Fulgent Genetics, Inc. (FLGT) CEO Ming Hsieh On Q3 2020 Results - Quick Version Earnings Call Transcript
Fulgent Genetics, Inc. (NASDAQ:FLGT) Q3 2020 Earnings Conference Call November 9, 2020 4:20 PM ET
Company Participants
Nicole Borsje - Head, IR
Ming Hsieh - Chief Executive Officer
Brandon Perthuis - Chief Commercial Officer
Paul Kim - Chief Financial Officer
Conference Call Participants
Rachel Vatnsdal - Piper Sandler
Aaron Ward - Credit Suisse.
Kevin DeGeeter - Oppenheimer
Disclaimer: *NEW* We are providing this transcript version in a raw, machine-assisted format and it is unaudited. Please reference the audio for any questions on the content. A standard transcript will be available later on the site per our normal procedure. Please enjoy this timely version in the interim.
Operator
[00:00:04] Ladies and gentlemen, thank you for standing by and welcome to the Q three Twenty twenty Fulgent Genetics Earnings Conference call. At this time, all participants are in listen. Only after the speakers presentation, there will be a question and answer session. And to ask a question, you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded a night of November. Twenty one. If you require any further assistance, please. Press star zero on a conference call with your first speaker for today, the head of investor relations, Miss Nicole. Thank you. Please go ahead, man.
Nicole Borsje
[00:00:47] Great, thanks very much. Good afternoon and welcome to the genetic third quarter twenty twenty financial results conference call. On the call today, our Mincaye chief executive officer Paul Kemp, chief financial officer, and Brandon Perthes, chief commercial officer. The company's press release discussing its financial results is available in the investor relations section of the company's website, Culture Genetics Dotcom. An audio replay of this call will be available shortly after the call concludes. Please visit the investor relations section of the company's website to access the audio replay announcements. 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 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.
[00:02:02] 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 discussions with 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 TENGKU for the quarter ended June 30th. Twenty twenty eight, which is 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. Core Gap Management has presented these non gap 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 CAP, please see the company's press release discussing its financial results for the third quarter of twenty twenty for more information, including the description of how the company calculates non-GAAP earnings and earnings per share, and a reconciliation of these financial measures to income and income per share the most directly comparable gap financial metric. With that, I'd now like to turn the call over to me.
Ming Hsieh
[00:03:20] Thank you, Nicole. And thank you for joining our call today to discuss our third quarter to Twenty twenty results, I will reveal the highlights from our third quarter. Before handing over to our chief commercial officer, Brendan Perthes, to provide updates on our commercial success and the go to market strategy, and then finally, Paul will discuss our financial results and the outlook in detail. The code 19 pandemic's has continued to challenge both our health and our way of life this year, the Fauji, we took the early action to leverage our technology platform to build out a comprehensive. Posting, offering to meet the increased demand for reliable testing solutions, while we have come a long way together in our effort to combat this pandemic, we still have a long road ahead of us as we look to return to normalcy, will continue to do our part at a Fajon to help to get a testing solutions to individuals and organizations that need them so that business school sporting events, tribal and the social games can resume safely. Our record growth in the third quarter is true testament to the beauty of our technology platform.
[00:05:08] We discussed last quarter how the often seen events of this pandemic has really proven. Fauja, in genetics. Is as a company and as a result that we discussed today to go one step further, to demonstrate how the. Baseball is truly enmeshed in the genetic testing industry. With a modest level of investment in the infrastructure and the high tech companies able to grow our test one almost 50 times over 5000 percent over that in the third quarter of last year. And by more than five times over 500 percent over that in the second quarter of this year, at the same time, our gross margin improved by 19 percentage points sequentially, with the operating expense only roughly doubling on a gap basis, which translates into operating income of sixty three point five million dollars and the red card, just the EBITDA of sixty seven point four million dollars. This growth and the profitability were made possible by the efficiencies we have created across our business from our operations and our information management. And the reporting system to have our own property, biochemistry and the reagents to our enhanced reimbursement capabilities and our system will cover a significant amount of ground and assigning a number of substantial agreements, securing large volume of tests in the quarter ahead. I have a group I have come from one hundred fifty one at the beginning of Twenty twenty to approximately 500 employees in the South today. None of this was done overnight. And we believe we have a strong foundations on which our caucuses in the years ahead. To that end, we believe that you mentioned we made to build our code 19 test initiatives will continue to benefit our business in long term. There were three particular areas of strength I would like to elaborate on. Especially in the quality and the scale of our customer base, the traction we have.
[00:08:08] Of insurance provider. On reimbursement, and we haven't seen our commercial initiative at a home test offering picture genetics on the customer front, we have made the meaningful strike in signing large agreements with a range of commercial organizations, municipalities and the mental institutions. Some of this we now publicly, but we have one number of additional strategic customers that we have not publicly disclosed. Many of these institutions. I have never heard of forging genetic before the pandemic, and now we have proven our ability to deal with large volumes of high quality tests in a quick and efficient manner. We have a increase the volume of our genetic tests from a number of new customers. Brendan will elaborate further on some of his customer, CNAME. Second point I want is on the reimbursement, historically, our customers have been cash paying customers, which were literally revenue coming from through the reimbursement given our rapid expansion in new customers. Combine that with quarterly of volume, which should now exceed the one million test. This has accelerated the need of reimbursement agreement with insurance providers. We believe that having this reimbursement agreement in place will continue to drive business from the customers in a way that we haven't seen prior to the pandemic's. The third area I want to highlight as an avenue of durable growth is our consumer offering picture genetics. We launched a program in 2019 to make a critical genetic testing available to individuals in the comfort of their homes without need to be a doctor of our regional offering consists of three test carriers screening numerous screen and adult values we have at home conducting test service to the platform in late June.
[00:10:49] And since then we have seen very strong demand for this at home tests. As we stated repeatedly on previous attorney calls. The cornerstone of our business is our technology and the supply platform, which will allow us to develop better customers and launch our products and services, the mess we made in our technology back almost a decade and to enable all the facts of our business, which produced notable efficiency and the connectivity, we plan to getting even more aggressive. We're continue to invest in the technology into further separates us from our peers in the future. We welcome the news of the war we promised vaccine development from Pfizer today seems to have made a two point five million dollar investment in a private company called Boston Molecule's during this quarter. With this, we believe this could enhance and the lead in genetics to develop and enhance our neutralizing antibody tests for KohnI immunity, especially for the people who get the vaccine. All patients recovered from cold 19. In the meantime, we continue to add. Counties and add additional tests for our poor business to address the growing needs for the genetic testing market. In some, armed with our technology, the transformation of our oral business and that we expand the Kimberley region will allow us to make a notable footprint in the screening and the genetics of the market in the years ahead with that. Over to Brendan to dig into more about the cuts that we're seeing in this quarter and the impact on the long term for our momentum.
Brandon Perthuis
[00:13:05] As Mike mentioned, we delivered more than one million reports during the third quarter and almost 50 fold increase year over year and an almost five fold increase increase sequentially. Despite a massive increase in volume that we experienced, we delivered results to our customers without any issues and with best in class turnaround time for our PCR results during the third quarter, greater than 90 percent of our covid-19 results were delivered within twenty four hours, some as fast as eight to 10 hours, which our customers would agree is pretty incredible. This is all possible because how we built this company and how we have leverage, technology and operational excellence, we are genetic testing laboratory built by engineers found it in technology. For years we described ourselves as a technology company providing clinical genetic testing and we have continually emphasized the power of our technology platform in the third quarter. I think we have proven it in practice. Not only that, we have done it the hard way, building our business organically from the ground up. Before we get into our covid-19 business, I would first like to highlight the strong quarter we had in our core genetic testing business. While we projected a slight decline in our core business due to the pandemic, it has rebounded much faster than we thought and grew fifty seven percent sequentially.
[00:14:32] From a revenue standpoint, this has been in large part due to our ability to win new clients while maintaining relationships with existing clients, even as some of those clients experienced lower test volumes amid the pandemic. To further emphasize this point, we look at our top core business customers in the third quarter of this year and compared it to the third quarter of last year of those top customers. We're new, this demonstrates how our core business has continued to strengthen with new customers. We've been winning both new and existing clients are increasingly taking advantage of our expanded product portfolio, which now includes almost nineteen thousand test customers are using it for hereditary cancer, cardiovascular genetics, neurological genetics, reproductive health and other newer tests that we've launched in the last 12 to 18 months at this point. We have one of the largest, most diversified genomic test menus in the industry and we plan to continue to launch new test. Switching to our covid-19 business during the third quarter, we brought on almost 80 new clients representing thousands of individual users. These winds included drive through operations for the county of Los Angeles, Alameda Orange, Santa Clara, San Bernardino, Miami Dade, the state of Utah, the city of Long Beach and others.
[00:15:58] In addition to the huge drive thru operation. When we announced our partnership with New York City Health and Hospital and their Test and Trace program for K through 12 testing both on site and at home regarding the onsite testing for New York City. We now have over 60 pairs of boots on the ground to help with school site operations. This program went live in October and we are now collecting thousands of samples per week throughout New York City. We also announced in the third quarter that we want a competitive bid for the entire state of Ohio prison system to provide testing. So there are twelve 12000 employees. In addition to the agreements we announced, there were a few other public announcements from our clients describing their partnerships with Volgin, those included Northwestern University using our picture at home test for their students for a return to school program and the PAC 12 conference using our test for athletic programs and sports officials. We haven't announced all of our wins. We will continue to publicly announce large strategic wins to the extent we can. Overall, I'm very pleased with the execution of our sales team in the quarter as we consistently won and competitive opportunities clients are choosing full covid testing offerings for a variety of reasons, including our rapid turnaround time, supply, chain availability capacity, EU approvals, our technology platforms and user friendly systems alike. Just a few minutes to discuss each of these in detail regarding turnaround time.
[00:17:25] It's been widely publicized that labs have struggled with turnaround time and patients have experienced delays receiving test results. Initially, some labs are taking five to seven days and sometimes longer to return results to patients. However, since the day we launched our covid-19 test, we have delivered results within twenty four hours and even with the explosive growth we have seen, we continue to improve. This has really been important for patient care and contact tracing and has been a huge differentiator for agent. Second, supply chain, while many labs have seen shortages and critical supplies such as reagents, transportation, media and swabs. We've had no such issues. We've been able to get these kids to our clients, usually within one day of their request. We remain well stocked to continue to fuel our growth plan. Third, our capacity at this time between our headquarters in Temple City, California, and our new lab in Houston, Texas, we have a maximum daily capacity of sixty thousand tests per day. This has allowed us to serve our existing business when new accounts and continue to build a robust pipeline of new opportunities. At the same time, our clients are confident using Folden. I am as needed, we could quickly scale to handle eighty thousand tests per day and more for our two EU approvals, getting way for our standard physician administered PCR test was critical as it served as a validation and stamp of approval for our quality. It has been important when it comes to winning RFP and government contracts, our second uha with our Pittsford at Home test, which has been instrumental for our growth.
[00:19:07] We are one of a limited number of providers with this approval. And at home, testing is proving to be a differentiator and an important testing tool to help in the fight against this pandemic. Furthermore, we have submitted an easy way for our next generation sequencing based covid-19 test, which is still pending with the FDA. Last but certainly not least, the technology platforms we have built to support covid-19 testing have been critical to our success. We have discussed this in detail on previous calls, but the platforms include the Foldit Enterprise and Foldit community, which support corporate testing and drivethrough testing, respectively. These have made managing large volumes of test much easier for our clients, and I've connected them for the full platform, creating deep relationships that go just beyond being a test provider. Our clients are using our applications to run their daily operations. One other point of differentiation on our covid-19 test offering, which we announced in September, is that we will give our clients an option to add influenza A and B. This is done on the same sample with no need for clients to make any collection protocol changes in the future. We plan to add additional pathogens to our panel to provide comprehensive testing for patients with respiratory infections. It is not just influenza and covid-19 that can cause respiratory infections.
[00:20:29] In addition to those, there are approximately 500 million non influenza respiratory infections occurring annually. The symptoms of respiratory infections, including covid-19, are very similar and it can be difficult to differentiate. The best treatment plan, a comprehensive panel of pathogens, can help provide an accurate diagnosis, therefore allowing for a more personalized treatment plan. The success we have had with covid-19 testing has allowed us to expand our go to market strategy more so than ever. We are working closely with the payers and are making progress, becoming an in network provider. You're in the third quarter we filed over five hundred and ninety thousand insurance claims, an increase of almost nine thousand percent over Q2. With this increase visibility with the payers, we can now tell the full story and show the value of having our services in their network. As Ming mentioned, covid-19 is also served as a springboard for our consumer initiated platform genetics since obtaining the at home UAI from the FDA and formally launching our pitcher test for covid-19 in mid-June. We have had significant demand. We believe Pitcher is now a well-known and rapidly growing brand that will continue to deliver for us going forward. As we expand the number of tough being offered on the platform, it is quite common for families to have to wait many weeks, even months, to see a pediatric genetic specialist. And usually the first step is to order a genetic test. We see a day where families can get the testing they need through pitcher ahead of the visit and then spend the time with the specialists discussing results, prognosis, treatment plans, etc..
[00:22:10] Lastly, we have seen covid-19 bring us many, many new clients, these include huge hospital systems, some of the largest specialty care clinics, government agencies, large companies, etc. Our relationships with these clients are very deep and many will be able to use our core products and services in the future. To that end, during the third quarter, we engage with one of the largest biotech companies in the United States in a competitive bid for their employee testing. I'm excited to announce today we have won the opportunity. It will test many thousands of their employees weekly on our enterprise platform from their several locations across the United States. Testing is expected to begin January twenty twenty one and we'll continue for at least 18 months. We're very happy to partner with such an amazing company and we look forward to helping keep their workforce safe. Switching gears, I'd like to briefly touch on the opening of our Houston lab, which we announced in August. This facility is a great example of the power and portability of the Foldit technology platform. We're able to launch this high capacity lab in record time, a building on top of our foundational Foldit technology. The Houston lab away from the Texas Medical Center, the largest medical center in the world. This puts our new lab in close proximity to an amazing talent pool, as well as world renowned cancer centers in pediatric hospitals.
[00:23:35] Houston will soon serve as a fully operational second site. And finally, I like to take a moment to clarify some confusion that has existed regarding the types of covid-19 tests available and how they're intended to be used. There have been some attention grabbing headlines regarding cheap and fast antigen testing. We want to be clear. An antigen testing is not a replacement for our EPS are. In fact, it's hardly a competitor. Antigen testing is intended to be used for only symptomatic patients within seven days of symptom onset. However, data presented in antigen in ways show that at day six and seven, the sensitivity drops measurably in positive cases for already being missed. This would lead to false negative results, which are particularly troublesome to us of several antigen tests. That a negative result should be followed up by. Our PCR and the CDC have been clear that our PCR is the gold standard to detect sars-cov-2. Our PCR provides a high level of sensitivity and specificity. Simply put, it's the best test for early detection, screening, testing of asymptomatic and pre symptomatic markers. Currently the only viable option, coupling the gold standard test with our industry. Best turnaround time make the full solution a powerful tool to fight against the spread of covid-19. I would like to now turn the call over to PaulPaul Kim Kim, who will walk you through our third quarter financial performance.
Paul Kim
[00:25:03] Thanks again. Third quarter revenues totaled one hundred one point seven million and organic increase of eight hundred and eighty three percent, compared to the third quarter of top twenty nineteen. Billable tests in the quarter totaled one million forty thousand, growing almost five thousand percent over last year. The vast majority of this volume was from our business related to covid-19. The majority of volume and revenues in the quarter were related to covid. We saw a sharp rebound in our traditional genetic testing business compared to our traditional genetic testing business grew by more than fifty seven percent. The breadth of our customer base was impressive during the quarter, with over a dozen companies contributing, over one million dollars of revenues are ASP in the third quarter was ninety eight dollars higher than the ninety six dollars we saw in the second quarter. The increase is attributable to the vast majority of our test now going through reimbursement and our favorable payment experience. Today, Cock's per test for the quarter was twenty five dollars, an improvement of approximately forty two percent compared to the second quarter. Gross margin improved almost 19 percent sequentially. The primary reasons for the decrease in cost per test were continued automation, efficiency and in general the utilization of our technology platform. Turning over to operating expenses, total gap operating expenses were eleven point nine million for the third quarter, up from six point nine million in the second quarter. Nine gap operating expenses totaled nine point two million, up from six. Porter, as many mentioned, we made a small investment in a company called.
[00:26:53] As well as assisting in the developing landscape for therapeutics, this translated to approximately two point six million charge below operating expenses, non gap operating margin improved approximately forty four percentage points sequentially to sixty five point five percent. We continue to make meaningful investments across all our departments in the quarter, but our top line outperformance and increasing operating efficiencies are outstripping our investments into our business based on our profits. We recorded a twenty three percent tax rate in Q3. This rate releases our valuation allowance on our deferred tax assets and incorporates our projected annual tax rate for the. I just said EBITDA for the third quarter was sixty seven point four million compared to three million and the third quarter of twenty nineteen on a non gap basis. And excluding equity based compensation expense income for the quarter was forty nine million or two dollars and eight cents per share, based on twenty three point five million weighted average related shares outstanding. Earnings and cash cash equivalents with no debt during Q3, we had an equity shelf program in place which enabled us to sell approximately one point three million shares in the open market, raising forty two point three million in cash.
[00:28:20] With the momentum in our business. Revenues of seventeen point eight million from a customer who wanted to secure their position and delivering our services in the future. Moving on to our outlook, we see the second half of twenty twenty as a continuation of our inflection point in our business, which began last quarter, in addition to the momentum we had with our contests, our core genetic testing, business and sequencing as a service business have remained strong. We have expanded our partnerships on the reimbursement front and are seeing high demand for tests across our picture platform. Most of all, we're seeing our customers appreciating the clear differentiation by the application of our technology platform. And based on the explosive demand we're continuing to see from the market and the quality of our customer base, we believe the fourth quarter well, cap, what has been a transformative year for our company, we now project test volumes for the year to be well over two million, which translates into over two hundred thirty five million in revenues. More specifically, we anticipate Q4 revenues to be at least one hundred and ten million. What the powerful leverage in our model, this translates into gap net income and excluding stock based compensation, we expect non gap net income of approximately one hundred million dollars or approximately four dollars per share for shareholders and 20 20. As a final note, we appreciate the patient shareholders who have faith in our business over the past four plus years and look forward to sharing updates to our business in future quarters. Operator, now you can open it up for questions.
Question-and-Answer Session
Operator
[00:30:06] Thank you, ladies and gentlemen. Q&A is now open, if you would like to register a question, please, press star, followed by the number one on your telephone keypad. If your question has been answered and you would like to withdraw your registration, please press the pound key. Please stand by while we compile the Q&A roster. Our first question is from the line of Rachel Landsdown from Piper Sandler. Your line is now open.
Rachel Vatnsdal
[00:30:51] Hi, this is Rachel in for Steve, congrats on the nice quarter, you guys.
Ming Hsieh
[00:30:56] Thank you.
Rachel Vatnsdal
[00:30:58] Yes, so that was a substantial guidance increase. Can you just walk us through how we should think of the core business for covid revenue in that guide? And then a little more forward thinking. Can you walk us through what you guys are thinking about for testing demand over the next year or two with an effective vaccine on the market following that news we saw this morning?
Paul Kim
[00:31:17] So I'll take the first part of our question on the core business and then I'll turn it over to Manc, followed by Brandon as to their thoughts on the landscape and the developments on the vaccine used from today. So on the core business, we were extremely pleased with how the core business performed during the quarter. As I indicated, a core business grew fifty seven percent sequentially, which translates into approximately twenty thousand tests and revenues of approximately 10 to 11 million dollars, which is a record for the company. That's a consistent levels with what we posted in the third quarter of 2019, which was a high point before before this quarter. And looking out into Q4, we anticipate that our volume for the core business to be approximately twenty five thousand for the revenues being in the low teens and the core business that's performing better than we had hoped. And that's because we've signed on many new customers. We also add content to our genetic testing menu across the board, whether it be cancer, women's reproductive health or pediatrics. And as you remember, we ended last year with approximately thirty two million dollars of revenues, all non covid and before covid had we guided the street to forty million dollars of business for the year.
[00:32:46] And then during the earlier on part of this year and March, April and May, during the first lockdown that impacted the core or the genetic testing business across the industry. But because of the additional capabilities that we made in terms of reimbursement, the great traction that we've seen on reimbursement, because we've signed on so many more core customers and we've proven ourselves as a part of the capabilities and the efficiencies that we've had in the lab. We've seen a tremendous uptick and our core business in the back half of this year. So we're still on track to meet the 40 million dollars. But that 40 million dollars of business that we had in the card business hasn't been linear. We had a lull in the spring time of the year, but we came back roaring in the back half of the year. So what that tells us is if we continue along with the momentum and our capabilities as a company, our outlook for our core business in twenty twenty one should be very, very favorable. And I'll turn it over to men who can give commentaries on the vaccine.
Ming Hsieh
[00:33:56] I think in terms of flu vaccine development, we welcome the the News of the World vaccine development because we do see this continues the demand for the Fajon genetics to provide the Fossen quicker and cheaper tests in terms of diagnose the cognitive test. The addition, as the vaccine developers have come in, add additional requirements for the tests faster and cheaper and quicker and more accurate, because for the the antibody test neutralizes antigen test. So I think this is the new opportunity for fajon genetics in this space. I do not believe the cool nineteen will go away easily, but as long as there is a requirement in this space for genetics will be there to provide the faster and quicker and more accurate test to responses of pandemics. And Brendan gave you some of the details.
Brandon Perthuis
[00:35:14] Yes, certainly, Rachel. And you know, we continue to believe that the covid-19 testing is quite durable. We think it's going to stretch well into twenty, twenty one at these same levels. Who knows? We don't have that crystal ball. No one does, but we think we're extremely well positioned to be a major player in this market. So we think it's going to be around with us for a while at these levels that we are forecasting in Q4, in Q1, what we'll see. Right. But should testing even begin to slow down a little bit? The way we position this company with our technology platforms, we're going to continue to take market share from other people. Right. A lot of our wins have been organic. That's a fact. The same time we are taking market share from other people. So we think we can play a dominant role in the testing we think is quite durable. And I think the the other platforms we've built, the turnaround time, the systems, I think we're going to be a player for deep into twenty, twenty one.
Rachel Vatnsdal
[00:36:15] Great, thank you for all that color, and if you just give us some more details on some of the contract terms that you guys have won. For example, what are the terms and how long are they? And do you have any exclusivity agreements?
Brandon Perthuis
[00:36:27] All of the above. Also, some are exclusive. Some are not. We look at the contracts. They range from month to month to twenty four months. So I think our longest one we find so far has been twenty four months. These contracts have been with government agencies, municipalities, big companies, you name it, colleges, sports sportscar. For Rachel, so a lot of these contracts or laboratory services agreements, like I said, some form of exclusivity, some don't, and most of them, I would say a majority of them do have some links to them to where they're going to stretch many months in deep into twenty one.
Rachel Vatnsdal
[00:37:10] Right, and then last question for me is that you guys have quite a bit of cash following the covid-19 tale when you talk about your plans for using the money to invest in the business. Thanks.
Ming Hsieh
[00:37:21] So that's an excellent question. Yes, we generate a lot of cash, you know, based on the momentum that we have in the business and we believe in capping off this year, it would demonstrate several things. One, the viability and the provenance of our business model to the efficiency, as well as the scale scalability in genetics. And we believe. And these are traditional genetic testing space or in the wider screening market, that we will be one of the consolidators to take a look at businesses and technologies that we can incorporate or potentially incorporate as our own to enhance our technological lead in addition to making a stronger company.
Brandon Perthuis
[00:38:15] Yeah, the pop pulse points will continue to invest carefully to enhance our position in terms of our technology and also our market positions.
Rachel Vatnsdal
[00:38:33] Great, that's it for me. Thank you, guys.
Brandon Perthuis
[00:38:37] Thank you, Rachel.
Operator
[00:38:41] Our next question is from the line of Aaron Ward of Credit Suisse. Your line is now open.
Aaron Ward
[00:38:49] Ok, thanks. You've always obviously been very nimble here with the covid response, which has been impressive. But I guess how can you repurpose some of the capacity expansion in like a post vaccine kind of post covid sort of world? How does that fit in into your longer term plan from a capacity standpoint? Thanks.
Ming Hsieh
[00:39:11] Erin, this is where could go with questions, as I mentioned, the code 19 is not going to be goes away completely to our investment in terms of capacity. It is always the multiple use or not only to use the R word test for the code 19, but the. But our other genetic tests, as we continue, seems the increase for the demands we increase our automation. These are the machines that can use them for multiple different purposes. As you recall, our lab management system and software as the work of the in-house. So we definitely could program or repurpose some of those equipments, get into them, make the complete automation for the lab automation. So.
Paul Kim
[00:40:08] Erin, from a numbers perspective, this is Paul, so you can breakout the you can breakout the investments that we made as well as spending in a couple different buckets. So, number one, our total fixed assets and the equipment purchases for the year is going to be between 10 and 15 million dollars. And then we have added a number of people to the organization, but not all of them are employees. Many of them are consultants, consultants and the operational lab area. So if you take a look at the amount that we're spending for covered versus what covid has brought us just for this year, we're going to be generating approximately two hundred million dollars of code business on top of massive profits. We've already gotten massive returns on those investments. So covid is not going to go away at the end of twenty twenty. We see these contracts going deep into twenty twenty one. We believe we'll have a material level of covid business. So whatever investments that we're making, we believe that we'll have immediate returns on that. And then from an operational sense, we can quickly deviate the resources into other areas that we believe will be fruitful for the company.
Aaron Ward
[00:41:23] Ok, that's that's helpful. And then on the reimbursement front, obviously, we had favorable reimbursement for covid testing and seeing this has extended that to late January. How how long do you think that last they're on and do you feel comfortable? I assume you feel comfortable now based on sort of your prepared remarks in terms of your turnaround time to meet their two day requirements?
Ming Hsieh
[00:41:48] Yeah, sorry, you know, we were happy to see what they did actually to reward those laboratories that can actually deliver on turnaround time. We think that's incredibly important when it comes to contact tracing. Turnaround time needs to be 24 hours or less for this test to be as powerful as possible. Other their decision to do that, we hope that that reimbursement rate will continue to twenty twenty one. We'll see how it plays out. I think, as Paul mentioned, we do have some additional leverage in our kog there. So we're also on the private side as well, not just the Medicare Medicaid. From the CMS perspective, the private side also is a satisfactory reimbursement. So we hope that we'll stick around. We think it will. And yes, in terms of meeting the turnaround time to get that extra reimbursement, we are incredibly confident in our ability to do that.
[00:42:45] In the end, remember, the connecting has started as a fifty dollars, most of labor could not survive with the price of CM's or increase the rate, and most of the labs could not meet the response time the C.I.A. gave it to to raise one hundred dollars for the twenty four hour results for the year. The response time for the seventy five dollars we not meet the 40 hours response time seojin genetics. Another position well positioned to meet the challenges, but also to be able to perform in this market at any price to compete in this market. I think the Foljambe genetics that when we get in or another high, the the provider that we provide, the the low cost competitive bid in the old, our efforts not only windows a visit to the factory, but also we are able to deliver the bottom line at the end. The that the results that we were today will continue to enhance our position in this area because of our technology, because our biochemistry and because of our pipelines.
Paul Kim
[00:44:02] And just to give you a point of reference on the reimbursement, we have ninety million dollars of accounts receivable at nine 30. As of today, we collect on more than 60 million dollars of that 90 million dollar balance. And the reason why we've been able to get that kind of collection is because of the efficiency as well as the enhanced capabilities that we have as a company in the area of reimbursement. And as being indicated, the CMS reimbursement rate is one hundred dollars and starting January one, it stays at one hundred dollars as long as you're able to meet the turnaround time. But because our turnaround time is just getting quicker with the additional volume, we don't have a whole lot of that. Whether we can meet that meet that threshold starting on January one.
Aaron Ward
[00:44:51] Twenty twenty one. OK. All right. Thank you.
Operator
[00:45:00] Next, we have Kevin Jitu of Oppenheimer. Your line is now open.
Kevin DeGeeter
[00:45:07] Great. Thanks, guys. I want to revisit genetic testing and call some of your comments with regard to how to think about you about that portion of business for the year. I believe I heard you correctly know you feel comfortable kind of, you know, at that 40 million dollar, you know, recorded revenue for genetic testing for the year. If our math is right, that suggests somewhere around, you know, 15 million dollars for Forteo or another 40 percent sequential growth in that business on top of the fifty seven percent in the current quarter. So can you just comment a little bit more about what's driving that? What portion of the business is right there? A cancer is a carrier. And, you know, how should we think about if our math is right?You know, that 15 million as a, you know, good baseline to think about building growth and to 2021.
Paul Kim
[00:45:58] That's an excellent that's an excellent point. So we are on track. What's our original guidance? Which is quite a feat because a lot of the diagnostics companies, you know, 20, 20 was essentially a throw away year. But, you know, oddly enough, it seems like we're on track to meet the original guidance even before covered head. And the reason why it's accelerating in the back half the year is because during the lockdown period and even with the momentum of the covid business, we continue to sign on additional customers and it's across the board in cancer and women's reproductive health, as well as in pediatrics. And we believe. Things open up more and should people get more comfortable going to clinics, having, you know, the genetic, you know, but the companies that are returning to some kind of normalcy for the genetic tests, but that'll just open up the doors for even more enhanced business for our core Angas testing. And I'll turn it over to Brandon, who can give more commentaries, both in terms of the number of customers, the quality of our customers, as well as the size of the programs that they're thinking about for our core business.
Ming Hsieh
[00:47:19] Kevin? Yeah, I think in the script I read. Customers in Q3 this year versus last year and actually got a text said, I cut out a little bit, so I'll re-emphasize what I said in the third quarter of this year, greater than half of those customers were new. Right? Look at our largest customers in Q3. More than half of those were new this year. So Paul's right. We've continue to bring on new customers. We continue to win business. These customers are not running at full speed. Let's make no mistake, a. Impacted by this pandemic, we're still not back open like we need to be. We want to be. But this growth has been fueled by continuing to win new customers. So we think when our expanded portfolio of customers is running at full speed, when they're seeing the same number of patients they saw, pre pandemic could be a pretty powerful turning point for our company.
Paul Kim
[00:48:18] And the last thing is on the cost side, when we talk about the efficiencies that we have recovered, but our core business, that's also gaining a lot of benefit from the automation and the efficiency, meaning that our COGS protest during Q3 on a full gap basis was twenty five bucks on an ongoing basis is even lower than that. But that includes our core genetic tests on top of covid. So, you know, you can just estimate what our cost structure is, whether it be for covid or non covid. We're not going anywhere and we believe we can compete in any kind of environment.
Kevin DeGeeter
[00:49:06] Great. No, that's super helpful, and as we think about continued continued menu expansion, you did call out some opportunities with regard to infectious disease side of the portfolio. But are there, you know, important or meaningful menu expansion opportunities in genetic testing? Do you think you continue to feel, you know, this type of growth to, you know, to existing customers as they expand, you know, the pressure they're ordering into a broader menu for genetic testing?
Brandon Perthuis
[00:49:38] Well, Kevin, if we throw away a hundred million dollars, you can easily buy a 20 or 30 million dollars business, but that's another way we do. OK, definitely we see the the business opportunities as we walking to the issue opportunities we need to make sure we have a sound, the business model. We need to make sure it is beneficial to the fact that our clients. But in addition, we need to make sure that we also provide the returns to our shareholders. So with this organic growth, I think we are going to focus in the area of cancer in the at the Windsor cancer treatment. How do you do to provide the precision medicine forgings, continue to invest in these areas? We will introduce the products in this area due to the cold 19. I think you slow down a little bit our introduction in this kind of products, but it definitely does are the areas that we will be focused on.
Ming Hsieh
[00:50:48] Yeah, you know, I think we've been on a test launch craze for the last year or a year and a half. I mean, and now the test menu is over nineteen thousand tests. So we continue to pump out new testing. That's important. Looking at different disease, different phenotypes. So, yes, we continue to develop new tests, I guess, sort of tactically speaking, a couple of weeks ago, we did launch a pharmacogenomics test, which we're pretty excited about. We have not played a major role in pharmacogenetics in the past. But, you know, with our technology, our cancer set, our pipelines, we were able to develop that pretty quickly. So we will be. But the market, which will help in person therapy and drug treatment.
Kevin DeGeeter
[00:51:29] It's all very exciting, thank you for taking my questions. Karen.
Operator
[00:51:36] Ladies and gentlemen, if you would like to ask a question, simply press star one on your telephone keypad. Now, once again, that is star one on your telephone keypad. And there are no further questions asked of the. This time, I will now turn the call back to Nicole. For any final comments.
Nicole Borsje
[00:52:34] Great, thanks, everyone, for joining our call today. We look forward to keeping in touch with you in the days and weeks ahead. Have a great day.
Operator
[00:52:43] Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. Enjoy the rest of your day. Keep safe and you may now disconnect.
