Veracyte, Inc. Q4 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Veracyte Fourth Quarter 2025 Financial Results Webcast. 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, Senior Director, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today for a discussion of our fourth quarter and full year 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 fourth quarter and full year 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 all for joining us today. Q4 capped off another outstanding year of strong execution for Veracyte with performance across our core businesses that reinforces both the durability of our growth model and the opportunities ahead. I'll review our fourth quarter results, reflect briefly on 2025 and then focus on the growth drivers that give us confidence as we move into 2026. Fourth quarter total revenue was $141 million, representing 19% growth year-over-year. This performance was driven by continued strength in our core testing business, which grew 21% on strong volume and ASP. Decipher volume grew 21% and Afirma grew 12%, together contributing to 16% total testing volume growth. For the full year, we delivered total revenue of $517 million at the high end of our preliminary range and representing 16% growth. During the year, we provided clinically actionable information to nearly 170,000 patients with over 800,000 patients served to date. We remain on track to testing our 1 millionth patient later this year, an important milestone for the company and our team that reflects both the scale and impact of our platform. In addition to our strong revenue and volume growth, we executed against all of the key milestones we set for 2025. We drove continued penetration and share gains, launched Decipher for metastatic patients, expanding our presence in advanced disease and generated meaningful new clinical evidence across endocrinology and neurology. We advanced our pipeline with positive Prosigna outcomes data from the OPTIMA PRELIM study, submitted the technical assessment for TrueMRD and completed enrollment for our NIGHTINGALE lung cancer study. Together, these accomplishments position us well for multiple product launches beginning in 2026. Importantly, we achieved this while delivering industry-leading profitability and cash generation. Adjusted EBITDA margin exceeded 27% in 2025, not only reaching but surpassing our 25% target more than a year ahead of plan. We also completed key operational priorities, including the restructuring of Veracyte SAS and the full transition of all Afirma volume to the more scalable, lower-cost v2 transcriptome platform, improving our operational efficiency in launching new transcriptome-based tests. These actions support the sustainability of our financial profile as we continue to invest in growth. I'm extremely proud of our team's focus on execution and innovation, which enabled us to deliver an outstanding year and reach more patients than ever before. The foundation we've built through the Veracyte Diagnostics platform supports a clear phased expansion strategy anchored by a focused set of drivers contributing to near, mid- and long-term growth. First is the ongoing durable expansion in our core business, Decipher and Afirma, which we believe will support double-digit revenue growth for the foreseeable future. The second phase is our 2026 product expansions with two product launches planned by this summer. We are preparing to launch our inaugural TrueMRD test for patients recovering from muscle invasive bladder cancer, followed by the U.S. launch of Prosigna as an LDT to address early-stage breast cancer patients. The third phase represents our longer-term commitments, including geographic expansion through our IVD strategy and addressing new cancer challenges across the care continuum. Today, I will focus on the first two phases, our core business momentum and the opportunities ahead with our 2026 launches. Starting with Afirma. We delivered approximately 18,250 tests in the fourth quarter, representing 12% volume growth. Throughout the year, we saw a steady pipeline of new account wins and increased utilization per account, with the fourth quarter continuing this trend. As of year-end, we believe we have grown Afirma to approximately 38% market share with continued opportunity for further penetration. Importantly, as previously mentioned, we completed the full transition to our v2 transcriptome in the lab during the fourth quarter. Besides being more scalable and cost-effective, this new platform enables us to deliver results in challenging cases where we were previously unable due to low RNA. In the fourth quarter, our no result rate was 2% lower than in the prior quarter, directly contributing to more patients and physicians receiving actionable results to support clinical decision-making. We also saw a steady drumbeat of new publications leveraging data generated from our research Afirma GRID, which further builds on our extensive body of clinical evidence. The majority of Afirma-related abstracts and publications in 2025 were GRID-related, reinforcing Afirma's position as not only the standard of care in clinical testing, but also what we believe is becoming the primary research platform advancing understanding of thyroid nodules and cancer. This year, we plan to build on this momentum with an updated version of GRID that includes additional signatures designed to support ongoing thyroid nodule research. Given our recent progress, we're confident in Afirma's ability to sustain healthy growth in 2026 and beyond. Turning to Decipher. We delivered approximately 27,200 tests in Q4, marking our 15th consecutive quarter of more than 20% year-over-year volume growth. We reached another record for both the number of quarterly ordering providers and orders per physician. In fact, the number of ordering physicians increased 18% year-over-year in Q4, reflecting Decipher's expanding adoption and its role in supporting treatment decision-making. This momentum has been building throughout the year. Of the more than 300,000 prostate cancer patients tested with Decipher since launch, more than 100,000 were tested in 2025 alone. Decipher is recognized as the only gene expression test with high-quality evidence in NCCN guidelines, which we believe has been an important contributor to this impressive growth. Looking ahead, with the market now penetrated by Decipher at approximately 33%, we remain extremely confident in its ability to sustain strong double-digit growth in 2026 and beyond. This growth outlook is supported by several key drivers. As GRID-enabled research establishes clinical utility for new prostate signatures, we plan to expand our clinical reporting to incorporate these insights. Our first examples are three new predictive signatures, PORTOS, PTEN, and PAM 50 that are now widely recognized by key opinion leaders as having utility based on recently published studies. Patients with higher PORTOS scores have been shown to benefit from higher doses of radiation in both post-biopsy and post-RP salvage settings. PTEN, used alongside the Decipher score, showed promise in the STAMPEDE study for identifying which metastatic patients would benefit from adding chemotherapy. And the BALANCE trial, whose results were presented at ASTRO last fall, found that the PAM 50 molecular signature confidently predicts which patients with recurrent prostate cancer may benefit from hormone therapy with apalutamide in addition to salvage radiation therapy. We are working to add these molecular features to the Decipher report as optional insights, providing additional information for men with high-risk biopsy and RP disease, including those with biochemical recurrence. As a reminder, this patient population has been underserved to date, a trend that we have been focused on improving with augmented clinical evidence supporting Decipher in advanced disease, where its predictive power has been shown to improve patient outcomes. This focus paired with the launch of Decipher metastatic has led to another quarter of more than 30% growth in the combined high-risk RP and metastatic categories, and we believe there remains significant opportunity to expand Decipher's use in advanced disease. Additionally, we view digital pathology and AI-powered analysis as complementary to molecular analysis with the potential for additional data points to provide a more comprehensive assessment of tumor histology. To support further research, we made our digital pathology services and associated AI models available to collaborators last year and have implemented slide scanning as a standard production workflow. We have now scanned over 210,000 slides from over 150,000 patients with outcomes data, representing the majority of our historical data set on Decipher. We plan to leverage this extensive database in combination with whole transcriptomes in an expanding number of collaborations with top academic centers to understand the complementary nature of these two data types in order to continue to evolve our clinical offerings. Generating clinical evidence is a core pillar of our Veracyte Diagnostics platform, and we continue to fuel this flywheel. Decipher Prostate now has more than 100 publications demonstrating its clinical utility and validity across the prostate cancer risk spectrum, plus an additional 100 publications leveraging our research use-only GRID platform. At ASCO GU, data to be presented, including more than 15 abstracts across prostate and bladder cancer, highlight how our platform is contributing to advances in urologic oncology. Multiple abstracts will showcase the power of Decipher GRID to enable novel research, including studies demonstrating how signatures derived from GRID predict adverse outcomes in men on active surveillance. Additionally, several abstracts will be presented, leveraging real-world data on the usage of the Decipher Prostate score in our patient population, including those with metastatic prostate cancer. Moving to bladder cancer. Our Decipher Bladder classifier and associated research use-only GRID data is increasingly being integrated into studies that aim to help researchers identify critical signatures to guide the future of bladder cancer treatment. We're seeing strong momentum generating new clinical evidence for this indication with five abstracts highlighting Decipher Bladder at ASCO GU. We're particularly excited about the findings from the SURE-02 trial, which underscore the importance of molecular subtyping in muscle invasive bladder cancer or MIBC, and support integrating genomic classifiers like Decipher Bladder into clinical trial design and treatment planning. As the field transitions towards more biologically informed evaluation of novel treatment strategies in bladder cancer, we plan to continue investing in this indication to drive future growth. Collectively, these studies highlight how our Decipher tests are increasingly helping guide clinical decision-making, advance biological understanding, and accelerate innovation in urologic cancer care. This momentum in bladder cancer extends to our TrueMRD platform, our whole genome sequencing approach to MRD. We remain on track to launch our first indication for MIBC in the first half of this year after completing our technology assessment with MolDX to receive reimbursement, which is in progress. We intend to leverage our strong Decipher brand and channel to serve patients that are treated in the urology and radiation oncology setting, which we believe reaches approximately 70% of MIBC cases. Our initial focus will be on recurrence monitoring in those patients who have completed their initial therapy for MIBC and are not undergoing adjuvant chemotherapy, which we believe is the majority of MIBC patients treated in this setting. We're building a strong and growing body of clinical evidence around our MRD platform. At ASCO GU, TrueMRD will be featured in an oral presentation on a Phase II trial evaluating pembro combined with serial ctDNA monitoring in patients with MIBC that did not undergo radical cystectomy. In this trial, TrueMRD's whole genome sequencing was used during neoadjuvant therapy at restaging and during surveillance to monitor for residual disease, providing more confidence that the cancer was responding to therapy. The results demonstrate that many patients with MIBC may be successfully treated without bladder removal and maintain very low risk of metastatic recurrence. These findings highlight how molecular monitoring may support bladder-sparing treatment strategies while maintaining confidence in managing disease. This therapeutic strategy is being prospectively evaluated in the actively accruing NEO-BLAST study conducted at the University of British Columbia. In addition, there are several other studies that have already been completed across bladder, colorectal, and lung cancer as well as other indications. We have a deep pipeline of additional studies underway with 10 in testing or analysis, 13 in contracting and 17 in active planning, spanning MIBC as well as non-muscle invasive bladder cancer, breast, lung, colorectal and immunotherapy treatment response. TrueMRD is a platform that is extensible into other cancer types, and we plan to launch additional indications each year going forward. Our MIBC launch addresses a clinically important market and will serve, we believe, as a foundational proof point that Veracyte is a credible player in this large and expanding space. With strong engagement from leading institutions and encouraging early results, we believe TrueMRD's differentiated approach positions us well to capture meaningful share in the MRD market. Turning now to Prosigna, our second major product launch planned for 2026. Prosigna is based on the well-established and scientifically validated PAM 50 signature, which provides physicians and patients with deeper insights into the biological classification of their cancer and the risk of recurrence to help inform treatment decisions. The opportunity in the U.S. breast cancer market is significant with over 300,000 patients diagnosed each year. Approximately 75% of these patients have early-stage hormone receptor positive disease and would be eligible for Prosigna testing. Clinical data will be an important driver of adoption, and we look forward to the full OPTIMA trial readout, which we expect to be presented at ASCO in June. We believe this data will further strengthen the clinical evidence supporting Prosigna, differentiating it as the next standard in breast cancer prognosis and that numerous ongoing studies will further demonstrate the differentiation of Prosigna in this setting, building on the OPTIMA results. We believe this body of evidence supports the opportunity for Prosigna to capture meaningful share in this market over the next five years. We remain on track to launch our LDT for Prosigna over the summer on our new transcriptome lab workflow, the same analytical platform we have built and fully launched for Afirma. To prepare for this, we've begun building out our commercial team, starting with appointing a strong leader for the sales force while also growing our medical science liaison team and engaging KOLs. Meanwhile, our talented marketing team is busy working on all of our prelaunch activities, while our fantastic market access team is working on the Medicare and commercial reimbursement coverage. I couldn't be more excited about our two major product launches this year. The foundation we have built over the last five years, including our track record of meeting or exceeding our expectations while expanding our leadership across the cancer care continuum, reinforces the durability of our growth outlook. Our execution across Decipher and Afirma, combined with our ability to navigate through evolving market dynamics reflects the strength and resilience of our operating model. We are entering 2026 with a clear path to sustained double-digit growth, served by a portfolio of tests in prostate, thyroid, bladder and breast. This momentum positions us to deliver lasting value for the patients we serve, the employees who power our mission and our shareholders. With that, I will now turn the call over to Rebecca to review our financial results for the fourth quarter and full year as well as our outlook for 2026.

Thanks, Marc. Q4 was another exceptional quarter with $140.6 million in revenue, an increase of 19% over the prior year period. We grew total volume to approximately 48,000 tests, a 16% increase over the same period in 2024, and generated $52.6 million of cash from operations to end the quarter with $412.9 million of cash and cash equivalents on hand. Testing revenue during the quarter was $135.8 million, an increase of 21% year-over-year, driven by Decipher and Afirma revenue growth of 27% and 16%, respectively. Total testing volume was approximately 45,500 tests, an increase of 16% over the prior year period. Testing ASP was approximately $2,984, an increase of 4% compared to the prior year, driven primarily by the impact of higher prior period collections or PPCs. Normalized ASP was also higher at $2,875, a 1% increase compared to the prior year period after adjusting for the approximate impact of $5 million of PPCs in the quarter. Moving to gross margin and operating expenses. I will discuss our non-GAAP results. Non-GAAP gross margin was 75.1%, up 580 basis points compared to the prior year period. Testing gross margin increased 380 basis points compared to the prior year to 76.1%, driven by operational efficiencies from our v2 transcriptome and higher PPCs. Non-GAAP operating expenses were up 12% year-over-year to $65.1 million. Compared to the prior year, research and development expenses increased by $1.6 million to $19 million, driven primarily by clinical investments. Sales and marketing expenses increased slightly to $23.9 million, given higher travel expense. G&A expenses were up $4.7 million to $22.3 million, primarily due to hiring and expenses in our customer service function to support revenue growth and software teams to support new product development. Moving to profitability. We recorded quarterly GAAP net income of $41.1 million and $66.4 million for the full year 2025. Adjusted EBITDA for the quarter was $42.3 million or 30.1% of revenue, well above our expectations given the benefit of prior period collections. For the full year 2025, our adjusted EBITDA margin was 27.6%, ahead of our target of 25%, which was achieved more than a year ahead of our projections. We increased our cash balance by more than $120 million over the course of the year. These results give us the flexibility to invest in our growth drivers and are a testament to our differentiated financial profile. Turning now to our 2026 outlook. We are reiterating our 2026 total revenue guidance of $570 million to $582 million or 10% to 13% year-over-year growth. This reflects testing revenue growth of 14% to 16% for the year with Afirma growth expected to be in the mid- to high single digits and Decipher growth to be approximately 20%. As always, we have not included PPCs in our guidance but do have a headwind of approximately $10 million of PPCs we recognized in 2025. We expect adjusted EBITDA margin to be approximately 25% in 2026 and in future years, barring any bespoke investments we decide to make, which, of course, we would communicate as appropriate. We expect Q1 adjusted EBITDA margin to be lower given typical seasonality of expenses, including increased compensation, benefits and payroll tax. As always, we plan our expenses on an annual rather than quarterly basis. In closing, I am thrilled with our progress over the course of 2025. As Marc shared, we delivered on or exceeded all of our 2025 goals, including the Decipher metastatic launch and the transition of Afirma to the v2 transcriptome. With a number of exciting catalysts on the horizon for 2026 and beyond, paired with our differentiated financial position, I am more confident than ever in Veracyte's future and proud to be serving more patients at pivotal points in their cancer journey. We'll now go into the Q&A portion of the call. Operator, please open the lines.

Our first question comes from Subbu Nambi of Guggenheim.

I have two topics. Starting with the guidance question. As we sit here 8 weeks into the year, has your conviction in the guidance evolved in any way? What are the assumptions that drive the high end or low end of the range? And maybe some details on the quarterly cadence?

Yes, thanks, Subbu. I'll begin. We are eight weeks into the quarter and into the year. We've reaffirmed our guidance from earlier in the year, which shows our strong confidence in it. I'll have Rebecca discuss the seasonality and the factors that influence the high and low end of the range.

Yes, I'm happy to provide that information. Thanks, Marc, and thanks, Subbu. It's great to hear from you. First, it's important to note that in the first quarter, we typically see seasonal trends. We had an exceptionally large collection quarter in the fourth quarter, and historically, using last year as a reference, we don’t generally see the same volume in the first quarter. Last year, it was around $500,000. From a volume standpoint, Afirma usually has the lowest numbers in the first quarter, followed by the third quarter, while the second and fourth quarters are stronger. For Decipher, the first quarter's performance is greatly influenced by weather conditions. Last year, we saw maybe a 100 sample increase sequentially, but weather had a significant impact during that quarter. Currently, the weather impact this year appears to be similar. We anticipate catching up on this as the year progresses, but it’s an important factor to keep in mind moving forward. To reach the higher end of our forecast, a few elements come into play. First, our guidance for Afirma includes an assumption about the no result rate. At the low end, we expect minimal to no advantage from this rate, while at the high end, we anticipate it to be similar to what we experienced in the fourth quarter. Additionally, if we see prior period collections, which aren’t included in our projections, that could push us towards the high end, as could higher volume performance. Specifically for Decipher, there's greater variability compared to Afirma, due to where we are in the adoption curve. Thus, if we observe increased market penetration or market share gains, it would also contribute positively to reaching the high end of our guidance. I hope this clarifies things. Is there anything else you would like to add, Marc?

No, just a reminder that we’re not guiding for the new product launches in our revenue forecast for a very simple reason: we expect those to be more of a revenue driver in 2027, but they are not included in the guidance either.

Super helpful. One of the goals of the OPTIMA study is to expand the intended use population. What readout is required for this to occur? And if successful, how big would this market be?

Yes. So I'll start and then I'll hand over to John to talk about the market opportunity here. But the way we describe this is there's the patients, 300,000 patients a year with breast cancer. There's about 75% of them or 225,000 of them that are addressed by what we believe will be the Prosigna indication there. Our first and foremost goal is to penetrate that market as it currently stands and then obviously expand from there. And so you can expand into, for example, premenopausal, you can expand into all the different risk categories within that 225,000. But John, maybe you can just give a little bit more commentary on how OPTIMA is going to address this.

Yes. So thanks, Subbu. OPTIMA has included in their enrollment criteria up to nine nodes. Currently, Oncotype is approved up to three. We'll have to see what the performance of the test ultimately will be with the OPTIMA trial results before we can provide very directed commentary on how we expect to leverage that data.

And remember, we expect the OPTIMA results to be available at ASCO. We are hoping and anticipating that the results will be positive and that the readout will happen as planned, and we are prepared to launch when that occurs. Thank you for your question, Subbu.

Our next question comes from the line of Puneet Souda of Leerink Partners.

This is Carlos on for Puneet. I've got two questions. So the first one is you had a really healthy beat of your 25% margin target. You were at, I think, 27.6% for the year, but you're guiding to go back down to a long-term target of 25% in 2026. If you could just walk through some of the push and pulls there. Is that just conservatism? Is it true-ups? Is there an increase in OpEx that we should be looking out for? Anything there would be helpful.

Yes, thank you for the question. We have two product launches planned for this year. As we roll out these products, we will definitely seize any opportunity to invest more quickly if it helps our progress. Additionally, establishing clinical evidence and conducting studies, especially in MRD as we branch into more indications, is crucial. It's important for us to retain the flexibility to pursue these avenues while still being highly profitable compared to the industry. I'm pleased we achieved this level of profitability about a year earlier than expected. I have always maintained that a well-managed business in the diagnostics sector should be able to reach a 25% margin and maintain it sustainably.

Yes. I would like to address the 25% guidance compared to the 27.6% over the course of 2025. We had $10 million in prior period collections during 2025, which is not reflected in our guidance, and that also means it’s not included in our operational expenditure forecast. However, we are making significant investments that are expected to yield a high return on investment. Our main goal is to serve as many cancer patients as possible with high-quality products, and we will continue to invest in those areas. While these investments may not have an immediate impact on our 2026 guidance, they are essential for the long-term success of the organization, and we are optimistic about their benefits for all stakeholders, including patients. Ultimately, our focus is on driving revenue growth, increasing patient adoption, and serving as many individuals as we can. Everything we are investing in has a very high return potential. Specifically, we are investing in new product introductions, software and bioinformatics, commercial resources, and the customer service and lab operations that support revenue growth. It’s worth noting that last year, we invested more in the second half than in the first half, so you will see the full-year impact of that as well. The range of opportunities we see ahead is significant, and it would be unwise not to maximize our investments. This includes enhancing Decipher penetration, strengthening Afirma for the long-term MRD platform, as well as Prosigna, along with additional long-term growth drivers, which currently make up a smaller share of our focus than IVD nasal swabs.

Okay. That's really helpful. And then just as one other question. So when we're looking at the Decipher market, you had really great momentum, 27% growth in the fourth quarter, still plenty of penetration to go with the market only 40% penetrated, but the penetration is growing quickly, and we're seeing competitors investing a lot more into their competing assays. One of them that had struggled a bit managed to return to double-digit volume growth that they announced earlier this week, for example. If you could just give a little update on the competitive space that Decipher operates in, what you're seeing, that would be very helpful. I appreciate it.

Yes, I'd be happy to. A couple of macro-level things to note. We estimate that the market is growing at about 6%. As of the end of 2025, Decipher is projected to have approximately 33% market penetration, meaning a third of patients are utilizing Decipher while two-thirds are not. We haven't observed any changes in the competitive landscape. In fact, looking at the growth of Decipher in 2025 and our future projections, we're seeing strong ongoing growth. This is supported by the extensive evidence we often discuss, the NCCN guidelines, and Decipher's position within that framework. We remain very confident in Decipher's growth trajectory and are encouraged by its progress in the marketplace, even as we enter this quarter.

I just want to add that we grew 22,000 tests in 2025 compared to 2024. If you examine the other players in the market and project their total year volumes, they are not significantly different from our peer growth. This reinforces Marc's point that we are not experiencing a shift in competitive dynamics. Remember, there are three players in this market, and regarding the preannouncement, I believe we are seeing some share movement between them in any given quarter. However, our competitive dynamics are so strong that we don't really notice that fluctuation.

Rebecca, please remind me to emphasize another point. When looking at the NCCN risk spectrum, Decipher has consistently performed exceptionally well in the intermediate and low risk categories. The low risk has been our second highest, while the high risk category has tended to be our lowest. We’ve pointed out several times in recent quarters that since the launch of Decipher metastatic, we’ve observed a significant growth increase in the high risk segment. Additionally, there is the RP within the metastatic population. With growth in the 30% range, it's truly exciting to witness further penetration across the care continuum, which has always been our approach with all of our tests and particularly regarding the type of evidence we generate.

Our next question comes from the line of Bill Bonello of Craig-Hallum Capital Group.

Yes, two things. So to start with, I might come also at the margin question, but probably from the opposite point of view. I mean, just sort of back of the envelope math, it looks like you're giving yourself $10 million to $15 million of incremental investment to launch two products, and at some point, you have to put together an entirely new sales force, I would imagine, for breast cancer. So help us understand why that's enough spend to allow you to be competitive with those two products.

I love your question, Bill. Marc is going to answer it, but.

When discussing our plans, I believe we have the flexibility to increase our spending if necessary. If we see an opportunity to accelerate our efforts, we have the capacity to do so. Our initial projections could be slightly conservative. As we introduce new products in 2026, we may need to onboard about a dozen sales representatives for the Prosigna line. Additionally, MRD will integrate with our existing neurology channel, where most patients are treated, meaning we won't need a significant increase in investment in that area. The main costs associated with launching a new product come from developing clinical evidence, which has been ongoing and is already accounted for in our current budgets. This approach is similar to what we did with Decipher, as many relevant studies that will support these products will be conducted by others over time. So, to answer your question, I am confident we can achieve our goals within our budget. If we find it necessary to invest more, we are prepared to do so in order to expedite our progress.

Yes, I completely agree with Marc. Bill, we should discuss the numbers later because our planned spending year-over-year compared to 2025 is much greater than the $10 million you mentioned. Marc is spot on regarding the reasons for that investment. However, due to the gross margin expansion anticipated from the transcriptome transition, the investment can be significantly higher than the $10 million mentioned.

Excellent. I've never been good at math. Then the follow-up, which is sort of cheating because it's really a different question. But can you just talk about how you're thinking about capital allocation? I mean, you're sitting with a lot of cash and generating really strong cash flow, and it looks like you will continue to do that.

Yes. Happy to do that. No change in our philosophy around capital allocation. We've been generating cash for a while now. We've had a strong balance sheet. We've made some important decisions, including acquiring C2i in order to drive our MRD platform. And we're continuing to look at opportunities in the marketplace, but our philosophy and our bar hasn't changed one bit. Other than that, as you can see, and we just talked about, there's investment in our ongoing business. We're obviously spending money, as you would expect us to, on organic discovery type of activities and building infrastructure, things like software development and so on. And those are kind of the main ways we think about allocating capital. And so we'll continue to be very deliberate about that.

Our next question comes from the line of Doug Schenkel of Wolfe Research.

The first topic I wanted to dig in on is gross margin, which stepped up by about 200 basis points in the fourth quarter. How much of that can be directly attributed to the v2 transcriptome? And then just one clarification also on gross margin. Rebecca, in your prepared remarks on Q1 adjusted EBITDA margin being lower. Is that an expectation of being lower than the target guidance number for the year or down sequentially from Q4?

Yes. I'll address the second part of your question first. We expect Q1 to fall below our guidance for the year and to be lower than the previous quarter. This is due to factors like removing the PPCs and the initial costs of the year, including benefits, compensation, taxes, and health care. Therefore, Q1 will definitely show a sequential decline. Regarding your inquiry about gross margin in Q4, it relates to both the aspects you mentioned and the ones I referred to. Together, they provide a comprehensive answer. The lack of result rate benefit and the cost savings from the v2 transcriptome, along with the PPCs, are contributing factors. Among these, the lack of result rate has the larger impact.

Okay. Second topic is Decipher bladder. Data coming out of ASCO GU looks pretty impressive. Our understanding is most of your Decipher volume is still in prostate today. Can you comment on roughly what percentage of Decipher is bladder and then how you expect that to trend over time? And I guess a big reason, it's probably obvious, but a big reason I'm asking this is on the bladder sparing data being presented at ASCO GU, it does seem like that could support increased use of Decipher into earlier stage or potentially neoadjuvant chemo decision-making workflows. And that could actually support multiple Decipher informed decision points across the bladder care continuum over time. So if that's the case, I could see where this could turn into a much bigger growth driver over time. if I'm thinking about this the right way. So any help there would be appreciated.

Yes, Doug, your question is very relevant. When we look at the bladder data in today's figures, it represents just a small fraction of the overall Decipher numbers we mention. We've been consistent in how we view the bladder classifier; we need more evidence, particularly the type being presented at ASCO GU, to enhance the clinical utility of that test in the neoadjuvant context you mentioned. What excites me is that this Decipher classifier can be applied even in early stages. As patients progress through their treatment, those who need MRD testing will also have access to our Decipher and upcoming TrueMRD tests. It’s great to see us expanding across the care continuum, and it's crucial for these tools to be integral to the diagnostic, prognostic, and predictive processes. Phil, would you like to share some insights on the intriguing things we can expect at ASCO GU?

Yes, thank you for the question. The GU ASCO abstracts collectively highlight the importance of understanding the various subtypes of early-stage bladder cancer as an integral part of patient care. Bladder cancer is currently transitioning towards optimizing responses to neoadjuvant therapy to facilitate a bladder-sparing approach. The studies we will present illustrate how our Decipher bladder tool can guide treatment decisions, notably showing a higher response rate in luminal compared to non-luminal subtypes. Furthermore, Decipher Bladder complements our subsequent assessments of minimal residual disease in muscle-invasive bladder cancer, aiding in understanding patient progress as they pursue a bladder-sparing strategy. Ultimately, our array of studies emphasizes that recognizing the subtypes of bladder cancer enhances neoadjuvant therapy effectiveness, which has generated significant interest in our bladder test.

Our next question comes from the line of Kyle Mikson of Canaccord Genuity.

Congrats on a strong year. I wanted to start on the '26 guidance. I think Rebecca, in response to Subbu's question, you parsed out Afirma and Decipher expectations for the year with respect to revenue. I think you said mid-single digit to high single digit for Afirma and then Decipher 20% growth you kind of left. So could you just talk about the volume expectations for both of those products for '26? And then any puts and takes for each of those like for Afirma, maybe some volume shifts because of the v2 or Decipher, you have a lot of digital pathology stuff going on. So we would love to hear that.

Yes. I'm happy to answer that, Kyle. Thanks for your question. Essentially, you can assume that the volume growth projected in our guidance is greater than the revenue growth guidance due to the $10 million impact from collections in the previous period. That's the simplest way to look at it. Could you remind me of the second part of your question, please?

I mean, it was just kind of like puts and takes for volume growth for the year. There's a lot of kind of exciting stuff on tailwind especially.

Yes. So on the new transcriptome at the low end of the Afirma guide, we would assume no benefit. At the high end, we'd assume kind of what we saw in the fourth quarter. And then on Decipher, there's a lot of different things that we're working on. Obviously, the continuous drumbeat of publications and podium presentations. Obviously, the ASCO GU showing was incredibly strong. We would expect just that flywheel to continue throughout the year. The other thing on the Decipher front is we are working on our new signatures that Marc cited in his prepared remarks. Those may not be necessarily additive to 2026 but will be important as we think about looking to '27 and beyond and continued competitive differentiation. And then the last one I would cite is really kind of on the high-risk biochemical recurrence metastatic side. We've seen a lot of traction there since the ASTRO presentation back in Q3. And I would suspect that, that trend continues, if not, even becomes even stronger as we go throughout the course of 2026 and beyond.

Perfect. I had a follow-up on MRD. I was curious what you're doing now to seed the market for the launch for MRD and MIBC in the first half of the year. There's a lot going on in bladder cancer, whether it's on the therapeutic approval side or clinical trial side in MRD. So how are you going to make sure that your voice is heard other than these data and things like that in presentations?

Yes, I think that's a great question. There are a couple of layers to it. I mean, first and foremost, as you know, our initial test in TrueMRD, which is a platform, is going to be in muscle invasive bladder cancer. And for that, we really already have a lot of voice of the customer and that we are visiting those customers because of Decipher. And so at the appropriate time, and remember, we don't want to obviously distract from our very well-run Decipher business on the prostate side, at the appropriate time and the appropriate accounts, we will be spending time with those customers. We will be describing the clinical studies that have already been done in that setting, and we'll be helping those customers to understand what our TrueMRD offering is and how they're able to use it. John, do you want to add anything with respect to that?

No, I think you answered it well. I mean the only thing that I would add is we have a standing policy that we would only pursue tests commercially once they're reimbursed. I think what you're hearing here is prudence, not conservatism. We are confident in the performance of the test as we've seen, as we've published. It addresses a meaningful clinical question that physicians are asking, which is how many patients are going to recur post-surgery that after neoadjuvant treatment after surgery are intended to be curative. Beyond that, we have lots of studies in the hopper that we continue to pull the Decipher play on, which is to continue to expand clinical utility through evidence.

Yes. And it's a good time to remind everybody why our test is differentiated. Our TrueMRD test is a whole genome-based approach. And so to John's point, the whole genome data that we're going to generate for every single patient of every single incidence of care during their treatment journey and the recovery journey, more importantly, is going to be valuable data and valuable information that will drive future clinical studies. So over time, you see the Decipher playbook play out over and over again in MRD as well as it does in our whole transcriptome business.

Our next question comes from the line of Andrew Brackmann of William Blair.

Maybe we could actually just pick up where you left off there, Marc, and sort of using the Decipher playbook for TrueMRD as well. I think in the past, you talked about sort of driving some collaborations through GRID on TrueMRD. Can you just remind us sort of how you can sort of replicate some of the learnings on using that GRID platform from other tests like Decipher into TrueMRD? And any similarities or differences as you move from Decipher to TrueMRD?

Yes. I mean, it's a great question. I don't think there's a ton of lessons learned other than the high-level one that making that GRID information available is certainly driving and has driven over the years a lot of research. That research is on the existing tests, but also importantly, as you heard when we talked about PORTOS, PTEN, and PAM 50, it actually drives research around other biomarkers as well, and we can expand those by adding them to the report, the clinical report over time. So you've got this great workflow of research finds the most interesting outcomes and clinical factors or clinical information that can be deployed as a test, and then it's very simple for us to just add that without even changing the nature of our test at all. And that's why we have this kind of uniform platform that we use across all of our tests. Do you want to add something?

Yes. Regarding our MRD, as Marc mentioned, it involves whole genome sequencing of the tumor as well as the germline and cell-free DNA. This comprehensive approach allows us to effectively monitor the tumor. We utilize the whole genome to offer a clinically validated MRD test that indicates whether a tumor is detected or not. If it is detected, we provide a tumor fraction. By employing whole genome sequencing, we can capitalize on the additional data through collaborations and research to explore aspects such as tumor heterogeneity, clonal evolution, and the identification of genome-wide signatures linked to resistance to platinum or other therapies. This strategy aligns seamlessly with our efforts with Decipher and Afirma, where we receive compensation for a transcription signature while employing the entire transcriptome through research to investigate the biology and create new biomarkers.

And what I love about this Andrew, is you start in one indication or one risk category and then you expand from there. You start in prognostic and you expand into predictive and so on. And so you fill out the care continuum and you fill out the clinical uses of the test across that care continuum. And I don't see it being any different in MRD than we've demonstrated already in transcriptome.

Okay. All of that's great color here. I'll stick on TrueMRD. This is more sort of housekeeping. Can you just sort of remind us on the reimbursement strategy here? I think you're going after two codes versus sort of the bundle. So can you just level set us on expectations there? And as you sort of think about dollar amounts, I don't know if you're willing to share sort of what defines success for you there. But anything qualitatively you can share with respect to sort of where your mind is at on sort of levels of reimbursement there?

Yes. Too early on the dollars, but I'll ask John to talk a little bit about the process we're going through.

Yes. On the reimbursement side, Andrew, as I mentioned, we're looking to pursue recurrence detection post patients who have been treated either with or without neoadjuvant therapy and have undergone a radical cystectomy. Those are management decisions that are made with curative intent. And so as such, it is presumed that the patient is cancer-free. And as such, it does not conform to the NC 90.2 limitation of having to bundle testing for MRD. And so those will be coded and billed individually. So we'll have two main codes. One is the initial landmark setting test that determines the MRD signature, as Phil described earlier, as well as then each sequential plasma test is also billed independently. As it relates to pricing, that's something that we're still negotiating through the MolDX process.

And then Andrew, the population that John laid out based on our own research, we believe it's about 70% of the patients that are seen in our channel.

Our next question comes from the line of Lu Li of UBS.

First one on the new product revenue contribution. I understand that it's not included in the guide. I wonder whether you guys have like kind of an internal target that you wanted to hit? And then secondly, on the MRD new indication, you have CRC and lung on the slide. I wonder, is it fair to assume that those will be the next indications?

Let me start with the second question, and then Rebecca can address the first. I wouldn't make any assumptions right now. What I prefer to avoid is setting a specific timeline for upcoming developments because it heavily relies on several factors, including cohorts. That's why we've stated that we plan to introduce a new indication each year. We want to remain flexible and adaptable on an ongoing basis, considering factors such as the channel, clinical evidence, cohort details, the publication of that evidence, reimbursement, and more. Therefore, we cannot provide more specific information about the indications at this stage. We have indicated that our primary focus will be on indications where we have some channel presence or are developing one, and this will certainly influence our decisions over time.

Yes, and on your new product introductions, of course, we have our internal goals. I would highlight them on the MRD front as being more around the customer experience and less around the revenue contribution over the course of 2026. That will obviously become more of a factor in '27 and beyond. But this year, we're really working on ensuring a great customer experience for MRD and various other critical deliverables that we're citing internally. On Prosigna, that is expected to be launched here over the summer and the benefit of that and the expectations for that are going to be highly tied to the OPTIMA readout and the timing of the OPTIMA readout and how that all goes. We have a range of outcomes internally. But again, we're seeding the market, and we aren't going for volume from the get-go. What we're really focused on is KOL engagement and spreading the word and really kind of taking the approach of a top-down KOL engagement and ensuring that, that is where we're really focusing on volume growth from the get-go. Over a 5-year time frame, we do believe this will translate into strong share across the entirety of that market. But again, in 2026, we're looking to build the foundation more so than really AMP revenue from Prosigna and MRD.

Yes, that's very helpful. Maybe just a quick question on the Decipher Q4 volume. If you look at it on a sequential basis, I think that's only up like 500 units. Wondering if there anything to call out or just like why it's like slightly lower than like Q4 '24 number?

Yes, I'm happy to address that. In any quarter, there can be fluctuations in volume on either side of the timeline. In the fourth quarter of '24, the volume was favorable, while in '25, we experienced a day that affected our numbers. These variations are typical and reflect normal quarterly impacts and volatility rather than any underlying trends. Overall, we had an outstanding quarter in the fourth quarter across all the metrics we monitor. Therefore, a few hundred samples, whether it's 500, 600, or 700, don’t concern me. I wouldn't focus too much on that. We've had similar quarters before, and while some people may get anxious, it usually normalizes in subsequent quarters. So I wouldn't read too much into it.

Our next question comes from the line of Tom DeBourcy of Nephron Research.

I wanted to ask about the testing revenue, where you're guiding to $10 million to $12 million. In Q4, you still had biopharma revenue, and I expect that in 2026 you may also have biopharma revenue, though not necessarily from the same source, whether it's from MRD or other clinical trials. How should we think about product versus biopharma revenue, considering the IVD launches or potential one-time biopharma revenue?

Yes, happy to answer that, Tom. Implied in the guide is less than $1 million of biopharma revenue, call it, 0 at the low end and 1 at the high end. That's an incredibly specific range. And the reason why it's that specific is because unless something is signed and booked, we don't include it. That's just our philosophy. So obviously, with shutting down the French entity, that was where the vast majority of the biopharma revenue came from. And so we will, obviously, with the Decipher franchise, the MRD franchise, continue to go after biopharma. But this, again, is less about a revenue strategy, and it's much more about evidence strategy, and that's really where we're focused. And so that's not necessarily the driving force. On the product front, we have implied something closer to that around $10 million that you cited. And that is down year-over-year. That's down year-over-year for two reasons. One is we have a new contract manufacturer, and obviously, the variable of their ability to produce, we wanted to give ourselves just some wiggle room around. And then the second is we are not selling to U.S. customers ahead of the LDT launch. Let me be very clear. We are not selling the IVD to U.S. customers ahead of the LDT launch. And therefore, that contribution, which was quite small in nature, is not included in the guide.

Our next question comes from the line of Keith Hinton of Freedom Capital Markets.

Just wanted to follow up quickly on Decipher and bladder, just to make sure that I sort of understood the comment. So based on the exciting data at ASCO GU, is investing additional commercial resources there becoming a near-term priority just based on what you've seen? Or do you feel like you need to see more data? And if so, is there more data that you're aware of in the near term? And then if you do decide to invest commercially there, how much synergy is there with the existing Decipher franchise and the MRD franchise as well?

Yes, I can take that one. Thank you for the question. No, the answer is no. The rate-limiting step in the growth of Decipher Bladder is not tied to commercial investments per se. As Marc mentioned earlier, there's a very high degree of overlap between bladder cancer patients who are currently managed by the physicians that we call on for Decipher Prostate. We feel we can manage that and have the bandwidth and capacity to manage that through our current channel and sales personnel in our systems. I think the parts that are rate limiting are all this great evidence that you're seeing at ASCO GU still needs to be completed, still needs to be published. And those are, in general, what allows us then to update our own clinical reports and to essentially leverage that great data to see demand and create more demand.

And then just broadly, our investment in commercial this year will be mostly on the Prosigna LDT U.S. side. And then on MRD to your question, because of the overlap in urology, I think about the MRD investment being in future years as we broaden into other indications.

Our next question comes from the line of Mike Matson of Needham & Company.

I really just have two questions, not to pile on, on the TrueMRD, but I was wondering if you could just tell us the annual number of patients that you think are candidates and then the number of tests per year you would expect to be used on those patients on a given patient? And then the second question is really just on tax rate. So do you expect to start paying taxes in '26? And what would be the appropriate rate to model? So.

I'll take the latter because it's fast and easy. So we always have to pay some state taxes where we've blown through our NOLs, but that's in the run rate. So I wouldn't think too hard about that. But effectively, we are expecting our GAAP and non-GAAP tax rate to be around the mid-single digits this year. So we still have a decent chunk of NOLs to get through.

Yes. And on the available market, we're estimating just around 20,000 patients for a SAM. You also have to factor that there's going to be some serial repeat testing on a per patient per episode of care basis. The details of that are still under discussion through our tech assessment with.

Our next question comes from the line of Kallum Titchmarsh of Morgan Stanley.

This is Jason on for Kallum. A lot has been asked, so I'll just keep it to one. Maybe on Percepta nasal swab, you recently completed enrollment for the NIGHTINGALE trial. Can you just provide some color on what are the next milestones we should be looking at? Any color you can share on time line for trial completion, data readouts, commercialization, and just any milestones we could track?

One of our key achievements in 2025 was successfully enrolling the final patients in that study. Now, we have a couple of milestones to focus on. First is the follow-up, which requires waiting at least a year, if not two, to confirm benign results for those patients. Then, we need to prepare and publish the findings, which can also take time. Following that, there will be ongoing discussions with MolDX and payers to secure reimbursement. This is why this initiative clearly fits into our long-term plan, specifically in the 5- to 10-year timeframe.

Thank you. This concludes the question-and-answer session. I'd like to thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.