Fulgent Genetics Inc

NASDAQ:FLGT

Earnings Call Analysis

Stable Revenue Outlook Despite Loss

In the third quarter, the company's operating expenses decreased slightly, and non-GAAP operating margin rose significantly to 15.4%, buoyed by unexpected COVID-19 testing revenue. The tax expense was substantial due to a full reserve against deferred tax assets, reflecting a net loss position. The company finished Q3 with an adjusted EBITDA of $18.1 million and a net loss on a non-GAAP basis of $11.7 million, or $0.39 per share. Looking forward, the company reiterated its core revenue guidance at $260 million and anticipates maintaining gross margins around 36%. It projects a full-year non-GAAP loss of $0.95 per share. The balance sheet remains robust with an expected year-end cash position of approximately $830 million, considering the impact of ongoing share repurchases.

Positive Third-Quarter Performance and Full-Year Guidance Affirmation

The company reported $85 million in total revenue for the third quarter, largely driven by the success of their precision diagnostics segment and a serendipitous $19 million from COVID-19 testing, which was not initially included in the guidance. Despite a seasonal dip in anatomic pathology and an expected decrease in the more variable pharma services revenue, the core revenue still hit $66 million, surpassing the guided $65 million and demonstrating a robust 17% year-over-year increase. This performance solidified the company's confidence to maintain their full-year core revenue guidance of $260 million.

Strategic Partnership and Diagnostic Advances

The company's Beacon carrier screening tests underline their ongoing expansion, marking significant diagnostics growth. Their strategic agreement with Progeny enhances their reach within reproductive genetic testing. Furthermore, their innovative nanoencapsulation technology edges closer to potential breakthroughs in cancer treatment, with promising Phase II studies scheduled to commence in early 2024.

Financial Health: Gross Margin, Operating Expenses, and EBITDA

Gross margin stood at 47%, attributed to successful collections from COVID-19 tests, reflecting well on revenue cycle management. The company witnessed a thoughtful decrease in non-GAAP operating expenses to $29.4 million, down from $30.4 million in the previous quarter. Adjusted EBITDA was reported at $18.1 million, with a non-GAAP loss of $11.7 million, or $0.39 per share. Notably, the cash position remains strong, with an impressive $851 million in cash, cash equivalents, and marketable securities by quarter's end.

Share Repurchase and Investment Outlook

The third quarter saw the company actively repurchasing shares, a testament to their financial stability and shareholder-centric approach. With the repurchase of around 80,000 shares in Q3 and an additional approximately 533,000 shares post-quarter, about $159 million remains earmarked for potential future repurchases, revealing confidence in the company's valuation and prospects.

Guidance into the Next Year

Looking ahead, the company is poised for growth, sustaining their revenue guidance and projecting continued improvements in gross and operating margins, thanks in part to synergies from recent acquisitions. The projected non-GAAP full-year loss of $0.95 per share reflects a prudent fiscal approach amidst investments and share buybacks. The cash forecast for year-end suggests a healthy $830 million, concluding a fiscally disciplined and growth-oriented 2023.

Earnings Call Transcript 2023-Q3

[Operator]

Hello, and welcome to the Fulgent Genetics Q3 2023 Earnings 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 Melanie Solomon, Investor Relations. Please go ahead.

[Melanie Solomon]

Thanks, Kevin. Good morning, and welcome to the Fulgent Third Quarter 2023 Financial Results Conference Call. On the call today 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, www.fulgent.com (sic) [ www.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 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 that 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 to listen to management's remarks today with the understanding that actual events, including the company's actual future results, may be materially different in 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 these 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, 2022, and subsequently filed reports, which are available on the company's Investor Relations website.

Management's prepared remarks, including discussions of 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 they should not be viewed as a substitute for or superior to the company's financial results prepared in accordance with that.

Please see the company's press release discussing its financial results for the third quarter of 2023 for more information, including the description of how the company calculates non-GAAP income or loss earnings or loss per share and adjusted EBITDA, and a reconciliation of these financial measures to income or loss and earnings or loss per share, the most directly comparable GAAP financial measures.

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

[Ming Hsieh, executive]

Thank you, Melanie. Good morning, and thank you for joining our call today. I will start with some comments on the quarter. Then Brandon will review our product and go-to-market update from the third quarter, and Paul will conclude with the financials and outlook before we take your questions.

We are pleased with our results in the third quarter with $85 million of total revenue. Due to our successful collection effort, we recognized additional $19 million of revenue from previously built COVID-19 test. Our core revenue of $66 million was driven by momentum in precision diagnostics as we expected. The revenue for the anatomic pathology were seasonally lower in the third quarter. Pharma service, which we had said is a lumpy business, decreased in the third quarter as we anticipated. Given these results, we are pleased to affirm our guidance for the full year of $260 million of core revenue.

We continue to make good progress with our therapeutic development in pharma. Our novel nanoencapsulation technology includes over 40 patents and targeted therapy platform designed to improve the therapeutic windows and the pharmacokinetics profile of both new and existing cancer drugs. Our lead drug candidate, FID-007 has shown promising results for the treatment of numerous cancers, including head and neck, ampullary, and pancreatic with reduced side effects. This weekend, we will present additional data including all ongoing studies of FID-007 at Society for Immunotherapy of Cancer Annual Meeting ongoing on now in San Diego. We'll then have the poster available on our website.

From this data, we are moving forward with Phase II studies in head and neck cancer. We have submitted our Phase II clinical protocol to FDA and expect an initial study in the first quarter of 2024. We are excited about reaching the next milestones for pharma and bringing FID-007 to more patients in clinical settings.

I'd like to thank our employees and the shareholders for your loyalty during the past quarter. We're looking forward to close out a strong year and to catch on the momentum what we see ahead.

I will now turn over the call over to Brandon, our Chief Commercial Officer, to talk about our diagnostics business results during the quarter. Brandon?

[Brandon Perthuis, executive]

Thank you, Ming. We had yet another solid quarter led by continued momentum in our precision diagnostics division. Core revenue for the third quarter totaled $66 million, down 2% sequentially and up 17% year-over-year. Breaking it down further, precision diagnostics came in at $37.5 million, an increase of 16% sequentially and 45% year-over-year. As we have mentioned in previous calls, because of the nature of the contracts and awards, our pharma services business will be lumpy. This was the case for the third quarter. Pharma services came in at $3.7 million, down 50% sequentially and up 19% year-over-year.

That said, our pharma services pipeline looks strong with new partnerships coming online. In addition, our capabilities today are broader than ever before, giving our clients the opportunity to work with a multidisciplinary team experienced in pathology, multiomics, oncology, spatial transcriptomics, liquid biopsy, single-cell sequencing, proteomics and more. We are confident that the pharma services will be an integral part of our success going forward.

Our Beacon carrier screening portfolio of tests continues to be a significant growth driver for precision diagnostics. As a reminder, carrier screening assesses risk of passing on certain genetic conditions to children. This test is for anyone who is currently pregnant, considering pregnancy or planning to become pregnant in the future.

Our Beacon test menu now includes 7 preset panels ranging from 6 to 787 genes. However, we have the ability to customize panels for our clients, which is something not widely available in the market. This is proving to be an important differentiator. Turnaround time has been stable and is now 1 of the fastest in the industry with a mean turnaround time of 12 days. The focus now is to continue to gain market share in the infertility space and begin initial planning for our rollout to the OB market.

During the third quarter, we entered into a new agreement with Progeny for Beacon carrier screening. Progeny is a leading benefits management company specializing in fertility and family-building solutions. This new agreement allows us to provide reproductive genetic testing to the progeny member network. This is an important agreement for Fulgent since many of our reproductive clients see progeny patients. Along with our robust managed care contracts, this new agreement puts Fulgent in a strong position for coverage and reimbursement.

An area of focus for R&D during the quarter was to update our hereditary cancer panels. As the field continues to generate more and more data, we need to continually look at what we're offering to make sure our panels are as clinically relevant for patients and providers as possible. In making these updates, our team focused on getting well-defined options to providers. Our focused panels are now closely aligned with the latest NCCN guidelines and genes included on these panels are high to moderate risk factors for cancer as noted in the guidelines and associated with direct actionability.

The comprehensive panels are broader and include the focused genes as well as low-risk genes and candidate genes that may provide information about the cause of the cancer in the family, but may not be associated with actionable guidelines at this time. Our comprehensive offerings for hereditary cancer testing, coupled with our test menu for solid tumors and hematological malignancies makes us an attractive choice for clinicians. We are often asked about further M&A or strategic investment opportunities.

This is an area we spend a lot of time on, consistently evaluating companies and technologies. However, we are being highly selective. We are seeing the investments we have made in our business payoff with meaningful organic growth and continuing strengthening of our position in the market. While there are likely opportunities for us to strengthen through M&A, we will continue to be measured in our approach.

I'll now turn the call over to our CFO, Paul Kim, to walk through the detailed financials for the third quarter. Paul?

[Paul Kim, executive]

Thanks, Brandon. Revenue in the third quarter totaled $85 million compared to $106 million in the third quarter of 2022. Approximately $19 million came from COVID-19 testing in Q3, which was not part of our guidance. Revenue from our core business totaled $66 million, which exceeded our guidance of $65 million and grew 17% year-over-year. Gross margin was 47%. The increase in gross margin year-over-year is primarily related to COVID-19 revenues of $19 million, recognized on previously built tests due to successful insurance collection on appeals.

Now turning to operating expenses. Total GAAP operating expenses were $39.6 million for the third quarter, down from $40.4 million in the second quarter of 2023. Non-GAAP operating expenses totaled $29.4 million, down from $30.4 million in the second quarter of 2023. Non-GAAP operating margin increased 27 percentage points sequentially to 15.4%, primarily due to COVID-19 testing revenue recognized in the quarter. We recognized a tax expense of $20 million in the third quarter as we put up a reserve against our deferred tax assets. But due to being in a loss position, we reserve for these deferred tax assets in full.

With our performance in gross margins and operating margins in the third quarter, had we used the previous statutory rate instead of booking the valuation allowance, we would have further exceeded our projections. Adjusted EBITDA for the third quarter was $18.1 million compared to $19.7 million in the third quarter of 2022. On a non-GAAP basis, and excluding equity-based compensation expense of intangible asset amortization, loss for the quarter was 17.7 -- I'm sorry, $11.7 million or $0.39 per share based on 30 million weighted average shares outstanding.

Turning to the balance sheet. We ended the third quarter with approximately $851 million in cash, cash equivalents and marketable securities. Cash, cash equivalents and marketable securities increased $4 million from Q2, of which $3 million was an increase in investments. We were active with our share repurchase program in the third quarter. We repurchased approximately 80,000 shares of our common stock at an aggregate cost of $2.2 million at an average price of $27.65 under the stock repurchase program announced in March of 2022.

Subsequent to the end of the quarter, as of October 31, we have since repurchased approximately 533,000 shares at an aggregated cost of $13.7 million. As of October 31, 2023, a total of approximately $159 million remained available for future repurchases of our common stock under the stock repurchase program.

Moving on to our outlook for 2023. We're reiterating core revenue guidance of $260 million. This number does not include additional revenues from COVID-19 testing. Excluding the $19 million of COVID-19 revenues, the non-GAAP gross margins improved 2 percentage points in Q3 to 36%, and we estimate Q4 non-GAAP gross margins to remain relatively the same or slightly higher. We expect that our ongoing integration efforts with our recent acquisitions will create efficiencies that will result in improved gross margins and operating margins in 2024.

For the full year 2023, utilizing a non-GAAP tax provision and average share count of 30 million, we maintain net non-GAAP loss of $0.95 per share for our shareholders, excluding stock-based compensation and amortization of intangible assets, as well as any onetime charges. Given our strong balance sheet and cash position and the way we've been balancing our investments, we wanted to provide guidance on our expected cash position at the close of the year. Our investments in our therapeutics business have been lower than anticipated this year, and we continue to be active with our share repurchase program. Our core business is performing well and we have some welcome through unexpected COVID-19 testing revenues.

As such, excluding any stock repurchases since Q3 or other expenditures outside the ordinary course, we expect to end the year with approximately $830 million of cash, cash equivalents and investments. Overall, we have strengthened our core business, bolstered our portfolio through strategic acquisitions, and improved our financial performance in 2023. We're pleased with our trajectory and see good momentum ahead.

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

[Operator]

[Operator Instructions] Our first question today is coming from David Westenberg from Piper Sandler.

[David Westenberg, analyst]

Congrats on the strong work here. So can you talk about any of the COVID reimbursement payment. I mean, I think you guys have mostly exited COVID. I mean, is there any COVID testing remaining? Or how should we think about that as an option from here out?

[Paul Kim, executive]

Yes. Brandon, do you want to take that question?

[Brandon Perthuis, executive]

Yes, certainly. Thanks, Dave. There's very little ongoing COVID testing. That is accurate. However, we continue to appeal claims and continue to collect on AR from when COVID testing was much higher. So I think that's what you're seeing today. I think you're seeing the payoff of a robust revenue cycle management team and the payoff of a company that is going to do all we can to collect on the work that we've done. So it was essentially a collections effort and proud of the team. They've done a good job to collect on the test that we ran during the spike of COVID.

[Paul Kim, executive]

David, at the beginning of the year, we stripped out COVID from our core guidance and from an operational perspective. And when we did that, we commented the assumptions that we made and not including that we felt was conservative. So these kinds of adjustments that you're seeing are -- we're pleased to report that they're on the positive side. And I think the other thing that it points to is our overall efficiencies in the way that we're conducting our business, whether it be appeals or the way that we're running the operations. So we're certainly pleased with the uplift that we're getting from COVID, but we're going to continue to not have that within our guidance.

[David Westenberg, analyst]

No, I appreciate the conservatism on not having in the guidance, but I would ask, is there any potential for any one more time payment? And I realize like on a go-forward basis, I mean, this isn't necessarily how we all are going to value the company. But just for mechanical purposes.

[Brandon Perthuis, executive]

Yes, there is. Our collection efforts are ongoing. Our appeals efforts are ongoing. So is there a chance we have additional collections from COVID-19 in Q something we're counting on, no. But yes, I mean, we're continuing to do work on those appeals and on those collections, yes.

[David Westenberg, analyst]

Okay. Great. And then you mentioned the pharma revenue being a little bit lumpy. Just overall across the industry, we are seeing pharma taking a little bit more of a conservative approach with their spending. How confident are you? And these lumps and maybe not just kind of weakening macro overall, because there is -- across the industry, we are seeing some of that weakening macro.

[Brandon Perthuis, executive]

Yes. I think we're starting with a little bit smaller number perhaps. So I don't think what we're seeing is a macro environment change. I think we have -- we don't yet have a large client base for these services. It's something we're building out. So I think what Fulgent needs to do is continue to get more clients, needs to continue to get more market share, and needs to continue to get out to our existing clients to sell the new services we've launched in that division.

So I think for us, it's just sort of a timing thing. The pipeline does look strong. We are onboarding new partnerships and new clients. So I don't think we're seeing that macro shift. I think for us, it's just the timing. And ultimately, to have a more steady trajectory, we need to continue to fill that sales funnel, need to continue to onboard new partnerships, and continue to get those clients to take advantage of all the new products and services we've launched.

[Paul Kim, executive]

David, Brandon and I have been commenting on pharma services and the nature of that business being lumpy, as Brandon mentioned. The other thing is the sales cycle is longer in terms of duration. But if you kind of take a step back and look at the overall performance of pharma services, we did approximately $10 million in 2022. And in 2023, even with the lumpiness, we're anticipated, within our guidance, to do approximately $21 million, $22 million. So we're anticipated to have over 100% increase in that business. We anticipated the pharma services revenues to be lower in Q3 and Q4, anticipating when the work will be serviced and recognizable in terms of revenues. But as Brandon indicated, we are really excited about this business and our funnel is full.

[David Westenberg, analyst]

Got it. Great. I'll just ask 1 more and let Andrew have some more questions. So just -- I know you're going to begin Phase II, I think, early next year. So I know you're not giving 2024 guidance, but I would love to hear about maybe anticipated spend on maybe some of these -- or that project specifically, if there is a major increase in R&D spend associated with that as a step-up.

[Ming Hsieh, executive]

Yes, David. I think the budget projection is still solid. We are still around $50 million annually burn rate. So for the Phase II study, it's going to be the Phase II study at the second line of therapy for the head and neck cancer patients. So it is a combination therapy, which is suggested by the experts in this field. We feel very good about our position and the market potential. But in terms of R&D spending, the $50 million that we allocated is not only for the clinical trials, but all the new drug development efforts combined together. So we still expect about a $50 million annual burn rate.

[Operator]

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

[Andrew Cooper, analyst]

Thank you for the question. I guess just want to maybe first ask a little bit about the guidance, just the sequential revenue, the core being sort of flattish, maybe down a touch as sort of what you're pointing to. So maybe just a sense for how much of that might be seasonality in your minds versus maybe something that is moving a little bit more materially from quarter-to-quarter.

[Brandon Perthuis, executive]

Thanks for the question, Andrew. No, there certainly is some seasonality in it, especially as it relates to our anatomic pathology division. That's something we are planning on. In addition, it still goes back to some of our pharma services and needing to get those projects through the door, get them signed out so we can book those revenues. So that's another thing we're planning on in Q4, just seeing some additional lumpiness in the pharma services business. But the precision diagnostics still has tremendous momentum. Beacon volumes are doing incredibly well. Our oncology business is doing well. So we expect to see that continued momentum into the fourth quarter. But again, taking a bit of a conservative approach as it relates to some of the seasonality around AP and some of the pharma services.

[Andrew Cooper, analyst]

Okay. Helpful. And a couple of those are areas I wanted to hit on as well. So maybe starting with AP. If I have my numbers right for precision diagnostics and pharma services for this quarter, I think AP was a little bit lower than we were looking for and I think lower than you were sort of looking for at least at the start of the year when you originally guided for that segment. So sort of what's going on there? Can you give us a little bit of an update in AP and how we should be thinking about that business given it is a pretty hefty chunk of the overall, but not the 1 that we've talked about much today.

[Brandon Perthuis, executive]

Yes, certainly. No, it is. And we're still continuing to sort of Fulgentify that acquisition and doing the work there to implement our technologies, our procedures and the focus has been improving the operation and improving those margins. I think we're making some good progress there. But perhaps taking a little bit longer than we anticipated to work through that acquisition, but things are generally trending in the right direction. It's a pretty stable business, you're right. So there a little bit of a downtrend that we saw, could be a little bit of seasonality into the back half of the year.

We are monitoring our accounts for profitability. So to a very small degree, we've exited some areas where maybe we didn't have favorable reimbursement or for whatever reason, the mix wasn't a profitable account for us. So we are looking into some account level profitability. That may play a small role in it. But long term, we're continuing to invest in that business.

We've made some changes into the go-to-market strategy and sales structure. We are onboarding some additional salespeople in the back half of this year and early next year. We believe we have an incredible product offering in AP. Our subspecialty trained pathologists are some of the best in the United States. Turnaround times are fantastic. So we do believe it's an area we can grow and hopefully, some of the investments we've made recently, and are continuing to invest will pay off into next year.

[Andrew Cooper, analyst]

Okay. Great. That's helpful. And then just on Fulgent oncology. I know last quarter we talked about adding some incremental heads starting to build that rollout beyond the West Coast, where you initially started. So would love just an update on sort of how that's going, what the reception has been, maybe where you are in some of those hiring processes that I know don't happen overnight.

[Brandon Perthuis, executive]

Yes, thank you. They certainly don't happen overnight. And as you've seen, we are quite selective with who we onboard into the sales team. We have brought on 2 new headcounts. They're not on the West Coast. They're in different -- other territories. So that geographical expansion we talked about is happening. There's obviously a ramp period for these new reps. They don't step in selling on day 1, even though they would love to. But the reps we've brought on board are industry veterans, they're industry experts. So they do bring with them that client level expertise and market expertise. So we are enthusiastic about their potential long term to drive new sales for Fulgent oncology.

And we're continuing to look for additional sales talent. So -- but again, it's sort of more of an opportunistic thing when we find the right people in the right territories. We don't have a ton of open positions right now that we're just trying to fill. So we'll continue to do that. The product offering is going well. I think we've done a good job with that rollout. So it's something that's a long-term vision for the company, and we'll continue to layer on capabilities and salespeople as we move forward.

[Andrew Cooper, analyst]

Okay. That's helpful. And then maybe just 1 on Beacon as well. Pretty big immediate step up early in the year in terms of the volumes and the share gains there. So just would love any commentary on sort of whether that's stabilized? Or are you continuing to take share in that IVF setting? And then what are some of the guideposts we should really be looking for as we think about that build out in that initial effort to make the transition into the OB/GYN setting as well?

[Brandon Perthuis, executive]

Well, as we've discussed before, I mean, there was massive disruption in that space, right? So clients were left without a provider on short notice. So those clients had to find a new lab relatively quickly. So it was certainly hectic there for a while for the clients as well as for Fulton and other laboratories. But most of that business had to find a new home and it did.

And like as you said, Fulgent benefited tremendously from that. I think what we're seeing now is some of those clients were a bit rushed in their decision-making process and perhaps not entirely pleased with some of the laboratories they've chosen for a variety of reasons, whether it's panel content, turnaround time, customer service. So now what we're seeing is the clients have had the time to digest everything, now seeing that Fulgent may have been a better choice. So while the, like you said, the mad dash kind of happened, now it's more of a grind to find clients where Fulgent can be a better service provider than what they're currently getting.

In terms of the OB space, It's something we have -- it's a bright spot in our radar. It's a huge TAM. It's a big opportunity for us. We've commented historically that often NIPT and carrier screening are coupled together. That's true. But I think what we're seeing right now with the dynamics in carrier screening, I do believe that there is a subset of that market that would be willing to separate the 2. I think with our turnaround time, which is, again, right now around 12 days, we're signing some of these out as fast as 9 days. I think the OB and the fertility clinics appreciate that turnaround time, our ability to customize these panels from anywhere between a handful of genes all the way up to almost 800. I think we've done a phenomenal job going to market with Beacon. And even in lieu of NIPT, I think we can get the attention of some of these OB doctors with Beacon.

[Paul Kim, executive]

And Andrew, the numbers have been backed up, meaning that earlier, Brandon talked about some of our assumptions in anatomic pathology and that being relatively muted. But if you take a look at the performance that we had in precision diagnostics, which is the most lucrative part of the market, and it's the area that we believe that we shine in terms of our capabilities and services. In Q1, the revenues for precision diagnostics, it was a little under $29 million. In Q2, it was between $32 million and $33 million. And in this quarter, it's between $37 million and $38 million.

So in terms of the growth rate and the acceleration and the performance that we've been having in this particular sector, within a very short time frame, it's been really impactful on the company.

[Andrew Cooper, analyst]

No, that's helpful and certainly appreciate that growth profile there. Maybe just 1 more for me, kind of higher level. When we think about the FDA LDT regulations, I think we'll see whether they go in, how they're written or not. But how do you think about that and what that means to you. Some of the pitch that you make, obviously, the turnaround time piece isn't affected, but that ability to customize under sort of a tweak or really overhauled LDT regime. How do we think about what that might mean? And sort of what's the plan to the degree that this does go in as written because those customizations presumably become at least more difficult. So just would love kind of your thoughts on, one, the regulation in general, and two, how that specifically plays in for Fulgent in the strategy you guys take, especially with Beacon.

[Brandon Perthuis, executive]

It's a good question. We're monitoring it as closely as every other lab out there, right? I mean they've been exercising jurisdictional discretion for many years, have leaned on LDTs with CAP and CLIA validation. So like there's something like 22,000 genetic tests on the Fulgent test menu. We're not sure how the FDA will approach regulating 22,000 tests per lab, for example. We think they're going to target some of the higher-risk genetic testing, some of the higher-volume genetic testing. But look, it's hard to say, it's hard to predict.

However, it shakes out, we'll be prepared, right? We have the subject matter expertise. We have the operational expertise. So it's something we're watching and waiting. I think it is quite a difficult task to step in and try to do this after all these years and all these genetic testing. But again, we will watch it, we will monitor it, and we will respond accordingly with the expertise we have here in that area.

Larry, you have some additional feedback on the FDA?

[Lawrence Weiss, executive]

Yes. Our quality systems are in place and are very professional. So whatever the FDA throws at us, we feel like we can respond in a timely fashion.

[Brandon Perthuis, executive]

Agreed.

[Operator]

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