Fulgent Genetics 2026 Q2 Earnings Call

Welcome to Fulgent's second quarter 2026 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, ir.fulgentgenetics.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 U.S., or GAAP. Management has presented these non-GAAP financial measures because it believes they may be useful to investors for various reasons. 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.

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 impairment, 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. Brandon will review our product and go-to-market update for our laboratory service business. Paul will conclude with the financial and outlook 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 II trials data for FID-007, which demonstrate encouraging activities in recurrent or metastatic head and neck squamous cell carcinoma. Fulgent has taken a differentiated approach with FID-007. It's a novel nano-encapsulated paclitaxel candidate developed with Fulgent's CleanChemo platform. The platform is designed to reduce toxicity typically associated with conventional chemotherapy while maintaining or improving efficacy, a profile Fulgent believe is preferable in combination oncology regimens.

With phase II complete and the encouraging data now presented publicly at ASCO, we are focused on the next milestone. We have confirmed the end of phase II meeting with the FDA, which is scheduled later this summer. We believe the phase II we have generally provide a strong foundation going into the FDA's discussion. Our phase III study is in preparation, and we hope to enter into a phase III 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 entering into the phase III registration trial will further increase the probability of success of the commercialization of FID-007 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 strength to advance through the phase II 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, FID-022, is progressing through the phase I dose escalation. With the first dose level successfully completed, we expect to determine the maximum tolerated dose level later this year. FID-022 is a nano-encapsulated SN-38 for the treatment of solid tumors, including potentially colon, pancreatic, ovarian, and bowel duct cancers. Please note that both FID-007 and FID-022 are derived from the same proprietary CleanChemo delivery platform, patented and fully owned by Fulgent. Similar to FID-007, FID-022 can also be used in various oncology drug combinations.

In the laboratory service business, we continue to see our AI and digital pathology solution work at an accelerated pace and are continuing to expand our AI portfolio. As we drive the innovation across our business and are seeing sustained demand and a consistent testing volume, we are also managing the transition of our billing and revenue cycle management system. This transition has caused delays in billing and the process of claims, and impacted our ability to collect at our historical rates and reduced the amount of revenue we are able to recognize from the tests we have performed. Addressing revenue cycle maintenance 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.

I will 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 $85.4 million, an increase of 4% year-over-year and 20% sequentially.

The second quarter, we did have the new acquisitions of Bako and StrataDx 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. Anatomopathology came in at $37.5 million, an increase of 33% year-over-year and 50% sequentially. 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 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 Mast 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 parameter 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 facial biomarker analysis and quantitative pathology applications in 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 quarter of having Bako and StrataDx integrated. From 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 for doing such an excellent job. These represented our fourth and fifth acquisitions.