Fulgent Genetics Stock

Thank you. Welcome to the Folger Genetics second quarter, 2026 conference call and webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star zero. It's now my pleasure to turn the call over to Lauren Sloan, Investor Relations.

Lauren, please go ahead.

Good afternoon and welcome to Fulgent's second quarter 2026 financial results conference call. call are Ming Hsieh, Chief Executive Officer, Paul Kim, Chief Financial Officer, and Brandon Perkins, 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.FulgineGenetics.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 31, 2025, and the previous year ended December 31, 2025. and subsequently filed reports, which are available on the company's investor relations 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 United States. gap. Management has presented these non-gap 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 gap. 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 income and loss per share, and 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 and loss, earnings loss per share, and operating margin, the most directly comparable GAAP financial measures. 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 impairments, any which may be material, is unavailable on a formal 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 me. Please go ahead. Thank you, Lauren. I will start with some comments on our two business lines. Then Brandon will review our product and go to market update for our laboratory service business. And Paul will conclude with the financials and other 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 finding from the phase two trials and data for FID-07, which demonstrate encouraging activity in in recurrent or metastatic head and neck sycoma cell carcinoma.

Ho-Jun has taken a differentiated approach with FID-07. is a novel nano-incalcified pachycloxacsoid candidate developed with the full-chain clean chemo platform. The platform is designed to reduce toxicity typically associated with conventional chemotherapy while maintaining or improving A profile, Fulgian belief is preferable in combination oncology arrangements. With phase two complete and the encouraging data now presented properly at the ESCO, we We are focused on the next milestone. We have confirmed the end of phase two meeting with the FDA, which is scheduled later this summer. We believe the phase two we have generally to provide a strong foundation going into the FDA's discussion. Our phase three study is in preparation, and we hope to enter into a phase three registration trial for the treatment of recurrent or metastatic head and neck cecumar cell carcinoma patients in the first half of 2027. We are encouraged by our clinical trial progress achieved so far, and I believe entering into the phase three registration trial will further increase the probability of the success of the commercialization of IVD-07 for treatment of recurrent metastatic head and neck sequelae. of 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 two with our own. we are open to collaboration discussions. We intend to approach those conversations with a focus on partners who between both resources and long-term strategic alignment. Our second clinical candidate, FID022, progressing to the phase one dose escalation with the fourth dose level successfully completed. We expect to determine the maximum tolerated dose level later this year. FIV-022 is a nanoencapsulated SN38 for the treatment of solid tumors. including potentially colon, pancreatic, ovarian, and the bile duct cancers. Please note that both IVD-07 and O2-2 are derived from the same property clean chemo delivery platform, tightened and fully owned by Zorgin. Similar to FID07, FID022 can also be used in ORIs and the cost drug combinations.

In the laboratory service business, we continue to see our AI and the digital pathology solution work at an accelerated pace and continue to expand our AI portfolio. As we drive the innovation across our business and have seen sustained demand and a consistent testing warning, 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 the impact our ability to collect data our historical rates and reduce the amount of revenue we are able to recognize from the tests we have performed. Addressing revenue cycle management 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 Perthews, our chief commercial officer, to talk more about our laboratory service business.

Thank you, Ming. We ended the quarter at $85.4 million, an increase of 4% year over year and 20% sequentially. The second quarter, In the second quarter, we did have the new acquisitions of Bako and Strata DX 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. Anatomic pathology came in at $37.5 million, an increase of 33% year-over-year and 50% sequentially. And 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. We will also discuss the related financial impact.

We continue to see a real impact on operations from the development and use of AI. we expanded our AI portfolio with a novel stain-aware algorithm designed to automate mass 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 standing associated with cell degranulation, limiting the reliability of automated analysis. Our proprietary mass AI platform overcomes this challenge through a DAB-guided deep learning approach that accurately separates individual mass cells from surrounding extracellular staining. In validation study, the platform demonstrated strong performance across multiple staining methods delivering highly accurate and reproducible quantification without requiring manual perimeter 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 spatial 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 opportunity to deliver value to clinicians, pharmaceutical partners, and healthcare systems.

The second quarter was our first full quarter of having Baco and StrataDX integrated. From the 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 operation 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. We believe we have proven we can successfully acquire and integrate new assets.

In terms of the sales team, the Baco and Strada DX teams have been fully cross-trained and are now selling our legacy anatomic pathology services in dermatology and GI, in addition to their previous services. So far, the initial progress has been encouraging with the team building a robust pipeline of opportunities quickly. The new combined anatomic pathology team is at approximately 40, which is nearly double our size pre-acquisition. Previously, we mentioned we entered into an agreement with Epic to be added to their ARA platform. ARA is Epic's specialty diagnostics platform offering genetic testing services within health systems electronic medical records to send orders and receive results. Both sides have been working diligently to complete the integration, and we are scheduled to go live with early adopters in the third quarter. Once live, it streamlines the process of interfacing with clients and improves access to genetic testing information within the EMR.

We look forward to going live with Aura and using it as a conduit to make ordering easier for our clients and strengthening our client relationships. We continue to push the envelope related to what can be accomplished with whole genome sequencing. Our standard whole genome sequencing service is now on the Illumina TruePath system, which is a short-read-like technology that maintains high accuracy while providing long-range genomic insights not achievable with standard short-read sequencing. With this new approach, our mean sequencing coverage increased from 40X to 60 to 70X. In addition, we are now able to expand the number of repeat expansions we cover. Coverage grew from 21 to 64, broadening the diagnostic scope for patients presenting with a wide range of neurological, neuromuscular, and other expansions. associated conditions. This new whole genome sequencing test can be ordered with our RNA integrated sequencing evaluation, or RISE.

RISE provides functional insights into genetic variants, enabling deeper characterization of pathogenicity. RISE also detects aberrant gene expression, monoallylic gene expression, and aberrant splicing. of express target genes. These features combine to cast the widest net possible, enabling improved diagnostic yield for those patients and families seeking answers to complex phenotypes. As Ming touched on, we are managing the final phase of the transition of our billing and revenue cycle management system. We originally undertook this transition to achieve greater consistency across our operations and to drive long-term efficiency, and we successfully finished phase one and phase two of the implementation. However, the most significant impact has been in the final phase of this transition. The system is very complex, and we have encountered challenges mostly related to implementing the customizations needed in this new system to maximize reimbursement that were not fully built into the initial launch.

That customization work remains ongoing today. We have made progress implementing a number of the required customizations and remain completing the remaining work as quickly as possible. As the remaining customizations are completed and integrated across our revenue cycle, we expect our collection rates to improve, though we cannot predict the exact timing of that improvement. Thanks for your time today. We appreciate you joining our call. I'll now turn it over to Paul Kim, our Chief Financial Officer. Paul?.

Thank you, Brandon. Revenue in the second quarter of 2026 totaled $85.4 million, including $16.9 million from BACO Diagnostics and StrataDX, compared to $71.1 million in the first quarter of 2026. The increase in our Q2 revenue was primarily due to the integration of Baco Diagnostics and StrataDx for the full quarter. Gap gross margin was 30.1%, and non-gap gross margin for the second quarter was 31.3%. The decline in gross margin reflects fixed costs spread over a lower revenue base, driven by the lower collection rate. We expect gross margins to normalize as our collection rate returns to historical norms and as revenue increases. Now turning to operating expenses. Total GAAP operating expenses were 61.8 million for the second quarter, which increased when compared to 56.1 million in the prior quarter. The increase in operating expenses was due to Bako Diagnostics and StrataDx being integrated for the full quarter.

The GAAP operating expenses also include a one-time impairment charge on customer relationship and tangible asset of $2.2 million related to loss of a customer in the therapeutic development segment. Non-GAAP operating expenses also increased in Q2, totaling $49.2 million compared to $42.6 million in the previous quarter. Gap operating margin improved to a minus 42.3% in Q2 compared to a minus 48.7% in Q1. Non-gap operating margin improved sequentially to a minus 26.2% in Q2 compared to a minus 27.7% in Q1. Our gap loss in the current quarter was $29.5 million, an increase from prior quarter's gap loss of $24.8 million, and a gap loss of $1.05 per share based on 28 million weighted average diluted shares outstanding. On a non-gap basis and excluding equity-based compensation, compensation expense, intangible asset amortization, impairment loss, and acquisition-related costs and severance. Loss for the quarter was approximately $16.2 million, or 58 cents per share, based on 28 million weighted average diluted shares outstanding.

Adjusted EBITDA for the second quarter was a loss of approximately $17.1 million compared to a loss of $15.2 million in the prior quarter. In the second quarter, we repurchased over 1.5 million shares of our stock repurchase program. Since Since the inception of the stock repurchase program in March 2022, a total of over 7.5 million shares of our common stock has been repurchased under the program with approximately 75.8 million currently remaining available for future repurchases of our common stock. Turning to the balance sheet, we with approximately $551.5 million in cash, cash equivalent, restricted cash and marketable securities. The 53% of the total decrease in cash from the previous quarter is primarily driven by $23.8 million spent on our stock repurchase program for one time service. $13.5 million payment towards a legal settlement, which was originally discussed and accrued in Q4 of 2025, and a $14.1 million cash used in operations in CapEx. As of quarter end, we have not yet received the $106.1 million federal income tax refund, which has been delayed due to a constrained resources at the IRS. Before providing our guidance for 2026, I'd like to provide an update on certain drivers shaping our expectations for the year and anticipated impact. acquisition of Spockle Diagnostics and StrataDx.

Our revised outlook for 2026 is based on lower than originally anticipated rate of collections. Core customer volume assumptions remain consistent with the original outlook, but we're looking at a new outlook. moderated our new business growth expectations. Additionally, we anticipated and mentioned on our call in the In February and April, we saw a decrease in revenue from our largest customer. which is moving its testing capabilities in health revenue from this customer, this, quarter decreased $4.6 million from the prior quarter. We anticipate a continued decline in revenue from this customer through the second half of the year. We believe this decrease in revenue from our largest customer will be partially or fully offset by the estimated contribution of approximately $53 million from Baco and Strata DX. contributing to overall revenue growth in the second half of the year. FACO's revenue will primarily be categorized as anatomic pathology. We continue to forecast that for full year 2026, no single customer will account for more than 10% of our total revenue, reflecting an improvement in our customer concentration profile.

We are revising our full year revenue guidance. We now expect total revenue to be in the range of $330 to $340 million for 2026, down from our prior guidance of $350 million. This represents a year-over-year growth of 2.3 and 5.4%. We now estimate precision diagnostics revenues to be approximately $161 to $166 million, anatomic pathology to be approximately $146 to $150 million, and biopharma services to be approximately $23 to $24 million. On margins, we now expect full-year non-GAAP gross margins to be in the mid 30% range, reflecting product mix shifts tied to our changing customer composition and lower collection rates associated with the transition of our revenue cycle management and billing system. We expect non-GAAP operating margins to be in the mid-20% for the year. We continue to prioritize investment across two key areas, R&D, where we are advancing our laboratory testing capabilities, and clinical study pipeline and sales and marketing, where we have grown the team. year reflects a full year of our expansion that began last year, combined with the recent Baco and Strata DX acquisition, which more than doubled their sales team.

The anticipated spend for the therapeutic development business remained at approximately $26 million in 2026. advancing clinical trials for FID 022 and FID 007. We remain committed to strategic investment in our business, including operational improvements and targeted upgrades to our laboratory infrastructure. These investments are designed to strengthen our competitive position in and enhanced throughout capacity over time. We believe our foundational technology platform is highly scalable, capable of driving meaningful operating leverage and margin expansion as volumes grow. The updates to our EPS and cash guidance are attributable to our revised revenue guidance and the decreased shares result in a better performance. resulting from the stock repurchase program and the cash used for these repurchases. Our forecasted average fully diluted share account for 2026 has decreased from approximately 29 million shares to approximately 28 million shares due to additional shares purchased under our stock repurchase program since our last earnings call. Using the updated average share count of $28 million and revised revenue guidance, we now expect full year 2026 non-GAAP EPS guidance to be a loss of $2.22 to $2.25.

This excludes stock-based compensation, impairment loss, acquisition-related costs, and we're also looking at the cost of the project. of intangible assets and any further share repurchases, as well as any one-time charges. For fiscal year 2026, assuming capital purchases of $12 million, spend on our therapeutic development business of $26 million, and excluding any future stock repurchases or other expenditures outside of ordinary course, which could include additional M&A, we anticipate ending the year with a $10 million increase in revenue. with approximately 610 million of cash, cash equivalents, restricted cash and investments, and marketable securities. The decrease from our prior forecast of 636 million is mainly attributable to the 15.2 million of stock repurchases made since our last earnings call and revised revenue call. guidance. We continue to have conviction in the strength of our business and our technology platform and are remedying the internal operations challenge. We're executing against our strategic initiatives to drive AI and digital solutions across our laboratory services business and are proud of the We believe we're well positioned for longer-term growth as our strategic investments, innovations, and expanded offerings deliver value. Thank you for joining our call today. Operator, you may now open it up for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. One moment, please, while we poll for questions. our first question today is coming from David Westenberg from Paper Sandler your line is now live.

Hi, guys. This is Karan Patel on for David Westenberg. I guess I'll start with some of the RCM transition issues. Maybe if you could help us pinpoint what are the specifically in this final phase is causing these maybe delayed issues and do you have maybe an estimated timeline for resolution here and I have a beautiful.

Yes, certainly. This is Brandon. Thank you for the questions. You know, I think as we mentioned, you know, we did make this change in our billing software. We completed phase one and phase two of that. And as we moved into phase three, we really began to realize there was, you know, just certain key features or, you know, customization that was in the previous software that did not carry over. over to the new platform. I think we've identified those features. We're working on implementing those features. It will take some time to get some feedback from the payers, but in terms of timing, I think we do expect to get back to our historical collection rates in the coming quarters.

That's helpful, thank you. And I guess maybe if you can help us answer some of the questions that we have. maybe what percentage of QQ revenues were lowered because of this suppressed collection rate. And then I guess separately, are these delayed collections, are they maybe recoverable down the road and they'd show up as true ups in future quarters or is it a fully loss of revenue?.

This is Paul Kim. In terms of the shortfall for Q2 as well as for the rest of the year, without this issue that Brandon, he described, we would have reiterated our fiscal year guidance and Q2 would have been in line with our original expectations. If you kind of like take a step back and you know, look at the overall business, our capabilities and our services, haven't changed at all. Actually, they've gotten better. And the volume and the volume projections, you know, for the business are intact. It actually looks very promising. It's just the collection rate that we're using to record revenues, you know, it's been lower than our historical rates. And you also had a question on recoverability, assuming, and we can't assume this because we experienced this before, we can get back to the historical rates. Our business would have been fine in terms of posting our Q2 results as well as for the year. And should we get additional synergies from better contracts and better effort that we have here at the company? you know, there could be, you know, potentially upside to our collection rate.

I mean, that's getting a little too far ahead of ourselves. So right now, you know, what we want to do is to remedy this issue. We want to be able to, you know, get back to our historical collection rates.

and go on from there. That is helpful. Thank you for that color. And maybe one last one on the large carrier screening, customer moving volumes in-house. I guess, can you help us maybe pin, is that transition kind of fully complete? I know you mentioned that earlier and maybe, What is a residual run rate? How can we think about that going forward?.

Yes, that transition is nearly fully complete. And if I'm not mistaken, Paul, I think we don't have much revenue built into the model for them the back half of the year. We still are getting some. Yes. We still are getting some. But we don't have a whole lot built into our projections. Yes. All right.

Understood, guys. Well, thank you so much, and no more from me.

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Greetings. Welcome to Fulgent Genetics First Quarter 2026 Conference Call and Webcast. [Operator Instructions] please note, this conference is being recorded.

I will now turn the conference over to Lauren Sloane, Investor Relations. Thank you. You may begin.

Good morning, and welcome to Fulgent's First 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 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 discussions 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 and with the Securities and Exchange Commission, including the previously filed 10-K for the year ended December 31, 2025, and subsequently filed reports, which are available on the company's Investor Relations website.

Management's prepared remarks, including discussion 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 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 its financial results for the first quarter 2026 for more information, including the description of how 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 and a reconciliation of these financial measures to income and loss, earnings and 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 2 business lines. Then Brandon will review our product and go-to-market updates for our laboratory service business. And Paul will conclude with the financials and outlook before we take your questions.

I am pleased with our first quarter results in our laboratory service business and the momentum in our therapeutic development business. In Q1, we also successfully completed the acquisition of Bako Diagnostics and StrataDx, which contributed our strong first quarter results as we had anticipated.

In the laboratory service business, we are seeing that the investments in AI and digital pathology solutions are continuing to work at an accelerated pace, offering new and expanded opportunities for growth and improved operating leverage in the future. And as of today, with our in-house developed platform, EasioPath, we are approximately 100% visual across all our cases.

We also accelerated progress on our therapeutic development pipeline in the fourth quarter and expect to continue progress this year. Starting with our first clinical candidate, FID-007, advanced through Phase II with 46 patients enrolled. Last week, we announced that our abstract on the Phase III trial of FID-007 was selected by ASCO as a rapid oral presentation with head and neck cancer track session.

The Phase II trial enrollment of FID-007 closed on time, on December 29, 2025. We are encouraged by the early efficacy and safety data. FID-007 combined with Cetuximab demonstrated meaningful anticancer activities and a favorable tolerability profile that at both levels for the second-line treatment of recurrent metastatic head and neck sarcoma cell carcinoma.

We anticipate having end of Phase II meeting with FDA for the second half of this year and hope to enter into a Phase III registration trial for the treatment of recurrent or metastatic head and neck sarcoma 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 FID-007 for the treatment of recurrent or metastatic head and neck sarcoma cell carcinoma patients who currently have very few effective treatment options.

Our second clinical candidate, FID-022 is progressing through Phase I dose escalation with the third dose level successfully completed and the fourth dose escalation is ongoing. We expect to finish the study and determine the maximum tolerance dose level later this year. FID-022, it is nanoencapsulated SN-38 for the treatment of solid tumors, including potentially colon, pancreatic, ovarian, and bile duct cancers.

Overall, I'm pleased with the progress we have made in the first quarter. Our pharma R&D efforts are progressing faster, better and more cost effectively than planned. We look forward to present our detailed findings from our Phase II study on FID-007 at this year's ASCO meeting. We believe that we executed our strategic initiatives and are in a strong financial position to execute our strategies.

We are pleased to reiterate our topline revenue guidance for 2026. We are adjusting our non-GAAP EPS and cash balance guidance to reflect cash returned to shareholders, pursued our stock repurchase program and the resulting reduction in the number of our previously forecasted outstanding shares.

I would like to thank our employees, partners and stockholders for your hard work, loyalty and a strong quarter. We look forward to further progress in 2026.

I will now turn the call over to Brandon Perthuis, our Chief Commercial Officer, to talk more about our laboratory service business. Brandon?

Thanks, Ming. We ended the first quarter at $71.1 million, which was a decrease of 3.2% year-over-year and 14.6% quarter-over-quarter, driven by the reduction in sales to our large customer who has begun transitioning testing in-house, which we discussed last quarter.

Breaking it down into our 3 business areas, Precision Diagnostics revenue for the first quarter was $40.2 million, a decrease of 8.8% year-over-year and down 16.5% sequentially. Anatomic Pathology revenue for the first quarter was $25.1 million, a decrease of 0.9% year-over-year and down 7.2% sequentially. For Biopharma Services, revenue was $5.8 million, an increase of 43.2% year-over-year, but down 28.0% sequentially.

We were excited to announce during the first quarter that we completed the acquisition of Bako Diagnostics and StrataDx. This acquisition adds to our market presence in Anatomic Pathology and more than doubles the size of our pathology sales team. The focus now shifts to integration, which is off to a very good start.

One of the top priorities is to cross-train the Bako and Strata sales team to sell Fulgent pathology services and vice versa. We believe a well-trained, cross-functional sales team will pay dividends as we look to expand our market size in Anatomic Pathology.

We've made a few announcements around our new whole genome test. In this quarter, we continue to advance the product. We have now integrated Illumina's TruPath Genome targeting the variant classes that have historically required separate testing workflows such as complex structural variants, repeat expansions in difficult to map regions and variant phasing without parental samples.

Unlike traditional long-read platforms, TruPath Genome achieved this through proximity mapped read technology, delivering long-range genomic insights on the same high-throughput infrastructure already powering our genome test without the workflow or scalability trade-offs. Designed to deliver comprehensive results in a single report covering SMVs, CNVs, genome-wide deletion and duplication, mitochondrial variants and repeat expansions across 20,000 genes, our genome test is built on the principle that a rare disease patient shouldn't have to navigate a gauntlet of sequential tests to get an answer.

On our last call, we detailed our AI strategy, which involved rolling out several new modules this year. In the first quarter, we went live with a new dermatopathology AI tool. Digital dermatopathology slides often arrive in inconsistent orientation. This slows the diagnostic process and may introduce interpretation errors. The objective was to implement an auto rotation solution to automatically align slides to a standard orientation. Doing so will reduce time spent adjusting images, ensure consistent presentation of structures like epidermis and dermis, improve diagnostic accuracy, enhance workflow efficiency, reduce turnaround time and potentially lower cost.

Proper orientation is crucial because pathologists rely on consistent visual cues. When slides are automatically aligned, key structures appear in a predictable orientation. This reduces the cognitive load on the pathologist, allowing them to interpret images faster with fewer errors. It also helps standardize the diagnostic process, making it easier to compare cases and train new staff. Overall, this leads to improved accuracy in diagnosis and a smoother workflow as pathologists spend less time manipulating slides and more time on actual diagnosis.

We are excited to announce that during the quarter, we received MolDX approval and pricing for our PGx test. This is a perfect timing with the recent update and positioning from the American Society of Clinical Oncology for pharmacogenomic testing, particularly for the gene DPYD.

While ASCO historically stopped short of endorsing universal testing, newer clinical notices and meeting data signal a clear shift toward proactive integration of DPYD testing into routine oncology care. In 2026, ASCO issued clinical notice urging clinicians to prioritize DPYD genotyping as part of the initial diagnostic workup for patients being considered for certain chemotherapy drugs such as 5-FU.

This represents a notable evolution from earlier physicians where ASCO and other U.S. bodies did not recommend routine pretreatment testing due to concerns about evidence sufficiency and potential impact on efficacy. The clinical driver behind these recommendations is well established. Patients with deleterious DPYD variants are at a significant increased risk of severe or fatal toxicity from fluoropyrimidines.

Studies show that genotype-guided dosing can substantially reduce Grade 3 and above toxicities without compromising efficacy. In parallel, health economic analysis presented at ASCO highlights that pretreatment DPYD testing reduces downstream costs by avoiding hospitalization, intensive supportive care and treatment interruptions.

As ASCO, NCCN and FDA guidance converge, ordering behavior is potentially expected to shift from discretionary to routine. Given that fluoropyrimidines are used in a large portion of solid tumors, this translates into a substantial addressable market. We believe this represents a near-term opportunity to scale pharmacogenomics and a longer-term positioning play in precision oncology, where proactive safety-driven testing is becoming integral to therapeutic decision-making rather than an optional add-on diagnostic test.

We remain focused on executing our strategy with discipline, investing in opportunities that will drive sustainable growth and delivering long-term value for our shareholders. While the environment continues to evolve, we are confident in the strength of our team, the resilience of our business and our ability to navigate ahead. We appreciate your time today and look forward to updating you on our progress next quarter.

I'll now turn the call over to our Chief Financial Officer, Paul Kim. Paul?

Thank you, Brandon. Revenue in the first quarter of 2026 totaled $71.1 million, including $2.6 million from Bako Diagnostics and StrataDx compared to $83.3 million in the fourth quarter of 2025. The decrease in our Q1 revenue was primarily the result of lower volume from our largest customer, as indicated on our last call and timing impact as we work through claims processing backlog.

Gross margin. GAAP gross margin was 30.2% and non-GAAP gross margin for the first quarter was 32.3%. The decline in gross margin reflects fixed costs over lower revenue base attributed to the decline in revenue for the reasons I've mentioned. We expect gross margins to normalize as the backlog clears in the coming quarters and as revenue increases.

Now turning to operating expenses. Total GAAP operating expenses were $56.1 million in the first quarter, which decreased when compared to $68.8 million in the prior quarter. The decrease in operating expenses was due to a one-time professional liability expense in the prior quarter. Non-GAAP operating expenses remained relatively flat in Q1, totaling $42.6 million compared to $43.1 million in the previous quarter. Non-GAAP operating margin decreased sequentially to a minus 27.7% due to decreased revenue.

Our GAAP loss in the current quarter was $24.8 million, an increase from the prior quarter's GAAP loss of $23.4 million and a GAAP loss of $0.08 per share based on 30.9 million weighted average diluted shares outstanding.

Adjusted EBITDA for the first quarter was a loss of approximately $15.2 million compared to a loss of $4.5 million in the prior quarter. On a non-GAAP basis and excluding equity-based compensation expense, intangible asset amortization and acquisition-related costs and severance, loss for the quarter was approximately $11 million or $0.36 per share based on 30.9 million weighted average diluted shares outstanding.

In the first quarter, we repurchased 2.6 million shares under our stock repurchase program. We continue to repurchase shares into the current quarter, purchasing an additional 0.5 million shares as of today. Since the inception of the stock repurchase program in March 2022, a total of approximately $6.6 million in shares of common stock has been repurchased under the program with approximately $91 million currently remaining available for future repurchases of our common stock.

Turning to the balance sheet. We ended the first quarter with approximately $604.7 million in cash, cash equivalents, restricted cash and marketable securities. The $100.8 million decrease in cash from the previous quarter was primarily driven by $56.6 million paid for the Bako Diagnostics StrataDx acquisition and $40.1 million spent on our stock repurchase program.

As of quarter end, we have not yet received $106 million federal income tax refund, which has been delayed due to the government shutdown in the prior year and now due to constrained resources at the IRS.

Before providing our guidance for 2026, I would like to provide an update on certain drivers shaping our expectations for the year and the anticipated impact from our recent acquisition of Bako Diagnostics and StrataDx. As anticipated and mentioned on our previous call in February, we saw a decrease in revenue from our largest customer, which is moving its testing capabilities in-house. Revenue from this customer this quarter decreased $6 million from the prior quarter.

We expect revenue from this customer in the second quarter to continue to be impacted by a significant decrease in volume and expect revenue to potentially stabilize in the second half of the year. We continue to believe this decrease in revenue from our largest customer will be partially or fully offset by the estimated contribution of approximately $53 million from Bako and StrataDx contributing to overall revenue growth in the second half of the year.

Bako's revenue will primarily be categorized as Anatomic Pathology. We continue to forecast that for the full year 2026, no single customer will account for more than 10% of our total revenue, reflecting an improvement in our customer concentration profile. We reiterate our guidance of total revenue of $350 million for 2026, representing an 8.5% year-over-year growth.

We continue to estimate Precision Diagnostics revenues to be approximately $168 million, Anatomic Pathology to be approximately $162 million and Biopharma Services to be approximately $20 million. We expect non-GAAP gross margins for the full year to be approximately 39% as the product mix shifts with the change in our customer composition.

We anticipate the gross margins to improve in the second quarter due to the higher forecasted revenue and then to further improve to approximately 42% by the end of the year. We expect non-GAAP operating margin to be a minus 20% for the year.

We continue to prioritize investment across 2 key areas: R&D, where we're advancing both our laboratory testing capabilities and clinical study pipeline and sales and marketing where we have grown the team. Our sales and marketing spend this year reflects a full year of our expansion that began last year, combined with the recent Bako and StrataDx acquisition, which more than doubled our sales team.

Together, we believe this sets us up with a substantially larger and more capable commercial organization to drive growth going forward. The anticipated spend for the therapeutic development business is approximately $26 million in 2026 as we continue advancing clinical trials for FID-022 and FID-007.

We remain committed to the strategic investment in our business, including operational improvements and targeted upgrades to our laboratory infrastructure. These investments are designed to strengthen our competitive position and enhance throughput capacity over time. We believe our foundational technology platform is highly scalable, capable of driving meaningful operating leverage and margin expansion as volumes grow.

We believe our business is still on track with our original 2026 revenue guidance. The updates to our EPS and cash guidance are solely attributable to decreased shares resulting from the stock repurchase program and the cash used for these repurchases. Our forecasted average fully diluted share count for 2026 has decreased from 32 million shares to approximately 29 million shares due to the shares purchased so far this year under our stock repurchase program.

The decreased share count has an effect of $0.14 to EPS. Therefore, using the updated average share count of 29 million, we expect our full year 2026 non-GAAP EPS guidance to decrease by $0.14 to a loss of $1.59 per share, excluding stock-based compensation, impairment loss, acquisition-related costs, further share repurchases and amortization of intangible assets as well as any onetime charges.

Finally, our cash position continues to be strong. Assuming for fiscal year 2026, capital purchases of $12 million spend on our therapeutic development business of $26 million, $14.5 million for the previously disclosed professional liability expense and excluding any future stock repurchases or other expenditures outside of the ordinary course, which could include other M&A, we anticipate ending the year with approximately $636 million of cash, cash equivalents, restricted cash and investments in marketable securities.

The $49 million decrease from the original cash guidance of $685 million is directly attributed to the $49 million of stock repurchases made year-to-date. This number further assumes receipt of approximately $106 million in tax refunds, which has been delayed as a result of a Q4 2025 government shutdown and constrained resources at the IRS.

Overall, we're proud of the growth we have achieved over the past couple of years, and we're excited by the additional momentum that the acquisition of Bako Diagnostics and StrataDx brings as we look ahead. Together with our strong technology platform, we believe we're well positioned for longer-term growth as our strategic investments, innovations and expanded offerings deliver value.

Thank you for joining our call today. Operator, you may now open it up for questions.

[Operator Instructions] Our first question is from Lu Li with UBS.

I think the first one, probably sticking to the Precision Diagnostics. If you're excluding the largest customer impact, what is the underlying business growth for the remainder of the portfolio? I was like doing the quick math, it still -- it seems like still like a teens growth. Just wanted to make sure if that's correct.

Yes. So the impact from the largest customer was significant. The amount was substantial for 2025. We are anticipating and have experienced lower volumes from that customer in Q1, and we anticipate those levels to be further down, although not at the accelerated pace as we experienced in Q1.

If you strip that away and take a look at the underlying Precision Diagnostics business, your math, we're checking it right now, I think, is consistent, meaning that we do have growth in the precision diagnostics area for this year.

Got it. And then maybe switching to the gross margin in Q1. It seems like a little bit lower than, I think, your initial target of 37%. Any reasons why it's a little bit lower? Is it coming out from acquisition or anything else? And then -- yes, I think that will be the question. And then how comfortable you are to kind of like get back to kind of like 40% in the second half?

Sure. Thanks for that question. The lower gross margins are coming from the lower-than-anticipated revenues. Revenues for the first quarter could have been higher, in the millions of dollars than what we posted. And that's largely happening, as we mentioned in prior, the lower volumes from our largest customer, coupled with timing impact from claims delayed in releasing from processing backlog. We anticipate that to normalize here in the coming quarters, which should provide an uplift to the revenue in addition to normalizing our gross margins. The lower revenues also had some weather and seasonality impact, which Brandon will color in.

Yes, certainly, Paul. Appreciate that. Q1 historically has been a little bit softer for us. And it is partially related to seasonality. Like this quarter, we did have our laboratories shut down multiple times due to weather. And in addition, January often sees deductibles being reset. So there's some impact there. But I think Paul covered probably the larger impact areas.

The other final thing -- the other final comment that I will make on the gross margins because that was the original part of your question is, if you take a look at the guidance for 2026, we are reiterating and keeping the $350 million guidance as well as the other financial metric, including gross margins for the entirety of the year. The difference in the update that we provided on the loss is solely due to the stock buyback, the aggressive stock buyback that we have conducted since the beginning of this year.

In the first quarter, we repurchased 2.6 million shares. And to date, so far, we've purchased an additional 0.5 million shares. In total, that's 3.1 million shares or approximately 10% of our total outstanding shares or 13%, 14% of our float that's out there. So we believe that the amount and the magnitude of the buyback indicates the conviction that we have not only within our capital base, but our overall strategy and value for the company.

Yes. And Lu, you asked, was there any impact from the acquisition? I just want to cover that. No, there was no impact from the acquisition.

Okay. That's very helpful. And then finally, there has been a lot of attention on the CMS CRUSH initiative. I'm wondering if you guys have any in-house view in terms of like the potential impacts to your business?

Not at this time, Lu. We don't have any comment on that.

Our next question is from David Westenberg with Piper Sandler.

So first, Paul, a couple of things. What was -- the contribution from StrataDx and Bako would be really small, right, because it closed on the 17th. But I was just wondering what that was for the quarter. And then you also mentioned kind of some of the collections impacting Q1. So what should Q2 look like? So, like, I know you -- I think you're saying some of that will go into Q2. I don't want to get too aggressive with the number there, but I also want to include that. So how should we think about Q2 given that impact?

Sure. So 2 things. One, the contribution from Bako in the first quarter, you are correct. It was small. It was $2.6 million. And your question about what should Q2 look like? Q2 should be a higher quarter. It will be a higher quarter than the first quarter because of the overall positioning of our base business, but we also get the full quarter of Bako and StrataDx. So, when we take a look at the forecast for Q2, Q3 and Q4, the targets are in excess of $90 million per quarter in terms of revenues.

Got it. Yes, just totally mispronounced that. Anyway, secondly, Brandon, I want to kind of touch onto the key product segments, Precision Diagnostics. In terms of the growth in that area, are there any key products, [indiscernible] launches? Or is it Beacon that helps you grow there? Is it some of the stuff you're going to be doing in rare disease? I mean, what are you excited about there in terms of regrowing to fill the loop of the overall large customer?

Yes. Thanks for the question. I think we benefit tremendously from our diverse portfolio of tests. At this point, we have 22,000 genetic tests that span just about every area of health care. So it's difficult to pick a few different areas out of that where we're particularly excited. But I think it's safe to say within sort of rare disease, the momentum we have with exomes and genomes is pretty substantial.

We do believe we have a differentiated product. With our whole exome now including long reads, short reads, as well as full RNA-seq transcriptomic analysis, we are going to make more diagnoses than some of our peers and what we've been able to do previously. Analyzing all 3 of those in parallel is really the best approach to maximize diagnostic yield.

So we're really excited with the product development around our whole genome and whole exome products, and we do see a lot of momentum in that space. In addition, we've launched a rapid and ultra-rapid genome. Some of those turnaround times are as quick as 48 hours, which is critical for some of these NICU patients. So certainly see momentum there.

Beacon has continued to do very well for us. We now have the largest panel in the industry, up to 1,000 genes, which is fully customizable for our clients. But in addition, our oncology business is doing well. The heme business is doing well. And this momentum -- very recent momentum in pharmacogenetic testing related to this DPYD gene is very tangible. It's very real. We're seeing a lot of requests for this. We do a great job with that test in terms of our turnaround time and our quality.

So again, I think we have a lot of different areas for growth and really do benefit from having tremendous capabilities across Precision Diagnostics.

Got it. And then just, I want to talk about -- sorry, the pharma backlog, now this was strong in the quarter, and it is the growth area. So should we expect like visibility for the full year, just given the fact that this is really probably running off backlog? And is the book-to-bill growing in that category, Paul?

Well, we continue to see lumpiness in our biopharma business. We've mentioned this essentially on every call that the nature of this business are large transactions with long sales cycles for better or worse. But the business does have momentum overall, but we're going to continue to see sort of these peaks and valleys until we hit this larger steady state for that business segment. But in the back half of the year, we do have continued growth in Biopharma Services. But again, there will be some up and downs in that area.

Got it. And then lastly, Ming, I wanted to talk about the FID-007. You're in Phase II. You do have the presentation at ASCO. So it does seem to be doing well. Can you talk about what we're needing to look at, at the ASCO presentation or other words to see if you'd advance it to Q3? And at what stage in the pipeline do you consider commercialization? I mean, partnerships, licensing, that other kind of thing in order to monetize that asset.

Yes. Thank you, David, for the questions. We are excited to be selected by the ASCO for the presentation. Out of 8,000 applications, we belong to a very small group of companies or the clinical trials to be presented in the area. You may remember, we also published our data last year at ESMO for the clinical results. During that time, our results is significantly better than the peers in the industry. So we are excited about the opportunity, and we're looking very much forward for the ASCO presentation. So that's from the clinical trial side.

We are -- have the options for the collaborations with potential partners, but it also -- we want to present the opportunity when we do the collaboration at a strength, not at a weakness. So we do have the cash position to go through the clinical trials by ourselves, but we're also looking for that meaningful partners, not only contributing in terms of the resources for the trials, but also long-term relationships.

There are no further questions. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Good morning, and welcome to the Fulgent Fourth Quarter and Fiscal Year 2025 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 makes today to reflect actual results or changes in expectations. Listeners should not rely on any forward-looking statements as predictions of future events and should listen to management's remarks today with the understanding that actual events included in 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 discussions 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 31, 2024, and subsequently filed reports, which are available on the company's Investor Relations website.

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 that 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 fourth quarter of 2025 for more information, including the description of how 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 and a reconciliation of these financial measures to income and loss, earnings and 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 is unavailable on a forward-looking basis without unreasonable effort.

With that, I'd now like to turn the call over to Ming. Please go ahead.

Thank you, Lauren. I'm pleased with the progress we have made this year as we execute our strategic objectives in both our laboratory services and therapeutic development business. In 2025, the laboratory services business sustained the momentum as we delivered growth and executed our strategic and product innovation road map. We have implemented the best-in-class technology across our platform and have the investment we have made in digital pathology and AI are paying off.

We are seeing the advantage of moving to digital and using AI-enabled workflow with increased quality, turnaround time and throughput. We have launched our own proprietary imaging management system, Eziopath which integrates the best-in-class AI tools developed in-house, giving us even greater control in the technology services. We also accelerated our product innovation in 2025 with the launch of RNA integrated whole genome sequencing and ultra-rapid whole genome sequencing.

The investment in AI and digital pathology solutions, coupled with our innovations across our laboratory service platform, we deliver the revenue and margin improvement in 2025. We see the first half of 2026 in a transition period as our business adjusts to the impact from our largest customer moving significant volume in-house. We believe our technology platform will continue to get stronger and the strategic investment and the innovations we have made will continue to work at an accelerated pace, offering new and expanded opportunity for growth and improved operating leverage in the future.

We also accelerated the progress of our therapeutic development pipeline in 2025 and expect continued progress this year. Starting with our first clinical candidate, FID-007, advanced through the Phase II with 46 patients enrolled. The trial enrollment closed on time on December 29, 2025. We are encouraged by the early efficacy and safety data. FID-007 combined with cetuximab, demonstrated meaningful anticancer efficacy and favorable tolerable profile at both dose levels for the second-line treatment of recurrent metastatic head and neck squamous cell carcinoma.

Phase III protocol development is long ongoing with the trial initiation planned as early as the first half of 2027. This year, we are planning to submit a request to FDA in the second quarter of 2026 and hope to have a Phase II meeting with FDA in the third quarter of 2026. We anticipate presenting our interim findings at the ASCO in June 2026 and expect a full data readout by the second 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 the success of commercialization FID-007 for the treatment of recurrent metastatic head and neck squamous cell carcinoma patients, currently having very few effective treatment options.

Our second clinical candidate, FID-022 is progressing through the Phase I dose escalation, with the first dose level successfully completed at the end of December 2025 and the second dose level successfully completed on January 28, 2026. The third dose level begins on February 2, 2026. We expect to finish the study and 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 bile duct cancers. Overall, I'm pleased with the progress we have made this year. Our pharma R&D efforts are progressing faster, better and more cost effectively than planned.

Additionally, our laboratory service business has greatly benefited from our investment of AI technology, which makes our service more efficient and precise. And although our revenue of 2025 slightly short of our updated expectation, we are exceeded our non-GAAP EPS guidance and I'm proud of the progress we have made and believe our business is intact. As we look to 2026, we believe the first half of the year will be impacted by our largest customer moving a significant volume of its work in-house. But also the strategic initiatives we have made may help offset this impact over the long term.

I would like to thank our employees, partners and stakeholders for your hard work and loyalty in a great quarter of our business. We look forward to further progress in 2026.

I will now turn the call over to Brandon Perthuis, our Chief Commercial Officer, to talk more about our laboratory services business. Brandon?

Thanks, Ming. We ended the fourth quarter at $83.3 million, which was an increase of 9% year-over-year, and a slight decrease quarter-over-quarter. Looking at how we closed the year, total revenue came in at $322.7 million, which was an increase of approximately 14% year-over-year. Looking closer at our 3 areas of business, Precision Diagnostics revenue for the fourth quarter was $48.2 million, an increase of 11% year-over-year, however, down 5% sequentially, driven primarily by lower-than-anticipated volume from our largest customer who has begun transitioning to testing in-house.

AP revenue for the fourth quarter was $27 million, an increase of 3% year-over-year, and up 4% sequentially. For Biopharma Services, revenue was $8.1 million, an increase of 32% year-over-year and 10% sequentially. For the year, Precision Diagnostics revenue was $190.5 million, a 14% increase over 2024. AP revenue or anatomic pathology revenue was $106.4 million, an increase of 10% over 2024, and Biopharma Services was $25.8 million, a 58% increase. Overall, we are pleased with the performance in 2025, delivering double-digit year-over-year growth.

During the quarter, we announced our intention to acquire acquire Bako Diagnostics and StrataDx, pending regulatory approvals for a total purchase price of $55.5 million. This proposed acquisition will add new anatomic pathology services, proprietary PCR tests and a national client base. Bako Diagnostics is a premier national provider of specialty laboratory testing services, which offers a comprehensive testing menu, including complete anatomic pathology services, proprietary molecular genetic testing and peripheral neuropathy immunohistochemical testing.

Bako Diagnostics is CLIA certified, CAP accredited and licensed by the Georgia Department of Public Health. StrataDx is a premier national provider of dermatopathology testing services. StrataDx is CLIA certified, CAP accredited and licensed by the State of Massachusetts. With these acquisitions, we will further strengthen our laboratory services business by adding new products and services and further expand our national client base, national sales team and team of expert pathologists.

We expect to close the transaction in March. We are excited to announce that during the fourth quarter, we received approval from New York State for both our proprietary NIPT offering, Nova as well as our whole genome sequencing test. These are significant approvals and a high validation of our quality services. These approvals open a new market for us to commercialize these tests in New York, and we look forward to servicing New York clients and patients in both the rare disease and reproductive markets.

We mentioned on previous calls the investments we are making in digital pathology, specifically our new in-house developed platform, Eziopath. Digital pathology is changing the dynamics of our laboratory, enabling remote reading, remote consults and most importantly, the use of AI modules for certain disease subtypes. As of today, we are approximately 100% digital across all of our cases, and they are being read on Eziopath as we have transitioned off our previous third-party platform.

In AI development, we have launched several internally developed modules, including tissue region detection, eosinophil counting and eosinophilic esophagitis and lymphocyte ratio in duodenal intraepithelial lymphocytosis. Eziopath also supports third-party AI modules such as Paige AI Prostate and Mindpeak for HER2 in breast cancer.

In our 2026 AI R&D pipeline, we have a dozen AI modules planned, and we expect to significantly improve our medical team's operational efficiency once deployed. Fulgent has always viewed itself as a technology company, and we have developed most of the systems that support our business. Eziopath is just another example. With in-house clinical AI R&D and software engineering teams, a large group of medical pathologists across various specialties and most importantly, clinical data with diagnostic outcomes, we believe Fulgent is well positioned to become a major player in the AI-enabled digital technology field.

Within our oncology business, we see great potential in leveraging AI technology to improve clinical diagnosis for patients. Fulgent is one of the very few companies that provide end-to-end diagnostic services for cancer patients, including flow cytometry, IHC, FISH, cytogenetics and NGS. Our team is currently working on a project to develop AI modules that analyze data across multiple modalities and provide summary diagnostic information for our medical cancer review before final reporting. We believe this could be a game changer in cancer diagnosis.

Overall, we are pleased with our progress in 2025. We believe the investments we have made in our technology and capabilities will continue to pay dividends as we strive to expand our market reach. I'd like to thank our employees for their hard work and dedication throughout the year, and I'm thankful to have such a strong team in place as we kick off the new year.

I'll now turn the call over to our Chief Financial Officer, Paul Kim. Paul?

Thank you, Brandon. Full year revenue for 2025 totaled $322.7 million, growing approximately 14% compared to revenue of $283.5 million in 2024, which fell slightly short of the updated guidance we provided on last quarter's earnings call, but ahead of the original guidance we provided at the beginning of 2025. Revenue in the fourth quarter of 2025 totaled $83.3 million compared to $84.1 million in the third quarter of 2025. The decrease in our Q4 revenue was primarily the result of lower-than-anticipated volume from our largest customer who has begun transitioning the test in-house.

Gross margin for the fourth quarter on a non-GAAP basis was 41% and a GAAP basis was 39.1%. Full year gross margins improved year-over-year due to streamlined operations and from the enhanced efficiencies we achieved as a result of our investment in scaling and centralizing lab operations.

Now turning over to operating expenses. Total GAAP operating expenses were $68.8 million in the fourth quarter, which increased when compared to $50.9 million in the prior quarter. The increase in operating expenses was partially driven by acquisition-related costs, payroll-related expenses and a onetime professional liability expense.

Non-GAAP operating expenses totaled $43.1 million compared to $40.7 million in the previous quarter. We remain committed to R&D spending to support both our laboratory testing services and our clinical studies and to sales and marketing spending to expand the sales team.

Non-GAAP operating margin decreased sequentially to a minus 10.7%. Our GAAP loss in the current quarter was $23.4 million, an increase from the prior quarter GAAP loss of $6.6 million. Adjusted EBITDA for the fourth quarter was a loss of approximately $4.5 million compared to a gain of $700,000 in Q3 2025. On a non-GAAP basis and excluding equity-based compensation expense, intangible asset amortization acquisition-related costs and a onetime professional liability expense income for the quarter was approximately $5.2 million or $0.16 per share based on 31.7 million weighted average diluted shares outstanding.

Looking at the full year 2025 on a non-GAAP basis and excluding equity-based compensation expense, intangible asset amortization, acquisition-related costs and a onetime professional liability expense, income was approximately $13.2 million or $0.42 per share based on 31.1 million weighted average shares outstanding, beating the updated guidance we provided on last quarter's earnings call.

Turning to the balance sheet. We ended the fourth quarter and full year with approximately $705.5 million in cash, cash equivalents, restricted cash and marketable securities. The decrease in cash from the previous quarter is driven by the purchase of income tax credits and capital expenditures. As of year-end, we have not yet received the $106 million in federal income tax refund, which has been delayed due to government shutdown in the fourth quarter of 2025.

Excluding the delay in the income tax refund, we beat the updated cash guidance we provided on our last quarter's earnings call. Before providing our guidance for 2026, I would like to talk through certain drivers shaping our expectations for the first and second half of the year and the anticipated impact from the acquisition of Bako and StrataDx.

As Ming mentioned, we expect revenue in the first half of the year to be impacted by a significant decrease in volume from our largest customer moving their testing capabilities in-house. We anticipate revenue from this customer, which was $70.8 million or 22% in 2025 to decline sharply quarter-over-quarter through Q2 2026 and potentially stabilize in the second half of the year. The revenue from our largest customer in 2025 was all classified as precision diagnostics. We believe this decrease in revenue will be partially or fully offset by the anticipated contribution of approximately $50 million to $55 million from the acquisition of Bako and StrataDx, which we expect to close in March of 2026, contributing to an overall revenue growth in the second half of the year.

Bako's revenue is expected to primarily be categorized as anatomic pathology. So assuming we're able to close Bako and StrataDx acquisitions in a timely manner and that these acquired businesses perform as we currently expect, we're forecasting that in 2026, no single customer will account for more than 10% of our total revenue, reflecting an improvement in our customer concentration profile.

We would also expect total revenues to be approximately $350 million for 2026, representing an 8.5% year-over-year growth. Excluding our largest customer's revenue and assuming that Bako and StrataDx acquisitions timely close and acquired businesses perform as expected, -- the net estimated growth in Precision Diagnostics would be approximately 31% from 2025 to 2026 and our pipeline for customer opportunities with Precision Diagnostics would remain strong.

With these acquisitions, 2026 anatomic pathology revenue would be expected to increase to an aggregate of $162 million, up 53% from $106 million in 2025, largely driven by the Bako acquisition. Biopharma revenue is expected to decrease from $25.8 million to $20 million, reflecting a long sales cycle as we see in this area. As we move through the year, we expect to see continued momentum from our laboratory services business as it continues to benefit from the investment of AI and anatomic pathology, which is making our services more efficient and precise.

We expect non-GAAP gross margins for the full year to be slightly above 40% as the product mix shifts with the changes in our customer composition. We anticipate the gross margins to be lower in the first half of the year due to the impact of cost of sales charges being allocated across a smaller revenue base. We expect non-GAAP operating margins to decrease from a minus 8% to minus 18% for the year, largely driven by the incremental expenses from the Bako and Strata acquisitions, our continued investment in expanding our sales team and our ongoing commitment to research and development for both our laboratory services business and therapeutic development business.

Our strategy for success centers on scaling efficiently and driving innovation across our service offerings while carefully managing spend and integrating our expected strategic acquisitions effectively. The anticipated spend for the therapeutic development business is approximately $26 million in 2026 as we continue advancing clinical trials for FID-002 and FID-007. We will continue to invest in business expansion, further improving our laboratory operations and upgrading laboratory facilities. We believe that our foundational technology platform supports a strong long-term margin -- using an average share count of 32 million, we expect our full year 2026 non-GAAP EPS guidance to be a loss of $1.45 per share, excluding stock-based compensation, impairment loss, acquisition-related costs and amortization of intangible assets as well as any onetime charges.

Finally, our cash position continues to be strong. We remain confident to efficient capital allocation to support future growth as we invest in key initiatives and look for opportunities to expand. Assuming the close of Bako and StrataDx acquisition with a purchase price of approximately $56 million, capital purchases of approximately $12 million, spend on our therapeutic development business of $26 million, $14.5 million for the onetime professional liability expense and excluding any future stock repurchases or other expenditures outside the ordinary course, which could include other M&A, we anticipate ending 2026 with approximately $685 million of cash, cash equivalents, restricted cash and investments and marketable securities.

This number assumes receipt of approximately $106 million in tax refunds, which have been delayed as a result of the Q4 2025 government shutdown. Overall, we're proud for the organic growth that we have achieved over the past couple of years, and we believe that our strong technology platform, we're well positioned for longer-term growth and our strategic investments and innovations deliver value.

Thank you for joining our call today. Operator, now you may open it up for questions.

[Operator Instructions] Our first question is from Lu Li with UBS.

I think the first question on your largest customer. So if I'm doing my math correct, I think the revenue loss for that customer is about 70% for 2026. I'm just wondering if you can confirm the math and then also how conservative is this? Like any risk that they can come in-house more?

Yes. Thank you for that question. I'll take you through the numbers, and then I'll turn it over to Brandon, who can give further color into the dynamics regarding this customer. So you are correct. The revenue from our largest customer was $70.8 million in 2025. And when we lay out the plan for 2026, the $350 million, we assume that we're going to be getting about $11.8 million from this customer. So $70.8 million minus $11.8 million is $59 million. So the impact of the loss of this customer was a decrease of $59 million to our business.

And then you add to that the impact of the Bako acquisition, which should provide approximately $50 million to $55 million of revenues for the year. So for 2025, we achieved $322 million of revenues. And in 2026, we're guiding to $350 million. So the minus $59 million plus the partial or almost all offset from the Bako still provides a nice organic growth for our business, including Precision Diagnostics. I'll turn it over to Brandon, who can comment on this customer taking this testing in-house.

Yes. Lu, thank you for the question. I think Paul did a good job there describing the impact. I think in terms of what we have modeled for 2026, we have pretty good visibility into that. So we think that's a number that we can live with and that our customer has committed to. There are some contractual arrangements that still need to be met for the year. So again, we have pretty good visibility into that number.

Got it. And then just following on that. So you talked about there are some ways to mitigate by growing your customer pipeline. I'm just wondering, can you give a little bit more color in terms of like how you can kind of grow your own brand diagnostic? And then related to that, can you also sizing how much of your business right now is actually running the other company's assays?

Yes. I mean, certainly, I can talk about some of the drivers for Precision Diagnostics in 2026. I mean we think we have several and sort of in no particular order. And we're still growing market share for expanded carrier screening test, our Beacon test. I think we've mentioned on the previous calls. We've done a great job building a brand and reputation for Beacon, best-in-class turnaround time, the largest panel out there now with over 1,000 genes, and we continue to improve our connectivity with EMRs.

So we still see a lot of momentum in Beacon. We think that's going to be important for 2026. In addition, we've invested a lot in our whole genome sequencing test, bundling it with transcriptomic or RNA sequencing. And we are seeing some really exciting data when we're bundling whole genome sequencing with RNA. We're making diagnoses by combining those that would otherwise be missed in the absence of having that RNA data. We've expanded that sales team some in 2025. We continue to do so in 2026. we think we're going to continue to gain market share for whole genome sequencing with RISE, our RNA integrated sequencing evaluation.

Looking on a sort of a month-to-month basis, we continue to set new records in terms of our volume for whole genome sequencing. So we like the momentum there. In addition, we're pretty excited with what we're doing on the somatic side as well. As we mentioned, we have MolDX approval for our somatic assay, which we branded Lumera. And we're starting now to incorporate our somatic testing into our pathology business and learning and operationalizing how to leverage our somatic testing with our AP business.

Our somatic test, great coverage, great turnaround time. It has all the right genes. So we think we're going to see some pretty significant improvement in our somatic oncology volume in 2026. And another area you're sort of seeing just genetics taking a bigger role in health care -- you're seeing ASCO announce that patients that are going through certain chemos need to be treated with DPYD testing. Well, that's a gene that we offer. That's a service we provide. And that seems to be something that's going to drive some demand in 2026. So we see several different drivers for Precision Diagnostics, and we think we're going to deliver a pretty nice growth year.

Lu, this is Paul. As Brandon mentioned, the richness and the diversity of our offering, we feel more excited than ever for 2026. The incorporation of technology into our businesses, combined with the additional scale we're going to be getting, particularly in the second half of the year with the incorporation of Bako. And what does that mean in terms of percentages and numbers. Well, to take an example, the gross margins, with the impact of this large customer, yes, we are anticipating gross margins to be slightly lower in Q1 and Q2 of 2026. But as we end the year, particularly in Q4 of 2026, our forecasted gross margins should be pretty consistent with the record levels that we have achieved in the middle of 2025.

So Lu, as both Paul and Brandon mentioned, we do need to take the lessons for losing this customer. We still have a reasonable relationship with the customer. They still have all the other tests from us. But in addition, we have been accelerating the internal R&D development. We will introduce the new products and new tech will be differentiated from the market. So we are feeling pretty strong at the present time, given the technology and the R&D effort we have, we do believe that we will recover from this loss.

Great. That's very helpful. Final question for me. I'm just wondering what will be your kind of like capital allocation strategy. I think in the prepared remarks, you kind of like frame it like could have some potential M&A. So just wondering what kind of areas are you planning to target after your acquisition of Bako, StrataDx, like are you going to do more in Precision Diagnostic and then how that balance with your organic investment that you just mentioned?

Yes. I think the areas of AI, we have a lot of capability internal. We also would be looking for the synergies we may have in the field for the companies which provide us the AI-enabled discoveries.

Our next question is from David Westenberg with Piper Sandler.

And I'm just going to actually expand on some of Lu's questions. Can you confirm, I think you actually said this was -- could be a gross margin headwind, the loss of customer. And I believe, secondly, you did do a ton, I thought, carrier screening for this customer. And you have Beacon, which is a great product on your own. I just want to see if there would have been any loss of cost synergies associated with running that plus your own carrier screening project.

And then I just wanted to follow on. I think there was a question about like the second -- if there's like a second compass customer that's anywhere the size of this like still outstanding to just kind of think about. And then I have a couple of questions unrelated.

Gross margin headwinds, Paul, do you want to take that?

Yes. Yes. I'll take the gross margin headwinds in addition to the revenues we anticipate for the first half of the year compared to the second half. So of the $350 million, we anticipate in the first half of the year revenues would be approximately $158 million or $159 million. In the second half of the year, we anticipate revenues to be approximately $191 million to $192 million. And the reason why it's back-end loaded is because in the second half of the year, we anticipate increased momentum for our organic growth, excluding this largest customer, combined with the fact that we're going to be getting the full impact of the Bako acquisition.

The reason why it's lower in the first half of the year is because of the fast decline of the impact of the loss of this customer. And what that does to our gross margins is on a non-GAAP basis, -- we posted gross margins of approximately 41% in Q4 of 2025. We anticipate that to go down by approximately 4 points in the first quarter, about 2 points in the second quarter, but having a rebound in the third and the fourth quarter and the rebound being quite significant. We anticipate that the gross margins on a non-GAAP basis would be in excess of 41% in Q3 and then rising even higher than that in Q4. And I'll turn it over to Brandon, who can address your other question.

Yes, David, thanks for the question. No, we do not have another customer that would be greater than 10%. We do not.

Got it. Okay. Paul, that was an incredibly good amount of transparency and detail there. So -- just in terms of the acquisition of Bako, you kind of mentioned this sales synergies or like additional sales reps that you might be taking on. Are there additional sales synergies to sell your existing products? And I think you've traditionally been, and correct me if I'm wrong, a lot more oriented on kind of selling to the overall institution more than kind of on a physician pathologist basis. With this additional scale, do you have kind of opportunity to kind of diversify the way you're going after kind of the sales approach? Not just one more.

Yes. Yes. Thanks for the question, David. On the anatomic pathology side, it is more physician level sales versus sort of large system sales. That said, our AP team has been subscale. We know that team wasn't big enough. So this does get us somewhere between 20 and 30 new sales representatives. And the cross-selling sort of synergies are absolutely there. We will be able to use our existing team to sell Bako products and the Bako team to sell Fulgent products. A lot of the call points are very similar. And at the end of the day, this gives us more boots on the street, which is really what we need. I mean there's a lot of call points for anatomic pathology, whether it's surgery centers, dermatologists, other types of practicing physicians, -- and we've just been subscale there.

So with the investments that we've made in AI, we've been able to tackle any sort of capacity constraints, which is always an issue in pathology, especially back when we were reading glass slides and microscopes, capacity has always been an issue. But the investments we've made in digital pathology and AI has allowed us to really expand that capacity. So we're really looking forward to having this much larger sales team, nearly double the size in 2026 and really setting them loose to go out there and sell.

Got it. I'll just ask one last one on precision oncology here. How did Beacon Carrier Screening do in the quarter? I mean, should we -- has that been a continued area of strength? And do you see that as a continued area of strength in 2026?

Yes, we do. I mean Beacon has been doing very well for us. Some of the Beacon volume has been impacted by this large customer dropping off faster than we anticipated. But our organic Beacon volume and the pipeline for Beacon opportunities remains very strong. So it's still one of the most important tests within the company. But to that -- to the oncology side of things, I mean, what we're doing with Lumera post MolDx approval and getting our pricing and approvals there and how we're going to begin to leverage that across our pathology division, we're often the laboratory that's making the initial diagnosis of cancer.

I mean that biopsy, whether it's a breast biopsy, colon biopsy, skin biopsy, that's coming to our laboratory. We're performing H&E staining. We're making a cancer diagnosis. Now we're going to try to take it to the next level where we're going to do NGS. We're going to profile that tumor, not just perform pathology. And we've been talking about bridging our divisions together for some time. But we think 2026 is going to be the year that it actually happens, and we're going to be able to provide better cancer diagnosis, better care and timelier care for these patients.

Our next question is from Andrew Cooper with Raymond James. We have just lost Andrew...

Sorry, not sure what happened there. I appreciate the questions. Maybe first, a little bit of a numbers question here. So just thinking about the cash burn and cash dynamics you talked about, if my math is right, you're looking at sort of the core business ex CapEx, ex the acquisitions and ex kind of the moving parts you've called out, burning about $33 million for the year. So just kind of curious, is that math right? And how do we think about sort of the change here given that's a little bit bigger than we would have expected, I think, even with the customer loss just giving you net to a pretty similar revenue number overall?

Yes. I think your math is largely correct. And the reason why we're burning slightly more than we anticipated is because our operating expenses are going to be slightly to nominally higher as a result of the Bako acquisition. That's a fully functioning asset that we're very, very happy with in terms of what it would do to our product profile, our reach for the market as well as our overall capabilities. So our intention is to keep those businesses to invest in those businesses because we anticipate additional growth and momentum to come from that as well as our overall business into 2027.

But kind of like taking a step back and looking at our cash burn, -- we ended the year with approximately $800 million if you include the receivables that we're going to be getting from the IRS tax refund. And now we're forecasting our cash at the end of 2026 to be $685 million. But a huge chunk of that delta of $115 million are costs and a cash outlay that's not associated with the laboratory services business. So for example, of the $115 million, at least $56 million is going to be associated with the cash outlay that we have for the Bako acquisition.

We have another $26 million of outlay that's associated with the spend for our biotech asset, the 007 and the 002. We also have capital purchases of approximately $12 million and the onetime professional liability settlement of $14.5 million. So if you kind of like take a step back and even if you take into account the impact of the loss of this customer, our laboratory services business is going to be using cash, but not that much, which leaves a lot of cash for us to deploy for M&A investment in our overall business as well as other opportunities that can serve the shareholders.

Okay. Helpful. And touching on something you touched on there at the start of that answer, the digital pathology piece, and I assume, I guess, that Bako and Strata aren't maybe as far along as you are at basically 100% digital at this point. So what sort of additional kind of volume are those 2 or volume capacity capabilities are those 2 deals adding? And how much incremental volume will you be able to handle, thanks to that digital pathology kind of capability without needing to add materially more pathologists that I know are expensive to add at this stage?

Yes. Thanks for the question, Andrew. I don't know that anyone is where we are when it comes to digital pathology. I think we're significantly ahead of the game here, especially developing our own in-house developed viewer and image management system. I'm really proud of our R&D team and how quickly we've accelerated our AI and digital pathology reach here. You're correct, Bako is not highly digital yet, but this stuff is quite portable. There are some protocols that we need to improve based on certain sample types and certain biopsies, but it's mostly portable. So we will do our best to bring them up to speed in terms of digital, in terms of using AI.

It is a nice improvement in efficiency ultimately leading to capacity, you're right. I mean, for a long time, often your bottleneck of capacity was hiring pathologists and getting enough pathologists in the office to read. Remote does 2 things. It makes them more efficient, but also allows us to hire pathologists all across the country. We don't need to relocate these people to Dallas or Boston or now perhaps Alpharetta once we close the acquisition of Bako. So it really has changed the game in how we run our business, and we're going to hopefully be able to bring a lot of that to Bako to help them as well. And again, these sales teams, a lot of synergies exist within the sales teams. So now we have one that's roughly twice the size that can sell products for both Fulgent and Bako.

Yes. Adding Brandon's point, the digital pathology do give us more efficiency and it will also helps us to reduce the errors. And in addition, all these pathologists work becomes a strong data for us to continue to train the AI and make it even better. So we do see a lot of synergies between this acquisition. And also, we do see the benefit of AI or how our pathology works.

Okay. Helpful. And maybe just one last one. With this large customer in-housing, do you have an opportunity to maybe shrink whether it's physical footprint or at least kind of pull down the labor spend component of things given call it, 20% of revenues, I assume a pretty big chunk of volumes that are coming out of that precision diagnostics business. I know you want to grow the remaining piece, but just would love a sense for sort of whether you're rightsized for the business at this stage once they're out of the equation.

Yes. So for the 2026 plan, excluding Bako, the overall headcount for the organization, we kept relatively flat. We have some nominal increases, particularly in the sales organization. And the reason why we did that instead of having it go deeper or considering cut is because we view the impact of this customer as a onetime event. We fully believe in this market. We believe in our capabilities, and we will get back to growth, we believe at a decent trajectory. So combined with the fact that when we take a look at our laboratory services business, as I mentioned, even with the impact of this customer, it's not consuming that much cash. So we like where our organization sits, and we look to return to accelerated growth here in the future.

There are no further questions. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Great. Well, our next session is the management team from Fulgent Genetics. We are very lucky to join by Paul Kim and Brandon Perthuis. Paul and Brandon. Welcome.

Thank you. Thanks for having us.

Great. So you guys reported last Friday. Why not give us a quick kind of overview and then highlights of the quarter and then anything that you wanted to flag to the audience?

Yes, I'll start with the financials, and I'll turn it over to business who can color in where we sit from a business standpoint and our outlook going forward. So we reported a quarter of $84.1 million. Revenue came in higher than what we anticipated internally as well as what the Street was anticipating. Our gross margins also came in favorably as well as the other key financial metrics. We had a non-GAAP income for the quarter. And we raised guidance from $320 million to $325 million. We think that we're going to be finishing the year on a very strong note from a financial sense, and then Brandon can color in the status of the business.

Yes. I mean that was a good financial overview. I mean the business performed well, as Paul mentioned, above our expectations. So I mean, all 3 business areas are performing well. We break it down into Precision Diagnostics, Anatomic Pathology and our Biopharma Services. Precision Diagnostics was up nicely. Biopharma Services was up nicely. We had a down quarter in our AP business, but really was related to a onetime event of changing some billing software, delayed some claims going out. If that wouldn't have happened, I think all 3 areas probably would have shown growth sequentially and year-over-year. AP did still grow year-over-year. So I think it was a great quarter. I think the sales team is executing, really taking advantage of our expanded capabilities, and I think we're in a pretty strong position.

Great. So we're going to dive into the 3 business lines that you just mentioned. Maybe starting on the AP side. You guys have come up through like restructuring in the past 1 to 2 years. Can you just give us a quick update in terms of how much -- what has changed from maybe 2 years ago? And then what else that you wanted to fix the business?

Yes, certainly. I mean 2, 2.5 years ago, we did a couple of acquisitions. I mean acquiring Inform Diagnostics and CSI Laboratories. Shortly after the acquisition, I think our gross margins were in the mid-20s. That was 2, 2.5 years ago. And this quarter, we were 44%, somewhere around the mid-40s. So last 2 years, the gross margins have really grinded higher. And a lot of that has been integrating those acquisitions and really implementing Fulgent technology into those acquisitions. Some of the things we've been doing lately on the AP side is investing heavily in digital pathology, which is leading to operational efficiencies, improved throughput as well as the ability to leverage AI now that these slides have been digitized. So -- I mean, all areas of our business, we're constantly looking at operational efficiencies, automation, liquid handling, robotics, AI. I think we've done a good job really improving those operations and making them successful as we took them into Fulgent.

Okay. Great. We're going to talk about AI a little bit later. But just in terms of the sales organization within the AP, what has changed?

Yes. So it's grown. A few things have changed. The sales team has grown just in sheer numbers as we pick off territories where we did not have salespeople. We've also brought in some new sales leadership, which have done a really good job. And we've also tactically revamped some comp plans. We inherited some comp plans that we really didn't like that much on the sales team and how the sales team was being compensated. We really wanted to incentivize them for new business growth to go out there and hunt and find new opportunities. So I think the management, the size and just the restructuring of how we compensate our sales team has led to them closing some nice sized wins for us.

Do you think right now, it's like fully done? Or do you expect to hire a few more sales in 2026? So how should we think about...

Yes. On the AP side, yes, it's still probably a subscale sized sales team considering the size of our operations. I mean they're productive, which is great. But there's still green grass out there where we don't have coverage. So I think in 2026, you'll see that sales team probably grow by another 25%.

Okay. Got it. And then talking about the digital pathology, what kind of changes that you kind of expect that to be from an operational efficiency perspective or maybe like you can hire less people. So how should we think about the AI engine?

Great question. It's something we're really proud of. I mean I think we've really pushed the envelope there. And I think we're really far ahead in terms of our competition and our peers in digital pathology. So a year ago, pathologists were literally sitting in our office at their desk, over a microscope, manually manipulating glass slides. So if we wanted to recruit new pathologists, we would have to relocate them and their family to one of our laboratories, for example.

Digital pathology has allowed us to recruit nationally. So a lot of our pathologists now work from home. Sample shows up at the laboratory. We do the sample preparation, we create the image. And then no matter where our pathologist sits, they can sign those out. So one of the big advantages has been our ability to now recruit really top-tier pathologists and top-tier talent. Certainly, it's going to make them more productive as well.

A lot of the cost of sales are in the professional sign-out of these things. So if we can make them more effective, that's going to have even more impact on our gross margin. So I think we've invested significantly in digital pathology. We recently announced our [indiscernible] system that we built from the ground up to be our system that we use to view and manage and store these slides.

And because we have hundreds of thousands of images now that are clinically annotated, that's the data we're able to use to really train our AI tools. And long term, AI is going to make our pathologists faster and better, leading to efficiencies. And again, we really pride ourselves on operational excellence. So anywhere where we can make it more efficient, that's what we want to do.

Great. I think the next one is more on the AP side. I think about like 2 years ago, we were talking about how to kind of utilize the payer contract to add on the NGS services. But that has been a little bit slower than expected. I wonder, like, can you give us a quick update where we are right now? And then what are the pain points that you have seen during kind of like the conversion?

Yes. So it just didn't happen how we thought it would happen actually, but it happened in a different way. So it's actually worked out quite well for us. We're really proud of the progress we made in managed care. Another area we've invested in some good talent, and we've been able to organically go out there and grow our contracts. So I think not this past earnings phone call, but the previous; for the first time in a couple of years, we mentioned it because we have made so much progress in managed care and the number of millions of new lives we now have under contract. So I think the combination of all of our entities forging organically and our acquisition, they've given us a robust customer contract list. And that's important, right? I mean people want services performed in network. Out-of-network patient cost shares are through the roof in terms of co-pay, co-insurance and deductibles. So it is hard to sell if you're out of network. But where we're at now, I mean, we're in a really strong position with managed care.

Okay. Great. Do you have an attach rate that you kind of like wanted to disclose or any target rate that you want to have?

Well, I mean, if you're thinking about in terms of like cross-selling and penetrating the clients with new products and services, it's not lost on us that through our AP business, we have a lot of really good clients in terms of dermatologists, gastroenterologists, urologists, breast pathologists. It hasn't been a huge focus in 2025 to cross-sell the NGS products. We've been focused on some other areas, but it's certainly not lost on us that there's value there. So we think in 2026, one of the initiatives is going to be carving out a limited number of NGS tests that we think are applicable to that same client base, train that same sales team and go to market with those products.

Perfect. Well, I mean, talking about 2026, how should we think about the AP in '26, like high single digit? I mean '25 came on like a really weaker '24, right? But how should we think about '26?

We haven't guided to 2026 yet. But I mean, we see momentum in the AP business. We think it's going to continue to grow. We think the operational efficiencies we've made are really beginning to pay dividends. we're going to be increasing the size of the sales team. So not ready to guide yet for 2026 and give out any real concrete numbers, but we think the AP business has momentum behind it.

Great. So let's move to Precision Diagnostics. 16% growth, which is really impressive. What are the drivers? And then how sustainable is the double-digit growth?

There's been a few different drivers. I mean, we really have made a name and a brand for ourselves in reproductive health. A lot of that has been carrier screening. So our Beacon Expanded Carrier Screening product has done really, really well in the marketplace. We were the first lab to launch a really large panel, 700-plus genes. I mean that's important in the infertility space. So we've gained significant market share in reproductive health with our carrier screening test. That continued into this quarter, obviously.

And I mentioned on the phone call, we now expanded that to 1,000 genes. So we now have, by far, the biggest expanded carrier screening test on the market. And there were some questions around clinicians' appetite for a panel that big. And because of the segment we sell into, the infertility clinics, most of these couples are there trying to get pregnant. They're not pregnant yet. The clinicians really want as much risk mitigation as they can during this process. So the more they can test for in a pre-pregnancy setting, the better. So there is a big appetite for a larger panel in the IVF space.

So carrier screening was big for us in the quarter. We've also launched a few new products in rare disease. We launched a new whole genome with RNA, which is huge. I mean the literature shows 15%, 25%, 30% increase in diagnostic yield when you add RNA. We now do that with almost all of our exomes and genomes, which is a big differentiator for us. This quarter, we announced a new ultra-rapid NICU genome, 48-hour turnaround time. So we think that's going to be important. So the sort of the rare disease pediatric portfolio in terms of capabilities has expanded, and our sales team is leveraging that.

Great. I wonder how do you kind of break out the disease area in terms of revenue, right? So how big is the women's health? How big is the rare disease? Can you help us quantify that?

In terms of the market size?

No, just the revenue mix that you have, right?

We haven't. So we break it out into Precision Diagnostics, AP and Biopharma Services. So within the Precision Diagnostics, you have your rare disease, our oncology business, our pediatric rare disease business. So we haven't broken those out more granularly. But I think just sort of qualitatively, our reproductive health business is probably our largest business, probably followed by rare disease.

Okay. Another thing that people focus on kind of like women's health in general is how do you grow bigger, right? So you need to have NIPT to kind of go into the OB/GYN channel. And you do have a pilot, but it's still pretty small. So I'm wondering how do you think about the strategy going forward in that specific area?

Well, we don't think we penetrated the IVF space fully yet. I mean we're still closing opportunities in the IVF space. And I think the IVF space for us is attractive because it's more centralized, if that makes sense. There's a lot of OB/GYN clinics across the country, but much fewer larger IVF clinics. And the impact we've made there has been tremendous. I mean our turnaround time last month was 8.8 days for carrier screening. I mean that's incredible. Certain labs out there -- several labs out there, 2, 3, sometimes longer weeks. So we believe we still have runway in the IVF setting. The team is doing a really good job closing those opportunities.

We do now have an NIPT test. And as you mentioned, if you want to penetrate the OB/GYN space, you really need those 2 together. So we did make a decision to launch NIPT test. We launched a novel NIPT test, but it hasn't been a sales focus yet in a big way to penetrate the OB/GYN market. So still focused on the IVF clinics. But perhaps next year, we could see more penetration in OB/GYN.

Do you think the test might need further improvement given that the space I keep talking about main competitor have a single gene NIPT. There are other competitors doing a combo test where you have NIPT and carrier screening altogether. How do you think about the road map in that specific case?

Well, I mean, our NIPT was a novel NIPT test. I think we're looking for 50 or so single gene mutations. I think that's the biggest on the market, maybe I'm not sure, but I think I believe it to be as well as really good sensitivity for the deletions and duplications. I believe we test for more microdeletions and duplications than some of the other labs. So the idea was to test for all the common aneuploidies with very good sensitivity and specificity, but also have a larger number of microdeletions, microduplications as well as the de novo single gene mutations.

So I think we're out there in terms of being in front of the curve. I think at this point, we need to really perform commercially. We decided to build out the sales team, really focused on calling OB/GYNs. You mentioned earlier, now that we have all the contracts, we're in network, I believe we have the tools to do it. We just need to execute.

Okay. And then in terms of the rare disease side, there are lots of competitors out there, right? And then now you're also launching the RNA feature, the rapid whole genome sequencing. How do you think you differentiate versus like other competitors in the market? And how do you really gain share?

Yes. Well, I feel like there's a lot fewer competitors today than there was maybe a few years ago. Look, I think the RNA part is a big differentiator. I believe we're the only laboratory offering RNA in parallel with all of our exomes and genomes. And as I mentioned, it depends on what literature you cite. It's anywhere between 13%, 15% up to 30% increase in diagnostic yield. And in the diagnostic dilemma world, that is massive. That's a huge number. A lot of these clinicians that are seeing these patients, their mission is to solve the case to give the family an answer and also be able to counsel on reproductive risk in the future. If we can solve more cases with RNA, that's going to win us more business. Our turnaround time has been excellent. The quality has been excellent. We have the contracts now. So -- I mean, in terms of probably the biggest differentiator is going to be the RNA right now, followed by our turnaround time.

Okay. Got it. And what kind of other menus that you wanted to sell in 2026? You touched on women's health, rare disease. Anything else that you wanted to add to the portfolio?

There's always something, right? There's always something. Our portfolio at this point is big. I think we offer over 20,000 unique tests across all different subspecialties. I don't think there's one sort of big thing that stands out that we need to launch in 2026. I think 2026 is more continued commercial execution, growing out the sales team, gaining more market share in rare disease and reproductive health. Even in the Biopharma Services, the capabilities have expanded so much in the last year or 2, multi-omics, launching proteomics and single cell and spatial, all on relatively modest R&D spend, if I might say so. So nothing really stands out in terms of what we need to execute on our plan for 2026. I think it's just going to be blocking and tackling and good sales team execution.

How big is the sales force right now? And then where do you want it to grow to?

I think all in all done, if you include sales, marketing, I think managed care is in there globally. We have a few international as well. I think we're just shy of 80, just shy of 80. I don't know that we have an ideal number yet in our minds on how big it needs to be. We believe it to be subscale. We believe as we continue to hire good salespeople, we're starting to see those returns. I think we're being really opportunistic. When the right talent presents itself, when the right territory is looking right for us, like we think we can make an impact in that territory. So it's more sort of opportunistic hiring than having a plan like we need to hire 100 people. That's not really our MO right now, putting the right talent in the right territories. And so far, again, the sales team has been productive. And I think next year, that's going to be the same plan.

Is that 80 for total company or just for precision?

That's the total company. That would include Anatomic Pathology; include AP; Precision Diagnostics, all areas of Precision Diagnostics. As you can imagine, some of these call points are different, vastly different perhaps. So that would include the oncology team, the women's health team, the rare disease team and marketing as well would be all in.

Got it. Cool. And then you talked about Biopharma Services, great quarter. People are concerning about the R&D spend from the pharma companies, you saw all the headlines. But how do you think about the pipeline so far?

Yes. I mean we haven't seen much of an impact there, but our base is relatively low. I mean Biopharma Services for us, we started a couple or a few years ago. When we launched it, it was only next-generation sequencing. So that actually limited our addressable market because so much of biopharma now wants multi-omics. So when we realized NGS wasn't enough, that's when we went on a mission to launch all these new platforms. So now the addressable market is much bigger.

So Biopharma Services is very transactional. So biopharma company would put out an RFP looking for certain technologies. If you have those technologies, you can bid on it. If you don't, you're not in the process. So now that we have all of these, we're able to bid on a lot more of these programs, and we're winning a lot of them. And some of these are really big, strong, long-term biopharma partners. But because our base is relatively low, relatively new to us, we see this movement kind of up and down. We've been calling it lumpy, just the nature of the business. I think if you zoom out, it's up and to the right. It's growing. It's looking good, but you're still going to see quarter-to-quarter variability until we hit a more steady state.

In terms of the pipeline, I think the team is doing a great job building out the pipeline. And these can be long sales cycles as they go through a multi-month RFP process and then a multi-month sample procurement process, and then we get to do our work. And we don't often get the bill for the project until the project is complete. So once we complete the project, we bill for the project. So I think to kind of level out the lumpiness, just continue to build that pipeline, get more scale, and then it will be a little bit easier to sort of forecast and project.

Okay. Got it. I wanted to go back to your Precision Diagnostics, forgot to ask one more question on the Foundation Medicine partnership that you guys have. Where we are right now? And should we think about any big revenue contribution in '26 or maybe beyond?

Well, we hope so. We hope so. We're really proud to partner with Foundation Medicine. We think they're a market leader in their space. They have a big piece of the puzzle with their tumor profiling and their FoundationOne test. But as the NCCN guidelines have been updated to emphasize more of the need for germline or hereditary testing, they didn't have that piece of the puzzle. So we decided to partner up. We do a great job with germline testing.

I would say it's gone a little slower than we all like, but I think that's just the nature of working with a big company and a big business. I think no pun intended, but they're building a nice foundation. They're building a nice foundation for the partnership. So I think they wanted to make sure that as it scaled, we could deliver on our promises, right? Our turnaround time, our integrations, the ordering, the reporting, I didn't want to get over our skis too much. So 2025 was a "slow year" for us, but I think the pieces are in place for 2026 to be much better.

Have you started to see the volume coming?

We have. It's not as big as we'd like, never is, never is, but we are starting to see the momentum. And look, they have a world-class sales organization. I think they're a world-class company. I think Foundation Medicine and Roche are doing a great job. And I think this partnership together is the best way to deliver cancer testing with somatic and germline together.

Okay. Great. So maybe a final thing on the whole business. I know you're not ready to give outlook, but can you talk about like what's the puts and takes for '26?

I think our overall capabilities are much stronger, and it continues to get stronger. I think Fulgent will continue to make balanced and rational business decisions. I think the possibility of M&A is definitely in the picture. We haven't done one in a while, but we have done several since the COVID era. And I think the key takeaway, what that is, we made those acquisitions work. The numbers and the metrics that we talked about today, these are all organic figures and organic improvements. We raised our outlook twice. And these financial metrics, they just continue to get better for the business.

I think the other thing is on the therapeutics development, we are in Phase II with 007. We're in Phase I with 022. The pipeline and the science, it continues to build. And the key takeaway there is, first and foremost, the validity of our platform and the science and the data. But having said all of that, we made it not impact our financials that much, meaning that our overall spending has been very, very efficient. I think in 2026, the spending for the therapeutics development will continue to increase. It might potentially double our spending for this year, maybe something a little bit less. But even if it doubles off a figure that might be, say, between $20 million to $25 million of total cash spend, which is the projected spending for 2025, it's certainly, right, not a material part of our cash balance.

And I think the other good thing is the laboratory services business, that is non-GAAP profitable already. So with the continued growth in the top line and the betterment -- the continuous betterment of the financial metrics, I think our overall cash balance should be still very, very healthy. When we gave our latest outlook, we projected the cash balance to be approximately $800 million at the end of 2025, and that surpassed our original expectations. And that includes doing stock buybacks, some stock buyback. We bought some ancillary kind of assets to better our business. We invested in capital. We've been hit with inflation for labor costs, just like all organizations. And even with all of that, the cash forecast is better than what we originally anticipated, and it's even better than what we anticipated during the middle of the year. So I think the key takeaway is even with the penetration and the expansion of our business, with both of the businesses, we are very financially responsible.

Great. A lot to follow up on that one. But maybe first on the pharma business. So the 007 is going to be presented at ASCO in 2026, right? So what other catalysts that we should watch for after that? Are you going to see more partnership coming up? Or -- there was a go and no-go decision to make on another indication. How should we think about that?

So Brandon and I can talk, and we will talk about the therapeutics development business. But we have our limitations, right? I mean the person that can give you the true insight is Ming. And he's not here. He had to be somewhere else. But we will address your basic questions. So the key catalyst is going to be the completion of Phase II and entering Phase III. I think it's -- that's probably not a surprise to people that are very familiar with the biotech area. I think Phase III is the key study where people really take a close look at the science as well as the approach for drugs. And that is going to start happening in 2026 for 007.

And for 007, that is a very lucrative area because the market that we are initially targeting is the head and neck. And there have been some transactions and news, right, in the biotech sector for that. We know that the compound, right, has been proven. The delivery platform and the science all point to betterment than what we originally hoped. So you have that as one of the key catalysts, 007 going from Phase II to Phase III. I think the other thing, which will support, right, our approach and the platform is going to be 022, which targets the various cancers around the organs, whether it be colon, liver, pancreas, bile duct and lung as well. And that Phase I study has begun. And I think the other key takeaway is the better the science is and the better -- the deeper that you get into various drugs, it's easier for you to launch, right, additional therapies within that platform. So we think that 2026 is going to be a very exciting year for the company.

Great. And then I just wanted to double confirm. So you're probably going to be double the cash burn for the business, roughly like $50 million in 2026, but we're able to kind of like using the profitability that come out from the lab [indiscernible].

Yes. I think $50 million is on the high side. If we were to estimate it now, it's probably somewhere between $35 million and $50 million on a cash basis. And we anticipate the laboratory services business to continue to be successful and expand. So that cash figure, it doesn't scare us. And then the other thing is the science should be -- and the yardsticks, right, and the catalyst should be much more evident, right, with that spending.

Got it. And then talking about the profitability on the lab, how much we can go further? What are -- do you have any cost-out program or maybe efficiency that can improve the gross margin?

Yes. So I'll kind of tee it up, and I'll turn it over to Brandon. That's a very good segue. So people are familiar with what we achieved during COVID. And I think the key takeaway with that isn't the test for COVID. It's not even really the numbers or even the financials. I think the key takeaway is, we know how to scale up a business in a successful way, and we're ready to do so. And I think that people see some of that, right, through the integration and the betterment that we made the financial metrics after we bought 2 companies during the COVID era. The revenues, we talked about our revenues, pre-COVID, we were a $30 million diagnostics company. Now we're $325 million. Yes, we bought a couple of companies, but the growth and the metrics that we've been talking about here for the last, I think, almost 2 years, they've all been organic.

On the gross margins, getting back to your point, after the COVID falloff, our gross margins were somewhere in the mid- to high 20s, right? And in the last quarter, on a non-GAAP basis, we're at 44-point-something, right, between 44% and 45% gross margins. On a GAAP basis, I think it's like 1 point lower, something like that. And even, say, like 6 quarters ago, our targeted gross margin for the laboratory services, we want to get to something close to 40%. And then once we hit 40%, we're a little reserved. We want to make sure that we can stay there. While it seems like we are staying there, we kind of like are going past that. And that is through our process, through our ability to integrate through streamlining. But the utilization of technologies and future technologies really hasn't taken hold yet.

And I think that I'll turn it over to Brandon, who can talk about our background in technology and the utilization of AI. I know that's kind of a catch-up, but there is a real tangible, right, near-term catalyst that can make our financial metrics, particularly gross margins better through the utilization of AI. And I'll turn it over to Brandon, who can color that in.

Yes. Just real quick, I know we're a little bit short on time. I mean we're proud of the success we've had with our gross margins. I mean it's a focus of the company. If we can continue to make the lab more efficient through automation, through robotics, liquid handling; if we can make our pathologists and our medical doctors across the entire company, including our NGS, sign-out the records more efficient, it's going to continue to get those gross margins to grind higher. So we haven't given any long-term forecast for gross margins, but the expectation is to continue to invest in these areas, and they will continue to grind higher.

Got it. We're about time. Final question on capital allocation. M&A side, what areas that you wanted to kind of like invest into, on the lab or still adding more assets on the therapeutic side? And then how should we think about the buyback?

Not on the therapeutic side. Therapeutic side, we have a very clear, right, path of getting better science and data, and we talked about the catalyst. On the laboratory services side, I'll turn it over to Brandon.

Yes. I mean, look, I think we're going to -- I think we forecast to end the year with $800 million in cash. So I mean, we certainly have some optionality there. We will continue to invest in sales and marketing. I think we will continue to invest in our operations. We've recently acquired some buildings. We built some new laboratories. We've consolidated the laboratories. We haven't talked too much about that, but through acquisitions, we went from 5 or 6 laboratories to 2 or 3 laboratories, centralizing everything, improving operations. And then the investment we're making in AI is going to continue to make us more efficient. Paul and I and Ming and everyone in the company, really all the senior executives, we do spend a lot of time looking for new M&A opportunities. The 2 we've done have worked very well for us. We're proud of the integrations we've done there. We believe there's other targets out there where we can do similar things, where we can take the Fulgent technology platform and put those in businesses to improve those businesses. So M&A is a top priority for us. But if we do another one, we want to make sure it's the right one and a high probability of success. And it's probably just a matter of time.

Okay. buyback?

We've done some buybacks.

We've done that, too. We didn't do any last quarter. I think the takeaway with capital allocation is we're not hamstrung, right? We can do all those things, and we can do them concurrently. And with the team that we have and the bench and the depth, right, and the capabilities that we have, we like where we sit. We think that we're worth more than what we're valued at. But in terms of our overall capabilities and what we can do, we like our positioning.

Okay. Great. Well, I think we're about time. So well, thank you so much for joining us.

Thank you.

Thank you.

Greetings, and welcome to the Fulgent Genetics Q3 2025 Conference Call and Webcast.

[Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Lauren Sloane, Investor Relations. Please go ahead, Lauren.

Good morning, and welcome to Fulgent's Third Quarter 2025 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 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 relating to these forward-looking statements, including the discussions 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 31, 2024, and subsequently filed reports, which are available on the company's Investor Relations website.

Management's prepared remarks, including discussion 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 its financial results for the third quarter 2025 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 the reconciliation of these financial measures to income and loss, earnings loss per share and operating margin, the most directly comparable GAAP financial measures.

With that, I'd now like to turn it over to Ming. Please go ahead.

Thank you, Lauren. Good morning, and thank you for joining our call today. I will start with some comments on the third quarter of 2025 and our 2 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 guidance before we take your questions.

We are pleased with our third quarter results and sustained momentum in the business, as we move through the year. Our results are testament to the progress we have made on our strategic objectives in both our laboratory services and therapeutic development business. We have shown both sequential and year-over-year growth and efficiency in laboratory services with our investment in AI and digital pathology solutions, while making strong pipeline progress on our clinical candidates as a result of momentum in our business. We are raising our outlook for the remainder of 2025.

Our therapeutic development pipeline is on track and progressing well. Our first clinical candidate, FID-007, is progressing through a Phase II clinical trial in combination with Cetuximab in patients with recurrent or metastatic head and neck squamous cell carcinoma with 39 patients that have been randomized and 36 have received at least 1 dose of study treatment as of cutoff date of September 25, 2025. The preliminary data was presented at the ESMO Congress on October 20, 2025.

FID-007 combined with Cetuximab demonstrated meaningful anticancer efficacy at both dose level for the first-line and second-line treatment of R/M HNSCC of 35 patients then evaluable for the efficacy at the time this preliminary data was reviewed. The objective response rate, or ORR for the 75 milligram per square meter arm and 125 milligram per square meter arm, were 44% and 59%, respectively, and 51% overall when both arms are combined. The median progression survival for the 75-milligram arm and 125-milligram arm were 9.2 months and 7.8 months, respectively.

The overall PFS was 7.8 months compared to the historical 2.3 months of the standard of care therapies. FID-007 also exhibit manageable safety and tolerability profile, particularly no Grade 3 and above peripheral neuropathy has been reported to date. As of today, we have a total of 43 patients enrolled and expect to complete patient enrollment by end of 2025 with a full data readout in 2026.

Our second candidate, FID-022, began a Phase I trial, and the first dose level has been successfully completed, while the second dose level will commence this month. FID-022 is a nanoencapsulated SN-38 for the treatment of solid tumors, including potentially colon, pancreatic, ovarian and bile duct cancers. I'm encouraged by the continued progress of our clinical pipelines and the potential for both FID-007 and FID-022. These drug candidates address heavily pretreated patients with very few options left. And I hope we were able to provide alternatives to better their lives.

Overall, I'm pleased with the progress we have made this year in both our business areas. Our pharma R&D efforts are progressing faster, better and more cost effective than planned. Additionally, our laboratory services is greatly benefited from our investment in AI technology, which makes our services more efficient and more precise as Brandon will discuss shortly.

I would like to thank our employees, partners and stakeholders for your hard work and your loyalty in the great quarter of our business. We look forward to further progress in the remainder of 2025.

I will now turn over the call over to Brandon Perthuis, our Chief Commercial Officer, to talk more about our laboratory services business. Brandon?

Thanks, Ming. It was again another excellent quarter, delivering nearly $84 million in laboratory services revenue. Breaking down our results by business area, Precision Diagnostics was up $3.4 million or 7.3% sequentially and was up $7.2 million or 16.4% year-over-year. Biopharma was up $1 million or 15.4% sequentially and was up $3.3 million or 83.4% year-over-year. Anatomic Pathology was down $2.1 million or 7.6% sequentially due to timing of collections, however, was up $1.8 million or 7.2% year-over-year.

In the last quarter, we introduced an enhanced version of our whole genome sequencing that incorporates RNA analysis to improve diagnostic yield. This new offering has sparked strong interest from both existing and prospective clients. Building on that momentum, we're pleased to announce the launch of our ultrarapid whole genome sequencing service. This solution provides a preliminary report within 48 hours, followed by a comprehensive report within 5 days. The primary focus for this service is the neonatal intensive care unit, or the NICU, where studies have shown that whole genome sequencing can significantly improve patient outcomes and support more efficient health care delivery. The data suggests that implementing rapid genome sequencing as a first-line test in the NICU will change medical management for up to 87% of babies and reduce health care costs up to $15,000 per child.

Our second exciting announcement centers around expansion of our Beacon carrier screening service. We've consistently pushed the boundaries to remain at the forefront of genetic screening, having been the first U.S. laboratory to offer a panel with over 700 genes, still the largest of its kind to the best of our knowledge.

Now we're taking another major step forward with the launch of Beacon K, which expands our panel to 1,000 genes. This enhancement will further strengthen our ability to detect rare genetic conditions. Beacon has earned a strong reputation as a leading carrier screening solution. Powered by our proprietary platform and advanced informatics, Beacon consistently delivers high analytical detection rates, accurate differentiation of pseudogenes and reliable copy number variant calls. Additionally, our turnaround time remains exceptional, averaging just 8.8 days, roughly twice as fast as many other laboratories.

We have mentioned on previous calls the significant investment we have made in digital pathology. This has allowed us to digitize our slides instead of the traditional method of microscopy. There are several advantages to digital pathology, but perhaps the most powerful one is our ability to utilize and develop AI to help make our pathologists faster and better. Until very recently, we were using a third-party image management system, or IMS, but it had limitations.

However, we're excited to announce we have developed and launched our own proprietary IMS, which we are calling [ EZOPath ]. EZOPath was created to address the growing demand for custom features necessitated by our high daily case throughput to support all lines of business and to enable the deployment and integration of AI tools to assist our pathologists in their diagnosis. EZOPath provides a case management solution with possible integrations with laboratory information systems, or LISs, provides data storage for digital pathology images and metadata, enables collaboration by pathologists through sharing of annotations and comments and integrates best-in-class AI tools developed in-house and integrated from third parties.

As an enterprise IMS, it enables rapid investigation of digital pathology slides and output from AI modules for expedited reporting. We are committed to creating the highest quality and most efficient pathology lab possible, and this is a big step in that direction. With a strengthened product portfolio, outstanding laboratory performance and an expanded sales team, we believe we are well positioned for continued growth, and we're pleased to once again raise our annual guidance.

I want to sincerely thank our entire team for their hard work and dedication, and we look forward to finishing 2025 on a strong note.

With that, I'll turn the call over to our Chief Financial Officer, Paul Kim. Paul?

Thank you, Brandon. Revenue in the third quarter of 2025 totaled $84.1 million compared to $81.8 million in the second quarter of 2025. Since revenue from COVID-19 testing is expected to continue to be negligible in 2025, we will no longer provide separate metrics on what we have previously referred to as core revenue, which we defined as total revenue, excluding COVID-19 testing. Separately, we have begun to see minimal revenue in our therapeutic development business from our acquisition of AMP in July, primarily related to IP licensing royalties. Gross margin on a non-GAAP basis was 44.3% and on a GAAP basis was 42.2%. Gross margins have improved year-over-year due to streamlined operations and enhanced efficiency as a result of our investments in scaling and centralizing lab operations.

Now turning to operating expenses. Non-GAAP operating expenses totaled $40.7 million compared to $43.9 million in the previous quarter. Total GAAP operating expenses were $50.9 million for the third quarter, which decreased when compared to $54.1 million in the prior quarter. The decrease in operating expenses was partially driven by a reduction in advertising and marketing expenses and a favorable reduction in bad debt expense, reflecting improved collections from Precision Diagnostics. We remain committed to R&D spending to support both our laboratory testing services and our clinical studies and the sales and marketing spending to expand the sales team.

Non-GAAP operating margin improved sequentially to minus 4.2%. Our GAAP loss in the current quarter was $6.6 million, an improvement from the prior quarter's GAAP loss of $19 million, which included a onetime noncash charge related to a $9.9 million impairment of a prior investment. Adjusted EBITDA for the third quarter was approximately $0.7 million compared to a loss of $3 million in Q2 2025. On a non-GAAP basis and excluding equity-based compensation expense, intangible asset amortization and acquisition-related costs, income for the quarter was approximately $4.5 million or $0.14 per share based on 31.3 million weighted average diluted shares outstanding.

In the third quarter, we did not repurchase any shares under our stock repurchase program. Since the inception of the stock repurchase program in March 2022, a total of approximately $110.4 million has been spent with approximately $139.6 million remaining available for future repurchase of our common stock.

Turning to the balance sheet. We ended the third quarter with approximately $787.7 million in cash, cash equivalents, restricted cash and marketable securities. The increase in cash from the previous quarter is driven by strong operating cash flows, partially offset by capital expenditures. There were no stock or income tax credits purchased during the third quarter. However, in October, we used $67.9 million for the purchase of income tax credits. As I mentioned earlier, given the minimal impact of COVID-19 testing revenue on our overall performance, we have transitioned to guiding total revenue. Reflecting on our current business momentum, we are revising our full year 2025 revenue outlook upward to $325 million for 2025, representing a growth of 15% year-over-year.

We continue to expect non-GAAP gross margins for the full year to exceed 40%, continuing the strong momentum we've experienced in recent quarters. We expect non-GAAP operating margins to improve from minus 15% to minus 10% for the year, driven largely by increased revenue. Our strategy for success centers on the continuing to scale efficiently and driving innovation across our service offerings. We will continue to invest in business expansion, further advancing our laboratory operations and upgrading existing laboratory facilities, while remaining focused on managing our spending. We believe that our foundational technology platform supports a strong long-term margin profile.

Using an average share count of 31 million, we expect an improvement to our full year 2025 non-GAAP EPS guidance from a loss of $0.35 per share to a positive $0.30 per share, excluding stock-based compensation, impairment loss, acquisition-related costs and amortization of intangible assets as well as any onetime charges.

Reflecting the improvement in our operations, which is offset by the effect of the onetime noncash impairment adjustment, we are now revising our GAAP EPS guidance from a loss of $1.70 per share from $2.10 per share, excluding any future onetime charges using a 31 million average share count.

Finally, our cash position remains strong. We focus on efficient capital allocation that allows us to reinvest in our business, fund key initiatives and support future growth. Excluding any future stock repurchases or other expenditures outside the ordinary course, which include M&A, we anticipate ending 2025 with approximately $800 million of cash, cash equivalents, restricted cash and investments in marketable securities. This number further assumes receipt of approximately $106 million in tax refunds prior to the end of 2025, which may be delayed as a result of the current government shutdown. 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 our call today. Operator, you may now open it up for questions.

[Operator Instructions] Our first question is coming from Lu Li from UBS.

First one on the margin. I appreciate the new disclosure on the margin by segment. It seems like the lab is turning positive margin in the quarter. I wonder, Paul, like how do you think about the going forward path in terms of like what will be the ultimate operating margin target that you're looking for?

Thank you for the question, Lu. We were really pleased with what we saw in the gross margins for this quarter. As you remember, we had high margins in Q3, but Q3, we had an impact, a favorable impact to the margins of about $1.6 million, $1.7 million that was due to our capitalization policy. But in this quarter, in the third quarter, even without that, our margins, they came in just as high at 44.3%, actually a little bit higher than what we achieved in Q2. And that's due to the overall efficiencies of the organization, continued automation that we have for the business and streamlining our policies.

I'll turn it over to Ming, who can talk about what we see directionally for margins in our business without giving out specific numbers because there are particular technologies that we are beginning to utilize, which might enhance our margins going forward.

Yes.

Thanks, Paul. And Lu, as you probably hear from Brandon, we started to develop the AI technology in-house, building our capability for the -- through our digitalization of the entire -- almost the entire pathology services. So we will continue to see the improvement in that area. In addition, we will be building a pretty rich database for us to be continue to benefit for us to get into the further margin and reimbursement improvement in that territory.

Anything -- Brandon, you want to add?

No, I think it's well said, Ming and Paul. Thank you.

Second question on the AP. Brandon, I think you mentioned there are some timing issues in the quarter. I'm wondering if you can give a little bit more color and whether that will be a catch-up in Q4? And then I have a follow-up.

Yes, certainly, thanks for the question. Yes, it was a timing issue. It was mostly related to the collections in the quarter, which did reduce the amount of revenue we could recognize. But already in this quarter, we're beginning to see an improvement in the collections, and we think that that's going to continue to improve in the next couple of quarters. So no material weakness in the business, just a timing issue around collections.

Okay. And then on the Precision Diagnostics, you mentioned several new products, the rapid whole genome and then you talk about the expanding of the Beacon panel. I wonder how this like a new menu expansion kind of support the growth going forward. You seems like pretty confident in terms of like growing double digit forward. I wonder how should we think about the 2026?

Well, we are really excited about launching both of those products. I think our R&D investment there was quite efficient. Our timing was quite efficient. We last quarter launched a new improved whole genome sequencing test that included RNA, which is a significant diagnostic yield increase. That's generally sold into pediatrics, development of pediatrician, geneticist. But if you want to help families in the NICU, which require rapid results, we needed a faster product. So the follow-on to our last quarter update is this new rapid -- ultrarapid whole genome sequencing test.

So this is more or less the first time for us to launch a product directly targeted at the NICU. We believe our turnaround time, some of the features around the genome in terms of its variant calling ability, puts us in a strong position to penetrate that market. As we mentioned on the call, I mean, this is becoming a standard of care in the NICU for many patients. It's a favorable margin profile in terms of billing institutionally for the test. So we'll see how much it contributes to 2026. But at the end of the day, it's going to be a powerful product for clinicians to use in the NICU, and I'm excited the team was able to launch it so quickly. And it does dovetail right into what we've been talking about expanding our sales team. We have invested significantly in expanding the pediatric sales team. So this puts one more powerful tool in their bag to sell when they're visiting children's hospitals and academic medical centers.

And regarding Beacon, we continue to push the envelope there. We believe, especially in the reproductive setting, there is a need to test for more. There's a desire to test for more conditions. I mean these conditions become rarer as we add more, but collectively, they're not rare. So we're going from 700 genes, which we've been offering now for about a year, to 1,000 genes, which should make us, as far as we know, the largest panel on the market.

Our Beacon portfolio has performed incredibly well. I mentioned our turnaround time of 8.8, 9 days. That's exceptional. I mean we're dealing with patients where turnaround time is critically important, whether they're going through fertility treatments, whether they're already pregnant, there's a lot of anxiety there. So to be able to give results that quickly does give us a significant advantage in the marketplace.

The next question is coming from David Westenberg from Piper Sandler.

Actually, I'm going to continue with some of those questions. So Brandon, with the KNOVA product, are you finding that physicians prefer to order kind of the bundle of tests versus just a single NIPT test or carrier microdeletions all in one? Is that favoring you? And can you give us a reminder on how those are reimbursed again if they're reimbursed kind of in a bundle, if they're reimbursed separately?

Yes. Thanks for the question, David. I mean, certainly, in the OB/GYN and MFM market, NIPT and carrier screening is often ordered bundled together, not always, but very frequently. So I think we've established a really good brand for Beacon, our carrier screening product in the marketplace. I think we've become sort of the go-to laboratory for carrier screening, our turnaround time, our quality, the number of genes, the customization. We've really fired on all cylinders as it relates to carrier screening.

And then not too long ago, we decided to launch KNOVA, a novel NIPT test. And the strategy there is to sell those together. But they are 2 independent tests, right? Testing for completely different things. You asked, is it bundled billing? No. I mean it's a separate orderable test. So we get an order for KNOVA, we bill for KNOVA. We get an order for Beacon, we bill for Beacon, not bundled together from a billing perspective, but clinically, they're very often ordered together.

Perfect. And then just continued reimbursement updates. I mean, I think that ACOG update on expanded carrier screening is taking a lot longer than I think the industry expected. If there's any update there or if insurance companies are just kind of seeing the value of expanded carrier screening already and maybe proactively reimbursing ahead of that. And same question for kind of microdeletions, which is another one where we kind of thought the George syndrome is already going to be covered by now.

Yes. Good question. I mean, look, not everything hinges on that ACOG statement. There's a lot of other efforts going on behind the scenes. Actually, a lot of the companies are all working together, actually, the part of a coalition, to expand access to some of these tests. So certainly, the ACOG -- a new ACOG guideline would be beneficial to the industry. But we are seeing payers get ahead of that. And I think some of these other grassroot efforts that are happening, working directly with the payers to show them the value proposition, to show how it impacts clinical care.

Some of these payers are getting ahead of that guideline. I think the guideline will just push it one step further. So we're continuing to see increased reimbursement for many of our tests, not just reproductive health. And again, I think it's really a result of working directly with the payers and showing them that clinical proposition. And hopefully, before too terribly long, we might get some positive news from ACOG to take it to the next level.

Got it. And then my next -- my last question is a combination for Ming Hsieh and Paul. It looks like you had some good data on FID-107 in Phase II. Are you going to have additional updates in Phase II before moving on to Phase III? What are the key milestones to look out for?

And then, Paul, if you can maybe explain the additional expenses that would come for moving from Phase II to Phase III, what kind of increases in expenses you would expect?

All right. Thank you, David, for the questions. We expect to finish the enrollment by end of 2025. By the ASCO, which is in May of 2026, we would expect to do an oral presentation for the data we have, which we feel is very exciting. By that time, for all the patients enrolled in the database will be at least had 1 or 2 scans already. So that will further enhance the data we presented at ESMO in September this year.

So this will give us a strong confidence to move the FID-007 into the Phase III clinical trial because we see a significant progression-free comparison with the standard of care. So in terms of what is the Phase III cost in terms of the moving forward, I think it depends on the final -- the statistician come out number and our Phase III design, we are in the process now. We estimate it's around 300 patients to be enrolled. So from that point of view, the clinical cost of Phase III is roughly around $60 million.

And then just to give you a full picture on the spending. So for 2025, we anticipated the cash spend for the therapeutics development would be about $25 million for the balance of the year. We believe that, that spending is going to be a little bit less than that for this year. I think the great news for the company, whether it be the therapeutics development or the laboratory services is the amount of science and the progress that we have seen so far for the therapeutic development. With spending a little bit less than what we have anticipated is something that makes us really pleased because it goes back to the efficiency of our spending.

And then if you take a look at the laboratory services business, we've raised our guidance twice this year. All in the meanwhile, the cash forecast and our cash target, as you probably saw in the press release, has been raised to $800 million. So efficiency in running the operations, managing our cash and getting output for our business, whether it be increased revenues for the laboratory services or the science and the data that we're seeing the therapeutics development, we're very pleased with.

Yes. Dave, for the ESMO data, we published in September -- October this year, which the data cutoff on this in September is available online. You should see it's a pretty impressive data in terms of how -- about the efficacy of FID-007. So we are very pleased and very much encouraged. There is similar -- the transactions in the area. The market is a big, multibillion dollars market is addressable by our products. So we are very encouraged, and we believe that our investment will have a great return.

In addition, this is not one drug. This is a platform performance. We have been using the same delivery platform. We had the second drug, FID-022. And that one in the Phase I for the dosing escalation exercise, it is going well, and we are also very much looking forward to provide the additional data by mid next year.

Next question today is coming from Andrew Cooper from Raymond James.

Maybe just first, I want to dive in on the Anatomic Pathology collections dynamic. We're not necessarily seeing that in the receivables. So just if you could unpack a little bit more sort of what's going on there and what gives you the confidence that it is just collections timing, if there's any volume stats or anything like that, that you could share to help us get a little bit better understanding, that would be great.

Andrew, it's Brandon. Thanks for the question. No, it really was a timing issue. So I mean, at a high level, we made a change in our billing software. It takes a little bit of time to implement the new software. Software has been implemented. Things are going well. We're seeing collections begin to improve. So it was just around changing a billing software.

And then in terms of the receivables, as you're very familiar with, Precision Diagnostics is the biggest part of our business, and we had very strong collections during the quarter for that area of the business.

Okay. Great. That's helpful. And is there any -- just so we're kind of prepared for it if it does come again, are the software changes in place kind of across Precision Diagnostics as well? Is there any kind of potential disruption in any other segment as we move forward, knowing that it may just be timing, but at least to keep us on the lookout?

Mostly related to AP.

Okay. That is helpful. And then Pharma Services had a nice quarter. I just want to kind of dive in a little bit there on the strength. Was it -- knowing this can be big and lumpy, is this a single program and a timing dynamic that is better in the quarter? And obviously, had you raised the guide for the year? Or is this a little bit more kind of broad-based finding some traction? Just would love some understanding of what's letting you succeed there and sort of where the success is coming from.

Yes. Thanks for the question. Look, I think it's mostly related to our capabilities expansion. I think we've mentioned before that pharma services at one point was pretty much just NGS. And that limited our market size there. There was a lot of RFPs that were being presented to us, that required additional technology that we didn't offer at the time. So we had a smaller addressable market when we were just an NGS shop. But since then, we've launched a lot of new tests in our Biopharma Services division, and that's allowed us to expand that addressable market and just blocking and tackling, allowing us to respond to more RFPs.

So the business is -- it's still a bit lumpy. I mean this is just the nature of these wins. But the pipeline looks good. Again, our capabilities are strong. I think the feedback we're getting from our biopharma partners is incredibly strong. They do value the test that we're providing and the service we're providing. So it's an area we're going to continue to invest in. And we'll continue to see some lumpiness. But overall, we're quite pleased with the capabilities and the progress of that business.

Okay. Helpful. And then another good quarter, Precision Diagnostics. You were up $3.5 million or so sequentially, I think, like $7 million year-over-year. Can you just ring-fence for us kind of the growth contributions you're getting there? How much of that is Beacon versus KNOVA versus other parts of the portfolio to help at least kind of rank order or give some flavor for the traction there?

Yes. I mean Beacon continues to be a really important test for the company, and it's continued to grow. We're winning new customers. We're moving into new markets. So really pleased with the progress of Beacon. And hopefully, launching Beacon K takes it to the next level and certainly keeping our turnaround times where they are has just been hugely important for the company.

KNOVA is not yet a meaningful contributor to revenue. We're still trying to break into that OB/GYN marketplace. A lot of the Beacon business historically has been from the fertility side of things, REIs and fertility clinics. So Beacon continues to be quite important. We are seeing great momentum in our exomes and genomes as well. Our oncology business is doing well, especially on the heme side.

So I think overall, I mean, you look at all the different sort of divisions of the company, they're all doing well, all firing on all cylinders, and we see great momentum.

Thank you. We reached the end of our question-and-answer session. And 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.