Good day, everyone. And welcome to today’s CareDx Incorporated Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call may be recorded. I’ll be standing by if you should need any assistance. It is now my pleasure to turn the call over to Mr. Greg Chodaczek, Managing Director.

Thanks, Leo. Good afternoon and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ending June 30, 2024. The release is currently available on the company’s website at www.caredx.com. John Hanna, President and Chief Executive Officer; and Abhishek Jain, Chief Financial Officer, will host this afternoon’s call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, are examination of historical operating trends, expectations regarding coverage decisions, pricing and enrollment matters, and our financial expectations and results are based upon current estimates and various assumptions. These statements involve material risks and uncertainty, so that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. The information provided in this conference call speaks only to the live broadcast today, July 31, 2024. CareDx disclaims any intention or obligation except as required by law to update or revise any information, financial projections, or other forward-looking statements, whether because of new information, future events, or otherwise. This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles. Reconciliations of the most directly comparable GAAP financial measure may be found in today’s earnings release filed with the SEC. I will now turn the call over to John.

Thank you, Greg, and thank you to everyone who has joined today’s call. After a good start to the year, we had another strong quarter marked by growth across all of our businesses and disciplined operational execution. CareDx’s commitment to patience, innovation and providing robust solutions that address transplant centers’ needs are driving our growth. We continue to publish compelling evidence supporting the role of our Testing Services in extending allograft survival. Our Digital Solutions are vital to helping our customers navigate complex workflows and achieve high quality outcomes, and our NGS-based laboratory products are gaining wider adoption, supplanting legacy technologies. In my prepared remarks, I will share examples of how our solutions benefit patients, transplant centers and labs, underpinning the drivers of increased utilization and topline growth. We’ve reached an inflection point in our business. Our revenue growth, coupled with our disciplined approach to expense management, has translated into sizable improvements in our adjusted EBITDA, resulting in both topline and bottomline growth. We became adjusted EBITDA positive this quarter and expect to be adjusted EBITDA neutral for the remaining two quarters of the year, resulting in positive adjusted EBITDA for the full year, as reflected in our updated guidance. Given our strong year-to-date results and expected growth for the remainder of the year, we are raising our revenue guidance for fiscal year 2024 to $320 million to $328 million, a growth rate of 15% year-over-year at the midpoint of our guidance. Turning to our financial results, for the second quarter, we reported revenue of $92.3 million, up 31% from the prior year. In our Testing Services business, we delivered approximately 43,700 tests, up 17% from the prior year and up 4% from the previous quarter. This represents the fourth consecutive quarter of sequential growth in Testing Services volumes. Testing…

Thank you, John. In my remarks today, I will discuss our second quarter results before turning to our revised 2024 guidance. Unless otherwise noted, my remarks will focus on non-GAAP results. For further information, please refer to GAAP to non-GAAP reconciliations in our press release, earnings presentation and recent SEC filings. Let me start with the key financial highlights before providing more details around our revised 2024 guidance. Reported total revenue of $92.3 million for the second quarter, up 31% year-over-year. Delivered over 43,700 test results, up 17% year-over-year and 4% as compared to the last quarter, representing the fourth consecutive quarter of sequential Testing Services volume growth. Reported Testing Services revenue of $70.9 million, up 33% year-over-year, including $13.2 million associated with tests performed in prior periods. On a comparable basis, adjusted revenue grew 21% year-over-year, driven by strong Testing Services volume growth. Reported Patient and Digital Solutions revenue of $10.7 million, up 19% year-over-year and Products revenue of $10.6 million, up 35% year-over-year. Reported adjusted EBITDA gain of $12.9 million, as compared to $10.4 million loss in Q2 of 2023. Finally, generated cash of $18.9 million from operations and ended the quarter with $229 million in cash, cash equivalents and marketable securities. Due to the strong overall performance in the second quarter, we are raising our full year 2024 revenue guidance to $320 million to $328 million from our prior guidance of $274 million to $282 million. Moving to the details, starting with gross margins, our non-GAAP Testing Services gross margin was 81% in the second quarter, compared to 73% in the second quarter of 2023. Adjusted for the $13.2 million in revenue associated with tests performed in prior periods, Testing Services gross margin was 76%. Our Patient and Digital Solutions non-GAAP gross margin for the second quarter…

Thank you, Abhishek. As we conclude our prepared remarks, I want to highlight the remarkable progress our team here at CareDx has made over the past year, translating into significant topline and bottomline growth. We stand in a strong position entering the second half of 2024. Prior to concluding the call, I want to share that CareDx will be hosting an Investor Day early in the fourth quarter, where we will provide insights into our long-term growth strategy. A public advisory of the specific date and location will be released in the coming weeks. And with that, I would like to ask the Operator to open the line for questions.

[Operator Instructions] We’ll take our first question from Bill Bonello of Craig-Hallum. Your line is open.

Hey, guys. Really nice looking quarter. Congratulations. A couple of things. So, on the prior period collections, not at all surprising, given the efforts that you’ve been making. But last quarter, I think you had about $3.7 million and you thought maybe that was cleanup, and now you have another $13 million. Is there -- I get you don’t want to include it in the guidance, but how should we think about that on a go-forward basis? I mean, is there more opportunities still to go back and collect on prior period billing?

Hi, Bill. This is Abhishek this side. I’ll take this question. So you’re right. We basically had a good collection this particular quarter and we recognized $13 million for the prior period. And from the guidance standpoint, what we have done this time around, we are including in the high end of our range some improved collections that will help us in getting higher revenues and that’s baked in in the guidance. That’s the first part. And the second part is on the overall size of this particular opportunity. And what we are seeing that based on some of these successes that we have seen in the last one year or so, the overall pool of such opportunities are kind of decreasing and that’s the reason we decided to kind of bake in some wins from this particular area in our high end of the guidance.

Okay. That’s really helpful. And then can you just tell us what you’re seeing in terms of surveillance testing in Kidney? Are physicians still behaving as though the draft MolDX LCD is the policy? Are you starting to see some reversion back to increase surveillance tests?

Hi, Bill. It’s John. Thanks so much for the question. We continue to see that clinicians are using the test and being more comfortable with the scenarios in which it can be used for cause. They have not changed their behavior relative to surveillance testing in anticipation of the draft LCD finalization.

Okay. And then if I can ask one last question, just any thoughts going into BAMF for this September, possible that we could see an update to classification that references the donor derived cfDNA?

I’m going to ask Robert to respond to that.

I think that is something that they’ve talked about over the years. It’s unclear when that might happen. As far as something coming out of the guidance, even if it is discussed, that would be in a future publication. So that’s not short-term.

Okay. Thanks a lot. Appreciate it.

We’ll take our next question from Tycho Peterson of Jefferies.

Hi, guys. This is Kayla. I’m for Tycho. Thanks for taking the question. I just wanted to start off with the IOTA program. You’ve mentioned potential reimbursement changes that could come down the line from the program. Assuming the program starts in 2025 and is successful, how soon could reimbursement changes be proposed and what changes would you be hoping to see?

Can you repeat the question? You’re referring to the IOTA program and reimbursement?

Yeah. You’ve talked about some potential reimbursement model changes that could come down the line from the program. I guess, what kind of changes could we see and when?

Yeah. I’m going to ask Alex to talk about the IOTA program. Thanks.

Sure. So, thanks for the question. This is a long term program for roughly half QT transplant centers. And the penalties and rewards, so to speak, are really built into that program. It’s still in discussion and a lot of comments have now come in. And so those ups and takes and gives and puts will happen as part of the IOTA program that’s specific to those centers that are in the IOTA program.

Okay. That’s helpful. And then will the centers that are involved be able to stick with the tests they are currently using? Say, maybe like AlloSure versus Prospera or will there be an effort to standardize testing for the centers participating in the program? And anything worth calling out that CDNA could do to defend or pick up share as the market expands?

I think what’s important to realize that this program is to incentivize more utilization organs, right? It’s to help patients. And centers are going to make decisions on how to do that and here at CareDX, we have tools, we have evidence driven solutions that can help them do that. And so we’re thinking that we’re in a very good position to help them execute on their strategies.

Great. Thank you.

We’ll move next to Matt Sykes of Goldman Sachs. Your line is open.

Hey, guys. This is Prashant on for Matt. Congrats on the quarter and thanks for taking the question. So, first, given how transplant volumes have trended for the first half of this year, seems like for kidney and heart transplant volumes are trending flattish to low single-digit growth for the second half. When you annualize that first half number in 2024, how are you thinking about this trend and the upside remaining for growth throughout the remainder of the year?

Yeah. Thanks for the question, Prashant. I mean, I think that there’s plenty of opportunity for us to continue to grow as a business, regardless of the quarter-over-quarter trends in transplant volume. In general, we see volume increasing year-over-year and we’re going to continue to monitor that. And we anticipate with the IOTA program that was addressed in the last question that we’re going to continue to see the trend go in that upwards direction.

Got it. Thanks. And then just a question on single versus multimodality testing. So your main competitor in the space is involved with this approach as well. Can you just quantify the market for multimodality and how much share have you been capturing? How is that projected to evolve going forward?

I think we’ve built a strong base of evidence that supports multimodal testing in heart transplantation. That dual positive AlloMap Heart and AlloSure Heart identify rejection at a higher rate than a single test. In particular, donor-derived cell-free DNA alone. And that dual negative results, patients are less likely to get biopsy and have significant fewer rejection events. And so the evidence is very strong there and the adoption of multimodal testing is high. And I think we’ve previously said upwards of 90% of patients that undergo a testing from CareDx for heart transplant get HeartCare.

Got it. And then if I could squeeze one last one. So, how do the market sizes for HistoMap and UroMap compare with the market for AlloMap Kidney given they’re all gene expression profiling tests for kidney transplant monitoring?

That’s a great question. We’re going to be addressing future pipeline products in our Investor Day in the fourth quarter. So we’ll hold on that question until that time.

Got it. Thank you.

Thanks.

Our next question is from Andrew Cooper of Raymond James.

Hey, everybody. Thanks for the question. Maybe first, just the scope of this step up kind of quarter-over-quarter in volumes was impressive. Has anything changed? I know you kind of touched on it a little bit in terms of an inflection point, I think, was the word used in one of the prepared remarks. So, just would love kind of what you think is really driving that continued adoption from here as we see some of the noise settle down over the last year.

Yeah. Thanks for the question. I’m going to ask Alex, our President of Patient Testing Services, to answer that.

Yeah. Thanks, Andrew. We are leading through innovation and clinical evidence. That hasn’t changed. And I think as you look to see how our differentiation is emerging in the market, you heard about HeartCare, we’re talking about SHORE. But consistently, it’s that type of evidence and us advocating for center-by-center approach to make sure that we’re executing on our strategy. So, while we see the growth and we’re pleased, this is something that is really baked into our strategy and our go-to-market.

Okay. Helpful. And then maybe I think, John, I think you commented in response to Bill, something in terms of clinicians getting a little bit more comfortable on some of the four cause uses. Could you just elaborate a little bit more on that and kind of whether it’s in regards to what the disruption really has been when it shouldn’t have been or what you meant by that comment and what you’re seeing from that regard?

Yeah. Sure, Andrew. Thanks for the question. I think this reflects on what Alex was commenting on a second ago, which is that under the coverage criteria today in the Medicare program, there are a number of scenarios where the test can be ordered for cause. It could be as a result of clinical signs and symptoms. It could be the result of another pre-test that was performed, such as a serum creatinine being elevated. It could be as a result of trying to monitor a change in immunosuppression levels for the patient. And so what Alex and his team have done quite successfully has been to educate clinicians at the centers around these scenarios in which the testing is medically both appropriate, has utility and is considered reasonable and necessary under the policy so that they can utilize it in those settings. And that is driving, to some degree, our growth as a company as they become more and more comfortable with those four cause scenarios and ordering it in those scenarios.

Okay. Helpful. Maybe just one last one to sneak in. Abhishek, I think you said around $1,300 in terms of ASP for the rest of the year. If I back out, if I’m doing the math right, backing out to $1,302 this quarter, you were a little bit north of that in 2Q and you talk about the $27 million additional lives being added in terms of coverage. So, any reason we shouldn’t expect that number to kind of trend a little bit higher from here or maybe what’s some of the moderating factors?

Yeah. The way I’m kind of thinking about this, Andrew, that I have baked in some of those pieces in the high end of our guide, not necessarily the midpoint of our guide. So that’s how I see it. I’m not seeing any kind of a step change here from Q2. It’s going to be more flattish at a very high level, the ASP assumptions.

Okay. Great. Appreciate the thoughts and I’ll stop there.

Thank you. We’ll move next to Nathan Kariko of Stephens.

Hey, guys. Congrats on a really strong quarter. How much of an impact has the SHORE data had on adoption trends? I mean, once your reps put that in front of clinicians and talks through it with them, do you see utilization pick up, whether it’s frequency of testing or a ramp in new ordering clinicians? Yeah, maybe I’ll just leave it there.

Yeah. Thanks. This is Alex. Thanks, Nathan. Ever since, I think, the introduction of the early data in Prague, this has been a big topic for clinicians around heart transplant and that has only increased. I think we’re in the early days of seeing the impact of SHORE. This is a 67 center study with 2,800 patients being followed for five years. The amount of data that’s going to come out of SHORE is tremendous and I think we’re just starting to see the early studies and the early data. So we’re getting started and that’s going to continue for some time.

Got it. Okay. And could you maybe give us a little bit of color around some of the early conversations you’re having with transplant centers around the IOTA model? Has that driven any of the centers to increase their engagement with you guys or start to implement some sort of framework to more broadly utilize some of your offerings? Any broad color there, I guess.

I think there is certainly increased interest. Centers know this is coming. They’re trying to organize themselves. And there’s certainly many more questions we’re receiving on areas that we are well-positioned to help them in.

Okay. And last one here, I may have missed this. But did you guys call out volume trends across organ type during the quarter? Would you be willing to?

No. We have not called out the volume growth at the organ level. But what we can say, Nathan, that we are seeing growth across all the organs.

Perfect. Okay. Thank you.

We’ll take our next question from Mark Massaro of BTIG.

Hey, guys. This is Vivian on for Mark. Thanks for taking the question. I understand that we’re waiting for a CMS update in the coming weeks. Could you maybe just give us a sense for how you’re thinking about what the range of outcomes might look in the final LCD, particularly given that the interim SHORE data is out and just any dialogue you’ve had with them since that data read out? Thanks.

Yeah. Thanks, Vivian. We appreciate the question. As I shared in the prepared remarks, we have observed CMS publicly state that they continue to want to provide access to monitoring assays for solid organ transplant rejection, and we anticipate that that policy will be updated here in the coming month and so we’re monitoring for that. We -- as you asked, we do regularly communicate with the agency and with our MACs, and of course, have shared with them both the SHORE data, as well as our Nature Medicine publication around Kidney Transplant Management. So they are diligent about reviewing the literature and the positive results there and so we’ll just continue to await their final policy.

Okay. Perfect. Understood. And just one, I just wanted to dig in a little bit more on the prior period collections, a pretty substantial number. So I did hear you guys say that it is contemplated in the high end of the guide to some degree. But should we think about it tapering off sequentially for the remainder of the year and do the collections include tests just in the prior year or do they go back further than that?

Yeah. So these tests that we’re calling out, they definitely go back prior periods. We’re not including any tests that we’ve done in the current quarter in that $13 million number. And as I was referencing previously, we have seen quite a few wins based on a lot of effort that we have done the past many quarters. But we believe that now the available pool of these kind of wins is kind of shrinking and that’s the reason we decided to bake in part of that kind of our expectation on what it may kind of pan out in our high end of the guidance.

Okay. Understood. I’ll leave it there. Thank you.

Thank you. We’ll take our next question from Yi Chen of H.C. Wainwright.

Thank you for taking my questions. My first question is, when you talk about those tests performing prior periods, are you primarily talking about maybe one quarter, two quarters or three quarters in the back or maybe one year to three years in the back?

Yeah. So there are a couple of components on these tests, Yi Chen. One is, of course, what we typically have called out around the Medicare Advantage, where we have been working with these payers. And these tests generally go back multiple years, not necessarily just a few quarters. So that’s the first part. And the second part is that, based on how we are seeing these increased collections and based on our discussions with the payers and everybody, we are kind of recognizing the revenue on certain tests, which is actually helping us improving our ASPs in the current quarter and on a go-forward basis. So there are two components there.

Okay. So in the near-term, for the next two quarters or three quarters, do you expect the topline growth to be primarily driven by test volume growth in the current quarter or a better collection of tests performing prior periods or maybe they could contribute equally to topline growths?

The way we are guiding for the second half, Yi Chen, we are basically saying that our volume growth is going to be in the high-teens and our revenue growth is going to be in mid-20s. So you can basically say that majority of the revenue growth is still driven by the volume, but still there is a pretty decent piece because of the ASP expansion, which is baked in in our revenue guidance now.

I see. Great. Thank you for the clarification.

Okay.

We’ll take our next question from Thomas DeBourcy of Nephron Research.

Hello. Thanks for taking the question. I guess going back to the prior period question, so I just maybe just want to clarify around the incremental coverage. Are you getting a look back period from either MA plans or commercial plans, I guess, as you negotiate a network reimbursement? Is that part of what’s helping us?

Yeah. No. That’s a great question, Tom. And let me give you an example here that we were -- we have been having these negotiations with the Medicare Advantage payers, and one large national payer actually decided to process many of these unpaid claims starting January of 2022. So that’s just an example as to sometimes we are able to kind of negotiate with these payers some of the claims that we were not being paid in the past and we’re able to get that payment now.

Understood. Okay. And then maybe just as a related follow-up around faster volume growth, obviously impressive even relative to last quarter. It just, you mentioned some of it is related to, I guess, doctors understanding the various situations where they can order the test. Do you think overall, maybe across top transplant centers that there’s a greater recognition or just more, I guess, maybe from early adopters it’s shifting towards like maybe the middle or the majority in terms of transplant doctors adopting and monitoring assays?

Yeah. Hi. This is Alex. I think, listen, it’s a factor of multiple, right? So one is these clinicians are getting more comfortable with ordering for cause and that’s clearly an area of value. They want to use these technologies to help their patients. But the bigger picture is we are early in this adoption cycle of these technologies. If you think about it, AlloSure for kidney was launched six years ago, right? Majority of patients have never had a molecular test to help monitor their transplant. And so when you think about both those trends coming in place, it’s certainly a factor, but we have a long way to go on this adoption cycle and that’s really what gets us excited about helping patients every day.

Great. Thank you very much.

Thank you. This does conclude our question-and-answer session, as well as our conference for today. You may now disconnect your lines and everyone have a great day.