Hi, welcome to the Canaccord Genuity Growth Conference. I'm Kyle Mikson. I cover life science tools and diagnostics for Canaccord. Please welcome me to a fireside chat with Veracyte. Here with us today, Veracyte offers a broad range of tests across thyroid cancer, prostate cancer, and others. With the company, we have Rebecca Chambers, CFO. Thanks, Rebecca, for joining us today. Appreciate it. First, maybe just walk through the second quarter results you guys announced two weeks ago or so. Good quarter. Just walk through the puts and takes, please. Yeah, happy to do so, and thanks for having us today, Kyle. Before doing so, I would like to refer you all to our safe harbor statement that will cover today's statements. That can be found on our investor relations webpage at www.veracyte.com. With that, happy to answer your question. The second quarter was a milestone quarter for us. We had anticipated two product launches during the quarter, which came to bear. We launched Prosigna for our breast cancer market, as well as MIBC for MRD with our TrueMRD tests. Those were quite exciting launches. We also, in the second quarter, delivered $150 million of revenue and raised our guide accordingly and we're quite pleased with the quarter, albeit some of the dynamics in the quarter, which I know we'll get into, were a little bit different than expected, but all in all, a strong pricing story, and a very reasonable volume growth story. Additionally, we generated adjusted EBITDA of over 29% in the quarter, more than $40 million of cash. While not every single data point was absolutely perfect during the quarter, the vast majority were incredibly strong. There's some dynamics here and there that we'll get into, but overall, it was an incredibly solid quarter, specifically really showing the strength of our pipeline with multiple data readouts across the three products. Yeah. Okay, great. One of the clear bright spots for many quarters has been the adjusted EBITDA margin. Yeah. It's among the highest I think we've seen from any molecular diagnostic company in many years, maybe ever. What's been the secret to that? Maybe just talk a little bit about why you haven't been able to, or you've chosen, sorry, not to push through and get to 40% or something like that, I guess. Yeah, happy to do so. Our philosophy is that a well-run molecular diagnostic company should be able to sustain an adjusted EBITDA of around 25%, and at the same time invest in long-term growth drivers, right? The profitability profile of this franchise is not to be at the expense of revenue growth. Revenue growth is, we're delivering 14%-16% revenue growth this year, so obviously very nice revenue growth. We are investing heavily in our long-term and medium-term growth drivers. That's why we don't flow more down, because effectively, we want to sustain this business for a long period of time, and that sustainability really comes through incremental investment in our Prosigna franchise, in our MRD franchise, in international, and a longer term duration. We believe that doing so gives us the best of both worlds. We get the revenue growth from high ROIC projects that we're investing in, as well as delivering strong cash generation and profitability to shareholders and effectively sustaining ourselves. That philosophy came about quite from effectively when we joined the company back in 2021. We looked at all the different investments that the company was making across numerous different products, looked at the, effectively, the return on those investments, and we shut down a lot in our portfolio. We shut down, I think, five products in total. Those products were those that we didn't necessarily felt had the ROIC profile that was required. We doubled down on Decipher and Afirma, returned Afirma to growth. We invested in an MRD franchise, which effectively we bought in 2024. We invested in the Prosigna product, and so we've really set ourselves up for sustaining this revenue growth profile and also quite the attractive profitability profile. It all came through active portfolio management and active strategic plan, which we deliver to the organization, to the Board year- in, year- out, and have that high financial hurdle philosophy in doing so. All right, great. Back to the second quarter, maybe the one less positive point would be the Decipher business. Yep. Decipher is a very impressive test. Genomic classifier prognostic test for prostate cancer, also bladder cancer component as well. Prostate's the one that's doing really well. It's been growing. I think revenue grew 20% in the quarter, volume dipped just below 20% for the first time in, I think we had it at 12 or 13 quarters or so. Which again, 17% growth, I think it was, for volume. That's still very impressive. There are obviously questions about the sustainability of 20%. Can you get back to 20%? What happened in the quarter or so? Maybe just walk through what happened and what the path forward looks like for that in terms of volume, at least. Yeah, happy to do so. Decipher was an acquisition of the company back in 2021 and has developed and sustained an amazing growth for many quarters and years. The second quarter was no different. You're absolutely right, Kyle, that we did dip to a 17% volume growth, and that was not totally unexpected because the comp was so challenging. The second and third quarter comp last year both were incredibly hard. We called that out on the first quarter call. We did miss by about 700 tests in the quarter, which is just over a day. That was primarily in the low-risk setting. The low-risk setting is about 20% of total volume, that is growing more mid-single digits, whereas the other 80% is growing 20%. What changed there was in December of last year, the NCCN guidelines were updated to take genomic classifiers out of the low-risk recommendation. That has happened before, and we didn't necessarily see that impact, and so we didn't expect to see an impact, but we did, obviously. We updated our volume guide for the year to be 1,000 tests lower in low risk only, which again, on a base of more than 120,000 is really not a huge deal, but I think given Decipher has been such a longstanding 20%+ grower, I think did dip below a magic number that folks were paying attention to. We do believe Decipher growth is very sustainable on a unit basis. We've always talked about it on a unit basis. We have consistently grown 20,000 tests ± 1,000 each and every year. Going forward, we don't expect this to change. There's no reason to think it will change. High risk and intermediate will be higher than that on a growth rate perspective. Low risk will be lower, but we do think that 20,000 is quite sustainable. We were only 33% penetrated coming into this year. We think this market should be 80% penetrated, and it's a multi-year trade. But we're well on our way to laying out the claims both on, obviously, in the intermediate and high, but also on the low risk to help get us there over that multi-year period. Okay, and there's no competitive impacts happening recently with Decipher? No, not at all on the low risk. Everybody was taken out of guidelines, so there isn't necessarily a competitive dynamic here on low risk. On the, I guess the higher risk, you didn't see anything, though? On high risk? Absolutely not, no. Got you. Okay. Sounds good. I guess, you would never think about removing, like de-emphasizing the low-risk portion. It is the same, it is just like the full market. Why not just go after the whole thing? Well, we think about this absolutely on a risk-based risk indication, right? The claims are the most developed in high and intermediate. Low risk is being developed, they are just harder to develop. We have started three different trials. We started enrolling these way back in 2020, and these will read out over the next couple of years, and that is just kind of another incremental growth vector, if you will. You need those incremental claims in each of the specific indications to really drive demand for the tests. We start with a land and expand approach. We landed in intermediate, then we went up to high RP metastatic, now to low. I think about those as different vectors of growth. Yeah, those studies as readouts, would that possibly impact NCCN to, I do not know, update the guidelines to actually help the low-risk setting? We would absolutely hope so. Obviously, it depends on whether or not they read out positively, which we can't say here today. But they should read out over the next couple of years, and they are level 1A and level- t wo are level 1A, one is level 1B, so effectively, they should be enough to get in there at the appropriate point in time post-publication. Okay, and then maybe the- Assuming they're positive, we can. Yeah. We hope that they will be. That ENZAMET readouts around ASCO a few months ago- Yeah. ...that was for Decipher as well. I think maybe less of an impact, let's say, but I think that could translate into a guideline inclusion or maybe an impact on volume. So any positive expectation for that maybe study to have an impact on that business even though it wouldn't be material maybe? Yeah. So that was for the metastatic population, and that is not yet published. Hopefully it will be enough to get into guidelines for the metastatic population, but it needs to be published first, and that publication is in the KOL's hands. We would hope that that would come, and then it would help us drive more metastatic demand. Metastatic we report in that high-risk setting. So that is a portion of the 20% that grew 20%. Okay. There isn't too much to really dive into with the Afirma, I guess. I mean, we can talk about it's been really consistent. I feel like it's been exceeding our expectations in terms of revenue growth. I think that's a lot because the prior period collections possibly, but maybe it's getting more and more penetrated each year. What's your kind of confidence level in that business and the health of consistent high single digit, almost double-digit kind of growth for that being a pretty just consistent contributor? Yeah, there's really three dynamics going on with Afirma specifically in 2026. We updated our guide on the second quarter to be 12%-14% revenue growth. Prior periods in ASP gains are a portion of that. We've had $5 million of prior periods in year- to- date, and also significant ASP gains, call it in the low to mid-single digits. The latter of which is sustainable, obviously. The prior periods are more one-time in nature. The other piece is we have moved from an older sequencer to a newer sequencer, novel concept. Right. That has driven not only much lower cost reduction, but it also has effectively allowed us to report out more test results. We have a 300 basis point tailwind this year in volume from that transition. That then is in the base of tests, and so it'll be a headwind to growth, if you will, for 2027. But is already all in the goodness that is going forward. Most importantly, 300 basis points more patients are going to get their test results, which if you have an indeterminate thyroid diagnosis, that's important for those patients. Then there's organic growth. In the quarter, organic growth was in that 6%-ish range. As we look forward to next year, you just have to take volume. We'll have the NRR comp. In any given year, we tend to say mid to high single digits, but you have to take that into account for next. Is it that the no-call rate is much lower with the- No result rate, yep. ..sorry. Yep. Okay. Yeah, perfect. I guess that is pretty meaningful, the V2 kind of- It has been incredibly meaningful. ...it is going well. Yep. Okay, because I was There was a lot of transitions to different platforms and some of the company maybe over the past year or so. That's good that it's going well. Prosigna, and so on more pipeline type, newer tests. The Prosigna LDT, that's also based on NGS, and that has a whole history of being on nCounter and being like an IVD and a European kind of offering and stuff. Basically going forward now with the OPTIMA study as well, which was also read at ASCO, what's the expectation for that maybe product in terms of can it be material soon, or is it more of a base or like a stable base maybe in the U.S. for that product? Yeah. So, to Kyle's point, there's a ton of history here that I won't bore you all with, but the major catalyst for this is we launched a new test in the U.S. in the CLIA lab. So previously it had been a distributed IVD test. We had data that read out at ASCO this year for the OPTIMA trial that effectively surpassed anyone's expectations, ours included. And now we are offering the test in our CLIA lab, as of June 8th. So effectively, this is 225,000 patients that are appropriate for this test. This was the first test. I'm sorry, OPTIMA was the first trial that effectively looked at patients with three or more nodes in the premenopausal population, and so was very differentiated versus the RxPONDER and TAILORx studies of 2017, 2018, 2019. When it comes down to it, we showed with OPTIMA, or the KOL showed with OPTIMA that two out of three women who are getting chemo should not be getting chemo and do not need chemo. It does not impact their outcomes, which is incredibly powerful data. We have launched this test now in the U.S. We're ramping up the sales force. We have aims of hiring 15 by year-end. We'll grow more significantly next year a nd volume should follow. We're in that period where we are signing up different accounts, training them on our portals, our order-to-cash workflow, if you will. And that is all going quite well, but does take some time, getting the path lab signed up, etc, s o I think when it comes down to it, revenue is going to be a harder thing to call than volume. We need to get reimbursement still. Hopefully, that will be coming this year. We're in the late stages with MolDX on that conversation. We have a number of commercial payers already lined up from the IVD, which is helpful. But I think when we get comfortable recognizing revenue will be a different conversation than obviously reporting out volume. We'll do our best to be as transparent as possible on the drivers here. We did cite over 100 customers engaged within the first, what is it, six weeks, seven weeks. And so those are different centers of varying sizes, but some very large ones in there. And so we're quite excited about the way that this launch has progressed a nd now it's just really making sure that we're off to the races. Yeah, just what are some considerations, I guess, competitively in that market with. You kind of referenced some of this, like Oncotype and then- Yeah. ...MammaPrint and others. It's been around. Maybe it's more mature-ish, I guess, and it's somewhat crowded. How does, why are you confident you can be successful? Yeah. I think we can be successful because we have the most compelling data, and we are a data-driven story. We are going KOL top-down, and effectively helping them understand the data so they can help us evangelize why this is the better test. Oncotype and MammaPrint have been successful. This market, it's fully penetrated in my mind. This is more of a share gain conversation than it is kind of a penetration conversation. In my mind, hopefully, that will be a more compelling conversation given the strength of the data as well as the recency of the data. The other two tests, to my knowledge, haven't had prospective level one evidence here for many, many years. We're out there telling folks about OPTIMA, and we think we'll be able to gain decent share over the timeframe. It's not going to take a lot of share for us to make our investment back here, given we already had the product, and we just really had to put it into our laboratory workflow. That being said, we do view it as a nice growth driver, and that will take years to play out, but we'll be contributing in the meantime. All right, great. The other test that was recently launched is the TrueMRD test. Yep. ...for MRD. All right. You guys bought C2i. Correct. I think it was early- 2024. ...2024. Then, I guess, been iterating and developing that test to date. Right. It's a whole genome. It's like a fully whole genome test for MRD, and you just launched with reimbursement in MIBC, which is muscle-invasive bladder cancer. Initially, you've had this MIBC strategy for a while. You talked about that as being the first indication, I think. It seems like a small indication. However, now we've seen a lot more positive news flow in the- Yeah. ...in MRD, as well as in therapeutics and bladder cancer as well. It almost seems like potentially a smart move to go after that area because it's like low-hanging fruit because now there's guidelines, there's FDA approval for one of these MRD tests. What's the next steps with the MIBC indication? Beyond that, what's your thoughts on expanding to other indications and tumor types? Yeah. MRD is obviously a very successful market. Natera's done an amazing job in that market. Hats off to them. We are very much looking for areas of differentiation. MIBC is a great one for us because we have the Decipher sales force, which is serving 70% of MIBC patients are actually served in the urologist's office. We think that given our brand of being incredibly rigorous from a scientific perspective, great commercial relationships, and whole genome every step of the way, we will be able to propel this into that environment. Now, right now, we are not trying to do so active, like in an aggressive way by any stretch of the imagination. We've taken a handful of Decipher reps, trained them on the- w e have had them out in the field talking about MIBC for our MRD solution for MIBC, and effectively, we're working out the kinks in this workflow. This is a harder workflow than any of the other tests. You have to get blood from one place, tissue from another, etc. I would think in this time next year, we'll have trained the entirety of that team, and really be going after that MIBC market for MRD. Why we think we are competitively differentiated is also because we have the classifier. To your point, that classifier is very important, given all the different advancements in the pharma space to have many different drugs appropriate for different bladder cancer patients. Our whole goal is to own the entire cancer care continuum from prognostic, post-diagnostic, all the way through MRD. We think that we are optimally set up to do the whole transcriptome and then transfer to the whole genome and really understand the biological underpinnings that will play out here in the MIBC and bladder cancer market in general. Okay. To answer your question, where would we go from there? Well, it will be a similar type of approach, where we think we have a competitive differentiation where whole genome matters, and where studies are available. Those three things will converge, to answer your question. Right. All right. Well then, in the near term, do you intend on trying to match revenue to investment in that for this test? The COGS profile is probably a little bit higher than your other tests. Absolutely. Yeah. How do you think about that, I guess? I think the way we think about the COGS profile is that there are many levers that we have to pull, drive them down. In addition, there are multiple different platforms we could be on. Cloud compute is coming down quite significantly. We think at scale, we will be able to maintain a 25% adjusted EBITDA margin. It will be a drag to gross margin, but given the whole model on Decipher where you get incremental research gains from doing the whole transcriptome, in this case it will be the whole genome, we think we will be able to sustain that 25% at scale. Yeah. How much visibility will you give on Prosigna LDT and TrueMRD going forward? I think we will give as much commentary as we can. They will be reported in the other line. I think we will not break them out from a revenue basis until they are material. Right now they are not in the guide. That is very purposeful because we do not have a pattern of revenue yet. I would hope Prosigna will most likely be in the guide before TrueMRD, just given their relative sizes. Once it is an order of magnitude larger of a market to go after. We will be including that in the guide, but I would not expect it this year. I would hope at some point in time next year. Okay. Speaking of the guides for this year, I think you referenced increasing the raised bit or it is at almost $600 million, which is great. However, I guess with the reduction in the Decipher sort of guidance, that is maybe you estimate that at like a few million or several million as a headwind. What were some puts and takes when you had this 2Q update- Yeah. ...looking towards the second half of the year? Yeah. Decipher guide did not actually change. Revenue growth has been 20% since we came into the year. The components of the 20% changed. Price is more of a tailwind, and again, those 1,000 units on volume were taken down. Those are the puts and takes, but the net-net of it is still that 20%. Afirma was updated to 12%-14%, as we talked about. Our product business and our biopharma business make up the delta. We also have bladder and cytology in there. Those are around $10 million. Got you. Okay. Honestly, with gross margins around that 70% type range, I guess if MRD is not going to be so material to volume, it will not be impacted too much, but could that fluctuate a bit or be stable over the next few years, or how do you think about that? I think in this type of business, you're going to have great gains like we had with the whole transcriptome, and then every year you're going to have to be able to try and either offset cost of living increases, pricing increases from suppliers with overhead efficiencies. So in any given year, depending on the mix of different tests, that's the equation. Yes, MRD as it comes in will take down gross margin. But I think the most important thing is the incremental margins on Afirma and Decipher allow us to invest quite nicely in the long-term profile of the company and s o we manage absolutely on an annualized basis to that 25% adjusted EBITDA goal. Gross margin will fluctuate, but the beauty of our strategic planning process and our budgeting process, it is it allows us to pull different levers on the operating lines to effectively continuously deliver that 25%. So I worry less about gross margin. Obviously, we have tons of programs, between price, and cost to continuously improve that, assuming a difference, depending on the mix of tests, if you will, b ut really what our focus is on is maintaining the P&L to that 25% adjusted EBITDA. All right. Then kind of rounding out the long-term growth drivers, so quickly on Percepta Nasal Swab, what's the next catalyst, let's say, as it relates to the NIGHTINGALE kind of like- Yeah. So NIGHTINGALE was fully enrolled this time last year. It's a one to two year follow-up, so I think when it comes down to it, that's probably a 2028, 2029 conversation. We then will have to get reimbursement. So it's not in our three to five year numbers, so I wouldn't necessarily focus too closely on it. Okay. And then internationally expanding, maybe Decipher- Yep. ...outside the U.S., how does that look? Well, Prosigna is actually the nearer term growth driver there, and that's getting moved to an NGS distributed test, and that's going quite well. We're excited about that, and obviously in the meantime, Prosigna and nCounter is also, with post the OPTIMA data is quite exciting too. That comes at a lower ASP, which is fine. The gross margin isn't materially different, at scale on NGS. That would be where I would put my focus if I was doing work. Decipher is a longer-term play. You still need reimbursement country by country b ut we have multiple different ways to bring that test to market and are focused on those and we'll talk more about them when they're getting closer. Okay. Your cash position continues to expand. We talked about the investment to kind of drive growth and have- Yeah. ...these new products and stuff. But in terms of buybacks, M&A, other ways to allocate capital- Yeah. ...how are you guys thinking about that given diagnostics is there's a lot of growth areas that are exciting. Yep. You could be touching a few of them, like MRD, for example. Just what's your thoughts on that whole? Yeah. Our order of operations for capital allocation is internal investment, organic investment, M&A, then buybacks. I think there still is a wealth of opportunity across the different indications we care about across the cancer care continuum or different platforms or geographical expansion. There's so many different vectors that we can invest that cash that's a high ROI, that's what I would expect above and beyond the organic investment profile to be. Buyback is something that isn't off the table by any stretch of the imagination, but isn't a priority. Okay. All right. Let's leave it there, Rebecca. Thanks so much for joining. This was great. Thanks, Kyle. Thanks to see you all.