Fulgent Genetics, Inc. (FLGT) Q1 2022 Earnings Call Transcript

Fulgent Genetics, Inc. (FLGT 0.39%)
Q1 2022 Earnings Call
May 03, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Q1 2022 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. Please go ahead, ma'am.

Nicole Borsje -- Investor Relations

Great. Thanks. Good afternoon and welcome to the Fulgent Genetics, first quarter 2022 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 event, including the company's actual future results may be materially different and 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 actual 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 IR 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 2022 for more information, including the description of how the company calculates non-GAAP income and income per share, and a reconciliation of these financial measures to income and income per share to 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, Nicole. Good afternoon. And thank you for joining our call today to discuss our first quarter 2022 results. We had a very good start to the year in terms of financial results, as well as some exciting strategic announcements.

I will cover some highlights from the quarter before turn the call over to our chief commercial officer, Brandon Perthuis, to discuss products and go-to market updates. Then Dr. Larry Weiss will provide an update our CSI expansion strategy. Finally, Paul will cover our financial results and outlook in detail.

Taking a look at our first quarter results, which again exceeded our guidance for both core and COVID revenue. Revenue totaled at $320 million, down 11% versus $359 million in the first quarter last year and up 27% compared to fourth quarter of 2021. We've delivered approximately 3.2 million tests in the quarter, up about 31% compared to the fourth quarter of 2021. Though down from 3.8 million in the fourth quarter of last year.

The volatility we have seen in total revenue is a direct result of the fluctuating demand environment for COVID testing, which was again strong in the first quarter. But the scenes code meaningfully in the second quarter. Paul, will cover the breakdown between our core and the COVID business in more detail. But the other highlight level, our core business have grown 59% year-over-year to $25 million.

We continue to drive strong profitability and generated $4.93 per share in GAAP EPS and $188.4 million in operating cash flow in the quarter. We had a strong start to the year with the fourth quarter results that exceeded our expectations. At the same time, we're most excited about the strategic update, we announced that most recently, this input acquisition of Inform Diagnostics, which closed just last week. And the opening of our new oncology lab in Southern California, which we announced today.

As demand environment for COVID-19 continued cool off. Our team is much busier than ever working on growing number of initiatives that will drive long-term sustainable growth for our core genetic testing business. Brandon will cover our street strategy around informed diagnostics in more detail. But this acquisition is our largest today and created meaningful expansion opportunities for Fulgent while adding our topline on day one.

There are multiple compelling strategic benefits of this acquisition, including commercial infrastructure they have built to support a nationwide footprint, which gives us a seamless entry point to sell full suite of Fulgent testing services, including newly launched liver cleanser, liquid biopsy test. We've seen this aggregation as a highly complementary to our existing test menu, and Sales force, and believe the investment can drive meaningful returns for our core business over the long term. The second initiative I would like to highlight is opening our new oncology folks lab in Southern California. This new lab gave us an opportunity to bring lab and oncology testing capabilities that occurred with CSI to our clients on the West Coast.

We look forward to scaling on capabilities that cause cancer testing to our west coast customer base. Dr. Weiss, who has been always seen the integration of CSI, into Fulgent, we are also oversee the operation of this lab. These announcements, notable steps forward in our strategy to drive long-term sustainable growth in our core genetic testing business.

A key element of success of this strategy is a team of experienced leaders, within Fulgent who are executing on this vision every day, we helped build a relatively lean, but extremely knowledgeable group of executives, and vice presidents, who have become instrumental to our success for execution. While the team has continued to grow in recent quarters, it remains a cohesive and highly effective group of leaders who are able to accomplish what they set up to do. Our rapid scaling of COVID testing during the pandemic is a prime example, over the determination of our team. The acquisition and integration of CSI Labs is another notable proof point of our ability to execute successfully on our merger and acquisition strategy.

I have a high level of confidence that our team was able to effectively execute on the integration of uniform diagnostics, to drive outsized growth in our core businesses in the year ahead. We'll continue to look at additional M&A opportunities in science technology that could contribute to our long term growth. We recognize that whether we should call the healthcare landscape have come even more attractive, aimed at the reason of market volatility and it will remain extremely well capitalized to take advantage of these opportunities as they arise. The future look were bright for Fulgent.

I am very excited about the growing number of opportunities ahead to capitalize in the near future. I now turn over the call over Brandon Perthuis, our chief commercial officer. Brandon?

Brandon Perthuis -- Chief Commercial Officer

Thanks, Ming, we have a lot of great things to talk about today. While we saw another wave of COVID-19 in the first quarter, which drove further cash generation, we remain diligent in our efforts to build upon our core business. And we're pleased to recently announce the opening of our new cancer lab and the acquisition of Inform Diagnostics. Starting with the exciting news of our acquisition of Inform Diagnostics.

Inform diagnostics was founded in 1996, and has grown to be one of the largest national outpatient pathology laboratories in the United States, in large part thanks to the rigor of their quality, the comprehensiveness of their solution offerings, and the experience, expertise and dedication of their professional staff. Inform DX brings expertise in hematopathology, anatomic pathology, and neuro pathology, key service areas that complement our vision of becoming a one stop shop for a wide range of healthcare specialty. Looking at the anatomic pathology business, we offer products in dermatology, GI, urology, and breast. Each of these areas have seasoned subspecialty trained pathologist on staff, which is a key differentiator and selling feature.

The anatomical pathology sales team has approximately 20 sales managers spread throughout the United States, and no individual state contributes more than 10% to overall anatomical pathology sales, we see an immediate opportunity to expand this teams to further penetrate the market. In addition, one of the more exciting areas for us is the ability to cross sell, for example, Inform DX has over 600 active GI clients, which are a focal call point for our new liver cancer liquid biopsy test. While we have built a specialized sales team to call on hepatologist in GI, which I will speak to momentarily, the Informed DX sales managers have these existing relationships and can walk us through the front door. In addition, the CSI division has existing client relationships that also send out anatomical pathology services, which could be cross sold and economically included in existing daily pickups with other term in surgical work.

Other synergistic sales opportunities to Inform DX clients include hereditary cancer to their breath clients and molecular testing for UTI to their GU clients. These are just some examples. And with the speed at which Fulgent can launch new products and services, we will be looking at other tests our account utilize and it makes sense, we'll be launching those tests to increase our revenue per customer, as well as better serve our clients. On the heme side, this acquisition is a perfect fit for our oncology strategy.

Inform DX currently has four heme sales reps. And we've already started expanding this with the addition of three new hires on the West Coast, with the intention of hiring more, we believe our current menu and turnaround time is very competitive. And we will continue to launch new hem/onc services such as MRD and other heme panels. And additional area of synergy is around managed care contracting.

Informed DX has done an impressive job of obtaining contracts that collectively represent over 300 million covered lives. These contracts layered on top of CSI strengthen our in network coverage in most states. In addition, we believe the combined entity of fulgent plus CSI plus Inform Diagnostics creates a unique multi state laboratory offering and subspecialties that provide an excellent value proposition to manage care. We hope to be able to use this to build stronger relationships with existing payers and obtain additional contracts and relationships moving forward.

Switching to our new liquid biopsy test for liver cancer. Since launching the test late last year, we have made significant progress with our go to market strategy. This includes building out the sales team and that release to drive consumer awareness. Launching a redesigned website, publication of the on core data continued progress in the client clinical trial and onboarding over 50 new accounts.

50 new accounts in this short amount of time it's significant. We believe this shows enthusiasm for the test and represents execution by our new sales leaders and their team. The enthusiasm is understandable. Considering the top has the potential to transform how we screen and diagnose patients for liver cancer leading to improve patient outcomes.

Changing the way medicine is practiced take time, but we are excited to see the early momentum we have with our tests. Another area of focus moving forward will be to continue to grow our organic core business, specifically a pediatric testing. Bolden has built one of the largest most comprehensive menus for pediatric genetic testing, now offering testing over 5700 conditions and phenotypes with over 19,000 tests. And for many of these tests, we are one off if not the only provider in the United States.

This has allowed us to build a large national customer base, though we believe there is still work to be done to increase awareness across this customer base. Over the recent months, we've been built an inside sales team who will be deployed to help grow these accounts by focusing on the higher volume tests, such as exome sequencing, genome sequencing in neurological panels. We believe we have the test menu tat and quality to drive additional volume for pediatric and rare disease testing. Over the next several months, we will be connecting with this customer base and educating them on the full breadth of our services.

And as we bring CSI in form diagnostic together, we can better serve these clients over time within network managed care contracts. On the sales team front, we have expanded in a big way, which we said we would do on previous calls. We now have a team of over 50 individuals segmented into five sub specialties, pediatric and reproductive health, anatomical pathology, oncology, hepatology, and biopharma. These teams are currently functioning independently to ramp our recent investments in Inform Diagnostics and CSI.

But there are clear synergies across the organization. And we are beginning to take steps to cross train and integrate the teams across common platforms to maximize efficiency. In just a few quarters, we've been able to transform our business in a big way. Fulgent is now one of the largest providers of genetic testing and anatomical pathology services in the United States.

We believe our investments have come at the right time and at the right price, and are set up full just to see significant growth over the coming years. That said, we're still only at the very beginning of our story, as we continue to leverage our AI technology and execute on our post COVID-19 strategy that will include additional investment in organic growth, M&A, and other strategic initiatives. We look forward to keeping our investors updated on our progress, and we appreciate their support. I'll now turn the call over to our chief medical officer, Dr.

Larry Weiss. Larry?

Larry Weiss -- Chief Medical Officer

Thanks, Brandon. As you know, oncology diagnostic testing is a major strategic area for Fulgent as we focus our efforts on driving long-term, sustainable growth in our core business, we executed on a strategy in a meaningful way in August of last year with the purchase of CSI laboratories in Alpharetta, Georgia. CSI is a strong regional laboratory offering diagnostic services to a pathologist client base for both hematopathology and surgical pathology using immunohistochemistry flow cytometry, cytogenetics, FISH and single gene molecular testing. Using CSI as resources as a model and a source of validation assessments, our goal was to build a state of the art laboratory on the west coast to offer diagnostic services to an oncologist client base, as well as to supplement CSIs test menu with next generation sequencing, somatic tumor offerings.

Starting from literally empty walls, I am very pleased to announce that we have already been able to build a state of the art laboratory in El Monte California, which has been CLIA approved, the two labs will be complementary and not strictly duplicative to each other. As while our Georgia lab has a pathologist client base, our new lob lab in El Monte will have a hematologist oncologist customer orientation. The new laboratory includes about 25,000 square feet of wet lab space, including large R&D areas, as well as additional dry lab space for analysis and pathologist activities. Currently able to offer immunohistochemistry flow cytometry, cytogenetics FISH and single gene testing, we are actively validating and submitting a suite of next generation sequencing tests for reimbursement approval, including tissue and liquid biopsy tests for both hematology and solid tumor specimens for assessment of tumors as well as detection of minimal residual disease.

The new symmetric NGS testing in addition to Fulgent's current capabilities in germline NGS testing will also supplement both CSIs Inform DX test menu. As an aside germline testing is already important in breast cancer, colon cancer, pancreatic cancer, pediatric cancer and many others and is included in many consensus guidelines for cancer patients. Our goal is to serve cancer patients and their families at all stages of their disease early as well as late and to become a meaningful contributor to revenue by the end of the year. I will now turn the call over to our chief financial officer, Paul Kim.

Paul?

Paul Kim -- Chief Financial Officer

Thanks Larry. Revenue in the first quarter totaled $320 million, compared to $359 million in the first quarter of 2021. Well exceeding our original guidance of approximately $245 million. Billable tasks in the quarter totaled $3.2 million, compared to $3.8 million in Q1 of last year.

The year-over-year decline was again due to COVID testing dynamics, the Omicron wave since getting of the first quarter create a tremendous demand for COVID testing and early in the quarter. Now that's tapered off through the end of March and has since returned to much more normalized levels. Breaking down the revenue that further roughly $295 million came from COVID-19 testing in Q1, which exceeded our expectations. The revenue from our core business totaled $25 million, which also exceeded our guidance of $22 million and grew 59% year over year.

As a reminder, our core revenue includes our NGS business contributions from our China JV, contribution from CSI, and it excludes NGS COVID testing from the CDC. As demand for COVID testing remains volatile and unpredictable, we continue to take a conservative stance on expected revenue from COVID testing. We remain focused on executing on our post COVID growth opportunities, which include the integration of informed diagnostics, expanding the reach of CSIs capabilities, executing on additional investment and partnership opportunities, ongoing work on joint commercialization opportunities, and growing the footprint of our international operations. Our ASP in the first quarter was $99, slightly lower than $103 million we saw in the fourth quarter of last year.

Our ASP has remained relatively stable in the last few quarters fluctuating higher and lower as COVID testing as in spikes. Cost for tests for the quarter was $24, slightly lower than the $25 in the fourth quarter of last year due to shoring up reserves and the write off of some excess inventory to your end. Gross margin was 75.7%, down 370 basis points year over year and up 40 basis points sequentially. Turning now to operating expenses, total GAAP operating expenses were $40.6 million in the first quarter, up from $38.7 million in the fourth quarter of last year.

Non-GAAP operating expenses totaled $35.5 million up from $34 million last year. 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. Additional credit losses for provision and the accounts receivable due to the high revenues in the first quarter. Our non-GAAP operating margin increased 280 basis points sequentially to 65.1%.

Our expense structure remains very lean enabling us to drive significant profitability from revenue outperformance. That being said, our investments in people and business inflations and pressure on our operating margins in the near term. Ultimately, we believe these investments will drive outside the future growth as a core business. And we remain pleased with the consistent operating leverage we are able to demonstrate even through M&A.

Adjusted EBITDA for the first quarter was $213.5 million, compared to $271.9 million in the first quarter of 2021. On a non-GAAP basis and excluding equity based compensation expense and intangible asset amortization, income for the quarter was $158.7 million or $5.08 per diluted share on 31.2 weighted average diluted shares outstanding. Turning over to the balance sheet. We ended the first quarter with approximately $1.1 billion in cash, cash equivalents and marketable securities.

We generated $188.4 million of cash from operations during the quarter, further adding to our cash balance. Now moving on to our outlook, starting with COVID revenues as demand for COVID testing continues to taper off. We expect to see ongoing declines in our revenue from COVID testing our expectations for COVID revenue for the full year remain unchanged we expect at least $480 million in COVID revenues for the year inclusive of the $295 million we did in the first quarter. Let's breaks out into roughly $85 million in Q2, and $50 million each, Q3 and Q4.

Clearly revenue from COVID testing has been hard to predict, admit volatile spikes and outbreaks. So we remain prudent with our expectations for COVID revenue contribution. Moving on to our core revenue guidance, which will include contributions from informed diagnostics as the transaction closed on April 26. We have continued to see strong growth across our organic business.

While CSI and Inform Diagnostics will drive incremental growth. We expect core revenues will be approximately $180 million in 2022, representing growth of 94% year over year, which is slightly better than the guidance we provided during the announcement of the acquisition of Inform Diagnostic only a little over a week ago. What $480 million in COVID revenue and $180 million in core revenues, we expect total revenues will be approximately $660 million for the year. We expect there will be continued volatility with COVID testing and remained 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. That being said, we expect to see meaningful pressure on operating margins in the quarters ahead as we integrate and further invest resources of our recent acquisition. In addition, our conservative assumption of a dramatic decline in COVID testing demand will result in lower growth and operating margins relative to the record high margins we experienced during the COVID crisis. Long-term, our foundational technology platform supports a strong margin profile and we will continue to manage our spending with discretion to drive operating leverage.

For the full year 2022, utilizing our 28% tax rate and share count of $32.4 million. We now expect non-GAAP income to be approximately $6 per share for shareholders, excluding stock-based compensation and amortization of intangible assets versus our previous guidance of $7 per share. While acquisition of Inform Diagnostics is accretive from an adjusted EBITDA standpoint, and on a stand-alone basis, we're also anticipating heightened operating expenses due to integration costs associated with the transaction, aggressive investments in our organic business such as the build out and sales ramp of our West Coast oncology lab, as well as lower gross margins at the mix of COVID testing decreases in the coming quarters. For the second quarter 2022 specifically, we expect total revenues of $125 million.

This breaks down into core revenues of at least $40 million, representing growth of 78% year over year. And as I mentioned, we expect approximately $85 million in COVID testing. Our updated guidance is posted in our slides on our investor relations website, which shows a detailed breakdown I just discussed. Thank you for joining our call today.

Operator, now you can open it up for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] And we'll take our first question from the line of Kevin DeGeeter. Please go ahead. Your line is now open.

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

Hey, great, guys. Thanks for the comprehensive update. Maybe just can you talk about the continued sales force build out appreciate the update in terms of 50 reps, just kind of really two questions, as we look toward the end of the year, how should we think about target, either headcount number or just sort of infrastructure build. And then with regard to kind of integration of the commercial team is that, should we think about that process is substantial and maturing, through the balance of 2022, you're really being at 2023 and beyond priority?

Brandon Perthuis -- Chief Commercial Officer

Yes, thanks Kevin. It's Brandon. I mean, the integration is ongoing and a top priority right now. The acquisitions of CSI, Inform Diagnostics was meaningful increases in headcount across our sales organization.

So priority one, integrate them into the Fulgent system, get them on common platforms, get them into the posing culture. And we're doing that in a very, very rapid fashion. That said while the sales team has grown in a big way, we now have a much larger TAM than we've ever had before. The sheer number of call points for some of these new markets, we've been able to enter both through organic expansion, as well as M&A is tremendous.

So I don't think we have a right side sales team, so to speak, I think there's tremendous opportunity for us to continue to increase that. But in typical Fulgent fashion. We'll do it the smart way, use the methodology we've always had grown responsibly. But like I said, the TAM that we now have is, it's a big one.

And, when you're looking forward to optimizing productivity out of the existing sales team, leveraging those cross selling opportunities. The team's coming together to work together to serve these clients, but long-term, it's going to continue to grow, Kevin.

Ming Hsieh -- Chief Executive Officer

Yes, adding Brendan's the comments as with the foreign current financial and products and service capabilities, where are tracking a lot of new sales talents to our organization? We receive a lot of inbound calls for this as a new time to join us. And we will make the announcements as we continue to record the payments during the quarter.

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

No, great, thanks for that, and I appreciate the update on Helio Liver. I mean, I guess my question there, though, is really what is the most meaningful near term metric to choose? Think, predicts, ultimate, commercial traction, I think you called out if I were around 50 new accounts, but what sort of a recurring metric we should look for the company disclosing to be able to track progress there?

Brandon Perthuis -- Chief Commercial Officer

That's a good question, Kevin. As I mentioned in the call, we're trying to change the way the coalition coalition's practice medicine, and especially in the hepatology space for liver cancer, there's been no change in the way medicine has been practiced in a very long time, right. So they have their protocols and procedures. Now we know, the test that we have, is a big improvement over the standard of care.

That doesn't make it that much easier to change their thought process, so they have to hear it a lot. So we're proud of the fact that we've on boarded 50 new accounts. And that's kind of what we're tracking right now. I think near term meaning, sort of quarter in the next few quarters, I'd like to see us begin to sort of track volume and utility.

And maybe more importantly, the volume would be the positivity rate. We know in early data so far, we have detected liver cancer that was going myth undiagnosed by standard of care. So I think going forward, we want to track volume. And we want to track the utility of the test by tracking the positivity rate for ultrasound myth in early stage hepatocellular carcinoma.

Ming Hsieh -- Chief Executive Officer

Kevin, adding on to Brandon's comments, this is oncology centers, the physicians, they do recognize that this is a good test, they do recognize that we're in the leading position to provide the better diagnosis and the cancer screenings. So even though we see that we got traction from this physicians in terms of the liquid biopsy test, but they also were interested in the full trade of gene. So the products and service offerings, it gave us were a good entry point for this physicians to explore our products and services, and they will provide the one stop shopping for their test selections.

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

That's great. Thank you, Ming. I'll get back into queue. Thank you.

Operator

We'll take our next question from the line of David Westenberg. Please go ahead. Your line is now open.

Dave Westenberg -- Piper Sandler -- Analyst

Hi, thanks for the questions and congrats on some good numbers here. And there's a lot earnings going on. So sorry if I missed this, but it looks like on the guide, you added $5 million just in the last two weeks, which is pretty impressive. On the core business, kind of can you walk us through the difference? Did you find you know, maybe inform is doing more revenue than you anticipated? Or is it maybe heating up of business trends that you know just you saw in the last two weeks?

Brandon Perthuis -- Chief Commercial Officer

Yes, so thank you for taking notice that we raised our guidance even within the course of a week. The reason why we guided hire isn't the strength of our overall core business it has nothing to do Inform Diagnostics. Because the outperformance that we had was for the first quarter we anticipated that we do, we would do about $22 million in revenues during the quarter, even with Omicron and everything that was going on, the actual numbers came in a little bit north of $25 million. If you combine the momentum that we're seeing within our core business, in addition to the contribution from Inform Dx, we feel very comfortable with achieving at least $180 million of core revenues in this year.

Dave Westenberg -- Piper Sandler -- Analyst

Got it. I appreciate. And Paul, I got another one for you. You mentioned some commentary around ASPs going down with a decrease in COVID testing relative to your prior guidance.

Can you talk walk us through maybe quantitatively like what we're looking at in terms of the gross margins in the subsequent quarters? I mean, Q2 and Q3 are I mean, I do think of as being maybe COVID lights, I wouldn't think any impact there. But just walk us can you walk us through on kind of a new implied gross margin impacts?

Paul Kim -- Chief Financial Officer

Sure. So I'll talk about growth, as well as operating margins. So we made a very conservative assumption about COVID testing demand, because quite frankly, nobody can predict what the virus is going to do. So we're anticipating in Q2, Q3, and Q4 a drastic drop off in terms of COVID testing demand, we're also making assumptions about a greater mix coming from our core part of our business.

And the other thing that we're also doing is we're investing heavily into our operations or facility, we announced the opening of the oncology lab, that is just one example. So when you combine the conservative assumptions and the mix changes, we're anticipating the gross margins to be at our historical levels of between 50% and 60%, depending on which quarter you're looking at, and if we have higher COVID revenues, because of the scale, our gross margins, everything being equal, will slightly be higher. That's the gross margins. And then as far as the operating margins, I talked about the heavy investments that we're making in our facilities, we're also making capital investments or making investments in people across all departments of the company.

Because of the foundation technology that we have, now, within operating expenses, we anticipate an increase in R&D spending, and but proportionately less, because the foundation technology that we have has so much efficiency and leverage behind it. Where we do believe we're going to be having the highest amount of operating expenses is in sales and marketing. Brandon talked about the size of the sales organization, Ming made some commentaries in sales and marketing, you're going to see heavy investments that we're going to be making by hiring, just a wide set of people. Because basically, acquisitions and our enhanced capabilities, we can address that much wider market.

We believe that we're in a position with the foundational technology, which really gives us a leverage and the performance of making these aggressive investments, doing M&A. Also, having a stock buyback program, all these things we believe will enhance shareholder value.

Dave Westenberg -- Piper Sandler -- Analyst

Got it? No, thank you very much. And actually, that's a good segue to my last question here on M&A. Can you talk about maybe some of the timing in terms of M&A, do you anticipate doing it this year? And you mentioned the stock buyback program? I mean, is there a kind of an expiration date on making an acquisition where, you know, you maybe move to, to stock buybacks. I mean, how do we think about a capital deployment from here on out recognizing that, inform diagnostics really only was $170 million and you're near billion dollars in cash?

Paul Kim -- Chief Financial Officer

I'll make a few commentaries, and I'll turn it over to Ming who can talk about the philosophy of enhancing shareholder value. We believe that all these options that we have opened for us, gives us a unique opportunity to address the market to set the pacing for the marketplace as to how we want to be able to penetrate certain spaces. It gives us the flexibility to hire people and invest in our business. And by the way, if you take a look at the M&A landscape, the valuations of the assets that we have been paying attention to, they're all coming in aligning themselves to business prospects and what we're willing to pay.

So from an approach standpoint, we think that we're going to be busier than ever and the success that we're seeing and the synergies it's actually getting the team more excited about engaging some of these targets. But I'll turn it over to Ming, who can talk about the usage of our cash, the philosophy behind M&A and our investments organically.

Brandon Perthuis -- Chief Commercial Officer

Thank you, Paul. Thank you, David, for the question. I think, as in my paragraph, during the discussion, I focus on the science and technology, I do believe Fulgent has tremendous benefit in this market with the already existing team for the AI technology, we want to be the leader in this area, that becomes the forefront of the digital pathology. Using the AI technology, we have a cumulative fight, our existing teams, but the addition will also focus on the other adjacent areas in a science and technology will give us the much, much bigger a differentiator for us using the power platform, the insurance payers infrastructure, national sales team to penetrate even further and distinct from the current competitors that were competing, elevate us to a new level and the premium generator better attractive than both the margins and for our shareholders.

Dave Westenberg -- Piper Sandler -- Analyst

Thank you. Thank you, Paul. Have a great job on the quarter.

Paul Kim -- Chief Financial Officer

Thank you, Dave.

Operator

[Operator signoff]

Duration: 43 minutes

Call participants:

Nicole Borsje -- Investor Relations

Ming Hsieh -- Chief Executive Officer

Brandon Perthuis -- Chief Commercial Officer

Larry Weiss -- Chief Medical Officer

Paul Kim -- Chief Financial Officer

Kevin DeGeeter -- Oppenheimer and Company -- Analyst

Dave Westenberg -- Piper Sandler -- Analyst

More FLGT analysis

All earnings call transcripts