Yahoo Finance GeneDx Holdings Corp. (NASDAQ:WGS) Q1 2024 Earnings Call Transcript
GeneDx Holdings Corp. (NASDAQ:WGS) Q1 2024 Earnings Call Transcript April 29, 2024
GeneDx Holdings Corp. beats earnings expectations. Reported EPS is $-0.33, expectations were $-0.68. 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: Ladies and gentlemen, thank you for standing by, and welcome to the GeneDx First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. It is now my pleasure to introduce, Commercial Chief of Staff, Sabrina Dunbar.
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 first quarter ended March 31, 2024. Before we begin, please take note of our cautionary statements. We may make forward-looking statements on today’s call, including about our business plans, guidance, and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, April 29, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from the reported results.
Please refer to our first quarter 2024 earnings release and slides available at ir.genedx.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. And with that, I’ll turn the call over to Katherine.
Katherine Stueland: Thanks, Sabrina, and thank you all for joining us. We’re excited to share the strong results from the first quarter. With the continued execution from our team, we’re raising our guidance for the year, bolstered by our view that we can sustainably deliver profitable growth in service of a critically important unmet need for diagnosing rare disease to an ever-growing group of patients and their families. We have transformed GeneDx over the past few years, but it’s also fair to say that our entire industry has changed tremendously in that time. The companies that are thriving are those that are focused on their distinct strengths, and in our case, it’s our industry-leading exome and genome. Our team is working with exceptional focus, purpose and care, to put an end to the diagnostic odyssey by delivering the most comprehensive answers to clinicians and their patients.
We’re proud to say that we’ve hit yet another milestone. We’ve interpreted more than 600,000 clinical exomes since 2012. To give you a sense of how we’ve accelerated the growth, we interpreted half of those in the past 3 years, and 100,000 since the fall. These exomes contribute to our proprietary data assets, which enables more definitive diagnoses for more patients. That data asset is key to our competitive advantage, and it’s only getting stronger with our growth. We organized our entire team around three goals in the middle of last year: one, driving exome utilization; two, improving our average reimbursement rates; and three, producing cash burn. This focus is paying off. In the first quarter, we delivered more than $61 million in revenues, 61% in gross margins, and an 8th consecutive quarter of cash burn reduction.
As a result, we’re raising our annual revenue guidance to $235 million to $245 million. We’ll continue to expand our gross margins off of Q1, and we’re reducing our cash burn guidance, which Kevin will walk through. There’s a lot that went well in Q1. Our commercial and medical affairs teams are driving exome and genome as the standard of care in the pediatric setting. This increased utilization positively impacted our product mix, which came in at about 30% exome and genome, with this representing over 70% of our total revenue. Over time, we expect to drive substantially all of our volumes and revenues to exome and genome, so our product mix this quarter is a sign of early success on this path to a two-test future. We continue to drive market leadership with 80% of all clinical exomes being run at GeneDx. The providers that we’re targeting fall into two categories, geneticists and pediatric specialists, including pediatric neurologists and pediatric developmental specialists.
We’re focusing on deeper penetration in existing accounts, as well as new customers. Improving reimbursement was also a bright spot for the team in the first quarter. We saw faster-than-planned improvements in our average reimbursement rates, which also positively contributed to the strengths of the quarter. We still believe there’s room to improve that over time. We’re operating with a strong bias for its cash management efficiency and scalability, and we’ve seen market improvements as we integrate new tools and technologies, streamline processes, introduce machine learning features, and drive down COGS in our lab. Our team also retired more than 400 tests to simplify our menu in line with our strategy. We continue to say that our flagship exome and genome products have the rare attributes of being both what is best for patient care and best for our business.
Today, 1 in 10 Americans have a rare disease, with 50% of them being children. We know that the expanded utilization of testing reveals that far more people are impacted by genetic diseases, and we are committed to serving this growing patient population in the future. Our sites are set on diagnosing all hereditary diseases and as many families as possible. So, over time, we’ll introduce GeneDx to broader pace of populations to inform health decisions through every stage of life, but for now, our team is focused on helping end the diagnostic odyssey for as many children and families as quickly as we can, and that purpose motivates our team each and every day. And with that, I’ll hand the call over to Kevin.
Kevin Feeley: Thanks, Katherine. First quarter 2024 revenues from continuing operations grew to $61.5 million compared to $40.7 million in the first quarter of 2023, and $58.1 million in the fourth quarter of 2023. That is an increase of 51% year-over-year and 6% sequentially. Our team resulted over 16,500 whole exome and genome tests in the first quarter, which generated revenues of $44 million in the first quarter from the exome and genome portfolio. That’s an increase of 96% year-over-year and 12% sequentially, both volume and collection performance contributed to the growth. Adjusted gross margin from continuing operations was 61% in the first quarter of 2024, up from 34% a year ago and up from 56% in the fourth quarter of 2023.
The margin expansion during the quarter is driven by all three of continued favorable mix shift towards exome, improved exome average reimbursement rates, and continued cost for test leverage. On mix, exome and genome surpassed a key milestone representing 30% of all tests resulted this quarter. That’s up from 17% a year ago and up from 27% in the fourth quarter of 2023. We continue to believe that over time nearly all hereditable disease diagnosis will be run on an exome or genome backbone, and that our total gross margin will continue to benefit as these high value prop tests pick up greater share of our overall test volume and replace lower margin products. On average reimbursement rate, we’ve amplified resources in line with the three focus areas Katherine outlined.
One such imperative was improving exome reimbursement rate through denial reduction. In the first quarter of 2024, our average reimbursement for the exome and genome portfolio after all denials was approximately $2,600, which compares to approximately $2,500 in the fourth quarter of 2023. We are encouraged with the uptick here, but the reality is that nearly half of all exome claims are still being denied. A large portion of all denials are administrative in nature for claims not meeting a variety of non-medical requirements designed by payers. And we’re working hard to ensure upfront order, document collection, and claim submission processes evolve to enable insurance-specific workflows to improve our probability of success. Another large portion of our denials might abate over time as Medicaid policy continues its momentum towards broad coverage for exome and genome.
And already in 2024, two states have expanded coverage for rapid whole genome in the NICU, and in the outpatient setting, New York State added exome coverage to their medical plan effective April 1, 2024, that brings us to 28 states covering exome in the outpatient setting and 11 covering rapid whole genome inpatient. We applaud those states for taking this important step, but there is still a long way to go towards ensuring nationwide equitable access for all patients who need it. On cost per test, the team has done a great job. Lower input costs and wet lab process improvements are the headliners this quarter, but we continue to believe that automation across clinical interpretation and analysis offers mostly untapped long-term potential to drive scalability and cost efficiency.
And moving down to operating expense. Total adjusted operating expense was $45.4 million for the first quarter of 2024. That is a reduction of 26% year-over-year and 6% sequentially. Having again delivered reduced costs, we are approaching what I consider to be a normalized OpEx base for the business. Our team has built the muscle memory for efficiency, and we will not stop looking for ways to improve operating leverage throughout the business. On the bottom line, total company adjusted net loss for the first quarter of 2024 narrowed to $8.5 million. That’s an improvement of 83% year-over-year and 52% sequentially. Our first quarter cash burn was $17.2 million, which improved 71% year-over-year and 48% sequentially. I call out that net cash burn this quarter included approximately $6 million to fund the company’s annual 401K employer match, approximately $2.9 million in what can be considered one-time payments related to previously reserved Legacy Sema4 refund requests, and $800,000 in severance payments related to our previously announced cost reduction initiative.
We’ve now delivered eight consecutive quarters of cash burn reduction and expect to drive sequential declines in cash burn each quarter of 2024. Cash, cash equivalents, marketable securities and restricted cash was $113.9 million as of March 31, 2024. And as a reminder, in October 2023, we announced that we entered into a 5-year senior secured credit facility with Perceptive Advisors. The agreement provided for up to $75 million in capacity consisting of an initial tranche of $50 million which was drawn in October 2023, and an optional second tranche of $25 million which is available through December 2024. Now turning to guidance. As Katherine said, we’re raising previously issued revenue guidance and now expect to deliver revenues between $235 million and $245 million for full year 2024.
We’re raising previously issued adjusted gross margin guidance. And now expect to land the full year adjusted gross margin at 60% or higher. We are improving the low end of our net cash burn guide and now anticipate using $70 million to $80 million of net cash for the full year of 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: Wonderful. Thanks, Kevin. The shift from single-gene testing to multigene testing began more than a decade ago. And now, we’re successfully shifting the rare disease market from multigene panels to exome and genome. This takes time and the dedication of a team that wants to win for the growing number of patients and families who rely on us. And it’s all made possible by the shareholders who support our growth. I’d like to thank our team and our investors for the opportunity to prove that we can set a new standard of clinical care, while running a really good business. We know that the path to profitability is one that not many companies in our space have achieved and we are fully committed to making that happen to ensure we can help more and more families and return value to our shareholders along the way. We’ll now open the call up for questions.
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