Good day, ladies and gentlemen, and welcome to the Q1 2019 Fulgent Genetics Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to introduce your host for conference call, Ms. Nicole Borsje. You may begin.

Great. Thank you. Good afternoon, and welcome to the Fulgent Genetics First Quarter 2019 Financial Results Conference Call. On the call today is Ming Hsieh, Chief Executive Officer; and Paul Kim, Chief Financial Officer. The company’s press release discussing its financial results is available on 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 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 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 fourth quarter and full year 2018, 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 first quarter 2019 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 earnings and earnings per share, the most directly comparable GAAP financial measures. With that, I’d now like to turn the call over to Ming.

Thank you, Nicole. Good afternoon, and thank you for joining us on our call today to discuss our first quarter 2019 results. I will review the highlights from the first quarter before Paul discusses our financial results in detail. We had a good start to the year and it demonstrates a solid year-over-year growth in revenue and the test volume. Revenue grew 15% year-over-year to $5.4 million. We saw strong growth in billable test volume, which increased 63% year-over-year to a new record high of almost 7,500. Our ASP was $713, down 19% compared to the fourth quarter of 2018 due to product mix. Non-GAAP gross margin in the first quarter was 47.4%, up approximately 430 basis points from fourth quarter last year and down approximately 600 basis points sequentially. GAAP loss was $1.9 million and non-GAAP loss was $1 million. Non-GAAP loss per share was $0.06 in the first quarter. Adjusted EBITDA was negative $712,000 in the first quarter. We saw a strong growth in the test volume this quarter, driven by momentum in our core clinical business. We have made ongoing investments in our business. And this has been paying off through increasing diversification of our customer base and broad demand for the variety of our tests. In addition to the ongoing success, we have heading in the areas, such as reproductive health and sequencing-as-a-service. We are seeing recent success in our cancer business. The increased diversification we are seeing across our businesses beyond the success we are continuing to see our pediatric business, which will help driving sustainable growth over the long run. The increased diversification of our product mix has been impacted our ASPs, which decreased about 19% compared to the fourth quarter. However, we believe our gross and operating margin should improve in coming quarters…

Thanks, Ming. First quarter revenue totaled $5.4 million, an increase of 15% compared to the first quarter of 2018. While our international business remained strong, our U.S. business has been seeing momentum recently as revenues from the U.S. grew 43% year-over-year in the first quarter, accelerating from 42% year-over-year growth in the fourth quarter of 2018. Revenue from the U.S. represented 67% of total revenue in the first quarter, up from 61% of the fourth quarter of 2018, activities through our China JV remains relatively low, while revenue in the JV grew 61% year-over-year, while we recorded a net loss of $280,000. Longer-term, we remain confident that the JV uniquely positions us to capture the large China market. As a reminder, we're using the equity method of accounting for the JV investment, which is being carried on our balance sheet. Billable tests were 7,530 in the first quarter, an increase of 63% over Q1 of last year and an increase of 18% over the fourth quarter of 2018. Our average selling price was $713, down from the fourth quarter as our non-pediatric business continues to increase as a portion of overall revenue. While our ASP has ticked lower, the costs associated with the tests have declined as we began to scale. Costs per test for the quarter was $394 on a GAAP basis and $375 per test excluding equity-based compensation of $142,000. Cost per test has stabilized at lower levels due to operational efficiencies, higher volume, better productivity and the introduction of our enhanced probe. Non-GAAP gross margin was down 600 basis points sequentially, but improved 430 basis points year-over-year. Gross margin has generally improved and stabilized as cost per test has improved with increased efficiency. Now turning to operating expenses. We have remained focusing on controlling expenses while investing…

[Operator Instructions] Our first question comes from Bill Quirk with Piper Jaffray.

Hi. This is Rachel on for Bill. Thanks for taking the questions. So could you just give an update on your thoughts about CMS' potential changes around reimbursement for hereditary cancer and NGS?

Yes. Thank you for the question. At the present time, we are continuing to focus on our cash collection business while we are working on the insurance contracts. As we see for the rest of the year, the majority of our revenue will be still cash-driven business. And however, we do see the potentials we’ll get the insurance collection.

This is Paul. I agree with what Ming said completely. I think the only thing that I would add is, as Ming indicated, revenue from reimbursement continues to be a very small portion of our business. And we recognize the fact that CMS had made some amendments and we are working very hard to get incorporated to have reimbursement be a bigger portion of our revenues. But regardless of their amendment and their decision, it does not impact the guidance that we have for the year and the volume for this business is accelerating in a quite meaningful way as we indicated on giving color for the second quarter of 2019.

Yes, great. Final question. So you touched on the Canadian partnership, but you can just give us more of an update on the carrier screening test?

The carrier screening test is continuing to see growth in the business. In Canada, we are doing the collaboration with a major institution to build the partnerships in Canada, which would offer the carrier screening test. Beside Canada, we also see the momentum in Europe, South America and as well as in the U.S. for the demand of carrier screening test.

Thanks.

[Operator Instructions] And I'm not showing any further questions at this time. I'd like to turn the call back over to our host.

All right. Thank you very much for you joining our conference call and are looking forward to talk to you and update you on our business in the next coming quarters. Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.