Caris Life Sciences, Inc. (CAI) Q3 2026 Earnings Report, Transcript and Summary

Good afternoon, everyone, and welcome to the Caris Life Sciences' Third Quarter 2026 Earnings Call. My name is Lisa, and I will be your conference operator today. [Operator Instructions] As a reminder, this call is being recorded. I would now like to hand it over to Russ Denton at Caris. Please go ahead.

Thank you. Earlier today, Caris Life Sciences released financial results for the quarter ended September 30, 2026. Joining from Caris today are David Dean Halbert, our Founder, Chairman and CEO; and David Spetzler, our President; Brian Brille, our Vice Chairman and EVP; and Luke Power, our CFO. Before we begin, I'd like to remind you that during this call, management will make forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to materially differ from those anticipated. For a discussion of the factors that could affect our future results, please refer to our SEC filings. We undertake no obligation to update these statements except as required by law. This call will also include a discussion of non-GAAP financial measures, which are adjusted to exclude certain specified items. The reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided in today's earnings release. A copy of today's presentation materials can be found on our Investor Relations website. I'll now turn the call over to our Founder, Chairman and CEO, David Dean Halbert. David?

Thanks, Russ, and thanks, everyone, for joining. This was another record quarter for us with volume up 21% to 61,500 cases, and our revenue grew 27% to $275 million. What I like most about these numbers is that they are the continued result of a plan. At the start of the year, we've realigned and expanded the sales organization and invested in the lab ahead of the demand we expected. Since then, we have delivered 2 consecutive quarters of acceleration and this quarter's year-over-year volume growth is the strongest we posted in over a year, and we expect that trend to continue into the fourth quarter. We have also taken the same approach with the product pipeline, where we have launched 4 products so far this year, and by year-end, we'll launch our fifth, Caris Confirm, our whole-genome MRD assay, and complete our comprehensive approach across the patient journey. And comprehensive isn't just a slogan for us. And you can see that as recently as September, where we launched a new version of Caris Assure, our therapy selection that reads the therapy relevant genes at 40,000x depth. It takes our RNA reads past 600 million. We always say deeper, not cheaper as the depth and breadth of an assay is what matters, allowing us to continue to drive the science forward. I made the decision to take the company to whole exome, whole transcriptome back in 2018, and that has produced our exome platform, which includes MI Cancer Seek, Caris Assure for therapy selection and now Caris Assure for monitoring. We're taking the same approach for our next phase with expanding to whole genome, and you can see this in our approach for early-stage detection, therapy selection and MRD. Now with regards to Caris Detect, I told you in August that the interest had run ahead of even my own expectations, and it has, but we're not going to chase it by overspending. We're building this deliberately. We've launched 2 national campaigns with Kevin Costner and Jordan Spieth, both of whom I've had the pleasure of sitting down with to discuss their reasons for participating in our ads. And we will continue to roll out and expand these into new markets in Q4 and beyond. Also, our next campaign will be focused on educating the public regarding performance and understanding of stage. The whole idea behind early detection is to catch the cancer while it is still treatable before it spreads, meaning early Stage 1 and 2. After that, it's likely not to be treatable. And sadly, the tests being marketed currently use a technology called methylation. And a methylation-only approach doesn't work in early stages for most cancers. It's unclear why someone would order one. Like a poop test for one cancer when you could take a blood test for over 50 different cancers. That's exactly why we built Caris Detect on whole genome, it's designed to find cancer at those early treatable stages. We'll keep building it that way. And as David will discuss in a few minutes, we are also going to continue to demonstrate our best-in-class performance by expanding our ACHIEVE program. So I feel great about where we are. We went deeper when others went cheaper. We built a plan that is working, and we're funding every bit of it ourselves while we manage the P&L. We'll keep making decisions the way we always have by the Mom Rule. If it were my mom, I want her to get the most complete answer possible. Every patient deserves that. And that's how we'll make precision medicine a reality. Brian, over to you.

Thanks, David, and thank you all for joining our third quarter 2026 earnings call. This was another record quarter and an extremely important quarter for Caris. First, the commercial strategy and investment is working and is delivering accelerating volume growth. In addition, the MCED launch is advancing well with important new potential channel partners who are excited about Caris Detect's technology and specifically early-stage sensitivity. We're also announcing our entry into the MRD and monitoring market with the launch this quarter of Caris Assure Therapy Response Monitoring. This will be followed by the upcoming launch in December of Caris Confirm for MRD. And with the launch of these products, we now have the best molecular technology across the entire cancer care continuum. And we did all of this while delivering sustained growth and profitability. Our commercial strategy and investment program is successful and delivering results. In the third quarter, we completed approximately 61,500 clinical cases, up 21% year-over-year. This is our second consecutive quarter of accelerating growth, up from 15% in the first quarter and 18% in the second quarter. And we expect the momentum to continue as the commercial platform expands and new members of the sales force season. With respect to the pipeline, Caris Detect launched this summer and Caris Assure Therapy Response Monitoring launched this quarter. As a result, as illustrated on Slide 4, our platform now spans the entire continuum of care, including therapy selection in tissue and liquid biopsy with MI Cancer Seek and Caris Assure, respectively. Therapy selection in hematological cancers with ChromoSeq. Caris Detect for MCED, Caris Assure for monitoring and Caris Confirm for MRD. We're very excited about the initial assay in our MRD product suite, Caris Assure for monitoring. Monitoring is highly important clinically to provide oncologists a quantitative measure of treatment efficacy. The elegance of our technology is that it utilizes the same product platform as Caris Assure liquid biopsy with the same whole exome, 23,000-gene platform, and the same liquid workflow our customers already use for therapy selection. The serial blood draws using Assure provide us with a consistent longitudinal view of cancer progression during treatment and will add another valuable edge to our clinical genomic dataset. Caris Confirm, our tumor-informed whole-genome approach to MRD, is on track to launch this December. Our clinical customers are excited about the launch of both of these products across the continuum of care. We get significant leverage from our commercial channels since each of these MRD products will be provided to the same institutions, the same oncologists and the same patients that use us for therapy selection. Finally, our MCED platform, Caris Detect, has been the vision of our founder for many years, and the recent launch of Detect continues to build momentum. The unique multi-omic approach of Detect has produced exceptional early-stage sensitivity and is being well received by the market. The channel partner conversations from digital platforms to concierge medicine groups are going extremely well. We launched our first consumer campaign in the third quarter, featuring Kevin Costner and our second recently with Jordan Spieth to raise the awareness of the importance of early-stage cancer detection and of Caris Detect. We're excited about our data and studies, and Spetz will outline that, including the expanded ACHIEVE program. Our philosophy continues to be a long-term strategic orientation to develop the best, most comprehensive offerings on the market and to pursue that innovation while maintaining financial strength. We had a strong third quarter with total revenues increasing 27% year-over-year to $275 million. As illustrated on Slide 5, this is driven by molecular profiling services revenues of $262.7 million, also up 27%. I'd point out that the prior-year quarter also included a significant amount of true-ups, and as a result, on a pro forma basis, revenue grew approximately 45% year-over-year. So in summary, we had a very productive quarter illustrated by the quarter highlights on Slide 6. Strong revenue performance, combined with the operating leverage in our model continued to produce positive financial results while we step up investment, including revenue growth of 27% driven by clinical volume growth of 21% and a blended ASP of $4,272, up 5% year-over-year. On a pre-true-up basis, our blended ASP was approximately $4,000 and up 19%. We invested significantly this quarter while maintaining financial discipline. Adjusted EBITDA was $44.4 million, our sixth consecutive quarter of positive adjusted EBITDA, and we returned to GAAP profitability with net income of $15.3 million. Year-to-date, adjusted EBITDA was $126.3 million. Our balance sheet remains strong with cash and investments of $769 million at quarter end. We believe our financial performance continues to give us unique strategic flexibility, which supports our ongoing investments in the product pipeline as well as the continued expansion of our sales organization. So with that, let's turn to commercial performance. The commercial strategy and leadership we established in the first quarter is delivering systematically. As Slide 7 indicates clinical case volume has grown every quarter this year from approximately 52,800 cases in the first quarter, to 59,200 in the second to approximately 61,500 in the third, and year-over-year growth has accelerated each quarter this year from 15% to 18% to 21%, respectively, and we're pleased with acceleration in growth in both tissue and blood. The commercial strategy is working, and we expect to see ongoing growth acceleration for a variety of reasons. First, the therapy selection market remains rich with opportunity as cancer centers implement systematic precision medicine programs. The institution and the individual medical oncologists greatly appreciate the breadth and depth of the Caris product technology, i.e., 23,000 genes. And we expect that our recent launch of monitoring and upcoming launch of MRD will greatly enhance both our volume performance and also our appeal as a strategic partner with a technologically superior product line across the care continuum. Finally, we have exceptionally strong cancer center relationships and the investment in FTEs will continue to help us activate more medical oncologists across our broadening product line. With respect to the commercial team investments, we ended the third quarter with 325 commercial team members, up from 290 at the end of the second quarter and 270 at the end of the first. We completed the realignment in January, expanding from 82 to 146 territories, and we've continued to add reps against that structure. Typically, new reps take 6 to 9 months to begin to reach full productivity. So the hires we made through this year will continue to build towards their full contribution for some time. We believe that we have the best technology platform, and accordingly, we intend to continue this commercial investment plan to provide this broad product line to as many medical oncologists and institutions as possible. The digital footprint continues to expand as well. More than 75% of orders are placed through EMR and portal channels with more than 3,500 physicians ordering directly through the EMR. We're making investments in research and studies and our body of evidence now exceeds 1,300 publications and manuscripts. Our business model is very powerful. With every clinical case profiled, our dataset grows in size and power. As Slide 8 indicates, our dataset has surpassed 1.2 million profiled cases, including more than 796,000 whole exomes, 849,000 transcriptomes with approximately 845,000 matched cases with clinical outcomes. We are currently evaluating AI partners with respect to both internal capabilities as well as external data partnerships. We are as excited about the prospects ahead of us as we have ever been. As illustrated on Slide 9, our company's positioning is highly differentiated against huge market opportunities and demand. The Caris molecular technology features uniquely powerful breadth and depth, which is now being extended to new product modalities. We have an innovative go-to-market approach as both a clinical partner and a research partner. The Caris Precision Oncology Alliance, for example, is now up to 102 sites. And we have important strategic flexibility given our profitability, which will enable us to continue to invest aggressively. We have exciting and significant catalysts ahead of us over the next few quarters, which offer growth and TAM expansion. Ongoing commercial execution and investment, ASP expansion through Assure, a pioneering role in the MCED market, the recent launch of monitoring and the upcoming launch of MRD. I'll now turn the presentation over to Dr. Spetzler. Spetz?

Thanks, Brian. I will walk through the 2 new products and then the foundation model behind our digital AI platform, our planned expansion of our ACHIEVE program for Caris Detect and will close on interception. Everything I'm about to talk through comes back to what Dave said at the open, deeper, not cheaper. Depth and breadth are what allows us to complete a comprehensive approach across the patient journey from early-stage detection to therapy selection and now monitoring and MRD. Slide 11 frames the 2 launches of the fourth quarter together. Caris Assure Therapy Response Monitoring, which launched recently, covers the patient on therapy. Caris Confirm, launching in December, covers surveillance after treatment. Both are built on platforms we already run. Monitoring sits on our whole-exome platform. Caris Confirm sits on our whole-genome platform with the initial tissue sample to define the signature, then follow-up testing in blood. Each has its own evidence base, MONSTAR and our real-world cohort for monitoring, ENSEMBLE and the real-world cohort for Caris Confirm. Reimbursement work is underway on both, a MolDX submission and preparation for monitoring and a cancer-type-by-cancer-type strategy for Caris Confirm, and I will discuss each a little more. Let's start with Caris Assure Therapy Response Monitoring, which launched recently as part of the upgraded Caris Assure platform. For therapy selection, Caris Assure tells the oncologists which drug to choose, for monitoring the same whole-exome liquid workflow with matched buffy coat to remove clonal hematopoiesis gives a quantitative tumor fraction and serial draws classify the patient as a molecular response, stability or progression. The readout arrives roughly 4 to 8 weeks ahead of the scheduled scan. The validation is on the slide. Clinical validation included 124 serial pairs and in the 90-patient landmark cohort, 96% of patients classified as molecular responders went on to show disease control on imaging, 49 out of 51. Patients classified as molecular progression had a hazard of subsequent radiographic progression nearly 9x higher than responders, 8.99 or 7.16 after statistical adjustments. And in an early independent real-world cohort of 1,037 patients, molecular progression carries a 2.35x hazard versus response with the 3 categories separating in order. Analytically, the assay detects tumor fractions down to 0.1% with precision under 9% CV across LoDs and runs. Moving to Slide 13, Caris Confirm is our entry into minimal residual disease and is currently planned for launch in December. The approach is tumor informed and whole genome. We sequence the tumor and a matched normal across the entire genome to define a patient's set of trackers. A tracker search base of roughly 2.5 billion bases. We then track those variants in serial blood draws on the same whole-genome platform that powers Caris Detect. The pathway is relatively simple. A baseline blood draw with buffy coat plus tumor tissue from surgery, tumor-normal subtraction to define the patient's tracker set, a landmark blood draw 3 to 6 weeks after surgery, and then surveillance draws every 3 to 4 months. That is what gives us an ultra low limit of detection by design. The analytic performance speaks for itself with a minimum positivity threshold of 1.38 parts per million. The intended use is pan-tumor, Stage 1 through 3 solid tumors, after curative intent treatment, a setting where patients are monitored for years. So like therapy monitoring, this is a reoccurring test on infrastructure that is already in place. Moving to Slide 14, this is our engine under our digital AI platform. HERO is our pathology foundation model. It was trained on 248,606 routine H&E slides across 52 cancer lineages and 98% of those slides, more than 243,000, also have RNA sequencing alongside DNA sequencing and IHCs. That pairing is the asset. The molecular results give us every slide as labels. The process runs left to right on the slide, the H&E is scanned at 20x. The tissue is cut into tiles about 1/10 of a millimeter across, roughly 2,300 per slide. HERO describes each tile as 3,072 separate numbers, the same for every target with no retraining. For each target, the model learns how much each tile matters and weights the tiles into 1 summary of the slide. And from that, 3 models, 1 for each of DNA, RNA and IHC, predict 297 alterations, 368 RNA expression levels and 21 protein stains from the same slide alone. Our model powers Caris digital AI applications. That is why the pipeline on the right, morphological subtype, tumor grading, mutation prediction, treatment response and survival prediction can move quickly. Each is a new head on the same foundation trained on data we already have. Now let me turn to Caris Detect. As we have discussed before, Slide 16 shows why we built Caris Detect to combine many signals across cell-free DNA and RNA, expanding our shots across goals, expanding our shots on goal across each early tumor. Moving to Slide 17, ACHIEVE 1, the basis for our commercial launch, showed 99.2% specificity and 60.3% sensitivity in Stage I and Stage II cancers, the stages where the cure rate is highest, and I will give an update on our planned next readout from ACHIEVE 2 in a few moments. Now as part of this quarterly update, I will provide an update on our ACHIEVE program. As you know, this is the clinical evidence program behind Caris Detect and one that we are announcing an expansion to, with 4 studies under the ACHIEVE name totaling 63,000 patients. ACHIEVE 1 is the 3,000-patient study you just saw. That readout was delivered in the first quarter. ACHIEVE 2 is our large-scale validation with a target of 25,000 participants. We have enrolled approximately 20,000 patients, 80% of the way there, and we certainly expect an interim readout in Q1 of 2027 as we have begun to run these samples. ACHIEVE 3 is a 10,000-patient prospective study in a high-risk population with results returned to patients and a repeat Caris Detect at 12 months. And ACHIEVE 4 is a 25,000-patient prospective study in a general risk population, also with results returned. ACHIEVE 3 and 4 are in planning now. And on Slide 19, as DDH discussed, we have launched 2 campaigns for Caris Detect, and both point consumers to Caris Detect, and these will continue to be rolled out across markets into Q4 and beyond. Finally, personalized mutation interception, we outlined this program on our last call. So today, I will keep it brief and focus on how the pieces of our platform fit together to support it. As a reminder, our personalized vaccine approach is built on capabilities we already run. Caris Detect finds the early signal, our sequencing defines the mutations that inform a personalized vaccine and serial blood draws track whether it is clearing. Slide 21 shows the step where our platform is most differentiating, choosing the right mutation. We select only the mutations that are expressed and visible to the immune system as vaccine targets then track response over time. This is where our dataset does the work. Our ranking model achieves 83.8% positive predictive value and 86.5% for the top-ranked variant per patient, measured against a paired biopsy cohort of more than 42,000 patients. So we focus on the mutations most likely to prime a response. So that is the focus of our science. Two new reoccurring use products on the platform, a foundation model that lets digital AI portfolio grow quickly, detection that is both broad and precise with an expanded 63,000-patient evidence program behind it and an interception strategy that is novel, all resting on the depth-first approach. With that, I'll turn it over to Luke.

Thanks, David. I'll move relatively quickly through the numbers since we have touched on some of them already. We delivered another strong quarter with total revenue of $275.4 million, which is up 27% year-over-year and brings our 9-month revenue to $755.2 million, which is up 45% year-to-date. Molecular profiling revenue was $262.7 million, up 27%. And pharma research and development services revenue was $12.7 million, up 37% year-over-year. As we have expanded our platform this year with new products and with MRD planned for launch later this quarter, we'll be moving to reporting total clinical volume only. This is consistent with how our sector reports and is the basis on which we'll report our preliminary full year volume in January and provide guidance numbers going forward. That said, I'll provide a little bit more context around the current quarter volume numbers. Clinical therapy selection volume in the third quarter was approximately 61,500 cases, up 21% year-over-year, ahead of the 20% milestone we outlined for the quarter. This volume excludes Caris Detect, whose revenue we will report in our pharma research and developmental services line until it becomes material enough to break out along with its volume. Therapy selection remains the core of our current volume. And in the 2 quarters since the Q1 sales realignment, volume has grown approximately 20% year-over-year, and we're encouraged by that momentum heading into Q4. Therapy selection volume mix was in line with the trends from the past 2 quarters with tissue remaining the core. Both tissue and blood saw an acceleration in year-over-year growth rates from the second quarter and our overall growth rate of 21% was the highest it has been in over a year and is a testament to the great work being done by our sales and lab teams. For Caris Detect, we're pleased with the initial rollout, and we're continuing to expand our marketing with 2 campaigns now running, and we'll be expanding the markets as we progress into Q4 and beyond. Moving to gross margin. This was 66% in the quarter, reflecting the mix impact of our expanding product portfolio and we expect a similar level in Q4. That also reflects our focus on deeper, not cheaper, and you can see that by our recently upgraded Caris Assure assay, which is now running on the Illumina NovaSeq X platform with increased depth and reach. Operating expenses were $163 million, up $48.1 million year-over-year and about $10 million sequentially. That increase was in line with our expectations as we continue to invest in the commercial organization, along with increased marketing dollars for Caris Detect and the development work on Therapy Response Monitoring and Caris Confirm. Overall, these results produced GAAP net income of $15.3 million compared with $24.3 million a year ago. Year-to-date, net income is $14.1 million against a net loss of $150 million in the first 9 months of 2025. Adjusted EBITDA was $44.4 million, our sixth consecutive positive quarter, compared with $51.2 million in the prior year, which again carried a larger true-up benefit. Year-to-date adjusted EBITDA was $126.3 million, up from $31.7 million for the same 9 months last year. Free cash flow was negative at $39.7 million in the quarter and included $17.5 million in capital expenditures. As we communicated in August, this was planned, as we used the free cash flow generated in the first half of the year to fund the ramp in inventory and the initiatives behind our pipeline. And you can see that in the working capital movements on the balance sheet. Through 9 months, free cash flow is negative at $10.8 million and with that inventory investment behind us, we expect to return to positive free cash flow in the fourth quarter and for the full year. We ended the quarter with $769.2 million in cash and investments, and we repurchased approximately $10 million of additional stock under authorized share repurchase program in Q3. Moving to Slide 24, we continue to demonstrate strong growth across volume and ASP within our molecular profiling business. Blended ASP, base ASP (sic) [ blended base ASP ] surpassed $3,990, up 19% year-over-year. and including prior-period collections, blended ASP was $4,272, up 5%. On the reimbursement front, we received the preliminary 2027 clinical lab fee schedule under PAMA cycle in September. MI Cancer Seek was maintained at $8,455. However, Caris Assure was increased to $5,250, up from $3,650, and this is effective January 1 2027, subject to the final schedule later this year. This will also have a positive impact on the commercial contracts we've been signing as they are generally priced as a percentage of the clinical lab fee schedule rate. So the higher rate should lift realized ASP across the contracted book as we move into 2027, and that is the covered lives strategy we described last quarter. We also received our first commercial plan payments for Caris ChromoSeq. And overall now, covered lives stand at approximately 264.4 million for MI Cancer Seek and 134.6 million for Caris Assure, both up again from the second quarter. Finally, turning to guidance. Given the strength of our first 9 months, we're raising our full year outlook range to approximately $1.04 billion to $1.05 billion, up from $1.03 billion to $1.04 billion, representing growth of approximately 28% to 29%, driven by molecular profiling revenue. Including prior period true-ups, the guide implies fourth quarter growth in the 40% range, consistent with the underlying rate we delivered this quarter. On a reported basis, our fourth quarter guidance range of $285 million to $295 million is broadly in line with the fourth quarter of 2025, which included roughly $90 million of true-ups due to the acceleration we experienced last year from our MI Cancer Seek FDA approval. For the fourth quarter, we also expect clinical therapy selection volume to continue on the growth trend demonstrated the last couple of quarters, and to be approximately 65,000 cases and results in approximately 20% growth for the full year. We now expect GAAP operating expenses of approximately $620 million, up from approximately $600 million or a growth of approximately 26%. That increase is deliberate. It funds the expanded commercial organization, the marketing behind Caris Detect, therapy response monitoring and Caris Confirm along with processing of the R&D samples for the ACHIEVE 2 interim readout. And we continue to expect both positive adjusted EBITDA and free cash flow to be positive for the full year. Adjusted EBITDA is already $126.3 million through 9 months, and we expect free cash flow to return to positive in the fourth quarter, bringing the full year to modestly positive, all while funding our growth initiatives that we just walked through. With that, I'll wrap up the presentation and turn it back to the operator and open it up for questions. Operator?

[Operator Instructions] First question will be coming from Vijay Kumar of Evercore.

Congrats on a nice sprint here. Luke, maybe my first question for you on -- I know you mentioned both tissue and blood volumes accelerated. But maybe if you could just give a little bit more color on the pace of acceleration, tissue versus blood, and a similar sort of commentary on ASPs, please? Where did the increase come from? I know ASPs were up 19%.

Yes. Yes. So Vijay, like as we said in our remarks, we won't be breaking it out separately going forward. But what I can say and what I disclosed is the mix trend is consistent with what you saw from Q1 to Q2. So blood continues to grow and tissue continues to grow. So the growth rates increased from what we reported last quarter, which is excellent and in line with our expectations. And I think we can continue to overdeliver on that as we progress into Q4. From an ASP standpoint, again, similar to last quarter, from a blended ASP, we continue to see strength in what our market access teams and our billing teams are doing. So we've had success across both Caris Assure and MI Cancer Seek continuing to get coverage there. So for us, our expectation is that's going to continue to improve into the fourth quarter. And with the guidance that we put out, you're in a similar range of around that $4,000 base ASP, which would be a new record for us. So overall, I feel great, but the mix and everything is going according to plan.

That's helpful. And maybe a big picture question. If I just look at how the year has progressed, right, your volumes have accelerated every quarter and your fourth quarter guidance implies another step up to maybe perhaps [ 23 ] plus on clinical volume growth. So when you look at the progression and the fact that you have new tests launching, should '27 clinical volumes accelerate from '26 levels of 20%, would that be a fair assumption?

It's a fair assumption. What we're not doing right now, though, is guiding to 2027 volume. The key for us coming into this year was kind of twofold. One was obviously doing the expansion in the commercial org, but the second was pushing out the pipeline as quickly as possible. Because we have unique tests and because they're the most comprehensive, we wanted to get through the end of the year with all those tests on the market, which is what we're striving for and will accomplish. So we feel very good about that. I think as we start looking towards 2027, the key for us was correcting the therapy selection growth, and we've seen acceleration both in tissue and blood this quarter, which is great. It shows the commercial plan is paying off. And then as we progress into next year, with the rollout of monitoring and with the rollout of Confirm, we'll do that in another disciplined, diligent way as we work through the reimbursement pathways, but it definitely should contribute on the top line because it's the existing sales force selling the products.

Our next question is coming from the line of Subbu Nambi of Guggenheim.

ChromoSeq and MI Clarity now have about 2 quarters of commercial history. Are they in the updated guide? How did each ramp in the quarter? And when do they become meaningful contributors?

Yes. So they're smaller -- they're obviously a smaller portion, and that's why I referenced the mix from the last couple of quarters, but they're continuing to grow, but they're obviously not at the same scale as what we're doing with our tissue and our blood assays. So they'll continue to grow as we progress throughout the next couple of quarters. The 65,000 cases is for kind of key therapy selection. So it would include a small portion from them, but not a whole lot. As you can see from what we reported last quarter and what we're actually disclosing this quarter, I think you'll see that continue to improve, but it's not as big of a market right now as for tissue and blood.

No. Look, I was trying to get at when do they become meaningful contributors. And I also have a follow-up.

Yes. I think as we progress into the end of the year and into next year, you'll start to see heme continue to grow along with MI Clarity. I think right now, as we're looking at the guidance for the remainder of the year, they're not material compared to the blood and tissue.

Got it. So think of it as more '27 rather than this year. On the enhanced Caris Assure that adds the track table for response monitoring, you plan to pursue MolDx reimbursement for it. When do you plan to submit to MolDX? And do you have the data that you need or you're still generating it?

Yes. Spetz, do you want to take that one?

Yes. We've completed the trial. So we're working on that submission now. It should happen in the next several months. We need to publish it first, and it's always hard to predict how long publication process takes.

That's fair. And last one. What percentage of blood tests were attached to tissue tests in the quarter? You've always hovered around 30%, 40%. Should we expect the same thing? Or have you seen that attachment grow meaningfully?

We've seen it grow, probably not meaningfully. It has increased past 40%. So it's been at 42% for the third quarter, but not materially past that.

Our next question will be coming from the line of Lu Li of Bank of America.

I guess I wanted to clarify the Caris Detect is now in the R&D line, the pharma R&D line. Is that true also in 3Q? And then also related questions to that. So in terms of the 4Q guide, like how do you kind of break out between the profiling business and then also the R&D? Any assumption would be great.

Yes. So yes. So Detect will be reported in there until we have a couple of more quarters. It's consistent with what we've kind of disclosed in the past with any new product launches. We'll continue to monitor it when it becomes material. It wasn't -- it was small compared to the relative $275 million we put up. So we haven't broken it out yet, but we'll continue to obviously -- we feel really good about where it's going. I think as you look forward to Q4, it doesn't include any of the new products. We'll continue to do that from a guidance standpoint. We always like to wait a couple of quarters before we start looking at including additional new products in there. So the breakdown for Q4 is effectively about $265 million for molecular profiling and then the range of $20 million to $30 million for pharma, and that doesn't include any Detect.

That's very helpful. And then on the MRD launch, I'm wondering, can you just like talk a little bit about kind of like your reimbursement process, definitely like cancer indication by indication, but do you have like any time line in terms of like when are we going to see the first indication reimbursement?

Do you want to take that, Spetz? Or I can.

Yes, it's kind of the same. So we've completed our first trial, need to publish that one in colorectal cancer, and then we'll be able to submit to MolDX.

So I guess it will be kind of like 2027 will be like good timing?

Yes.

Our next question will be coming from the line of Adam Wieschhaus of UBS.

You mentioned that Assure is going to move to the higher CLFS rate in January. I'm just curious how you think about that magnitude and timing of the benefit to realized ASP in 2027, particularly as you've mentioned, commercial contracts are generally priced as a percentage of that CLFS rate.

Yes, Adam, yes. So we feel actually excellent about that. It should be pretty immediate for -- especially for the contracts that we've signed and obviously for Medicare itself. So for Q1 and Q2, we would expect to see the bulk of the step-up there. We continue to make progress with other payers where we're not covered right now. And obviously, that proposed increase that will come into effect January 1 will also help with those negotiations. So we would expect it to be a kind of Q1 and Q2 kind of impact, primarily Q1 though.

And you also mentioned that Detect interest remains ahead of expectations, but you don't intend to chase demand by overspending. So how are you measuring kind of response to the initial rollout and deciding how aggressively to scale that investment up?

Yes. It's similar to how we approach everything. And when we say disciplined, like what we want to do and one of the unique positions we're in is, obviously, we're funding all these initiatives ourselves. Free cash flow negative was a onetime event because we did that initial inventory purchase, and we feel great about how Detect is going. So what we're doing is we're continuing to assess, obviously, with our partners, the pull-through, and we feel good about that, and we're continuing to expand the partnerships as well. So we'll work through that in Q4. Also with the actual ad campaign, we launched that in selected markets. We haven't broadly launched it fully yet. And we'll continue to assess that on a quarterly-by-quarterly basis. One of the key things, and we said this on last quarter's call, is we're always aware of kind of the potential for this test and the capacity constraints on it. So that's why we're taking the disciplined approach with rolling it out market by market, and we'll continue to assess that as we go into the end of the year and next year.

Our next question will be coming from the line of Casey Woodring of JPMorgan.

I guess the first one, can you just elaborate on the MCED launch? And if you can get specific, how many MCED tests did you sell in the quarter? And I guess, what's baked into the 4Q guide?

Yes, Casey, there's nothing baked into the 4Q guide. And right now, as we said in the prepared remarks, we're going to include it in the research line until we have more and more activity flow through before we break it out. We'll continue to assess that. But there's nothing in the guide for Q4 for it.

Okay. Understood. And then I think if I'm doing the math right, pharma R&D 4Q revenue is something in the $20 million to $30 million range. I guess that implies a pretty big cut to the full year number. So maybe just walk through kind of what you're seeing in the pharma R&D service business to end the year and expectations for that business line moving forward.

Yes. Yes. So Casey, so you've seen the trends like since the beginning of the year, that's also improved sequentially from a revenue standpoint. It's a business that we've obviously not been focused on in the past, but we're starting to gain traction. And one of the key things that we were focused on coming into the year is not focusing on smaller deals, but more larger long-term deals. And the sales cycle for those continue to be kind of a little bit longer. But going into Q4 with that guidance, we feel really good about that stepping up to over 100% growth, and we think we can maintain that momentum then as we continue to build out the team into 2027. I think from an overall standpoint, like we feel really good about where our revenue at -- is on a total basis. And that's where I feel confident, obviously, with the guidance. And that's why the only range is around that pharma because we have a couple of deals working through the pipe, and it's more of a timing issue.

The next question will be coming from the line of Albert Hu of Citi.

So maybe just jumping off Casey's question on MCED. So you guys currently have that in the pharma R&D side of things. So when do you guys expect volumes for MCED to really ramp up here? Is this going to be like a 2028, 2029 situation when the reimbursement likely comes on? Or how are you guys thinking about that going forward? Appreciate it.

Yes. Again, Albert, like what we're doing with MCED, it's self-pay, it's direct to consumer. So it's different from what others are doing because one of the key reasons we're doing that is we want to make sure it's focused on the technology. Like technology should drive, obviously, the science and it should drive how you approach the market. So that's one of the differentiation factors here versus all the other approaches that are out there that are utilizing the same sales force going to PCP. So we do expect it to continue to ramp. And again, that's dependent upon how quickly we want to put our foot on the gas from a campaign standpoint. And that's where we said in the prepared remarks, we're not going to overspend by doing this, but we're going to do it smartly. And we feel really good about where it's at today and that increased penetration that we're seeing. So I would expect it to continue to ramp throughout the next couple of quarters. And again, we'll assess it as we get into 2027, how much we want to spend on the ad campaign, but we're going to be smart about it.

Okay. That's helpful. And then maybe as a follow-up, so last quarter, you mentioned that there are some sequencing competitors out there with higher throughput, with lower cost compared to the dominant supplier that you guys are on right now. So is there any sort of switch in process for you guys that's happening, aka do you expect COGS to come down further because of this? Or what's the thoughts on COGS going forward? I appreciate the color.

Yes. Yes. Look, I definitely think there's opportunity on the COGS front. I think we're -- we stated this on previous earnings calls, we're technology agnostic. And I think more competition is better, and we continue to assess. So there's definitely opportunity as we progress into 2027 and beyond, and it's going to continue to come down. So -- but again, our focus right now is to create the best technology, not focus on cost. You see that from our next -- our upgraded version of Caris Assure. Like again, we went deeper, not cheaper. We could have made that and improved the margin. But again, we want to get the data. We want to ensure it's the best test on the market. So we always utilize that approach before we actually start focusing on the unit economics. But I think as we progress into 2027 with all our tests on the market, that's where you'll start to see the benefit flow through to margin, and we feel pretty confident about that regardless of supply vendor.

And our next question is coming from the line of Mark Massaro of U.S. Bancorp TBIG (sic) [ BTIG. ]

This is [ Megan ] on for Mark. So following the positive FDA AdCom, we'd be curious to learn if that might give you any desire to pursue FDA pathway and approval for Detect.

Yes. I definitely -- yes, go ahead, Spetz.

You can do it, Luke. It's fine.

Yes. I definitely -- like obviously, I definitely think we consider it. But as I previously just stated, too, I think our focus is always going to be on the technology first rather than the FDA pathway in order to secure reimbursement down the path. I think if you focus on reimbursement initially, it could limit the kind of performance of your test because you're trying to create a test inside that particular margin. Again, that's not our approach. So the FDA is not in our near-term future for that. But again, we'll continue to assess the overall macro environment as it progresses over the next couple of years. But right now, our focus is on obviously returning out the ACHIEVE 2 interim readout in Q1, hopefully early Q1 and then completing that study and then expanding with what Dr. Spetzler said about the ACHIEVE 3 and ACHIEVE 4 to show the continued performance of a whole-genome approach, which is unique. So I think that's more our strategy right now around the trials and we'll assess the FDA pathway as we progress through that.

Understood. And then we were also -- again, on Caris Detect, it was nice to see the ad campaign launch. So just curious if you have any color on the feedback of the launch? And yes, anything you've heard that can speak to that?

Yes. It's been -- feedback has been positive. Again, it's a unique approach. I think people appreciated that. That's some of the kind of key feedback we're getting. The performance in Stage 1 and Stage 2 is obviously the best key metric for any early-stage detection test. And that's why David said in the opening, too, that's our focus. It's early stage, Stage 1 and Stage 2 where you can make a difference. So I think there's been a positive response to that. Again, we're being disciplined with how we roll this out, and we're going to continue to increase the marketing behind it, but not overspend, as David said in the opening. So it's been positive. We'll continue to assess, and then we'll continue to monitor it going forward.

Next question is coming from the line of Dan Brennan of TD Cowen.

I joined late, but I think I'm caught up. Maybe just on the fourth quarter volume guide, the 65,000, which is consistent. I know there is a step-up there. You've got the expanded sales force, which you guys must feel good about. But is there a cushion in that number since the number this quarter was just about what you guys expected on the volume side. Price was a big upside driver. So just thinking about the fourth quarter volume, how you guys feel about that?

I feel very good about that. So obviously, we'll guide to what we expect the numbers to be. So the 65,000 is the expectation along with the -- because it flows with our plan at the beginning of the year, which obviously we beat again by a percentage point in Q3, but we continue to assess and we continue to believe that 20% is kind of the guide number for now. And definitely, as we progress throughout the quarter, we've been -- we feel very positive about our volume numbers.

And I think there was a question asked earlier about potentially 20% volume growth in '27. I know you guys aren't guiding. But at the same time, I know you've also talked about taking a conservative stance when you get to the point of guiding. So any way to think about like will there be some natural kind of cushion that you do bake in for next year? Or is your point you're just going to use this year's number and just kind of roll that forward?

Yes. We'll assess that at the end of the year. I definitely think we could look and see where we're at with the new launches. We feel really good about them, especially monitoring and MRD coming down the pipe. So I think as we get into next year, that's where we'll focus on, okay, what are we going to guide to from the new products, where do we feel like the therapy selection business is and kind of assess it that way.

Got it. Got it. Yes. So basically, if there is a -- whatever the number is, it's going to incorporate -- it will have therapy selection plus these others in there. But will you break out therapy selection in the guide when you do it?

No. I think what we'll do, as it grows, we'll continue to assess it. But I think initially, we'll take the path that we're taking right now where it's a total clinical volume number.

Got it. Okay. And you guys didn't give an MCED number this quarter. I know it was asked 3 or 4 times, right? Was there a number given or no?

No, no.

Our next question is coming from the line of Evie Koslosky of Goldman Sachs.

So first, maybe talk through your conversations with health systems ahead of the Confirm MRD launch. Maybe how much appetite is there to simplify suppliers from their perspective given you have the full portfolio of tests? And maybe also talk through the performance of the test versus peers in the space and generally, how you're viewing the competitive environment.

Yes. Brian, do you want to take the customer focus and then...

Yes. Evie, it's Brian. Look, our -- we have very strong and very broad institutional and individual medical oncologist relationships that, in many respects, have anticipated the rollout of our technology, whole exome, 23,000-genes across a broader product line. So there's an embedded demand on the part of all of these relationships for an MRD/monitoring type of solution. So we expect that introduction -- I wouldn't even call it a launch. I'd say it's an introduction and provision of the Caris platform more broadly across those same institutions, same oncologists and in some cases, same patients. So I'm very excited about that. It will help us in terms of volumes. It will help us in terms of just our presentation as a strategic partner. It fits neatly into those conversations at both the senior leadership levels at the institutions as well as with the individual medical oncologists. So I'm very excited about that. I think the differentiated technology is super exciting as well as just the completion of the continuum of care. So that's how we feel about it. And I think it's just a very natural thing for our existing sales force to have in the bag. Now we'll probably just like with Caris Assure, this fits within the specialty sales team for sure, which we're continuing to build. So as part of the investment program, more FTEs within the sales force, we're also building out the specialty team. So I think that's going to be part of the strategy and investment program on the commercial side as well, all of which will, I think, be very, very helpful for a variety of reasons.

Okay. Great. And then on Detect, I know you mentioned the advertising campaigns were really only launched in a few markets. I guess when should we expect you to get to kind of the full 100% launch of those campaigns? And then also maybe talk about the global opportunity within Detect versus more of the U.S. opportunity and where you would expect to see the initial demand there?

Yes. So I can take that, Evie. So I think what we'll do is we'll continue to be kind of assessing it as we continue to roll out and make sure we have enough capacity for running it. Again, it's a differentiated assay and it's whole genome. So it's a lot of sequencing. So we'll continue to assess that from the capacity front with the rollout, and then that will align with how we do from a marketing standpoint and continue to expand markets there and expand into partnerships there. You're 100% right. Obviously, we're focused on the U.S. market right now with the digital platform -- we're doing. But I think there's a huge opportunity to expand. That's not in our plan right now. In the next couple of quarters, we're focused on the U.S. market, but there's definitely opportunity as we get to the end of 2027 to start considering additional strategic partners outside of the U.S.

Evie, it's Brian. Evie, we've already -- we've had significant reach-out from large groups outside the United States, more generally, but also as it relates to Detect and MCED. So I don't think it should be a surprise that there's strong interest in longevity, health span and MCED as well as our technology as it relates to Caris Detect. I think the other thing worth pointing out, and we've talked a little bit about the technology and the campaigns. But the other thing that's going on that we're spending a lot of time and effort on is building the channel. So as you know, we're not taking an individual PCP-type of approach, but rather developing strategic relationships with channel partners that often have organized the PCP. So we're working with the digital platforms, concierge medicine groups, longevity companies, et cetera. And this market is scaling very rapidly, very significant membership. And they're looking for a solution. They're looking for the best technology. They're looking for MCED as a part of their overall strategy, and they want a better MCED solution than what's currently available. So I think we with our early-stage sensitivity fit very neatly within that. We have many conversations going on. They're all positive. And what's happening, I think, to be more specific about it, is we're developing those relationships, and we're getting onboarded, right? In many cases, they have [ SADs, ] they have a process. So we're getting onboarded. They're very interested in the technology. So all of that is building. And I'd say there's a lot of momentum as it relates to kind of onboarding those various channel partners.

Our next question is coming from the line of Tycho Peterson of Jefferies.

Thinking about just Caris Assure for therapy monitoring, how should we think about the attach rate with therapy selection testing? I mean, is there a general rule of thumb that you're keeping in mind as you roll this out? Is it 2:1? How do you think about that?

Yes. Brian, do you want to take that one?

Listen, Tycho, that's a great question. We think it's going to be quite significant because it's very natural given the interest in our technology to follow through with monitoring. So I don't think we have a specific answer to that, but we think that given the initial reaction and just the logic associated with this, we think that attach rate could be quite significant.

Okay. And then one for Luke on margins. I mean just thinking about the gives and takes here. I mean, you're rolling out 3 tests without reimbursement out of the gate. Obviously, Detect is cash pay, but then you have the Everlywell partnership, so splitting the economics. Can you maybe just get us comfortable with the margin outlook? I know you don't want to talk a lot about '27, but how do we get comfortable it's not dilutive to margins significantly as you roll these out?

Yes. Again, it's because of the disciplined approach we'll take, Tycho, with everything. So one of the key things that we'll continue to assess is obviously the improvement in sequencing technology, which I think will benefit. It was a question asked earlier. We're definitely seeing that play out, and we definitely think that will have a positive impact on our existing products today and on our new products as well from a sequencing cost standpoint. I think the second thing, too, is, obviously, we continue to execute across the billing and market access groups. And I think with our existing products itself and with obviously the up -- increase in the $5,250 rate for Caris Assure effective January 1, that will also help kind of soften the blow of launching these products without reimbursement, and that's kind of our plan is to continue to manage it smartly. So I don't expect a massive deterioration as we go through this. And then I think actually, we could see improvements on the sequencing technology. Obviously, if MRD is a very recurring product that you could have a lot of tests out of the gate, but we'll launch this in a smart way with select customers and continue to roll it out customer by customer rather than a broad launch initially, while we work through the reimbursement pathway. It's similar to what we're doing with monitoring. It's a similar approach. So again, we'll be smart about it. I don't expect massive deterioration at all.

The next question is coming from the line of Paige Chamberlain of Wolfe Research.

We're all clearly very focused on Detect. I'm going to ask another one, if you'll allow it. If I'm recalling correctly, there was a comment on the 2Q call around current revenue capacity. I think it was specific to Detect and the comment was $1 billion in revenue capacity, which at a $3,500 ASP implies something like 300,000 tests. Am I square on all of that math? And is that volume number anything we should be thinking of in the ballpark anytime soon?

Yes. I think that's where we want the capacity to be, Paige. I think that's what we're striving for. You can see that reflective in our CapEx expenditures. It's one of the key things we're focused on as we roll out not just Detect, but also the other products that are recurring is increasing the sequencing capacity to support that potential. So that's something we're working towards. It's not something we have today, but that's what we're working towards over the next kind of couple of quarters and what you've seen over the past couple of quarters with our CapEx spend.

Awesome. And I'm just going to squeeze in one more on the sales force expansion. So I heard the latest number this quarter, 325. You must be like in what you're seeing because the original number, I think you guys were targeting was 300. I'd love detail on what sort of metrics you're seeing that are encouraging the continued expansion? And is 325 sort of a stopping point? Or are you guys still hiring?

Yes. Paige, it's Brian. We are liking what we're seeing a lot. We have so many different things to work. We think the market is very accommodating. We see a large and growing TAM with increasing adoption of precision oncology programs as well as just more profiling on the part of individual medical oncologists. Our platform overall has many different edges from technology to scale. I think our channel itself with all the relationships is a huge competitive edge for us. But as you know, the FTEs had drifted down there for a while right before the IPO. So we're continuing to build in, and we're seeing a real ROI associated with that. And we don't see any end in sight for that. So we're going to continue to hire. So our Chief Commercial Officer is organized. We're going to expand the number of territories. We'll expand the number of FTEs. We see the opportunity in the market for sure, it's only growing, and we think we have a significant number of edges so that we don't see any reason to not continue to put the various pieces in place to provide the technology to more institutions and more oncologists.

The next question will be coming from the line of Jack Meehan of Operon Research.

I wanted to ask about the volume question in a different way. Maybe in that 61,500 tests that you reported, is it possible to tease out what non-therapy selection contribution there was? And the reason I ask is I -- building off Dan Brennan's question earlier, just looking at the sequential step-up in 4Q, I assume that is expanding. So just getting a little color on how that is trending would be really helpful.

Yes, Jack, so if you take -- like that's the reason why we commented on the mix trend from the first couple of quarters, it's consistent with that trend, what you saw from Q1 to Q2 and then that following all the way to Q3, and we expect that trend to continue into Q4.

Okay. And then as an unrelated follow-up, I did want to ask you about the supplies on the balance sheet. Obviously, you did some stocking last quarter. It looks like you did more stocking this quarter. The inventory, kind of weeks on hand is elevated. I was curious maybe just your philosophy around stocking, why you're doing this and whether you think that could be a source of cash at some point?

Yes. Again, it's ahead of the launches. One of the key things is obviously with the Detect launch, we got prepared. And -- but the other thing, too, is these are the same kits that we're going to run for ACHIEVE 2 samples, which we've started to run. So that's kind of a key focus for us in Q4 is to get that interim readout as quickly as possible. And then also with the new Assue launch as well, that's on the Nova X platform as well. So I think what you saw this quarter with the inventory is just kind of a general step-up. It's kind of consistent with what we've done before that big ramp-up in Q2. And yes, we paid down, obviously, quite a bit of it, and you can see that reflected in the accounts payable. That dropped close to $38 million, and that was on purpose. So that's why we feel very confident about being positive free cash flow again. We don't expect to do that ramp at the end of the year.

And our next question will be coming from the line of Kyle Mikson of Canaccord.

This is Alex Vukasin, I'm on for Kyle Mikson. Congratulations on the quarter and the recent test launches. So just circling back to the first question of the Q&A. Understanding you aim to provide less granular detail on this going forward. One of the key factors that we continue to monitor going into next year is the tissue therapy selection test volume expansion. So you stated in the prepared remarks, therapy selection opportunity remains rich. I guess what gives you confidence you can continue to expand the base tissue aspect of this business going forward? Could it take additional commercial investment? And is mid-double-digit year-over-year test volume expansion sustainable for the blood side of your therapy selection business in the near to medium term? Or could we perhaps see a bit of a slowdown?

Yes. I think like what we've shown is obviously the acceleration, and that was in our comments, the acceleration across both from Q2. So that was positive and tissue was obviously accelerating, too, which is kind of our expectation with the investment that we're doing, but with the reorganization and the realignment. So I definitely think tissue will continue to improve into the end of the year, and I definitely think it can continue to improve going into next year based on what we're seeing. I think from an overall standpoint, blood is obviously growing at a faster rate. It's starting from a smaller base, but we're continuing to see that growth and accelerate in Q3 from Q2. So again, that's a testament to the work of the sales team. I think we'll continue to add to the sales team. As Brian mentioned, we're not going to stop with the 325. We're going to keep adding based on what we're seeing from the inbound and from the orders and from the penetration in the institutions. So we feel great about both going forward, but we won't be disclosing a growth rate for each of those individually. It will be on a total basis.

And so you've obviously been able to achieve a lot of innovation internally, yet it's important to note that you maintain a substantial cash position, which provides you with optionality. Could you elaborate on your M&A mandate or criteria? And generally, if you're open to acquiring technology externally to either boost current offerings, perhaps planned offerings for launch or launch products available commercially for competitive reasons or just to expand the test menu?

Yes...

No -- go ahead, Brian.

I was just going to say, look, this market has grown, and it's definitely consolidating. So there's more M&A, which I think is healthy because a number of these companies without a commercial channel really need to find a home. They have no real viability on a stand-alone basis. So there's plenty of opportunity. We have not used it as a tactic for a whole variety of reasons, including the fact that we haven't seen anything that we thought would be incrementally helpful to us from a -- particularly from a technology perspective. So our founder here is always focused on developing and pioneering this market and creating the best technology. And I think we're going to continue to do that. So with that mentality and with our leadership position with respect to technology, it's just hard to find things that would be incrementally useful. And that is despite the fact that we have a skill set here, starting with David's experience in building companies through M&A. So there's certainly no reluctance or lack of capability. It's simply just opportunistically, we think we're better off devoting our time, resources, attention to an organic building strategy. But it's a possibility. And if something comes up that's relevant, we're certainly capable, both with respect to our own human capital as well as our financial capital.

And this does conclude today's conference call. Thank you so much for joining. You may now disconnect.