Conference Transcript - WGS 2026-08-11

Kyle Mixon, Analyst — Canaccord

Welcome to the Canaccord Returity Growth Conference. I'm Kyle Mixon. I cover life science, tools, and diagnostics for Canaccord. Please welcome me to a fireside chat with GeneDx. From the company, we have CFO Kevin Feely. GeneDx offers a range of testing opportunities for rare disease and genetic disorders focused on whole oxygen and whole genome sequencing primarily. Thanks, Kevin, for joining us today. I appreciate it. Can you start by kind of walking through your second quarter results you announced a week or two ago? So a solid quarter. After first quarter, that was a little tricky. So just kind of maybe start with that.

Kevin Feeley, CFO

Yeah, and I appreciate the opportunity. Yeah, I had a chance last week to put out our second quarter results. And we're pleased, in particular, with the highlight of continuing to demonstrate really strong demand for our services, which are anchored on providing exome and whole genome sequencing for pediatric rare disease volume growth, 32%. for the year. We did return back to profitability on an adjusted basis, about a quarter ahead of what we had anticipated. And we think setting up a strong second half of the year and really underpinned by a sea change in policy coverage. One notable point, if you look at underlying payer coverage in the commercial realm for whole genome sequencing saw a step up to now having 88% of commercial lives be covered, have some level of coverage in their policy. We've yet to recognize and realize the full benefit of that policy momentum in our earnings. We expect to do that over time, but go back just a quarter ago and only 47% of commercial lives had whole genome So that was an addition of 56 million lives. As we typically see, coverage doesn't equal payment automatically. It does take several quarters for that to materialize. We need to see payers adjudicate consistent with their policy. But if you look at where the space is moving, the last several years have seen many state Medicaid programs pick up coverage. And now nearly all commercial payers having some level of policy coverage. The way I like to think about the second quarter is that 32 percent volume growth really representing a large unmet need out in the marketplace. One in 10 Americans is walking around with an undiagnosed rare disease. It is exacerbating. The lack of testing is exacerbating what we call the diagnostic odyssey. This first half of 2026, we think, turns the page from a question on being whether there's durable demand for services, but more so now, how do we monetize that demand into revenue? And we're not at a point where our revenue growth rate matched the volume growth rate for the quarter. We are singularly focused moving forward on improving that in order to recognize our full earnings potential. We put out a guide for the remainder of the year, reaffirming at least $475 million of revenue. But the second half of the year really focused on converting demand into recognized revenue.

Kyle Mixon, Analyst — Canaccord

Okay, that was great. Maybe in the quarter, actually, you know, in the first half of the year, you had some interesting dynamics on the outpatient side where the mix, the genome representative outpatient has sort of affected the ASP and the revenue per test, and that obviously kind of impacts, like, what the guidance would be and things like that. And just the optics have been just we're trying to, like, follow along, basically. So could you just walk through what's happened, I guess, year to date in the outpatient side and, you know, what's what most recently how your efforts to maybe right size things or sort of like optimize things, perhaps like, you know, how that's helping and shaping.

Kevin Feeley, CFO

Yeah, there's an underlying secular trend into whole genome, which is really a continuation of an evolution that GeneDx started 20 years ago, really being the pioneer to move from single gene tests into multi-gene panels, and over the past decade, moving the space from multi-gene panels into exome, eventually recognizing that the space will end up at a whole genome backbone for all. We picked our ticker symbol intentionally many years ago, but exome today still representing the majority of tests that we run in that exome genome portfolio. I think it's important to recognize 50% of all tests that we ran at GNDX are still multi-gene panels and single-gene tests, still in a long-term evolution from legacy technology into exome and genome. What we've seen in the last year has been a high velocity of transfer into whole genome from exome. The second quarter, 32% of our outpatient business was whole genome. That is down, though, from in the first quarter, 40%. Compare that, though, to a year ago, the portfolio is roughly 80% exome and 20% genome. And so in the last year, I think an acknowledgment by geneticists in particular that speed and cost have reached near parity with legacy technology. And we'd expect that secular shift to genome to continue. What we did, though, is introduce an important offering that is being really well-received in the marketplace in order to somewhat manage that transition between exome and genome, that being an exome-to-genome reflex, launched in February. In that case, it's run on a whole genome backbone. An exome report goes out to the physician. It reflexes to a genome if there are relevant findings on the genome content. and that Reflex product priced and reimbursed similar to Exome. And the fact of the matter today is Exome is reimbursed at a higher price and more often than Genome is. It's our intention to change that over time. But all to say it's going to be several years before we see a genome-only world, But ultimately, it is our responsibility as the market leader to properly manage that transition. And we think we've done so fairly effectively in the second quarter.

Kyle Mixon, Analyst — Canaccord

Yeah, I guess to, you know, ideally you'd have a higher mix of genome over time. That's like the whole kind of thesis, I guess. However, it's, again, like it's affecting how the ASP and the average revenue per test basically. Because I think it's like half the price point of – genomes have the price point as exome in the outpatient setting, I believe, somewhere around those lines. So, you know, how do you, I guess, just get the most that you can out of the genome side in the outpatient, whether that's collections and RCM or prior auth or something like that? Can you do that, I guess, to help things as well rather than just decrease the mix from genome?

Kevin Feeley, CFO

Yeah, we think we can. And that Reflex product really meant to be a bridge to mature the revenue cycle processes to collect far more often. Today, in the second quarter, 32% of all genome tests were paid. And frankly, that is not acceptable to us. If you look at more mature specialty diagnostic products, we've looked at some analogs. We think a long-term target of close to 70% collection rate is viable within a couple of years. What that will take, we outlined some on our call last week. It's really designing payer-specific workflows. If you look at the documentation requirements, medical necessity requirements, administrative forms that need to be filled out, prior authorization protocols um all very different across what is close to a thousand payer plan combinations and so it was incumbent on us when we're submitting claims to make sure that we're following payer specific rule sets if we look at the overall denials today that we're facing um very little are actual disputes around medical necessity the majority frankly are we we think, addressable, administrative documentation related. And the investments we're making into process change, into people change, and into AI and tech enablement are all geared to making sure that we close that gap. If you look at the second quarter, over 60% of all volume was submitted to payers with underlying policy change, yet we were only being paid 30% of the time. That's the addressable gap over the next few quarters that will be the single largest driver of revenue growth to eventually get to the point where our revenue growth rate matches or even surpasses our volume growth rate.

Kyle Mixon, Analyst — Canaccord

Okay, great.

Kevin Feeley, CFO

And just to backtrack a little bit, so I believe that the exome genome collection rate has been maybe like 50-ish or something percent. genome much lower 30 percent 32 percent it sounds like does that mean the exome collection rate is way higher or how do we reconcile these no it's not and that that 50 um is a function if you look at the totality of the exome genome portfolio about 90 is insurance-based with an equal mix of medicaid and and commercial meaning about 10 is institutional pay directly contracted with a hospital system the latter there is paid a hundred percent to get to a mid 50s collection rate it's giving rise to those tests that are paid at a hundred percent if you isolate down to the insurance portfolio genome in the second quarter as a collection rate of 32% exome is very comparable to that all to say roughly a third of all tests being paid for and that is the go get for us moving forward. I did cite last week on our call, if you actually look at that underlying collection rate, go back a year for genome, and it was in the 40s. So there's been some deterioration, despite seeing immense improvements in underlying policy coverage at payers. What that tells us is we're under earning. There's an ineffectiveness in our revenue cycle processes. They've not yet kept pace with the rapid scale at which we've evolved. Too manual and unable to handle, like I said, that wide variety of bespoke requirements at payers. Good news is we brought in talent who's proven to run revenue cycle at much greater scale. And as I said, we do believe these denials are addressable over time.

Kyle Mixon, Analyst — Canaccord

Okay. Kind of sounds like there's some growing pains when you add new coverage, new plan or a new state maybe that it takes a certain period of time to like kind of get collections to 80 plus percent or whatever the number kind of kind of is right so um what have you so it's given you've i want to get this later you've added some new you know coverage wins recently states uh commercial kind of lbms and stuff um how long does it take do you think to kind of get to that the appropriate or i guess acceptable collection rate yeah it could take several quarters um really going through an iterative process to submit claims potentially see payers not adhere to their own policies have us be subject to an appeal process show payers

Kevin Feeley, CFO

that we're going to fight back through that appeal process and continually remind them of the policy coverage that their members pay for two recent large policy wins november 2025 the state of California, put out genome coverage for Medi-Cal. That would apply to the fee-for-service portion of Medi-Cal, but the reality is close to 70 to 80 percent of Medicaid patients in California receive their coverage through managed care organizations. And so those are commercial organizations contracted by the state. They've got a responsibility to adhere to underlying policy coverage, but we need to see them actually do so before we could accrue up from a revenue recognition standpoint. So in the case of California specifically, they put out coverage in November. It was six months later that they actually put out a published price, and therefore we're only a couple months into the period at which there was an identifiable price for them to adjudicate off of. And it will take several quarters for us, we think, to submit claims and see what the adjudication experience is before we can reliably count on increased cash collections. There's no doubt that that is a long-term catalyst for revenue growth. But in terms of maturity, we'll likely need beyond 2026 before we see benefit for that. On the commercial side, an example I cited earlier, 56 million Americans now having new policy coverage. That was as a result of Carillon, one of the country's largest lab benefit managers, did put out policy coverage favorable to genome. That, again, will take several quarters to cascade down to individual carriers and then have those carriers educate their own workforce about the policy change and And frankly, we'd expect to have to go through a series of claim submissions and denials before we can start to see benefit for that. So I've left any uplift in that regard out of the third quarter, wanting to see some air between that policy coverage and underwriting revenue recognition. Continue to believe it will be a source of upside in 2027, but less of a material contribution at the tail end of this year.

Kyle Mixon, Analyst — Canaccord

Yeah, I think even in the fourth quarter, though, like the guidance implies based on the volume guidance that the ASP, or I think you call it AR, it's, I believe it's like the high 3000s, maybe even 37 or so. So is there, what's baked in there besides just like a prior period collection or something like that?

Kevin Feeley, CFO

No, there's a number of factors. Seasonally, the fourth quarter, beyond being the strongest from a volume perspective, we do see average collection rates elevate through the second half of the year, pretty consistently hitting a peak in the fourth quarter as insurance plans, co-pays, and deductibles reset and more of the portion of responsibility shifts to patients earlier in the year. It is more challenging to collect those dollars from patients. And so there's slight seasonal uplift in the rate that you could expect by the fourth quarter. And as I said, immense investment into the revenue cycle in terms of process change and people change, not counting on much in terms of material improvements in the third quarter. But by the fourth quarter, we'd expect to see some contribution and dividends from all of that hard work. And then lastly, yeah, there has been this rolling set of policy coverage. We think we tend to take a pragmatic view between the delay from policy to payment. But if you stack up all of the coverage wins over the last six months, 12 months or even longer, there is some benefit that can reliably roll in into the fourth quarter. And so expecting to see that rate elevate some roughly flat in the third quarter, but then a slight uptick in the fourth quarter to exit this year in 2027 to see the benefits of all of all of that hard work and policy change.

Kyle Mixon, Analyst — Canaccord

Yeah, and I have to ask, given all these factors that we're talking about, the seasonality from 4Q to 1Q is probably going to be, what, consistent with what it's been the past few years? Or do you think all this new coverage actually helps volume sort of stay a little more stable or maybe increase sequentially?

Kevin Feeley, CFO

Yeah, we'll comment on the first quarter when we get closer to it. There's no doubt that the first quarter is typically the seasonally weak point of the year. We experienced that again this year. We'll take stock of where we are as we exit 2026 and provide an update when we get closer.

Kyle Mixon, Analyst — Canaccord

And then kind of the slow acceptance among these plans and these payers and states reminds me of the AAP guideline update for the general pediatricians, which happened maybe a little bit over a year ago. And, you know, that's obviously going to be a slower adoption rate in that kind of brand-new market, sort of like emerging market for you. They're definitely not used to doing, you know, genome and exome, but definitely not genome. So how is, like, that channel kind of going at this point, given it's been some time? And on that note, maybe the NICU market as well, what are you seeing there? We haven't talked about it a ton in recent conference calls.

Kevin Feeley, CFO

Yeah, I recall for the audience, it was June of 2025, the American Academy of Pediatrics put out new testing guidelines for the first time in 11 years, calling on exome and genome as a first-line diagnostic for children with global intellectual developmental delay. I'm certainly pleased to say that. At the time, we signaled, look, it would take closer to 18 to 24 months before we started to see material volume contributions that would put us right on track for around the fourth quarter of this year. And engagements and signals from the market tells us we're on track to do that. We're seeing some strong engagement with the community. At the same time, acumen, understandably, by pediatricians has been fairly low with respect to genetics. And in many cases, it's our sales team informing a pediatrician for the first time of those guideline changes. And so a lot of education and acumen building has been ongoing and will need to continue. And at the same time, those pediatricians have outlined for us a number of customer experience requirements that they would have. These are busy physicians in the primary care setting. the ease of ordering first and foremost is top of mind for many pediatricians as is on the back end wanting to feel equipped and educated rather than just give a family a diagnosis provide the family some value add in terms of next steps education connectivity to support groups how do we make the pediatrician feel like a hero in that regard. And so we've got a number of exciting customer experience releases coming out. Some have come out over the past couple months with respect to a more simplified report to really take what has been an extensive geneticist curated report for a PhD in genetics and really boil that down to something easier to read. That has come out, has been really well received, and some additional features rolling through the course of this year. But early signals from the pediatrician market tells us we are in the right place, but it's going to take time for the market to fully mature and develop. You mentioned the NICU. It was 2024 for the first time. we began commercial efforts in the NICU in earnest. The NICU's had a solid first half of the year, meeting expectations. It's growing nicely but at the same time where we really have our eye is how do we drive greater adherence to more programmatic ordering. What I mean by that is leaving it less to chance that a physician is going to determine case-by-case that a rapid genome is necessary, but more so pre-established with a hospital system, what is the proper criteria in which a test would be ordered. There's very few hospital systems in the country that are taking that type of approach, but we know what good looks like. I'd call out Seattle Children's and the PI who published the Seek First study. It determined that roughly 60% of babies in their NICU benefit with a change of care from intervention with a rapid genome. The reality is most NICUs in the country are ordering for about mid-single digits of their admittances, and that is the work that we still have to do, which is to boost that utilization rate. There's about 800 level three and level four NICUs in the country. Over a third of them are active orderers, but at those lower utilization rates, and then again, it's going to be a market that takes some more time to develop, but I think we're pleased with what we're seeing out of the NAKU through the first half of this year. Okay. A couple of minutes left.

Kyle Mixon, Analyst — Canaccord

Any questions from the audience? Okay. Sounds good. All right. So maybe on that note, actually, you had like a commercial force expansion kind of like, you know, later last year, early this year.

Kevin Feeley, CFO

Those teams are all like, you know, totally rent up and everything that's going well how was what's the competitive landscape looking like as well when you kind of when they go head to head for some of these like newer tests or tests that have been emerging for years but actually having some penetration recently yeah they have ramped up um and i think what that culminates to is nearly a tripling in the size of our commercial team in the last year it does take um several quarters in our space for a rep to to ramp up and get up to speed. The majority of those resources were added at the tail end of the first quarter into the second, but the size of the build there has certainly stabilized. Look, from a competitive standpoint, we continue to maintain a number one share of the market. About 80% of all clinical exome and genome run in the country run through our laboratory in Maryland. I think overall what we're worried about is continuing to measure ourselves against our previous experience. So our turnaround time is now on average two to three weeks and we're focused on how do we get that to be even more best in class. I think if you look at the quality of those customer experience features that I've outlined, how do we modernize the experience to remove friction, to make it easier to order, to make it easier to provide care on the back end of the diagnosis? Those are the things that will separate us from competition. I think in general over the last year we've not seen much change in terms of the overall radar of competition. It's a lot of headline noise out there, but in terms of the firms that our sales force is running into day in and day out in the field, very little change from maybe where we were a year ago.

Kyle Mixon, Analyst — Canaccord

All right, great. So you also added Mark Gardner for Quest recently as, like, president. You know, it seems like he kind of brings, like, a refreshed operational strategy reviewer perspective, I guess. I think it's partially driven by, like, you know, revenue cycle management sort of, you know, initiatives or efforts. So maybe anything on that, you know, kind of addition to the personnel that, like, would be interested to call out. But also more like on the RCM side, anything in your specific kind of end markets or, like, use cases in rare disease, these matrices, that would make RCM a little bit more maybe challenging, more nuanced than another area of diagnostics that investors would be more, like you're more aware of with that.

Kevin Feeley, CFO

So on the ladder there, yeah, look, it's a complex environment. As I mentioned earlier, just about every payer at this point having vastly different medical necessity criteria, different administration criteria, in which to work against that speaks to the overall maturity of where exome and genome lives. Compare that to maybe a legacy genetic test of, say, chromosomal microarray. Across every single payer, you would have fairly consistent criteria in which they would pay and requirements and documentation in which you would need to supply. And so a one-size-fits-all process for something like a microarray or a single gene test perfectly appropriate. It's just not the environment in which we're operating. And so it's incumbent on us to develop more robust processes to deal with that reality. So it is complex in that regard. In terms of the team, though, those are the resources that we're adding is to be able to handle and build processes that are more scalable and can keep pace with the hyper growth that we've seen. So you all had a chance to meet Mark on our earnings call last week. But beyond Mark, yes, have added a number of folks across almost every function, really individuals with proven ability at scale at larger companies so that we're keeping pace with scale and not reacting to it. That starts with the revenue cycle process, have brought in some leaders who have run this type of payer-specific workflows at much larger scale. I've bolstered my financial leadership team, and we've got an eye towards making sure that we retrofit the talent to keep pace with the scale we want to be years to come and not reacting to it. And yeah, I could not be more pleased with the contribution those folks are already making to the organization.

Kyle Mixon, Analyst — Canaccord

Finally, there are a lot of maybe moving pieces that need to kind of come together the right way for the performance of sort of, you know, come back to like maybe prior levels that we got used to. That's a fair way of saying it. I think, you know, you had a cleaner quarter in 2Q, 1Q as you, I think you referenced before, was like a little bit less clean. You know, so if you had a checklist, let's say like three to five things of what the company has to do to execute on to like, you know, kind of improve performance, get back to prior levels, growth levels and all that, what would those be? And then what's your level of basically visibility or confidence in each of those factors?

Kevin Feeley, CFO

I mean, we rallied the whole of the company around four imperatives that Catherine outlined to ensure that we're allocating time and dollars against. The first is improving unit economics. And so it starts and ends with revenue cycle and boosting that collection rate from higher than 32%, while at the same time, we think large opportunity to reduce COGS for genome. And so improving the overall margin profile for both exome and genome starts with revenue cycle, but should not forget what we see as a path to reduce COGS in a meaningful way over time. The second is to continue to grow utilization. Frankly, there's more demand out there than we've pulled through. The 32% growth could have been higher if we had no regard to getting paid for services, but we do. But we need to, as the market leader, continue to grow utilization of exome and genome. The third is continuing to improve the customer experience, the genome content, deliver the best products at scale. And then the fourth is to manage our capital properly. as good stewards. And so that return to profitability on an adjusted basis is a commitment that we have. And so those are the four priorities in which the whole of the company is operating against. Okay. That was great. Thanks, Kevin. Appreciate the time. Awesome. Thank you.