Q2 2019 Earnings Call

Ladies and gentlemen, this is the operator today's conference call is scheduled to begin momentarily.

All the time your lines will again be placed on hold thank you for your patience.

Good afternoon, My name is Chris and I'll be your conference operator today.

At this time I would like to welcome everyone to <unk> second quarter 2013 financial results Conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers remarks, there will be a question and answer session.

If you like to ask a question. During this time simply press Star and then the number one on your telephone keypad.

He would like to withdraw your question press the pound.

Thank you Laura de Angelo you may begin the conference.

Thank you operator, and good afternoon, everyone. Thank you for joining us for our second quarter 2018 financial results earnings call.

Joining us today are Sean George our CEO Shelly Guyer, our CFO leave index eat our COO, Katherine Stueland, our chief commercial officer, and Executive Chairman Randy Scott.

As you listen to today's conference call. We encourage you to have our press release available, which includes our financial results as well as metrics and commentary on the quarter.

Before we begin I'd like to remind you that various remarks that we make on this call that are not historical including those about.

Our future financial and operating results, our plans and prospects the focus of our business strategy or plans to integrate and manage the businesses, we acquired market opportunities future products service for services, our product pipeline and the timing thereof demand for and reimbursement of our services and our investment in our infrastructure and operations constitute forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act.

It's difficult to accurately predict demand for our services and therefore, our actual results could differ materially from our guidance.

Our guidance on future company performance standards among other things that we do not conclude any additional business acquisitions investments restructurings or legal settlements.

We refer you to our 10-Q for the quarter ended March 31 2018.

In particular to the section titled Risk factors for additional information on factors that could cause actual results to differ materially from our current expectations.

These forward looking statements speak only as the date you hear us.

To supplement our consolidated financial statements prepared in accordance with the generally accepted accounting principles in the United States or GAAP, we monitor and considered non-GAAP research and development expense non-GAAP general and administrative expense non-GAAP net loss in Casper. We encourage you to review reconciliations which are available in the press release.

With that I will turn the call over to Sean.

Thank you Laura.

It is now a decade in to the execution of a contrarian model in health care, demonstrating that aggressive investment in technology can successfully remove barriers such as cost or access.

The execution of this model has led to increased utility and subsequent demand of genetics for the billions of people on the planet. We believe could benefit from this most fundamental personal health information.

Every year just in the United States more than 1.7 million people are diagnosed with cancer, but only a fraction of them are getting the genetic information they need to guide their car care.

In retail continues to lead with science and demonstrating the importance of offering a comprehensive genetic testing for everyone with cancer and therefore broadening testing guidelines.

Beyond cancer, we have found exactly the same to be true in other areas of medicine.

More people would benefit from accessing their testing to inform their health care choices for example.

Of the 6 million pregnancies in the U.S. per year, only a small percentage of those currently benefit from the full suite of genetic information that can be of great value for the health and well being at both the mother and baby.

Indeed, they also believes there was a clear benefit and making genetic health screening available to those without a strong personal or family history that would traditionally weren't testing.

With the launch of our proactive offering a number of years ago, we opened up genetic testing to completely new set of customers. Our approach is gaining ground with a broader commercial launch of our direct channel, which enables those customers for the first time door to the same clinical grade testing that experts have come to rely on from BTIG.

With more and more data supporting a broad utility and value of genetic information across all stages of life and our success in lowering the barriers that people gaining access to comprehensive clinical grade testing, we are moving towards the day when personal genetic information, it's considered a necessary part of everyone's routine health care.

Another opportunity to increase access to such testing is through our Biopharma partnerships with the addition of a dozen partnership programs in the second quarter alone. We don't have a growing network of more than 50 Biopharma partnership programs. The growth of these programs allows us to accurately diagnose more people than ever and then upon including them in our network introduce them to partners across the health care continuum that can help with appropriate treatments therapies and qualify patients for clinical trials.

We envision this trend accelerating into the foreseeable future as monitoring screening and prevention strategies as well as therapy has become more tailored and better targeted more cost effective and resultant better outcomes.

In a very short period of time, we have ramped up commercial insurance coverage is now approximately 275 million lives and network more importantly, the payers are now starting to engage more strategically given the growing importance of genetics in the provision of health care.

We were honored to be named one of only seven companies Unitedhealthcares preferred Latin network effective July 1st we continue to believe that broad capabilities quality transparency and price matter, especially in health care.

As more and more payers self insured employers integrated provider networks and governments around the world to evaluate the various tools available and partner with the best provider for the genetic information needs.

We will continue to execute and invest to further position in the day as a leader in advanced medical genetics.

We are proud to have grown from 229 samples in a few hundred thousand dollars revenue in 2013 to where we are now.

Our progress in the first half of 2019 gives us confidence in our ability to deliver on our guidance of more than 500000 samples accessioned in more than 220 million in revenue. This was another year of investment for NBP as we lower the cost of genetic testing across our platform and at the same time rapidly add to our content and capabilities.

We continue to deepen and widen our competitive mode. As we now make it even easier to access genetic information media that across all stages in life.

I will now turn the call over to Shelly to highlight our financial results for the quarter.

Thank you Sean.

Volume matters, we're pleased to have close to the 52% growth in accession volume over the second quarter of last year, and an 18% sequential growth from first quarter of 2019, we accession more than 111000 samples. This quarter billable volume was nearly 111000, notably we experienced growth across all segments, especially strong volume from international markets, which again accounted for over 10% of the total accession volume.

Several comments on how to think about modeling our business moving forward.

This quarter the exceptions in billable volumes were nearly the same in line with our historical experience that the difference between Accessioned in billable volume is small in the second quarter.

But we expect that due to seasonality there will be a larger gap between accession in billable volumes in the third quarter as shown on the slide in the appendix.

And as you think about the remainder of the year remember that we normally experience seasonality in our gross clinic sessions between the second and third quarters last year, we only grew 7% between these quarters.

And how are we tracking to our guidance, we guided to 40% of the volume in the first half of the year with over 205000 exceptions, we standard over 41% over annual guidance in the first six months of the year, we reiterate our guidance for the year of over 500000 accession samples for 2019.

In the second quarter, we generated $53.5 million in revenue, which represents a 43% growth in quarterly revenue year over year. This quarter over 70% of our revenue came from third party payers and just under 30% from both institutions, including partners and patient pay.

The increasing percentage from third party payers is largely due to the full effect of Medicare paying for the del dupes for each PSC in Lynch syndrome, as well as from continued increases in insurance payments.

In terms of ASCII is our average was $471 this quarter down from $500 in last year's second quarter, which included a one time $2.3 million benefit for Medicare payments for each PSC they'll do.

Excluding the onetime don't do pay them.

The comparable number from last year would have been $466.

And while this quarter's $471 is up from the first quarter's ASP of $465 remember that we had some write downs in the first quarter that we don't expect to repeat.

Taking this into account we believe that we will have our A.S. piece bounced around a bit but that we will see the first piece trends my word in the near term as our payer in products mix changes.

As we continue to get more cash into contract and collect more from the third party payers, we expect small quarterly increases in ASP, but these will be offset by lower pricing in areas that are growing like our patient pay and international businesses.

As well as the product mix changes.

While we are pleased with our strong revenue growth this quarter. Our historical experience is that our third quarter revenue is traditionally only up slightly from the second quarter due to seasonality and the underlying billable volumes.

We believe that this year will follow this trend.

So in some revenue in the second quarter is on track with our annual guidance recall that we had suggested that around 40% of revenue historically came in the first half of year, we achieved 43% in the first half of this year, we reiterate our annual guidance of over $220 million in revenue for 2019.

In the second quarter of 2019, we reduce Cogs to an average cost per sample of $252 down from $279 in the second quarter of 2018, representing a 10% reduction year over year, but cogs per sample increased from the first quarter, primarily due to a large stock based compensation expense in the quarter for annual retention on merit based RSU grants totaling $1.5 million, which added approximately $13 per sample as well as other factors, including higher cost related and I P S and our direct channel launch.

Just a reminder of my past comments on Cogs, We expect Cogs will continue to fluctuate as we introduce new products and bring new technologies online importantly, new products. We introduced will have worst margins early on and depending upon the uptake of those products could put pressure on our Cogs. We made a commitment to make 2019, a year of investment and we intend to end D.T.I.s newly acquired technologies and products and continue to target 50% gross margins.

We improved gross profit by more than 50% from the previous year generating $25.5 million in the second quarter of 2019 versus $16.9 million in the second quarter of 2018, this quarter or gross margin was 48% up from 45% in the second quarter of 2018, which was aided by the onetime Medicare payments for Delta and without this benefit would have been 42%.

As discussed last quarter, we are investing in several areas of the business to foster our growth this year and beyond enabling us to scale and offer additional products across all stages of life for the quarter, we incurred operating expense, which excludes cost of revenue of $77.4 million, an increase of about 65% from the $46.9 million in the second quarter of 2018.

But what are the current changes the increase in opex of $21.8 million from the first quarter was due to several factors that need to be further explain so that you can understand the cost structure of our base business, excluding the impact of our acquisition.

First we had an increase of $4.9 million of stock based compensation in Opex in the second quarter, primarily due to the annual retention and merit based or a t. is granted.

Second we expensed approximately $2.6 million and stock based compensation for the inducement argues granted to singular bio employees, which is expensed R&D.

Third we incurred over $3.2 million in one time cost for the acceleration of options. Upon the close of the singular bio transaction, which is expense to DNA and fourth we expensed $1.2 million and legal and accounting acquisition related costs for singular bio and John glass.

The remainder of this increase from the first to second quarter in Opex was due to growth in our base business. We continued our investment in selling and marketing and R&D with the total increase cost of over $6 million.

And selling and marketing we increased our sales head count to approximately 198 quarters, NIM and incurred additional marketing costs to support our an IPO offering launched in mid February and our direct channel launched in early June .

In R&D, we continued our head count expansion focused on scaling our business preparing for future content expansion, improving the customer experience and driving costs down.

Now, let's move to our cash position at quarter end, our cash cash equivalents restricted cash and marketable securities totaled $254 million.

Cash burn a non-GAAP measure totaled $33.2 million in the second quarter of 2019.

On the first quarter call, we indicated that we would continue to invest in our business throughout the year and 2020 and that our quarterly burn would increase throughout the year.

For the year, we continue to anticipate burning up to 50% more in 2019, when compared to 2018, our burn could be as high as 150 million in 2019.

Our financial strategy is to focus on the increase of operating cash flows.

Well, we've elected to push our path to GAAP profitability out and instead make 2019, a year of investment we will operate the company to maintain the ability to swing to profitability with the resources on hand.

In our press release, we have provided non-GAAP net loss per share reconciliation.

We will provide these reconciliations every quarter until our obligations to singular bio for equity milestone payments have been completed.

How should you think about our future payments. If you look at the performance you will see several categories. We do not expect future payments for acquisition related post combination expense, which totaled $3.2 million. This quarter. However, you will see large acquisition related stock based compensation charges.

These charges were $2.6 million for the attendees from deal closing to the end of the quarter as we move forward the compensation expense for each quarter may include both time based and performance based grants.

Each quarter, we will break out these acquisition related charges separate from our base business Opex.

We expect that this would last no longer than two years.

I will now turn the call back over to Sean.

Thank you Shelly.

We've had a strong and busy quarter with the launch of our direct channel to enable cause consumers to initiate a clinical grade genetic test for the first time.

The presentation of data at various conferences, demonstrating that more people could benefit from genetic testing the acquisitions of both singing the bio Angela whose technologies enhance the quality and scale of our business.

And continue to work on expanding our genome network with more biopharma partnerships.

The pace of our industry's consolidation is picking up.

Volume and scale matter.

Technology infrastructure will win the game in the long run.

And we have demonstrated the ability to acquire and successfully integrate technologies and platforms over the last several years.

We've grown the company explosively over the past 25 quarters, continuing to average double digit quarter over quarter growth.

Our model is working and the timing is right.

Around the globe in all corners of health care related industries. The fundamental importance of genetic information is coming into focus and VT isn't the right position to lead in this new era of medicine.

Before I moved to Q, an a. I wanted to take the opportunity publicly to express my deepest gratitude and up most thanks, Randy who is here with us today.

His vision for the future has been a guiding light not just for all of us here and in detail, but for many across the entire industry.

Well, we'll miss his direct official involvement in the future operations of the company.

I very much look forward to our continued strategic brainstorming and working with him as an internal friend of the company.

Thank you Randy for everything you've done and the many more things you're going to do for NV today the industry in the world at large.

Thanks, Sean.

Well, it's been a fantastic experience being a part of the founding team here and VJ and I really couldn't be more excited about the future because in my opinion. If you take it really is not just building a company, but an entire ecosystem.

So as I retire and take some time to spend with my Amazing wife has put up with me starting and running companies for 35 years.

And kids and three of the Cutest Grand Kids you've ever seen.

It really is knowing that a veto is in great hands going forward.

So next year after taking some time off I plan to open a family investment office and to continue investing in the ecosystem that MBT is creating a being a great partner going forward.

So with that.

Let me just say that I plan to be a very significant shareholder for v. take for a very long time and as I turned in not only the call, but the charters roll back over to Sean.

It's just really been one of the great choice my wife's to work with you guys are doing.

Thanks Randy.

Thank you for all of Us and with that we'll we'll turn the call over the operator for Q and a.

Certainly at this time I would like to remind everyone in order to ask a question Press Star and then one on your telephone keypad.

We'll pause for just a moment to compile the Q and a roster.

And your first question is from Tyco Peterson with JP Morgan Your line is open.

Hi. Thanks. This is all I mean I'm for Tyco.

First can you comment on what are the key hurdles that need to be addressed the 50% long term gross margin call and what does that the acquisition of singular bio and John glass due to expedite that timeline.

Yeah, I think I'll, let shelly.

Comment on exactly where we are I can say that the seeing it a bio of course.

You know there are there are price points for noninvasive prenatal screening and the 200 plus million pregnancies around the globe that are.

That the single about technology will allow us to hit and maintain our 50% gross margin target.

Jumbo.

You know we spent a good four plus months.

In a pilot or collaboration with them before we really started moving to discussing teaming up together.

And that in that we've got enough data to know that we could significantly reduce our variant unknown significance rate as well as reduce the labor involved in resolving those.

That that will that will actually have an impact will that will start in doing that impact within that within a couple of months.

Again against the backdrop of all of the larger puts and takes that affect our Cogs line, which I think I'll, let shelly speak to know exactly where we're at and where we see going forward.

Thanks for the question. So 48% was our gross margin. This quarter, we have had quarters that have been above that and we told people that we anticipated that it would jump around a bit.

So as we look at it.

Given that it is is a target and that's not going to be specific.

We anticipate that by collecting more let's say from a third party insurance as we begin to.

Get some more of those payers to pay us higher rates not only for oncology tests, but also for other tests reproductive and other diagnostic sorts of tasks.

But we can drive up the collection rate.

Similarly, we have control over the cost in many of the.

Respects for instance, we've been putting a lot of money in the medical interpretation and as Sean mentioned June July , which should help us be able to bring some of those costs down but also to enable us to scale over time. So it's really the volume throughput, which allows us to have much more control and driving those long term costs down. So it's always in a quarter, whether we're investing or whether we are trying to drive the cogs specifically down.

And that will mean that we will have bumps around.

With time the decision is to either try to collect more before we can have decisions to bring the pricing down and to be aggressive with that or we can add more content on the cogs or drive that down. So all of those levers are available to us which is why we've indicated that it will jump around around that 50% in any of those one when any of those levers will assist us in helping to further our business and say around that 50%.

Level.

Great. That's helpful. And then you mentioned bad.

Volumes from both institutions and patient pay were just under 30%. So I was wondering what is sort of the positive early traction you're seeing following the patients initiate a testing platform launch at ASCO and I'm, how you're expecting that to evolve.

Yeah, I think I'll, let Doug.

Kevin speak to the evolution of it.

I think early early returns are in and basically as expected, we actually expect kind of that direct channel to build modestly.

Again, we're spending orders of magnitude less on on those that type of channel than than kind of I think people are accustomed to for Conns consumer type products.

And an important measure I think on the on the mix here is that that direct channel yield off all three payment types, both all three patient pay institutional.

And insurance Bill the channel is the volume driver that we're using to generate interest and as and and I think.

As expected.

And I think also interestingly.

The mix of what people are looking for.

Is quite different some are coming in through that channel for diagnostic tests and R&D qualified for insurance payment.

Some are coming in as a part of one of our almost 50 biopharma partner programs that enjoy for which that ease of access and easy use as it gets a key feature.

And then of course some are finding this information interesting enough that they're just willing to go ahead and start the process and pay for themselves. So all three.

Payment types will come in through through this channel. So he has as its broken out in the in the case and cues that it's not a one to one correlation but with that with that of the clariphy clarification and Catherine can speak to what what's the what to expect in the future.

Sure I think Sean So we've sent five and a half years building, a really strong medical brand that genetic counselors and genetic experts and other clinicians have ground to trust and rely on and ensuring that with the introduction of this new channel. We are able to continue to uphold that those relationships and that brand that was really of paramount importance to us as we introduced our direct to patient channel.

Initiation and so the initial response from clinicians after we didn't touch occasion with them on it was very positive and so we are in our nascency.

Of experimenting with various marketing strategies, mainly digital right now and we'll plan to spend the next several months continuing to experiment there with pretty.

Minimal spend we'll keep you posted as we learn more and our spend.

Looks to be more than what we currently have budgeted for a bad.

As John mentioned, our intention is that it will be Oregon orders of magnitude less than what you see farm out were direct to consumer ancestry companies.

So this year.

As as you mentioned in the past.

Minimal contribution to volume from the direct channel, but more as we look to 2020 and beyond.

Great. Thank you and last one from US can you briefly comment on interest from pharma and how you're seeing pharma partnerships evolve. Thank you.

Certainly so we added we added 12 additional programs this quarter and what we've seen is a handful of things one we're adding on additional partners to existing programs and where we're adding additional programs to existing partners too. So we're starting to see them.

Same store sales if you will within the pharma channel. We also introduced several new programs for detect programs, where we're screening.

For muscular dystrophy, prostate cancer, and Lsds and heart conditions as well Cardium myopia, my apathy that arrhythmias and we have signed on.

At least one partner to to those programs and look to bring on additional partners and were really looking forward to seeing you know what the returns are on those programs because they are really addressing unmet need for patients who are not getting tested. These are also in conditions, where there are like.

Gaining data to show the utility of genetic testing in these areas and similarly these are areas where pharma companies are currently.

Investing in clinical research, so and that was how we chose those four areas that really came up in terms of pharma conversations where they were looking to be able to generate data in those areas. So continuing to really build a strong.

Growing network.

Of patients as well as.

Great. Thanks.

Your next question is from Doug Schenkel with Cowen Your line is open.

Hey, good afternoon.

Before getting into my questions I, just want to say Randy you've had a very profound impact on BTK and the broader world. The genetic side I know this is just a break in the action for you rather than something that warrants, so long or a good buy so I'd just say.

Congrats and enjoy it and we'll talk soon.

So on on a I guess my first question is really on on.

The growth drivers.

What is the expected impact of being part of the United PLN effective July 1st is that something that you expect to have.

To drive volumes at some point this year or beyond.

Yes, so I think I think our expectations.

I'd say in the early months and perhaps in months, meaning three to three to six months as is.

I think likely to be modest these kind of programs tend to take a while to get ironed out get ironed out.

The systems.

Yes, the same systems that we've been we've been working with you know struggling over the many years to kind of get all the payment up to up the full full freight are the same systems that are still rolling out. These programs. So they tend that they tend to take a while to iron out the kinks.

With that said I think in the relatively near term that they do have an effect. These these kind of storage programs.

Our effective in a lot of other aspects of the.

I'd say, it's kind of commercial insurance business.

And we think that it is a.

The longer term it is certainly a very important.

Piece of our commercial strategy.

We have always suggested.

Even even a half for for many years. It looked like we didnt really understand what we're talking about what we had suggested that at some point in time people who pay for genetic.

Testing genomic information are going to start start looking at the line item and asking questions and it would appear that that has begun.

And you know with United as a leader in it I think we expect.

Over the next year for many more to follow suit.

And again as it has always been a part of our commercial strategy.

The suggestion that the purchasers of our the information that we are the providers of will will help us.

In driving the volume and it looks like it looks like that day has come.

And we do expect to see that that influence increase overtime.

Okay.

I guess.

Another growth driver question, which I'll segue alcentra.

A quick discussion on guidance assumptions.

So our noninvasive prenatal testing what's been the impact on new account growth in the early going and what expectation for an IPO cheap cross selling in these accounts is embedded into guidance given.

Does the second half ramp that your guidance implies, especially Q3 to Q4.

Yes, so there's there's definitely a.

I would I would.

Given the seasonality many of the summer break impact on Q3.

You know at the beginning of the year, we suggested and still at this point it looks indeed that.

They can to Q4, you know that the impact of the NPS offering this year and its creation of new accounts and allowing us to also pull carrier with it along with other you know we have a variety of other tests in that setting reproductive health setting.

Yes, the significant impact on the year will happen towards the end of the year end of Q3 at the end of Q3 into Q4, and that's still our outlook nothing's changed there or put a different way it hasn't it hasn't launched wildly in excess of our expectations and nor do we think it's going to be a major driver of Q3, So it's kind of.

You know once a couple a few months ago is proceeding about as we expected. We are seeing new account pick up you know we suggested that without enough. Yet there was some reproductive health accounts that we're just not interested in having conversation.

That is indeed playing out.

And again, we do have we do.

We do see it.

And expect it to start picking up the growth in our reproductive health accounts toward the end of the year.

Okay. So recognizing you clearly had a lot of momentum this quarter and have over several quarters.

Just just to be clear about the math in terms of sequential growth Q2 to Q3, you're assuming I think you said about 10% sequential volume growth.

That would seem to imply that you are looking for volume growth of about 40% sequential Q3 to Q4. So again there is a lot of momentum here and and I. Appreciate what you just walk through Sean on an IP Tiet and IP, yes.

But that does seem to be a a big jump at least on the surface. So is it is it reproductive that that should give us more confidence in the achieve ability of these of this target or is there something else that we should in addition to an IPO should be looking to.

Hi, Matt its not only reproductions or reproductive is definitely a big chunk of that.

We are seeing uptick in the pharma partnership volume. So that is that is growing rapidly. We are also seeing as we kind of highlighted last quarter. The international business is picking up.

Pace and so when you when you take all of those involved that's that's what gives us confidence to about a big Q4, and I think also and I think this is I'm glad you brought up because it is it's it's a very familiar conversation. This is the exact same Q3 conversation we had last year at the end of Q3 remember it was only 7% growth people were freaking out they don't my gosh, There's no way you can have such a monster quarter.

It's the seasonality is real is a very real factor Q4 is definitely big quarter. So when you take we take those three factors in order.

Plus the seasonality that were.

Were we think we're in we're in great shape to.

To meet and exceed the guidance the only thing that I would make there is that we did mention that we uptick event in our sales force in the quarter and that as those people start tracking and they take some time to get onboard and we would expect late in the third quarter and into the fourth quarter that they will all be fully productive by that point in time. So that's one other thing that I think gives us the confidence that that's a good point I think it's worth one point of detail on that in the past. We've it's been small enough where we typically out of the entire of the new adds almost entirely in the month of January .

The size and the territories. This time around we Didnt really finished that process up until April and then of course with a three to six month burn and that's that's the other factor that gives us a late contribution from the new the last bit of the new the new reps.

Okay.

That's helpful and Shelley just last last one for you really a clean up question last quarter you had some.

Revenue reversals working against you.

In any given quarter.

There there can be reversals, there can be viewed on the flip side. It takes some accruals that can work in your favor.

Any anything to call out this quarter in terms of things that maybe worked against you were worked it worked in your favor in terms of reversals of accruals or anything like that.

So let me answer that by differentiating between the one time pickups that we had historically for the del Dupes and that was in the second quarter last year of 2.3 million and that was.

Non expected and that was for tests going back a full year. So that was 2.3 in the second quarter. So some of the comparisons. This year you have to take that out to be able to have an apples to apples with this quarter. The other time that we got that one time pickup was in the fourth quarter and that was $1.9 million also from Medicare, but that time for Lynch syndrome.

This year, we have not had any of those one time that we've broken out if you look at the charts in our slides you don't see any dotted lines. So yes, we had some dimunition and some things that we talk but they werent from exogenous factors. They were from our internally control things and as we did indicate it was probably on the order of about 1.6 million and it was largely related to acquisitions and reviewing some of the institutional expect prices in the first quarter and we took those down.

What you will always have in every quarter under the rules of six so six is that you set your expect prices and that as you find your collections changing overtime, you can increase or decrease those in this quarter, you'll see in our 10-Q, which is I hope now filed.

$2.4 million of upticks that means that we were conservative historically in some of those amounts and then just across the board in general we're collecting better than we had anticipated. So that's 2.4 million, but that and the first quarter. None of those were exaggerated factors. Those are all just looking at our collections and saying whats up and whats down.

And we'll continue to do that every quarter under six so six as we move forward and we'll report on those.

Nothing spectacular all just normal course of business this quarter.

Okay.

Very helpful. Thank you.

Your next question is from Kevin Degeeter with Oppenheimer. Your line is open.

Hey, congratulations on a really strong quarter guys and thanks for taking my questions.

With regard to the Biopharma channel can you can you just talk to us a little bit about.

I'm getting some framework is the rough order of magnitude of contribution to pharma and kind of.

Also.

What he said now that you do have the pace initiated.

Channel are you seeing.

Change in uptake of.

Patient volumes at our May in part be driven.

Cerro access through that channel.

Yes, I think of the various very high level and I think then we can go into level details you want the pharma business.

You know the.

The the paid revenue there shows up in the filings in the institutional.

I would just you know, we don't breakout that versus kind of academic institutes, but.

And you can kind of say it is a good good portion of that institutional.

Revenue this represented there.

On the on the business basis are going to be since we don't breakout by the disease areas and frankly, the new pharma partnerships are now kind of beginning to encompass our entire menu.

Yeah, I would just say that is a significant contributor to our overall GAAP growth and certainly our revenue growth.

Oh, you know, albeit that being said the clinical business is still that the driving factor of the of both the volume and the revenue so very important contributor as rapidly growing contributor.

But you know we're not at the point, where it is the swing factor on the business and frankly, if we continue to do things right. It'll the whole thing will grow and will continue to be a very important but not major contributor.

The.

I think the key the key thing on the on the patient pay.

Volume or again I think this is also here.

And look we internally get tripped up on this too so it's worth just clarifying there's there's the sales channel and then there's the direct channel, which is the direct marketing and digital advertising.

And both of those channels can produce either patient pay institutional or or insurance build business.

In the in the direct channel efforts today that we just recently launched we've seen a mix of all three.

Payment types and so we can get the shortest answer to question is given the small numbers and the fact that there's a mix of all payment types. The.

Overall impact of that direct channel market activity on the business as they had been.

Minor at best and I guess, the broader scope of everything that's going on.

Now as Kevin pointed out that direct channel over in the years to come will become a bigger we think will become a larger portion of the volume driving.

And in that I think you would expect to start to see the payment.

Mix tilt toward patient pay and institutional and that's that's because again.

Too much in the details obviously the patient pay aspect, that's pretty clear that people and families with credit cards, but also a large number of institutions. We think are going to take us up on kind of ease of use and ordering through that channel and by those you can you can imagine large physician practices employers self insured employers employer groups.

Et cetera, et cetera, and in addition to.

Academic and testing centers around the globe for which it is much easier to reach people with it with that easy direct logistics.

So I think I hope that answers. Your question was there more detail on the pharma side you wanted to go into.

No that's great.

Very helpful. And then maybe just one more sort of strategic question. I mean, you know there has been.

A fair amount of M&A activity in the group I think.

You cut a pretty clear path over the last couple of years in terms of envy textiles kind of bolt on.

More technology oriented transactions.

But yeah.

Any thoughts as to.

Where there might be opportunities strategically to get to some of the longer term goals more rapidly.

Bring in either larger or more kind of a commercial stage assets into.

Particularly given the currency you after the farmers doctors.

Yeah, well again, I think we're still wildly undervalued. So we still have evaluated on a one off basis.

Hi, Kevin how to throw that in there.

Look I think the I think the the way the.

And I think this is a it's actually.

Yes, it's a telling question or the way we view, both the industry and the way we build the business.

Our view of M&A is that the targets, we acquire really have to have a pretty clear path to being able to fully integrate into our technology platform.

Kind of bolting on businesses, and adding them and kind of filling in the gaps with logistics and running multiple running multiple platforms in parallel.

Just just doesn't get us to the Cogs that we need.

And so therein therein is kind of the answered a question as it is a bit of you know you'll notice a kind of a marquee all the way from the very smallest to the largest or acquisitions or things that we have a relatively clear path to completely integrated into the data flow of the platform.

Well more or less integrated in the data flow to platform.

I think when you started thinking about much much larger commercial assets and that that becomes harder and harder to imagine and I think I'll just leave it at that it's not a no but but the amount of work in the amount of of of that kind of integration work you know really goes up dramatically the more established the more different.

The more I would say traditional the approaches.

And in those in that and it's not for lack of looking at in those examples we often come to the conclusion that the investment the the better use of capital is to to build it on the modern infrastructure as opposed to trying to integrate a traditional technology stack into a new one.

But again.

Only only by way to try to give you a sense of the consideration not not necessarily yes, or no I think we we have a pretty active M&A.

Sourcing and diligence pipeline and we consider a lot of things.

Well, it's really the only thing I.

Kevin the only thing I would say, it's Shelly the only thing I would add there is yes, we look at the make versus partner versus spy and so as you may recall for semantically originally partner and then decided that we could actually do that on our own probably building on a better stack.

As we developed it internally.

Remember that we did two out of six acquisitions word again in a new area reproductive health and so we will look at complementing to build the full suite of types of products that are being asked for by our partners whether that be reproductive whether that be somatic et cetera, we'll look at all the opportunities and then if the technology is not only these two recent ones, which helped dramatically with Cogs, but remember all to voice got us into the partnership type business and so we'll look at across the board at what's being requested by our partners and our users et cetera. So that we can offer the vision that we've been talking about to build all the suite of products at the best cost accessible to all and make it easy and sticky for our customers to use us and so that's where we look at across all of those various contributors to our business development.

Great. Thanks, so much.

Thanks.

And again, ladies and gentlemen, it is star one to keep yourself for a question.

Your next question is from Pizza with SVB Leerink. Your line is open.

Hi, Thank you thanks.

Sean Shelly.

If I could first touch on non res opinion it'll screening.

And your acquisition of single or bio I'm just.

Help us understand how are you thinking broadly about then I P.T. opportunity here.

Maybe the market strategy and potential Cogs reduction you can derive from the technology and sort of.

Could you elaborate.

A little bit more on the timing given you've had this.

A couple of weeks or maybe a little bit more.

Since you acquired the company.

Yeah, absolutely I think kind of.

On a high level.

Let's just take a step back our our stated goals and reproductive health are from.

A woman considering having a child all the way through the one year pediatric check in.

There are currently anywhere from you know about half a dozen or more.

Genetic test that may or may not be run.

Two.

Good.

In both at outcome healthy mom and healthy baby.

Of just in the U.S. there are 6 million pregnancies, a year, a very very small percentage of them.

Take up that information as a part of general care and that's that's what we're really focusing on is everything from fertility testing pregnancy complications carrier screening noninvasive prenatal screening amnio Cvs all the reproduce the assisted reproductive suite.

Up to an including a neonatal test that may.

Oh in the very near future. All include everything from a kind of are the metabolic newborn screening type handle we run today to exomes and genomes in the relatively near future.

So that's how we view the reproductive health quote unquote market its kind of think of it as a 6 million women just in the U.S. per year that that are that are going to go through that journey.

And could use that information.

Yes, Alex if you think of the whole world is actually over 200 million pregnancies.

And given.

All of that information I mentioned, the half dozen or so more test.

Some are covered by insurance some are covered by insurance wholly some are covered by insurance spotty. Some are not covered by insurance and so our view is that depending on what kind of you know how much information.

And individual would like to receive in that arc, there will be different price points and we want to make sure that we have price points to conserve the entire globe. The 200 plus million women around the globe to become pregnant every year.

And all the way up to the those individuals interested in getting the absolute best cutting edge, most information, leaving as little to chance as possible.

And the price points associated with that.

So with that as a as a fairly long backdrop to the to answer the question that youre seeing in the bio allows us to dramatically reduce the cost of goods for noninvasive prenatal screening and that we think that will be essential in hitting some of the price points that we think we're really unlock the true global.

Demand for it.

And that's of course, why we acquired them.

There are the team the team has already that it was.

Terms of logistics is pretty simple there were a few blocks away. The team is now here we've moved their their their development and laboratory, where we think we can get it into production within 18 months or 24 months somewhere somewhere thereabout.

And I would add the other you by the way the other benefit for.

Really acquiring some you know.

Yes, small really innovative shots as you pick up you pick up great startup talent that is used to used to working in an environment that is.

Very unforgiving and timeline focused and tend to be pretty pretty experienced folks at under the tech not understand the technology, well and you know with all acquisitions Weve with many of acquisitions, we've been able to.

Add that to the Nvidia culture.

And this is this is no exception.

Great.

Thanks for the thanks for the detail so.

If I could.

Pulled back a little bit and just look at the menu expansion opportunity that you always you know menu expansion a world as you've talked about and.

It seems like a number of opportunity that we're seeing where where.

You know wouldn't be taking steps isn't carrier screening in an I.P.S. bundle, which we're hearing more about there was a proactive testing or the patient directed testing effort that you have ongoing and then you have the detect programs on top of it for four I think that started in July for prostate and muscular dystrophy, another health condition. So.

I'm trying to understand when we put that together and the framework off your full year guide, which as you know 500000 test and going to a million and doubling doubling essentially.

Help us understand how much sort of contribution should we expect from some of those efforts versus the core business, which was more a head injury in breast and ovarian cancer and and how should we think about these.

You know other these these additional drivers driving the next and over the next two years and sort of what sort of volume should we be expecting from these efforts.

Yes, it's a great question the.

And I think it also.

At present, the opportunity to kind of frame, how we're thinking about it.

Yes, the guidance this year for for the 500000 samples and.

And all of it.

The revenue associated that that's that is.

We hope that by covering that arc of care, whether it's a reproductive arc or the cancer or where the cardio arca by providing a full arc of care from start to finish you know we hope that we will start demonstrating that there are.

Multiple datasets.

That we can deliver in Peru, and add value for the patient and subsequently get paid for.

However, I think for this years guidance, we really aren't anticipating a whole lot of that nor meaningful impact from it. So this year is very much a kind of a.

You know sample by sample ASP, we're targeting you know if you do the math, it's around 440 per sample SP. This year.

And that's kind of it yet.

As we look Aspirationally till next year and as a reminder, we moved we provide guidance routinely we provide guidance in January but aspirationally as we think about a million.

Samples of 500 million in revenue next year, we absolutely are expecting a contribution of the idea that multiple test would be ordered off the same sample that result in one part of the family would leave lead to testing results and the other part of the family that for example integrated care networks.

Would be interested in not only the data that is answering the question for the individual at the time of clinical care, but also data that could answer a larger population base questions for the larger management their population and thus you could.

Create the value multiple times off the same data set for the same patient that will definitely be a feature where we are aiming to make that a feature of that that aspiration for next year to the extent what percent.

Is that versus the like I think you referred to it as a core business.

Again, that's going to be so that is actually the core business model. We have just been building. We've just been using the current diagnostic testing industry and the way that it works as a building up into it as a prelude to it and we will be can we were transforming and wholesale.

And so I think we'll we'll do our best next year to map kind of here's here's how many samples in the in the old Lingo this would be and how translated to how many kind of quote discrete tests ordered.

But we do anticipate next year the revenue on a per patient basis to change to something that is more interesting you kind of year. One revenue for patient you are to revenue per patient three revenue per patient.

And he says that the associated allocated Cogs accordingly.

Okay, that's great and if I could just squeeze one in on the commercial front could you just I don't know if you gave the sales rep count that you have currently and sort of where where does that go by the year end in terms of the expansions that you're doing.

Sure. So we have.

About a 190 folks working on that on the sales team and we expect that that's going to be pretty steady by enlarge between now and the end of year.

We do sometimes it's higher at the tail end of the fourth quarter to be sure that people are ready in January of the new year, but we wouldn't expect that they would be productive if you're thinking about how many of them could generate volume. This year. This is really that group that would be able to do that.

Got it okay, great. Thanks, guys.

Your next question is from Jeffrey Cohen with Ladenburg Thalmann. Your line is open.

Hi, Thanks for taking the questions you spoke a little earlier about.

Global and I know that your century.

10% on the international business could you talk a little bit about some of the areas of interest that you're seeing and can you talk a little bit about some of the money flows for us what you're seeing from.

You know reimbursement and payers out there and also talk about some of the geographies that are coming online.

Perhaps a quicker than you expected or or not.

Yes, absolutely I think our our thesis globally has largely been one that at a at a certain price point.

The ex us world of genomics and genomic medicine opens up and we are we are there.

So we've begun to see that with with a very small commercial effort historically, it's about 10% of our total business.

Now that's the entire world, but still the with the amount that we put after it it's the demand is palpable.

The excitement is clear.

We have we have fairly limited ex us capabilities, we are essentially serving the ex us market with the same infrastructure and logistics that we serve the domestic market.

So it's always kind of hampered our ability to go after it.

Nonetheless, we are we are starting to a picture is emerging that with the price points, we have particular in carrier screening.

Our price points in the in the broader.

There are.

I'll put our broad epilepsy panels are are large.

The developmental panels, you know no one there is no one around the world. They can get this high quality information to price once we can offer.

So it's really it's really kind of all over the map it it tends to be.

Region specific.

For a lot of reasons it not worth going into now or perhaps ever we all I think it's.

With more timing go into it but there is we see picking up or is it really kind of northern Europe , Latin America, Israel Middle East and kind of we spent a lot of time and a pack as well.

They all kind of have we see the equal amount of demand, we do not do a lot.

In China, or Japan for structural reasons, it's just difficult to get in there.

And worth pointing out to answer your question, we have not to date.

Spent a lot of time with the traditional central European.

Reimbursement.

So what is it gets it's just historically we just.

Too long of a ramp it's too much time.

It's been to its been not a priority for US I think I think you know once we decide to put some real.

Effort after international I think we'll start by just continuing to do.

Broaden menu lower the surface is essentially you'll really fix up the logistics and make it much easier to get local language support.

Over time, I think we might begin addressing at the government level, but I think I think we want the picture to merge a little a little more clearly for governments around the world just how valuable this is for for the management of their.

Population.

And until then I think I think we can do better we can do better going after the demand that we know that exists at the price points that we can currently offer and people are willing to pay very very bullish on it.

You know that the government reimbursement side of it actually you asked is something that will probably be a question mark for a while.

So I would just.

Add to that that institutions are how we really began and then we supplemented that with patient pay and so we do get that paid for upfront and then pharma partners or the other big piece of that so many think institutions has not just some of the large institutions that we direct bill that means and not governmental agencies and so as Sean said, we're not waiting for third party insurance were not mean waiting for the governments, we're getting paid today from those institutions pharma partners and patients directly.

Okay, Erica would there be any of them.

Other path as far as our you are deciding as far as your first made in certain territories user or other avenues available to other more partnership focused or is that not aware that the company would play undergo ever.

You know a partnership possibly and that in the past. We there was a period of time, we aggressively approved approached.

Pursued the distributor kind on the classic distributor model in our industry and.

I mean, frankly with 50% gross margin there is just not a margin to go around and we can't we can't spend 40 plus percent of revenue on sales and marketing.

We don't do domestically and again the the global.

Distribution network.

Set up around these very you know these are very esoteric. These are very highly complex test.

The global distribution network set up around it just frankly demands demands more margin than we have to give.

So partnerships, yes, absolutely, but I do think you know given our ability to drive volume.

With very very little effort, we actually think there is a it's worth exploring what we can do direct with a little bit of cleaning up of logistics and local language support.

Export import et cetera.

Okay perfect. Thanks, Sean that tells you for me.

Great.

Your next question is from Bruce Jackson with benchmark. Your line is open.

Hi, Thank you for taking the question. So when you look at your product portfolio are there any places where you'd like to fill in either in terms of technology like you did with some singular.

And Jim or on many places in terms of.

Capabilities with many bretts or therapeutic area.

Yeah. The short answer is yes, the the I think the.

And it's actually a little it's a little bit of a running joke around here you know all the things is the answer.

But it but you got to remember if you take a step back what we genuinely are pursuing aggregating all the oral JAK information a single platform and then turning that into the market at the right place at the right time on the patient behalf.

So if you think about kind of what what additional.

You know we've done inherited genetics, we've mentioned that in and I think the way to think about as in each disease area. There are there is data that is very interesting for the management of patients that the preventive measures that can be deployed in the therapies therein.

And to the extent that we can envision taking those data streams Ana in mass generating that data on every sample that comes in the door, though that's the kind of thing that were looking to add to our.

Our technology stack.

In cancer Weve begun by working on some attic tissue profiling and then subsequently the liquid biopsy for the monitoring so that for a cancer individual or an individual with cancer risk or diagnosis, we can.

Really understand the micro diagnosis of the cancer, they haven't and monitor it as treatment.

You know truebeam progressive.

I would imagine that expression expression profiling.

Other exotic is obvious factors, there or any kind of genomic information that that maybe isn't specifically inherited genetic or or tumor or some attic genetic.

But is also interested in the management.

For patient care I would imagine that over time, we will be adding that as well.

I think that the way to think about the disease areas is is we're pretty close to quote unquote all of it.

But now when you think of things like pharmacogenomics when think of autism when you think of.

Kind of more emerging areas.

For which the data is accumulating that genetics is important that previously perhaps wasn't treated as a quote unquote million disease, but is now becoming important for health care. Those those are other areas as well.

And you know I think that that's probably good enough. It's you know there is a lot of.

Really scaled information out there that we think in mass will will lead to much better.

Patient management patient outcomes and is currently being deployed in the industry and we will.

We'll continue investing in our cost of goods.

In our infrastructure capabilities to manage it.

All right got it thank you very much.

All right. Thanks.

Ladies and gentlemen, this concludes the Q and a period for the call I'll now turn it back over to Laura Dangelo for any closing remarks.

Thank you for joining us today, we look forward to catching up with you soon at upcoming conferences.

This concludes today's conference call you may now disconnect.