• Total Revenue: $64.5 million in Q1 2024.

• Core Revenue: $63.2 million in Q1 2024, excluding COVID-19 testing revenue.

• Gross Margin: 34.3% in Q1 2024.

• Operating Expenses (GAAP): $43.9 million in Q1 2024.

• Operating Expenses (Non-GAAP): $32.4 million in Q1 2024.

• Operating Margin (Non-GAAP): -12.9% in Q1 2024.

• Adjusted EBITDA: Loss of $3.2 million in Q1 2024.

• Net Loss (Non-GAAP): $269,000 or $0.01 per share in Q1 2024.

• Cash, Cash Equivalents, and Marketable Securities: Approximately $846.2 million at the end of Q1 2024.

• 2024 Revenue Guidance: Approximately $280 million expected, representing a 7% year-over-year growth.

• 2024 Gross Margin Target: Expected to increase to around 40% by year-end.

• 2024 Operating Margin Forecast: Approximately -18% for the year.

• 2024 Net Loss Guidance (Non-GAAP): Approximately $1.05 per share.

• 2024 End-Year Cash Forecast: Anticipated to be around $800 million.

• Warning! GuruFocus has detected 3 Warning Signs with FLGT.

Release Date: May 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Fulgent Genetics Inc reported a total revenue of $64.5 million in the first quarter of 2024, with a core revenue of $63.2 million driven by precision diagnostics in reproductive health and oncology.

• The company's therapeutic development business, Fulgent Pharma, is making progress with over 30 issued or active patents and a promising lead drug candidate, FID-007, showing positive results in clinical trials for various cancers.

• Fulgent Genetics Inc is experiencing strong momentum in precision diagnostics, expecting approximately 10% sequential core revenue growth for the second quarter.

• The company has launched a new NIPT test, KNOVA, which combines multiple screenings into one test, potentially streamlining processes for physicians and enhancing diagnostic capabilities.

• Fulgent Genetics Inc maintains a strong balance sheet with approximately $846.2 million in cash, cash equivalents, and marketable securities, supporting its strategic initiatives and operational needs.

Negative Points

• Year-over-year, the total revenue decreased slightly from $66.2 million in the first quarter of 2023 to $64.5 million in the first quarter of 2024.

• The company reported a sequential decline in core revenue of about $3.3 million, attributed to timing of biopharma service contracts and a decline in anatomic pathology revenue.

• Fulgent Genetics Inc's gross margin in the first quarter was 34.3%, indicating room for improvement to reach the target of over 40% by the end of the year.

• The company's adjusted EBITDA showed a loss of $3.2 million in the first quarter, although this was an improvement from a loss of $7.2 million in the same quarter the previous year.

• There are uncertainties regarding the impact of finalized lab-developed test regulations, which could potentially affect the company's operations and require adjustments to comply with new FDA guidelines.

Q & A Highlights

Q: What gives you comfort on the revenue ramp required to hit that $280 million sales target for the year? A: (Brandon Perthuis, Chief Commercial Officer) The confidence in the $280 million sales target stems from new opportunities and market share gains in reproductive health and oncology. The company also expects contracts in biopharma services that were not delivered in Q1 to contribute in Q2, supporting the overall revenue growth.

Q: Could you touch on the implications of those finalized lab-developed test regulations issued earlier in the week for Fulgent? A: (Brandon Perthuis, Chief Commercial Officer) The new regulations are seen positively as they may exempt products already on the market from a full PMA process, which benefits Fulgent given its large test menu. The company believes it has the necessary quality systems to adhere to these guidelines, potentially strengthening its market position.

Q: Can you run us through some of the things that you saw in March that give you confidence in the 10% growth sequentially? A: (Brandon Perthuis, Chief Commercial Officer) The confidence for the 10% sequential growth is driven by multiple customer wins and biopharma business contracts closed in March. The momentum in precision diagnostics, particularly in gaining market share, is expected to continue throughout the year.

Q: Do you think the new NIPT offering will have to go to the FDA for a 510(k), and what are the thoughts on compliance costs? A: (Brandon Perthuis, Chief Commercial Officer) It's still early to model the costs, but the initial understanding is that tests currently on the market might be exempted from a PMA process, though still subject to FDA quality standards. Fulgent is well-positioned to adhere to these guidelines without disrupting its product offerings.

Q: What does the investment look like for the go-to-market strategy with the OB-GYN community? A: (Brandon Perthuis, Chief Commercial Officer) The plan involves ramping up to around 20 new sales personnel by the end of 2024. The novel NIPT product requires some education for differentiation, and the rollout will be national, focusing on areas with higher population density.

Q: Is part of the guidance layering in incremental costs from the KNOVA ramp and build-out? A: (Paul Kim, Chief Financial Officer) The operating expense structure, including benefits from collections and lower fees, should normalize in the upcoming quarters. The guidance includes anticipated operating expenses and reflects confidence in elevated revenues and expanding business, particularly with expected gross margins increasing to approximately 40% or higher starting in Q2.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.