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Greetings, and welcome to CareDx, Inc. Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Greg Chodaczek, Managing Director of Investor Relations. Thank you, sir. You may begin.

Good afternoon and thank you for joining us today. Earlier today, CareDx released financial results for the quarter and full-year ended December 31, 2023. The release is currently available on the company's website at www.caredx.com. Joining the call today is Alex Johnson, President of CareDx's Patient and Testing Services; Abhishek Jain, Chief Financial Officer; and Robert Woodward, Chief Scientific Officer. Also joining the call today is Michael Goldberg, Chairman of the Board. Before we get started, I would like to remind everyone that management will be making statements during this call that includes 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 historic 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 uncertainties 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, February 28, 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. Reconciliation to the most directly comparable GAAP financial measure may be found in today's earnings release with the SEC. I will now turn the call to Alex.

Thank you, Greg. Good afternoon everyone, and welcome to CareDx' fourth quarter and full-year 2023 Earnings Conference Call. CareDx ended 2023 in a solid growth and market leadership position after a challenging start to the year. Our team spent the last year addressing the complexities associated with the billing article reconfiguring the company to adjust to the Medicare changes to coverage and fighting to restore patient access to transplant innovation. Before we move into the details of the quarter and the year, let me step back for a moment and offer a bit of perspective. We are still in the early stages of a $6 billion market opportunity to health care for some of the highest need patients in the U.S. health care system. Transplant patients in the U.S. are experiencing incrementally improved short-term outcomes, but are still far away from having their newly transplanted kidney, harder lung lasts as long as it should. We continue to believe that effective care remains truly understanding transplant patient management. And this requires focus from our entire team working closely with some of the world's best clinicians, researchers and transplant centers. Our ability to successfully lead and execute in this growing market in the face of complexities associated with the billing article revisions is reflected in our results. Last year, we executed deliberately, quickly and with high impact as demonstrated by our performance. We reduced our cost structure and stabilized our revenue base. Consistent with our pre-announcement, we reported full-year revenue of $280 million, exceeding the high end of our updated guidance. We have regained our growth footing in our testing services business with patient test volumes up 4% quarter-over-quarter, an increase for the second sequential quarter in a row. We delivered about 40,000 tests in the fourth quarter and patient testing services volume was approximately 165,000 patient results for the full-year. We continue to make progress in driving our innovations into clinical practice. This year, we witnessed strong support from leading medical societies and from patients, advocating for access to transplant molecular testing, including AlloSure and AlloMap, underscoring the pivotal role our innovations play in improving transplant patient care. In 2023, two new Medicare coverage approval supported the clinical value and market opportunity of our innovation pipeline. AlloSure Lung was the first donor-derived cell-free DNA approved for coverage by Medicare for lung transplant patients. And with the approval of heart care, in August 2023, our clinical approach of multimodality testing was confirmed by CMS. This approval defines a reimbursement pathway for our differentiated product portfolio, one that can leverage our rich pipeline of innovation to help improve patient outcomes. On the commercial payer side, we saw good progress. We ended the year with an additional 15 million covered lives. We expanded existing coverage for 31.5 million lives in our cardiothoracic business, primarily by adding coverage in the first six months post-transplant for AlloMap Heart. Looking at our other businesses, we are pleased with the double-digit growth in both our patient and digital solutions and lab products business lines, representing year-over-year growth of 29% and 15%, respectively. Before moving on to 2024, I will touch on our recent Pat litigation news. As we mentioned in our statement following a jury verdict in late January, CareDx was assessed damages of approximately $96 million. We intend to seek judicial review of the jury decision and monetary damages. We expect there to be active briefing on this matter at least through Q3 2024 in the District Court. The matter would then be subject to appeal to the Federal Circuit. Precise timing would be speculative, but we would expect any resolution for the patent litigation to be a multiyear, multistep process. Looking forward to 2024. In our testing services business, the focus is on strategic profitable growth, continuing to grow patient testing volumes and market penetration for AlloMap and AlloSure, while expanding reimbursement and coverage. There is a significant opportunity to gain coverage for nonreimbursed tests. This year, we will continue to invest in multicenter, purpose-driven studies to help secure additional reimbursement coverage. As mentioned last quarter, KAOR, our Kidney Allograft Outcomes Registry completed the last patient clinical visits, and we are now finalizing our data collection and monitoring. KAOR was designed to demonstrate the clinical utility of AlloSure in a variety of outcome, and we continue to expect a publication this year. We also have other unique opportunities to publish evidence that can influence payer coverage policies by working with leading researchers who have had extensive experience with AlloSure Kidney. In heart, we anticipate an interim readout for our ongoing Surveillance HeartCare Outcomes Registry or SHORE. The data from patient encounters in the early years of SHORE have been collected and monitored. We are now working towards publication of an interim readout with the twin goals of supporting the utility of multi-modality testing and heart care coverage beyond year one. We expect publication in 2024. These studies are expected to generate the evidence that, along with the build-out of our revenue cycle management infrastructure, such as commercial payer coverage and billing appeals process, will support an improved rate of reimbursement. In our Patient and Digital Solutions business, we aim to further increase the adoption of our portfolio offerings in 2024. Over 70% of transplant centers in the U.S. use one or more of our digital solutions. As we first shared last month, we have now started to roll out a new platform, which enables greater uptake of CareDx services. The platform called CareDx Pro is embedded within a transplant centers electronic medical record workflow. This allows clinicians and administrators to have a single interface to access our digital health and SaaS solutions as well as for clinicians to seamlessly order and view test results for AlloSure, AlloMap and HeartCare. Our growing lab products business is global. We have a strong portfolio, and we'll continue to expand the business to a new transplant laboratories worldwide with best-in-class kitted products using NGS and QPCR technologies. Our market leadership for NGS HLA typing through our AlloSeq Tx line and broad geographical footprint allows us to benefit from scale leverage as our products business grows further. From an operational perspective, we'll remain focused on thoughtfully managing our cost structure and investments. You heard this during our Annual Investor Day last month, and it is worth repeating. This commitment underscores the dedication of our leadership team to driving growth and value for investors. We have taken multiple actions to reduce costs, including a recent Q4 action to streamline even further. You'll see us continue to take steps to manage our near-term cost and COGS as we drive towards profitability. CareDx is taking a disciplined approach to investments that support our clinicians, patients and employees and deliver shareholder value. Finally, I would like to touch on our advocacy efforts on behalf of the transplant patients. We and our coalition partners continue to be actively engaged in discussions with HHS and CMS, while we support patient advocacy efforts to restore full access for Medicare beneficiaries. The transplant community has made substantial progress. Some of you may have seen the honor of the gift efforts in Washington, D.C. in early December, where hundreds of transplant patients, physicians and advocates made publicly on Capitol Hill to stop the recent rollback in Medicare coverage. Notable speakers of the press conference included Senator [indiscernible], former Speaker of the House Newt Gingrich and Reverend Al Sharpton, which shows the wide-ranging bipartisan nature of the concerns here. We and the broad transplant community will continue to fight for access to transplant innovation in 2024 and beyond. In fact, as recently last Friday, the Wall Street Journal published their fourth powerful editorial since September, highlighting the patient access issue for transplant tests and the coverage disparities for Medicare patients. We are encouraged by our momentum as we enter 2024. Our team is laser-focused on executing our plan. We are building on the testing services revenue baseline set in the second half of '23, expanding patient access to our innovative portfolio across all three businesses and expediting our journey back to profitability. With that, I will ask Abhishek to share more details on our results for 2023 and our outlook for '24. From there, we will go to Michael Goldberg, our Board Chair for an update on our CEO search before moving into the Q&A. Abhishek?

Thank you, Alex. In my remarks today, I will focus on our fourth quarter and full-year '23 results before turning to '24 guidance. Unless otherwise noted, my remarks will focus on non-GAAP results. Please refer to GAAP to non-GAAP reconciliations in our press release today for further information. I'll start with the financial highlights. Number one, reported full-year '23 revenue of $280.3 million, exceeding the high end of our updated guidance. Number two, delivered over 165,000 patient test results in '23. Patient test volumes grew 4% in the fourth quarter to approximately 39,900 tests as compared to the third quarter, a second consecutive quarter of sequential growth. Number three, reported full-year '23 testing services revenue of $209.7 million. Fourth quarter testing services revenue of $46.7 million came in better than expected, primarily driven by volume growth. Number four, reported patient and digital solutions revenue of $37.1 million in '23, up 29% year-over-year and product revenue of $33.5 million, up 15% year-over-year. Number five, maintained a strong cash position of $235.4 million at the end of December and no debt. And we bought 2.9 million shares for approximately $27.5 million in cash in '23. Moving to the details, starting with Testing Services. Testing Services revenue for the fourth quarter was $46.7 million, down 2% as compared to the third quarter of '23. As discussed in our Q3 earnings call, fourth quarter revenue was expected to be lower due to the fourth quarter impact of heart care tests that were outside of the new coverage criteria from MolDX as well as the exclusion of onetime settlement to the large Medicare Advantage payer. As mentioned earlier, testing services volume increased by 4% sequentially, and we are pleased to see both kidney and heart franchisees grow for the second consecutive quarter. As Alex alluded earlier, we stay focused on executing in our testing services strategy to increase market penetration and drive volume growth. Our non-GAAP testing services gross margin was 72% in the fourth quarter as compared to 74% a quarter ago. We are pleased with the efforts of our lab operations team in keeping the gross margin above 70% despite a significant top line impact from billing article revisions. Our operations team continues to execute on reducing the shipping and specimen processing costs, improvements in inventory management and scrap reduction and optimization of collection kits usage. Moving to our Digital and Patient Solutions and Lab Products businesses. Our Patient and Digital Solutions business recorded revenue of $9.6 million in the fourth quarter, up 14% year-over-year, and $37.1 million for the full-year '23, up 29% as compared to '22. Strong top line results were driven by both organic growth and our acquisitions of HLA Data Systems and MediGO. Our Patient and Digital Solutions business, non-GAAP gross margin for the fourth quarter was 42% as compared to 34% a year before. For the full-year '23, non-GAAP gross margin improved by 600 basis points to 37% as compared to 31% in '22. The gross margin expansion was driven by the top line growth, cost saving initiatives, our transition to a recurring SaaS-based model and the higher gross margin profile for our newer acquisitions. Our products business recorded revenue of $9.2 million in the fourth quarter, up 8% year-over-year and $33.5 million for the full-year '23, up a solid 15% year-over-year. Growth in the products business was driven by our higher-margin NGS offering. Products business non-GAAP gross margin for the fourth quarter was 46% as compared to 54% a year ago, primarily due to a onetime inventory charge associated with end-of-life for one of our products in this business. Products business non-GAAP gross margin for the full-year '23 grew an impressive 500 basis points to 54% as compared to 49% in '22, and it was driven by organic growth, cost efficiencies from supply chain optimization with ongoing manufacturing site consolidation and a continued shift to NGS offerings in our revenue mix. Our team with focus on improving gross margins further as they drive for efficiencies and complete the planned site consolidation in 2024. Moving down the P&L. Non-GAAP operating expenses for the fourth quarter were $54.2 million, down approximately $3.5 million sequentially from Q3. So the sales and marketing spend increased $1.6 million, primarily related to our targeted policy efforts to restore Medicare coverage, G&A expenses came down $4.4 million as a result of our focus on reducing legal expenses. Our adjusted EBITDA losses in Q4 were $10.3 million as compared to $10.9 million in Q3. We have also accrued $96.3 million for damages awarded by a jury in the IP litigation case in the fourth quarter of '23. As Alex mentioned earlier, we intend to seek judicial review of the verdict and believe that we have good and substantial defenses against the claims are less in the suit, and we will vigorously defend ourselves. For further disclosures on this matter, please refer to our recently filed 10-K. Turning to cash. We continue to maintain a strong balance sheet with $235 million in cash, cash equivalents and marketable securities with no debt. Cash used in operations for the full-year '23 was $18.4 million, down 27% as compared to $25.2 million in '22. Despite the operational and financial challenges introduced by the billing article revisions, the improvement in cash used in operations in '23 is a testament to the outstanding efforts of the entire CareDx team. The cash used in operations was positively impacted by our RCM initiatives that delivered a fifth consecutive quarter of collections over testing services revenue and added $17 million to cash in '23. Finally, I would also like to note that we earned $3.2 million in interest income in the fourth quarter and $11.9 million in 2023. Based on our current cash position and anticipated cash usage in operations, we continue to believe that we do not need to raise cash in the foreseeable future. Finally, turning to guidance. We expect full-year '24 revenue to be in the range of $260 million to $274 million. The midpoint of our '24 guidance assumes, number one, to low to mid-single-digit testing services revenue growth based on annualized actual testing services revenue for the fourth quarter of '23. Number two, Medicare reimbursement remains as currently implemented. No incremental revenue assumed from new coverage decisions from either Medicare or large commercial payers. Number three, mid-single-digit growth for both products and Patient and Digital Solutions businesses year-over-year. We're expecting our gross margin to be approximately 63% to 65% with testing services gross margin slightly above 70%, products business gross margin in the mid-50s and Digital and Patient Solutions gross margin in the high 30s. We expect our non-GAAP operating expenses to be between $207 million to $215 million, down from an annualized fourth quarter run rate basis, while absorbing for meriting phases, benefits reset and inflation. We expect adjusted EBITDA losses to be between $20 million to $30 million in '24, with quarterly improvements in adjusted EBITDA losses throughout the year. Before we open the line for questions, I would like to turn the call over to Michael to discuss the ongoing CEO search. Michael?

Thank you, Abhishek. We would like to briefly touch on the CEO search is well underway. The Board is leading an exhaustive search process aided by the search firm of Russell Reynolds. As communicated previously, we remain on track to announce a new CEO within the originally projected six to nine month time frame from the initiation of the search in November. The office of the CEO comprising of Alex, Abhishek and myself continues to successfully drive the business forward. For over two decades, CareDx has been dedicated to improving transplant patient outcomes and extending long-term allograft survival. And we look forward to a strong 2024. With that, I'll hand it over to the moderator to open the line for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Andrew Cooper with Raymond James. Please proceed with your questions.

Hi everybody. Thanks for the questions. Maybe just to start super high level. Obviously, a lot of noise, a lot that's happened through the course of 2023. It feels like this 4Q result really kind of getting back to stability and the base to grow from. But did anything stand out when you think about sort of ordering patterns, the cohort of patients that you're seeing those orders for or anything like that, I guess, across both kidney and heart in the fourth quarter. Just any surprises, any changes? Any commentary there on sort of what you're really seeing in the end market would be great.

No, I think -- thanks for those nice comments. And I think it is back to stability, it's back to growth. And I think we're excited to continue to serve more patients. And I think Q4 was a terrific baseline to grow on. And before that, we grew on Q3. And so I'll ask Abhishek to add some commentary. But I think the headline here is that we feel very good about consistent patterns that we've seen going forward for patient mix.

Thank you, Alex. I think you have covered it pretty well that we are very happy to see the second consecutive quarter of our testing services volume growth, and that gives us a lot more confidence as how the business is progressing as well as the growth is coming from both of our heart and the kidney franchises. So that gives us all the more comfort that we are basically kind of growing in the areas where we need to. The good news is that we are seeing the market growth in the heart side, the franc fund volume growth to be in the double-digit last year. So definitely a lot more promise there as we enter into 2024.

Okay. Helpful. And then, maybe just sticking to testing services, the gross margin side of things, like I said, obviously, some lumpiness through the course of '23, but I think you said low 70s or slightly above 70 for the year. Just any puts and takes there. And then as it pertains to the ongoing sort of legal dispute, maybe talk about your ability to, if you had to digest some form of royalty, how you would think about that in terms of 70-plus percent margins with frankly, not a very large proportion of your test actually being paid for it all in the first place?

Yes. So I think on the testing services gross margin having like above 70% that in itself is like very, very healthy we usually have been in the low 70s, mid-70s kind of the gross margin range and with the billing article revisions, if I were to take the noise out, we basically kind of dropped to mid-60s, high 60s, kind of gross margin range. And that's the reason, I was happy to see that we came in slightly above 70% because I remember calling out the Testing Services gross margin without that noise is close to 68% to 70% in our previous calls. So from that standpoint, we started to definitely see the improvement there. And we're continuing to work through as to how do we drop most of our revenue incrementals to the gross margin because we are not going to be increasing our spend other than the variable cost that we need to spend on the test that we need to run. So that's the first part. And the second piece, I think, to your question, that a lot of our tests are not being paid, you're absolutely right. And I did kind of articulate that, that's a significant opportunity that we have in front of ourselves. I took the example of Q4, 40,000 tests. Maybe you should be booking a $100 million revenue, but we booked $47 million. So there is a large opportunity, and that's the piece that we continue to work on through like spending a lot of time and effort in generating the data that we need to and then going after the coverage. And finally, through our RCM initiative getting that whole coverage that we have gained coming through the collections to our revenue in the P&L. So it's the overall process. So I still feel that continue to do that test and having that ability to gain that the opportunity that basically is the right thing to do as compared to worrying too much about the tests that are not paid today because we will get there.

Okay. Helpful. And then maybe just one last one, if I can sneak it in. Just you've pulled a lot of cost out of the system. It's been impressive from that perspective. As we think about the commentary on not needing to access markets, not needing a cash raise, how do you think about the path to breakeven as you sit today? Is there more costs you can pull out? Is it more a function of, hey, we've got to get the top line higher than where we are today? Just how do we think about that trajectory to get to EBITDA and cash flow breakeven longer term?

No, that's a great question, Andrew. And the way I kind of see about the adjusted EBITDA losses. If you look at the guide, we are guiding about $20 million to $30 million of adjusted EBITDA losses for the next year. Now in my mind, we will have basically the first half to be more front loaded with our losses, and you can kind of model it based on a low double-digit adjusted EBITDA losses as we begin the 2024 and hopefully get to a low single-digit kind of adjusted EBITDA losses by the time we get to the 2024 end. That will basically set us up pretty solid to get back to adjusted EBITDA profitability and generating cash flow from operations in 2025. I'm not guiding for the 2025, but that's at least my thinking is that we are looking for improving the adjusted EBITDA losses throughout the year.

Great. Yes, go ahead.

I can quickly take the second part of your question on the cash flow, and that basically is also the reason that we have $235 million in cash. I can draw a quick parallel to our cash usage in operations in '23, which I called out at about $18 million. So looking at the adjusted EBITDA losses in '24, my sense is that the cash usage in operations would be very similar to those adjusted EBITDA losses without kind of thinking about any over collections or the improvement through the RCM initiative. So from that standpoint, if you're talking about a $25 million at the midpoint, cash usage with $235 million in cash and basically having -- basically having a foundation by the end of '24 to get back to an adjusted EBITDA profitability in the next year, then you probably don't need to raise cash. So that's how we are kind of thinking from the management standpoint.

Great.

Our next question comes from Matt Sykes with Goldman Sachs. Please proceed with your question.

Hey guys, congrats on the quarter. This is Prashant on for Matt. Can you hear me?

Yes, Prashant, we can hear you very well.

Okay, great. Okay. Great. So are you -- first off, are you still seeing any lingering impacts of the billing article across your business segments?

Sure. Certainly, we are. I mean, our revenue and volumes and testing services are still significantly below what they were when the billing article was introduced in March. So we're still -- I mean that is just a numerical fact of our performance. What we are seeing though is certainly clinicians and centers getting much more comfortable with the billing article rules and coverage for their Medicare beneficiaries and for all their patients. And so what we're seeing now is new protocols being put in place at these centers, and we're seeing that. We saw that in Q4 in kidney. Multiple centers, putting in protocols that now allow them to manage patients in kidney with AlloSure in a way that's consistent with the Medicare billing article.

Got it. And then could you just elaborate on the path to launching a multi-modality product and obtaining reimbursement? How long does that typically take? And specifically for kidney? Are you required to obtain Medicare coverage and then private payer coverage for AlloMap kidney before proceeding with kidney care?

Sure. So there's a couple of things to unpack there. And I think the pathway to ultimate out of reimbursement is a multi-step conversation. We can certainly give you some highlights of that. I think the headline is that we've done this now with HeartCare. It was a multi-year process. We were able to produce the evidence and data for Medicare to do that. And that's not a trivial exercise. And as we go into kidney, it's -- we know the playbook. We know where the mine fields are, so to speak, in data analysis. It was a challenging effort, one that was ultimately extremely successful with Medicare. And now as we've talked about -- our HeartCare still consistently has an attach rate of well over 90% for AlloSure and AlloMap being used together for patients. For a little more context, I'll turn it to Robert to add some more on the process itself, which is, I think, part of your question as well.

I think one thing you asked was the coverage for both tests before multimodality, that's not necessarily a requirement, but it's certainly something that we'll look at when we're looking at the data from our OKRA study where we use both AlloSure and AlloMap Kidney and where we see that going next. I think you asked how long or what time I think it's more about the data than the time. And so as we assess that and look towards the future, we'll start to put together that plan.

Got it. That's really helpful. And then my last question is, do you see UroMap cannibalizing AlloMap Kidney eventual sales at all? And how do these two tests complement each other in the kidney transplant space?

They're really -- they come from different directions in the AlloMap kidney, the mechanism of looking at immune status and whether there's activation of the immune system or whether it's quiescent. And in urine the UroMap has a very different approach of being everything there can be about evaluating cellular mediated rejection and especially the -- whether or not there's an influence of BK virus. And so as we're bringing these two and defining their paths and where they'll be used in the market, and we work with clinicians, there's really unique opportunities for each of them. So I think we'll see them in parallel and not in each other's way.

Thank you.

Our next question comes from Brandon Couillard with Jefferies. Please proceed with your question.

Thanks. This is Matt on for Brandon. Maybe going back to the guide. Can you help us a bit more in terms of the cadence as we move through '24. I think historically, you've seen a bit of a step-up in 1Q. Do you expect that this year? And then is it kind of $66 million, $67 million a quarter evenly spread out? Or are there may be some initiatives or other items that kick in, in the back half that would make that a bit more weighted for the year? Any color there would be appreciated.

Sure, Matt. And let me break this down by the business because of the billing article revisions last year. Things have been ups and downs, up and down throughout the year. So starting with the testing services business, what I would suggest, start with the Q4 actual revenue baseline there, and then based on the overall yearly guidance, I would basically suggest that you should bake in a sequential growth quarter-over-quarter for that particular business. And for the other two businesses, since they are a little bit more, I would say, seasonal, specifically our products business. You should be looking at the year-over-year growth starting in Q1 '24, and you should basically model for the non-testing focus of business slightly differently and that will basically give you the cadence as to how the quarterly revenue number should look like.

Okay. That's helpful. And then, going back to capital allocation, no debt, $235 million of cash exiting the year, does the potential litigation payout, which is sizable. But as you talked about in the prepared remarks, it could be a multi-year process. you repurchased about $25 million of shares here in '23. How should we think about your capital allocation plans going forward? Is more of the buyback on the table? Just how you're thinking about cash usage here in '24 and beyond? Thanks.

No, absolutely. And from the contact standpoint, you picked it up pretty well that we bought actually 2.9 million shares for like $27 million in '23 and most of those purchases were actually in the fourth quarter. So we were like pretty confident with the $235 million in cash. And based on the fact that we have taken a lot of cost out of our system and based on the needs that you're projecting for cash we feel very comfortable in actually pursuing the share buyback program. But with this IP litigation jury award, even if there are like multiple steps that we have to go through, starting with the district code, and then possible appeals, multi-step, multi-year process. We are taking a stance here to pass the share buyback program for now. And we will assess as to how some of these other pieces will play out. And at that time, we will bring the discussion or the decision on the share buyback program back onto the table.

Thank you.

Our next question comes from Alex Nowak with Craig-Hallum. Please proceed with your question.

Okay. Great. Good afternoon everyone. If you look at the normal revenue for 2023, I'm basically taking what you did in Q4 here and annualizing it. The guide for 2024 comes in at basically about 4% growth, I think give or take a little bit. I guess the question is, what level of growth can the company ultimately achieve in 2025, 2026 pick a time point in the future without necessarily more reimbursement?

So I would basically say that there are multiple paths for the testing services to grow. And of course, there's a secular market growth where we are seeing a good momentum in our transplant volumes. Specifically, if you look at the hard side, they have been growing on a low double-digit basis in the last year. And also kidney kind of growing at a high-single digit. My sense is that if we going to receive that kind of a growth pattern, the secular organic growth, that's basically the first piece. And then we heard from some of our shop same-space company like Transmedics, all the things that they are doing in this particular space to be able to kind of grow the usage of the old and so on and so forth. So we feel very good that this particular space can actually grow in high-single digit to a low double-digit kind of scenario. But absolutely, let me have Alex kind of add further. But my sense is that there's a lot of opportunity in this space to grow at a much more higher rate.

Yes, Alex. And you mentioned without reimbursement. And obviously, that's a nice tailwind for us as well because that will apply to a broad swath of our business as different commercial payers come on. And certainly, there's upside with the Medicare as well. I think Abhishek covered it well. One of the interesting data points is that when you look at heart, kidney, which is really the bulwark of our transplant testing services volume, right? Back in 2020, there are 25,000 combined transplanted organs between heart and kidney. Last year, it was 30,000, right? So you get really significant growth even during the pandemic, even when living donor volumes had basically flatlined for quite a while. And they're coming back. And I think you saw that last year. And when you look at utilization and other tailwinds here, you really start to see a model where when you have 8% transplant volume, just overall market growth in 2023, I think that's not wrong to think how long can that last for. And when you look at all the different avenues, whether it's not just better utilization, but also the opportunity for living donation to increase, you really see that tailwind on our business. So thanks for leaving out the reimbursement piece, I think it does let us take apart the story piece by piece because there are significant areas where our revenue can increase in the long and middle-term areas. Thanks for that question, Alex.

It makes sense if we're transplanting higher-risk organs, they just need to be tested. So make your answer makes total sense there. I just want to be crystal clear around the moves with reimbursement. Again, someone has transpired over this last year. So as we enter right now, based on everything you're seeing with your conversations with CMS and the like, is it fair to say we're the reimbursement that sits today is pretty much set in stone. And the only view that you have is things can only go higher from here? Like there's nothing as you're looking at that could say add that could be another shoe to drop.

I mean I think set in stone is really probably not the way we would look at it. There's certainly an LCD process that's going on now as well as significant public pressure and outcry to bring back coverage for these Medicare patient transplant tests. So I think certainly, there's an ongoing process that will play out certainly in the -- in 2024 that we'll see. We are currently in our base case, we're assuming that nothing does change, which will be very unfortunate for patients -- but that's where we'll live with and that's what we'll execute on if things don't change. But I think there is a significant processes going on right now that could potentially change. And I think as more data comes out, not just in '24, but in future years around surveillance, for example, for Medicare, which is really the area that was pulled back on for patients. That's something where we have our KAOR study that can help generate data that may, in fact, be impactful evidence that can help bring back some of the coverage. So I think there's a number of shots on goal here for us to continue on growing it and making sure that coverage model evolves from where it is today.

Can you just outline the scenarios here with the LCD, if it does get finalized as it stands at Medicare, I guess, what could happen?

Just to clarify. Sure. Maybe I'll ask Robert to answer this. But I think just to clarify your question, meaning what would change with our business if it was solidified today as what's the -- maybe you can clarify the question a bit?

Absolutely. Scenarios on when this LCD does get finalized because, again, Medicare came out with a draft and ideally that, I guess, legally, they have to finalize that within a year if they're going to do so. So when it does get finalized, is that going to change, whether it be transplant centers interpretation of what they can get bills for or what you can get bills for and thus, what test they can run? I'm just trying to understand how this changes the scenarios out there.

This is Robert. So the draft thinking about with very closely parallels and incorporates a lot of the language from the billing articles. And so it really seems to have been their response to a lot of pressure that there wasn't a public process, so they put in place a public process to get to the same place, even though they didn't help what they had already done. So as already been mentioned, our base case for the business is that it's going to be this way and as is in the billing article. And if finalized in their draft form if they didn't make any changes or any substantive changes, then it would continue as currently for patients and businesses and providers, as far as finding ways to do the testing within the scope of what they're allowing.

Got it. Makes sense. Lastly, just any status on the DOJ inquiry.

No, nothing material over there, Alex. We have disclosed in the 10-K, whatever we had to, but on the DOJ side, nothing of substance.

All right. Appreciate the update. Thank you.

Our next question comes from Yi Chen with H.C. Wainwright. Please proceed with your question.

Thank you for taking my questions. Within the next 12 to 18 months, do you expect there could be any potential upside regarding the reimbursement policies?

Sure. And I think I lost a lot the -- yes, I think I lost the last piece of your question. You're asking changes to reimbursement. And what was the last piece?

No, that was the question. Basically, your guidance -- your 2024 guidance is based on current reimbursement policy, right? So I'm asking if there's any potential, the potential improvement on reimbursement policy within the next 12 to 18 months?

Yes. That's I think, an opportunity for a catalyst with potential this finalization of the LCD that can -- as Rob mentioned, can happen before -- potentially before August. They have until August finalized. And so what's in there, if there is an opportunity to change coverage for these Medicare patients, I think, would certainly be very impactful for our business. On top of that, we have additional studies that we've have in publication, whether it's drafting or analysis KAOR or insure that can provide additional data and evidence for payers to continue to add coverage for their patient populations. And those will happen as we mentioned, at SHORE and KAOR, certainly some publications in the next 12 months.

Got it. And between different types of transplant kidney, heart, lung, which type of transplant do you think -- do you expect to be -- to provide the largest growth driver for the top line revenue?

Yes. I think there's a growth right now that is in heart that's significant. And certainly, as the billing article changed our mix a bit, heart will continue to be a good growth driver. However, the ability for kidney to come back with living donors, also we'll continue to push that mix. Abhishek, anything else on that you want to talk about.

I think from the opportunity standpoint, the way I see it, there are two different pieces if the billing article coverage were to get changed, with some of our data publication over our policy efforts, then of course, there is a sizable opportunity on the kidney side. As well as when I talk about the studies on the KAOR, if that data turns out to be in the right manner, then of course, there's a significant opportunity there based on what I've previously called out that we have very limited commercial coverage there. So that can basically drive a fairly sizable upside. If you were to talk about the heart on the AlloSure heart primarily, I think that's where the show comes in play. Can we get the coverage for surveillance back for greater than one year where we have limited coverage now from Medicare. So that is another piece that will play out from the opportunity standpoint. And last but not the least, some of the health economic studies that we have been working on, how those are going to play out in some of the commercial coverage that we are trying to get on the AlloSure Heart. So I would say, again, there are multiple pieces that are in place. And to be honest, in my mind, they both are like equally in play. I called out the revenues are pretty much 50-50 between Hut kidney and the heart franchises. So I see the opportunity lie in both the areas.

Thanks. And lastly, regarding the litigation expenses, is it going to be a recurring item every quarter going forward?

No, I think glad that you asked this question, Yi Chen, because this has been one of our key focus areas and where we have been trying to limit the legal expenses. Happy to report that if you look at our G&A expenses for the fourth quarter, it has come down by roughly $4.5 million. And I know that the team has been very focus in trying to figure out as to how to bring those expenses down, be it through like being more effective and efficient in some of the cases that we need to do. And to be honest, some of the legal cases that we have been kind of into they have started to kind of taper off. For example, the SEC investigation has been decided in our favor. On the PBE audit, there have been a lot of claims that have been actually adjudicated in our favor, and now we have a template there that we can use. So some of the legal spend is kind of coming down, and we are looking for every single opportunity to be able to reduce them. But looking at the fourth quarter G&A, $4.5 million down, primarily driven by the legal spend there. So that stays a priority.

Thank you.

Our next question comes from Nathan Kariko with Stephens. Please proceed with your question.

Hey guys. This is Jacob on for Mason. Thanks for taking the questions. So just maybe a quick on the guide and apologies if this has been touched on and jumped on a little bit late. But I think you said that your 2024 revenue guidance assumes low-to-single digit testing service revenue growth. Just wondering if maybe you could break that down a little bit further in terms of growth between different organ times, kidney, heart, lung, and are you baking in any ASP increases on there, that would be upside due to commercial wins or anything during the year?

No, sure. So on the testing services side, yes, we are expecting a low to mid-single digit revenue growth. And one of the important pieces here is that I'm baking this in on a fourth quarter revenue base for the testing services revenue. So just from the example standpoint, if you were to kind of have a testing services revenue on the fourth quarter annualized, you will basically get a lower revenue growth for the next year, because you are not taking it for the full-year. But from the assumption standpoint, what I'm assuming is that testing services volume growth would be very similar to the transplant volume growth that we are seeing, which is mid-single digits. So that's the first part of the play. And then the second piece on the ASP, I'm kind of expecting about 2% to 4% headwind and there could be different scenarios on the ASP. But I'm not expecting ASP headwinds to be similar to what we had seen in 2022 based on our experience in the last few quarters. And based on all the collection efforts and we are seeing efforts where we have been collecting a lot more cash. So limited headwinds for the ASPs, but the transplant volume growth of mid-single digit, driving the testing services volume growth in mid-single digit, lower by ASP headwind a little bit, that gives us a low-to-mid single digit growth for the testing services revenue, if that makes sense.

Okay. Got it. Thank you. That's super helpful. And just maybe one follow-up here on AlloMap Kidney and again, sorry, if this has already been touched on. But just wondering what your expectations are around when you could get a CMS decision on coverage for that test?

Ongoing process as far as seeking coverage. And so we don't have any specific expectation we work to get it as soon as we can.

Okay. Got it. Thanks guys. Appreciate it.