Pre-earnings preparation: Fulgent Genetics

Hi Everyone,

In preparation of next week’s Q4 results, here are the following things that I believe are worth watching for those interested:

  • 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

Q3 recap below:

Financial summary
I/S: Substantial shorter term revenue increase with positive longer term implications in all aspects.
B/S: Substantial increase in retained earnings and current assets with non-proportional minimal increase in liability.
C/F: Healthy and self-sustaining.
Operating: Increase in AR
Investing: Expansion related PPE
Financing: Pre-arranged shelf offering, institutional


	                        Three Months Ended			
	                        September 30,	
	                         2020	2019	Change	Change%	
Statement of Operations Data:	(dollars and billable tests in thousands, except per billable test data)
Revenue	                       101,716 10,347   91,369 	883%	
Cost of revenue	                26,261	3,885	22,376	576%	
Gross profit	                75,455	6,462	68,993	1,068%	
Operating expenses:					
Research and development	3,177	1,744	1,433	82%	
Selling and marketing	        5,014	1,687	3,327	197%	
General and administrative	3,741	1,522	2,219	146%	
Total operating expenses	11,932	4,953	6,979	141%	
Operating income (loss)	        63,523	1,509	62,014	4,110%	
Net income (loss)               46,638 	1,462 	45,176 	3,090%	
					
Other Operating Data:					
Billable tests delivered(1)        1,035 21     1,014  4,829%	
Average price per billable test 
    delivered(2)                    98   493    (395)	(80%)
Cost per billable test delivered(3) 25 	 185 	(160)	(86%)

**Impairments, provision for taxes, etc removed for formatting


	                        Nine Months Ended		
	                        September 30,	
	                        2020	2019	Change	Change%
Statement of Operations Data:				
Revenue	                        126,734 24,141 	102,593 425%
Cost of revenue	                38,035	10,473	27,562	263%
Gross profit	                88,699	13,668	75,031	549%
Operating expenses:				
Research and development	7,004	4,742	2,262	48%
Selling and marketing	        9,871	4,263	5,608	132%
General and administrative	7,575	4,682	2,893	62%
Total operating expenses	24,450	13,687	10,763	79%
Operating income (loss)	        64,249	(19)	64,268	338,253%
Net income (loss)	        48,003 	(115)	48,118 	41,842%
				
Other Operating Data:				
Billable tests delivered(1)	 1,229	 45	1,184	2,631%
Average price per billable test 
    delivered(2)	           103   536    (433)	(81%)
Cost per billable test delivered(3) 31 	 233 	($202)	(87%)

**Impairments, provision for taxes, etc removed for formatting

Simplified pro forma income statements


Pro Forma Genetic Testing Only 	12/20    9/20   6/20    3/20  Est. 2020	
(dollars in thousands, except per share data)						
Statement of Operations Data:						
Revenue	                        10,253   8,916 	7,753   7,753   34,675 	100%
Cost of revenue	                 7,717	 7,717	7,717	4,057	27,208 	78%
Gross profit	                 9,548	 9,548	9,548	3,696	32,340 	93%
Operating expenses:						
Research and development	 1,849	 1,849	1,849	1,978	7,525 	22%
Selling and marketing	         3,260	 3,260	3,260	1,597	11,377 	33%
General and administrative       1,799	 1,799	1,799	2,035	7,432 	21%
Total operating expenses         6,908	 6,908	6,908	5,610	26,334 	76%
Operating income (loss)	         2,640	 2,640	2,640  (1,914)	6,006 	17%
Net income (loss)	         6,666 	 5,329  3,321  (1,956)  13,360  39%

**Assumptions and plug variables

  • Impairments, provision for taxes, etc removed for formatting
  • 15% quarterly growth rate based on stated 57% growth.
  • Used the lower June cost structure. Implied operating leverage.

Pro Forma COVID Only 	         12/20	 9/20	6/20	3/20	Est. 2020	
(dollars in thousands, except per share data)						
Statement of Operations Data:						
Revenue	                        180,000 92,800 	9,512 	7,753 	290,065  100%
Cost of revenue	                26,261	26,261	7,717	4,057	64,296 	 22%
Gross profit	                75,455	75,455	9,548	3,696	164,154  57%
Operating expenses:						
Research and development	3,177	3,177	1,849	1,978	10,181 	 4%
Selling and marketing	        5,014	5,014	3,260	1,597	14,885 	 5%
General and administrative	3,741	3,741	1,799	2,035	11,316 	 4%
Total operating expenses	11,932	11,932	6,908	5,610	36,382   13%
Operating income (loss)	        63,523	63,523	2,640   (1,914) 127,772  44%
Net income (loss)	        71,638 	46,638  3,321 	(1,956) 119,641  41%

**Assumptions and plug variables

  • Impairments, provision for taxes, etc removed for formatting
  • Subtracted estimated revenue from non-covid testing.
  • Used the higher September cost structure. Implied operating leverage.

Pro Forma Genetic Testing Only 	12/21	9/21	6/21	3/21	Est. 2021	
(dollars in thousands, except per share data)						
Statement of Operations Data:						
Revenue	                       17,933  15,594  13,560  11,791   58,879 100%
Cost of revenue	                7,717	7,717	7,717	7,717	30,868 	52%
Gross profit	                9,548	9,548	9,548	9,548	38,192 	65%
Operating expenses:						
Research and development	1,849	1,849	1,849	1,849	7,396 	13%
Selling and marketing	        3,260	3,260	3,260	3,260	13,040 	22%
General and administrative	1,799	1,799	1,799	1,799	7,196 	12%
Total operating expenses	6,908	6,908	6,908	6,908	27,632 	47%
Operating income (loss)	        2,640	2,640	2,640	2,640	10,560 	18%
Net income (loss)	       14,346  12,007   9,973   8,204   44,531 	76%

**Assumptions and plug variables

  • Impairments, provision for taxes, etc removed for formatting
  • Used 15% quarterly growth rate based on stated 57% growth.
  • Used lower June 2020’s cost structure. Implied operating leverage.

I understand that there are practical limitations of pro formas but approximately separating out the COVID and the core genetic testing provides additional insight and context when viewing the actual numbers I believe.

The numbers are personal workbooks for self-use so I don’t constrain myself with GAAP limitations, build assumptions that I think are reasonable, and try not to spend too much time on some of the details. Just brief
exercises that help focus in on the big picture to be right directionally long-term.

Open to feedback and hope some of it was helpful.

Thank you,
Eddie

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