Natera, Inc.

Welcome to Natera's 2024 Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. To ask a question at that time, please press star followed by 1 on your touchtone phone. If anyone has difficulty hearing the conference, please press star 0 for operator assistance. As a reminder, this conference call is being recorded today, November 12, 2024. I would now like to turn the conference call over to Michael Brophy, Chief Financial Officer. Please go ahead.

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our third quarter of 2024. On the line, I am joined by Steve Chapman, our CEO, and Alex Aleshin, General Manager of Oncology and Chief Medical Officer. Salman Moscovich, President, Clinical Diagnostics, couldn't be here today, but will be joining us again next quarter. Today's conference call is being broadcast live via webcast. We will be referring to a slide presentation that has been posted to investor.natera.com. A replay of the call will also be posted to our IR site as soon as it's available. Starting on slide two, during the course of this conference call, we will make forward-looking statements regarding future events and our anticipated future performance, such as our operational and financial outlook and projections, our assumptions for that outlook, market size, partnerships, clinical studies, and expected results, opportunities and strategies, and expectations for various current and future products, including product capabilities, expected release dates, reimbursement coverage, and related effects on our financial and operating results. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to the documents we file from time to time with the SEC, including our most recent Form 10-K or 10-Q and the Form 8-K filed with today's press release. Those documents identify important risks and other factors that may cause our actual results to differ materially from those contained in or suggested by the forward-looking statements. Forward-looking statements made during the call are being made as of today, November 12, 2024. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. The terrorist claims any obligation to update or revise any forward-looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. We will quote a number of numeric or growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison. And now, I'd like to turn the call over to Steve. Steve?

Thanks, Mike. Let's get into the highlights on the next slide. 2024 has already been a transformational year for Natera. and I think Q3 represents our best quarter yet. We generated $439.8 million in revenue, up 64% from the third quarter of last year, which represents a record quarter for revenue growth. Volumes continue to grow rapidly, up 24% year over year. We performed about 137,000 oncology tests in the quarter, which is up 54% from last year. Pignatara Clinical Units posted another strong quarter, up 11.4 thousand units sequentially versus q2 this is the third fastest quarter over quarter growth we've had since launch we also grow record 48.4 thousand units year on year which is the best quarter we've ever had in terms of growth units our gross margins were 62 percent in the quarter again a record for us and after breaking even on cash for a couple quarters in a row we generated 34.5 million in cash this quarter which is of course another important milestone in our evolution. All of this puts us in a position to raise our guidance for the year with revenue expectations now at 1.61 billion to 1.64 billion. That implies about 50% revenue growth to the full year, which would be the fastest full year growth we've had as a public company and is significantly above our own internal expectations from the beginning of the year. Many of you saw the groundbreaking Galaxy data published in Nature Medicine and concurrently presented at ESMO in September, which delivered outstanding prospective overall survival data in MRD for the first time. We think this data is important because it strongly supports the core indication for MRD testing, adjuvant decision-making, and recurrence monitoring. In colorectal cancer, physicians have moved beyond analytical metrics and clinical validation studies and now expect to see prospective outcomes data like this. As a reminder, this took us over four years to generate, and we have a median of 24 months clinical follow-up with a good portion of patients having three years of follow-up. I'm also pleased to announce the completion of a study using Signatera from the CalGB SWAT 80702 trial, which is a randomized phase three study in CRC. These results have been accepted as a late-breaking abstract for the ASCO GI conference in January. As you saw from our press release, We see this trial as one of the most important in the space, given its size, randomized design, and indication. As a reminder, the trial is looking at whether Signatera can predict which patients will benefit from escalation of adjuvant therapy and will report on disease-free survival and overall survival, respectively. Similar to Altair, this will be another trial that is drug-dependent, and we look forward to sharing results in early 2025. We also expect results from the GSK ZEST trial in breast cancer will be presented at the San Antonio Breast Symposium next month. As a reminder, this trial was terminated in April of 2023 due to low trial enrollment, so it's underpowered, but we're still looking to see a trend towards improved disease-free survival in MRD-positive patients treated with niraparib versus placebo. Okay, let's get on to some of the business trends. The first slide shows Q3 volumes over time, and despite the scale of the business, our growth continues to be very strong. In women's health over the past year, we saw significant growth from our direct channel, augmented by the Invitae volume we added earlier this year. In addition, we launched our fetal RHD test at a time of critical need in the prenatal community. We are really seeing strong demand for this test, which can help physicians assess the need for medication traditionally given to RHD negative women to prevent potential complications in future pregnancies. As we've spoken about previously, having an RHD test and the timeliness of our launch was important given that OBGYNs were facing limited supplies of this medication. The launch is also a great example of the passion and commitment of the Natera team rallying to help patients in need. We're excited about the future of the women's health business and we are working hard to help as many patients as possible get access to our differentiated suite of testing. We also had another excellent quarter in organ health, with strong volume growth year on year. The strength of our peer-reviewed evidence and differentiated product pipeline is being received very well by physicians. We now have more than 45 peer-reviewed papers in organ health, including the largest prospective study published in the field to date. We look forward to continuing to serve physicians and patients as we move forward. On the next slide, we're double-clicking on the signatory clinical volumes. We processed 137,000 units in Q3, which includes 130,000 signatory clinical volumes. This represents growth of about 11,400 units in the quarter, well above our average of between 8 and 10,000 units. The volume was one of our best quarters of growth ever. Given sequential quarters tend to have some variability in terms of holidays and number of receiving days, It's also useful to look at the trend year on year. Q3 clinical units were 48.4 thousand higher this year compared to Q3 of last year, a record for the company. We're off to a great start in Q4 despite the impact of the hurricane and the trends are continuing to be very positive. Okay, the next slide shows total revenues year on year in a sequential quarter trend. We're very pleased to post 64% revenue growth year on year. We have $34.5 million in revenue true-ups, which is lower than last quarter as expected, and Mike will talk more about that later in the call. Even stripping out those true-ups would have yielded a growth rate of 50%, which compares very favorably with our fastest-growing quarters, despite the fact that the revenue base has gotten much larger in the past few years. While the volumes are clearly providing a strong base for growth, ASP improvement continues to contribute to our revenue growth. We've seen progress across the board as we've worked hard to improve reimbursement for covered services in women's health, and the Signatura ASP continues to improve. It's important to recall that we reached this level without getting any tailwinds for the women's health guidelines. While we remain optimistic on guidelines for both carrier screening and 22Q, we plan to be successful with or without guidelines, and we're pleased to see that happening. Our growth in total company ASPs is also a function of our product mix evolving, towards Signatera. That shift in product mix is fueling the evolution of our gross margins as shown here on the next slide. 62% gross margin is a record for us and well above our expectations at the beginning of the year. ASPs were once again very strong across all of our major products and we're pleased to see Signatera ASPs step up modestly once again in the quarter compared to Q2. The COGS wins from the first half held steady in Q3 and we delivered a significant gross margin expansion over Q2. The true-ups moderated slightly, down to just under $35 million this quarter. This represents excellent execution as the cash receipts exceeded our past expectations. Excluding true-ups, underlying gross margins expanded considerably from roughly 55% gross margins in Q2 to over 58% gross margins in Q3. Again, that is driven by strong ASPs, execution on COGS projects, and the continuing mixed shift in the business toward Signatera. While reimbursement can fluctuate from quarter to quarter, we feel like we are very well positioned to continue to drive margins higher, led by Signatera volumes and ASPs continuing to ramp. So, accelerating revenues and gross margins, coupled with cash collections well in excess of prior expectations, are leading us to our first quarter of meaningful cash flow generation. The chart demonstrates quite a journey from Q1 of 2022, where we burned 162 million in a single quarter. The reality is that our strategy has remained the same throughout this timeframe depicted on the chart. We made the big investments required to deliver excellent care for patients and the volumes and reimbursement followed. While we've been very efficient with resources, we've gotten here without big cost cuts that jeopardize the future of our business. In fact, as Mike will cover in the guide, we've continued to invest in future growth by adding meaningful investments to our R&D and commercial teams. As we look into 2025, we will continue to prioritize innovation and customer service while managing to cash flow break even. We think that's the best approach for patients, for doctors, and for the business given the size of the markets that we're in. With that, let me hand it over to Alex to provide an update on oncology. Alex?