Hi, welcome to the Canaccord Genuity Growth Conference. I'm Kyle Mikson. I cover life science tools and diagnostics for Canaccord. I'm pleased to welcome you to a fireside chat with Exagen here with us today. Exagen is a pure-play leading provider of autoimmune disease testing products, and we'll learn more about that today, with a current focus in lupus expanding. With the company, we have the CEO, John Aballi, and CFO, Jeff Black. Thanks, guys, for joining us today. Good morning. Good morning. To start, maybe provide a brief overview of Exagen and the market and industry that you fit into in rheumatology. Great. Well, good morning, everyone. Exagen is a specialty diagnostic lab based in San Diego, California. We focus in the autoimmune, specifically the rheumatology space. We offer proprietary, unique, and comprehensive testing for patients with lupus, rheumatoid arthritis, scleroderma, other types of connective tissue disorders. For us, we are heavily focused on the rheumatology call point, and we serve annually about 2,800 physicians right now, dispersed throughout many different subspecialties, but again, rooted more commonly in the rheumatology space. Overall, we believe we have about 3%-4% of the autoimmune testing market. That is estimated on our end, about $2.2 billion annually. We are trying to bring a level of clarity and precision that you commonly see in the oncology space into autoimmunity. Okay, your tests are based on, at least historically, the CB-CAPs technology, Cell-Bound Complement Activation Products. Why is that differentiated? How does that improve performance? Any kind of data or publications that you point to in terms of what clinicians- Yeah, perfect timing, actually. We published a systematic review which pulled together the results of 14 different studies across about a decade, or almost 12 years' worth of research. That was just published in June. In these disorders, you have the innate immune system really ramped up and attacking the individual's body. What is occurring in, call it conventional autoantibody testing, is you are getting a snapshot point in time, what is the immune system doing right then. CB-CAPs, as you referenced, is an acronym for Cell-Bound Complement Activation Products, and this leaves a covalently bound scar on the surface of various cell types, which is highly specific and pathologic for certain diseases, lupus being one that we focus on more heavily. What you get with our testing is a true sense of has a pathological episode occurred? Is this patient's immune system more consistent with this disease rather than just a snapshot in time? The snapshot in time can be misled through various infections, viral loads, these types of things. With CB-CAPs, you actually get a disease-specific feel for it. Additionally to this, last year, we launched several new markers specific to rheumatoid arthritis that, again, enhance the sensitivity and specificity of diagnosis there. Right. Then maybe on speed, in autoimmune disease, patients undergo this diagnostic odyssey. It takes several years to get diagnosed, and at the end of that odyssey, it's probably not even accurate, to be honest. How does AVISE CTD, our flagship tests, address that? What do you do on the side with client services and so forth to help them? Yeah, it's really interesting. GRAIL actually published a unique paper, and I think the reason I reference it is because in oncology, most folks generally accept that we need to reach a diagnosis sooner. To give you a sense, the paper that GRAIL put out was around a half a million patients, so 500,000 patients across various different oncological conditions. You have breast cancer, prostate cancer, lung cancer, these types of things. Median time from symptom onset to diagnosis in that study was about 3.8, 3.9 months. In autoimmune conditions, you're an order of magnitude beyond that. For lupus, for example, average time from symptom onset to diagnosis is six years. Rheumatoid arthritis is somewhere around 2.5-3 years. Sjögren's syndrome, a substantial number of patients have that. That's on 5-7 years timeframe. You're talking very different timeframes, and it all has to do with the ambiguity or the ambiguous nature of the symptomatic presentation from these patients. You have folks with fever, you have folks with bone pain, rash, alopecia, these types of things, and these symptoms don't give you a very specific idea of what the patient's dealing with. As they progress, aggregate, remain refractory to various therapies, then you start to get a feel for it. But having that level of precision earlier is what really matters. You can intervene much sooner and really make a difference, and that's what we strive to do. We've actually published a few papers where CB-CAPs specifically, our AVISE Lupus algorithm, shows that we can diagnose lupus about 18 months sooner than conventional testing. Our algorithm will be positive in that context. That was a study with Northwestern, prospective study, so very proud of that data there. On the seronegative side for RA, we closed the gap by about half, so we identify half the seronegative patients that conventional testing does not. Those are the types of impacts we're trying to bring to this field, and really excited about the potential to have that level of precision in clinicians' hands. Excellent. Let's take a step back. John, you joined the company almost four years ago, I think it was the fall of 2022. I guess prior to that point, the company's revenue per test was roughly $300 or so, which is maybe 1/3 of the Medicare, what it could be, the Medicare price point. Maybe it was $200. The point is you weren't really optimizing the revenue per test. I feel like that was a goal of yours to increase that, and then also to help the company get to profitability, whether it was EBITDA or net income or cash break even. What did you set out at that point in order to accomplish those things? How have you executed on that strategy so far? Yeah. Well, it feels like almost a decade ago, to be honest with you. It's been a ton of work. When I joined, just to highlight a couple other things, top line was declining. It was the first year at the organization that the top line had declined. Our cash burn was about $40 million in 2022 and accelerating. Our Q4 burn was around $15 million. So, you had that level of acceleration. Our R&D pipeline was focused on a lot of projects that I didn't feel would ultimately yield clinical benefit or enough clinical benefit and had a, call it an obscure path to reimbursement, if you will. We had to really pick apart and tune the entire company. The reimbursement side of it's critically important, especially diagnostics. I think a lot of organizations struggle with it, and Exagen was no different. We had four or five years prior to me coming on board where the ASP or average reimbursement had remained static, at $280, $285, something like that. We know the playbook that has to be run. I've done this in other roles at different specialty lab organizations. You have to dive into all of the details, and you have to really enhance the message that you're giving to insurers. You have to view them as a customer, and you have to be very relentless with your appeals efforts. We put all of that in place. It's taken a couple of years. We've really looked to make this more efficient and effective, and so we've integrated some different tools which actually interpret the clinical history of the patient, make a custom appeal letter, reference specific medical policy for certain plans, and we've been highly effective. I think our trailing 12-month ASP in this last quarter was $446. It's led to a growing top line with a dramatic improvement in our cash burn approach. This past quarter cash burn was around $100,000. That's our adjusted EBITDA number. The transition of the company's been phenomenal over the last couple of years. Tons of credit to the team. As I said, when you rebuild different parts, it's not just processes, it's also bringing in people that know how to do this, that you trust, that you enjoy working with, that work well together as a team, and that's what we've done at this organization over the last four years. Yeah. I do not mean to go too far back, but I think it is important to put in context how the second quarter shaped out as well, which I want to talk about. Maybe in the second quarter, trailing 12-month ASP was the $446, I think you just said. That metric, rather than the quarterly periodic ASP, it is a good way to view how the metric is progressing. That is basically increased. Maybe it has been gradual, but it has probably increased as a trend line in the past maybe 7- 14 quarters or so. That has been good. But it has kind of slowed down a little bit, maybe mid last year. You want to talk about what happened in 2025 that maybe affected the strategy a little bit in terms of the revenue per test? Yeah. We advise people. As operators of the business, we take a look at a trailing 12-month number. We think that that is the most representative of strategic impact on that metric. A big part of that, and Jeff, you can add anything you feel is relevant here, but the big part of that is from an accounting standpoint, we recognize revenue on an accrual basis. We have to take a look at what our past track record of reimbursement has been, project that into the future, and recognize that number at a single point in time. But if you are getting better or getting worse, that number is going to change, and it is always an estimate, and therefore it is always wrong. From our standpoint, taking a look at a trailing 12-month number pulls everything together. What you have at a single point in time gets smoothed out over a 12-month period of time, and any catch-up, whether that is prior period revenue, prior period liabilities, that all gets incorporated into that trailing 12-month number. That is how we manage the business. We take a look very specifically at that metric, and we think it is the most important for us. In 2025, we launched some new markers to enhance the comprehensive nature, but also the uniqueness of our platform specific to rheumatoid arthritis. We saw an improvement in ASP. We had to do an estimate for what those markers were going to be reimbursed at, and that estimate had to be refined over the course of the year. What we started off with, we did not quite materialize by Q2, Q3, we had to pull some back on those markers. But then actually where we're performing now is pretty consistent with those original expectations. So again, we advise people to look at the trailing 12-month number for those reasons. It smooths it out over time and I think gives a real indication of the progress, but that is what happened in 2025. Anything you'd add? Yeah, I would just add, Kyle, and we had talked about this before, but the whole concept of excess cash, meaning if we're collecting over the accrual rate. Then that's going to hit revenue in any given quarter. And the revenue cycle management team is just getting better and better every quarter. So just to put that in perspective, the last two quarters, we've collected about $1 million in out-of-period cash. So call it just over $2 million. Perspective, a year ago for the full- year, it was about $1.5 million. So, there's an appeals queue. We're getting better at managing the appeals queue. We're optimizing process. We're using technologies to do that and just getting better and better at it. So we're very encouraged by the trajectory there. Yeah, I think there was one relatively large customer that, I guess, requested to change their agreement with you from a client direct bill agreement to maybe more traditional. Where does that stand? Because that was a pretty high ASP customer back then. I believe it was maybe in the third quarter. Sure took place. Our preferred approach is we sell directly into the rheumatology channel. Mostly this is community-based rheumatologists. We run a test for a rheumatologist to help them aid in their patient's diagnosis, and then we bill that patient's insurance. This is any of the national plans, United, Aetna, Cigna, that type of thing. It could be regional, Blue Cross plan, this type of thing. Or we'll actually contract directly and sell the test wholesale to a hospital system. What you're referencing, Kyle, is the latter there, and that is what we term client bill arrangement. Basically, the hospital system runs the test for their physicians through our laboratory, but then they take on the billing component to this. We had a large hospital system in Long Island, actually, that made a determination that, for financial reasons, they no longer wanted to offer the test. We worked with them over time, and I think tried to be very good partners there, but ultimately, it was a business decision that they made to move on. The rheumatologists there, for clinical reasons, still want access to the test. We've been effective for a subset of them in finding an alternative route there, ordering it outside the system. But we do not have a client bill arrangement with that entity anymore. Our client bill business, though, is something that we're highly attuned to. I think some of the questions at the time were if this was going to precipitate additional movement in that client bill business, and we've seen none of that. In fact, very strong relationships with our client bill partners. Perfect. Okay. Sounds good. Now, we talked about the revenue per test, that's increased. This year the guidance is a mid-single digit kind of a growth for that metric. The other component, the other variable is the volume itself. Back in mid-2023, you enacted a strategy to maybe remove some volume that wasn't higher ASP, things like that. As a result, volume didn't exactly grow. The optics weren't fantastic, but underneath the surface, the quality of the volume was really better. Anyway, now recent quarters, it has been growing year-over-year sequentially. I think in the second quarter, it grew 11% year-over-year test volume. Maybe talk about what's been driving that and what the outlook sort of looks like going forward. Yeah. So maybe just a little bit more detail on that transition. I referenced that we've been rebuilding the organization, and it's been a turnaround. A turnaround in the public markets is not for the weak. What we did in the summer of 2023 was we changed all of our billing practices. We knew strategically we had to go after improved reimbursement and that there was quite a bit of potential there because if you take a look at what our Medicare rate is for our core platform, our flagship product, we're at about $1,300 from Medicare. So to have a blended reimbursement at $280 is woefully unsatisfactory, but also quite a bit of opportunity. In order to do that, you have to change the relationship with your customer base. What I mean by that is, we require medical records on any patient that a test is submitted for. We require the clinician to actually sign the requisition. We do actually bill patients. Patients have a financial responsibility when our test is ordered. There's a few other things there, but we put all of those, or packaged all of those changes together in the summer of 2023 and actually saw a 20% decline in volume at the time. Some of this was certain customers that, I guess for lack of a better term, we had to fire. The business that we were getting from them was not going to allow us to continue to offer this test longer- term, so we had to make that transition, and we've done so successfully. So you build back from there. This past quarter, we eclipsed our, call it volume performance of what we had had prior to all of these changes and did so with a dramatically improved reimbursement. So this is the type of growth we set out to achieve, more profitable growth, and we've been successful in doing that and driven by a highly effective team. Our sales organizations really embrace these changes. Those aren't easy conversations when you've got to change clinicians' perspectives and the way that they're doing things. So we induced that friction in our process, if you will, in the summer of 2023, and it's taken us a little bit of time to build back, but we have done so and seen pretty substantial volume growth the last three quarters. Okay. The volume growth guidance for this year is the annual growth is, I think it is like high single- digit growth. Is that correct? We believe our business longer- term, a reasonable expectation is high single- digit volume growth with low single- digit ASP growth blended turns into, call it low to mid double- digit growth, and that is profitable growth. That has been our focus. That is what we have been working to achieve, and we will see where it goes. Perfect. And on the point of profitability, so in the second quarter recently, you were just there at EBITDA, break even basically, $100,000 loss. Maybe talk about going forward for the year, why you want to be conservative with that metric, why we shouldn't assume a totally positive for the next few quarters, and just the decision to invest for growth rather than just optimize or prioritize, I guess, profitability. Yeah. Our business has quarter-to-quarter intricacies that we think make sense to take a look more so at an annual basis. I just referenced how we evaluate our average reimbursement per test, and we take a look at our broader business similarly. The back half of the year, we tend to see seasonality with some of the volume of our testing, and that's for many factors. Number of working days probably being the primary one. But in the rheumatology specialty, their annual societal meeting falls in either late Q3 or early Q4. It's Q4 this year, so that takes most rheumatologists out of the clinic for about a week. These factors tend to influence the volume in the back half of the year. We see growth in the first couple of quarters, and then maybe plateauing Q3, Q4 before you cycle into the following year. That's really the major underlying cause for the guide that we gave. But anything else you would add? Yeah, I would just say Q2 proved the theory, right? Meaning that we came out with a model that said at $80 million in revenue at about a 63% margin, we would be sustainably positive adjusted EBITDA cash flow, breakeven or positive. Q2, we were right there, just under $20 million at a 61% margin. So as long as we're tracking to that $20 million+ a quarter, it's in striking distance. Got it. On the topic of spending, your R&D spending is not massive each year. But you are prioritizing or refocusing, let's say, on the pipeline. You have a goal to maybe launch products or new markers once a year, let's say. You have the myositis, I think, test coming out early next year, I believe. So maybe you want to talk about what that opportunity is like and why that's an exciting opportunity for you. Yeah. We've been very intentional with our spend across the organization, R&D being no different. We right now spend just under 10% of total revenues into R&D. So that equates to about $6 million a year that we're spending on our core projects, and we're cycling them based on what we think are weighting low technical risk, high customer need, and high reimbursement chance of success. From our standpoint, very excited with the R&D pipeline that we've rebuilt over the last couple of years. The next product coming out of that pipeline is for myositis, which is the number one asked for area of need within our existing customer base. So we're excited because the threshold or the learning curve for adopting new markers in this space should be relatively low, given that so many folks are asking for it, and it's our existing sales channel. We also believe that this offering should have applicability into the pulmonology space. We will have to see how that goes. But it potentially expands our call point a little bit and then also opens up other opportunities for some of our development efforts as well. We remain on track with our current development efforts for myositis. We should be able to launch in the first part of 2027. We will have established reimbursement. Should be very exciting for our organization to have its next new product, standalone product, that is in high demand. What will be the steps to gain reimbursement for the myositis test? Because we work in proteomics for the most part, we have a unique situation where there is established CPT codes specific to different methodologies. This will be mostly ELISA-based methodologies. There will be a few other proteomic type approaches. But with that, there is established CPT codes with established reimbursement. That is what we will launch with. As the product reaches second and third versions, we will enhance the clinical utility of it with interpretations and algorithmic scores. Once that occurs, we will go back through Medicare and go through the whole value-based reimbursement process. For us, we think it is a very nice place to be that you have a step one, you can innovate, you can get products onto the market relatively quickly, call it within a 12-month period of time. But then subsequently have paths to enhanced reimbursement as you enhance the value you provide. Awesome. Okay. The other investment would be, I guess, commercial force spending. Maybe talk about how large the sales team is right now and any productivity metrics that you can share and how that has increased recently. We measure, as I think everyone does, revenue per territory, and very proud of how that's progressed over time. Our sales force right now, we have 45 sales territories within the U.S. This is up from 40 about a year and a half ago. We've expanded over the last 12 months, and that's gone very well. Some of those territories have almost doubled in the last 12 months. We found the right people, and we've identified the right areas to expand, yet our revenue per territory has continued to increase. It's about $1.5 million per territory right now. Increasing the footprint that you have and increasing the revenue per territory, I think for us, we're very happy with that outcome. That's exactly the intentional approach that we sought a few years ago as we pursue profitable growth. Because if you expand, dilute out the revenue per territory, it's a good way to raise your costs. I think it defeats what we're trying to do and what our strategy's been the last several years. Perfect. Okay. With the last seconds, can you talk about your objectives as a company exiting 2026 and then entering and throughout, I guess, the full- year 2027? Yeah. Thanks for the opportunity again to be here. We really appreciate attending the conference. Our objectives are actually pretty simple. In the autoimmune space, there's not really too many specialty labs. I can't think of really any, actually, that are still around that are focused on bringing precision medicine to this space. You see quite a bit in oncology. To have the space open to us, have a viable sales channel that's actually working, we believe launching new products and innovating in this space is exactly the opportunity we want to capture. We're working very hard to be the preeminent autoimmune company in this space, and we'll see how it turns out. Perfect. Thanks, guys, for joining. Thanks for having us. Thanks, Kyle.