00:01 Thank you for standing by, and welcome to the Sema4 Fourth Quarter 2021 Earnings Conference Call. 00:06 I would now like to turn the call over to Joel Kaufman, Vice President of Finance and Corporate Development. Please go ahead.

00:13Thank you. Good afternoon, everyone. Thank you all for participating in today's conference call. Participating for the company today will be Eric Schadt, Founder and Chief Executive Officer; and Isaac Ro, Chief Financial Officer. Earlier today, Sema4 released financial results for the fourth quarter and full year ended December 31, 2021. A copy of the press release is available on the company's website. 00:36 Before we begin, I'd like to remind you that management will make forward-looking statements within the meaning of federal securities law, 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. 01:04 Additionally, these forward-looking statements, particularly our 2022 financial guidance, 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-K filed with the Securities and Exchange Commission on March 14, 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. 01:35 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 our Investor Relations section of our website. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 14, 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. 02:12 And with that, I'll turn the call over to Eric.

02:15 Thank you, Joel. And thank you, everyone, for joining us on our fourth quarter and full year 2021 financial results conference call. I will begin with an overview of our performance, including the recent drivers of our success and future drivers of growth before passing the call to Isaac for a financial update. We will then open the call for questions. 02:35 2021 was a transformative year for Sema4, during which we drove record test volumes and grew our clinical, molecular and patient databases, listed on NASDAQ as a public company, and advanced our strategic objectives to accelerate the growth of our platform of algorithms. Overall, I'm very excited by our organizational progress during a year that had more disrupted macro issues than I would have imagined heading into 2021. 03:02 Sema4 continues to build capabilities anchored in clinically relevant genomic and patient data with artificial intelligence and machine learning. We continue to establish Sema4 as the partner of choice for health systems, therapeutic innovators, and other healthcare companies. At Sema4, we are building a unique company focused on delivering clinically actionable insights based on longitudinal data analysis that will help inform clinical decision-making across a broad spectrum of diseases and health conditions. We are delighted that our health intelligence platform is being increasingly recognized for its potential ability to predict more accurate and clinically meaningful outcomes. 03:43 In the fourth quarter we delivered revenue of $47.3 million, excluding COVID, representing 24% growth compared to $38.2 million in the same period a year ago. Importantly, we continue to make substantial progress advancing key initiatives, as evidenced by the nearly 83,000 resulted tests in the quarter, representing 37% growth compared to 61,000 resulted tests in the same period a year ago. We exited 2021 well positioned to grow our data…

21:04 Thank you, Eric. Turning to our fourth quarter and full year 2021 financial results, total revenue for the fourth quarter of 2021 was $57.8 million, down 10% compared to $64 million in the fourth quarter of 2020. Diagnostic test revenue was $56.1 million in the fourth quarter of 2021, down 9% compared to $61.6 million in the same period of 2020. COVID-19 testing revenue in Q4 was $10.5 million, down 59% year-over-year, but was up 151% sequentially from the third quarter of 2021. Other revenue totaled $1.7 million in the fourth quarter of 2021, compared to $2.4 million in the fourth quarter of 2020. Excluding COVID-19, total revenue for the company in the fourth quarter of 2021 was up 24% year-over-year. 21:54 Total revenue for 2021 was $212.2 million, up 18% compared to $179.3 million in 2020. Diagnostic test revenue was $205.1 million in 2021, up 17% compared to $175.4 million in 2020. COVID-19 testing revenue in 2021 was $34.4 million, representing an annual increase of 4.8%. For the full year, other revenue totaled $7.1 million in 2021, compared to $4 million in 2020. The increase was mainly attributable to growth in collaboration service activities related to new partnerships with biopharma. Excluding COVID-19, total revenue for the full year of 2021 was up 21%. 22:39 Turning to volumes. We resulted approximately 83,000 diagnostic tests during the fourth quarter of 2021, excluding COVID-19. That was up 37% compared to the same period in 2020. We recorded 142% volume growth in oncology, and this category now accounts for 6% of our total volume excluding COVID-19. Women's Health volumes grew 33% in the fourth quarter compared to the same period in 2020. For the full year of 2021, we resulted approximately 292,000 diagnostic tests, excluding COVID-19, up 41% compared to the full…

29:19 Excellent, Isaac. Thank you. In summary, I’m proud of our substantial progress during the year. We are on the right path to build and leverage the most comprehensive clinically relevant data set and make precision medicine as standard of care for health systems. 29:34 I would now like to open the call to any questions. Operator?

29:40 Thank you. Our first question comes from Brandon Couillard of Jefferies. Your line is open.

29:57 Hey, thanks. Good afternoon. Let me just start with Eric. In terms of the health systems, it would be great to just maybe get some more details, some more color on how you think those relationships are progressing. And I'm just trying to get a feel for how much these are contributing today? What the right metrics are that we should look at? And where you kind of see those pool of partnerships that you have today advancing over the next 12 months?

30:27 Yeah, again, we're like super pleased with the health system partnerships we've formed today and the performance we -- between the Mount Sinai system, NorthShore, and Avera in terms of testing volume now accounts for substantial percentage of the testing volume. So the uptake and drive into those systems is going well. We’ve talked about the level of uptake in the NorthShore system with respect to the genomic health screening as part of their population health program and the amount of translation of those screenings into heritable cancer screening. So that's all gone amazing, and having over 90% -- not only 90% of those primary care physicians ordering that testing, but over 80% indicating changes, substantial increases in standard of care are amazing. 31:30 We've launched as well a protocol, a precision oncology protocol with Avera that's now recruiting at a really good clip in. So all of that kind of standardizing the genomic testing across a broad array of diseases and conditions continues to go very well and increasing engagement as well around the data and collaborating with the systems around the data and how the kind of restructuring and annotation and so on that Sema4 can do can drive value back. 32:04 So in my view, we are straight on track on. And what I would look for over the next 12 months are, first of all, bringing on one or a couple of new system, and then also growing the information asset, getting more and more partnership around the data, growing also the patient base and the volume of testing.

32:29 Yeah. And Brandon, I'd just add one more thing to that answer, which is that, Eric called out in the script this Founder Health System Consortium that we held at the beginning of March. I want to underscore that event as something that's really special in the industry, because it was really a unique opportunity to get all these health systems with whom we're partnered together in the same room, multiple representatives from each institution. And that really we think is going to start creating this flywheel effect in this go-to-market strategy that we have, because now you've got partners that we're working with helping each other, taking advantage of our technology, figure out ways to apply it and implement it. And so, that's something that we think we can build upon and we're going to be doing those quarterly. I just want to mention that, because it's something that we just haven't seen before in this industry and the feedback from the partners was awesome.

33:15 Yeah, it's a great color, Isaac. Thanks for bringing that up. And just the ability, again, with that health system data driving that in a common data model, harmonizing those data, unifying across systems, enabling systems to cross-leverage those data to have learnings or validate learnings from other systems. So like super exciting to see that come together.

33:40 Thank you. Our next question comes from Max Masucci of Cowen & Company. Your line is open.

33:47 Hey, thanks for taking the questions. I would just be curious to start, was the deal with BioSymetrics driven more by Sema4's core capabilities with Centrellis? Or did GeneDx's whole exome database play a factor?

34:04 Yeah. It’s driven initially completely by the Centrellis platform, engaging a partner with significant high content screening type capabilities, the ability to experimentally validate across a broad array of experimental systems, the kinds of predictions we make and the complex models we put together for a disease, so helping validate and progress those models for better actionability, whether it's in clinical test -- the clinical genomic testing or in the drug discovery partnerships we have with pharmaceutical companies, but then also better leveraging our information assets to progress targets on our own in partnership with BioSymetrics. 34:53 The add of GeneDx into the mix has kind of accelerates, in my view, the utility of that platform, especially in the rare disorder arena where the scales of data GeneDx brings to the table the breadth of their testing across all of the children's hospitals and kind of that rare disorder space kind of gives us definitely a strategic advantage in kind of from identifying and prioritizing targets that we may progress to finding the right patient populations to further assess those models.

35:31 That's great. And it's a bit unique. It's not necessarily sequencing as a service, it's more focused around drug discovery. So, I'd be curious if there is a downstream economics component of the partnership?

35:49 Yeah. So downstream, what we see is -- and we'll have more to say on this in coming quarters, but it's advancing some of these drug discovery programs ourselves, kind of moving the ball further down the field in terms of getting to a clinically validated or preclinical model to carry forward into the clinic, and then we envision pharmaceutical partners or partners in biopharma to then take up what will be deemed a much more valuable and progressed asset for faster clinical studies. 36:29 So that's kind of the -- where I would expect us to drive the most value from that program, but I won't underestimate the need to have that kind of experimental platform to be validating models that we're using to deliver clinically actionable guidance as well through the genomic testing solutions to same cancer and the ability to better match patients based on their molecular profiling to the most appropriate kind of therapeutic intervention or clinical trial, like, there'll be utility for that platform in that arena as well.

37:03 Great. Final one from me. If you look at the attractive COGS profile in the GeneDx facility, it seems like you're well positioned to enter new liquid biopsy applications on your own? Or you could partner with liquid biopsy players that stand to benefit from the whole exome capability. So it would be great to hear whether you think the GeneDx lab operations opens up some new opportunities for partnerships in the liquid biopsy space.

37:36 Yeah, definitely, and exactly along the 2 fronts you had indicated, both progressing internal programs we have around liquid biopsy and I'll note that that exploration is not necessarily just in the oncology arena, but has reproductive health components as well. And the -- so I would say, we're actively exploring and driving some internal research that way, but also partnerships -- strategic partnerships with others to help progress their programs where, again, that lower COGS profile to generate some of the upfront data that you might need for MRD is highly attractive. So we have a number of those discussions going on.

38:21 Great. Thanks for taking the questions.

38:25 Thank you. Our next question comes from Mark Massaro of BTIG. Your line is open.

38:32 Hey, thanks for taking the questions. I guess, first one is for Isaac, pretty basic. But you did report about $6 million above where you pre-announced earlier in the year with nearly 3,000 tests above. Do you have visibility as to what constituted the change in actual versus pre-announced?

38:56 Yeah. Sure, Mark. Good question. So the good news there is the upside relative to our pre-announcement was both within the core business, as well as COVID-19. So yes, COVID-19 was the majority of the upside, because we obviously had a huge bump in volume related to the Omicron wave, like probably most companies in our tier testing group. And so, that was the biggest single source. And when we pre-announced in January, we were still working through the revenue recognition piece of it, but the underlying core business of testing, likewise, saw upside. 39:30 So I would just attribute it to treat across the business relative to the plan, a little bit of market dynamic with Omicron, and I would say all of that in the context of a pre-announcement in mid-January when it's tough to ensure proper rev rec. So, here we are in March, the books are closed and we're happy with where we landed.

39:49 Perfect. So it sounds like you pretty much reiterated all of the numbers for the pro forma combined company with your base business and GeneDx. One nuance just to ask on, I think you initially talked about a 16% pro forma gross margin, and now I think you've guided to a pro forma gross margin in excess or to exceed 10%, should we think of those 2 numbers as substantially equivalent? And then maybe can you just expand a little bit more, Isaac, about what types of specific initiatives you have in place to -- really to expand gross margins in 2022 and beyond?

40:34 Yeah, sure. Thanks for asking that question to clarify. So just to be very clear, the 16% number that you are referring to was pro forma for the combined company. And recall that GeneDx has higher gross margin than we do. So there was a gross margin accretion just by the fact -- by way of emerging the companies. Embedded within that percent number was a single-digit gross margin full year assumption for Sema4 standalone, right? So what that means is, the 10% number that we're guiding to for standalone Sema4, we're actually raising our gross margin outlook a little bit for the year, in part because of the reclassification work that just got done. 41:10 So just to simplify it, we're actually raising our underlying gross margin outlook for the year a little bit. When we close the GeneDx deal, the pro forma gross margin will be updated according to the current information we'll have at that point in time. And again, at this point, it looks like the pro forma number will also be higher. So the point here is to say that we're making great progress on gross margin. And we're certainly not done, there's a lot to do. And so, segue from there would be sort of your question on, like, the specific things we are doing. 41:40 So in prior public forums we've tried to disclose very clearly that there were simplistically, like, 2 major baskets to improving gross margin this year that we are really working on. The first was really an accounting effort, which is now concluded with the 10-K where we've reclassified a lot of expenses out of COGS into other areas of the P&L so that we're consistent with other public companies in our peer group. So this is a…

44:14 Perfect. So I know you're well capitalized with $400 million of cash in the balance sheet. We saw last week, I think, (ph) announced a little bit of a restructuring to their workforce. I guess with this decline in multiples across the industry, does that at all impact how you think about running the business either inorganically as you think about additional M&A? Or even as you look at your own operating model to what extent are you examining costs? And I guess with that, how should we think about adjusted EBITDA playing out throughout the year?

44:54 Yeah. Good question, Mark. So a couple of things. Number one, certainly, we are very focused on ensuring that our strong position of liquidity continues and we feel like we're in a good spot there and we'll certainly update the guidance that we've given around cash flow positivity over the coming months and quarters. But we've -- to reiterated, today our goal of being cash flow positive by the end of 2025, and we think it's important to give investors that visibility on the horizon and that's what we're building towards. 45:23 I think from there, when I -- when we think about capital deployment, we said this before as well, we've undertaken a transformative deal with GeneDx. It's a significant commitment, it's a significant focus for us, critically important that we close it on a timely basis and execute upon the integration really well. So that is by far mission 1 and 2 for us operationally this year. And I think, as a result M&A, well, I would never say never, it's just really a very, very high bar, extremely high, for us to consider doing anything else here. We really want to focus on getting GeneDx right and that's really where we're putting our energy. 45:59 So with all that said, I think your last question had to do with the pacing for the year. So I'll just say that our cash burn for the year will come down dramatically over the course of the year, as we execute upon a lot of the things we've talked about, especially improving gross margin. So I would expect there to be sort of a peak cash burn for the year and for going forward, in Q1, and it should come down significantly in Q2, Q3, and Q4. And so, we'll give more details on that as the year progresses, but we are very much focused on driving a clear path towards profitability and self-sustainment.

46:37 Okay, great. And maybe just one last one. I think I heard you talk about a goal of having at least 5 systems by year-end 2023. Just checking, is that a cumulative all-in number? And then can you just talk about maybe what your pipeline looks like? And I know you have a high bar, you've talked about quality over quantity, but anything you could add there would be helpful.

47:03 Yeah, it's definitely cumulative. And again, the strategy we're pushing is 5, maybe as high as 10 systems by -- over the next couple of years, and these initial ones are very much learning based partnerships right? It’s learning how do we take all of the components we have, the components others have and wire together solutions for the system that delivers precision medicine as standard of care, that involves advanced genomic testing solution against all diseases and conditions, that involves helping structure and manage information and make it accessible and useful to better characterizing patients and hospital operations, as well as research. 47:49 So like there is a lot there, and we think that -- so that pipeline, we thinking of it as just a handful of additional systems over the next couple of years to kind of fill out the range of possibilities that we're pursuing with respect to precision medicine as standard of care. And we think over the next year or so, especially with this consortium and having the systems working together and address common problems and ways to advance, what's common among the systems, what's idiosyncratic and requires customization, and so on. So there's a lot of learnings that will happen that will enable us to then come up with a model to scale. 48:31 And so, I think until we're at that model, which we think will be over the next year or so, the plan is not to scale to as many systems as we can grab. And it's worth noting that our (ph), everything we filed is really based on that 5 to 10 health system number, in getting to the right level of uptake in partnership, and driving a lot of that benefit into pharma relationships. 48:58 I don't know if, Isaac, you have anything else to --

49:01 Yeah. No, it's a great summary. Nothing to add.

49:06 Okay. That's it for me. Thank you.

49:09 Thank you. Our next question comes from Matt Sykes of Goldman Sachs. Your line is open.

49:19 Hey guys, this is Dave on for Matt. Thanks for taking the questions. Any additional updates you can give on progress in the biopharma business and expectations for the year?

49:32 Yeah. So we maintain a really aggressive degree of effort around discussions with a number of very large pharma around a more transformative deal that leverages the kind of information asset, we've built a high degree of interest in that. In addition to some of the drug discovery capabilities we've been demonstrating. So I would say, all of those discussions and interactions are going really well and we continue to think that this will be a more transformative year for Sema4 with respect to pharma relationships. 50:15 That said, we also have some of the more modest -- moderate type deals that we keep driving around real-world evidence studies and clinical trial matching and continuing the relationship with Sanofi on helping identify the next generation of targets with partnership with them for asthma and better characterization of asthma patients. So all in all, we are feeling really confident on that.

50:43 Great. And then looking forward to continued strong growth in your oncology business, any additional color on the Women's Health versus oncology mix we can expect for the year?

50:59 Yeah, maybe just high level, I would say that you are seeing the volume growth each of the last 2 quarters in oncology, triple digits. So while it's still relatively small absolute values versus the Women's Health business, you can clearly see that it is the fastest growing part of our franchise, number one; and number two, we're growing much faster than the end markets that we serve in that category. So a lot of that's being enabled by the health system progress that we're making. Eric touched on a lot of that. So we feel really good about the opportunity for our oncology franchise going forward. 51:32 I should also remind you that from a reimbursement perspective, we have a bunch of irons in the fire this year to drive better payment so that the revenue attached with our volume starts to catch up. And if we do that, that will also be important to improving our gross margin profile in the second half of the year. So, lots going on in the oncology business on the internal side that's really positive and worth highlighting and as we think about the feedback that we're getting the -- again, the consortia that we held with our health system partners, they're really excited about what we're able to enable for them and their patients with the data that wraps around the tests ourselves -- themselves.

52:12 Yeah. And maybe just wanted to add a little on top of that, that it's -- on the Women's Health side, one of the big plays that we're making there and that are driving a significant part of that growth is through the oncology connection with women's health with diseases like breast and ovarian endometrial cancer being reproductive health diseases and kind of offering our heritable cancer genomic testing solution in that arena where we're getting kind of the best uptake a more traditional (ph) channels and of course, also the partnerships around the somatic tumor profiling and connected that with respect to breast and ovarian, so there's a lot of connectivity again driving across those different channels and in particular with the health systems. And I'll also say to Isaac's point on the fast growth and uptake in these systems on the oncology solution is kind of representative of -- there is no full precision oncology solution today. Nobody really has that today. And again, the testing as part of it, liquid biopsy may be part of it, the data is part of it, the patient engagement is part of it. But what the systems really need, what the physicians really need is a way to more effectively manage, engage that information, make decisions over time, and it's not a one-time episodic test that gets flipped. It's a way more holistic wrap-around solution that we're providing.

53:43 Fantastic. Thanks for the excellent color.

53:47 Thank you. I'm showing no further questions this time I'd like to turn the call back over to Eric Schadt for any closing remarks.

53:55 Great, thank you. Thank you for your attention. I wanted to thank everybody on the call for the interest in Sema4 and joining us today on our fourth quarter and full year 2021 results. We look forward to keeping you all updated on our developments. So have a nice evening.

54:16 Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all participating. You may now disconnect. Have a great day.