CAI - NASDAQ

Good afternoon, everyone, and welcome to the Caris Life Sciences Q4 2025 Earnings Call. My name is Dana, and I will be your coordinator today. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Russ Denton. Please go ahead.

Thank you. Earlier today, Caris Life Sciences released financial results for the quarter and year ended December 31, 2025. Joining the call from Caris today are David Dean Halbert, our Founder, Chairman and CEO; David Spetzler, our President; Brian Brille, our Vice Chairman and EVP; Bobby Hill, our Chief Commercial Officer; 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 involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. These risks are discussed in our SEC filings, including our quarterly reports on Form 10-Q and our annual report on Form 10-K to be filed with the SEC. Assessed as required by law, Caris disclaims any intention or obligation to update or revise financial projections and forward-looking statements whether because of new information, future events or otherwise. The information discussed in this conference call is accurate only as of the live broadcast. This call will also include a discussion of non-GAAP financial measures, which are adjusted to exclude certain specified items. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available in the press release Caris issued today. A copy of today's presentation materials along with an interim readout of our Q1 study can be found on our website. I will now turn the call over to Brian.

Thanks, Russ, and thank you all for joining our Fourth Quarter 2025 Earnings Call. This is our first year-end call as a public company, following our June IPO last year, and we're pleased to report another record-breaking quarter, finishing the year with excellent performance across the company in terms of growth and underlying financial strength. I want to start with what has always mattered most at Caris, our mission. Caris was founded to make precision medicine a reality. We aim to fundamentally change the way disease is characterized and treated. We believe more information is more power and every patient deserves more power in the battle against disease. That mission is being powered by a molecular platform, which benefits from scale and highly differentiated capabilities as illustrated on Slide 3. Our platform continues to scale. And in 2025, we completed just under 200,000 individual cases. With this clinical activity, we have recently reached a platform milestone as our molecular data set now exceeds over 1 million profiled cases and has grown into one of the most important clinical genomic resources in the industry. As the industry evolves, the intersection of molecular science and AI is accelerating technological innovation. Our philosophy is a long-term strategic orientation to develop the best offerings on the market and to pursue this innovation, while generating profitable growth and maintaining financial strength. We've had an outstanding fourth quarter with total revenues increasing 125% year-over-year to $293 million. As demonstrated on Slide 4, this result was driven primarily by strong performance from clinical profiling. Molecular profiling services revenues increased to $282 million in the fourth quarter representing an increase of 199% year-over-year. Pharma R&D Services revenues were $10.8 million in the fourth quarter, and we're making important progress in CDx data discovery, including the December announcement of the Genentech Discovery deal as well as a CDx collaboration. In summary, across the board, we had a very productive fourth quarter illustrated by the quarter highlights on Slide 5. The strong revenue performance, combined with the operating leverage inherent in our business model has produced excellent financial results, including the following: revenue growth of 125% which was driven by volume growth of 20% and a 150% increase in clinical ASP. This revenue growth has led to significantly improved gross margins of 75% on a GAAP basis, up from 54% in the fourth quarter of 2024. It also represents a significant sequential increase from the 68% in the third quarter. With this gross margin improvement, this quarter, we generated positive GAAP net income of $82 million and adjusted EBITDA of $106 million as well as positive free cash flow of $39.7 million. This is our third straight quarter of positive adjusted EBITDA and positive free cash flow. This strong profitability profile is unique in our industry and provides valuable strategic flexibility for ongoing investment in our tech platform for new products as well as the ability to develop new channels such as MCED. In addition, our balance sheet continues to strengthen with cash on hand growing to slightly above $800 million, an increase of $43 million in the quarter. The Caris data set has continued to grow with our clinical profiling activity and now exceeds 1 million genomic profiles and 740,000 match profiles. Since every profile has been generated with our WES, WTS technology for many years, our data set now features 627,000 exomes and 678,000 transcriptomes. This gives our data set tremendous power for internal product development as well as attractiveness as a research partner for academic medical centers through the POA as well as for biopharma. As the results demonstrate, our financial performance gives us unique strategic flexibility, and we intend to use that edge in 2026 to make significant investments in both the Early Detection business and our Therapy Selection channel. In Early Detection, we expect to realize the long-standing vision of our CEO, David Halbert, of launching a revolutionary Cancer Early Detection Test. Caris Detect has the potential to bend the cancer mortality curve and ultimately make cancer a curable disease. We believe that the implications for this test are truly profound, both for Caris and for our society. In our core Therapy Selection business, we plan to invest in our commercial channel to broaden our reach and deepen our relationships to accelerate growth. We have a new Chief Commercial Officer Bobby Hill, who took on this responsibility in the fourth quarter. We're extremely excited about the opportunities we face and the new initiatives that Bobby is driving, ranging from the expansion of the sales force and territories to enhance programming and education. Finally, we will make these investments while maintaining positive adjusted EBITDA and free cash flow. Our strategy is to maintain financial discipline through a strong balance sheet and profitability, and these financial pillars of strength will allow us to realize our mission of making precision medicine a reality to benefit patients and physicians. I will now turn the presentation over to Bobby Hill to provide an update on our commercial business and related strategic initiatives. Bobby?

Thanks, Brian. I will provide a brief update on our molecular profiling business along with our initiatives for the commercial teams in 2026. Starting on Slide 6, this shows our strong molecular profiling revenues performance for the full year, with revenues increasing 120% to $766.7 million. This excellent revenue growth was driven by a 22% year-over-year growth in clinical case volumes to approximately 199,300 profiles and a 79% increase in average sales price, reflecting our market access and billing team's strong execution throughout 2025. This ASP growth was driven by our successful launch of MI Cancer Seek on January 1 of last year, and these benefits are reflected on the slide, where tissue ASP increased by 83% to over $4,000 and our blood ASP increased by 69% to just under $2,800, driven by billing our new PLA code and improvement payment for Caris Assure. Luke will discuss the breakdown of this further during the financial update, along with the trends we saw play out during 2025. This illustrates the growth that our sales team has generated in clinical profiling this year, which I am encouraged about as we see progress into 2026 already. Our Q4 growth was 20%, which was sequential improvement from 18% in Q3 '25, with Caris Assure delivering 59% year-over-year growth in Q4 '25 and continuing to gain traction. Entering 2026, in order to broaden our reach and deepen our relationships to accelerate growth, we are making a continued investment in our commercial channel, by expanding the sales force, including expanding our Liquid Specialist Team to ensure we are maximizing the impact of our excellent teams. Next, strengthening our product and value proposition messaging by focusing on key differentiation of our technology and the clinical impact, the advanced technology has on patient care, as evidenced by data publication, scientific literature and enhancing our -- and elevating medical education and training across, not just the customers we serve, but also our internal teams. Since we are now also consistently reaching over 6,000 oncologists across the country and have EHR integrations of approximately 3,100 clinical sites where approximately 75% of our orders come in electronically. This will be another area that we continue to invest from a customer and team standpoint to make ordering process more streamlined. I joined Caris because of our science and technology differentiation and forward-thinking development of solutions, and I'm excited about continuing to expand the Caris commercial reach to help more patients as we go through 2026. I will now turn the presentation over to Dr. Spetzler to discuss our progress on our product pipeline, in particular, around Caris Detect. Spetz?

Thanks, Bobby. So getting to our ACHIEVE-1 interim results that we wanted to share today and are reflected on Slide 8. As you are aware, this study is for supporting the upcoming launch of Caris Detect, our whole genome sequencing based MCED blood test in Q2 of 2026. ACHIEVE-1 matters not just because it's following our philosophy to always put the patient first, which includes not limiting our development decisions based on cost, but to strive to pursue to the full extent possible the very best performing test. This has been successful for us with our therapy selection assays, which are the most comprehensive on the market, where we run whole exome and whole transcriptome sequencing on every eligible patient sample and we are again pursuing the same path in early detection. The interim readout reflects the benefits of that approach where we are sequencing at incredible depth across the whole genome. Our hypothesis is that cancer is fundamentally driven by molecular abnormalities and these abnormalities show up in multiple waves, driver mutations, epigenomic changes, transcriptomic changes and aneuploidy. Many approaches in blood-based early detection have leaned heavily on epigenomics alone. We took a broader biological view by using ultra deep whole genome sequencing to capture as many genomic alterations as possible. That richer signal set is what we believe is driving our performance and it reinforces our view that relying on a limited slice of biology is not sufficient to reflect the diversity of cancer. What's also different about Caris Detect is the foundation it's built on. The test leverages Caris' molecular profiling data sets, which, as Brian mentioned, has now surpassed 1 million cases and includes more than 50 billion molecular markers. That scale and depth allowed our AI models to identify subtle biological signals associated with early-stage cancers with a very high resolution utilizing the whole genome. As shown on the slide, the interim readout includes 2,122 total samples, 617 cancers, spanning stages 1 through 4 and 1,505 patients with no known cancer at the time of the blood draw. A key point on the normal cohort. These control samples come from individuals who had screening or symptomatic screening, which is a higher likelihood population than the general population. We have at least one year of follow-up data on 22.5% of the normals, of which 35% we identified as our asymptomatic screening population, 121 individuals with no significant risk factors for cancer and at least 1 year of follow-up after the blood draw. Of note, in the total cohort, 7% of patients had a subsequent diagnosis of cancer, reflecting that the control population is truly high risk. Now to the results. From the interim readout, we observed strong sensitivity that increases with stage and high specificity. Sensitivity by stage was 56.8% on Stage I with 266 patients, 70.1% in Stage II with 137 patients, 77% in Stage III with 105 patients and 99.1% in Stage IV with 109 patients. For Stage I and II combined, ACHIEVE-1 reported 63.1% sensitivity. We also evaluated Stage I and II sensitivity by lineage across a number of cancers. Selected examples include -- and are included on Slide 9, with breast cancer being 53% sensitive across 253 patients, valves having 62.2% sensitivity with 45 patients, prostate, 78.9% with 38 patients, uterus, 73.7% with 19 patients, lung 86.7% with 15 patients, pancreas, 71.4% with 7 patients and head and neck cancer at 100% with 7 patients. On specificity in which we followed 22.5% of patients for approximately 3 years following their blood draw, we've demonstrated the following, 99.1% specificity in the screening population with an equal 121, which we have follow-up data on these subjects that had no symptoms of cancer, no history of cancer and no family history of cancer and were not subsequently diagnosed with cancer within 2 years following the blood draw. 95.3% specificity in the higher-risk normal population with 1,505 patients, of which 600 undiagnosed subjects with at least 2 years of follow-up, roughly 7% of patients were subsequently diagnosed with cancer, indicating our enrollment criteria enrich for high-risk subjects. Overall, our model performance measured by AUC was 0.90. These are interim results, which we are extremely excited about. ACHIEVE-1 also includes a blinded holdout validation cohort of approximately 865 samples that were held out for independent testing. That blinded validation is currently in process, and we expect to support these results in Q1. In parallel, we have also begun processing samples from ACHIEVE-2, which is the next step in the program. So to summarize, ACHIEVE-1 interim results show strong performance, including Stage I, II sensitivity of 63.1%, high specificity and an AUC of 0.9 across a large data set spanning 35 cancer types and with no cancer types with help from the results. We view this as a meaningful milestone as we move forward with the blinded holdout readout as the next key catalyst. Moving to Slide 10. This also reflects the status of our robust pipeline, and I'll touch on these before letting Luke wrap things up with the financials. First, Caris MI Cancer Seek is our whole genome plus full transcriptome offering focused on therapy selection in hematological malignancies, particularly AML, MDS and MPN and select cases of suspected myeloid malignancies where cytopenias persist and other causes have been ruled out. Similar to what I've discussed with detection, what matters here is depth and breadth. We're running greater than 200x coverage across the whole genome sequencing and the assay is designed to detect the full range of clinically relevant genomic alterations, mutations, fusions, copy number changes, expression, aneuploidy with roughly 1.6 billion reads per patient. From a status standpoint, we have responded to MoIDX comments on our TA submission and will launch once coverage and pricing is determined. Next is Caris MI Clarity, which is tailored for breast cancer patients who are ER-positive, HER2-negative generally Stage I or II and no negative or in certain cases, 1 to 3 positive nodes, particularly in post-menopausal patients. This solution has 2 alternative offerings, one combining MI Profound Platform with digital AI and the other that is digital AI only. Both are intended to support both early and late recurrence risk score. The goal is straightforward, improve treatment decision-making and reduce unnecessary treatment, while identifying patients who truly need to be receiving therapy. Operationally, we are in launch planning and pursuing reimbursement through the 2 paths. The NGS plus digital AI and digital only. We expect that the digital AI only path will be faster, and it is likely that we launch that version of the products first. Importantly, both versions of MI Clarity offer superior performance to currently available offerings. Third is Caris MRD Tumor-Naive where the intended initial use case is colorectal cancer. The clinical intent here is minimal residual disease assessment in patients with Stage II and III solid tumors post-curative intent treatment, helping to inform adjuvant therapy decision window. Importantly, this is designed to work from the whole blood sample without requiring an individualized tumor-informed assay build. As previously discussed, MolDX requested additional data, and we are working on creating and compiling that data, and we'll provide updates as we progress on that front. And then Caris MRD Tumor-Informed, which is our whole genome approach intended for pan tumor applications in Stage I, II and III disease. This is based on tumor-normal whole genome sequencing to identify patient-specific trackers with a proprietary approach designed to minimize false negatives. The strategy is to maximize tracker counts and to reach ultra-low PPM detection capability because in MRD, sensitivity at very low levels is required. We've initiated development and launch planning, and we will continue to provide updates as we progress throughout the year. We have also launched 5 new AI signatures on our molecular tumor board reports that is available to physicians as part of our MI Cancer Seek in breast, pancreatic, brain, lung and ovarian cancer. These signatures offer insights into which patients will benefit from available, approved therapies and show how our whole exome, whole transcriptome strategy provides the best therapeutic guidance and demonstrates how profiling is becoming more proprietary and not commoditized. Small panels of hundreds of genes are not sufficient to offer these types of insights. As Brian referenced in the investment strategy, our goal this year will be to continue to push on all pipeline activities as quickly as possible in order to make these comprehensive solutions available to improve the lives of patients. I will stop here, and I'll pass it over to Luke for the financial updates. Luke?

Thanks, David. As Brian stated earlier, we had another outstanding quarter in terms of financial performance. So I'll run through some selected highlights prior to getting to the 2026 guidance. Turning to the financial overview slide. You can see we delivered another great quarter and finished our first year-end as a public company very strong, with total revenue increasing 97% for the full year, reflecting exceptional organic performance across the business. As part of this, you will notice that our final revenue numbers for Q4 and the year is about $12 million higher than our preliminary January numbers. And this is the result of seeing continued positive collections from payers. So we adjusted our crude ASP rates in Q4 of '25 to account for these additional collections. The main driver of our 2025 growth, as expected, was our Molecular Profiling business, which grew 120% compared to 2024, due to this ASP upset along with the volume growth. Our therapy selection volumes were up 20% for the quarter and 22% year-over-year, slightly above our expectations and an improvement from the Q3 growth rate of 18% that Bobby mentioned. As discussed publicly, in January, while our pharma revenue was down year-over-year, we were happy with how it finished with our target discovery announcement with Genentech and fully expect to continue to build on that momentum into 2026. As we start to recognize revenue from that deal along with continuing to build on the contracting pipeline. Overall, our revenue growth and financial performance continues to show up on the bottom line, with positive adjusted EBITDA and positive free cash flow, not just for the quarter, but with positive adjusted EBITDA of $138 million and positive free cash flow of $67 million for the full year of 2025 and as Brian mentioned, we ended the year with over $800 million of cash on hand. 2025 was a superb year in terms of Molecular Profiling services. As you will see on Slide 12. We took a measured approach as we entered the year in terms of stepping up our ASPs from the FDA approval of the -- MI Cancer Seek solution, and I'm delighted to say that after the maturity after 12 months, it has demonstrated real sustainable uptick with payers' appreciation -- appreciating the comprehensive approach of our solutions and the signatures that are also included as part of the offering, one of which we press released on Tuesday. As reflected on the slide, the favorable payer response led to additional revenue exceeding prior accruals with the majority of the additional revenue related to cases performed in 2025 and only $33.6 million being related to benefit from 2024 and prior year cases. This has resulted in us being able to reach an ASP for our 2025 cases of $3,876 per tissue and just above $2,500 for our blood assay. These improvements are due to various tailwinds we have seen occurred throughout 2025 and for which we expect to continue to benefit from in 2026, and we have listed some of these on the next slide along with the positive trend in Molecular Profiling gross margin. The key driver for tissue was obviously the impact from our FDA approval and the subsequent increase in pricing and the benefits we saw through contract, where we have now surpassed over 225 million covered lives from MI Cancer Seek. MI Cancer Seek represented greater than 70% of our tissue volume for the full year of 2025, almost over 75% of our tissue volume for Q4 and we're able to increase our tissue growth rate for the full year to over 16%, which was up from the 2024 growth rate. For Caris Assure our PLA accrual was effective for the full year in 2025 and payers responded when we discussed both solutions together, and this played out in the reimbursement uptake over the past year. We've also seen a steady improvement each quarter as we continue to gain traction in volume, with Q4 reflecting a 13% sequential growth from Q3 of 2025. With regards to our Medicare ASP, as you know, our solutions went through clinical lab fee schedule pricing of CDLT and not ADLT. Accordingly, they are subject to the PAMA CDLT reporting process, which is on a 3-year cycle. As part of the recent Consolidated Corporations Act PAMA was amended so that the next reporting period is from January 1 to June 30 of 2025. And based on the initial view of our data, we do not expect any downward adjustments to MI Cancer Seek and Caris Assure through 2029. Staying on the same slide, the improved reimbursement had a very positive impact on the Molecular Profiling gross margin for the year as demonstrated by the progression seen on the graph. We finished at 66% GAAP gross margin for the full year. And even excluding the additional revenue from exceeding accruals for prior year cases, this was only slightly below that at 64%. This improved gross margin allows us to continue to invest and develop comprehensive offerings, validating the long-term approach we take with our solutions. All in all, it was a fantastic year from a financial performance standpoint, demonstrating the excellent work by everyone at Caris as we wrapped up our first year-end as a public company. Now turning to the outlook for 2026, which is reflected on Slide 14. Consistent with our prior approach, we're initiating full year guidance based only on our current portfolio, and will only add the pipeline solution to our guidance once they have started to generate revenue. This allows us to take a deliberate approach with gated investment strategies to ensure that these will flow through as milestones are met throughout the year. With the 2025 results, we delivered on our goal to demonstrate that our model can be self-sufficient and generate free cash flow. And now going into 2026, our plan is to reinvest from this position of strength by continuing to progress on our differentiated pipeline along with our commercial infrastructure. Therefore, for the full year of 2026, we expect total revenue for existing solutions to be in the range of $1.0 billion to $1.02 billion, which represents growth of approximately 23% to 26% compared to 2025. On the clinical side, therapy selection volume is expected to grow approximately 20% year-over-year in 2026, reflecting continued demand expansion and broader adoption across our ordering base. And as Bobby discussed previously, we've begun making those additional investments in the commercial organization. Within the total revenue range, we expect molecular profiling to grow approximately 21% to 22% in 2026. But excluding prior year additional revenue from exceeding previous accruals, this implies a Molecular Profiling growth rate of approximately 26% to 28%. From an ASP standpoint, our focus remains on continuing to improve on commercial payer contracting as we progress into 2026. And for tissue, we're tracking towards approximately $4,000 a case which we now expect to reach in Q1, followed by continued progress throughout the year with this initial guidance reaching approximately $4,200 for the full year 2026. For blood, we expect ASP to be in the range of $2,400 to $2,500 for 2026 and will seek to further expand contracting, but any potential upside is not reflected in the guidance. With regards to Pharma and Research Revenue, we expect $75 million to $85 million for the full year of 2026. This reflects contribution from our previously announced Genentech deal, a recent companion diagnostic collaboration along with the development of contracting pipeline and our investment in additional dedicated team members for our pharma customers. As in prior years, we expect the cadence as more weighted to the second and fourth quarters, with Q1 and Q3 being lower than Q2 and Q4. On the expense side, we expect GAAP operating expenses to be in the range of $590 million to $595 million, representing an increase of approximately 19% to 20%. This increase is primarily driven by the commercial expansion of pipeline trial activities, as demonstrated by the excellent results from ACHIEVE-1 and also then including the ACHIEVE-2 study of advancement of our Assure assay development models, including our planned New York State submission. Finally, with regard to free cash flow and adjusted EBITDA, we expect to remain positive for the year while funding these investments. One additional incremental item in 2026 will be CapEx as we prepare for the early detection launch. After spending approximately $16 million in 2025, we expect CapEx in the range of approximately $60 million for 2026. This spend is tied to increased capacity and will be staged and milestone driven, so will not be applied all at once and spread throughout the year. As we have stated previously, we're not optimizing for peak margin in 2026 at the expense of long-term value, but we're committed to operating within our guardrails remaining positive free cash flow and adjusted EBITDA, while we execute on the milestone by continuing to drive our top line growth. I will wrap up there. And with that, we'll now turn the call back over to the operator.

[Operator Instructions] Our first question comes from the line of Dan Brennan of TD Cowen.

Maybe just first one, just on the volume outlook, the 20% volume growth. I don't think I've heard you, did you guys break down how that's going to break down between tissue and blood. So you can give us that color? And then did you give us any color on pacing for revenues as well? So where should the first quarter land?

Yes. So Dan, so on a total volume basis, we guided to the 20%. The 20% is broken up very similar to Q4. So lower teens for tissue and then high 50s, lower 60s for blood from a growth standpoint. And then on the revenue outlook for Q1, right now, we're in that 70% to 74% growth range for total revenue.

Okay. And then maybe as a follow-up, so Bobby is now running the sales force. You've added some headcount. So can you elaborate a little bit on like how big the sales force was previously? What was the decision to bring Bobby in? How many people are you adding? Anything on the strategy? And then have you baked in any impact from these additional salespeople, will they drive revenues and volumes this year? Or is it going to hit in the fourth quarter? How do we think about the contribution from this added head count?

Yes, yes. So I can definitely take that, and then I'll let Bobby chime in on. So effectively, Bobby joined us, obviously, to lead our reimbursement efforts, knowing that Bobby also has additional expertise that would transition into the commercial operating role in the future. So from that standpoint, Bobby, obviously, has been here kind of 1 year, 1.5 years right now and done excellent work, as you can see in our results with the reimbursement. So as we go forward and what we're planning for 2026, we announced at JPMorgan that we were about 250 salespeople, and we wanted to increase it about 20% to 25%. So get that back up to about 300 people. Again, Bobby has done great work with kind of going through the territories and see where we can get the most benefit from that. To answer your last question before I pass it to Bobby, we incorporated the expense, but we're taking a measured approach with our volume. We obviously think this is going to pay off for us in the second half of the year, but that's not incorporated in the 20% number. The 20% we were able to achieve in Q4, which was what we were expecting to go into 2026. So I definitely think once we have further experience with the uptick in salespeople and obviously, all the initiatives Bobby is implementing that you could see benefits, but we're not guiding to that right now.

Our next question comes from the line of Subbu Nambi of Guggenheim.

Spetz, thank you for sharing the MCED interim data you provided specificity data, which delineates between asymptomatic screening and undiagnosed population. Can you further define these populations? How do they differ? And why did you do this? What is the significance from the perspective of clinical regulatory reimbursement and commercial?

Yes. So in the higher-risk population, what we saw was that there was a 7% undiagnosed cancer rate. And so -- now if 7% of your control samples are actually positive for cancer, then it's going to lead to a lower estimate of specificity than what you would see in a general population where the incidence rate is much, much lower. And so the kind of clean cohorts where we have the longitudinal outcome data showing that they are actually healthy patients is going to be reflective of the specificity in that general healthy screening population, whereas the symptomatic screening population, that high-risk group is what we would expect in high-risk clinics. And so the clinical context of the patient matters a lot in how we think about the results, and we want to make sure that we're clear and careful about characterizing test performance across the various populations that we'll be marketing.

Very helpful. And Luke, you did mention how pharma -- how AI is going to be a tailwind and how the database is flowing. Do you have an early outlook to share on the pharma R&D spending environment at all as pharma is increasingly looking to spend on AI and could Caris be a beneficially?

I definitely think we could be a beneficiary, especially from our molecular data set that now has over 1 million profiles. But from our guidance standpoint, Subbu, like the $75 million to $85 million, it's based on looking at what we've been able to do historically from a base run rate, knowing that we signed the additional Genentech deal that we publicly announced. We have a couple of CDx collaborations, one that was completed that we're not announcing publicly at the request of our pharma partner, that allows us and gives us great confidence as we go into the year in order to achieve that. But you're right, there's definitely a lot of trends, and we've had continued outreach, particularly around our data and the use of that in AI.

Our next question comes from the line of Michael Ryskin of Bank of America.

Congrats on the quarter. Dan asked on volumes, so I guess, I'll pick the ASP one. For tissue, I think, if I heard correctly, you talked about $4000 in the first quarter and then reaching approximately $4,200 for the full year. I recognize obviously there's a lot of ASP true-up in 3Q and 4Q, but that still seems like relatively conservative relative to what we talked about in the past and the ability to reach somewhere closer to that high $4,000 range. So just wondering if you could talk about how much conservative you have built into that, what your line of sight is on the commercial side of things and just sort of talk about the -- what true-ups could contribute on top of that.

Yes. So the answer to true-up questions. Like we purposely launch MI Cancer Seek at the start of 2025, knowing that we'd get the full 12 months of the activity. So we could get all the kind of true-ups incorporated as much as possible in 2025. Because, again, I always take a measured approach when it comes to ASP, I'd like to see the history play out. And now that we have that, it's a good starting point as we go in and knowing that we'll get to the $4,000 based on the contracts we signed that kick in at the start of the year. I definitely think there's headroom there. But I do want to be measured again going into this year. We've done excellence on ASP. Obviously, it's the best in the industry, and it's due to the decision David Halbert made to go the whole [ exome ] and whole transcriptome like 5 years ago, and that has paid off for us. So going into it, the $4,200 is kind of where I want to guide to right now. And then we'll progress throughout the year. We'll get additional contracts, as Bobby said, and then we'll just see, Mike, where it shoots up. But from a guidance standpoint, I feel really good right now with the $4,200 for the full year

8 years ago.

8 years ago. Yes.

Good point..And then for my follow-up, for the guide for this year, you kind of left it relatively open ended in terms of adjusted EBITDA positive. There's a big range to what positive means. And I think just to combine this with a commercial reinvestment point. Could you maybe talk about the puts and takes of that? How much of a lever you think that could be? And sort of how you think about that balance, right, of investing, getting maybe a little bit more on the margin side of things versus the other way around?

Yes, it's going to be pure like utilizing the leverage, Mike. So for us, obviously, we're able to generate like over $136 million of adjusted EBITDA for the full year of 2025. We're going to utilize that going in. So you obviously see the increase of $100 million in OpEx. What we're planning on doing, especially in the first half of the year is utilizing that. And I've stated on multiple calls, obviously, since we became public like the ideal goal go for me going into 2026 would be to kind of run neutral in the first half of the year just by getting these investments done. Now we'll continue to generate. We're generating, obviously, the $60-plus million of free cash flow because of the position we're in, we're going to utilize this. And again, that's why we're just guiding to being positive right now. I'm not going to throw out that it's going to be $150 million or $200 million. But if we execute, obviously, we continue to drive margin from a profitability standpoint past 2026 and into 2027. And obviously, we're very excited with the early detection launch, and that's kind of the primary focus for the first half of this year.

Our next question comes from the line of Vijay Kumar of Evercore ISI.

Maybe, Luke, my first one is on ASP assumptions here for fiscal '26. Did I hear you correct when you said blood is $2,400 to $2,500, I thought the fiscal '25 extra blood ASP was north of $2,500. So maybe just walk me through on why blood steps down and that $4,200 on the tissue side. does it contemplate the full normalization of PLA uplift on the CMS side? Or is there some more room left when you think about '27.

Yes. So answer to the blood first. I'd like to guide from a blood standpoint in the $100 range, like you're right, like the $2,500 is kind of at the top of that range is where we ended up. I definitely think there's some upside to that, as I mentioned in the pre-prepared remarks. So right now, what I would guide to is in that $2400 to $2,500 just based on the mix of cases is where we came up with that guideline because obviously, Medicare has paid better, commercials paid a little less and there's sometimes fluctuation amongst that in the quarter, especially as we ramp up our blood volume. Obviously, it's been growing quite nicely from a sequential standpoint. So that's the reason for the $2,400 to $2,500. But I'm not guiding to us like a massive step down or anything. I just want to be cautious with the guide from the blood ASP. And then on tissue, we put out the metrics that obviously, over 75% of our tissue volume is going to be under the PLA code, and we're making great progress there. But you do have the remaining 25%, that's not. So we've hit our goal that we came into the year in order to get above that kind of $3,600 for Q4 and obviously announcing that we're going to get to $4,000 for Q1. I feel good with the progress that our excellent market access team is making, along with our billing team to continue to push on that and get that to a higher rate. But now from a guidance standpoint, like the $4,200 feels really, really good right now, and that's what I want to stick with from the guidance standpoint.

Understand. Just to be clear, Luke, that $4,200 assumes 75% volumes under PLA in 2026?

Correct.

Understood. Then maybe my follow-up on this step-up in OpEx spend for '26. I'm curious, when I look at the market, the market seems to be rewarding companies in the space for volume growth rate versus you guys being focused on profitable growth and that's a distinction that you made. Does this OpEx step-up signal that, hey, if the market is not rewarding Caris on profitable growth, let's put volumes. So just walk us through the rationale of this OpEx step-up where is the spend going? Is this for existing test or new test? And when you think about productivity per rep, how long did it pay for these reps, these new reps to get productive?

Yes. So I'll go first and then I can let team obviously chime in as well. So yes, it's definitely including the OpEx standup -- step up like 30% growth in sales and marketing. So that's kind of the number one key area. The other -- the second key area, too, is in R&D and having that other 30% step up in R&D again, as Spetz walked through with the ACHIEVE-2, like we're extremely excited about that, and we want to keep pressing ahead with the ACHIEVE-2 data. So that's going to be a priority from the R&D spend standpoint. And then with the sales and marketing, normally, it takes about 6 months for that to play out. But again, what we did with our guide and because we did a great job last year of coming out and being measured on what we're guiding to. We didn't want to assume any uptick, big uptick in the second half of the year. Again, all companies go through this, Q1 obviously ramps up to Q2, Q3 and Q4, and that's what's in these numbers. But we're not assuming any big uptick from a volume standpoint until probably obviously get these initiatives implemented. And then we'll come back to the Street and obviously update the Street how we progressed. And then I don't know, Brian, if you want to take the first one.

Listen, I would answer it a little more generally, which is, Vijay, I think we see a tremendous amount of opportunity in the market. it's not penetrated. Rather, we see with sites all of the time, more physicians that need the best technology. So we're extremely optimistic about the opportunities in front of us, not just with the new modalities like MCED, but just with our existing core business and therapy selection. So with our technology solutions, and we think the best technology solutions on the market, and we're super excited with Bobby's leadership to put more resources, human capital programs, et cetera, behind this to support our cancer center clients as well as individual oncologists through educational programs, the MSL teams, et cetera, et cetera, as we go through this continued evolution in molecular information. So we're just super excited. And with Bobby's leadership now, we can invest even more aggressively. So I think that's where this is coming from.

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

This is Colleen on for Doug. One on CapEx. We think we heard Luke mentioned $60 million in CapEx dedicated to the MCED launch this year. Can you just share any more color on how you plan to allocate that spend?

Yes, pretty evenly, throughout the year, Colleen, maybe a little bit more weighted, so like $35 million, $25 million first half, second half of the year. It will all depend on how quickly we can get the early detection ramped up. we're working very, very quickly on that right now. One of the key items from the CapEx standpoint is, obviously, our new Assure assay is going to be switched over to the Nova X. And Nova X is also what we're using for early detection. So there's going to be additional Nova X machines that we'll purchase as well throughout the first half of this year and that we've already ordered. So that's kind of how it's broken up. It's a lot related to testing equipment and then additional spend related to capacity and buildings.

All right. And then more broadly on capital deployment. Now that the business has demonstrated profitability and you have about $800 million on the balance sheet, how are you prioritizing incremental sales and marketing and R&D investment versus opportunistic M&A? And are there any portfolio gaps you would look to fill strategically versus prioritizing smaller tuck-ins?

No. I think, look, we're always being very strategic in what we do. We have a great assay in-house. And obviously, we always focus on the technology first at Caris. So that's going to be a primary thing. But we remain strategic and obviously, the flexibility that we have based on our financial performance and the cash on hand, gives us an opportunity to just continue to assess. But we're going to push on all fronts, and then we'll see what actually shakes out.

Our next question comes from the line of Casey Woodring of JPMorgan.

Great. This is Sebastian on for Casey. Can you talk a little more about expectations for volume pacing? It sounds like you're not making any impact from new reps. I think you talked about mid-teens growth-ish for tissue and then something in the mid-30s for blood. Would you expect to grow above that in the first half and then below in the back half, pending your ramp from new reps? And then just what's your expectation there for 1Q? And I have a quick follow-up.

Yes, Sebastian. Probably you flipped that. So obviously, like we're continuing to ramp that up. What I said was when, I think Dan asked the question, was the tissue being like low teens, consistent with where Q4 was -- and then blood being in that high 50s. So like 59% is where we came in for Q4. So that's what's assumed in the guide. Now for Q1, obviously, you can see based on our historical performance, like you do have a little bit of push between Q1 and Q3 and then Q2 and Q4 pop. And you see that historically play out in our financials, just based on schedules, holidays, et cetera. So -- but I would think that as we ramp into the second half of the year, I feel very good about that 20% from an overall year standpoint.

Got it. And then just one on the MCED data you reported. So the interim data looks strong. I noticed apart from the top 3 or so indications, it looks like the sample size is pretty small. I guess, first off, do you think smaller sample size for some of these indications would impact how physicians and patients feel about, are comfortable using the test? And then it looks like the breast sensitivity is well above peers and the sample size there is sufficiently large. So like is there any scenario where you would consider offering a stand-alone breast test in addition to MCED?

So yes, as you noted, the performance in breast is really, really good. And compared to like methylation-based tests that have single-digit sensitivities in early stage that shows a lot. But for us to go breast-only kind of creates an ethical quandary because we wouldn't want to not report out when we find other cancers there. So the performance is really strong. And one of the reasons why the numbers are lower in some of those other categories is because not a lot of patients are found at early stage because there are no existing screening modalities that are very effective. And so we'll see that continue to play out over time where with our technology and our test, we will be the ones finding those early-stage cancers. And so those numbers will go up simply because we're now able to find them at the early stage.

Our next question comes from the line of Patrick Donnelly of Citi.

Probably one for Luke. I think a little bit of a follow-up there. I just wanted to talk through what's baked into the guide for the new hires. How are you thinking about the pacing of hiring, how quickly they become productive and then is there anything for MCED in the numbers? Just wanted to talk through that.

Yes. So on the new hires, Patrick, effectively, we're trying to get everything done in the first half of the year, getting them hard as quickly as possible. So that's baked into kind of those...

Yes. So we have already posted all of the positions that we ramp up in the first phase. We've already started hiring 4 positions that have been posted already in 2026. We made this decision and announcement internally on January 6. And when we've been ramping up those new hires. We are also going to be ramping up hiring for MCED as a field-based sales force, along with the announcement that we had with the partnership with Everlywell that we announced back in January. And so we're ramping up a multichannel approach in order to address both of those markets. And then we've also updated our training. Both -- how we internally get people up to speed in order to help physicians and patients with comprehensive genomic profiling with their current offering, and set us up for our new launches.

That's helpful. I appreciate that. And then obviously, a lot of talk on MCED. Just quickly, I wanted to check on the MRD part of the portfolio. Any catalyst we can be looking out for time lines would be helpful.

We have to collect more data and part of that process is the maturing of clinical outcome data. So we don't -- we're not guiding to any timeline on that front. Just have to keep accruing samples and outcome data.

Our next question comes from the line of Mark Massaro of BTIG.

Congrats on strong 2025. I did want to follow up on the MCED commentary. It's interesting you guys indicated that you do plan to to have a sales force for the MCED opportunity. Can you just give us a sense for -- by the end of '26 or the end of '27, can you give us a sense for sizing I think Guardant is out there now with about 300 with plans to go to 600. I was just curious if you could give us maybe some type of a sense of what type of size you would want direct relative to some of your partners like Everlywell?

Yes, I think a good question. I think as Luke mentioned, when we take a measured approach -- we'll take a measured approach when we build out our MCED salesforce will start small, we know where to target. We've already had some collaboration discussions, and we'll take a measured approach as we get through the year and look at capacity and go through the launch.

Makes sense. And then one for David Spetzler. Can you give us a sense for timing on ACHIEVE-2 and maybe just the -- I don't know if it's 10,000 or 15,000 subjects, but just give us a sense of the size. And are there any particular bogeys that you're looking at either for Stage I or Stage II sensitivity.

So ACHIEVE-2 will be 25,000 total. A big part of that are precancerous components. So we'd really like to be able to characterize the performance of our test in patients that have polyps, for example. And that will be a big part of that cohort. We still need to enroll probably 8,000 or so patients in order to hit that final number. But the flip side of that means that we have about 18,000 samples in-house now that we can start running. So just like we did with ACHIEVE-1, we'll issue interim results as we get them and characterize that performance in these populations of patients where there's an opportunity to act before it turns into cancer. That's going to help bend that mortality curve massively.

And maybe just to clarify, are you able to launch Caris Detect even absent the full readout of ACHIEVE-2? Or how are you thinking about the timing of that?

Yes. We're going to launch when we have the final readout on ACHIEVE-1. So ACHIEVE-1 is our final accuracy study that will enable launch.

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

Congrats on great year. On Caris Detect. I didn't -- I was trying to calculate PPV and some other metrics here, it doesn't seem possible. Data is pretty good. So I just wanted to ask if you could provide a little bit more color? I know it's interim, but still. And then just given data is solid, how does this validate the $3,500 price point? And what have folks like Everlywell commented and things like that. And honestly, how do you think about COGS getting lower, overtime to, I don't know if you spoken to that in the past.

Yes. So -- you can't really calculate PPV because it's still a case control study, where it's about 1/3 cancer patients to 2/3 controls. And PPV is dependent upon the patient population and the incidence rate. I mean in that high-risk setting, right, having a 7% undiagnosed cancer rate is pretty high, and that's indicative of that enrichment that we did. And so we can certainly -- I mean you can kind of use that 7% to address the PPV calculation if you want to. In terms of the price point, we don't think the $3,500 is that high at all, given the fact that this test actually works and nothing else out there is able to detect early-stage cancers. I mean we have introduced and are introducing a new technology that has a high cost to it because it works really, really well. And so from our perspective, this is really more about the death of inferior technologies like methylation and being replaced by superior technologies like full genome sequencing.

All right. It makes sense on the PPV and the case control, everything. Final one, maybe for Luke, on the EBITDA and lack of EBITDA guidance, which I guess makes sense. But if you take out the true-ups for -- in '25, yes, maybe a few million in adjusted EBITDA. What's the reasoning to not provide a more refined range for this year? Is that going to be MCED kind of investment or other pipeline spending anything else?

Yes. It's going to be all of the above effectively because we have a huge opportunity, not just with obviously ACHIEVE-1, we're so excited about an early detection, which is going to be massive, but also just because we're able to prove the profitability thesis, we want to utilize that going in. So like you brought up the point of like 2025, like we had $136 million adjusted EBITDA. Even if you exclude the prior year stuff, it's still above $100 million adjusted EBITDA. So I want to utilize that as we go into 2026, and that's kind of our focus. Now we are going to be diligent with that. We're not going to start burning like $250 million a year because we're in the position that we're in. But we're in a great position, and we're just going to use that. So I don't want to get tied down with guiding each quarter to a profitability metric.