Fulgent Genetics, Inc. Common Stock (FLGT) Q3 2020 Earnings Call Transcript

Fulgent Genetics, Inc. Common Stock (FLGT 0.82%)
Q3 2020 Earnings Call
Nov 09, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 Fulgent Genetics earnings conference call. [Operator instructions] Please be advised that today's conference call is being recorded the 9th of November 2020. [Operator instructions] I would now like to hand the conference over to your first speaker for today, the head of investor relations, Ms. Nicole Borsje.

Thank you. Please go ahead, ma'am.

Nicole Borsje -- Head of Investor Relations

Great. Thanks very much. Good afternoon, and welcome to the Fulgent Genetics third-quarter 2020 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 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 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-Q for the quarter ended June 30, 2020, 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 third quarter of 2020 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 GAAP financial metrics.

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

Ming Hsieh -- Chief Executive Officer

Thank you, Nicole. And thank you for joining our call today to discuss our third-quarter 2020 results. I will review the highlights from our third quarter, before I hand it over to our chief commercial officer, Brandon Perthuis, to provide updates on our commercial success and the go-to-market strategy. And finally, Paul will discuss our financial results and the outlook in detail.

The COVID-19 pandemic has continued to challenge both our health and our way of life this year. At Fulgent, we took early action to leverage our technology platform to build out a comprehensive offering to meet the increased demand for reliable testing solutions. While we have come a long way together in our efforts to combat this pandemic, we still have a long road ahead of us as we look to return to normalcy. We'll continue to do our part at Fulgent to help to get testing solutions to individuals and organizations that need them so that business, school, sporting events, travel, and social engagements can resume safely.

Our record growth in the third quarter is a true testament to the scalability of our technology platform. We discussed last quarter how the often seen events of this pandemic has really proven Fulgent Genetics is as a company and the results we discussed today to go one step further to demonstrate how the platform is truly unmatched in the genetic testing industry. With a modest level of investment in the infrastructure and headcount, we were able to grow our test volume almost 50 times or 5,000% of that in the third quarter of last year and by more than 5 times or 500% of 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 GAAP basis, which translates into operating income of $63.5 million and a record adjusted EBITDA of $67.4 million.

This growth and the profitability were made possible by the efficiencies we have created across our business from our lab operation and our information management and the reporting system, to have our own proprietary biochemistry and reagents, to our enhanced reimbursement capabilities and our system, who have covered a significant amount of the ground and signing a number of substantial agreements, securing large volume of tests in the quarter ahead. We have grown our headcount from 151 at the beginning of 2020 to approximately 500 employees and consultants today. None of this was done overnight, and we believe we have a strong foundation on which to grow our core business in the years ahead. To that end, we believe the investment we made to build our COVID-19 test initiatives will continue to benefit our business in long term.

There are 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 [Audio gap] insurance provider on reimbursement. And we have seen our commercial initiatives at home test offering, Picture Genetics. On the customer front, we have made a meaningful stride in signing large agreements with a range of commercial organizations, municipalities, and the medical institutions.

Some of this we have announced publicly, but we have won a number of additional strategic customers that we have not publicly disclosed. Many of these institutions have never heard of Fulgent Genetics before the pandemic, and now, we have proven our ability to deliver large volumes of high-quality tests in a quick and efficient manner. We have seen increase of volume of our core genetic tests for a number of new customers. Brandon will elaborate further on some of these customer dynamics.

Second point I want is on reimbursement. Historically, our customers have predominantly been cash-paying customers, with very little revenue coming through the reimbursement. Given our rapid expansion in new customers, combined with quarterly test volume which now exceed 1 million tests, this has accelerated the need of reimbursement agreement with insurance provider. 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.

The third area I wanted to highlight as an avenue of durable growth is our consumer offering Picture Genetics. We launched the platform in 2019 to make a clinical-grade genetic testing available to individuals in the comfort of their homes without need to visit a doctor office. Our original offering consists of three tests: carrier screening, newborn screening, and adult wellness. We add at-home COVID-19 test service to the platform in late June, and since then, we have seen very strong demand for this at-home test.

As we stated repeatedly on previous earnings calls, the cornerstone of our business is our technology and its flag role platform, which will allow us to develop, validate, customize, and launch our products and services. The investment we made in our technology stretches back almost a decade and enable all the facets of our business, which produces notable efficiency and scalability. We plan to get even more aggressive in our continued investment in technology and to further separate us from our peers in the future. We welcome the news about the very promising vaccine development from Pfizer today since we have made a $2.5 million investment in a private company called Boston Molecules during this quarter.

With this, we believe this could enhance and lead Fulgent Genetics to develop and enhance our neutralizing antibody test for COVID-19 immunity. Especially for the people who get the vaccine, all patients recovered from COVID-19. In the meantime, we continue to add contents and add additional tests for our core business to address the growing need for the genetic testing market. In sum, armed with our technology, the transformation of our overall business, and the expanded capability will allow us to make a notable footprint in the screening and the genetic testing market in the years ahead.

With that, I'll [Audio gap] call over to Brandon to dig into more about the customer dynamics we are seeing in this quarter and elaborate on the long-term drive for our momentum. Brandon?

Brandon Perthuis -- Chief Commercial Officer

Thanks, Ming. As Ming mentioned, we delivered more than 1 million reports during the third quarter, an almost fiftyfold increase year over year, and an almost fivefold increase sequentially. Despite massive increase in volume that we experienced, we delivered results to our customers without any issues and with best-in-class turnaround time for RT-PCR results. During the third quarter, greater than 90% of our COVID-19 results were delivered within 24 hours, some as fast as eight to 10 hours, which our customers would agree is pretty incredible.

This is all possible because of how we built this company and how we have leveraged technology and operational excellence. We are a genetic testing laboratory built by engineers, founded 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 57% sequentially 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 looked 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 [Audio gap] were 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 19,000 tests.

Customers are using Fulgent 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 tests. Switching to our COVID-19 business. During the third quarter, we brought on almost 80 new clients, representing thousands of individual users.

These wins included drive-through operations for the counties of Los Angeles, Alameda, Orange, Santa Clara, San Bernardino, Miami-Dade, the state of Utah, the city of Long Beach, and others. In addition to the huge drive-through operation wins, we announced our partnership with New York City Health and Hospital and their Test & Trace program for K-through-12 testing, both on-site and at home. Regarding the on-site 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 won a competitive bid for the entire state of Ohio prison system to provide testing to their 12,000 employees. In addition to the agreements we announced, there were a few other public announcements from our clients describing their partnerships with Fulgent. Those included Northwestern University using our Picture at-home test for their students or a return to school program and the Pac-12 conference using our test for athletic programs and sports officials. While 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 in competitive opportunities. Clients are choosing Fulgent COVID testing offerings for a variety of reasons, including our rapid turnaround time, supply chain availability, capacity, EUA approvals, our technology platforms, and user-friendly systems. I'd like to spend a few minutes to discuss each of these in detail. Regarding turnaround time, it's been widely publicized that labs have struggled with turnaround time and patients have experienced delays receiving test results.

Initially, some labs were 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 24 hours. And even with the explosive growth we have seen, we have continued to improve. This has really been important for patient care and contact tracing and has been a huge differentiator for Fulgent.

Second, supply chain. While many labs have seen shortages in critical supplies such as reagents, transportation media, and swabs, we've had no such issues. We've been able to give these kits 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 60,000 tests per day. This has allowed us to serve our existing business, win new accounts, and continue to build a robust pipeline of new opportunities. At the same time, our clients are confident using Fulgent [Audio gap] volume.

As needed, we could quickly scale to handle 80,000 tests per day and more. Fourth, our two EUA approvals. Getting EUA for our standard physician-administered RT-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 RFPs and government contracts.

Our second EUA was for our Picture at-home test, which has been instrumental for our growth. 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 EUA 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 these in detail on previous calls, but the platforms include the Fulgent Enterprise and Fulgent Community, which support corporate testing and drive-through testing, respectively. These have made managing large volumes of tests much easier for our clients and have connected them to the Fulgent platform, creating deep relationships that go just beyond being an RT-PCR 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 in COVID-19 that can cause respiratory infections. 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.

During the third quarter, we filed over 590,000 insurance claims, an increase of almost 9,000% over Q2. With this increased visibility with the payers, we can now tell the Fulgent story and show the value of having our services in their network. As Ming mentioned, COVID-19 has also served as a springboard for our consumer-initiated platform, Picture Genetics. Since obtaining the at-home EUA from the FDA and formally launching our Picture test for COVID-19 in mid-June, we have had significant demand.

We believe Picture is now a well-known and rapidly growing brand that will continue to deliver for us going forward as we expand the number of tests 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 Picture ahead of the visit and then spend the time with the specialist discussing results, prognosis, treatment plans, etc. 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 engaged 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.

Fulgent 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 2021 and will continue for at least 18 months. We are 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 Fulgent technology platform. We were able to launch this high capacity lab in record time by building on top of our foundational Fulgent technology. The Houston lab [Audio gap] 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 and pediatric hospitals.

Fulgent Houston will soon serve as a fully operational second site. And finally, I'd 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 that antigen testing is not a replacement for RT-PCR.

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 EUAs show that at day 6 and 7 the sensitivity drops measurably, and positive cases are already being missed. This will lead to false-negative results, which are particularly troublesome.

The EUAs of several antigen tests state that a negative result should be followed up by RT-PCR, and the CDC has been clear that RT-PCR is the gold standard to detect SARS-CoV-2. RT-PCR provides the highest level of sensitivity and specificity. Simply put, it's the best test. For early detection, screening, testing of asymptomatic and pre-symptomatic, RT-PCR is currently the only viable option.

Coupling the gold standard test with our industry best turnaround time makes the Fulgent solution a powerful tool to fight against the spread of COVID-19. I would like to now turn the call over to Paul Kim, who will walk you through our third-quarter financial performance.

Paul Kim -- Chief Financial Officer

Thanks, Brandon. Third-quarter revenues totaled $101.7 million, an organic increase of 883% compared to the third quarter of 2019. Billable tests in the quarter totaled 1,040,000, growing almost 5,000% over Q3 of last year. The vast majority of this volume was from our business related to COVID-19.

And though 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 Q2, our traditional genetic testing business grew by more than 57%. The breadth of our customer base was impressive during the quarter, with over a dozen companies contributing over $1 million of revenues. Our ASP in the third quarter was $98, higher than the $96 we saw in the second quarter.

The increase is attributable to the vast majority of our tests now going through reimbursement and our favorable payment experienced today. COGS per test for the quarter was $25, an improvement of approximately 42% compared to the second quarter. Gross margin improved almost 19% points sequentially. The primary reasons for the decrease in COGS per test were continued automation efficiency and in general the utilization of our technology platform.

Turning over to operating expenses. Total GAAP operating expenses were $11.9 million for the third quarter, up from $6.9 million in the second quarter. Non-GAAP operating expenses totaled $9.2 million, up from six [Audio gap] quarter. As Ming mentioned, we made a small investment in a company called [Audio gap] antibody and antigen testing capabilities, as well as assisting in the developing landscape for therapeutics.

This translated to approximately $2.6 million charge below operating expenses. Non-GAAP operating margin improved approximately 44 percentage points sequentially to 65.5%. We continued 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. And based on our profits, we recorded a 23% tax rate in Q3.

This rate releases our valuation allowance on our deferred-tax assets and incorporates our projected annual tax rate for the year. Adjusted EBITDA for the third quarter was $67.4 million, compared to $3 million in the third quarter of 2019. On a non-GAAP basis and excluding equity-based compensation expense, income for the quarter was $49 million or $2.08 per share based on 23.5 million weighted average diluted shares outstanding. [Audio gap] the third quarter was $104 million in cash, cash equivalents, with no debt.

During Q3, we had an equity shelf program in place, which enabled us to sell approximately 1.3 million shares in the open market, raising $42.3 million in cash. With the momentum in our business [Audio gap] revenues of $17.8 million from a customer who wanted to secure their position in delivering our services in the future. Moving on to our outlook. We see the second half of 2020 as a continuation of our inflection point in our business, which began last quarter.

In addition to the momentum we had with our COVID test, 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 will cap what has been a transformative year for our company.

We now project test volumes for the year to be well over $2 million, which translates into over $235 million in revenues. More specifically, we anticipate Q4 revenues to be at least $110 million. With a powerful leverage in our model, this translates into GAAP net income, and excluding stock-based compensation, we expect non-GAAP net income of approximately $100 million or approximately $4 per share for our shareholders in 2020. As a final note, we appreciate the patient shareholders who had 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.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question is from the line of Rachel Vatnsdal from Piper Sandler. Your line is now open.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Great. Hi. This is Rachel on for Steve. Congrats on the nice quarter, you guys.

Paul Kim -- Chief Financial Officer

Thank you.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Yes. So that was a substantial guidance increase. Can you just walk us through how we should think of the core business versus 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 -- Chief Financial Officer

So I'll take the first part of that question on the core business, and then I'll turn it over to Ming, followed by Brandon as to their thoughts on the landscape and the development on the vaccine use from today. So on the core business, we were extremely pleased with how the core business performed during the quarter. As I indicated, the core business grew 57% sequentially, which translates into approximately 20,000 tests and revenues of approximately $10 million to $11 million, which is at a record for the company. It's at consistent levels with what we posted in the third quarter of 2019, which was a high point before this quarter.

And looking out into Q4, we anticipate that our volume for the core business could be approximately 25,000, with revenues being in the low teens. And the core business is performing better than we had hoped and that's because we've signed on many new customers. We also added 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 $32 million of revenues, all non-COVID.

And before COVID hit, we guided the street to $40 million of business for the year. And then during the earlier on part of this year, in 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 in reimbursement because we've signed on so many more core customers and we've proven ourselves for the capabilities and the efficiencies that we've had in the lab, we've seen a tremendous uptick in our core business in the back half of this year. So we're still on track to meet the $40 million.

But that $40 million of business that we had in the core business hasn't been linear. We had a low in the springtime of the year, but we came back roaring in the back half of the year. So what that tells us is, if we continue on with the momentum and our capabilities as a company, our outlook for our core business in 2021 should be very, very favorable. And I'll turn it over to Ming, who can give commentaries on the vaccine.

Ming Hsieh -- Chief Executive Officer

I think in terms of vaccine development, we welcome the news of the vaccine development because we do see the demand for the Fulgent Genetics to provide faster, quicker, and cheaper tests in terms of the COVID-19 test. In addition, as the vaccine developments will come in, adding additional requirement for the test, faster and cheaper and quicker and more accurate test for the antibody test, neutralizes those antigen test. So I think this creates a new opportunity for Fulgent Genetics in this space. I do not believe that COVID-19 will go away easily.

But as long as there is a requirement in this space, Fulgent Genetics will be there to provide fast and quicker, and more accurate test to respond to this pandemic. And Brandon can give you some of the details.

Brandon Perthuis -- Chief Commercial Officer

Yes, certainly. And, Rachel, Brandon. We continue to believe that the COVID-19 testing is quite durable, right? We think it's going to stretch well into 2021. At these same levels? Who knows? We don't have that crystal ball, no one does, right? 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 and Q1, 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. At 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 it's quite durable. And I think the platforms we've built, the turnaround time, the systems, I think we're going to be a player for deep into 2021.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Great. Thank you for all that color. Can 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 -- Chief Commercial Officer

All of the above, Rachel. So some are exclusive, some are not. We if look at the contracts, they range from month to month to 24 months. So I think our longest one we signed so far has been 24 months.

These contracts have been with government agencies, municipalities, big companies, you name it, colleges, sports conferences [Audio gap], Rachel. So a lot of these contracts are laboratory services agreements. Like I said, some have exclusivity, some don't. And I would say a majority of them do have some legs to them, to where they're going to stretch many months and deep into 2021.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Great. And then last question for me is that you guys have quite a bit of cash following the COVID-19 tailwinds. Can you talk about your plans for using the money to invest in the business? Thanks.

Paul Kim -- Chief Financial Officer

Sure. So that's an excellent question. Yes, we generated a lot of cash based on the momentum that we had in the business, and we believe in capping off this year. It would demonstrate several things: one, the viability, and the permanence of our business model; two, the efficiency, as well as the scalability of Fulgent Genetics.

And we believe [Audio gap] in the -- our 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.

Ming Hsieh -- Chief Executive Officer

Yes. So to add to Paul's points, we'll continue to invest carefully to enhance our position in terms of our technology and also our market positions.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Great. That's it for me. Thanks, you guys.

Ming Hsieh -- Chief Executive Officer

All right. Thank you, Rachel.

Operator

Our next question is from the line of Erin Wright of Credit Suisse. Your line is now open.

Erin Wright -- Credit Suisse -- Analyst

Great. 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 -- Chief Executive Officer

Erin, this is a very good question. As I mentioned, the COVID-19 is not going to be -- goes away completely. Our investment in terms of capacity, it is always the multiple-use. We're not only to use our test for the COVID-19, but we also put our other genetic tests.

As we continue seeing the increase for the demand, we increase our automation. These are the machines we can use for multiple different purpose. As you recall, all our lab management system and software has developed in-house. So we definitely could program or repurpose some of those equipment, getting into the mix of our complete automation for the lab automation.

Paul Kim -- Chief Financial Officer

Erin, from a numbers perspective -- this is Paul. So you can break out the investments that we made, as well as the spending in a couple of different buckets. So number one, our total fixed assets, and the equipment purchases for the year is going to be between $10 million and $15 million. And then we have added a number of people to the organization, but not all of them are employees.

Many of them are consultants in the operational lab area. So if you take a look at the amount that we're spending for COVID versus what COVID has brought us just for this year, we're going to be generating approximately $200 million of COVID 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 2020.

We see these contracts going deep into 2021. 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.

Erin Wright -- Credit Suisse -- Analyst

OK. That's helpful. And then on the reimbursement front, obviously, we had favorable reimbursement for COVID testing and CMS has extended that through late January. How long do you think that lasts thereon? 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 requirement.

Brandon Perthuis -- Chief Commercial Officer

Yes, Rachel -- sorry, Erin. We were happy to see what they did actually, to reward those laboratories that can actually deliver on turnaround time. And we think that's incredibly important. When it comes to contact tracing, the turnaround time needs to be 24 hours or less for this test to be as powerful as possible.

[Audio gap] their decision to do that. We hope that that reimbursement rate will continue deep into 2021. We'll see how it plays out. I think as Paul mentioned, we do have some additional leverage in our COGS there.

So we're also on the private side as well, not just the Medicare and Medicaid from the CMS perspective. The private side also is a satisfactory reimbursement. So we hope that will 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.

Ming Hsieh -- Chief Executive Officer

And, Erin, remember, the COVID-19 test started at $50. Most labs could not survive with that price, so CMS increased the rate. And most of the labs could not meet the response time. The CMS gave two rates: $100 for the 24-hour response -- 48 hours response time or the $75 if we could not meet the 48 hours response time.

Fulgent Genetics is another positioned -- well positioned to meet the time challenges, but also, we'll be able to perform in this market at any price to compete in this market. I think the Fulgent Genetics when we get in [Audio gap] we are not highest, the provider. We provide the low-cost competitive bid in all our efforts. Not only we win those bids effectively, but also, we are able to deliver the bottom line.

And the results we delivered today will continue to enhance our position in this area because of our technology, because of our biochemistry, and because of our pipelines.

Paul Kim -- Chief Financial Officer

Erin, just to give you a point of reference on the reimbursement. We had $90 million of accounts receivable. At 9:30 as of today, we collected on more than $60 million of that $90 million 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 Ming indicated, the CMS reimbursement rate is $100, and starting January 1, it stays at $100 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 doubt whether we can meet that threshold starting on January 1, 2021.

Erin Wright -- Credit Suisse -- Analyst

OK. Sorry. Thank you.

Operator

Next, we have Kevin DeGeeter of Oppenheimer. Your line is now open.

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

Great. Thanks, guys. I want to visit genetic testing, and Paul, some of your comments with regard to how to think about that portion of the business for the year. I believe I heard you correctly.

You feel comfortable kind of at that $40 million reported revenue for genetic testing for the year. If our math is right, that suggests somewhere around $15 million for 4Q or another 40% sequential growth in that business on top of the 57% in the current quarter. So can you just comment a little bit more about what's driving that, what portion of the business? Is it hereditary cancer? Is it carrier? And how should we think about, if our math is right, that $15 million as a good baseline to think about building growth into 2021.

Paul Kim -- Chief Financial Officer

That's an excellent point. So we are on track with our original guidance, which is quite a feat, because a lot of the diagnostics companies, 2020 was essentially a throwaway year. But oddly enough, it seems like we're on track to meet the original guidance even before COVID has hit. And the reason why it's accelerating in the back half of 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, in women's reproductive health, as well as in pediatrics.

And we believe if things open up more and should people get more comfortable going to clinics, having the genetic -- but the confidence of returning to some kind of normalcy for the genetic tests, that that will just open up the doors for even more enhanced business for our core NGS 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 their customers, as well as the size of programs that they're thinking about for our core business.

Brandon Perthuis -- Chief Commercial Officer

Kevin, yes, I think in the script I read [Audio gap] customers in Q3 this year versus last year. And actually, I got a text that I cut out a little bit. So I'll reemphasize what I said. In the third quarter of this year, greater than half of those customers were new, right? If we look at our largest customers in Q3, more than half of those were new this year.

So Paul is right. We've continued to bring on new customers. We continue to win business. These customers are not running at full speed.

Let's make no mistake of [Audio gap] 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 -- Chief Financial Officer

Kevin, the last thing is on the cost side. We talked about the efficiencies that we have for COVID, but our core business, that's also gaining a lot of benefit from the automation and the efficiency. Meaning that our COGS per test during Q3 on a full GAAP basis was $25. On a non-GAAP basis, it's even lower than that.

But that includes our core genetic tests on top of COVID. So you can just estimate what our cost structure is, whether it be for COVID or non-COVID. We're not going away anywhere, and we believe we can compete in any kind of environment.

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

OK. Great. No, that's super helpful. And as we think about continued menu expansion, you did call out some opportunities with regard to infectious disease side of the portfolio.

But are there important or meaningful menu expansion opportunities in genetic testing that you think could continue to fuel this type of growth to existing customers as they expand the breadth of their ordering into a broader menu for genetic testing?

Ming Hsieh -- Chief Executive Officer

Well, Kevin, if we throw away $100 million, we can easily buy a $20 million or $30 million business. But that's not the way we do, OK? Definitely, we see the business opportunities. As we walk into each opportunity, we need to make sure we have a sound business model. We need to make sure it is beneficial to 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 advanced cancer treatment, how do we provide the precision medicine. Fulgent will continually invest in these areas. We will introduce the products in this area.

Due to the COVID-19, I think it slowed down a little bit our introduction in this kind of products. But definitely, that's the areas that we will be focused on.

Brandon Perthuis -- Chief Commercial Officer

Yes. I think we've been on a test launch craze for the last year, a year and a half. I mean, now, the test menu is over 19,000 tests. So we continue to pump out new tests, 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 with our technology, our capture set, our pipelines, we were able to develop that pretty quickly.

So we will be at the market, which will help in personalized therapy and in drug treatment.

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

So very exciting. Thank you for taking my questions.

Paul Kim -- Chief Financial Officer

Thanks, Kevin.

Operator

[Operator instructions] And there are no further questions as of this time. I will now turn the call back to Nicole for any final comments.

Nicole Borsje -- Head of Investor Relations

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

[Operator signoff]

Duration: 64 minutes

Call participants:

Nicole Borsje -- Head of Investor Relations

Ming Hsieh -- Chief Executive Officer

Brandon Perthuis -- Chief Commercial Officer

Paul Kim -- Chief Financial Officer

Rachel Vatnsdal -- Piper Sandler -- Analyst

Erin Wright -- Credit Suisse -- Analyst

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

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