Fulgent Genetics Q2 2025 Earnings Report

Fulgent Genetics EPS Results

• Actual EPS: $0.07
• Consensus EPS: -$0.23
• Beat/Miss: Beat by +$0.30
• One Year Ago EPS: $0.15

Fulgent Genetics Revenue Results

• Actual Revenue: $81.80 million
• Expected Revenue: $76.21 million
• Beat/Miss: Beat by +$5.60 million
• YoY Revenue Growth: +15.20%

Fulgent Genetics Announcement Details

• Quarter: Q2 2025
• Date: 8/1/2025
• Time: Before Market Opens
• Conference Call Date: Friday, August 1, 2025
• Conference Call Time: 8:30AM ET

Fulgent Genetics (NASDAQ:FLGT), together with its subsidiaries, provides clinical diagnostic and therapeutic development solutions to physicians and patients in the United States and internationally. The company's clinical diagnostic solutions include molecular diagnostic testing; genetic testing; anatomic pathology laboratory tests and testing services, such as gastrointestinal pathology, dermatopathology, urologic pathology, breast pathology, neuropathology, and hematopathology; oncology tests and testing services; and sequencer services related to hereditary cancer, reproductive health, and other diseases. Its therapeutic development solutions focus on developing drug candidates for treating a range of cancers using a nanoencapsulation and targeted therapy platform to enhance the therapeutic window and pharmacokinetic profile of new and existing cancer drugs. The company operates picture genetics platform, which includes gene probes, data suppression and comparison algorithms, adaptive learning software, and proprietary laboratory information management systems that helps customers to identify health markers in their personal DNA. It serves insurance, hospitals, medical institutions, other laboratories, governmental bodies, payors, municipalities and large corporations, and patients. The company was formerly known as Fulgent Diagnostics, Inc. and changed its name to Fulgent Genetics, Inc. in August 2016. Fulgent Genetics, Inc. was founded in 2011 and is headquartered in El Monte, California.

Fulgent Genetics Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q2 core revenue of $81.7M grew 16% year-over-year and 11% sequentially, and management raised full-year revenue guidance to $320M (14% growth).
• Positive Sentiment: Received CE Mark for Fulgent Exome and Pipeline Manager, enabling full launch of its end-to-end germline testing service across Europe.
• Positive Sentiment: Advanced therapeutic pipeline: FID-7 Phase II trial on track for end-of-year enrollment completion with 2026 readout and FID-22 Phase I initiated, with combined trial costs estimated at ~$38M.
• Positive Sentiment: Secured over 20 new managed care agreements covering >35M lives, strengthening in-network contracting to support volume growth and reimbursement.
• Neutral Sentiment: Non-GAAP gross margin improved to 44.2% driven by operational efficiencies and one-time adjustments; adjusted EBITDA loss was ~$3M, and cash and securities stand at ~$777.5M.

Presentation

[Operator]

Greetings and welcome to the Folder Genetics Q2 twenty twenty five Conference Call and Webcast. At this time, participants are in a listen only mode. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Lauren Sloane, Investor Relations. Please go ahead.

[Lauren Sloane, Managing Director at The Blueshirt Group]

Thank you, and good morning, and welcome to the Fulgent second quarter twenty twenty five financial results conference call. On the call today are Ming Hsieh, Chief Executive Officer Paul Kim, Chief Financial Officer and Brandon Perthews, 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.

[Lauren Sloane, Managing Director at The Blueshirt Group]

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 or future events 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 discussion 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 ks for the year ended 12/31/2024, and subsequently filed reports, which are available on the company's Investor Relations website.

[Lauren Sloane, Managing Director at The Blueshirt Group]

Management's prepared remarks, including discussions of profit, loss, margin, earnings and earnings per share, 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 the financial results for second quarter twenty twenty five for more information, including the description of how the company calculates non GAAP income, loss, non GAAP earnings, 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 or loss, earnings and loss per share and operating margin, the most directly comparable GAAP financial measures. With that, I now turn the call over to Ming. Please go ahead.

[Ming Hsieh, Chairman, Board of Directors & CEO at Fulgent Genetics]

Thank you, Lauren. Good morning, and thank you for joining our call today. I will start with some comments on the 2025 and our two business lines. Then Brandon will review our product and go to market updates for our laboratory services business. And Paul will conclude with the financials and outlook before we take your questions.

[Ming Hsieh, Chairman, Board of Directors & CEO at Fulgent Genetics]

We are pleased with our second quarter results. We have shown both sequential and year over year growth in laboratory services. We are pleased with the momentum we are seeing as we move through 2025. Our therapeutic development pipeline is on track. Our first clinical candidate FID-seven is progressing through a Phase II clinical trial in combination with cetuximab in patients with recurrent or metastatic head and neck sequelae cell carcinoma with thirty two patients enrolled and dosed.

[Ming Hsieh, Chairman, Board of Directors & CEO at Fulgent Genetics]

We expect to complete patient enrollment by the end of this year with the data readout in 2026. We project the clinical trial of Phase two to be approximately $30,000,000 over a multi year period. Our second clinical candidate, FID-twenty two begin our Phase one trial and the first group of patients has been enrolled. FID-twenty two is a nano encapsulated NSAID-thirty eight for treatment of solid tumors, including potentially colon, pancreatic, ovarian and bile duct cancers. We continue to expect clinical trial cost of Phase one trial of FID-twenty two to be approximately $8,000,000 I am encouraged by the continued progress with our clinical pipeline and the potential for both FID-seven and FID-twenty two.

[Ming Hsieh, Chairman, Board of Directors & CEO at Fulgent Genetics]

These drug candidates address heavily pretreated patients with very few options left. I hope we'll be able to provide alternatives to further their lives. Our anticipated cause for this program is very reasonable and we believe our investment will be rewarded. Overall, I'm pleased with our progress in the first half of the year in both our business area. We'll continue to be in a strong financial position to execute our strategy.

[Ming Hsieh, Chairman, Board of Directors & CEO at Fulgent Genetics]

I would like to thank our employees, partners and stakeholders for your hard work and loyalty in a great quarter for our business. We look forward to further progress in the 2025. I'll now turn the call over to Brandon Perthews, our Chief Commercial Officer to talk more about the laboratory services business. Brandon?

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Thanks, Ming. We had a very successful quarter with all areas of our business performing well and delivering nearly $81,700,000 in core revenue, which is up 16% year over year and 11% sequentially. On a sequential basis, Precision Diagnostics was up 7%, Biopharma Services was up 54% and anatomic pathology was up 11%. During the second quarter, we launched a new whole genome sequencing service. While we have offered whole genome sequencing for some time, our latest version includes several new features that clinicians find important.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

For example, we have moved to a PCR free NGS test, provides more uniform coverage and reduces amplification bias from traditional PCR based library preparation leading to higher accuracy in variant calling. Our new whole genome includes exceptional resolution detecting CMVs with greater than two exon resolution and genome wide del dupes surpassing traditional exome sequencing. In addition, we are one of the only laboratories who integrate RNA sequencing into the interpretation. Integrated RNA analysis provides functional insights into genetic variants enabling deeper characterization of pathogenicity. RNA is able to detect aberrant gene expression, mono allelic gene expression and aberrant splicing of expressed target genes.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Further building momentum for genomic sequencing, the American Academy of Pediatrics recently recommended exome and genome sequencing as first tier tests for children with global developmental delay or intellectual disability. This is a significant milestone for genomic sequencing and for those patients and families who can benefit from it. This new practice guideline with a powerful diagnostic tool in the hands of more than 60,000 pediatricians across the country. Another key development in our genomic testing was that we received certified CE Mark for Fulgent Exome and Fulgent Pipeline Manager. To our knowledge, we may laboratory to receive CE Mark for such a comprehensive end to end germline testing service.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Fulgent Exome is a patient centric phenotype driven analysis designed to examine coding regions and splice junctions for more than 4,600 genes and to report only the variants which are of plausible clinical relevance. It is a next generation sequencing based system designed for clinical exome analysis to identify germline variants to aid the clinical diagnosis of suspected genetic conditions relevant to the patient's clinical and family history. Fulgent PLM is an in vitro diagnostic software used with Fulgent Exome to analyze genetic information derived from sequencing data. Fulgent exome is ideal for patients who have a complex or very rare combination of phenotypes that are not suggestive of any recognizable syndrome or for whom previous focused testing has been negative. The American College of Medical Genetics and Genomics recommend exome or genome as a first line test for developmental delay, intellectual disability and congenital anomalies.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

The National Society of Genetic Counsel recommends exome or genome as first line tests for all individuals with unexplained epilepsy and this guideline is endorsed by the American Epilepsy Society. With the CE Mark, we can now make full gen exome available to clinics and hospital systems throughout Europe, helping families get answers to complex clinical phenotypes. We believe the CE Mark is an important step to growing our global business. An area we continue to make progress in is managed care. Since January, we have executed over 20 new agreements adding over 35,000,000 new covered lives to our in network contracts.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

We believe with our extensive product portfolio, excellent turnaround time and other features around bioinformatics and AI, we present as a valuable partner to payers. The focus for the managed care team going forward is to continue maintaining excellent relationships with our key payer partners and continue to expand our in network coverage across the country. We believe we are firing on all cylinders and investing in the right areas to continue to expand our capabilities and commercial reach. We are excited to deliver a successful second quarter as well as increase our annual revenue guidance for 2025. For the second half of the year, the focus will be on gaining additional market share in the three areas of our business as well as continuing to expand the sales organization.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

I'd like to thank the Fulgent team for all of their hard work and dedication. And I'll now turn the call over to Paul Kim, our Chief Financial Officer. Paul?

[Paul Kim, CFO at Fulgent Genetics]

Thank you, Brandon. Revenue in the 2025 totaled $81,800,000 compared to $73,500,000 in the 2025. The revenue from COVID-nineteen testing is negligible. Revenue from our core business totaled $81,700,000 Gross margin on a non GAAP basis was 44.2% and a GAAP basis was 42.1%. Gross margins improved year over year and sequentially due to streamline operations, enhanced efficiency and the impact of certain one time adjustments.

[Paul Kim, CFO at Fulgent Genetics]

Turning to operating expenses, non GAAP operating expenses totaled $43,900,000 compared to $37,400,000 in the 2025. Total GAAP operating expense was $54,100,000 in the second quarter compared to $48,100,000 in the 2025. The rise in operating expenses reflected two key investments, the expected increase in R and D spending to support our clinical studies and higher end sales and marketing costs driven by the expansion of our sales team and ramped up marketing initiatives. Non GAAP operating margin increased slightly sequentially to a minus 9.4%. Our GAAP loss was $19,000,000 for the quarter, included a one time non cash charge related to a $9,900,000 impairment of a prior investment.

[Paul Kim, CFO at Fulgent Genetics]

Adjusted EBITDA loss for the second quarter was approximately $3,000,000 compared to a loss of $2,900,000 in 2025. On a non GAAP basis and excluding equity based compensation expense, intangible asset amortization and impairment loss income for the quarter was approximately 2,100,000.0 or a positive zero seven dollars per share on 30,700,000.0 weighted average diluted shares outstanding. In the second quarter, we repurchased approximately 130,000 shares at an aggregated cost of $2,200,000 pursuant to our stock repurchase program. Since the inception of the stock repurchase program in March 2022, a total of approximately $110,400,000 has been spent with approximately $139,600,000 remaining available for future repurchases of our common stock. Turning to the balance sheet, we ended the second quarter with approximately $777,500,000 in cash, cash equivalents, restricted cash and marketable securities.

[Paul Kim, CFO at Fulgent Genetics]

Cash used in the period included $31,700,000 for income tax credits purchased as mentioned earlier, 2,200,000.0 of the stock repurchase. We guide to core revenue, which is laboratory services revenue for the company without COVID-nineteen testing revenue. To reflect current business performance, we're adjusting our revenue outlook for the remainder of the year, increasing revenue guidance from $310,000,000 to $320,000,000 for 2025, representing a growth of 14% year over year. We continue to expect non GAAP gross margins for the full year to slightly exceed 40% continuing the strong momentum we experienced in recent quarters. We expect non GAAP operating margins to improve from minus 15 to minus 13% for the year, driven largely by increased revenue.

[Paul Kim, CFO at Fulgent Genetics]

We continue to invest in business growth, further develop laboratory operations and enhance our existing laboratory facilities. We remain focused on managing our spending and continue to believe that our foundational technology platform supports a strong margin profile in the longer term. In July, we closed acquisition of AMP Technologies for an enterprise value of approximately $4,000,000 AMP has already played a pivotal role in Fulgent Pharma's R and D progress through a long standing licensing agreement that granted access to proprietary nano drug delivery technology supporting our lead drug candidates FID-seven and FID-twenty two. With this acquisition, we now own the core intellectual property enabling full control over the development, expansion and future commercialization of these and related formulations both in oncology and potentially beyond. However, even with this acquisition included, we continue to expect our associated cash burn for our therapeutics development business to remain at approximately $25,000,000 this year, which is contemplated at our EPS and cash guidance.

[Paul Kim, CFO at Fulgent Genetics]

Using an average share count of $32,000,000 we now expect an improvement to our full year 2025 non GAAP EPS guidance from a loss of $0.65 per share to a loss of $0.35 per share excluding stock based compensation impairments and amortization of intangible assets as well as any one time charges. Reflecting the improvement in our operations, has offset the effect of our one time non cash impairment adjustment, we're now revising our GAAP EPS guidance to a loss of $2.1 per share from $1.95 per share excluding any future one time charges using a $32,000,000 average share count. Finally, our cash position remains strong. We're focused on efficient capital allocation that allows us to invest in future business, fund key initiatives and to support future growth. Excluding any future stock repurchases or other expenditures outside of the ordinary course, which could include M anticipate ending 2025 with approximately $770,000,000 of cash, cash equivalents, restricted cash and investments in marketable securities.

[Paul Kim, CFO at Fulgent Genetics]

Overall, we see strength in our core business, which has grown organically and we see good momentum for the balance of 2025. Thank you for joining the call today. Operator, now you may open it up for questions.

[Operator]

Thank you. We'll now be conducting a question and answer session. Our first question is coming from Lu Li from UBS. Your line is now live.

[Lu Li, Director - Healthcare Equity Research at UBS Group]

Great. Thank you for taking my question and congrats on the quarter. Guess maybe on the guidance, the $10,000,000 increase for full year, how much is that from the Q2 bit versus the second half improvement? And then specifically, I think there was a $7,000,000 increase in physician diagnostics. I was wondering if that is coming out from the VA contract or the Foundation Medicine partnership?

[Paul Kim, CFO at Fulgent Genetics]

Yes. Thank you for the question. Brandon, do you want to talk about the strength in our laboratory services business and the reason why we're raising the outlook?

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Yes. Certainly, can do that. Thanks Lou for the question. In regard to the $7,000,000 improvement in Precision Diagnostics, yes, the VA did play some role in that. We've had a great working relationship thus far with the VA.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

We actually see that relationship expanding. We've done a lot of different tests for the VA. We've done great with turnaround time and quality implementation and there's actually some opportunity to expand that into some further areas of genetic testing. But in terms of Foundation Medicine, very strong partnership, really happy to be aligned with them to promote our products in parallel. The revenue for the quarter was not material, but we see that relationship strengthening.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

We see the go to market strategy improving. So we think there could be some additional upside around that this year, but a little bit slower than we anticipated, but it's a big partnership to get off the ground. But the in addition to those two, Lou, we saw strength across many different areas of our precision diagnostics portfolio, whether that's hereditary cancer, BEACON expanded carrier screening, a little bit of NOVA NIPT volume. But overall, I mean, just the precision diagnostics business was performed very well in the quarter.

[Lu Li, Director - Healthcare Equity Research at UBS Group]

Great. And then my second question on the AP, it seems like pretty strong in the quarter. I was wondering if there are anything like a one time dynamic that we should think about given that your kind of like guidance just like the second half will be slower. I just want to make sure that I understand the dynamic within IT.

[Paul Kim, CFO at Fulgent Genetics]

Yes. Brandon, you want to talk about the strength in our anatomic pathology?

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Yes, absolutely. Lou, yes, there's really no one time event in the quarter. I think for a couple of quarters now, we've said we've been pretty happy with the turnaround we've made there. The lab has done an excellent job with quality and turnaround time and EMR integrations. And I think the biggest thing we've done there is improve expand that sales organization.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

The growth you're seeing in AP is purely organic growth. It's blocking and tackling. It's winning new deals. The AP team has excellent sales leadership and has an excellent team that is much bigger today than it was a year or two ago. So it's pure execution from both the lab and the sales team and we're quite excited to see that AP business turnaround and hit a really nice stride in terms of growth.

[Lu Li, Director - Healthcare Equity Research at UBS Group]

Got it. Final question is for Paul. So on the gross margin, 44%, it seems like there's some onetime adjustment there. I was wondering if you're asking me that, what will be the kind of organic gross margin for the quarter?

[Paul Kim, CFO at Fulgent Genetics]

Yes, that's an excellent question. So we're really pleased with the bump that we saw in our gross margins. About half of the increase was due to a onetime accounting adjustment that we had in there, but the other half is due to the overall strength in our business combined with the continued efficiency that we see in the operations of our Laboratory Services business.

[Lu Li, Director - Healthcare Equity Research at UBS Group]

Great. Thank you.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Thank you, Lou.

[Operator]

Thank you. Next question today is coming from David Westenberg from Piper Sandler. Your line is now live.

[David Westenberg, MD & Senior Research Analyst at Piper Sandler Companies]

Hey, thanks for taking the question and congrats on the color there. Just a follow-up from Lou's question on Timex Pathology. I think you did say 11% growth. That is a really good number. When you talked about the new sales force, were you able to enter new geographies that if that's the case, is there any other new geographies that you have an opportunity to get into to keep growing that anatomic pathology business?

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

David, it's Brandon. Thanks for the question. And yes, you nailed it. We did put new salespeople in new geographies. I think we've mentioned a few times that our managed care contracts are very strong and they're national managed care contracts.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

That gives us a ton of green grass to go out there and hunt in. So the sales team historically has been subscale. There's been a lot of territories that were not covered, But there's AP opportunities plentiful across the country. So the focus has been hiring really good salespeople that can hit the ground running and putting them in territories where we don't either don't have reps or don't have growth consistent with other sales territories. So again, it's not super flashy, it's blocking and tackling, hiring the right people, putting them in the right geographies and then giving them a product and a service that they can successfully sell.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

It's turnaround time, quality, the quality of our subspecialty trained pathologists. I think when you put all of that together, we have an AP business that is growing and will continue to grow throughout the rest of the year.

[David Westenberg, MD & Senior Research Analyst at Piper Sandler Companies]

Thanks. And Brandon, you gave a lot of color on your rare disease offering. You mentioned the AAP guidelines. How are you going to go after that channel? Is this going to be I know you have experience at Baylor, for example.

[David Westenberg, MD & Senior Research Analyst at Piper Sandler Companies]

So is this going to be outpatient? Are you going to see this a little bit more in the NICU? Is it kind of all of the above? And can you talk about some of the synergies you might have with the existing going after existing hospital systems or any kind of sales pull through with reproductive health and I guess it wouldn't be obstetricians, but pediatrics?

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Yes, certainly. Look, think the take home message is the momentum in exome and genome. More and more societies are endorsing this test as a frontline test. We've seen the value of getting to a diagnosis earlier in these patient journeys, putting these types of tools in the hands of practitioners and of course that helps with insurance coverage and reimbursement as well. So I mean, think that's the major takeaway is exomes and genomes are going to continue to grow as the utilization increases and families and patients are going to benefit from it.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

I think the move of AAP to endorse this for their pediatrics is great. How you penetrate that market, it's just a more fragmented market, right? When we talk about children's hospitals or academic medical centers, it's a more concentrated call point. So perhaps we might need a larger sales team if we really want to go after the pediatrics market. Certainly, the academic medical centers and children's hospitals are the main call point.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

I think what we've done in parallel with these improved recommendations from these societies is build a really, really good service in parallel. Our new whole genome with RNA is a great service. We are seeing a significant increase in diagnostic yield when we moved over to this new whole exome with RNA. We'll hopefully be presenting some of these data, but we're seeing improved detection rates of ten percent, fifteen percent over our previous version. So we're helping a lot more families.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

So we're encouraged to see the momentum in genomic sequencing, and we intend to continue to invest in our capabilities as well as our sales team to gain market share while this service grows.

[David Westenberg, MD & Senior Research Analyst at Piper Sandler Companies]

Perfect. Just one last on FI-seven, I think you said enrolling this year and then reading out next year. Is there anything that would hold up the enrollment for And as we're thinking about the readout in 2026, what could be what could impact the timelines there as well? And thank you.

[Ming Hsieh, Chairman, Board of Directors & CEO at Fulgent Genetics]

Right. David, thank you for the questions. I think as we expect to accelerate the enrollment during the second half of the twenty twenty five. Previously, we excluded patients pretreated with paclitaxel, but with the current enrollment and the data we've seen, the safety data we've seen from the first 32 patients, we felt we could open up for the patients who were clearly treated with paclitaxel could be also enrolled into our program. So we are broadening the pulse.

[Ming Hsieh, Chairman, Board of Directors & CEO at Fulgent Genetics]

Another area where we've seen encouragement from the NCII pipeline is the patients previously treated pembro, becomes the use of the maintenance therapy become the first line. So we're in a good position for the head and neck cancers patients who already progressed with pembroxidiment, they can get into our treatment options right away. So we see all the positive signs in that area.

[Operator]

Thank you so much.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Thank you, David.

[Operator]

Thank you. Next question is coming from Andrew Cooper from Raymond James. Your line is now live.

[Andrew Cooper, VP - Equity Research at Raymond James Financial]

Hey, everybody. Thanks for the time. Thanks for the questions. Maybe just first, I want to kind of dig in a little bit more on some of the comments around AP and the guide there. It looks like you are kind of pointing to a little bit lower dollar revenues in the back half on a quarterly basis.

[Andrew Cooper, VP - Equity Research at Raymond James Financial]

Is anything changing there? Is there anything informing that? Is it a little bit of seasonality, a little bit of conservatism? Just help us think about the trends after what was a really good quarter in AP at least versus our outlook.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Yes. Thanks. Again, I think we're really pleased to see that business return to growth. It's We do see some seasonality in the back half of the year, especially around sort of dermatological procedures. So if you think about the last half of the year, there's a lot of elective surgeries biopsies that may be pushed past the holiday season, for example.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

But who knows? I mean with the progress we're making and some of the new wins, we might be able to outpace some of that seasonality. Think when we take a look at the pipeline and the opportunities, I mean there's significant strength there. So I mean it does slow down a bit in the back half of the year. But I think there's some potential upside if these pipelines come to fruition that could potentially outpace the seasonality.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

But that's essentially what you're seeing is that slowdown into the late Q3 and Q4.

[Paul Kim, CFO at Fulgent Genetics]

Andrew, this is Paul. We really anticipate that much softness. I mean, first of all, we're very, very happy with the increase and the results in the second quarter in our AP business. I think if you take a look at the initiatives in marketing and the expansion of the sales organization, you see that investment in the operating expenses. The selling and marketing, that's gone from $8,500,000 to $12,300,000 We think that investment, as Brandon mentioned, was very much needed and we're going to get more aggressive in expanding that sales organization.

[Paul Kim, CFO at Fulgent Genetics]

So we anticipate elevated numbers in Q3 and Q4. But as Brandon mentioned, they can even be better than what we anticipated. So we're optimistic about the AP business. But at the same time, we want to be a little cautious to take that increase and then project that out into Q3 and Q4 until it materializes.

[Andrew Cooper, VP - Equity Research at Raymond James Financial]

Okay, helpful. And then maybe another kind of high level question about the trends here. If we go back to some of the acquisitions, there was talk about rolling contracts through to the broader organization and some of the advantages there. You talked about the managed care wins that you've had since the start of this year. How has that played out in terms of kind of apples to apples AST versus giving you the opportunity to win incremental volume?

[Andrew Cooper, VP - Equity Research at Raymond James Financial]

Just would love how those dynamics have driven the numbers and informed the increased guide here, whether more price, more volume and kind of how it's performed versus expectations?

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Thanks for the question. I think overall, a strong managed care division and strong contracts helps with your go to market strategy. Clinicians nowadays do not like using out of network laboratories. We've seen out of network cost share increase over the years significantly when we look at out of network deductibles, co pays and coinsurance. So the more patients we can have under our in network umbrella, the better our go to market strategy is.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

So I think we're incredibly strong in that area. We've added significant coverage this year. I know we haven't updated you much in the past, but we have made a lot of progress. So we thought it was a good time for that update. And our intention is continue to get these contracts, continue to expand our in network coverage because that is an important part of the sales cycle, the go to market strategy.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Clinicians want labs to be in network so patients can take advantage of their in network co pay, coinsurance and deductible.

[Paul Kim, CFO at Fulgent Genetics]

But in addition to the go to market strategy, as Brandon mentioned, a strong RCM and reimbursement team. With the additional volume, we experienced efficiency and better realization, which I think that you're continue to see in the performance of our gross margins.

[Andrew Cooper, VP - Equity Research at Raymond James Financial]

Okay, great. I'll leave it there. Thanks everybody.

[Brandon Perthuis, Chief Commercial Officer at Fulgent Genetics]

Thanks Andrew.

[Operator]

Thank you. We've reached the end of our question and answer session. And ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.

Participants

Executives

• Ming Hsieh, Chairman, Board of Directors & CEO
• Brandon Perthuis, Chief Commercial Officer
• Paul Kim, CFO

Analysts

• Lauren Sloane, Managing Director at The Blueshirt Group
• Lu Li, Director - Healthcare Equity Research at UBS Group
• David Westenberg, MD & Senior Research Analyst at Piper Sandler Companies
• Andrew Cooper, VP - Equity Research at Raymond James Financial