Q1 2024 CareDx Inc Earnings Call
Operator: Good day everyone, and welcome to today's CareDx, Inc. first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star two. Please note this call is being recorded, and I'll be standing by if you need any assistance. It is now my pleasure to turn today's conference over to Greg Chodaczek. Please go ahead, sir.
Good day, everyone and welcome to today's <unk>, Inc. First quarter 2024 earnings conference call. At this time all participants are in a listen only mode. Later, you'll have the opportunity to ask questions. During the question and answer session. You May Register ask a question at any time I personally star and one on your telephone keypad.
Gregory Peter Chodaczek: You may withdraw yourself in the queue by pressing star two. Please note. This call is being recorded and I'll be standing by if you just need any assistance is now my pleasure to turn today's conference over to Greg <unk>. Please go ahead Sir.
Gregory Peter Chodaczek: Thanks, Travis, and good afternoon, and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ending March 31st, 2024. The release is currently available on the company's website at www.caredx.com. John Hanna, President and Chief Executive Officer, and Abhishek Jain, Chief Financial Officer, will host this afternoon's call. 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.
Gregory Peter Chodaczek: Thanks, Travis and good afternoon, and thank you for joining us today earlier today <unk> released financial results for the quarter ending March 31 2024.
Gregory Peter Chodaczek: The release is currently available on the company's website at Www Dot <unk> Dot Com, John Hanna President and Chief Executive Officer.
Gregory Peter Chodaczek: And all the Shack Jan Chief Financial Officer will host this afternoon's call 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 1995.
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, are an examination of historical operating trends, expectations regarding coverage decisions, pricing, and enrollment matters, and our financial expectations and results are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.
Gregory Peter Chodaczek: For a list and descriptions 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, May 9th, 2024. CareDx disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections, or other forward-looking statements, whether because of new information, future events, or otherwise. This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles. Reconciliation to the Most Directly Comparable Gap Financial Measure may be found in today's earnings release filed with the SEC. I will now turn the call over to John.
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 historical operating trends expectations regarding coverage decisions pricing and enrollment matter matters and our financial expectations and results are based upon.
John: Current estimates and various assumptions.
Gregory Peter Chodaczek: 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.
Gregory Peter Chodaczek: Accordingly, you should not place undue reliance on these statements for a list and descriptions of the risks and uncertainties associated with our business. Please see our filings with the Securities and Exchange Commission.
John: The information provided in this conference call speaks only to the live broadcast today May nine 2024.
Gregory Peter Chodaczek: <unk> 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.
Gregory Peter Chodaczek: This call will be all will also include a discussion of certain financial measures that are not a car or that are not calculated in accordance with generally accepted accounting principles.
Gregory Peter Chodaczek: Reconciliation to the most directly comparable GAAP financial measure maybe found in today's earnings release filed with the SEC I will now turn the call over to John.
John Hanna: Thank you, Greg, and to everyone for joining today's call. I want to start by thanking our CareDx employees and the transplant community for their warm welcome. It is an honor to be a part of this organization and its mission to improve transplant patient outcomes by providing innovative testing, digital, and product solutions globally. Before I begin with my prepared remarks on our first quarter 2024 performance, I want to acknowledge an exciting new development that emerged yesterday.
John: Thank you, Greg and to everyone for joining today's call.
John Hanna: I wanted to start by thanking <unk> employees and the transplant community for their warm welcome. It is an honor to be a part of this organization and its mission to improve transplant patient outcomes by providing innovative testing digital and product solutions globally.
John Hanna: Before I begin with my prepared remarks on our first quarter 2024 performance I want to acknowledge an exciting new development that emerge yesterday.
John Hanna: The Centers for Medicare and Medicaid Services announced a new initiative called the Increasing Organ Transplant Access Model. The proposed initiative aims to increase access to kidney transplants for all people living with end-stage renal disease. In the program, participating transplant hospitals would be measured by increases in the number of kidney transplants, increased organ acceptance rates, and post-transplant outcomes. We are pleased to hear about this latest development and the potential it holds for the approximately 90,000 patients on the organ transplant list awaiting a new kidney. The CMS initiative is a proposed 6-year mandatory program for approximately 50% of all kidney transplant hospitals in the U.S., scheduled to begin on January 1st, 2025.
John Hanna: The centers for Medicare and Medicaid services announced a new initiative called the increasing organ transplant access model.
John Hanna: Those initiatives aimed to increase access to kidney transplants for all people living with end stage renal disease.
John Hanna: In the program participating transplant hospitals would be measured by increases in the number of kidney transplants increased Oregon acceptance rates and post transplant outcomes.
John Hanna: Okay.
John Hanna: We are pleased to hear about this latest development and the potential it holds for the approximately 90000 patients on the organ transplant list awaiting the new kidney. The CMS initiative is a proposed six year mandatory program for approximately 50% of all kidney transplant hospitals in the U S scheduled to begin on.
John Hanna: January one 2025.
John Hanna: For CareDx, we anticipate this initiative to be a tailwind for the adoption of our solutions that improve patient transplant outcomes, a critical component of the program's evaluation. Now, turning to our results. Our first quarter results were better than anticipated, stemming from growth across all businesses and our operational discipline. I will start today's call by sharing highlights from the quarter, including examples of the significant value our solutions create for patients and transplant centers that is driving our growth.
John Hanna: For <unk>, we anticipate this initiative to be a tailwind for the adoption of our solutions that improve patient transplant outcomes, a critical component to the program's evaluation.
John Hanna: Turning to our results our first quarter results are better than anticipated stemming from growth across all businesses and our operational discipline I will start today's call by sharing highlights from the quarter, including examples of the significant value our solutions create for patients and transplant centers that is driving our growth.
John Hanna: Then I will turn the call over to Abhishek for a detailed look at our financials and outlook for 2024. CareDx posted strong growth in the first quarter that builds upon the momentum created in the second half of 2023. For the first quarter, we reported revenue of $72 million, up 10% from the prior quarter.
John Hanna: I will turn the call over to Abbas Shack for a detailed look at our financials and outlook for 2024.
Speaker Change: <unk> posted strong growth in the first quarter that builds upon the momentum created in the second half of 2023 for the first.
Abhishek: Quarter, we reported revenue of $72 million up 10% from the prior quarter.
John Hanna: In the testing services business, we delivered approximately 42,000 tests, up 6% from the fourth quarter and representing the third consecutive quarter of growth in testing services volume. Revenue was $53.8 million, up 8% quarter over quarter, primarily excluding one-time collections from tests performed in prior quarters. Our testing services business is propelled by continued innovation that is highlighted by a growing body of clinical evidence supporting the clinical utility of our solutions, HeartCare, AlloShare Kidney, and AlloShare Lung.
Abhishek: And the testing services business, we delivered approximately 42000 tests up 6% from the fourth quarter and representing the third consecutive quarter of growth in testing services volumes.
John Hanna: Revenue was $53 8 million up 8% quarter over quarter, primarily excluding one time collections from tests performed in prior quarters.
John Hanna: Our testing services business has propelled by continued innovation that is highlighted in a growing body of clinical evidence supporting the clinical utility of our solutions heart care, Alistair kidney and I'll assure lung.
John Hanna: At the International Society of Heart and Lung Transplantation Annual Meeting in Prague, our products were featured in over 30 oral presentations, posters, and two symposia. In an oral presentation of late-breaking clinical study data, the first peer-reviewed findings from our large multicenter Surveillance of Heart Care Outcomes Registry, or SURE, were presented during an ISHLT scientific session. The SURE study is the largest prospective observational study of its kind in heart transplantation, with 67 participating centers, over 2,700 patients enrolled, and encompassing over 11,000 patient encounters.
John Hanna: At the International Society of Heart and lung transplantation annual meeting in Prague. Our products were featured in over 30 oral presentations posters and two symposia.
John Hanna: In an oral presentation of late breaking clinical study data. The first peer reviewed findings from our large multicenter surveillance of heart care outcomes registry or shore were presented during an I S. H L T scientific session.
John Hanna: The short study is the largest prospective observational study of its kind in heart transplantation with 67 participating centers over 2700 patients enrolled encompassing over 11000 patient encounters.
John Hanna: Independent researchers presented results that demonstrated that surveillance testing with heart care, the combined use of both Alloshare Heart and Allomap Heart, outperformed testing with donor-derived cell-free DNA alone in characterizing patients' risk for acute rejection. Notably, dual-positive results from heart care in the first six months also predicted poor outcomes at two years compared to patients with donor-derived cell-free DNA-positive results alone or dual-negative results in the first six months. These findings support the prognostic value of heart care. These data are highlighted in our earnings presentation.
John Hanna: Independent researchers presented results that demonstrated that surveillance testing with heart care. The combined use of both our Alice Shaw Heart and Allomap heart outperformed testing with donor derived cell free DNA alone in characterizing patients risk for acute rejection.
John Hanna: Notably dual positive results from heart care in the first six months also predicted poor outcomes at two years compared to patients with donor derived cell free DNA positive results alone or dual negative results in the first six months. These findings support the prognostic value of heart cure. These data are highlight.
John Hanna: In our earnings presentation.
John Hanna: Yeah.
John Hanna: We believe the SHORE study findings are significant and have the potential to transform the way providers care for heart transplant patients because of the clinical importance of having both Allomap gene expression profiling and AlloSHORE donor-derived cell-free DNA to assess allograft health. We believe that heart care has the potential to become the new standard of care, and surveillance biopsies will be performed more sparingly. We anticipate the first of several publications generated from the rich data set created by the SURE study to be in print this year.
John Hanna: We believe the short study findings are significant and have the potential to transform the way providers care for heart transplant patients because of the clinical importance of having both allomap gene expression profiling and al assure donor derived cell free DNA to assess Allograph health we.
John Hanna: We believe that heart care has the potential to become the new standard of care and surveillance biopsies will be performed more sparingly. We anticipate the first of several publications generated from the rich dataset created by the shore study to be in print this year.
John Hanna: Many in the transplant clinical community have already taken note of heart care's impact on outcomes. Stanford University has led the way as one of the earliest adopters of heart care in their journey to discover cases of subclinical rejection non-invasively. Stanford implemented a heart care protocol that allowed the center to shift further away from using surveillance biopsies to routinely incorporating non-invasive heart care. They have eliminated greater than 90% of biopsies in patients with dual positive results.
John Hanna: Many of the transplant clinical community have already taken note of heart cares impact on outcomes.
John Hanna: Stanford University has led the way as one of the earliest adopters of heart care in their journey to discover cases of subclinical rejection noninvasively.
John Hanna: Stanford implemented a heart care protocol, which allow the center to shift further away from using surveillance biopsies to routinely incorporating noninvasive heart care testing they have eliminated greater than 90% of biopsies in patients with dual positive results and importantly outcomes have remained excellent improve.
John Hanna: And importantly, outcomes have remained excellent. Improving the outcomes of transplant patients at centers like Stanford is driving the adoption of our testing solutions. Building upon the clinical evidence emerging for heart care, alloshore kidney, and alloshore lung, we successfully expanded medical policy coverage with Blue Cross Blue Shield plans and other private commercial payers for 14 million lives in the quarter. Payers are acknowledging the utility of our testing solutions in improving patient outcomes.
John Hanna: Improving the outcomes in transplant patients at centers like Stanford is driving the adoption of our testing solutions.
John Hanna: Building upon the clinical evidence emerging for heart care Allo store kidney and Alistair lung, we successfully expanded medical policy coverage with Blue Cross Blue Shield plans and other private commercial payers for 14 million lives in the quarter payers are acknowledging the utility of our testing solutions and improving patient outcomes. We.
John Hanna: We anticipate that coverage, coupled with our focused efforts in revenue cycle management, should continue to contribute to margin growth in future quarters. Lastly, on our Medicare coverage efforts, there continues to be significant pressure from transplant patient advocacy groups, clinicians, and CareDx to restore the longstanding coverage, which has primarily affected kidney transplant patients. We will be unwavering in our efforts to address this policy issue.
John Hanna: The paid that coverage coupled with our focused efforts in revenue cycle management should continue to contribute to margin growth in future quarters.
John Hanna: Lastly, on our Medicare coverage efforts there continues to be significant pressure from transplant patient advocacy groups clinicians and care Dx to restore the long standing coverage, which has primarily affected kidney transplant patients.
John Hanna: We will be unwavering in our efforts to address this policy issue.
John Hanna: Moving on to our patient and digital solutions business, where we had a good quarter with $9.6 million in revenue, a year-over-year growth of 12%. Currently, over 70% of transplant centers in the U.S. use at least one of our patient and digital solutions. After acquiring one of our solutions, such as our quality reporting software, and experiencing positive outcomes, we frequently see an uptake of additional value-added solutions, such as administrative staff augmentation or patient medication adherence services.
John Hanna: Moving on to our patient and digital solutions business, where we had a good quarter with $9 6 million in revenue a year over year growth of 12%.
John Hanna: Currently over 70% of transplant centers in the U S use at least one of our patient and digital solutions.
John Hanna: After acquiring one of our solutions such as our quality reporting software.
John Hanna: And experiencing positive outcomes, we frequently see an uptake of additional value added solutions, such as administrative staff augmentation or patient medication adherence services.
John Hanna: For example, Tampa General has become a significant user of our patient and digital health solutions. They have adopted four products over the last 18 months, addressing their needs including patient care coordination, quality improvement, HLA lab operations management, and logistics support. We are integrated with their EMR system, enabling them to provide digitally enhanced patient care. As a result, they have improved their quality measurement scores, operational efficiencies, and resource utilization across all stages of their transplant patient workflow.
John Hanna: For example, Tampa General has become a significant user of our patient and digital health solutions. They have adopted four products over the last 18 months addressing their needs, including patient care coordination quality improvement HLA lab operations management and logistics support.
John Hanna: We are integrated with their EMR system, enabling them to provide digitally enhanced patient care.
John Hanna: As a result, they have improved their quality measurement scores operational efficiencies and resource utilization across all stages of their transplant patient workflow.
John Hanna: They recently sought our assistance in refining their wait-listing process to increase the throughput of transplantation at their center. Our work with Tampa General demonstrates how CareDx's patient and digital solutions establish us as a trusted and essential partner to the success of their transplant program. Finally, in our products business, we achieved $8.6 million in revenue in the quarter, a 25% year-over-year growth, primarily driven by the continued adoption of our industry-leading Alloseek TX NGS-based HLA typing kit.
John Hanna: Recently sought our assistance in refining their wait listing process to increase the throughput of transplantation at their center I'll work with Tampa General demonstrates how care Dx's patient and digital solutions establish us as a trusted an essential partner to the success of their transplant program.
John Hanna: Okay.
John Hanna: Finally in our products business, we achieved $8 6 million in revenue in the quarter, a 25% year over year growth, primarily driven by the continued adoption of our industry, leading allo CTX Mgs based HLA typing kit.
John Hanna: Halicy TX delivers comprehensive results to HLA laboratories to help identify the best genetic match for organ transplant recipients. LifeLink Foundation's HLA Laboratory recently converted from legacy HLA typing solutions using real-time PCR methods to NGS-based Alloseq Tx because it eliminates the need for reflex testing to resolve ambiguous results and increases operational efficiency.
John Hanna: <unk> delivers comprehensive results to HLA laboratories to help identify the best genetic match for organ transplant recipients lie.
John Hanna: Life linked foundations HLA laboratory recently converted from legacy HLA typing solutions using real time, PCR methods to mgs based alloy CTX because it eliminates the need for reflex testing to resolve ambiguous results and increases operational efficiencies.
John Hanna: In summary, we had a strong first quarter. We have reset the business and returned to growth. Testing services is gaining momentum as our ever-growing data set of evidence continues to demonstrate the clinical utility and need for our novel, non-invasive testing, traction for our patient and digital solutions is growing, and our products business continues to gain market share. We are effectively managing our bottom line and driving profitable growth by improving efficiencies throughout the organization, enabling us to sustain a healthy cash balance.
John Hanna: In summary, we had a strong first quarter, we have reset the business and returned to growth.
John Hanna: Testing services is gaining momentum as our ever growing data set of evidence continues to demonstrate the clinical utility and need for our novel Noninvasive testing.
John Hanna: <unk> and our patient and digital solutions is growing and our products business continues to gain market share. We are effectively managing our bottom line and driving profit profitable growth by improving efficiencies throughout the organization, enabling us to sustain a healthy cash balance.
John Hanna: Given our performance in the first quarter, CareDx is raising its revenue guidance for 2024 to $274 to $282 million, as noted in our press release. Abhishek will provide more detail in his remarks. In conclusion, I want to thank the entire CareDx team for their focus and execution. We have an incredibly talented and inspired organization, and we look forward to a strong 2024. With that, I will ask Abhishek to share more details on our first quarter results. Okay, Abhishek?
John Hanna: Given our performance in the first quarter Carroty acts is raising its revenue guidance for 2024 to $274 million to $282 million as noted in our press release.
Abhishek: <unk> will provide more detail in his remarks and.
Abhishek: In conclusion I want to thank the entire Carroty X team for their focus and execution, we have an incredibly talented and it's an inspired organization and we look forward to a strong 2024 with that I will ask abishag to share more details on our first quarter results at a check.
Abhishek Jain: Thank you, John. In my remarks today, I will discuss our first quarter results before turning to our device 2024 guidance. Unless otherwise noted, my remarks will focus on non-CAP results. Please refer to Gap to Non-Gap Reconciliation in our press release today and recent SEC filings for further information. Let me start with the key financial highlights. Total revenue for the first quarter was $72 million, up 10% as compared to the fourth quarter of 2023.
Abhishek: Thank you John in my remarks today, I will discuss our first quarter results before turning to our device Twenty-twenty full guidance unless otherwise noted my remarks will focus on non-GAAP results.
Abhishek Jain: Is that what the GAAP to non decades installation vessels trade and decent SEC filing for that information.
Abhishek Jain: Tenzing Services revenue was $53.8 million, up 15% quarter over quarter. We delivered over 42,000 patient test results, up 6% sequentially, representing the third consecutive quarter of testing services volume growth. Reported patient and discharge solution revenue of $9.6 million, up 12% year-over-year, and product revenue of $8.6 million, up 25% year-over-year. Improved adjusted data losses to 1.9 million as compared to 10.3 million losses in Q4 of 23. Finally, maintain a strong cash position of $216 million at the end of March 2024 with no debt.
Abhishek Jain: Let me talk to the key financial highlights.
Abhishek Jain: Total revenue for the first quarter was $72 million up 10% as compared to the fourth quarter of 2023.
Abhishek Jain: Services revenue was $52 8 million up 15% quarter over quarter.
Abhishek Jain: We delivered over 42000 patient deaths up 6% sequentially, representing the third consecutive quarter of testing services volume quote.
Abhishek Jain: Reported patient and defense solutions revenue of $9 6 million up 12% year over year and product revenue of $8 6 million up 25% year over year.
Abhishek Jain: Improved adjusted EBITDA losses to $1 9 million as compared to <unk> 2 million loss in Q4 of 'twenty three.
Abhishek Jain: Finally, we maintained a strong cash position of $216 million at the end of March 2024, and no debt.
Abhishek Jain: Due to the strong overall performance in the first quarter, we are raising our full year 2024 revenue guidance to $274 million to $282 million from our prior guidance of $274 million. Moving to the details, starting with testing services, testing services revenue for the first quarter was 53.8 million, up 15% sequentially. Strong testing services revenue for Q1 was driven by the 3rd consecutive quarter of growth in testing services volume. Testing solicitation results grew to over 42,000 tests, up 6% sequentially, across both abdominal and cardiothoracic testing services.
Speaker Change: Due to the strong overall performance in the first quarter, yet do you think about full year 2020 full revenue guidance to $274 million with 282 million somewhat surprised items Paul.
Abhishek Jain: $274 million.
Abhishek Jain: Moving to the details starting with the testing businesses.
Abhishek Jain: I think that listen the revenue for the quarter was $53 8 million up 15% sequentially.
Abhishek Jain: Software and services revenue for Q1 was driven by the third consecutive quarter of growth investments with the volumes.
Abhishek Jain: That being said if the patient is that Google with 42010 up 6% sequentially across both abdominal and projects, but I think just in terms of tests.
Abhishek Jain: This growth is attributed to our continued success in re-establishing the use of allocial kidney and strong performance in heart testing services. In addition, Texas Services revenue benefited from continued revenue cycle management initiatives, including pursuing unpaid claims from tests delivered in the prior quarter. These efforts added approximately $3.7 million in revenue in the first quarter. We will continue to aggressively pursue unpaid historical claims.
Abhishek Jain: This growth is attributed to our continued success in re establishing Hugo <unk> kidney and strong performance in August and services.
Abhishek Jain: In addition, staffing services revenue benefited from continued revenue cycle management initiative, including pursuing unpaid theme from tests delivered in the past quarters.
Abhishek Jain: These efforts have added approximately $2 7 million in revenue in the first quarter will continue to aggressively pursue unthinkable for legal claims.
Abhishek Jain: Our non-cash testing services adjusted to a margin of 76% in the first quarter compared to 72% in the fourth quarter of 2023. Adjusted for the $3.7 million revenue, as discussed earlier, testing services gross margin stayed healthy at 74%. Our lab operations team continues to drive efficiencies and manage expenses well with initiatives focused on improving logistics and sample processing costs. Now, turning to the other businesses.
Abhishek Jain: Our non-GAAP testing services adjusted gross margin was 76% in the first quarter compared to 72% in the fourth quarter of 2022.
Abhishek Jain: Adjusting for the $2 7 million in revenue as discussed earlier testing physical gross margin stays healthy at 74%.
Abhishek Jain: Our lab operations team continuous to drive efficiencies and manage expenses better with initiative focused on improving logistics and sample processing cost.
Abhishek Jain: Now turning to the other businesses.
Abhishek Jain: Our patient and discourse solutions business reported revenue of $9.6 million in the first quarter, up 12% year-over-year. Our patient and discourse solutions business non-gas loss margin for the first quarter was 34% compared to 31% in the first quarter of 2023. Our product business recorded revenue of $8.6 million in the first quarter, up 25% year-over-year. Growth in the products business was once again driven by NGS-based credit solutions for HLA Labs. Our non-gap growth margin for our products business was 46% in the first quarter, down from 52% in the first quarter of 2023.
Abhishek Jain: Patient and distant solutions business reported $9 6 million for the first quarter up 12% year over year.
Abhishek Jain: Strong top line results were driven by core digital offerings.
Abhishek Jain: Patient and different solutions business non-GAAP gross margin for the first quarter was 34% compared to 31% in the first quarter of 2023.
Abhishek Jain: Our products business recorded revenue of $8 6 million in the first quarter up 25% year over year.
Abhishek Jain: But also in bulk products business was once again driven by India.
Abhishek Jain: [noise] solution for HLA labs.
Abhishek Jain: Our non-GAAP gross margin for our products business was 46% in the first quarter down from 52% from the first quarter of 2023.
Abhishek Jain: We have completed the end-of-life build for one of our products and ramped up manufacturing capabilities with our contract manufacturers in the U.S. and Europe. We are on track to substantially close our manufacturing operations in pre-metal Australia as part of our site consolidation initiative.
Abhishek Jain: We have completed the end of life date for one of our products and backup manufacturing capabilities with our contract manufacturer in the U S and whatnot.
Abhishek Jain: We are on track to substantially close our manufacturing operations and key mental Australia as part of our site consolidation initiate that.
Abhishek Jain: We expect these initiatives will help us improve the growth margin of this business to the mid-50s on a sustainable basis. Moving down the P&L, non-GAAP operating expenses for the first quarter were $52.3 million, down approximately $1.9 million as compared to the last quarter and down over $9 million as compared to the first quarter of 2023. We have made substantial progress in managing our expenses while ensuring that we continue to invest in areas that will help drive growth.
Abhishek Jain: We expect these initiatives will help us improve the gross margin of this business to the mid <unk> on a sustainable basis.
Abhishek Jain: Moving down the P&L non-GAAP operating expenses for the first quarter was $52 3 million down approximating $1 9 million as compared to the last quarter and down over 9 million as compared to the first quarter of 2020 key.
Abhishek Jain: We have made substantial progress in managing our expenses, while ensuring that we continue to invest in areas that can help drive growth.
Abhishek Jain: Adjusted EBITDA for the first quarter of 2024 was a loss of $1.9 million compared to an adjusted EBITDA loss of $10.3 million in the fourth quarter of 2023 and a loss of $6.4 million in the first quarter of 2023. However, the first quarter was positively impacted by $3.7 million in revenue, as discussed earlier. We are pleased with the progress that we're making on driving profitable growth. Turning to cash, we maintained a strong balance sheet of $216 million in cash, cash equivalents, and marketable securities with no debt.
Abhishek Jain: Adjusted EBITDA for the first quarter of 2020 was a loss of $1 9 million compared to an adjusted EBITDA loss of $10 3 million in the fourth quarter of 2023, and a loss of $6 4 million in the first quarter of 2018.
Abhishek Jain: The first quarter was positively impacted by <unk> 7 billion in revenue as discussed earlier, we are pleased with the progress that we're making on driving profitable growth.
Abhishek Jain: Turning to cash we maintained a strong balance sheet with $216 million in cash cash equivalents and marketable securities with no debt.
Abhishek Jain: Cash used in operations for the first quarter was $15.3 million as compared to $8.4 million last quarter, and it far exceeded its cash from operations of $0.7 million a year ago. Cash usage in the first quarter is seasonally higher due to annual bonus payout. 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. Turning to guidance,
Abhishek Jain: Cash used in operations for the first quarter was $15 3 million as compared to $8 4 million last quarter and a positive cash from operations of <unk> 7 million a year ago.
Abhishek Jain: Cash usage in the first quarter is seasonally higher due to annual bonus payouts.
Abhishek Jain: Just on current cash position and anticipated cash usage in operations. We continue to believe that you do not need to reduce cash in the foreseeable future.
Abhishek Jain: Based on the healthy performance across all businesses in the first quarter of 2024, we are now raising the full-year revenue guidance to $274 to $282 million. The midpoint of our 2024 guidance assumes double-digit double-digit testing services revenue growth based on annualized actual testing services revenue for the fourth quarter of 2023. No change in Medicare coverage, no incremental revenue assumed from new private care coverage decisions or one-time benefits associated with collection, and High Single-Digit Growth Year-over-Year for our Product Business and Mid-Single-Digit Growth Year-over-Year for our Creation and Distribution Business.
Abhishek Jain: Turning to guidance based on the healthy performance across all businesses in the first quarter of 2024, nowadays in the full year revenue guidance to 244 to 282 million.
Abhishek Jain: The midpoint of our 2024 guidance assumes.
Abhishek Jain: Low double digit testing services revenue growth based on annualized actual testing services revenue for the fourth quarter of 'twenty.
Abhishek Jain: No change in Medicare coverage, no incremental revenue assumed from new private payer coverage decision or onetime benefit associated with collections.
Abhishek Jain: And high single digit growth year over year for our parts business and mixing vintage of growth year over year put a patient and disciplined solutions businesses.
Abhishek Jain: We expect our gross margin to be at the high end of our previously reported range of approximately 63 to 65 percent, driven by the improved testing services gross margin. Due to the improved revenue expectation and gross margin, we expect our adjusted EBITDA losses for the full year 2024 to be between $14 million to $24 million as compared to the previously guided $20 million to $30 million. I would like to thank the entire CareDx team for their focus and delivery in executing against our plan for 2024. Now, before we open the line for questions, I would like to turn the call over to John to deliver his closing remarks.
Abhishek Jain: We expect our gross margin to be at the high end of our previously reported range of approximately 63% to 65% driven by the improved testing services gross margin.
John Hanna: Due to improved revenue expectation on gross margin, we expect our adjusted EBITDA losses for the full year 'twenty forward to be between 14 million to $24 million as compared to the previously guided 20 million to $20 million.
John Hanna: I would like to turn the entire <unk> team for their focus on delivering and executing against our plan for 2024.
Abhishek Jain: Before we open the line for questions I would like to turn the call over to John I believe with closing remarks.
John Hanna: Thank you have a shack.
John Hanna: As we conclude our prepared remarks, I want to again express how proud I am to be a member of the CareDx team. Our strong results this quarter underscore the value of our solutions and our commitment to serving patients.
John Hanna: As we conclude our prepared remarks I want to again express how proud I am to be a member of the <unk> team. Our strong results this quarter underscore the value of our solutions and our commitment to serving patients.
Operator: And now, I would like to ask the operator to open the line for any questions. Yes, sir. At this time, if you would like to ask a...
John Hanna: And now I would like to ask the operator to open the line for any questions.
Operator: Yes, sir. At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We will pause for a moment to allow questions to queue. Our first question comes from Bill Bonello with Craig Hollum Capital Group.
Speaker Change: Yes, Sir at this time, if you would like to ask a question. Please press the star and one on your telephone keypad you may remove yourself in the queue at any time by pressing star to once again that is star one to ask a question, we will pause for a moment to allow questions to queue.
Operator: Our first question comes from Bill Bonello, with Craig Hallum Capital Group.
Bill Bonello: Good morning, guys. Nice quarter. So just first, just a housekeeping item. It's interesting that you call that prior period collections. Just thinking about this as you work on revenue capture, won't prior period revenue become kind of a normal thing for a while? Or is this just a lot bigger than what you might expect in a typical quarter?
Bill Bonello: Good morning, guys nice quarter.
Bill Bonello: So just first just a housekeeping item, it's interesting that you called out the prior period collections just thinking about this as you work on revenue capture wont prior period revenue become kind of a normal thing for a while or is this just a lot bigger than what you might expect in a typical quarter.
Gregory Peter Chodaczek: Hey, thanks, Bill. I appreciate the question. I'm gonna ask Abhishek to take this one.
Speaker Change: Hey, Thanks, Bill appreciate the question I mean as Abishag to take this one.
Abhishek Jain: Yeah, thanks for the question, Bill. And you're right that we continue to pursue some of those unpaid claims from the prior period test. And we would want to provide enough color so that we can model these appropriately. But going back to your question, once we have had success in negotiating with these payers, it definitely becomes a tailwind as we kind of look at this from the go-forward basis.
Abhishek Jain: Yes, thanks for the question <unk> so.
Abhishek Jain: We continue to closely with some of those unpaid clean self from the Pi.
Abhishek Jain: Okay.
Abhishek Jain: And we would want to provide enough color. So that we can model that will pace, but going back to your question. Once we have had success in negotiating deals.
Abhishek Jain: With these payers it definitely becomes a tailwind as we signed up.
Abhishek Jain: Look at some of the go forward basis.
Abhishek Jain: Okay.
Bill Bonello: Thanks. And then just the second thing is just what... Oh, go ahead.
Speaker Change: Thanks, and then just the second thing is just in it.
Speaker Change: Oh go ahead.
John Hanna: Yeah, Bill, I was just going to add, I think, you know, in Q4, we also had, you know, one-time prior period collections, and we see this amount of prior period potential revenue declining over time as we negotiate through these one-time events. So we call it out here because we don't anticipate it to continue to be a substantial sum into perpetuity. We think this balance will draw down, so we will continue to call that out when it occurs, but we're not providing those one-time events as a part of our go-forward guidance.
Speaker Change: Yeah, Bill I was just going to add I think.
John Hanna: And in Q4, we also had one time prior period collections and we see this.
John Hanna: This amount of prior period potential revenue declining over time as we negotiate through these one time events. So we call. It out here because we don't anticipate it to continue to be a substantial sum into perpetuity. We do think this balance will draw.
John Hanna: Down so we will continue to call that out when it occurs but we're not providing.
John Hanna: Those onetime events as a part of our go forward guidance.
Bill Bonello: Okay, that makes sense, but when I think about it, sorry to just beat this one, but when I think about it, so it is a prior period, I get it, it's something you weren't paid for, but does it also speak a little bit to run rate? In other words, that's $3.5 million that you never got paid in the past that, presumably, looking forward, you will be getting paid, or should we not think about it like that?
Bill Bonello: Okay that that means that that makes sense.
Bill Bonello: When I think about it.
Bill Bonello: Sorry to beat this one but when I think about it. So it is a prior period I get it it's something you weren't paid but does it also speak a little bit to run rate in other words, that's $3 $5 million.
Bill Bonello: But you never were getting paid in the past that presumably looking forward you will be getting paid or should we not think about it like that.
Bill Bonello: Yeah.
John Hanna: That's what we're hoping to occur, Bill, and so we would anticipate that, on a go-forward basis, we would see, you know, improvement in ASPs as a result of working through these processes with individual payers.
Speaker Change: That's what we're hoping to occur bill and so we would anticipate that.
John Hanna: On a go forward basis, we'd see improvement in Asps as a result of working through these.
John Hanna: These processes with individual payers.
Bill Bonello: Okay, thank you. And then the other thing was just, can you talk about what you're seeing in terms of physician behavior on the kidney surveillance testing side? Has it ticked back up since CMS put out that letter at the end of February, or what's the situation?
John Hanna: Okay.
Speaker Change: Thank you.
Bill Bonello: Yeah.
Bill Bonello: And then the.
Bill Bonello: The other thing was just can you talk about what youre seeing in terms of physician behavior.
Bill Bonello: On the kidney surveillance testing side is it is it ticked back up since CMS put out.
Bill Bonello: That letter at the at the end of February or what's kind of the situation there.
John Hanna: Yeah, that's a great question. Thanks, Bill. And, as we stated in our prepared remarks, our volumes grew across all three segments of the business, heart, kidney, and lung. We have implemented the requirements that CMS has put in place or that the MACS has put in place for payment of testing. And we continue to see our volumes grow as a result of that. But we don't we don't think that, you know, we don't think that is going to change.
Speaker Change: Yes, that's a great question. Thanks, Bill as we stated in our prepared remarks, our volumes grew across all three segments of the business heart kidney and lung.
John Hanna: We have implemented requirements that CMS has put in place or that the Max they put in place for payment of testing and we continue to see our volumes grow as a result of that we don't we don't think that.
John Hanna: You know, we don't think that is going to change substantially going forward other than to acknowledge that the agency has stated that they intend to continue to provide access to monitoring assays for transplant rejection and we will continue to support that and communicated in the field with.
John Hanna: substantially going forward, other than to acknowledge that the agency has stated that it intends to continue to provide access to monitoring assays for transplant rejection, and we'll continue to support that and communicate it in the field with clinicians as they adopt these products going forward.
John Hanna: Clinicians as they adopt these products going forward.
John Hanna: Okay.
Operator: Okay, thank you. Thanks for the questions. Thanks, Bill.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks for the question. Thanks Bill.
Operator: Our next question comes from Matt Sykes with Goldman Sachs.
Operator: Our next question comes from Matt <unk> with Goldman Sachs.
Prashant Kodan: Hey guys, congrats on the quarter. This is Prashant Kodan for Matt. So, with the billing article revisions last year having impacted your product mix from being majority kidney to majority heart and lung for both volumes and revenues, do you anticipate that trend continuing in the near term? And how will that impact ASV?
Matthew Carlisle Sykes: Hey, guys. Congrats on the quarter. This is for Sean code on for Matt.
Prashant Kodan: So with the billing article revisions last year, having impacted your product mix from being majority kidney to majority.
Prashant Kodan: Pretty hard and long for both volumes and revenues do you anticipate that trend continuing in the near term and how will that impact asps.
Gregory Peter Chodaczek: Thanks for the question. I'm going to ask Abhishek to take this one.
Speaker Change: Thanks for the question.
Abhishek Jain: Im going to ask <unk> to take this one.
Abhishek Jain: Yeah, and Prashanth, yes, we have called out in our Investor Day meeting that Cardiff Forestake is now about 60% of our volume, and given the fact that we are seeing that the hard franchise is kind of growing at a pretty decent pace, we believe that this trend will continue. Now, one quarter will not tell us if there's a permanent shift further from here, but I would expect this to continue.
Abhishek Jain: Yes, Sean.
Abhishek Jain: Yes, so we have called out in our Investor Day meeting <unk> target for I think is now about 60% of high volume and given the fact that we have seen that the Hudson Charles we're kind of growing.
Abhishek Jain: Ill pretty.
Abhishek Jain: And at a pretty decent pace, we believe that this trend will continue now one quarter does not provide us if theres a permanent shift further from here, but I would expect that to continue.
Prashant Kodan: Got it. And then, can you speak to any synergies that may exist upstream of organ transplant surveillance? For example, within the organ transplant delivery network involving companies such as TransMedx?
Speaker Change: Got it.
Prashant Kodan: And then can you speak to any synergies may exist upstream of organ transplant surveillance.
Prashant Kodan: For example, within the organ transplant delivery network involving companies such as transmit X.
John Hanna: Yeah, thanks. I'm gonna ask Alex Johnson, our president of testing services, to take this question. Yeah, thanks.
Prashant Kodan: Yes, thanks him and ask Alex Johnson, our president of testing services to take this question.
Alexander L. Johnson: You know, we acquired a company called Medigo a couple quarters ago, and there's a lot of work going on to increase utilization and, consequently, organ supply upstream. And I think that's where we're going with this. And, you know, there's quite a bit of excitement around this space.
Alexander L. Johnson: Yes. Thanks.
Alexander L. Johnson: We acquired a company called meta go.
Alexander L. Johnson: A couple of quarters ago.
Alexander L. Johnson: There's a lot of work going on to increase the utilization and consequently, Oregon supply upstream and I think that's where we're going with this and.
Alexander L. Johnson: There's quite a bit of excitement around this space and I think we've certainly seen us in the the increase in heart transplant certainly.
Alexander L. Johnson: And I think we've certainly seen this in the increase in heart transplants. Certainly, that's a growth area that is outpacing other areas of the market for transplants. And I think these areas are places that we will continue to play in. And we have digital tools as well as products. Our product business primarily is pre-transplant, and so we're able to think about ways to incorporate our tools upstream as well. And that utilization increase, as well as better outcomes, really completes the whole ecosystem for our patients and the clinicians. So it's a great question. We're very well positioned to play there as well as in the entire transplant journey.
Alexander L. Johnson: Certainly that's a growth area that is outpacing other areas of the market for transplant and I think these areas are places that we can continue to play in and we have digital tools as well as products our product business, primarily is pre transplant and so we're able to think about ways to incorporate our tools.
Alexander L. Johnson: Upstream as well and that utilization increase as well as better outcomes really completes the whole ecosystem for our patients and the clinicians. So it's a great question, we're very well positioned to play there as well as in the entire.
Alexander L. Johnson: Transplant journey.
Speaker Change: Got it and then just lastly.
Speaker Change: Would love to get your sense high level of key takeaways from that proposed Io to model from.
Speaker Change: From CMS I haven't actually read through the documents.
Speaker Change: Would love to get the details behind the incentive plan that I mentioned.
Alexander L. Johnson: And its impact yes. This is Alex again I can take this.
Alexander L. Johnson: Yeah, this is Alex again. I can take this. You know, I did read all 300 or so pages, or at least tried to get through it last night.
Alex: I did read all 300, or so paid at least tried to get through it last night, we're still going through it I think the headline here is that there is a clear need to continue to increase the Oregon supply and increasing utilization and reducing discards and improving outcomes. I mean these are all things that are going to help patients.
Alexander L. Johnson: We're still going through it. You know, I think the headline here is that there's a clear need to continue to increase the organ supply and increase utilization and reduce discards and improve outcomes. I mean, these are all things that are going to help patients. And so, you know, when you look at it, you've already got a nice upswing just from a market perspective; kidney transplants have been growing nicely. I think they grew year over year in Q1, about 6%. HART has continued to grow, actually exceedingly above that. Last year, I think HART was at 11% from an annualized growth rate.
Alex: And so when you look at it you've already got a nice upswing on just from a market perspective kidney transplants have been growing nicely I think they grew year over year in Q1 about 6%.
Alexander L. Johnson: Hart has continued to grow actually seemingly above that last year I think heart was at 11% from our annualized growth basis, and so you've got some significant upsides here, we'll see where this goes this is proposed and we're certainly monitoring and will read closely and we'll see how these value based care initiatives continue to drive the market.
Alexander L. Johnson: And so, you know, you've got some significant upsides here. We'll see where this goes. This is proposed, and we're certainly monitoring, and we'll read closely, and we'll see how these value-based care initiatives continue to drive the market forward. And we're extremely, I think, well-positioned to play there, because that's exactly where our products can best be positioned, right? organs. It's a better utilization of these organs. And what do you need when you have higher-risk organs?
Alexander L. Johnson: And we are extremely high.
Alexander L. Johnson: I think well positioned to play there because that's exactly where.
Alexander L. Johnson: Our products can best be positioned right, it's not just more transplants at higher risk.
Alexander L. Johnson: You need to watch them more carefully. You need to use digital tools. You need to use products like Alishure to help monitor these patients. And so this is something where we're extremely well positioned, and we're really looking forward to seeing where this goes.
Alexander L. Johnson: Oregon, it's better utilization of the Oregon's and what do you need when you have higher risk Oregon's need to watch some more carefully.
Alexander L. Johnson: Used digital tools, you need to use products like Alastair.
Alexander L. Johnson: To help monitor these patients and so this is something where we're extremely well positioned and we're really looking forward to seeing where this goes.
Alexander L. Johnson: Okay.
Operator: Our next question comes from Mason Carrico, with Stephen.
Alexander L. Johnson: Our next question comes from Nathan <unk> with Stephens.
Mason Owen Carrico: Hey guys, thanks for the questions here. In terms of the guidance increase for testing services, so 4 million or so, 3 to 4 million, or whatever the cash collections were this quarter, are benefiting there. But if you could, could you walk back through what the assumptions were in the testing services guide? Really, what I'm looking for here is this. Are you incorporating now, you know, a higher growth rate in volumes? Are you seeing anything that has maybe accelerated adoption trends above your initial assumptions? So just any color in that makeup again.
Mason Owen Carrico: Hey, guys. Thanks for the questions here.
Mason Owen Carrico: In terms of the guidance increase for testing services. So.
Mason Owen Carrico: $4 million, or so $3 million to $4 million or whatever the cash collections were this quarter, it's benefiting there, but if you could could you walk back through what the assumptions were in the in the testing services guide really what I'm looking for here is this.
Speaker Change: Are you incorporating now.
Speaker Change: Higher growth rate and volumes are you seeing anything that that has maybe accelerated adoption trends.
Mason Owen Carrico: Above your initial assumptions.
Mason Owen Carrico: So just any color in that makeup again.
John Hanna: Yeah, thanks, Nathan. I'm gonna ask Abhishek to walk through those assumptions for you.
Speaker Change: Yeah, Thanks, Nathan Monas Abishag to walk through those assumptions for you.
Abhishek Jain: Yeah, so Mason, based on the volume growth that we saw in Q1, we have now raised the full year testing services volume growth expectation to high single digits as compared to the mid single digit that we were assuming previously. So that's the first change at the midpoint of our guide. And the second piece is the product business that we were assuming to be growing at a mid-single digit. We are now assuming that business is going to grow at a high single digit.
Abhishek Jain: So Nathan yes based on the volume growth that we saw in the Q1.
Abhishek Jain: <unk> now raised the full year testing services volume growth expectation to high single digits as compared to the mixing their digital taxi you were assuming previously so that's the first change at the midpoint of five died.
Abhishek Jain: And the second piece is the products business that we would assuming to be growing at a high single digit.
Abhishek Jain: Next we would assuming to be growing at a mid single digit Fiat knowledge zooming back business is going to grow in the high single digit so in making a couple of changes based on the results that we have seen in the first quarter and now at the midpoint of our New guide on a adjusted 23 revenue basis Nathan.
Abhishek Jain: So we are making a couple of changes based on the results that we have seen in the first quarter. And now, at the midpoint of our new guide, on our adjusted 23 revenue basis, Mason, we have increased the overall revenue growth from 4% year-over-year to 8% year-over-year, so almost doubling the growth rate there.
Abhishek Jain: We have increased the overall revenue growth from a 4% year over year to 8% year over year, so almost doubling the growth rate there.
Mason Owen Carrico: Got it, the part I missed, volume growth, is what you were guiding me to. Got it. Okay, that makes sense, and I appreciate the detailed color on heart care. Given the opportunity and potential for that offering, could you just give us a sense where utilization of heart care stands today? You know, what portion, and I know you may not wanna get too specific here, but as we kinda look at your heart volumes, how much is coming from heart care today versus Allomaff or Alloshearheart standalone?
Mason: Got it the part I missed.
Mason Owen Carrico: Volume growth is what your guidance you've got it okay that makes sense and I. Appreciate the detailed color on on heart care, given the opportunity and potential for that offering could you just give us a sense where utilization of heart care stands today.
Mason Owen Carrico: What portion and I know you may not want to get too specific here, but as we kind of look at your heart volumes, how much is coming from heart care today versus Allomap, our allo sure art Standalone.
Abhishek Jain: Yeah, Mason. So again, I think that's like the next level of details. We generally do not provide volumes at the organ level, but having said that in heart care, there's no change from the commercial payer standpoint, as you know, and in heart care also from Medicare. Now we have coverage for the first year. And the second year is the piece that we are working towards seeing as to how we get that coverage back.
Mason Owen Carrico: It makes sense. So again I think thats like the next level of details we generally do not provide the volumes.
Abhishek Jain: As the Ogden level, but having said that in the highest cure.
Abhishek Jain: What changed from the commercial payer standpoint, as you know and on the Hodgkin's also from the Medicare now we have the coverage for the first tier and the faking it is the piece that we're working towards.
Abhishek Jain: Seeing as to how do we get that got pushed back.
Mason Owen Carrico: Got it. Okay. Thank you, guys. There are no further questions.
Mason: Got it okay. Thank you guys.
Operator: There are no further questions in the queue at this time. This does conclude today's program. Thank you for your participation. You may disconnect at any time.
Speaker Change: There are no further questions in the queue. At this time. This does conclude today's program. Thank you for your participation you may disconnect at any time.
Operator: Okay.
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