Fulgent Genetics, Inc. (FLGT) Q4 2021 Earnings Call Transcript

Fulgent Genetics, Inc. (FLGT -0.23%)
Q4 2021 Earnings Call
Feb 23, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the fourth quarter 2021 Fulgent Genetics earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Nicole Borsje with investor relations. Please go ahead.

Nicole Borsje -- Investor Relations

Great. Thank you. Good afternoon, and welcome to the Fulgent Genetics fourth quarter 2021 financial results conference call. On the call today are Ming Hsieh, chief executive officer; Paul Kim, chief financial officer; Dr.

Larry Weiss, chief medical officer; and Brandon Perthuis, chief commercial officer. The company's press release discussing its financial results is available in the Investor Relations section of the company's website, fulgentgenetics.com. 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.

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 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 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, 2021, 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 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 GAAP.

Please see the company's press release discussing its financial results for the fourth quarter of 2021 for more information, including the description of how the company calculates non-GAAP income and earnings per share and a reconciliation of these financial measures to income and income per share, the most directly comparable GAAP financial measures. With that, I'd now like to turn the call over to Ming.

Ming Hsieh -- Chief Executive Officer

Thank you very much in the call. Good afternoon, and thank you for joining our call today to discuss our fourth quarter 2021 results. We finished the year in a very strong note with continued growth in core revenue and reacceleration in our COVID revenue. I will cover some of the highlights from the year.

In the fourth quarter, before turning the call to our chief commercial officer, Brandon Perthuis, to discuss products and ongoing market update. And Paul will discuss our financial results and outlook in detail. Take a look at our fourth-quarter results, which exceeded our guidance in both core and COVID revenue. Revenue totaled at $252 million, compared to $295 million in the fourth quarter last year and up 10% compared to the third quarter in 2021.

We delivered approximately 2.5 million tests in the quarter, up 13% compared to third quarter 2021 and through down -- and though down from $3.2 million in the fourth quarter last year. Paul will cover the breakout between our core and the COVID business in more detail in a moment. But on the highlight, our core business grew 234% year over year to $41 million. Strength in our core business was driven by the momentum across the key areas include CSI, our JV in China, and the contributing from our NGS COVID contracts with the CDC.

We continue to drive strong profitability. It generated $3.34 per share in GAAP EPS and $77.1 million in operating cash flow in the quarter. The first quarter capped the year with tremendous growth for Fulgent. We finished the year with just shy of $1 billion in revenue, up 135% year over year, and generated $16.38 per share in GAAP EPS and $538.6 million in operating cash flow.

2021 was truly a tremendous year for our business, but we'll always be generic business at our core. We'll now have a very wide pathway of opportunity to grow and expand our business into new and exciting area of genomics, leveraging large cash position we have built over the last two years. We remain active in our COVID-19 test business as most demand did our -- but our long-term vision for the company have never been more exciting with the opportunities we have in evaluating and executing on the broader genomic testing market. The acquisition of CSI, Fulgent's first significant acquisition has become a bright spot of our business.

We'll still have a very early stage of integrating the scaling the operation and the capabilities of CSI, but we feel very good about the early progress we had seen and the opportunity for the future. Our investment in Helio Health has also been good progress with the official launch of the HelioLiver, which is now commercially available in the U.S. exclusive through Fulgent Genetics. We are very, very early entering our partnership with the Helio Health.

The road of Helio Healthy has only a beginning. We have additional development and the commercialization opportunities for the other disease with Helio in the future. We also announced an exciting strategic investment and a partnership with the spatial genomics today. We believe spatial is taking a novel and innovative approach to sequencing technology, and we look forward to adding their capability to our platform to further expand our portfolio of genomic testing solutions.

Brandon will evaluate a little bit on the progress of these initiatives in a moment. As we look ahead, remaining focused on two areas to drive growth. The first is integrating and scaling our existing partnership with acquisitions and the second is pursuing additional M&A opportunities. We have a significant amount of dry powder at our disposal and plan to broaden and more aggressive on future acquisitions and partnership initiatives.

As we look at acquisition, we remain disciplined in our approach and seeking generally the tangible ROI and driving real synergies while being efficient with the capital deployment. We have been very successful in executing our M&A strategy this year. As our extradition of CSI and the investment Helio and the spatial genomics fit well within our M&A philosophy. We're very proud of what we accomplished in 2021.

Our strategy to expand and improve our core business is playing out nicely as the access with our organizations are all performed well. We believe there is a meaningful opportunity to expand into different areas in genomic testing and build partnership that established our go-to one-stop shop for genomic testing needs for the future strategic move. Throughout the COVID pandemic, we have proven our ability to scale our operations and the infrastructure will support our customer through a period of fluctuating demand. We are ideally suited to replicate this model in our core genomic testing business.

We are really just getting started on this long-term opportunity in the growing market for genomic testing. The future is bright for Fulgent. We had a great team in place and have a momentum on our side as we head into 2022 and beyond. Now, I will turn over the call to Brandon Perthuis, our chief commercial officer.

Brandon?

Brandon Perthuis -- Chief Commercial Officer

Thanks, Ming. Our fourth quarter brought yet another unexpected COVID-19 surge and perhaps more so than previous surges, stress-tested our systems, technology, and operations. These massive swings in testing demand present significant operational challenges. However, we have proven we could be nimble enough to adapt in real time.

While it's incredibly difficult to predict where COVID-19 goes from here, we can't say to clients all over the United States no and trust Fulgent will be here to help. While the pandemic has challenged us all in many ways, it has been an opportunity for Fulgent to step up and forge deep, strong relationships with many organizations across the U.S., and we hope to build on these relationships with additional partnership opportunities in the future. In addition to these commercial relationships, we have increased brand recognition and awareness of our consumer-initiated platform, picture, with hundreds of thousands of patients and consumers who have used the platform for COVID-19 testing. Starting with an update on our HelioLiver liquid biopsy test for hepatocellular carcinoma.

HelioLiver is a multi-analyte blood test that utilizes both cell-free DNA methylation patterns and protein tumor markers to detect early stage HCC with high accuracy. HelioLiver has the potential to reduce morbidity and mortality in HCC patients as there are more curative treatment options when the cancer is found at early stage. A highly sensitive blood test can drive patient adherence to surveillance programs and provides a more convenient and cost-effective way to detect HCC. We were excited to launch the test clinically in the fourth quarter.

We first announced our investment in Helio Health in April. And just eight months later, we were able to complete the technology transfer, the CLIA validation, and commercial launch. Also, during the quarter, Fulgent and Helio Health presented data at the liver meeting in a late-breaking presentation. Data presented showed HelioLiver to have a sensitivity of 76% in early stage HCC and 85% in overall HCC, demonstrating superior performance over alpha-fetoprotein alone and the galled model.

It also showed significantly better sensitivity than ultrasound, which is considered standard of care today. Published data suggests ultrasound has an early stage sensitivity of around 47%, much lower than the 76% we presented. As part of the launch, we needed to hire a specialized sales team since the call points are a new market to Fulgent. While HelioLiver is an oncology test, it's ordered upstream of the oncologist by hepatologists and gastroenterologists.

We now have a foundational sales team in regional managers in place. The data presented thus far has been part of our ENCORE clinical trial, which was a case-control study. However, we are making significant progress with our CLiMB study, which is a prospective clinical trial comparing HelioLiver ultrasound in a real-world prospective study. The size of this study is 1,500 patients, of which 1,100 have been enrolled.

We aim to complete patient recruitment in the third quarter of this year. We are excited to bring this novel test to market and changing the way HCC is diagnosed and monitored. We will continue to update the investment community as we make progress with HelioLiver. Turning now to progress with CSI.

During the fourth quarter, we continued to focus on expansion of the sales team to support company growth goals. Three new sales representatives were hired to focus on hospital pathologists-based sales and their onboarding was successfully completed. Additional positions are expected to be filled in the first quarter with hires with extensive experience in hospital-based sales. With the projected opening of our new oncology-based lab in El Monte, California in the second quarter, we will further expand our sales team with the addition of a sales leader and additional sales representatives.

This team will focus on oncologist-based sales in the Western markets initially with the potential to expand into new markets as the laboratory ramps up. Adding new sales representatives, coupled with the expansion of in-network contracting has opened up 15 states that legacy CSI did not have a sales presence end. All legacy and new sales team members are operating on our existing CRM platform for tracking and logging of contact and opportunities in our sales pipeline. CSI is also continuing to focus on turnaround time across all testing methodologies.

Turnaround time is an important measure of performance, and our turnaround time has remained constant or even improved in some areas throughout the pandemic. We continue to see competitor laboratories with worsening turnaround times, which is causing frustration for their existing customers and opening new opportunities for CSI to gain market share that we hope to capitalize on in 2022. We announced today an equity investment and strategic partnership with spatial genomics. Spatial genomics sequential fluorescence insight hybridization, seqFISH, is a revolutionary technology that merges imaging with molecular barcoding, seqFISH can decode complex molecular identities and locations directly within single cell and intact tissue microenvironment.

seqFISH enables highly multiplexed single-cell analysis of RNA, DNA, and proteins beyond the capabilities of other types of spatial analysis. seqFISH determines cell types, states, and relationships by detecting and identifying dozens to tens of thousands of biomolecules while preserving intact single cells and spatial tissue organization. seqFISH allows researchers to identify novel cell types, at genomic organization and nuclear architecture and analyze cell trajectories. seqFISH enables combined approaches for direct multiomic analysis using RNA seqFISH for transcriptomics, DNA seqFISH for genomic organization and nuclear architecture, and sequential immunofluorescence for proteomics.

Areas of this technology can be used include neuroscience, development of biology, oncology, and immunology. We are very excited about this brand-new area for Fulgent, and we look forward to layering on our expertise in clinical genomics to deliver what we believe to be a transformational product for our company. Switching to COVID-19. For much of the fourth quarter, we saw cases trending down as we recovered from the delta wave.

However, in early December, the United States was hit hard by the omicron variant. This highly infectious variant drove tremendous demand for testing at a pace we hadn't seen before. On December 1, the seven-day average for cases in the U.S. was approximately 85,000.

And by the end of December, it rose to nearly 400,000. For the fourth quarter, we performed approximately 2.3 million COVID-19 tests, of which approximately 924,000 were in the month of December. While much of the demand was a symptomatic testing, we also saw our streaming program increase the percentages of employees and students being tested. In the midst of this demand spike, we also rolled out a program with LA County offering our picture kits directly to consumers at no cost to them.

By the end of December, this unprecedented demand for COVID-19 testing challenged our capacity for the first time since the beginning of the pandemic specifically with our picture test kits. We were forced to pause ordering for picture test kits for a couple of weeks, but we were quickly able to ramp up production and fulfillment and get back on track. This capacity issue wasn't due to lab staffing shortages and didn't impact our commercial testing business, this was really a function of not being able to ship kits fast enough as we were receiving the orders. We are optimistic that the meaningful role picture has played in COVID-19 testing and a large user base we've amassed will lead to opportunities in the future as we transition to focusing on delivering genetic testing through picture.

Finally, on the NGS side, it was a robust quarter for NGS COVID-19 testing with the positivity rate being driven higher by the omicron variant. We continue to be one of the top sequencing producers for the CDC's genomic surveillance program, and we appreciate the opportunity to contribute to these important studies. As Ming mentioned, we plan to be aggressive with M&A to expand our business and reach new markets and technology. While we are very excited about our investment in CSI, Helio Health, and spatial genomics, we are still just getting started.

I think it's safe to say that the intense omicron wave of the fourth quarter forced us to focus on our COVID-19 business more than M&A. However, it also provided us with additional capital to fuel our M&A strategy going forward. Over the course of 2022, we intend to diligently assess assets and deploy capital in areas that will fuel growth for Fulgent. Armed with technology, scale, multiple large addressable markets, capital, and a team from top to bottom dedicated to growing our business, we believe the Fulgent story is just getting started.

I'll now turn the call over to our chief financial officer, Paul Kim.

Paul Kim -- Chief Financial Officer

Thanks, Brandon. Revenue in the fourth quarter totaled $252 million, compared to $295 million in the fourth quarter of 2020, while exceeding our guidance of approximately $189 million. Billable tests in the quarter totaled $2.5 million, compared to $3.2 million in Q4 of last year. The decline was due to COVID testing dynamics we saw in the fourth quarter, as Brandon mentioned, the testing surge resulting from the omicron variant starting December 1.

As in spikes and COVID testing will continue to be unpredictable in the future, and we remain a leader in the market what customers in now more accuracy, turnaround times, and hands-on service. Breaking down the revenue of a further roughly $212 million cases covered PCR testing, which exceeded our expectations. Revenue from our core business totaled $40.1 million, which exceeded our guidance of $32 million and grew 234% year over year. Just as a reminder, our core revenue includes our NGS business contribution from our Chinese JV and contributions from CSI.

It also included contribution from our CDC COVID NGS test agreement, which was again elevated due to increasing positivity rates amid the omicron variant outbreak. Going forward, we plan to give core revenue guidance, which excludes NGS COVID testing from the CDC. If we exclude the impact of the revenue from the CDC in the quarter, our Q4 core revenue totaled $28.2 million, an increase of 134% year over year compared to Q4 of 2020. As the demand for cover testing remains volatile and unpredictable, we continue to take a conservative stand on expected revenue from COVID testing.

We remain focused on executing on our post COVID growth opportunities, which include expanding the reach of CSI's capabilities, executing on additional investment and partnership opportunities such as spatial genomics, which Brandon discussed, working with Helio on our joint commercialization opportunities and the growing footprint of our China operations. Our ASP in the fourth quarter was $103, slightly lower than the $105 in the third quarter. Our fees remained relatively stable over the past few quarters, fluctuating hiring lower as COVID testing absence spikes Cost per test for the quarter was $25, slightly higher than the third quarter due to shoring up reserves and the write-off of some excess inventory at year-end. Gross margin was 75.3%, down 710 basis points year over year and 560 basis points sequentially.

Now, turning to operating expenses. Total GAAP operating expenses were $38.7 million in the fourth quarter, up from $25.1 million in the third quarter. Non-GAAP operating expenses totaled $34 million, up from $20.9 million last quarter. Our operating expenses increased primarily due to ongoing investments in strategic headcount across our organization, fees, and services associated with our heightened M&A activity and showing up at year-end.

Our non-GAAP operating margin decreased 10 percentage points from the third quarter to 62.3%. Our fund structure remains very lean, it's enabling us to drive significant profitability from revenue on performance. That being said, our investments in people and business integrations impacted our margins in the fourth quarter. Ultimately, we believe these investments will drive outsized future growth in our core business and we remain pleased with the contested operating leverage we're able to demonstrate even through M&A.

Adjusted EBITDA for the fourth quarter was $159.8 million, compared to $230 million in the fourth quarter of 2020. On a non-GAAP basis and excluding equity-based compensation expense and intangible asset amortization, income for the quarter was $108.7 million or $3.48 per diluted share based on 31.2 million weighted average shares. Turning to the balance sheet. We ended the fourth quarter with $935.5 million of cash and cash equivalents and marketable securities.

We generated $77.1 million of cash from operations during the quarter, further adding to our cash balance. So, overall, this year, we have invested more than $81.9 million in partnerships and strategic investments to expand our core genomic testing business. Adding these investments, we would have ended the year achieving our goal of reaching $1 billion in cash and cash equivalents. Now, moving on to our outlook for 2022.

Starting with the COVID revenue. As we discussed, COVID revenue continues to be volatile due to many factors outside our control. We saw unprecedented demand for testing in the beginning of the first quarter as omicron variant spread. However, we're expecting the testing to return to more normalized levels as a surge sub signs.

With that, we expect COVID revenues for the full year to be at least $480 million with more than 45% of the revenue expected in Q1. Going forward, our total co revenues will include revenues from both RTPCR COVID testing, as well as NGS COVID testing, which is conducted primarily through our CDC relationship. We recognize that NGS COVID testing has similar volatility as PCR testing and including these tests within our COVID revenues gives a better indication of the true performance of our core non-COVID business. While demand for COVID testing will remain hard to predict, we do believe we'll see a modest floor for testing demand for the foreseeable feature as COVID-19 becomes more of an endemic and regular testing programs remain in place.

Moving on to our core revenue guidance, which now includes revenues from NGS testing, CSI, China JV, and Helio, we expect the core revenues will total approximately $120 million for 2022, representing a growth of 20% year over year on an apples-to-apples basis excluding one company. When $480 million in COVID revenues and with $140 million in core revenue, we expect that total revenue will be approximately $600 million for the year. We expect there will be continued volatility with COVID testing and remain focused on executing our strategy to drive momentum in our core business. From a profitability standpoint, we remain focused on investing in our business to drive sustainable long-term growth.

As we integrate acquisitions and ramp on new initiatives, we will see some fluctuations in our margins at incremental sale phase. That being said, our foundational technology platform supports a strong margin profile, and we will continue to manage our spending with discretion to drive operating leverage in the long term as we have done in the past. For full year 2022, utilizing a 27% effective tax rate and a share count of $32.9 million, we expect non-GAAP income of approximately $230 million or $7 per share for our shareholders, excluding stock-based compensation. For the first fourth quarter of 2022, specifically, we expect total revenues of $245 million.

This breaks down in the core revenues of $22 million, excluding NGS COVID test volumes, representing a growth of 39% year over year on an apples-to-apples basis, excluding COVID NGS testing. And we expect approximately $223 million in COVID testing, which includes approximately $10 million in revenue contribution from COVID NGS testing from the CDC. While we are forecasting a year-over-year decline in Q1 revenues, this is due to the dramatic drop-off we're expecting in COVID testing demand. Our updated guidance is posted in the slides in our Investor Relations website, which shows a detailed breakout I just discussed.

We're pleased with our ability to execute on our strategic initiatives this year to drive growth in our core business while capitalizing on cash generated from COVID testing. We're well-positioned to expand this momentum and grow into 2022 and beyond. Operator, now, you can open it up for questions.

Questions & Answers:

Operator

[Operator instructions] And our first question today comes from Kevin DeGeeter of Oppenheimer.

Kevin DeGeeter -- Oppenheimer & Co. -- Analyst

Hey, guys, congratulations on the quarter. Maybe just a question on 2022 core guidance. I think if I adjust 4Q, it's kind of at 28.2%, excluding the CDC, or you're kind of guiding to $120 million for the full year. I think off that '22, we might have expected a more aggressive guide.

So, just kind of walk us through sequentially kind of what else might have been in 4Q that we should be thinking about that's impacting that base core run rate going into 2022?

Ming Hsieh -- Chief Executive Officer

Sure. So, first and foremost, we did experience omicron both here in the U.S., as well as internationally. Omicron is still out there. And until we're falling back to business from this variant, we believe that it's more prudent to be conservative in giving this guidance.

The other point that I'll make is, this is just the first guidance that we're giving, given the fact that it's February. And as we get additional comfort behind how the current environment is going to look, combined with getting additional comfort behind the synergistic aspect of some of the acquisitions that we made. We believe that the $120 million conservative guidance is the right way to approach it at this point in time. We have been known to beat estimates in the past, and that certainly is in the cards in the quarters to come. 

Kevin DeGeeter -- Oppenheimer & Co. -- Analyst

And then the spatial genomics equity investment is very attractive and interesting. Can you just kind of maybe just walk us through, really, two things, kind of how that product makes it into the -- specifically from a commercial testing perspective to the Fulgent portfolio in the future and at least your own assessment as to a timeline as to when that technology might be viable from a commercial perspective in a Fulgent lab?

Brandon Perthuis -- Chief Commercial Officer

Hey, Kevin, it's Brandon. I'll tee it up and turn it over to Dr. Weiss here. But our biopharma business has become a meaningful portion of our revenue and more importantly, a meaningful focus for us.

We think the spatial genomics technology is going to further open up opportunities for us in that market. When will it be commercially available for biopharma? We think sometime in 2022, maybe on the back end of 2022. Clinical applications are probably a bit further out. But we do see it becoming available to market to our biopharma clients sometime in 2022.

We're incredibly excited about the investment. We do believe it's a new frontier in molecular biology. We invested in spatial genomics based on their technology, incredibly impressive in technology. Their superior resolution, their ability to have much higher multiplexing, the multi-omic facet of the technology.

So, it's going to be an exciting area for Fulgent with a lot of applications in the future. Larry?

Larry Weiss -- Chief Medical Officer

Well, as you know, next-generation sequencing is dominated at least the last five years of genomic testing. We think the next generation, the next wave of interest is going to be within the area of spatial genomics. With this technology, it identifies, as Brandon said, dozens of tens of thousands of biomark molecules while preserving the architecture, so you can do this with single cells and in tissues. And what biomarkers are you looking at RNA for transcriptome, DNA for looking at mutations and organization of the genome, as well as immunofluorescence for proteomics? So, it's really the complete package.

It's almost the Holy Grail as we are just as excited for next-generation sequencing five years to 10 years ago. I think it will be a very powerful tool for drug discovery for pharma. As for clinical applications, it remains to be proved, but these always will follow the discovery that goes on in pharma. And I have no doubt that there will be clinical applications, if not in the next year or so at some point.

Kevin DeGeeter -- Oppenheimer & Co. -- Analyst

Thank you.

Ming Hsieh -- Chief Executive Officer

So, Kevin, my background as an entrepreneur. I'll be sitting on the board with spatial genomics. -- we're in hand with the team and try to bring these products to the market. So, I'm very, very excited with this opportunity.

And the professor Kai Long is still working at Caltech, which is a few minutes away from our headquarters. So, we are very excited with this opportunity and looking very much forward to bring this innovation and the product to the market.

Kevin DeGeeter -- Oppenheimer & Co. -- Analyst

Thanks for taking my questions.

Nicole Borsje -- Investor Relations

Thanks, Kevin.

Operator

And the next question comes from Sung Ji Nam of BTIG.

Sung Ji Nam -- BTIG -- Analyst

Hi. Thanks for taking the questions. Paul, could you break out -- I know you broke it out for the fourth quarter. Could you break out what the COVID NGS testing was for the full year 2021?

Paul Kim -- Chief Financial Officer

Sure. The COVID NGS testing for the full year was approximately $30 million. So, if you take out the COVID NGS testing for the entirety of the year, the revenues for the core ex that amount was approximately $93 million, and the initial guidance that we're giving for 2022 is $120 million.

Sung Ji Nam -- BTIG -- Analyst

Great. That's super helpful. And then for HelioLiver, obviously, very exciting there with the launch and then also the ongoing prospective trial climb. Would you kind of able to talk about what the commercial strategy as you've launched as an LDT? And then what the timeline might be for -- I know you talked about the enrollment being completed by the third quarter.

But when this might -- the data might be available from the prospective trial and also your thoughts behind how to -- whether this will be an IVD product down the road? Or just if you could talk about that.

Brandon Perthuis -- Chief Commercial Officer

Yes, certainly. This is Brandon. So, we brought the product to market as an LDT. -- most genomic tests or LDT.

So, we certainly see value long term in taking the product through an FDA path, but that doesn't prevent us from going to market as an LDT. So, I think we've executed at a high level regarding our go-to-market strategy. We believe hepatocellular carcinoma is an area that's underserved. The fact that ultrasound diagnosis hepatocellular carcinoma so a few times early stage is just an unacceptable tool for monitoring this disease.

We know the survivability of HCC is much, much higher in Stage 1 and Stage 2. However, it's just not diagnosed frequently not the Stage 1 and Stage 2 ultrasound aren't sensitive enough. We know that. There's a lot of variability among ultrasounds.

So, we've created a much better tool for clinicians to monitor and diagnose ACC. But like any test that's changing the way medicine is practiced, it's a marathon. But the feedback we've received from our key opinion leaders, our early adopters has been fantastic. -- a simple blood draw that is markedly better than the current standard of care has been a powerful message for our sales team to take the market.

So, we still have a lot of work to do ahead of us, make no mistake about it. As we expect our CPT code to be published here in the near future as we expect to wrap up our plan study. But I think we are exactly where we want to be. As I mentioned earlier, the call point for this is hepatologists.

So, we had to go out and build that specialized sales team, but we were able to recruit some amazing talent. And we will continue to build that team over time. So, I think HelioLiver is going to be an important test proposing going forward, and we really look forward to improving patient outcomes in the future.

Paul Kim -- Chief Financial Officer

One additional point is that ultrasound may not have the best compliance. But a simple blood draw, we expect to have better compliance.

Sung Ji Nam -- BTIG -- Analyst

Gotcha. Super helpful. And then just on the spatial genomics side. Does that technology have its own proprietary instrument or instruments?

Brandon Perthuis -- Chief Commercial Officer

Sung Ji, yes, it does have -- it's only installment. So, we'll be -- from the spatial genomics, they do -- will release these products in this year. And Fulgent Genetics will be help them to commercialize through our clinical related to spatial.

Sung Ji Nam -- BTIG -- Analyst

Got it. If I might be able to squeeze one more question. The antibody testing that you guys launched it sounds obviously very interesting. I was curious how that's tracking, whether there's demand for that.

Brandon Perthuis -- Chief Commercial Officer

Hey, Sung Ji, it's Brandon. We do see demand. I think it's not yet to be fully implemented, like we believe it should be. Obviously, testing is incredibly important.

It has been since Day 1. But I think we're getting to a point where we need to think about what does an endemic state of this virus look like. And we believe monitoring your antibody levels is going to be an important aspect, whether that's through acquired immunity from infection or from vaccines. We believe antibody testing can help guide people when they should get boosters.

But globally speaking, we haven't seen the adoption yet, but perhaps to come as we learn more about this virus and the best way to fight it going forward.

Thank you.

Operator

And we can go to David Westenberg of Piper Sandler.

David Westenberg -- Piper Sandler -- Analyst

Hi. Thank you for the question, and congrats on the numbers. As we're dealing with the tail end of the omicron variant, can you talk about maybe some of the exits you're seeing from competitors that are refocusing on their existing business and whether there's an opportunity to capture market share from some of them?

Brandon Perthuis -- Chief Commercial Officer

Yeah. I can take that one. Thanks for the question. Fulgent never stopped focusing on their existing business.

So, to the extent other companies have to refocus on it, too bad to them, I suppose. We've continued to focus on our base business. Our base business has been healthy throughout the pandemic, and we were able to respond in a big way to the pandemic without losing that focus. As I mentioned earlier, at least on the oncology side, we have heard from the field competitor labs not performing, as well as they should in the area of turnaround time, for example.

So, we do believe there is a window of opportunity for Fulgent to execute on the commercial side to gain market share from some of our competitors. So, we'll see how quickly they're able to, I guess, as you mentioned, kind of pivot back to the focus, but we're certainly being aggressive on the commercial front, as you've seen with our hires and we're hoping those hires, coupled with this window of opportunity will allow us to gain further market share.

Larry Weiss -- Chief Medical Officer

I think backing what Brandon said, David, if you take a look at our business ex-COVID, even if you strip out NGS we have grown our base business throughout this whole pandemic. But I think from a strategic standpoint, that focus has never stopped actually probably accelerated with the additional capital that we have been able to garner through the COVID experience. So, a number of things that we have announced last year, a CSI being one of them. We have almost completed the integration, and now we're at the synergistic stage of really capitalizing on incorporating that asset.

So, from a strategic focused basis, it's always been a mainstay throughout the COVID environment that we focus on expanding our core capabilities. If you take a look at where we sit right now from a capital structure standpoint, so on top of the cash balance that we have, we are guiding the year initially at $600 million. So, that will produce additional capital on the balance sheet. And what we have noticed is on the strategic side, we have a number of different projects that's happening right now, but the valuations are becoming closer aligned to real business prospects rather than some of these long-dated assets with colorful stories.

The other thing is we have shown to -- the Street, our ability to execute with precision and efficiency of scaling up the business from $30 million pre-COVID to close to $1 billion within two years. Now with the M&A journey, we are ready to capitalize and get more active on that front. And we are looking forward to showing the street that we do have just as much ability to integrate assets and show synergies, not just from the expense side, but from the revenue side as well, all leading to our reach into wider and bigger markets.

Ming Hsieh -- Chief Executive Officer

Yeah. Adding, Paul, to the answer David was -- probably, if you review what we did in 2021, in April last year, we announced the -- our contracts for CDC. -- contracts. That's two phases: phase 1 and phase 2.

Not only we executed the contract, we delivered a solid revenue last year. So, the CDC made this or competitive bid, we compete with all the institution top-end institutions, nonprofit organizations, hospitals, and genetic testing company, we want the competition. And not only we wanted the completion, we delivered our results. So, with our own technology, we designed this multiplex PCR to have the CDC to detect the pandemic variations is become a very, very successful project.

Now we reach end by March that the contract will be recompeted game, and we will compete in that space again. As we got the results were up to the street with what is the upcoming year in 2022, what that revenue will be for the NGS services. So, we're very much looking forward to continue to bring the innovation to this space as we walk into the post-pandemic world. Definitely, with our new entry into the spatial genomics, we are very much looking forward to bring the new challenges and the new solutions to this market.

So, we're excited for the opportunity.

David Westenberg -- Piper Sandler -- Analyst

I appreciate all the color. So, maybe I'll just ask one more. And sorry if I missed this, but I do think that needs a little bit more attention, if I did miss it, and that's on the gross margin. It was down, it looks like close to 600 basis points from Q3 to Q4 despite the fact that the revenue was up.

And even if we look at like the low point of Q2, you're still off from there. And you might have given a little bit of commentary, but if you can give us maybe a more complete bridge or a lengthier kind of bridge on why that step down, in my opinion, at least optically, pretty big? Thank you.

Paul Kim -- Chief Financial Officer

Yeah. So, gross margins throughout the course of last year, it was almost when they like a software company close to 80% I think the focus of the company throughout the COVID experience was to make sure that our customers were satisfied as much as possible, given the fact that utilizing our technology and our operational platform, that was pretty clear that our margins, whether it be gross or operating would be at a pretty high level. So, as we kind of shore that up toward the end of the year, there were some reserves and some write-offs that we had to take within our inventory balances that impacted that. Going forward, since you're asking questions about the gross margins, we anticipate that the gross margins will eventually normalize and get a little bit closer to what the gross margins are for our traditional genetic testing business.

So, as we get into each of the quarters in 2022, if the core situation continues to dissipate. We anticipate that the gross margin will get slightly lower in each one of those quarters. The other thing is we continue to invest in our operations as we have a larger scale company, which is also impacting the gross margin somewhat.

David Westenberg -- Piper Sandler -- Analyst

Appreciate it. Thank you very much.

Operator

As there are no further questions, that now concludes the fourth quarter 2021 Fulgent Genetics earnings conference call. [Operator signoff]

Duration: 50 minutes

Call participants:

Nicole Borsje -- Investor Relations

Ming Hsieh -- Chief Executive Officer

Brandon Perthuis -- Chief Commercial Officer

Paul Kim -- Chief Financial Officer

Kevin DeGeeter -- Oppenheimer & Co. -- Analyst

Larry Weiss -- Chief Medical Officer

Sung Ji Nam -- BTIG -- Analyst

David Westenberg -- Piper Sandler -- Analyst

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