Q2 2022 Sema4 Holdings Corp Earnings Call

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The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Okay.

Good day, and thank you for standing by welcome to the deluxe.

For second quarter 2022 earnings conference call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference may be recorded I would like to hand the conference over to.

Your speaker today, Joel Kaufman VP of finance and corporate development. Please go ahead.

Thank you Michelle good afternoon, everyone. Thank you all for participating in today's conference call. Joining me from the company today. It will be Catherine Stool, then chief Executive Officer, and Kevin Phili SVP of operations and head of gene Dx Rich MEO. The company's interim CFO is recovering from a medical procedure and will not be able to join the call. This out.

Afternoon earlier.

Earlier today Semaphore released financial results for the second quarter ended June 30th 2022, a copy of the press release and our second quarter earnings slide deck are available on the company's website.

Before we begin I'd like to remind you that management will make forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 any statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements actual.

<unk> may differ materially from those expressed or implied in the forward looking statements due to a variety of factors. Additionally, these forward looking statements, particularly our 2022 financial guidance and our expected cost savings involved a number of risks uncertainties and assumptions for a list and description of the risks and uncertainties associated with seven fourth business.

Please refer to the risk factors section of our Form 10-Q filed with the Securities and Exchange Commission today.

50 of 2022, we urge you to consider these factors and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance. During the call. We may discuss certain non-GAAP financial measures a reconciliation of the non-GAAP measures to GAAP financial measures as well as other information regarding these measures. Please refer to our earnings release and other.

Materials in the Investor Relations section of our website. This.

This conference call contains time sensitive information and is accurate only as of the live broadcast today August 15, 2020, 274 disclaims any intention or obligation except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.

That I will turn the call over to Katherine.

Thanks, Joel just three months ago. Some of her closed on the acquisition of <unk> and announced that we were restructuring the company to support a new foundation for the future one focused on profitable growth operating efficiency and data driven decision.

Given the immense market opportunity our industry, leading technology and consideration of the market conditions, we are well on our way that's hurting <unk> into a stronger company than it ever has been.

In the second quarter. Our teams have continued to drive meaningful revenue growth in fact hitting record volumes in pediatrics. Thanks to the G&A ex acquisition, while putting the company on track to deliver our target of approximately $50 million in cost savings this year and with the actions we've taken since the last conference call.

Can confidently debut at target of approximately $200 million of cumulative cost savings through 2023.

Our new management team has been reviewing our business lines and is acutely focused on assessing what's working and what's not.

And as a result, we're making changes to ensure we strengthen our foundation and financials. So we can continue to realize our mission of unlocking insights from data leading to healthier lives and in doing so realizing value for our shareholders.

Well it remains the same as our vision to deliver personalized health and wellness plans for pesos based on comprehensive data.

How we realize that vision will be very different by virtue of strategy execution and how we show up in the world.

We're now operating startup or as a commercial business focused on profitable growth.

After comprehensive reviews of our business lines, we have decided to focus on an area, where we're well positioned to win and can drive profitable growth.

<unk> families make better health decisions with our panel of axons exome and genome fueled by an industry, leading interpretation platform designed for any dynamics worth of information and data and then built to combine genomic and clinical data to deliver better insight.

Our business reviews, let us a clearer decision to exit thematic oncology, which represented approximately 1% of our revenue with material negative gross margins.

Given the number of companies focused on thematic oncology and setup, we're subscale position in that market, we've decided that investing further in the tumor testing business is not strategically or financially Meredith.

We plan to wind down somatic testing operations in the third quarter and cease operations by the end of the year at which point, we'll be closing our brand for facility.

We're also redirecting our hereditary cancer testing from our Stanford clinical laboratory to our Maryland Laboratory to drive down Cogs as we continue to sell that through our commercial channels.

We will also be reducing our physical footprint with plans to consolidate our headquarters into our Stamford Laboratory.

We've made the difficult decision to part ways with approximately 250 people who are notified today.

In total we've reduced the legacy setup, where workforce by around 30% this year.

That's incredibly hard and we are deeply grateful to all of those who have worked tirelessly for the company and a special. Thank you to those who will continue to work as we wind down our efforts in Branford and transition a portion of our lab operations to Maryland.

We want to thank the employees affected by today's announcement for their contributions and hard work during their time at semaphore.

As I said earlier, our mission of delivering health insights from data remain strong, albeit with an evolution of that strategy I want to walk you through three changes that we're making to support our new focus.

One profitable growth.

Two scalable R&D strategy and three operating efficiency.

First our focus on profitable growth, obviously this amount of exit polls in line with that and our focus will be in areas, where we have a unique capability in the market, enabling us to drive volume have a healthy reimbursement rate in asps.

<unk> clear value to clinicians patients and payers and health systems as well as pharma partners and importantly areas, where we have a path to true profitability.

Our strong growth in the pediatric segment is a clear example of this.

We have driven double digit year over year revenue growth since implementing our new commercial strategy to bring our industry, leading neuro degenerative panels, exome and genome to the NICU and in the pediatric setting.

We're generating data from our University of Washington study examining the benefits of exome and genome in the NICU and the outpatient pediatric setting.

We're seeing pairs, including state Medicaid start to cover that and we've begun to operationalize a statewide collaboration to sequence healthy babies at birth.

It's the same rigor of commercial business planning that will continue to deploy as we formulate our plans for expanding utilization of carrier screening in reproductive health, where we currently are one of the leading partners for IVF centers across the country.

We'll provide more insight on our commercial plans over the coming quarters to ensure our investors and partners had a line of sight they need to understand how we're evolving our strategy for driving growth designed to improve the overall health of our business, while making an impact for patients.

Second.

Our scalable R&D strategy.

Shifting from an academic spinoff strategy for R&D to a scalable one.

Data insights will continue to be the way that we design our product roadmap, but we need to start by having a deliberate and clear strategy that puts an equal premium on scale as it does the innovation.

This is true for how we're working with health systems as well as how we're going to product ties our pharma offering.

Our comprehensive data asset, including longitudinal clinical data. In addition to one of the world's largest datasets of approximately 400000 clinical exome.

Vast majority of which are associated with rare disease provides summer for an unparalleled platform for pharma to leverage.

To lead our R&D evolution to a new chapter of innovation and scale. We are pleased to welcome Matt Davis, former head of AI and N V. K, who is joining us as chief technology and product officer.

Together with Gustavo still a bit Steve leading our research and data Sciences effort, we will continue to invest in the development of commercial products utilizing the data developed and curated on a centralized platform.

Third driving operating efficiency.

We're bringing a level of operational rigor to the company and everything from our lab strategy, how we operate as a leadership team with.

But our operations team supported by Kevin's leadership, we've begun integrating the best of both <unk> and <unk> Dx to drive down Cogs improved turnaround times and strengthen our approach to revenue cycle management, which is critical to ensuring we also strengthen our partnerships with payors.

With the migration of hereditary cancer testing moving to Maryland, our evolution has begun.

With the changing needs of the business. We've also changed our team Dr. Eric <unk> founder of <unk> will be leaving.

I'd like to thank Eric for his significant contributions to <unk> over the years. He founded semaphore at Mount Sinai established it as a standalone private company and let our go public via a merger last year. His vision has been instrumental in getting some afford to where it is today, we wish Eric well in all of his future endeavors.

Turning to the performance of the business in the quarter I will provide the following metrics on a pro forma basis as if we had owned <unk> starting January one 2021 to provide the most holistic view of combined <unk> and <unk> businesses.

Resulted volume of 130000 tests was up 19% on a year over year basis Rev.

Revenue, excluding COVID-19 testing and a one time revenue adjustment that will discuss in a moment was up 7% on a year over year basis. We also.

<unk> experienced strong volumes in our reproductive health franchise as we continue to be a leader in the IVF setting. However that strength in volume was partially offset by continued ASP pressures and reproductive health testing and this relates back to the one time revenue adjustment that Kevin will discuss shortly.

We are transforming summer for for the better there's a massive market opportunity in front of us with the changes we've begun to make and what the gene Dx integration well underway with our exome genome and data insights engine. We're in the pole position to make health insights the new standard of care for everyone.

I am pleased to pass the call over to Kevin.

Thank you Catherine and good afternoon, everyone since joining semaphore upon completion of its acquisition of <unk> I've had the privilege of leading a number of our operational teams across the company, including but not limited to laboratory operations genetic counseling services supply chain management and the revenue cycle across the combined.

In this past quarter, we've been focused on integration in all areas of the company and key initiatives to drive forward. The third area of focus Catherine outlined which is driving operating efficiency.

All operational aspects of the company are under review to ensure proper resource management automation and enabling technologies are in place to drive cost efficiency I look forward to updating you on our progress in future calls.

Today I'd like to focus on revenue cycle management and adjustments, we've made as we take a fully integrated approach with our billing operations and relationships with our third party payers.

We disclosed today in our 10-Q filing that we're currently negotiating with one of our larger commercial payers regarding the potential recruitment of payments where semi for carrier screening services rendered from 2018 to early 2022 as a result of the negotiations at this point and an assessment of our current reimbursement landscape for third party payers.

<unk> has reversed $31 million of revenue this quarter related to prior periods. We believe this reversal of revenue accurately reflects and captures the potential risk of recruitment from our entire portfolio of third party Payors, which is a risk that is common in our industry. Our new leadership team is committed to strengthening.

Our relationships and partnerships with the payers to improve access for our customers need and require our services and now I would like to hand, the call to Joe to bring you through our financial results and guidance. Thank you Kevin for reference we have provided a detailed breakdown of historical volumes and revenue on a pro forma basis, beginning in the first quarter of 2021.

In the appendix of the second quarter earnings presentation posted on our Investor Relations website.

During the second quarter of 2022 total <unk> revenue was $36 million compared to $47 million in the second quarter of 2021, when adjusting for the $30 million of.

Of revenue reversal related to prior periods recorded in the second quarter second.

Second quarter revenue would have been $66 million.

Regarding volumes, we achieved a new record this quarter with approximately 118000 result resulted tests, excluding COVID-19.

Pro forma resulted volumes in the quarter were 133000. This represents a 19% year over year increase versus the second quarter of 2021 on a pro forma basis.

As a reminder, we completed the previously announced wind down of our COVID-19 business in <unk> 2022.

Turning to gross margin I will be referring to non-GAAP results I encourage you to review the reconciliation of GAAP to non-GAAP measures, which can be found in today's earnings release, and 10-Q filed with the SEC.

Adjusted gross margin excluding the prior period revenue adjustment recognized in the second quarter was 4% for <unk> 22.

Gross margin was also negatively impacted by lower recorded asps in the reproductive health business during the second quarter.

Turning to the balance sheet as of June 30, we had total liquidity of approximately $410 million with cash and cash equivalents of $285 million and an undrawn revolver of $125 million.

We anticipate most of the restructuring process Catherine reviewed will be completed by the end of the year.

Combined with the announcements earlier this year. These actions will generate approximately $50 million in 2022 savings. These actions combined with our focus on capital controls will enable an additional $150 million in savings in 2023, the vast majority of which are recurring in nature.

Now turning to our updated guidance.

Starting with volumes, we are increasing our previous targets and now expect greater than 50%, sorry, greater than 60% growth on a reported basis.

On a pro forma basis, this would imply a 19% growth year over year.

Turning to revenue we are lowering our previous targets based on a combination of the revenue reversal mentioned previously and a more conservative ASP outlook on the legacy <unk> business. These headwinds are partially offset by strength in our legacy <unk> business, We expect <unk> reported revenue to be in the range of 245 million.

The $255 million.

Please note reported revenue guidance excludes approximately $48 million of revenue generated from <unk> for the first four months of 2022 prior to the close of the acquisition.

We are lowering our full year adjusted gross margin guidance to 49% primarily as a result of the prior period revenue adjustment, which was a 700 basis point headwind to annual gross margin.

<unk> 2022 gross margins will also be impacted by a reduction in asps.

In the reproductive health business.

Given the complexity of the <unk> acquisition closing intra quarter and the revenue reversal recognized in the second quarter of this year. We will also provide guidance specifically for the second half of the year for clarity we expect.

<unk> revenue in the second half in the range of $154 million to $164 million and gross margins in the range of 15% to 20%.

This trajectory will put us well on our way to our long term target of greater than 50% gross margins.

Plan to reduce our cash spend significantly throughout 2022 and finished 2022 with at least $165 million in cash and equivalents, we expect our weighted average basic share count for the full year will be in the range of 335 to 340 million shares we expect our fourth quarter 2022 basic share count to be in the range of three.

280 to 385 million shares.

In closing as we exit this year, we anticipate <unk> will be a company with normalized pro forma revenue of $320 million more than $165 million of cash on the balance sheet.

<unk> $25 million Undrawn revolver cash runway into 2024, and an operating model that gives us the ability to achieve positive free cash flow by the end of 2025.

We are encouraged by the progress we have made thus far in 2022 and look forward to the improved financial position of the company. Following the announcements made today now I will turn it back to our CEO Catherine Stuart Thanks, Joel with our focus on profitable growth scalable R&D strategy and improve the operating efficiency I am confident that the.

These changes will result in better outcomes for our patients providers payers partners team members and importantly, the shareholder to entrust us to realize our mission, we're grateful for the opportunity to do so.

I would now like to open the call up for questions operator.

Thank you to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.

And our first question is going to come from the line of Dave.

Dave Delahunt with Ges. Your line is open. Please go ahead.

Yes.

Okay.

Hey, guys.

Any additional color you can provide on that.

The outlook for signing additional.

Health system partnerships.

Thanks, Dave Yes, absolutely.

A fantastic place to put some attention so.

First what we are doing is taking a look at the existing health systems that we're working with I think historically they've been characterized as learning partnerships.

And what we're doing is working with them to figure out exactly how to ensure we can scale before we add additional health partnerships. So.

Right now each one has.

<unk> focus.

One is focused on hereditary cancer screening another is focused more on.

Healthy mom and healthy baby, so and that gives us an opportunity to be able to bring to a health system. The <unk> suite of products in the pediatric setting so.

We've actually hired somebody to join the team to be able to work with our new R&D leads to really build that road map to scale of health systems before we continue to invest and yet another learning system.

And so that is what our plan is once once we have an approach to being able to scale them I think we'll be able to provide a better insight in terms of how we might be able to go to market to bring more online.

Great and.

Biopharma partnership side.

Any additional color you can give us on the level of demand you're seeing in the market.

Yeah, absolutely so.

First in terms of the selling approach that we're taking with with Biopharma.

It really was previously.

A group of of seller for folks who are coming together and really ideating with different biopharma companies in the same way that we're trying to bring some commercial and.

Commercial rigor and scale to health systems as well as the entire business. We wanted to do the same with Biopharma. So I would say with the close of the <unk> acquisition, we've been really pleased particularly in the rare disease space.

The types of partnerships that we have in the pipeline.

But we have a lot of work to do to really pull those through and realize them enter into partnerships that.

Well, we'll be gross margin positive.

And again, what we want to do is spend some time figuring out how to product ties that so we can actually go to health systems with.

Very clear.

<unk> of services that we can provide to them.

Rather than approaching each one as kind of a unique go to market approach and more to come on that.

Great. Thank you.

Thank you and our next question comes from the line of Brandon Couillard with Jefferies. Your line is open. Please go ahead.

Thanks. This is Matt on for Brandon just quickly first on the updated guidance I appreciate the color on the quantified.

Quantifying adjustments for prior period changes.

The other part of the lowering of the guidance related to volume and pricing within the reproductive health.

Talk a little bit more about what changed there and any way to kind of quantify what youre assuming for asps, there now versus prior to quantify the magnitude of the step down there.

Yeah, absolutely and glad you heard the message loud and clear is it's really two factors one being asps.

And the other the other bank volume related it was.

A pretty aggressive back half of the year and as.

We have a new commercial leader in place and a new commercial leadership team.

We're just trying to be really clear eyed in terms of the volume that we see.

Right ahead of us.

Obviously, some have already been really focused in the IVF setting there is an entire universe of of Ob volume that that.

That is also out there that we may focus on.

But that also requires a different commercial strategy. So.

What I really tried to talk through and some of my remarks was the commercial rigor that we're bringing to bear John Brindel is leading that effort. She was at adviser of Bayer and <unk>.

Really has developed I think an elegant strategy that that provides all of the things that you need to deliver on volume on strong asps.

We have a full operational plan to continue to drive down our Cogs to deliver on stronger gross margin. So all of this I would say, we're seeing play out very nicely in the pediatric setting and it's that same approach that we need to drive in terms of of reproductive health, but for the back half of this year I think we wanted to take them.

This conservative approach in terms of what we could see by way of Asps and by way of of volume that would accompany that.

Yes, Matt just sort of walking through the ASP dynamic embedded in the guidance. So I'd point you to the updated table. We provided both in the press release and within the appendix of the Investor presentation that was posted on our website today.

If you sort of normalize for the out of period revenue adjustment in the quarter Asps in our complex reproductive health.

Segment here, we're about $520 in a quarter that compared to about $712 in the quarter prior.

I'd say were expecting.

For the remainder of the year at least double digit sequential declines from <unk> into <unk>.

For those asps in the reproductive health business.

And stable David.

Okay, Great. That's really helpful color and then jumping over to the additional $150 million of annualized cost savings are you guys laid out a number of items from snack tumor testing.

Further reorganization moving the lab and some commercial move so I guess, you kind of talk about maybe the.

The relative kind of size and comfort with that another $150 million and then going forward.

So 'twenty three and beyond kind of what do you think is the right size of the commercial organization.

Thank you.

Sure thing.

I'll I'll share my perspective, and then I'll hand, it over to Kevin as well we've had a full.

Transformation management office that has been leading our.

Printing.

<unk> effort in terms of being able to ensure that we can deliver on the cost savings, particularly given.

The market that we're all living in.

And so it is everything from revenue optimization, that's something that Kevin is focused on to.

To love and footprint optimization.

This is taking a look at.

The last possible elimination that you want to that you want to have to make a decision on as your people.

Today as I said on the call with the 250 folks that were parting ways with.

That is about 30% of the legacy <unk>. So.

I would say that we have made.

A pretty multi dimensional approach here in terms of being able to realize that cumulative $200 million in savings.

And some of it is a matter of timing so I'll, let Kevin talk a bit more yes, Matt and some of the confidence comes through leveraging our blueprint that Gtx has previously established running full.

A full suite of Germline test so the move down to Maryland allows us to leverage.

A fair bit of automation and other laboratory techniques that have been in place at <unk> and that lab in Maryland for a number of years.

And.

The shift down to the Maryland lab really gives us the ability.

To run cost set.

Level of efficiency that would have taken some are for.

A fair bit of time to accomplish on their own and so really it was one of the premise of the integration was to rationalize the laboratory footprint and.

Leverage some of the investments that <unk> had been making over the past decade into laboratory automation.

Techniques in the laboratory.

Across.

Other operational functions.

See the implementation of other automation and technology that should help us.

Get more efficient and servicing our products. So looking at some operational groups outside the laboratory as well in finding meaningful cost reductions as we turn the page into 2023.

Super Thank you.

Thank you and our next question comes from the line of Max Masucci with Cowen. Your line is open. Please go ahead.

Hi, Thanks for taking the questions.

Just a question on the second half guide.

Revenues being a bit.

But it also looks like you raised the resulted test volume guidance. So.

Appreciate the comments around reproductive health.

Outside of that segment would love to hear which other products and services.

Our driving that upward revision for the full year volume growth guidance.

Yep.

That is exactly the place to zero and so.

About a year ago, we assembled and overall business strategy for the <unk> suite of products, which includes <unk>.

Barrow degenerative panels really for rare disease, but those are rapidly being adopted into the developmental delay setting. In addition to in addition to other places as well in the pediatric sector.

So we put together I think are.

Pretty elegant.

Commercial strategy to ensure that we can drive volume growth that it was revenue driving volume.

And that would.

That we can make an impact on the reimbursement landscape as well to ensure that we're opening up access we're getting paid for this volume. So we're seeing now a year later.

We started making the investments in our commercial team commercial leadership Medical Affairs team a year later, we are seeing.

Those investments paying off so.

We're continuing to evolve the reproductive health strategy is really the pediatric sector where.

We're seeing a lot of uplift as we think about the back half of the year, yes.

Yes, Max just like the mechanics in terms of the updated guidance and the way I would think about it is you have the onetime out of period revenue adjustment that was a headwind in the quarter.

The legacy <unk> business, we're taking a more conservative view on both volume and ASP.

But we are revising our underlying assumptions the legacy Gtx business up based off of the.

<unk>.

The demand we're seeing for the whole suite of <unk> products to date.

Okay, Great second one related to gross margins.

In the second half gross margin guide as.

As we think through the pacing of the gross margins in Q3 and Q4, how should we think about the timing of some of these key milestones or factors you're solving for in terms of.

The lab operations and the movement there.

And then just more generally if we sort of separate.

<unk>.

Opportunity for organic gross margin improvement.

Unrelated to say reclassification of items between Opex and gross margin.

Just trying to get a sense for how we can best track your progress towards the organic gross margin improvements and the pacing in Q3 and Q4 in the context of the guidance.

So next I'll start with the pacings. So if you think about the mechanics of the exited the somatic business, which will essentially be a wind down of that product line throughout the remainder of the year.

And we're going to essentially stop accepting samples in November so youre going to likely see somatic volumes decline, which will be less of a drag on gross margins for the remainder of the year, a greater impact in <unk> than <unk>.

And then thinking about the move of hereditary cancer from Stanford down to Gaithersburg again that will not impact the third quarter. So that would be a benefit that we realized in the fourth quarter and then on top of that.

Highly encouraged by the trajectory of gross margin that we're seeing <unk> margins continue to.

Beat our internal expectations and are up meaningfully relative to the exit trajectory out of last year. So if you think about that as a part of the business. That's growing let's say above the corporate average contributing more gross margin in the fourth quarter. The third quarter. So that's how I would think about the pacing I'll kick it over to Kevin.

Let me add some more details around underlying operations and how that will impact the gross margin.

Yes, Thanks Joan.

Not much to add there.

Except for beyond those identified items.

We've got established now well establish a transformational office.

Really looking at all other additional levers that we could pull through.

To explore strategic options to drive down costs.

Just in Cogs, but operationally as well and look forward to providing further updates as.

As the year progresses.

Okay. Great final question just wanted to.

Eric Best in his next chapter.

And then second.

Mats is stepping in as chief technology and product officer. So can you just maybe give us a sense for some of the initiatives or efforts that Matt spearheaded during his time at <unk>, where he can have an immediate impact at some before and then just generally if there are any major changes to the.

R&D Biopharma strategy going forward.

You got it you're asking one of my favorite topics, Matt Davis as contributions.

I worked with Tom first of all the areas.

That has I think one of the he is uniquely capable and being able to think through vision in terms of where we're going with exome and genome in a data strategy, while also being able to sit and business for a view here a problem.

And think about if I had a squad of <unk>.

Size of my people, we can probably solve that issue whether it's on a revenue cycle issue or and ordering issue. He is able to really do both the high science envision work that we need him to do in partnership with <unk>.

While also being able to look at the business problems of business operation opportunities that we have in front of us to really run the company more efficiently.

And he also brings.

Thanks to his time at IBM and some work that he and I have partnered on wallet and VK was.

Design approach to product development.

So we're really excited about the many different ways that that amount is going to be contributing including what we've talked about today in terms of being able to develop a roadmap for scale for R&D.

I think part of the like the immense excitement about <unk> in the early days being at a spin out from Sinai very academically minded.

We're all of the different places that you can go from a data perspective, and being able to place a lot of that and now we want to move into a new chapter from an R&D perspective, while replacing a fewer bigger bets.

That have behind them a business plan at a full product roadmap.

A clear approach to being able to take.

And idea turn it into a product or service and turn that into a revenue generating approach. So that's really the kind of stuff that we want to see out of the team here at <unk> in terms of product technology data science.

How do all of those come together to really ensure that we're able to support a commercial stage growth company that has an incredible market opportunity and our hands. So.

We're thrilled to have Matt Gustavo is stepping up into a fantastic role and.

We're just thrilled to be able to have them, both leading us in this new chapter.

Okay great.

Appreciate the detail.

Thank you and again if you have a question at this time, Please press star one one.

And our next question comes from the line of Mark Massaro with <unk>. Your line is open. Please go ahead.

Hey, guys. Thank you for the questions.

The first one I don't think I heard the topic of Centrella has come up so maybe can you just.

Talk about how important sort of a big data platform strategy is at <unk> at this time.

I know that about a quarter ago I think Dr. Shot indicated that he was planning to focus on big data the information platform, helping with health systems and pharma companies. So maybe.

Maybe just an update on the centrella strategy, how core is it and then on a related question can you maybe update us on.

Who may be stepping in for R&D or is that a position that you are looking to fill.

Great question So first.

Yes, centrella is central.

So all of that so when I talk about the data engine and how we are combining genomic data with longitudinal data clinical data, that's what we're referring to.

So centrella is absolutely a key part of the data strategy moving forward, we're continuing to build on that by working with health systems.

And.

And continuing to ensure that we have got a strong pipeline of genomic volume coming in through our commercial channel.

So, yes, what I am talking about the interpretation platform that we've built and lacked case I'm I'm, referring to the interpretation platform that we built at <unk>.

Which is.

The most advanced platform in terms of being able to take.

An exome and genome is worth of data and be able to deliver it with fewer buses with every patient that were running through that platform.

I think there is those two platforms that we're talking about that I think really helped contribute to a richer data strategy moving forward and then interpretation platform gives us a really important commercial competitive advantage because we've been running these <unk> and genomes and that platform has been good.

Smarter over the past eight years.

So it's one of the reasons that our axon nobody can compete with us.

So yes.

Yes, absolutely central to.

The data strategy moving forward and we're excited in terms of R&D leadership that is Gustavo and not coming in so all of the folks who are reporting into Erik and others on the R&D or product teams will be reporting in to Mount and Gustavo So reece.

Research and development is.

I suppose bring branded as a technology product.

Data science moving forward.

Okay, that's a great answer.

I also wanted to ask about the I think it was the $30 million.

Adjustment in the quarter.

Would you be willing to provide a little more information about what some of the changes in estimates were related to.

And then was this one payer or was it multiple payers and do you think there could be any impact to either pricing of these tests or potentially the contract status of any of these payers.

Yeah.

Yes, Mark.

For the follow up there first.

<unk> sure hopefully you can appreciate were in ongoing negotiations with the payers. So I will share as much as we can at this point, but.

Potentially more limited than you would like.

So in the second quarter, a large payer of ours completed an audit that audit spanned back three years.

The results of which is a refund request on previously paid claims. These were services provided by Sam before so the dispute really comes down to a coverage decision with the payer requesting.

Recruitment of amounts previously paid.

We've taken reserves on our balance sheet that based on current information to date captures what we believe is the potential risk of recruitment from this and other third party payers in our portfolio.

To your question on contracting in the context of this dispute we're working to finalize an updated contract with this particular payer.

On a combined company basis.

Note that this was one payer that had significantly higher contracted rates than standard commercial lab rates.

But hopefully you can appreciate that discussions are ongoing but we look forward.

In the days to come to resolving not only dispute, but the go forward contracted disposition with with this payer and I believe the reserves on the balance sheet to cover off on what we would expect as risk in the portfolio at large.

Okay. That's helpful.

So I totally understand the closure of the lab in Branford, Connecticut given.

The somatic testing business is quite small.

And it certainly makes sense to lower your cost structure and move hereditary cancer testing elsewhere like like Maryland.

Maybe can you just remind us where.

The bulk of the carrier screening testing as being a session at this time and like how strategic is operations in Connecticut at this time and are you contemplating.

Potentially moving operations to other lower cost jurisdictions.

So our expanded carrier screening our carrier screening testing.

As germline in nature and run in the laboratory and Stanford.

And we're exploring all options for the rest of the reproductive womens health line of testing and where that should be performed and how frankly.

With respect to your question on Connecticut.

The company's headquarters in Connecticut, I think we mentioned in our prepared remarks, our headquarter space, which is office space.

Probably not unlike many other companies we found we have far more office space than individuals to fill it at the moment.

And our beautiful laboratory facility right down the street from the headquarter office space and so we will be looking to consolidate that.

In Stanford, Connecticut over the coming months.

Okay. Thanks, very much I appreciate the color.

Yes.

Thank you and Im showing no further questions and I'd like to turn the conference back over to Kathryn Lynn for any further remarks.

Great well, thank you for joining us.

Really important thank you to our team members.

And working with us and we look forward to catching up with you sometime in the coming weeks and months. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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