Katherine Stueland - Chief Executive Officer Eric Schadt - Founder, President and Chief R&D Officer Isaac Ro - Chief Financial Officer Joel Kaufman - Vice President of Finance and Corporate Development

Good day! And thank you for standing by. Welcome to the Sema4 First Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. . Please be advised that today’s conference is being recorded. . I would now like to hand the conference over to your speaker today, Joel Kaufman, Vice President of Finance and Corporate Development. Please go ahead.

Thank you. Good afternoon, everyone, and thank you all for participating in today's conference call. Participating for the company today will be Katherine Stueland, Chief Executive Officer; Eric Schadt, Founder, President and Chief R&D Officer; and Isaac Ro, Chief Financial Officer. Earlier today Sema4 released financial results for the first quarter ended March 31, 2022. A copy of the press release along with our first quarter earnings and 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 Law which are made pursuant to the Safe Harbor Provisions of the Private Security 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 involve a number of risks, uncertainties and assumptions. For a list and description of these risks and uncertainties associated with Sema4 's business, please prefer 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. During the call, we may discuss certain non-GAAP financial measures. For reconciliations of 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, May 12th 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.

Alright, thank you Joel. I'm so happy to be here at Sema4, leading an incredible team, as we work together to transform the company and enter a new phase of growth, efficiency and scale. The vision remains the same, ‘to usher in a new era of better health, made possible by Sema4’s health inelegance platform.’ What will be different if the efficiency and once we drive growth or put another way, how do we deliver more insights to more patience at scale. Sema4 is in the best possible position to do this today. With the close of the GeneDx acquisition, we are now in a more diverse, stronger company with a faster path to profitability. We are committed to building our data platform, delivering growth with significantly improved efficiency and importantly, reducing our cash burn with intention. Our investments to-date have been critically important to creating a data platform unlike any other in our space. Under Eric's leadership, Sema4 has developed a clinically advanced data insights engine for patients, clinicians, health systems and biopharma partners. The value of this data engine is massive. We're able to partner with health systems to deliver insight for clinicians and their patients, and ultimately will be able to deliver a personalized health plan. With our pharma partners, our data engine drives value as we aim to help them accelerate drug discovery and development. They can but – the combined company now has an incredibly rich dataset flowing through our health intelligence platform and creating one of the largest rare disease datasets in existence. We will continue to invest in building that platform and with Eric's vision and passion for this and his new role as Chief R&D Officer, our intention is to accelerate the delivery of transformational deals. By combining Sema4 and GeneDx, we…

Awesome Katherine! So delighted to welcome you to the team. Since our last updated in March, we have continued to make great progress with our operational initiatives and to execute our strategic plan, which includes the closing of the GeneDx acquisition and incredible milestone for all of us, but most importantly for our customers, patients and partners. Concurrent with the deal close, we announced the leadership structure change, where I transitioned to Sema4’s President and Chief R&D Officer. In this role, I will be able to focus a great majority of my efforts on advancing Sema4’s core technology, big data and AI initiatives, as well as continue to dedicate my time expanding Sema4’s partnerships across the healthcare ecosystem. In addition to this being a meaningful moment for the company, this change in leadership is important on a personal level, as I'm equally excited to get back to my roots and focus on what I love and I’m most passionate about. I look forward to driving our data platform forward and transforming clinical practice and therapeutic innovation with current and further partners. As Katherine said, our vision at Sema4 remains unchanged. We believe the rapid advances in genomics and AI, along with the exponentially growing oceans of molecular imaging and clinical data, could and should be integrated into an information platform able to deliver a broad array of insights that drive more efficient treatment decisions and therapeutic developments. While there are many companies that seek to address various components of our solution, none have been able to wire these components together at scale and in a way that fully engages health systems as a health delivery partner. Our sophisticated platform draws on information from many sources, from advanced genomic testing solutions to patient electronic medical records, including physician notes and other…

Thank you, Eric. Turning to our financial results for the first quarter of 2022, total Sema4 revenue in the first quarter of 2022 was $53.9 million compared to $64.2 million in the first quarter of 2021. Excluding COVID-19 total revenue in the first quarter was $50.1 million up 4% year-on-year and up to 6% versus the fourth quarter of 2021. Regarding volumes, we achieved a new record this quarter with $84,925 resulted tests excluding COVID. This represents a 27% year-over-year increase versus the first quarter of 2021. Women's health grew 23% and oncology grew 159%. As a reminder we completed the previously announced wind-down of our COVID 19 business in Q1 of 2022. Therefore the remaining three quarters of 2022 and beyond will not include COVID-19 revenue. Turning to gross margin, I’ll be referring to our 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. As a result of our early efforts to improve profitability, we delivered adjusted gross margin of 13% for the first quarter 2022. This represents a sequential improvement of 1,300 basis points versus the fourth quarter of 2021. Margin improvement in the quarter was driven by a combination of operational improvements within the labs, increased scale and continued progress in our procurement and sourcing efforts. Turning to the balance sheet as of March 31, we had total liquidity of approximately $441 million, with cash and equivalents of $315 million and an undrawn revolver $125 million. Our first quarter cash flow was negatively impacted by one-time items related to the wind down of our COVID operations, the acquisition of GeneDx and certain working capital items that have already reversed early in the second quarter. Now turning to guidance.…

Thank you, Isaac and thank you Eric. Our vision for Sema4 as I said earlier remains unchanged, but the path to success is more clear. We have a well-defined set of operational and financial objectives, which the team is already working hard to achieve. We’ll continue to focus on growth, operating efficiencies, scaling towards profitability and transformational partnerships. We're confident that our diagnostic and clinical data platforms have the potential to dramatically improve the standard of care for all, and we look forward to capitalizing on these opportunities. With that, we can open up the call for questions.

Thank you. Our first question comes from Mark Massaro with BTIG. Your line is open.

Hey guys! Thank you very much for the questions and congrats on the quarter! I guess I wanted to ask about underlying volume trends. Do you think that the ‘23 and 159% growth rates in Q1 for women's health and oncology are reasonable run rates as we look out later into this year. And maybe can you just remind us where exactly – you know maybe help us think about the particular growth rates between Legacy Sema4 and Legacy GeneDx.

Yeah, hey Mark! Thanks for that question. So just a reminder that Q1 this year it was a comp over the peak COVID period last year, right, so I'm sure you knew that. But as we think about the rest of the year, you know we feel really good about what we're seeing in the channel with our commercial team. We’re obviously just getting married together between the two sides, so we think that we're off to a strong start that should continue as the year progresses. We’ll of course provide more detail on the quarters as we progress into the year, but right now we're off to a strong start. We thought it was sufficient to reiterate the guidance.

Okay. And then as we think about the $50 million reduction in cash burn this year relative to your original plan, how much of that was already realized in the corporate restructuring? I guess can you help us maybe elaborate on where some of those productions are coming?

Yeah, sure. So you know number one, obvious it’s never an easy thing to do and really want to credit the entire team for pulling together here. But you know it's important to also provide content, so that work was done while we were in the process of closing GeneDx. It would have been done independent of the transaction and so it really was focused on the core Sema4 franchise as it was prior to the close, and the savings that we referenced in the script you know are largely still to come. Those are all changes that we made to ensure that our cash burn comes down as we look at the sequential quarters for the rest of the year and you know exit the year in a really strong position.

Okay. One last question for me. You know you had a nice tick up in adjusted gross margins. I know it's not necessarily the most sexy thing to talk about, but can you talk about some of the improvements you've already made with things like procurement and sourcing, operational improvements in the lab. Where else can you draw some improvements from? How should we think about the progression and some of the progress you're making in some of those line items?

So I'll key it up, and then let Isaac comment further. You know I think one of the things that became very clear Mark and diligence and then an integration planning was you have two teams with highly complementary technologies and skill sets, and some of the things that the GeneDx team brings to bear are I think some really interesting approaches to drive down COGS. So as we're thinking about integrating the companies and operations, that gives us an additional ability to continue to realize some savings there. So I would say that there’s a number of efforts that can support that even further, but I’ll let Isaac comment some more.

Yeah, thanks. Katherine’s totally right. We’re still in our very early days of exploring where our gross margins can ultimately be and you know in Q1 what you saw in the numbers were number one, you know good mix in ECS this quarter that helped us relative to plan and a little bit of benefit from the work we're doing in procurement and sourcing, harvesting low hanging fruit opportunities. Implicitly I think that means that areas around lab, automation, longer term efficiencies in the supply chain, all of those things, the technology that Katherine mentioned are still to come, and so we're just – you know we want to make sure that we execute that well. We’ve got to also balance that against our growth plans, but you know the point here is that I think we're still in the very early innings and harvesting low hanging fruit that will continue as the year progresses.

That sounds great. I will hop back in the queue.

Thank you. Our next question comes from Brandon Couillard with Jeffrey. Your line is open.

Guys, this is Matt on for Brandon. Just one quick one on pricing. You know, this looked like solid progress there sequentially in the quarter. Can you just talk about some of the initiatives you expect to come online in the back of the year that you previously highlighted I think in oncology and market access and kind of where you see ASP tied in first from here for the rest of the year. Thanks.

Sure. Hey Matt! Thank you. So you know on the pricing side the most important thing I think is the fact that our team is materially strengthened from where it was, even at the start of the year. We've on the Sema4 side expanded that team with the new leadership and then of course with GeneDx massively increased the scale of that team. So now that we've got a really significant capability that we didn't have just a few quarters ago, we're in a position to I think you know push on several fronts to drive better ASPs. And so of course on the oncology front we’ve talked before about pushing forward with reimbursement for somatic profiling. That's making good progress and on track with our plan to realize better reimbursement by the middle part of the year. And then on the market access side, there's just a huge universe of ways in which we can optimize our efforts in partnership with our commercial team, in partnership with payers, in partnership with our health system partners, a whole bunch of things that I would say together shall allow us to with the same amount of volume, like for like, drive better amounts of revenue and therefore ASP. So I'm personally very excited about the opportunity that we have this year to drive improvement there. It’s a meaningful part of the gross margin improvement strategy.

Thanks, that's helpful. And then can you just talk about – I know it's really early days, but talk about plans for the integration of the commercial teams and where you see the most opportunity you know if any, to get more efficient as you guys had talked about in the prepared remarks. Thank you.

Absolutely! The commercial opportunity here I think is one that requires a little bit of context. So one, on the GeneDx side, we spent the back part of 2021 building up a commercial team. So we doubled the size of the sales force. So we have arrived last week with a combined team. We now have a really impressive footprint on the commercial side of things. We've got about 175 field based reps combined between the teams. I think it's important as we think about the commercial opportunity. We're going to be running the rest of this year with the playbooks that they have to ensure that we deliver on revenue on both sides. But what’s really nice, Jen Brendel who is leading our commercial effort, she had spent about a decade at Pfizer. She was at Bayer and she was at Invitae with me. Jen has developed a really strong approach to being able to develop integrated commercial plans that really ensure that we’re using a data driven approach from a sales perspective, as well as marketing, medical affairs and other efforts at scale. So we've got that off the ground at GeneDx and now Jen’s leading all of the commercial teams to be able to develop those plans as well across women's health and oncology in addition to the side of the business. So lots of opportunity as we think about cross-selling in 2023, but 2022 we're really going to have the teams focused on delivering on what they signed up for this year, and ensuring that we continue to build on the momentum after a really strong first quarter for both teams.

Super. I'll leave it there. Thank you.

Thank you. Our next question comes from Max Masucci with Cowen and Company. Your line is open.

Hey! Thanks for taking the questions. First one for Isaac, can you just walk us through maybe the reimbursement dynamics that played into the gross margin, be it in the quarter and the raised guide mix if we do separate those from you know some of the lab operation improvements and other factors.

Yeah, sure Max. So I wouldn't say that reimbursement changed dramatically in Q1. You know we obviously like I said earlier, had the benefit of a little mix, but really it was a – what I would call it a quarter of relative stability and that's what we've been working towards. And as we look at the rest of the year, you know there'll be some moving parts, but in general we're obviously very excited about the potential for better reimbursement in oncology and as I mentioned earlier, that's something that's around the corner. And then as we look at the rest of the business, a lot of the opportunity around ASP, really relates mostly towards improved billing collections, that kind of thing. Future contracting is also important. It take a little bit more time for that to work through the numbers, but there is a bunch of levers that we are pulling that will translate into better ASP and reimbursement is just one variable in the equation.

Okay, got it. It sounds like you're in the process of evaluating revenue synergies; you have some remaining cost synergies that might be more visible now that this combination is closed. So can you maybe give us a sense for what you're seeing on both of those fronts and you know which of the two going forward, yeah you plan to attack more aggressively.

Well, I'll start on the revenue synergy side of things. I think one of the clear opportunities that is ahead of us is when we think about health systems and pharma. The combined dataset once we announced the acquisition in January really captured a lot of attention from pharma companies. And I would say as we’re – we had two teams that were very eager to get to Day 1, so we could really start driving that strategy forward. So I think that's one area where we think that we have a very strong position in terms of having a right to win in the pharma space. On health systems, that became another really clear area. Obviously the model that Sema4 team has built to be able to cost efficiently improve these health system is incredibly impressive. And being able to go in and now add our exome for the pediatrics segment into the NICU is something that we’ve heard from current customers, as well as potential future ones. It is something that is of interest. So I would say, those are two of the areas where I think we have a really differentiated offering between the way that Sema4 has set up these health systems, the data engine and then adding in GeneDx’s exome and geno.

Okay great. Maybe be a follow-on for Eric. Just curious how much of your time, you are now planning to dedicated to new health system wins versus new biopharma partnerships? How everything is going on that front? And then, if you could just give us a sense for the personnel in the teams so the combined business now has in place to target each of those opportunities, should be great.

Yeah, so going to – again as I indicated, the spending took really the great majority of my time, both on the information platform, evolving that in addition to the biopharma, kind of outwardly facing, developing those relationships and progressing larger scale deals. But the health systems, like these things are all intertwined as you know, as we've indicated before in terms of facilitating the right kind of access to patients, to high dimensional longitudinal data, and so on. So we view that as core driver of the value we can push into pharma and partnership with the health system. So it will be pretty – you know somewhat balanced, but no doubt be pharma push, which I’ll say is, the platform we have is complex. The kinds of engagements we have with pharma to help them understand all the different types of utility. Like those take a lot of time and I'm well positioned with the team to help kind of drive that understanding and work on some of the components of the deal that helped drive maximal value. With the GeneDx like Katherine said, like we were anxious from the signing of that agreement to 350,000 plus exome, clinical exomes, more than 2 million phenotypes on an amazing ramp to keep growing that kind of a resource and a team that has deep expertise on both the genomic side in terms of interpreting genomes for these rare disorders and their connectivity to common disorders, but then also on the clinical side, linking that molecular data with the pathophysiology of the diseases, which is how you impact clinical medicine. So like you have seen, what we're getting with that group is a tremendous strengthening of R&D that’s already within the first week, you know now actively engaged with us on driving some of these pharma deals, so it’s great.

Great! Thanks for taking the questions and nice updates.

Thank you. . Our next question comes from Matt Sykes with Goldman Sachs. Your line is open.

Hey guys! This is Dave. Congrats on a strong quarter! In oncology, can you double click on some of the biggest volume drivers? What are the most popular oncology panels you're seeing, and any trends there such as increasing interests in bigger panels?

Yeah, sure. Hey Dave! Thank you. So remember in oncology, our portfolio today is really two major product lines, the hereditary cancer risk test, as well as the schematic profiling, and the former is much larger from a volume standpoint. So when you look at the total performance in the quarter, with 159% growth, you know most of that was in the HC business which continues to do very well for us, both in the broader market as well as with some of the health system partners with whom we’re working, where we mentioned in the past, we've been able to drive much higher rates of compliance, relative to the targeted populations. Thanks to our sort of comprehensive platform and partnership models. So I think that's good validation that we're doing well. And then we're just scratching the surface in sematic, where you know there's obviously a huge opportunity to drive a higher rate of market adoption for a really, really valuable testing category and we think we got a very unique and best-in-class solution there. So even though we're a smaller player today, we think our opportunity to be much bigger continues to be very compelling and you know of course being locked up with volume, we want to generate a higher rate of revenue attached to those volumes, which is as I mentioned earlier, we're on track for. So in general good momentum in the ecology business, lots of opportunity ahead of us, and you know stay tuned. We expect to this topic will be a bigger area of conversation as the year progresses.

Great, thanks! And any additional color you can give us on the REPRESENT Study and your expectation there?

Eric, do you want to take that one?

Yeah, so there – so a number of these protocols we have running. That particular study continued to perform very well in addressing core components of our technology, the ability to address disparities and so on. So we continue to bring on new sites and drive enrolment into those studies, so it’s all like on a good path.

Great! Thanks guys.

Awesome! Thanks. So you know just to close things out, I want to say one thing, which is to reiterate we are really excited about the start of the year, the momentum in the core business. We want to really welcome and we're excited about the opportunity with GeneDx. And finally on the liquidity side, reiterating that we're going to finish the year with over $200 million of cash and $325 million of total liquidity, and as we think about some of the moving parts around liquidity, also worth mentioning that we do – as we think about the potential for the earn out with GeneDx, I want to remind investors that there are really three pieces to think about there. One is that the earn out, if triggered, we really retain the option to pay that out either with cash or equity. Now in the event that we paid out in equity, the conversion price is locked at 486 a share, for the merger agreement. So if you run the math and assume that the entire earn out is triggered at 46 a share, that equates to 31 million shares or about 8% dilution, and of course on top of that, there are additional lock-ups related to that equity if it is paid out. So I just want to make sure that was clear as we think about what the numbers look like exiting this year.

Alright, well thank you Isaac, thanks Eric. Thank you all for joining. We look forward to talking to you at upcoming conferences. I appreciate the attention today.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.