Myriad Genetics, Inc. (NASDAQ:MYGN) Q4 2023 Earnings Call Transcript
Myriad Genetics, Inc. (NASDAQ:MYGN) Q4 2023 Earnings Call Transcript February 27, 2024
Myriad Genetics, Inc. beats earnings expectations. Reported EPS is $0.04, expectations were $0.02. Myriad Genetics, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and welcome to the Myriad Genetics Fourth Quarter 2023 Financial Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder this call is being recorded. I would now like to turn the call over to Matt Scalo. You may begin.
Matt Scalo: All right. Thanks Michelle and good afternoon and welcome to the Myriad Genetics fourth quarter and full year 2023 earnings call. During the call, we will review the financial results we released today and afterwards, we will host a question-and-answer session. Our quarterly earnings release was issued this afternoon on Form 8-K and can be found on our website at investor.myriad.com. I'm Matt Scalo Senior Vice President of Investor Relations and on the call today are Paul Diaz, our President and Chief Executive Officer; Scott Leffler, our Chief Financial Officer; Sam Raha, our Chief Operating Officer; and Mark Verratti, our Chief Commercial Officer. This call can be heard live via webcast at investor.myriad.com and a recording will be archived in the Investors section of our website along with this slide presentation.
Please note that some of the information presented today contains projections or other forward-looking statements regarding future events or the future financial performance of the company. These statements are based on management's current expectations and the actual events or results may differ materially and adversely from these expectations for a variety of reasons. We refer you to the documents the company files from time-to-time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.
I'll now turn the call over to Paul.
Paul Diaz: Thanks Matt. Good afternoon everyone and thank you for joining us. On today's call, we will discuss the highlights from our fourth quarter and year end performance and provide an update on the progress we continue to make accelerating profitable revenue growth. I want start by thanking the team here at Myriad Genetics for their efforts this year. Despite the challenges we faced in 2023, our team's commitment to delivering on our mission was evident as we serve more patients and added more customers than ever before. Next slide please. Our overarching goals are to continue to develop best-in-class molecular diagnostic tests to better detect disease, support treatment decisions, and improve clinical outcomes. Second, to improve the clinical utility and ease of use for our patients and provider partners and make our genetic test more accessible and affordable by leveraging technology and scale in our lab and commercial operations.
On Slide 5, you'll see that we are not alone in our endeavor to become part of a more patient-centric and integrated health care system as our industry partners help us create better products and data solutions that allow us to address friction points and expand adoption and access for our genetic tests. Over the next few years we expect to build on these technology and health care system partnerships to drive continued innovation and growth. Turning now to the quarter and full year results released today on the next slide. We are pleased that we continue to deliver on our commitment to shareholders to achieve double-digit profitable growth as total revenue increased more than 11% in 2023 compared to last year. And we achieved positive adjusted EPS as well as positive adjusted operating cash flow in the fourth quarter.
With this strong performance and market share gains in mind, we are raising our full year 2024 revenue guidance and introducing positive adjusted EPS guidance. In November of 2023, we raised $118 million from our successful equity offering, which puts our balance sheet in a strong position to enter 2024 with cash, cash equivalents and marketable securities of $141 million and no legal overhangs on the business. Next slide please. As we look towards 2024 and beyond, we see adoption in use cases for genomic testing and precision medicine growing, providing strong tailwinds for organic profitable growth across our core products, with an increasing ability to sell across the sales channels that we have deep commercial roots in. At the same time, we would remind investors that not only is it early days for precision medicine, but it is highly fragmented with less than 20% share concentrated among the top players, providing us with significant opportunity for market share gains.
We are excited to expand the breadth of our oncology testing options this month with the acquisition of Intermountain Precision Genomics, bringing precise tumor and precise liquid in-house, allows us to capture 100% of the economics that we expect from these products and align these with our strategic priority of unifying our oncology offerings under our precise oncology solutions platform. We plan to launch Precise liquids from our campus West facility in Q3 of this year, with the rest of the acquired IPG lab operations, including precise tumor moving by year-end. We are excited to welcome the IPG employees to the Myriad team. Over the course of 2023, we continue to lay the foundation in our lab operations and back office to support accelerated profitable growth at scale in 2024 and beyond.
In 2023, we hit our full year revenue and fourth quarter adjusted profitability targets and we did so in a year that saw higher-than-average ASP compression above our pre-stated 3% to 5% range. Due to payer issues and transitioning to GeneSight's PLA code, at the start of '23, as well as the transition of multiple Blues health plans and new claims administrative processes that had a negative impact on our collections in ASP in the first half of 2023. Having addressed these issues, we expect improvement in our ASP at or below our pre-stated 3% compression target in 2024. Looking forward, we see the investments that we have made in R&D over the past three years, starting to bear fruit with an emerging body of clinical evidence that we believe will support guideline expansion, clinical utility and adoption and improved reimbursement over the next few years.
This morning, we were excited to announce the research collaboration with the National Cancer Center Hospital East in Japan. To use our highly sensitive precise MRD test for patients diagnosed with a wide array of solid tumor hematological cancers. We align with Dr. Yoshino, Deputy Director of Hospital East when he says, this study has a potential to revolutionize the scope of WGS-based MRD projects. With a strong 2023 behind us, we look forward to continued growth into 2025 as we launched Foresight Universal Plus expanded carrier screen, first gene multiple prenatal screen, precise liquid comprehensive genomic panel and precise MRD for research use with our pharma partners. I'll now turn it over to Mark.
Mark Verratti: Thanks, Paul. I'll start on slide 12. We remain focused on women's health, oncology and pharmacogenomics. On the call, I will share a snapshot of our 2023 performance by business unit, as well as an update on our commercial transformation and product development efforts. On slide 13, we saw a strong double-digit growth across all of our core products in 2023. As a commercial leader of Myriad, I want to sincerely thank our commercial teams for their part in delivering this level of company growth and success. In the slides to come, I will share how we will plan to continue this momentum in 2024. Now on Slide 14, I want to provide an update on the commercial transformation that has driven our success in 2023. By creating enterprise-wide efficiencies across the company, we have optimized our enterprise and business unit capabilities using data and insights to deliver consistent performance.
We've also enhanced our customer targeting, digital marketing, and overall operating model to drive commercial leverage in 2024 and beyond. Next slide. Continued commercial execution led to record-breaking volume growth for our pharmacogenomics business in 2023, as we added approximately 16,000 new providers ordering GeneSight for the first time over the course of the year. In the fourth quarter, GeneSight volumes grew 21% year-over-year, while revenues grew 11% over the same period. We continue to build on GeneSight's strong foundation of clinical data, including a collaboration with Optum to create a multi-phase study design better to understand GeneSight's ability to improve clinical outcomes and reduce overall healthcare costs. We look forward to the updates on the Optum study sometime in the second half of this year.
The momentum that our women's health team carried through 2023 is demonstrated by their strong results. In the fourth quarter, women's health grew hereditary cancer testing volumes 10% year-over-year, and after excluding SneakPeek, prenatal volumes grew 17% over the same period. Finally, we eagerly await the upcoming ACOG guidelines to include expanded carrier screening and look forward to rolling out Foresight Universal Plus in response. GeneSight's oncology team ended 2023 on a strong note, as they increased hereditary cancer testing volumes by 7% in the fourth quarter compared to last year. We continue to add depth to our oncology offering with the addition of Precise Liquid to our testing menu. We have also expanded the urology portfolio with Myriad UroSuite, a combination of Prolaris, MyRisk and Precise Tumor that provides enhanced diagnostic information for prostate cancer patients.
The Prolaris revenues increased 14% in the fourth quarter and 21% in 2023 compared to the year prior. Next slide. As Paul spoke earlier to the breadth of our testing menu, which is something that we're always investing in, it's important to note that we are investing in depth, not just chasing our newer products. We develop our tests to compete and win across our different channels while investing in IT, infrastructure, clinical data and everything else that enhances the clinical utility and use of our tests. Finally, I want to give a brief look at how we see the future of our tests coming together. Our product development is focused on new and innovative products that meet the ongoing needs of our patients and providers. In 2024, we expect to launch Foresight Universal Plus, FirstGene, Precise Liquid and Precise MRD for research use to address these needs.
I want to conclude with how extremely proud we are of every team across the enterprise as they continue to rise to the challenge of reaching more patients, exceeding our goals, and remaining patient and provider-focused. Now I will turn the call over to our new Chief Operating Officer, Sam Raha.
Sam Raha: Thank you, Mark. I'm excited to be here today for my first earnings call since joining Myriad in December. I believe this company's mission to advance health and well-being for all, and I'm energized with the significant opportunity we have to shape the molecular diagnostics market and positively impact patient lives. Moving to Slide 21. Let me start with our enterprise-level strategic measures tied to driving near and long-term profitable growth. We actively measure and track key performance indicators for five important categories: people, quality, growth, productivity and finance doing so on a quarterly and annual basis. Our analytical capabilities are improving as we continue to mature into a high-performing business.
We are increasing our focus on customer-centric initiatives and expanding how we track productivity gains in our commercial, lab operations and technology functions. Turning now to the next slide. Let me touch on select operational highlights from 2023. We are proud to have a high level of organizational engagement across the company. We have been designated a great place to work, with 86% of our team indicating their strong endorsement of Myriad. We also significantly improved our employee turnover in 2023 at a just 9%. Healthcare providers are among our most important constituents and their satisfaction led to a Net Promoter Score of 70 for 2023 a figure that has improved over the past few years as a testament to the focus on ongoing investments we have made in the patient and provider experience.
We continue to see rapid test turnaround times in our labs while reducing operating costs and actively identifying opportunities to improve and differentiate ourselves. Notably with credit to Mark and his team, we increased sales productivity by 12% in 2023 compared to last year and saw an increase of $45 million of revenue in excess of expectations in 2021 through 2023 delivered by our revenue cycle team. Moving to the next slide. One of my highest priorities is to ensure that Myriad continues to improve the patient provider experience. Industry surveys and focus groups tell us that the healthcare provider's decision to work with a diagnostic testing lab are based on five requirements. First, tests need to be backed by strong clinical validity and utility.
Second, providers want a comprehensive product offering in menu which we see as an opportunity to differentiate ourselves from our competitors. Third, they require fast turnaround time; and fourth ease of use on ordering a test the results that are readily interpretable. Finally providers want testing options that are affordable to their patients. We are taking a structured approach to address these requirements, coordinating across the company to ensure that we are all working towards the same goal. While ensuring individual patient identity is -- while ensuring that individual patient I think is never revealed. We believe in freely sharing our data the broader scientific and medical community for the betterment of healthcare rather than to monetize such patient-related information.
On that note we recently launched the Myriad Collaborative research registry that includes data across term line and tumor testing results for Myriad Genetics Precision Oncology Solutions products on more than one million patients. Moving now to slide 24. Digital technologies are foundational to improving the customer experience. And we have invested significantly to deliver value to patient providers in real-world clinical settings to enable better treatment decision for patients. This slide illustrates technology-enabled projects that are actively being implemented at Myriad. Again, our focus is to invest in projects that make it easier to do business with us. From learning about our products to ordering tests and receiving easy-to-understand results supported by ongoing investments in EMR integration, enhanced patient provider portals and our unified order management system.
Finally, let me update you on our roadmap of enterprise-wide infrastructure and capability programs we have been focused on. We made significant progress in 2023, including the completion of our new facilities in South San Francisco and Salt Lake City. Earlier this month, we hosted investors for a tour at our new Salt Lake City facility and hope to see more investors who want to visit us. We also completed the transition of our prenatal products to the NovaSeq 6000 sequencing platform in 2023. Our 2024 focus includes moving over the recently acquired Precise Tumor, Precise Liquid Tests, as well as our Precise MRD assay to our Salt Lake City West facility and also building on our EMR integrations from the 1,200 locations that we successfully added in 2023 more than an additional 1,900 locations expected in 2024.
All of these programs require significant investment and we are confident that we will see a positive return in the form of improved test turnaround times, lowered operating costs and improved customer experience, which will continue to differentiate us from our competitors. And now let me turn it over to our newest executive, Scott Leffler, our Chief Financial Officer.
Scott Leffler: Thanks Sam. I'm also excited to be here for my first earnings call with Myriad Genetics. Like Sam, I was attracted to Myriad because of the company's mission to advance health and well-being for all and for the opportunity to leverage my own experiences with both payers and lab services to drive profitable and sustainable growth. We'll begin on slide 27 with a review of key volume growth drivers. In 2023, we delivered double-digit volume growth year-over-year across hereditary cancer, prenatal and pharmacogenomics. This performance speaks to several factors such as an improving customer experience that Sam talked about and the strong execution from our commercial team that Mark discussed. This most recent quarter marked Myriad's sixth consecutive quarter of positive volume growth year-over-year in hereditary cancer testing and we continue to grow at the high end of our market growth estimates.
On slide 28 I want to highlight our financial performance by quarter throughout 2023. As Paul mentioned, full year 2023 financial results hit the high end of our financial guidance and we achieved our goal to generate profitability on an adjusted basis in the fourth quarter. We delivered revenue growth in all three of our business units compared to 2022 and remain disciplined in our cost management, which contributed to our adjusted EPS of positive $0.04 and adjusted operating cash flow of positive $14 million in the quarter. While revenue progression during the year typically follows a seasonal pattern, we benefited from a concentration of biopharma revenue in Q1 of 2023. That being the case we expect only mid to high single-digit percentage growth for revenue in Q1 of this year compared to last year.
We then expect year-over-year growth rates to increase in subsequent quarters. Also as a reminder, adjusted operating expenses tend to be seasonally higher in Q1 due to timing of certain commercial spend resulting in negative EPS in the first quarter of this year. Our balance sheet finished 2023 in a strong position with approximately $141 million in cash, cash equivalents and marketable securities. This balance includes $40 million drawn from our asset-based facility as we borrowed ahead of expected seasonal working capital outflows in Q1. We have made a step change improvement in adjusted operating cash flow in 2023 compared to 2022, especially during Q4 when adjusted operating cash flow was positive $14 million. In addition as Sam mentioned, we are excited by the progress of our transformation and real estate initiatives and are pleased to have the lion's share of the investment behind us.
That being the case, we should see significant reductions in those categories of cash costs that have been adjusted out of our non-GAAP metrics, beginning with 2024. Most importantly, we believe that we have line of sight to realizing the benefits of those investments beginning in 2025 as those assets are more fully operationalized. On Slide 29, we compare actual full year 2023 results to our initial 2023 financial guidance offered in February of last year. Actual 2023 revenue exceeded the initial revenue range, with gross margin and adjusted operating expense within the initial ranges provided a year ago. This positive overall financial performance for full year 2023, reflects the significant progress Myriad has made on all fronts discussed here today.
On Slide 30, looking forward, we are optimistic regarding the overall business trends and the company's ability to grow at or above industry growth rates, which is why we are increasing our full year 2024 revenue guidance. As mentioned earlier, Q1 of 2023 was an unseasonably strong comp. So first quarter 2024 revenue is expected to grow at a mid- to high single-digit percentage rate over the prior year period, and accelerate through the rest of 2024. 2024 gross margin is expected to improve between 50 and 150 basis points over 2023 given expected volume growth, product mix, pricing trends and our ongoing focus on operational excellence. For first quarter, gross margins are expected to be lower than fourth quarter levels reflecting typical seasonality and are expected to ramp up throughout the year.
With adjusted operating expense expected to grow between 5% and 7% in 2024, we expect to see operating leverage drop to the bottom line with 2024 adjusted EPS expected to be positive, versus a loss of $0.27 for full year 2023. This year, we are also introducing adjusted EBITDA as a new metric in our guidance for 2024, which we believe will be a useful metric for investors in understanding Myriad's trajectory, with respect to both underlying profitability and cash-generating potential. For full year 2024, adjusted EBITDA is expected to be between $20 million and $30 million. While we aren't formally including CapEx in our guidance, I'll note that capital expenditures are expected to return closer to normal levels in 2024, projected at approximately $20 million to $25 million for the year and consistent with commentary made at our September 2023 investor event.
Now, let me turn the call back to Paul.
Paul Diaz: Thanks Scott and welcome. We continue to build on the pillars of long-term growth and profitability that has delivered our strong results this year. Our clinically differentiated products supported by technology, deliver value in real-world clinical settings and enable early detection and better treatment decisions for providers and their patients. Our modernized lab and commercial engine are examples of where investments in automation, and, advanced technology are yielding improved workflows faster turnaround times and reduce operating costs. Looking forward, we will deploy our strong balance sheet in a disciplined manner in ways to support the enterprise in our shared mission, and vision to make genetic testing and precision medicine more accessible. With that, I will turn it over for Q&A
Matt Scalo: All right. Thanks Paul. And as a reminder, during today's call we use certain non-GAAP financial measures. A reconciliation of the GAAP to non-GAAP financial results and a reconciliation of GAAP to non-GAAP financial guidance can be found in our earnings release and under the Investor Relations section of our website. Now we're ready to begin the Q&A session, to ensure broad participation, we're asking participants to please ask only one question and one follow-up. Michelle, we are now ready for the Q&A portion of the call.
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