Exagen Inc.

Greetings. Welcome to the Exigent, Inc. second quarter 2024 earnings call. At this time all participants are in listen only mode. The question and answer session will follow the formal presentation. If anyone today should require operator assistance, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time I'll turn the conference over to Ryan Douglas with Investor Relations. Ryan, you may now begin.

Good morning, and thank you for joining us. Earlier today, Exygen, Inc. released financial results for the quarter ended June 30th, 2024. The release is currently available on the company's website at www.exygen.com. John Iballi, President and Chief Executive Officer, will host this morning's call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including without limitations, statements regarding our business strategy and future financial and operating performance, including guidance, 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, 2023, our Form 10-Q for the quarter ended June 30th, 2024, and any subsequent filings. In addition, some of the information discussed today include non-GAAP financial measures such as adjusted EBITDAs that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted to the investor relations page of the company's website. The information provided in this conference call speaks only to the live broadcast today, August 5th, 2024. 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 will now turn the call over to John Iballi, President and CEO of Exogen.

Thanks, Ryan, and good morning to everyone joining the call. Today I'll provide updates on the progress we've made over the last few months in continuing to reshape Exogen for long-term profitable growth, including details on our second quarter financial performance. The results of this quarter are really starting to demonstrate a track record of performance and progress towards our goals. Our results over the first half of the year, and specifically the trajectory over the last 18 months, has shown that we can grow and expand our business while simultaneously pursuing profitability. To that end, this quarter, we delivered a $1.6 million adjusted EBITDA loss, 53% improvement year over year, and the best quarterly financial performance in Exigen's history. And with a first half 2024 adjusted EBITDA loss of only 3.6 million, we continue to make major strides on both top and bottom line performance. As I look back at where we were just before I joined Exygen, our progress is truly impressive. In 2022, we delivered $45.6 million in revenue, but our adjusted EBITDA loss was $40 million and accelerating. Our gross margins for that year were just under 47%. Sitting here today, we have reshaped Exygen into an exciting business, which is on pace to achieve profitability. We've grown our quarterly revenue almost 30% from average 2022 levels. And this year, we now expect our full year adjusted EBITDA loss to be on par with what we used to lose every quarter, a 70% improvement. Our margins have expanded 13 points over this time, and we are on the cusp of further margin expansion with enhanced IP protection on our core product, all while revamping our R&D pipeline and deleveraging our organization. I'm incredibly proud of the team for this transformation and astounded by the progress we've made in such a short period. This past quarter, our team grew testing volume 8% sequentially, which was our best total quarterly volume since we made adjustments to our ordering process last summer. It is exciting to see the momentum in test volume growth as we expected. Our sales team is making great progress in serving the rheumatology community and they are energized by the successful quarter after working through significant change management with our customers over the past year. Additionally, we continue to increase our trailing 12-month average selling price for Advise CTD and for the first time as a public company are seeing ASPs exceed the $400 mark. This is an exciting milestone and one which we are very proud of. We have made tremendous progress over the past six quarters getting us closer to our near-term goal of attaining at least 50% of our CMS price for advised CTD. The combined efforts of increasing volume and growing ASP led to record quarterly revenue at just over $15 million in Q2. I'm encouraged by the growth and trajectory I'm seeing in our core advised business as we continue to execute well. Additionally, and as we've conveyed throughout the year, We've identified areas where we can enhance our existing products and services. In Q4, we expect to upgrade our advised TTD offering through the addition of markers, which we believe will improve the sensitivity for SLE diagnosis and better capture patients with rheumatoid arthritis who would traditionally be diagnosed as seronegative RA. These are the top two options by prevalence under a connective tissue disease differential. And each of our product enhancements has a proprietary aspect, which we believe will provide significant competitive advantages. This past quarter, we made meaningful progress to advance development efforts, and I continue to expect that we will launch improvements to the AdviseCTD platform by year end. Given our progress in improving the Advise business and the impact we expect from the launch of a revamped AdviseCTD profile, We expect to be cash flow positive within a year of launching both sets of new markers. Our horizon for achieving profitability is coming into focus as we continue to execute on our strategy. As we near profitability, we've begun to see additional areas of opportunity for growth and expansion. In the second quarter, we signed the first substantial biopharma contract since I've been here. This is an area of business where I believe we have untapped potential. and have placed a heightened focus on better serving this segment of the immunology ecosystem. Our high-quality testing, proprietary offerings, and domain knowledge give us an advantage in this space, and we will continue to build our capabilities as more pharma companies realize the superior service and quality they can receive by working with us. Before I dive deeper into our financial performance for the second quarter, I want to extend a sincere appreciation for the contributions Kamal has made to the Exygen organization as he steps down. Over the past decade, he has held numerous roles at Exygen and been a strong steward of the financials. Kamal has been a key supporter throughout my transition, and for that I am grateful. Subsequently, as we continue to execute our strategy and deliver meaningful, profitable growth, I look forward to having Jeff Black join us on the executive team as our Chief Financial Officer. Jeff has been CFO of multiple public companies. His leadership and incredible track record of value creation will be advantageous as we progress to our next inflection point. Given our start to the year and our consistent resetting of internal expectations, now is the perfect time to have Jeff join our mission of providing clarity and improving clinical outcomes for patients with autoimmune disease. Now to dive in. Our Q2 performance highlights the strength of our business under our revised strategy. It shows what an intense focus on the customer can accomplish. To provide a few highlights, total revenues in the second quarter of 2024 were a record $15.1 million, compared with $14.1 million in the second quarter of 23, a 6.6% increase. Total revenues were primarily driven by strong ASPs for AdviseCTD, and increased volumes over the first quarter. Growth at Exogen is now being driven through a combination of increased clinical adoption and improved reimbursement. Other testing revenue was $1.5 million in the second quarter of 2024, compared with $1.6 million in the same period last year. Our revenue cycle team continues to do a fantastic job as we again saw strong prior period collections, with $1.3 million of revenue in the second quarter from tests performed over a year ago. Prior period collections are generally very difficult to forecast, but continue to outpace our internal projections. Costs of revenue were $6 million this past quarter, resulting in a total gross margin of just over 60%, compared to 58.7% in Q2 of 23. The increase in gross margin was primarily driven by increases in ASP. Operating expenses, excluding COGS, for the second quarter of 2024, were $11.6 million, compared with $13.2 million in Q2 of 23. Year-over-year decreases were primarily due to a reduction in legal fees and stock-based compensation as a result of lower headcount. The net loss in Q2 of 24 was $3 million, compared with a $5 million loss in the same period last year, representing a 40% improvement. Adjusted EBITDA loss was $1.6 million for the second quarter of 24, compared to a $3.4 million loss for the second quarter of 23. Adjusted EBITDA loss through the first half of the year was $3.6 million, compared to $9.6 million through the first two quarters of 23. As a reminder, our adjusted EBITDA excludes stock comp expense, since it is a non-cash expense for the organization. Please refer to our earnings release issued early today for reconciliation of adjusted EBITDA to net loss. Looking at our balance sheet, cash and cash equivalents as of June 30, 2024, were approximately $24.5 million, and our accounts receivable balance was $11.7 million. Given our ability to drive profitable growth, we are increasing our full-year guidance to at least $57 million in revenue and now believe our adjusted EBITDA loss will be better than $12 million, which is a dramatic improvement from our expectations just six months ago. Again, the launch of the new enhancements to advise CTD is expected to make us cash flow positive within the first year of launch. We will now open the call for questions.