a 26% tax rate in Q4. Adjusted EBITDA for the 4th was $230,000,000 compared to $1,100,000 in the Q4 of 2019. On a non GAAP basis and excluding equity based Thanks, Jason. Income for the quarter was $167,500,000 or $6.20 per share based on 27,000,000 weighted average diluted shares outstanding. Turning over to the balance sheet, the end of the 4th quarter was $432,000,000 in cash, cash equivalents and marketable securities. During the Q4, our Equity Shelf enabled us to sell approximately 4,700,000 more shares, raising almost $204,000,000 in cash net of issuance costs. We have not executed on any shelf program since twelvethirty one as to minimize dilution to our shareholder base. On the other side of the balance sheet, Contract liabilities stood at 26,600,000 for full year 2020. Revenues totaled $422,000,000 up almost 1200 percent year over year. Operating income totaled $290,000,000 versus operating loss of $428,000 last year. Non GAAP EPS was $9.10 based on 24,100,000 weighted average diluted shares outstanding. Now moving on to our outlook. We see significant opportunity in 2021 to extend our leadership with COVID testing, while our genetic testing business Should continue to expand. As we look at revenue streams for 2021, we see a more diverse mix of revenue drivers attributable to COVID-nineteen. In addition to RT PCR testing, we see growth potential from our NGS Phase COVID test As we continue to win more customers who are on sequencing to understand the characteristics of COVID as well as a growing number of variants. We also expect to generate revenues some revenues from our software licensing as customers who are beginning to purchase our software to utilize in their own environments for various applications. Further, we see continued growth in our at home platform, Textured Genetics, for both COVID and non COVID studies. On the non COVID front, we continue to add content and introduce more tests into multiple areas, including oncology and reproductive health. In addition to the aforementioned momentum, we see continued benefits from the expanded partnership On the reimbursement front by being able to anticipate payment for tests delivered. Based on our initial outlook for momentum in 2021, We expect test volume in 2021 to be over $8,500,000 which translates to approximately $800,000,000 in revenues, representing a growth of 90% year over year. In the Q1 of 2021, we expect revenues to be approximately 325,000,000 Of the $800,000,000 we estimate approximately $70,000,000 in revenues from NGS testing and $730,000,000 in revenues from RT PCR or non NGS test. We define NGS revenue as revenue from our traditional genetic testing business plus revenues from our NGS based COVID sequencing. These NGS test agreements include long term With major regulatory organizations, which provide important baseline information for COVID-nineteen and other infectious diseases for national and state level surveillance, defining important changes in transmission, identifying unusual or emerging variants and ultimately improving the public health response and the decision making with better laboratory data on a going forward basis. We believe our revenues from NGS testing will be more sustainable as it is less volatile than the evolving COVID testing market, which is driving our revenues from non NGS testing. We also note that $70,000,000 represents a 92% growth in our NGS business compared to 20 From a profitability standpoint, we expect to show ongoing leverage in our business, which drops to the bottom line and drives cash flow generation. We continue to rely on our foundational technology for operating our business, which is producing gross margins above 80% and operating margins above 70%. Even with aggressive hiring and investments in our business, we anticipate gross and operating margins will remain extremely strong. As such, for full year 2021, utilizing an estimated 27% tax rate and an estimated share count of 31,000,000, We expect net income of approximately $380,000,000 or approximately $12.50 per share for our shareholders, excluding stock based compensation. Before we turn it over to questions, I'd like to make a few comments on our balance sheet and capital structure. As of The date of our earnings report, our cash balance has grown from $432,000,000 at year end to $625,000,000 from our operations in January February. That plus our accounts receivable, which stand at over $200,000,000 Combined with guidance of $800,000,000 in revenues $380,000,000 in profits positions the company to have a cash position above $1,000,000,000 sooner rather than later. We're proud of Fulgent's capital structure As we achieve this feat organically with minimal dilution to our shareholders by Capitalizing on opportunities armed with our technology platform, we believe we're much stronger than we were a year ago with And these capabilities that address a much larger market. As such, we continue to assess strategic M and A targets on a regular basis. We also planning we also plan on opening up new markets in Asia and Europe in the future. Thank you for joining our call today. Operator, you can now open it up for questions. Thank you. Our first question will come from the line of Steven Ma from Piper Sandler. You may begin. Okay. Thank you. And congratulations on the quarter and the full year. Well done. Thank you, Stephen. So just a couple of questions on California and then also on the 2021 guide. I know from our internal channel checks, you seem to be pretty overweight in California. So should we think of that trend Continuing in 2021 and how that's been trending in the 1st months of the year as well? And then secondly, on the cadence of the guide, your Q1 guide implies about 40% of total 2021 revenues. Just maybe a little bit of details on that. Do you expect a drop in In COVID testing volumes in Q2 and just maybe a little bit more color on that. Thank you. Okay. Thanks for the question, Stephen. In terms of the concentration in California, because we are positioned In Los Angeles and Los Angeles County, it is true that a meaningful amount of revenues come from That county. But having said that, we have continued to diversify our business within the state to various Other counties as well as a number of other states. So if you take a look at the characteristics of Our Q4 revenues at about $295,000,000 only about a quarter of that came from LA County. The other thing that I would also say is in terms of the guidance that back in 2020, we were one of the few companies to Have guidance throughout the course of the year and we're pleased to exceed the expectation in each one of those quarters And for the year. We, centered around COVID and COVID testing. We believe that, we have confidence in our market share as well as in our positioning to have a formal guidance even this early on in the year. If you take a look at Our confidence that's based on the contracts that we have and the outlook, even as deep as Q3 and Q4. That can certainly change if the testing landscape changes, but on a conservative basis, we feel confident The $800,000,000 in revenues. So if you break out the $800,000,000 of revenues into 2 components, NGS And versus non NGS, we see the non NGS portion or approximately $730,000,000 Revenues being a 65 to a 35 split. That can certainly change if our market position and the testing Environment changes as we get deeper on to the year, but that's what we feel comfortable with. On the flip side, on the NGS side, Based on the progress that we made from a number of different fronts, including reimbursement and corporate customers that we have Been introduced to through COVID, some of those corporate customers are very well aware of our capabilities and we have executed on contracts which both Our confidence in being able to hit that $70,000,000 In terms of the grade of how that $70,000,000 We see Q1 MGS revenues being flat to slightly up, but that should Accelerate nicely as we get into the future quarters throughout 2021. Okay, great. Thanks for the color. And maybe just if I could sneak in one quick one. On the Department of Homeland Securities contract, Can you give us a little bit more details such as how many other parties are within that contract And what proportion of that $2,000,000,000 can you get? Can you give us a sense, is it all the testing that you can handle? Or is there some other structure In terms of the volumes you might get from that? Thank you. Yes. Thanks, Stephen. It's Brandon. So, yes, the Department of Motor and Security contract $2,000,000,000 over 5 years. IDIQ contract. We're one of 4 laboratories that are named in that contract. That's going to have pretty far reach. I mean, the Department of Homeland Security, multiple departments, a lot of employees, and it's essentially driven by the demand for testing. These are task orders from the government that come in that need testing services and testing kits. I think With Fulgent Delivery Platform, our reach, our turnaround time of the labs that are a part of it, I do think we stand out a little bit. We do have the capacity to take on a meaningful portion of that. I mentioned kind of where we are today, north of 100,000 And between our two labs, we can continue to grow that. So, it will be entirely driven By the demand for testing, some of these departments are still back to work full time, so to speak. So I think as The country begins to reopen and we start thinking about back to work and back to a sense of normalcy, testing it with the Department of Homeland Security will continue A growing area, propulsion and testing in general. Okay, great. Thank you. Our next question will come from the line of Kevin DeGeeter from Oppenheimer. You may begin. Hi, this is Susan calling in for Kevin. First question, I actually just want to tap on to the geographic Split between California and other areas. Based on our model, it looks like the percentage from California Increases at 1Q. Is that correct? The percentage of business that we have in California, it should be pretty consistent with what we saw in the If you take a look at our major customers that are providing, say, over $10,000,000 of revenues within the 4th quarter. We have a number of different counties That's driving those revenues aside from LA County, San Bernardino County. We have Santa Clara County, Long Beach, Anaheim, several others. And we see the level of testing and the And the demand for our services being pretty consistent within those customers compared to the 4th quarter. Great. Just one more related to COVID. Do you guys have a sense of how large the market is For COVID variant characterization? So the market definitely is There, I'll make a few comments and then I'll turn it over to Brandon. And the market is there in Bigger ways for the variance aside from the testing on the NGS side. And that's what has us really excited, because if you Take a look at the NGS and the contracts that we have signed, These are major organizations that are in the business of policy and Standard setting. It's a very, very competitive bid. These are sizable contracts and they chose a fulgent based on our Quality, capabilities and the value that we have. And the value that we have is really unique because The amount of COVID volume that we do is obvious. But what is not so obvious is the capabilities of the company before Because we're a genetic testing company that was at the highest end of testing capability for next generation sequencing, We were at a perfect spot to capitalize on some of those opportunities and ink those contracts. We believe that these contracts We'll have very good legs because it is more predictable, it's sustainable, it's less volatile And it's not tied directly to the demand for testing. And we see these contracts As something that will have years of growth for the company. We also compete we are also building several projects with various pharmaceutical companies related to NGS test for COVID-nineteen. So Susan, to answer your question, Right. I mean, how does the market look? The market for testing goes up and down through each one of the ways. And we're in a environment now, because of the vaccine distribution. So we fully recognize that and that's the reason why We have confidence in the $800,000,000 but we're anticipating just the immediate testing revenues Say like drive thru sites to go down. If it doesn't go down, then we can certainly change our guidance. But what we are excited about is Our positioning within that testing market, we believe that we're gaining market share and we can clearly see that. The other thing that we See, in the testing area is I think that you will begin to see that the concentration Not only in LA County, but in the state of California being more diversified. We I've Talked about the state of New York and by other big states like Texas and Florida. We believe that the testing Share the testing revenues in those states, they would increase. And then if you combine what that need to do work For the variance and analysis, which first centers around COVID, but it really is about Highly infectious diseases. We believe that we can offer tremendous amount of value to governmental bodies By being invited to execute on full sequencing. And then the other thing Ming just mentioned is from the commercial basis, we are being invited more to do full sequencing for Pharmaceutical organizations. So if you take a look at the testing environment, we think that it's a better to report not just COVID and non COVID, we think a better way to characterize it Would be NGS versus non NGS. And then if the software revenues, which we're very, very excited about, Because if you take a look at the foundation of the company, our previous publicly traded company was If we get more meaningful traction within our software applications and our software sales, And we certainly look forward to updating the investment community based on that model. Thank you for all that color. If I may, sorry, that was very good long answer. A couple of questions on your core business. Do you guys have a priority listing in mind for the different things that you mentioned for business development in the future? Yes. So let me take a shot at that and then I'll Turn it over to Ming about business development. So in terms of the COVID landscape, If you take a look at how we consider the business, the amount that we invested in COVID from a dollar It was very, very minimal. So in terms of the priorities, We believe our ability to run a business efficiently and by our ability To show our capabilities, we can certainly have a very good positioning within the COVID marketplace. What we are more concentrated on is the NGS side and Really utilizing our technologies to bring better business discipline, value costs and sustainable adoption into the marketplace. So that includes things like next generation sequencing that we're fully comfortable with. We are also evaluating other And I'll turn it over to Ming, who will make comments On business development and investment in certain areas in the future. Thank you, Paul. So I think we talked about a little bit about the COVID-nineteen. Most of our 4th quarter and the 4th quarter's revenue comes through the drive thru test. But as the school reopening, people go back to work, Start with travel. We will see the revenues will shift from the drive thru to the We turn back to normal situations, so that's related to the COVID-nineteen side. In terms of NGS, Brandon mentioned about our pharmacogenomic testing. That's the new product we offer, which is also go to our partner channels to offer the same disease, which is same the customers to use our products for the patient treatment related to the precise Precision Medicine. So Brendan, you probably can cover a little bit more regarding about our product lines. No, I mean, I think that covered it adequately and we'll move on to the next question. Thank you. Our next question will come from the line of Erin Wright from Credit Suisse. You may begin. Great, thanks. So just to clarify, and sorry if you said this already, but in terms of the $70,000,000 in NGS testing revenue, how much of that is related to COVID testing versus the underlying business. A minor portion is related to COVID testing. Some of these contracts are new. We're very excited about it. We think that those new contracts certainly have a lot of upside that we haven't incorporated into that $70,000,000 Okay. That's helpful. And then, what is your guidance assume now in terms of reimbursement for COVID PCR testing? I guess, how are you Thinking about the sustainability of ASPs. Yes. Hey, Aaron, it's Brandon. Our expectation for ASPs to stay generally flat. I think they're in a sweet spot. We haven't heard of any expected changes in that. So our model would keep ASPs Pretty flat. And then the collection experience, Erin, has been very, very good. We've written off hardly Any receivables that we have on the balance sheet. So the reimbursement experience It has been fast because over half our revenues are through reimbursement right now and the experience has been very, very good. So we feel very good with the rate As well as what we'll encounter in 2021. Yes. It's evolving, but it looks like the NGS COVID-nineteen is going That's a bit more of a premium in terms of ASPs as well. So we'll see how that falls into the mix. Okay, great. And when we think about some of these partnerships with like sports Teens, cruise lines, are they largely exclusive relationships or have any sort of minimum volume commitments? And how are you thinking about the competitive landscape with like antigen Some of them are, Aaron. Some are exclusive, some are semi exclusive, some are multi year, some have minimum, some don't. I mean, With the number of clients we have and the volume we're doing, you can imagine it's pretty dynamic in terms of what these terms look like. There is a lot of competition out there, but I do think we stand out of the crowd quite a bit. I think we have the complete service offering. Our customers love us. We deliver. We meet our turnaround time. We make their life easier with our technology platforms. We have the capacity. So, we're are confident in the contracts we have. We will continue to be their preferred partner. Have tried some of those kits that were given to them by the federal government. They don't use them very much. And it's just the accuracy is not there. It's But I think people want to get the answer right. So the feedback we receive from our customers that have sort of run those in parallel, They continue to see RT PCR as the gold standard, especially when pools can turn it around less than 24 hours. Depending upon when we get the sample, of our RT PCR results are out in 8 hours. So I think that's a pretty powerful tool that we have to continue to offer. Okay, great. And then one last one sorry, go ahead. Yes. Adding Brandon's comments, I think the people ignored the importance of the back end, the software tracking system. If you take a look at the review of the operation results, We handled 4,400,000 tests last year. You can hear the labs where is the labs From the largest labs to the news commerce, they always have issues dealing with the customer. Using the samples, not accurate test, but Fusion Genetics last year tremendously stand out among the cloud. We never reported the loss of the single sample And we never run the test with the failures. So I think Looking forward, our platform will be continued to expand And we continue to deliver in this market and also address the new market that we've seen emerging. Okay. That's helpful. And in light of like new markets and what you're contemplating, I mean, how should we be thinking about Your revenue mix in 2022, do you think a huge component of it will be non NGS testing? Will it be meaningful in 2022? Or does it just become all And GS testing or is there another third leg that we don't need to know about? Thanks. Yes. Let me I'll tee it up and then I'll I'll turn it over to Ming, who will comment on how the mix might look after this year. We believe I mean, the short answer is, we believe that we'll have both NGS as well as non NGS Thanks. If you take a look at how we laid out the guidance, we talked about the $70,000,000 what that includes and why we're excited about that $70,000,000 But on the COVID testing front, There are different categories of COVID testing. There are the drive through sites. And then there are COVID contracts that we have signed on, that is largely post the vaccine environment. These include things like schools, they include travel and leisure, they include opening up corporations. So when you take a look at what they want to do in terms of testing, that's part of their policy. We believe that, that has business extension beyond 2021. Now to the extent How much that would be? We see what we have signed on and we feel comfortable with the guidance that we have given. But there's a potential That market might still continue to be healthy. What we have more confidence in, Regardless of how the landscape looks like is our positioning within that market. We believe that we're continuing to capture market share Within the COVID testing space, even today as vaccines are being administered. So adding Paul's comments, we do believe the COVID-nineteen test will be remaining for our business for a while. University of Hong Kong Research Team Yesterday's published paper on the Lucent and Science, it identified Even though individual being vaccinated, that person Still, we have a capability to transmit the virus. So this brings a new challenge to the society is how do we do the prevention, even the people being vaccinated and this person still continue to be the transmitter for the infections. So without being said, with the return backs of travel, The airlines, airlines that require the Travelers being tested with the COVID-nineteen, that program will start. The people go back to work, Go back to school, still need to make sure that there is no infections. So we do believe the COVID-nineteen test will be still there. It is very early to make predictions. We did not add all those things into our guidance. The same thing for Brandon Mentioned the DHS contract we went, we did not add that one as a part of our estimate. So As Paul mentioned, it is early of the year. We are armed with the technology and our capabilities, not only to address the COVID-nineteen market, Our capabilities far beyond what we could do for the COVID-nineteen. We will work to continue to gain the market shares while protect our The shareholders, Verdi. Okay, that's helpful. Thank you. Thank you. Our last question will come from the line of Sung Ji Nam from BTIG. You may begin. Hi, thanks for taking the questions. Hopefully, a couple of quick ones. One on COVID surveillance going forward. Just a clarification on the Department of Homeland Security contract, does that entail next gen sequencing solely or is that a combination Both PCR and next gen sequencing. And are you seeing and it's great to see interest from local and state governments around surveillance of COVID pandemic. But are you seeing kind of any concerted effort at the national level In terms of building out infrastructures for not only COVID surveillance, for other pandemic surveillances down the road, are you seeing anything In terms of potential interest or demand there. Hi, Sung Ji, it's Brandon. Department of Homeland Security contract is strictly RT PCR. So, they're looking to screen their employees, enable early detection, get people out of the workforce, keep the rest of the workforce healthy, minimize Spread. I think it's exactly what RT PCR is meant to do in an asymptomatic screening type setting. We are seeing national efforts around NGS. The CDC is involved, HHS is involved. We are involved at that level. Genomic testing is Again, in the spotlight right now, I think monitoring these variants, seeing how they're responding to therapies, Seeing how they're responding to vaccine, are the vaccines working on these variants? We've seen some homegrown variants pop up in the United States. And I also think We're going to learn a lot about therapeutics in the future. I see RT PCR also playing a role as A bit of a companion diagnostic as we differentiate between the flu and COVID-nineteen, those symptoms are very similar. But perhaps those treatments could be vastly different. So we do need a definitive diagnosis more so than just symptoms. So I think we'll continue to see a push to do more genomic studies and applaud the money that's being set aside as Part of the budget and the CDC and HHS's involvement. Great. That's helpful. So adding Adding Brandon's comments, I think if you take a look where we were last year, We're not involved in the respiratory infection disease detections. But I can say that now we'll be the leader in that area, not only the COVID-nineteen, but all respiratory tracking infection disease. We will be in that market. Great. That's very helpful. And then just lastly, in terms of your international opportunities or investing in international opportunities going forward, could you talk about what that could look like? Would that Largely mirror what you're doing in the U. S. Or are there distinct opportunities outside the U. S. That you're considering? Thank you. Ming, do you want to take that last one? Thank you. Yes, I think this is Sanjit. We are looking at expansions in Europe and we are looking expansions in Asia. So we'll update you in the coming quarters about our progress. Okay. Thank you. Thank you. And I'm not showing any further questions in the queue. I'd like to turn the call back over to the speakers for any closing remarks. Thanks so much. Looking forward Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.