Q1 2024 GeneDx Holdings Corp Earnings Call

April 29, 2024

Okay.

Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the <unk> first quarter 2024 earnings Conference call.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the GeneDx First Quarter 2024 Earnings Conference. Next time, all participants are in a listen-only speaker presentation; there will be a question and answer session. To ask a question during the session, you will need to press 1-1-1 on your telephone, then hear an automated message advising that your hand has been picked.

At this time all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone you all then.

Speaker Change: And you're an automated message advising that range has been raised to withdraw your question. Please press star one one again.

Operator: Star 1-1 again, advise that today's conference is being held. It is now my pleasure to introduce Commercial Chief of Staff, Sabrina Dunbar. 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.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: It is now my pleasure to introduce commercial chiefs of staff Sabrina Dunbar.

Sabrina Dunbar: Thank you operator, and thank you to everyone for joining us today on the call. We have conference Dillon, President and Chief Executive Officer, and Kevin Daly Chief Financial Officer.

Sabrina Dunbar: Earlier today, GeneDx released financial results for the first quarter and did so on March 31, 2024. Before we begin, please take note of our cautionary statements. We may make forward-looking statements on today's call, including about our business plans, guidance, and outlook. Such forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, April 29th, and we are under no obligation to update them. When discussing our results, we refer to non-GAAP measures that exclude certain items from the reported results.

Sabrina Dunbar: Earlier today in <unk>.

Sabrina Dunbar: <unk> financial results for the first quarter ended March 31 2024.

Speaker Change: Before we begin please take note of our cautionary statements.

Speaker Change: We may make forward looking statements on today's call, including about our business plans guidance and outlook.

Speaker Change: Forward looking statements inherently involve risks and uncertainties and only reflect our view as of today April 29, and we are under no obligation to update.

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

Sabrina Dunbar: Please refer to our first quarter 2024 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 standards. And with that, I'll turn the call over to Katherine. Thanks, Sabrina.

Speaker Change: Please refer to our first quarter 2024 earnings release and slides available at IR Dot <unk> dot com for definitions and reconciliations of non-GAAP measures and additional information regarding our results.

A discussion of factors that could cause actual results to materially differ from forward looking statements.

Speaker Change: And with that I'll turn the call over to Katherine.

Katherine: Thank you Sabrina and thank you all for joining US we're excited to share the strong results from the first quarter with the continued execution from our team we're raising our guidance for the year bolstered by our view that we can sustainably deliver profitable growth in service of a critically important unmet need for diagnosing rare disease to an ever growing group.

Katherine A. Stueland: And thank you all for joining us. We're excited to share the strong results from the first quarter. With the continued execution from our team, we're raising our guidance for the year, bolstered by our view that we can sustainably deliver profitable growth in service of a critically important unmet need for diagnosing rare diseases to an ever-growing group of patients and their families. We have transformed GeneDx over the past few years. But it's also fair to say that our entire industry has changed tremendously in that time, and the companies that are thriving are those that are focused on their distinct strengths.

Katherine: Ah patients and their families.

Katherine: We have transformed <unk> over the past few years, but it's also fair to say that our entire industry has changed tremendously in that time.

Katherine: The companies that are driving are those that are focused on their distinct shrink and in our case.

Katherine A. Stueland: And in our case, it's our industry-leading Exome and Genome. Our team is working with exceptional focus, purpose, and care to put an end to the diagnostic odyssey by delivering the most comprehensive answers to clinicians and their patients. We're proud to say that we've hit yet another milestone. We've interpreted more than 600,000 clinical exomes since 2012.

Katherine: Three leading exome and genome.

Katherine: Our team is working with exceptional focused purpose and care to put an end to the diagnostic odyssey by delivering the most comprehensive answers to clinicians and their patients.

We're proud to say that we've had yet another milestone we've interpreted more than 600000 clinical exome since 2012.

Katherine A. Stueland: To give you a sense of how we've accelerated growth, we interpreted half of those in the past three years, and 100,000 since the fall. These exomes contribute to our proprietary data assets, which enable more definitive diagnoses for more patients. That data asset is key to our competitive advantage, and it's only getting stronger with our growth. We organized our entire team around three goals in the middle of last year.

Katherine: To give you a sense of how we've accelerated the growth we interpreted half of those in the past three years and 100000 since the fall here.

Katherine: He's exxon's contribute to our proprietary data assets, which enables more definitive diagnosis for more patients.

Katherine: That data asset is key to our competitive advantage and it's only getting stronger with our growth.

Katherine: We organized our entire team around three goals in the middle of last year, one driving exome utilization to improving our average reimbursement rates and three reducing cash burn.

Katherine A. Stueland: One, driving EXIM utilization, and two, improving our average reimbursement rates. And three, reducing cash burns. This focus is paying off. In the first quarter, we delivered more than $61 million in revenues, 61% in growth margins, and an eighth consecutive quarter of cash burn reduction. As a result, we're raising our annual revenue guidance to $235 million to $245 million. We'll continue to expand our gross margins off of Q1, and we're reducing our cash burn guidance, which Kevin will walk through. There was a lot that went well in Q1.

Katherine: This focus is paying off in the first quarter, we delivered more than $61 million in revenues, 61% and gross margins and an eighth consecutive quarter of cash burn reduction.

Katherine: As a result, we're raising our annual revenue guidance to $235 million to $245 million.

Katherine: We'll continue to expand our gross margins out of Q1, and we're reducing our cash burn guidance, which Kevin will walk through.

Katherine: There's a lot that went well in Q1, our commercial and medical affairs teams are driving exome and genome at the standard of care in the pediatric setting.

This increased utilization positively impacted our product mix, which came in at about 30% exome and genome, but this representing over 70% of our total revenue.

Katherine A. Stueland: Our commercial and medical affairs teams are driving exome and genome as the standard of care in the Pediatric Center. This increased utilization positively impacted our product mix, which came in at about 30% exome and genome, but this represents over 70% of our total revenue. Over time, we expect to drive substantially all of our volumes and revenues to Action on the Genome, so our product mix this quarter is a sign of early success on this path to a two-test future. We continue to drive market leadership with 80% of all clinical exomes being run at GeneDx. The providers that we're targeting fall into two categories, geneticists and pediatric specialists, including pediatric neurologists and pediatric developmental specialists.

Katherine: Over time, we expect to drive substantially all of our volumes and revenues to exome and genome. So our product mix. This quarter is a sign of early success on this path to a two test future.

Katherine: We continue to drive market leadership with 80% of all clinical exome is being run at G&A ex.

Katherine: The providers that we're targeting fall into two categories geneticists pediatric specialists, including pediatric neurologists in pediatric developmental specialists.

Katherine: We're focusing on deeper penetration in existing accounts.

Katherine: As well as new customers.

Katherine: Improving reimbursement was also a bright spot for the team in the first quarter, we saw faster than planned improvements in our average reimbursement rates, which also positively contributed to the strength of the quarter.

Katherine: We still believe there's room to improve that over time.

We're operating with a strong bias towards cash management efficiency and scalability and we've seen market improvement as we integrate new tools and technologies streamline processes introduce machine learning features and drive down Cogs and our lab.

Katherine A. Stueland: We're focusing on deeper penetration and existing accounts, as well as New Cut. Improving reimbursement was also a bright spot for the team in the first quarter. We saw faster than planned improvements in our average reimbursement rates, which also positively contributed to the strength of the quarter. We still believe there's room to improve that over time. We're operating with a strong bias towards cash management efficiency and scalability, and we've seen marked improvements as we integrate new tools and technologies, streamline processes, introduce machine learning features, and drive down costs in our labs.

Katherine: Our team also retired more than 400 tests to simplify our menu in line with our strategy.

Katherine: We continue to say that our flagship exome and genome products have the rare attribute to being both what is best for patient care and best for our business.

Katherine: One in 10 Americans have a rare disease with 50% of them being children.

Katherine: We know that the expanded utilization of testing reveals that far more people are impacted by genetic diseases and we are committed to serving this growing patient population in the future.

Katherine: Our sights are set on diagnosing all hereditary disease and as many families as possible. So over time, we'll introduce gene Dx to broader patient populations to inform health decisions through every stage of life, but for now our team is focused on helping and the diagnostic Odyssey for as many children and families as quickly as we can.

Katherine A. Stueland: Our team also retired more than 400 tests to simplify our menu in line with our strategy. We continue to say that our flagship exome and genome products have the rare attributes of being both what is best for patient care and best for our business. Today, 1 in 10 Americans have a rare disease, with 50% of them being children.

And that purpose motivates our team each and every day and with that I'll hand, the call over to Kevin. Thanks, Catherine first quarter 2024 revenues from continuing operations grew to $61 5 million compared to $40 7 million in the first quarter of 2023 and $58 $1 million in the fourth quarter of 2002.

Kevin Feeley: That is an increase of 51% year over year and 6% sequentially. Our team resulted over 16500 whole exome and genome tests in the first quarter, which generated revenues of $44 million in the first quarter from the exome and genome portfolio.

Katherine A. Stueland: We know that the expanded utilization of testing reveals that far more people are impacted by genetic diseases, and we are committed to serving this growing patient population in the future. Our sights are set on diagnosing all hereditary diseases in as many families as possible, so over time, we'll introduce GeneDx to broader patient populations to inform health decisions through every stage of life. But for now, our team is focused on helping end the diagnostic odyssey for as many children and families as quickly as we can, and that purpose motivates our team each and every day. And with that, I'll hand the call over to Kevin.

Kevin: Is an increase of 96% year over year and 12% sequentially.

Kevin: Both volume and collection performance contributed to the growth.

Kevin: Adjusted gross margin from continuing operations was 61% in the first quarter of 2024.

Kevin: 34%, a year ago and up from 56% in the fourth quarter of 2023.

Kevin: The margin expansion during the quarter is driven by all three of continued favorable mix shift towards exome improved exome average reimbursement rates.

Kevin: And continued cost per test leverage.

Kevin: On mix.

Kevin: <unk> surpassed a key milestone representing 30% of all tests resulted this quarter, that's up from 17% a year ago and up from 27% in the fourth quarter of 2023.

Kevin Feeley: Thanks, Katherine. First quarter of 2024 revenues from continuing operations grew to $61.5 million compared to $40.7 million in the first quarter of 2023 and $58.1 million in the fourth quarter of 2023. That is an increase of 51% year over year and 6% sequentially. Our team ran over 16,500 whole exome and genome tests in the first quarter, which generated revenues of $44 million in the first quarter from the exome and genome portfolio.

Kevin: We continue to believe that over time, nearly all of our revenue both disease diagnosis will be run on an ex Omar genome backbone and that our total gross margin will continue to benefit as these high value prop test pickup greater share of our overall test volume and replace lower margin products.

On average reimbursement rate, we've amplified resources in line with the three focus areas Catherine outlined one such imperative was improving exome reimbursement rate through denial reduction.

Kevin: In the first quarter of 2024, our average reimbursement for the exome and genome portfolio. After all denials was approximately $2600, which compares to approximately $2500 in the fourth quarter of 2023.

Kevin: We are encouraged with the uptake here, but the reality is that nearly half of all excellent claims are still being denied a large portion of all denials are administrative in nature for claims not meeting a variety of non medical requirements designed by payers and we're working hard to ensure upfront order document collection and claim submission processes evolve.

Kevin Feeley: That's an increase of 96% year over year and 12% sequentially. Both volume and collection performance contributed to the growth; adjusted gross margin from continuing operations was 61% in the first quarter of 2024, up from 34% a year ago and up from 56% in the fourth quarter of 2023. The margin expansion during the quarter is driven by all three of the continued favorable mixed shift towards exome, improved exome average reimbursement rates, and continued cost per test leverage on Mix. Exoma Genome surpassed a key milestone, representing 30% of all tests resulted this quarter.

Kevin: To enable insurance specific workflows to improve our probability of success.

Kevin: Another large portion of our denials might abate over time as Medicaid policy continues its momentum towards broad coverage for exome and genome.

Kevin: And already in 2022 states have expanded coverage for rapid whole genome in the NICU and in the outpatient setting New York State added.

Kevin: Excellent coverage to their medical plan effective April one 2024.

Kevin: That brings us to 28 states covering so many outpatient setting and 11 covering rapid whole genome in patient.

Kevin Feeley: That's up from 17% a year ago and up from 27% in the fourth quarter of 2023. We continue to believe that, over time, nearly all hereditable disease diagnosis will be run on an exome or genome backbone and that our total gross margin will continue to benefit as these high-value prop tests pick up a greater share of our overall test volume and replace lower-margin products. On average reimbursement rate, we've amplified resources in line with the three focus areas Katherine outlined.

Kevin: We applaud those states for taking this important step, but there is still a long way to go towards ensuring nationwide equitable access for all patients who need it.

Kevin: On cost per test the team has done a great job.

Lower input costs and wet lab process improvements are the headliner is this quarter, but we continue to believe that automation across clinical interpretation and analysis offers mostly untapped long term potential to drive scalability and cost efficiency.

Now moving down to operating expense.

Kevin: Total adjusted operating expense was $45 4 million for the first quarter of 2024 that is a reduction of 26% year over year and 6% sequentially.

Kevin Feeley: One such imperative was improving the Ex-Im reimbursement rate through denial reduction. In the first quarter of 2024, our average reimbursement for the Exomen Genome Portfolio, after all denials, was approximately $2,600, which compares to approximately $2,500 in the fourth quarter of 2024. We are encouraged by the uptick here, but the reality is that nearly half of all exome claims are still being denied. A large portion of all denials are administrative in nature for claims not meeting a variety of non-medical requirements designed by payers.

Kevin: Having again delivered reduced cost we're approaching what I consider to be a normalized opex base for the business. Our team has built the muscle memory for efficiency and we will not stop looking for ways to improve operating leverage throughout the business.

Kevin: On the bottom line total company adjusted net loss for the first quarter of 2024 narrowed to $8 5 million.

Kevin: Thats, an improvement of 83% year over year.

Kevin: 52% sequentially.

Kevin: Our first quarter cash burn was $17 2 million, which improved 71% year over year and 48% sequentially.

I call out the net cash burn this quarter included approximately $6 million to fund the company's annual 401k employer match approximately $2 $9 million in what can be considered onetime payments related to previously reserved legacy semaphore refund request, an $800000 severance payments related to our previously announced cost reduction initiatives.

Kevin Feeley: And we're working hard to ensure upfront order, document collection, and claim submission processes evolve to enable insurance-specific workflows to improve our probability of success. Another large portion of our denials might abate over time as Medicaid policy continues its momentum towards broad coverage for the exome and genome. And already in 2024, two states have expanded coverage for rapid whole genome in the NICU. And in the outpatient setting, New York State added Exome coverage to their medical plan, effective April 1st, 2024.

Kevin: We've now delivered eight consecutive quarters of cash burn reduction and expect to drive sequential declines in cash burn each quarter of 2024.

Cash cash equivalents marketable securities and restricted cash was $113 9 million as of March 31, 2024, and as a reminder, in October 2023, we announced that we entered into a five year senior secured credit facility with perceptive advisors do.

Kevin: The agreement provided 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 through December 2024.

Kevin Feeley: That brings us to 28 states covering exome sequencing in the outpatient setting and 11 covering rapid whole genome sequencing inpatient. We applaud those states for taking this important step, but there is still a long way to go towards ensuring nationwide equitable access for all patients who need it. On cost per test, the team has done a great job. Lower input costs and wet lab process improvements are the headliners this quarter, but we continue to believe that automation across clinical interpretation and analysis offers mostly untapped long-term potential to drive scalability and cost-effectiveness, and moving down to operating costs. The total adjusted operating expense was $45.4 million for the first quarter of 2024.

Now turning to guidance as Catherine said, we're raising previously issued revenue guidance and now expect to deliver revenues between 235 and $245 million for full year 2024.

Kevin: We're raising previously issued adjusted gross margin guidance and now expect to land the full year adjusted gross margin at 60% or higher.

We are improving the low end of our net cash burn guidance and now anticipate using $70 million to $80 million of net cash for the full year of 2024.

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

Kevin: With that I'll now turn it back to Catherine for any closing remarks wonderful thanks, Kevin.

Shift from single gene testing to multi gene testing began more than a decade ago and now we're successfully shifting the rare disease market for multi gene panels to exome and genome.

Kevin Feeley: That is a reduction of 26% year-over-year and 6% sequentially. Having again delivered reduced costs, we're approaching what I consider to be a normalized OPEC space for the. Our team has built the muscle memory for efficiency, and we will not stop looking for ways to improve operating leverage throughout. On the bottom line, the total company adjusted net loss for the first quarter of 2024 narrowed to $8.5 million. That's an improvement of 83% year-over-year and 52% sequential. Our first quarter cash burn was $17.2 million, which improved 71% year-over-year and 48% sequential.

Catherine: It takes time and the dedication of a team that wants to win for the growing number of patients and families who rely on us and is all made possible by the shareholder should support our growth.

Catherine: I'd like to thank our team and our investors for the opportunity to prove that we can set a new standard of clinical care, while running a really good business.

Catherine: We know that the path to profitability is one that not many companies in our space have achieved and we are fully committed to making that happen to ensure we can help more and more families and return value to our shareholders along the way.

Speaker Change: We will now open the call up for questions.

Speaker Change: Thank you.

Speaker Change: As a reminder to ask a question. Please press star one on your telephone and weaker unit to be announced towards draw. Your question. Please press star one again.

Speaker Change: Finally, please for our first question.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: And our first question comes from the line of Dan Brennan with TD Cowen.

Great. Thank you. Thanks for the question obviously, congrats on another good quarter.

Kevin Feeley: I'd call out that Net Cash Burn this quarter included approximately $6 million to fund the company's annual 401k employer match, approximately $2.9 million in what can be considered one-time payments related to previously reserved legacy Semaphore refund requests, and $800,000 in severance payments related to our previously announced cost reduction initiatives. We've now delivered eight consecutive quarters of cash burn reduction and expect to drive sequential declines in cash burn each quarter of 2020. Cash, Cash Equivalents, Marketable Securities, and Restricted Cash was $113.9 million as of March 31st, 2024.

Daniel Gregory Brennan: For a few questions on the quarter and the guide obviously, we had the FDA actually ODT guidance today and I'm just wondering any comments from management about what you thought of it what stood out how it might impact the company.

Daniel Gregory Brennan: Certainly.

Speaker Change: We were happy to see the 500 plus page document come out earlier today after a lot of speculation.

Speaker Change: Net net we think that this is a.

Speaker Change: Good opportunities.

Speaker Change: We have been.

Planning for this.

Speaker Change: New era of FDA regulation.

Speaker Change: We've hired.

Speaker Change: Head of regulatory.

Speaker Change: Joining the team.

Speaker Change: So I think we are well prepared to ensure that we can comply with with FDA and.

Speaker Change: Having.

Speaker Change: Been operating a lot of her 20, plus years and having compliant with CLIA cap New York State.

Speaker Change: We have a really really strong system and very good.

Kevin Feeley: And as a reminder, in October 2023, we announced that we entered into a five-year senior secured credit facility with Perceptive Advisor. The agreement provided 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 through December 2024. Now turning to guidance. As Katherine said, we're raising previously issued revenue guidance and now expect to deliver revenues between $235 and $245 million for full year 2021. We are also raising previously issued Adjusted Gross Margin guidance and now expect to land the full year Adjusted Gross Margin at 60% or higher.

Speaker Change: I would say regulatory and quality systems already in place so.

Speaker Change: We're looking forward to moving into this new era.

Speaker Change: Okay, and then maybe.

Sorry, maybe just one quick follow up to that and then maybe one quick one.

On the business.

From like a competitive standpoint, the fact that existing LDP ltte's get grandfathered in.

Speaker Change: Have you guys earmarked some costs associated with maybe with running <unk> or anything of that sort that maybe now you might not have to do and then B would you expect it could raise the hurdle because youre on the market and for other players that wanted to commanders have it all make it harder for future plays.

Speaker Change: To compete.

Yeah, we think that this is an important opportunity for us.

Speaker Change: As we said today, we've run more clinical exome than anyone we've got such a robust.

Speaker Change: What we believe is the largest priority disease data asset running exome and genome. So we think that it's a really important opportunity for us to be able to set the standard.

Speaker Change: As we move into compliance with FDA.

Kevin Feeley: We are improving the low end of our net cash burn guide and now anticipate using $70 to $80 million of net cash for the full year of 2021. And finally, we once again reiterate our expectation to turn profitable in. With that, I'll now turn it back to Katherine for any closing remarks.

Speaker Change: And we think that there should be at.

Speaker Change: High bar.

Speaker Change: As it pertains to.

Speaker Change: To others being able to enter the market but.

Speaker Change: We're still calling through the 500, plus pages and working with our consultants and our regulatory and clinical teams.

Speaker Change: To best determine exactly how we're going to move forward, but we've baked in cost associated with it.

Katherine A. Stueland: The shift from single gene testing to multi gene testing began more than a decade ago, and now we're successfully shifting the rare disease market from multi gene panels to exome and genome. This takes time and the dedication of a team that wants to win for the growing number of patients and families who rely on us. And it's all made possible by the shareholders who support our growth.

Speaker Change: So we're feeling good about the opportunity ahead.

Speaker Change: Got it and then I'll just ask one on the business, obviously there'll be many I'm sure to follow but you reiterated guide for profitability.

Speaker Change: 525, although you did raise the gross margin guide pretty materially this year.

Speaker Change: You lowered the burn this year. So is it profitability guide the fact that it stays like something must have changed in that profitability guide is it for a quarter and <unk> 25 is it full year, just any more color about.

Katherine A. Stueland: I'd like to thank our team and our investors for the opportunity to prove that we can set a new standard of clinical care while running a really good business. We know that the path to profitability is one that not many companies in our space have achieved, and we are fully committed to making that happen to ensure that we can help more and more families and return value to our shareholders along the way.

Speaker Change: The impact in 'twenty five versus the benefits youre seeing come in better than expected in 'twenty four.

Speaker Change: Yes, Dan.

Speaker Change: Sue.

Speaker Change: Super pleased with Q1 performance.

Speaker Change: I think Thats representative and the improved outlook that we provided for the remainder of the year, We said all along that.

Speaker Change: The full year 2025, we expect to be profitable and there'll be a quarter in there in which we make that turn and we haven't specifically called out the timing there overall I think.

Katherine A. Stueland: We'll now open the call up for questions. Thank you. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Speaker Change: We're standing behind our overall commitment that the full year on balance will be profitable and that there'll be a quarter within that year, where we make that sustainable term.

Speaker Change: Great all right I'll get back in the queue. Thanks, guys Congrats.

Speaker Change: Thank you.

Please for our next question.

Operator: And our first question comes from the line of Dan Brennan with TD Cowboys. Great, thank you. Thanks for the question. And obviously, congrats on another good quarter. Um, maybe before a few questions on the quarter and the guide, obviously, we had the FDA issue the LDT guidance today. And I'm just wondering, any comments from management about, you know, what they thought of it, what stood out, how it might impact the company

And our next question comes from the line of Mark Massaro with BP.

Yeah.

Speaker Change: Yes.

Mark Anthony Massaro: Hey, guys congratulations on another good quarter.

Mark Anthony Massaro: This looks like it's the fourth consecutive quarter of sequential revenue growth.

Mark Anthony Massaro: And I know you didn't provide guidance for Q2, but with this rising.

Mark Anthony Massaro: Mix shift to exome and genome and your sales force aligned to sell those which come in at a higher price.

Mark Anthony Massaro: Is it reasonable for us to extrapolate that you could have sequential revenue growth perhaps throughout this year.

Katherine A. Stueland: Certainly, we were happy to see the 500-plus page document come out earlier today after a lot of speculation. Net net, we think that this is a good opportunity. We have been planning for this new era of FDA regulation. In fact, we've hired a head of regulatory who's joining the team. So I think we are well prepared to ensure that we can comply with FDA and, you know, having been operating the lab for 20 plus years and having complied with CLIA, CAT, and New York State.

Speaker Change: Yes, I think Thats fair Mark.

Speaker Change: Continue to call out that the fourth quarter is typically our seasonally strongest quarter and I see no reason for that to change this year.

Speaker Change: So in line with that.

Speaker Change: I do want to call out that we expect and have delivered.

Consistent robust revenue growth in exome would expect that to continue but at the same time, the non exome portion of our portfolio. We don't want to surprise anybody if we see volumes and revenues declined in those testing lines that would be in line with our strategy to overall replace those testing lines with with exome and genome.

Katherine A. Stueland: We have a really, really strong system and very good, I would say, regulatory and quality systems already in place. So, you know, we're looking forward to moving into this new era. And then maybe, sorry guys, maybe just one quick follow-up to that, and then maybe it's one quick one on the business. But from a competitive standpoint, the fact that, you know, existing LDTs get grandfathered in. So, A, had you guys earmarked some costs associated maybe with running TMAs or anything of that sort that maybe now you might not have to do? And then B, would you expect it could raise the hurdle because you're on the market? And for other players that want to come in, does it at all make it harder for future players to compete?

Okay, and maybe just a clarification question I think I heard you talk about a 2600 dollar exome genome panel ASP up.

Speaker Change: Up from 2500 in the last quarter did you provide a metric on the patient on the denial rate I assume you probably had some improvement in denials or collections in the quarter and then can you speak to any lift from new payers like whether it's Medicaid or some.

Speaker Change: Commercial payer coming on.

Speaker Change: Yes.

Speaker Change: All of the improvements in that average reimbursement rate would come vis vis reduction in denials, there's been no changes to underlying contracted pricing.

Speaker Change: And so reduction in denials with a denial rate.

Speaker Change: Just north of 50% in the first quarter.

Speaker Change: Okay got it and then.

Speaker Change: Related to that I mean, what do you think.

Katherine A. Stueland: Yeah, we think that this is an important opportunity for us. You know, as we said today, we've run more clinical exomes than anyone; we've got such a robust, what we believe is the largest rare disease data asset, running exomes and genomes. So we think that it's a really important opportunity for us to be able to set the standard as we move into compliance with FDA, and we think that there should be a high bar as it relates to others being able to enter the market.

Speaker Change: Long long term run rate could be for exome genome Asps I know.

Speaker Change: At around the 2600 level today, I think youre getting paid.

Speaker Change: More than two times that from other health plan, So I guess, where do you see.

Speaker Change: Perhaps a normalized run rate even if it's two to three years from now.

Speaker Change: Yes look I think over time, you might expect a reduction in the denial rate potentially some reduced contracting rates such that the $2600. We experienced in the first quarter I consider to be a new floor.

Kevin Feeley: But we're still crawling through the 500 plus pages and working with our consultants and our regulatory and clinical teams to best determine exactly how we're going to move forward, but we've baked in costs associated with it. So we're feeling good about the opportunity ahead. And then since when I'm in business, obviously, there'll be many I'm sure to follow. But you reiterated the guide for profitability by 25, although you did raise the gross margin guide pretty much early this year. You have lowered the burden this year. So the profitability guide, the fact that it stays, like something must have changed in that profitability guide. Is it for a quarter in 25?

Speaker Change: For us to work off of over the next several quarters and couple of years.

Speaker Change: Okay got it and maybe last one for me.

Speaker Change: You guys exceeded my revenue projections by well over $11 million. So.

Speaker Change: I must not be a good model or or do you guys are just executing well I guess can you speak to.

Speaker Change: If you had any success converting accounts from from <unk> in the quarter and then.

Speaker Change: Related to that I know that Labcorp put in a bid and won the assets to acquire and VJ can you just speak to.

Speaker Change: What your expectations are from any potential.

Speaker Change: Perhaps converting some of those in VA accounts later this year.

VJ: Perfect Yeah. So.

VJ: The rare disease business at <unk>.

Kevin Feeley: Is it a full year? Is there any more color about, you know, the impact in 25 versus the benefits you're seeing come in better than expected in 24? Yeah, Dan, it's just, look, we're super pleased with Q1's performance. I think that's representative of the improved outlook that we provided for the remainder of the year. We've said all along that for the full year 2025, we expect to be profitable, and there'll be a quarter in there in which we make that turn. But we hadn't specifically called out the timing there.

VJ: And part centered on one of our core.

VJ: <unk> targets in terms of a provider that we're focused on and thats the pediatric neurology market.

VJ: So we have been targeting them.

VJ: As we've talked about.

As we pulled back from general pediatricians to really double down in that space, That's where we're seeing really good success, both with new customers, who haven't been ordering genetic testing, where we convert them.

VJ: Rapidly to utilizing our exome out of the gate and then we have seen success in pediatric neurologists, who have been ordering panels.

Daniel Gregory Brennan: Overall, I think we're standing behind our overall commitment that the full year on balance will be profitable and that there'll be a quarter within that year where we make that sustainable. Great. All right. I'll get back in the queue.

VJ: Including panels from BK and getting them to start ordering.

VJ: Our XO so we have seen success there.

VJ: And expect that will continue to convert that entire market in that segment from from panels to <unk> films.

Operator: Thanks, guys. Congratulations. Thank you. One moment, please, for our next question. And our next question comes from the line of Mark Massaro. P.I.G.

VJ: I think cloud core has obviously made.

VJ: An important acquisition and that hereditary cancer business that <unk> built.

Mark Anthony Massaro: Hey guys, congratulations on another good quarter. This looks like it's the fourth consecutive quarter of sequential revenue growth. And I know you didn't provide guidance for Q2, but with this rising mix shift to Exome and Genome and your Salesforce aligned to sell those, which come in at a higher price, is it reasonable for us to extrapolate that you could have sequential revenue growth perhaps throughout this year? Yeah, I think that's fair, Mark.

VJ: And certainly it kind of that.

VJ: The shining star there the rare disease panel business, we think over time will become obsolete and multi converting all of that to exome and genome.

But that's a core part of our strategy as we think about expanding utilization of that.

VJ: The most comprehensive test, that's providing rapid turnaround times as quickly as panels and.

VJ: Most patients not having an out of pocket. So we'll.

VJ: We will continue to turn the crank on that from a commercial and medical affairs perspective.

Kevin Feeley: I continue to call out that the fourth quarter is typically our seasonally strongest quarter, and I see no reason for that to change this year. So in line with that, I do want to call out that we expect and have delivered consistent, robust revenue growth, and Exxon expects that to continue. But at the same time, the non-Exxon portion of our portfolio, we don't want to surprise anybody if we see volumes and revenues decline in those testing lines. That would be in line with our strategy to overall replace those testing lines with Exxon, as you know. Okay, and maybe just a clarification question.

Speaker Change: Okay. It sounds good congrats on the quarter and I will hop back in the queue.

Speaker Change: Awesome. Thanks Mark.

Speaker Change: Thank you one moment please.

Speaker Change: Please for next question.

Speaker Change: Your next question comes from the line of Matt <unk> with Goldman Sachs.

Matt: Hey, good afternoon, Catherine Kevin Thanks for taking my question and congrats on the quarter.

Matt: Maybe Katherine just kind of a high level question, but you had mentioned in the press release that data and I know you had released earlier.

Speaker Change: <unk> presented at the American College of medical genetics.

Speaker Change: Comparing exome versus CMA.

Speaker Change: I know converting people from CMS exome.

Speaker Change: As part of the challenge here education awareness.

Speaker Change: That data side in particular, how much do you think that will help and that education awareness and do you need to continue to provide data similar to that to convince people to start with exome first and how much more education awareness do you feel like you need to do.

Kevin Feeley: I think I heard you talk about a $2,600 Exome Genome Panel ASP, up from $2,500 in the last quarter. Did you provide a metric on the denial rate? I assume you probably had some improvement in denials or collections in the quarter. And then, can you speak to any lift from new payers, like whether it's Medicaid or some commercial payer coming on? Yeah, all of the improvements in that average reimbursement rate would come vis-a-vis a reduction in denials, and there have been no changes to underlying contracted pricing.

Speaker Change: Yes. It is.

Speaker Change: Really important data for us when we think about.

Speaker Change: Kind of refocusing in the future on that general Pediatrics segment. So what we started to see last year. When we did enter the general Pete.

<unk> segment wise.

Speaker Change: Their tendency to utilize to utilize CMA and therefore, the data that we have been able to generate and super helpful. In terms of being able to not only go to payers, but ensure that we can continue to educate.

Kevin Feeley: And so, reduction in denials with a denial rate just north of 50% in the first, Okay, got it. And then related to that, I mean, what do you think the long, long term run rate could be for exome, genome, and ASPs? I know, you know, if you're at around the $2,600 level today, I think you're getting paid more than twice that from other health plans. So I guess, where do you see perhaps a normalized run rate, even if it's two to three years from now? Yeah, look, I think over time, you might expect a reduction in the denial rate, potentially some reduced contracting rates, such that the $2,600 we Okay, got it. And maybe the last one for me.

Speaker Change: Finish into ordering CMA, we have seen since we have refocused our commercial strategy away from the general Pediatricians and two the peat narrows.

Speaker Change: As you would expect our CMA volume has shifted so we.

Speaker Change: We think this is really important for our longer term strategy of being able to educate that broader pediatric.

Speaker Change: Pediatrician segments.

Speaker Change: But over the next several years, we're really going to be doubling down on pediatric neurologists pediatric developmental specialists in those settings. There is less utilization CMI. So.

Speaker Change: We think the data that we've generated is really really good for the longer term strategy.

Speaker Change: Got it very helpful. Thank you and then just on the exome genomic test mix. It looks like you guys have kind of averaged around 300 basis points per quarter.

Speaker Change: Terms are improving that mix towards exome genomes.

Kevin Feeley: You know, you guys exceeded my revenue projections by well over $11 million. So I must not be a good modeler, or you guys are just executing well. I guess, can you speak to whether you had any success converting accounts from Invitae in the quarter? And then, you know, related to that, I know that LabCorp put in a bid and won the assets to acquire Invitae. Can you just speak to, you know, what your expectations are for the potential of perhaps converting some of those Invitae accounts later this year? Perfect. Yeah,

Speaker Change: Is that a number that we should.

Speaker Change: Could kind of extrapolate for the balance of this year with maybe a higher step up in Q4 because of the seasonality.

Given the importance to margins just trying to figure out the cadence of this test mix how regular it is how predictable it is and how you look at driving that that mix shift higher in terms of increases on a quarterly basis.

Speaker Change: Yes, I think.

Speaker Change: Certainly sequential increase is absolutely fair so anywhere in that range.

Speaker Change: 1% to 3%.

Speaker Change: I think we've said all along that.

Speaker Change: All else equal a test mix of roughly 40% would get us profitable.

Katherine A. Stueland: So, you know, the rare disease business at Invitae is in part centered on one of our core targets in terms of providers that we're focused on, and that's the pediatric neurology market. So we have been targeting them, and, you know, as we've talked about, as we pull back from general pediatricians to really double down in that space, that's where we're seeing really good success, both with new customers who haven't been ordering genetic testing, where we convert them rapidly to using our exome out of the gate.

Speaker Change: Sort of consistent gross margin profiles in our Opex profile and if you think about a turn to profitability in 2025.

Speaker Change: Sort of a steady march up towards that point.

Speaker Change: As what we'd expect.

Speaker Change: Got it and then just for my final question is just on reimbursement.

Speaker Change: Can you just remind me and I apologize if you've said this before but just sort of the percentage of patients that you face that are Medicaid eligible just given the traction you've had.

Speaker Change: And some of the states that have passed that just wanted to get a sense for the context of the Medicaid population and then secondarily.

Katherine A. Stueland: And then we have seen success with pediatric neurologists who have been ordering panels, including panels from Invitae, and getting them to start ordering our exomes. So we have seen success there and expect that we'll continue to convert that entire market and that segment from panels to exomes. You know, I think LabCorp has, you know, obviously made an important acquisition, and that hereditary cancer business that Invitae built is certainly kind of the shining star there.

Speaker Change: Kevin you mentioned that half of X. Some claims are still being denied and I know you addressed some of the dials on the earlier question.

Speaker Change: I was just wondering that in terms of like <unk>.

Speaker Change: Moving that denial rate down is that like a body problem in terms of just hiring more people to do that largely administrative work or do you feel like you can move the needle on denials with the current staff and Opex spend that you have today.

Speaker Change: Yes.

Speaker Change: First.

Roughly 15% to 20% of the business volume wise is institutional.

Speaker Change: And so the remainder then of the exome and genome business is split between commercial insurance and Medicaid and there is roughly a 50 50 split in that insurance channel between commercial and.

Katherine A. Stueland: The rare disease panels business, we think over time, will become obsolete, and we'll be converting all of that to exome and genome. But that's a core part of our strategy as we think about expanding utilization of that the most comprehensive test that's providing rapid turnaround times as quickly as panels and most patients not having to pay out-of-pocket. So we'll continue to turn the crank on that from a commercial medical affairs perspective. Okay, sounds good.

Speaker Change: Medicaid.

Speaker Change: With.

Speaker Change: As we've called out 28 states covering outpatient and 11 on the rapid whole genome product in patients and so.

Speaker Change: A disproportionately higher denial rate today in the Medicaid populations for wherever volume is sourced from those states without coverage.

Speaker Change: And then on addressing front end processes, no not not necessarily a body problem or something that we can solve just by throwing more bodies at it.

Mark Anthony Massaro: Congratulations on the quarter, and I'll hop back in the queue. Awesome. Thanks, Mark. Thank you. One moment.

Operator: And our next question comes from the line of Matt Sykes with Goldman Sachs. Good afternoon, Katherine, and Kevin. Thanks for taking my question and congratulations on the quarter. Maybe, Katherine, just kind of a high-level question, but you had mentioned the press release, the data, and I know you'd released earlier, you presented at the American College of Medical Genetics, comparing exome versus CMA. I know converting people from CMAs to Exome, you know, is part of the challenge here, education awareness.

Speaker Change: More so ensuring that.

Speaker Change: Fronts workflows from the ordering system through the time of claim submission are specific and unique to individual patients insurance products.

Speaker Change: Rather than a one size fits all process, what we see is vast disparity in the medical necessity requirements as well as administrative requirements to ensure that exome and genome claims ultimately get paid.

Speaker Change: So some work to do to make sure that processes are accustomed to those unique workflows is what has to happen.

Speaker Change: That's more technology based in process basin than just adding people.

Speaker Change: If that makes sense got it thanks very helpful.

Operator: That data set in particular, how much do you think that will help in that education awareness? And do you need to continue to provide data similar to that to convince people to start with Exome first? And how much more, you know, education, do you feel like you need to do?

Speaker Change: Thank you.

Speaker Change: Please for our next question.

Speaker Change: Our next question comes from the line of Matt <unk> with Jefferies.

Okay.

Matt: Hey, Thanks, a lot has been covered in terms of the guidance increase both on the revenue and the margin side.

Matt: Reiterating that target to 25, but Kevin I would just love to get your kind of high level thoughts just visibility you have in the business today and maybe how much that's improved over the last few quarters here.

Matt Kim: Yeah, it's really important data for us when we think about, you know, kind of refocusing in the future on the general pediatric segment. So what we started to see last year when we did enter the general ped segment was their tendency to utilize CMA. And therefore, the data that we've been able to generate is super helpful in terms of being able to not only go to payers but ensure that we can continue to educate clinicians who are ordering CMA.

Matt: Yes.

Kevin: Look we've invested a lot into the team.

In 2023 learned a lot of lessons with respect to commercial execution I think the team is well poised now understand what call points work for us.

Kevin: And we have the right size and skill set across the commercial organization.

Matt Kim: We have seen, since we have refocused our commercial strategy away from the general pediatricians and towards the ped neuros, as you would expect, our CMA volume has shifted. So we think this is really important for the longer-term strategy of being able to educate that broader pediatric neurology segment. But over the next several years, we're really going to be doubling down on pediatric neurologists and pediatric developmental specialists. And in those settings, there is less utilization of CMA. So we think the data that we've generated is really, really good for the longer-term strategy. Got it. Very helpful. Thank you.

Kevin: So I think it provides some of the confidence that allowed us to raise our guidance. This earlier in the year and we think it is a substantial raise in guidance.

Kevin: And look forward to.

Kevin: <unk>.

Kevin: Using some of the lesser.

Kevin: Lessons learned over the past year or two as we've developed a strategy to <unk>.

Kevin: To expand the utilization of exome and genome the team has what it needs to execute on our plan.

Kevin: And so looking forward looking forward to seeing the results as the year progresses.

Speaker Change: Thanks, and then maybe one quick one just an update on the sales force realignment that you did last quarter to target more profitable accounts and then any color around the enterprise sales team and now it's a bit longer cycle, but just any update around some of those changes you've made more recently thanks.

Kevin Feeley: And then just on the exome genome test mix, it looks like you guys have kind of averaged around 300 basis points per quarter in terms of improving that mix towards exome genomes. Is that a number that we could, you know, kind of extrapolate for the balance of this year with maybe a higher step up in Q4 because of seasonality? I'm just giving importance to margins, just trying to figure out the cadence of this test mix, how regular it is, how predictable it is, and how you look at driving that makeshift higher in terms of increases on a quarterly basis. Yeah, I think certainly sequential increases are absolutely fair. So anywhere in that range of 1 to 3%.

Speaker Change: Sure Yes.

Speaker Change: <unk> got the sales force so absolutely right, we've got the state for sales Rep.

Speaker Change: And that nine medical science liaisons, who are focused on the outpatient opportunity, which is predominantly with with our AG zelman.

Speaker Change: We put that into place in the fourth quarter in anticipation of 2024, we're really happy with what the performance of that team.

Speaker Change: We feel like we've got the right incentive comp program in place and I think just based on.

Speaker Change: What we're seeing year to date.

Speaker Change: Of volume in the door.

Speaker Change: Percentage of mix, we're feeling really good that the team is executing that theyre focused on the right account.

Speaker Change: They are importantly motivated by their incentive comp plans, so I feel great about the team and continuing to drive forward with 2024.

Kevin Feeley: I think we've said all along that, All else equal, a test mix of roughly 40% would get us profitable at sort of consistent gross margin profiles in our OPEX profile, and if you think about a turn to profitability in 2025, sort of a steady march up towards that point is what we'd expect. Got it, and then just for my final question, just on reimbursement, if you just remind me, and apologies if you've said this before, but just sort of the percentage of patients that you face that are Medicaid eligible, just given the traction you've had in some of the states that have passed that, just want to get a sense for the context of the Medicaid population, and then secondarily, Kevin, you mentioned the half of exome claims are still being denied, and I know you addressed some of the denials on an earlier question.

Speaker Change: Yeah.

Speaker Change: So good momentum with the sales force.

Speaker Change: Absolutely right on.

Speaker Change: On the enterprise side of things.

A small team that is going in and doing enterprise wide sales.

Speaker Change: For that NICU opportunity NICU is.

Speaker Change: I think an important market for us, but it's a different type of sales approach.

Speaker Change: We think that it's a really good way to be able to try.

Speaker Change: Try a different sort of consultative sale.

Speaker Change: With the C suite, and really be able to get some of the health economics data in front of them.

Speaker Change: In front of these hospital systems.

Speaker Change: A fixed number of beds in that in the <unk>.

Speaker Change: Setting. So we think it's a way to be able to introduce genomics at more of a system wide.

Speaker Change: Level and to.

Speaker Change: To your point about it's a longer selling cycle, that's exactly why but we.

Kevin Feeley: I was just wondering if in terms of like moving that denial rate down, is that like a hiring problem in terms of just hiring more people to do that largely administrative work? Or do you feel like you can move the needle on denials with the current staff and OPEX spend that you have today? Yeah, and the first...

Speaker Change: We would hope to see.

Speaker Change: <unk> and <unk>.

Speaker Change: 2025, so a greater percentage of volume and revenue coming in from that Nikki segment. This year.

Speaker Change: We're anticipating it'll just be a rinse and repeat from last year.

Speaker Change: Super Thank you.

Speaker Change: Thank you.

Kevin Feeley: Now I'll turn the call back over to CEO Catherine stalling for any further remarks. Thank you. So much we appreciate.

Kevin Feeley: Roughly 15 to 20 percent of the business, volume-wise, is institutional, and so the remainder, then, of the exome and genome business is split between commercial insurance and Medicaid, and there's roughly a 50-50 split in that insurance channel between commercial and Medicaid, with, as we've called out, 28 states covering outpatient and 11 on the rapid whole genome product inpatient. And so a disproportionately higher denial rate today in the Medicaid populations wherever volume is sourced from those states without. And then on addressing front end processes, no, not necessarily a body problem or something that we can solve just by throwing more bodies at it.

Katherine A. Stueland: All of the great questions and engagement, we will continue to provide updates on our progress and we look forward to seeing you at upcoming investor conferences. So thanks, so much have a good night.

Speaker Change: Ladies and gentlemen, thank you for participating this does conclude today's program and you may now disconnect.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Kevin Feeley: More so, ensuring that upfront workflows from the ordering system through the time of claim submission are specific and unique to individual patient insurance products. Rather than a one-size-fits-all process, what we see is a vast disparity in the medical necessity requirements as well as administrative requirements to ensure that exome and genome claims ultimately get paid, and so some work to do to make sure that processes are customized to those unique workflows is what has to happen. That's more technology-based and process-based than just adding people, if that makes sense. I got it.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Hum.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Okay.

Matt Kim: Thanks. Very helpful. And our next question comes from the line of Matt Stanton, with Jeff... Hey, thanks.

Speaker Change: [music].

Operator: A lot has been covered in terms of the guidance increase both on the revenue and margin side and reiterating the targets for 25. But Kevin, we would love to get your kind of high-level thoughts, just the visibility you have in the business today, and just maybe how much that's improved over the last few quarters here. Yeah, look, we've invested a lot in the team, and in 2023, we learned a lot of lessons with respect to commercial execution. I think the team is well poised to now understand what call points work for us.

Kevin Feeley: And we have the right size and skill set across the commercial organization. So I think it provides some of the confidence that allowed us to raise our guide this earlier in the year. We think it's a substantial raise and look forward to... Using some of those lessons learned over the past year or two, as we've developed the strategy to start to expand the utilization of the exome and genome, the team has what it needs to execute on our plan.

Kevin Feeley: And so looking forward, looking forward to seeing the results of the year progress. Thanks. And then maybe one quick one, just an update on the Salesforce realignment you did last quarter to target more profitable accounts and then any color around the enterprise sales team. I know it's a bit longer cycle, but just any update around some of those changes you've made more recently.

Kevin Feeley: Thanks. Sure, yeah, you've got the salesforce scope absolutely right. We've got 54 sales reps and about nine medical science liaisons who are focused on the outpatient opportunity, which is predominantly with our exome. And we put that into place in the fourth quarter, in anticipation of 2024. We're really happy with the performance of the team.

Kevin Feeley: We feel like we've got the right incentive comp program in place. And I think that's based on what we're seeing year to date by way of volume in the door, percentage of mix. We feel really good that the team's executing, that they're focused on the right accounts, that they are importantly motivated by their incentive comp plan. So I feel great about the team and am continuing to drive forward with 2024.

Kevin Feeley: So good momentum with the sales force, and you're absolutely right on the enterprise side of things. We have a small team that is going in and doing enterprise-wide sales for that NICU opportunity. NICU is, you know, I think an important market for us, but it's a different type of sales approach. We think that it's a really good way to be able to try a different sort of consultative sale with the C-suite and really be able to get some of the health economics data in front of these hospital systems.

Kevin Feeley: There are, you know, a fixed number of beds in the NICU setting, so we think it's a way to be able to introduce genomics at more of a system-wide level. And to your point about it being a longer selling cycle, that's exactly why. But, you know, we would hope to see, in 2025, a greater percentage of volume and revenue coming in from that NICU segment, but this year, we're anticipating it'll just be a rinse and repeat from last year. Super, thank you.

Katherine A. Stueland: Thank you. I'll now turn the call back over to CEO Katherine Stueland for any further remarks. Thank you so much.

Katherine A. Stueland: We appreciate all of the great questions and engagements. We'll continue to provide updates on our progress, and we look forward to seeing you at upcoming investor conferences. So, thanks so much. Have a good night.

Operator: Ladies and Gentlemen, thank you for participating. This does conclude today's program and you may now disconnect. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Ladies and gentlemen, thank you for standing by and welcome to the GeneDx First Quarter 2024 Earnings Conference.

Operator: Next time, all participants are in a listen-only mode. During the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press 1-1 on your telephone. Then you hear an automated message advising that your hand has been...

Draw your question. Star 1-1 again, advise that today's conference is being held. It is now my pleasure to introduce Commercial Chief of Staff, Sabrina Dunbar. 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.

Speaker Change: [music].

Earlier today, GeneDx released financial results for the first quarter and did so on March 31, 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. Such forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, April 29th, and we are under no obligation to update them. When discussing our results, we refer to non-GAAP measures that exclude certain items from the reported results.

Please refer to our first quarter 2024 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 studies. And with that, I'll turn the call over to Katherine. Thanks, Sabrina.

And thank you all for joining us. We're excited to share the strong results from the first quarter. With the continued execution from our team, we're raising our guidance for the year, bolstered by our view that we can sustainably deliver profitable growth in service of a critically important unmet need for diagnosing rare diseases to an ever-growing group of patients and their families. We have transformed GeneDx over the past few years. But it's also fair to say that our entire industry has changed tremendously in that time, and the companies that are thriving are those that are focused on their distinct strengths.

And in our case, it's our industry-leading Exome and Genome. Our team is working with exceptional focus, purpose, and care to put an end to the diagnostic odyssey by delivering the most comprehensive answers to clinicians and their patients. We're proud to say that we've hit yet another milestone. We've interpreted more than 600,000 clinical exomes since 2012.

To give you a sense of how we've accelerated growth, we interpreted half of those in the past three years, and 100,000 since the fall. These exomes contribute to our proprietary data assets, which enable more definitive diagnoses for more patients. That data asset is key to our competitive advantage, and it's only getting stronger with our growth. We organized our entire team around three goals in the middle of last year.

One, driving EXIM utilization, and two, improving our average reimbursement rates. And three, reducing cash burns. This focus is paying off. In the first quarter, we delivered more than $61 million in revenues, 61% in growth margins, and an eighth consecutive quarter of cash burn reduction. As a result, we're raising our annual revenue guidance to $235 to $245 million, we'll continue to expand our gross margins off of Q1, and we're reducing our cash burn guidance, which Kevin will walk through. There's a lot that went well in Q1.

Speaker Change: [music].

Our commercial and medical affairs teams are driving exome and genome as the standard of care in the pediatric setting. This increased utilization positively impacted our product mix, which came in at about 30% exome and genome, but this represents over 70% of our total revenue. Over time, we expect to drive substantially all of our volumes and revenues to Axiom and Genome.

So our product mix this quarter is a sign of early success on this path to a two-test future. We continue to drive market leadership with 80% of all clinical exomes being run at GeneDx. The providers that we're targeting fall into two categories, geneticists and pediatric specialists, including pediatric neurologists and pediatric developmental specialists.

We're focusing on deeper penetration and existing accounts, as well as New Cut. Improving reimbursement was also a bright spot for the team in the first quarter. We saw faster than planned improvements in our average reimbursement rates, which also positively contributed to the strength of the quarter. We still believe there's room to improve that over time. We're operating with a strong bias towards cash management efficiency and scalability, and we've seen marked improvements as we integrate new tools and technologies, streamline processes, introduce machine learning features, and drive down costs in our labs.

Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the <unk> first quarter 2024 earnings Conference call.

Speaker Change: At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

Ask a question during this session you will need to press star one one on your telephone you will then hear an automated message advising the trend has been raised to withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded it is now my pleasure to introduce commercial chiefs of staff Sabrina Dunbar.

Sabrina Dunbar: Thank you operator, and thank you to everyone for joining us today on the call. We have conference Dillon, President and Chief Executive Officer, and Kevin Feeling Chief Financial Officer.

Our team also retired more than 400 tests to simplify our menu in line with our strategy. We continue to say that our flagship exome and genome products have the rare attributes of being both what is best for patient care and best for our business. Today, 1 in 10 Americans have a rare disease, with 50% of them being children. We know that the expanded utilization of testing reveals that far more people are impacted by genetic diseases, and we are committed to serving this growing patient population in the future. Our sights are set on diagnosing all hereditary diseases in as many families as possible.

Sabrina Dunbar: Earlier today <unk> released financial results for the first quarter ended March 31 2024.

Sabrina Dunbar: Before we begin please take note of our cautionary statements. We may make forward looking statements on today's call, including about our business plans guidance and outlook forward.

Sabrina Dunbar: Forward looking statements inherently involve risks and uncertainties and only reflect our view as of today April 29, and we are under no obligation to update.

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

Sabrina Dunbar: Please refer to our first quarter 2024 earnings release and slides available at IR 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 and with that I'll turn the call over to Katherine.

So over time, we'll introduce GeneDx to broader patient populations to inform health decisions through every stage of life. But for now, our team is focused on helping end the diagnostic odyssey for as many children and families as quickly as we can. And that purpose motivates our team each and every day.

Thank you Sabrina and thank you all for joining US we're excited to share the strong results from the first quarter with the continued execution from our team we're raising our guidance for the year bolstered by our view that we can sustainably deliver profitable growth and service of a critically important unmet need for diagnosing rare disease two than ever.

Thanks, Katherine. First quarter 2024 revenues from continuing operations grew to $61.5 million compared to $40.7 million in the first quarter of 2023 and $58.1 million in the fourth quarter of 2020. That is an increase of 51% year over year and 6% sequentially. Our team resulted in over 16,500 whole exome and genome tests in the first quarter, which generated revenues of $44 million in the first quarter from the exome and genome portfolio. That's an increase of 96% year over year and 12% sequentially.

Sabrina Dunbar: Growing group of patients and their families.

Sabrina Dunbar: We have transformed <unk> over the past few years, but it's also fair to say that our entire industry has changed tremendously in that time.

Sabrina Dunbar: The companies that are thriving or those that are focused on there to thanks, Frank and in our case is our industry, leading exome and genome.

Sabrina Dunbar: Our team is working with exceptional focused purpose and care to put an end to the diagnostic odyssey by delivering the most comprehensive answers to clinicians and their patients.

Sabrina Dunbar: We're proud to say that we've hit yet another milestone we've interpreted more than 600000 clinical XO since 2012.

Sabrina Dunbar: To give you a sense of how we've accelerated the growth we interpreted half of that is in the past three years and 100000 since the fall.

Both volume and collection performance contributed to the growth in adjusted gross margin from continuing operations of 61% in the first quarter of 2024, up from 34% a year ago and up from 56% in the fourth quarter of 2023. The margin expansion during the quarter is driven by all three of the continued favorable makeshift towards exome, improved exome average reimbursement rates, and continued cost per test leverage on Mix. Exoma Genome surpassed a key milestone, representing 30% of all tests resulted this quarter.

Sabrina Dunbar: These exxon's contribute to our proprietary data assets, which enables more definitive diagnoses for more patients.

Sabrina Dunbar: That data asset is key to our competitive advantage and it's only getting stronger with our growth.

Sabrina Dunbar: We organized our entire team around three coles in the middle of last year, one driving exome utilization to improving our average reimbursement rates and three reducing cash burn.

Sabrina Dunbar: This focus is paying off in the first quarter, we delivered more than $61 million in revenue.

Sabrina Dunbar: 1% and gross margins and an eighth consecutive quarter of cash burn reduction.

Sabrina Dunbar: As a result, we're raising our annual revenue guidance to $235 million to $245 million.

That's up from 17% a year ago and up from 27% in the fourth quarter of 2023. We continue to believe that, over time, nearly all hereditable disease diagnoses will be run on an exome or genome backbone and that our total gross margin will continue to benefit as these high-value prop tests pick up a greater share of our overall test volume and replace lower-margin products. On average reimbursement rate, we've amplified resources in line with the three focus areas Katherine outlined.

Sabrina Dunbar: We will continue to expand our gross margins out of Q1, and we are reducing our cash burn guidance, which Kevin will walk through.

Sabrina Dunbar: There's a lot that went well in Q1, our commercial and medical affairs teams are driving exome and genome as a standard of care in the pediatric setting.

Kevin: Increased utilization positively impacted our product mix, which came in at about 30% exome and genome, but this representing over 70% of our total revenue.

Kevin: Over time, we expect to drive substantially all of our volumes and revenues to exome and genome. So our product mix this quarter a sign of early success on.

Kevin: The path to a two test future.

Kevin: We continue to drive market leadership with 80% of all clinical exxon's being run at G&A ex the.

One such imperative was improving the exome reimbursement rate through denial reduction. In the first quarter of 2024, our average reimbursement for the Exomen Genome Portfolio, after all denials, was approximately $2,600, which compares to approximately $2,500 in the fourth quarter of 2024. We are encouraged by the uptick here, but the reality is that nearly half of all exome claims are still being denied. A large portion of all denials are administrative in nature for claims not meeting a variety of non-medical requirements designed by payers.

Kevin: The providers that we're targeting fall into two categories geneticists pediatric specialists, including pediatric neurologists in pediatric developmental specialists.

Kevin: We're focusing on deeper penetration in existing accounts.

Kevin: As well as new customers.

Kevin: Improving reimbursement was also a bright spot for the team in the first quarter, we saw faster than planned improvements in our average reimbursement rates also positively contributed to the strength of the quarter.

Kevin: We still believe there is room to improve that over time.

And we're working hard to ensure upfront order, document collection, and claim submission processes evolve to enable insurance-specific workflows to improve our probability of success. Another large portion of our denials might abate over time as Medicaid policy continues its momentum towards broad coverage for the exome and genome. And already in 2024, two states have expanded coverage for rapid whole genome in the NICU. And in the outpatient setting, New York State added Exome coverage to their medical plan, effective April 1st, 2024.

Kevin: Our team also retired more than 400 tests to simplify our menu in line with our strategy.

Kevin: We continue to say that our flagship exome and genome products have the rare attribute of being both what is best for patient care and best for our business.

Kevin: Today, one in 10 Americans have a rare disease with 50% of them being children.

Kevin: We know that the expanded utilization of testing reveals that far more people are impacted by genetic diseases and we are committed to serving this growing patient population in the future.

Kevin: Our sights are set on diagnosing all hereditary disease and as many families as possible. So over time, we'll introduce gene Dx to broader patient populations to inform health decisions through every stage of life.

That brings us to 28 states covering exome sequencing in the outpatient setting, and 11 covering rapid whole genome sequencing inpatients. We applaud those states for taking this important step, but there is still a long way to go towards ensuring nationwide equitable access for all patients who need it. On cost per test, the team has done a great job. Lower input costs and wet lab process improvements are the headliners this quarter, but we continue to believe that automation across clinical interpretation and analysis offers mostly untapped long-term potential to drive scalability and cost efficiency, and moving down to operating. The total adjusted operating expense was $45.4 million for the first quarter of 2024.

Kevin: But for now our team is focused on helping and the diagnostic Odyssey present, many children and families as quickly as we can and that purpose motivates our team each and every day and with that I'll hand, the call over to Kevin. Thanks, Catherine first quarter of 2024 revenues from continuing operations grew to $61 $5 million compare.

Kevin: Third to $40 7 million in the first quarter of 2023, and $58 1 million in the fourth quarter of 2023.

Kevin: That is an increase of 51% year over year and 6% sequentially. Our team resulted over 16500 whole exome and genome tests in the first quarter, which generated revenues of $44 million in the first quarter from the exome and genome portfolio.

An increase of 96% year over year and 12% sequentially.

That is a reduction of 26% year-over-year and 6% sequentially. Having again delivered reduced costs, we're approaching what I consider to be a normalized OPEC space for the. Our team has built the muscle memory for efficiency, and we will not stop looking for ways to improve operating leverage throughout. On the bottom line, the total company adjusted net loss for the first quarter of 2024 narrowed to $8.5 million. That's an improvement of 83% year-over-year and 52% sequential. Our first quarter cash burn was $17.2 million, which improved 71% year-over-year and 48% sequential.

Kevin: <unk> volume and collection performance contributed to the growth.

Kevin: Adjusted gross margin from continuing operations was 61% in the first quarter of 2024 up from 34% a year ago and up from 56% in the fourth quarter of 2023 the.

Kevin: The margin expansion during the quarter is driven by all three of continued favorable mix shift towards exome improved exome average reimbursement rates and continued cost per test leverage.

Kevin: On mix.

Kevin: <unk> surpassed a key milestone representing 30% of all test resulted this quarter, that's up from 17% a year ago and up from 27% in the fourth quarter of 2023.

Kevin: We continue to believe that over time, nearly all of our revenue both disease diagnosis will be run on an exon where genome backbone and that our total gross margin will continue to benefit as these high value prop test pickup greater share of our overall test volume and replace lower margin products.

I'd call out that Net Cash Burn this quarter included approximately $6 million to fund the company's annual 401k employer match, approximately $2.9 million in what can be considered one-time payments related to previously reserved legacy Semaphore refund requests, and $800,000 in severance payments related to our previously announced cost reduction initiatives. We've now delivered eight consecutive quarters of cash burn reduction and expect to drive sequential declines in cash burn each quarter of 2020. Cash, Cash Equivalents, Marketable Securities, and Restricted Cash was $113.9 million as of March 31st, 2024.

Kevin: On average reimbursement rate, we've amplified resources in line with the three focus areas Catherine outlined one such imperative was improving exome reimbursement rate through denial reduction.

We are encouraged with the uptake here, but the reality is that nearly half of all exome claims are still being denied a large portion of all denials are administrative in nature for claims not meeting a variety of non medical requirements designed by payers and we're working hard to ensure upfront order document collection and claim submission processes evolve.

And as a reminder, in October 2023, we announced that we entered into a five-year senior secured credit facility with Perceptive Advisor. The agreement provided 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 through December 2024. Now turning to guidance. As Katherine said, we're raising previously issued revenue guidance and now expect to deliver revenues between $235 and $245 million for full year 2021. We are also raising previously issued Adjusted Gross Margin guidance and now expect to land the full year Adjusted Gross Margin at 60% or higher. We are improving the low end of our net cash burn guide and now anticipate using $70 to $80 million of net cash for the full year of 2021.

Kevin: To enable insurance specific workflows to improve our probability of success.

Kevin: Another large portion of our denials might abate over time as Medicaid policy continues its momentum towards broad coverage for exome and genome.

And already in 2022 states have expanded coverage for rapid whole genome in the NICU and in the outpatient setting New York State added.

Kevin: Excellent coverage to their medical plan effective April one 2024.

That brings us to 28 states covering ex im in the outpatient setting and 11 covering rapid whole genome in patient we.

Speaker Change: We applaud those states for taking this important step, but there is still a long way to go towards ensuring nationwide equitable access for all patients who need it.

Speaker Change: On cost per test the team has done a great job.

Speaker Change: Lower input costs and wet lab process improvements are the headliner this quarter, but we continue to believe that automation across clinical interpretation and analysis offers mostly untapped long term potential to drive scalability and cost efficiency.

Speaker Change: Now moving down to operating expense.

Speaker Change: Total adjusted operating expense was $45 4 million for the first quarter of 2024 that is a reduction of 26% year over year and 6% sequentially.

And finally, we once again reiterate our expectation to turn profitable in. With that, I'll now turn it back to Katherine for any closing remarks.

Speaker Change: Having again delivered reduced cost we're approaching what I consider to be a normalized opex base for the business. Our team has built the muscle memory for efficiency and we will not stop looking for ways to improve operating leverage throughout the business.

Speaker Change: On the bottom line total company adjusted net loss for the first quarter of 2024 narrowed to $8 5 million, that's an improvement of 83% year over year.

The shift from single gene testing to multi-gene testing began more than a decade ago, and now we're successfully shifting the rare disease market from multi-gene panels to exome and genome. This takes time and the dedication of a team that wants to win for the growing number of patients and families who rely on us. And it's all made possible by the shareholders who support our growth. I'd like to thank our team and our investors for the opportunity to prove that we can set a new standard of clinical care while running a really good business.

Speaker Change: 52% sequentially.

Speaker Change: Our first quarter cash burn was $17 2 million, which improved 71% year over year and 48% sequentially.

Speaker Change: I would call out that net cash burn this quarter included approximately $6 million to fund the company's annual 401k employer match.

Speaker Change: Approximately $2 $9 million in what can be considered onetime payments related to previously reserved legacy <unk> refund requests and $800000 severance payments related to our previously announced cost reduction initiatives.

We know that the path to profitability is one that not many companies in our space have achieved, and we are fully committed to making that happen to ensure we can help more and more families and return value to our shareholders along the way. We'll now open the call up for questions. Thank you. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Speaker Change: We've now delivered eight consecutive quarters of cash burn reduction and expect to drive sequential declines in cash burn each quarter of 2024.

Speaker Change: Cash cash equivalents marketable securities and restricted cash was $113 9 million as of March 31, 2024, and as a reminder, in October 2023, we announced that we entered into a five year senior secured credit facility with perceptive advisors.

Speaker Change: The agreement provided 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 through December 2024.

And our first question comes from the line of Dan Brennan with TD Cowboys. Great, thank you. Thanks for the question. And obviously, congrats on another good quarter. Um, maybe before a few questions on the quarter and the guide, obviously, we had the FDA issue the LDT guidance today. And I'm just wondering, any comments from management about, you know, what they thought of it, what stood out, how it might impact the company

Now turning to guidance as Catherine said, we're raising previously issued revenue guidance and now expect to deliver revenues between 235 and $245 million for full year 2024.

Speaker Change: We're raising previously issued adjusted gross margin guidance and now expect to land the full year adjusted gross margin at 60% or higher.

Speaker Change: We are improving the low end of our net cash burn guidance and now anticipate using $70 million to $80 million of net cash for the full year of 2024.

Certainly, we were happy to see the 500-plus page document come out earlier today after a lot of speculation. Net net, we think that this is a good opportunity. We have been planning for this new era of FDA regulation. In fact, we've hired a head of regulatory who's joining the team. So I think we are well prepared to ensure that we can comply with FDA and, you know, having been operating the lab for 20 plus years and having complied with CLIA, CAT, and New York State.

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

Speaker Change: With that I'll now turn it back to Catherine for any closing remarks wonderful thanks, Kevin.

Catherine: Shift from single gene testing to multi gene testing began more than a decade ago and now we're successfully shifting the rare disease market for multi gene panels to exome and genome.

Catherine: This takes time and the dedication of a team that wants to win for the growing number of patients and families who rely on US and is all made possible by the shareholder should support our growth I'd like to thank our team and our investors for the opportunity to prove that we can set a new standard of clinical care, while running a really good business.

We have a really, really strong system and very good, I would say, regulatory and quality systems already in place. So, you know, we're looking forward to moving into this new era. And then maybe, sorry guys, maybe just one quick follow-up to that, and then maybe it's one quick one on the business. But from a competitive standpoint, the fact that, you know, existing LDTs get grandfathered in. So, A, have you guys earmarked some costs associated maybe with running TMAs or anything of that sort that maybe now you might not have to do? And then B, would you expect it could raise the hurdle because you're on the market? And for other players that want to come in, does it at all make it harder for future players to compete?

Speaker Change: We will now open the call up for questions.

Speaker Change: Thank you.

Speaker Change: As a reminder to ask a question. Please press star one on your telephone and weaker unit to be announced and withdraw your question. Please press star one again.

Speaker Change: Please for our first question.

Speaker Change: Okay.

Speaker Change: And our first question comes from the line of Dan Brennan with TD Cowen.

Daniel Gregory Brennan: Great. Thank you. Thanks for the question obviously, congrats on another good quarter.

Daniel Gregory Brennan: For a few questions on the quarter and the guide obviously, we had the FDA actually LDC guidance today and I'm just wondering any comments from management about what you thought of it what stood out how it might impact the company.

Yeah, we think that this is an important opportunity for us. You know, as we said today, we've run more clinical exomes than anyone. We've got such a robust, what we believe is the largest rare disease data asset, running exome and genome. So we think that it's a really important opportunity for us to be able to set the standard as we move into compliance with FDA. And we think that there should be a high bar as it pertains to others being able to enter the market.

Daniel Gregory Brennan: Certainly.

Speaker Change: We were happy to see the 500 plus page document came out earlier today after a lot of speculation.

Net net we think that this is a.

Speaker Change: Good opportunities.

Speaker Change: We have been.

Speaker Change: Planning for this.

Speaker Change: New era of FDA regulation.

Speaker Change: We've hired.

Speaker Change: Head of regulatory.

Speaker Change: Joining the team.

Speaker Change: So I think we are well prepared to ensure that we can comply with with FDA and.

Speaker Change: Having.

But we're still calling through the 500 plus pages and working with our consultants and our regulatory and clinical teams to best determine exactly how we're going to move forward. But we've baked in costs associated with it. So we're feeling good about the opportunity ahead. And then, since I'm in business, obviously, there'll be many I'm sure to follow, but you reiterated the guide for profitability by 25, although you did raise the gross margin guide pretty maturely this year. You have lowered the burden this year. So the profitability guide, the fact that it stays, like something must have changed in that profitability guide. Is it for a quarter in 25?

Speaker Change: <unk> been operating a lot of her 20, plus years and having compliant with CLIA cap New York State.

Speaker Change: We have a really really strong system and very good.

Speaker Change: I would say regulatory and quality systems already in place so.

Speaker Change: We're looking forward to moving into this new era.

Speaker Change: Got it and then maybe sorry, Kevin maybe just one quick follow up to that and then maybe one quick one on the.

Kevin: On the business.

Kevin: From like a competitive standpoint, the fact that existing OTT ltte's get grandfathered in so how do you guys earmarked some costs associated with maybe with running <unk> or anything of that sort that may be now you might not have to do and then b would you expect it could raise the hurdle because youre on the market and for other players that wanted to come.

Kevin: And is it all make it harder for future plays.

Is it a full year? Is there any more color about, you know, the impact in 25 versus the benefits you're seeing come in better than expected in 24? Yeah, Dan, it's a lot of work. I'm super pleased with Q1's performance. I think that's representative of the improved outlook that we provided for the remainder of the year. We've said all along that for the full year 2025, we expect to be profitable, and there'll be a quarter in there in which we make that turn. We hadn't specifically called out the timing,

Kevin: To compete.

Kevin: Yes, we think that this is an important opportunity for us.

Kevin: As we said today, we've run more clinical exome than anyone we have that set to a robust.

Kevin: What we believe is the largest priority disease data asset running exome and genome. So we think that it is a really important opportunity for us to be able to set the standard.

Kevin: As we move into compliance with FDA.

Kevin: And we think that there should be a high bar.

Kevin: It pertains to.

Kevin: To others being able to enter the market but.

Kevin: We're still calling through the 500, plus pages and working with our consultants and our regulatory and clinical team.

Overall, I think we're standing behind our overall commitment that the full year on balance will be profitable and that there'll be a quarter within that year where we make that sustainable. Great. All right, I'll get back in the queue.

Kevin: To best determine exactly how we're going to move forward, but we've baked in costs associated with it.

Kevin: So we're feeling good about the opportunity ahead.

Speaker Change: Got it and then maybe I'll just ask one on the business, obviously there'll be many I'm sure to follow but you reiterated guide for profitability.

Thanks, guys. Congratulations. Thank you. One moment, please, for our next.

Speaker Change: 525, although you did raise the gross margin guide pretty materially this year.

Speaker Change: We lowered the burn this year. So is it profitability guide the fact that it stays like something must have changed in that profitability guide is it for a quarter and 25 is it full year just any more color about.

And our next question comes from the line of Mark Massaro, and DIG. Thank you. Thank you. Hey guys.

Speaker Change: The impact in 'twenty five versus the benefits youre seeing come in better than expected in 'twenty four.

Speaker Change: Yes, Dan.

Congratulations on another good quarter. This looks like it's the fourth consecutive quarter of sequential revenue growth. And I know you didn't provide guidance for Q2, but with this rising mix shift to Exome and Genome and your Salesforce aligned to sell those, which come in at a higher price, is it reasonable for us to extrapolate that you could have sequential revenue growth perhaps throughout this year? Yeah, I think that's fair, Mark.

Speaker Change: Look.

Speaker Change: Super pleased with Q1 performance.

Speaker Change: I think Thats representative and the improved outlook that we provided for the remainder of the year, We've said all along that.

Speaker Change: For the full year 2025, we expect to be profitable and there will be a quarter in there in which we make that turn.

Speaker Change: We haven't specifically called out the timing there overall I think.

Speaker Change: We're standing behind our overall commitment that the full year on balance will be profitable and that there'll be a quarter within that year, where we make that sustainable term.

Speaker Change: Great all right I'll get back in the queue. Thanks, guys Congrats.

Speaker Change: Thank you.

Speaker Change: Please for our next question.

Speaker Change: And our next question comes from the line of Mark Massaro with BP.

I continue to call out that the fourth quarter is typically our seasonally strongest quarter, and I see no reason for that to change this year. So in line with that, I do want to call out that we expect and have delivered consistent, robust revenue growth, and Exome would expect that to continue. But at the same time, the non-Exome portion of our portfolio, we don't want to surprise anybody if we see volumes and revenues decline in those testing lines. That would be in line with our strategy to replace those testing lines with Exome and Genome. Okay. And maybe just a clarification question.

Speaker Change: Yes.

Hey, guys congratulations on another good quarter.

Mark Anthony Massaro: This looks like it's the fourth consecutive quarter of sequential revenue growth.

Mark Anthony Massaro: And I know you didn't provide guidance for Q2, but with this rising.

Mark Anthony Massaro: The mix shift to exome and genome and your sales force aligned to sell those which come in at a higher price.

Mark Anthony Massaro: Is it reasonable for us to extrapolate that you could have sequential revenue growth perhaps throughout this year.

Yes, I think Thats fair Mark.

Speaker Change: Continue to call out that the fourth quarter is typically our seasonally strongest quarter and I see no reason for that to change this year.

Speaker Change: So in line with that.

I do want to call out that we expect and have delivered.

I think I heard you talk about a $2,600 Exome Genome Panel ASP, up from $2,500 in the last quarter. Did you provide a metric on the denial rate? I assume you probably had some improvement in denials or collections in the quarter. And then can you speak to any lift from new payers, whether it's Medicaid or some commercial payer coming on? Yeah, all of the improvements in that average reimbursement rate would come vis-a-vis a reduction in denials. There have been no changes to underlying contracted pricing.

Speaker Change: Consistent robust revenue growth in exome would expect that to continue but at the same time, the non exome portion of our portfolio. We don't want to surprise anybody if we see volumes and revenues declined in those testing lines that would be in line with our strategy to overall replace those testing lines with with exome and genome.

Speaker Change: Okay, and maybe just a clarification question I think I heard you talk about a 2600 dollar exome genome panel ASP up.

Speaker Change: Up from 2500 in the last quarter did you provide a metric on the patient on the denial rate I assume you probably had some improvement in denials for our collections in the quarter and then can you speak to any lift from new payers like whether it's Medicaid or some.

Speaker Change: Commercial pair coming on.

Speaker Change: Yes.

Speaker Change: All of the improvements in that average reimbursement rate would come vis vis reduction in denials, there's been no changes to underlying contracted pricing.

And so reduction in denials with a denial rate just north of 50% in the first, Okay, got it. And then related to that, I mean, what do you think the long, long term run rate could be for exome, genome, ASPs? I know, you know, if you're at around the 2600 level today, I think you're getting paid more than two times that from other health plans.

Speaker Change: And so reduction in denials with the denial rates.

Speaker Change: Just north of 50% in the first quarter.

Speaker Change: Okay got it and then.

Speaker Change: Related to that I mean, what do you think.

Speaker Change: Long long term run rate could be for.

Speaker Change: Genome Asp's I know if youre at around the 2600 level today I think you are getting paid.

Speaker Change: More than two times that from other health plan, So I guess, where do you see.

So I guess, where do you see perhaps a normalized run rate, even if it's two to three years from now? Yeah, look, I think over time you might expect a reduction in the denial rate, potentially some reduced contracting rates, such that the $2,600 we experienced in the first quarter I consider to be a new floor for us to work off of over the next several quarters and couple years. Okay, got it.

Speaker Change: Perhaps a normalized run rate even if it's two to three years from now.

Speaker Change: Yes look I think over time, you might expect a reduction in the rate potentially some reduced contracting rates such that the $2600. We experienced in the first quarter I consider to be a new floor.

Speaker Change: For us to work off of over the next several quarters and couple of years.

Speaker Change: Okay got it and maybe last one for me.

And maybe the last one for me, you know, you guys exceeded my revenue projections by well over $11 million. So I, I must not be a good modeler, or you guys are just executing well, I guess. Can you speak to whether you had any success converting accounts from Invitae in the quarter? And then, you know, related to that, I know that LabCorp put in a bid and won the assets to acquire Invitae. Can you just speak to, you know, what your expectations are for the potential to perhaps convert some of those Invitae accounts later this year? Perfect, yeah!

Speaker Change: You guys exceeded my revenue projections by well over $11 million.

Speaker Change: I must not be a good modeler or do you guys are just executing well I guess can you speak to.

Speaker Change: If you had any success converting accounts from from <unk> in the quarter and then.

Speaker Change: Related to that I know that Labcorp put in a bid and won the assets to acquire and VJ can you just speak to.

Speaker Change: What your expectations are from any potential.

Speaker Change: Perhaps converting some of those in VA accounts later this year.

VJ: Perfect Yeah. So.

So, you know, the rare disease business at NBK is in part centered on one of our core targets in terms of providers that we're focused on, and that's the pediatric neurology market. So we have been targeting them, and, you know, as we've talked about, as we pull back from general pediatricians to really double down in that space, that's where we're seeing really good success, both with new customers who haven't been ordering genetic testing, where we convert them rapidly to using our exome out of the gate.

VJ: The rare disease business at <unk>.

VJ: And part centered on one of our core.

VJ: <unk> targets in terms of providers that were focused on and thats the pediatric neurology market.

VJ: So we have been targeting them.

VJ: As we've talked about.

VJ: As we pulled back from general pediatricians to really double down in that space, That's where we're seeing really good success, both with new customers, who haven't been ordering genetic testing, where we convert them.

VJ: Rapidly to utilizing our exome out of the gate and then we have seen success in pediatric neurologists, who have been ordering panels.

And then we have seen success with pediatric neurologists who have been ordering panels, including panels from NBK, and getting them to start ordering our exomes. So we have seen success there and expect that we'll continue to convert that entire market and that segment from panels to exomes. You know, I think LabCorp has, you know, obviously made an important acquisition, and that hereditary cancer business that NBK built is certainly kind of the shining star there.

VJ: Including panels from <unk> and getting them to start ordering.

VJ: Our XL so we have seen success there.

VJ: And expect that will continue to convert that entire market in that segment from from panels to <unk> films.

VJ: I think cloud core has obviously made.

VJ: An important acquisition and that hereditary cancer business that <unk> built.

VJ: And certainly it kind of that.

VJ: The shining star there the rare disease panel business, we think over time will become obsolete and faulty converting all of that to XOMA Gino.

The rare disease panels business, we think over time, will become obsolete, and we'll be converting all of that to exome and genome. But that's a core part of our strategy as we think about expanding utilization of that the most comprehensive test that's providing rapid turnaround times as quickly as panels and most patients not having to pay out-of-pocket. So we'll continue to turn the crank on that from a commercial medical affairs perspective. Okay, sounds good.

VJ: <unk>.

Speaker Change: But that's a core part of our strategy as we think about expanding utilization of that.

Speaker Change: The most comprehensive test, that's providing rapid turnaround times as quickly as panels and.

Speaker Change: Most patients not having an out of pocket so well.

We will continue to turn the crank on that from a commercial and medical affairs perspective.

Speaker Change: Okay. It sounds good congrats on the quarter and I will hop back in the queue.

Congratulations on the quarter, and I'll hop back in the queue. Awesome. Thanks, Mark. Thank you. And our next question comes from the line of Matt Sykes with Goldman Sachs. Good afternoon, Katherine, and Kevin.

Speaker Change: Awesome. Thanks Mark.

Speaker Change: Thank you one moment please for our next question.

Speaker Change: And our next question comes from the line of Matt <unk>.

Matt: <unk> with Goldman Sachs.

Matt: Hey, good afternoon, Catherine Kevin Thanks for taking my question and congrats on the quarter.

Thank you for taking my question and congratulations on the quarter. Maybe, Katherine, just kind of a high-level question, but you had mentioned the press release, the data, and I know you released earlier that you presented at the American College of Medical Genetics, comparing the exome versus CMA. I know converting people from CMAs to Exome is part of the challenge here, education awareness. That data set in particular, how much do you think that will help in that education awareness? And do you need to continue to provide data similar to that to convince people to start with Exome first? And how much more, you know, education, do you feel like you need to do?

Matt: Maybe Katherine just kind of a high level question, but you had mentioned in the press release that the data and I know you had released earlier that you presented at the American College of medical genetics.

Matt: Comparing exome versus CMA.

I know converting people from CMS exome as part of the challenge here education awareness.

Matt: That dataset in particular, how much do you think that will help and that education awareness and do you need to continue to provide data similar to that to convince people to start with exome first and how much more education awareness do you feel like you need to do.

Yeah, it's really important data for us when we think about, you know, kind of refocusing in the future on the general pediatric segment. So what we started to see last year when we did enter the general piece segment was their tendency to utilize CMA.

Matt: Yes.

Matt: Really important data for us when we think about.

Matt: Kind of refocusing in the future on that general Pediatrics segment. So what we started to see last year. When we did enter the general.

Matt: <unk> segment wise.

And therefore, the data that we've been able to generate is super helpful in terms of being able to not only go to payers but ensure that we can continue to educate clinicians who are ordering CMA. We have seen that since we have refocused our commercial strategy away from general pediatricians and towards the pedineuros, as you expect, our CMA volume has shifted. So we think this is really important for the longer term strategy of being able to educate that broader pediatrician segment. But over the next several years, we're really going to be doubling down on pediatric neurologists, and pediatric developmental specialists. And in those settings, there's less utilization of CMA.

Matt: Their tendency to utilize to utilize CMA and therefore, the data that we have been able to generate is super helpful. In terms of being able to not only go to payers, but ensure that we can continue to educate.

Matt: Monition to ordering CMA, we have seen since we have refocused our commercial strategy away from the general pediatricians and to the <unk>.

Matt: As you would expect our CMA volume has shifted so we.

Matt: We think this is really important for that longer term strategy of being able to educate that broader pediatric.

Pediatrician segments.

Matt: But over the next several years, we're really going to be doubling down on pediatric neurologists pediatric developmental specialists in those settings. There is less utilization CMI. So.

So we think the data that we've generated is really, really good for the longer term strategy. Got it. Very helpful. Thank you. And then just on the exome genome test mix, it looks like you guys have kind of averaged around 300 basis points per quarter in terms of improving that mix towards exome genomes. Is that a number that we could, you know, kind of extrapolate for the balance of this year with maybe a higher step up in Q4 because of seasonality?

Matt: We think the data that we've generated is really really good for the longer term strategy.

Speaker Change: Got it very helpful. Thank you and then just on the exome genomic test mix. It looks like you guys have kind of averaged around 300 basis points per quarter in terms of improving that mix towards exome genomes is.

Speaker Change: Is that a number that we should.

Speaker Change: Could kind of extrapolate for the balance of this year with maybe a higher step up in Q4 because of the seasonality.

I'm just giving importance to margins, just trying to figure out the cadence of this test mix, how regular it is, how predictable it is, and how you look at driving that makeshift higher in terms of increases on a quarterly basis. Yeah, I think certainly sequential increases are absolutely fair. So anywhere in that range of 1 to 3%.

Speaker Change: Given the importance to margins just trying to figure out the cadence of this test mix how regular it is how predictable it is and how you look at driving that that mix shift higher in terms of increases on a quarterly basis.

Speaker Change: Yes, I think.

Speaker Change: Certainly sequential increase is absolutely fair so anywhere in that range of.

1% to 3%.

I think we've said all along that, All else equal, a test mix of roughly 40% would get us profitable at sort of consistent gross margin profiles in our OPEX profile, and if you think about a turn to profitability in 2025, sort of a steady march up towards that point is what we'd expect. Got it, and then just for my final question, just on reimbursement, if you just remind me, and apologies if you've said this before, but just sort of the percentage of patients that you face that are Medicaid eligible, just given the traction you've had in some of the states that have passed that, just want to get a sense for the context of the Medicaid population, and then secondarily, Kevin, you mentioned the half of exome claims are still being denied, and I know you addressed some of the denials on an earlier question.

Speaker Change: I think we've said all along that.

Speaker Change: All else equal a test mix of roughly 40% would get us profitable at.

Speaker Change: Sort of consistent gross margin profiles in our Opex profile and if you think about a turn to profitability in 2025.

Sort of a steady march up towards that point.

Speaker Change: Is what wed expect.

Speaker Change: Got it and then just for my final question is just on reimbursement.

Speaker Change: And some of the states that have passed that just wanted to get a sense for the context of the Medicaid population and then secondarily.

Speaker Change: Kevin you mentioned that half of X. Some claims are still being denied and I know you addressed some of the dials on the earlier question.

I was just wondering if in terms of like moving that denial rate down, is that like a hiring problem in terms of just hiring more people to do that largely administrative work? Or do you feel like you can move the needle on denials with the current staff and OPEX spend that you have today? Yeah, and the first...

Speaker Change: I was just wondering in terms of like <unk>.

Speaker Change: Moving that to an hour rate down is that like a body problem in terms of just hiring more people to do that largely administrative work or do you feel like you can move the needle on denials with the current staff and Opex spend that you have today.

Speaker Change: Yes.

Speaker Change: First.

Roughly 15 to 20 percent of the business, volume-wise, is institutional, and so the remainder of the exome and genome business. This is a video of the 50-50 split between commercial insurance and Medicaid. There's roughly a 50-50 split in that insurance channel between commercial and Medicaid. [inaudible] with, as we've called out, 28 states covering outpatient and 11 on the rapid whole-genome product inpatient, and so a disproportionately higher denial rate today in the Medicaid populations for wherever volume is sourced from those states without... And then on addressing front end processes, no, not necessarily a body problem or something that we can solve just by throwing more bodies at it.

Speaker Change: Roughly 15% to 20% of the business volume wise is institutional.

Speaker Change: And so the remainder then of the exome and genome business is split between.

Speaker Change: I mean commercial insurance and Medicaid and there's roughly a 50 50 split in that insurance channel between commercial and <unk>.

Medicaid.

Speaker Change: With.

As we've called out 28 states covering outpatient and 11 on the rapid whole genome product inpatient and so.

Speaker Change: A disproportionately higher denial rate today in the Medicaid populations for wherever volume is sourced from those states without coverage.

Speaker Change: And then on addressing front end processes, no not not necessarily a body problem or something that we can solve just by throwing more bodies at it.

More so, ensuring that upfront workflows from the ordering system through the time of claim submission are specific and unique to individual patient insurance products. Rather than a one-size-fits-all process, what we see is a vast disparity in the medical necessity requirements as well as administrative requirements to ensure that exome and genome claims ultimately get paid, and so some work to do to make sure that processes are customized to those unique workflows is what has to happen. That's more technology-based and process-based than just adding people, if that makes sense. I got it.

Speaker Change: Sure so ensuring that upfronts workflows from the ordering system through the time of claim submission are specific and unique to individual patients insurance products.

Speaker Change: So some work to do to make sure the processes are accustomed to.

Speaker Change: Those unique workflows is what has to happen.

Speaker Change: That's more technology based in process basin than just adding people.

Speaker Change: If that makes sense.

Speaker Change: Got it thanks very helpful.

Speaker Change: Thank you.

Thanks. Very helpful. And our next question comes from the line of Matt Stanton with Jeff... Hey, thanks.

Speaker Change: Please for our next question.

Speaker Change: Our next question comes from the line of Matt <unk> with Jefferies.

Speaker Change: Yeah.

Matt: Hey, Thanks, a lot has been covered in terms of the guidance increase both on the revenue and margin side.

A lot has been covered in terms of the guidance increase both on the revenue and margin side and reiterating the targets for 25. But Kevin, we would love to get your kind of high-level thoughts, just the visibility you have in the business today, and just maybe how much that's improved over the last few quarters here. Yeah, look, we've invested a lot in the team, and in 2023, we learned a lot of lessons with respect to commercial execution.

Matt: And the targets for 2005, but Kevin I would just love to get your kind of high level thoughts just visibility you have in the business today and maybe how much that's improved over the last.

Matt: Three quarters here.

Matt: Yes.

Kevin: Look we've invested a lot into the team.

Kevin: And.

Kevin: In 2023 learned a lot of lessons with respect to commercial execution I think the team is well poised now understand what call points work for us.

I think the team is well poised to now understand what call points work for us, and we have the right size and skill set across the commercial organization. So I think it provides some of the confidence that allowed us to raise our guide this earlier in the year. We think it's a substantial raise and look forward to using some of those lessons learned over the past year or two as we've developed a strategy to start to expand the utilization of the exome and genome. The team has what it needs to execute on our plan.

Kevin: And we have the right size and skill set across the commercial organization.

Kevin: So I think it provides some of the confidence that allow us to raise our guidance. This earlier in the year and we think it's a substantial raise in guidance.

Kevin: And look forward to.

Kevin: Using some of the lessons learned over the past year or two as we've developed a strategy to start to expand the utilization of exome and genome. The team has what it needs to execute on our plan.

And so looking forward, looking forward to seeing the results as the year progresses. Thanks. And then maybe one quick one, just an update on the Salesforce realignment you did last quarter to target more profitable accounts, and then any call around the enterprise sales team. I know it's a bit longer cycle, but just any update around some of those changes you made more recently.

Kevin: And so looking forward looking forward to seeing the results as the year progresses.

Speaker Change: Thanks, and then maybe one quick one just an update on the sales force realignment that you did last quarter to target more profitable accounts and then any color around the enterprise sales team I know, it's a bit longer cycle, but just any update around some of those changes you've made more recently.

Thanks. Sure. Yeah, you've got the Salesforce scope. Absolutely. Right.

Speaker Change: Sure Yes.

Speaker Change: You've got the sales force so absolutely right, we've got the state for sales Rep.

We've got 54 sales reps and about nine medical science liaisons who are focused on the outpatient opportunity, which is predominantly with our exome. And we put that into place in the fourth quarter in anticipation of 2024. We're really happy with the performance of the team. We feel like we've got the right incentive comp program in place. And I think that's based on what we're seeing year to date by way of volume in the door and percentage of mix.

Speaker Change: And that nine medical science liaisons, who are focused on the outpatient opportunity, which is predominantly with with our exome and we put that into place in the fourth quarter in anticipation of 2024, we're really happy with what the performance of that team.

Speaker Change: Feel like we've got the right answer.

Speaker Change: <unk> comp.

Speaker Change: Graham in place and I think that based on.

Speaker Change: What we're seeing year to date by way of volume in the door.

Percentage of mix, we're feeling really good that the team is executing that theyre focused on the right account.

We're feeling really good that the team's executing, that they're focused on the right accounts, and that they are importantly motivated by their incentive comp plan. So I feel great about the team and am continuing to drive forward with 2024. So good momentum with the sales force, and you're absolutely right on the enterprise side of things. We have a small team that is going in and doing enterprise-wide sales for that NICU opportunity. NICU is, you know, I think an important market for us, but it's a different type of sales approach.

Speaker Change: They are importantly motivated by their incentive comp plans, so I feel great about the team and continuing to drive forward with 2024.

Speaker Change: So good momentum with the sales force.

Speaker Change: And you're absolutely right on.

Speaker Change: On the enterprise side of things.

Speaker Change: We have a small team that is going in and doing in our pipeline sales.

Speaker Change: For that NICU opportunity NICU is.

I think an important market for us, but it's a different type of sales approach.

We think that it's a really good way to be able to try a different sort of consultative sale with the C-suite and really be able to get some of the health economics data in front of these hospital systems. There are, you know, a fixed number of beds in the NICU setting, so we think it's a way to be able to introduce genomics at more of a system-wide level, and to your point about it's a longer selling cycle, that's exactly why, but, you know, we would hope to see, you know, in 2025, a greater percentage of volume and revenue coming in from that NICU segment, but this year we're anticipating we'll be able to see a rinse and repeat from last year.

We think that it's a <unk>.

Speaker Change: Really good way to be able to try a different sort of.

Speaker Change: Consultative sale.

Speaker Change: With the C suite and really be able to get some of the health economics data in front of.

Speaker Change: In front of these hospital systems are a fixed number of beds in the NICU setting. So we think it's a way to be able to introduce genomics at more of a system wide.

Speaker Change: And.

Speaker Change: To your point about it its a longer selling cycle, that's exactly why but yeah, we would hope to see.

Speaker Change: In 2025 settlement, a greater percentage of volume and revenue coming in from that segment. This year.

Speaker Change: We are anticipating it will just be a rinse and repeat from last year.

Super. Thank you. Thank you. I'll now turn the call back over to CEO Katherine Stueland for any further remarks.

Speaker Change: Super Thank you.

Catherine: Thank you I'll now turn the call back over to CEO, Catherine stalling for any further remarks.

Thank you so much. We appreciate all of the great questions and engagements. We'll continue to provide updates on our progress, and we look forward to seeing you at upcoming investor conferences. So, thanks so much. Have a good night. Ladies and Gentlemen, this does conclude today's program, and you may now disconnect.

Thank you so much we appreciate.

Speaker Change: Ladies and gentlemen, thank you for participating this does conclude today's program and you may now disconnect.

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