Invitae (NYSE:NVTA) Corporation, a leading medical genetics company, reported its financial results for the third quarter of 2023. The company showed gross margin expansion for nine straight quarters, reaching 52.4% in Q3, and reported a 4% year-over-year increase in revenues on a pro-forma basis. However, the oncology segment faced a decline due to lower fee-for-service revenue and commercial insurance payment challenges. Invitae reaffirmed its guidance for 2023, with expected revenue in the range of $480 million to $500 million and non-GAAP gross margin in the range of 48% to 50%.
Key takeaways from the call:
- Invitae achieved growth in rare disease and women's health, with the former seeing a significant 44% YoY revenue increase.
- The company reported a decline in its data and patient network business by $2 million YoY due to a focus on more profitable sponsored testing programs.
- Invitae ended Q3 2023 with $265 million in cash, cash equivalents, restricted cash, and marketable securities.
- The company is actively addressing its capital structure needs and exploring options such as raising capital, addressing debt, and cost reduction efforts.
- Invitae received SBA authorization for its hereditary cancer panel, establishing a new category of device.
- The company introduced several new executive leaders, including a Chief Commercial Officer, Chief Financial Officer, and Chief Operating Officer.
Despite the challenges in the oncology segment, Invitae has made progress in addressing payment collection issues and expects positive results in the fourth quarter. The company also highlighted that its operational improvement efforts resulted in a 60% reduction in cash burn in the first nine months of 2023.
Invitae is actively assessing liquidity measures to address the going concern language in its 10-Q and is working with stakeholders to optimize its balance sheet. The company expects ongoing cash burn to be in the range of $220 million to $245 million, representing a more than 50% improvement from 2022.
During the earnings call, Invitae discussed the formation of a special committee of independent directors to improve the company's capital structure. While specific pathways and timelines were not provided, the company expressed a sense of urgency in mapping out the next steps.
The company also pointed out its efforts to grow profitably, improve gross margins, and expand its presence in the community setting for hereditary cancer testing. Invitae is focusing on clinical areas such as lung, breast, and colorectal cancer, with plans to pursue reimbursement in early 2024.
Invitae also mentioned reallocating resources after exiting the pharmacogenomics (PGX) business, which led to the departure of dedicated resources. Despite potential mixed dynamics and uncertain product mix in the fourth quarter, the company is determined to improve its gross margins and expects to continue expanding in the future.
InvestingPro Insights
Drawing from real-time data on InvestingPro, Invitae (NVTA) operates with a notable debt burden and is burning through cash swiftly. Yet, the company has seen a significant return over the last week, despite its stock price movements being quite volatile. The company's valuation implies a poor free cash flow yield, and analysts do not anticipate the company will be profitable this year.
However, on a positive note, Invitae's liquid assets exceed its short term obligations. This is a crucial point of stability for the company, especially as it navigates through its financial challenges.
These insights are based on InvestingPro Tips, which offer a comprehensive view of a company's financial health. For more tips and information, consider exploring the InvestingPro platform, which houses over 12 additional tips for Invitae.
Full transcript - NVTA Q3 2023:
Operator: Good afternoon, and welcome to the Invitae Third Quarter 2023 Financial Results Conference Call. My name is Carla and I will be your operator for today's call. We will have a Q&A session following your host's remarks. [Operator Instructions]
Hoki Luk: 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 new CFO, Ana Schrank. Before we begin, I'd like to remind you the various remarks that we make on this call are not historical, including those about our vision and business model, future financial and operating results, future products, services, our product pipeline and the timing, expectations of future growth, reduction in burn rate and discussions with our stakeholders, and operational improvement in cost reduction efforts. 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 stated outlook. Statements on future company performance assume, among other things, that we don't conclude any new business acquisitions, investments, restructurings, or legal settlements. We refer you to our most recent 10-Q and 10-K, 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 forward-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 ir.invitae.com. Today, Ken will provide an update on recent events and operational news during the quarter. Ana will cover the financial details and key metrics as well as our 2023 guidance. We will then conclude the call with Q&A. With that, I'll turn the call over to Ken.
Ken Knight: Thank you, Hoki, and welcome everyone who joined us today. Q3 was another productive quarter for us, where we met or exceeded consensus, estimates and key performance metrics. Our pursuit of higher quality revenues and lower unit costs resulted in continued gross margin expansion. We have improved our non-GAAP gross margins for nine consecutive quarters and hit 52.4% this quarter, which represented a 250 basis point sequential expansion from Q2 2023. Operational improvement efforts and expense control have resulted in a reduction in ongoing cash burn of approximately 60% in the first nine months of 2023 versus the same period last year. We are on track for our full year 2023 cost reduction commitments. Revenues for the quarter were $121.2 million, an increase of approximately 4% year-over-year on a pro-forma basis, and an improvement from the second quarter, which saw roughly 1% pro-forma growth. Rare disease led the way with 44% year-over-year revenue growth, followed by women's health with 21% growth. Oncology saw a 7.5% year-over-year pro-forma decline, influenced by lower fee-for-service revenue, as we work to rebuild that pipeline, and impacted by commercial insurance payment headwinds for hereditary cancer. Oncology did see a 3.3% sequential revenue growth from Q2 2023, and was bolstered by an 11% volume growth for hereditary cancer in our U.S. market on a pro forma basis. Regarding the commercial payment headwinds, we have devoted significant resources to tackle this issue to improve payment collections and we are seeing progress. In the second quarter, we reported a negative impact of approximately $5 million to the revenue line and that number decreased to about $2.2 million in Q3. We believe that we are going to continue to see positive results in the fourth quarter and into next year. We are encouraged by these improvements and also recognize there is still much work to do on our journey. Today you will see going concern language (ph) in our 10-Q. Since our realignment in July 2022, our entire team has been executing on the initiatives and actions needed to improve the health of the business. Those efforts have been productive and will continue. We are creating plans that will, over the next 12 months, further reduce operating cash burn and improve the company's liquidity. This is a top priority and we are actively engaging with our stakeholders in seeking constructive feedback and solutions. Our board of directors has formed a special committee to focus on addressing our capital structure needs. With our board, we are exploring a number of options, which could include raising capital, addressing our debt, selling certain assets, and continuing operational improvement and cost reduction efforts. Moving to Slide 6, I want to highlight a few of our recent wins. In the third quarter, we secured the first of its kind SBA authorization for our common hereditary cancer panel. We are proud of this accomplishment. As Invitae was able to establish a new category of device based on our technology and methodology. We submitted a de novo application in 2021 using this panel as an example of a method-based approach to validation. It was a voluntary submission and our goal was to guide the agency's understanding through the submission and review process. As such, the FDA worked closely with us to review the test and our supporting data, which led to this market authorization. Meeting the agency's stringent requirements is a testament to our product and to our labs, processes, and quality. Importantly, this decision sets the bar for expected performance and the associated data required for future regulatory approval of similar products. As for the next step, our teams are working through the implications of offering an FDA-authorized assay as it relates to our operations, development, and potential commercial benefits. We also believe that this decision serves as a proof point that we will remain very well positioned to the regulatory landscape surrounding laboratory developed tests change in the future. In the third quarter, we also reached 4.4 million patients served across a diverse spectrum of clinical areas. Of these patients served, 64% are available for data sharing. We continue to believe that this breadth of patient data will further strengthen our variant interpretation capability and we are well positioned to provide the highest quality of clinical interpretation at an industry-leading scale. And as I already mentioned, our efforts to improve revenue cycle management and cash collections also continue to gain traction during the quarter. Finally, we recently had an exciting update in which we received clear approval on our submission for our enhanced personalized cancer monitoring assay. Onto Slide 7, the enhanced PCM assay is expected to benefit our customers and patients as well as our business. And all migration steps required for the chemistry and internal processes have been completed seamlessly. We are running the enhanced assay going forward, and here are a few of the benefits. We have reduced the number of steps in the PCM workflow, increasing capacity and lowering the burden of materials and labor costs. The process now lends itself to automation, enabling scale and supporting our future growth. From a performance perspective, we were able to lower our limit of detection, potentially improving lead times. This enhanced assay is able to achieve the same sensitivity as the prior version with less cell-free DNA, enabling us to test samples that may have previously been rejected. As part of the submission, we have also validated whole exome sequencing as a standalone comprehensive genomic profile to permit reporting of tumor profile, enabling us to add new products to our oncology menu. And finally, we are confident that the enhanced chemistry addresses the primary matters arising from the ongoing Natera (NASDAQ:NTRA) litigation, providing us an even more differentiated solution. Overall, we continue to have strong confidence in our ability to operate, and most importantly, our ability to continue offering PCM to pharma partners and patients as we rebuild our fee-for-service pipeline. Longer term, we continue to see synergies between hereditary germline and somatic products. Study after study concludes that the combination of the two datasets results in superior decision making in cancer care. Our ability to do both types of testing on one platform anchors one of the most comprehensive offerings for a physician and patient, considering treatment options for cancer. Before I hand the call over for the financial discussion, I'll note that we have added some fantastic talent to our executive leadership team since our last call. Over the past few months, we announced the appointment of Robert Guigley, as our Chief Commercial Officer; Ana Schrank, as our Chief Financial Officer; and David Sholehvar as our incoming Chief Operating Officer. They each bring extensive and relevant experience, and I'm confident that they will deliver long-term value to our team. And with that, I will turn to Ana to discuss the financials. Ana?
Ana Schrank: Thank you, Ken. I'm pleased to be here to discuss our fiscal third quarter results, which, as you mentioned, reflect solid progress toward our goal of reducing cash burn. Revenue decreased 9% to $121 million, primarily due to the exit of certain product offerings, including the RUO kit and IVF products and certain international geographies as part of the realignment we announced in 2022. When excluding the impact of those exited businesses, revenue increased approximately 4% year-over-year and was roughly flat from last quarter. Looking at the revenue breakdown, oncology including hereditary cancer and fee-for-service TCM testing offered to pharmaceutical partners generated $62 million. Women's health including carrier testing services and non-invasive prenatal screening, generated $27 million. $23 million was generated from our rare disease business, including neuro, cardio, pediatrics, and other testing products. Data and patient network revenue is approximately $9 million. This includes our sponsored testing programs, data management, and a number of data partnership projects. As I mentioned earlier, pro-former revenue increased approximately 4% year-over-year and was roughly flat sequentially. We also exited our PGX testing during the third quarter, which did not have a material impact on revenue. For your reference, if we exclude PGX revenue, our third quarter year-over-year and quarter-over-quarter pro-forma revenue growth would have been 40 basis points and 30 basis points higher respectively. Looking at the details of our revenue composition, oncology revenue of $62 million improved sequentially, primarily due to higher fee-for-service PCM revenue this quarter compared to last quarter. Compared to approximately $67 million of oncology revenue a year ago, the year-over-year decline was largely attributable to reimbursement pressure on hereditary cancer testing, as well as weaker PCM revenue. As Ken mentioned earlier, we are working diligently to build back our pipeline. Women's health grew 21% to $27 million, led by our carrier screening product, as well as continued improvements in APT. In our rare disease business, pro-femur revenue grew approximately 44% year-over-year, driven by continued penetration of neurodevelopmental and pediatric panels and testing for rare cardiac conditions. Our data and patient network business declined by about $2 million year-over-year, primarily due to our focus to drive more profitable sponsored testing programs. Moving to Slide 11. Third quarter non-GAAP gross margin was 52.4%, which improved year-over-year compared to 45.9% in Q3 2022 and sequentially compared to 49.8% in the second quarter. Third quarter non-GAAP operating expenses were $122 million or 101% of revenue. While OpEx is still higher than we want, our continued cost control measures resulted in improvements compared to OpEx of $150 million in the third quarter last year, which was 112% of revenue, and $158 million or 131% of revenue compared to Q2 of ‘23. On a GAAP basis, we incurred restructuring impairment and other costs of $877.3 million related to impairments and losses on disposals of long-lived assets net. We ended the third quarter with $265 million in cash, cash equivalents, restricted cash, and marketable securities compared to $596 million at September 30, 2022. We can proudly point to nine quarters of non-GAAP gross margin expansion. In the third quarter, the margin expansion was due to improvements in revenue management, successful efforts to drive costs out of the system via supply chain, and other operational and process efficiencies. Third quarter ongoing cash burn as defined on Slide 13 was approximately $64 million. This represents an improvement of 41% compared to the same period last year. The increase in sequential cash burn this quarter includes the impact of approximately $5 million in a semiannual interest expense payment, approximately $4 million related to a contract renegotiation, and another $4 million in acquisition-related payments, partially offset by around $3 million resulting from improved DSO. As Ken mentioned, we are actively assessing the operational liquidity measures necessary to address the going concern language in our 10-Q. We are working closely with our stakeholders to understand the options that can help extend our cash runway and optimize our current balance sheet. Currently, we have sufficient liquidity to operate as usual and continue to service our customers, partners, and financial obligations as we chart the path forward. Our third quarter key metrics are on Slide 14. Revenue per patient is measured by total company revenue divided by the number of ordering patients for the quarter. In the third quarter, revenue per patient was $474 versus $459 in the prior period. This improvement was based on stabilized hereditary cancer payments as well as the company's billing and collection initiatives. Variable cost productivity continued favorable performance in the quarter as we found efficiencies in our cost of goods sold that helped to drive higher margins. Cash burn as a percent of revenue picked up in the quarter for the reasons we mentioned on the prior slide. We are reaffirming guidance and anticipate 2023 revenue to be in the range of $480 million to $500 million and non-GAAP gross margin in the range of 48% to 50%. In 2023, as a result of the voluntary repayment of our term loan and the related prepayment penalty in the first quarter. Reported cash burn will exceed ongoing cash burn. We are reaffirming our ongoing cash burn guidance range of $220 million to $245 million, which as a reminder was adjusted downward after the second quarter. Our cash burn target represents more than 50% improvement from 2022. Before I hand it back to you, Ken, I just want to say it has been great getting to know my colleagues here at Invitae the last few weeks, and I look forward to meeting and interacting with many of you going forward. Ken?
Ken Knight: Thanks, Ana. To summarize the Q3 results in today's call, we are reaffirming our full-year financial guidance. Non-GAAP gross margin expanded for the ninth straight quarter. increased resources and efforts to improve payment collection are showing progress already, and we achieved two regulatory wins with the FDA authorization of our hereditary cancer panel and the clear approval on our submission for the enhanced PCM assay. As we look to close out 2023, our operational performance continues to improve. Our team is focused on the things in the short term that we can control and we are committed to addressing the challenges that remain as we determine the best path forward in order to achieve our mission to serve many more patients ahead. Operator, I'll now hand it over to you for questions.
Operator: Thank you, Ken. [Operator Instructions] Our first question today comes from Isabella Prugue from Leerink Partners. Isabel, your line is now open. Please go ahead.
Isabella Prugue: Hi, guys. Thank you for [Technical Difficulty] with the announcement for the chemistry enhancement, the MRD test. Could you perhaps maybe speak to how this helps address the Natera IP and litigation concerns? And if you don't mind clarifying, if the other statements you've designed for the Natera as well?
Ken Knight: So, Isabel, this is Ken. I'm sorry, I was having difficulty hearing you. I think your first part of the question was relevant to the enhanced PCM assay and how it addresses the Natera litigation. Obviously, there's still ongoing litigation with that in terms of specifics, I'm not going to be able to go into a lot of specifics about the differences between the chemistry and how it differs from the patents that are under dispute, but we are confident that the enhanced chemistry and the process changes we've made, knowing what those, that the items under dispute were, that this appropriately addresses it.
Isabella Prugue: Right. That was helpful. Sorry, I just didn't notice myself, but the second part to my question was, what are these redesigns with the plan for the commercial assay as well and if we can expect to see that?
Ken Knight: Yeah. So the enhanced assay is our assay that we're going to be operating and going forward. And so as we prepare for commercialization of our PCM product, our MRD product, that will be based off of the enhanced assay.
Isabella Prugue: Thank you so much.
Ken Knight: Thank you.
Operator: Thank you, Isabel. We will now take our next question from Dan Brennan from Cowen. Dan, your line is now open. Please go ahead.
Tom Stevens: Hi. This is Tom Stevens on for Dan. It was more a question on the guide, so clearly you reaffirmed it, but that seems to be in some sequential acceleration. So I guess you could talk through some of the puts and takes kind of behind that? And then I've got one more follow-up.
Ken Knight: Yeah. So we're seeing, we talked about already that we've seen the sequential growth already taking place, especially in our hereditary cancer business. We talked about double-digit volume growth quarter-over-quarter, and so we expect that that's going to continue. And then the combination of the work we're doing on our collection and reimbursement, our average payment per test, gives us confidence that the fourth quarter will continue to have sequential growth and revenue. And we talked about our rare disease business and how it's doing on a pro-forma basis year-over-year and 44% revenue growth in women's health, a 21% revenue growth in hereditary cancer with double-digit volume growth and getting better quality revenue, we have a lot of confidence that the revenue guide that we have is what we're going to be able to achieve.
Tom Stevens: Great. That's helpful. I guess just kind of jumping off that, kind of stepping back. As you have these conversations with your stakeholders, have you settled down to a kind of revenue growth rate you feel is sufficient to kind of, potentially meet, cash burn requirements and credit requirements going forward?
Ken Knight: Without getting into a lot of details, I mean, I think I must respect the processes as we're working with our stakeholders. Our stakeholders are asking the right kind of questions, and I think we are providing them sufficient information to the responses to those questions. And so, I am confident in the process and the relationship that we have. We're working together. They're asking good questions. And we're determined to continue to map a path forward for our company to continue to build upon the work that we've already done. I just got to say that, how we -- the work we've done to this point is a representation of the -- just the dedication and the grip of the visions in our company. The team has worked extremely hard and we've made some tough decisions and we've been able to execute extremely well. And so that goes without saying that, our team has really delivered on what we set out to do for 2023 and we like our momentum going into the last part of the year.
Tom Stevens: Great, thanks very much.
Ken Knight: Thank you.
Operator: Thank you, Tom. Our next question comes from Tejas Savin from Morgan Stanley. Your line is now open. Please go ahead.
Madison Pasterchick: Hi. This is Madison on for Tejas. Congrats on the quarter and thanks for taking the questions. Maybe just firstly, within oncology, I was wondering if you expect the delayed payment from the commercial insurance payers to be resolved by year end. It sounds like it is improving or if you do expect any spillover as we sink into next year? And then can you kind of quantify the impact of your guidance at the midpoint for this year and then what impact we could be seeing in 2024?
Ken Knight: So I'll say to you that the work that we've done in terms of addressing the commercial payer challenges that we have. We're seeing that that's starting to materialize, but we actually believe that the full year benefit of it won't be seen until we get into 2024. So the good news is that the progress we're making, we are confident is durable, and we'll see a full year implication of it next year. And so your question about the implications on the midpoint of the revenue guide, is that what the question was?
Madison Pasterchick: Yeah. Just like what's baked into the guidance range for this year at the midpoint, what kind of headwind?
Ken Knight: Well, I'd say that we expect that we'll -- you've seen really quarter-after-quarter, our top corporate-level average payment protest has improved, and we're expecting that that's going to improve for Q4 as well. That's informing our confidence in the revenue guide. We are also seeing improvement in growth in the business in terms of volumes, and so that's baked into our confidence into the guide as well. And so it's a combination of growing more volume as well as increasing the quality of our revenue in terms of average payment per test and those two things together is what gives us confidence in our guide.
Madison Pasterchick: Okay. That's really helpful. And then maybe just one follow-up. We already spoke a bit about the special committee being formed to improve the company's capital structure and kind of the different avenues you're contemplating there. I was wondering if you could give any more context on the pathways you're exploring and maybe an expected timeline that we could be seeing some of these initiatives implemented?
Ken Knight: Well, I mean, I think the, first of all, I would say that our board is extremely supportive of our company. And -- but as we looked at this, the board was willing to have several of the independent directors who dedicate more time, if you will, to really specifically focusing on, the capital structure of the company and helping guide us in our way forward and so that to me is a good sign. Timelines and things like that, it's a little premature to try to signal that. But I would say to you that the commitment and the time that they're putting in, we all are operating with an appropriate level of urgency associated with mapping the next path for Invitae. And when we set out last year, I'm reminded that we said we were going to be focusing on a few things. One was to kind of stabilize the business and execute on the short term. And then we talked about growing profitably, which we're doing. And then we talked about really mapping out a path to be able to drive investment into the future of the company. And so I think this is where we are in this phase between steps two and three, and our board and special committee are really there to help us with that effort and direction.
Madison Pasterchick: Got it. Okay. Thank you. Really helpful.
Operator: Thank you. We will now take our next question from Andrew Brackmann from William Blair. Andrew, your line is now open. Please go ahead.
Dustin Scaringe: Hi. This is Dustin on the line for Andrew. Thanks for taking our questions. On gross margin, good to see that continue to trend up over many quarters. Wondering if you guys can talk about the leverage driving that and where it can end up over time?
Ken Knight: Yeah. I mean, there's multiple efforts, levers that are driving that. Obviously, we made a decision, a conscious decision, really starting about 18 months ago that we were changing the commercialization, go-to-market from volume at all costs to a focus on growing profitable volume and so that's step number one. And secondly, we've been really dedicated and focused on process improvement internally, whether it's supply chain logistics, whether it's our laboratory processes and efficiencies. Ana talked about our variable cost efficiency that has probably been about as impressive in terms of each quarter driving more efficiency in our operations, as has our gross margin expansion as well. So that's a true sign of a focused effort there. And then, I think our mix is also moving in the right direction. Some of the actions we took last year, exited territories and businesses that were just not accretive to our gross margin story. And so we made some hard and tough decisions, but I think those decisions are proven to be more right than wrong in terms of solidifying our path to profitable growth. So it's really about being intentional about the quality of revenue that we demand for ourselves and then driving our middle part of the system in terms of the cost structure and variable cost and ultimately, those things together have led to some pretty strong performance and solid progress in gross margin.
Dustin Scaringe: Understood. Thanks for that. Within oncology, just wondering if we could get an update on your penetration efforts into the community setting, which you've called out in the past of the catalyst?
Ken Knight: Yeah. So I talked about our revenue growth of double-digit growth for hereditary cancer and Q3. And I'd say that what we're finding is that the volume growth in the community setting is spearheading the growth in hereditary cancer volumes. And so we still are competing well in the NCI Center and the academic medical centers where the genetic experts are. And we're still in there and we're starting to grow that segment of our business. But we are seeing more growth in our kind of community setting, which is what we were expecting and what we were hoping when we talked about earlier that we wanted to expand our, where we operate and our call points and so that's starting to prove with some positive momentum there.
Dustin Scaringe: Okay. Great. And then just one more from us, pipeline progress on PCM in a critical setting and expected timelines around that heading into next year. Thank you.
Ken Knight: And when you say, are you talking about, when you say pipeline timing for PCM, are you talking about, reimbursement or studies? I mean, can you be a little bit more specific? What is it?
Dustin Scaringe: Yeah. It could be studies, reimbursement, and commercialization of different indications.
Ken Knight: Yeah. It's a good question. And so our efforts are starting to really focus in on, several clinical areas, tumor types, lung, breast, and colorectal cancer. We're starting to get the data needed to pursue reimbursement. And so we're expecting in early 2024, we'll start to see that data come into fruition where we can start making our submissions to get support for reimbursement. We've gotten some indication from CMS already as to what kind of reimbursement levels they would support for our product. And so we kind of know what that target is going to be. And our study work that we're doing is really being more and more focused on what's it going to take to get kind of get the information and data needed to confirm the reimbursement path for our products. And so I think we're more aligned now than we've been in a while in terms of getting all of that together. And as we get into 2024, we'll be able to give you a lot more clarity as to how we see that unfolding.
Dustin Scaringe: I appreciate that. Thank you, Ken.
Ken Knight: Thank you.
Operator: Thank you, Andrew. Our next question comes from Matthew Sykes from Goldman Sachs. Matthew, your line is now open. Please go ahead.
Unidentified Participant: Hi. This is Evian (ph) from Matt. Thanks for taking my questions. The first one, it was great to see the FDA market authorization on your hereditary cancer panel. Can you provide an update to your overall hereditary cancer segment since receiving authorization for that product?
Ken Knight: So, yeah, I mean, as I said in my comments, we're -- first of all, thank you for the comment about it. We're extremely proud of what the FDA saw when they looked at our processes and our methodology. So far as what the next step is going to be in terms of commercializing it, the FDA authorization, market authorization, as a combination of looking at our development and our operational and our commercial efforts. So internally, we're working through those to understand what the opportunities are. And when we are ready to announce a product that is commercialized with FDA authorization, we will do that. But at this point, we haven't done that.
Unidentified Participant: Okay. Great. And then the next one, can you just talk through how you're thinking about reallocating resources after exiting your PGX business?
Ken Knight: So, yeah, I mean, the PGX business for us was in many regards a standalone operation in terms of where the samples were being processed. And so, we basically exited that business and unfortunately those resources that were pretty much dedicated to PGX for the most part have exited the company.
Operator: Thank you, Matthew. [Operator Instructions] Our next question is from Rachel Vatnsdal from JP Morgan. Rachel, your line is now open. Please go ahead.
Rachel Vatnsdal: Hi. This is Nolan for Rachel. Given you're refocusing on your profitability, can you talk a little bit about the growth plan for the data education network for the next few quarters, maybe two quarters. Obviously, there's a lot of underlying factors going into it, but since you saw a decline quarter-over-quarter, can you just give us some commentary on how you think about that trending heading into year end and the gross profile on it? And then I have one follow up. [Technical Difficulty].
Ken Knight: Yeah. That's a great question. I mean, as we think about it as it goes in the year end, we've obviously taken that into consideration when we look at our revenue guide. It's actually been a good news story for us, in my humble opinion. We focused on moving from an unprofitable kind of a discount testing model for our sponsored testing program to one where we are being appropriately compensated for the work that we do. And so we were a little concerned that the volume was going to drop off significantly. And I think, what we found is that we can do both. We can grow it profitably and we can still continue to grow that business. So we're less concerned about the downside path forward because we're seeing the momentum coming back at the product. And by the way, we've also developed some innovative products off of our data business that are also being well received. And so we see it as actually a rebounding business for us that's got great correlation to our rare disease business. A lot of our data business is driven off of the patient odyssey that, pediatric epilepsy and pediatric rare diseases, adult rare diseases are going through. And so we think we have a good combination there. And we like the stability that we've gotten. And part of our path to 52.4% gross margins this quarter is that each of the segments that we're in are performing better than they were this time last year from a gross margin standpoint.
Rachel Vatnsdal: Great. That's super helpful and kind of right on where I wanted to hit next. Could you talk about maybe, if we're expecting some potentially lower growth in that data or patient network segment, or maybe some lower gross margin segments in general. Do you think that that nine quarters of adjusted gross margin improvement that you're seeing and hitting 52% this quarter, which was meaningfully above the street. Do you think that trend could sort of then continue? It is below the full year guide or above the full year guide, but it'd be interesting to see if that's a potential swing factor upside to the next few quarters here?
Ken Knight: Yeah. I mean, the way we're thinking about it is that there is some mixed dynamics that still might play out for us as we finish the year. And so it was a little bit of -- we have to see how our product mix lands in Q4. So we have revenue and then we've got product mix that kind of contributes to how we see gross margin. At the same time, I'd say, look, I think we're not satisfied with a gross margin of 48% to 50%. We know that we have great products and we provide tremendous product and service to the healthcare community. And we have this determination to make sure that we're getting being appropriately rewarded for those efforts. And so I think our gross margin determination and effort is far from being concluded. And so as we start mapping out what we think 2024 will be, we'll start to guide that. But at this point, as we think about finishing up this year, there is, just some, puts and takes in terms of model, in terms of mix and things like that, that we're navigating through. But at the same time, we like the progress we're making, and we're pretty darn confident that we can continue to expand it into the future.
Rachel Vatnsdal: Awesome. Thank you so much.
Operator: Thank you. We have no further questions registered today. So with that, I'll hand back over to Ken Knight for final remarks.
Ken Knight: Well, once again, thanks everybody. Appreciate you joining us. We appreciate your continued interest in us as well as support and look forward to talking to you again next quarter. So be well. Thank you all.
Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
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