Natera, Inc.

financial results conference call. At this time all participants are in a listen only mode. Following management's prepared remarks we will hold a question and answer session. To ask a question at that time please press star followed by one on your touchstone phone. If anyone has difficulty hearing the conference please press star zero for operator assistance. As a reminder this conference call is being recorded today August 7, 2025. I would now 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 second quarter of 2025. On the line I'm joined by Steve Chapman, our CEO, Salman Moshkovich, president, clinical diagnostics, and Al Coleshin, general manager of oncology and our chief medical officer. Today's conference call is being broadcast live via webcast. We will be referring to a slide that has been posted to .notera.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 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, expended 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 differ materially from those contained in the form 8-Q. The following are suggested by the forward looking statements. Forward looking statements made during the call are made as of today, August 7, 2025. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Ms. Heredit 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 to the highlights on the next slide. We had a phenomenal quarter. We generated $547 million of revenue which is 32% growth over Q2 of last year and ex-revenue true ups, our revenues grew 34% year on year. We had a very strong volume quarter as well which included strong growth across the product portfolio and an all-time record for Signatera. We processed 189,000 oncology tests in the quarter which represents nearly 20,000 units of growth compared to our first quarter of this year. 20,000 sequential growth units significantly beats our previous growth record and is a new milestone for the company. Part of this growth acceleration was driven by a significant increase in new patient starts which was double our previous quarterly record. Gross margin ticked up again in Q2 at .4% compared to approximately 59% this time last year. Ex-true ups gross margins were consistent sequentially versus Q1 due to strong AFPs despite the fact that Signatera COGS actually went up meaningfully because we ran so many exomes for first-time patients which of course is very good news. Given all that momentum, we're in a position to level up the financial guide for the year. We are raising the revenue guidance by $80 million at the midpoint and we now expect revenues in the range of $2 billion and $20 million to $2.1 billion which is a full reset of the prior revenue range. We are raising the gross margin guide to 61 to 64% in recognition of the gross margin performance we saw in the first half which still accounts for factors like growth in new patients in the second half. We are not increasing our operating expenses remaining flat versus the prior guide as we get scale in the business despite being a full investment mode for the future. In addition to the financials, we have a full slate of new data and product updates to discuss today. We are particularly excited to launch Fetal Focus, a new NIPT for inherited conditions that leverages our proprietary SIP-based method for NIPT. We've never had better momentum in organ health and the Prospera data that we'll talk about today shows the path we are on to transforming care for organ transplant patients. In oncology, the data pipeline continues to grow and we are going to take some time on the call today to do a deeper dive on our strong and broad data across breast cancer and new data in GI cancers beyond CRC. Finally, we have been working in the background on the next major wave of innovation at Natara. First, we will go over the rapid progress we are making on early cancer detection where we are gearing up for a big readout of the prospective colonoscopy match proceed trial for advanced adenoma late this fall. Next, we will introduce Natara's AI-based foundation models which are being used to develop new diagnostic biomarkers, molecular therapeutics, and speed clinical trials. Okay, let's get into some of the business trends on the next slide. The first slide just shows our Q2 volume progression over prior years. This was another great quarter for us across the board as we were able to grow significantly against the Q2-2024 comparable that was elevated due to a sudden influx of in-vitay units. Signet's error was phenomenal with growth records in both sequential growth and new patient starts. In -and-sell, we saw our second best volume quarter ever coming off what was a blowout Q1 number. We saw the same Q2 seasonality trends that we always see given our large base of existing customers, but we continue to blunt that impact by winning new accounts. Our organ health products have been on a tear this year with major new account wins driving growth on the back of some very strong clinical data, and there's more new data that we're going to talk about today which I think sets us up very well for the future in that space. We also recently exited our legacy paternity business which was contributing to our volume numbers historically. The next slide shows our Signetera clinical units over time. This quarter we grew by 20,000 growth units versus our average over the prior four quarters of about 13,000 per quarter. This overperformance was a result of a wave of new patient starts driven by the compelling data we generated in the last year. Growth in new patient starts was about three times higher than our quarterly average and about two times higher than the previous record quarter. As we said before, Signetera quarterly volumes fluctuate so I don't think 20,000 growth units is a new normal, but clearly this strong growth is a great sign. Historically, a lot of our growth has come from colorectal cancer, breast cancer, and ion monitoring, and again we saw very strong growth in these areas. In addition, we're now seeing broader adoption in many other tumor types as physicians really start to generalize the use of Signetera in their clinics which is helping drive volume growth but also creates a large revenue opportunity. We're in the process of seeking Medicare reimbursement for this longer tail of cancers. Based on our current growth trajectory, gaining Medicare coverage for these non-covered histologies over the next few years should be worth approximately $250 to $300 million in annual revenue gross profit. Further contributing to the financial sustainability of our growth strategy and supporting our path to a $2,000 ASP. We're in an excellent position to achieve this given the significant amount of data we generated so far and of course we have over 100 clinical trials underway, many of which support these types of initiatives. I mentioned we grew revenues 34% organically year over year and you'll recall Q2 of last year was a very strong quarter for us so I'm pleased to see these strong growth numbers over some very tough 2024 comparables. We had about $45 million in revenue troughs this quarter as we continue to improve reimbursement covered services. So question we have Q1, we grew revenues 9% overall and 7% organically. We've already covered the very strong volume numbers driving this growth but we also saw excellent ASPs across the board. The next slide shows our gross margin traction over time and we posted another strong gross margin quarter in Q2. Stripping out the revenue troughs, we were still able to generate gross margins steady with Q1 despite the big step up in exome volumes this quarter. We drove that with better ASPs for Signatara which is now roughly at 1,175 along with steady results in ASPs in Panorama, Horizon and growth in the Prospera ASP. We were also very pleased to see continued revenue troughs in the quarter which means that cash collections exceeded our prior history. I think the speed at which we're converting receivables into cash is one of the most promising business trends we're seeing and DSOs are now down to 57 days which is a record for the company by wide margin. All of these trends allow us to generate cash while aggressively investing for future growth. Although this slide shows how much progress we made over the last two years, I really think we are just scratching the surface of the margin improvements we can achieve. We think about margin expansion opportunities across four primary vectors. Continued execution and revenue cycle operations, expanded coverage for products including Signatara, further cost reductions and AI driven efficiencies. First, we embarked on a major investment in revenue cycle operations leadership systems and staffing in the fall of 2022 and that project has yielded significant returns for the company. Our team sees ample additional opportunities to continue to make improvements which could drive ASPs higher and we've seen good results so far this year. One example is on appeals. Historically, it's very difficult to do an individualized appeal for each denial but as our systems improve and we invest, we're building these types of capabilities that will allow us to get paid on a higher percent of cases. Second is expanding coverage for our products. We mentioned on the last call that we think $2,000 is an achievable ASP for Signatara. I mentioned the new opportunity in front of us to drive reimbursement in a number of additional tumor types and I'll stress that this opportunity has much larger over the last couple of quarters as our volumes in non-covered tumor types have grown and we expect to have several additional coverage decisions within the next 12 months. We continue to see positive early signs in biomarker states which is still at the very early stages and we still have opportunity with Medicare Advantage execution. Outside of oncology, we still have major opportunities for improved coverage with expanded carrier screening, 22Q and broader coverage for our organ health products which could all drive ASP improvements. The third area of improvement on margins by cutting costs. One of the constants for us over the last decade is our commitment to investing in R&D projects that reduce cost of goods sold for new tests that we launch. This tends to have a relatively lower technical risk compared to new product innovation and deliver high returns. We now have a full suite of college projects we're initiating and some that are getting close to launch. Finally, we're going to spend some time later on the call and the investments we're making in artificial intelligence. Well, there are some very exciting steps we're taking in AI-fueled innovation. There's a whole range of areas in the business where AI is already having an impact and allowing us to scale our volumes without a -for-one increase in headcount. Many of these opportunities kick pods as well as OPEC and we expect to see some significant savings from this over time. So in summary, we have several very concrete ways that we can increase the margin. Now, not all of these are under our direct control and the path won't always be linear, but it's great that we have these opportunities that we're actually shooting across. On the next slide, as I mentioned at the top of the call, we're holding OPEC steady even as we raise top line revenue guidance by $80 million. So we're getting scale even as we keep foot on the gas with growth investments. We think these growth and margin expansion opportunities clearly warrant the investment required to deliver them and this slide gives some additional color on where the incremental investments in 2025 are going. To be clear, the vast majority of the OPEC increase in 2025 is not yet driving revenue, either because it's pointed at a longer-term project like gaining reimbursement for uncovered services or completing a major clinical trial or delivering on new product launches or because our commercial hires are just coming on board and are not yet productive. I'll follow up on that example of commercial hires. We've recently spent our commercial footprint primarily in oncology. We added these additional oncology reps and we expect to start seeing meaningful contributions from these new people late this year and early next year. As with a lot of these investments, there's a slingshot effect where they're hitting the expense line this year, but they don't start to impact revenue and volume growth until about 6 to 12 months later. The strong growth we've seen thus far this year wasn't really driven by these new hires. In addition to the commercial team, we continue to invest in the success of the revenue cycle management. As we said earlier, investing in revenue cycle management is one of the primary opportunities we have for margin expansion, so this makes a lot of sense to Once this team is scaled up and the optimal tools and systems are in place, we can get significant scale on top of this infrastructure. We've been moving quickly here, which includes many manual processes that can be automated, so we don't have to keep scaling at the same pace going forward. The forecast also includes a meaningful addition of AI-focused technical staff that we think is very promising. We've also shored up our ability to scale with more lab footprint and additional company infrastructure to accommodate our growth. The R&D incremental investment 2025 is really driven by both the oncology clinical trial expansion and investing into new MRD products. We think this is important because there's so much opportunity in MRD, so we're continuing to expand our already vast set of meaningful clinical trials and efforts to change guidelines, accelerate adoption, and gain coverage where we don't yet have it. Our pace of new product launches also increased this year. Earlier this year, we launched Signature Genomes, and we have many other MRD-related opportunities we're working on that will be announced in the future. In addition, we're excited today to have announced another innovation within the prenatal product line with single gene NIPT. Finally, we're continuing to make rapid progress on early cancer detection, which we now think has the potential to be a major opportunity for Natara. We've executed well on the 3,500 patients enrolled, and we tend to read out in the late fall. We have also launched the FDA enabling FIND trial. We think ECD is a very significant opportunity for Natara, especially given the high ASPs that are now being established and the existing distribution footprint we can leverage. Finally, we're investing in AI and AI-enabled technology, which we will outline on today, which we think could revolutionize care and make a big impact. We plan to stay nimble on our investment strategy throughout the rest of the year. If we see a clear opportunity to deploy capital, we're going to do that while maintaining our commitment to generating cash later this year. Having said that, I think we're reasonably well positioned to hold the optics in the current range as we continue to grow. With that, I'm very pleased to hand it over to Solomon. Solomon? Solomon?