Invitae Corporation

Hello, everybody, and welcome to the InVTage Fourth Quarter 2022 Financial Results Conference call. My name is Sam, and I'll be coordinating your call today. If you'd like to ask a question during the presentation, you may do so by pressing star followed by 1 on your telephone keypad. I'd now like to turn you over to your host, Hokie Luke, Head of Investor Relations and Capital Markets, to begin. Hokie, please go ahead.

Thank you, Operator, and good afternoon, everyone. Thank you for participating in today's call. Joining us today are President and CEO Ken Knight and our CFO, Roxy Nguyen. Before we begin, I'd like to remind you the various remarks that we make on this call that are not historical, including those about our vision and business model, the company's strategic business realignment, future financial and operating results, expectations of future growth and reduction in burn rates, expectations regarding the exchange and equitization of existing notes and extension of debt maturity, and future products, services, and our product pipeline and the timing. Certain points we make will constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act. It is difficult to accurately predict demand for our services, and therefore our actual results could differ materially from our state outlook. Statements on future company performance assume, among other things, that we don't conclude any additional business acquisitions, investments, restructurings, or legal settlements. We refer you to our most recent 10Q and 10K, in particular to the sections titled Risk Factors, for additional information on factors that could cause actual results to differ materially from our current expectations. These four-looking statements speak only as of the dates hereof. To supplement our consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States, or GAAP, we monitor and consider several non-GAAP measures. We encourage you to review our GAAP to non-GAAP reconciliations, which are available in the press release and in the appendix of the earnings slide deck, both of which you can access by visiting the investors section of the company's website at rr.ndj.com. Today, Ken and Moxie will discuss our financing announcements, our fourth quarter and full year highlights, our roadmap and portfolio strategy, financials and key metrics of the fourth quarter and full year, as well as our 2023 guidance. We will then proceed to conclude the call with Q&A. With that, I'll turn the call over to Ken.

Thank you, Hokie, and thank you all for joining us today. Let me start with the financing activities. We have just announced steps taken to reduce our debt and successfully extend the vast majority of the near-term debt obligations. Roxy will discuss the terms in detail in her remarks. Overall, we are very pleased with these transactions, and they highlight our ongoing commitment to taking the action needed to improve the health of our balance sheet. I'd also like to thank our investors and other stakeholders for their continued support and confidence in the long-term opportunities of Invitae. Now, moving on to an overview of our quarterly performance, which demonstrated continued operational execution against our realignment plan. Revenue for the fourth quarter was $122.5 million versus $126.1 million a year ago, reflecting the impact of businesses and geographies that we have exited. This was paired with solid improvement in our gross margin, with non-GAAP gross margin of 47.8% in the quarter compared to 36.5% in Q4 2021 and 45.9% in Q3 2022. Additionally, our effort to reshape our cost profile continues to gain momentum. and is reflected in the reduction of our non-GAAP operating expenses to roughly 111% of revenues compared to 171% of revenues in Q4 2021 and 112% of revenues in Q3 2022. Over the last six months, the major initiatives under our strategic realignment have been largely completed. with our most recent step being the sale of certain assets related to the distributed RUOKitted solution that was executed at the end of 2022. Collectively, this work helped us reduce our ongoing cash burn to $77 million for the quarter if we exclude certain items. This is a significant reduction compared to $196 million in Q4 2021. And our cash burn has continued its declining trend over the past five quarters. Overall, looking at four-year results, we delivered 12% year-over-year growth in our top line. Non-GAAP growth margin was 42.5%, which was in line with our 2022 guidance. Our four-year cash burn of $510 million also performed significantly better than our guidance. Note that this reported cash number includes all restructuring and past acquisition-related expenses, as well as the cash inflow from our RUO Kitted solution sale. Later, Roxy will provide some perspectives on our ongoing cash burn trend, excluding these special items. We have also started 2023 in a strong fashion, and two months into the year, we remain on track. to continue to perform well against our objectives of extending our cash runway through 2024 and driving toward profitable growth. Overall, we are pleased with our team's performance and ability to deliver on our goals, and we appreciate their unwavering commitment to our patients, over 3 million of them whom we have served, to our mission and to our future. So, as I just pointed out, we have largely completed the major initiatives surrounding our realignment efforts. We have stabilized our portfolio, reduced our ongoing cash burn, and profitable growth is the foundation on which we built our business plan for 2023 and beyond. 2023 will also be a year of investment and innovation into our future to fuel our next wave of new growth opportunities. While we will drive growth and better execution of our core businesses, We must also deliver new capabilities, products, and services for the long term. One of the big growth bets for us is in somatic oncology, specifically our minimum residual disease product PCM, which has shown great utility for monitoring and surveillance of cancer. We are investing in clinical confirmation, adoption, ease of use, and reimbursement in advance of full commercialization. In addition to our capability in bringing high-performing assays to the market, another growth driver will be our efforts at integrating and connecting our portfolio, especially for non-genetics expert adoption. This will offer us a distinct advantage as we can leverage call points and utilize customer-facing digital tools to make it easier for practices and healthcare systems to use our entire suite of offerings. Another area of investment will be in our data and patient network platform and its utility to provide solutions to multiple partner types. We remain committed to growing a patient network which will offer a unique data set with more enriched longitudinal engagement combined with our industry-leading variant interpretation. Lastly, when we enter our acceleration phase, we will have implemented the differentiated technology and services needed to fully enable our major growth opportunities. We will be valued for our ability to help put the puzzle pieces together for the patient journey. And we're building this with a focus on generating positive cash flow. Now, a few words on our portfolio rationalization and strategy. The chart on the left represents an overview of our product offerings as we closed out 2022. and where they stand relative to each other based on their revenue size, non-GAAP gross margin, and growth rate profile. At the end of 2022, the entire business was much improved from where we were a year ago, including the sharp rise in overall non-GAAP gross margins exiting the fourth quarter. The progress we've made in women's health has been significant, and teams are actively replicating those successes and our rare disease product line as well. In 2023, we're driving the core businesses toward continually growing revenues and expanding growth margins, and hereditary cancer continues to be the largest and most profitable business. On the right side, we're showing how we see the portfolio evolving over the next two to three years. As new products become material drivers of revenue, they are depicted by new bubbles of their own. Somatic shows up here as PTM flows in the clinical commercial usage and moves toward positive gross margin with the full benefit of reimbursement practices that are coming into play more and more. The somatic market is still nascent as the level and timing of reimbursement for clinical use is still to be solidified. Yet we are encouraged to see the recent progress in the landscape. As it relates to our own path, we have taken the necessary steps to secure favorable reimbursement while preparing for widespread launch activities. I'd encourage you to watch for additional data and publications on that front. We have also separated pharmacogenomics, PGX, from rare disease to highlight our expectation that it will become a more significant part of our business based on improving reimbursement and broader adoption. A third new bubble is our patient network. which is combining our genotypic insights with phenotypic clinical insights to solve puzzles for patients, advocacy groups, and biopharma in a unique and time-saving platform. All of our portfolio offerings, along with our strong foundational variant interpretation capability, have a role to play in building sustainable growth for Invitae, delivering an increased number of solutions for physicians and patients, and speeding the development of new therapies. Before I hand the call over to Roxy, I'd like to remind everyone of our strategic vision for the business. Currently, we're taking the steps to evolve from one patient, one test, which is today's norm in our industry. Once that expansion is established, we can take the next step and leverage the data from our integrated network, allowing for collective insights for many patients to provide multiple solutions for multiple use cases and customer types. This is the multiplying value proposition. And Vitae is uniquely positioned to do this, not simply because we think it makes sense, but because patients will demand it. And we're getting after it. Let me now pass it to Roxy to go over the financials.