GeneDx Holdings Corp. (NASDAQ:WGS) Q4 2023 Earnings Call Transcript
GeneDx Holdings Corp. (NASDAQ:WGS) Q4 2023 Earnings Call Transcript February 20, 2024
GeneDx Holdings Corp. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by, and welcome to the GeneDx Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Sabrina Dunbar, Chief of Staff. Please go ahead.
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. Earlier today, GeneDx released financial results for the fourth quarter ended December 31, 2023, and shared guidance for the full year 2024. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, February 20, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.
Please refer to our fourth quarter 2020 earnings release and slides available at ir.genedx.com for definitions and reconciliations of non-GAAP measurements and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. And with that, I'll turn the call over to Katherine.
Katherine Stueland : Thanks, Sabrina, and thank you all for joining us. 2023 was a pivotal year for us at GeneDx. We're on a stronger path forward and closer to our goal of reaching profitability in 2025. Last year, we centered our entire team on three goals: one, increasing utilization of our industry-leading exome and genome; two, improving our average reimbursement rate; and three, dramatically reducing our cash burn. The combination of these three organizational goals ultimately ensures that our teams were focused on what's clinically best for patients and what's best for the financial health of the company. And that focus paid off. Our teams worked with deep commitment in the fourth quarter and delivered $58 million of revenue, driven by more than 68% year-over-year growth in exome and genome test revenue, expanded our adjusted gross margins to 56% and ended the year ahead of our expected cash position, demonstrating a 51% year-over-year reduction in burn.
We're proud of our team's performance, and we're prepared to rinse and repeat that same level of commercial and operational execution. As we look to 2024 and based on what we're seeing so far, you can continue to expect this level of focus on exome and genome revenue growth, gross margin expansion and disciplined cash management. The investments that we're making, whether it's in commercial, operations, medical affairs, our product and technology are directly tied to these goals. In the fourth quarter, we realigned our sales strategy to focus on account profitability. We have right-sized our sales territories and further refined our commercial tactics and tools with account profitability in mind, and we're seeing good progress. Our strategy continues to include efforts that drive exome conversion with current customers, but we're taking a more precise yet high impact approach with new customer acquisition, mainly targeting pediatric neurologists.
We continue to see better traction and faster growth ramps with these new ordering providers compared to lower productivity accounts, including general pediatrics. We're also keeping our operations team focused on the biggest levers for our P&L. Reports out, billing operations and COGS reduction, among other efforts to ensure we maintain our turnaround time. Our product and tech team is working on our strategy to further scale our operations, improve our customer experience, open up access with the EMR integrations, automate our billing operations and drive greater efficiency in every aspect of the business. The total addressable market in pediatrics is large, and while we are the dominant provider of whole-exome sequencing today, we've only penetrated about 3% of the total addressable market of $3 billion in the US-only pediatric setting.
It's a market that we're developing in pediatric neurology where clinical evidence and health economics strongly support the transition to exome analysis. We will also expand further into the general pediatric setting over the coming years as guidelines and payer policy continue to evolve to become more ready for commercial expansion and execution. On the other side of that is an entire $10 billion market in the US only for adult conditions that we'll be working to develop over the mid and long-term, and along the way, there's a growing data opportunity in rare disease drug development. We've steadily added biopharma partners and have 20 active programs, mainly with biotech companies who are relying on us to find patients with a specific variant for clinical trial purposes.
We're expecting that business to continue to grow at a similar pace. We think there's great promise in the role that diagnostics can plan rare disease drug development. In fact, the New York Times recently highlighted a new gene therapy for children with hearing loss. They featured an 11-year-old boy who had no ability to hear until researchers at the Children's Hospital of Philadelphia gave him an experimental gene therapy from our partner, Akouos and Eli Lilly Company. The boy was able to hear sound for the first time ever and now the company is expanding its research to several other centers. And just a few weeks ago, FDA Commissioner, Dr. Robert Califf said the agency will need to get creative about regulatory pathways, given the tsunami of rare disease and gene therapies that the FDA is anticipating.
Rare disease treatments are reliant upon rare disease diagnosis, and that's what we do best at GeneDx. We believe this market is developing and are well-positioned to be the genetic testing partner of choice for these companies. Looking forward to 2024 guidance, we expect a similar growth trajectory as demonstrated quarter-over-quarter in 2023 as we continue to focus the teams on driving exome and genome utilization and improving our reimbursement rate. With that in mind, we expect to deliver between $220 million to $230 million in revenue this year, and Kevin will provide some additional commentary. With a growing proportion of our test mix shifting to exome, we will continue to unlock greater gross margins, effectively converting more of the market to better volumes, and with the continued decrease in cash burn, we will end the year with strong operating leverage to put us on the precedence of profitability heading into 2025.
And with that, I'll hand the call over to Kevin.
Kevin Feeley: Thanks, Katherine. Fourth quarter 2023 revenues from continuing operations grew to $58.1 million compared to $45.9 million in 2022 and $50.4 million in the third quarter. That is an increase of 27% year-over-year and 15% sequentially, driven by exome. Our team resulted over 15,600 whole-exome and genome tests in the fourth quarter, which generated revenues of over $39 million this quarter from the exome portfolio. That's an increase of 68% year-over-year and 15% sequentially. Adjusted gross margin from continuing operations was 56% in the fourth quarter of 2023, up from 41% a year ago and up from 48% in the third quarter. The margin expansion during the quarter is driven by favorable mix shift towards exome and continued cost per test leverage.
The fourth quarter did have certain non-recurring items, which positively impacted adjusted gross margin by approximately 400 basis points, so the underlying rate is 52% for the fourth quarter. On mix, exome and genome represented 27% of all tests resulted in the fourth quarter of 2023, up from 16% a year ago and up from 23% in the third quarter. The exome portfolio continues to operate north of 60% gross margin, which means the total gross margin will continue to benefit as exome picks up greater share of our overall test volume and replaces lower-margin products. On cost per test, the team is driving scalability and cost efficiency across both the wet and dry lab processes and while we are very pleased with where exome and genome costs are today, several initiatives are in our pipeline to further improve the cost base over time.
Automation and AI across clinical interpretation and analysis offer large untapped long-term opportunities ahead. Now, let's move down to operating expense. Total adjusted operating expenses were $49.4 million for the fourth quarter of 2023. That is a reduction of 46% year-over-year. We once again delivered reduced costs as we further separate from the legacy Sema4 business. Our team has a relentless focus on improving operating leverage and efficiency throughout the business, and that will continue into 2024. And on the bottom-line, total company adjusted net loss for the fourth quarter of 2023 narrowed to $17.8 million, that is an improvement of 76% year-over-year and 16% sequentially from the third quarter. Our fourth quarter net cash burn, excluding any financing proceeds, was $32.9 million, which improved 51% year-over-year and improved 22% from the third quarter.
The net cash burn this quarter included $5 million in scheduled payments under the 2022 legacy Sema4 payer settlement, $3 million to discharge operating payables for the exited reproductive health business, and $1 million in severance payments related to the previously announced cost reduction initiative. Excluding these items, representative cash burn from continuing operations was $23.9 million in the fourth quarter and we expect the net cash burn to continue to decrease as we couple high-margin growth with our cost reduction initiatives. Cash, cash equivalents, marketable securities, and restricted cash was $131.1 million as of December 31st, 2023. And as a reminder, in October 2023, we announced that we entered into a five-year senior secured credit facility with Perceptive Advisors.
The agreement provides for up to $75 million in capacity, consisting of an initial tranche of $50 million, which was drawn in October 2023 and an optional second tranche of $25 million, which is available to us through December 2024, subject to certain criteria. And now turning to guidance for 2024. We expect to deliver revenues between $220 million and $230 million for the full year 2024. Historically, we see the first quarter as our seasonally weakest and the fourth quarter is our seasonally strongest in terms of both revenue and gross margin. We expect to continue to expand gross margin and land full year 2024 adjusted gross margins in excess of 50%. For comparison, full year 2023 was 45%. We anticipate using $75 million to $85 million of net cash for full year 2024.
We've now delivered seven consecutive quarters of cash burn reduction since the acquisition of GeneDx and expect to drive quarterly sequential declines in cash burn throughout 2024. And finally, we once again reiterate our expectation to turn profitable in 2025. With that, I'll now turn it back to Katherine for any closing remarks.
Katherine Stueland: Awesome. Thanks, Kevin. I'd like to acknowledge that on February 29th, it is Rare Disease Day, and it serves as a reminder of why we do what we do. Our overarching goal is to create a vibrant company that drives a new standard of care using genomics, ensures financial success and profitability, and creates meaningful shareholder value. Our team is fully committed to that. I'd like to thank our employees for their deep dedication and passion to serve the providers and patients who put their trust in us. And I'd like to thank our shareholders who continue to support us as we transform GDX for growth, for scale, and for profitability, all in service of an ever-growing population of patients and partners who benefit from our work. And with that, I'll turn the call over to the operator for Q&A.
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