Veracyte, Inc.

Good day and thank you for standing by. Welcome to the Verisight second quarter 2024 financial results call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Shayla Gorman, Senior Director, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today for a discussion of our second quarter 2024 financial results. With me today are Mark Stapley, Verisight's Chief Executive Officer, and Rebecca Chambers, our Chief Financial Officer. Verisight issued a press release earlier this afternoon detailing our second quarter 2024 financial results. This release, along with a business and financial presentation, is available in the investor relations section of our website at Verisight.com. Before we begin, I'd like to remind you that various statements that we may make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance they will prove to be correct. Additionally, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that VeriSight files with the Securities and Exchange Commission, including VeriSight's most recent Forms 10Q and 10K. In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release, accessible from the IR section of Verisight's website. This quarter, we have updated our non-GAAP measures to exclude stock-based compensation to provide better comparison to our peers and help investors gain a better understanding of our performance. Further, all comparisons to prior periods are to the updated non-GAAP metrics that exclude stock-based compensation. We have included a schedule of the non-GAAP adjustments for prior periods in today's earnings presentation available on the investor section of our website. I will now turn the call over to Mark Stapley, Verisight's CEO.

Thanks, Shayla, and thanks, everyone, for joining us today. I couldn't be more pleased to share with you the drivers of what I believe is Verisight's best quarter to date. Importantly, we saw an acceleration of demand for both Decipher and Affirma that exceeded even our highest expectations coming into the quarter. As a result, we delivered second quarter revenue of $114.4 million, growing 27% compared to the prior year period. Testing revenue grew 31% over the prior year period, well ahead of our expectations. With our disciplined focus and strong fiscal management, This overperformance on top-line growth contributed to our most profitable quarter to date. We generated $5.7 million in gap net income, and our adjusted EBITDA margin was an industry-leading 21%. I have previously stated that I believe a well-run specialty diagnostics company like ours could achieve 25% adjusted EBITDA margins, and as you can see, we are well on our way to reaching that level of profitability. Thank you. Before I get into this quarter's performance, I want to remind you that we are highly focused on five strategic imperatives. One, continued growth in Decipher. Two, continued growth in Affirma. Three, launch of multiple IBD products to expand geographically. Four, solving new cancer challenges. And five, serving more of the patient journey. Regarding number three, I am pleased to share that we just submitted our existing ProSigna NCounter test for approval under the IVDR framework. Recall that this is a foundational step that we expect to enable the launch of future IVD tests in oncology around the world and drive the commercialization of our IVD portfolio. Turning to number four, we're making good progress on solving new cancer challenges with Nightingale, our pivotal trial for nasal swab. And with respect to number five, we continue to forge our way across the patient journey with the development of our first MRD test for muscle-invasive bladder cancer using our whole genome platform, a platform that is extensible across multiple indications. We expect these three longer-term strategic imperatives will layer on new revenue growth S-curves a number of years from now on top of what we believe is durable, decipher, and affirmer growth. Now turning to the current quarter. I have talked before about the power of our VeriSight diagnostics platform, which I believe is behind our strong performance and impressive growth. This unique approach relies on broad sets of genomic and clinical data, deep bioinformatic and AI capabilities, and a powerful evidence generation engine. This flywheel for growth builds increasingly strong and differentiated evidence for clinical validity and utility. that ultimately drives guideline inclusion and, combined with our proven commercial and managed care excellence, ensures broad adoption and reimbursement for our on-market diagnostics. Evidence of this can be seen in the positive trend in ASP we've delivered, driven by our managed care and billing teams, ensuring that patients who are indicated for diagnostic testing are able to access those tests, and that we are paid appropriately and timely when our products are selected by physicians for those patients. Our ASP has grown at a 5% CAGR over the last two years as we focused on gaining new contracts and resolving prior payment challenges. Another key to the Verisight Diagnostics Platform is the flywheel of evidence generation led by our clinical and medical teams that fuels adoption and guideline inclusion. The outstanding decipher and affirmer volume growth that we're seeing is a direct result of this flywheel in action. together with the execution of our talented commercial teams. Specifically, on urology testing, for the second year in a row, we saw a step function change in demand for Decipher during the second quarter. Sequentially, Decipher prostate grew by 3,400 tests as we delivered approximately 19,900 tests in the quarter, a new record, now reaching more patients in a single month than we did in a whole quarter when we acquired Decipher in 2021. Importantly, volume growth, which equated to 32% year-over-year, was driven by both new physician adoption and deeper penetration into existing accounts. This is another favorable data point that gives us the confidence that Decipher has plenty of headroom for durable future growth, with the majority of the market still unpenetrated. The updated NCCN guidelines published in February were a significant catalyst to adoption as deciphered prostate received the highest evidence level rating among molecular tests in the guidelines and was included in the principles of risk stratification section, which details treatment implications based on the NCCN classification and decipher score. This result underscores both the mountain of evidence behind the test as well as its broad utility for patients diagnosed with prostate cancer. from those who are low-risk and on active surveillance to those who are intermediate risk, all the way up to NCCN high-risk patients and patients after surgery. Even with the level of evidence behind the Decipher prostate test today, we are committed to continuing to support additional research to advance prostate cancer science. In the second quarter alone, there were three newly published Decipher prostate test studies, including a real-world data population-based analysis of Decipher linked to the National Cancer Institute's SEER database, demonstrating the test's clinical utility. And we are very eager to be able to offer prognostic and predictive insights to patients with metastatic disease, a cohort for whom more information can make an even greater difference at pivotal moments in their cancer journeys. Given that WPS issued their local coverage determination, or LCD, for metastatic prostate cancer last week, We now expect the finalization of the Palmetto LCD soon. This will provide an additional vector for growth accounting for an estimated 30,000 of the 300,000 newly diagnosed prostate cancer patients annually. Moving to Affirma, we also reported a new quarterly volume record with approximately 15,700 test results or 17% year-over-year growth. This performance for a test that has been on the market for over a decade is a testament to our diagnostic platform and commercial approach and supports our positive outlook for our long-term growth profile fueled by both Decipher and Affirma. The differentiated level of evidence for the performance of the Affirma test, alongside the ease of use for physicians, drove volume increases with growth coming from new customers and our current customer base. Our research use only or RUO AffirmaGrid offering is another way we continue to further our leadership in the endocrinology market. This tool provides physicians with additional data to advance the science around thyroid nodules and cancer. This quarter at Endo 2024, the annual meeting of the Endocrine Society, three studies leveraging information from AffirmaGrid were presented, highlighting the importance of this tool in helping to unlock new molecular insights from thyroid tumors which may ultimately further personalize treatment of the disease. This quarter, approximately half of physicians ordering Affirma chose to receive the RUO Affirma grid information, demonstrating a high level of interest in contributing to research. We also achieved a significant milestone in June as Maldi-X finalized an expanded local coverage determination for Affirma, adding reimbursement for Medicare and Medicare Advantage patients with the first of five thyroid nodules or those that are suspicious for cancer. There are up to 30,000 patients with nodules classified as Bethesda 5 annually, of which we assume approximately one-third will be covered under Medicare and Medicare Advantage. This is an important step in both expanding our market for Affirma, as well as furthering our leadership in endocrinology. Our confidence in continued growth driven by Decipher and Affirma has only increased with this quarter's outstanding performance. With durable market share gains, further penetration into existing accounts, expanded indications, and more use cases in our available markets, we are making progress towards the 80% penetration for both prostate and thyroid cancer molecular tests from 35% and 60%, respectively, coming into the year. Further, paired with the ASP improvements and the decipher and affirm of volume catalysts delivered this year so far, there is compelling evidence that we are primed to continue to deliver robust revenue growth for the foreseeable future, near-term, mid-term, and even long-term, especially in the case of Decipher. We plan on underpinning this growth with continued profitability and cash generation while also investing in future innovation. With that, I will now turn to Rebecca to review our financial results for the quarter and heightened expectations for 2024.