Q2 2023 Myriad Genetics Inc Earnings Call

August 3, 2023

Yes.

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And all please continue to stand by your myriad conference call will begin shortly we thank you for your patience. Please remain connected your call will begin shortly.

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Yeah.

Greetings and welcome to the myriad genetics second quarter 2023 financial earnings call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press. The one followed by the four new telephone should you require operator assistance at any time. Please press.

Star Zero as a reminder, this conference is being recorded Thursday August 3rd 2023, I'd now like to turn the call over to <unk> Senior Vice President Investor Relations. Please go ahead Sir.

Thanks, Dave and good afternoon, and welcome to the myriad genetics second quarter 2000, 2030 earnings call. During the call. We will review the financial results. We released today and afterwards, we will host a question and answer session. Our quarterly earnings release was issued this afternoon on form 8-K can be found on our website.

At Investor Dot myriad dot com on the call with me today are <unk>, President and Chief Executive Officer, Bryan Riggsbee, Our Chief Financial Officer, Nicole Lambert, our Chief operating officer, and Mark variety, our Chief commercial officer. This call can be heard live via webcast at Investor Dot myriad dot com.

And a recording will be archived in the investors section of our website along with this slide presentation.

Please note that some of the information presented today contains projections or other forward looking statements regarding future events or the future financial performance of the company. These statements are based on management's current expectations and the actual events or results may differ materially and adversely from these expectations.

For a variety of reasons, we refer to the documents the company files from time to time with the Securities and Exchange Commission specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on form 8-K. These documents identify important risk factors.

That could cause the actual results to differ materially from those contained in our projections or forward looking statements with that I will now turn the call over to Paul.

Thanks, Matt Good afternoon, everyone and thank you for joining us on today's call. We will discuss highlights from the second quarter and provide an update on the progress we are making towards profitability in the fourth quarter of this year.

And sustainable growth and profitability in 2024 and beyond.

Before we begin I'd like to announce that we will be hosting an investor day on September 19th.

With a presentation and tour of our new state of the art facility in San Francisco named.

Aimed to Dr. Walter Gilbert Innovation Center after the Nobel Laureate and cofounder of myriad genetics.

And <unk> will be sent out and registration details for this event will be posted to the investor page of our website soon.

Transitioning to the quarter.

I first want to thank our mirror teammates and our provider partners for their continued support and commitment to advancing our mission and vision to making genetic testing in precision medicine more accessible and helping people take more control of their health, enabling providers to better treat and prevent disease.

Total revenue grew 10% year over year after excluding the out of period adjustment of approximately $12 million revenue in Q2 of last year.

Third consecutive quarter of double digit topline growth.

This growth was despite payer related headwinds in the quarter that are transitory and administrative in nature, which have largely been addressed future periods, Brian will discuss this in more detail shortly.

<unk> genetics drove significant volume growth in the second quarter across all of our products as our commercial lab operations teams continued to execute in these underpenetrated markets.

We believe we are gaining share in the hereditary cancer testing market each quarter growing.

Growing 20% in Q2 over the period.

Quarter last year, driven by competitive account wins and increased adoption by providers of my risk for patients who family history puts them at a higher risk of cancer.

Despite payer headwinds and a difficult operating environment second quarter saw myriad maintain industry, leading gross margins and reduce operating cost by $11 million for the first quarter.

All while improving on our operating key metrics, which Nicole address on the call and exiting the quarter, having generated $5 9 million of adjusted operating cash flow and significantly lowered our cash burn.

In the quarter, we closed on a new $90 million asset based credit facility to replace our expiring line of credit and maintain a healthy level of financial flexibility.

I'm also pleased to announce that we reached a settlement subject to court approval with a long standing shareholder lawsuit and can now move forward without this distraction.

Brian will speak to the details of both the new facility and the settlement later.

Lastly, I want to reaffirm our financial guidance for the full year and reiterate we are on track to be profitable in <unk>.

Fourth quarter of this year.

Transitioning to slide five I'd like to outline again exactly what we think it takes to win in our sector.

First we strive to have the best science in products, whose access and adoption are enabled by technology and our field.

For us this means having products that deliver value and real world clinical settings too.

Two high quality actionable and differentiated tests that help support early detection and treatment decisions.

Second we need to continue to automate scale and build cost effective lab operations to deliver on our mission and grow profitably.

Our labs are the future strategy allows us to improve workflows.

Test turnaround time, and reduce costs to advanced technology and automation.

Similarly, the investments we are making to monetize our it platform will allow us to better serve our patients and provider partners at scale across all products and channels at lower costs.

Third a strong commercial platform ensures that our providers and patients benefit from partnering with myriad genetics.

So we can grow efficiently and.

And finally to win one needs best in class regulatory and revenue cycle management capabilities, Great science used to develop practical high quality diagnostic test.

Operating in state of the art facilities that reduce cost with the ability to get paid for our efforts is key.

Our payer market's team deeply with deep industry experience continues to play an integral role in this.

On the development of our product pipeline as well as our commercial reimbursement strategies, we see this as a competitive advantage with that I will turn the call over to our Chief commercial officer, Mark variety to speak to our commercial capabilities in more detail.

Paul I would like to start on slide seven and talk about our commercial team we have made.

Great strides in our commercial execution over the past year with changes made across the organization that enabled our sales force to effectively target and penetrate both new and existing accounts the results speak for themselves with robust volume growth over the past four quarters.

Majority of which are coming from existing accounts. This gives us confidence in the changes that we've made to the commercial team because growth in existing accounts means that tailwind like market dislocation have to date not been the key drivers of our commercial performance.

With that said dislocation in select markets that married operates and is starting to get noticed by our providers as peers in our industry struggle with everything from lengthening turnaround times to decrease in quality of service a true driver of our volume growth is our skilled and focused sales force with years of experience at myriad working alongside <unk>.

<unk> and their patients.

With new digital tools scientific insights that help them better serve our current customers, while adding new accounts every quarter.

Now turn to slide eight and talk about our core business units.

Our oncology business delivered $87 million in revenue in the second quarter reported test volumes were roughly 52000 hereditary cancer testing volumes from our oncology sales team grew 18% year over year after growing 16% in the first quarter of the year.

Okay.

Polaris our market, leading prostate cancer test continues to reach patients with diagnosed prostate cancer to provide them and their physicians with important information needed for better treatment decisions in the second quarter Polaris volumes grew 13% year over year Meredith.

Myriad is making strides with precise MRV as we are working with researchers at the MD Anderson cancer Center, using our high definition <unk> testing platform to inform treatment selection selection surveillance and response for individuals with metastatic renal cell carcinoma. There was a significant lack of noninvasive.

Invasive testing platforms for this patient group and while most MRV test monitor 50 or fewer variance from a patient's tumor myriads mrna assay contract thousands of variance using our whole genome approach for higher sensitivity with.

With improved operational efficiencies paying dividends, our high net promoter score amongst oncology providers and a fully equipped salesforce. We anticipate continued strong growth from our core oncology tests.

We'll now move to women's health on slide nine.

The myriad genetics women's health business serves women of all ancestors by assessing the risk of cancer and offers prenatal testing solutions for those who are pregnant or planning a family.

In the quarter hereditary cancer testing volumes in women health Women's health increased 21% year over year, marking four consecutive quarters of positive volume growth. This strong momentum is driven by competitive account wins and increased adoption by providers of my risk for patients, whose family history puts them at higher risk for cancer.

And prenatal we are pleased to report a 12% increase in quarterly test volumes compared to Q2 of last year. This figure excludes any contributions from our recent acquisition Gateway genomics also in the quarter. We are proud to announce that we have reached over 1 million patients who have taken our prequel noninvasive prenatal screening.

Test.

Let's move now to slide 10, and talk about mental health and <unk> sites.

Mental owners continues to have a lasting effect on patients and their families in the U S. As those suffering failed to receive proper medical treatment.

<unk> helps physicians better understand how antidepressants and other drugs will affect their patients.

Currently for this patient group the tests can be performed with a single cheek swab sample that can be taken in the privacy of their own home.

In the second quarter gene site broken another all time quarterly volume record with 117000 tests processed in Q2 up 23% over the prior year as we have added approximately 4000, new clinicians to the franchise during the quarter.

Marriott continues to build on gene site solid foundation of clinical data, including a collaboration with Optum genomics to create a multi phase studies designed to better understand Jean site's ability to improve clinical outcomes and reduce overall health care costs.

We believe that the ongoing success of gene site further demonstrates the effectiveness of our new commercial capabilities digital marketing strategies and focus on the patient and the provider I'll now pass the call over to our Chief operating officer.

Nicole Lambert to talk about our operations.

Thanks, Mark I'll begin on slide 12, and give an update on our laboratory operations team.

Thanks to our commercial customer service and laboratory operations team, we grew volumes over 17% and reduce costs by 6% in the quarter. Despite a challenging operating environment. Our lab operations team has shown tremendous resilience against these challenges, including a complex upgrade to our genetic sequencing platform a successful FDA.

Section of our Salt Lake City lab, and the beginning of our lab move in Salt Lake City, and South San Francisco.

After some technical challenges in our my risk lab in early Q2 that impacted our turnaround times are average lab turnaround times across the enterprise have returned to approximately five five days turnover is also down to nine 6% half of what it was in 2021 and our employee engagement scores are up to 61%, we announced last quarter.

That we are a certified great place to work where over 86% of our employees voted as a great place to work.

Our net promoter score among providers remains strong between 63% and 84%. We also announced in Q1 that we have started sharing data with <unk> providers and genetic counselors have been quite vocal about the importance of working with Glenn bar and 81% of the providers that were asked are aware of our partnership with 13%, saying they now have a more favorable.

Myriad we.

We encourage providers and counselors I'd like to share their thoughts and opinions with us because we are listening and we want to hear their feedback.

Turning to the next slide we have begun our transition to our new labs in the future both in Salt Lake City in South San Francisco, which will be unveiled at our Investor day on September 19th in July of this year. The FDA conducted an inspection of our Salt Lake City Laboratory, which focused on the quality systems related to Mitra CTX and Brac analysis.

We are excited to report that the inspection was successful with no deficiencies.

Our new facilities, not only create a more cost effective approach to running tests, but they foster an environment of innovation and collaboration amongst our commercial enterprise support and our scientific teams.

Our operating expenses and capital expenditures as they relate to the labs of the future expected to decline over the next few years as we start to settle in and operate our businesses from those facilities.

I'll now turn to slide 14, and talk about the progress of our EMR integration and our unified order management system.

Here, we can see the tremendous progress we have made working with clinics using EMR integrations to deliver more test results for Rmi risk credit carry cancer test, our EMR integrations with the likes of epic and others not only help us get patient medical records from providers that also means that providers, who are already in those EMR systems did not have to provide those documents.

<unk> to us in addition to and normal workflow.

We are pleased with the ongoing rollout of our new unified provider portal and our unified order management system, which not only help us get the information required by payers that make it easier for providers to order tests from us reducing the number of times, we need to re contact them.

We talk a lot about making it easier to do business with myriad genetics, and our operational initiatives revolve around improving the customer experience.

Our integrations and unified order management are examples of how we are doing exactly that.

I'll now turn the call over to Brian to discuss financial highlights from the quarter.

Thanks, Nicole I'd like to start by reviewing product volume trends on slide 16.

Total second quarter organic volumes grew 17% over last year, representing four consecutive quarters of double digit volume growth for the business driven by strong double digit growth in both the regulatory cancer testing at 20% and gene site volumes at 23% in the second quarter Polaris saw 13% quarterly volume growth from.

Q2 of last year, and prenatal volumes, excluding contributions for sneak peek grew 12% year over year overall, the quarter reflected broad based volume growth across the portfolio.

Turning to total revenue on slide 17.

Call that the second quarter of last year benefited from approximately $12 million and positive out of period adjustments, which were immaterial in the second quarter of this year.

Excluding these adjustments revenue in the second quarter of $183 5 million grew 10% year over year, marking our third consecutive quarter of double digit revenue growth a reflection of consistent volume growth and execution of our commercial strategy.

Consistent with others in our industry during the second quarter, we experienced a negative impact to our Rev cycle process from the transition of multiple Blue's health plans to a new claims administrative process the.

The process changes left many health plans unprepared to handle that sometimes complicated preauthorization process, leaving providers unable to obtain the necessary pre authorization required to support testing for patients as well as reimbursement.

This administrator trends.

Transition resulted in a headwind of approximately $4 million in the quarter as of today, we have seen the systems issues, mostly returned to normal. However, there was some spillover into Q3 with respect to the claims which were denied payment and not included in second quarter revenue, we are engaging with a number of large payers to discuss payment.

For claims that we believe should have been paid and would have historically been paid however at this point, we do not have enough support to record revenue for those claims.

Spite these payer issues average revenue per test in the second quarter was about flat sequentially from the first quarter of 2023.

I'll now turn to slide 18, and discuss operating trends from the quarter and year to date.

Healthy growth across our business units reflects comments Paul Mark in the call I have already mentioned, including improved execution by a strengthened and highly motivated commercial team as well as investments in core infrastructure and improving customer experience.

Recall in Q1, we stated that adjusted operating expense would decline in the second quarter as the company implemented tighter cost controls across the organization in certain sales and marketing program costs subsided Q2 reflects the impact of these initiatives with adjusted operating expense of 144.

$133 4 million a decline of $11 million sequentially continuing to manage operating cost is an important step in our path to profitability in Q4.

We will turn to slide 19, now to review, our liquidity and cash flow.

We are excited to announce that we generated $5 $9 million of adjusted operating cash flow in the quarter and looking at the balance sheet. We entered ended the quarter with $127 $8 million of cash, including approximately $40 million drawn on our new asset based credit facility that Paul mentioned earlier.

I would like to provide some additional detail on changes to our capital structure from lash last quarter as.

As we have stated in the past our previous revolving credit facility was set to expire in July of this year. This facility was a cash flow based resolved revolver put in place in 2016, leading up to the credit facility's termination the company's lack of positive cash flow and profitability hindered our ability to use this facility.

As a result and to provide additional liquidity the company entered into a new asset based credit facility, where cash availability is now determined by our accounts receivable balance and the size of the facility rather than by our cash flow. This new facility, which was provided by three of our banking partners JP Morgan Wells Fargo and Bank of America.

<unk> is now available to us as of June 30, our accounts receivable balance our largest us $23 5 million of additional available cash from this new facility as you can see from our cash flow statement, where adjusted operating cash flow positive in the capital needs for the construction of our new labs are substantially behind us.

As noted in our press release today, we have set we have agreed to settle the shareholder lawsuit subject to court approval related to a number of alleged misrepresentation and disclosure items from 2019 for a total of $77 $5 million, we will pay $20 million of the settlement in cash next quarter. This.

Quarter, leaving the remaining $57 $5 million to be paid in early 2024 with either cash or equity, we expect the ultimate payment to be more weighted towards cash rather than stock.

For example, if we were to pay an additional $30 million with cash the remaining $27 $5 million would then be paid and myriad stock, which assuming a $21 price per share would translate to approximately one 3 million shares or one 5% of total shares outstanding Ulta.

Ultimately, we have allowed ourselves significant financial flexibility and how we choose to settle the final payment out of operating cash flows and available cash, but we will continue to evaluate various financing options, including the expansion of our ABL credit facility as the year progresses.

Now on slide 20 note that we are reaffirming our full year revenue and non-GAAP financial guidance and we reiterate our previously disclosed target of generating positive adjusted operating cash flow and profitability in the fourth quarter of this year.

I'll now turn it back over to Paul for closing remarks on the next slide.

Thanks, Brian as you've heard we've had a lot of exciting organizational changes happen. This year, but we remain focused and confident in reaching profitability in fourth quarter.

Balancing growth and innovation, while keeping an eye on profitability is an ongoing challenge and opportunity, but we are continuing to be committed to it.

In closing I'd like to offer what we believe our strength and strategic advantages.

First we continue to grow volumes and revenues consistently every quarter across our businesses and we get paid for the test that we offer.

Second we have a disciplined cost management structure as we expect to maintain our strong gross margins and manage our opex as we did this quarter responsibly.

Third we are committed to effective capital deployment in key areas that will improve the customer experience, including new tech enabled tools and capabilities product innovation, our commercial capabilities in our labs and the future fourth and finally, our growth catalysts are clear as we continued to elevate our products to their full potential.

Launch new products and Opportunistically Opportunistically look for strategic tuck in acquisitions.

All of this reinforcing our position as a trusted differentiated lab with specialized expertise best in class quality strong scalable commercial engine underpinned by data research and technology.

<unk> industry, leading margins and business management.

Keeping patients and providers at the center of everything we do is starting to pay dividends and we are excited about finding new ways to make it easier to do business with us.

Everything from increased price transparency and affordability for patients to the rollout of initiatives like our EMR integrations with epic and our unified quarter ordering portal along with improvements to myriad complete a customized suite of services and workflow solutions and now I'll turn it back to Matt for Q&A. Thanks.

Paul and as a reminder, during today's call we use certain non-GAAP financial measures a reconciliation of the GAAP to non-GAAP financial results and a reconciliation of GAAP to non-GAAP financial guidance can be found in our earnings release and under the Investor Relations section of our website now we are ready to begin our Q&A session.

To ensure broad participation we are asking participants to please ask only one question and one follow up operator, we're now ready for the Q&A portion of the call.

Thank you.

If you would like to register a question. Please press the one followed by the four on your telephone you will hear us retail impromptu acknowledged that request. If your question has been answered and you would like to withdraw your registration. Please press the one followed by the <unk> III.

And your first question will come from the line of Mac Sykes with Goldman Sachs. Your line is open.

Hey, good afternoon, Thanks for taking my question.

Paul maybe first you made some comments about the market share gains in women's health, maybe could you kind of talk a little bit about that market share dynamics. There and then what is your kind of view on the duration of the market share gains that you can achieve just given the dynamics in that industry right now.

Yes, yes.

We're really pleased by the progress, we're making and as Mark said.

I think we are in the early innings here.

As we've commented on that we think adoption rates are still low we saw a nice increase in adoption rates for prenatal testing when we moved to average risk. We believe there will be expansion of guidelines around carrier screening soon.

As you see our hereditary cancer.

And my risk testing opportunity for unaffected patients.

As a huge opportunity for patients and for us to continue to grow.

No.

We're really excited about that platform.

It is a market that others are really struggling to find a path to profitability.

But we are on the verge of profitability in women's health and we have a path to that so the leverage and women's health for us is pretty significant as we continue to grow.

And we see a lot more opportunity for market share gains as well as just broader adoption as we continue to come out of the pandemic.

Great and maybe if I just two quick ones and just one quickly Brian just you mentioned spillover from the administrative change into Q3, if you could quantify that and then just secondly.

Allowing the future I think on the slide you said it can result in a 6% reduction in Cogs can you just talk about the phasing of cost reduction allowed in future time, it gets rolled out.

Yes, I think with respect to the first question on the.

Spillover.

The system conversion that took place really at that really end of Q1. So we had a full quarter. So when we think about that $4 million that was up a full quarter and as of today. We are largely back to normal in terms of the processing issues. So so it would be obviously significantly less than four.

And as we look at the next quarter and we tried to.

Capturing we provided some additional detail on our deck regarding sort of our profile on the remainder of the year as we as we track towards our full year guidance and profitability goals. So I think that slide sort of captured.

Sort of how we would expect to see sort of general seasonality impacting Q3, and then up and then a pretty strong recovery as we get into the breast cancer awareness month and some other things in Q4 so.

That'd be my take on that I don't know if you want to add anything on the second piece, Matt Youre not I've talked about this.

We're certainly striving for more.

Gains in gross margins and we do see the opportunity as we automate as we move into the new labs I mean, our teams are so excited we were in San Francisco all together last week.

The space is just a ford when.

When you think about time and motion studies and the ability to get work done and processed volume.

We're terribly excited about it but but as I've said.

US maintaining gross margins of 69, 70% net of inflation.

And with the increased regulatory burdens that we see an expanding panel as well as our test become more complicated.

Just the incredible work by R&D in and lab teams and there's just so much leverage if we can growth continue to grow the top side of this company 10, plus percent, which is what we're working towards.

Even as we mitigate payor.

<unk> maintain those margins and then manage opex effectively.

EPS and cash flow Leverages is pretty significant as we go into 'twenty four 'twenty five.

<unk>.

All of that is to say Nicole a team did a great job lowering cogs in.

In the quarter, we expected to do that a little bit because of seasonality, but given the large moves the move to NGF sequencing.

Clear surveys FDA surveys and.

A 17% growth in volume.

Not sure if I can expect much more of a lot of teams that will be cut this quarter.

Okay. Thank you very much.

Thanks, Matt Thanks, Matt.

And your next question comes from the line of Andrew Cooper with Raymond James Your line is open.

Hey, everybody thanks for the questions.

Maybe first going to stick with one on.

On gross margins here, if we do the math on that $4 million, assuming you did run all those volumes are just not get paid temperature gross margin north of 71% for the quarter. I guess just help me think about is that the right way to think about things. When we think about the guide it seems like that maybe implies a little bit of a step back from that sort of adjusted.

Adjusted number but just help me think about kind of what the moving parts are through the back half of the year on the gross margin side.

Yes, Andrew I mean, I think that.

We certainly ran the test and that would've been a helper, but they are always a number of puts and takes anytime you look at the numbers and we say in the when we talk about the 68 to 70, but it will fluctuate throughout the year. So I guess I'd, just we still feel comfortable in that range around 70% gross margins.

I would put a finer point on it relative to that yes, Andrew.

Look I think the thing that we're most encouraged about going into the third quarter and more importantly that momentum that causes going into the into the fourth quarter, which is our strongest quarter is that volumes are we're not seeing the seasonal dip that we typically see or growing through that right now that's the bigger pressure.

<unk> leverage in terms of gross margin the payer stuff, it's just frustrating and we're pretty good at that and we certainly see some upside in the back half of the year as Brian said trying to work through that but let's be clear. The payers are have raised the level of difficulty on prior off.

And just the administrative.

Part of doing business here, and we're doing a lot of soul searching to think about how we can continue to up our game leveraging AI and other things.

<unk>.

But as Brian said I would resist the urge to focus too much on any one lever the bigger lever is growing volumes and then.

Then continuing to manage cost in it.

Again, the drop in Opex cost quarter over quarter, which is what we committed to I'd point your attention back to an <unk>.

Again, we're just we're working hard to make sure that we deliver on our commitments and I think we're really positioned to do that in the back half of the year.

Okay, Great and maybe just one more from me.

I don't think he went into too much detail on kind of anything on new products still to come. So maybe just can you confirm timelines or if there is any updates to first gene.

<unk> launch.

And others in the precise portfolio those are on track or anything else, we should be contemplating in terms of timing.

So.

Yeah happy to talk about a little bit we're going to really spend some time at our investor day talking about that and hopefully you and others can attend in and get from Dale and the rest of it teams to more insights and youre going to hear from our product management team that is fully integrated now.

Sure.

I would say is we continue to listen to our customers do pilots listen to what people are expecting prelaunch here and so we're much more focused on launching with a go to market strategy that we think will win and be differentiated.

Generally everything is on track.

We are working on carrier screening panel expansion in front of guidelines, which to me is a precedent before the first Jean launch we've got to kind of get that done.

More flexibility around our my risk panels.

So we just continue every quarter to look at how do we need to position our products with respect to <unk>.

Really enthusiastic we are.

Processing samples as we speak.

From Memorial Sloan Kettering, we are close to announcing some other clinical validation studies.

And so again, we will get into more detail, but.

As we've talked about in terms of our three year growth path.

First Jean <unk> are not big contributors to that that's sort of on top of a 10 to 12 plus percent that we expect but we will have a lot to talk about them on the investor day, and generally things are progressing.

Great I appreciate the time looking forward to hearing more in September .

Yes, great hopefully you can turn thank you Andrew.

And as a brief reminder to rich to your question is it's one four on your telephone keypad.

The next question comes from the line of Daniel <unk> with TD Cowen Your line is open.

Hey, guys. Thank you for taking the call Tonight.

Quick question on Gene site grew 22% this quarter volume about 117000, how should we think about our performance for the remainder of the year and should we be looking at.

Additional payer announcements in the near future and if you can provide any timeline on additional publications supporting the utility that'd be great too. Thanks.

Yes related to gene side, I mean, I think <unk> seen almost a quarter nine quarter double digit growth and given given the new providers that were adding every quarter. We expect to continue to see strong volume growth for gene side.

Related to new clinical data, we were expecting or we should hope to see some clinical data announced the end of at the end of this year. So the second half that we're coming up into and we're going to continue to see some new data coming out at the beginning of next year as well.

I don't expect any any any slowdown related to the <unk> franchise.

And to the second part of your question.

We've had some preliminary readout from our study with <unk>.

<unk> genomics on the clinical utility.

Which is really pointing towards gene side is a really effective tool to reduce psychiatric hospital days and emergency room visits. This is like the real world stuff that I like to talk about.

Mark mentioned in his script the meta analysis work that all continues to be confirmatory, we've had a number of states.

Three specifically now pick up the Pele codes and we are generating revenue for that expansion that some state fee for service Medicaid plans as well as some managed Medicaid plans and we are making progress with some commercial payers. We had hoped to announce one here this quarter and it's just.

Taking a little bit more time, but we do expect.

To be able to announce several additional commercial coverages before the end of the year and more.

Coverages from from different Medicaid plans as well one of the things that we're working really hard on it's been a source of frustration is that many of the Medicare advantage plans or not.

Who are required to cover gene side, because it's a covered service are not paying and that's one of the things in our payer markets with Rev cycle teams that we are really getting much more assertive on when when it clearly a covered service by Medicare advantage plan is not being covered.

I'll stand simply because the prior off issues or other documentation issues.

So we do see upside in Asps for gene site in the back half of the year and momentum for gene side Asps next year.

Operator.

Thank you. Your next question, Yes, we have we have another question coming from the line of Jack Meehan with Nephron Research. Your line is open.

Hey, Jeff Thank you.

Good afternoon.

Brian I wanted to start with.

What's your expectation for free cash burn in the second half of the year and could you just call out some of the one timers, we might be looking for like the legal payment.

Yes, Jack we.

We had a slide in the in the deck and then a little section in the press release, where we talk about where we show our liquidity as well as the payment coming out for the for the legal settlement and also our Capex and cash flow expectations trying to give a view as to kind of where we think we'll end the year from a cash in.

Availability on the credit line perspective so.

It should answer your question.

The release.

Yes, it's pretty much in check book, where Jack so it should be very clear.

And the thing that I would underscore that.

Settlement as well as our ability to access other.

Capital remains.

We have a lot of financial flexibility, we have Q4 to complete the settlement and a number of different levers whether expanding the ABL.

Or other things, but there is a very simple walk through on slide <unk>.

19 of eyeglasses to kind of get you there.

And based on the way things are trending with gay.

Gateway with sneak peek would you expect to make the $32 million milestone payment in 2024, there as well.

Yes, Unfortunately not.

But which again if they were hitting their all of their metrics, we would be happy to pay it and they have an ability to get paid later right now their volumes are flat, we're starting to see some attachment rate to nics testing, we're going to have some more announcements about acceleration.

Round sneak peek and some new channel opportunities there at the Investor day, but that is not.

A payment we expect to make right now they've been managing cost well. So it hasnt been a big cash flow or EBITDA drain in fact, they've got a they're under budget on the cash perspective, but they are they are only flat year over year right now on volume, but we're not even a year into it yet and we're really proud of.

The integration and how it is going in and I think we'll get some more momentum here as the year progresses.

Okay.

One last one the FDA is about to release new rules as it pertains to <unk> coming back again.

I was curious if you've had any recent discussions with them about gene say, how you think these rules might impact myriad.

I'm not sure I could be any clearer, but I will restate this.

We have not had any exchanges.

Or.

Or the SBA has made any inquiries about gene sites in 2019.

And we don't expect the FDA to to have any inquiries about gene site.

Most of the focus of the FDA and our associations are engaged with these discussions.

<unk> focus.

At home testing for Covid and other things that they view our high risk.

And so we are not concerned nor do we have any new information since 2019 about concerns from the FDA on gene side.

Any other questions folks there are no further questions pending I will turn the call back to Matt <unk> for closing remarks. Thank you.

Okay. This concludes our earnings call a replay will be available via webcast on our website for one week. Thank you again for joining US This afternoon and see you at our Investor event in September .

And all that does conclude the conference call for today, we thank you very much for your participation you may now disconnect your lines.

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Greetings and welcome to the myriad genetics second quarter 2023 financial earnings call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four and your telephone should you require operator assistance at any time.

Please press Star Zero as a reminder, this conference is being recorded Thursday August <unk> 2023, I would now like to turn the call over to <unk> Senior Vice President Investor Relations. Please go ahead Sir.

At Investor Myriad Dot com on the call with me today are <unk>, our president and Chief Executive Officer, Bryan Riggsbee, Our Chief Financial Officer, Nicole Lambert, our Chief operating officer, and Mark variety, our Chief commercial officer. This call can be heard live via webcast at Investor Dot myriad dot com.

And a recording will be archived in the investors section of our website along with this slide presentation.

That could cause the actual results to differ materially from those contained in our projections or forward looking statements with that I'll now turn the call over to Paul.

Sustainable growth and profitability in 2024 and beyond.

Before we begin I'd like to announce that we will be hosting an investor day on September 19th.

With a presentation and tours of our new state of the art facility in San Francisco name.

Named Dr. Walter Gilbert Innovation Center after the Nobel Laureate and cofounder of myriad genetics.

And <unk> will be sent out and registration details for this event will be posted to the investor page of our website soon.

Transitioning to the quarter.

Total revenue grew 10% year over year after excluding the out of period adjustment of approximately $12 million revenue in Q2 of last year.

Third consecutive quarter of double digit topline growth.

This growth was despite payer related headwinds in the quarter that are transitory and administrative in nature, which have largely been address future periods, Brian will discuss this in more detail shortly.

<unk> genetics drove significant volume growth in the second quarter across all of our products as our commercial lab operations teams continued to execute in these underpenetrated markets.

We believe we are gaining share in the hereditary cancer testing market each quarter growing.

Growing 20% in Q2 over the period.

Quarter last year, driven by competitive account wins and increase adoption by providers of my risk for patients who family history puts them at a higher risk of cancer.

Despite payer headwinds and a difficult operating environment second quarter saw myriad maintain industry, leading gross margins and reduce operating cost by $11 million for the first quarter.

In the quarter, we closed on a new $90 million asset based credit facility to replace our expiring line of credit and maintain a healthy level of financial flexibility.

I'm also pleased to announce that we reached a settlement subject to court approval with a long standing shareholder lawsuit and can now move forward without this distraction.

Brian will speak to the details of both the new facility and the settlement later.

Lastly, I want to reaffirm our financial guidance for the full year and reiterate we are on track to be profitable in <unk>.

Fourth quarter of this year.

Transitioning to slide five I'd like to outline again exactly what we think it takes to win in our sector.

First we strive to have the best science in products, whose access and adoption are enabled by technology and our field.

For us this means having products that deliver value and real world clinical settings too.

Two high quality actionable and differentiated tests that.

It helps support early detection and treatment decisions.

Second we need to continue to automate scale and build cost effective lab operations to deliver on our mission and grow profitably.

Our labs are the future strategy allows us to improve workflows.

Test test turnaround time, and reduce cost through advanced technology and automation.

Similarly, the investments we are making to modernize our it platform will allow us to better serve our patients and provider partners at scale across all products and channels at lower cost.

Third a strong commercial platform ensures that our providers and patients benefit from partnering with myriad genetics.

So we can grow efficiently and.

And finally to win one need best in class regulatory and revenue cycle management capabilities, Great science used to develop practical high quality diagnostic tests.

Operating state of the art facilities that reduce cost with the ability to get paid for our efforts is key.

Our payer market's team people with deep industry experience continues to play an integral role in this.

Paul I'd like to start on slide seven and talk about our commercial team we have made.

<unk> and their patients.

With new digital tools scientific insights that help them better serve our current customers, while adding new accounts every quarter.

Now turn to slide eight and talk about our core business units.

Our oncology business delivered $87 million in revenue in the second quarter reported test volumes were roughly 52000, <unk> hereditary cancer testing volumes from our oncology sales team grew 18% year over year after growing 16% in the first quarter of the year.

Okay.

We'll now move to women's health on slide nine.

The myriad genetics women's health business serves women of all ancestors by assessing the risk of cancer and offers prenatal testing solutions for those who are pregnant or planning a family.

Test.

Let's move now to slide 10, and talk about mental health and <unk> side.

Mental owners continues to have a lasting effect on patients and their families in the U S. As those suffering failed to receive proper medical treatment.

Site helps physicians better understand how antidepressants and other drugs will affect their patients.

Currently for this patient group the tests can be performed with a single cheek swab sample that can be taken in the privacy of their own home.

Marriott continues to build on gene sites solid foundation of clinical data, including a collaboration with Optum genomics to create a multi phase studies designed to better understand Jean site's ability to improve clinical outcomes and reduce overall health care costs.

We believe that the ongoing success of gene site further demonstrates the effectiveness of our new commercial capabilities digital marketing strategies and focus on the patient and the provider I will now pass the call over to our Chief operating officer.

Nicole Lambert to talk about our operations.

Thanks, Mark I'll begin on slide 12, and give an update on our laboratory operations team.

Thanks to our commercial customer service and laboratory operations teams, we grew volumes over 17% and reduce Cogs by 6% in the quarter. Despite a challenging operating environment. Our lab operations team has shown tremendous resilience against these challenges, including a complex upgrade to our genetic sequencing platform a successful FDA.

Section of our Salt Lake City lab, and the beginning of our lab move in Salt Lake City, and South San Francisco.

That we are a certified great place to work where over 86% of our employees voted as a great place to work.

Myriad we.

We encourage providers and counselors I'd like to share their thoughts and opinions with us because we are listening and we want to hear their feedback.

We are excited to report that the inspection was successful with no deficiencies.

I'll now turn to slide 14, and talk about the progress of our EMR integrations and our unified order management system.

Here, we can see the tremendous progress that we've made working with clinics using EMR integrations to deliver more test results for Rmi rescue unitary cancer test, our EMR integrations with the likes of epic and others not only help us get patient medical records from providers that also means that providers, who are already in those EMR systems did not have to provide those documents.

Thats correct in addition to our normal workflow.

We talk a lot about making it easier to do business with myriad genetics, and our operational initiatives revolve around improving the customer experience.

Our integrations and unified order management are examples of how we are doing exactly that.

Now I'll turn the call over to Brian to discuss financial highlights from the quarter.

Thanks, Nicole I'd like to start by reviewing product volume trends on slide 16.

Q2 of last year, and prenatal volumes, excluding contributions for sneak peek grew 12% year over year overall, the quarter reflected broad based volume growth across the portfolio.

Turning to total revenue on slide 17.

Call that the second quarter of last year benefited from approximately $12 million and positive out of period adjustments, which were immaterial in the second quarter of this year.

This administrator trends.

For claims that we believe should have been paid and would have historically been paid however at this point, we do not have enough support to record revenue for those claims. Despite these payer issues average revenue per test in the second quarter was about flat sequentially from the first quarter of 2023.

I'll now turn to slide 18, and discuss operating trends from the quarter and year to date.

<unk> in Q1, we stated that adjusted operating expense would decline in the second quarter as the company implemented tighter cost controls across the organization in certain sales and marketing program costs subsided.

Q2 reflects the impact of these initiatives with adjusted operating expense of 144.

$133 4 million a decline of $11 million sequentially continuing to manage operating cost is an important step in our path to profitability in Q4.

We will turn to slide 19, now to review, our liquidity and cash flow.

I would like to provide some additional detail on changes to our capital structure from lash last quarter.

Is now available to us as of June 30, our accounts receivable balance of lauded us $23 $5 million of additional available cash from this new facility as you can see from our cash flow statement, where adjusted operating cash flow positive in the capital needs for the construction of our new labs are substantially behind us.

We will pay $20 million of the settlement in cash next quarter this quarter, leaving the remaining $57 $5 million to be paid in early 2024 with either cash or equity, we expect the ultimate payment to be more weighted towards cash rather than stock.

I'll now turn it back over to Paul for closing remarks on the next slide.

Thanks, Brian as you've heard we've got a lot of exciting organizational changes happen. This year, but we remain focused and confident in reaching profitability in fourth quarter.

Balancing growth and innovation, while keeping an eye on profitability is an ongoing challenge and opportunity, but we are continuing to be committed to it.

In closing I'd like to offer what we believe our strength and strategic advantages.

First we continue to grow volumes and revenues consistently every quarter across our businesses and we get paid for the test that we offer.

Second we have a disciplined cost management structure as we expect to maintain our strong gross margins and manage our opex as we did this quarter responsibly.

Launch new products and Opportunistically Opportunistically look for strategic tuck in acquisitions.

All of this reinforcing our position as a trusted differentiated lab with specialized expertise best in class quality strong scalable commercial engine underpinned by data research and technology.

<unk> industry, leading margins and business management.

Keeping patients and providers at the center of everything we do is starting to pay dividends and we are excited about finding new ways to make it easier to do business with us.

To ensure broad participation we are asking participants to please ask only one question and one follow up operator, we're now ready for the Q&A portion of the call.

Thank you.

And your first question will come from the line of Mac Sykes with Goldman Sachs. Your line is open.

Hey, good afternoon, Thanks for taking my question.

Yes, yes.

We're really pleased by the progress, we're making and as Mark said.

I think we are in the early innings here.

First as we've commented on that we think adoption rates are still low we saw a nice increase in adoption rates for prenatal testing when we moved to average risk. We believe there will be expansion of guidelines around carrier screening soon.

As you see our hereditary cancer.

And my risk testing opportunity for unaffected patients.

There's a huge opportunity for patients and for us to continue to grow.

No.

We're really excited about that platform.

It is a market that others are really struggling to find a path to profitability.

But we are on the verge of profitability in women's health and we have a path to that so the leverage and women's health for us is pretty significant as we continue to grow.

And we see a lot more opportunity for market share gains as well as just broader adoption as we continue to come out of the pandemic.

Great and maybe if I just two quick ones and just one quickly Brian just you mentioned spillover from the administrative change into Q3, if you could quantify that and then just secondly.

The lab in future I think on the slide you said it can result in a 6% reduction in Cogs can you just talk about the phasing of cost reduction as we're allowed in future time it gets rolled out.

Yeah, I think with respect to the first question on the.

Spillover.

And as we look at the next quarter and we tried to.

Sure and we've provided some additional detail on our deck regarding sort of our profile on the remainder of the year as we as we track towards our full year guidance and profitability goals. So I think that slide sort of captured.

How we would expect to see sort of general seasonality impacting Q3, and then up and then a pretty strong recovery as we get into the breast cancer awareness month and some other things in Q4 so.

That'd be my take on that I don't know if you want to add anything on the second piece, Matt you and I have talked about this.

Certainly striving for more.

Gains in gross margins and we do see the opportunity as we automate as we move into the new labs I mean, our teams are so excited we went San Francisco all together last week.

Space is just a ford.

When you think about time and motion studies and the ability to get work done and processed volume.

We're terribly excited about it but but as I've said us maintaining gross margins of 69, 70% net of inflation and with the increased regulatory burdens that we see an expanding panel as well as our test become more complicated.

That's just an incredible work by R&D in and lab teams and there's just so much leverage if we can growth continue to grow the top side of this company 10, plus percent, which is what we're working towards even.

Even as we mitigate payor.

<unk> maintain those margins and then manage opex effectively.

And cash flow Leverages is pretty significant as we go into 'twenty four 'twenty five so.

All of that is to say Nicole a team did a great job lowering cogs.

In the quarter, we expected to do that a little bit because of seasonality, but given the lab moves the move to NGF sequencing.

Clear surveys FDA surveys and.

A 17% growth in volume on that side.

Sure if I can expect much more of a lot of teams.

We got this quarter.

Okay. Thank you very much.

Thanks, Matt Thanks, Matt.

And your next question comes from the line of Andrew Cooper with Raymond James Your line is open.

Hey, everybody thanks for the questions.

Maybe first going to stick with one on <unk>.

On gross margins here, if we do the math on that $4 million, assuming you did run all of those volumes and just not get paid half what's your gross margin north of 71% for the quarter. I guess just help me think about is that the right way to think about things. When we think about the guide it seems like that maybe implies a little bit of a step back from that sort of adjust.

That adjustment number, but just help me think about kind of what the moving parts are through the back half of the year on the gross margin side.

Yes, Andrew I mean, I think that.

I don't know that I would put a finer point on it relative to that yes, Andrew look I think the thing that we're most encouraged about going into the third quarter and more importantly that momentum that causes going into the into the fourth quarter, which is our strongest quarter is it volumes or we're not seeing the seasonal dip that we.

Typically see or growing through that right now.

That's the bigger pressure.

Bigger leverage in terms of gross margin.

Our stuff is just frustrating.

And we're pretty good at that and we certainly see some upside in the back half of the year as Brian said.

Kind of work through that but let's be clear the payers are have raised the level of difficulty on prior off and just the administrative.

Part of doing business here.

And we're doing a lot of soul searching to think about how we can continue to up our game leveraging AI and other things.

But as Brian said I would resist the urge to focus too much on any one lever the bigger lever is growing volumes and then.

And then continuing to manage cost and again the drop in opex cost quarter over quarter, which is what we've committed to.

Since your attention back to and again, we're just we're working hard to make sure that we deliver on our commitments and I think we're really positioned to do that in the back half of the year.

Okay, Great and maybe just one more from me.

Thank you went into too much detail on kind of anything on new products still to come. So maybe just can you confirm timelines or if there is any updates to first Jean Marc.

<unk> launch.

And others in the precise portfolio those are on track or anything else, we should be contemplating in terms of timing.

So.

Yes, happy to talk about a little bit we're going to really spend some time at our investor day talking about that and hopefully you and others can attend in and get from Dale and the rest of the team some more insights and youre going to hear from our product management team that is fully integrated now.

Sure.

Generally everything is on track.

We are working on carrier screening panel expansion in front of guidelines, which to me is a precedent before the first Jean launch we've got to kind of get that done.

More flexibility around our my risk panels. So we just continue every quarter to look at how do we need to position our products with respect to <unk>.

Really enthusiastic we are.

Processing samples as we speak.

From Memorial Sloan Kettering, we are close to announcing some other clinical validation studies.

And so again, we will get into more detail, but.

As we've talked about in terms of our three year growth path.

First Jean <unk> are not big contributors to that that's sort of on top of a 10 to 12 plus percent that we expect but we'll have a lot to talk about on Investor day, and generally things are progressing.

Great I appreciate the time looking forward to hearing more in September .

Yes, great hopefully you can turn thank you Andrew.

And as a brief reminder, too rich to your question is it's one four on your telephone keypad.

The next question comes from the line of Daniel <unk> with TD Cowen Your line is open.

Hey, guys. Thank you for taking the call Tonight.

Quick question on Gene site grew 22% this quarter volume about 117000, how should we think about our performance for the remainder of the year and should we be looking at.

Additional payer announcements in the near future and if you can provide any timeline on additional publications supporting the utility that'd be great too. Thanks.

I don't expect any any any slowdown related to the <unk> franchise.

And to the second part of your question.

We've had some preliminary readout from our study with <unk>.

<unk> genomics on the clinical utility.

Which is really pointing towards gene side is a really effective tool to reduce psychiatric hospital days and emergency room visits. This is like the real world stuff that I like to talk about.

Mark mentioned in his script the meta analysis work that all continues to be confirmatory, we've had a number of states.

Taking a little bit more time, but we do expect.

To be able to announce several additional commercial coverages before the end of the year and more.

Coverages from from different Medicaid plans as well one of the things that we're working really hard on it's been a source of frustration is that many of the Medicare advantage plans or not.

Who are required to cover gene side, because it's a covered service are not paying and that's one of the things in our payer markets in Rev cycle teams that we are really getting much more assertive on when when it clearly a covered service by Medicare advantage plan is not being covered.

I'll stand simply because of prior off issues or other documentation issues.

So we do see upside in ASP for <unk> site in the back half of the year and momentum for gene side Asps next year.

Operator.

Thank you. Your next question, Yes, we have we have another question coming from the line of Jack Meehan with Nephron Research. Your line is open.

Hey, Jeff Thank you.

Good afternoon.

Brian I wanted to start with.

What's your expectation for free cash burn in the second half of the year and could you just call out some of the one timers, we might be looking for like the legal payment.

Yes, Jack we.

Availability on the credit line perspective so.

It should answer your question.

The release.

Yeah, it's pretty much a checkbook, where jack so it should be very clear.

And the thing that I would underscore the settlement as well as our ability to access other.

Capital remains.

We have a lot of financial flexibility, we have till Q4 to complete the settlement and a number of different levers whether expanding the ABL.

Or other things, but there is a very simple walk through on slide.

19 of our glasses.

Gets you there.

And based on the way things are trending with gay.

Gateway with sneak peak would you expect to make the $32 million milestone payment in 2024, there as well.

Yes, Unfortunately not.

Round sneak peek and some new channel opportunities there at the Investor day, but that is not.

A payment we expect to make right now they've been managing cost well so it hasnt been a big cash flow or EBITDA train in fact, they've got their <unk>.

Your budget on the cash perspective, but they are they are only flat year over year right now on volume, but we're not even a year into it yet and we're really proud of the integration and how it is going in and I think we will get some more momentum here as the year progresses.

Okay.

One last one the FDA is about to release new rules as it pertains to <unk> coming back again.

I was curious if you've had any recent discussions with them about gene say, how you think these rules might impact myriad.

I'm not sure I could be any clearer, but I will restate this.

We have not had any exchanges or <unk>.

Or the FDA has made any inquiries about gene sites in 2019.

And we don't expect the FDA to to have any inquiries about gene site.

Most of the focus of the FDA and our associations are engaged with these discussions.

I'm simply focus.

At home testing for Covid, and other things that they view or high risk.

And so we are not concerned nor do we have any new information since 2019 about concerns from the FDA on gene side.

Any other questions folks there are no further questions pending I will turn the call back to Matt <unk> for closing remarks. Thank you.

And all of that does conclude the conference call for today. We thank you very much for your participation. You may now disconnect your lines greetings and welcome to the myriad genetics second quarter 2023 financial earnings call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that.

If you have a question. Please press the one followed by the floor and your telephone should you require operator assistance at any time. Please press star Zero as a reminder, this conference is being recorded Thursday August three 2023, I would now like to turn the call over to Matt <unk> Senior Vice President Investor Relations. Please go ahead Sir.

At Investor Dot myriad dot com on the call with me today are <unk>, our president and Chief Executive Officer, Bryan Riggsbee, Our Chief Financial Officer, Nicole Lambert, our Chief operating officer, and Mark variety, our Chief commercial officer. This call can be heard live via webcast at Investor Dot Dot com.

And a recording will be archived in the investors section of our website along with this slide presentation.

That could cause the actual results to differ materially from those contained in our projections or forward looking statements with that I'll now turn the call over to Paul.

And sustainable growth and profitability in 2024 and beyond.

Before we begin I'd like to announce that we will be hosting an investor day on September 19th.

With a presentation and tour of our new state of the art facility in San Francisco named.

Named Dr. Walter Gilbert Innovation Center after the Nobel Laureate and cofounder of myriad genetics.

And <unk> will be sent out and registration details for this event will be posted to the investor page of our website soon.

Transitioning to the quarter.

Enabling providers to better treat and prevent the disease.

Total revenue grew 10% year over year after excluding the out of period adjustment of approximately $12 million revenue in Q2 of last year.

Third consecutive quarter of double digit topline growth.

Nearer genetics drove significant volume growth in the second quarter across all of our products as our commercial lab operations teams continued to execute in these underpenetrated markets.

We believe we are gaining share in the hereditary cancer testing market each quarter.

Growing 20% in Q2 over the period.

Quarter last year, driven by competitive account wins and increased adoption by providers of my risk for patients who family history puts them at a higher risk of cancer.

Despite payer headwinds and a difficult operating environment second quarter saw myriad maintain industry, leading gross margins and reduce operating cost by $11 million for the first quarter.

In the quarter, we closed on a new $90 million asset based credit facility to replace our expiring line of credit and maintain a healthy level of financial flexibility.

I'm also pleased to announce that we reached a settlement subject to court approval with a long standing shareholder lawsuit and can now move forward without this distraction.

Brian will speak to the details of both the new facility and the settlement later.

Lastly, I want to reaffirm our financial guidance for the full year and reiterate we are on track to be profitable in <unk>.

Fourth quarter of this year.

Transitioning to slide five I'd like to outline again exactly what we think it takes to win in our sector.

First we strive to have the best science in products, whose access and adoption are enabled by technology and our field.

For us this means having products that deliver value and real world clinical settings too.

Two high quality actionable and differentiated tests that help support early detection and treatment decisions.

Second we need to continue to automate scale and build cost effective lab operations to deliver on our mission and grow profitably.

Our labs are the future strategy allows us to improve workflows.

Test turnaround time, and reduce cost through advanced technology and automation.

Similarly, the investments, we are making to monetize our it platform.

It will allow us to better serve our patients and provider partners at scale across all products and channels at lower costs.

Third a strong commercial platform ensures that our providers and patients benefit from partnering with myriad genetics. So we can grow efficiently.

And finally to win one needs best in class regulatory and revenue cycle management capabilities, Great science used to develop practical high quality diagnostic test.

Operating state of the art facilities that reduce cost with the ability to get paid for our efforts is key.

Our payer market's team people with deep industry experience continues to play an integral role in this.

Paul I'd like to start on slide seven and talk about our commercial team we have made.

Great strides in our commercial execution over the past year with changes made across the organization enabled our sales force to effectively target and penetrate both new and existing accounts the results speak for themselves with robust volume growth over the past four quarters.

With that said dislocation in select markets that myriad operates and is starting to get noticed by our providers as peers in our industry has struggled with everything from lengthening turnaround times to decrease in quality of service a true driver of our volume growth is our skilled and focused sales force with years of experience of mirrored working alongside <unk>.

<unk> and their patients.

With new digital tools scientific insights that help them better serve our current customers, while adding new accounts every quarter.

Now turn to slide eight and talk about our core business units.

Okay.

We'll now move to women's health on slide nine.

The myriad genetics women's health business serves women of all ancestors by assessing the risk of cancer and offers prenatal testing solutions for those who are pregnant or planning a family.

Test.

Let's move now to slide 10, and talk about mental health and <unk> side.

Mental owners continues to have a lasting effect on patients and their families in the U S. As those suffering failed to receive proper medical treatment.

Site helps physicians better understand how antidepressants and other drugs will affect their patients.

Currently for this patient group the tests can be performed with a single cheek swab sample that can be taken in the privacy of their own home.

In the second quarter gene site broken another all time quarterly volume record with 117000 tests processed in Q2 up 23% over the prior year.

As we have added approximately 4000, new clinicians to the franchise during the quarter.

<unk> continues to build on gene sites solid foundation of clinical data, including a collaboration with Optum genomics to create a multi phase study designed to better understand Jean site's ability to improve clinical outcomes and reduce overall health care costs.

Nicole Lambert to talk about our operations.

Thanks, Mark I'll begin on slide 12, and give an update on our laboratory operations team.

<unk> of our Salt Lake City lab, and the beginning of our lab move in Salt Lake City, and South San Francisco.

After some technical challenges in our my risk lab in early Q2 that impacted our turnaround times are average lab turnaround times across the enterprise have returned to approximately $5. Five days turnover is also down to nine 6% half of what it was in 2021 and our employee engagement scores are up to 61%, we announced last quarter.

That we are a certified great place to work where over 86% of our employees voted as a great place to work.

Our net promoter score among providers remains strong between 63% and 84%. We also announced in Q1 that we have started sharing data with Clinton bar providers and genetic counselors have been quite vocal about the importance of working with Glenn bar and 81% of the providers that were asked are aware of our partnership with 13%, saying they now have a more favorable.

Myriad we.

We encourage providers and counselors I'd like to share their thoughts and opinions with us because we are listening and we want to hear their feedback.

Next we are excited to report that the inspection was successful with no deficiencies.

Our operating expenses and capital expenditures as they relate to the labs of the future expect it to decline over the next few years as we start to settle in and operate our businesses from those new facilities.

I'll now turn to slide 14, and talk about the progress of our EMR integration and our unified order management system.

Here, we can see the tremendous progress that we have made working with clinics using EMR integrations to deliver more test results for my risk hereditary cancer test, our EMR integrations with the likes of epic and others not only help us get patient medical records from providers that also means that providers, who are already in those EMR systems did not have to provide those documents.

<unk> to us in addition to their normal workflow.

We talked a lot about making it easier to do business with myriad genetics and our operational initiatives revolve around improving the customer experience EMR integrations and unified order management are examples of how we are doing exactly that.

I'll now turn the call over to Brian to discuss financial highlights from the quarter.

Thanks, Nicole I'd like to start by reviewing product volume trends on slide 16.

Q2 of last year, and prenatal volumes, excluding contributions for sneak peak grew 12% year over year overall, the quarter reflected broad based volume growth across the portfolio.

Turning to total revenue on slide 17.

Call that the second quarter of last year benefited from approximately $12 million and positive out of period adjustments, which were immaterial in the second quarter of this year.

This administrator trends.

For claims that we believe should have been paid and would have historically been paid however at this point, we do not have enough support to record revenue for those claims.

Spite these payer issues average revenue per test in the second quarter was flat sequentially from the first quarter of 2023.

I'll now turn to slide 18, and discuss operating trends from the quarter and year to date.

Healthy growth across our business units reflects comments, Paul Mark and Nicole I have already mentioned, including improved execution by a strengthened and highly motivated commercial team as well as investments in core infrastructure and improving customer experience.

Recall in Q1, we stated that adjusted operating expense would decline in the second quarter as the company implemented tighter cost controls across the organization in certain sales and marketing program cost subsided Q2 reflects the impact of these initiatives with adjusted operating expense of 144.

$133 4 million a decline of $11 million sequentially continuing to manage operating cost is an important step in our path to profitability in Q4.

We will turn to slide 19, now to review, our liquidity and cash flow.

I would like to provide some additional detail on changes to our capital structure from lash last quarter as.

Is now available to us as of June 30, our accounts receivable balance of lauded us $23 5 million of additional available cash from this new facility as you can see from our cash flow statement, where adjusted operating cash flow positive in the capital needs for the construction of our new labs are substantially behind us.

Quarter, leaving the remaining $57 $5 million to be paid in early 2024 with either cash or equity, we expect the ultimate payment to be more weighted towards cash rather than stock.

I'll now turn it back over to Paul for closing remarks on the next slide.

Thanks, Brian as you've heard we've got a lot of exciting organizational changes happen. This year, but we remain focused and confident in reaching profitability in fourth quarter.

Balancing growth and innovation, while keeping an eye on profitability is an ongoing challenge and opportunity, but we are continuing to be committed to it.

In closing I'd like to offer what we believe our strength and strategic advantages.

First we continue to grow volumes and revenues consistently every quarter across our businesses.

And we get paid for the test that we offer.

Second we have a disciplined cost management structure as we expect to maintain our strong gross margins and manage our opex as we did this quarter responsibly.

And finally, our growth catalysts are clear as we continued to elevate our products to their full potential launch new products and Opportunistically Opportunistically look for strategic tuck in acquisitions.

All of this reinforcing our position as a trusted differentiated lab with specialized expertise best in class quality strong scalable commercial engine underpinned by data research and technology with industry, leading margins and business management.

Keeping patients and providers at the center of everything we do is starting to pay dividends and we are excited about finding new ways to make it easier to do business with us.

Everything from increased price transparency and affordability for patients to the rollout of initiatives like our EMR integrations with epic and our unified quarter ordering portal along with improvements to myriad complete our customized suite of services and workflow solutions and now I'll turn it back to Matt for Q&A. Thanks.

To ensure broad participation we are asking participants to please ask only one question and one follow up operator, we're now ready for the Q&A portion of the call.

Thank you.

If you would like to register a question. Please press the one followed by the four on your telephone you will hear a <unk> probe to acknowledge that request. If your question has been answered and you would like to withdraw your registration. Please press the one followed by the <unk> III.

And your first question will come from the line of Matt <unk> with Goldman Sachs. Your line is open.

Hey, good afternoon, Thanks for taking my question.

Paul maybe first you made some comments about the market share gains in women's now maybe could you kind of talk a little bit about that market share dynamics. There and then what is your kind of view on the duration of the market share gains that you can achieve just given the dynamics in that industry right now.

Yes.

We're <unk>.

Really pleased by the progress, we're making and as Mark said.

I think we're in the early innings here.

As you see our hereditary cancer.

My risk testing opportunity for unaffected patients.

As a huge opportunity for patients and for us to continue to grow.

So.

We're really excited about that platform.

It is a market that others are really struggling to find a path to profitability.

But we are on the verge of profitability in women's health and we have a path to that so the leverage and women's health for us is pretty significant as we continue to grow.

And we see a lot more opportunity for market share gains as well as just broader adoption as we continue to come out of the pandemic.

Great and maybe if I just two quick ones and just one quickly Brian just you mentioned spillover when administered interchange into Q3, if you could quantify that and then just secondly.

The lab in the future I think on the slide you said, it's going to result in a 6% reduction in Cogs can you just talk about the phasing of cost reduction, allowing future kind of gets rolled out.

Yeah, I think with respect to the first question on the.

Spillover.

The system conversion that took place really at that really end of Q1. So we had a full quarter. So when we think about that $4 million that was a full quarter and as of today, we're largely back to normal in terms of the processing issues. So so it would be obviously significantly less than four.

<unk> million dollars as we look at the next quarter and we tried to.

<unk>, we've provided some additional detail on our deck regarding sort of our profile on the remainder of the year as we as we track towards our full year guidance and profitability goals. So I think that slide sort of captured.

That'd be my take on that I don't know if you want to add anything.

On the second piece, Matt you and I have talked about this.

We're certainly striving for more.

Gains in gross margins and we do see the opportunity as we automate as we move into the new labs I mean, our teams are so excited we were in San Francisco all together last week.

The space is just a ford.

When you think about time and motion studies and the ability to get work done and processed volume.

We're terribly excited about it but but as I've said us maintaining gross margins of 69, 70% net of inflation.

And with the increased regulatory burdens that we see an expanding panel as well as our test become more complicated.

That's just the incredible work by R&D in and lab teams and there's just so much leverage if we can growth continue to grow the top side of this company 10, plus percent, which is what we're working towards.

Even as we mitigate payor.

<unk> maintain those margins and then manage opex effectively.

EPS and cash flow Leverages is pretty significant as we go into 'twenty four 'twenty five.

<unk>.

All of that is to say Nicole a team did a great job lowering cogs in.

In the quarter, we expected to do that a little bit because of seasonality, but given the <unk> moves the move to NGF sequencing.

Clear surveys FDA surveys and.

A 17% growth in volume.

Not sure if I can expect much more of a lot of teams we got this quarter.

Okay. Thank you very much.

Thanks, Matt Thanks, Matt.

And your next question comes from the line of Andrew Cooper with Raymond James Your line is open.

Hey, everybody thanks for the questions.

Maybe first going to stick with one on <unk>.

On gross margins here, if we do the math on that $4 million, assuming you did it run all of those volumes and just not get paid.

What's your gross margin north of 71% for the quarter I guess just help me think about is that the right way to think about things. When we think about the guide it seems like that maybe implies a little bit of a step back from that sort of adjusted adjustment number but just help me think about kind of what the moving parts are through the back half of the year on the gross margin side.

Yes, Andrew I mean, I think that.

We certainly ran the test and that would've been a help for but they are always a number of puts and takes anytime you look at the numbers and we say in the when we talk about the 68 to 70, but it will fluctuate throughout the year. So I guess I'd, just we still feel comfortable in that range around 70% gross margins.

I know that I would put a finer point on it relative to that yes, Andrew.

Look I think the thing that we're most encouraged about going into the third quarter and more importantly that momentum that causes going into the into the fourth quarter, which is our strongest quarter is it volumes or we're not seeing the seasonal dip that we typically see or growing through that right now that's the bigger pressure.

Bigger leverage in terms of gross margin.

Our stuff is just frustrating and we're pretty good at that and we certainly see some upside in the back half of the year as Brian said trying to work through that but let's be clear. The payers are have raised the level of difficulty on prior off and just the administrative.

Part of doing business here, and we're doing a lot of soul searching to think about how we can continue to up our game leveraging AI and other things.

<unk>.

But as Brian said I would resist the urge to focus too much on any one lever the bigger lever is growing volumes and then.

And then continuing to manage cost and again the drop in opex cost quarter over quarter, which is what we committed to I'd point your attention back to and again, we're just we're working hard to make sure that we deliver on our commitments and I think we're really positioned to do that in the back half of the year.

Okay, Great and maybe just one more for me.

I don't think he went into too much detail on kind of anything on new products still to come. So maybe just can you confirm timelines or if there is any updates to first gene.

<unk> launch.

And others in the precise portfolio. If those are on track or anything else, we should be contemplating in terms of timing.

So.

Yeah happy to talk about a little bit we're going to really spend some time at our investor day talking about that and hopefully you and others can attend in and get from Dale and the rest of the team some more insights and youre going to hear from our product management team that is fully integrated now.

Sure.

Generally everything is on track.

We are working on carrier screening panel expansion in front of guidelines, which to me is a precedent before the first Jean launch we've got to kind of get that done.

More flexibility around our my risk panels.

So we just continue every quarter to look at how do we need to position our products with respect to <unk>.

Really enthusiastic we are.

Processing samples as we speak.

From Memorial Sloan Kettering, we are close to announcing some other clinical validation studies.

And so again, we will get into more detail, but.

As we've talked about in terms of our three year growth path.

Great I appreciate the time looking forward to hearing more in September .

Yes, great hopefully you can turn thank you Andrew.

And as a brief reminder to register a question you're just one point on your telephone keypad. Your next question comes from the line of Daniel <unk> with TD Cowen Your line is open.

Hey, guys. Thank you for taking the call Tonight.

Quick question on Gene site grew 22% this quarter volume about 117000, how should we think about our performance for the remainder of the year and should we be looking at.

Additional payer announcements in the near future and if you can provide any timeline on additional publications supporting the utility that'd be great too. Thanks.

Yes related to gene side, I mean, I think you've seen almost a quarter nine quarter double digit growth and given given the new providers that were adding every quarter. We expect to continue to see strong volume growth for gene side.

So I don't expect any any any slowdown related to the <unk> franchise.

Well and to the second part of your question.

We've had some preliminary readout from our study with <unk>.

<unk> genomics on the clinical utility.

Which is really pointing towards gene side is a really effective tool to reduce psychiatric hospital days and emergency room visits. This is like the real world stuff that I like to talk about.

Mark mentioned in his script the meta analysis work that all continues to be confirmatory, we've had a number of states.

Taking a little bit more time, but we do expect.

To be able to announce several additional commercial coverages before the end of the year and more.

Coverages from from different Medicaid plans as well one of the things that we're working really hard on it's been a source of frustration is that many of the Medicare advantage plans or not.

Who are required to cover gene side, because it's a covered service are not paying and that's one of the things in our payer markets that Rev cycle teams that we are really getting much more assertive on when when it clearly a covered service by a Medicare advantage plan is not being covered.

I'll stand simply because the prior off issues or other documentation issues.

So we do see upside in Asps for gene site in the back half of the year and momentum for gene side Asps next year.

Operator.

Thank you. Your next question, Yes, we have we have another question coming from the line of Jack Meehan with Nephron Research. Your line is open.

Hey, Jack Thank you.

Good afternoon.

Brian I wanted to start with.

What's your expectation for free cash burn in the second half of the year and could you just call out some of the one timers, we might be looking for like the legal payment.

Yes exactly.

We had a slide in the deck and then a little section in the press release, where we talk about where we show our liquidity as well as the payment coming out for the for the legal settlement and also our Capex and cash flow expectations trying to give a view as to kind of where we think we'll end the year from a cash in.

Availability on the credit line perspective so.

It just it should answer your question in the release.

Yes, it's pretty much in check book.

So it should be very clear.

And the thing that I would underscore is the settlement as well as our ability to access other.

<unk> capital.

<unk>.

We have a lot of financial flexibility, we have Q4 to complete the settlement.

And a number of different levers, whether expanding the ABL or other things, but there is a very simple walk through on slide <unk>.

19, our glasses wanting to kind of get you there.

And based on the way things are trending with gateway.

<unk> way with sneak peek would you expect to make the $32 million milestone payment in 2024, there as well.

Yes, Unfortunately not.

But which again if they were hitting their met all of our metrics, we would be happy to pay it and they have an ability to get paid later right now their volumes are flat, we're starting to see some attachment rate to nics testing, we're going to have some more announcements about acceleration.

Round sneak peek and some new channel opportunities there at the Investor day, but that is not.

A payment we expect to make right now they've been managing cost well so it hasnt been a big cash flow or EBITDA drain in fact that they're under.

Your budget on the cash perspective, but they are they are only flat year over year right now on volume, but we're not even a year into it yet and we're really proud of the integration and how it's going in and I think we'll get some more momentum here as the year progresses.

Okay.

One last one the FDA is about to release new rules as it pertains to <unk> coming back again.

I was curious if you've had any recent discussions with them about gene and say how you think these rules might impact myriad.

I'm not sure if I could be any clearer, but I will restate. This.

We have not had any exchanges or.

Or the FDA has made any inquiries about gene sites in 2019.

And we don't expect the estimated to have any inquiries about gene site.

Most of the focus of the FDA and our associations are engaged with these discussions.

Simply focus.

At home testing for Covid and other things that they view our high risk.

And so we are not concerned nor do we have any new information since 2019 about concerns from the FDA on gene side.

Any other questions folks there are no further questions pending I will turn the call back to Matt <unk> for closing remarks. Thank you.

And all that does conclude the conference call for today, we thank you very much for your participation you may now disconnect your lines.

Q2 2023 Myriad Genetics Inc Earnings Call

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