Sema4 Holdings Corp.

Good day and thank you for standing by. Welcome to the Semaphore Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. Please be advised that today's conference may be recorded. I would like to hand the conference over to your speaker today, Joel Kaufman, VP of Finance and Corporate Development. Please go ahead.

Thank you, Michelle. Good afternoon, everyone. Thank you all for participating in today's conference call. Joining me from the company today will be Catherine Stoolin, Chief Executive Officer, and Kevin Feely, SVP of Operations and Head of GDX. Rich Miao, the company's interim CFO, is recovering from a medical procedure and will not be able to join the call this afternoon. Earlier today, Semaphore released financial results for the second quarter ended June 30th, 2022. A copy of the press release and our second quarter earnings slide deck are available on the company's website. Before we begin, I'd like to remind you that management will make forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. Additionally, these forward-looking statements, particularly our 2022 financial guidance and our expected cost savings, involve a number of risks, uncertainties, and assumptions. For a list and description of the risks and uncertainties associated with Semaphore's business, please refer to the risk factors section of our Form 10-Q filed with the Securities and Exchange Commission today, August 15, 2022. We urge you to consider these factors, and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance. During the call, we may discuss certain non-GAAP financial measures. For reconciliations of the non-GAAP measures to GAAP financial measures, as well as other information regarding these measures, please refer to our earnings release and other materials in the investor relations section of our website. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 15, 2022. Semaphore disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I will turn the call over to Catherine.

Thanks, Joel. Just three months ago, Semaphore closed on the acquisition of JNDX and announced that we were restructuring the company to support a new foundation for the future, one focused on profitable growth, operating efficiency, and data-driven decisions. Given the immense market opportunity, our industry-leading technology, and consideration of the market conditions, we are well on our way to turning Semaphore into a stronger company than it ever has been. In the second quarter, our teams have continued to drive meaningful revenue growth. In fact, hitting record volumes in pediatrics, thanks to the GNDX acquisition. while putting the company on track to deliver our target of approximately $50 million in cost savings this year. And with the actions we've taken since the last conference call, we can confidently debut a target of approximately $200 million of cumulative cost savings through 2023. Our new management team has been reviewing our business lines and is acutely focused on assessing what's working and what's not. And as a result, we're making changes to ensure we strengthen our foundation and financials so we can continue to realize our mission of unlocking insights from data, leading to healthier lives, and in doing so, realizing value for our shareholders. What remains the same is our vision to deliver personalized health and wellness plans for patients based on comprehensive data. How we realize that vision will be very different by virtue of strategy, execution, and how we show up in the world. We're now operating Semaphore as a commercial business focused on profitable growth. After comprehensive reviews of our business lines, we've decided to focus on an area where we're well-positioned to win and can drive profitable growth, helping families make better health decisions with our panels, exomes, and genome. Fueled by an industry-leading interpretation platform designed for a genome's worth of information, and a data engine built to combine genomic and clinical data to deliver better insights. Our business reviews led us to a clear decision to exit somatic oncology, which represented approximately 1% of our revenue with material negative growth margins. Given the number of companies focused on somatic oncology and Semaphore's subscale position in that market, We've decided that investing further in the tumor testing business is not strategically or financially merited. We plan to wind down somatic testing operations in the third quarter and cease operations by the end of the year, at which point we'll be closing our Brantford facility. We're also redirecting our hereditary cancer testing from our Stanford clinical laboratory to our Maryland laboratory to drive down COGS as we continue to sell that through our commercial channels. We will also be reducing our physical footprint with plans to consolidate our headquarters into our Stanford laboratory. We've made a difficult decision to part ways with approximately 250 people who are notified today. In total, we've reduced the legacy Semaphore workforce by around 30% this year. That's incredibly hard and we are deeply grateful to all of those who have worked tirelessly for the company, and a special thank you to those who will continue to work as we wind down our efforts in Brantford and transition a portion of our lab operations to Maryland. We want to thank the employees affected by today's announcement for their contributions and hard work during their time at Semaphore. As I said earlier, our mission of delivering health insights from data remains strong. albeit with an evolution of that strategy. I want to walk you through three changes that we're making to support our new focus. One, profitable growth. Two, scalable R&D strategy. And three, operating efficiency. First, our focus on profitable growth. Obviously, the somatic exit falls in line with this, and our focus will be in areas where we have a unique capability in the market, enabling us to drive volume, have a healthy reimbursement rate and ASPs, provide clear value to clinicians, patients, payers, and health systems, as well as pharma partners, and importantly, areas where we have a path to true profitability. Our strong growth in the pediatric segment is a clear example of this. We've driven double digit year over year revenue growth since implementing a new commercial strategy to bring our industry leading neurodegenerative panels, exome, and genome to the NICU and in the pediatric setting. We're generating data from our University of Washington study, examining the benefits of exome and genome in the NICU and in the outpatient pediatric setting. We're seeing payers, including state Medicaid, start to cover this. And we've begun to operationalize a statewide collaboration to sequence healthy babies at birth. It's this same rigor of commercial business planning that we'll continue to deploy as we formulate our plans for expanding utilization of carrier screening and reproductive health, where we currently are one of the leading partners for IVF centers across the country. We'll provide more insight on our commercial plans over the coming quarters to ensure our investors and partners have the line of sight they need to understand how we're evolving our strategy for driving growth designed to improve the overall health of our business while making an impact for patients. Second, our scalable R&D strategy. We're shifting from an academic spinoff strategy for R&D to a scalable one. Data insights will continue to be the way that we design our product roadmap, but we need to start by having a deliberate and clear strategy that puts an equal premium on scale as it does innovation. This is true for how we're working with health systems, as well as how we're going to productize our pharma offering. Our comprehensive data assets, including longitudinal clinical data, in addition to one of the world's largest data sets of approximately 400,000 clinical exomes, the vast majority of which are associated with rare disease, provide some for an unparalleled platform for pharma to leverage. To lead our R&D evolution, To a new chapter of innovation and scale, we are pleased to welcome Matt Davis, former head of AI at Invitae, who is joining us as chief technology and product officer. Together with Gustavo Stolibitsky leading our research and data sciences effort, we will continue to invest in the development of commercial products utilizing the data developed and curated on the Centralis platform. Third, driving operating efficiency. We're bringing a level of operational rigor to the company in everything from our lab strategy to how we operate as a leadership team. With our operations team supported by Kevin's leadership, we've begun integrating the best of both Semaphore and GeneDx to drive down COGS, improve turnaround times, and strengthen our approach to revenue cycle management, which is critical to ensuring we also strengthen our partnerships with payers. With the migration of hereditary cancer testing moving to Maryland, our evolution has begun. With the changing needs of the business, we've also changed our team. Dr. Eric Schott, founder of Semaphore, will be leaving. I'd like to thank Eric for his significant contributions to Semaphore over the years. He founded Semaphore at Mount Sinai, established it as a standalone private company, and let our go public via a merger last year. His vision has been instrumental in getting Semaphore to where it is today. We wish Eric well in all of his future endeavors. Turning to the performance of the business in the quarter, I will provide the following metrics on a pro forma basis, as if we had owned GDX starting January 1, 2021, to provide the most holistic view of combined Semaphore and GDX businesses. Resulted volume of 130,000 tests was up 19% on a year-over-year basis. Revenue excluding COVID-19 testing and a one-time revenue adjustment that we'll discuss in a moment was up 7% on a year-over-year basis. We also experienced strong volumes in our reproductive health franchise as we continue to be a leader in the IVF setting. However, that strength in volume was partially offset by continued ASP pressures and reproductive health testing, and this relates back to the one-time revenue adjustment that Kevin will discuss shortly. We are transforming SAML4 for the better. There's a massive market opportunity in front of us. With the changes we've begun to make and with the GeneDx integration well underway, with our exome, genome, and data insights engine, we're in the pole position to make health insight the new standard of care for everyone. With that, I'm pleased to pass the call over to Kevin.