Veracyte, Inc. Q3 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Veracyte Third Quarter 2025 Financial Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Shayla Gorman.

Good afternoon, everyone, and thank you for joining us today for our discussion of our third quarter 2025 financial results. With me today are Marc Stapley, Veracyte's Chief Executive Officer; and Rebecca Chambers, our Chief Financial Officer. Dr. John Leite, our Chief Commercial Officer; and Dr. Phil Febbo, our Chief Medical and Scientific Officer, will join us for Q&A. Veracyte issued a press release earlier this afternoon detailing our third quarter 2025 financial results. This release and a copy of the presentation we will review during the call today are available in the Investors section of our website at veracyte.com. Before we begin, I'd like to remind you that statements we make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance they will prove to be correct. Additionally, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte files with the Securities and Exchange Commission, including the most recent Forms 10-Q and 10-K. In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release accessible from the Investors section of Veracyte's website. I will now turn the call over to Marc Stapley, Veracyte's CEO.

Thank you, Shayla, and thank you to everyone for joining us today. I'm pleased to share details of our third quarter performance as well as provide updates on our key growth drivers. We delivered another outstanding quarter. Our core testing business achieved 18% revenue growth year-over-year after adjusting for Envisia, driven by volume growth of 26% in Decipher and 13% in Afirma. This strong performance resulted in total revenue growing 14% year-over-year to approximately $132 million, even after the expected dilutive impact of removing the biopharma and other revenue tied to SAS. In addition to our robust revenue performance, our adjusted EBITDA margin reached a record 30%, representing a 650 basis point improvement from the prior year and far exceeding our expectations. As you know, we had set a goal of consistently achieving a 25% adjusted EBITDA margin on an annual basis, and it now appears that we will reach that milestone this year, more than a year ahead of our internal plans. This best-in-class profitability profile is a significant accomplishment, which we attribute to our disciplined portfolio focus. It enables us to continue to invest in our robust pipeline to serve as many patients as possible. The foundation we have built at Veracyte will enable sustained near- and long-term growth through a focused set of strategic drivers. I'm excited to share progress across several of these initiatives today. Starting with Decipher. We delivered approximately 26,700 tests in Q3, marking the 14th consecutive quarter of over 25% year-over-year volume growth. With the highest number of quarterly ordering providers and the highest number of orders per physician, Decipher's clinical utility is increasingly recognized by physicians for patients across all risk categories. This year, we have especially highlighted the clinical evidence for advanced disease, including high-risk localized and metastatic patients, where Decipher's predictive power has been shown to improve outcomes. With Decipher now available for metastatic patients, physicians can better assess the benefit of intensifying treatment with androgen receptor pathway inhibitors or chemotherapy. For example, recent analysis from the STAMPEDE trial published in Cell showed a high Decipher score predicts docetaxel benefit in metastatic patients and abiraterone efficacy for those with metastatic and high-risk localized disease. During the quarter, our volume of tests in this high-risk localized group grew more than 30%, demonstrating new traction in this category. We believe there remains significant opportunity to expand Decipher's use in this segment. Consistent with our established formula for evidence generation as the key to broad adoption, we continue to support extensive research in prostate cancer. For example, at ASTRO in September, research collaborators presented the first validation data from the BALANCE trial, demonstrating the PAM50 molecular signature predicts hormone therapy benefit in men with recurrent prostate cancer using data from our research use only Decipher GRID. This signature, well known in the breast cancer oncologist community and the backbone of our Prosigna test has now been shown to be able to stratify prostate cancer patients based on subtype, providing confidence in hormone therapy benefit for those with the Luminal B subtype. In addition to demonstrating the power of GRID and driving new important research in prostate cancer, this trial also builds on research presented earlier this year from the SSPORT trial, which showed the biochemical recurrence or BCR post-surgery patients with a high Decipher score received greater benefit from the addition of pelvic node radiotherapy and short-term ADT. These BCR patients represent a potential incremental opportunity for Decipher as we believe the majority never received a Decipher test when they were initially diagnosed with prostate cancer and would now be appropriate candidates for testing post-surgery. The complex treatment decisions faced by physicians and their patients dealing with advanced disease requires robust actionable information. As research empowered by GRID establishes clinical utility for new signatures, we are working to add such additional molecular features to the Decipher report to enhance clinical insights. Signatures like PORTOS and PTEN will be available in the optional Molecular Features Report when it launches next year. PORTOS predicts which patients with prostate cancer are likely to benefit from differing dosages of salvage and definitive radiation therapy. PTEN used alongside the Decipher score showed promise in determining whether metastatic patients would benefit from chemotherapy in the STAMPEDE study. These additions will further extend Decipher's application across indications, treatment decisions, and various healthcare specialists. These studies represent only a selection of the extensive ongoing research related to Decipher. This quarter, we saw 23 new abstracts and publications on Decipher Prostate and GRID, bringing the total to 240 publications. Notably, at ASTRO 2025, of the 9 Decipher-focused abstracts, 2 compared the results of the Decipher test to the on-market DPAI solution and found marginal correlation. Investigators concluded that the 2 tests are measuring different biological processes, something we have asserted for a while based on prior studies. Further, there was meaningful discordance between the 2 tests across risk categories with a bias to low and therefore, potential undertreatment from DPAI. These findings support our view that digital pathology may complement molecular analysis by providing additional data points based on a more comprehensive analysis of tumor histology, but further research is needed to determine optimal use and to protect patients. To support this, we made our digital pathology services and associated AI models available to research collaborators earlier this year and have now implemented slide scanning as a standard production workflow. We've made tremendous progress in the third quarter and have now scanned over 115,000 slides from over 80,000 de-identified patients with outcomes data and expect this database to grow meaningfully as we continue building our digital image repository. Looking forward, the expanding clinical evidence supporting Decipher gives us confidence in its long-term growth prospects. With data consistently demonstrating its clinical utility and impact on patient management, Decipher is increasingly becoming the standard of care in prostate cancer. We see a long runway ahead, further bolstered by ongoing prospective studies to drive broader physician adoption, resulting in durable double-digit growth for years to come. Turning to Afirma. We were incredibly pleased with the 13% volume growth in Q3. This outstanding performance was driven by a steady pipeline of new account wins and yet another quarter of increased utilization per account. We also had a strong showing at the 2025 American Thyroid Association meeting, where we supported the presentation of 12 Afirma-related abstracts, including 4 independent studies utilizing data from Afirma GRID. Our operational efficiency program for Afirma is progressing nicely as we have transitioned over 1/3 of samples onto our new v2 transcriptome in the lab and having received New York State approval are on track to complete the transition of all incoming Afirma samples to the new workflow by year-end. While the data is early, we are pleased to see a side benefit in that the lower RNA input required by the new workflow has enabled even more patients to get a test result. Moving to our commitment to serve more of the patient journey through MRD and recurrence testing, we are excited about the opportunity for our whole genome-based MRD platform. Multiple studies are already completed in muscle invasive bladder cancer or MIBC, colorectal cancer or CRC, lung, and other cancers with a robust pipeline, including 10 studies in testing and/or analysis, 13 in contracting, and 10 in the active planning stage. This includes additional studies in MIBC as well as in breast, lung, CRC, kidney, immune therapy treatment response, and others. The enthusiastic engagement by collaborators at leading institutions, along with the early results we are seeing reinforce our bullish expectations of our ability to capture a meaningful share of the pan-cancer market with our differentiated approach, which we have branded as TrueMRD. We are now receiving samples for the first phase of the NEO-BLAST trial. With growing enthusiasm over the efficacy of combination therapies like enfortumab vedotin and pembrolizumab or EV Pembro, there is keen interest in moving towards therapy de-intensification. The NEO-BLAST trial has the potential to help inform which patients can be de-intensified following standard of care neoadjuvant therapy. MIBC patients are being tested with standard staging MRI and TrueMRD. If they achieve a complete clinical response and are undetectable by MRD, they will be randomized to definitive local therapy or bladder-sparing active surveillance. We are excited to advance this trial and further the understanding of when a physician can safely de-intensify treatment for these patients. Our commercial success in MRD will begin with our proof of concept in MIBC in the first half of 2026, which we plan to launch with reimbursement. We expect to leverage our Decipher channel, which we believe reaches approximately 70% of MIBC patients who are seen in the urology and radiation oncology setting. Beyond MIBC, we plan to deliver indication expansion annually in order to serve more patients across more indications. Moving now to Prosigna. We are on track to launch Prosigna as an LDT for the U.S. breast cancer market in the middle of 2026, given the tremendous opportunity we see ahead. The clinical outcomes data from the 10-year OPTIMA PRELIM study presented in May suggested Prosigna had higher prognostic accuracy in high-risk patients compared to the test initially used to assign patients to treatment groups. We're excited to see the readout of the full OPTIMA trial, which is the first prospective study to specifically address Prosigna's ability to identify clinically high-risk patients who do not benefit from chemotherapy and can safely avoid the toxicities associated with treatment. New studies also continue to highlight the use of Prosigna for guiding preoperative therapy. An IMPACT study led by Dana-Farber Cancer Institute investigators and recently published in ESMO Open demonstrated a change in therapy in 35% of patients based on Prosigna results. At ESMO last month, investigators reported preliminary results of the RIBOLARIS study in which patients with clinically high-risk ER-positive breast cancer were treated with preoperative endocrine therapy plus Ribociclib, a CDK4/6 inhibitor. Prosigna was used to identify patients who achieved a low-risk molecular profile post therapy, allowing a mission of adjuvant chemotherapy. Additional follow-up is required for definitive results, but this study and other preoperative studies underway demonstrate how Prosigna enables precision medicine. As you can see, we have continued to advance our robust pipeline, having launched Decipher Metastatic in June, completed our NIGHTINGALE lung cancer trial enrollment of 2,400 patients in August and deployed our v2 transcriptome assay. We are making good progress on our MRD, Prosigna, and IVD products. With so many new products and capabilities in these 2 years alone, I couldn't be prouder of the Veracyte team who are working tirelessly on behalf of our patients. Looking ahead, we will be accelerating our investments into our critical projects while maintaining the best-in-class financial profile we've consistently achieved. The strong momentum we have seen this year, together with the impact we expect to make with our upcoming product launches gives us confidence that we will continue to deliver comfortably durable long-term double-digit growth as we relentlessly pursue our mission of improving cancer care for patients all over the world. With that, I will now turn to Rebecca to review our financial results for the third quarter as well as our updated outlook for 2025.

Thanks, Marc. Q3 was another exceptional quarter with $131.9 million in revenue, an increase of 14% over the prior-year period. We grew total volume to approximately 45,900 tests, an 18% increase over the same period in 2024. Testing revenue during the quarter was $127.8 million, an increase of 17% year-over-year, driven by Decipher and Afirma revenue growth of 26% and 7%, respectively. Total testing volume was approximately 43,700 tests, an increase of 19% over the prior year period and included 17,000 Afirma tests. Testing ASP was $2,925, a decrease of 2% compared to the prior year, primarily driven by the impact of higher prior period collections in Q3 2024 as well as the Afirma Laboratory Benefit Manager impact previously discussed. Adjusting for the impact of approximately $2.5 million of prior period collections in the quarter, testing ASP would have been approximately $2,875, flat to the prior year period. Third quarter product volume was approximately 2,200 tests and product revenue was $3.3 million, up 4% year-over-year. Biopharmaceutical and other revenue was $800,000, a decrease compared to the $3.1 million in the third quarter of 2024, given the Veracyte SAS restructuring and liquidation proceedings. Moving to gross margin and operating expenses, I will discuss our non-GAAP results. Non-GAAP gross margin was 73%, up approximately 150 basis points compared to the prior year period. Testing gross margin of 74% exceeded our expectations, driven by improved lab efficiencies and was roughly flat to the prior year. Product margin was approximately 800 basis points higher than the prior year at 52%. We still expect product gross margin to decline in Q4 with our transition to a contract manufacturing model. Biopharmaceutical and other gross margin of negative 36% was down year-over-year due to the restructuring proceedings of Veracyte SAS. Non-GAAP operating expenses were up 2% year-over-year to $58.6 million. Compared to the prior year, research and development expenses decreased by $2 million to $14 million, driven primarily by the deconsolidation of Veracyte SAS. Sales and marketing expenses increased by $1.5 million to $22.4 million, given higher personnel costs supporting Decipher and Afirma. G&A expenses were up $1.5 million to $22.3 million, primarily due to project-related expenses within our support functions. Moving to profitability and cash metrics. We recorded GAAP net income of $19.1 million, including a $6.7 million loss upon deconsolidation of Veracyte SAS. This is onetime in nature and puts the France accounting impact behind us. Adjusted EBITDA was $39.7 million or 30.1% of revenue, well above our expectations given the benefit of prior period collections, lab efficiencies, and the timing of some project investments, which are now forecasted to occur in the fourth quarter and into 2026. We generated $44.8 million of cash from operations and ended the quarter with $366 million of cash and cash equivalents. Turning now to our 2025 outlook. We are raising our 2025 total revenue guidance to $506 million to $510 million from our prior guidance of $496 million to $504 million. Due to our strong year-to-date performance, we are raising testing revenue guidance to $484 million to $487 million from our prior guidance of $477 million to $483 million. This reflects a raised Decipher outlook and continued Afirma volume strength. As a result, testing revenue growth is now estimated to be 16% as compared to the prior guidance of 14% to 15%. We are also raising adjusted EBITDA margin guidance for the year to exceed 25% from our previous guidance of 23.5%, which was already meaningfully higher than our original 21.6% 2025 guide. This reflects our year-to-date profitability outperformance and expectations for accelerated investment in the fourth quarter in support of our strategic growth drivers. We expect adjusted EBITDA margin to be approximately 25% in the fourth quarter and in future years, barring any specific incremental investments we decide to make, which we would, of course, communicate as appropriate. In closing, I am thrilled with our progress over the course of 2025. As Marc shared, we delivered on our product goals this year, including the launch of Decipher for metastatic patients and the transition of Afirma to the v2 transcriptome. With strong momentum heading into year-end, I'm excited to close out a successful 2025 and have confidence in our trajectory for '26 and beyond. We'll now go into the Q&A portion of the call. Operator, please open the line.

Our first question comes from Doug Schenkel at Wolfe Research.

I have a couple of questions, first for Marc and then one possibly for Rebecca. Marc, regarding digital pathology, there were multiple presentations at the ASTRO Annual Meeting indicating a weak correlation between multimodal AI scores and Decipher. This suggests that these assays may be complementary. I'm interested in how clinicians handle inconsistent results. Is this a concern for Decipher, or could it lead to a preference for Decipher over emerging competitors? Also, could you provide some insights into your internal digital pathology initiatives and their timelines?

Yes, I’m happy to address your questions, and then we can discuss the financial aspects. I’ll first answer these questions and then hand it over to John for commercial insights and Phil for details on the DPAI internal digital program. When considering new technologies like genomics from a decade ago, there's often excitement around new tests. It's crucial to progress at a measured pace, develop strong clinical evidence, and ensure that this evidence supports the utility while protecting patients from poor decisions and physicians from confusion. This strategy has worked well for Decipher, with the research community enhancing its credibility, which I believe has made it widely accepted. We are currently in a similar phase with DPAI-based models; the technology is exciting and novel, but there isn't yet enough supporting evidence. Consequently, there can be conflicting results, leaving physicians without clear guidance. Their logical response is to rely on the gold standard, which is Decipher. For instance, if a patient has a high Decipher score and a low DPAI score, it’s important not to undertreat that patient, leading to a preference for the Decipher results and diminishing the credibility of the DPAI technology. This could negatively impact the industry. Our focus on developing thorough evidence and involving the research community is what we believe will ultimately lead to success for technologies that are implemented correctly. Now, let’s hear from John about the commercial side and what we’re learning from physicians.

Yes. Thanks, Marc, and thanks, Doug. It's a good question. It's difficult for us to firmly lean into this concept of complementarity while we are seeing significant rates of discordance. And while it leads to physicians ultimately then being confused as to how to interpret the results and how to proceed with the patient. And so on the commercial side, we're spending a lot of time or revisiting the wealth of evidence substantiating the clinical validation and utility of Decipher versus that of emerging technologies. And ultimately, physicians and based on the results of a survey that we've run, they heavily lean on the evidence that's currently substantiating Decipher and they see it as the current standard of care. Moving forward, we would hope that complementarity becomes more defined around how are insights to be developed in the best platform that ultimately associates a result with a clinical outcome and that will inform the right patient management decision. To do that, as Marc mentioned, we're working very closely with our current network of collaborators, key opinion leaders. Ultimately, we will curate and develop new signatures that will land on GRID. Ultimately, those will make their way into an equivalent of a Molecular Features Report, such as we're doing now with the current GRID. And that's what true complementary in my mind looks like. It's the rounding of clinical decisions aggregated and curated by an actionable report.

Yes, I'm happy to answer that, Doug, and thank you for the question. As custodians of over 200,000 transcriptomes and incorporating pathology scanning of whole slide images into our research program, we possess one of the best and most comprehensive data sets available. This allows us to explore the connection that John mentioned and to leverage the strengths of both the transcriptome, represented by Decipher, and the emerging interest in DPAI. Our efforts are well underway. We are collaborating with leading external researchers to advance this area, just as we have with transcriptomes through the GRID. We are working on developing a DPAI model and gaining insights into the biological connections being measured. We believe this work may enhance some prognostic capabilities. From our GRID research, we recognize significant opportunities related to the molecular features and various signatures being identified. We are particularly enthusiastic about the LUM-B and non-LUM-B distinction presented at ASTRO, along with the P10 activities linked to STAMPEDE. We are observing multiple signatures that indicate potential therapeutic benefits. Therefore, we are well-positioned to examine the relationship between these two areas. Currently, we are focusing on the molecular features due to their predictive nature, and we are ideally suited to integrate digital pathology into clinical practice in a complementary and rigorous manner.

Thanks, Phil. Okay. And Doug, you had a question on financial.

Yes. No, that was fantastic, and I appreciate all the detail. And in an effort to be respectful to my sell-side peers, I'm going to try to make the follow-up a much quicker one. I think for Rebecca, you're a year ahead of plan on margin targets, which is fantastic. There are areas you've talked about planning to invest in next year, like I think building up the breast channel is one example. How are you contemplating balancing the margin trajectory and the upside that you're generating with maybe the opportunity to opportunistically maybe pull forward some investment in a period of strength to drive future growth? Would be curious to just get your thinking and obviously, that helps us as we're contemplating the model updates.

Yes, thank you for the question, Doug. We're in a fortunate position due to strong portfolio management and disciplined project prioritization, and I don't expect this to change. We have several initiatives underway and, during our strategic planning this year, we found more investment opportunities than we anticipated. It's a substantial advantage for us to assist patients throughout the cancer care spectrum. We're therefore accelerating our efforts. Our guidance for Q4 suggests that we're looking to hire more staff, invest in clinical trials, and search for a top breast sales leader. All these actions will be apparent in 2025 as we aim for approximately 25% in Q4. Moving forward, we intend to manage towards that 25% adjusted EBITDA target. Next year, we anticipate several advantages on the gross margin front, including a full year of the v2 transcriptome and the absence of losses from the French entity. However, these benefits will be balanced by increased spending in the breast channel, MRD, and general expenses related to the Prosigna launch. We view that 25% as our target for each year, and we'll do our utmost to manage the P&L accordingly, bringing some expenditures into 2025 to achieve this goal.

Our next question comes from Puneet Souda at Leerink Partners.

I'll try to wrap both of my questions in one, hopefully not too long. On the prostate side, you're well above 25% volume growth for Decipher. My question is, given the penetration that you have today, how should we think about the 2026 growth? Can you still grow more than 20% in volumes here for Decipher in '26? And then on the MRD side, I would love a perspective from Phil and the folks in the room as well. I appreciate you're getting closer to the launch here on MRD. But we have seen data so far from competitors where we have moved from observational trial to not prospective data sets that are getting published in NEJM. We saw the Tece data with the IMvigor011 MIBC trial. And there are other data sets that are coming from CRC, lung, other competitors entering the market. So how should we think about Veracyte's MRD position? And more importantly, what's the market strategy here? How do you differentiate? And how do you go to an oncologist and say, here is a test that you ought to employ in your practice, just given the competitive landscape?

Thank you, Puneet. I'll address the first question briefly. This relates to the company's overall performance, including both Afirma and Decipher. The issue of sustained long-term growth has been a topic we've been examining for some time. If we review the data, Afirma has shown year-over-year growth for the last 13 quarters, while Decipher has achieved over 25% volume growth for 14 consecutive quarters. When we consider their starting positions at the beginning of the year, Afirma represented about a third of the total addressable market, and Decipher accounted for roughly 25%. Therefore, both have significant growth potential ahead. This is why we believe that market penetration, the opportunity for increased market share, and the supportive trends we’re observing, along with the lack of obstacles related to evidence and NCCN guidelines, should enable us to comfortably achieve double-digit growth for the foreseeable future, including through 2026. This is not a concern for me. Focusing on these two key areas alone, combined with the near-term prospects of MRD and Prosigna, as well as international expansion and nasal swab opportunities in the longer term, we have a solid plan in place. Regarding MRD, we've had published data for our MRD test, including for bladder cancer, for some time. As I noted today, we have many publications forthcoming. We've previously mentioned UMBRELLA and discussed NEO-BLAST today. I’ll let Phil share his enthusiasm about some of these clinical studies briefly. Essentially, we are actively contributing to the evidence generation process.

Yes, Puneet, thank you for your question. I am very confident that the performance of our test, the strength of our clinical evidence portfolio, and our commercial channel will position us as a leading competitor in muscle invasive bladder cancer with our MRD test. It is incredibly exciting to see prospective trials like IMvigor011 come through, and the NIAGARA trial discussing the neoadjuvant setting is also remarkable. These foundational trials are clearly showcasing that MRD status is a new disease state, one that we can fully leverage in collaboration with medical oncologists. I am thrilled about the prospect of managing patients more precisely and earlier with a range of more effective therapies. We need to confidently demonstrate the performance of our tests, and I believe in our portfolio. As Marc mentioned, we have already published work and are engaged in prospective trials. To address a question earlier from Rebecca, we see opportunities to utilize some of the margin on our clinical trial portfolio, and we are actively doing that. I joined Veracyte because of its consistent dedication to investing in evidence, and this is no exception.

And just one last thing regarding Marc's comments on 2026, Puneet. To sum it up, as we are currently in our budget planning season, our initial outlook for 2026 revenue is stronger than analysts expect. We are not providing formal guidance right now, but we plan to share more details either early in the first quarter at a competitor's conference or soon after during our Q4 call. Given the trends we are observing year to date and in Q4, we are very optimistic about 2026 and beyond, even considering the approximately $10 million revenue headwind from biopharma and other sources that we will not have next year. It seems that our strategy is effective; the investments we have made are showing results, which indicates the utility, guidelines, coverage, growth, and market penetration are all progressing well.

Thanks, Rebecca. Our next question comes from Kyle Mikson at Canaccord.

Congrats on the awesome quarter. Maybe, Rebecca, on your point there, when you look at the Street estimates for '26, I mean, when you look at like what Decipher is expected to do, what we think Afirma can do, where are people underappreciating Afirma, for example? Just curious what you think about that. And then maybe for John or for Phil, the molecular features for Decipher, just could you talk about how much of the unmet need those signatures are and if there's a pipeline beyond PORTOS and PTEN?

Yes, I'll take the first one. Effectively, the range is pretty wide on each, Kyle. So I don't want to make a statement that's general in nature and have it be expounded or extrapolated into something that is wide in nature. So I would say, in general, we're above the average, but I don't want to go beyond that given I don't have the ranges in my mind for each. So I think the statement can just be applied to the average for both.

Yes. So molecular features are a response to the evidence that's emerging as these collaborative groups use Decipher more and more as a selection enrichment randomization tool. And the evidence from STAMPEDE, from PORTOS, from BALANCE were designed to meet a need in the market, which necessarily is treatment of and management of high-risk and metastatic patients is becoming more and more heterogeneous. There are clearly differences in response to a variety of these therapeutics. And so the need for a biomarker is exceptionally high. You can look at the results of those studies to see the benefit of using Decipher in those studies, and we're meeting that need by providing these signatures now in a consolidated report with these predictive biomarkers.

And Kyle, think of this as a repeatable formula. It's enabled by GRID and whole transcriptome approach. And you'll see us at these signatures when the clinical utility evidence is there and there's an unmet need in our customer base.

Our next question comes from Lu Li at UBS.

Congrats on the quarter. First question, I wanted to dig into a little bit on the 2025 guide. It does seem like the Q4 would seem to be roughly flat as of Q3. Any days impact or maybe just like a holiday season? Please correct me if I'm wrong on this one.

No, it's a great question. So recall, we had $2.5 million of prior period collections in the quarter in Q3, and that isn't necessarily implied in the guide. So that would be one thing. The other thing is the way the holidays do fall is a little bit more challenging than prior years, but those are the 2 things I would take into consideration. The third thing I would say is we did have a little bit of French revenue in Q3 that won't repeat in Q4.

Thank you for the question. I'll ask John to talk about the commercial scale-up strategy.

Yes. Thanks for the question. I mean we're excited about Prosigna. We're excited about in anticipation of the release of the OPTIMA trial results at ASCO 2026 and we're excited about the potential launch. To do that, we will have to build a sales channel specifically focused on breast cancer oncologists. We will do that in a very measured way. It's always been our approach to not get over our skis from a spend standpoint and to build the sales team as we see the demand emerging. The plan here is fairly prescriptive. All you got to do is look at how we launched and have led the field in Decipher with prostate cancer to understand how we will approach the market in breast cancer. We will lean into the GRID. We will lean into collaborations with key opinion leaders. We will lean in with buy-in from market leaders on the HCP side and drive the demand from the top down and build the sales team accordingly.

In terms of the gross margin for the quarter related to the v2 transcriptome, consider the gross margin dynamics on testing as a month of improvement from the v2 transcriptome for about one-third of the Afirma volume. As we move through Q4, this will increase to 100% by the end of Q4, but I would expect it to only reach 100% for 2026. We also benefited from $2.5 million in prior period collections during the quarter. Additionally, we experienced a notable write-off connected to v1 transcriptome reagents. These factors all contributed to the trends in testing gross margin on a sequential basis. We are not providing a specific figure for the benefit from the v2 transcriptome since it serves as one of our strategic drivers for investment across the rest of the portfolio, and we want to be cautious about expectations regarding profitability. We will manage our profit and loss statement to achieve a 25% margin by 2026 and beyond, allowing us to invest in continued revenue growth while maintaining a strong financial profile.

Our next question comes from Subha Nambi at Guggenheim.

There have been a lot of updates throughout the year when it comes to competitive landscape for Decipher. In your view, in what ways have things played out as you expected? And what has surprised you the most?

Yes, great question, Subha. Thanks for that. There have been many competitive updates, and I believe that will continue. Similar to what we discussed regarding MRD, there is a rising tide, and we have benefited from relying on others to advance molecular diagnostics in prostate cancer. Through evidence development and having a strong test, along with the NCCN guidelines, we have gained from that. The results have turned out even better than we anticipated. Decipher has captured more market share than I would have guessed at the beginning of the year. The NCCN guidelines are somewhat unpredictable, making it difficult to measure the benefits they bring. Additionally, there has been a lot of discussion around DPAI, which we addressed thoroughly earlier, and it has proven to be more noise than substance regarding the market share and growth rate we are experiencing with Decipher. We expect to have a commercial Prosigna LDT by the middle of 2026. You won't see much data from us in the meantime because, as you know, we are anticipating the final OPTIMA data, which provides the essential evidence for that test. Generating that test in our lab is a relatively straightforward process for us, involving a technology assessment, validation, bridging, and New York State approval, all of which are typical steps we undertake.

Our next question comes from Mason Carrico at Stephens.

This is Ben on for Mason here. On MRD, would you be able to provide some color on the overlap of urologists that are treating prostate cancer and our Decipher targets and are also those treating muscle invasive bladder cancer that are going to be targets for your MRD assay. What's the overlap here? And really just what does that Venn diagram look like of those 2 urologists?

I mean it's an exceptionally high overlap. Thanks for the question. We expect to be able to serve upwards of 70% of the TAM based on the channels that we currently control. These are primarily going to be a combination of urologists and oncologists. We feel confident we can serve the market.

Okay. Great. And then I appreciate the color that you gave on Decipher's growth in high-risk patients this quarter. Are you able to go a little deeper there and maybe comment on how ordering patterns have trended in localized patients after urologists have adopted the metastatic offering? Is this a fairly immediate impact to orders that you're seeing? Obviously, we added 30,000 patients when we launched metastatic and now we have the full TAM addressable by Decipher. We also mentioned BCR-based patients, which could be part of the prevalent population, hard to size it, but that's a potential upside. Of course, you've got incidence growth as well. When you kind of subdivide the localized disease population, we've said over 20% in low. So that's actually quite a high penetration for us. We said that the high-risk is actually one of our highest growers this quarter, and that's driven a lot by the metastatic data that's come out as well. And so while intermediate has always been the highest penetrated and maybe even the highest growing area in the past, it's clear that we are making great traction in every single risk category of prostate cancer patients and metastatic really helped that.

Our next question comes from Andrew Brackmann at William Blair.

Maybe just on TrueMRD here. I appreciate all the color on the studies in the pipeline there. But can you maybe just sort of talk about some of the considerations that you have when you sort of think about choosing which indications to expand sort of each year as we sort of look at it, some of those indications are a bit crowded and there's others where Veracyte has a great channel. And so how do you sort of think about building out that annual roadmap of additional indications?

Yes, that's an excellent question. Thank you for mentioning our brand, TrueMRD. We're really enthusiastic about that product. We address muscle-invasive bladder cancer for the reasons John discussed regarding the overlap with our existing customer base. TrueMRD has the potential to target any market since it is a pan-cancer platform. However, we will focus on markets where we have a clear advantage, such as those with an existing channel or where we can establish a new one. It's important for us to develop the entire care continuum. This approach will enhance our ability to support patients and physicians early in their diagnostic journey with prognostic, diagnostic, or predictive tests during treatment, followed by an MRD test after treatment. Covering this entire spectrum will provide us with a significant advantage. Additionally, our strategy will depend on factors like cohort availability and existing published data. We are not deterred by competitive markets because we believe our whole genome-based approach sets us apart. Some markets will indeed be more challenging, particularly those that are already saturated. However, many MRD markets are not well penetrated today, which presents a significant opportunity. We will be strategic about how we approach this and consider the timing accordingly. Yes, I am very pleased with the performance of the business, particularly the cash generation this quarter. As Rebecca mentioned, our primary focus is investing in our business, which includes clinical trials, product development, and infrastructure. We are building a highly efficient engine at Veracyte, and we have the capability to do so. Mergers and acquisitions are certainly a consideration, and if a suitable opportunity arises, we will pursue it. However, our strategy remains unchanged. Our pipeline is not extensive; we evaluate all options thoroughly and cautiously, without feeling pressured to spend our cash. This does not affect our venture capital approach. At this moment, we are not prioritizing other capital allocation opportunities. Would you like to add anything, Rebecca?

No, you covered it quite well.

Our next question comes from Andrew Cooper at Raymond James.

Maybe first, just one on some of the numbers. I think in the script, you called out a little bit of timing of spend on the 30% EBITDA margin this quarter, but you do have EBITDA up, I think, around $10 million or so at the midpoint. So when you think about those prior plans versus where we are now, what was timing? What was operational performance? And then maybe in the guide, is there any incremental spend that you're pulling in that wasn't expected in '25 in the first place? And how do we think about sort of the jumping off point as we head into next year from an OpEx perspective?

Yes, that's a valid question, Andrew. The positive takeaway was the revenue exceeding our expectations, along with collections from previous periods, which contributed fully. There was also some beneficial performance from v2 Afirma, slightly better than we anticipated in terms of the transition, although it's not significant. Regarding the spending for 2025, I wouldn't categorize anything as particularly substantial to include. There may be a few additional positions here and there, but we aim to minimize risks as much as possible. As for the starting point for next year, I think you've estimated it quite well. You can derive the revenue figure based on achieving that 25% adjusted EBITDA target for 2026.

Okay. Helpful. And then already asked, maybe just a little bit more on the Molecular Features Reports. Help us frame how that fits in from a competitive perspective and what you think that can do? Is there any opportunity to kind of go out and monetize that a little bit more directly? How does it compare to something like Promoter Score that you've added on Afirma and what that's helped kind of enable with that platform?

Yes. Great question. No, there isn't a way to monetize it directly. But I believe it's yet another way that we continue to improve self-disrupt, add evidence, prove to each one of our HCP customers that they are using the best tool to make the most informed clinical management decision on behalf of their prostate cancer patients. This is just one more thing that we will continue to do.

From a medical perspective, incorporating these features into our report highlights the importance of biology. The treatment of men in the high-risk group and the biochemical occurrences in the metastatic group is becoming increasingly complex, which is reflected in our recent coverage and growing interest in higher risk cases. We utilize hormonal therapy, chemotherapy, radiation therapy, and a range of therapeutics. By adding predictive signatures to enhance our best-in-class prognostic signature, we will provide valuable support to clinicians, urologists, radiation therapists, and medical oncologists in this area. This integration is part of the Decipher report and will significantly assist in guiding the complex decisions involved in managing these higher-risk patients.

This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.