Realized that for the few here that are interested in FLGT, you may not have access to the ticker FLGT board that’s part of paid subscription. So reposting my notes below.
Key points heading into the call:
- Projected rate of decreasing tapering of COVID testing revenue.
- Results of core genetic testing business. Expected growth rate.
- Impact of the above two factors on 2021 cost structure.
- Possible updates on distribution related acquisition.
- Overall update on COVID.
- More information on the add-on subscription service models introduced due to customer demand discussed in previous industry presentation.
- $420MM revenue for 2020
- Almost 51% net margins.
- Operating margin 69%.
- $600MM cash and cash equivalents end of year.
- Guided $800MM revenue for next year.
- Expected to have $1B in cash and cash equivalents by end of year.
Other points that stood out:
- Share dilution, 31M outstanding compared to 25M, but offset by dramatic increase in EPS. Multiple reiterations and reassurances though of importance of minimal dilution and recognition of its negative effects on shareholders.
- Suggested permanence of Covid-19 NGS testing with emphasis on the two categories: NGS and non-NGS.
- The 92% increase includes covid testing. But its inclusion implies long term sustainability.
- Did not break out non-covid NGS testing.
- $800M guidance considered conservative. Does not include DHS revenue. And early in the year.
I skipped some sections but got most of it. Might have some typos. Got some verbatim and others paraphrased. Might be some confusion with speakers. I’ll be waiting for the expedited transcripts from seeking alpha later this evening.
Ming opening remarks:
Test captures all mutations
NGS leveraging research on virus and potential mutation
New approach to market
Technology platform and software
- Vaccine management system
- Community testing platform
- Workflow improvement
- Several customers already purchased offerings
- Early stages
- Able to leverage software platform as avenue of maintaining customers in months and years ahead
NGS continue to grow
Looking ahead to 2021
NGS grow 92M
Business discipline strategy
Ruthless competitive process
Continue drive down costs
Applying technique and operational execution in adjacent areas, address larger markets moving forward
Sales and marketing
International expansion to continue driving momentum
Potential M&A for addressable market
Q4 donated $1M to engineering scholarships
$1M to USC for cancer treatment initiatives
Long term growth potential – proven this year
Inroads made with new customers and partnerships
Extension of software applications
Create sustainable tailwinds
15 contracts for non-covid testing
Expand testing footprint nationally
100K tests per day currently
228 times scale up
Back to school testing NY
Emerging testing markets additional opportunities
Clark county also
FLGT Department of Homeland Security. 1 of 4 vendors
Large contract $2B
Demand for RT PCR remains strong
Many labs are struggling for turnaround time
Other labs missed the variants
NGS in addition to RT PCR
NGS in spotlight in pandemic for ability to screen for variant
“perfect intersection” for NGS
10k NGS test per day
Genomics of the virus
Leading position to partner with orgs studying
Specific use case: NY and Jet Blue / LA county
Picture platform – implement with telemedicine
Continued to invest in non-covid operations
NGS pharmaco genomic test – 44 genes
And expand offerings of NGS
19K menu one of largest
Will increase headcount this year 2021
Software platform – 2
VM – layer added to technology platform
Fee per click
Other one – municipality have their own platform but lack tech to scale. Can license. Subscription billed annual plus fee per click
6 major customers
Mix of test
$16 compared to $35 of cost per day
Lab operations and unit economics
Expect strong operating margin
31 share count, $280MM margin
BS and capital structure
Cash balance grown 625MM from Jan and Feb + AR + combined $800 guidance + (missed margin %) with = $1B cash position
Minimal dilution to shareholders
Strategic M&A targets
Overweight in CA – trend continuing?
Cadence of the guide, implies 40%, details, drop of C19 testing volume?
Paul response: concentration in CA, positioned in LA and LA county, meaningful amount from location. Diversified within CA to other counties and other states
¼ $295MM from CA
Few companies with guidance. And exceeded each quarter
Guidance this early. Confidence in contracts. And outlook
$800, NGS and non-NGS 65/35 split
Market position and testing landscape may change
NGS side, based on progress made
Some corporate customers, bolstered confidence
Flat to slightly up in Q1 and accelerate nicely heading throughout the year
How many other parties? What proportion? How about $2B? Capacity handle?
Brandon response: $2B over 5 years. 1 of 4 labs named in contract. Pretty far reach. A lot of employees. Driven by demand in testing.
Fulgent turnaround time should standout. Meaningful portion with current capacity of 100K daily. Entirely driven by demands. Some departments back to work
Kevin D. from Oppenheimer
Susan calling in for Kevin
Geographics of CA – based on model, percentage with CA increases.
Paul: should be pretty consistent Q4 and Q1 2021
$10M exceed per account – SB, SC, LB, A, and several others
See level of testing and demand pretty consistent in Q1
Size of market for variation?
Paul: Make few comments: market is there in bigger way. Aside from testing on the NGS. Really excited. Look at NGS and contracts, these are major organizations that are in the business of policy and standard setting. Competitive and sizeable contracts. Quality, capability, and value FLGT has. Volume we do is obvious but what is not so obvious is our capabilities. Highest end of NGS. Was at perfect spot to capitalize. Will have very good leg. Sustainable and less volatile. These contracts that will have years of growth for the company.
Ming: also competing for testing with insurance companies
Paul: markets go up and down. Different environment now because of vaccine distribution. Recognize. But anticipating testing revenue. Exciting. Positioning. Gaining market share. Also in testing area, begin to see concentration in LA county and CA whole being more diversified. NY, TX, FL. Testing share will increase in those states. Combine with need to do work with variants and analysis. First with COvid but really about highly infectious disease. Can add tremendous value with full sequencing. Commercial basis being invited more for full sequencing. Testing environment better characterization to report, not just C19 and NC19. NGS and Non-NGS.
Software, previous public company was software. Then may update investment community.
Priority listing in mind different for business development in future?
Paul: covid landscape. Amount invested was very very minimal. Priority and ability to run biz efficiently and show capability have very good positioning. More concentrated on, the NGS side. Really utilize tech and cost discipline to market. Also evaluating other modalities.
Ming: most of Q4 and Q1 2021 from drive-thru test but as school reopens, people go back to work and travel, see revenue shift to return back to normal. That’s related to covid-19 side. NGS, new product, partner channels. Same customers use products for patient treatments.
Erin Credit S
Paul: Minor portion of NGS relating to covid. New contracts will have lots of upside not incorporated into 70M.
How about ASP?
Brandon: sweet spot. Stay generally flat. No expected changes.
collections has been very good. Very little bad debt from AR.
Partnerships with cruise line? Min volume commitment? Antigen?
Some exclusive, some non-exclusive. Multi year and non MY. Lots of competition out there. Have complete offering. Deliver. Customers love us. Confident in contract we have. Antigen testing comes up. Customers have tried but they don’t use them very much. Accuracy not there. Feedback received, RT gold standard. Sometimes turnaround 8 hours
Ming: vaccine tracking importance. Review operating results. 4.4 tests handled 2020. Where are labs? Largest to newcomers. Always have issues dealing with customers. Not accurate tests? FLGT no failures. Looking forward, platform continue to extend in market and also new emerging market.
How about revenue mix?
Paul: short answer, will have both NGS and non-NGS. Laid out guidance. 70MM. But on covid testing front. Drive-thru, contracts largely post vaccine environment. Include school, travel and leisure, open corporations. Testing as part of their policy. Business extension beyond 2021. Have comfortable with guidance. Might still continue to be healthy. Our positioning within market. Capturing market share. Even as vaccines are being administered.
Ming: C19 testing will remain for awhile. University of HK identified that even though individual vaccinated, still could transmit virus. Bring new challenge to society. Too early for prediction but did not build them into target. Also DHS contract, did not include as part of estimate. Early part of the year. Cancer and cancer related diagnostics. Gain market share while protecting shareholder value.
C19 surveillance – DHS NGS?
Brandon – DHS strictly RT.
Seeing national effort for NGS. Genomic testing in spotlight right now. Monitoring variants.
Learn about therapeutics. Need definitive diagnostics. Continue for genomic studies. HHS and CDCs involvement
Ming: add to Brandon’s comment. Was not involved in respiratory infectious detection. Now we are leader. Not just COVID. Will be in the market.
Ming: we are looking into expansion into Europe and Asia. Will update in coming quarters.