Q4 2023 CareDx Inc Earnings Call

Operator: Greetings and welcome to CareDx's fourth quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Greetings and welcome to the care Dx, Inc. Fourth quarter 2023 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone key.

Pat as a reminder, this conference is being recorded it is now my pleasure to introduce your host Greg Heart attack manager managing director of Investor Relations. Thank you. Sir you may begin good afternoon, and thank you for joining us today earlier today <unk> released financial results for the quarter and full year ended December 31.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Greg Chodaczek, Managing Director of Investor Relations. Thank you, sir.

Gregory Peter Chodaczek: You may begin. Good afternoon, and thank you for joining us today. Earlier today, CareDx released financial results for the quarter and full year ended December 31st, 2020. The release is currently available on the company's website at www.caredx.com. Joining the call today is Alex Johnson, president of CareDx's patient and testing services; Abhishek Jain, chief financial officer; and Robert Woodward, chief scientific officer. Also joining the call today is Michael Goldberg, Chairman of the Board. Before we get started, I would like to remind everyone that management will be making statements during this call that are forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

2023.

Gregory Peter Chodaczek: Release is currently available on the company's website at Www Dot <unk> dot com joining.

Gregory Peter Chodaczek: Joining the call today is Alex Johnson President of carried excess patient testing services Officer Jane.

Gregory Peter Chodaczek: <unk> financial Officer, and Robert Woodward, Chief Scientific Officer.

Gregory Peter Chodaczek: Also joining the call today is Michael Goldberg Chairman of the board.

Speaker Change: Before we get started I would like to remind everyone that management will be making statements. During this call that include forward looking statements within the meaning of the federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 995.

Gregory Peter Chodaczek: Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, our examination of historic operating trends and expectations regarding coverage decisions, pricing, and enrollment matters, and our financial expectations and results, are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or applied by these forward-looking statements. Accordingly, you should not place undue reliance on these dates.

Speaker Change: Any statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements.

Speaker Change: All forward looking statements, including without limitation, our examination of historic operation operating trends expectations regarding coverage decisions pricing and enrollment matters and our financial expectations and results are based upon current estimates and various assumptions.

Speaker Change: These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward looking statements.

Speaker Change: Accordingly, you should not place undue reliance on these statements.

Gregory Peter Chodaczek: For a list and description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. The information provided in this conference call relates only to the live broadcast today, February 28, 2021. CareDx disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections, or other forward-looking statements, whether because of new information, future events, or otherwise. This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles.

Speaker Change: For a list and description of the risks and uncertainties associated with our business. Please see our filings with the Securities and Exchange Commission.

Speaker Change: The information provided in this conference call speaks only to the live broadcast today February 28 2024.

Speaker Change: <unk> disclaims any intention or obligation that's.

Speaker Change: As required by law to update or revise any information financial projections or other forward looking statements.

Speaker Change: Whether because of new information future events or otherwise.

Speaker Change: This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles.

Reconciliations to the most directly comparable GAAP financial measure maybe found in today's earnings release with the SEC.

Speaker Change: I will now turn the call to Alex.

Alexander L. Johnson: Thank you Greg Good afternoon, everyone and welcome to <unk> fourth quarter and full year 2023 earnings conference call.

Unknown Executive: Reconciliation to the most directly comparable gap financial measure may be found in today's earnings release with the FEC. I will now turn the call over to, Thank you, Greg. Good afternoon, everyone, and welcome to CareDx's fourth quarter and full year 2023 earnings conference call. CareDx ended 2023 in a solid growth and market leadership position after a challenging start to the year. Our team spent the last year addressing the complexities associated with the billing article, reconfiguring the company to adjust to the Medicare changes to coverage, and fighting to restore patient access to transplant innovation. Before we move into the details of the quarter and the year, let me step back for a moment and offer a bit of perspective. We are still in the early stages of a $6 billion market opportunity to provide healthcare for some of the highest-need patients in the U.S. healthcare system. Transplant patients in the U.S. are experiencing incrementally improved short-term outcomes but are still far away from having their newly transplanted kidney, heart, or lung last as long as it should.

Alexander L. Johnson: <unk> ended 2023, and a solid growth and market leadership position after a challenging start to the year.

Alexander L. Johnson: Our team spent the last year addressing the complexities associated with the billing article Reconfiguring of the company to adjust to the Medicare changes to coverage and fighting to restore patient access to transplant innovation.

Speaker Change: Before we move into the details of the quarter and the year, let me step back for a moment and offer a bit of perspective.

We are still in the early stages of a 6 billion dollar market opportunity to health care for some of the highest need patients in the U S health care system.

Speaker Change: Transplant patients in the U S are experiencing incrementally improve short term outcomes.

Speaker Change: So far away from having their newly transplanted kidney harder long last as long as it should.

Speaker Change: We continue to believe that effective care means truly understanding transplant patient management.

Speaker Change: And this requires focus from our entire team working closely with some of the world's best clinicians researchers and transplant centers.

Speaker Change: Our ability to successfully lead and execute in this growing market in the face of complexities associated with the billing article revisions is reflected in our results.

Speaker Change: Last year, we executed deliberately quickly and with high impact as demonstrated by our performance.

Speaker Change: We reduced our cost structure and stabilized our revenue base.

Speaker Change: Consistent with our pre announcement, we reported full year revenue of $280 million exceeding the high end of our updated guidance.

We have regained our growth footing and our testing services business with with patient test volumes up 4% quarter over quarter increase for the second sequential quarter in a row.

Speaker Change: We delivered about 40000 tests in the fourth quarter and patient testing services volume was approximately 165000 patient results for the full year.

Unknown Executive: We continue to believe that effective care means truly understanding transplant patient management, and this requires focus from our entire team working closely with some of the world's best clinicians, researchers, and transplant centers. Our ability to successfully lead and execute in this growing market in the face of complexities associated with the billing article revisions is reflected in our results. Last year, we executed deliberately, quickly, and with high impact, as demonstrated by our performance.

Speaker Change: We continue to make progress in driving our innovation into clinical practice.

Speaker Change: This year, we witnessed strong support from leading medical societies and for patients advocating for access to transplant molecular testing, including Alistair and Allomap underscoring the pivotal role our innovations play in improving transplant patient care.

Speaker Change: In 2023, two new Medicare coverage approval supported the clinical value and market opportunity of our innovation pipeline Alex here, along with our first donor derived cell free DNA approved for coverage by Medicare for lung transplant patients.

Speaker Change: And with the approval of heart care in August 2023, our clinical approach up multi modality testing was confirmed by CMS. This.

Speaker Change: This approval defines a reimbursement pathway for our differentiated product portfolio, one that can leverage our rich pipeline of innovation to help improve patient outcomes.

Unknown Executive: We reduced our cost structure and stabilized our revenue base. Consistent with our pre-announcement, we reported full-year revenue of $280 million, exceeding the high end of our updated guidance. We have regained our growth footing in our testing services business with patient test volumes up 4% quarter over quarter, an increase for the second sequential quarter in a row. We delivered about 40,000 tests in the fourth quarter, and our patient testing services volume was approximately 165,000 patient results for the full year.

Speaker Change: On the commercial payer side, we saw good progress.

Speaker Change: We ended the year with an additional 15 million covered lives.

Speaker Change: We expanded existing coverage for $31 5 million lives in our cardio thoracic business.

Speaker Change: Primarily by adding coverage in the first six months post transplant for Allomap heart.

Speaker Change: Looking at our other businesses, we are pleased with the double digit growth in both our patient and digital solutions and lab products business lives representing year over year growth of 29% and 15% respectively.

Speaker Change: Before moving on to 2024, I will touch on our recent patent litigation news.

Speaker Change: As we mentioned in our statement following a jury verdict in late January <unk> was assessed damages of approximately $96 million.

Speaker Change: We intend to seek judicial review of the jury decision and monetary damages, we expect it to be active briefing on this matter at least through Q3 2024, and the district Court.

Unknown Executive: We continue to make progress in driving our innovations into clinical practice. This year, we witnessed strong support from leading medical societies and from patients advocating for access to transplant molecular testing, including Alloshare and Allomab, underscoring the pivotal role our innovations play in improving transplant patient care. In 2023, two new Medicare coverage approvals supported the clinical value and market opportunity of our innovation pipeline. AlloShare Lung was the first donor-derived cell-free DNA approved for coverage by Medicare for lung transplant patients.

Speaker Change: The matter would then be subject to appeal to the federal circuit.

Speaker Change: Precise timing would be speculative, but we would expect any resolution of patent litigation be multiyear multi step process.

Looking forward to 2024.

Speaker Change: In our testing services business. The focus is on strategic profitable growth continuing to grow patient testing volumes and market penetration for allomap in allo, sure, while expanding reimbursement and coverage.

Speaker Change: There was a significant opportunity to gain coverage for non reimbursed tests.

Speaker Change: This year, we will continue to invest in multicenter purpose, driven studies to help secure additional reimbursement coverage.

Speaker Change: As mentioned last quarter K oar, our kidney allograft outcomes registry completed the last patient clinical visits and we are now finalizing our data collection and monitoring.

<unk> was designed to demonstrate the clinical utility of <unk> in a variety of outcomes.

Speaker Change: And we continue to expect a publication this year.

Unknown Executive: And with the approval of HeartCare in August 2023, our clinical approach of multimodality testing was confirmed by CMS. This approval defines a reimbursement pathway for our differentiated product portfolio, one that can leverage our rich pipeline of innovation to help improve patient outcomes. On the commercial payer side, we saw good progress. We ended the year with an additional 15 million covered lives.

Speaker Change: We also have other unique opportunities to publish evidence that can influence payer coverage policies by working with leading researchers.

Speaker Change: <unk> extensive experience with Alistair kidney.

Speaker Change: In heart, we anticipate an interim readout for our ongoing surveillance hard care outcomes registry or shore.

Speaker Change: The data from patient encounters in the early years of short have been collected and monitored.

Speaker Change: We're now working toward publication of an interim readout with the twin goals of supporting the utility of multi modality testing and our care coverage beyond year one.

Speaker Change: We expect publication in 2024.

Speaker Change: These studies are expected to generate the evidence that along with the build out of our revenue cycle management infrastructure, such as commercial payer coverage and billing appeals process will support an improved rate of reimbursement.

Unknown Executive: We expanded existing coverage for 31.5 million lives in our cardiothoracic business, primarily by adding coverage in the first six months post-transplant for ALIMAP hearts. Looking at our other businesses, we are pleased with double-digit growth in both our patient and digital solutions and lab products business lines, representing year-over-year growth of 29% and 15%, respectively. Before moving on to 2024, I will touch on our recent patent litigation news. As we mentioned in our statement following a jury verdict in late January, CareDx was assessed damages of approximately $96 million. We intend to seek judicial review of the jury decision and monetary damages. We expect there to be active briefing on this matter at least through Q3 2024 in the district court. The matter would then be subject to appeal to the Federal Circuit.

Speaker Change: In our patient and digital solutions business, we aim to further increase the adoption our portfolio offerings in 2024.

Speaker Change: Over 70% of transplant centers in the U S use one or more of our digital solutions.

Speaker Change: First shared last month, we have now started to rollout a new platform, which enables greater uptake of cardiac services.

Speaker Change: The platform called <unk> Pro is embedded within a transplant centers electronic medical record workflow.

Speaker Change: This allows clinicians and administrators to have a single interface to access our digital health and SaaS solutions as well as for clinicians to seamlessly water and Vue test results for Alisher Allomap in heart care.

Speaker Change: Our growing lab products business is global we have a strong portfolio and we will continue to expand the business to a new transit about laboratories worldwide with best in class Kitted products using N G S in Q PCR technologies.

Speaker Change: Our market leadership for N G S HLA typing through our <unk>, TX line and broad geographical footprint allows us to benefit from scale leverage as our products business grows further.

Speaker Change: From an operational perspective, we will remain focused on thoughtfully managing our cost structure and investments.

Unknown Executive: Precise timing would be speculative, but we would expect any resolution to the patent litigation to be a multi-year, multi-step process. Looking forward to 2024, In our testing services business, the focus is on strategic profitable growth, continuing to grow patient testing volumes and market penetration for Allomap and Alloshore while expanding reimbursement and coverage. There is a significant opportunity to gain coverage for non-reimbursed tests. This year, we will continue to invest in multi-center, purpose-driven studies to help secure additional reimbursement coverage. As mentioned last quarter, CAHOR, our Kidney Allograft Outcomes Registry, completed the last patient clinical visits, and we are now finalizing our data collection and monitoring. CARE was designed to demonstrate the clinical utility of Alisher in a variety of outcomes.

Speaker Change: You heard this during our annual Investor day last month and it is worth repeating.

This commitment underscores the dedication of our leadership team to driving growth and value for investors.

Speaker Change: We have taken multiple actions to reduce costs, including a recent Q4 action to streamline even further.

Speaker Change: You'll see us continue to take steps to manage our near term costs and Cogs as we drive towards profitability.

Speaker Change: Gary extra taking a disciplined approach to investments that support our clinicians patients and employees and deliver shareholder value.

Speaker Change: Finally, I would like to touch on our advocacy efforts on behalf of transplant patients.

Speaker Change: And our coalition partners continue to be actively engaged in discussions with HHS and CMS well, we support patient advocacy efforts to restore full access for Medicare beneficiaries. The transplant community has made substantial progress.

Speaker Change: Some of you may have seen the honor the gift efforts in Washington D. C. In early December where hundreds of transplant patients physicians and advocates made a public fleet on Capitol Hill to stop the recent rollback in Medicare coverage.

Speaker Change: Notable speakers at the press conference included Senator Hillenbrand, former speaker of the house, Newt, Gingrich, and rubber and al Sharpton, which shows the wide ranging bipartisan nature of the concerns here.

Unknown Executive: And we continue to expect a publication this year. We also have other unique opportunities to publish evidence that can influence payer coverage policies by working with leading researchers who have had extensive experience with Alisher Kitkin. For HART, we anticipate an interim readout for our Ongoing Surveillance Heart Care Outcomes Registry, or SURE. The data from patient encounters in the early years of SHORE have been collected and monitored.

Speaker Change: We in the broad transplant community will continue to fight for access to transplant innovation in 2024 and beyond.

Speaker Change: In fact as recently as last Friday, The Wall Street Journal published their fourth powerful editorial since September highlighting the patient access issue for transplant tests and the coverage disparities for Medicare patients.

Speaker Change: We are encouraged by our momentum as we entered 2024.

Speaker Change: Our team is laser focused on executing our plan. We are building on the testing services revenue baseline set in the second half of 'twenty, three expanding patient access to our innovative portfolio across all three businesses and expediting our journey back to profitability.

Unknown Executive: We are now working toward publication of an interim readout with the twin goals of supporting the utility of multimodality testing and heart care coverage beyond year one. We expect publication in 2024. These studies are expected to generate the evidence that, along with the build-out of our revenue cycle management infrastructure, such as commercial payer coverage and billing appeals processes, will support an improved rate of reimbursement. In our patient and digital solutions business, we aim to further increase the adoption of our portfolio offerings in 2024. Over 70% of transplant centers in the U.S. use one or more of our digital solutions. As we first shared last month, we have now started to roll out a new platform that enables greater uptake of CareDx services. The platform, called CareDx Pro, is embedded within a transplant center's electronic medical record system.

Abishag: With that I will ask abishag to share more details on our results for 2023 and our outlook for 'twenty four.

Abishag: From there we will go to Michael Goldberg, Our board chair for an update on our CEO search before moving into the Q&A.

Abishag: <unk>.

Abishag: Thank you Alex in my remarks today, I will focus on our fourth quarter and full year 'twenty three results before turning to 'twenty four guidance.

Michael D. Goldberg: Unless otherwise noted my remarks will focus on non-GAAP results.

Michael D. Goldberg: This effort to GAAP to non-GAAP reconciliations in our press release today for further information.

Michael D. Goldberg: I'll start with the financial highlights.

Michael D. Goldberg: Number one reported full year 'twenty three revenue of $280 3 million exceeding the high end of our updated guidance.

Michael D. Goldberg: Number two deliver a 165000 patient death results in 'twenty three.

Michael D. Goldberg: <unk> test volumes grew 4% in the fourth quarter to approximately 39900 tests as compared to the third quarter.

Michael D. Goldberg: <unk> consecutive quarter of sequential growth.

Michael D. Goldberg: Number two reported full year 'twenty three deaths in services revenue of $209 7 million.

Michael D. Goldberg: Fourth quarter testing services revenue of $46 7 million came in better than expected, primarily driven by volume growth number.

Michael D. Goldberg: Number four reported patient and digital solutions revenue of $37 1 million in 23 up 29% year over year.

And product revenue of $33 5 million up 15% year over year.

Unknown Executive: This allows clinicians and administrators to have a single interface to access our digital health and SAS solutions, as well as for clinicians to seamlessly order and view test results for AlloSure, Allomap, and HeartCare. Our growing lab products business is global. We have a strong portfolio, and we'll continue to expand the business to new transplant laboratories worldwide with best-in-class kitted products using NGS and qPCR technology. Our market leadership for NGS HLA typing through our Aliceek TX line and broad geographical footprint allows us to benefit from scale leverage as our products business grows further.

Michael D. Goldberg: Number five maintained a strong cash position of $235 4 million at the end of December and no debt.

Michael D. Goldberg: And we bought $2 9 million shares for approximately $27 5 million in cash in 2003.

Michael D. Goldberg: Moving to the details starting with testing services.

Michael D. Goldberg: Services revenue for the fourth quarter was $46 7 million down 2% as compared to the third quarter of 43.

Michael D. Goldberg: As discussed in our Q3 earnings call fourth quarter revenue was expected to be lower due to the fourth quarter impact of Heartware tests that were outside of the new companies create PDF for mol Dx as well as the exclusion of one time settlement with a large Medicare advantage payer.

Michael D. Goldberg: As mentioned earlier testing services volume increased by 4% sequentially and we're pleased to see both kidney and heart franchise the growth for the second consecutive quarter.

As Alex alluded earlier, we stay focused on executing our testing services strategy to increase market penetration and drive volume growth.

Unknown Executive: From an operational perspective, we'll remain focused on thoughtfully managing our cost structure and investment. You heard this during our Annual Investor Day last month, and it is worth repeating. This commitment underscores the dedication of our leadership team to driving growth and value for investors. We have taken multiple actions to reduce costs, including a recent Q4 action to streamline even further. We have taken multiple actions to reduce costs, including a recent Q4 action to streamline even further. You'll see us continue to take steps to manage our near-term costs and COGS as we drive towards profitability. CareDx is taking a disciplined approach to investments that support our clinicians, patients, and employees and deliver shareholder value. Finally, I would like to touch on our advocacy efforts on behalf of transplant patients.

Michael D. Goldberg: Our non-GAAP testing services gross margin was 72% in the fourth quarter as compared to 74% a quarter ago.

Michael D. Goldberg: We are pleased with the efforts of our lab operations theme in keeping the gross margin above 70%. Despite a significant top line impact from billing article divisions.

Michael D. Goldberg: Our operations team continues to execute on reducing the shipping and specimen processing cost improvement in inventory management, and scrap reduction and optimization of collection kits usage.

Michael D. Goldberg: Moving to our digital and patient solutions and lab products businesses.

Michael D. Goldberg: Accretion and digital solutions business recorded revenue of $9 6 million in the fourth quarter up 14% year over year and $37 1 million for the full year 23 up 29% as compared to 22.

Michael D. Goldberg: Strong top line results were driven by both organic growth and not acquisitions will present, new data systems and medical.

Michael D. Goldberg: Our station and digital solutions business non-GAAP gross margin for the fourth quarter was 42% as compared to 34% a year before.

Michael D. Goldberg: For the full year 23, non-GAAP gross margin improved by 600 basis points to 37% as compared to 31% in 'twenty two.

Unknown Executive: We and our coalition partners continue to be actively engaged in discussions with HHS and CMS while we support patient advocacy efforts to restore full access for Medicare beneficiaries. The transplant community has made substantial progress. Some of you may have seen the Honor the Gift efforts in Washington, D.C., in early December, where hundreds of transplant patients, physicians, and advocates made a public plea on Capitol Hill to stop the recent rollback in Medicare coverage. O, Notable speakers at the press conference included Senator Dillenbrandt, former Speaker of the House Newt Gingrich, and Reverend Al Sharpton, which shows the wide-ranging, bipartisan nature of the concerns

Michael D. Goldberg: The gross margin expansion was driven by the topline growth cost saving initiative I'll transition to a recurring SaaS based model and the higher gross margin profile of our newer acquisitions.

Michael D. Goldberg: Our products business recorded revenue of $9 2 million in the fourth quarter up 8% year over year and $33 5 million for the full year 'twenty three up a solid 15% year over year.

Michael D. Goldberg: Growth in the products business was driven by our highest margin NGL offering.

Michael D. Goldberg: Products business non-GAAP gross margin for the fourth quarter was 46% as compared to 54% a year ago.

Michael D. Goldberg: Primarily due to a one time inventory charge associated with end of life for one of our product in this business.

Michael D. Goldberg: Products business non-GAAP gross margin for the full year 'twenty three grew an impressive 500 basis points to 54% as compared with 49% in 'twenty two.

Michael D. Goldberg: And it was driven by organic growth cost efficiencies from supply chain optimization with ongoing manufacturing site consolidation and the continued shift to ingest offerings in our revenue mix.

Unknown Executive: We and the broad transplant community will continue to fight for access to transplant innovation in 2024 and beyond. In fact, as recently as last Friday, the Wall Street Journal published its fourth powerful editorial since September, highlighting the patient access issue for transplant tests and the coverage disparities for Medicare patients. We are encouraged by our momentum as we enter 2024. Our team is laser-focused on executing our plan.

Michael D. Goldberg: Our team is focused on improving gross margins further as to drive further efficiencies and complete the plant site consolidation in 2024.

Michael D. Goldberg: Moving down the P&L non-GAAP operating expenses for the fourth quarter was $54 2 million down approximately three 5 million sequentially from Q3.

Michael D. Goldberg: So the sales and marketing spend increased $1 6 million primarily related to our targeted policy efforts to restore Medicare coverage G&A expenses came down $4 4 million as a result of our focus on reducing legal expenses.

Unknown Executive: We are building on the testing services revenue baseline set in the second half of 23, expanding patient access to our innovative portfolio across all three businesses, and expediting our journey back to profitability. With that, I will ask Abhishek to share more details on our results for 2023 and our outlook for 2024. From there, we will go to Michael Goldberg, our board chairperson, for an update on our CEO search before moving into the Q&A. Abhishek.

Michael D. Goldberg: Although just to really build a losses in Q4 was $10 3 million as compared to $10 9 million in Q3.

Michael D. Goldberg: We've also accrued $96 3 million for damages awarded by Judy and the IP litigation case in the fourth quarter of 'twenty three.

Michael D. Goldberg: As Alex mentioned earlier, we intend to seek judicial review of the verdict and believe that we have good and substantial defenses against the claim or less in the suit and we will vigorously defend ourselves.

For further disclosures on this matter. Please refer to our recently filed 10-K turning to cash we continue to maintain a strong balance sheet with 235 million in cash cash equivalents and marketable securities with no debt.

Michael D. Goldberg: Cash used in operations for the full year 'twenty, three was $18 4 million down 27% as compared to $25 2 million in 'twenty two.

Abhishek Jain: Thank you, Alex. In my remarks today, I will focus on our fourth quarter and full year 23 results before turning to 24 guidance. Unless otherwise noted, my remarks will focus on non-GAAP results. Please refer to GAP to Non-GAAP Reconciliation in our press release today for further information. I'll start with the financial highlights. Number one reported full year 23 revenue of 280.3 million, exceeding the high end of our updated guidance. Number two, delivered over 165,000 patient test results in 23. Patient test volumes grew 4% in the fourth quarter to approximately 39,900 tests, as compared to the third quarter, the second consecutive quarter of sequential growth.

Michael D. Goldberg: Despite the operational and financial challenges introduced by the billing article divisions.

Michael D. Goldberg: The improvement in cash used in operations in 23 is a testament to the outstanding efforts of the entire <unk>. The cash used in operations was positively impacted by our RCM initiatives that delivered a fifth consecutive quarter of collections over testing services revenue and added $17 million to.

Michael D. Goldberg: Cash.

Michael D. Goldberg: In 'twenty three finally, I would also like to note that we earned $3 2 million in interest income in the fourth quarter and $11 9 million in 2023.

Based on our current cash position and anticipated cash usage in operations. We continue to believe that we do not need to raise cash in the foreseeable future.

Michael D. Goldberg: Finally, turning to guidance.

Michael D. Goldberg: We expect full year 'twenty for revenue to be in the range of $260 million $274 million.

Michael D. Goldberg: The midpoint of our Twentyfold guidance assumes.

Michael D. Goldberg: Number one low to mid single digit testing services revenue growth based on annualized actual testing services revenue for the fourth quarter of 'twenty three.

Michael D. Goldberg: Number two Medicare reimbursement remains as currently implemented.

Michael D. Goldberg: No incremental revenue assumed from new coverage decision from either Medicare or large commercial peers.

Abhishek Jain: Number three, reported full year 23 testing services revenue of $209.7 million. Fourth quarter testing services revenue of $46.7 million came in better than expected, primarily driven by volume growth. Number four, reported patient and distal solutions revenue of $37.1 million in 2023, up 29% year-over-year, and product revenue of $33.5 million, up 15% year-over-year. Number 5.

Michael D. Goldberg: Number three mid single digit growth for both products and patient and diesel solution businesses year over year.

Michael D. Goldberg: We're expecting our gross margin to be approximately 63% to 65% with testing services gross margin slightly above 70% products business gross margin in the mid fifties and distal ambitious solutions gross margin in the high 30.

Michael D. Goldberg: We expect our non-GAAP operating expenses to be between 207 million to $215 million down from its annualized fourth quarter run rate basis.

Michael D. Goldberg: While absorbing for merit increases benefits VSAT and inflation.

Michael D. Goldberg: We expect our distributable the losses to be between 20 million to $30 million in 'twenty four with quarterly improvements in adjusted EBITDA losses throughout the year.

Michael D. Goldberg: Before we open the line for questions I would like to turn the call over to Michael to discuss the ongoing CEO search Michael.

Michael D. Goldberg: Thank you Rob a shack, we would like to briefly touch on the CEO search well underway. The board is leading an exhaustive search process.

Abhishek Jain: We maintained a strong cash position of $235.4 million at the end of December and no debt. And we bought 2.9 million shares for approximately $27.5 million in cash in 2023. Moving to the details, starting with testing services. Testing services revenue for the 4th quarter was $46.7 million, down 2% as compared to the 3rd quarter of 2023.

Michael D. Goldberg: And by the search firm of Presto railroads as.

Michael D. Goldberg: As communicated previously we remain on track to announce a new CEO within the originally projected six to nine months timeframe for the initiation of the surge in November.

Michael D. Goldberg: The office of the CEO comprising of Alex other shack and myself continues to successfully drive the business forward.

Michael D. Goldberg: For over two decades, <unk> has been dedicated to improving transplant patient outcomes and extending long term allograft survival and we look forward to a strong 2024 with that I'll hand, it over to the moderator to open the line for questions.

Abhishek Jain: As discussed in our Q3 earnings call, fourth-quarter revenue was expected to be lower due to the fourth-quarter impact of heart care tests that were outside of the new coverage criteria from MoldeX, as well as the exclusion of one-time settlement with a large Medicare Advantage pair. As mentioned earlier, testing services volume increased by 4% sequentially, and we are pleased to see both kidney and heart franchises grow for the second consecutive quarter. As Alex alluded earlier, we stay focused on executing our testing services strategy to increase market penetration and drive volume growth. Our non-gap testing services gross margin was 72% in the fourth quarter as compared to 74% a quarter ago.

Michael D. Goldberg: Hmm.

Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your hand.

Speaker Change: Set before pressing the star.

Speaker Change: One moment, please while we poll for questions.

Speaker Change: Our first question comes from Andrew Cooper with Raymond James. Please proceed with your question.

Andrew Harris Cooper: Hi, everybody. Thanks for the questions, maybe just to start in a super high level, obviously, a lot of noise a lot. That's happened through the course of 2023, it feels like with four tiers, all really kind of getting back to stability in the base to grow from but did anything stand out when you think about sort of ordering patterns.

Andrew Harris Cooper: The cohorts of patients that you are seeing those orders for or anything like that I guess across both.

Abhishek Jain: We are pleased with the efforts of our lab operations team in keeping the gross margin above 70% despite a significant top-line impact from billing article revision. Our operations team continues to execute on reducing shipping and specimen processing costs, improvements in inventory management and scrap production, and optimization of collection kit usage. Moving toward digital and patient solutions and lab products businesses. Our patient and digital solutions business recorded revenue of $9.6 million in the fourth quarter, up 14% year-over-year, and $37.1 million for the full year 2023, up 29% as compared to 2022. Strong top-line results were driven by both organic growth and our acquisitions of HLA data systems and Medeco. Our patient and disaster solutions business non-capitalist margin for the fourth quarter was 42% as compared to 34% a year before.

Andrew Harris Cooper: Kidney and heart in the fourth quarter, just any surprises any changes any any commentary there on sort of what youre really seeing in the end market would be would be great.

Yeah.

Speaker Change: Yeah, no. Thanks for those nice comments and I think it is back to stability it's back to growth.

And I think we're excited to continue to serve more patients and I think Q4 was a terrific baseline to grow on and before that we grew on Q3, and so I'll add I'll ask <unk> to add some commentary, but I think the headline here is that we feel very good about consistent patterns that we've seen going forward or patient mix.

Thank you Alex I think you have covered it pretty well.

Speaker Change: We are very happy to see the second consecutive quarter all of our testing services volume growth and that gives us a lot more confidence.

Speaker Change: How the business is progressing well.

Speaker Change: So the growth is coming from both of our hard at the kidney franchises. So that gives us all the more comfort that we are basically kind of growing in the areas, where we need to the good news is that we have seen the market growth in the hog side, the pumpkin volume growth.

Speaker Change: To be in the double digit last year, so definitely a lot more promise there as we enter into 2024.

Speaker Change: Okay helpful and then.

Speaker Change: Just sticking their testing services, the gross margin side of things.

Speaker Change: Like I said, obviously, some some lumpiness through the course of 'twenty three but you know.

Speaker Change: I think you said low seventy's or.

Abhishek Jain: For the full year 23, non-GAP dose margin improved by 600 basis points to 37% as compared to 31% in 22. The gross margin expansion was driven by top-line growth, cost-saving initiatives, our transition to a recurring FAFSA-based model, and the higher gross margin profile for newer acquisitions. Our products business recorded revenue of 9.2 million in the fourth quarter, up 8% year-over-year, and 33.5 million for the full year, up a solid 15% year-over-year.

Speaker Change: We're slightly above 70 for the year, just any puts and takes there and then as it pertains to the ongoing sort of legal dispute.

Maybe talk about your ability to if you had to digest some form of royalty how you would think about.

Speaker Change: Is that in terms of 70 plus percent margins with frankly, not a very large proportion of your test actually being paid for at all in the first place.

Speaker Change: Yeah. So I think on the testing services gross margin, having like above 70% that in itself is like very very healthy. We use we usually have been in the low seventies mixed 70, it's kind of a gross margin range and the billing article divisions, if I were to take the noise out there.

Basically kind of dropped to mid Sixty's high 60, as kind of a gross margin range and entities and I was happy to see that we came in slightly above 70% because I remember calling out there testing services gross margin without that noise is close to 60% to 70% in our previous calls.

Abhishek Jain: Growth in the products business was driven by our higher margin NGS offering; products business non-gap dose margin for the fourth quarter was 46% as compared to 54% a year ago, primarily due to a one-time inventory charge associated with the end of life for one of our products in this business. Products business non-capitalist margin for the full year 23 grew an impressive 500 basis points to 54% as compared to 49% in 22. And it was driven by organic growth, cost efficiencies from supply chain optimization with ongoing manufacturing site consolidation, and a continued shift to NGS offerings in our revenue mix. Our team is focused on improving growth margins further as a drive for efficiency and completing the planned site consolidation in 2024. Moving down the P&L, non-GAAP operating expenses for the fourth quarter were $54.2 million, down approximately $3.5 million sequentially from Q3.

Speaker Change: Dash 10 point, you started to definitely see the improvement there and we'll continue to work through as to how do we dropped most of our revenue incrementals to the gross margin because we are not going to be increasing our spend other than debatable costs that we need to spend on the tests that you need to run. So that's the first part and the second piece I think to your.

As shown that clarified.

Speaker Change: Your flight tests are not being paid you're absolutely right and I did kind of.

Speaker Change: Articulate that that's a significant opportunity that we have in front of ourselves.

Speaker Change: The example of Q4 at 40000 tests, maybe you shouldn't be booking $100 million revenue, but we booked 47. So there is a large opportunity and that's the piece that we can do to work on through.

Pending.

Speaker Change: A lot of time and effort in generating the data that we need to and then going after the coverage and finally throughout our Sim initiative getting back all.

Speaker Change: Coverage that we have gained coming through the collections to our revenue in the P&L.

Speaker Change: Overall process, so I still feel that continue to do that test and having that ability to gain that.

Abhishek Jain: Though the sales and marketing spend increased $1.6 million, primarily related to our targeted policy efforts to restore Medicare coverage, GN expenses came down $4.4 million as a result of our focus on reducing legal expenses. Our registered beta losses in Q4 were 10.3 million as compared to 10.9 million in Q3. We have also accrued $96.3 million for damages awarded by a jury in the IP litigation case in the fourth quarter of 2023. As Alex mentioned earlier, we intend to seek judicial review of the verdict and believe that we have good and substantial defenses against the claims alleged in the suit, and we will vigorously defend ourselves.

The opportunity that basically is the right thing to do as somebody to worrying too much about the tests that have not paid today, because we will get there.

Speaker Change: Okay helpful. And then maybe just one last one if I can sneak it in just <unk>.

Speaker Change: A lot of cost out of the system. It's been impressive from from that perspective, as we think about the commentary on not meeting to access markets not needing a clash ray how do you think about the path to breakeven as you sit today is there more cost you can pull out is it more a function of hey, we've got to get the top line higher than where we are today is how do we think.

Speaker Change: Opex trajectory to get to EBITDA and cash flow breakeven longer term.

Speaker Change: No. That's a great question, Andrew and the way I kind of see about there just sort of big losses.

Speaker Change: If you look at the guide, we're guiding about $20 million to $30 million of like just pretty big losses.

Speaker Change: The next here.

Speaker Change: Now in my mind, we will have basically the first half to be more front loaded with our losses and you can kind of model. It based on a low double digit adjusted EBITDA losses, as we begin the 'twenty 'twenty four and hopefully get to a low single digit kind of like just replace the losses by the time, we get to the 2024 and.

Abhishek Jain: For further disclosures on this matter, please refer to our recently filed 10-K. Turning to cash, we continue to maintain a strong balance sheet with $235 million in cash, cash equivalents, and market-based securities with no debt. Cash used in operations for the full year 23 was $18.4 million, down 27% as compared to $25.2 million in 22.

Speaker Change: It's actually basically set us up pretty solid to get back towards district, EBITDA profitability and generating cash flow from operations in 2025, I'm not guiding for the 2025, but that's at least my thinking is that.

Speaker Change: That we are looking for improving their just triggered by the losses throughout the year.

Speaker Change: Great and maybe I can name Oh, Yeah go.

Speaker Change: Go ahead I can take the second part of your question on the cash flow and that basically is also the reason that we have $235 million in cash I can do a quick parallel towards cash usage in operations in 2018, which I called out at about $18 million.

Abhishek Jain: Despite the operational and financial challenges introduced by the billing article revisions, the improvement in cash used in operations in 2023 is a testament to the outstanding efforts of the entire CareDx team. The cash used in operations was positively impacted by our RCM initiative that delivered a fifth consecutive quarter of collections over testing services revenue and added $17 million to cash in 2023. Finally, I would also like to note that we earned 3.2 million in interest income in the fourth quarter and 11.9 million in 2023. Based on our current cash position and anticipated cash usage in operations, we continue to believe that we do not need to raise cash in the foreseeable future. Finally, turning to guidance, we expect full-year 2024 revenue to be in the range of $260 million to $274 million.

Speaker Change: So looking at the adjusted EBITDA losses in 'twenty for my sense is that the cash usage in operations would be very similar to those are just really put our losses.

Speaker Change: Without kind of thinking about any over collection or the improvement through the our team initiated so from that standpoint, if you're talking about a $25 million at the midpoint cash you used stage with $235 million in cash and basing having basically having a foundation by the end of 'twenty four to get.

Speaker Change: Back to just to put a profitability in the next year, then you probably don't need to raise cash. So that's how we're kind of thinking from the management standpoint.

Speaker Change: Great.

Speaker Change: Our next question comes from Mac Sykes with Goldman Sachs. Please proceed with your question.

Matthew Carlisle Sykes: Hey, guys. Congrats on the quarter. This is Sean on for Matt can you hear me.

Sean: Yes, we can hear you very well.

Sean: Okay great.

Matthew Carlisle Sykes: So are you <unk> first off are you still seeing any lingering impacts of the billing article across your business segments.

Matthew Carlisle Sykes: Sure.

Matthew Carlisle Sykes: We are I mean, our revenue our revenue and volumes and testing services are still significantly below what they were when the billing article was introduced in March.

Abhishek Jain: The midpoint of our 2024 guidance assumes... Number one, low to mid single-digit testing services revenue growth based on annualized actual testing services revenue for the fourth quarter of 23. Number two, Medicare reimbursement remains as currently implemented, with no incremental revenue assumed from new coverage decisions from either Medicare or large commercial payers.

Matthew Carlisle Sykes: So we're so I mean that is that is that as a just a.

Matthew Carlisle Sykes: Numerical fact of our performance what we are seeing though is certainly clinicians and centers getting much more comfortable with the billing article rules and coverage for the Medicare beneficiaries and for all their patients and so what we're really seeing now is new protocols being put in play.

Michael D. Goldberg: Number three, mid-single-digit growth for both product and patient end-result solution businesses year-over-year. We're expecting our gross margin to be approximately 63 to 65%, with testing services gross margin slightly above 70%, product business gross margin in the mid-50s, and digital and patient solutions gross margin in the high 30s. We expect our non-GAAP operating expenses to be between $207 million to $215 million, down from an annualized fourth quarter run rate basis while absorbing merit increases, benefits reset, and inflation. We expect adjusted EBITDA losses to be between $20 million to $30 million in 2024 with quarterly improvements in adjusted EBITDA losses throughout the year. Before we open the line for questions, I would like to turn the call over to Michael to discuss the ongoing CEO search.

Matthew Carlisle Sykes: At these centers and.

Matthew Carlisle Sykes: And we're seeing that we saw that in Q4 and kidney.

Matthew Carlisle Sykes: The multiple centers, putting in protocols that now allow them to manage patients kidney with al ashore in a way that's consistent with the Medicare.

Matthew Carlisle Sykes: Billing article.

Speaker Change: Got it and then.

Speaker Change: Could you just elaborate on the path to launching a multi modality product and obtaining reimbursement how long does that typically take and specifically for kidney are you required to obtain Medicare coverage and then private payer coverage for allomap kidney before proceeding with kidney care.

Speaker Change: Sure. So there's a couple of things on pack, there and I think the pathway to multi modality reimbursement as a you know a multi step conversation and we can certainly give you. Some highlights of that I think the headline is that we've done this now with heart care. It was a multi year process.

Speaker Change: We were able to produce the evidence and data for Medicare to do that and that's not a trivial exercise and as we go into kidney.

We know the playbook, we know where the.

Speaker Change: Minefields are so to speak and data analysis it was a a challenging.

Speaker Change: One that was ultimately extremely successful with Medicare and now is as we've talked about.

Michael D. Goldberg: Thank you, Abhishek. We would like to briefly touch on the CEO search well underway. The board is leading an exhaustive search process aided by the search firm of Russell Rental.

Our part care still consistently hasnt attach rate of well over 90% for al Assurant Allomap being used together for patients.

Speaker Change: For a little more context, I'll turn it to Robert to add some more on the process itself, which is I think part of your question as well.

Operator: As communicated previously, we remain on track to announce a new CEO within the originally projected six to nine month time frame from the initiation of the search in November. The CEO's office, comprising Alex, Abhishek, and myself, continues to successfully drive the business forward. For over two decades, CareDx has been dedicated to improving transplant patient outcomes and extending long-term allograft survival, and we look forward to a strong 2024. With that, I'll hand it over to the moderator to open the line for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate that your line is busy. You may press star 2 if you would like to remove your questions.

Robert Woodward: I think one thing you asked was the cut.

Coverage for <unk>, but for both tests before a multi modality, that's not necessarily a requirement, but it's certainly something that we'll look at when we're looking at the data from our Okra study, where we use both alisher and element kidney and where we see that going next I think you asked you know how long or what time.

Robert Woodward: It's more about the data and the time and so as we assess that and look towards the future we'll start to put together that plan.

Speaker Change: Got it. Thank you that's really helpful. And then my last question is do you see euro map cannibalizing allomap kidney as eventual sales at all and how do these two tests complement each other in the kidney transplant space.

Speaker Change: They're really you know.

Speaker Change: They come from different directions, and that element kidney the mechanism of looking at immune status and whether there's activation of the immune system or whether it's quiescent and then in Europe. The Euro map has a very different approach of being everything there can be about them.

Speaker Change: Evaluating our cellular mediated rejection, and especially the whether or not theres an influence of BK virus.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. Our first question comes from Andrew Cooper with Raymond James. Please proceed with your question. Hey, everybody, thanks for the questions.

Speaker Change: And so as we're bringing these two and.

Speaker Change: Defining their paths and where there'll be used in the market.

Speaker Change: And we work with clinicians theres really unique opportunities for each of them. So let's say I think we'll see them in parallel and not a not in each other's way.

Speaker Change: Thank you.

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

Speaker Change: Hey, Thanks. This is Matt on for Brandon, maybe going back to the guide can you help us a bit more in terms of the cadence as we move through 'twenty four I think historically you'd seen a bit of a step up in <unk> do you expect that this year and then is.

Unknown Executive: Maybe just to start, you know, super high level, obviously, a lot of noise, a lot that's happened through the course of 2023. It feels like this 4Q result is really kind of getting back to stability and the base to grow from. But did anything stand out when you think about sort of ordering patterns, you know, the cohorts of patients that you're seeing those orders for or anything like that, I guess, across both kidney and heart in the fourth quarter? Just any surprises, any changes, any commentary there on sort of what you're really seeing in the end market would be great. Thanks for those nice comments, and I think it is back to stability, it's back to growth, and I think we're excited to continue to serve more patients. And I think Q4 was a terrific baseline to grow on, and before that, we grew on Q3, and so I'll ask Abhishek to add some commentary, but I think the headline here is that we feel very good about consistent patterns that we've seen going forward for patient mix The good news is that we are seeing market growth on the heart side, the front-end volume growth, to be in the double-digits last year, so definitely a lot more promise there as we enter into 2024. Okay.

Matt: Or is it kind of 66 $67 million a quarter evenly spread out or are there may be some initiatives or other items that kick in in the back half that would make.

Matt: A bit more weighted for the year any color there would be appreciated.

Speaker Change: Sure, Matt and <unk>.

Speaker Change: Lithium baked is down by the business because of the billing article revisions last year things have been ups and downs, so up and down throughout the year, So starting with the testing services.

Speaker Change: What I would suggest talked with the Q4 saw actual revenue baseline there and then based on the overall yearly guidance I would basically suggest that you should bake in a sequential growth quarter over quarter for that particular business.

Speaker Change: And for the other two businesses since they are a little bit more so I would say seasonal specifically our products business you should be looking at the year over year growth.

Speaker Change: Starting in Q1, 'twenty four and you should basically model for the non testing services business slightly differently and that can basically give you the cadence as to how the quirky revenue number should look like.

Speaker Change: Okay. That's helpful and then.

Speaker Change: Going back to capital allocation and no debt.

Speaker Change: $5 million of cash exit in the year. There is the potential litigation payout, which is sizable but did you talk to in the prepared remarks could be a multi year process, you repurchased about $25 million of shares here in 'twenty three.

Speaker Change: Should we think about your capital allocation plans going forward is more of the buyback on the table just how youre thinking about cash usage here in 'twenty four and beyond thanks.

Speaker Change: No absolutely and from.

Speaker Change: From the context, and you picked up picked it up pretty well that we bought actually two 9 million shares for like 27 million Bucks.

Speaker Change: In 'twenty three and most of those purchases were actually in the fourth quarter.

Speaker Change: So we were like pretty confident with the $235 million in cash.

Abhishek Jain: And then maybe just sticking to testing services, the gross margin side of things, like I said, obviously, some some lumpiness through the course of 23. But, you know, I think you said low 70s or slightly above 70 for the year. Just let me put some takes there. And then as it pertains to the ongoing sort of legal dispute, maybe talk about your ability to if you had to digest some form of royalty, how you would think about that in terms of, you know, 70 plus percent margins with, frankly, not a very large proportion of your tests actually being paid for at all in the first place. Yeah, so I think on the testing services gross margin having like above 70%, that in itself is like, very healthy. We usually have been in the low 70s or mid 70s, kind of a gross margin range.

Speaker Change: Based on the fact that we have taken a lot of cost out of our system and based on the needs that we are projecting for cash.

Speaker Change: Felt very comfortable and actually pursuing the share buyback program.

Speaker Change: But did this all IP litigation Judy Award, even if there are multiple steps that we have to go through starting with the district Court.

Speaker Change: And then possible appeals multi multi step might be a process.

Speaker Change: We are taking a stance here to pause the share buyback program for now and we will assess as to how some of these other pieces will play out and at that time, we will bring the discussion or the decision on the share buyback program back into back onto the table.

Speaker Change: Great. Thank you.

Speaker Change: Our next question comes from Alex Nowak with Craig Hallum. Please proceed with your question.

Alexander David Nowak: Okay, great. Good afternoon, everyone. If you look at the normal revenue for 2023 of them are basically taking what you did in Q4 here and Annualizing in the guide for 'twenty 'twenty four comes in at basically about 4% growth give or take a little bit.

Alexander David Nowak: I guess the question is what level of growth can the company ultimately achieved in 2025 2026 pick a time point in the future without necessarily more reimbursement.

Alexander David Nowak: So I would basically say that there are multiple pods for the testing services to grow and of course, Oh, there's a secular market growth finish out we are seeing a good momentum in our transplant volumes.

Abhishek Jain: And with the billing article revision, if I were to take the noise out, we basically kind of dropped to a mid-60s, high-60s kind of gross margin range. And that's the reason I was happy to see that we came in slightly above 70%. Because I remember calling out that the testing services gross margin without that noise is close to 68 to 70% in our previous calls. So from that standpoint, we started to definitely see improvements there. And we're going to work through how we drop most of our revenue incrementals to the gross margin because we are not going to be increasing our spend other than the variable costs that we need to spend on the tests that we need to run. So that's the first part. And the second piece, I think in response to your question that a lot of our tests are not being paid, you're absolutely right.

Alexander David Nowak: Specifically, if you look at the high side, there had been growing on a low double digit basis in the last year.

Speaker Change: And also kidney kind of growing at a high single digit my sense is that if you can do to see that kind of goes back in particular secular organic growth. That's basically the first piece and then we heard from some of our shop.

Speaker Change: Same space companies like transmit if all the things that we're doing in this particular space to be able to kind of grow the.

Speaker Change: The usage of the old influence so for so we feel very good that this particular space can actually grow in high single digit to low double digit kind of a scenario.

Speaker Change: But absolutely let me have Alex kind of fact further but my sense is that there's a lot of opportunity in this space to grow at a much more hybrid yeah, Alex and you mentioned you know without reimbursement and obviously, that's a nice tailwind for us as well because that will apply to broad swaths of our of our business is different commercial payers come on and certainly.

Speaker Change: There's upside with the Medicare as well.

Alex: You covered it well one of the interesting data points is that when you look at heart and kidney which is really the.

Speaker Change: The bulwark of our.

Abhishek Jain: And I did kind of articulate that that's a significant opportunity that we have in front of ourselves. I took the example of Q4, 40,000 tests. Maybe you should be booking $100 million in revenue, but we booked 47. So there's a large opportunity, and that's the piece that we continue to work on through spending a lot of time and effort generating the data that we need to and then going after the coverage. And finally, through our RCM initiative, getting that full coverage that we have gained coming through collections to our revenue and the P&L. It's an overall process. So I still feel that continuing to do that test and having that ability to gain that opportunity is basically the right thing to do, as compared to worrying too much about the tests that are not paid for today because we will get there. Okay, helpful.

Speaker Change: Transplant testing services volume.

Speaker Change: Back in 2020 or 25000 combined transplanted Oregon's.

Speaker Change: Between heart and kidneys, you know last year. It was $30 right. So you're getting the game is really significant growth even during the pandemic, even when living donor volumes had basically flat line for quite a while and they're coming back and I think you know.

Speaker Change: You saw that you saw that last year and when you look at utilization and other tailwind here you really start to see a model where when you when you have 8%.

Speaker Change: Transplant volume just overall market growth in.

Speaker Change: In 2023, I think that's not wrong to think how long can that last for and when you look at all the different avenues, whether it's not just better utilization, but also.

Speaker Change: The opportunity for living donation to increase you really see that that tailwind on our business.

Speaker Change: Thanks for leaving out the reimbursement piece I think it does let us.

Speaker Change: Take a part of the story piece by piece because there are significant areas, where our revenue can increase and in the long end middle term areas. Thanks for the question Alex.

Speaker Change: It makes sense, if we're transplanting higher risk organs.

Unknown Executive: And then maybe just one last one, if I can sneak it in, just, you know, you've pulled a lot of cost out of the system. It's been impressive from that perspective. As we think about the commentary on not needing to access markets, not needing a cash raise, you know, how do you think about the path to break even as you sit today? Is there more cost you can pull out?

Speaker Change: We need to be tested so you're you're anthem makes total sense. There I just wanted to be crystal clear around the moves with reimbursement against so much has transpired over this last year.

Speaker Change: As we entered right now based on everything Youre seeing with your conversations with the <unk>.

Speaker Change: CMS and the like is it fair to say, where the reimbursement that sits today is pretty much set in stone.

Speaker Change: And the only view that you have as things can only go higher from here, there's no nothing as Youre looking African saying, hey, there could be another shoe to drop.

Unknown Executive: Is it more a function of, hey, we've got to get the top line higher than where we are today? Because how do we think about that trajectory to get to EBITDA and cash flow break even longer term? Now, that's a great question, Andrew.

Speaker Change: I mean, I think you know as <unk>.

Speaker Change: And stone is it's really probably not the way we would look at it you know there's certainly a LCD process, that's going on now as well as significant public pressure an outcry to bring back coverage for for this these Medicare patient transplant test. So I think certainly there's there's a an ongoing process that will play out.

Abhishek Jain: And the way I kind of see about the adjusted beta losses, if you look at the guide, we are guiding about 20 to $30 million of our adjusted beta losses for the next year. Now, in my mind, we will have basically the first half to be more front loaded with our losses. And you can kind of model it based on a low double-digit adjusted beta loss as we begin 2024 and hopefully get to a low single-digit kind of adjusted beta loss by the time we get to the end of 2024. That will basically set us up pretty solid to get back towards adjusted beta profitability and generate cash flow from operations in 2025. I'm not guiding for 2025, but my thinking is that we are looking for improving the adjusted beta losses throughout the year. Great.

Speaker Change: Certainly in the.

Speaker Change: In 2024 that we will see we are currently in our base case, we're assuming that nothing does change which would be very unfortunate for patients, but that's what that's what we'll live with and that's what we'll execute on if things don't change, but I think there is significant.

Speaker Change: Processes going on right now that that could potentially change and I think as more data comes out not just in 'twenty four but in future years around surveillance for example for Medicare, which is really the area that was pulled back on for for patient, that's something where we have our K oar study that can help generate data that may in fact.

Speaker Change: <unk>.

Speaker Change: Be impactful evidenced that can help bring back some of the coverage. So I think theres a number of shots on goal here for us to continue.

Abhishek Jain: I can really take the second part of your question on cash flow. And that basically is also the reason that we have $235 million in cash. I can draw a quick parallel to our cash usage in operations in 23, which I called out at about $18 million. So, looking at the adjusted beta losses in 2024, my sense is that the cash usage in operations would be very similar to those adjusted beta losses without kind of thinking about any over-collections or the improvement through the RCM initiative. So, from that standpoint, if you're talking about $25 million at the midpoint cash usage with $235 million in cash and basically having a foundation by the end of 2024 to get back to adjusted beta profitability in the next year, So, that's how we are kind of thinking from the management standpoint. Great.

Speaker Change: On growing it and making sure that coverage model evolves from where it is today.

Speaker Change: Can you just outline the scenarios here with the LCD if it does get finalized.

Speaker Change: As it stands at Medicare I guess, what what could happen.

Speaker Change: Maybe I'll ask it just to clarify.

Speaker Change: Sure maybe I'll ask Robert to answer that but I think just to clarify your question.

Speaker Change: What would change with our business if it was solidified today.

Speaker Change: As proposed what's the.

Speaker Change: If you can clarify the question a bit.

Speaker Change: Absolutely scenarios on when this LCD does get finalized because again Medicare came out with a draft and ideally there I guess legally they have to finalize that within a year. If we're going to do so so when it does get finalized.

Speaker Change: That going to change whether it be transplant centers interpretation of what they can get bills for or what you can get built for and thus what test. They can run I'm just trying to understand how this changes the scenarios.

Speaker Change: Out there.

Speaker Change: This is Robert so the drafts that they came out with very closely parallels and incorporate incorporates a lot of the language from the billing articles and so it really seems to have been their response to a lot of pressure that there wasn't a public process. So they put in place a public process to get to the same place even though they didn't.

Speaker Change: Hope what they had already done.

Speaker Change: So as has already been mentioned you know our base case for the businesses, but it's going to be this way.

Operator: Our next question comes from Matt Sykes with Goldman Sachs. Please proceed with your question. Hey guys, congrats on the quarter. This is Prashant on for Matt. Kriya Prashant, they can hear you very well.

Speaker Change: And as is in the billing article and you know.

Speaker Change: If finalized in their draft form if they didn't make any changes.

Speaker Change: Or any substantive changes then it would.

Speaker Change: <unk> as currently for our patients and businesses and providers as far as finding ways to do the testing within the scope of what they're allowing.

Unknown Executive: So, are you... Sure, certainly we are. I mean, our revenue and volumes and testing services are still, you know, significantly below what they were when the billing article was introduced in March. So we're still, I mean, that is, that is just a numerical fact of our performance. What we are seeing, though, is certainly clinicians and centers getting much more comfortable with the billing article rules and coverage for their Medicare beneficiaries and for all their patients. And so what we're really seeing now is new protocols being put in place at these centers. And we're seeing that. We saw that in Q4 in kidney, multiple centers put in protocols that now allow them to manage patients in kidney failure with Allishore in a way that's consistent with the Medicare billing article. Transcription by CastingWords, transcribed by https://otter.ai Sure, so there's a couple things to unpack there.

Speaker Change: Got it makes sense lastly, just any status on the Doj inquiry.

Speaker Change: No nothing material over there Alex.

Speaker Change: We have disclosed.

Speaker Change: In the 10-K, what it would be hard to but on the Doj side nothing of substance.

Speaker Change: Alright, I appreciate the update thank you.

Speaker Change: Our next question comes from <unk> Chen with H C. Wainwright. Please proceed with your question.

Chen: Thank you for taking my questions are within the next 12 to 18 months do you expect that there could be any potential upside regarding the reimbursement policies.

Chen: Sure and I think I lost the latter yes, I think I lost the last piece of your question you were asking.

Speaker Change: Changes to reimbursement and what was the last piece.

Speaker Change: No.

Speaker Change: That was the that was the question basically.

Speaker Change: Your guidance your 224 Guy this guidance is based on current reimbursement policy right. So I'm asking if there's any potential.

Speaker Change: The potential improvement.

Speaker Change: Reimbursement policy within the next 12 to 18 months.

Unknown Executive: And I think the pathway to multimodality reimbursement is, you know, a multi-step conversation. And we can certainly give you some highlights of that. You know, I think the headline is that we've done this now with heart care. It was a multi-year process. We were able to produce the evidence and data for Medicare to do that, and that's not a trivial exercise. And as we go into kidney, it's, you know, we know the playbook. We know where the minefields are, so to speak, in data analysis. It was a challenging effort, one that was ultimately extremely successful with Medicare.

Speaker Change: Yeah, no that's a.

Speaker Change: I think opportunity for a catalyst with potential this finalization of the LCD that Kim.

Speaker Change: Robert mentioned can happen before potentially before August.

Speaker Change: Have until August to finalize himself.

Speaker Change: What's in there if they if there is an opportunity to change our coverage for Medicare patients I think would certainly be very impactful for our business.

Speaker Change: On top of that we have additional studies that we have.

Speaker Change: In publication, whether its drafting or analysis, K oar and sure that that can provide additional.

Speaker Change: Data and evidence for payers to continue to add coverage for their patient populations and those will happen as we mentioned our assure NK or certainly some publication side in the next 12 months.

Speaker Change: Got it.

Unknown Executive: And now, as we've talked about, our heart care still consistently has an attached rate of well over 90% for Alloshore and Allomab being used together for patients. For a little more context, I'll turn it to Robert to add some more on the process itself, which is, I think, part of your question as well. I think one thing you asked was the coverage for one test, for both tests before multimodality. That's not necessarily a requirement, but it's certainly something that we'll look at when we're looking at the data from our OCRA study, where we used both Alloshore and Allomab kidney, and where we see that going next.

Speaker Change: And between different types of transformed.

Speaker Change: Kidney heart lung, which type of transplant are you seeing do you expect to be to provide.

Speaker Change: For the year, the largest growth driver for the top line revenue.

Speaker Change: Yeah, I think there's a there's a growth right now that is in heart, that's significant and certainly.

Speaker Change: As the billing article changed our mix a bit.

Speaker Change: <unk> will continue to be a good growth driver.

Speaker Change: However, the ability for kidney to come back with living donors also will continue to push that mix.

Speaker Change: I have a second anything else on the yeah.

Speaker Change: I think.

Speaker Change: From the opportunity standpoint, the way I see there are two different pieces, if the billing article published where to get changed.

Speaker Change: Some of our data publication all our policy of first then of course, there's a sizable opportunity on the kidney side.

Speaker Change: <unk>, so when I talk about the studies on the K O R.

Robert Woodward: I think you asked, you know, how long or what time. I think it's more about the data than the time, and so as we assess that and look towards the future, we'll start to put together that plan. My last question is... They're really, you know, they come from different directions in the ALIMAP kidney, the mechanism of looking at immune status and whether there's activation of the immune system or whether it's quiescent. And in urine, the URAMAP has a very different approach of being everything there can be about evaluating cellular mediated rejection and especially whether or not there's an influence of the BK virus.

Speaker Change: That data turns out to be in the right manner. Then of course, there's a significant opportunity there based on what I previously called out that we had been limited commercial companies. There. So that can basically drive a fairly sizable upside.

Speaker Change: If you want to talk about the heart on the Alice Shaw are primarily I think that's where the show comes in play.

Speaker Change: Can we get the coverage for surveillance back for greater than one year, where we had limited coverage now from Medicare. So that is another piece that could play out from the opportunity standpoint, and last but not the least some of the health economic studies that we have been working on how those are going to play out in some of the commercial coverage that youre trying.

Speaker Change: To get on the Allo short haul so I would say again there are multiple pieces that are in play and to be honest in my mind the Bota Lake.

Robert Woodward: And so, as we bring these two together and, you know, defining their paths and where they'll be used in the market, and we work with clinicians, there are really unique opportunities for each of them. So, I think we'll see them in parallel and not in each other's way. Our next question comes from Brandon Couillard with Jefferies. Please proceed with your question. Hey, thanks. This is Matt Owen on behalf of Brandon.

Speaker Change: Equally in play I called out the revenues are pretty much 50, 50 between her kidney and the heart franchisee. So I see the opportunity lie in both areas.

Speaker Change: Thanks, and lastly regarding the litigation expenses is it going to be a recurring.

Speaker Change: Item.

Speaker Change: Every quarter going forward.

Speaker Change: No I think I'm glad that you asked this question in China. Because this has been one of our key focus areas then.

Speaker Change: We have been trying to limit the legal expenses happy.

Speaker Change: Happy to report that if you look at our G&A expenses for the fourth quarter. It has come down by roughly four and a half million Bucks and I know that the team has been very.

Unknown Executive: Maybe going back to the guide, can you help us a bit more in terms of the cadence as we move through 24? You know, I think, historically, you've seen a bit of a step up in one queue. Do you expect that this year?

Speaker Change: <unk> focus in trying to figure it out as to how to bring those expenses down.

Speaker Change: To like us being more effective and efficient in some of the cases that you need to do.

Speaker Change: And to be honest some of the legal cases that we had been kind of into they have started to kind of taper off for example, the <unk> investigation.

Unknown Executive: And then, you know, is it kind of 66 or 67 million a quarter evenly spread out? Or are there maybe some initiatives or other items that kick in in the back half that would make that a bit more weighted for the year? Any color there?

Speaker Change: It has been decided not favor.

Speaker Change: On the PPE or rate that had been a lot of claims that had been actually exit indicated in our favor and now we have a template that we can use so some of the legal spend is kind of coming down and we're looking for every single opportunity to be able to reduce them, but looking at the fourth quarter.

Abhishek Jain: Sure, Matt. And let me break this down by business. Because of the billing article revisions last year, things have been ups and downs, ups and downs throughout the year. So starting with the testing services business, I would suggest starting with a Q4 actual revenue baseline there. And then, based on the overall yearly guidance, I would basically suggest that you should bake in sequential growth quarter over quarter for that particular business. And for the other two businesses, since they are a little bit more, I would say, seasonal, specifically our products business, you should be looking at year-over-year growth starting in Q1 2024.

Speaker Change: G&A, Poland half million dollars down primarily driven by the legal spend there so that stays a priority.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Oh.

Speaker Change: Our next question comes from Nathan Carrico with Stephens. Please proceed with your question.

Speaker Change: Hey, guys. This is Jacob on for <unk>. Thanks for taking the questions. So just maybe a cleanup on the guide and apologies. If this has been touched on I jumped on a little bit late but I think you said that your 2020 for revenue guidance assumes low to single digit testing service revenue growth I'm just wondering.

Speaker Change: And if maybe you could break that down a little bit further in terms of growth between different Orient times kidney heart lung and are you baking in any.

Speaker Change: S P increases.

Speaker Change: On there that would be upside due to you know commercial windsor or anything during the year.

Speaker Change: I'm not sure so on the testing side, yes.

Abhishek Jain: And you should basically model for the non-testing services business slightly differently. And that will basically give you the cadence as to how the quarterly revenue number should look. Okay, that's helpful.

Speaker Change: Expecting a low to mid single digit revenue growth and one of the important pieces. There does that I'm, taking this thing on a fourth quarter revenue base for the testing services revenue.

Speaker Change: So just from the example standpoint, if you were to kind of advocating physician visit revenue on the fourth quarter annualized you will basically get a lower.

Abhishek Jain: And then going back to capital allocation, no debt, $235 million of cash exit in a year. There's the potential litigation payout, which is sizable, but as you talked about in the prepared remarks, could be a multi-year process. You will repurchase about $25 million of shares here in 2023. How should we think about your capital allocation plans going forward? Is more of the buyback on the table? Just how are you thinking about cash usage here in 2024 and beyond? No, absolutely not.

Speaker Change: Revenue growth for the next year, because youre not taking it for the full year.

Speaker Change: But from the assumption standpoint, what I'm, assuming is a testing services volume growth would be very similar.

Speaker Change: To the transplant volume growth that we have seen which is mid single digits. So that's the first part of the play and then the second piece on the ESP I'm trying to expecting about 2% to 4% headwind and there could be the Cincinnati.

Speaker Change: <unk>.

Speaker Change: But I'm not expecting ESP headwinds to be similar to what we had seen in 2022 based on our experience in the last few quarters and based on all the collection effort and the asking that folks would be had been collecting a lot more cash.

Speaker Change: So limited had been 40 ESP.

Abhishek Jain: And from the context standpoint, you picked it up pretty well that we bought 2.9 million shares for like $27 million in 2023. And most of those purchases were actually in the fourth quarter. So we were pretty confident with $235 million in cash. And based on the fact that we had taken a lot of cost out of our system, and based on the needs that we were projecting for cash, we felt very comfortable in actually pursuing the shared buyback program. But with this IP litigation jury award, even if there are multiple steps that we have to go through, starting with the district court, and then possible appeals, a multi-step, multi-year process. We are taking a stance here to pause the Shared By Tech program for now, and we will assess as to how some of these other pieces will play out, and at that time, we will bring the discussion or the decision on the Shared By Tech Thank you.

Speaker Change: The transplant volume growth.

Speaker Change: Of mid single digit dragging the testing services volume growth and mid single digit.

Speaker Change: Lowered by ESP headwind, a little bit that gives us a low to mid single digit growth for the testing services revenue.

Speaker Change: That makes sense.

Speaker Change: Okay got it. Thank you that's super helpful and just.

Speaker Change: Just maybe one follow up here on Allomap kidney and again, sorry, if this has already been touched on.

Speaker Change: Wondering what your expectations are around when you could get a CMS decision on coverage for that test.

Speaker Change: Our ongoing process as far as seeking coverage and so we don't have any specific expectation we were to get it as soon as we can.

Speaker Change: Okay got it thanks, guys I appreciate it.

Speaker Change: We have reached the end of our question and answer session. This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Operator: Our next question comes from Alex Nowak with Craig Hallam. Please proceed with your question. Okay, great. Good afternoon, everyone.

Unknown Executive: If you look at the normal revenue for 2023, I'm basically taking what you did in Q4 here and annualizing it. The guide for 2024 comes in at basically about 4% growth. I can take a little bit.

Unknown Executive: I guess the question is, what level of growth can the company ultimately achieve in 2025-2026, pick a time point in the future, without necessarily more remodeling? So I would basically say that there are multiple paths for the testing services to grow. And of course, there's secular market growth where we are seeing good momentum in our transplant volumes. Specifically, if you look at the hard side, they have been growing on a low double-digit basis in the last year, and also kidney, kind of growing at a high single-digit rate.

Abhishek Jain: My sense is that if you continue to see that kind of growth, the secular organic growth, that's basically the first piece. And then we heard from some of our same space companies like TransMedics, all the things that they are doing in this particular space to be able to kind of grow the usage of the organs, so on and so forth. So we feel very good that this particular space can actually grow in a high single-digit to a low double-digit kind of scenario. But absolutely, let me have Alex kind of add further.

Unknown Executive: But my sense is that there's a lot of opportunity in this space to grow at a much higher rate. Yeah, Alex, and you mentioned without reimbursement, and obviously, that's a nice tailwind for us as well, because that'll apply to broad swaths of our business as different commercial payers come on, and certainly, there's upside with Medicare as well. I think Abhishek covered it well. You know, one of the interesting data points is that when you look at heart and kidney, which is really the, you know, the bulwark of our transplant testing services volume, right? Back in 2020, there were 25,000 combined transplanted organs between heart and kidney. You know, last year it was 30,000, right? So you're getting this really significant growth, even during the pandemic, even when living donor volumes have basically flatlined for quite a while. And they're coming back.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: [music].

Unknown Executive: And I think, you know, you saw that last year. And when you look at utilization and other tailwinds here, you really start to see a model where when you have, you know, 8% transplant volume, just overall market growth in 2023, it's not wrong to think, how long can that last? And when you look at all the different avenues, whether it's not just better utilization but also the opportunity for living donation to increase, you really see that tailwind for our business. So, thanks for leaving out the reimbursement piece, because I think it does let us take apart the story piece by piece because there are significant areas where our revenue can increase in the long and middle-term. Thanks for that question, Alex. It makes sense.

Unknown Executive: If we're transplanting higher-risk organs, they just need to be tested. So your answer makes total sense there. I just want to be crystal clear about the moves with reimbursement. Again, so much has transpired over this last year. So as we enter right now, based on everything you're seeing with your conversations with CMS and the like, is it fair to say the reimbursement that sits today is pretty much set in stone, and the only view that you have is things can only go higher from here? Like there's nothing you're looking at that could say, hey, that could be another shoe to drop. I mean, I think, you know, set in stone is probably not the way we would look at it.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Uh huh.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Unknown Executive: You know, there's certainly an LCD process that's going on now, as well as significant public pressure and outcry to bring back coverage for these Medicare patient transplant tests. So I think certainly there's an ongoing process that will play out, you know, certainly in 2024. We are currently in our base case; we're assuming that nothing does change, which will be very unfortunate for patients. But that's what we'll live with.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

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Robert Woodward: And that's what we'll execute on if things don't change. But I think there are significant processes going on right now that could potentially change. And I think, you know, as more data comes out, not just in 24, but in future years around surveillance, for example, for Medicare, which is really the area that that was pulled back on for patients, that's something where we have our care study that can help generate data that may, in fact, be impactful evidence that can help bring back some of the coverage. So I think there's a number of shots on goal here for us to continue growing it and Can you just outline the scenarios here with the LCD if it does get finalized as it stands at Medicare? I guess what could happen?

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Unknown Executive: Maybe I'll ask you just to clarify. Sure, maybe I'll ask Robert to answer that. But I think just to clarify your question, meaning what would change with our business if it was solidified today? As proposed, what's the, Could you clarify the question a bit? Absolutely.

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

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Robert Woodward: So the draft that they came out with very closely parallels and incorporates a lot of the language from the billing article. And so it really seems to have been their response to a lot of pressure that there wasn't a public process. So they put in place a public process to get to the same place, even though they didn't do all that they had already done.

Speaker Change: Yes.

Robert Woodward: So, as has already been mentioned, you know, our base case for the business is that it's going to be this way, and as is in the billing article. And, you know, if finalized in their draft form, if they didn't make any changes, or any substantive changes, then it would continue as it is for patients and businesses and providers, as far as finding ways to do the testing within the scope of what they're allowing. I got it. It makes sense. Lastly, just any status on the DOJ inquiry. No, nothing material over here, Alex.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Abhishek Jain: We have disclosed... in the 10K, whatever we had to, but on the DOJ side, nothing of substance. All right.

Operator: I appreciate the update. Thank you. Our next question comes from Yi Chen with HC Wainwright. Please proceed with your question. Thank you for taking my questions.

Unknown Executive: Within the next 12 to 18 months, do you expect there could be any potential upside regarding the reimbursement policy? Sure, and I think I lost the last piece of your question. Changes to reimbursement, and what was the last piece? No, that was the question.

Unknown Executive: Basically, your guidance, your 2024 guidance is based on current reimbursement policy, right? So I'm asking if there's any potential improvement in reimbursement within the next 12 to 18 months. Yeah, that's a, I think, an opportunity for a catalyst with, you know, potential this finalization of the LCD that can, as Robert mentioned, can happen before, potentially before August. They have until August to finalize. And so, what's in there, if there is an opportunity to change coverage, these Medicare patients, I think, would certainly be very impactful for our business. On top of that, we have additional studies that we have in publication, whether it's drafting or analysis, K.O.R. and SURE, that can provide additional data and evidence for payers to continue to add coverage for their patient population. And that will happen, as we mentioned, Shor and Kaur, certainly some publications in the next 12 months, and between different types of transplants. Kinney, Heart, and Lung.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Unknown Executive: Which type of transplant do you see, do you expect to be able to provide? the largest gross driver. Yeah, I think there's a significant growth right now in heart that's significant. And certainly, you know, as the billing article changed our mix a bit, heart will continue to be a good growth driver. However, the ability for kidneys to come back with living donors also will continue to push that mix. Abhishek, anything else on the mix you want to talk about?

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Uh huh.

Speaker Change: Uh huh.

Speaker Change: Hum.

Speaker Change: [music].

Abhishek Jain: I think from the opportunity standpoint, the way I see it, there are two different pieces. If the billing article coverage were to get changed with some of our data publication or our policy efforts, then, of course, there's a sizable opportunity on the kidney side. As well as, when I talk about the studies on the KOR, if that data turns out to be in the right way, then of course, there's a significant opportunity there, based on what I previously called out, that we have very limited commercial coverage there. So that can basically drive a fairly sizable upside. If you were to talk about the heart, on the Yellow Shore Heart, primarily, I think that's where the show comes into play.

Speaker Change: Yeah.

Speaker Change: [music].

Abhishek Jain: Can we get the coverage for surveillance back for greater than one year where we have limited coverage now for Medicare? So that is another piece that will play out from the opportunity standpoint. And last but not least, some of the health economics studies that we have been working on, how those are going to play out in some of the commercial coverage that we are trying to get for the Yellow Shore Heart. So I would say, again, there are multiple pieces that are in play. And to be honest, in my mind, they are both like equal in play.

Speaker Change: Yes.

Speaker Change: Mhm.

Speaker Change: Okay.

Abhishek Jain: I pointed out that revenues are pretty much 50-50 between our kidney and heart franchises. So I see the opportunity lie in both areas. And lastly, regarding the litigation expenses, is it going to be a recurring item every quarter going forward? No, I am glad that you asked this question, Yi Chen, because this has been one of our key focus areas and we have been trying to limit legal expenses.

Speaker Change: [music].

Abhishek Jain: I'm happy to report that if you look at our GN expenses for the fourth quarter, they have come down by roughly four and a half million bucks. And I know that the team has been very focused on trying to figure out as to how to bring those expenses down through being more effective and efficient in some of the cases that we need to do. And to be honest, some of the legal cases that we have been kind of involved in, they have started to kind of taper off. For example, the SSE investigation has been decided in our favor. On the TPE audit, there have been a lot of claims that have actually been adjudicated in our favor.

Speaker Change: Okay.

Speaker Change: [music].

Abhishek Jain: And now we have a template there that we can use. So some of the legal spend is kind of coming down, and we are looking for every single opportunity to be able to reduce it. But looking at the fourth quarter of GNA, four and a half million dollars down, primarily driven by the legal spend there. So that stays a priority.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Operator: Thank you. Our next question comes from Mason Carrico with Stevens. Please proceed with your question. Hey guys, this is Jacob Vaughn from Mason.

Unknown Executive: Thanks for taking the questions. So just maybe a clean up on the guide and apologies. I think you said that your 2024 revenue guidance assumes low-to-single-digit testing service revenue growth. I'm just wondering if maybe you could break that down a little bit further, and are you baking in any ASP increases on there that would be upside due to, you know, No, sure. So on the testing services side, yes, we're expecting low to mid single-digit revenue growth. And one of the important pieces there is that I'm baking this in on a fourth quarter revenue base for testing services revenue. So just from the example standpoint, if you were to kind of have testing service revenue for the fourth quarter annualized, you would basically get lower revenue growth for the next year because you're not taking it for the full year. But from the assumption standpoint, what I'm assuming is that TESIC services volume growth would be very similar to the transplant volume growth that we are seeing, which is mid-single digits. So that's the first part of the play.

Speaker Change: Yeah.

Speaker Change: Yes.

Abhishek Jain: And then the second piece on the ASP, I'm kind of expecting about 2% to 4% headwinds. And there could be different scenarios on the ASP. But I'm not expecting ASP headwinds to be similar to what we saw in 2022, based on our experience in the last few quarters. And based on all the collection efforts and the RCM efforts, we have been collecting a lot more cash. So limited headwinds for the ASPs, but the transplant volume growth of mid-single digit driving the testing services volume growth of mid-single digit. Lowered by ASP headwinds a little bit, that gives us a low to mid-single digit growth for the testing services revenue.

Speaker Change: [music].

Unknown Executive: Okay, got it. Thank you, and just maybe one follow-up here on Allomap kidney and again. Wondering what your expectations are around getting a CMS decision on coverage for that. An ongoing process as far as seeking coverage. And so, you know, we don't have any specific expectation; we work to get it as soon as we can.

Speaker Change: Okay.

Speaker Change: Uh huh.

Speaker Change: [music].

Unknown Executive: Thanks, guys. We have reached the end of our question and answer session. This concludes today's conference. Thank you for your participation. You may disconnect your lines at this. [inaudible] © BF-WATCH TV 2021 ?? ?? ?? ?? Director of Photography and Editing, Steve Sinclair Music by Steve Sinclair Edited by Steve Sinclair Music by Steve Sinclair Edited by Steve Sinclair ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??

Speaker Change: Yes.

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Speaker Change: Okay.

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Speaker Change: Okay.

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Speaker Change: Yeah.