Q3 2023 GeneDx Holdings Corp Earnings Call
Speaker 1: transcript
Speaker 1: You
Okay.
Speaker 2: transcript
Speaker 2: Good day and thank you for standing by. Welcome to the GNDX third quarter 2023 earnings conference call. At this time, all participants are in 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 start 101 on your telephone. You will then hear an automated message advising your hand is raised.
Good day, and thank you for standing by walking through the gene Dx third quarter 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone.
Phone.
And then you an automated message advising your hand is race to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like turn the conference over to your speaker today, Sabrina Dunbar Gene Dx. Please go ahead.
Speaker 2: transcript
Speaker 2: To withdraw your questions, please press star 1 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Sabrina Dunbar at GNDX. Please go ahead.
Speaker 3: transcript
Speaker 3: Thank you, operator, and thank you to everyone for joining us today. On the call, we have Catherine Stuland, President and Chief Executive Officer, and Kevin Feeley, Chief Financial Officer.
Thank you operator, and thank you to everyone for joining us today on.
On the call, we have coffee and stealing president and Chief Executive Officer, and Kevin Daly Chief Financial Officer.
Speaker 3: transcript
Speaker 3: Earlier today, GNDX released financial results for the third quarter and in September 30th, 2023.
Earlier today in G&A extra released financial results for the third quarter ended September 30th 2023.
Speaker 3: transcript
Speaker 3: Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, guidance, and outlook.
Before we begin please take note of our cautionary statement.
They make forward looking statements on today's call, including about our business plans guidance and outlook.
Speaker 3: transcript
Speaker 3: Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, October 30th, and we are under no obligation to update.
We're looking statements inherently involve risks and uncertainties and only reflect our view as of today October 30th and we are under no obligation to update.
Speaker 3: transcript
Speaker 3: When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.
When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.
Speaker 3: transcript
Speaker 3: Please refer to our third quarter 2023 earnings release and slides available at ir.gndx.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.
Please refer to our third quarter 2023 earnings release, and slides available I I R. Dot <unk> dot com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward looking statements.
Speaker 4: transcript
Speaker 4: And with that, I'll turn the call over to Catherine. Thanks, Sabrina. We have a lot of news to cover on our call today, so I'm going to jump right in.
And with that I'll turn the call over to Katherine.
So right now we have a lot of things to cover on our call today, So I'm going to jump right in.
Speaker 4: transcript
Speaker 4: Our third quarter results were strong with $53 million in revenue, gross margins of nearly 50%, and a 52% year-over-year reduction in cash burn. We also saw the highest mix of exomes as a percentage of total volume coming in at nearly 30% in September .
Our third quarter results were strong with $53 million in revenue gross margins up nearly 50% and 52% year over year reduction in cash burn.
We also saw the highest mix of X M. As a percentage of total volume coming in at nearly 30% in September.
Speaker 4: transcript
Speaker 4: Our industry leading exome and genome drove almost two thirds of our revenue this quarter, and we continue to grow the market and offer clinical insights to more and more patients.
Our industry, leading exome and genome dog almost two thirds of our revenue this quarter and we continue to grow the market in all of our clinical insights to more and more patients and at the same time, we are materially reducing our cost structure and effective and scalable way.
Speaker 4: transcript
Speaker 4: And at the same time, we are materially reducing our cost structure in effective and scalable ways.
Speaker 4: transcript
Speaker 4: The fundamentals of our business have never been stronger. We have organized our entire team around three major efforts.
The fundamentals of our business have never been stronger we have organized our entire team around three major effort.
Speaker 4: transcript
Speaker 4: One, increasing exome and genome volumes. Two, reducing claim denial rates to increase revenue per test. And three, driving down...
One increasing exome and genome volumes to reducing claim denial rates to increase revenue per test and three driving down our cash burn.
Speaker 4: transcript
Speaker 4: Our exome-focused strategy is taking hold. Our goal is to transform the market from single gene tests, multigene panels, and microarrays to exomes and genome. And with exome representing 63% of our revenue in September , we're well on our way.
Our axiom focused strategy is taking hold and our goal is to transform the market from single gene tests multi.
Multi gene panels, and micro arrays exome and genome.
Let the exome, representing 63% of our revenue in September we're well on our way.
Speaker 4: transcript
Speaker 4: This quarter, we saw a 12% increase in the number of clinicians ordering exos in the outpatient setting, with the fastest growing clinician count coming from neurology, representing 18% quarter over quarter growth.
This quarter, we saw a 12% increase in the number of clinicians ordering episodes in the outpatient setting with the fastest growing clinician count coming from neurology, representing 18% quarter over quarter growth.
Speaker 4: transcript
Speaker 4: Pediatric neurologists continue to make up the largest portion of our new ordering clinic.
P D asset neurologists continue to make up the largest portion of our our new ordering clinicians.
Speaker 4: transcript
Speaker 4: But building markets takes time. This year, we had our sights on an aggressive growth trajectory in the second half of the year centered around a faster conversion of single and multi-gene tests to our ex-numbers.
The building markets takes time this.
This year, we had our sights on an aggressive growth trajectory in the second half of the year centered around the faster conversion of single and multi gene test to our excellent business.
Speaker 4: transcript
Speaker 4: With $50 million in core revenue and Q3, we expect continued growth and Q4 and full year revenue now in the range of $187 million to $192 million.
With $50 million in core revenue in Q3, we expect continued growth in Q4 and full year revenue now in the range of 187 million to $192 million.
Speaker 4: transcript
Speaker 4: We have just moved through the final stages of shutting down the former Semifort business. That took longer than we anticipated but is officially complete.
We have just moved through the final stages of shutting down the former <unk> business that took longer than we anticipated but is officially complete.
Speaker 4: transcript
Speaker 4: excluding those final shutdown costs and one-time severance costs.
Excluding this final shutdown costs and one time severance cost.
Speaker 4: transcript
Speaker 4: Our cash burn in Q3 from continuing operations was approximately $25 million.
Our cash burn in Q3 from continuing operations was approximately $25 million.
Speaker 4: transcript
Speaker 4: That is today's steady state burn rate from which we plan to improve moving forward.
That is today's steady state burn rate from which we plan to improve moving forward.
Speaker 4: transcript
Speaker 4: Today we announced that we've effectuated a cost reduction plan of approximately $40 million from the Q3 base, which includes vendor spend as well as the reduction in force.
Today, we announced that we've actuated a cost reduction plan of approximately $40 million from the Q3 base, which includes vendor spend as well as a reduction in force. We are prioritizing efforts that support exome and genome growth and increases in paid claims.
Speaker 4: transcript
Speaker 4: We are prioritizing efforts that support exome and genome growth and increases in paid claims.
Speaker 4: transcript
Speaker 4: We'll continue to invest in the teams responsible for these efforts, as we're seeing that they are making tangible progress, thanks to the addition of some key leaders across commercial, operations, finance, and products and technology.
We'll continue to invest in it and the teams responsible for these efforts as we're seeing that they are making tangible progress.
The addition of some key leaders across commercial operations finance and product and technology.
Speaker 4: transcript
Speaker 4: Some of the efforts that have been de-prioritized include R&D and other longer-term strategies that we'll earn our right to invest in once we get closer to profitability.
Some of the efforts that have been deep prioritize include R&D and other longer term strategies that will earn our right to invest in once we get closer to profitability.
Speaker 4: transcript
Speaker 4: Today, we also announced that we have entered into a debt facility of $75 million with Perceptive Advisors, and we're grateful to them for believing in our team and the strength of our business in the near and long term. This fortifies our balance sheet and with the reduction of burn that we have just effectuated, provides balance sheet flexibility in 2025.
Today, we also announced that we've entered into a debt facility of $75 million with perceptive advisors and we're grateful to them for believing in our team and the strength of our business in the near and long term.
This fortifies, our balance sheet and with the reduction of burn that we have just effectuate it provides balance sheet flexibility in 2025.
Speaker 4: transcript
Speaker 4: Balancing our investment and growth while removing cashburn from the business is no easy task.
Balancing our investment and growth, while removing cash burns on the business is no easy task, but with the plan. We've assembled I'm confident we are making the right choices to ensure we grow our leadership position in the most cost effective way possible.
Speaker 4: transcript
Speaker 4: But with the plan we've assembled, I'm confident we are making the right choices to ensure we grow our leadership position in the most cost effective way possible.
Speaker 4: transcript
Speaker 4: I know we're not alone in navigating these waters. Other companies are facing similar challenges, but I'm proud of how our team has come together in close partnership with our board on a clear-eyed view of the market we're living in, a meticulously focused strategy that prioritizes growth of our exome and genome offerings, and course correcting as we move forward. You have our commitment that we'll continue to do so in order to drive shareholder value.
I know, we're not alone in navigating these waters other companies are facing similar challenges, but I'm proud of how our team has come together in close partnership with our board on a clear eyed view of the market. We're living in a meticulously focused strategy that prioritizes growth of our exome and genome offering.
And of course correcting as we move forward.
You have our commitment that we'll continue to do so in order to drive shareholder value.
Speaker 4: transcript
Speaker 4: I want to extend an immense thank you to our teammates and leaders past and present who have invested their time and passion to get us to where we are today.
I want to extend it an immense thank you to our teammates and leaders past and present, who have invested their time and passion to get us to where we are today and.
Speaker 4: transcript
Speaker 4: And a thank you to the incredible team who continued to stay committed in our mission, despite the winding path we've been navigating.
Thank you to the incredible team, who continue to stay committed and our mission. Despite the wine a path we've been navigating.
Speaker 4: transcript
Speaker 4: No path to profitability is easy nor straightforward, particularly when introducing a new technology to improve healthcare. But with the generous support and patience of our shareholders, we're all grateful for the opportunity to make a meaningful impact on patients and are committed to delivering value for those shareholders that continue to interest us to realize that vision.
No path to profitability is easy nor straightforward, particularly when introducing a new technology to improve health care.
But with the generous support and patience of our shareholders. We're all grateful for the opportunity to make a meaningful impact on patients and are committed to delivering value for those shareholders that continue to entrust us to realize that vision.
Speaker 5: transcript
Speaker 5: Kevin? So I'll repeat what Catherine said. It was a strong quarter. Total revenues were $53.3 million for the third quarter of 2023. Revenues from continuing operations were $50.4 million compared to $47.2 million in the third quarter of 2022 and $45.2 million in the second quarter of 2023.
Kevin So I'll repeat what Katherine said it was a strong quarter total revenues were $53 3 million for the third quarter of 2023.
Revenues from continuing operations were $50 4 million compared to $47 2 million in the third quarter of 2022 and.
$45 2 million in the second quarter of 2023, excluding a onetime appeal benefit in the third quarter of 2022 revenues increased 14% for this third quarter.
Speaker 5: transcript
Speaker 5: excluding a one-time appeal benefit in the third quarter of 2022. Revenue increased 14% for this third quarter. Hall XM and Genome Volume this quarter was over 13,000 tests, which represents a 71% increase year over year. And 11% increase compared to the second quarter of this year.
All exome and genome volume this quarter was over 13000 tests, which represents a 71% increase year over year, and 11% increase compared to the second quarter of this year.
Speaker 5: transcript
Speaker 5: We generated $34 million this quarter from exome and genome test.
We generated $34 million this quarter from exome and genome testing, a 42% increase year over year, and 18% compared to the second quarter of this year.
Speaker 5: transcript
Speaker 5: 42% increase year over year and 18% compared to the second quarter of this year. Adjusting for the same one-time appeal benefit in the third quarter of 2022, revenue specific to exome and genome increased 61% year over year.
Adjusting for the same onetime appeal benefit in the third quarter of 2022 revenue specific to exome and genome increased 61% year over year.
Speaker 5: transcript
Speaker 5: In the third quarter of 2023, adjusted gross margin from continuing operations was 48%, up from 37% in the second quarter. The margin expansion is coming from three places.
In the third quarter of 2023, adjusted gross margin from continuing operations was 48% up from 37% in the second quarter.
The margin expansion is coming from three places.
First is test mix.
Speaker 5: To level set, our adjusted gross margin for Axome remains over 60%. Axome and Genome represented 23% of all tests in the third quarter, with a high of 28% in the month of September .
To level set our adjusted gross margin for exome remains over 60% exome and genome represented 23% of all test in the third quarter with a high of 28% in the month of September.
Speaker 5: transcript
Speaker 5: Total gross margins will continue to benefit as Exome picks up more share of our overall test production volume, replacing lower margin and in some cases negative margin products.
Gross margins will continue to benefit as exome picks up more share of our overall test production volume, replacing lower margin and in some cases negative margin products.
The second is on cost per test, we now have to lower costs.
Speaker 5: transcript
Speaker 5: per test Illumina X-Plus machines live, and we will aim to replace the remainder of our AP's legacy NovaSeq fleet at the right time over the next several quarters. We also have recently received our first PacBio Revio machine. Beyond our long-range sequencing collaboration, the team here is excited about the potential use of this technology to lower costs by replacing older orthogonal confirmation platforms.
Her test Illumina X plus machines lives and we will aim to replace the remainder of our legacy <unk> suite at the right time over the next several quarters. We also have recently received their first pack by revenue machine beyond our long read sequencing collaborations. The team here is excited about the potential use of this technology to lower cost by replacing.
Older orthogonal confirmation platforms.
Speaker 5: transcript
Speaker 5: Additionally, we've now completed the consolidation of disparate library preparation platforms to a lower cost solution offered by Twist BioSign.
Additionally, we have now completed the consolidation of disparate library preparation platforms to a lower cost solution offered by twist Biosciences.
Speaker 5: transcript
Speaker 5: And while we are pleased with where excellent costs are today, a number of initiatives are already underway or planned to further improve the cost.
And while we're pleased with where excellent costs are today, a number of initiatives are already underway or planned to further improve the cost base.
Speaker 5: transcript
Speaker 5: Automation and AI across review analysis, report writing, and certain genetic counseling steps offer real near and long-term cost reduction opportunities.
Automation and AI across review analysis report, writing and certain genetic counseling steps offer real near and long term cost reduction opportunities.
The third was from average reimbursement rates the fully loaded average reimbursement rates on the exome and genome portfolio was over $2500 in the third quarter slightly up from over $2400 last quarter.
Speaker 5: transcript
Speaker 5: The fully loaded average reimbursement rate on the exome and genome portfolio was over $2,500 in the third quarter, slightly up from over $2,400 last quarter.
Speaker 5: The exome portfolio operates at over 60% gross margin today, despite a high denial rate that we know has opportunity to be improved upon.
The excellent portfolio operates at over 60% gross margin today. Despite a high denial rate that we know has opportunity to be improved upon.
Speaker 5: transcript
Speaker 5: As Catherine mentioned, new leaders have been brought into the company to lead billing, market access, sales, product and technology, and finance-related teams to bring enhanced experience and new perspectives specific to these efforts.
Katherine mentioned, new leaders have been brought into the company to lead billing market access sales product and technology and finance related teams to bring enhanced experience and new perspectives specific to these efforts.
Speaker 5: transcript
Speaker 5: the majority of our denials we continue to believe are addressable.
The majority of our denials, we continue to believe our addressable.
Let's now move down to operating expense.
Speaker 5: transcript
Speaker 5: Total adjusted operating expense was $49.4 million for the third quarter of 2023, down from $91.8 million in the third quarter of 2022 and $60.1 million in the second quarter of 2023.
Total adjusted operating expense was $49 4 million for the third quarter of 2023 down from $91 $8 million in the third quarter of 2022, and $60 1 million in the second quarter of 2023.
Speaker 5: transcript
Speaker 5: That's a reduction of 46% year over year and 18% from last quarter.
That's a reduction of 46% year over year and 18% from last quarter.
Speaker 5: transcript
Speaker 5: Once again, delivered reduced costs as we further separate from the legacy Semicore business and search for a fish.
Once again delivered reduced costs as we further separate from the legacy <unk> business and search for efficiency.
Speaker 5: transcript
Speaker 5: For awareness, this quarter includes a $1.8 million one time.
For awareness this quarter includes a $1 8 million dollar one time benefit.
Speaker 5: transcript
Speaker 5: This baseline will further reduce over the next couple of quarters, with the cost rationalization plan affected earlier.
This baseline will further reduce over the next couple of quarters with a cost rationalization plan effected earlier today.
Speaker 5: transcript
Speaker 5: On the bottom line, total company adjusted net loss for the third quarter of 2023 narrowed to $21.1 million. Compared to an adjusted net loss of $69.8 million in the third quarter of 2022, and $38.6 million in the second quarter of this year. Improvements of 70% and 45% respect.
On the bottom line total company adjusted net loss for the third quarter of 2023 narrowed to $21 1 million compared to an adjusted net loss of $69 $8 million in the third quarter of 2022, and $38 6 million in the second quarter of this year.
<unk> of 70% and 45% respectively.
Speaker 5: transcript
Speaker 5: Our third quarter cash burn of $42 million included nearly $17 million in final semaphore payables and one-time costs, and otherwise would have been approximately $25 million for the quarter.
Our third quarter cash burn of $42 million included nearly $17 million in final semaphore payables and onetime costs and otherwise would've been approximately $25 million for the quarter.
Speaker 5: transcript
Speaker 5: Our total cash, cash equivalence, marketable securities, and restricted cash were $115 million as of September 30th, 2023.
Our total cash cash equivalents marketable securities and restricted cash were $115 million as of September 32023.
Speaker 5: transcript
Speaker 5: And today we announced that we have entered into a new five-year senior secured credit facility with perceptive advice.
And today, we announced that we've entered into a new five year senior secured credit facility with perceptive advisors.
Speaker 5: transcript
Speaker 5: This agreement provides for up to $75 million in capacity, consisting of an initial tranche of $50 million, which was drawn on October 27, 2023, and an optional second tranche of $25 million, which is committed through December 2024. Subject to certain.
This agreement provides for up to $75 million in capacity.
<unk> have an initial tranche of $50 million, which was drawn on October 27, 2023, and an optional second tranche of $25 million, which is committed through December 2024 subject to certain criteria.
Speaker 5: transcript
Speaker 5: interest is payable at a rate of SOFR plus 7.5%
Interest is payable at a rate of <unk> plus seven 5%.
Speaker 5: transcript
Speaker 5: And under the terms of the agreement, Perceptive will be issued warrants to purchase 800,000 Class A shares of the company's stock at closing with an exercise price equal to the 10-day view up. That price is $3.17 a share. Upon borrow...
Under the terms of the agreement perceptive will be issued warrants to purchase 800000 class a shares of the company's stock at closing with an exercise price equal to the 10 debut on that.
That price is $3 17 a share.
Upon borrowing subsequent tranche perceptive would be issued warrants to purchase an additional 400000 class a shares.
Speaker 5: transcript
Speaker 5: Perceptive would be issued once the purchase in additional 400,000 class A share
Speaker 5: transcript
Speaker 5: Personally, I want to thank the Perceptive team for the hard work involved in the transaction.
Personally I want to thank the perceptive team for the hard work involved in the transaction.
Speaker 5: transcript
Speaker 5: We are excited to have yet another strong thought partner in the mix.
We are excited to have yet another strong partner in the mix.
Speaker 5: transcript
Speaker 5: Giving rise to the net proceeds of the initial tranche are pro-form a cash on hand at September 30th, 2023 is 163.7 million dollars.
Giving rise to the net proceeds of the initial tranche our pro forma cash on hand at September 32023 is $163 7 million.
Speaker 5: transcript
Speaker 5: Now turning to guidance, we expect to end 2023 with full year revenue from continuing operations in a range between 187 to 192 million.
Now turning to guidance, we expect to end 2023 with full year revenue from continuing operations in a range between 187% to $192 million.
Speaker 5: transcript
Speaker 5: We're narrowing the expected cash burn guidance for the second half of 2023 to a range between $75 to $79 million, inclusive of servicing obligations of the exited business.
We're narrowing the expected cash burn guidance for the second half of 2023 to a range between $75 million to $79 million inclusive of servicing obligations of the exited business activities.
Speaker 5: transcript
Speaker 5: As a reminder, in December 2023, the next scheduled installment payment of $5 million will be made with respect to the legacy semifore payer.
Operator: Good day, and thank you for standing by.
As a reminder, in December 2023, the next scheduled installment payment of $5 million will be made with respect to the legacy summer for payer settlement.
Operator: Welcome to the GeneDx Third Quarter 2023 earnings conference call. At this time, all participants are not listening only mode. After the speakers presentation, it will be a question, answer session to ask a question during a session. You will need to press start 101 on your telephone. You will then hear an automated message, advising your hand is raised. To withdraw your questions, please press start 101 again.
Speaker 5: transcript
Speaker 5: And as we have expressed, the outlook to term profitable in 2025 remains unchanging.
And as we have expressed the outlook to turn profitable in 2025 remains unchanged.
Speaker 5: transcript
Speaker 5: So while we're not providing specific long-term guidance beyond 2023 at this point, I did want to speak to how we view that path to profitability by the end of 2025. There are three primary drivers.
So while we're not providing specific long term guidance beyond 2023 at this point I did want to speak to how we view that path to profitability by the end of 2025.
Operator: Please be advised that today's conference is being recorded.
There are three primary drivers.
Sabrina Dunbar: I want to attend the conference over to your speaker today, Sabrina Dunbar at GeneDx. Please go ahead. Thank you operator, and thank you to everyone for joining us today. On the call, we have Katherine Stueland, President and Chief Executive Officer and Kevin Feeley, Chief Financial Officer. Earlier today, GeneDx released financial results for the third quarter and did September 30, 2023.
The first is rationalizing the operating expense base.
Speaker 5: transcript
Speaker 5: Our current adjusted operating expense is roughly 50 million a quarter or run rate of 200 million annually. We're taking out an additional 40 million and specifically identified costs to get down towards $160 million over the next several course.
Current adjusted operating expenses, roughly $50 million a quarter run rate of $200 million annually, we're taking out an additional $40 million and specifically identified cost to get down towards $160 million over the next several quarters.
Speaker 5: transcript
Speaker 5: We firmly believe these cost reductions will not impact our ability to drive exome growth.
We firmly believe these cost reductions will not impact our ability to drive excellent growth.
Sabrina Dunbar: Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, guidance, and outlook. Forward-looking statements inherently involve risks and uncertainties, and only reflect our view as of today, October 30th, and we are under no obligation to update. When discussing our results, we refer to non-GAAT measures, which exclude certain items from reported results. Please refer to our third quarter 2023 earnings release in slides available at ir.gndx.com for definitions and reconciliation of non-GAAT measures. And additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.
The second is by expanding gross margin.
Speaker 5: transcript
Speaker 5: We just reported Q3 adjusted gross margin of 48%. Remember, our blended exome gross margins are greater than 60% today. So as exome tests continue to make up more of our revenue, our total margin moves towards that 60 plus percent. We also believe exome margins can expand beyond their current level given COGS reductions and reim Cha Semple Ryan Patty
We just reported Q3 adjusted gross margin to be 8% remember our blended excellent gross margins are greater than 60% today. So as Exxon tests continue to make up more of our revenue our total margin moves towards that 60%. We also believe XO margins can expand beyond their current level, given cogs reductions and reimbursement work.
<unk>.
Speaker 5: transcript
Speaker 5: The third is revenue growth. We just reported Q3 revenue of $50.4 million for continuing operations, or a $202 million run rate. Our future revenue growth is all exome and genome, and exome just grew 62% year-over-year this past quarter. If one were to assume even a much lower exome growth rate in the zone of 20% over the next two years, that generates a very reasonable breakeven level given the cost structure I occurred.
The third is revenue growth, we just reported Q3 revenue of $54 million for continuing operations were $202 million run rate our future revenue growth is all exome and genome and Exxon just grew 62% year over year. This past quarter. If one were to assume even a much lower exome growth right in the zone.
Katherine Stueland: And with that, I'll turn the call over to Katherine. Thanks, Sabrina. We have a lot of news to cover on our call today, so I'm going to jump right in.
20% over the next two years that generates a very reasonable breakeven level given the cost structure I just mentioned.
Katherine Stueland: Our third quarter results were strong, with $53 million in revenue, growth margins of nearly 50%, and a 52% year-over-year reduction in cash burns. We also saw the highest mix of exomes, as a percentage of total volume coming in at nearly 30% in September. Our industry-leading exome and genome go almost two-thirds of our revenue this quarter, and we continue to grow the market and offer clinical insights to more and more patients. And at the same time, we are materially reducing our cost structure in effective and scalable ways.
Speaker 5: transcript
Speaker 5: That said, we certainly aim to achieve stronger exome revenue growth.
That said, we certainly aim to achieve stronger exome revenue growth than that.
Speaker 5: transcript
Speaker 5: So with the cost-saving initiatives announced today, margins continuing to trend towards our current exome margin and revenue growth tracking to even moderate levels, we see a clear path to break even by the end of 2025.
So with the cost saving initiatives announced today margins continuing to trend towards our current exome margin and revenue growth tracking to even moderate levels, we see a clear path to breakeven by the end of 2025.
And finally in terms of cash.
Speaker 5: transcript
Speaker 5: cash burn for continuing operations was approximately $25 million this quarter, and on a go-forward basis you should expect adjusted net loss and cash use to more closely conform to each other except for the payer settlement, severance, and fairly minimal cap-ex.
Cash burn for continuing operations was approximately $25 million this quarter and on a go forward basis, you should expect adjusted net loss and cash use to more closely conform to each other.
For the payer settlement severance and fairly minimal capex.
Katherine Stueland: The fundamentals of our business have never been stronger. We have organized our entire team around three major efforts. One, increasing exome and genome volumes. Two, reducing claimed and aisle rates to increase revenue per test. And three, thriving down our cash burn. Our exome focus strategy is taking hold. Our goal is to transform the market from single gene tests, multi-jean panels and microarrays to exomes and genome. And with exome representing 63% of our revenue in September, we're well on our way.
Speaker 5: transcript
Speaker 5: I'd also point you to the liability section of our balance sheet, which will show huge structural improvement, as we've now put substantially all legacy semifor operating payables behind.
I'd also point you to the liability section of our balance sheet, which will show huge structural improvement as we've now put substantially all legacy <unk> operating payables behind US. We therefore anticipate the new debt financing proceeds will primarily serve as balance sheet protection as we shift towards sustainable profit.
Speaker 5: transcript
Speaker 5: We therefore anticipate the new debt financing proceeds will primarily serve as balance sheet protection as we shift towards sustainable profit. I'll now turn the call back to Kat.
I'll now turn the call back to Catherine for any closing remarks.
Speaker 4: transcript
Speaker 4: Our commitment to turning to profitability in 2025 is our unquestionable focus.
Our commitment to turning to profitability in 2025 is our unquestionable focus.
Speaker 4: transcript
Speaker 4: As we've commented today, that is possible with growth, efficiency, and cash management, and our planned support to these three drivers.
As we've commented today that is possible with growth efficiency and cash management and our plan supports the three drivers.
Katherine Stueland: This quarter, we saw a 12% increase in the number of clinicians ordering exomes in the outpatient setting, with the fastest growing clinician count coming from neurology, representing 18% quarter-over-quarter growth. Pediatric neurologists continue to make up the largest portion of our new ordering clinicians.
Speaker 4: transcript
Speaker 4: In managing the business to this goal, we are well positioned to lead the market to diagnosing all inheritable diseases with our exome and genome backbone, and ultimately realize our vision of using genomic and clinical data to inform disease diagnosis, treatment selection, and to accelerate drug discovery and development. For now, by focusing our business on exome and genome, we will drive value creation for our shareholders while continuing to serve more and more patients. Now.
In managing the business to this goal we are well positioned to lead the market to diagnosing all inheritable diseases, with our exome and genome backbone and ultimately realize our vision of easing genomic and clinical data to inform disease diagnosis treatment selection.
Katherine Stueland: The building market takes time. This year, we had our sites on an aggressive growth trajectory in the second half of the year centered around a faster conversion of single and multi-jean test to our exomes, with $50 million in core revenue in Q3. We expect continued growth in Q4 and full year revenue now in a range of $187 million to $192 million.
Accelerate drug discovery and development for now by focusing our business on exome and genome will drive value creation for our shareholders, while continuing to serve more and more patients.
Now I'll turn it back to the operator for Q&A.
Speaker 2: transcript
Speaker 2: Thank you, and as a reminder, to ask a question, please press star 1 1 on your telephone and wait for a name to be announced. To withdraw your question, please press star 1 1 again. Please send by. We'll complete the Q&A roster.
Thank you and as a reminder to ask a question. Please press star one one on your telephone.
Wait for a name to be announced to withdraw your question. Please press star one again please.
Katherine Stueland: We have just moved through the final stages of setting down the former semaphore business. That took longer than we anticipated, but is officially complete, excluding the spinal shutdown costs and one-time severance costs. Our cash burn in Q3 from continuing operations was approximately $25 million. That is today's steady state burn rate from which we plan to improve moving forward. Today we announce that we've affected a cost reduction plan of approximately $40 million from the Q3 base, which includes vendor spend as well as the reduction in force.
Please some bio autopilot the Q&A roster.
One moment for our first question.
Okay.
Speaker 2: transcript
Speaker 2: Our first question offline of Dan Brennan from Calin, your line is open.
Our first question comes from the line of Dan Brennan from Cowen Your line is open.
Speaker 6: transcript
Speaker 6: Hey, this is Joe Entredan. It seems like the Exome volume growth story and the mixed shift is really playing out with 70% Exome growth in the quarter, 20% mix in September . So what do you see changing in the fourth quarter that's bringing down the implied Q4 guide?
Hi, This is Joe on for Dan.
It seems like the Exxon volume growth story, and the mix shift is really playing out with 70% exome growth in the quarter and 28% mix in September so whats what do you see changing in the fourth quarter, that's bringing down the implied Q4 guide.
Katherine Stueland: We are prioritizing efforts that support exome and genome growth and increases in paid claims. We'll continue to invest in these in the teams responsible for these efforts as we're seeing that they're making tangible progress thanks to the addition of some key leaders across commercial operations, finance, and products and technology.
Speaker 7: transcript
Speaker 7: Yeah, Joe, look, I think the way we view it is.
Yes, Joe look I think the way we view it is we.
Speaker 5: transcript
Speaker 5: We did add some new team members to the commercial field force, and that's in large part what is driving the growth in the exome portfolio. We're really happy with how the quarter played out. We've seen some pretty substantial growth in both Q2 and Q3, and so the guide is...
We did add some some new team members to the commercial.
<unk> for us and that's in large part what is driving the growth in the <unk> portfolio, we're really happy with how the quarter played out.
Katherine Stueland: Some of the efforts that have been deprioritized include R&D and other longer term strategies that will earn our right to invest in, once we get closer to profitability. Today we also announced that we have entered into a debt facility of $75 million with perceptive advisors, and we're grateful to them for believing in our team and the strength of our business in the near and long term. This fortifies our balance sheet and with the reduction of burn that we have just effectuated provides balance sheet flexibility in 2025.
We've seen some pretty substantial growth in both Q2 and Q3 and so the guide is.
Speaker 5: transcript
Speaker 5: really reflective of what we see line of sight to. October's coming in strong, we're pleased with the data thus far. We do typically see a Q4.
Really reflective of.
What we see line of sight to October is coming in strong we are pleased with the data thus far we do typically see a Q4.
Speaker 5: transcript
Speaker 5: uplift in terms of ordering patterns and ASPs. We would expect that. And so have every confidence that we can hit the high end of that range, but the previous guidance range that we provided, particularly at the higher ends of that, we just fell short in the first couple of quarters of this year. Really happy with how the second half of the year is progressing here. So the guide really just reflective of how the earlier part of the year played out.
Uplift in terms of ordering patterns and asps.
We would expect that.
So I have every confidence that we can hit the high end of that range, but the previous guidance range that we provided.
Particularly at the higher ends of that.
Katherine Stueland: Balancing our investment and growth while removing cash burns from the business is no easy task. But with the plan we've assembled, I'm confident we are making the right choices to ensure we grow our leadership position in the most cross-effective way possible.
We just fell short in the first couple of quarters of this year really happy with how the second half of the year is progressing here.
So the guide really just reflective of how the earlier part of the year played out.
Speaker 6: transcript
Speaker 6: Got it. And then on ASPs, it looks like they came down about 15% in Q3 on a blended basis. Do you see pricing generally stabilizing into 24, or do you expect these kind of like 10 to 15% ish year-over-year quarters to continue?
Got it and then I'll ask Peter it looks like they came down about 15% in Q3 on a blended basis.
Katherine Stueland: I know we're not alone in navigating these waters. Other companies are facing similar challenges, but I'm proud of how our team has come together and close partnership with our board on a clear-eyed view of the market we're living in. A meticulously focused strategy that prioritizes growth of our exome and genome offering, and course correcting as we move forward.
Do you see pricing generally stabilizing into 24 do you expect these kind of like 10% to 15% ish year over year quarters to continue.
Speaker 5: transcript
Speaker 5: I think we view Q3 as a baseline from which to improve on. If you just focus in on exome, we did see improvements in Q3 versus the second quarter.
No I think we view Q3, as a baseline from which to improve on if you just focus in on exome, we did see improvements in Q3 versus the second quarter.
Katherine Stueland: You have our commitment that will continue to do so in order to drive shareholder value. I want to extend an immense thank you to our teammates and leaders past and present who have invested their time and passion to get us to where we are today. And I thank you to the incredible team who continued to stay committed in our mission despite the one we've been navigating.
Speaker 5: transcript
Speaker 5: with an average of just north of $2,500 versus the second quarter in the $2,400 range after all denials.
With an average of just north of $2500 versus the second quarter in the 'twenty $400 range. After all denials.
Speaker 5: transcript
Speaker 5: We'd expect a similar progression in the fourth quarter with a slight uptick in the fourth quarter. And as we mentioned in our remarks, we've got teams nearly across the entirety of the company focused on improving front end processes to bring down the denial rate.
We would expect a similar progression in the fourth quarter with a slight uptick in the fourth quarter and as we mentioned in our remarks, we've got teams.
Katherine Stueland: No path to profitability is easy, nor straightforward, particularly when introducing a new technology to improve healthcare. But with the generous support and patience of our shareholders, we're all grateful for the opportunity to make a meaningful impact on patients and are committed to delivering value for those shareholders that continue to interest us to realize that vision.
Across the entirety of the company focused on improving front end processes to bring down the denial rate.
Speaker 5: transcript
Speaker 5: and would expect that over the next several quarters you'd see incremental ASPE improvements in exome. On the other product lines, we've identified some near-term opportunities in particular with chromosomal microarray and hereditary cancer.
And would expect that over the next several quarters you'd see incremental ASP improvements in exome on the other product lines, we have identified.
Some near term opportunities in particular with chromosomal microarray in hereditary cancer.
Speaker 5: transcript
Speaker 5: Frankly, those are two product lines that had not received as much focus in the past couple years as they maybe should have. So the team working on improving denial rates on those two product lines in particular. Outside of exome and CMA hereditary cancer, you might expect blended ASPs on the other panels to stay flat.
Frankly, those two product lines that.
Kevin Feeley: Kevin? So I'll repeat what Catherine said. It was a strong quarter. Total revenues were $53.3 million for the third quarter of 2023. Revenues from continuing operations were $50.4 million compared to $47.2 million in the third quarter of 2022 and $45.2 million in the second quarter of 23. Excluding a one-time appeal benefit in the third quarter of 2022, revenues increased 14% for this third quarter. Hall Exome and Genome Volume this quarter was over 13,000 tests, which represents a 71% increase year over year and 11% increase compared to the second quarter of this year.
Had not received as much focus in the past couple of years as they maybe should have so the team working on improving.
Denial rates on those two product lines in particular outside of exome and.
CMA hereditary cancer, you might expect blended asps on the other panels to stay flat.
Speaker 4: transcript
Speaker 4: The only thing I would add to that, and I think the way that Kevin framed it in terms of finding opportunities beyond the exomes since we saw a nice increase in exomes. We are gonna be retiring about 350 tests in early 2024. So again, continuing to really focus the business on the tests that differentiate us that are best for patient care and that can have a positive impact on the PNL. Is it really worth it if you delete things. Why not? Let's tune in to Plan 1.
On a go forward basis, the only thing I would add to that and I think the way that Kevin frame that in terms of finding opportunities beyond the axons since we saw a nice increase in XL.
We are going to be retiring about 350 tests.
Kevin Feeley: We generated $34 million this quarter from Exome and Genome testing, a 42% increase year over year and 18% compared to the second quarter of this year. Adjusting for the same one-time appeal benefit in the third quarter of 2022, revenue specific to Exome and Genome increased 61% year over year. In the third quarter of 2023, adjusted gross margin from continuing operations was 48% up from 37% in the second quarter.
Early 2024, so again continuing to really focus the business on.
Uh huh.
Tests that differentiate us that are best for patient care and that can have a positive impact on the P&L as well.
Speaker 6: transcript
Speaker 6: Got it. And then just last on the 40 million incremental cost out, where are these coming from? And just kind of talk about where we'll see this in the P&L would be great.
Got it and then just last on the $40 million incremental cost outs, where are these coming from just kind of talk about where you will see this in the P&L would be great.
Speaker 5: transcript
Speaker 5: Yeah, about half is coming from employee reductions. We took some actions midway through the third quarter and then today impacted another subset of employees with a fairly sizable reduction in force throughout the day to day.
Yes about half is coming from employee reductions we took some actions midway through the third quarter and then today impacted another subset of employees with a fairly sizable reduction in force.
Kevin Feeley: The margin expansion is coming from three places. The first is test mix. To level set, our adjusted gross margin for Exome remains over 60%. Exome and Genome represented 23% of all tests in the third quarter, with a high of 28% in the month of September. Total gross margins will continue to benefit as Exome picks up more share of our overall test production volume, replacing lower margin and in some cases negative margin products.
Throughout the day to day.
Speaker 5: transcript
Speaker 5: The groups impacted there primarily research and development, some product and technology, and then other support functions, frankly, as we've gotten further away from separating Semaphore, the overall support necessary for the go-forward business is titrating down. And so we're reacting as quickly as possible to right-size the cost base as we move further and further away from that shutdown. And those shutdown activities are now complete.
The group's impacted there primarily research and development some product and technology and then other support functions as frankly as we've gotten further away from separating.
Semi for the overall support necessary for the go forward business.
Kevin Feeley: The second is on cost per test. We now have two lower cost per test, Alumina X-plus machines live, and we will aim to replace the remainder of our AP's legacy Novosig fleet at the right time over the next several quarters. We also have recently received our first pack bio-review machine. Beyond our long-read sequencing collaboration, the team here is excited about the potential use of this technology to lower costs by replacing older orthogonal confirmation platforms.
As tight trading down and so we're reacting as quickly as possible to right size the cost base as we move further and further away from that shutdown and no shutdown activities are now complete.
Speaker 5: transcript
Speaker 5: As it relates to the remainder of the spin there, we've taken a focus on
As it relates to the remainder of the spend there we've taken a focus on them.
Kevin Feeley: Additionally, we've now completed the consolidation of disparate library preparation platforms to a lower cost solution offered by Swiss biosciences. And while we are pleased with where Exome costs are today, a number of initiatives are already underway or planned to further improve the cost base. Automation and AI across review analysis, report writing, and certain genetic counseling steps offer real near and long-term cost reduction opportunities. The third was from Average reimbursement rates. The fully loaded Average reimbursement rate on the Exome and Genome portfolio was over $2,500 in the third quarter, slightly up from over $2,400 last quarter.
Speaker 5: transcript
Speaker 5: really earning our way to longer term pursuits around research and development. And so reductions with respect to projects that would have longer term payoff, think 2026 and beyond. And so feel confident that everything necessary to grow the top line, to expand gross margins still remains intact. And it's those longer term pursuits with respect to R&D that have been trimmed down. Got it. Thanks for taking the question.
Really earning our way to longer term pursuits around research and development and so reductions with respect to projects that would have longer term pay off.
I think 2026 and beyond and so feel confident that everything necessary to grow the topline to expand gross margins.
Still remains intact and it's those longer term pursuits with respect to R&D that have been trimmed down.
Got it thanks for taking the questions.
Thank you one moment for our next question.
Okay.
Speaker 2: transcript
Speaker 2: And our next question from Flannabark, Massaro from BTIG, Ilaniz open.
And our next question comes from the line of Mark Massaro from BTG. Your line is open.
Kevin Feeley: The Exome portfolio operates at over 60% gross margin today, despite a high denial rate that we know has opportunity to be improved upon. Scathor mentioned, new leaders have been brought into the company to lead billing, market access, sales, product, and technology, and finance related teams to bring enhanced experience and new perspectives specific to these efforts. The majority of our denials we continue to believe are addressable.
Speaker 6: transcript
Speaker 6: Hey, guys, thank you for taking the questions. I know you addressed that most of the. 40 million dollar annualized cost reduction is coming from R and D in support function.
Hey, guys. Thank you for taking the questions.
You addressed that in most of the $40 million annualized cost reduction is coming from R&D and support functions, but were there any.
Speaker 6: transcript
Speaker 6: But were there any reduction to the sales force or MSL crew? I think. Based on my notes, I think you are planning to onboard 10 new reps in the 2nd, half of this year. And finish somewhere in the 65 to 70 range. Can you just maybe update us on the size of the commercial or.
Reduction to the sales force our MSL crew I think based on my notes I think you are planning to onboard 10, new reps in the second half of this year.
And finished somewhere in the 65 to 70 range can you just maybe update us on the size of the commercial organization.
Kevin Feeley: Let's now move down to operating expense. Total adjusted operating expense was $49.4 million for the third quarter of 2023, down from $91.8 million in the third quarter of 2022, and $60.1 million in the second quarter of 2023. That's a reduction of 46% year-over-year, and 18% from last quarter. We once again delivered reduced costs as we further separate from the legacy semi-court business and search for efficiency. For awareness, this quarter includes a $1.8 million one-time benefit.
Speaker 4: transcript
Speaker 4: Yeah, the commercial organization is going to continue to be an area of investment for us. So, for the most part, I would say that the removal that we try to do very surgically ensures that
Yes.
Our sales organization is going to continue to be an area of investment for us though.
So for the most part I would say that the removal that we try to be very surgically and ensure that we are not eliminate any role that well.
Speaker 4: transcript
Speaker 4: We are not eliminating any rules that will.
Speaker 4: transcript
Speaker 4: slow down growth or will impact the integrity of the product. So we feel really confident that the.
Slowdown of growth.
Or will impact the integrity of the product. So we feel really confident that the.
Speaker 4: transcript
Speaker 4: quality will remain high and ensure that we can continue to be the market later.
Quality will remain high and ensure that we can continue to be the market leader and that we can continue to drive meaningful meaningful growth through the commercial organization. So.
Speaker 4: transcript
Speaker 4: And that we can continue to drive meaningful growth through the commercial organization. So no impact on Salesforce, no impact on MSL, those two teams.
Kevin Feeley: This baseline will further reduce over the next couple quarters with the cost rationalization plan affected earlier today. On the bottom line, total company adjusted net loss for the third quarter of 2023 narrowed to $21.1 million. Compared to an adjusted net loss of $69.8 million in the third quarter of 2022 and $38.6 million in the second quarter of this year. Improvements of 70% and 45% respectively. Our third quarter cash burn of $42 million included nearly $17 million in final semi-four payables and one-time costs, and otherwise would have been approximately $25 million for the quarter. Our total cash, cash equivalence, marketable securities and restricted cash were $115 million as of September 30, 2023.
<unk> had no impact on sales for has no impact on NFL those two teams.
Speaker 4: transcript
Speaker 4: and the commercial functions supporting them are critically important and have been doing a fantastic job this year as evidenced by the results of the quarter.
And the commercial function supporting them are critically important and have been doing a fantastic job this year as evidenced by the results of the quarter.
Speaker 4: transcript
Speaker 4: The Salesforce, we've got I think about 62 of those roles filled right now. So close to being at capacity, we always expect that there's gonna be a handful of roles that are open from time to time.
The sales force, we've got I think about 62 of those wells.
So right now so so close to.
Being at capacity, we always expect that theres going to be a handful of rolls that are open from time to time.
Speaker 4: transcript
Speaker 4: And then we do have our team of that are fully staff. They were just gathered in Gaithersburg last week, I had the chance to talk with them.
And then we do have our team of MSL.
Steph just they were just gathered in Gaithersburg Las Vegas, the chance to talk with them. So.
Speaker 4: transcript
Speaker 4: They are continuing, I would say, as we look towards the future commercial strategy to really hone in on working collaboratively as a team, looking at overall account profitability and
Kevin Feeley: And today we announce that we have entered into a new five-year senior secured credit facility with perceptive advisors. This agreement provides for up to $75 million in capacity consisting of an actual tranche of $50 million which was drawn on October 27, 2023, and an optional second tranche of $25 million which is committed through December 2024. Subject to certain criteria. Interest is payable at a rate of so far plus 7.5%. And under the terms of the agreement perceptive will be issued warns to purchase 800,000 classic shares of the company stock at closing with an exercise price equal to the 10-day view up.
They are continuing I would say is as we look towards the future commercial strategy to really.
Hone in on.
Working collaboratively as a team looking at overall account profitability and.
Speaker 4: transcript
Speaker 4: keeping focused on ensuring that we can continue to drive.
Keeping focused on ensuring that we can continue to drive.
Speaker 4: transcript
Speaker 4: exome and genome moving forward, and those MSLs are critically important to our ability to do that.
Exome and genome moving forward.
Msos are critically important to our ability to do that.
Speaker 6: transcript
Speaker 8: Okay, thank you for that. So I'm still not understanding why you lowered the full year guidance. I mean, I understand that you needed 60% of your revenue to come in in the back half of this year. We were modeling below your guidance, but.
Okay. Thank you for that.
So I'm still not understanding why you lowered the full year guidance.
I understand that.
You need it to 60% of your revenue to come in in the back half of this year, we were modeling below your guidance, but but still the implied Q4 is still.
Kevin Feeley: That price is $3.17 a share. Upon borrowing of the subsequent tranche, perceptive would be issued warns to purchase an additional 400,000 class A shares. Personally, I want to thank the perceptive team for the hard work involved in the transaction. We are excited to have yet another strong thought partner in the mix. And giving rise to the net proceeds of the initial tranche are pro forma cash on hand at September 30, 2023 is $163.7 million.
Speaker 8: transcript
Speaker 8: but still the implied Q4 is still...
Speaker 8: transcript
Speaker 8: very significantly below the Q4 consensus revenue estimate.
Very significantly below the Q4 consensus revenue estimate so maybe can you just walk us through what has changed I mean I understand that you have.
Speaker 8: transcript
Speaker 8: So maybe can you just walk us through what has changed? I mean, I understand that you
Speaker 8: transcript
Speaker 8: have been onboarding new reps. I assume maybe their initial traction in Q3 wasn't as high as you expected, but what else is going on in terms of pricing, in terms of work with payers?
Have been Onboarding, new reps I assume maybe their initial traction in Q3 wasn't as high as you expected, but what else is going on in terms of pricing in terms of <unk>.
Work with payers.
Speaker 8: transcript
Speaker 8: I would assume that some of your prior guide would have required more
I would assume that some of your prior guide would have required more more work from payers. So can you just broadly give us an update on traction with commercial pay.
Kevin Feeley: Now turning to guidance. We expect to end 2023 with full year revenue from continuing operations in a range between $187 to $192 million. We're narrowing the expected cash burn guidance for the second half of 2023 to a range between $75 to $79 million. Inclusive of servicing obligations of the exited business activities. As a reminder, in December 2023, the next scheduled installment payment of $5 million will be made with respect to the legacy semifort payer settlement. And as we have expressed, the outlook to term profitable in 2025 remains unchanged.
Speaker 8: transcript
Speaker 8: more work from payers. So can you just broadly give us an update on traction with commercial pay, maybe the timing of some of the new plan coverage?
Maybe the timing of some of the new plan coverage and maybe some of the onetime payments that you might've expected in your prior outlook.
Speaker 8: transcript
Speaker 8: and maybe some of the one-time payments that you might have expected in your prior outlook.
Yes, I think mark.
Speaker 5: transcript
Speaker 5: Mark, it's a little less around payers and pricing. In fact, we are fairly optimistic that the data in the last two months and including through today, through October , from a reimbursement and denial perspective is improving and is starting to show.
Little less around payers and pricing in fact, we are fairly optimistic that we're the data in the last two months, including through today through October from a reimbursement and denial perspective is improving and is starting to show.
Speaker 5: transcript
Speaker 5: pay off from the efforts we've put in place around revenue cycle. If you go back to the original guide, it anticipated that in particular, at the tail end of the second quarter and beyond, we would start to see...
Pay off from the efforts we've put in place around revenue cycle. If you go back.
Kevin Feeley: So while we're not providing specific long-term guidance beyond 2023, at this point, I did want to speak to how we view that path to profitability by the end of 2025. There were three primary drivers. The first is rationalizing the operating expense base. Our current adjusted operating expense is roughly 50 million in quarter or run rate of 200 million annually. We're $160 million over the next several costs. We firmly believe these cost reductions will not impact our ability to drive exome growth.
Two the original guide it anticipated that in particular at the tail end of the second quarter and beyond we would start to see a.
Speaker 5: transcript
Speaker 5: fairly sizable ramp in a conversion from Chromodonal micro-ray into XOM. We had previously talked about bringing on some of those CMA tests as stepping zones or seeds for future XOM.
Fairly sizeable ramp in a conversion from chromosomal microarray into exome, we had previously talked about bringing on some of those CMA test as stepping stones are seeds for future exome.
Speaker 5: transcript
Speaker 5: As the commercial team has been out executing, we've added the MSL teams to engage in conversations.
And.
As the commercial team has been out executing we've added the MSL teams to engage in conversations I think we what we've seen is that we should expect a more moderate conversion ramp from CMA into exome then.
Speaker 5: transcript
Speaker 5: I think what we've seen is that we should expect a more moderate conversion ramp from CMA into exome than a massive bolus of conversion or inflection point.
Kevin Feeley: The second is by expanding gross margin. We just reported Q3 just to gross margin of 48%. Remember, our blended exome gross margins are greater than 60% today, so as exome tests continue to make up more of our revenue, our total margin moves towards that 60 plus percent. We also believe exome margins can expand beyond their current level, giving COGs reductions in reimbursement work. The third is revenue growth. We just reported Q3 revenue of 50.4 million for continuing operations, or a $2002 million run rate.
Mass a bolus of conversion or inflection point really anchored on.
Speaker 5: transcript
Speaker 5: a few things. One, longstanding physician behavior. We're just encountering docs who've been practicing genetics for the same way for quite a long period of time. And we have education to do with respect to misconceptions in the marketplace with respect to these tests that they take.
A few things one physician long standing physician behavior.
We are just encountering docs who've been practicing genetics for the same way for quite a long period of time, and we have education to do with respect to mis perceptions in the marketplace with respect to these tests that they take months and not weeks, we've got a rapid X.
Speaker 5: transcript
Speaker 5: months and not weeks. We've got our rapid exome product down to a verbal report in three days.
Kevin Feeley: Our future revenue growth is all exome and genome, and exome just grew 62% year over year this past quarter. If one were to assume even a much lower exome growth rate in the zone of 20% over the next two years, that generates a very reasonable break-even level, given the cost structure I just mentioned. That said, we certainly aim to achieve stronger exome revenue growth than that. So, with the cost saving initiatives announced today, margins continuing to trend towards our current exome margin and revenue growth tracking to even moderate levels. We see a clear path to break-even by the end of 2025.
One product down to a verbal report in three days and so.
Speaker 5: transcript
Speaker 5: old perceptions around turnaround times, old perceptions around pricing.
Old perceptions around turnaround times old perceptions around <unk>.
Speaker 5: transcript
Speaker 5: and the noise that might be in a report with respect to variants of unknown significance are all things that we're seeing entrenched behaviors and mindset among physicians. And we've seen a flattening of that conversion ramp versus previous expectations.
Pricing.
And.
The noise that might be in a in a report with respect to the variance of unknown significance are all things that we're seeing in trench behaviors and mindset among physicians and we've seen a flattening of that conversion ramp versus previous expectations.
Speaker 5: transcript
Speaker 5: sees the primary driver. That said, the exome portfolio has grown rapidly, and we'd expect pretty similar growth rates going forward. So the go-forward guide for the fourth quarter, we just posted a plus $5 million revenue quarter from Q2 to Q3, and we'd expect something similar in the fourth quarter, as we're starting to see a normalization of what we can expect in terms of that CMA tax on conversion.
The primary driver.
That said the exome portfolio has grown rapidly.
And we would expect pretty similar growth rates going forward. So the go forward guide for the fourth quarter, we just posted a plus $5 million revenue quarter from Q2 to Q3, and we would expect something similar in the in the fourth quarter.
Kevin Feeley: And finally, in terms of cash, our cash burn for continuing operations was approximately $25 million this quarter. And on a go-forward basis, you should expect adjusted net loss and cash use to more closely conform to each other, except for the payer settlement severance and fairly minimal capex. I'd also point you to the liability section of our balance sheet, which will show huge structural improvement, as we've now put substantially all legacy semifor operating payables behind us. We therefore anticipate the new debt financing proceeds will primarily serve as balance sheet protection as we shift towards sustainable profit.
As we're starting to see a normalization of what we can expect in terms of that.
CMA tags on conversion.
Speaker 8: transcript
Speaker 8: Okay, that is that is helpful. So it looks like the midpoint of your guide would imply about 10 or 11% revenue growth for the full year. Uh, recognizing that you are picking up a higher mix from exomes. Is it reasonable as we think about our models for 2024 that. You know, greater greater than 10% should be readily achievable, but any other granularity or commentary about the levers of growth in 24 would be helpful.
Okay that is helpful.
So it looks like the midpoint of your guide would imply about 10 or 11% revenue growth for the full year recognizing.
Recognizing that you are picking up higher.
A higher mix from <unk>.
Katherine Stueland: I'll now turn the call back to Catherine for any closing remarks. Our commitment to turning to profitability in 2025 is our unquestionable focus. As we've commented today, that is possible with growth, efficiency, and cash management. And our plan supports these three drivers. In managing the business to this goal, we are well positioned to lead the market to diagnosing all interitable diseases with our exome and genome backbone, and ultimately realize our vision of using genomic and clinical data to inform disease diagnosis, treatment selection, and to accelerate drug discovery and development. For now, by focusing our business on exome and genome, we will drive value creation for shareholders while continuing to serve more and more patients.
Is it reasonable as we think about our models for 2024 that gray.
Operator: Now, we'll turn it back to the operator for Q&A.
Greater greater than 10% it should be.
Readily achievable, but any other granularity or commentary about the levers of growth in 'twenty four would be helpful.
Speaker 5: transcript
Speaker 5: Yeah, I mean, so we're not providing full year 24 guidance. We'll do that in early January , but tried to outline for you more prepared remarks and there's a page in our earnings materials as a deck we posted to our website.
Yes.
So we're not providing full year 'twenty for guidance, we'll do that in early January but <unk> tried to outline for you in my prepared remarks, and there is a page in our.
Earnings materials of the deck, we posted to our website.
Speaker 5: transcript
Speaker 5: Really to sketch out what we believe is an illustration of the path to profitability, and believe firmly we can get there to break even beyond, even if you assume to year over year revenue growth of around 20%.
Really to sketch out what we believe is in.
Illustration of the path to profitability and believe firmly we can get there to breakeven and beyond even if you assumed year over year revenue growth of around 20%.
Speaker 5: transcript
Speaker 5: And if you think about the go-forward base, all of our growth is really going to come from the exome portfolio, which just grew well in excess of that mark. And so...
And if you think about the go forward base all of our growth is really going to come from the exome portfolio, which just grew well in excess of that mark.
Operator: Thank you. And as a reminder, to ask a question, please press star 11 on your telephone, and wait for a name to be announced to withdraw your question, please press star 11 again. Please, then, buy what you'll call the Q&A roster. One moment for our first question.
Speaker 5: transcript
Speaker 5: really believe that you should expect similar exome growth year over year moving forward. If you recall, this year was impacted earlier from some price concessions we offered to the marketplace at the end of next year. So that played with the year over year growth rate some. That's all worked through the system and believe at this point you should expect on exome only sequential ASP improvements moving forward.
So really believe that you should expect similar exome growth year over year.
Moving forward if you recall this year was impacted earlier.
From.
Some price concessions, we offered to the marketplace at the end of next year. So that played with the year over year growth rates. Some that's all worked through the system and believe at this point you should expect an exome.
Daniel Brennan: Our first question from the line of Dan Brennan from Callan. Your line is open.
Katherine Stueland: Hey, this is Joe Entredan. It seems like the exome volume growth story and the mid shift is really playing out with 70% exome growth in the quarter, 20% mix, and September. So, what do you see changing in the fourth quarter that's bringing down the implied Q4 guide? Yeah, so look, I think the way we view it is we did add some new team members to the commercial field force and that's in large part what is driving the growth in the exome portfolio.
Only sequential ASP improvements moving forward.
Speaker 5: transcript
Speaker 5: So might expect a greater growth rate year over year from 23 to 24 than what we posted this year.
So might expect.
Greater growth rate year over year from 'twenty three to 'twenty four than what we posted this year.
Speaker 8: transcript
Speaker 8: Okay, that's helpful. And if I can sneak one last one, the adjusted gross margin from continuing ops of 48%, you know, that was that was strong and well above our modeling. Do you think that's a, perhaps a level that you can build off from here? Or were there any one timers in Q3?
Okay. That's helpful and if I can sneak one last one the.
The adjusted gross margin from continuing ops of 48% that was that was strong and well above our modeling.
Do you think that's a.
Perhaps.
A level that you can build off of from here or were there any one timers in Q3.
Katherine Stueland: We're really happy with how the quarter played out. We've seen some pretty substantial growth in both Q2 and Q3 and so the guide is really reflective of what we see line of sight to October's coming in strong we're pleased with the data thus far. We do typically see a Q4 uplift in terms of ordering patterns and ASPs. We would expect that and so have every confidence that we can hit the high end of that range but the previous guidance range that we provided particularly at the higher ends of that we just fell short in the first couple quarters of this year.
Speaker 5: transcript
Speaker 5: Yeah, we do think it's a new level or base to work off of. There were no meaningful one-time items in that number, either in terms of ASP's revenue or COG.
Yes, we do think it's it's a new level our base to work off of there were no meaningful onetime items in that number either in terms of asps revenue or Cogs.
Speaker 8: transcript
Speaker 8: To your point, we are seeing some efficiency initiatives take hold and provide results ahead of schedule. I tried to call out a few in my opening remarks. But yeah, we've outperformed in the cost per test, in particular cost per test around Exome, and think that those efficiency gains are here to stay. Okay, that's it for me. Thank you.
To your point, we are seeing some efficiency.
Key initiatives take hold and provide results ahead of schedule.
Tried to call out a few in my opening remarks, but yes, we've outperformed in the cost per test in particular cost per test around exome.
And think that those efficiency gains are here to stay.
Katherine Stueland: Really happy with that the second half of the year is progressing here so the guide really just reflective of how the earlier part of the year played out. Got it. And then on ASPs it looks like they came down about 15% and Q3 on a blended basis. Do you see pricing generally stabilizing into 24% do you expect these kind of like 10% to 15% ish year over year quarters to continue? I think we view Q3 as a baseline from which to improve on if you just focus in on exome we did see improvements in Q3 versus the second quarter with an average of just north of $2,500 versus the second quarter and the $2,400 range after all denials.
Okay. That's it for me thank you.
Thank you for a moment for our next question.
Speaker 2: transcript
Speaker 2: And our next question comes from the line of Brandon Couillard from Jefferies. Your line is open.
And our next question comes from the line of Brandon Couillard from Jefferies. Your line is open.
Speaker 9: transcript
Speaker 9: Thanks, this is Matt on Fur Brand and maybe sticking with gross gross margin. I appreciate all that color Kevin in terms of the 3 buckets you spiked out for the sequential improvement in gross margin. Should we think about each 1 of those kind of having a similar contribution or is there 1 in there that kind of was an outsized driver to the improvement here we saw in 3Q?
Hey, Thanks. This is Matt on for Brandon, maybe sticking with gross gross margin and I appreciate all that color Kevin in terms of the three buckets you spiked out for the sequential improvement in gross margins should we think about each one of those kind of having a similar contribution or is there one in there that kind of that was an outsized driver.
And the improvement in <unk>.
Speaker 5: transcript
Speaker 5: It's really that I would say take them in the relative order that I outlined with cost per test leading the way there.
It's really that I would say take him in the relative order that I outlined with cost per test.
Katherine Stueland: We'd expect a similar progression in the fourth quarter with a slight uptick in the fourth quarter. And as we mentioned in our remarks we've got teams nearly across the entire to the company focused on improving front end processes to bring down the denial rate and would expect that over the next several quarters you'd see incremental ASPs improvements in exome. On the other product lines we've identified some near term opportunities in particular with chromosomal microarray and hereditary cancer.
Leading the way there.
Speaker 5: transcript
Speaker 5: And those are coming from a number of areas, both in the wet and dry side of the laboratory. Some are process related, some are technology related. The new machinery from Illumina is paying off as expected. I think what gives us the most comfort and conviction moving forward is we've got
And those are coming from a number of areas both in the wet and dry side of the laboratory summer process related some are <unk>.
Technology related.
The new machinery from Illumina is paying off as expected.
I think what gives us the most comfort and conviction moving forward is we've got.
Speaker 5: transcript
Speaker 5: large roadmap going forward of additional efficiency items that are near-term line of sight and can be relied on. And so we're only just getting started in driving down cost per test of exome. That one probably leads the way and you can take them in the ranked order in which I am.
Large.
Roadmap going forward of additional efficiency items that are near term line of sight and can be relied on and so we're only just getting started and driving down cost per test of exome that one probably leads away and you can take them in ranked order in which I outlined.
Katherine Stueland: Frankly those are two product lines that had not received as much focus in the past couple of years as they maybe should have so the team working on improving denial rates on those two product lines in particular. Outside of exome and CMA and hereditary cancer you might expect blended ASPs on the other panels to stay flat on a go forward basis. The only thing I would add to that and I think the way that Kevin framed it in terms of finding opportunities beyond the exome since we saw a nice increase in exome.
Speaker 9: transcript
Speaker 9: That's helpful. And then the pre-shadowed locale on the cost sets, you just want to ask, so 40 million of further cost outs reiterated your profitability target for 2025. So not pulling it forward on those ranking. I mean, I was supposed to think about that when that possibility of question comes, it could be more meaningful given the additional 40 million that's coming out. Today, I just trying to get hands around, even a profitily target not pulling it forward but taking another 40 million out of the cost structure. Thanks.
That's helpful and then I appreciate all the color on the cost outs.
Wanted to ask so 40 million further cost outs reiterated your profitability target for 2025, so not only are forward on those or anything.
Just to think about when that profitability Hudson problems it could be more meaningful given the additional $40 million.
Coming out.
Today or just trying to get.
Katherine Stueland: We are going to be retiring about 350 tests in early 2024. So again continuing to really focus the business on the tests that differentiate us that are best for patient care and that can have a positive impact on the P&L as well. Got it. And then just last on the 40 million incremental cost-outs where are these coming from? I'm just kind of to talk about where we'll see this in the P&L.
Hands around using the profitability target not pulling it forward with taking another $40 million out of the cost structure.
Yes, I think that.
Speaker 5: transcript
Speaker 5: The marker of 2025 acknowledges that the revenue base came in a bit lower than expected for this full year. The 40M really meant to ensure we make the commitment we made, which was to turn this company profitable by the end of 2025. We're more convicted today. If nor is this not what it is, we've all got to do is not own our
The marker of 2025.
Acknowledges that the revenue base came in.
A bit lower than expected for this full year.
$40 million really meant to ensure we meet the commitment we made which was to turn this this company profitable by the end of 2025 or more convicted today and our ability to do that.
Katherine Stueland: Yeah, about half is coming from employee reductions. We took some actions midway through the third quarter and then today impacted another subset of employees with a fairly sizable reduction in force throughout the day to day. The groups impacted their primarily research and development, some product and technology, and then other support functions as, frankly, as we've gotten further away from separating semaphore, the overall support necessary for the go-forward business is titrating down, and so we're reacting as quickly as possible to right size the cost base as we move further and further away from that shutdown, and those shutdown activities are now complete.
Speaker 5: transcript
Speaker 5: Frankly, we found more efficiencies as part of a recent review than
Frankly.
<unk>.
Found more efficiencies as part of a recent review then.
Speaker 5: transcript
Speaker 5: we thought we might on the outset of that analysis. I think any upside to be able to pull profitability into 2024 would come from outsized revenue growth, which of course we're aiming to achieve, but wanted to be careful not to over-prompt.
We thought we might on the outside outset of that analysis.
I think any upside to be able to pull profitability into 2024 would come from outsized revenue growth, which of course, we're aiming to achieve but wanted to be careful not to over promise.
Speaker 9: transcript
Speaker 9: I guess Blasphemy for a tattoo, you know. You hasn't made a lot of changes on the commercial side. You know, working on new territories, you know, new outreach programs, things like that. Maybe just talk a little bit about what the use and hire for your cheap growth officer to respect any kind of change or additional things. They're the commercial side or more, just kind of a continuation of some of the moves you guys have made so far this year. Thanks.
I guess last one maybe for Katherine.
You guys have made a lot of.
Changes on the commercial side, we're working on new territories, New outreach program since it that maybe just talk a little bit about.
What.
Recent hire from your Chief growth Officer can we expect any kind of change or additional things there on the commercial side or more just kind of a continuation of some of the moves you guys have made so far this year. Thanks.
Katherine Stueland: As it relates to the remainder of the spend there, we've taken a focus on really earning our way to longer-term pursuits around research and development, and so reductions with respect to projects that would have longer-term payoff, I think, 2026 and beyond, and so feel confident that everything necessary to grow the top line to expand gross margins still remains intact, and it's those longer-term pursuits with respect to R&D that have been trimmed down. Got it. Thanks for taking the questions. Thank you. One moment for our next question.
Speaker 4: transcript
Speaker 4: Certainly, so just added Melanie Duquette.
Certainly though.
Yes.
And Melanie to cat.
Speaker 4: transcript
Speaker 4: who joined in September to lead the overall commercial strategy. She's working off of a strong foundation that we have in place, I think, to take us to kind of the 2.0 version of where we want to go in terms of commercial efficiency. So really what we expect is, I would say, the cross-functional teams that are focusing on growth and on account profitability.
<unk>, who joined in September can leave their overall commercial strategy.
Working off of a strong foundation that we have in place I think to take us to kind of that two point overhead.
We want to go in terms of commercial efficiency. So.
Really what we expect is.
I would say that cross functional teams that are focusing on on growth and on account profitability to be really working more efficiently together, so I would say.
Speaker 4: transcript
Speaker 4: to be really working more efficiently together. So I would say she has done a tremendous job when she was at her prior company.
He has done a tremendous job wenzhou is higher.
Mark Masaro: And our next question, offline of Mark Masaro from BTIG. Your line is open. Hey guys, thank you for taking the questions. I know you address that most of the $40 million annualized cost reduction is coming from R&D in support functions, but were there any reduction to the sales force or MSL crew? I think based on my notes, I think you are planning to onboard 10 new reps in the second half of this year and finish somewhere in the 65 to 70 range.
Speaker 4: transcript
Speaker 4: really shifting the focus from volume to keeping the team focused on volume, on revenue, on ASPs, and overall account profitability. So I would say that's what we're looking for in terms of the shifts moving forward and just some continued improvement on overall efficiency and ensuring that the overall performance of the system is really, really high.
Prior company really shifting the focus from from volume to keeping that team focused on volume on revenue on Asps and overall account profitability. So I would say that's what we're looking for in terms of the ships moving forward.
And just then continued improvement on overall efficiency and ensuring that the teams that were working on.
Speaker 4: transcript
Speaker 4: those teams that we're working with are working in a more singular way in support of account growth.
With our working in a more singular way in support of of account growth. So.
Speaker 4: transcript
Speaker 4: continued focus on opening up markets, but doing it in a way that will align with our P&L and we'll continue to focus on delivering on good patient care.
Continued focus on opening up markets that doing it.
Mark Masaro: Can you just maybe update us on the sides of the commercial organization? Yeah, the commercial organization is going to continue to be an area of investment for us, so for the most part, I would say, the removal that we try to do very surgically ensures that we are not eliminating any rules that will slow down growth or will impact the integrity of the product. So we feel really confident that the quality will remain high and ensure that we can continue to be the market leader and that we can continue to drive meaningful growth through the commercial organization.
In a way that will align with our P&L.
Well continue to focus on delivering patient care.
Thank you.
One moment for our next question.
Speaker 2: transcript
Speaker 2: and our next question comes from Ryan from Matt Sykes from GordmanSax. Your line is open.
Okay.
And our next question comes from the line of Matt <unk> from Goldman Sachs. Your line is open.
Speaker 10: transcript
Speaker 10: guys this is Prashant Koda on from Matt. What split do you see between in
Hey, guys. This is <unk> on for Matt.
What split do you see between inpatient and outpatient exome testing and do you see that evolving over time.
Speaker 4: transcript
Speaker 4: Hi Prasad, yes. So the vast majority thinks 97-98% is in the outpatient setting today.
Hi, <unk>, yes, so that the vast majority 90, 798% is in the outpatient setting today.
Mark Masaro: So no impact on sales force, no impact on MSL, those two teams and the commercial functions supporting them are critically important and have been doing a fantastic job this year as evidenced by the results of the quarter. The sales force, I think about 62 of those roles sailed right now, so close to being at capacity, we always expect that there's going to be a handful of roles that are open from time to time.
Speaker 4: transcript
Speaker 4: really predominantly focused on exome versus genome in that outpatient setting. I would say though that the rapid setting in the inpatient, which is primarily a utilization of our rapid genome.
Really predominantly focused on external versus genome in the outpatient setting.
Would you say, though that the.
Rapid setting in the in patient.
Primarily.
Utilization of our of our rapid genome product that is growing quickly. It's just a very small portion of the business I think that's going to fall into the category of.
Speaker 4: transcript
Speaker 4: That is growing quickly. It's just a very small portion of the business. I think that's going to fall into the category of longer-term market building. There's a lot of fundamental dynamics that we have to continue to work through in order to drive utilization. That being said, we just had a really nice win at a health system in Florida where...
Longer term market building there is a lot of fundamental dynamics that we have to continue to work through in order to drive utilization that being said, we just had a really nice win.
Mark Masaro: And then we do have our team of MSL that are fully staffed, they were just gathered in Gatersburg last week as the chance to talk with them. So they are continuing, I would say, as we look towards the future commercial strategy to really hone in on working collaboratively as a team, looking at overall account profitability and keeping focused on ensuring that we can continue to drive exome and genome moving forward, and those MSLs are critically important to our ability to do that.
At a health system, and Florida, where we've been able to get institutional contracts set up to be able to drive utilization of our rapid genome and the neck you sell.
Speaker 4: transcript
Speaker 4: We've been able to get an institutional contract set up to be able to drive utilization of our rapid genome in the NICU. So I'm encouraged by some wins like that that ensure that
We're encouraged by the wins like that that answer that.
Speaker 4: transcript
Speaker 4: that product is being utilized. The vast majority of the inpatient is institutional pay, so that's obviously.
That product is being utilized.
The vast majority of the innovation is institutional pay so that's obviously.
Speaker 4: transcript
Speaker 4: One barrier that we have removed both for utilization and also for us, we get paid 100% of the time on those. So we really appreciate that business.
One barrier that we have removed both for utilization and also for US we get paid 100% of the time on those.
Katherine Stueland: Okay, thank you for that. So, I'm still not understanding why you lowered the full year guidance. I mean, I understand that you needed 60% of your revenue to come in in the back half of this year. You know, we were modeling below your guidance, but still the implied Q4 is still very significantly below the Q4 consensus revenue estimate. So, maybe can you just walk us through what has changed? I mean, I understand that you have been onboarding new reps.
Really appreciate that business.
Speaker 4: transcript
Speaker 4: But we continue to view that as being a longer pole in terms of driving utilization. That's going to take some more time. So, as we think about the breakdown over the next several years, we're still going to see it predominantly in that outpatient setting. Got it. Thank you.
We continue to view that as being a longer pole in terms of.
Diving utilization, that's going to take some more time.
As we think about the breakdown over the next several years first Doug and I see it predominantly in that outpatient setting.
Got it thank you.
And then can you just talk about your progress in reducing claim denials and specifically what percent of claims are not approved if you have that number and roughly how long is the appeals process.
Katherine Stueland: I assume maybe their initial traction in Q3 wasn't as high as you expected, but, you know, what else is going on in terms of pricing, in terms of work with payers? I would assume that some of your prior guide would have required more work from payers. So, can you just probably give us an update on traction with commercial pay? Maybe the timing of some of the new plan coverage, and maybe some of the one-time payments that you might have expected in your prior outlook.
Speaker 5: transcript
Speaker 5: Yeah, so as we talked about, we did bring in a bunch of new folks, really to take a look at our end-to-end processes, in particular on the front end of claim submission. So, um,
Yes.
So as we've talked about we did bring in a bunch of new folks really to take a look at our end to end processes in particular on the front end of claim submission.
So.
Speaker 5: transcript
Speaker 5: A lot of work is ongoing and we did see an uptick in ASPs that all driven by a slight reduction in the denial rate this quarter. So pleased with the initial findings, certainly a long way to go there. I think it was just important to get fresh eyes on our processes and
A lot of work.
Is ongoing and we did see an uptick in in Asps is that all driven by a slight reduction in the denial rate.
This quarter, so pleased with the initial.
Katherine Stueland: Yeah, I think, Mark, it's a little less around payers and pricing. In fact, we are fairly optimistic that the data in the last two months, including today, through October, from a reimbursement and denial perspective, is improving and is starting to show pay off from the efforts we put in place around revenue cycle. If you go back to the original guide, it anticipated that, in particular, at the tail end of the second quarter and beyond, we would start to see a fairly sizable ramp in a conversion from chromosome micro-ray into exome.
Finding certainly a long way to go there I think it was just important to get fresh eyes on our processes and.
Speaker 5: transcript
Speaker 5: we really feel confident that much of the denials are addressable. To your question, north of 60%, so low 60s is our denial rate today on the exome portfolio. That hasn't changed in a while, although we did improve about one percentage point in the third quarter versus the second and that's what drove the incremental uptick in average ASP.
We really feel confident that's much of the denials are addressable.
To your question North of 60%, so low sixty's is our denial rate today on the exome portfolio that hasnt changed.
And a while.
Although we did improve about one percentage point in the third quarter versus the second and that is what drove the incremental uptick in an average asps.
Speaker 5: transcript
Speaker 5: I think longer term, you should expect us to take incremental bites out of that denial rate with each passing quarter as the effects of the ongoing work begins to take hold. The appeal process themselves itself is lengthy with really us going back to payers to re-adjudicate claims based on the medical necessity and unique circumstances of patients.
I think longer term.
You should expect us.
Katherine Stueland: We had previously talked about bringing on some of those CMA tests as stepping zones or seeds for future exome. And as the commercial team has been out executing, we've added the MSL teams to engage in conversations. I think what we've seen is that we should expect a more moderate conversion ramp from CMA into exome than a massive bolus of conversion or inflection point. Really anchored on a few things. One longstanding physician behavior.
To take incremental bites out of that denial rate with each passing quarter as the effects of the.
Ongoing work begins to take hold.
The appeal process themselves.
<unk>.
His lengthy with really us going back to Payors to re adjudicate claims based on the medical necessity in unique circumstances of patients.
Speaker 5: transcript
Speaker 5: We have an appeal process stood up today, but I think more important to driving down denials and improving ASPs and therefore revenue comes from avoiding denied claims. And that's where all of our effort is focused at the moment.
We have an appeal process stood up today.
But I think more important to driving down denials and improving asps and therefore revenue.
Katherine Stueland: We're just encountering docs who've been practicing genetics for the same way for quite a long period of time. And we have education to do with respect to misperceptions in the marketplace with respect to these tests. That they take months and not weeks. We've got our rapid exome product down to a verbal report in three days. And so old perceptions around turnaround times, old perceptions around pricing and the noise that might be in a report with respect to variants of unknown significance are all things that we're seeing in trench behaviors and mindset among physicians.
Comes from avoiding denied claims and that's where all of our effort is focused at the moment.
Got it that makes sense and if I could squeeze one last one in.
How are you thinking about capital allocation, given the new capital you've raised with the debt agreements.
Speaker 5: transcript
Speaker 5: Yeah, I think the way we look at the new debt agreement is to couple it with the cost reduction actions that we took today, which, as I mentioned, the reductions really placing an emphasis on three main priorities for the company. How do we drive exome growth?
Yes, I think.
We the way we look at the new debt agreement is to couple it with the cost reduction actions that we took today, which as I mentioned.
The reductions really placing an emphasis on three main priorities for the company how do we drive exome growth how do we improve.
Speaker 5: transcript
Speaker 5: How do we improve exome reimbursement by reducing denials? And then how do we find cost efficiency and reduce costs elsewhere to improve the financial health of GenedX?
Exome reimbursement by reducing denials and then how do we find cost efficiency and reduce cost elsewhere to improve the financial health of gene Dx to meet that commitment to become profitable sustainably in 2025 and beyond and so all of our available capital is at.
Katherine Stueland: And we've seen a flattening of that conversion ramp versus previous expectations. See the primary driver. That said, the exome portfolio has grown rapidly. And we'd expect pretty similar growth rates going forward. So the go forward guide for the fourth quarter. We just posted a plus $5 million revenue quarter from Q2 to Q3 and we'd expect something similar in the fourth quarter. As we're starting to see a normalization of what we can expect in terms of that CMA tax on conversion.
Speaker 5: transcript
Speaker 5: to meet that commitment to become profitable sustainably in 2025 and beyond. And so all of our available capital is allocated to supporting those three pursuits.
Allocated to supporting those three pursuits.
Speaker 5: transcript
Speaker 5: with any capital allocated to R&D and product and technology to find ways to help the company get more efficient to drive down XOMCOX.
With any.
Capital allocated to R&D and product and technology to find ways to help the company get more efficient to drive down exome Cogs.
Great. Thank you.
Thank you.
Katherine Stueland: Okay, that is helpful. So it looks like the midpoint of your guide would imply about 10 or 11 percent revenue growth for the full year, recognizing that you are picking up a higher mix from exomes. Is it reasonable as we think about our models for 2024 that greater than 10 percent should be readily achievable? But any other granularity or commentary about the levers of growth in 24 would be helpful.
Speaker 2: transcript
Speaker 2: And that will conclude the Q&A for today. I will now like to send a conference back to Katherine Stowen for any closure remarks.
And that will conclude Q&A for today I would now like to turn the conference back to Katherine still in for any closing remarks.
Speaker 4: transcript
Speaker 4: Great, thank you. We have a strong and growing business, a commitment from the management team to continue to do it as efficiently as possible. And we are grateful for the continued support of our shareholders and look forward to seeing many of you at an upcoming conference. Thank you.
Great. Thank you, we have a strong and growing business.
Commitment from the management team to continue to do it as efficiently as possible.
And we are grateful for the continued support of our shareholders and look forward to seeing many of you at an upcoming conference. Thank you.
Speaker 2: transcript
Speaker 2: And this concludes today's conference call. Thank you for participating. You may not disconnect. Everyone have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Kevin Feeley: Yeah, I mean, we're not providing full year, 24 guidance. We'll do that in early January, but try to outline for you in our prepared remarks. And there's a page in our earnings materials, the deck we posted to our website. Really to sketch out what we believe is an illustration of the path to profitability and believe firmly we can get there to break even beyond. Even if you assume the year-over-year revenue growth of around 20 percent.
Have a great day.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Kevin Feeley: And if you think about the go-forward base, all of our growth is really going to come from the exome portfolio, which just grew well in excess of that mark. And so really believe that you should expect similar exome growth year-over-year moving forward. If you recall, this year was impacted earlier from some price concessions we offered to the marketplace at the end of next year. So that played with the year-over-year growth rate sum.
Okay.
Yes.
Kevin Feeley: That's all worked through the system and believe at this point you should expect on exome only sequential ASP improvements moving forward. So might expect a greater growth rate year-over-year from 23 to 24 than what we posted this year. Okay, that's helpful. And if I can sneak one last one, the adjusted gross margin from continuing ops of 48 percent, that was strong and well above our modeling. Do you think that's perhaps a level that you can build off from here or were there any one-timers in Q3?
Kevin Feeley: Yeah, we do think it's a new level or base took to work off of. There were no meaningful one-time items in that number, either in terms of ASP's revenue or COGS. To your point, we are seeing some efficiency initiatives take hold and provide results ahead of schedule. I try to call out a few in my opening remarks. But yeah, we've outperformed in the cost per test in particular cost per test around exome and think that those efficiency gains are year to stay.
Operator: Okay, that's it for me. Thank you. One moment for our next question. Thank you.
Operator: And our next question will come to line of Brandon Kuyard from Jeffries. Your line is open. Thanks.
Prashant Kota: This is not on for Brandon. Maybe stick with gross margin there. Appreciate all the color cabin. In terms of the three buckets, you spiked out for the sequential improvement in gross margin. Should we think about each one of those kind of having a similar contribution or is there one in there that kind of was an outside driver to the improvement we saw in 3Q? Well, it's really that I would say take them in the relative order that I outlined with cost per test leading the way there.
Prashant Kota: And those are coming from a number of areas, both in the wet and dry side of the laboratory. Summer process related, summer technology related. The new machinery from Aluminum is paying off as expected. I think what gives us the most comfort and conviction moving forward is we've got a large road map going forward of additional efficiency items that are near term line of sight and can be relied on. And so we're only just getting started in driving down cost per test of exome.
Prashant Kota: That one probably leads away and you can take them in the ranked order in which I outline. That's helpful, and then appreciate all the color on the costs that you just want to ask. So 40 million of further costs that was reiterated, you're possibly target for 2025. So not pulling it forward on those ranking. I mean, I was supposed to think about that when that possibility of question comes, it could be more meaningful given the additional 40 million that's coming out today or just trying to get hands around.
Prashant Kota: Even a profitably target not pulling forward but taking another 40 million out of the cost structure. Thanks. Yeah, I think that the marker of 2025 acknowledges that the revenue base came in a bit lower than expected for this full year. The 40 million really meant to ensure we made the commitment we made, which was to turn this profit, this company profitable by the end of 2025. We're more convicted today in our ability to do that.
Prashant Kota: Frankly, we found more efficiencies as part of a recent review than we thought we might on the outside outset of that analysis. I think any upside to be able to pull profitability into 2024 would come from outsized revenue growth, which of course we're aiming to achieve, but wanted to be careful not to overpromise. I guess last one maybe for a tether, you know, you hasn't made a lot of changes on the commercial side, you know, working on new territories, you know, new outreach programs, things like that.
Prashant Kota: Maybe just talk a little bit about what the recent hire for your chief growth officer to respect any kind of change or additional things there in the commercial side, or more just kind of a continuation of some of the moves you guys have made so far this year.
Katherine Stueland: Thanks. Certainly, so just added Melanie Duquette, who joined in September to lead the overall commercial strategy to working off of a strong foundation that we have in place, I think to take us to kind of the 2.0 version of where we want to go in terms of commercial efficiency. So really what we expect is, I would say, the cross-functional teams that are focusing on growth and on account profitability to be really working more efficiently together.
Katherine Stueland: So I would say she has done a tremendous job when she was her prior company, really shifting the focus from volume to keeping the team focused on volume on revenue, on ASPs and overall account profitability. So I would say that's what we're looking for in terms of the shifts moving forward, and just some continued improvement on overall efficiency, and ensuring that those teams that we're working with are working in a more singular way and support of account growth. So continued focus on opening up markets, but doing it in a way that will align with our P&L and will continue to focus on delivering on goods, patient care.
Operator: One moment for our next question.
Matt Sykes: And our next question comes in line of Matt Sykes from Goldman Sachs. Your line is open. Hey guys, this is Prashant Kota on from Matt.
Katherine Stueland: What split? Do you see between inpatient and outpatient exome testing? And do you see that evolving over time? Hi Prashant, yes. So the vast majority thinks 97, 98 percent is in the outpatient setting today. Really predominantly focused on exome versus genome in that outpatient setting. I would say though that the rapid setting in the inpatient, which is primarily a utilization of our rapid genome products, that is growing quickly. It's just a very small portion of the business.
Katherine Stueland: I think that's going to fall into the category of longer term market building. There's a lot of fundamental dynamics that we have to continue to work through in order to draw a utilization. That thing said we just had a really nice win at a health system in Florida where we've been able to get an institutional contract set up to be able to draw a utilization of our rapid genome in the NICU.
Katherine Stueland: So I'm encouraged by some ones like that that ensure that that product is being utilized. The vast majority of the inpatient is institutional pay. So that's obviously one barrier that that we have removed both for utilization and also for us. We get paid 100 percent of the time on those. So we really appreciate that business. But we continue to view that as being a longer poll in terms of driving utilization. That's going to take some more time. So as we think about the breakdown over the next several years, we're still going to see it predominantly in that outpatient penny.
Katherine Stueland: Got it. Thank you.
Katherine Stueland: And then can you just talk about your progress in reducing claim denials and specifically what percent of claims are not approved if you have that number and roughly how long is the appeals process? Yeah. So as we talked about, we did bring in a bunch of new folks. Really to take a look at our end-to-end processes in particular on the front end of claim submission. So a lot of work is ongoing and we did see an uptick in ASPs that all driven by a slight reduction in the denial rate this quarter.
Katherine Stueland: So pleased with the initial findings, certainly a long way to go there. I think it was just important to get fresh eyes on our processes and we really feel confident that much of the denials are addressable to your question north of 60%. So low 60s is our denial rate today on the exome portfolio that hasn't changed in a while. Although we did improve about one percentage point in the third quarter versus the second and that's what drove the incremental uptick in average ASP.
Katherine Stueland: I think longer term you should expect us to take incremental bites out of that denial rate with each passing quarter as the effects of the ongoing work begins to take hold. The appeal process themselves itself is lengthy with really us going back to payers to re-adjudicate claims based on the medical necessity and unique circumstances of patient We have an appeal process stood up today but I think more important to driving down denials and improving ASPs and therefore revenue comes from avoiding denied claims and that's where all of our effort is focused at the moment.
Katherine Stueland: God, that makes sense and if I could squeeze one last one in how are you thinking about capital allocation given the new capital you've raised with the debt agreement? Yeah, I think the way we look at the new debt agreement is to couple it with the cost reduction actions that we took today which as I mentioned the reductions really placing an emphasis on three main priorities for the company. How do we improve exome reimbursement by reducing denials and then how do we find cost efficiency and reduce cost elsewhere to improve the financial health of GeneDx to meet that commitment to become profitable sustainably in 2025 and beyond.
Katherine Stueland: And so all of our available capital is allocated to supporting those three pursuits with any capital allocated to R&D and product and technology to find ways to help the company get more efficient to drive down exome costs. Great, thank you. Thank you.
Operator: And that will conclude the Q&A for today.
Katherine Stueland: I would now like to turn the conference back to Katherine still in for any closer remarks. Great, thank you. We have a strong and growing business, a commitment from the management team to continue to do it as efficiently as possible. And we are grateful for the continued support of our shareholders and look forward to seeing many of you at an upcoming conference.
Operator: Thank you.
Operator: And this concludes today's conference call. Thank you for participating. You may not disconnect. Everyone have a great day.