Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Achieved 15% revenue growth in the second quarter compared to last year, driven by volume and revenue per test improvements.
- Reported a 17% increase in gross profits, adjusted EBITDA of $12 million, and a positive adjusted EPS of $0.05.
- Generated positive adjusted free cash flow of $8 million as capital expenditures normalized.
- Continued payer coverage wins, including Blue Shield of California adding GeneSight to its medical policy.
- Raised 2024 financial guidance and increased long-term revenue growth target to 12%.
Negative Points
- Market dislocation contributed modestly to the 25% revenue growth in prenatal testing, indicating potential instability.
- Lower BRAC analysis CDx volumes slightly offset the strong volume growth in MyRisk.
- International revenue declined by 21% from the prior-year period, driven by reorganization impacts and currency depreciation.
- Incremental operating costs associated with the IPG lab and Precise Tumor and Liquid assets impacted gross margins.
- Seasonal variability expected in Q3 and Q4, with Q3 revenue typically at or below Q2 levels.
Q & A Highlights
Q: Could you talk about the drivers of market share gains in the prenatal segment and where you're seeing wins?
A: (Paul Diaz, CEO) Most gains are from existing customers, with new customers starting to roll in. The focus is on profitable growth and maintaining access to patients. (Mark Verratti, CCO) Gains are from both existing and new customers due to market dislocation. The launch of Foresight Universal Plus in June has seen modest uptake, expected to grow with ACOG guideline expansion.
Q: How are you balancing funding new pipeline projects like MRD while moderating OpEx on mature tests?
A: (Paul Diaz, CEO) We are disciplined in finding productivity gains across labs and commercial operations. We expect to self-fund MRD studies and other new product launches through productivity improvements. (Scott Leffler, CFO) Operating leverage and scalability from initiatives like Labs of the Future will provide more flexibility to fund strategic opportunities.
Q: What are the key areas the Street might be missing in their growth projections?
A: (Paul Diaz, CEO) The Street is underestimating our growth, which has been 9% in '22, 11% in '23, and 13% year-to-date. We have raised our long-term revenue growth target to 12% based on strong performance across the product portfolio and stable reimbursement.
Q: Can you provide some color on volume trend seasonality for the second half of the year?
A: (Mark Verratti, CCO) Q3 usually shows some seasonality with Q4 being slightly stronger. We expect growth in both volume and stable ASPs in the back half of the year.
Q: What are the expectations for gross margin seasonality in the second half?
A: (Paul Diaz, CEO) The guidance for 2024 includes various factors like the integration of IPG and the benefit of international restructuring. We have multiple levers to grow and meet or exceed our guidance this year.
Q: What is the competitive landscape like for pharma contracts on MRD?
A: (Sam Raha, COO) Pharma partners look for strong analytical validation, regulatory and quality capabilities, and the ability to scale and commercialize. Our partnership with Qiagen demonstrates our differentiation. (Paul Diaz, CEO) We expect to ramp up MRD studies in Q4 and next year, preparing for a commercial launch.
Q: What are you contemplating in terms of biomarker bill benefits for GeneSight?
A: (Paul Diaz, CEO) Recent coverage decisions by Blue Shield of California and a large Medicaid plan in the Southeast are effective July 1. We are in the early innings of this ground game, with provider demand driving coverage. (Mark Verratti, CCO) Moving GeneSight to a specific PLA code last year is starting to show benefits.
Q: Can you discuss the initial feedback from the Foresight Universal Plus launch?
A: (Mark Verratti, CCO) Adoption is there, but we are waiting for ACOG guideline expansion. We have a competitive panel and are well-positioned for growth once guidelines are updated.
Q: Could there be opportunities to collaborate with Personalis on developing MRD assays?
A: (Paul Diaz, CEO) We have a collaboration agreement with Personalis for biopharma. The cross-licensing agreement protects both companies' freedom to operate and accelerates the MRD path for both.
Q: What key data readouts can we expect for MRD over the next 12-18 months?
A: (Paul Diaz, CEO) We will share more data at our Investor Day this fall. Analytical validation work and samples from MD Anderson and others are progressing well, with a commercial launch expected in early 2026.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
