Q4 2023 GeneDx Holdings Corp Earnings Call

February 20, 2024

Session to ask a question. During this session you will need to press star one on your telephone as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Sabrina Denver Chief of staff. Please go ahead.

Thank you operator, and thank you to everyone for joining us today.

On the call, we have Katherine stealing president and Chief Executive Officer, and Kevin Daly Chief Financial Officer.

Earlier today <unk> released financial results for the fourth quarter ended December 31, 2023 and share guidance for the full year 2024.

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.

Looking statements inherently involve risks and uncertainties and only reflect our view as of today February 20th and we are under no obligation to update.

When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.

Please refer to our fourth quarter 2020 earnings release and slides available at IR Dot <unk> dot com for definitions and reconciliations of non-GAAP measurements and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward looking statements and with that I'll turn the call.

All over to Katherine.

Thanks, Sabrina and thank you all for joining us.

123 was a pivotal year for us at <unk>.

On a stronger path forward and closer to our goal of reaching profitability in 2025.

Last year, we centered our entire team on three goals.

One increasing utilization of our industry, leading exome and genome.

[music].

<unk>, improving our average reimbursement rate and three dramatically, reducing our cash burn.

The combination of these three organizational goals ultimately ensure that our teams were focused on what's clinically best for patients and what's best for the financial health of the company and that focus paid off.

Our teams worked with deep commitment in the fourth quarter and delivered $58 million of revenue driven by more than 68% year over year growth in exome and genome test revenue.

Expanded our adjusted gross margins to 56%.

And ended the year ahead of our expected cash position, demonstrating a 51% year over year reduction in burn.

We're proud of our team's performance and we're prepared to rinse and repeat that same level of commercial and operational execution.

As we look to 2024 and based on what we're seeing so far you can continue to expect this level of focus on exome and genome revenue growth gross margin expansion and disciplined cash management the.

Okay.

Thank you for standing by and welcome to the Gtx fourth 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 this session you will need to press star one on your telephone.

The investments that were making whether it's in commercial operations and medical affairs, our product and technology are directly tied to these goals.

In the fourth quarter, we realigned our sales strategy to focus on account profitability.

We've right sized our sales territories and further refined our commercial tactics and tools with account profitability in mind and we're seeing good progress.

Today's program is being recorded and now I'd like to introduce your host for today's program Sabrina Dunbar Chief of staff. Please go ahead.

Our strategy continues to include efforts that drive exome conversion with current customers, but we're taking a more precise yet high impact approach with new customer acquisition, mainly targeting pediatric neurologists, we continue to see better traction and faster growth ramps with these new ordering providers compared to lower productivity.

Thank you operator, and thank you to everyone for joining us today.

On the call, we have Katherine stealing president and Chief Executive Officer, and Kevin Daly Chief Financial Officer.

Earlier today <unk> released financial results for the fourth quarter ended December 31, 2023 ensured guidance for the full year 2024.

Activity accounts, including general Pediatrics.

Before we begin please take note of our cautionary statements.

We're also keeping our operations team focused on the biggest levers for our P&L.

May make forward looking statements on today's call, including about our business plans guidance and outlook.

<unk>, our billing operations and Cogs reduction among other efforts and ensure we maintain our turnaround time.

Forward looking statements inherently involve risks and uncertainties and only reflect our view as of today February 'twenty, yes, and we are under no obligation to update.

Our product and tech team is working on our strategy to further scale our operations improve our customer experience open up access with EMR integrations automate our billing operations and drive greater efficiency in every aspect of the business.

When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.

Please refer to our fourth quarter 2023 earnings release and slides are available at IR Dot G&A ex dot com for definitions and reconciliations of non-GAAP measurements and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward looking statements and with that I'll turn the call.

The total addressable market in Pediatrics is March and while we are the dominant provider of whole exome sequencing today, we've only penetrated about 3% of the total addressable market of $3 billion in the U S only pediatric setting.

All over to Katherine.

Thanks, Sabrina and thank you all for joining us.

It's a market that we're developing in pediatric neurology, where clinical evidence and health economics strongly support the transition to exome analysis.

123 was a pivotal year for us at <unk> are on a stronger path forward and closer to our goal of reaching profitability in 2025.

We will also expand further into the general pediatric setting over the coming years as guidelines and payer policy continued to evolve to become more ready for commercial expansion and execution.

Last year, we center, our entire team on three goals.

One increasing utilization of our industry, leading XL in genome.

Two improving our average reimbursement rate and three dramatically, reducing our cash burn.

On the other side of that is an entire $10 billion market in the U S. Only for adult conditions that will be working to develop over the mid and long term and a long way along the way there is a growing data opportunity in rare disease drug development.

The combination of these three organization uncles ultimately ensure that our teams were focused on what politically best for patients and what's best for the financial health of the company and not focus paid off.

We've steadily added Biopharma partners and have 20 active programs.

Our teams worked with deep commitment in the fourth quarter and delivered $58 million of revenue driven by more than 68% year over year growth in exome and genome test revenue.

Mainly with biotech companies, who are relying on us to find patients with this specific variant for clinical trial purposes, we're expecting that business to continue to grow it at a similar pace. We think there's great promise and the role that diagnostics can play in rare disease drug development.

Expanded our adjusted gross margins to 56%.

And ended the year ahead of our expected cash position, demonstrating a 51% year over year reduction in burn.

In fact, the New York Times recently highlighted our new gene therapy for children with hearing loss.

We're proud of our team's performance and we're prepared to rinse and repeat that same level of commercial and operational execution.

<unk> to an 11 year old boy, who had no ability to here until researchers at the children's hospital of Philadelphia gave him an experimental gene therapy from our partner <unk> and Eli Lilly company the.

As we look to 2024 and based on what we're seeing so far you can continue to expect this level of focus on the exome and genome revenue growth gross margin expansion and disciplined cash management.

The boy was able to hear sound for the first time ever and now the company is expanding its research to several other centers.

And just a few weeks ago FDA Commissioner Dr. Robert Taylor said, the agency will need to get creative about regulatory pathways, given the tsunami of rare disease and gene therapies that the FDA is anticipating.

Investments that were making whether it's in commercial operations and medical affairs, our product and technology are directly tied to these goals.

In the fourth quarter, we realigned our sales strategy to focus on account profitability.

Rare disease treatments are reliant upon rare disease diagnoses and Thats, what we do best at Gene Dx.

We've right sized our sales territories and further refine our commercial tactics and tools, but account profitability in mind and we're seeing good progress.

We believe this market is developing and are well positioned to be the genetic testing partner of choice for these companies.

Our strategy continues to include efforts that drive the Exxon conversion with current customers, but we're taking a more precise yet high impact approach with new customer acquisition, mainly targeting pediatric neurologists, we continue to see better traction and faster growth ramps with these new ordering providers compared to lower productivity.

Looking forward to 2020 guidance, we expect a similar growth trajectory as demonstrated quarter over quarter in 2023, as we continue to focus the teams on driving exome and genome utilization and improving our reimbursement rate.

With that in mind, we expect to deliver between $220 million to $230 million in revenue this year and Kevin will provide some additional commentary commentary.

Activity at him.

<unk> General Pediatrics.

We're also keeping our operations team focused on the biggest levers for our P&L.

With a growing proportion of our test mix shifting to exome, we will continue to unlock greater gross margins effectively converting more of the market to better volume and with the continued decrease in cash burn we will end the year with strong operating leverage to put us on the precipice of profitability heading into 2025.

Courts out billing operations and Cogs reduction among other efforts and ensure we maintain our turnaround time.

And with that I'll hand, the call over to Kevin Thanks Catherine.

Fourth quarter 2023 revenues from continuing operations grew to $58 1 million compared to $45 9 million in 2022.

The total addressable market in pediatrics is large and while we are the dominant provider of whole exome sequencing today, we've only penetrated about 3% of the total addressable market of $3 billion in the U S only pediatric setting.

$54 million in the third quarter that is an increase of 27% year over year, and 15% sequentially driven by exome. Our team resulted over 15600 whole exome and genome tests in the fourth quarter, which generated revenues of over $39 million. This quarter from the excellent portfolio, that's an increase of <unk> <unk>.

It's a market that we're developing in pediatric neurology, where clinical evidence and health economics strongly support the transition to exome analysis.

We will also expand further into the general pediatric setting over the coming years as guidelines and payer policy continue to evolve to become more ready for commercial expansion and execution.

68% year over year and 15% sequentially.

Adjusted gross margin from continuing operations was 56% in the fourth quarter of 2023.

Up from 41% a year ago and up from 48% in the third quarter.

The margin expansion during the quarter is driven by favorable mix shift towards exome and continued cost per test leverage for <unk>.

Fourth quarter did have certain nonrecurring items, which positively impacted adjusted gross margin by approximately 400 basis points. So the underlying rate is 52% for the fourth quarter.

We've steadily added Biopharma partners and have 20 active programs, mainly with biotech companies, who are relying on us to find patients with this specific variant for clinical trial purposes, we're expecting that business to continue to grow it at a similar pace, we think there's great promise and the role that diagnostics can play in rare disease.

On mix Exome and genome represented 27% of all tests resulted in the fourth quarter of 2023 up from 16% a year ago and up from 23% in the third quarter.

Exxon portfolio continues to operate north of 60% gross margin, which means the total gross margin will continue to benefit as excellent picks up greater share of our overall test volume and replaces lower margin products.

<unk> development.

In fact, the New York Times recently highlighted our new gene therapy for children with hearing loss they'd.

They featured at an 11 year old Boy, who had no ability to here until researchers at the children's hospital of Philadelphia gave him an experimental gene therapy from our partner <unk> and Eli Lilly company.

Cost per test the team is driving scalability and cost efficiency across both the wet and dry lab processes.

While we are very pleased with where exome and genome costs are today several initiatives are in our pipeline to further improve the cost base over time.

The boy was able to hear sound for the first time ever and now the company is expanding its research to several other centers.

And just a few weeks ago FDA Commissioner Dr. Robert Taylor said, the agency will need to get creative about regulatory pathways, given the tsunami of rare disease and gene therapy that the FDA is anticipating.

Automation and AI across clinical interpretation and analysis offer large untapped long term opportunities ahead.

Now, let's move down to operating expense total adjusted operating expenses were $49 4 million for the fourth quarter of 2023 that is a reduction of 46% year over year. We once again delivered reduced costs as we further separate from the legacy <unk> business.

Rare disease treatments are reliant upon where disease diagnoses and Thats, what we do best at Gene Dx.

We believe this market is developing and are well positioned to be the genetic testing partner of choice for these companies.

Our team has a relentless focus on improving operating leverage and efficiency throughout the business and that will continue into 2024.

Looking forward to 2024 guidance, we expect a similar growth trajectory as demonstrated quarter over quarter in 2023, as we continue to focus the teams on driving XOMA and GM utilization and improving our reimbursement rate.

And on the bottom line total company adjusted net loss for the fourth quarter of 2023 narrowed to $17 8 million that is an improvement of 76% year over year and 16% sequentially from the third quarter.

With that in mind, we expect to deliver between $220 million to $230 million in revenue this year and Kevin will provide some additional commentary commentary.

Our fourth quarter net cash burn excluding any financing proceeds was $32 9 million, which improved 51% year over year and improved 22% from the third quarter the.

With a growing proportion of our test mix shifting to ask them. We will continue to unlock greater gross margins effectively converting more of the market to better volume and with the continued decrease in cash burn we will end the year with strong operating leverage to put us on the price defense of profitability heading into 2025.

Net cash burn this quarter included $5 million in scheduled payments under the 2022 legacy <unk> payer settlement.

$3 million to discharge operating payables for the exited reproductive health business and $1 million in severance payments related to the previously announced cost reduction initiatives.

And with that I'll hand, the call over to Kevin Thanks Catherine.

Fourth quarter 2023 revenues from continuing operations grew to $58 $1 million compared to $45 9 million in 2022.

Excluding these items represented a cash burn from continuing operations was $23 9 million in the fourth quarter and we expect the net cash burn to continue to decrease as we coupled high margin growth with our cost reduction initiatives.

$54 million in the third quarter that is an increase of 27% year over year, and 15% sequentially driven by exome. Our team resulted over 15600 whole exome and genome tests in the fourth quarter, which generated revenues of over $39 million. This quarter from the <unk> portfolio, that's an increase of <unk> <unk>.

Cash cash equivalents marketable securities and restricted cash was $131 1 million as of December 31, 2023.

And as a reminder, in October 2023, we announced that we entered into a five year senior secured credit facility with perceptive advisors.

68% year over year and 15% sequentially.

Adjusted gross margin from continuing operations was 56% in the fourth quarter of 2023.

Agreement provides for up to $75 million in capacity consisting of an initial tranche of $50 million, which was drawn in October 2023, and an optional second tranche of $25 million, which is available to us through December 2024 subject to certain criteria.

Up from 41% a year ago and up from 48% in the third quarter.

The margin expansion during the quarter is driven by favorable mix shift towards exome and continued cost per test leverage the fourth quarter did have certain nonrecurring items, which positively impacted adjusted gross margin by approximately 400 basis points. So the underlying rate is 52% for the fourth quarter.

And now turning to guidance for 2024, we expect.

To deliver revenues between 220 $230 million for the full year of 2024.

On mix Exome and genome represented 27% of all tests resulted in the fourth quarter of 2023 up from 16% a year ago and up from 23% in the third quarter.

Historically, we see the first quarter is our seasonally weakest and the fourth quarter is our seasonally strongest in terms of both revenue and gross margin.

We expect to continue to expand gross margin and land full year 2024, adjusted gross margins in excess of 50%.

Excellent portfolio continues to operate north of 60% gross margin, which means the total gross margin will continue to benefit as excellent picks up greater share of our overall test volume and replaces lower margin products.

Comparison full year 2023 was 45%.

We anticipate using 75% to $85 million of net cash for full year 2024.

Cost per test the team is driving scalability and cost efficiency across both the wet and dry lab processes and.

We've now delivered seven consecutive quarters of cash burn reduction since the acquisition of Gtx and expect to drive quarterly sequential declines in cash burn throughout 2024.

While we are very pleased with where exome and genome costs are today several initiatives are in our pipeline to further improve the cost base over time.

And finally, we once again reiterate our expectation to turn profitable in 2025.

<unk> and AI across clinical interpretation and analysis offer large untapped long term opportunities ahead.

With that I'll now turn it back to Catherine for any closing remarks.

Thanks, Kevin I'd like to acknowledge that on February 29th Ed is rare disease day and it serves as a reminder of why we do what we do.

Our overarching goal is to create a vibrant company that drives a new standard of care using genomics insurance financial success and profitability and create meaningful shareholder value.

Our team has a relentless focus on improving operating leverage and efficiency throughout the business and that will continue into 2024.

Our team is fully committed to that.

I'd like to thank our employees for their deep dedication and passion to serve that providers and patients who put their trust in us.

And on the bottom line total company adjusted net loss for the fourth quarter of 2023 narrowed to $17 $8 million that is an improvement of 76% year over year and 16% sequentially from the third quarter.

And I'd like to thank our shareholders, who continue to support us as we transform <unk> for growth for scale and for profitability.

All in service of an ever growing population of patients and partners, who can benefit from our work.

And with that I'll turn the call over to the operator for Q&A.

Certainly and ladies and gentlemen, as a reminder, if you do have a question at this time. Please press star one on your telephone one moment for our first question.

Okay.

And our first question.

It comes from the line of Brandon <unk> from Jefferies. Your question. Please.

Thanks, Good afternoon.

Catherine the Exxon volume mix shift totally played out in the fourth quarter do you think that 27% of volume.

Is a good baseline off of which to think about for 'twenty core how do you expect that to evolve as you move through the year and where do you think that could be exiting <unk>.

Yeah, So I'll kick it off.

Kevin comment as well, we do think Thats a good baseline I think looking back to where we were a year ago.

We are really really focused on continuing that exome conversion and I think in the fourth quarter.

We really started to see even stronger sales force performance on that.

And so we're building off of that momentum moving forward.

And really continuing to drive.

Continued conversion.

It's part of the reason why we're focusing our efforts with pediatric neurologists that segment from a customer perspective is primed to be able to convert faster. So.

We feel confident we will continue to expand that throughout the course of the year.

Hey, good morning, Kevin you talked to.

Sorry go ahead Kevin.

No go ahead.

I have nothing to add to that so far away.

Okay.

Kevin you talked about realigning the sales force in the fourth quarter to target more profitable accounts.

Can you just unpack how you go about that how you have Intel.

The profitability by account and should we expect any.

Other Salesforce tweaking do you expect to add head count capacity in 2004, where your outlook for the commercial organization.

Yes. So what we did was we took a look at where there is volume and we took a look at where there is favorable payer policy and whether the unfavorable payer policy. So.

Those were the main factors that we that we took a look at in terms of being able to really better define account profitability.

And as we put that lens on it. It was it was super clear that there were just some territories that they're not going to be productive or profitable.

The near term and therefore, not worthy of a dedicated sales reps. So we actually scaled back some of the territories of course, where there may be an account.

That's an outlier in some of these lower profitability segments, we have a rep, who is able to extend and be able to ensure that we're maximizing that but.

We're happy with where we landed in terms of $3 $5 million of of <unk>.

Question.

Revenue per Rep for 2023 that was an improvement over the prior year.

Okay.

Yes.

And our first question.

And with the.

It comes from the line of Brandon <unk> from Jefferies. Your question. Please.

The new territory cuts, we feel really confident that we're going to be able to go.

Hey, Thanks, good afternoon.

Catherine the extra volume mix shift certainly played out in the fourth quarter do you think that 27%.

Grow.

At that same rate that we saw last year with the team that we have.

Volume.

We also are.

Is a good baseline off of which to think about for 'twenty core how do you expect that to evolve as you move through the year and where do you think that could be.

Really taking a look at the inpatient setting to ensure that we can continue to drive utilization is a really small segment of revenue today, but it's really healthy revenue for us and that its institutional type. So we're not having the noise that you see.

'twenty one.

Yeah, So I'll kick it off and I'll, let Kevin comment as well, we do think that's a good baseline I think looking back to where we were a year ago.

We are really really focused on continuing that exome conversion and I think in the fourth quarter.

Commercial payers.

And thats, mainly with rapid whole genome sequencing. So we've got a small.

We really started to see even stronger sales force performance on that.

Targeted team to really drive enterprise sales.

And so we're building off of that momentum moving forward.

In the in patient setting.

So I don't expect that we're going to have any major.

And really continuing to drive continued.

Sales force expansion this year.

Conversion.

But where we can be opportune to NASDAQ as we start to see.

It's part of the reason why we're focusing our efforts with pediatric neurologists that segment from a customer perspective, it's just primed to be able to convert faster so.

Additional.

Progress with the team.

May add in that enterprise team, but we'll see it's a longer sales cycle.

We feel confident we will continue to expand that throughout the course of the year.

That's helpful last one for Kevin.

Could you unpack the 400 basis point gross margin benefit in the fourth quarter what that was.

Hey, Good morning, guys can you talk to.

Sorry go ahead Kevin.

No go ahead.

Attributable to.

I have nothing to add to that so far away.

And then how much of the cash burn I think you said 75 to 85 for the year.

Okay.

Kevin you talked about realigning the sales force in the fourth quarter to target more profitable accounts.

Incorporated in that core.

Our legacy restructuring some of our outlays what have you.

Can you just unpack how you go about that how you have Intel in terms of profitability by account and should we expect any.

Yes, so the fourth quarter.

The benefits included the reversal of certain bonus and other incentive accruals that we had built up throughout the year and determined would not be payable.

Other Salesforce tweaking do you expect to add head count capacity in 2012, where your outlook for the commercial organization.

Yeah. So what we did was we took a look at where there is volume and we took a look at where there is favorable payer policy and whether the unfavorable payer policy. So.

Some of those ran through Cogs.

And we received some favorable reimbursement on our stop loss insurance frankly earlier in the year, we had some very high extra.

Extraordinary claims that went through expense related to <unk>.

Those were the main factors that we that we took a look at in terms of being able to really better define account profitability.

Cogs and we saw some relief in the fourth quarter that came through so when you adjust out those benefits.

And as we put that lens on it. It was it was super clear that there were just some territories that they're not going to be productive or profitable.

I think it's fair to say the operating run rate.

About 52% in the fourth quarter, which frankly, we're very pleased with.

In the near term and therefore not worthy of.

A dedicated sales reps, so we actually scaled back some of the territories.

And then on.

The full year guide for cash burn.

Worse, where there may be an account.

As a reminder December of 2024, we will have a scheduled payment. The next scheduled payment on the 2022 settlement between <unk> and one of its payers.

That's an outlier in some of these lower profitability segments, we have a rep who's able to extend and be able to ensure that we're maximizing that but.

We're happy with where we landed in terms of $3 $5 million of of.

So that that number is burdened by the next scheduled payments and then.

Revenue per Rep for 2023 that was an improvement over the prior year.

From $2 million to $5 million of other payments to put the entirety of legacy semaphore Tibet.

And with.

The new territory cuts, we feel really confident that we're going to be able to grow.

If you look at the Q4 cash burn excluding.

The settlement payment that we made in December of 2004, and severance and some old payables sent before Q4 was.

At that same rate that we saw last year with the team that we have.

We also are.

<unk> really taking a look at the inpatient setting to ensure that we can continue to drive utilization is a really small segment of revenue today, but it's really healthy revenue for us and that its institutional type. So we're not having the noise that you see from.

$23 $9 million I think thats more representative of what's our run rate today than we have ever every confidence that as the business grows and in particular with the.

High margin exome business will continue to expand gross profit.

And.

We continue to drive down operating expense. So you should expect us to see a reduction in cash burn sort of with each sequential quarter in 2024.

So payers.

And thats, mainly with rapid whole genome sequencing. So we've got a small.

And targeted team to really drive enterprise sales.

Okay. Thank you.

Thank you one moment for our next question.

In the in patient setting.

So I don't expect that we're going to have any major.

Sales force expansion this year.

And.

Our next question comes from the line of Matt <unk> from Goldman Sachs. Your question. Please.

But where we can be opportune to NASDAQ as we start to see.

Hey, guys for Sean on for Matt.

Additional.

Just with the key competitor in rare disease off the market do you anticipate being able to capture some of that market share and if so what's your strategy to try and capture some of those share gains.

Progress with the team we may add in that enterprise team, but we'll see it's a longer sales cycle.

That's helpful last one for Kevin.

Yes.

Could you unpack the 400 basis point gross margin benefit in the fourth quarter, what that was attributable to and then how much of the cash burn I think you said 75 to 85 for the year Whats incorporated in that four.

Fantastic question.

We absolutely feel confident in our ability to.

Be able to step in and.

Provide our services to.

To that market I think in particular.

Our legacy restructuring, Singapore outlays, what have you.

A lot of the focus that.

Yes, so the fourth quarter.

That we saw.

The benefits included the reversal of certain bonus and other incentive accruals that we had built up throughout the year and determined we would not be payable.

With some of the rare disease testing was exactly in the market that we're aiming to drive greater utilization of exome N, which is the pediatric neurology setting.

Some of those ran through Cogs.

And so we're we're grateful for the efforts of others, who have really gotten pediatric neurologists to start ordering genetic testing and historically they haven't so we now have customer too.

<unk>.

We received some favorable reimbursement.

Reimbursement on our stop loss insurance frankly earlier in the year, we had some very high.

Extraordinary claims that went through expense related to <unk>.

Understand how to order testing now which patients should utilize it and we have a growing body of evidence including data that we presented at the American Epilepsy Society last fall that shows that.

Cogs and we saw some relief in the fourth quarter that that came through so when you adjust out those benefits.

It's fair to say the operating run rate.

About 52% in the fourth quarter, which frankly, we're very pleased with.

Exome is is.

Going to drive.

Higher diagnostic yield.

And then on the.

Then panels. So these are customers, who we have been converting.

Full year guide for cash burn.

As a reminder December of 2024, we will have a scheduled payments. The next scheduled payment on the 2022 settlement between <unk> and one of its payers.

Already we have a proven ability to convert them from panels to exome.

And we will continue to drive.

I think our market.

Brand to those clinicians and be able to convert the business throughout the course of the year.

So that that number is burdened by the next scheduled payments and then.

All of that really would be upside in terms of our outlook for 2024.

Anywhere from $2 million to $5 million of other payments to put the entirety of legacy semaphore Tibet.

Got it. Thank you that's helpful. And then what is the current split between <unk> six thousands indexes.

If you look at the Q4 cash burn excluding.

You have and how large of an impact will that transition have on Cogs and how long will it take to start realizing cost savings given the upfront cost of replacing machines.

This settlement payment that we made in December of 'twenty, four and severance and some old payables as said before Q4 was.

$23 $9 million I think thats more representative of what's our run rate today, and we have ever every confidence that as the business grows and in particular with the.

Yes, the excess represent the new machine.

<unk> represents about 20% of our fleet.

<unk>.

Take us through the end of the year based on our.

High margin exome business will continue to expand gross profit.

Scheduled deliveries to replace.

And.

The entirety of that fleet, we've got two machines live with.

We continue to drive down operating expense. So you should expect us to see a reduction in cash burn sort of with each sequential quarter in 2024.

With the second only going live in November and so there is not yet a full quarter effect.

The benefit to Cogs for that second machine, we're seeing good experience.

Okay. Thank you.

Yes.

Thank you one moment for our next question.

More importantly, the larger flow cell that has come out we launched subsequent to the end of the year. So in February that went live in so.

And.

Our next question comes from the line of Mac Sykes from Goldman Sachs. Your question. Please.

<unk> really won't start to make an impact on Cogs until.

Hey, guys for Sean on for Matt.

Just with the key competitor in rare disease off the market do you anticipate being able to capture some of them market share and if so what's your strategy to try and capture some of those share gains.

The second quarter at least from a full quarter perspective. So we've got two machines live and intend to replace the remaining or the fleet over the next.

Year or so.

Yes.

The benefits.

Fantastic question.

I'd say more importantly will start to be seen once we are producing.

We absolutely feel confident in our ability to be able to step in and.

At scale with all of those machines.

Provide our services to.

And with that larger flow cell in place, which again.

To that market I think in particular.

Just went live for us in February here.

So still to come.

A lot of the focus that.

Got it and then just a last quick question on what's the process of retiring a panel could you just elucidate that and how long does it take.

That we saw.

With some of the rare disease testing was exactly in the market that we're aiming to drive greater utilization of exome N, which is the pediatric neurology.

Currently I mean FERC.

What we've done is established.

<unk>.

A set of criteria for determining whether or not.

And so we're we're grateful for the efforts of others, who have really gotten pediatric neurologists to start ordering genetic testing and historically they haven't so we now have customer too.

We should be keeping we should be keeping a panel and it starts with what's best for patients and then there's a number of factors that we take a look at.

To really assess whether or not the gross margins are there.

Understand how to order testing now, which patient should utilize it and we have a go.

Is it the type of panel.

Growing body of evidence, including data that we presented at the American Epilepsy Society last fall.

Where it's actually primes for conversion to exome, and we should just be driving.

Is that.

Exome is.

Exome first versus clinicians who may be.

Going to thrive.

Higher diagnostic yield.

To ordering via our panel.

Then panels. So these are customers, who we have been converting.

And so we.

We established this rubric.

Already we have a proven ability to convert them from panels to exome.

<unk> identified about 350.

And we'll continue to drive.

First that we determined we could retire we did was higher than earlier this month.

I think our market.

Brand to those clinicians and be able to convert the business throughout the course of the year.

And.

That will be a process that we continue to utilize as we drive more and more utilization of exome and genome.

All of that really would be upside in terms of our outlook for 2024.

It represented.

Got it. Thank you that's helpful. And then what is the current split between six thousands indexes.

I would say a small portion of.

Utilization so it really was maintenance for us to be able to keep those up and running.

You have and how large of an impact will that transition have on Cogs and how long will it take to start realizing cost savings given the upfront cost of replacing machines.

So once we've made that determination.

It takes several months just to be able to put the product and tech teams.

Yes, the <unk> represent the new machine.

<unk> represents about 20% of our fleet.

In place center that we're communicating with customers and ensure that we have a good.

It'll take take us through the end of the year based on our.

Our strategy for ensuring that there isn't a discontinuation of care.

Scheduled deliveries to replace.

And that we can.

The entirety of that fleet, we've got two machines live with.

Kind of have a warm transfer to whatever that new test is if it's a new panel or if it's an exome or a genome.

With the second only going live in November and so there is not yet a full quarter effect.

It's something we intend to continue to drive and feel like we're developing kind of strength.

The benefit to Cogs for that second machine, we're seeing good experience.

More importantly, the larger flow cell that has come out we launched subsequent to the end of the year. So in February that went live in so.

With that being a muscle organizationally.

Alright.

Thank you one moment for our next question.

<unk> really won't start to make an impact on Cogs until.

And our next question comes from the line of Dan Brennan from Cowen Your question. Please.

The second quarter at least from a full quarter perspective. So we've got two machines live and intend to replace the remaining or the fleet over the next.

Great. Thanks, Thanks for the questions congrats on the quarter.

Maybe first one would be I think maybe Brandon I think gas on the first question.

Year or so.

The benefits.

You exited the year in the fourth quarter to 27% mix as you kind of commented on Exxon's genome. So I believe you said that is a reasonable point.

I'd say more importantly, we will start to be seen once we are producing.

At scale with all of those machines.

For all of 'twenty four I'm, just wondering why that wouldn't continue to move higher.

And with that larger flow cell in place, which again.

Just went live for us in February here.

We will continue its a good starting point Dan.

So still to come.

And thank you for for the.

Got it and then just a last quick question on what's the process of retiring a panel could you just elucidate that and how long does it take.

<unk> question, we think it's a good starting point.

We intend to continue to increase.

Currently I mean FERC.

That mix percent and throughout the course of the year, yes.

What we've done is establish.

Yes, yes, Dan to be clear, we think it's the right.

A set of criteria for determining whether or not.

ZIP point, but absolutely with each sequential quarter, we should expect to pick up some.

We should be keeping we should be keeping a panel and it starts with what's best for patients and then there is a number of factors that we take a look at.

Mix, there towards exome and genome.

With each passing quarter throughout the year.

To really assess whether or not the gross margins are there.

And is there like a level I mean, we could play with the math is there a level.

Is it the type of panel.

And exit the year at 30% 35 or is it tough to us to kind of back into that.

Where it's actually primes for conversion to <unk>, we should just be driving at.

Yes, I think the way we've always viewed it as.

Zone first versus clinicians who may be.

In order to reach profitability.

To ordering via our panel.

We've said that.

It needs to get closer to 40% of all tests being exome and genome.

And so we.

We established this rubric, we identified about 350.

And we're anticipating that point, a breakeven early 2025 and so.

Tests that we determined we could retire we did retire them earlier this month.

I think something in the mid <unk> by the end of this year to exit the fourth quarter is likely the right landing spot and will evolve towards that.

And.

That'll be a process that we continue to utilize as we drive more and more utilization of exome and genome.

Each passing quarter of 2024.

Great. Thanks for that that's helpful and then.

It represented.

I think the guide right is for greater than 50% plus gross margin.

I would say a small portion of.

<unk> underlying was 52% is there a reason if mix is going up.

Of utilization, so it really with maintenance for us to be able to keep those up and running.

Is there a reason why the fourth quarter, 52% shouldn't be like the floor for 'twenty four or was there something else going on with the mix shift that could drive gross margins down.

So once we've made that determination.

It takes several months.

To be able to to put the product and tech teams.

No look.

Overall the comparison.

And place Centura that we're communicating with customers and ensure that we have a good.

Is 45% for full year 2023, I think we just want to see a little bit more data come through before we rely on Q4, historically Q4 seasonally has been our strongest both in terms of revenue.

The strategy for ensuring that there isn't a discontinuation of care.

And that we can.

Kind of have a warm transfer to whatever that new test is if it's a new panel or if its an ex Omar genome.

Reimbursement and therefore gross margin and so we want to see a little more data come through before recall Q4.

That's something we intend to continue to drive and feel like we're developing kind of strength.

And ongoing trends certainly we're optimistic that there is.

With that being a muscle organizationally.

More room to improve average reimbursement rates and further.

Alright.

Thank you one moment for our next question.

Conviction that we can do to drive down Cogs.

And with each pair.

And our next question comes from the line of Dan Brennan from Cowen Your question. Please.

<unk> point, we pick up in overall test mix it should benefit.

Because the excellent portfolio continues to operate sort of mid 60% gross margin.

Great. Thanks, Thanks for the questions congrats on a quarter.

But we just want to see a little bit more data come through before we call Q4, the new normal if you will but extremely confident we will in the balance of the full year at that 50% or higher.

Maybe first one would be I think maybe Brandon I think gas on the first question.

You exited the year in the fourth quarter from 27% mix as you kind of commented on Exxon's genome. So I believe you said that.

Got it and then maybe the final one just biomarker bills like is there.

Reasonable point for all of 'twenty four I'm, just wondering why that wouldn't continue to move higher.

How could those impact you.

Me too.

We'll continue it it's a good starting point Dan.

To the extent these 15 states kind of you begin to see payment rates and there is another I think five seats behind it just is it are you already getting paid pretty universally.

And thank you for the clarifying question, we think it is a good starting point.

Just any color on the level of test today, and those 15 states to the extent you were to see commercial coverage go up to a 100% what kind of impact could that have thank you.

We intend to continue to increase.

<unk> mix percent and throughout the course of the year.

Yes, yes, Dan to be clear, we think it's the right.

Yes, there's no doubt that any improvement in underlying policy coverage is a net positive for us to the extent payors.

<unk> point, but absolutely with each sequential quarter, we should expect to pick up some.

Mix there.

Towards exome and genome.

Or state systems pick up <unk>.

For each passing quarter throughout the year.

Exome and genome coverage right that should be a net positive to us we expect it to be a net positive to us at the same time, we want to make sure we're not getting.

And is there like a level I mean, we could play with the math is there a level.

And exit the year at 30% 35 or is it tough to us to kind of back into that.

Ahead of ourselves so there's a long way between enacting a biomarker bill or putting in place a positive coverage decision and getting paid and so we want to make sure. We have the operational experience and more so can see it translate into actual cash collections before we start to rely on improved.

Yes, I think the way we've always viewed it as.

In order to reach profitability, we we've said that that rate needs to get closer to 40% of all tests being exome and genome.

And we're anticipating that point of breakeven.

Early 2025 and so.

Reimbursement.

But.

I think something in the mid <unk> by the end of this year to exit the fourth quarter is likely the right landing spot and will evolve towards that.

Recent momentum with respect to policy and in particular these biomarker bills its great thing for patients we believe ultimately.

And should be great for our business.

Each passing quarter of 2024.

Our expectations are built into the guide and we'll learn more for the year once there's more clarity on how some of these will be enacted in practice.

Great. Thanks for that that's helpful and then.

I think the guide right is for greater than 50% plus gross margin.

Got it terrific. Thank you.

<unk> underlying was 52% is there a reason if mix is going up.

Thank you one moment for our next question.

Is there a reason why the fourth quarter, 52% shouldn't be like the floor for 'twenty four or is there something else going on with the mix shift that could drive gross margins down.

And our next question comes from the line of Mark Massaro from <unk>. Your question. Please.

This is sitting on for Mike Thanks for taking the question.

No look.

Overall the comparison.

Walk through in some detail what youre expecting for 'twenty four in terms of exome conversion.

Is 45% for full year 2023, I think we just want to see a little bit more data come through before we rely on Q4, historically Q4 seasonally has been our strongest both in terms of revenue.

Aside from that it sounds like you might be expecting somewhat back half weighted year.

<unk> also highlighted picking up that competitive business as upside just.

Can you just walk us through any other puts and takes you discussed for 2020 for guidance.

Reimbursement and therefore gross margin and so we want to see a little more data come through before recall Q4.

Yeah.

Yes, I'll start I'd say the low end of the guide represents about 13% year over year growth, that's consistent with what we just delivered.

And ongoing trends certainly we're optimistic that there is.

More room to improve average reimbursement rates and further.

And we want to acknowledge that XOMA genomes are still relatively new technologies for some physicians.

Conviction that we can continue to drive down Cogs.

And with each pair.

<unk> point, we pick up in overall test mix it should benefit.

Expanding markets that takes time and we've learned some lessons from 2023, and we don't want to get over our skis with respect to the expectation on the rate of change to exome beyond what we can.

Because the excellent portfolio continues to operate sort of mid 60% gross margin.

But we just wanted to see a little bit more data come through before we call Q4, the new normal if you will but extremely confident we will end the balance of the full year at 50% or higher.

Clearly see in our data.

And I'll, just remind you that offsetting exome growth is roughly 30% or $60 million of full year revenue today comes from non exome tests and so as these non exon tests, which as you know we are relatively low gross margin non core to our strategy.

Got it and then maybe the final one just biomarker bills like is there.

How could those impact you.

Two.

To the extent these 15 states kind of you begin to see payment rates and there is another I think five seats behind it just is it are you already getting paid pretty universally.

They will be running off and some.

Fashion and so we expect to see some declines in volumes and revenue from non exome test offsetting volume growth and so tried to ensure that we acknowledged that in the guide that we provided.

Just any color on the level of test today, and those 15 states to the extent you were to see commercial coverage go up to a 100% what kind of impact could that have thank you.

Yes, there's no doubt and that any improvement in underlying policy coverage is a net positive for us to the extent payors.

Yes, and just to add a little bit of color.

You know I think our original guide from 'twenty three with heavily back.

Half of the year weighted.

Or state systems pick up <unk>.

What we are anticipating this areas.

XOMA genome coverage right that should be a net positive to us we expect it to be a net positive to us at the same time, we want to make sure we're not getting.

The steady growth, we really want modeling similar.

Similar to what we saw in terms of actuals in 'twenty three.

<unk>.

As Kevin said earlier I think seasonally.

Our strongest quarters are usually Q2 and Q4.

But I.

I would say continued steady growth throughout the course of the year.

Okay perfect. Thanks, so much.

Reimbursement.

And I'll go quick quick follow up.

But.

Maybe you could dig into.

Recent momentum with respect to policy and in particular these biomarker bills its great thing for patients we believe ultimately.

Our integration of all that how youre thinking about.

The potential upside from that opportunity.

So it sounds like you guys have consolidated the menu a little bit.

And should be great for our business.

Should we be thinking about that.

Our expectations are built into the guide and we'll learn more for the year once there's more clarity on how some of these will be enacted in practice.

Yeah, so starting with EMR.

I would say, it's something that we do <unk> and we will continue to focus on that and take to open up access.

Got it terrific. Thank you.

Thank you one moment for our next question.

So.

And our next question comes from the line of Mark Massaro from <unk>. Your question. Please.

But that is kind of table stakes in terms of how we how we operate how we make it easier.

This is Eddie on for Mark Thanks for taking the question.

To work with us on how we continue to smooth out the customer experience. So.

Could you walk through in some detail what you're expecting for 'twenty four in terms of exome conversion.

That is something that we will continue to invest and because honestly pays for itself.

Aside from that it sounds like you might be expecting somewhat back half weighted year.

And in terms of test for retirement.

<unk> also highlighted picking up that competitor businesses upside just.

We're really pleased.

As I had mentioned earlier that we were able to retire the 350 or so tests.

Maybe just walk us through any other puts and takes you discussed for 2020 for guidance.

And we feel like we have a healthy test menu and a very focused sales team and operations team.

Yeah.

Yes, I'll start I'd say the low end of the guide represents about 13% year over year growth, that's consistent with what we just delivered.

That's going to continue to drive that conversion to <unk> and as we keep making progress with that we will continue to have a healthy approach to.

And we want to acknowledge that XOMA genomes are still relatively new technologies for some physicians.

Reviewing that test menu to retiring tests over time.

Expanding markets that takes time and we've learned some lessons from 2023, and we don't want to get over our skis with respect to the expectation on the rate of change to exome beyond what we can.

We want to make sure that we can continue on that steady growth rate.

We feel like we're in a position of strength in terms of the overall commercial strategy and how that links up to our operations team Theres, a really beautiful handoff that we're seeing between those two teams.

Clearly see in our data.

And I'll, just remind you that offsetting exome growth is roughly 30% or $60 million of full year revenue today comes from non exon tests and so as these non exon tests, which as you know were relatively low gross margin non core to our strategy.

It keeps everyone really focused on near term execution. So.

We feel like we're in a great place in terms of getting volume in the door getting reports out and continuing to get good volume.

It will be running off in some fashion.

Continue to focus on that account profitability and.

<unk> fashion and so we expect to see some declines in volumes and revenue from non exome test offsetting volume growth and so tried to ensure that we acknowledged that in the guide that we provided.

Drive us forward towards profitability in 2025.

Thanks for taking the questions.

And just to add a little bit of color.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Katherine Stewart for any further remarks.

I think our original guide from 'twenty three with heavily back.

Half of the year weighted and what we are anticipating this areas.

Awesome. Thank you so much Jonathan and thank you to everyone for joining US we're excited about 2024.

The steady growth, we really want modeling.

And will it be at upcoming conferences.

Similar to what we saw in terms of actuals in 'twenty three.

In the coming weeks and look forward to seeing you. All then thanks so much.

<unk>.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

As Kevin said earlier I think seasonally.

Our strongest quarters are usually Q2 and Q4.

But.

I would say continued steady growth throughout the course of the year.

Okay perfect. Thanks, so much.

Just a quick quick follow up Carlo.

Maybe you could dig into.

Our integration of all of that how youre thinking about potential.

Potential upside from that opportunity.

It also sounds like you guys have consolidated the menu a little bit you know how should we be thinking about that.

Yeah, so starting with <unk>.

I wouldn't say, it's something that we do <unk> and we will continue to focus on that and take to open up access.

So.

But that is kind of table stakes in terms of how we how we operate how we make it easier.

To work with us.

We continue to smooth out the customer experience so.

That is something that we'll continue to invest and because.

Honestly pays for itself.

And in terms of test for retirement.

We're really pleased.

As I had mentioned earlier that we were able to retire those.

350, or so tests.

And we feel like we have a healthy test menu and a very focused sales team and operations team.

Can it continue to drive that conversion to <unk> and as we keep making progress with that we will continue to have a healthy approach to.

Reviewing that test menu to retiring tests over time.

We want to make sure that we can continue on that steady growth rate.

We feel like we're in a position of strength in terms of the overall commercial strategy and how that links up to our operations team.

Really beautiful handoff that we're seeing between those two teams.

Keeps everyone really focused on near term execution. So we.

We feel like we're in a great place in terms of getting volume in the door again at report valor and continuing to get good volume.

Continue to focus on that account profitability and.

Drive us forward towards profitability in 2025.

Please proceed with your question.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Katherine Stewart for any further remarks.

Awesome. Thank you so much Jonathan and thank you to everyone for joining US we're excited about 2024.

And will it be at upcoming conferences.

In the coming weeks and look forward to seeing you. All then thanks so much.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

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Thank you for standing by and welcome to the Gtx fourth 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 and answer session to ask a question. During this session you will need to press star one on your telephone as a reminder, today's program is being.

<unk> recorded and now I'd like to introduce your host for today's program Sabrina Dunbar Chief of staff. Please go ahead.

Thank you operator, and thank you to everyone for joining us today on.

On the call we are Kathryn Stealen, President and Chief Executive Officer, and Kevin Daly Chief Financial Officer.

Earlier today <unk> released financial results for the fourth quarter ended December 31, 2023, and shared guidance for the full year 2024.

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.

Looking statements inherently involve risks and uncertainties and only reflect our view as of today February 20 S. And we are under no obligation to update.

When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.

Please refer to our fourth quarter 2023 earnings release and slides available at IR Dot <unk> dot com for definitions and reconciliations of non-GAAP measurements and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward looking statements and with that I'll turn the call.

All over to Katherine.

Thanks, Sabrina and thank you all for joining us.

23, with a pivotal year for us at <unk>.

On a stronger path forward and closer to our goal of reaching profitability in 2025.

Last year, we center, our entire team on three goals.

One increasing utilization of our industry, leading exome and genome.

<unk>, improving our average reimbursement rate and three dramatically, reducing our cash burn.

The combination of these three organizational goals ultimately ensure that our teams are focused on what's clinically best for patients and what's best for the financial health of the company and that focus paid off.

Our teams have worked with deep commitment in the fourth quarter and delivered $58 million of revenue driven by more than 68% year over year growth in exome and genome test revenue.

Expanded our adjusted gross margins to 56%.

And ended the year ahead of our expected cash position, demonstrating a 51% year over year reduction in burn.

We're proud of our team's performance and we're prepared to rinse and repeat that same level of commercial and operational execution.

As we look to 2024 and based on what we're seeing so far you can continue to expect this level of focus on exome and genome revenue growth gross margin expansion and disciplined cash management.

Investments that were making whether it's in commercial operations and medical affairs, our product and technology are directly tied to these goals.

In the fourth quarter, we realigned our sales strategy to focus on account profitability.

We've right sized our sales territories and further refine our commercial tactics and tools that account profitability in mind and we're seeing good progress.

Our strategy continues to include efforts that drive Exxon conversion with current customers.

Taking a more precise yet high impact approach with new customer acquisition, mainly targeting pediatric neurologists, we continue to see better traction and faster growth ramps with these new ordering providers compared to lower productivity account, including general pediatrics.

We're also keeping our operations team focused on the biggest levers for our P&L.

Of course, our billing operations and Cogs reduction among other efforts and ensure we maintain our turnaround time.

It's a market that we're developing in pediatric neurology, where clinical evidence and health economics strongly support the transition to exome analysis.

We will also expand further into the general pediatric setting over the coming years as guidelines and payer policy continue to evolve to become more ready for commercial expansion and execution.

We've steadily added Biopharma partners and have 20 active programs.

Mainly with biotech companies, who are relying on us to find patients with this specific variant for clinical trial purposes, we're expecting that business to continue to grow at a similar pace. We think there's great promise and the role that diagnostics can play in rare disease drug development.

In fact, the New York Times recently highlighted our new gene therapy for children with hearing loss.

Sort of an 11 year old boy, who had no ability to here until researchers at the children's hospital of Philadelphia gave him an experimental gene therapy from our partner <unk> and Eli Lilly Company <unk>.

The boy was able to hear sound for the first time ever and now the company is expanding its research to several other centers.

Rare disease treatments are reliant upon rare disease diagnosis and Thats, what we do best at Gtx.

We believe this market is developing and are well positioned to be the genetic testing partner of choice for these companies.

With that in mind, we expect to deliver between $220 million to $230 million in revenue this year and Kevin will provide some additional commentary commentary.

With a growing proportion of our test mix shift into X now, we will continue to unlock greater gross margin effectively converting more of the market and better volume and with the continued decrease in cash burn we will end the year with strong operating leverage to put us on the precipice of profitability heading into 2025.

And with that I'll hand, the call over to Kevin Thanks Catherine.

Fourth quarter 2023 revenues from continuing operations grew to $58 1 million compared to $45 9 million in 2022.

$50 4 million in the third quarter that is an increase of 27% year over year, and 15% sequentially driven by exome. Our team resulted over 15600 whole exome and genome tests in the fourth quarter, which generated revenues of over $39 million. This quarter from the exome portfolio, that's an increase of <unk> <unk>.

68% year over year and 15% sequentially.

Adjusted gross margin from continuing operations was 56% in the fourth quarter of 2023.

Up from 41% a year ago and up from 48% in the third quarter.

On mix Exome and genome represented 27% of all tests resulted in the fourth quarter of 2023 up from 16% a year ago and up from 23% in the third quarter.

Cost per test the team is driving scalability and cost efficiency across both the wet and dry lab processes and while we are very pleased with where exome and genome costs are today. Several initiatives are in our pipeline to further improve the cost base over time.

<unk> and AI across clinical interpretation and analysis offer large untapped long term opportunities ahead.

Our team has a relentless focus on improving operating leverage and efficiency throughout the business and that will continue into 2024.

Our fourth quarter net cash burn excluding any financing proceeds was $32 9 million, which improved 51% year over year and improved 22% from the third quarter.

Cash burn this quarter included $5 million in scheduled payments under the 2022 legacy Zimmer for payer settlement $3 million to discharge operating payables for the exited reproductive health business and $1 million in severance payments related to the previously announced cost reduction initiative.

Excluding these items representative cash burn from continuing operations was $23 9 million in the fourth quarter and we expect the net cash burn to continue to decrease as we couple high margin growth with our cost reduction initiatives.

Cash cash equivalents marketable securities and restricted cash was $131 1 million as of December 31, 2023.

And as a reminder, in October 2023, we announced that we entered into a five year senior secured credit facility with perceptive advisors.

And now turning to guidance for 2024, we expect.

To deliver revenues between $220 and $230 million for the full year 2024.

Historically, we see the first quarter is our seasonally weakest and the fourth quarter is our seasonally strongest in terms of both revenue and gross margin.

We expect to continue to expand gross margin and land full year 2024, adjusted gross margins in excess of 50%.

Comparison full year 2023 was 45%.

We anticipate using 75% to $85 million of net cash for full year 2024.

We've now delivered seven consecutive quarters of cash burn reduction since the acquisition of <unk> and expect to drive quarterly sequential declines in cash burn throughout 2024.

And finally, we once again reiterate our expectation to turn profitable in 2025.

With that I'll now turn it back to Catherine for any closing remarks.

Thanks, Kevin.

Like to acknowledge that on February 29th Ed is rare disease day and it serves as a reminder of why we do what we do.

Our overarching goal is to create a vibrant company that drives a new standard of care using genomic insurance financial success and profitability and create meaningful shareholder value.

Our team is fully committed to that.

I'd like to thank our employees for their deep dedication and passion.

Derek that provider in patients with <unk> and.

And I'd like to thank our shareholders, who continue to support us as we transform JV X hurt growth for scale and for profitability.

And service of an ever growing population of patients and partners benefit from our work.

And with that I'll turn the call over to the operator for Q&A.

Certainly and ladies and gentlemen, as a reminder, if you do have a question at this time. Please press star one on your telephone one moment for our first question.

Okay.

Yes.

And our first question.

It comes from the line of Brandon <unk> from Jefferies. Your question. Please.

Hey, Thanks, good afternoon.

Catherine the Exxon volume mix shift certainly played out in the fourth quarter do you think that 27% of volume.

Is that a good baseline off of which to think about for 'twenty core how do you expect that to evolve as you move through the year and where you think that could be exiting 'twenty.

Yeah, So I'll kick it off.

Kevin comment as well, we do think that's a good baseline I think looking back to where we were a year ago.

We are really really focused on continuing that Exxon conversion and I think in the fourth quarter.

We really started to see even stronger sales force performance on that.

And so we're building off of that momentum moving forward and really continuing to drive.

Continued conversion.

It's part of the reason why we're focusing our efforts with pediatric neurologists that segment from a customer perspective is primed to be able to convert faster. So.

We feel confident we'll continue to expand that throughout the course of the year.

Hey, good morning, Kevin you talked to.

Sorry go ahead Kevin.

No go ahead.

I have nothing to add to that so far away.

Okay.

Kevin you talked about realigning the sales force in the fourth quarter to target more profitable accounts.

Can you just unpack how you go about that how you have Intel in terms of profitability by account and should we expect any.

Other Salesforce tweaking do you expect to add head count capacity in 2012, where your outlook for the commercial organization.

Yes. So what we did was we took a look at where there is volume and we took a look at where there is favorable payer policy and whether the unfavorable payer policy. So.

Those were the main factors that we that we took a look at in terms of being able to really better define account profitability.

And as we put that lens on it.

Super clear that there were just some territory that they're not going to be productive or profitable.

In the near term and therefore not worthy.

<unk> dedicated sales reps, so we actually scaled back some of their territories.

Course, where there may be an accounts.

That's an outlier in some of these lower profitability segments, we have a rapidly as April.

Extend and be able to ensure that we're maximizing that but.

We're happy with where we landed in terms of $3 5 billion.

Of.

Revenue per Rep for 2023 that was an improvement over the prior year.

And with.

The new territory cuts, we felt really confident that we're going to be able to.

Grow.

At that same rate that we saw last year with the team that we have.

We also are.

Really taking a look at the inpatient setting to ensure that we can continue to drive utilization is a really small segment of revenue today, but it's really healthy revenue for us and that the institutional side. So we're not having the noise that you see.

Commercial payers.

And thats, mainly with rapid whole genome sequencing. So we've got a small.

And targeted team to really drive enterprise sales.

And the in patient setting.

So I don't expect that we're going to have any major.

Sales force expansion this year.

But where we can be opportune to NASDAQ as we start to see.

Additional prop.

Progress with the team.

They add in that enterprise team, but we'll see it's a longer sales cycle.

That's helpful last one for Kevin.

Could you unpack the 400 basis point gross margin benefit in the fourth quarter, what that was attributable to and then how much of the cash burn I think you said, 75% to 85 for the year whats incorporated in that core.

Legacy restructuring some of more outlays what have you.

Yes, so the fourth quarter.

The benefits included the reversal of certain bonus and other incentive accruals that we had built up throughout the year and determined would not be payable.

Some of those ran through Cogs.

And we received some favorable reimbursement on our stop loss insurance frankly earlier in the year, we had some very high extra.

Extraordinary claims that went through expense related to <unk>.

And we saw some relief in the fourth quarter that came through so when you adjust out those benefits.

I think it's fair to say the operating run rate.

About 52% in the fourth quarter, which frankly, we're very pleased with.

And then on the full year guide for cash burn.

As a reminder December of 2024, we will have a scheduled payments. The next scheduled payment on the 2022 settlement between <unk> and one of its payors.

So that that number is burdened by that next scheduled payments and then.

Anywhere from $2 million to $5 million of other payments to put the entirety of legacy Zimmer for Tibet.

If you look at the Q4 cash burn excluding.

This settlement payment that we made in December of 'twenty, Forbes and severance and some old payables as said before Q4 was.

$23 $9 million I think thats more representative of what's our run rate today, and we have ever every confidence that as the business grows and in particular with.

High margin exome business will continue to expand gross profit.

And.

We continue to drive down operating expense. So you should expect us to see a reduction in cash burn sort of with each sequential quarter in 2024.

Okay. Thank you.

Thank you one moment for our next question.

And.

Our next question comes from the line of Matt <unk> from Goldman Sachs. Your question. Please.

Hey, guys for Sean on for Matt.

Yes.

Fantastic question.

We absolutely feel confident in our ability to be able to step in and.

Provide our services to.

To that market I think in particular.

A lot of the focus that.

That we saw.

With some of the rare disease testing was exactly in the market that we're aiming to drive greater utilization of exome, an which is the pediatric neurology.

Tim.

And so we're we're grateful for the efforts of others, who have really gotten pediatric neurologist to start ordering genetic testing and historically they haven't so we now have customer too.

Understand how to order testing now which patients should utilize it and we have at <unk>.

Growing body of evidence, including data that we presented at the American Epilepsy Society last fall.

Is that.

Exome is.

Going to drive.

Higher diagnostic yield.

Then panels. So these are customers, who we have been converting.

Ready, we have a proven ability to convert them from panels to exome.

And we'll continue to drive.

I think our market.

Brand.

Those clinicians and be able to convert the business throughout the course of the year.

All of that really would be upside in terms of our outlook for 2024.

Got it. Thank you that's helpful. And then what is the current split between <unk> six thousands and Xs.

You have and how large of an impact will that transition have on Cogs and how long will it take to start realizing cost savings given the upfront cost of replacing the machines.

Yes, the <unk> represent the new machine.

<unk> represents about 20% of our fleet.

<unk>.

Take us through the end of the year based on our.

Scheduled deliveries to replace.

The entirety of that fleet, we've got two machines live with.

With the second only going live in November and so there is not yet a full quarter effect.

The benefit to Cogs for that second machine, we're seeing good experience.

More importantly, the larger flow cell that has come out we launched subsequent to the end of the year. So in February that went live in so.

We really won't start to make an impact on Cogs until.

The second quarter at least from a full quarter perspective. So we've got two machines live and intend to replace the remaining or the fleet over the next.

Year or so.

The benefits.

I'd say more importantly, we will start to be seen once we are producing.

At scale with all of those machines.

And with that larger flow cell in place, which again just went live for us in February here.

So still to come.

Got it and then just a last quick question on what's the process of retiring a panel could you just elucidate that and how long does it take.

Currently I mean FERC.

What we've done is establish.

Set of criteria for determining whether or not.

We should be keeping we should be keeping a panel and it starts with what's best for patients and then there is a number of factors that we take a look at.

To really assess whether or not the gross margins are there.

Is it the type of panel.

Where it's actually primes for conversion to XO and we should just be driving.

Exxon first versus clinicians who may be.

Ordering via our panel.

And so we.

We established this rubric, we identified about 350.

Tests that we determined we could retire we did was higher than earlier this month.

And.

That will be a process that we continue to utilize as we drive more and more utilization of exome and genome.

It represented.

I would say a small portion of.

Utilization so it really was maintenance for us to be able to keep those up and running.

So once we've made that determination it usually takes several months just to be able to put the product and tech teams.

And please ensure that we're communicating with customers and ensure that we have a good.

Our strategy for ensuring that there isn't a discontinuation of care.

We can kind.

Kind of have a warm transfer to whatever that new test is if it's a new panel or.

It's an exome or a genome.

That's something we intend to continue to drive and feel like we're developing kind of strength.

With that being a muscle organizationally.

All right.

Thank you one moment for our next question.

And our next question comes from the line of Dan Brennan from Cowen Your question. Please.

Great. Thanks, Thanks for the questions congrats on the quarter.

Maybe first one would be I think maybe Brandon I think gas on the first question.

You exited the year in the fourth quarter to 27% mix as you kind of commented on Exxon's genome. So I believe you said that.

Reasonable point for all of 'twenty four I'm, just wondering why that wouldn't continue to move higher.

We'll continue it's a good starting point Dan.

And thank you for for.

The clarifying question, we think it's a good starting point.

We intend to continue to increase.

That mix percent and throughout the course of the year.

Yes, yes, Dan to be clear, we think it's the right.

<unk> point, but absolutely with each sequential quarter, we should expect to pick up some.

Mix, there towards exome and genome.

With each passing quarter throughout the year.

And is there like a level I mean, we could play with the math is there a level.

Got it and exit the year at 30% 35 or is it tough to us to kind of back into that.

Yes, I think the way we've always viewed it as.

In order to reach profitability, we we've said that that rate needs to get closer to 40% of all tests being exome and genome.

And we're anticipating that point of breakeven.

Early 2025 and so.

I think something in the mid <unk> by the end of this year to exit the fourth quarter is likely the right landing spot and will evolve towards that.

Each passing quarter of 2024.

Great. Thanks for that that's helpful and then.

I think the guide right is for greater than 50% plus gross margin.

<unk> underlying was 52% is there a reason if mix is going up.

Is there a reason why the fourth quarter, 52% shouldn't be like the floor for 'twenty four or was there something else going on with the mix shift that could drag gross margins down.

No look.

Overall the comparison.

Is 45% for full year 2023, I think we just want to see a little bit more data come through before we rely on Q4, historically Q4 seasonally has been our strongest both in terms of revenue.

Reimbursement and therefore gross margin and so we want to see a little more data come through before recall Q4.

And ongoing trends certainly we're optimistic that there is.

More room to improve average reimbursement rates and further.

Conviction that we can continue to drive down Cogs.

And with each.

<unk> point, we pick up in overall test mix it should benefit.

Because of the excellent portfolio continues to operate sort of mid 60% gross margin.

But we just want to see a little bit more data come through before we call Q4, the new normal if you will but extremely confident we will end the balance of the full year at that 50% or higher.

Got it and then maybe the final one just biomarker bills like is there.

How could those impact you.

To the extent these 15 states kind of you begin to see payment rates and there is another I think five seats behind it just is it are you already getting paid pretty universally.

Just any color on the level of test today, and those 15 states to the extent you were to see commercial coverage go up to 100% what kind of impact could that have thank you.

Yes, there's no doubt that any improvement in underlying policy coverage is a net positive for us to the extent.

<unk>.

Or state systems pick up.

Exome and genome coverage right that should be a net positive to us we expect it to be a net positive to us at the same time, we want to make sure we're not getting.

Ahead of ourselves so there's a long way between enacting a biomarker bill or putting in place a positive coverage decision and getting paid.

So we want to make sure we have the operational experience and more so can see it translate into actual cash collections before we start to rely on improved reimbursement.

But.

Recent momentum with respect to policy and in particular these biomarker bills its great thing for patients we believe ultimately.

And should be great for our business.

Our expectations are built into the guide and we'll learn more for the year once there's more clarity on how some of these will be enacted in practice.

Got it terrific. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Mark Massaro from <unk>. Your question. Please.

This is maybe for Mike Thanks for taking the question.

Could you walk through in some detail what youre expecting for 'twenty four in terms of exome conversion.

Aside from that it sounds like you might be expecting somewhat back half weighted year.

I think you've also highlighted picking up that competitor businesses upside just.

Maybe just walk us through any other puts and takes to discuss for 2020 for guidance.

Yes, I'll start I'd say the low end of the guide represents about 13% year over year growth, that's consistent with what we just delivered.

And we want to acknowledge that XOMA genomes are still relatively new technologies for some positions.

We're expanding markets that takes time and we've learned some lessons from 2023, and we don't want to get over our skis with respect to the expectation on the rate of change to exome beyond what we can.

Clearly see in our data.

They will be running off in some fashion.

<unk> fashion and so we expect to see some declines.

And volumes and revenue from non exome test offsetting volume growth and so tried to ensure that we acknowledged that in our guide that we provided.

And just to add a little bit of color.

I think our original guide from 'twenty three with heavily back.

Half of the year weighted.

What we are anticipating this year.

The steady growth, we really want modeling.

I'll hand, it to what we saw in terms of actuals in 'twenty three.

As Kevin said earlier I think seasonally.

Our strongest quarters are usually Q2 and Q4.

But.

I would say continued steady growth throughout the course of the year.

Okay perfect. Thanks, so much.

A quick follow up.

Kevin maybe you can dig into EMR integration, a little bit higher thinking about.

Upside from that opportunity and.

It also sounds like you guys have consolidated the menu a little bit.

How should we be thinking about that.

Yes, so starting with EMR.

I would say, it's something that we do <unk> and we will continue to focus on that take to open up access.

So.

But that is kind of table stakes in terms of how we how we operate how we make it easier.

To work with us.

We continue to smooth out the customer experience so.

That is something that we'll continue to invest in because.

Obviously pays for itself.

And in terms of test for retirement.

We're really pleased.

As I had mentioned earlier that we were able to retire the 350 or so tests.

And we feel like we have a healthy test menu and a very focused sales team and operations team.

To continue to drive conversion to <unk> and as we keep making progress with that will continue to have a healthy approach to.

Reviewing that test menu to retiring tests over time.

We want to make sure that we can continue on that steady growth rate.

We feel like we're in a position of strength in terms of the overall commercial strategy and how that links up to our operations team.

Really beautiful handoff that we're seeing between those two teams.

Keeps everyone really focused on near term execution. So we.

We feel like we're in a great place in terms of getting volume in the door getting appropriate value and continuing to get good volume.

Continue to focus on that account profitability and.

Drive us forward toward profitability in 2025.

Thanks for taking the questions.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Katherine Stewart for any further remarks.

Awesome. Thank you so much Jonathan and thank you to everyone for joining US we're excited about 2024.

And we will be at upcoming conferences.

In the coming weeks and look forward to seeing you. All then thanks so much.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Q4 2023 GeneDx Holdings Corp Earnings Call

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