Welcome to day three of the Stephens Conference. I'm Mason Carrico. I'm the medtech and diagnostic analyst here. Today we've got Veracyte with us. We've got John Leite, CCO, and Tristan Rebar, VP of FP&A. Appreciate you guys joining us. Thank you. Maybe just to kick it off, you can give us a quick recap of Q3 results before we dive into Q&A. Yeah, I'll take that. We had a really strong Q3. We had over $131 million of revenue, grew 14%. That was driven primarily by our testing business, which grew 17%. Saw another strong quarter from Decipher. It was actually its 14th quarter in a row, growing over 25%. That is on the back of launching metastatic earlier in the year and seeing really strong growth in high-risk incidences, as well as continued penetration and higher ordering per physician. Afirma also continues to just do extremely well for us, growing 13% in volume in this past quarter, coming both from new accounts but also going deeper into accounts. Really proud of that. From a cost perspective, particularly, we finished the quarter, almost a third of our samples were running on our new V2 transcriptome, which is showing both a cost benefit to us but also seeing efficiency in how much tissue sample we need to complete a test and showing overall workflow efficiencies. Really good quarter. We've seen really some bumpiness in spend. Between the overperformance on the revenue line, prior period collections, and some under-spend, we did hit 30% adjusted EBITDA in the quarter, which was well ahead of where our expectations were, but has positioned us to increase our guidance for the year on both the revenue line and the adjusted EBITDA and expecting to finish the year over 25% on adjusted EBITDA, which was our longer-term goal a couple of years ago. We hit that number well ahead of our own expectations. Really proud of the quarter, really proud of the team and the execution we had. Yeah, thanks for that. Maybe to move to Decipher, throughout the year, you've called out broad-based strength across NCCN risk groups for the most part. I mean, where do you think penetration stands across those risk groups today? I mean, penetration overall, we believe the market overall is about 40% penetrated, so still evolving, still some headspace there. Across the categories of NCCN risk, we've never really disclosed, but I think you can imagine fairly uniform penetration across all those categories. Okay. Touching on the point of high risk being strong relatively recently, how are you thinking about the durability of that growth moving forward? Yeah. I mean, considering that metastatic indication was just launched, considering that we've not yet even seen the metastatic indication claims make their way to guidelines, essentially because most of the trials that have been driving those insights have not yet been published. STAMPEDE has. We're still waiting on the results of PORTOS. We're still waiting on the BALANCE trial. We can imagine more demand coming towards that category, especially considering that up until recently, metastatic was just considered to be all bad. Yet we've known for quite some time there's quite a bit of heterogeneity in terms of how patients fare in terms of their overall outcome, in terms of developing bulkier and more aggressive disease. There's variability in how they respond overall to various lines of therapy, which can be quite varied. You have choices of expanded radiation therapy. You have expanded courses of ADT plus or minus ARPI. Now the addition of docetaxel and doublet therapies with varying toxicities and responses from patients. The field is just getting more complicated, and it needs to be informed through biomarker testing. We see the advent of our indication of metastatic disease, our soon-to-be-introduced molecular features report as going a long way in bringing clarity and insight to this space. Got it. How penetrated are you from a clinician standpoint at this point? Yeah, it's difficult for us to reduce our penetration based on the base of physicians. That's primarily because multiple physician specialties order our tests. The dynamics of how the test gets ordered within a practice also changes. Whereas today, maybe the pathologist is taking the effort or the pen on filling out the requisition form, after a certain period of time, they may just push all of that towards EHR or portal ordering to their urologist or to their oncologist. Meanwhile, the overall volumes have stayed the same. The growth is growing, but from the physician ordering patterns, it looks like there are shifts. It's easier to take a look at things on a total account basis than based on individual physicians. Got it. Whenever you do look at a total account, maybe a visibility into this, maybe it's tougher because of the dynamics you laid out. If you have a new physician starting to order at a practice, what do you generally see in terms of what has to happen to get the broader clinic ordering as well? Yeah, it's a good question. Generally, in what we call our new and reactivated account category, we will see an ordering frequency that's fairly consistent with that type of account. As soon as they hit at least one year of maturity, so they've been ordering consistently for a year, very consistently, we see this uptick. We track that very, very carefully. Those are our ordering physicians for greater than one year. We've been tracking both the number of ordering physicians, the orders per practice, and both are trending upwards. That transition is dependent on trust in the test and overall favorable experience in working with Veracyte. In other words, providing them with good customer support and then training the rest of the practice to integrate test ordering into their overall workflow management protocols. Staying attuned to how the practice operates and offering different options for test ordering, whether that be some are still on paper with faxes and prefer that method through portal and EHR ordering as well. How much of a driver has the NCCN guideline update from, what was it, last December been to Decipher's growth in the localized setting throughout this year? I mean, has it had a noticeable impact or acceleration in share gains or broader adoption? I mean, what has that impact been? Yeah, certainly the first time that we saw inclusion into the guidelines and we reached level one evidence, that certainly gave us a tailwind. Moving from then, we've seen consistent upgrades in terms of our coverage within the guidelines. It's challenging now to be able to say and isolate how much of the effect has come from the guidelines themselves as much as the evidence that ultimately leads to guideline inclusion. All of that evidence at the same time is being discussed at the pulpit at conferences. That also has a demand-driving effect. I think now it's difficult to tease apart, but obviously it's all favorable. Yeah. Yeah, that's fair. On digital pathology, you guys highlighted two abstracts at ASTRO where results of Decipher and a competing digital pathology solution were compared. There was only marginal correlation between the two. I guess, how are you thinking about positioning digital pathology as complementary without, I guess, confusing clinicians to some degree? Yeah, that's a good question. First of all, we're all excited about the future and potential of digital scanning and the AI-empowered algorithms that are going to proliferate from having that platform available. It's clear that it's interrogating a layer of biology that's orthogonal to what we see from the transcriptomic side. It seems to be doing a really good job in terms of capturing histologic grade. In other words, rescoring Gleason with high accuracy. Those are all going to be favorable tailwinds. The challenges are whenever you uncover and start to work with a new omic, you need to be really, really careful that you're building your analytical validation in such a way that you're avoiding the potential towards overtraining if you use a cohort that's too small or you use a cohort that does not properly represent all of the variables that you're going to see once you're a commercial test. From our own internal research, we've seen significant variables being introduced just through the heterogeneity of where these samples get processed and the fact that not every institution is using the same standardized process for tissue fixation and ultimately staining. All of those have to be taken into account. All of those have to be included as part of the rigor behind the design of the algorithm. You have to substantiate the performance of your test in the real world in ensuring that it's performing as well as it did during your validation studies. As Artera rolled out their test, it was clear even from our own experience in hearing from customers that there were discordances between the Artera test score and the Decipher test score. Usually, physicians were ordering both. They were being left with this question of, "There's a difference. One's calling low risk. One's calling high risk. What do I do next?" Our own surveys showed that a large proportion of these physicians were following the Decipher test for the mere fact that it was well validated. It's the incumbent test in the market. These studies seem to recapitulate our experience from what we were seeing from customers. Around 30% discordance is what was observed. In one of those studies that you mentioned, I think of 100 patient population that were tested with both tests, about 30% were tested as high risk by Decipher. Artera called zero as high risk. Clearly, there's a concern. The updated guidelines from the NCCN seem to mirror that concern. I have no doubt that they're going to go back and reformulate or make the test more robust. Clearly, from our own purposes, we're following the tried-and-true practices of robust analytical validation, working with KOLs to ensure that the evidence is well balanced and well validated. We will let the evidence guide as to how best to include the test in the market. Got it. On that point, I mean, you guys have scanned 100,000 slides or something like that at this point, 80,000 patients. What is the path forward there? I mean, does it eventually get clinically validated and offered in combination with GEP? I guess, how do we think about the future there? Yeah, I think we think about it as no different than any other biomarker and how that's been incorporated into clinical practice. If we think about the GRID experience coming from transcriptomes, we collaborated with KOLs to curate signatures that we thought were potentially interesting. Those signatures go through clinical trials. We've seen through the evolution of the STAMPEDE trial, through the evolution of the RTOG trials, now balanced with PAM50, PORTOS. Eventually, these are signatures that migrate their way out of an RUO report and into a molecular features report. I easily see us doing the same thing with digital pathology. What are the interesting features that we can extract through DPAI? How do we make them available through collaborations with KOLs? Allow those to become associated with meaningful events that are clinically useful. Eventually, they make their way onto some clinical report. At some point in the future, we'll decide, "All right, we see a marginal improvement when we include DPAI signatures with a transcriptomic signature. How do we do that in a robust and meaningful way? Okay. Maybe on the pricing side of things or ASP side of things, how do we think about Decipher's ASP moving forward? I mean, coverage is at over 200 million covered lives, but obviously, there's still a good chunk of the market left to improve there. Yeah. Do you want to take ASP? Yeah. You're accurate in the over 200 million lives covered. There's a long tail there. There aren't any big payers left for us to go after. We'll continue to go after them and expect that to be a tailwind over the next five years. It's not going to be a big one to get to a place where our Decipher ASP, excluding prior period collections, has a place to go up. In comparison, Afirma has 275 million lives covered. That one's a little bit less upside there. These are smaller plans that roll in over time. There's never going to be a big step function change. Yeah, exactly. Smaller plans, state by state. Yeah. It's a lot of blocking and tackling to get through. Okay. On Afirma volumes, they were up 13% in the quarter. They're up 10% year to date. I mean, as you look out over the past 12 months, one year, four quarters, whatever, how do you think about, I guess, the percentage of growth that's coming from underlying incidence growth versus deeper market penetration versus share gains? Look, it's a balance. We're benefiting from the fact that, unfortunately, the indication continues to grow year on year. The SAM is growing. Consequently, I think we're also doing a good job of convincing physicians that genomic testing needs to be a greater part of their workflows in determining the management of thyroid nodules. I think we're doing a good job also leveraging GRID to recapture influencer and KOL imagination around new discoveries that can be made on the back of the GRID report. We just had our first publication from our GRID study just recently, more coming in the pipeline, evaluating all types of interesting signatures that include much more than just, "Is this malignant? Is this benign?" and much more into, "If malignant, then what is the overall outcome for this patient likely to be if I undergo a partial thyroidectomy, if I undergo an ablation of the nodule alone?" I think the field, again, is becoming more heterogeneous in terms of options and outcomes. That is always good news for biomarker testing. When you kind of look ahead in terms of those three growth drivers for volume, how many years do you think, I guess, they can all continue to contribute? Because I guess at some point, market penetration trails off. Yeah. Yeah. I mean, certainly, market penetration eventually will trail off. We imagine the market now being somewhat 65% penetrated. We've always said we think there's potential in one way for it to meet 80%. Our goal is also to reach about 80% in overall share. Right now, we have a majority. I think it'll be a mix of both penetration gains and share gains, probably with an increasing velocity towards share gains in the coming years. Got it. Okay. On the V2 transcriptome, last quarter, a third of volumes, you said, had been transitioned over. What is the time frame for getting the remaining portion of volumes transitioned? Wanna take that one? Yeah. The goal is to have it completely transitioned by the end of the year. Next year, we'll have a full year of everything being on the V2 transcriptome for Afirma. Okay. On the lower RNA input of the V2 transcriptome, is there any way, I guess, to quantify the benefit of that if you're getting more valid results? I guess, is that a modest tailwind to ASP? I guess, how were those tests recognized prior if they didn't have adequate input? Yeah. One of the—sorry, I'll start, and then maybe you can fill in. Perfect. In terms of test failures, generally, there's insufficient amount of RNA, and then there's overall RNA quality based on the amount of degradation, in which case lower inputs are still going to help. I think we're going to need the next few weeks to months to sort of quantify where have we seen test failures that have been lessened by the inclusion of the new V2 before we can come up with a general sense of how to extrapolate for the rest of the year. Yeah. The way that it would kind of show out in the financials is increased volume at a high margin because these would be tests that have been ran to some point in the process and failed. That now are not failing. They'd go all the way through the volume calculation at this point, and we'd be able to go bill for them at a—which we have not done in the past. Some of that cost has been in there because it's been partially ran or. Got it. It is included in your volume numbers. It was just. Yes, we got it. Because you wouldn't recognize revenue on it, didn't have revenue attached to it. Yeah. Got it. Okay. For Bethesda five patients, you guys now have Medicare coverage there. I guess, how has adoption trended within that slice of patients since you won coverage? Really, how penetrated are you within that group today? I don't know that we've ever broken out penetration of that group independently. Nevertheless, I think the indication is growing, especially as we're demonstrating more and more clinical utility associated with looking for meaningful variants within that risk class. It's always going to be a future growth trajectory. Keep in mind the bulk of the patients are in the B3, B4 population. When we think about market penetration of 65%, you've got a goal of getting to 80. Are B5 and 6 patients making up the majority of that unpenetrated market? No, I think there's still a good pool of B3, B4s in that space. Okay. Okay. So the Prosigna LDT launch in mid-2026, what commercial initiatives are you working through ahead of the OPTIMA readout? What's, I guess, the targeted sales force at time of launch? Yeah. Look, we're not going to be silly here in spending unnecessary money. I think the goal is and always has been to be disciplined on how we roll out commercial efforts and to essentially throttle our commercial spend to make it as commensurate as we can with the revenue gains. Nevertheless, this year and next marks a significant year for investment in the breast space. We're starting by recruiting our commercial team. That is recruiting folks that we can build a team around, so sales leaders and next-level leaders. It is ramping up our activities in medical science liaisons and the coordination of efforts with key opinion leaders, making them aware of the impending OPTIMA trial results, making them aware of the trial design itself, getting them excited about GRID, starting conversations about what does a GRID offering for breasts look like, how can they contribute, how can they collaborate with us, and start signing collaboration agreements in advance of the launch. Okay. On the OPTIMA study itself, assuming a positive readout, how quickly do you think guidelines could be updated to reflect that study? I guess, ultimately, how binary is that readout to the resources and efforts that you dedicate to the breast space? Yeah, it's a good question. Look, it's always difficult to predict what the guideline committees are going to do. If we can reflect on what they've done in the past, in general, one would expect that post-ASCO publication of the results would be soon coming. Immediately after the publication comes out, guidelines start to think about, "All right, how do we pull people together to reevaluate our current guidelines versus this new evidence?" At some point, they have a sit-down and revise the guidelines. At a certain point, those guidelines need to be approved and released. I'd hate to put a time date on it. Regardless, knowing that our path towards commercialization starts with key opinion leaders first, the bulk of them are going to be widely aware of the OPTIMA results post-ASCO. I don't think they're going to wait for guideline inclusion to start ordering and start to consider how to incorporate Prosigna, if not fully, at least partially, into their practice. I think you'll see growth proliferate from there. Got it. Yeah, maybe on that point, it's a penetrated market, whether it's maybe talking through how OPTIMA is set up, what it's showing, or what's the strategy to differentiate Prosigna and capture share in a market that's already probably 85%-90% penetrated. Maybe we'll just start there. The good news is we don't have to spend time convincing physicians that they ought to run gene expression tests for breast patients. The good news is you don't need to convince physicians that there's predictive biomarkers for informing whether a patient should get chemo as an adjuvant post-surgery. On the upside, the OPTIMA trial has been designed to quantify the overall benefit of assigning patients to chemotherapy based on the Prosigna score. Based on its randomized and prospective nature, it will meet the criteria for level one evidence. The differentiation will come—at least it puts us on equal footing. That's number one. The differentiation will come from the fact that it's been validated against the population of patients with more nodes positive. It's been validated in a population that's more ethnically diverse. It's been validated in the population that includes premenopausal women. The trial design itself has been designed to address this question of ovarian suppression and how much ovarian activity are the patients exhibiting once they're assigned to chemotherapy. I think ultimately the GRID strategy is you only have to look at Decipher to see how we were successful in essentially coming from a new entrance into essentially them becoming a market leader. That was provide a platform that provides more information upfront. That information can be leveraged in the form of GRID signatures. Those GRID signatures can be used in clinical studies. Those clinical studies go into further validation and demonstration of the clinical utility of the test, expansion of our knowledge of the biology, which leads to new claims, which leads to new demands. Got it. Could you walk through the top-down commercial strategy that you guys referenced on prior calls? Is that just focusing on key KOLs first and working your way down? That's essentially it. Yeah. It's going to be an evaluation of the NCI designated centers of excellence, large volume centers that are specialized in breast cancer management, an alignment of where are there key influencers and key opinion leaders who are actively engaged in clinical trials and studies and aligning their interests to the GRID offering. Got it. Launching into muscle invasive bladder cancer on MRD. That'll be your first indication in the first half of next year. Signatera obviously has a pretty established presence within this indication. They've read out some recent large data sets backing their utility there. What do you view as, I guess, the competitive edge or differentiating factor for Veracyte there that can help you guys capture some of that market? Yeah. First of all, we're not thinking too much about competitive dynamics in the sense that the market is being so underpenetrated as of yet. Nevertheless, the market is so big and the mix of indications and clinical questions being addressed by this testing is very diverse that there are unique attributes to each test and each set of claims. For instance, with our first indication, TruMRD for muscle invasive bladder cancer is going to be primarily for patients who've undergone a radical cystectomy. The question is, has the cystectomy been successful or not? Do I see residual tumor fragments in blood? That has a prognostic outcome. Or surveillance monitoring, do I see the return of cancer in advance of what I would normally see by imaging? The data so far has looked very, very promising. Our validation effort is near complete in the lab. Now we're going through the discussions with MolDX about coverage and reimbursement. How are you thinking about CMS pricing? I mean, do you expect the higher cost of running whole genome to support pricing above exome-based tests? Yeah. I mean, we will work through the equitable pricing model that MolDX uses to determine pricing. That in a large part takes into account the cost of running the test. It also takes into account what they traditionally would pay for such tests by looking across the market and doing a similar crosswalk. We expect that we will extract some reasonable gross margin that will improve over time as we continue to improve the efficiency of the test. We will manage the gross margins overall of the product across all of our product mix. Okay. What are your expectations around testing frequency? It's going to vary based on indication, right? The guidelines will tell you for each indication how closely you should survey the patient by imaging. We will take those cues. For muscle invasive bladder cancer, we're expecting after the initial test, an addition of two to four tests. Annually? Just for the episodic here. Okay. Got it. Got it. What incentives or, I guess, initiatives do you have in place to ensure that urology reps post this launch aren't sacrificing Decipher growth to drive utilization of this MRD assay? Yeah. We have a very tactical deployment already in mind. We have designated specific reps within our team to be specialized in new product offerings on top of their day job. They have proven to be kind of our most proficient, most effective reps. They will generally carry the bag on that test for the first couple of quarters. As they learn and uncover best practices, that gets rolled out to the broader team. Our comp plans ensure that our teams stay focused on the base of the business. Everything that they sell as a new product is essentially upside. Got it. Okay. And then indication expansion annually after muscle invasive. Any detail on the pacing of those indications? Maybe not the pacing, the specifics of which indications are next. We're not prepared to make those announcements as of yet because so much of it depends on ongoing trials and collaborations and validation efforts. We have enough in the pipeline that we're confident in this once-a-year cadence, but don't feel confident enough to say one is going to come before the other. Gotcha. Just given the pacing of studies, is there a chance that you could do more than one? Or is just one kind of the way you're thinking about it for now? I think one is we would rather underpromise and overdeliver. Fair. Okay. Fair enough. Maybe moving to your margins. You pointed to 25% for adjusted EBITDA margin in 2026 and in future years. You were obviously well above that this quarter. I know some prior periods, some spend shift. As we look into next year and maybe even the years beyond that, excluding, I guess, MRD, what are some of the big investments that you have out there? Sales team expansions. How are you thinking about investments like that? Yeah. I think first and foremost, the five kind of strategic growth drivers we've talked about around Afirma and Decipher, Prosigna, LDT, MRD, and then IBD, and then nasal swab in the longer term. We'll continue to invest in those over the next time. We'll balance investment and growth as we've talked about and feel like we're in a position where we can do both, have a profitable business, but also fully invest in the strategic growth drivers that we expect. We'll have things like the V2 transcriptome come in that will drive gross margin benefits. That will be offset by the investments that we make in those other items there. We also are in the early to mid-innings on infrastructure build-out and being able to and focus there around what we want to do with our software stack and generally general infrastructure. We'll have plenty of places to invest and feel really comfortable with kind of the commentary we've made around that 25. Will it be every quarter? No. There will be puts and takes there, but we kind of manage the business on a full-year basis. Got it. Maybe on MRD specifically, at least in muscle invasive, something like 85% Medicare. I get that you guys do not know where pricing shakes out, but that should support pretty high ASP even with Medicare coverage only. I guess you are running whole genome. How do you think about the margin profile of that assay and that getting rolled into the business next year? Yeah. I think MRD with our approach of whole genome is going to drive a gross margin pressure as it scales. However, we believe that our MRD platform will be able to reach our 25% adjusted EBITDA levels as we've kind of talked about for the total company. That's from being able, the efficiency is driven by the collaborations that we've had, that we won't have a huge R&D investment after it gets launched because we'll be using the KOLs and they'll be discussing with us. Over time, we expect to be able to get there. It will definitely depend on scale and pricing. We've modeled it in a wide range of scenarios there. I think the other investment that comes along with MRD is a Salesforce. MIBC, we don't have a large investment with the Salesforce because it will go into our Decipher channel. However, with the launch of Prosigna LDT and the investment that we'll make there on a more meta on Salesforce, that will then be able to get leveraged into the future MRD indications as they come on board. I think we'll look at that as a whole portfolio and be able to reach our financial metrics. Gotcha. I mean, to some degree, thinking about testing gross margin, you've got the V2 Transcriptome benefit. If we're getting any fixed cost leverage across those two, Decipher's ASP moving higher, there are drivers there that can to some degree help offset any pressure from MRD. Agreed. Okay. Are there any factors that would cause you to change your thinking on the 25% target, potentially revise it higher? Not that we can think of right now. Obviously, if there's a change to that, we'll communicate it. On On the upside or the downside, if there's a need to go and invest more heavily at some point for some reason, then we'll come. Right now, how we look at it, we feel like 25 is a really good baseline for us. Yeah. That's a good target. Maybe lastly then on capital allocation, how do you guys feel about that here? I mean, where does M&A, I guess, land in the priority list? Are there any interesting technologies or indications that are attractive to you today or where you see maybe an opportunity in your portfolio? I'll talk M&A and then if you want to talk what does this I mean, our stance on M&A has not changed over the last three years as this management team has been in place. The position we're in has, obviously, with ending this year, we should be close to $400 million of cash with no debt. We are in an enviable position of being able to execute on that. The strategy behind it has not changed. It needs to fit into our core beliefs and being able to get something to market. We've shut down. We've done a lot of work to get where we're at of focusing and streamlining the portfolio to where we are. No change there from that standpoint. I'd say it hasn't changed in our priority list either. It's still, let's go, the investments we just talked about are first, and let's put capital there and then add on to it from an M&A standpoint. If you want to talk about some areas that we might be. Yeah. I think from a platform perspective, I mean, it's clear we've been leveraging transcriptomes now for a long time. We're upgrading our capabilities by running them through NovaSeq, the recent application of whole genomes through C2I, the fact that now we're going to be running whole genomes within C2I of both tissue and blood, digital pathology as we've covered, the fact that we're now scanning every slide that comes to our lab. The point is that we're starting to amass a fairly significant biorepository and data bank, which in and of itself is leverageable as a multi-omic platform. There are significant investments internally just on blocking and tackling systems to ensure easy and integrated and secure cloud infrastructure so that all of that data can be leveraged through computational means. That just means recruiting more talent, more proficiencies in that space. The effectiveness with which we can extract insight from those features and how that translates then into product improvements and new evidence, I think we'll accelerate over time. Got it. Unless we have anything from the room, I think we can wrap it there. All right. Thanks, gentlemen. Appreciate it. Thank you. Thanks for having us.