Exagen Inc.

Greetings. Welcome to the ExaGen Inc. second quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Ryan Douglas of Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining us. Earlier today, Exogen, Inc. released financial results for the quarter ended June 30th, 2023. The release is currently available on the company's website at www.exogen.com. Chana Bali, President and Chief Executive Officer, Kamala Dowie, Chief Financial Officer, will host this morning's call. Before we get started, I'd like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of federal security laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation and Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including and without limitation, statements regarding our business strategy and future financial and operating performance, including guidance for the quarter, potential profitability, Our current and future product offerings and reimbursement and coverage are based upon current estimates and various assumptions. These statements involve material risk and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of risk and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission including our Form 10-K for the year ended December 31st, 2022, and any subsequent filings. The information provided in this conference call speaks only to the live broadcast today, August 7th, 2023. Exogen disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections, or other forward-looking statements, whether because of new information, future events, or otherwise. I'll now turn the call over to John Abali, President and CEO of Exygen. Thanks, Ryan, and thank you to everyone joining the call.

Today I'll discuss our second quarter results and provide updates on our revenue cycle initiatives, including our path to profitability. I'll then turn over the call to Kamal, our CFO, for details on our financial performance. Our strategy to prioritize and focus on advised CTD has resulted in another strong quarter with over 37,000 advised CTD tests delivered and total revenues of $14.1 million. As a reminder, we've made substantial changes to the structure and size of our sales team, and we believe that our Q2 performance is testament to the fact that we've continued to serve the rheumatology community in a highly effective manner. I'm encouraged to see consecutive quarterly growth in volume as we make operational improvements to our business, but this also reinforces the strategic decisions we made at the end of last year. Exygen has significant opportunity ahead, and we're really starting to get on track as a team. It's exciting to see our progress reflected in the performance of the company this quarter. Our revenue for the second quarter was reflective of the strong testing demand and volume delivered in Q2, but also a result of improved cash collections from testing performed in prior quarters. We continue to focus heavily on our revenue cycle operations and have made major strides in Q2 to improve our processes, which I'll detail shortly. We expect to see incremental improvement in ASP as we move into early 2024, but we believe these early improvements in cash collections are a positive sign. Overall, we're seeing positive momentum in our operations and our efforts to achieve profitability continue to progress. One of the key metrics where we saw improvement quarter over quarter was our trailing 12-month ASP, which increased to $320 from $279. The increase in Q2 was aided by timing of cash collections on claims from prior periods, which we don't necessarily expect to recur each quarter. However, this was nonetheless a positive development reflected in the improvement in ASP. In general, we're beginning to trend in the right direction, but expect the bulk of our efforts to materialize into 2024. As we conveyed in Q1, we held claims to give ourselves time to optimize our appeal process, including an effort to increase the overall volume, quality, and persistence of appeals. To give some color on the extent of our efforts to date, we've brought in new leadership to this area of our business. We've worked with a technical writer to revise all appeal letters sent to payers on denied claims. We've restructured the appeals process with our internal team, redefining roles and responsibilities for every person involved in the process. We've worked with our clients to improve the clinical notes they draft on each patient to better communicate the rationale for ordering and utilizing advice. We've worked to improve the process for exchanging these progress notes with our team, to lessen the burden on our customer staff. We've brought in other personnel to increase the outbound calls to insurance companies, allowing us to keep better track of our appeal status. We've strengthened the documentation around test ordering, and the list continues. These efforts have been a substantial adjustment compared to what we were doing even six months ago, and we're still making progress to execute efficiently with these changes. All this requires communication and resetting of expectations with our customers, in a manner which minimizes disruption and reinforces the value they've seen with advised testing for the last 12 years. We continue to focus on achieving a profitable business. We refinanced our loan this quarter, which included a principal payment of $10 million. Our changes to revenue cycle management increased our accounts receivable by $6.9 million. Excluding these two items, our cash decreased $3.8 million in the second quarter. We are making progress in all areas of the company to operate as a leaner, more effective organization, and the team at Exogen is striving to deliver the best service in the industry with a markedly improved cost structure. Additionally, we continue to expect our annual R&D expenses to approach six million, and therefore our Q2 performance was aided by the timing of some of these expected expenses. As an ancillary item, We recently reached an agreement in principle with the Department of Justice to settle an investigation that was initiated in February of 2022. This investigation was related to conduct that occurred in 2014 and 2015. We agreed in principle to make a settlement payment with associated fees of approximately $700,000 and admitted to certain facts, although we did not concede liability. The DOJ will not require an outside compliance monitor to oversee our operations going forward. The definitive settlement agreement is subject to further negotiations, but ultimately, we look forward to putting this issue behind us so we can continue to focus on operating the business. In closing, it's rewarding to see another quarter where our organizational performance is turning in the right direction. This is testament to the hard work of the Exogen team and the value advised testing provides to the rheumatology community. I'm very encouraged by our recent performance, knowing that we continue to improve in many areas and have yet to see the results from several ongoing efforts. Before I hand the call over to Kamal, I'd like to note that at our annual meeting this past quarter, Jim Tolis retired as a member of the Exogen Board of Directors. Jim had been a director on the board for nine years and a vital member of the team. I want to thank Jim for his guidance and support to me personally. Jim has been a strong supporter of Exogen throughout much of the company's history, and we wish him well. Additionally, I'd like to extend a warm welcome to Paul Kim, the newest member of our board. Paul joins us with vast business and leadership experience and currently serves as the CFO of Full Gent Genetics, where he played a pivotal role in growing the company into successful and profitable business. I'll now turn the call over to Kamal.