WGS - NASDAQ

Good day, and thank you for standing by. Welcome to the GeneDx Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Sabrina Dunbar, Investor Relations. Please go ahead.

Thank you, operator, and thank you to everyone for joining us today. On the call, we have Katherine Stueland, President and Chief Executive Officer; Bryan Dechairo, Chief Operations Officer; and Kevin Feeley, Chief Financial Officer. Earlier today, GeneDx released financial results for the third quarter ended September 30, 2025. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, updated 2025 guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, October 28, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results. Please refer to our third quarter 2025 earnings release and slides available at ir.genedx.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. And with that, I'll turn the call over to Katherine.

Thank you, Sabrina, and good morning, everyone. The third quarter was another exceptional quarter for GeneDx. We continue to drive record growth while maintaining our commitment to profitability. For us, better patient care and profitability go hand-in-hand because our ambition is truly transformative to fundamentally alter how precision health care is delivered, making it more accessible, effective and patient-centric. We envision a world where any genetic disorder is diagnosed quickly to prevent disease progression and ensure everyone has a chance to live a long and healthy life. Achieving that vision requires a fast-growing, disciplined, profitable business that delivers both life-changing answers for patients and long-term value for shareholders. Based on our momentum exiting this quarter, we're raising our 2025 revenue guidance to $425 million to $428 million. Our North Star, the goal that drives each and every one of us at GeneDx is to diagnose disease earlier for as many families as possible. Our strategy to do so is to: one, drive high profitable growth; two, offer the best-in-class diagnostics products and experience for clinicians and patients globally; and three, build the network effect required to usher in the next era of precision medicine. Across all 3 focus areas, we are leveraging the power of GeneDx Infinity, the largest rare disease data set to generate deep genomic insights that enable fast and reliable diagnoses and fuel the precision medicine revolution. Just last week, the FDA granted breakthrough device designation to our ExomeDx and GenomeDx tests, offering powerful validation that our industry-leading technology is the gold standard in transforming lives and shaping the future of health. There are over 10,000 rare diseases impacting 1 in 10 Americans, most of them children, and it still takes an average of 5 years to reach an accurate diagnosis. Receiving an accurate genetic diagnosis is a pivotal milestone in a patient's journey that is often not the end. Today, 95% of rare diseases have no approved treatment. But as the largest provider of rare disease diagnosis in the world, GeneDx will be central in changing that. As we look to our future, GeneDx isn't just the starting point for rare disease. We're the nexus, connecting patients, biopharma, health systems, payers, policymakers and advocacy to unlock the full potential of genomic medicine. We recently announced 2 key executive hires, Lisa Gurry as Chief Business Officer; and Dr. Mimi Lee as Chief Precision Medicine Officer, to unite our data diagnostics and partnerships so that clinical adoption, equitable access and therapeutic advancements reinforce one another, creating a network effect. We are uniquely positioned to move our system from sick care to health care and strengthened by the network effect, we will deliver on the promise of precision medicine for all. What fuels our business is growth in diagnostic testing at scale, and our strategy is twofold. We're deepening our penetration while widening the market, enabling us to serve more patients today while opening access for patients tomorrow. Our existing markets of geneticists and pediatric neurologists continue to deliver impressive growth, and we have ample room to run. And with updated guidance from the American Academy of Pediatrics now in place, we can now shorten that multiyear diagnostic odyssey by meeting parents where they go first, their pediatricians. Our commercial build-out is underway, and we expect to nearly double our sales force over the coming quarters with a dedicated GeneDx team. We're also leading medical education on updated guidance, expanding GeneDx's authority as the leader in genomics to this new cohort of clinicians, many of whom are learning about these changes for the first time from us. We're also investing in customer experience to drive utilization. The opportunity is significant, and we expect it will take 18 to 24 months from the June update before we see real adoption. Turning to the inpatient setting. The NICU remains underpenetrated and continues to be a focus with less than 5% of NICU patients receiving any genetic testing today. We have 8 Epic Aura integrations live and are on track to deliver at least 12 by the end of the year. Our ultra rapid genome continues to prove its value for critically ill infants. And as protocols evolve and whole system engagement increases, we're well positioned to significantly scale testing in Level 3 and Level 4 NICUs over time. Our work to date has shown the value of testing symptomatic patients, but we know the next step forward is to enable proactive personalized care beginning at the earliest moment possible. Our leadership in genomic newborn screening from supporting pioneering research to enabling clinical adoption in Florida, reflects our mission to drive true longevity and highlights our unique ability to expand access to this technology at scale. Our work on the GUARDIAN study generated foundational clinical data to support adoption, demonstrating an over 3% true positive rate for actionable conditions at birth. This quarter, we announced our role in 2 new pivotal initiatives, the NIH with Beacon program and the Sunshine Genetics Network. These programs are relying on GeneDx as a trusted adviser in newborn screening because we have the unique talent and experience to design programs that are clinically impactful, equitable and scalable. Broad adoption of newborn screening will flip the system from reactive to proactive, advancing our mission and accelerating impact as population scale. At the same time, exome and genome testing can have significant utility later in life. Adult conditions represent another large untapped market where GeneDx is uniquely positioned to offer diagnosis for cardiovascular conditions, neurodegenerative diseases and many others. And as we grow our footprint domestically, we're also poised to address growing opportunities internationally. The Fabric genomics platform offers us flexibility to serve global markets at scale, and we're excited to have boots on the ground in key ex-U.S. regions to develop these markets. We're proud to have built a business that delivers both purpose and profit to fuel reinvestment and the strength of our model today is laying the foundation for an exciting future. With that, I'll pass it over to Kevin to share more about our results.

Good morning, everyone, and thanks for joining us today. We reported third quarter 2025 revenues of $116.7 million, a 52% increase year-over-year. That total includes $98.9 million in revenue from exome and genome, up 66% from the same quarter last year. In the third quarter, we reported 25,702 exome and genome tests. Growth there, has accelerated from 24% year-over-year in the first quarter to 29% in the second quarter to now 33% in the third quarter. We expect volume growth on these tests to continue to accelerate in Q4 and offer high growth for the foreseeable future. For those new to our story, the business began by serving expert clinical geneticist 25 years ago, and now 8 out of 10 in the U.S. ordered their testing from GeneDx. I mentioned that because it's been just over 2 years since we began calling on pediatric neurologists and already 1/3 of those physicians order from us. Over the next few years, we expect to pull volume from many more call points, the largest of which is the general pediatrician. Near-term growth should continue to be fueled by increased ordering patterns from existing accounts as they continue to convert from panels and activating more untapped pediatric neurologists. We'll also open up and penetrate additional pediatric and adult specialty call points and begin international market development. The NICU remains a compelling market for us, expected to ramp over the next several quarters and years. Of course, all of that is supplemented by the long-term potential to establish a commercial newborn screening market and by our ability to put GeneDx Infinity work for biopharma and other health care partners in a way that contributes meaningfully to our revenue base. The average reimbursement rate for exome and genome was over $3,500 a test in the third quarter. That's up from approximately $3,700 last quarter and $3,100 a year ago. With a talented team in place, our cross-functional revenue cycle efforts are positively influencing Medicaid coverage expansion and fighting for fair adjudication. And there's one big recent development to share in that regard. On November 1, the largest state Medicaid program, Medi-Cal, will begin covering whole genome testing for their members in California. We applaud their decision to become what is now the 36th state to cover exome and genome outpatient. As I mentioned on our last call, when we begin to sell into new call points and for new indications, we inherently expect lower initial payment rates compared to our established channels like Neuro and Geneticists. With this strategy to expand into new markets, some new volume may start out at lower collection rates, which in turn may have a modest impact on our average reimbursement rate in the coming quarters. That said, any impact should be transitory. And to be clear, unit economics matter to us. Lessons from this industry's past are always top of mind when contemplating pricing and go-to-market strategies. Our view that rates will be durable and enable both high growth and attractive gross margins well into the future remains intact. Turning to gross margin. We expanded total company adjusted gross margin of 74%, driven by favorable mix shift, improved reimbursement and lower COGS. Bryan's team continues to innovate, and they have an impressive road map to further reduce COGS by leveraging automation and AI to optimize production. GeneDx has achieved an important economy of scale advantage, and we expect to hold on to that advantage well into the future. Adjusted total operating expenses were $71 million. That is up sequentially in terms of aggregate dollars, representing some variable costs growing with the revenue base, but primarily early investments we expect will drive volume growth mid-2026 and beyond. Total OpEx was 61% of revenue this quarter, and that's a number I'm quite comfortable with at this point. I want to underscore the spend here is deliberate, representing strategic investments into accelerating our long-term growth vectors. Specifically, we've begun to build the first phase of the dedicated Gen Peds sales team. We've added the first few sales heads in new specialty markets and key international markets. We're executing against our first ever brand campaign. We've ramped product and technology talent to design and build our next-gen customer experience for nonexperts and R&D includes innovation to our genomics program and support for clinical and health economic research as just some examples. The expense ramp reflects continued confidence in the ROI. They're all designed to drive volume in the future. That growth, in turn, accelerates a flywheel effect, whereby our Infinity data set expands, our competitive moat strengthens, we attract new customers and economies of scale continue to improve. While these investments impact near-term operating margin, every dollar is meant to build high-quality, durable future revenues. Expect sequential growth in our operating expense for the next several quarters, but all within a framework designed to achieve industry-leading growth rates while maintaining attractive gross margins. We have demonstrated the ability to drive operating leverage and EPS accretion. With strong demand in an ever-expanding serviceable market, we'll be reinvesting back into the business to capture an exponentially larger future and build long-term value creation. The team here has the experience to understand our responsibility to be good stewards of investor capital. On the bottom line, we generated $14.7 million in adjusted net income and $0.51 of adjusted basic EPS in the third quarter of 2025. And we're well capitalized with cash, cash equivalents, marketable securities and restricted cash totaling $156 million as of September 30, 2025. Cash flow for the third quarter included $9 million in free cash flow generated and $12 million in ATM proceeds net of fees from the issuance of 101,367 shares of common stock. Now an update on guidance before turning over to Bryan. We're raising top line total revenue guidance to between $425 million and $428 million for full year 2025. Just as a reminder, in the third quarter, we discontinued our hereditary cancer offerings. That business generated $1.2 million in this third quarter of 2025 and $3.3 million in the same quarter last year. It will be near 0 in the fourth quarter of this year. We're raising exome and genome revenue guidance to deliver between 53% and 55% growth for full year 2025, which is exome and genome revenues of $358 million to $361 million. As a reminder, when looking at the prior year comp, the fourth quarter of 2024 included a discrete benefit of $6.8 million we called out on our fourth quarter 2024 call. $5.8 million of that benefit was exome and genome. Excluding that, the full year growth rate is 57% to 60%. We again reaffirm our expectation to deliver at least 30% exome and genome volume growth for full year 2025. As had always been expected, volume growth has accelerated throughout the year, and the guide implies a fourth quarter exit of at least 34%. We're raising expectation for full year 2025 adjusted gross margin to between 70% and 71%. And we once again reaffirm our expectation to remain profitable. I'll now hand it over to Bryan, our Chief Operating Officer.

Thanks, Kevin. Good morning, everyone. When children need medical care, parents like myself want an accurate diagnosis as soon as possible. That's what we do every single day at GeneDx, and we do it better than any other lab in the world because of GeneDx Infinity, the leading rare disease data set, made up of more than 2.5 million rare genetic tests, including nearly 1 million exomes and genomes and over 7 million phenotypic data points. Infinity contains an unparalleled vast and structured reservoir of potential gene variants that cause rare condition. We reported over 25,000 cases this quarter and nearly 2/3 of those were parent-child trios capturing mom and dad as comparator samples. That means this quarter alone, we actually sequenced more than 55,000 individuals. The scale of the data is fundamental. It takes at least 2 children with the same gene variation to validate a diagnosis for both kids and the greatest chance of finding another child with fewer child variant is within GeneDx Infinity. Every patient enriches Infinity's data density, creating the flywheel effect and rapidly making it more difficult for competitors to catch up to our quality, speed and accuracy across diverse populations. As we're accelerating, this year alone, we are projected to add 30% more rare disease exomes and genomes into Infinity than in the previous 24 years combined. Tapping into Infinity is our brilliant team of more than 100 MDs and PhDs and 150 genetic counselors who transform Infinity into clear trusted answers that clinicians can act on with confidence. We are also applying AI tools like our ML-powered GeneRanker Multiscore on top of GeneDx Infinity to harness the power of our data, scale our platform and increase speed and turnaround time. We already deliver answers in as soon as 48 hours in critical care settings like the NICU. But by expanding AI across our system, there's potential to turn our ultrarapid turnaround time into standard of care in every setting. Infinity, our team and our technology have helped us build a best-in-class genome, and we continue to raise the bar. We are constantly enriching our product with new genomic technologies, including medium and long-read sequencing and adding multimodal analysis beyond DNA. Partners come to GeneDx looking to validate emerging technologies and pioneer modalities that will forever change how we diagnose disease, thus creating a virtuous cycle of innovation that not only future-proofs our product leadership, but enhances our ability to serve more patients with speed, accuracy and scale over time. As showcased in the science we delivered at the ASHG conference, these programs generate data that compounds upon our massive library of more than 1,000 peer-reviewed publications, further exemplifying GeneDx position at the forefront of genomic innovation. In parallel, we are radically simplifying genomics to enable broad adoption in everyday medicine. GeneDx is the #1 genetic testing brand amongst pediatric providers, and we are evolving our customer experience to extend that lead. On average, general pediatricians have only 10 minutes with the patient. So we need to meet them where they are with 1 minute ordering and best-in-class customer experience. Catalyzed by the American Academy of Pediatrics clinical report in June, we are simplifying ordering and result interpretation for clinicians while enriching the patient and family experience. We are already still testing many of these customer experience innovations and are positioned for broader rollout in 2026 and beyond. With that, I'll hand it back to Katherine.

Thank you so much, Bryan. We talk about being a fast growth business and volumes because each one of those samples represents a family that is desperate for an accurate diagnosis. So we act with urgency and purpose because those patients and families are counting on us. There are incredible opportunities ahead as we continue the broader paradigm shift already underway across health care, supported by GeneDx Infinity, and strengthened by our network of partners. GeneDx is leading the shift to proactive personalized care that begins at first, unlocking earlier diagnoses, faster breakthroughs and healthier lives for all, and we're very proud of the work we do each and every day. So thank you. With that, I'd love to open up the line for your questions.

[Operator Instructions]. And our first question for today will come from the line of Subbu Nambi of Guggenheim.

With emphasis at AAP for clinicians to take a stepwise approach to ordering beginning with chromosomal microarray, have you seen an uptick in volume there? And if so, how does that change your strategy, if at all, to sunset some of these legacy products?

Absolutely. Thanks, Subbu. As I mentioned in the script, most pediatricians are hearing about the guidelines update for the first time from us. So whether it is at AAP or as we're starting to engage with pediatricians on education, they're hearing about it from us. So I think that underscores the massive need for education and why it reaffirms our view that it will take 18 to 24 months beyond education, it's also going to require workflow. So I would say what we saw in the quarter was the vast majority of growth coming from our core, which is great. And no meaningful uptake in terms of orders from pediatricians from CMA and no notable changes on CMA or orders from general peds. But really good engagement. I would say the research that we've done with pediatricians is affirming how important our opportunity is. And it's not if they're going to order an exome or a genome, it's how they're going to order it. And is it going to be through an improved ordering process that we're building that Bryan talked about. So one minute ordering, we think, is an awesome improvement for us as we think about 2026. Doctors are consumers, too. And so they're used to fast efficient ordering. And Epic Aura is also going to be a great way. So I would say that the feedback that we're getting from the engagement that we're having with pediatricians is really positive about the fact that they are going to order testing and want to order it from us. I think the FDA designation only further reinforces why they should order from us. Infinity is another reason why they're going to order from us in terms of accuracy. So it's not -- if they're going to order, it's how, and we feel really confident it will be from GeneDx.

Kevin, this one is for you. The guide implies ASPs to go down sequentially. Is that just conservatism? Or are there any seasonal dynamics to call out? Even the margin guide implies COGS to increase sequentially? Any color you could provide. And then just a cleanup, the true-ups for 3Q '24, in this print, it says $2.2 million, but in the Q, it had said $6.3 million, if I remember it right. So just help us out here, please.

Yes. And by the way, in case I misspoke in my prepared remarks, the third quarter average reimbursement rate was over $3,800 and so representative of a lot of strength in the third quarter and continually reducing denials. So really pleased with that third quarter result over $3,800. Yes, the guide would imply that potentially the rate could bounce, bounce around some in the magnitude of about $100 down in the fourth quarter. That's really just part of that inherent expectation as we continue to open up new call points, target indication expansion there may be some experience on the outset where rates are artificially lower to start, and we have to build up some experience and show that demand to payers. And so the guide builds in some conservatism in that regard just to level set. And then in terms of true-ups throughout the year, the third quarter, nothing to call out, very minimal impact in terms of out-of-period adjustments in the third quarter. So that rate of over $3,800 is representative of what we think the third quarter activity will produce. And historically, we've averaged a couple of million dollars of those true-ups each quarter, but nothing that I would call out as extraordinary or onetime.

And Kevin, it was a pretty good margin as well this quarter. So is there any reason for us to believe that it should not be sustainable?

No. Look, we raised the guide again in terms of gross margin. And so I just wanted to leave some room there should we see some of those reimbursement rates bounce around some in the fourth quarter. So a little bit of a function of raising the guide, but keeping a bit of a conservative stance.

And our next question will be coming from the line of Dan Brennan of TD Cowen.

Maybe the first one, Kevin and Katherine, can you just speak to the NICU? I know you discussed, Katherine, in your prepared remarks, you guys are on track for the number of NICUs that are be enabled with EMR. But just kind of what did you see in Q3? How do we think about implicit in the volume guide for 4Q, what the NICU contribution is? And any color on just kind of what some of the early traction and kind of feedback has been?

Yes, I'll start, and then we'll pass it over to Kevin. So the NICU, as I said, remains a really important opportunity. It is shocking to people when you say fewer than 5% of babies in the NICU get a genetic test. We have the clinical data. We've got the health economic data. We have the calculator that can convince the CFO that this is going to be good for their business. Hospitals are running businesses as well. And we have Epic Aura. We're continuing to see growth in that sector. And in fact, that it's a fast-growing part of our business. We're seeing meaningful growth in terms of same-store sales on the NICU side of things. So we definitely see it as an important contributor to our overall goal of getting an earlier possible diagnosis. And what we're also learning is that some clinicians like our portal. And so we're on track to continue to drive Epic Aura. We'll have at least 12 systems activated by the end of this year. We're seeing kind of the full test menu being ordered, which is fantastic. So we think Epic Aura continues to be a meaningful unlock for new clinicians who are working with us. And so we're going to continue to drive utilization of Epic Aura at the health system level in order to impact both outpatient and inpatient.

Yes. I mean through the third quarter and to date, volumes from the NICU are growing nicely. It's one of our fastest-growing channels, albeit from a much smaller pace. But percentage-wise, it's growing nicely. Throughout the year, we've been tracking looking to bring in an incremental 2,000 units or so in the second half of the year with most of those coming in the fourth quarter. We're going to run through the tape as much as we can through the fourth quarter. Whether or not we hit that number exact or not, more than confident that outpatient volumes will supplement and more than make up for that. I think most importantly, we're seeing growth. We're engaging with health system administrators and our thesis that the NICU market is very compelling and part of our growth story in the years to come remains very much intact.

Maybe just on the quarter itself. I mean the quarter came in better than expected. I know in past quarters, you've given some color about same-store sales growth, maybe some new indications. I know you discussed in the prepared remarks also new doctors. Just any way to frame kind of what's happening with their volumes and how that might inform kind of the implied guide for the fourth quarter with those building blocks?

The strength really driven by those core outpatient markets, continued nice step-up from even that innermost core of Expert Geneticist. So we are seeing strong signals of the continued evolution of those docs putting down single-gene tests and multi-gene panels in place of exome and genome, and we'd expect that to continue for several more quarters or years to come. So in terms of same-store sales rates at Expert Geneticist continue to see nice uptake there. And then ped neuros good account activation. We're now at a point where just over 1/3 of all ped neuros are ordering their exome and genome from us. Not all of those are mature yet in their ramp cycle. And so good growth to come from docs we've already activated. But I think what's more exciting to us in the coming quarters is just the green space to activate more docs there. The messaging we have for how we can serve that cohort, in particular, is really resonating. And so the next couple of quarters, we'll continue to see growth rates pretty similar to what we just produced from ped neuro and geneticist. And of course, what we remain most excited about is activating even more call points in the coming quarters.

And then maybe just one final follow-up. I heard you mention on the cost side. I'd love to get a little more color on kind of OpEx. I think you said the third quarter OpEx number is a good number. Maybe you can just elaborate a little bit on the OpEx spending from here. And I think you said it's going to open up growth by mid-'26. So is that when we're expecting to see a bit of like some pediatrician volume show up? So maybe just clarify the OpEx outlook and kind of and the pediatrician call point and the impact there.

Yes. We've begun to build out the commercial team that, of course, includes building a dedicated general pediatrician sales team. I think we remain anchored on that initial expectation we set of about 18 to 24 months from the time those AAP guidelines dropped in June to when we would see sort of escape velocity on incoming volume. That said, we're engaging with the pediatrician community as we speak. We attended their conference in September. And all of that has validated our thesis that the market will be real and that there will be demand out there, but we've got to build some of the tools and medical education. And so we'll, of course, be carrying some incremental commercial costs as we go through that education period. And so that's part of the step-up there. And if we look at overall R&D spend, we continue to rev our genomic assays and technology to keep the best-in-class product in the field and build out that customer experience for nonexperts because we continue to see strong ROI opportunities and pulling through volume from even more physician types out there. So the level of step-up from Q2 to Q3, you might expect something similar into the fourth quarter from Q3 to Q4, but all within an eye towards keeping the business profitable. We maintain our commitment to keep the business in the [ black ] there, so that we can continue to reinvest back into achieving industry-leading growth rates.

And our next question will be coming from the line of Mark Massaro of BTIG.

Congrats on the strong quarter. I wanted to start, you guys indicated, if I heard correctly, that you plan to double the size of your sales force over the coming quarters. Just looking at your website, it looks like there's over 80 job openings and over 35 to 40 in general pediatrics. Can you just give us a sense for how quickly you plan to onboard these folks? I think you indicated that you've added the first few reps. But can you just give us a sense of how large of a team this might look like, say, maybe 2 years from now?

Sure. So we have started hiring our regional sales directors. So the leaders who are coming in and who are starting to form their teams. Frankly, there's just really good talent available to us on the market right now, and we wanted to make sure that we're hiring the best of the best. And I'm thrilled to see the talent that's coming in at the RSD level. So we expect that we're going to be -- as the regional sales directors get assembled, we want to make sure that they are discerning and recruiting the best. So I expect over the next several quarters, we'll get them up to in their seats and activated. And then, of course, it requires training and ensuring that they have their merchant orders in the field. So we've said about double the size of the sales force today. And so we'll be opportunistic and continue to hire over the next several quarters. Our goal is to accelerate that adoption framework. We said 18 to 24 months. We still think that, that's accurate. But of course, we're going to push to see if we can pull that in as much as we can and all centers around that North Star of earliest possible diagnosis for as many families as possible. So we're hiring. I think looking at 2 years from now, could we grow beyond that? Possibly, but we first need to see. I'd like to get this team assembled. I'd like to have them activated. We want to get the features up and running in terms of the workflow. We know it's going to require more education, more medical affairs education. So we have a lot of work to do. So I wouldn't want to commit to building the team beyond what we've built or beyond what we're hiring for today because I think that's a really healthy investment in forward leaning growth. So hopefully, that gives you a sense of how we're thinking about it.

Yes, that's great. And I wanted to ask, congrats on all the progress on the newborn side with the Florida Sunshine Genetics Act, the BEACONS NIH award and the ongoing GUARDIAN study. Recognizing this is a ways away in terms of recognizing, I would say, perhaps clinical revenue. But can you give us a sense for whether or not you think that this could be more of a near-term driver as it relates to driving clinical adoption. So I guess what I'm asking is in -- like first half of '26, would you expect to drive any clinical testing in genetic newborn screening? Or would this all be basically precursor work to create the evidence for this in the out years?

Yes. So thank you for recognizing that we have been central to all of these studies. And these have all been competitive processes. And we have put our best foot forward with each of them. I think the reason why we continue to be selected is because we've done more of this than anyone in the United States. And now with Fabric, it certainly extends our opportunity to be able to do it in a standardized way regardless of if a baby is born in Los Angeles or London. Every child deserves results that are coming from the same data set, which is Infinity. So we think that we've got a massive opportunity to be able to really lead this new era of genomic medicine. Just to give you a little bit of color on each of these programs. So obviously, with GUARDIAN, it established, I think, a responsible ethical foundation for why you can do newborn screening in a way that is going to be something that parents have demand for, 70% of parents enrolled and to be able to deliver clinically actionable information, more than 3% of babies had a clinically actionable finding. With BEACONS, which is an NIH grant, that is looking at a federal approach to how do we operationalize it. And so we're going to be gaining more and more information on how to do this in a more standardized way across multiple states. So there's inherent goodness, I think, in that. And then, of course, Sunshine really takes it out of a research setting and into the clinic. So each one of those has an important -- is playing an important role in how we get to a place where we can drive clinical samples and start getting paid for them, which is ultimately what we want to accelerate. I would say the one piece that we have yet to deliver on, but that we are working on with the various groups that are overseeing the steering committees of these programs is the health economics. We think that's going to be a critically important part of how we can actually start getting paid for it. But as we talk to state Medicaid, we're talking about outpatient health economics. We're talking about inpatient health economics, and we're talking about newborn screening and why they need to start paying attention to it. So I think Florida gives us the first opportunity to say that there is a state that has a progressive approach to genomics and child health. And we want to continue to drive kind of the competition across these other states in order to start getting paid for it. We don't anticipate that, that's going to be a '26 driver in terms of revenue. But we'd like to see how we can continue to accelerate some of these policies to get paid as soon as possible.

Yes. I think the base plan, Mark, not counting on anything material in '26, and we'll have further updates throughout 2026 and what that means to 2027 and beyond. But certainly, the momentum would say that beginning in '27 and beyond, we may start to see some nice contribution there.

Okay. Fantastic. And then if I can ask one more. I am curious about the FDA path Nice to see breakthrough device designation come in from the agency. Can you give us a sense for timing here? Are you expecting to have to run any more clinical trial work or samples to prove the evidence to obtain the approval? And I recognize that some clinicians sort of like the stamp of approval from the agency, but there could potentially be pricing or ADLT implications here. So can you just maybe walk us through the rationale to pursue FDA approval?

Sure. I'll kick it off and then I'll hand over to Bryan, who's been leading the charge here. So part of the rationale as we think about the future market, I think a couple of things. One, your point about, yes, clinicians do respond to FDA and FDA-approved, FDA authorized and see it as a sign of validation. And pediatricians who are really busy looking at everything under the sun, we know that they also respond to FDA approved FDA authorized. So we think that there's a really important message to be delivered to accelerate that market. I think part of what's interesting, and this is different than in the oncology space. And as we think about the importance of FDA, in rare diseases, we're trying to open up access and open up more diagnoses, not limit them. So we don't see a real restriction coming through this designation. But I'll let Bryan comment some more on what the next steps are and how the path will look moving forward.

Thanks, Katherine. Mark, so the breakthrough designation is really important because what it actually shows us signals is that our test is unique. The power of our Infinity database is also unique. And it shows that what we're doing today is actually helping critical patients to make decisions that there's nothing else out there to help them with today. And that's what breakthrough designation says from the FDA's recognition. It also is letting us know that FDA is working side-by-side with us in an accelerated regulatory framework to get this critical technology through the agency and to as many people around the U.S. and globally because FDA is also recognized by many markets around the U.S. as we expand ex-U.S. as well. But the nice thing I would also say is not only expedited regulatory review. We are also working by the fact that we've been around for 25 years. Our process, our test is not changing. And what we're doing is we're working with FDA to understand our legacy data and all the power of our database and how it informs the accuracy that we've already been bringing to patients. It's not a new test. It's a test that we've done for many years that we lead in that place. And so I wouldn't look at this at all as limiting access or limiting reimbursement or limiting the actual diseases that we're answering today. It will just be a partnership to accelerate the regulatory review and give that stamp of FDA approval that pediatricians look for in their medications, and they look for that in their diagnostic test as well.

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

I want to go back to the OpEx questions. I know you've had a few already. I appreciate the color on the sales hires. I guess, Kevin, maybe help us think about the ROI on some of the buckets that you flagged. And I'd love to hear a little bit more color beyond the sales hires, you talked about the first brand campaign, international product and technology investments. Maybe could you bucket those for us how meaningful they are?

Yes. In many ways, it's like choosing between your children. They're all really important to create a bit of the virtuous cycle to make us more attractive and more sticky with more and more physician types out there. And so the commercial expansion should be viewed as our confidence in the long-term market well beyond the existing physician types that we have today. We have about 3 call points today, at least primarily ped neuro, geneticist and then the NICU. You can see that expanding well beyond a dozen towards 20 over time as you slice different physician types. The largest is the general pediatrician, the 60,000 pediatricians in the U.S. There's about 25,000 of those who are ordering diagnostic tests for developmental intellectual delay, which is covered by the umbrella of those AAP guidelines. And so that's a lot of doors to knock on, and we intend to do so, bringing the best available experience to those nonexperts. As Bryan talked about, those are really busy physicians without a lot of face time. And so it's important that we build the experience, both on the front end to honor their time, but also on the back end to make them feel comfort in providing what oftentimes is devastating diagnosis to families. And so GeneDx is one of the largest employers of geneticists and genetic counselors in the country, if not the world. And so part of the long-term road map is to force multiply those resources with technology, so that nonexperts are comfortable in providing care to patients in the back end of a diagnostic result. All of those, we think, important to capture a leading market share. Today, we hold about an 80% market share of all clinical exome and genome run in the United States, whether we hold 80% or give up a few hundred basis points here or there over the next decade, we'll see, but we intend to hold a majority market share in much larger markets to come. And we think now is the time to make some of those investments.

The only thing I would add, Tycho, 2 things. One, whatever we're putting a sales rep out there, we first are following the patients, and we're also following reimbursement. So we're not going to put a rep in a territory, whether it's in the U.S. or in a region outside the U.S. unless there's ample patients for us to help and a healthy path to reimbursement. So those have been like our core principles that I think are unique to GeneDx's business model that we're committed to. Second, on the brand campaign, we are continuing to drive awareness of GeneDx because part of the problem is geneticists have known GeneDx, 8 out of 10 geneticists know us. We need to continue to raise awareness amongst general clinicians as well as parents. So parents know to ask for this testing that the technology exists today is paid for today by insurance companies and that we can get them an answer in a short period of time. So we've got a strong effort there that is only being amplified by the addition of Lisa Gurry, who was at Microsoft running marketing across different business units amongst other roles for about 25 years, and she was at Truveta as well. So she's going to help us also really amplify how we communicate the message, both to clinicians and to patients as well.

Okay. Okay. Maybe a follow-up along those lines. I guess, CapEx is also up 3x over last year. I guess, Kevin, anything to flag there? Is that the core Maryland facility? Is it fabrics? How should we think about CapEx here?

It's primarily all pulling forward some additional sequencers as we scale. Obviously, the business, we think, has achieved great economies of scale such that we're able to exponentially grow volumes without matching adding resources one for one. But as we grow, we're going to have to add more to the sequencer line. And so what you see in the third quarter, by and large, is really just some sequencer technology to keep pace with the volume. The facility itself has plenty of room in it. And yes, we're still operating the core laboratory down in Gaithersburg, Maryland. Very little from the fabric side.

Okay. And then maybe just shifting to denial rates. Can you give us a sense of where you ended the quarter? I understand your ASP commentary for the fourth quarter, but how are you thinking about denial rates and how much leverage you will have maybe first half of '26?

It's mid- to high 50% collection rate, picked up a nice basis point or 2 on that with the rate in the $3,800, really pleased with the progress of the team. I think what's most exciting is if you look at that Medicaid population in the 36 or 35 states up until next week, the 35 states with coverage outpatient, we're seeing a really high payment rate of about 80% fairly consistently, pretty clear rules to follow. And not some of the nonmedical denials that we see over the commercial insurers. But the aggregate rate have picked up some towards the high 50s in terms of collection rate.

Okay. Last point, Katherine, can we get an update on how some of the earlier launches this year have tracked cerebral palsy, IEI, et cetera?

Yes. So I think as we have continued to roll out additional new indications, and again, there's 10,000 rare diseases. So we're just going to be routinely cranking out new indications over time. I think that's part of the reason why we're seeing the strong growth. It's contributing. A lot of the symptoms are overlapping. So you might have a rep who is talking about symptoms associated with epilepsy and it turns out it's cerebral palsy. You might have a rep going in talking about cerebral palsy and it turns out that it's epilepsy. Some of these -- there are dual diagnoses. So there are very -- the new indications are certainly contributing to our growth. And I think it just speaks to the vast underutilization of testing for so many of these kids. So we'll continue to have kind of rolling indications launch. This is a core part of the way that we operate the business.

And our next question will be coming from the line of David Westenberg of Piper Sandler.

I apologize if I asked something I've been jumping between calls. Can you give us an incremental -- a sense for the incremental revenue opportunity with the expansion of Medi-Cal and what the strategy is for securing the remaining 14 states? And how should we think about timing there? And I'll just have one more.

Yes. Look, with California being the most densely populated state, certainly a nice win. The probably next largest to come would be Massachusetts. So really exciting to see California come online next week in a couple of days. Today, a couple of thousand tests that would have run through as zeros that now we might expect to get paid for. Obviously, we have to build up some history and experience to see that. And of course, with coverage now, a more focused effort to calibrate and pull more volumes through the state. So excited about a larger opportunity ahead beyond the existing volume that we have. And then the second part of your question, Dave.

Strategy is for other states to come online from Medicare. So we've got a fantastic market access team that we only continue to bolster. We now have an East and West government affairs leader. And so they're continuing to put good data, great guidelines, health economics data in front of the state-by-state Medicaid officers. And we work with local clinicians, local parent advocates. So it's -- I would say it's a well-oiled machine, but it's within their control, not ours. So we're just getting playbook. We know they respond well, particularly to the health economic data. The reality is we are paying for these children and the absence of accurate diagnosis one way or another using our testing upfront is an opportunity to get to the right diagnosis sooner and save all of these payers. So that message is resonating. So we'll continue to drive that until we have every single state with inpatient, outpatient. And as I said earlier, then we move on a new work. So we've got our work cut out for us, but a very optimistic path ahead.

Sounds great. I just wanted to ask one longer-term question, and that is about pricing in the longer term. Now a lot of times you're billing for codes of exome and genome. Now saying that not all exomes and genomes are the same, and there's a constant need to integrate things like methylation, long reads, skillful informatics. Do you think that payers understand that constant innovation is necessary to enhance diagnostic yields and you're able to retain pricing over the long term? And consequently to that, when you're thinking about new competitors coming in, do you feel like the constant need for improving the test does maintain pricing long term because you will be constantly needing to enhance the assays?

Yes. Thank you, Dave. And I ask Bryan and Kevin to tag in this because I think it speaks to, one, what we're doing today beyond short read, but two, also why Infinity and that data set sets us apart from others.

Yes. Thanks, Katherine. So on the technology front, it's really our job to continue to innovate and fund that innovation to bring the best answers to patients every day. We already have seen that with the indication expansions as we move more and more people off of panels and into genome and exome, which is what's driving the growth that we've been seeing and will continue to drive a lot of that growth. And that takes new technologies, technologies around medium and long-read sequencing, multimodal technologies that we discussed. But what's great is that the scale of our operations that we continue to scale, we are actually able to be driving down cost of goods as we bring in more and more innovations. And so you're not seeing an increase in COGS as the innovations roll out into production. You're actually seeing COGS continue to come down with those innovations with higher diagnostic yield. And really only GeneDx with our scale can deliver that quality. I'll hand it over to Kevin to talk about the reimbursement.

Yes. Let's assume that's an issue with Dave's technology. To follow up with Bryan's comments, look, it's upon us to prove the value proposition of all of our services to payers. And so we're hard at work doing so. We've always viewed the long-term durability of our rates at that average reimbursement or cash collection rate. Potentially, over time, you might see the billable rate come down, but we're still facing a dynamic today where we just produced $3,800 a test despite having a denial rate in the mid-40s. And we absolutely think that we can improve upon that in a meaningful way. And so continue to believe that, that average collection rate will be at or higher than today's levels for the foreseeable future over time.

The next question will be coming from the line of Bill Bonello of Craig-Hallum.

No, I was kind of interested in hearing where David was going to go with that conversation. So virtually everything interesting and noninteresting has already been asked. I just want to clarify one thing on the margin front with the incremental investments that you obviously need to make drive growth, drive these new opportunities. Is the thinking right now that you would at least try and sort of maintain the level of EBITDA margin where you are at? Or should we think about this more as in the interim, we may see EBITDA margin drop down a little bit as you set up for a future where it could be significantly better?

Yes. Certainly all within the framework and design of a future where it's significantly better. But we're entering an investment cycle here. Not every quarter will be different, and we'll have more to say about 2026 at our Q4 call. So -- but may see that EBITDA margin come down some, in some of these quarters as we ramp up investments and then wait to see those investments mature in terms of top line contribution. I read through the commitment as keeping it in the black and positive, but not necessarily at these levels. But certainly, we think the business model has proven the ability to accrete EPS upwards, and there will be a time and place when we focus back on doing that. But for now, there's such a large opportunity ahead. We think it's important we make some of these investments to take advantage of that.

Okay. That's helpful. And then just the second thing, as I talk to people, there always seems to be some skepticism about the 18 to 24 months and to avoid the possibility that people get sort of overly exuberant here. Can you maybe just talk through in a little bit more detail some of the steps that need to be completed before you can really see a meaningful ramp in the general pediatrician market. You talked about the sales force, obviously, has to be recruited and trained, but you also mentioned some things that you want to do with the ordering platform and the results delivery platform. What -- maybe you can tell us a little bit more about that and just other -- some of the other basic nuts and bolts kind of work that is required to expand into a totally new segment of the market.

Yes. Thank you for that, Bill. So education is key. As I said, most of these pediatricians are learning about the guidelines update from us. We need to make it relevant for them. They're seeing a whole host of symptoms and issues coming into their clinic. And we have to do a lot to dispel some of the myths related to genomics. They think that it's going to take a long time. It's going to be confusing to understand. It's going to be hard to order that a geneticist should be the one ordering it. And when we come in and we explain to them that it is covered by insurance, we can turn around their sample within a few weeks, and we're going to provide a simplified report. It changes the way that they're thinking about things. So I would say education is key to kind of setting the record straight about what we can and cannot do. Also educating them, there's still -- there could be 12 to 24 months to begin to see a geneticist. So they may say that they would like to send a patient to a geneticist. But if you say, well, if that delays a diagnosis by 12 to 24 months, then they don't want to see that happen. They want to activate in that moment. So we're getting a lot of good, I would say, market research feedback that affirms the need to continue to educate. So education is one. Coming out of that, too, yes, we talked about workflow. Their time is precious. And so how do we take our ordering platform today and bring it to what Bryan said was a 1-minute ordering approach. So we're building that capability as well as other ways to ensure that we can unburden the pediatrician from some of the administrative work that they may have to do. So workflow is another key investment market access and ensuring that our market access team is delivering a dossier with these updated guidelines is going to be critically important. So they've started doing that. So that's the third piece. And then fourth is the sales rep and the sales rep going in and doing a lot of the kind of hand-to-hand combat in terms of education. But that's part of the reason why we're investing now. We would love to see an acceleration of that 18 to 24 months, but we know that there's a lot of work that we have to deliver on to educate and to smooth things out and make it easier for these clinicians to order.

Yes. Look, if the skepticism is that we'll beat the time frame we set out, I guess I'd characterize that as a high-quality problem. Will it be more than 0 in 2026? It will be more than 0 in 2026 in general pediatricians. But -- we want to make sure we're approaching the market in a responsible way that really sets the stage for the company's growth over the next half a decade to decade. And you only get one good first impression, and we intend to make that.

Yes. That makes a ton of sense. And one last question just along that line, and you just may not care to answer this at this point. But in some of the areas where we've been seeing companies reach out to primary care physician markets, which obviously a lot larger, but not a ton different than the conceptually than reaching out to the pediatric market. We've seen companies with specialized tests partner with some of the larger lab companies with broad menus to make ordering of testing a little bit easier, even results delivery a little bit easier. Is that something you would consider?

Look, we're always thinking about new channels and ways to help more patients. So I wouldn't say no, we would not consider that if there's an opportunity for us to drive our business forward, help more families. Certainly, in our experience, we haven't seen that work because it tends to not be the highest priority on the part of the partner. But certainly, we would be open to it. So for now, our plan is to make sure that we can drive as much of the business forward as we can in service of more patients. So we're placing a bet on what we know works, which is our team.

I'd also add that we've been around for 25 years and pediatricians have seen their patients who they stay with for 18 years, these kids come back to them with our reports. And when we did market research to look at what was the brand that they thought of when it came to genetics, GeneDx was the #1 brand over all other testing companies, even the ones that they use every day for other tests. And so I think with that recognition and with the understanding that our test is #1 in the space, it makes sense for us to continue with the models that we're exploring.

Yes, makes a ton of sense.

And the next question will come from the line of Kyle Mikson of Canaccord.

Congrats on the quarter. So Kevin, on the Medi-Cal impact, California is obviously large. It's densely populated, as you said. How significant of an ASP and gross margin headwind is that going to be? And then how long will that dynamic take to stabilize and then approach the higher kind of core ASP and gross margin?

Yes. Look, we're excited that Medi-Cal news, of course, will further bolster the reimbursement environment here. So it's certainly positive. So consider it a tailwind. Those are tests, at least the existing volume or tests that we're running and taking zeros on today. And starting next week, we'd expect to get paid for that volume. The couple of thousand tests, I think, would understate the long-term opportunity with now Medicaid coverage in hand, it's certainly a nice talking point for our commercial team to get out there, spread that work and begin to pull in even more volumes. We're serving all 50 states, but at various levels. And so in those states where there's good reimbursement coverage, that's where we tend to amplify sales resources to pull in more volume, and we certainly plan on doing so moving forward.

Just to clarify, so payment collection rate would go from 0 to like 80% overnight, you're kind of saying in United States?

Yes Yes. Still waiting on the ultimate price from the Medicaid administrator, but we expect it to be in line with other states that have gone live with coverage.

Okay. Sounds good. And then Katherine, on the longer-term kind of data business, Infinity AI and Multiscore, you're kind of emphasizing that recently. Could you just contextualize the competitive moat that provides and what the future kind of holds there? And then I think a follow-up to Dave's question, how critical is the longer-range sequencing data going to be to advance that asset, specifically the medium-range kind of sequencing from Roche or longer read with PacBio, et cetera?

Yes. Let me take that 2 parts. First is the Infinity database that you just were mentioning. As I mentioned in my earlier comments, the power of that database is the fact that it's a massive reservoir of variants that we have seen in patients that have yet to be validated by a second patient. But every day, with the volume that we're having, we're validating more and more and growing that database over time. And so the AI tools that we put on top our machine learning, multiscore, it really just improves the accuracy, the speed and the efficiency that our clinical experts can go through and find those diagnosis. It gives us the highest accuracy in that space. But as you're also mentioning, those same AI tools become value add to our partners like pharma, employers and others as they go out and look at the Infinity database, look at the data that it sees and really starts to actually open up the ability to have more and more drug targets, more therapies and bring more solutions to these children with these devastating diagnoses over time. And so we really see that those AI approach is expanding into our pharma and our other partnerships around the globe. As far as our technology, the genome needs -- has some gaps in it. There's some difficult to sequence regions that we know about, which is why there are still some panels that people will order, every time that we bring in a medium read or a long read or other type of technologies, it really starts to improve the diagnostic yield for some of these other conditions, which again converts more and more folks off of panels and into the exome and genome as the best answer for all patients. And we are continuing to add more and more of these technologies for the right patients with the right phenotype.

And the next question is coming from the line of Keith Hinton of Freedom Capital Markets.

Just 2 quick ones. First one on the ExGen volumes. Just based on the volume split for second half of '25 that you talked about on the second quarter call, it seems like volume in the quarter slightly exceeded your internal expectations. So just can you talk a little bit about where you outperformed versus your internal expectations and maybe why you decided to leave the full year guide unchanged despite the beat?

Yes, we saw good momentum through the third quarter with accelerating volumes each month of the quarter. And so wrapped up September sort of as expected with the high point of the quarter and momentum has continued nicely. The outperformance mostly coming in the -- or primarily coming in the outpatient side of the business. Really forming that ped neuro call point. So most of the outperformance there coming from that physician type, and we continue to see a lot of space to go activate more ped neuros and bring in more volume. Overall, really pleased with the third quarter performance.

Okay. Great. And then just one more question about the launch in general pediatricians, just less so about the sales force and more talking about any kind of buildup you need to do on the back end in terms of adding additional billing and revenue cycle folks to make sure the ASP doesn't drop too much, DTC spending, the parents, anything like that? Can you talk through how we should be thinking about the magnitude there? And also, is there any concern that there could be a bottleneck around genetic counseling for those patients that do have variants that come back that they need to better understand?

Part of those investments, as you rightly pointed out, are to ensure that there is no bottleneck in terms of genetic counseling resources or other support for nonexperts, both at the front end or back end of the process and translating those results to patients. And so those are core to the experience design changes that we'll be investing in. If you look at the expense ramp from Q2 to Q3, as I called out, from Q3 to Q4, I expect something in the same order of magnitude. And we'll have more to say as we frame out 2026. But again, would expect that there's ample gross margin to cover those reinvestments back in the business such that we'll keep the business profitable on an adjusted basis.

Thank you. This does conclude today's Q&A session. I would now like to turn the call back over to Katherine Stueland for closing remarks. Please go ahead.

Wonderful. Well, on behalf of all the families who we serve, our customers and all of the employees at GeneDx, I just want to say thank you to our shareholders for continuing to support our long-term growth and changing health care for the better. So thank you all, and we look forward to seeing you soon over the coming days and weeks. Take care.