Paul Diaz: Yeah. When I pushed George and physicians, and we’re certainly going to ASCO with these questions, so what are the key precision medicine tools you need to treat a cancer patient, breast cancer patients, et cetera. Hereditary cancer always comes up first; somatic, second; liquid, third; and MRD, interesting new novel technology for it. So we’re just very excited over the next couple of years. We’re going to have a place where you can get those primary key tools to treat and monitor the progression of patients in one place, in an EMR, with consolidated reports. And I think that is going to be a big differentiator from others, who are trying to string together this and all of a sudden the Hereditary Cancer seems to be interesting.
When I got here everybody thought it’s a dead bounce kind of thing. So we kind of like the portfolio position. That being said, we are investing in innovation, we’re investing in building more studies as we refer to on the call, that’s a place where we have it playing catch up, going to ASCO and ACOG with more studies and more readouts than we had in years, and we’ll certainly be watching the marketplace for great science and innovation that fits within our portfolio, but we’re going to stay pretty disciplined on the indications that we’re focusing on and the channels where we think we have launched.
Puneet Souda: Got it. Super helpful, guys. Thank you.
Paul Diaz: Thank you.
Operator: Thank you. Our next question comes from the line of Andrew Cooper of Raymond James.
Paul Diaz: Hey, Andrew.
Andrew Cooper: Hey, everyone. Thanks for the question. Maybe just first, kind of sticking with the O-U.S. transaction, maybe just give us a little bit more of the thinking on sort of circling the wagon here on the U.S. opportunity and what our takeaways from that should be. Is it, “Hey, we’re just really excited about the opportunity here and don’t need to worry about the European efforts in the same way we have before?” Like, what should our takeaway really be on that decision?
Paul Diaz: Yeah, I would say that the thesis is generally that complexity is the killer of growth and accountability. And operating in Europe is both complicated and expensive. Every single country has its own requirements. We were going to be forced to set up satellite labs everywhere to go through their regulatory IVDR process. And the juice just wasn’t worth the squeeze, whether you’re bio folks, that’s where they live, that’s where they do business. They’re great at kits. And so for us to continue to serve through distribution arrangements and our LDT operations at Salt Lake, to continue to expand in Japan, where we have a growing and very profitable business. And yes, resources we have to be very efficient. So investing in studies, investing in EMR, has higher returns on bringing in this new business, new opportunity we see in terms of consolidating the market, where Europe is a much longer-term and a more complicated process.
So that was really what went into the strategic positioning.
Andrew Cooper: Okay. That’s helpful. And then maybe just shifting to the P&L a little bit, would love a little bit of flavor, I know you shared a little bit, but on some of the ASP dynamic, maybe across some of the different areas of the portfolio. And then also, just if we think about the ramp in OpEx through the year, can you give us a breakout of how much of that we should think about as true kind of new product growth that you’re trying to drive and new efforts versus sort of maintaining the growing base that you have?
Paul Diaz: I’ll take the second one. I’ll let Scott take the first one. We’re continuing to try to get productivity gains across all OpEx, whether it’s commercial; B, and we play in the support center and trying to repatriate dollars to R&D, the clinical studies, and to IT, where we know we have very quick returns on investments. So we expect to stay within that 5% to 7% growth. I just remind everybody over the last couple of years, we’ve done exactly what we said we were going to do. And we’ve done that again this quarter, and you’re really starting to see the leverage of this operating model this quarter. And so we maintain that we can manage within that 5% to 7%. Within that, we may push the 7% growth in OpEx, but a higher percentage of that, call it, 10% to 15% growth in the R&D and tech spend, while the other areas, it really wages and benefit costs that are in the 4% to 5% range, all of them.
So that’s how I would think about that. No, big investments beyond that 5% to 7% range in our OpEx. You’ll see some ramp up over the course of the year, and just a great job by the team starting this year in terms of actually beating budget in the first quarter. So you will see a little bit of ramp each quarter as we invest in getting ahead of the launches and the studies that we’re working on.
Scott Leffler: Yeah, so I’ll take that here. What was your first question on ASP? And I’ll just remind you that on the latter, I mean, Paul, we did talk a little bit about the fact that looking back on 2023, our overall ASP performance for 2023, I think it was a little bit worse than we would typically expect. And so coming into the year, we already saw that there was an opportunity to really perform even better than we would typically hope for, just given the ability to recover some of what we thought last year, along with incremental organic improvement from the various initiatives that we’ve talked about. But really, I would say that it’s just been an extraordinary success so far this year. And more or less across the board is the individual product level that you see outside of ASP gains.
And when you look at the blended performance, where I think we call that a 2% contribution from ASPs, in some ways that high is how significant the ASP improvement has been at the individual product level, because you have a little bit of product mixed that is impacting that blended number. But really, what we’re seeing almost across the board is much greater than that 2% improvement in ASP. And that’s something that we believe certainly is sustainable and based on the number of initiatives, we continue to have that play something that we can build on.
Andrew Cooper: Great. I appreciate the time. I’ll hop back in the queue.
Paul Diaz: Thanks, Andrew.
Operator: Thank you. Our next question comes from the line of Rachel Vatnsdal of JPMorgan.
Paul Diaz: Hi, Rachel.
Rachel Vatnsdal: Hi. Good afternoon. Hi, guys. Thanks so much for taking the questions. So first, I just wanted to dig into seasonality and 2Q expectations. Last quarter, you provided guidance for 1Q on top and bottom. So I was wondering if you could do something along those lines for 2Q as well. So first up, how comfortable are you with the Street at around $200 million of revenues and roughly a $0.01 of loss per share? And then given some of the moving pieces that you highlighted today, ranging from LDT to some of the product launches and competitive dynamics. How are you thinking about the various segments performing in 2Q?
Paul Diaz: So that was a lot in fact. So first, we did not give Q1 guidance, and we’re not giving Q2 guidance. I think, directionally, the Street’s a pretty good place in terms of where estimates are for Q2, obviously, building on our Q1 success. There’s nothing that we’re seeing in the estimates for Q2 that trouble us. I would encourage folks not to get ahead of us here. Again, just there’s a lot of moving parts with Labs of the Future and everything else going on. But on individual products, it continues to be a story of continuing to grow. Q2 is typically a strong reporter for us in terms of volume. And as Scott just said, the ASP tailwinds that we have to continue in the year, so that does go well for a strong year, even without big market share gains, as Mark said, probably happen later next year, later this year, and quite frankly create really strong momentum going into this one spot.
Rachel Vatnsdal: Great. And then just on my follow-up around ACOG, you mentioned that ACOG guideline expansion would be upside later this year if we were to see it. So, I guess, what’s your latest assumption on when we could see an update from ACOG? Appreciate it, it’s not embedded into guidance at this point. And then I just wanted to talk for a minute about market share regarding 22q. One of your peers out there has more of an opt-out strategy when it comes to 22q testing. I know you guys have focused more on the profitability side and have more of that opt-in type of strategy. So when ACOG eventually expands their guidelines, should we see that positive guideline inclusion, how do you see that playing out from a market share perspective given that shift between opt-in and opt-out? Thank you.
Paul Diaz: Yeah. We just released a study on 22q, which was showed the power of people, quite frankly, and differentiated from everything else on the market, quite frankly. And so, if 22q is included in ACOG guidelines, we think that will give us just another reason to continue to win share, and win share that’s profitable. I just want to keep underscoring for everybody is profitable growth here. That’s what we’re focused on, and that’s what we deliver at this border, and that’s what we’re going to continue to deliver. But you’re absolutely right. The expansion of ACOG guidelines should they happen, we think both will broaden adoption as well as improve ASP, and the launch of Foresight Universal Plus will include those genes that we expect.
So we’re holding off until we see that, and that kind of just goes to the product management discipline overall. We want to make sure that we are not launching products that are not in guidelines, and then we don’t – and then we have a path to payment, which is the thing that I think the industry is finally grappled with this, launch is not just having your studies and going out and selling docs on your product, it is also having an eye for getting paid and running it through your lab physician. So that’s the balance we’re trying to bring to product management. But the expansion of guidelines is a great tailwind for us going into next year if they are adopted as we hope later this summer, and we’re all kind of on the stand by there.
And 22q would be also just great to have in that context.
Operator: Thank you. Our next question comes from the line of Sabu Nambi of Guggenheim Securities.
Subbu Nambi: Hey, guys. Thank you for taking my question. On reproductive health, a couple of larger players have exited the market, and you clearly have made progress in capturing care, but how are you gaining share without compromising on moving forward in the business model of certain states and markets?
Paul Diaz: I’m not really sure if I followed, you didn’t come through particularly clearly. I think the question was how are we gaining share profitably. I’m sorry, could you restate the question, please? My apologies.
Subbu Nambi: Yes. Can you guys hear me now?
Paul Diaz: It’s a little better. Yeah, maybe just a little louder. Thank you.
Subbu Nambi: Okay. So on reproductive health, a couple of larger players have exited the market, and you are clearly making progress in capturing share, but how are you gaining share without compromising margins? Given the business model of those that exited the market didn’t really focus on the margins.
Paul Diaz: Yeah. So good question. We absolutely are trying to be there for customers. As Mark said, we see patients. We don’t see a payer. But that doesn’t mean that we are not focused on making sure that we are bringing on business with good margins that we can do it effectively. So, I think, what you’ve seen over the last 2 years is our ability to grow and grow more profitability, and you saw it the last 2 quarters. So it is about profitable growth, maintaining those growth margins near 70%. That will fluctuate sometimes from quarter to quarter, depending on mix and other factors. But we’ve stayed in that 68% to 70%, and I think we can probably do a little bit better as the year progresses here. But absolutely committed to not just bringing on business to win business, but to bring on business that is profitable and that generates cash flow.
If you look at our cash flow conversion and you look at our 50 days in DSOs, then we’ve got to convert billings into cash. And ultimately, I think that’s what discipline businesses need to do and we’re trying to do here.
Subbu Nambi: Super helpful. And one last one for me. On MRD, any updates on clinical data? How is the enrollment progressing? And are you still planning commercial launch the back half of next year?
Paul Diaz: Yeah, so there’ll be some additional studies at ASCO. And then we are expecting to get a readout on an MD Anderson study this fall, late summer. And in addition, we will be running samples for pharma in July, I am told. So I think Q3, Q4, we will have a lot more to talk about the progress we’re making with the study, but everything is progressing there. We have another patent. We’re expecting to get issues here shortly. So, well, we wish we were making more progress. We are going to be investing in some additional studies. But so far, my understanding from Dale is that they’re running through the labs really well, sensitivity is high, our partners are really pleased with what they are seeing in terms of the results, and we’ll be talking, as Mark said more about this at ASCO, including with our partners at MD Anderson.
