Sema4 Holdings Corp. (SMFR) on Q2 2022 Results - Earnings Call Transcript
Operator: Good day, and thank you for standing by. Welcome to the Sema4 Second Quarter 2022 Earnings Conference Call. . 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.
Joel Kaufman: Thank you, Michelle. Good afternoon, everyone. Thank you all for participating in today's conference call. Joining me from the company today will be Katherine Stueland, Chief Executive Officer; and Kevin Feeley, SVP of Operations and Head of GeneDx. 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, Sema4 released financial results for the second quarter ended June 30, 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 Sema4'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. Sema4 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 Katherine.
Katherine Stueland: Thanks, Joel. Just 3 months ago, Sema4 closed on the acquisition of GeneDx 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 Sema4 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 GeneDx 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 Sema4 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 genomes, fueled by an industry-leading interpretation platform designed for a phenoms 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 thematic oncology, which represented approximately 1% of our revenue with material negative gross margins. Given the number of companies focused on somatic oncology and some for 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 Branford facility. We're also redirecting our hereditary cancer testing from our Stamford clinical laboratory to our Maryland laboratory to drive down COG 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 Stamford 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 Sema4 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 Branford 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 Sema4. As I said earlier, our mission of delivering health insights from data remain strong, albeit with an evolution of that strategy. I want to walk you through 3 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 river of commercial business planning that will 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 had 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 spin-off strategy for R&D to a scalable one. Data insights will continue to be the way that we design our product road map, but we need to start by having a deliberate and clear strategy that puts an equal premium on scale as it does on 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, provides Sema4 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 and Invitae, who is joining us as Chief Technology and Product Officer. Together with Gustavo Stolovitzky 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 Centrellis platform. Third, driving operating efficiency. We're bringing a level of operational rigor to the company and 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 Sema4 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 Schadt, founder of Sema4 will be leaving. I'd like to thank Eric for his significant contributions to Sema4 over the years. He founded Sema4 at Mount Sinai, established it as a standalone private company, and lead our goal public via a merger last year. His vision has been instrumental in getting Sema4 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 GeneDx starting January 1, 2021, to provide the most holistic view of combined Sema4 and GeneDx 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 Sema4 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.
Kevin Feeley : Thank you, Katherine, and good afternoon, everyone. Since joining Sema4 upon completion of its acquisition of GeneDx, I've had the privilege of leading a number of our operational teams across the company, including, but not limited to, laboratory operations, genetic counseling services, supply chain management, and the revenue cycle across the combined company. In this past quarter, we've been focused on integration in all areas of the company and key initiatives to drive forward the third area of focus Katherine outlined, which is driving operating efficiency. All operational aspects of the company are under review to ensure proper resource management, automation, and enabling technologies are in place to drive cost efficiency. I look forward to updating you on our progress in future calls. Today, I'd like to focus on revenue cycle management and adjustments we've made as we take a fully integrated approach with our billing operations and relationships with our third-party payers. We disclosed today in our 10-Q filing that we're currently negotiating with one of our larger commercial payers regarding the potential recoupment of payments for Sema4 carrier screening services rendered from 2018 to early 2022. As a result of the negotiations to this point and an assessment of our current reimbursement landscape for third-party payers, Sema4 has reversed $30.1 million of revenue this quarter related to prior periods. We believe this reversal of revenue accurately reflects and captures the potential risk of recoupment from our entire portfolio of third-party payers, which is a risk that is common in our industry. Our new leadership team is committed to strengthening our relationships and partnerships with the payers to improve access for our customers who need and require our services. And now I'd like to hand the call to Joel to bring you through our financial results and guidance.
Joel Kaufman: Thank you, Kevin. For reference, we have provided a detailed breakdown of historical volumes and revenue on a pro forma basis beginning in the first quarter of 2021 in the appendix of the second quarter earnings presentation posted on our Investor Relations website. During the second quarter of 2022, total Sema4 revenue was $36 million compared to $47 million in the second quarter of 2021. When adjusting for the $30 million of revenue reversal related to prior periods recorded in the second quarter, second quarter revenue would have been $66 million. Regarding volumes, we achieved a new record this quarter with approximately 118,000 resulted tests, excluding COVID-19. Pro forma resulted volumes in the quarter were 133,000. This represents a 19% year-over-year increase versus the second quarter of 2021 on a pro forma basis. As a reminder, we completed the previously announced wind down of our COVID-19 business in 1Q 2022. Turning to gross margin. I'll be referring to non-GAAP results. I encourage you to review the reconciliation of GAAP to non-GAAP measures, which can be found in today's earnings release and 10-Q filed with the SEC. Adjusted gross margin, excluding the prior period revenue adjustment, recognized in the second quarter was 4% for 2Q '22. Gross margin was also negatively impacted by lower recorded ASPs and the reproductive health business during the second quarter. Turning to the balance sheet. As of June 30, we had total liquidity of approximately $410 million, with cash and cash equivalents of $285 million and an undrawn revolver of $125 million. We anticipate most of the restructuring process Katherine reviewed will be completed by the end of the year. Combined with the announcements earlier this year, these actions will generate approximately $50 million in 2022 savings. These actions, combined with a focus on capital controls will enable an additional $150 million in savings in 2023, the vast majority of which are recurring in nature. Now turning to our updated guidance. Starting with volumes. We are increasing our previous targets and now expect greater than 50% -- sorry, greater than 60% growth on a reported basis. On a pro forma basis, this would imply 19% growth year-over-year. Turning to revenue. We are lowering our previous targets based on a combination of the revenue reversal mentioned previously and a more conservative ASP outlook on the legacy Sema4 business. These headwinds are partially offset by strength in the legacy GeneDx business. We expect Sema4's reported revenue to be in the range of $245 million to $255 million. Please note, reported revenue guidance excludes approximately $48 million of revenue generated from GeneDx for the first 4 months of 2022 prior to the close of the acquisition. We are lowering our full year adjusted gross margin guidance to 4% to 9%, primarily as a result of the prior period revenue adjustment, which was a 700 basis point headwind to annual gross margin. 2022 gross margins will also be impacted by a reduction in ASPs in the reproductive health business. Given the complexity of the GeneDx acquisition closing intra-quarter and the revenue reversal recognized in the second quarter of this year, we will also provide guidance specifically for the second half of the year for clarity. We expect revenue in the second half in the range of $154 million to $164 million and gross margins in the range of 15% to 20%. This trajectory will put us well on our way to our long-term target of greater than 50% gross margin. We plan to reduce our cash spend significantly throughout 2022 and finish 2022 with at least $165 million in cash and equivalents. We expect our weighted average basic share count for the full year will be in the range of $335 million to 340 million shares. We expect the fourth quarter 2022 basic share count to be in the range of 380 million to 385 million shares. In closing, as we exit this year, we anticipate Sema4 will be a company with normalized pro forma revenue of $320 million, more than $165 million of cash on the balance sheet, a $125 million undrawn revolver, cash runway into 2024 and an operating model that gives us the ability to achieve positive free cash flow by the end of 2025. We are encouraged by the progress we have made thus far in 2022 and look forward to the improved financial position of the company following the announcements made today. Now I'll turn it back to our CEO, Katherine Stueland.
Katherine Stueland: Thanks, Joel. With our focus on profitable growth, scalable R&D strategy, and improved operating efficiency, I'm confident that these changes will result in better outcomes for our patients, providers, payers, partners, team members, and importantly, the shareholders who entrust us to realize our mission. We're grateful for the opportunity to do so. I would now like to open the call up for questions. Operator?
Operator: . And our first question is going to come from the line of Dave Delahunt with GS.
David Delahunt: Any additional color you can provide on the outlook for signing additional health system partnerships?
Katherine Stueland: Yes, absolutely. That's a fantastic place to put some attention. So first, what we are doing is taking a look at the existing health systems that we're working with. I think historically, they've been characterized as learning partnerships. And what we're doing is working with them to figure out exactly how to ensure we can scale before we add additional health partnerships. So right now, each one has a unique focus. One is focused on hereditary cancer screening. Another is focused more on healthy mom and healthy baby. And that gives us an opportunity to be able to bring to our health system, the GeneDx suite of products in the pediatric setting. So we've actually hired somebody to join the team to be able to work with our new R&D leads to really build that road map to scale health systems before we continue to invest in yet another learning system. And so that is what our plan is. Once we have an approach to being able to scale them, I think we'll be able to provide a better insight in terms of how we might be able to go to market to bring more online.
David Delahunt: And on the biopharma partnership side, any additional color you can give us on the level of demand you're seeing in the market?
Katherine Stueland: So first, in terms of the selling approach that we're taking with biopharma, it really was previously a group of Sema4 folks who are coming together and really ideating with different biopharma companies in the same way that we're trying to bring some commercial rigor and scale to health systems as well as the entire business. We want to do the same with biopharma. So I would say with the close of the GeneDx acquisition, we've been really pleased, particularly in the rare disease space, the types of partnerships that we have in the pipeline. But we have a lot of work to do to really pull those through and realize them into partnerships that will be gross margin positive. And again, what we want to do is spend some time figuring out how to productize that. So we can actually go to health systems with a very clear suite of services that we can provide to them rather than approaching each one as kind of a unique go-to-market approach. So more to come on that.
Operator: And our next question comes from the line of Brandon Couillard with Jeffrey.
Matt Kim: This is Matt on for Brandon. Just quickly first on the updated guidance. I appreciate the color on the quantifying the adjustment for the prior period changes on the other part of the lowering of the guidance related to volume and pricing within the reproductive health. Can you just talk a little bit more about what changed there? And any way to kind of quantify what you're assuming for ASPs there now versus prior to quantify the magnitude of the step down there?
Katherine Stueland: I'm glad you heard the message loud and clear. It's really 2 factors, one being ASPs, and the other being volume related. It was a pretty aggressive back half of the year. And as we have a new commercial lead in place and a new commercial leadership team, we're just trying to be really clear eyed in terms of the volume that we see right ahead of us. Obviously, some of them have been really focused in the IVF setting. There is an entire universe of OV volume that is also out there that we may focus on, but that also requires a different commercial strategy. So what I really tried to talk through in some of my remarks was the commercial rigor that we're bringing to there. Jen Brendel is leading that effort. She was an adviser at Bayer and Invitae, and really has developed, I think, an elegant strategy that provides all of the things that you need to deliver on volume, on strong ASPs. We have a full operational plan to continue to drive down our COGS to deliver on stronger gross margins. So all of this, I would say, we're seeing play out very nicely in the pediatric setting, and it's that same approach that we need to drive in terms of reproductive health. But for the back half of this year, I think we wanted to take the most conservative approach in terms of what we could see by way of ASPs and by way of volume that would accompany that.
Joel Kaufman: And Matt, just sort of walking through the ASP dynamic embedded in the guidance. So I'd point you to the updated table we provided both in the press release and within the appendix of the investor presentation that was posted on our website today. If you sort of normalize for the out-of-period revenue adjustment in the quarter, ASPs in our complex reproductive health segment here were about $520 in the quarter. That compared to about $712 in the quarter prior. I would say we're expecting for the remainder of the year, at least double-digit sequential declines from 2Q into 3Q for those ASPs in the reproductive health business. And stabilization ââ¬Âââ¬Â
Matt Kim: And then jumping over to the additional $150 million of annualized cost savings, you guys laid out a number of items from semiââ¬Âtumor testing, further reorganization, moving the lab and some commercial moves. So I guess can you kind of talk about maybe the relative kind of size and comfort with that another $150 million? And then going forward into '23 and beyond, kind of what do you think is the right size of the commercial organization?
Katherine Stueland: I'll share my perspective and then we'll hand it over to Kevin as well. We've had a full transformation management office that has been leading a pretty thorough effort in terms of being able to ensure that we can deliver on the cost savings, particularly given the markets that we're all living in. And so it's everything from revenue optimization ââ¬Âââ¬Â that's something that Kevin is focused on ââ¬Âââ¬Â to lab and footprint optimization in addition to taking a look at ââ¬Ââ⬠the last possible elimination that you want to have to make a decision on is your people. Today, as I said on the call, with the 250 folks that we're parting ways with, that is about 30% of the legacy Sema4 team. So I would say that we have made a pretty multidimensional approach here in terms of being able to realize that cumulative $200 million in savings. And some of it is a matter of timing. So I'll let Kevin talk a bit more.
Kevin Feeley: Matt, and some of the confidence comes through leveraging a blueprint that GeneDx has previously established running a full suite of germline test. So the move down to Maryland allows us to leverage a fair bit of automation and other laboratory techniques that have been in place at GeneDx and Maryland for a number of years. And this shift down to the Maryland lab really gives us the ability to run costs at level of efficiency that would have taken Sema4 a fair bit of time to accomplish on their own. And so really it was one of the premise of the integration was to rationalize the laboratory footprint and leverage some of the investments that GeneDx had been making over the past decade into laboratory automation and techniques in the laboratory. Across other operational functions, we see the implementation of other automation and technology that should help us get more efficient in servicing our products. So looking at some operational groups outside the laboratory as well and finding meaningful cost reductions as we turn the page into 2023.
Operator: And our next question comes from the line of Max Masucci with Cowen.
Max Masucci: Just a question on the second half guide. With the revenues being a bit below, but it also looks like you raised the resulted test volume guidance. So I appreciate the comments around reproductive health outside of that segment. Would love to hear which other products and services are driving that upward revision for the full year volume growth guidance.
Katherine Stueland: That is exactly the place to zero in. So about a year ago, we assembled an overall business strategy for the GeneDx suite of products, which includes neurodegenerative panels really for rare disease, but those are rapidly being adopted into the developmental delay setting in addition to other places as well in the pediatric sector. So we put together, I think, a pretty elegant commercial strategy to ensure that we could drive volume growth, that it was revenue driving volume, and that would -- that we can make an impact on the reimbursement landscape as well to ensure that we're opening up access, we're getting paid for this volume. So we're seeing now a year later. We started making the investments in the commercial team, commercial leadership, medical affairs team. A year later, we're seeing those investments paying off. So as we're continuing to evolve the reproductive health strategy is really the pediatric sector where we're seeing a lot of uplift as we think about the back half of the year.
Joel Kaufman: Max, just like in the mechanics in terms of the updated guidance, the way I would think about it is you have the onetime out-of-period revenue adjustment that was a headwind in the quarter. The legacy Sema4 business, we're taking a more conservative view on both volume and ASPs, but we are revising our underlying assumptions at the legacy GeneDx business up based off of the demand we're seeing for the whole suite of GeneDx's products to date.
Max Masucci: Second one related to gross margins. In the second half, gross margin guide, just as we think through the pacing of the gross margins in Q3 and Q4, how should we think about the timing of some of these key milestones or factors you're solving for in terms of the lab operations and the movement there? And then just more generally, if we sort of separate the opportunity for organic gross margin improvement that's unrelated to, say, reclassification of items between OpEx and gross margin, just trying to get a sense for how we can best track your progress towards the organic gross margin improvements and the pacing in Q3 and Q4 in the context of the guide?
Joel Kaufman: So Max, I'll start with the pacing. So if you think about the mechanics of the exit of the somatic business, which will essentially be a wind down of that product line throughout the remainder of the year, and we're going to essentially stop accepting samples in November, so you're going to likely see somatic volumes decline, which will be less of a drag on gross margins for the remainder of the year, a greater impact in 4Q than 3Q. And then thinking about the move of hereditary cancer from Stamford down to Gaithersburg, again, that will not impact the third quarter. So that would be a benefit that we realized in the fourth quarter. And then on top of that, highly encouraged by the trajectory of gross margin that we're seeing at GeneDx. Margins continue to beat our internal expectations and are up meaningfully relative to the exit trajectory out of last year. So if you think about that is a part of the business that's growing, let's say, above the corporate average, contributing more gross margin in the fourth quarter than the third quarter. So that's how I would think about the pacing. I'll kick it over to Kevin who may have some more details around underlying operations and how that will impact the gross margin.
Kevin Feeley: Not much to add there except for beyond those identified items. We've got established now, well-established to transformational office. Really looking at all other additional levers that we could pull to explore strategic options to drive down costs, not just in COGS, but operationally as well and look forward to providing further updates as the year progresses. Okay.
Max Masucci: Final question. I just want to first wish Eric best is the next chapter. And then second, Matt is stepping in as Chief Technology and Product Officer. So could you just maybe give us a sense for some of the initiatives or efforts that Matt spearheaded during his time at Invitae, where he can have an immediate impact at Sema4? And then just generally, if there are any major changes to the R&D and biopharma strategy going forward?
Katherine Stueland: You're asking one of my favorite topics. Matt Davis' contributions. And I worked with him for several years. Matt has, I think, one of the -- he's uniquely capable in being able to think through vision in terms of where we're going with exome and genome and a data strategy, while also being able to sit in a business review, here is a problem and think about if I had a squad of 5 of my people, we can probably solve that issue, whether it's a revenue cycle issue or an ordering issue. He's able to really do both the high science and vision work that we need him to do in partnership with Gustavo, while also being able to look at the business problem, the business operation opportunities that we have in front of us to really run the company more efficiently. And he also brings, thanks to his time at IBM and some work that he and I partnered on while at Invitae, was a design approach to product development. So we're really excited about the many different ways that Matt's going to be contributing, including what we've talked about today in terms of being able to develop a road map for scale for R&D. I think part of the immense excitement about Sema4 in the early days being a spinout from Sinai, very academically minded where all of the different places that you can go from a data perspective and being able to place a lot of bets. And now we want to move into a new chapter from an R&D perspective, where we're placing fewer bigger bets that have behind them a business plan and a full product road map and a clear approach to being able to take an idea, turn it into a product or service, and turn that into a revenue-generating approach. So that's really the kind of shift that we want to see out of the team here at Sema4 in terms of product, technology, data science, how do all of those come together to really ensure that we're able to support a commercial stage growth company that has an incredible market opportunity in our hands. So we're thrilled to have Matt. Gustavo stepping up into a fantastic role and we're just thrilled to be able to have them both leading us in this new chapter.
Operator: . And our next question comes from the line of Mark Massaro with BTIG.
Mark Massaro: Maybe the first one, I don't think I heard the topic of Centrellis come up. So maybe can you just talk about how important sort of the big data platform strategy is at Sema4 at this time. I know that about a quarter ago, I think Dr. Schadt indicated that he was planning to focus on big data, the information platform, helping with health systems and pharma companies. So maybe just an update on the Centrellis strategy. How core is it? And then on a related question, can you maybe update us on who may be stepping in for R&D? Or is that a position that you're looking to fill?
Katherine Stueland: So first, yes, Centrellis is central to all of this. So when I talk about the data engine and how we are combining genomic data with longitudinal data, clinical data, that's what we're referring to. So Centrellis is absolutely a key part of the data strategy moving forward. We're continuing to build on that by working with health systems and continuing to ensure that we have got a strong pipeline of genomic volume coming in through our commercial channel. So yes, when I'm talking about the interpretation platform that we've built, in that case, I'm referring to the interpretation platform that we built at GeneDx, which is the most advanced platform in terms of being able to take an exome or genome's worth of data and be able to deliver it with fewer with every patient that we're running through that platform. So I think those 2 platforms that we're talking about that I think really helped contribute to a richer data strategy moving forward. And that interpretation platform gives us a really important commercial competitive advantage because we've been running these exomes and genomes and that platform has been getting smarter over the past 8 years. So it's one of the reasons that our exome, nobody can compete with it. So yes, absolutely central to the data strategy moving forward, and we're excited. In terms of R&D leadership, that is Gustavo and Matt coming in. So all of the folks who were reporting to Eric and others on the R&D or product teams will be reporting in Matt and Gustavo. So research and development is, I suppose, rebranded as a technology product, data science moving forward.
Mark Massaro: I also wanted to ask about the -- I think it was the $30 million adjustment in the quarter. Would you be willing to provide a little more information about what some of the changes and estimates were related to? And then was this one payer or was it multiple payers? And do you think there could be any impact to either pricing of these tests or potentially the contract status of any of these payers?
Kevin Feeley: First, I'm sure, hopefully, you can appreciate, we're in ongoing negotiations with the payer. So I'll share as much as we can at this point, but potentially more limited than you would like. So in the second quarter, a large payer of ours completed an audit. That audit span back 3 years, the results of which is a refund request on previously paid claims. These were services provided by Sema4. So the dispute really comes down to a coverage decision with the payer requesting recoupments of amounts previously paid. We've taken reserves on our balance sheet based on current information to date captures what we believe is the potential risk of recruitment from this and other third-party payers in our portfolio. To your question on contracting in the context of this dispute, we're working to finalize an updated contracts with this particular payer on a combined company basis. I'll note that this was one payer that had significantly higher contracted rates than standard commercial lab rates. But hopefully, you can appreciate that. Discussions are ongoing, but we look forward in the days to come to resolving not only dispute but the go-forward contract disposition with this payer. But I believe the reserves on the balance sheet cover off on what we'd expect is risk in the portfolio at large.
Mark Massaro: So I totally understand the closure of lab and brand for Connecticut, given the somatic testing business is quite small, and it certainly makes sense to lower your cost structure and move hereditary cancer testing elsewhere like Maryland. Maybe can you just remind us where the bulk of the carrier screening testing is being assessed at this time? And like how strategic is operations in Connecticut at this time? And are you contemplating potentially moving operations to other lower-cost jurisdictions?
Kevin Feeley: So our expanded carrier screen or carrier screening testing is germline in nature and run in the laboratory in Stamford. And we're exploring all options for the rest of the reproductive health line of testing and where that should be performed and how frankly. With respect to your question on Connecticut, the company headquarters is in Connecticut. I think we mentioned in our prepared remarks, our headquarter space, which is office space, probably not unlike many other companies, we found we have far more office space than individuals to fill it at the moment and a beautiful laboratory facility right down the street from the headquarter office space. And so we'll be looking to consolidate that space in Stamford, Connecticut over the coming months.
Operator: And I'm showing no further questions, and I'd like to turn the conference back over to Katherine Stueland for any further remarks.
Katherine Stueland: Well, thank you for joining us. Really important thank you to our team members who have been working with us. And we look forward to catching up with you some time in the coming weeks and months. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
