Fulgent Genetics, Inc. Common Stock Q2 2026 Earnings Call

Greetings and welcome to the Fulgent Genetics Second Quarter 2026 Conference call and webcast At this time, all participants are in listen only mode. A question and answer session will follow the formal presentation. You may be placed into question. Queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star zero. It's now my pleasure to turn the call over to Lauren Sloane Investor Relations. Lauren. Please go ahead.

Good afternoon and welcome to Second quarter 2020 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 at ir dot Fulgent Genetics dot 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 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 the future, and should listen to management's remarks today with the understanding that actual events, 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 the discussion 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 31st, 2025 and subsequently filed reports which are available on the company's Investor Relations website. Management's prepared remarks, including discussions of non-GAAP profit loss, operating expense, margin, earnings and earnings per share, and adjusted EBITDA 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. Please see the company's press release discussing its financial results for the second quarter of 2026. For more information, including the description of 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 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, including equity based compensation, tax effects, acquisition related items and potential impairments. Any of which may be material is unavailable. On a forward looking basis without unreasonable effort and the probable significance of those items cannot be predicted. With that, I'd now like to turn the call over to Ming. Please go ahead.

Thank you. Lauren. I will start with some comments on our two business lines Then Brandon will review our product and go to market. Update for our library service business And Paul will conclude with the financial and other Before we take your questions. I'm pleased with the momentum in our therapeutic development business as we progress on our clinical pipeline. In June, we presented the findings from the phase two. Trials, data for 507, which demonstrated encouraging activities in recurrent or metastatic head and neck squamous cell carcinoma. Has taken a differentiated approach with ID oh seven is a. Novel Nanoencapsulated paclitaxel candidate developed with forging clean chemo platform The platform is designed to reduce toxicity. Typically associated with conventional chemotherapy. While maintaining or improving efficacy. A profile. Fulgent Genetics is preferable in combination oncology arrangements. With phase two complete and encouraging data now presented publicly at Asco. We are focused on the next milestone. We have confirmed the end of phase two. Meeting with the FDA, which is scheduled later this summer. We believe the phase two. We have generated provide a strong foundation going into the FDA's discussion. Our phase three study is in preparation, and we hope to enter into phase three registration trial for the treatment of recurrent or metastatic head and neck squamous cell carcinoma.

Patients. In the first half of 2027. We are encouraged by our clinical trial progress achieved so far and believe we entering into the phase three registration trial will further increase the probability of success of the commercialization. Of ID oh seven for treatment of recurrent metastatic head and neck squamous cell carcinoma. Patients who currently have very few effective treatment options. We also want to reiterate our position on partnerships. We have financial strengths to advance through the phase two with our own, but we are open to collaboration discussions. We intend to approach those conversations with a focus on partners who bring both resources and long term strategic alignment. Our second clinical candidate. ID 022. Is progressing to the phase one dose escalation, with the first dose level successfully completed, we expect to determine the maximum tolerable dose level later this year if I. 0022 is a nanoencapsulated sn38 for the treatment of solid tumors in. Including potentially colon, pancreatic or. And bile. Cancers. Please note that both avid. 007 and 022 are derived from the same proprietary current chemo delivery platform patent and fully owned by forging. Similar to F, I'd oh seven f I'd 022 can also be used in various oncology drug combinations in the.

Library service business, we continue to see our AI and digital pathology solution work at the accelerated pace and are. Continue to expand our AI portfolios. As we drive the innovation across our business and seeing sustained demand and the consistent testing warning. We are also managing the transition of our building and revenue cycle management system. This transition has caused delays in billing and process claims, and the impact of our ability to collect at our historical rates and reduce the amount of revenue we are able to recognize from the test. We have performed addressing. New cycle minimums is. Our top operational priority. And we are making progress. I would like to thank our employees, partners and stakeholders for your hard work and loyalty and. Now return the call over to Brandon Perthuis. Our Chief Commercial Officer, to talk more about our laboratory service business. Brandon.

Thank you. Ming. We ended the quarter at 84. $85.4 million, an increase of 4% year over year and 20% sequentially. The second quarter. We did have the new acquisitions of Barco, Estrada, DX integrated, which contributed to the overall performance, breaking it down further precision diagnostics ended at $41.5 million, a decrease of 13% year over year. But. Increased 3% sequentially Anatomic pathology came in at $37.5 million, an increase of 33% year over year and 50% sequentially. And biopharma services ended the quarter at $6.4 million, an increase of 3% year over year and 11% sequentially. These numbers were affected by delays in billing and a decline in collection rates related to the ongoing transition of our revenue cycle management and billing system, which I will address more in more detail shortly. Paul will also discuss the related financial impact. We continue to see a real impact on operations from the development and use of AI. This quarter, we expanded our AI portfolio with a novel stain aware algorithm designed to automate mast cell quantification in gastrointestinal biopsies, an important biomarker in diseases such as systemic mastocytosis and mastocytic enterocolitis. Traditional AI approaches have struggled to accurately quantify mast cells due to diffuse tryptase staining associated with cell degranulation, limiting the reliability of automated analysis.

Our proprietary math AI platform overcomes this challenge through a DAB guided deep learning approach that accurately separates individual mast cells from surrounding extracellular staining in. Validation studies, the platform demonstrated strong performance across multiple staining methods, delivering highly accurate and reproducible quantification without requiring manual perimeter adjustments. This represents another example of our ability to solve complex pathology challenges using proprietary AI. Beyond improving workflow efficiency and diagnostic consistency, the technology establishes a foundation for advanced spatial biomarker analysis and quantitative pathology applications, and eosinophilic esophagitis and other gastrointestinal inflammatory diseases. As we continue to expand our AI enabled diagnostic portfolio, we believe capabilities further differentiate our end to end digital pathology platform and create additional opportunities to deliver value to clinicians. Pharmaceutical partners, and healthcare systems. The second quarter was our first full, full quarter of having Varco and strategy integrated an operations perspective. Things have gone incredibly well. There has been minimal disruption to turnaround time and client ordering patterns. The focus going forward is to move the operations to digital pathology so we can both use and develop new AI tools to improve efficiency and quality. I would like to congratulate the operation teams on both sides of doing such an excellent job.

These represented our fourth and fifth acquisitions. We believe we have proven we can successfully acquire and integrate new assets. In terms of the sales team, Tabasco and Strada teams have been fully cross-trained and are now selling our legacy anatomic pathology services in dermatology and GI. In addition to their previous services. So far, the initial progress has been encouraging, with the team building a robust pipeline of opportunities quickly. The new combined anatomic pathology team is at approximately 40, which is nearly