VCYT - NASDAQ

Good day, and thank you for standing by. Welcome to the Veracyte Third Quarter 2025 Financial Results Conference Call. [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 today, Shayla Gorman.

Good afternoon, everyone, and thank you for joining us today for our discussion of our third quarter 2025 financial results. With me today are Marc Stapley, Veracyte's Chief Executive Officer; and Rebecca Chambers, our Chief Financial Officer. Dr. John Leite, our Chief Commercial Officer; and Dr. Phil Febbo, our Chief Medical and Scientific Officer, will join us for Q&A. Veracyte issued a press release earlier this afternoon detailing our third quarter 2025 financial results. This release and a copy of the presentation we will review during the call today are available in the Investors section of our website at veracyte.com. Before we begin, I'd like to remind you that statements we make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance they will prove to be correct. Additionally, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte files with the Securities and Exchange Commission, including the most recent Forms 10-Q and 10-K. In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release accessible from the Investors section of Veracyte's website. I will now turn the call over to Marc Stapley, Veracyte's CEO.

Thank you, Shayla, and thank you to everyone for joining us today. I'm pleased to share details of our third quarter performance as well as provide updates on our key growth drivers. We delivered another outstanding quarter. Our core testing business achieved 18% revenue growth year-over-year after adjusting for Envisia, driven by volume growth of 26% in Decipher and 13% in Afirma. This strong performance resulted in total revenue growing 14% year-over-year to approximately $132 million, even after the expected dilutive impact of removing the biopharma and other revenue tied to SAS. In addition to our robust revenue performance, our adjusted EBITDA margin reached a record 30%, representing a 650 basis point improvement from the prior year and far exceeding our expectations. As you know, we had set a goal of consistently achieving a 25% adjusted EBITDA margin on an annual basis, and it now appears that we will reach that milestone this year, more than a year ahead of our internal plans. This best-in-class profitability profile is a significant accomplishment, which we attribute to our disciplined portfolio focus. It enables us to continue to invest in our robust pipeline to serve as many patients as possible. The foundation we have built at Veracyte will enable sustained near- and long-term growth through a focused set of strategic drivers. I'm excited to share progress across several of these initiatives today. Starting with Decipher. We delivered approximately 26,700 tests in Q3, marking the 14th consecutive quarter of over 25% year-over-year volume growth. With the highest number of quarterly ordering providers and the highest number of orders per physician, Decipher's clinical utility is increasingly recognized by physicians for patients across all risk categories. This year, we have especially highlighted the clinical evidence for advanced disease, including high-risk localized and metastatic patients, where Decipher's predictive power has been shown to improve outcomes. With Decipher now available for metastatic patients, physicians can better assess the benefit of intensifying treatment with androgen receptor pathway inhibitors or chemotherapy. For example, recent analysis from the STAMPEDE trial published in Cell showed a high Decipher score predicts docetaxel benefit in metastatic patients and abiraterone efficacy for those with metastatic and high-risk localized disease. During the quarter, our volume of tests in this high-risk localized group grew more than 30%, demonstrating new traction in this category. We believe there remains significant opportunity to expand Decipher's use in this segment. Consistent with our established formula for evidence generation as the key to broad adoption, we continue to support extensive research in prostate cancer. For example, at ASTRO in September, research collaborators presented the first validation data from the BALANCE trial, demonstrating the PAM50 molecular signature predicts hormone therapy benefit in men with recurrent prostate cancer using data from our research use only Decipher GRID. This signature, well known in the breast cancer oncologist community and the backbone of our Prosigna test has now been shown to be able to stratify prostate cancer patients based on subtype, providing confidence in hormone therapy benefit for those with the Luminal B subtype. In addition to demonstrating the power of GRID and driving new important research in prostate cancer, this trial also builds on research presented earlier this year from the SSPORT trial, which showed the biochemical recurrence or BCR post-surgery patients with a high Decipher score received greater benefit from the addition of pelvic node radiotherapy and short-term ADT. These BCR patients represent a potential incremental opportunity for Decipher as we believe the majority never received a Decipher test when they were initially diagnosed with prostate cancer and would now be appropriate candidates for testing post-surgery. The complex treatment decisions faced by physicians and their patients dealing with advanced disease requires robust actionable information. As research empowered by GRID establishes clinical utility for new signatures, we are working to add such additional molecular features to the Decipher report to enhance clinical insights. Signatures like PORTOS and PTEN will be available in the optional Molecular Features Report when it launches next year. PORTOS predicts which patients with prostate cancer are likely to benefit from differing dosages of salvage and definitive radiation therapy. PTEN used alongside the Decipher score showed promise in determining whether metastatic patients would benefit from chemotherapy in the STAMPEDE study. These additions will further extend Decipher's application across indications, treatment decisions and various health care specialists. These studies represent only a selection of the extensive ongoing research related to Decipher. This quarter, we saw 23 new abstracts and publications on Decipher Prostate and GRID, bringing the total to 240 publications. Notably, at ASTRO 2025, of the 9 Decipher-focused abstracts, 2 compared the results of the Decipher test to the on-market DPAI solution and found marginal correlation. Investigators concluded that the 2 tests are measuring different biological processes, something we have asserted for a while based on prior studies. Further, there was meaningful discordance between the 2 tests across risk categories with a bias to low and therefore, potential undertreatment from DPAI. These findings support our view that digital pathology may complement molecular analysis by providing additional data points based on a more comprehensive analysis of tumor histology, but further research is needed to determine optimal use and to protect patients. To support this, we made our digital pathology services and associated AI models available to research collaborators earlier this year and have now implemented slide scanning as a standard production workflow. We've made tremendous progress in the third quarter and have now scanned over 115,000 slides from over 80,000 de-identified patients with outcomes data and expect this database to grow meaningfully as we continue building our digital image repository. Looking forward, the expanding clinical evidence supporting Decipher gives us confidence in its long-term growth prospects. With data consistently demonstrating its clinical utility and impact on patient management, Decipher is increasingly becoming the standard of care in prostate cancer. We see a long runway ahead, further bolstered by ongoing prospective studies to drive broader physician adoption, resulting in durable double-digit growth for years to come. Turning to Afirma. We were incredibly pleased with the 13% volume growth in Q3. This outstanding performance was driven by a steady pipeline of new account wins and yet another quarter of increased utilization per account. We also had a strong showing at the 2025 American Thyroid Association meeting, where we supported the presentation of 12 Afirma-related abstracts, including 4 independent studies utilizing data from Afirma GRID. Our operational efficiency program for Afirma is progressing nicely as we have transitioned over 1/3 of samples onto our new v2 transcriptome in the lab and having received New York State approval are on track to complete the transition of all incoming Afirma samples to the new workflow by year-end. While the data is early, we are pleased to see a side benefit in that the lower RNA input required by the new workflow has enabled even more patients to get a test result. Moving to our commitment to serve more of the patient journey through MRD and recurrence testing, we are excited about the opportunity for our whole genome-based MRD platform. Multiple studies are already completed in muscle invasive bladder cancer or MIBC, colorectal cancer or CRC, lung and other cancers with a robust pipeline, including 10 studies in testing and/or analysis, 13 in contracting and 10 in the active planning stage. This includes additional studies in MIBC as well as in breast, lung, CRC, kidney, immune therapy treatment response and others. The enthusiastic engagement by collaborators at leading institutions, along with the early results we are seeing reinforce our bullish expectations of our ability to capture a meaningful share of the pan-cancer market with our differentiated approach, which we have branded as TrueMRD. We are now receiving samples for the first phase of the NEO-BLAST trial. With growing enthusiasm over the efficacy of combination therapies like enfortumab vedotin and pembrolizumab or EV Pembro, there is keen interest in moving towards therapy de-intensification. The NEO-BLAST trial has the potential to help inform which patients can be de-intensified following standard of care neoadjuvant therapy. MIBC patients are being tested with standard staging MRI and TrueMRD. If they achieve a complete clinical response and are undetectable by MRD, they will be randomized to definitive local therapy or bladder-sparing active surveillance. We are excited to advance this trial and further the understanding of when a physician can safely de-intensify treatment for these patients. Our commercial success in MRD will begin with our proof of concept in MIBC in the first half of 2026, which we plan to launch with reimbursement. We expect to leverage our Decipher channel, which we believe reaches approximately 70% of MIBC patients who are seen in the urology and radiation oncology setting. Beyond MIBC, we plan to deliver indication expansion annually in order to serve more patients across more indications. Moving now to Prosigna. We are on track to launch Prosigna as an LDT for the U.S. breast cancer market in the middle of 2026, given the tremendous opportunity we see ahead. The clinical outcomes data from the 10-year OPTIMA PRELIM study presented in May suggested Prosigna had higher prognostic accuracy in high-risk patients compared to the test initially used to assign patients to treatment groups. We're excited to see the readout of the full OPTIMA trial, which is the first prospective study to specifically address Prosigna's ability to identify clinically high-risk patients who do not benefit from chemotherapy and can safely avoid the toxicities associated with treatment. New studies also continue to highlight the use of Prosigna for guiding preoperative therapy. An IMPACT study led by Dana-Farber Cancer Institute investigators and recently published in ESMO Open demonstrated a change in therapy in 35% of patients based on Prosigna results. At ESMO last month, investigators reported preliminary results of the RIBOLARIS study in which patients with clinically high-risk ER-positive breast cancer were treated with preoperative endocrine therapy plus Ribociclib, a CDK4/6 inhibitor. Prosigna was used to identify patients who achieved a low-risk molecular profile post therapy, allowing a mission of adjuvant chemotherapy. Additional follow-up is required for definitive results, but this study and other preoperative studies underway demonstrate how Prosigna enables precision medicine. As you can see, we have continued to advance our robust pipeline, having launched Decipher Metastatic in June, completed our NIGHTINGALE lung cancer trial enrollment of 2,400 patients in August and deployed our v2 transcriptome assay. We are making good progress on our MRD, Prosigna and IVD products. With so many new products and capabilities in these 2 years alone, I couldn't be prouder of the Veracyte team who are working tirelessly on behalf of our patients. Looking ahead, we will be accelerating our investments into our critical projects while maintaining the best-in-class financial profile we've consistently achieved. The strong momentum we have seen this year, together with the impact we expect to make with our upcoming product launches gives us confidence that we will continue to deliver comfortably durable long-term double-digit growth as we relentlessly pursue our mission of improving cancer care for patients all over the world. With that, I will now turn to Rebecca to review our financial results for the third quarter as well as our updated outlook for 2025.

Thanks, Marc. Q3 was another exceptional quarter with $131.9 million in revenue, an increase of 14% over the prior year period. We grew total volume to approximately 45,900 tests, an 18% increase over the same period in 2024. Testing revenue during the quarter was $127.8 million, an increase of 17% year-over-year, driven by Decipher and Afirma revenue growth of 26% and 7%, respectively. Total testing volume was approximately 43,700 tests, an increase of 19% over the prior year period and included 17,000 Afirma tests. Testing ASP was $2,925, a decrease of 2% compared to the prior year, primarily driven by the impact of higher prior period collections in Q3 2024 as well as the Afirma Laboratory Benefit Manager impact previously discussed. Adjusting for the impact of approximately $2.5 million of prior period collections in the quarter, testing ASP would have been approximately $2,875, flat to the prior year period. Third quarter product volume was approximately 2,200 tests and product revenue was $3.3 million, up 4% year-over-year. Biopharmaceutical and other revenue was $800,000, a decrease compared to the $3.1 million in the third quarter of 2024, given the Veracyte SAS restructuring and liquidation proceedings. Moving to gross margin and operating expenses, I will discuss our non-GAAP results. Non-GAAP gross margin was 73%, up approximately 150 basis points compared to the prior year period. Testing gross margin of 74% exceeded our expectations, driven by improved lab efficiencies and was roughly flat to the prior year. Product margin was approximately 800 basis points higher than the prior year at 52%. We still expect product gross margin to decline in Q4 with our transition to a contract manufacturing model. Biopharmaceutical and other gross margin of negative 36% was down year-over-year due to the restructuring proceedings of Veracyte SAS. Non-GAAP operating expenses were up 2% year-over-year to $58.6 million. Compared to the prior year, research and development expenses decreased by $2 million to $14 million, driven primarily by the deconsolidation of Veracyte SAS. Sales and marketing expenses increased by $1.5 million to $22.4 million, given higher personnel costs supporting Decipher and Afirma. G&A expenses were up $1.5 million to $22.3 million, primarily due to project-related expenses within our support functions. Moving to profitability and cash metrics. We recorded GAAP net income of $19.1 million, including a $6.7 million loss upon deconsolidation of Veracyte SAS. This is onetime in nature and puts the France accounting impact behind us. Adjusted EBITDA was $39.7 million or 30.1% of revenue, well above our expectations given the benefit of prior period collections, lab efficiencies and the timing of some project investments, which are now forecasted to occur in the fourth quarter and into 2026. We generated $44.8 million of cash from operations and ended the quarter with $366 million of cash and cash equivalents. Turning now to our 2025 outlook. We are raising our 2025 total revenue guidance to $506 million to $510 million from our prior guidance of $496 million to $504 million. Due to our strong year-to-date performance, we are raising testing revenue guidance to $484 million to $487 million from our prior guidance of $477 million to $483 million. This reflects a raised Decipher outlook and continued Afirma volume strength. As a result, testing revenue growth is now estimated to be 16% as compared to the prior guidance of 14% to 15%. We are also raising adjusted EBITDA margin guidance for the year to exceed 25% from our previous guidance of 23.5%, which was already meaningfully higher than our original 21.6% 2025 guide. This reflects our year-to-date profitability outperformance and expectations for accelerated investment in the fourth quarter in support of our strategic growth drivers. We expect adjusted EBITDA margin to be approximately 25% in the fourth quarter and in future years, barring any specific incremental investments we decide to make, which we would, of course, communicate as appropriate. In closing, I am thrilled with our progress over the course of 2025. As Marc shared, we delivered on our product goals this year, including the launch of Decipher for metastatic patients and the transition of Afirma to the v2 transcriptome. With strong momentum heading into year-end, I'm excited to close out a successful 2025 and have confidence in our trajectory for '26 and beyond. We'll now go into the Q&A portion of the call. Operator, please open the line.

[Operator Instructions] Our first question comes from Doug Schenkel at Wolfe Research.

So I want to ask, I think -- I guess, 2 for Marc, and then I guess if I can take the liberty to ask a financial question of Rebecca. So on Marc, digital pathology, there were several presentations as you talked about in your prepared remarks at the ASTRO Annual Meeting showing weak correlation between multimodal AI scores and Decipher. As you talked about, it suggests these assays are complementary. Just on that topic, I'm curious, how do clinicians manage discordant results? Do you see this as being a concern for Decipher? Or is this something that you think actually leads folks to maybe kind of prioritize Decipher over some of the emerging competitors? And then maybe while we're on the topic, could you just talk a little bit about your own internal digital pathology efforts and kind of what the time lines are there?

Yes. Happy to, Doug, and then we can get to your financial questions. And actually, I'll answer these questions, and then I'll turn a little bit to John on the commercial aspects and Phil on the DPAI internal digital program. But I think the way to think about this is if you think about new technologies, including genomics of 10 or a dozen years ago, there's a lot of excitement and new tests come out. And I think what's really important is to go at an appropriate pace, develop the clinical evidence and make sure that evidence supports the utility and most importantly, the patients aren't getting harmed by the wrong decisions and the physicians aren't getting confused. This is kind of the formula we took with Decipher and letting the research community help drive the research behind Decipher, which is what we believe has resulted in it being so popular. I think we're at that stage now with DPAI-based models, right? It's exciting technology. It's new, but enough evidence hasn't been generated yet. And then -- and so you do get discordant results. And there isn't anything to tell the physician what to do in that case. And so what they do is pretty logical. They focus on the gold standard, which, frankly, is Decipher. So if you've got a Decipher high and you have a DPAI-based low result, you certainly wouldn't want to undertreat that patient. And so you would focus on the Decipher result, treat accordingly, but the DPAI, the new technology loses credibility. And I think that's a bad thing for the industry as a whole. So our approach of making sure that we are really focused on developing the evidence and letting the research community do that is what we think will ultimately drive success for a technology that should have its place if done the right way. Let me turn over to John on the commercial side, what we're hearing from physicians.

Yes. Thanks, Marc, and thanks, Doug. It's a good question. It's difficult for us to firmly lean into this concept of complementarity while we are seeing significant rates of discordance. And while it leads to physicians ultimately then being confused as to how to interpret the results and how to proceed with the patient. And so on the commercial side, we're spending a lot of time or revisiting the wealth of evidence substantiating the clinical validation and utility of Decipher versus that of emerging technologies. And ultimately, physicians and based on the results of a survey that we've run, they heavily lean on the evidence that's currently substantiating Decipher and they see it as the current standard of care. Moving forward, we would hope that complementarity becomes more defined around how are insights to be developed in the best platform that ultimately associates a result with a clinical outcome and that will inform the right patient management decision. To do that, as Marc mentioned, we're working very closely with our current network of collaborators, key opinion leaders. Ultimately, we will curate and develop new signatures that will land on GRID. Ultimately, those will make their way into an equivalent of Molecular Features Report, such as we're doing now with the current GRID. And that's what true complementary in my mind, looks like. It's the rounding of clinical decisions aggregated and curated by an actionable report.

And then maybe, Phil, anything to add standpoint of the internal development program?

Yes. Happy to, Doug, and thanks for the question. So being a custodian of over 200,000 transcriptomes and incorporating pathology scanning of whole slide images into our research program, we are in a very -- we have probably the best and most comprehensive data set where we can dig into that interface that John was talking about and figure out how to take the best of both the transcriptome, which is represented the Decipher commercially and the emerging excitement around DPAI. That is in full steam. We're digging in with collaborators as we've done with transcriptomes through the GRID. We're working with external -- some of the top investigators to drive that research forward and as well as both developing a model under -- as a DPAI model as well as understanding the interface and the biology that's measured there. We also have looked at that and see that it can help some of the prognostic, but we're also really understanding that through the GRID work we've done, we see a lot of opportunity, as Marc mentioned, on the molecular features that are coming out of the GRID and the different signatures. And we're excited about the LUM-B, non-LUM-B distinction that we saw presented at ASTRO. We're excited about the P10 activity, that's STAMPEDE activities. And we're seeing a number of the signatures that are predictive for therapeutic benefit. And so we are in an excellent place to look at the interface between the 2. Right now, we're driving forward with the molecular features because they're predictive, and we're in the best position of anybody to bring digital pathology into the clinic in a complementary and in a rigorous way.

Thanks, Phil. Okay. And Doug, you had a -- sorry, hopefully, we answered that question and you had a question on financial.

Yes. No, that was fantastic, and I appreciate all the detail. And in an effort to be respectful to my sell-side peers, I'm going to try to make the follow-up a much quicker one. I think for Rebecca, you're a year ahead of plan on margin targets, which is fantastic. There are areas you've talked about planning to invest in next year, like I think building up the breast channel is one example. How are you contemplating balancing the margin trajectory and the upside that you're generating with maybe the opportunity to opportunistically maybe pull forward some investment in a period of strength to drive future growth? Would be curious to just get your thinking and obviously, that helps us as we're contemplating the model updates.

Yes, absolutely. Thanks, Doug, for the question. And you're right, we're in a very privileged position that we've gotten to based on really solid portfolio management and planning and quite regimented project prioritization. And I don't expect that to change. We have also a number of different initiatives that we're undertaking. As we did our strategic plan this year, we actually thought that the number of opportunities we had to invest in was almost embarrassing. It was a wealth of riches. And we remain in an incredibly fortunate position in terms of being able to help patients across the cancer care continuum with those investments. And so we are accelerating them to your point. This Q4 guide implies we hire a number of heads that we're working on hiring. We spend some money on clinical trials that we're hoping to spend and also, we start to scour the landscape for the best breast sales leader. And so all of those things will happen in 2025 are implied in the approximately 25% Q4. As we have talked about previously, looking ahead, we really do plan on managing to that approximate 25% adjusted EBITDA target going forward. We have a number of tailwinds on the gross margin side next year that we will benefit from, including the full year of the v2 transcriptome. And we have obviously the benefit of no longer having the burn of the French entity. Those will be -- those kind of good guys will be offset by incremental spend on the breast channel, incremental spend on MRD and incremental spend on the Prosigna launch in general and the development to get there. So I think -- think about that 25% is our goal in any given year. And we're going to do our best to manage the P&L to that, and we will be bringing forward spend into 2025 to accomplish this.

Our next question comes from Puneet Souda at Leerink Partners.

I'll try to wrap both of my questions in one, hopefully not too long. On the prostate side, you're well above 25% volume growth for Decipher. My question is, given the penetration that you have today, how should we think about the 2026 growth? Can you still grow more than 20% in volumes here for Decipher in '26? And then on the MRD side, I would love a perspective from Phil and the folks in the room as well. I appreciate you're getting closer to the launch here on MRD. But we have seen data so far from competitors where we have moved from observational trial to not prospective data sets that are getting published in NEJM. We saw the [ Tece ] data with the IMvigor011 MIBC trial. And there are other data sets that are coming from CRC, lung, other competitors entering the market. So how should we think about Veracyte's MRD position? And more importantly, what's the market strategy here? How do you differentiate? And how do you go to an oncologist and say, here is a test that you ought to employ in your practice, just given the competitive landscape?

Yes. Thanks, Puneet. On the first question, let me take that real quick. And I'll actually cover this as a company as a whole, including Afirma and Decipher. You kind of -- this question of durable long-term growth has been a question that we've dealt with for quite a while, understandably. And if you actually take a look back and look at Afirma has grown year-over-year for the last 13 quarters. Decipher has grown over 25% in volume for 14 quarters in a row. And if you think about where they both were coming into the year when we looked at the market numbers, Afirma was about -- we had about 1/3 of the TAM and Decipher, we had about 25% of the TAM. So in both cases, there's significant growth opportunity ahead, which is why we've said we feel that the market penetration and market share opportunity and the tailwinds we have and frankly, the lack of headwinds given everything we've done around evidence and NCCN guidelines and so on is what's going to help us get -- comfortably get double-digit growth durably for the foreseeable future, and that includes 2026. So that isn't a concern of mine. When you actually take those 2 core ones alone and you get double-digit -- comfortable double-digit growth and you add to that MRD and Prosigna in the nearer term and international and nasal swab in the longer term, you can see we've got a pretty well mapped out. Since you brought up MRD on that one, I mean, we've had data published for our MRD test, including in bladder for quite a while. And as I mentioned today, we've got a lot of publications that are in the works. We've talked about UMBRELLA before. We've talked about NEO-BLAST today. I'll let Phil talk about his excitement around some of the clinical studies very, very briefly. But essentially, we are very much doing our bit to make sure that we're part of the evidence generation journey.

Yes, Puneet, thanks for the question. And I really feel quite confident that between the performance of our test, the strength of our clinical evidence portfolio and our commercial channel, we're going to be a leading competitor in muscle invasive bladder cancer with our MRD test. It's incredibly exciting to see the prospective trials come out like IMvigor011. It was incredible to see the NIAGARA trial to talk about in the neoadjuvant setting. These are foundational trials that are really demonstrating that MRD status is a new disease state and a state that we can take full advantage of the medical oncologist. I'm extremely excited to be able to manage patients more precisely and earlier with a compendium of therapies that are more effective. We will have to demonstrate with confidence the performance of our tests and I have confidence in our portfolio. What I've seen already, as Marc said, we've already published. We're already in prospective trials. And to cross back to a question that Rebecca had, our clinical trial portfolio will -- we do have opportunities to use some of that margin on our clinical trial portfolio, and we are doing so. Veracyte, I came to Veracyte because of the consistent history of investing in evidence, and this is no exception.

And just one last thing to add to Marc's response on 2026, Puneet, just to sum it all up, we are -- as we're sitting here in our budget planning season, our early look at 2026 revenue is above the Street just to be blunt about it. So we're obviously not guiding today. We'll guide either early in the first quarter at a competitor's conference or shortly thereafter on our Q4 call. But given the trends we're seeing year-to-date, quarter-to-date in Q4, we're extremely excited about 2026 and beyond. And that even is taking into account the around $10 million headwind from biopharma and other revenue that we won't have next year. So I think as we're sitting here, we're -- the playbook is working, right? What we've invested in is demonstrating the evidence, which is demonstrating the utility, which is demonstrating the guidelines and coverage and growth and penetration.

Thanks, Rebecca, thanks Puneet, for the question.

Our next question comes from Kyle Mikson at Canaccord.

Congrats on the awesome quarter. Maybe, Rebecca, on your point there, when you look at the Street estimates for '26, I mean, when you look at like what Decipher is expected to do, what we think Afirma can do, where are people underappreciating Afirma, for example? Just curious what you think about that. And then maybe for John or for Phil, the molecular features for Decipher, just could you talk about how much of the unmet need those signatures are and if there's a pipeline beyond PORTOS and PTEN?

Yes, I'll take the first one. Effectively, the range is pretty wide on each, Kyle. So I don't want to make a statement that's general in nature and have it be expounded or extrapolated into something that is wide in nature. So I would say, in general, we're above the average, but I don't want to go beyond that given I don't have the ranges in my mind for each. So I think the statement can just be applied to the average for both.

And then we'll let John talk about the commercial opportunity for molecular features and why it's important.

Yes. So molecular features are a response to the evidence that's emerging as these collaborative groups use Decipher more and more as a selection enrichment randomization tool. And the evidence from STAMPEDE, from PORTOS, from BALANCE were designed to meet a need in the market, which necessarily is treatment of and management of high-risk and metastatic patients is becoming more and more heterogeneous. There are clearly differences in response to a variety of these therapeutics. And so the need for a biomarker is exceptionally high. You can look at the results of those studies to see the benefit of using Decipher in those studies, and we're meeting that need by providing these signatures now in a consolidated report with these predictive biomarkers.

And Kyle, think of this as a repeatable formula. It's enabled by GRID and whole transcriptome approach. And you'll see us at these signatures when the clinical utility evidence is there and there's an unmet need in our customer base.

Our next question comes from Lu Li at UBS.

Congrats on the quarter. First question, I wanted to dig into a little bit on the 2025 guide. It does seem like the Q4 would seem to be roughly flat as of Q3. Any days impact or maybe just like holiday season? Please correct me if I'm wrong on this one.

No, it's a great question. So recall, we had $2.5 million of prior period collections in the quarter in Q3, and that isn't necessarily implied in the guide. So that would be one thing. The other thing is the way the holidays do fall is a little bit more challenging than prior years, but those are the 2 things I would take into consideration. The third thing I would say is we did have a little bit of French revenue in Q3 that won't repeat in Q4.

Got it. Appreciate that. And then I wanted to dig into the breast investment in 2026. Possible that you can size like how big of the channel that you're planning to build? And then also the kind of like the spend related to the Prosigna launch? And then second, also related to kind of the margin question. On Afirma v2, I think it's not fully transitioned yet. I wonder how much of the cost benefit that we've already seen in the quarter? And then how much left that we can potentially see the margin benefit in 2026?

Thank you for the question. I'll ask John to talk about the commercial scale-up strategy.

Yes. Thanks for the question. I mean we're excited about Prosigna. We're excited about in anticipation of the release of the OPTIMA trial results at ASCO 2026 and we're excited about the potential launch. To do that, we will have to build a sales channel specifically focused on breast cancer oncologists. We will do that in a very measured way. It's always been our approach to not get over our skis from a spend standpoint and to build the sales team as we see the demand emerging. The plan here is fairly prescriptive. All you got to do is look at how we launched and have led the field in Decipher with prostate cancer to understand how we will approach the market in breast cancer. We will lean into the GRID. We will lean into collaborations with key opinion leaders. We will lean in with buy-in from market leaders on the HCP side and drive the demand from the top down and build the sales team accordingly.

Yes. And in terms of the gross margin in the quarter and the v2 transcriptome, so think about the gross margin dynamic on testing as a quarter -- I'm sorry, a month of goodness from the V2 transcriptome for 1/3 of the Afirma volume. Obviously, as we transition throughout Q4, that will -- by the end of Q4, that will go to 100%, but I would really think about that only being at 100% for '26. We also had the benefit of $2.5 million of prior period collections in the quarter. And then we did have a decently sized write-off associated with v1 transcriptome reagents. And so those all kind of netted out with regard to the testing gross margin trends on a sequential basis, if that helps. We're not going to quantify the v2 transcriptome benefit because effectively, it's one of our levers for fueling the investments across the rest of the portfolio and don't want folks to get ahead of themselves on profitability. We will be managing our P&L to that 25% in '26 and beyond, and that gives us ample room given the programs we have in hand to invest for continued revenue growth while also delivering a best-in-class financial profile.

Our next question comes from Subha Nambi at Guggenheim.

There have been a lot of updates throughout the year when it comes to competitive landscape for Decipher. In your view, in what ways have things played out as you expected? And what has surprised you the most?

Yes, great question, Subha. Thanks for that. There have been a lot -- and there will continue to be competitive updates, I think. And I think similar to what we talked about for MRD, there's a rising tide here, and we were able to benefit from drafting on others to pave the way for molecular diagnostics in prostate cancer. And through evidence development and having a strong test and ultimately NCCN guidelines, we've been able to benefit from that. It's played out maybe better than we thought, frankly. I think Decipher has taken more share than I would have guessed it would coming into the year. And the NCCN guidelines are kind of an unknown quantity. It's hard to quantify the benefit you're going to get from those. And then obviously, there's been a fair bit of noise around DPAI, and we addressed that question extensively at the beginning, and that's turned out to be a lot of noise and not a lot of substance in terms of the market share and the growth rate that we're seeing in Decipher.

And then do you still expect to have a commercial Prosigna LDT midway through 2026? And if yes, could you provide some color on the time leading up to then? Like what should we expect to see LDT performance data and so on and so forth, I think the [ OPTIMAS ] data?

Yes, we do expect to have a commercial Prosigna LDT halfway through 2026. You're not going to see a ton of data from us there because we're -- obviously, you've seen the OPTIMA PRELIM data. We're waiting for the final OPTIMA data. That's the key evidence behind that test. And then actually generating that test in our lab is a pretty straightforward process for us with a tech assessment, validation, bridging, New York State approval, all those things, which are fairly normal processes for us to follow.

Our next question comes from Mason Carrico at Stephens.

This is Ben on for Mason here. On MRD, would you be able to provide some color on the overlap of urologists that are treating prostate cancer and our Decipher targets and are also those treating muscle invasive bladder cancer that are going to be targets for your MRD assay. What's the overlap here? And really just what does that Venn diagram look like of those 2 urologists?

I mean it's an exceptionally high overlap. Thanks for the question. We expect to be able to serve upwards of 70% of the TAM based on the channels that we currently control. These are primarily going to be a combination of urologists and oncologists. We feel confident we can serve the market.

Okay. Great. And then I appreciate the color that you gave on Decipher's growth in high-risk patients this quarter. Are you able to go a little deeper there and maybe comment on how ordering patterns have trended in localized patients after urologists have adopted the metastatic offering? Is this a fairly immediate impact to orders that you're seeing?

Maybe I'll take that just in terms of stratifying the Decipher market that we're going after. Obviously, we added 30,000 patients when we launched metastatic and now we have the full TAM addressable by Decipher. We also mentioned BCR-based patients, which could be part of the prevalent population, hard to size it, but that's a potential upside. Of course, you've got incidence growth as well. When you kind of subdivide the localized disease population, we've said over 20% in low. So that's actually quite a high penetration for us. We said that the high risk is actually one of our highest growers this quarter, and that's driven a lot by the metastatic data that's come out as well. And so while intermediate has always been the highest penetrated and maybe even the highest growing area in the past, it's clear that we are making great traction in every single risk category of prostate cancer patients and metastatic really helped that. And GRID and everything else, NCCN guidelines help that as well.

Our next question comes from Andrew Brackmann at William Blair.

Maybe just on TrueMRD here. I appreciate all the color on the studies in the pipeline there. But can you maybe just sort of talk about some of the considerations that you have when you sort of think about choosing which indications to expand sort of each year as we sort of look at it, some of those indications are a bit crowded and there's others where Veracyte has a great channel. And so how do you sort of think about building out that annual road map of additional indications?

Yes, it's a great question. And Andrew, thanks for referencing our brand, TrueMRD. We're excited about that product. Obviously, we fix muscle invasive bladder cancer for the reasons John just highlighted in terms of the Venn diagram and the overlap there with our existing customer base. You can imagine us really potentially going after any market with TrueMRD because it is a pan-cancer platform. But we will go after markets where we have an inherent advantage, for example, where we have an existing channel or building a channel. It's really great for us to build out the entire care continuum. I think it will really help in MRD to be a company that is able to support that patient and that physician right at the upfront in their diagnostic journey with a prognostic test or a diagnostic test or a predictive test as they're being treated and then an MRD test post treatment. And so obviously, covering that whole spectrum there will be an important advantage for us. And then beyond that, it will be subject to things like cohort availability, existing published data that we've already got. We won't shy away from competitive markets. We believe our whole genome-based approach is a differentiator. And so that will certainly -- some markets will be harder to go after than others, especially where they're already well penetrated. And let's face it, most MRD markets are not well penetrated today. So plenty of opportunity. But we won't shy away from it. We'll just be thoughtful about how we do that and the timing.

Okay. That's perfect. And then somewhat related to that, another great quarter of cash generation here. So how should we sort of be thinking about your appetite for maybe expanding the portfolio through some acquisitions to maybe round out that care offering?

Yes. I mean, absolutely. We've -- I'm very pleased with the performance of the business, especially the cash generation as well this quarter. And as Rebecca said, we're going to -- first and foremost, we look at investing in our business, clinical trials, product development, some of the stuff in infrastructure. We're really building an incredibly efficient engine here at Veracyte, and we have the opportunity to be able to do that. M&A, of course, is on the list. And if there's something that makes sense, then we would go after it. But our narrative on this hasn't changed one bit. The funnel isn't huge. We look at everything. We kick the tires, and we're very diligent, and we're not -- this cash doesn't burn a hole in our pockets, far from it. It doesn't change the VC approach that we take. And then beyond that, other capital allocation opportunities, none of which are top of mind for us right now. Anything you want to add, Rebecca.

No, you covered it quite well.

Our next question comes from Andrew Cooper at Raymond James.

Maybe first, just one on some of the numbers. I think in the script, you called out a little bit of timing of spend on the 30% EBITDA margin this quarter, but you do have EBITDA up, I think, around $10 million or so at the midpoint. So when you think about those prior plans versus where we are now, what was timing? What was operational performance? And then maybe in the guide, is there any incremental spend that you're pulling in that wasn't expected in '25 in the first place? And how do we think about sort of the jumping off point as we head into next year from an OpEx perspective?

Yes, fair question, Andrew. So effectively, what was good news was the revenue outperformance versus our commentary plus prior period collections, which obviously flowed on 100%. I would say there was a little bit of v2 Afirma goodness in there, a little bit further ahead of kind of the transition than we would maybe have expected, though that's a rounding error. With regard to the 2025 spend, I would say there -- I wouldn't call it anything specifically material that would fold in. I would say maybe a couple of heads here and there, but we just try to derisk it as much as possible. And the jumping off point for next year, I think you've effectively quantified it decently well. You can effectively back into whatever you think the revenue number is with getting to that 25% adjusted EBITDA for 2026.

Okay. Helpful. And then already asked, maybe just a little bit more on the Molecular Features Reports. Help us frame how that fits in from a competitive perspective and what you think that can do? Is there any opportunity to kind of go out and monetize that a little bit more directly? How does it compare to something like Promoter Score that you've added on Afirma and what that's helped kind of enable with that platform?

Yes. Great question. No, there isn't a way to monetize it directly. But I believe it's yet another way that we continue to improve self-disrupt, add evidence, prove to each one of our HCP customers that they are using the best tool to make the most informed clinical management decision on behalf of their prostate cancer patients. This is just one more thing that we will continue to do.

Just to add from a medical perspective, adding these features to our report underscores the value of the biology. And so the treatment of men in that high-risk group and that biochemical occurrence in the metastatic group where we're seeing some very good growth because of our coverage -- recent coverage in metastatic and increased interest in the high risk is getting more complex. We have hormonal therapy. We have chemotherapy. We have radiation therapy. We have a whole slew of therapeutics, adding predictive signatures to complement the best-in-class prognostic signature will really help clinicians, urologists as well as some of the radiation therapists and medical oncologists in that space. And so it's part of the Decipher report, but it really helps drive a lot of and inform some of the increasingly complex decisions managing those higher-risk patients.