Q2 2024 Exagen Inc Earnings Call

Operator: Greetings. Welcome to the Exagen Inc. second quarter 2024 earnings call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone today should require operator assistance, please press star zero from your telephone keypad. Please note, this conference is being recorded. At this time, I'll turn the conference over to Ryan Douglas with Investor Relations.

Greetings and welcome to the Exigent, Inc. Second quarter 2024 earnings call.

Speaker Change: This time all participants are in listen only mode. A question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance. Please press star zero from your telephone keypad.

Speaker Change: Please note this conference is being recorded.

Speaker Change: At this time I'll turn the conference over to Ryan Douglas with Investor Relations.

Speaker Change: You may now begin.

Ryan Douglas: Good morning, and thank you for joining us. Earlier today, Exagen, Inc. released financial results for the quarter ended June 30, 2024. The release is currently available on the company's website at www.exagen.com. John Aballi, President and Chief Executive Officer, will host this morning'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 federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Ryan Douglas: Good morning, and thank you for joining US earlier today <unk>, Inc. Released financial results for the quarter ended June 32024. The release is currently available on the company's website at www dot oxygen dot com.

Speaker Change: Anabolic President and Chief Executive Officer will host this morning'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 federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Ryan Douglas: 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 limitations, statements regarding our business strategy and future financial and operating performance, including guidance, potential profitability, our current and future product offerings, reimbursement, and coverage are based upon current estimates and various assumptions. These statements involve material risk and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements.

Speaker Change: 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 statements regarding our business strategy and future financial and operating performance, including guidance potential profitability, our current and future product offerings and reimbursement and coverage are based upon current estimates and various.

Speaker Change: <unk> <unk>.

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. Accordingly, you should not place undue reliance on these statements for a list and description of risks and uncertainties associated with our business. Please see our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended.

Ryan Douglas: Accordingly, you should not place undue reliance on these statements for a list and description of risks and uncertainties associated with our business. Please see our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2023, or Form 10-Q for the quarter ended June 30, 2024, and any subsequent filings. In addition, some of the information discussed today includes non-GAAP financial measures, such as adjusted EBITDA, that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP.

Speaker Change: At December 31, 2023, our Form 10-Q for the quarter ended June 32024, and any subsequent filings.

Speaker Change: In addition, some of the information discussed today include non-GAAP financial measures such as adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information and assessing our revenue and op.

Ryan Douglas: These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted to the investor relations page on the company's website.

Waiting performance reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted to the Investor Relations page at the company's website.

Ryan Douglas: The information provided in this conference call speaks only to the live broadcast today, August 5, 2024. Exagen 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. I will now turn the call over to John Aballi, President and CEO of Exagen.

Speaker Change: The information provided in this conference call speaks only to the live broadcast today August five 2020 for estrogen 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 I will now turn the call over to China Bali.

China Bali: President and CEO of extra.

John Aballi: Thanks Ryan, and good morning to everyone joining the call. Today, I'll provide updates on the progress we've made over the last few months in continuing to reshape Exagen for long-term profitable growth, including details on our second quarter financial performance. The results of this quarter are really starting to demonstrate a track record of performance and progress towards our goals. Our results over the first half of the year, and specifically the trajectory over the last 18 months, have shown that we can grow and expand our business while simultaneously pursuing profitability. To that end, this quarter, we delivered a $1.6 million adjusted EBITDA loss, a 53% improvement year over year, and the best quarterly financial performance in Exagen's history.

China Bali: Thanks, Ryan and good morning to everyone joining the call today I'll provide updates on the progress we've made over the last few months and continuing to reshape ex adjourn for long term profitable growth, including details on our second quarter financial performance.

Speaker Change: The results of this quarter are really starting to demonstrate a track record of performance and progress towards our goals.

Speaker Change: Our results over the first half of the year and specifically the trajectory over the last 18 months has shown that we can grow and expand our business while simultaneously pursuing profitability.

Speaker Change: To that end this quarter, we delivered a $1.6 million adjusted EBITDA loss of 53% improvement year over year, and the best quarterly financial performance in <unk> history.

Speaker Change: And with the first half 'twenty 'twenty four adjusted EBITDA loss of only $3 6 million, we continue to make major strides on both top and bottom line performance.

John Aballi: And with a first half 2024 adjusted EBITDA loss of only $3.6 million, we continue to make major strides on both top and bottom line performance. As I look back at where we were just before I joined Exagen, our progress is truly impressive. In 2022, we delivered $45.6 million in revenue, but our adjusted EBITDA loss was $40 million and was accelerating. Our gross margins for that year were just under 47%. Sitting here today, we have reshaped Exagen into an exciting business, which is on pace to achieve profitability. We've grown our quarterly revenue almost 30% from average 2022 levels. And this year, we now expect our full-year adjusted EBITDA loss to be on par with what we used to lose every quarter, a 70% improvement.

Speaker Change: As I look back at where we were just before I joined oxygen our progress is truly impressive.

Speaker Change: In 2022, we delivered $45 $6 million in revenue.

Speaker Change: But our adjusted EBITDA loss was $40 million and accelerating.

Speaker Change: Our gross margins for that year were just under 47%.

Speaker Change: Sitting here today, we have reshaped <unk> into an exciting business, which is on pace to achieve profitability.

Speaker Change: We've grown our quarterly revenue almost 30% from average 2022 levels.

Speaker Change: And this year, we now expect our full year adjusted EBITDA loss to be on par with what we used to lose every quarter a 70% improvement.

John Aballi: Our margins have expanded 13 points over this time, and we are on the cusp of further margin expansion with enhanced IP protection on our core product, all while revamping our R&D pipeline and deleveraging our organization. I'm incredibly proud of the team for this transformation and astounded by the progress we've made in such a short period. This past quarter, our team grew testing volume 8% sequentially, which was our best total quarterly volume since we made adjustments to our ordering process last summer.

Speaker Change: Our margins have expanded 13 points over this time and we are on the cusp of further margin expansion with enhanced IP protection on our core product.

Speaker Change: All while revamping, our R&D pipeline and deleveraging our organization.

Speaker Change: I'm incredibly proud of the team for this transformation and astounded by the progress we've made in such a short period.

Speaker Change: This past quarter, our team grew testing volume, 8% sequentially, which was our best total quarterly volume since we made adjustments to our ordering process last summer.

John Aballi: It is exciting to see the momentum and test volume growth as we expected. Our sales team is making great progress in serving the rheumatology community, and they are energized by the successful quarter after working through significant change management with our customers over the past year. Additionally, we continue to increase our trailing 12-month average selling price for Advise CTD and, for the first time as a public company, are seeing ASPs exceed the $400 mark.

Speaker Change: It is exciting to see the momentum in test volume growth as we expected.

Speaker Change: Our sales team is making great progress in serving the rheumatology community and they are energized by the successful quarter after working through significant change management with our customers over the past year.

Speaker Change: Additionally, we continue to increase our trailing 12 month average selling price for advise CTD and for the first time as a public company are seeing asps exceed the $400 Mark.

John Aballi: This is an exciting milestone and one that we are very proud of. We have made tremendous progress over the past six quarters, getting us closer to our near-term goal of attaining at least 50% of our CMS price for Advise CTD. The combined efforts of increasing volume and growing ASP led to record quarterly revenue at just over $15 million in Q2.

Speaker Change: This is an exciting milestone and one which we are very proud of we have made tremendous progress over the past six quarters getting us closer to our near term goal of attaining at least 50% of our CMS price for advise CTD.

Speaker Change: The combined efforts of increasing volume and growing ASP.

Speaker Change: Led to record quarterly revenue at just over $15 million in Q2.

John Aballi: I'm encouraged by the growth and trajectory I'm seeing in our core advised business as we continue to execute well. Additionally, and as we've communicated throughout the year, we've identified areas where we can enhance our existing products and services. In Q4, we expect to upgrade our advised CTD offering through the addition of markers which we believe will improve the sensitivity for SLE diagnosis and better capture patients with rheumatoid arthritis who would traditionally be diagnosed as seronegative RA. These are the top two options by prevalence under a connective tissue disease differential.

Speaker Change: I'm encouraged by the growth and trajectory I'm seeing in our core advisory business as we continue to execute well.

Speaker Change: Additionally, and as we've conveyed throughout the year, we've identified areas, where we can enhance our existing products and services.

Speaker Change: In Q4, we expect to upgrade our advise CTD offering through the addition of markers, which we believe will improve the sensitivity for SLE diagnosis and better capture patients with rheumatoid arthritis, who had traditionally be diagnosis zero negative Ari.

Speaker Change: These are the top two options by prevalence.

Speaker Change: Under a connective tissue disease differential.

John Aballi: And each of our product enhancements has a proprietary aspect, which we believe will provide significant competitive advantages. This past quarter, we made meaningful progress to advance development efforts, and I continue to expect that we will launch improvements to the advised CTD platform by year end. Given our progress in improving the advised business and the impact we expect from the launch of a revamped advised CTD profile, we expect to be cash flow positive within a year of launching both sets of new markets.

Speaker Change: In each of our product enhancements has a proprietary aspect, which we believe will provide significant competitive advantages.

Speaker Change: This past quarter, we made meaningful progress to advanced development efforts and I continue to expect that we will launch improvements to the advise CTD platform by year end.

Speaker Change: Given our progress in improving the advice business.

Speaker Change: And the impact we expect from the launch of a revamped advise CTD profile.

Speaker Change: We expect to be cash flow positive within a year of launching both sets of new markers.

John Aballi: Our horizon for achieving profitability is coming into focus as we continue to execute on our strategy. As we near profitability, we've begun to see additional areas of opportunity for growth and expansion. In the second quarter, we signed the first substantial biopharma contract since I've been here. This is an area of business where I believe we have untapped potential and have placed a heightened focus on better serving this segment of the immunology ecosystem.

Speaker Change: Our horizon for achieving profitability is coming into focus as we continue to execute on our strategy.

Speaker Change: As we near profitability, we've begun to see additional areas of opportunity for growth and expansion.

Speaker Change: In the second quarter, we signed the first substantial biopharma contracts since I've been here.

Speaker Change: This is an area of business, where I believe we have untapped potential and have placed a heightened focus on better serving this segment of the immunology ecosystem.

John Aballi: Our high-quality testing, proprietary offerings, and domain knowledge give us an advantage in this space, and we will continue to build our capabilities as more pharma companies realize the superior service and quality they can receive by working with us. Before I dive deeper into our financial performance for the second quarter, I want to extend a sincere appreciation for the contributions Kamal has made to the Exagen organization as he steps down. Over the past decade, he has held numerous roles at Exagen and been a strong steward of the finances. Kamal has been a key supporter throughout my transition, and for that, I am grateful.

Speaker Change: Our high quality testing proprietary offerings and domain knowledge gives us an advantage in this space and we will continue to build our capabilities is more pharma companies realize the superior service and quality they can receive by working with us.

Speaker Change: Before I dive deeper into our financial performance for the second quarter I want to extend a sincere appreciation for the contribution <unk> made to the X gene organization as he steps down.

Speaker Change: Over the past decade. He has held numerous roles at Nextgen and been a strong steward of the financials.

Speaker Change: <unk> has been a key support throughout my transition and for that I'm grateful.

John Aballi: Subsequently, as we continue to execute our strategy and deliver meaningful, profitable growth, I look forward to having Jeff Black join us on the executive team as our chief financial officer. Jeff has been the CFO of multiple public companies. His leadership and incredible track record of value creation will be advantageous as we progress to our next inflection point, given our start to the year and our consistent resetting of internal expectations. Now's the perfect time to have Jeff join our mission of providing clarity and improving clinical outcomes for patients with autoimmune disease. Now, to dive in.

Speaker Change: Subsequently as we continue to execute our strategy and deliver meaningful profitable growth.

Speaker Change: I look forward to having Jeff black join us on the executive team as our Chief Financial Officer.

Jeff Black: Jeff has been CFO of multiple public companies.

Jeff Black: His leadership, an incredible track record of value creation will be advantageous as we progressed through our next inflection point.

Jeff Black: Given our start to the year and our consistent resetting of internal expectations.

Jeff Black: Now is the perfect time to have Jeff join our mission of providing clarity and improving clinical outcomes for patients with autoimmune disease.

Jeff Black: Now to dive in.

John Aballi: Our Q2 performance highlights the strength of our business under our revised strategy and shows what an intense focus on the customer can accomplish. To provide a few highlights, total revenues in the second quarter of 2024 were a record $15.1 million, compared with $14.1 million in the second quarter of 2023. A 6.6% increase. Total revenues were primarily driven by strong ASPs for Advise CTD and increased volumes over the first quarter. Growth at Exagen is now being driven through a combination of increased clinical adoption and improved reimbursement.

Our Q2 performance highlights the strength of our business under our revised strategy and.

Jeff Black: And shows with an intense focus on the customer can accomplish.

Jeff Black: To provide a few highlights.

John Aballi: Other testing revenue was $1.5 million in the second quarter of 2024, compared with $1.6 million in the same period last year. Our revenue cycle team continues to do a fantastic job as we again saw strong prior-period collections with $1.3 million of revenue in the second quarter from tests performed more than a year ago. Prior period collections are generally very difficult to forecast, but they continue to outpace our internal projections. Costs of revenue were $6 million this past quarter, resulting in a total gross margin of just over 60%, compared to 58.7% in Q2 of 2023.

Jeff Black: Total revenues in the second quarter of 2024 were a record $15 1 million.

Jeff Black: Compared with $14 1 million in the second quarter of 'twenty three are.

Jeff Black: Six 6% increase.

Total revenues were primarily driven by strong asps for advise CTD and increase volumes over the first quarter.

Jeff Black: Growth at <unk> is now being driven through a combination of increased clinical adoption and improve reimbursement.

Jeff Black: Other testing revenue was $1 million or $5 in the second quarter of 2024, compared with $1 6 million in the same period last year.

Jeff Black: Our revenue cycle team continues to do a fantastic job as we again saw strong prior period collections with $1 3 million of revenue in the second quarter from tests performed over may of a year ago.

Jeff Black: Prior period collections are generally very difficult to forecast, we will continue to outpace our internal projections.

Jeff Black: Cost of revenue were $6 million this past quarter.

Jeff Black: <unk> and a total gross margin of just over 60% compared to 58, 7% in Q2 of 'twenty three.

John Aballi: The increase in gross margin was primarily driven by increases in ASP. Operating expenses, excluding COGS, for the second quarter of 2024 were $11.6 million, compared with $13.2 million in Q2 of 2023. Year-over-year decreases were primarily due to a reduction in legal fees and stock-based compensation as a result of lower hedges.

Jeff Black: The increase in gross margin was primarily driven by increases in Asps.

Jeff Black: Operating expenses, excluding Cogs for the second quarter of 2024 were $11 6 million compared with $13 2 million in Q2 of 'twenty three.

Jeff Black: Year over year decreases were primarily due to a reduction in legal fees and stock based compensation as a result of lower head count.

John Aballi: The net loss in Q2 of 24 was $3 million, compared with a $5 million loss in the same period last year, representing a 40% improvement. Adjusted EBITDA loss was $1.6 million for the second quarter of 2004 compared to a $3.4 million loss for the second quarter of 2003. Adjusted EBITDA loss through the first half of the year was $3.6 million compared to $9.6 million through the first two quarters of 2023. As a reminder, our adjusted EBITDA excludes stock comp expense. Since it is a non-cash expense for the organization,

Jeff Black: The net loss in Q2 of 24 was $3 million compared with a $5 million loss in the same period last year.

Jeff Black: Representing a 40% improvement.

Jeff Black: Adjusted EBITDA loss was $1 6 million for the second quarter of 24 compared to a $3 $4 million loss for the second quarter of 2003.

Jeff Black: Adjusted EBITDA loss through the first half of the year was $3 6 million compared.

Jeff Black: Compared to $9 $6 million should the first two quarters of 'twenty three.

Speaker Change: As a reminder, our adjusted EBITDA excludes stock comp expense since it is a noncash expense for the organization.

John Aballi: Please refer to our earnings release issued early today for a reconciliation of adjusted EBITDA to net loss. Looking at our balance sheet, cash and cash equivalents as of June 30, 2024 were approximately $24.5 million. And our accounts receivable balance was $11.7 million. Given our ability to drive profitable growth, we are increasing our full-year guidance to at least $57 million in revenue and now believe our adjusted EBITDA loss will be better than $12 million, which is a dramatic improvement from our expectations just six months ago. Again, the launch of the new enhancements to advise CTD is expected to make us cash flow positive within the first year of launch. We will now open the call to questions.

Speaker Change: Please refer to our earnings release issued early today for reconciliation of adjusted EBITDA to net loss.

Speaker Change: Looking at our balance sheet cash and cash equivalents as of June 32024, or approximately $24 $5 million.

Speaker Change: And our accounts receivable balance was $11 7 million.

Speaker Change: Given our ability to drive profitable growth, we are increasing our full year guidance to at least $57 million in revenue.

And now believe our adjusted EBITDA loss will be better than $12 million.

Speaker Change: Which is a dramatic improvement from our expectations just six months ago.

Speaker Change: Again, the launch of the new enhancements to advise CTD is expected to make us cash flow positive within the first year of launch.

Speaker Change: We will now open the call for questions.

Speaker Change: Thank you.

Operator: We'll now be conducting the question and answer session. If you'd like to ask a question at this time, you may press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: That would be conducting a question and answer session.

Speaker Change: Like to ask a question at this time you May press Star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press Star two if you like to withdraw your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: One moment, please, while we poll for questions, and it's star number one. Thank you. Thank you. And our first question is from the line of Kyle Mixon with Canagor Genuity. Please just use your question.

Speaker Change: One moment, please pull for questions and then star one thank you.

Speaker Change: Thank you and our first question is from the line of Kyle mixing with Canaccord Genuity. Please proceed with your questions.

Kyle mixing: Hey, guys. Thanks for the questions and congrats on the results I guess.

Kyle Mikson: John, just like on the ASP, so I think last quarter, maybe for the quarter itself, it was, you know, just above 420 or so. Now it was maybe just above 400, maybe 410. It's kind of stabilizing a bit at 400. I mean, how long could it take to get to 500 or so? Like, you know, 50% of the list price or the Medicare price. And is that, you know, how critical is that? And could you take a step back and maybe try to reinvest to drive volume growth rather than ASP? I mean, how are you thinking about that? Are you kind of closing in on this target here?

Kyle mixing: Maybe John just like on the Asps.

Speaker Change: So I think last quarter or maybe fourth quarter itself was maybe it's.

Ken: Just about the 420 or so now it was maybe just about what 400 maybe for Ken.

Speaker Change: Stabilizing a bit at 400, I mean, how long could it take to get to 500 or so 50% of the.

Speaker Change: This price over that in the Medicare price.

Speaker Change: Is that how critical is that and could you take a step back and maybe try to reinvest to drive volume growth rather than Asps I mean, how do you. How are you thinking about that are you kind of closing on this target here.

John Aballi: Good morning, Kyle. Thanks for the question. Very relevant. I think it's a good one. So the way we look at ASPs and our ambition there has not changed at all. Our goal, over the last couple of years, has been to achieve that 50% level in the relatively near term for advised CTD. That's somewhere around 525, just over that $500 mark.

Speaker Change: Good morning, Karl Thanks for the question.

Speaker Change: Very relevant and I think it's a good one.

Speaker Change: So the way we look at Asps in our ambition there has not changed at all our goal has been over the last couple of years has been to achieve that 50% level.

Speaker Change: In the relatively near term.

Speaker Change: Our advise CTD that somewhere around 525, just over that $500 Mark and so we pointed folks to the trailing 12 months number really in anticipation of the quarter to quarter variability that we expected to see we think we've had a great quarter and we continue to push.

John Aballi: And so we pointed folks to the trailing 12-month number, really in anticipation of the quarter-to-quarter variability that we expected to see. We think we've had a great quarter, and we continue to push the advised ASP up. And so, from our perspective. The view really hasn't changed. So while you see, you know, that quarter to quarter transition, there's really nothing meaningful behind that in terms of negative trends or anything like that. So our goal still remains the same.

Speaker Change: The advised asps up and so from our perspective.

John Aballi: We've never really guided to an exact time point as to when we believe we'll hit it. It's just inherently difficult to forecast some of these things that really drive momentum, which can be changes in payer behavior, but also things that we can do. But our appeals efforts remain strong. We're starting to get some of that feedback now that we've completed three or four levels of appeals. And so we still remain just as optimistic as we were, maybe even more so, given the progress we've made over the last several months.

Speaker Change: The view really hasn't changed so while you see that quarter to quarter transition.

Speaker Change: There is nothing meaningful really behind that in terms of negative trends or anything like that so our goal still remains the same we've never really guided to an exact time point as to when we believe we'll hit it.

Speaker Change: Just inherently difficult to forecast some of these things that really drive momentum can be.

Speaker Change: Changes in payer behavior, but also things that we can do but our appeals efforts remains strong we're starting to get some of that feedback in now that we've completed.

Speaker Change: Three or four levels of appeals and so we still remain just as optimistic as we were.

Speaker Change: Maybe even more so given the progress we've made over the last several months.

Speaker Change: Alright got it that sounds good thanks for that and then maybe kind of implied or like inherent in that question was.

John Aballi: Inherently in that question was just the kind of investment in, you know, the commercial team, commercial expansion, driving volume growth rather than ASP and collections and things like that. So, you know, SG&A has been pretty stable the past couple of quarters. Last year, the level, the quarterly level, was much higher. I mean, maybe just refresh us on the plans to increase the sales force and kind of, you know, expand your reach in the rheumatologist market in the country.

Speaker Change: The investment in.

Speaker Change: Commercial team commercial expansion driving volume growth rather than ISP in collections and things like that so.

Speaker Change: SG&A has been pretty stable for the past couple of quarters last year, the level of quarterly quarterly levels much higher.

Speaker Change: I mean, maybe just refresh us on the plans to increase the sales force and kind of.

Speaker Change: And your reach penetration in the rheumatologist market in the country.

John Aballi: Yeah, absolutely. The exciting thing for us is that we anticipated reshaping the organization, and from a strategic standpoint, at the heart of what we're doing is driving ASP improvement. If you recall, that had not really been done at all for the four years prior to me joining the organization. And now we've seen, you know, a 40% increase from 2022 levels. So we're being successful in that regard. But at the same time, that's required us to reset some of the ordering process with our clinicians.

Speaker Change: Yeah, absolutely so yes.

Speaker Change: The exciting thing for us as we had anticipated reshaping the organization and from a strategic standpoint at the heart of what we're doing is.

Speaker Change: It's driving ASP improvement if you recall they had not really been done at all for the four years prior to me joining the organization and now we've seen.

Speaker Change: 40% increase from 2022 level so.

Speaker Change: We're being successful in that regard at the same time this required us to reset some of the ordering process with our clinicians and that had what we call kind of a transient effect on our volume and that sort of.

John Aballi: And that had what we call the kind of a transient effect on our volume. And that sort of kicked off at this time last year. And from our perspective, Q2 now, we've seen that volume growth. And that was what we expected. That's been the plan all along. Timing, you know, is kind of right about what we expected as well.

Speaker Change: Kicked off in this time last year and from our perspective Q2, now we've seen that volume growth and that was what we expected that's been the plan all along timing is kind of right about what we expected as well so couldnt have drawn it up any better as we see it in.

Speaker Change: And where we sit now is really growth due to two different levers one continues to be on the volume side. One continues to be on the AFP side. You asked me exactly specifically about growing the sales team and we continue to have a 40 territory footprint across the United States. We believe for now that is the right footprint.

Speaker Change: Right sized the organization when I first started and then with the volume impact last year, it's still the right size organization for US right now we continue to monitor.

Kyle Mikson: So couldn't have drawn it up any better as we see it, each territory for profitability, and we'll split those territories or expand into areas that we're covering with an inside sales force over time, but nothing new to report there. I do think, in terms of operating expenses in general, you know... 10.5 for SG&A is likely a little low. You know, we're going into a product launch here in the second half of the year, product enhancement on two fronts.

Speaker Change: Each territory for profitability, and we'll split those territories or expand into areas that we're covering with an inside sales force over time, but nothing new to report there.

Speaker Change: I do think in terms of the operating expense in general.

Speaker Change: No.

Speaker Change: 10, five four.

Speaker Change: For SG&A is likely a little low we're going into a product launch here in the second half of the year product.

Speaker Change: Enhancement in two fronts, so our marketing expenses are likely to increase.

Kyle Mikson: So, our marketing expenses are likely to increase. As we do that, we may also, you know, incentivize the sales team in different ways throughout that period, and we'll have to see how commissions break out. But, you know, overall operating expense kind of coming in under 18 is probably not the best way to model it. Right in that 18 level is probably reasonable, especially when you factor in our R&D expenses are likely to increase as we move through validation of these different enhancements. So, hopefully, that gives you some color.

Speaker Change: As we do that we May also.

Speaker Change: Incentivize the sales team in different ways throughout that period, and we will have to see how commissions breakout but.

Speaker Change: Overall operating expense kind of coming in.

Speaker Change: Under 18 is is probably not the best way to model it right in that 18.

Speaker Change: <unk> is.

Speaker Change: It is probably reasonable, especially when you factor in our R&D expenses are likely to increase as we as we move through validation of these different enhancements. So hopefully that gives you some color.

Kyle Mikson: Yeah, that was interesting. Thanks for that! And then I guess just moving to the third quarter is kind of interesting, you know, and the end of the year is interesting for Exagene, given some of the industry dynamics and stuff like conference ACR in, I think, November. So how should we be thinking about the third quarter, fourth quarter kind of cadence as you accelerate into one, 2025, I guess, and then maybe talk a little bit about how you feel about core growth, like, you know, excluding the primary collections heading into, you know, year end kind of a thing, just given the momentum this has picked up.

Speaker Change: Yes that was interesting thanks for that and then.

Speaker Change: I guess, just moving to the third quarter.

Speaker Change: Kind of interesting.

Speaker Change: The year is there anything for ephedrine, given some of the industry dynamics and stuff like you on conference ACR.

Speaker Change: And I think November so how should we be thinking about the third quarter fourth quarter kind of cadence as you accelerate into one.

Speaker Change: 2025, I guess and then maybe talk a little bit about how you feel about core growth.

Speaker Change: Excluding the primary collections heading into year end kind of a thing just given the momentum in the business recently.

John Aballi: Sure, so are you asking more on the revenue side, adjusted EBITDA, or the entire picture?

Speaker Change: Sure. So are you are you all who.

Speaker Change: Are you asking more on the revenue side adjusted EBITDAR the entire picture.

Kyle Mikson: The top line revenue.

Speaker Change: The topline revenue.

John Aballi: Okay, so, you know that in the second half of the year, we typically, or historically, have seen some seasonality impact. We're certainly seeing this with some of our top clinicians, extended vacations. You see it on the news.

Speaker Change: Okay. So.

Speaker Change: In the second half of the year, we typically or historically have seen some seasonality impact. We're certainly seeing this with some of our top clinicians extended vacations you see it in the news airports are extremely busy when our teams by.

John Aballi: Airports are extremely busy when our team's flying, when I'm flying. So we do see some of that impact right now. We expect this trend to continue into Q3. As you noted, Q4 has the most holidays out of any quarter in the year. And for us, we have a Rheumatology Societal Meeting in the month of November, the week before Thanksgiving. The rheumatology community is out of clinical practice for at least a week, and then it piggybacks on to a holiday week.

Speaker Change: When I'm flying so we do see some of that impact right. Now we expect that continue into Q3 as you referenced Q4 has the most holidays out of any quarter in the year and for US we have a rheumatology societal meeting in the month of November the week before Thanksgiving, So that pulls a good chunk of the room.

Speaker Change: The rheumatology community out of clinical practice for at least a week and then to piggyback onto a holiday week. So.

John Aballi: So we do see either a flattening or even slight decline historically. We're working hard to change that trend, and I think the team's highly motivated to do so, especially in light of a few product enhancements which are coming in Q4. So from our perspective, we'll have to see exactly how it shapes out. But if you look at the first half of the year and remove out-of-period revenue, you know, that $2 million in prior period collections, you know, basically the guide that we've provided takes into account the sentiment I just conveyed, and that is that relatively flat due to seasonality impact as we continue to grow into 2025.

Speaker Change: We do see either a flattening or even slight decline.

Speaker Change: Historically, we're working hard.

Speaker Change: To change that trend and I think the teams highly motivated to do so, especially in light of a few product enhancements which were coming.

Speaker Change: Over Q4, so from our perspective, we'll have to see exactly how it shapes out, but if you look at the first half of the year and remove out of period revenue that $2 million and prior period collections basically the guide that we've provided.

Speaker Change: It takes into account the sentiment I just conveyed in that is that relatively flat.

Speaker Change: Due to seasonality impact as we continue to grow into 2025.

Kyle Mikson: Okay, that was great. I'll leave it there.

Speaker Change: Okay, that's great I'll leave it there thanks, Sean and definitely this is where we're working with Mylan and good to see Jeff on Board now.

Kyle Mikson: Thanks, John, and it was definitely great working with Kamal, and good to see Jeff on board now. Thanks. Great. Thanks so much, Kyle.

Speaker Change: Great. Thanks, so much.

Speaker Change: Okay.

Mark Massaro: Our next question is from the line of Mark Massaro with BTIG. Please proceed with your questions.

Speaker Change: Our next question is from the line of Mark Massaro with BTG. Please proceed with your questions.

Mark Massaro: Hey, good morning. Thanks for taking the questions, John. Maybe the first one is obvious, but you know, it looks like you beat Q2 by 2 million, you raised the full-year guide by 2 million, just confirming that you're not, you know, changing how you expect trends in the back half of the year. Obviously, I heard your comments about seasonality. But you know, you had a strong, you know, 8% quarter over quarter, Excuse me, 8% quarter over quarter increase in volumes.

Speaker Change: Hey.

Mark Massaro: Good morning, Thanks for taking the questions John maybe the first one.

Mark Massaro: Think as obvious but it looks like you beat in Q2 by $2 million you raised the full year guide by $2 million just confirming that you are not changing how you expect trends in the back half of the year, obviously I heard your comments about seasonality, but you had a strong 8%.

Mark Massaro: Quarter over quarter.

Speaker Change: Excuse me, 8% quarter over quarter increase in volumes.

Mark Massaro: I assume you're not expecting or embedding in your guidance any change to the volume trajectory in the back half of the year relative to the prior year. I guess I'm just trying to confirm that the raise for the full year was a function of the outperformance in Q2 and not changes to your underlying trends in the back half.

Speaker Change: I assume youre not.

Speaker Change: Expecting or embedding in your guidance any change to the volume trajectory in the back half of the year relative to the prior year I guess I'm just trying to confirm that the raised for the full year was a function of the outperformance in Q2 and not changes to your underlying trends in the back half.

John Aballi: Sure, good morning, Mark. Thanks for the question. As you said, no, there are no changes in expectation for growth of the business. You know, we've said that projections of ASP increases over time are inherently difficult, just giving the magnitude and the dependencies on certain payer behavior, so that's always a challenging thing to forecast. That's one lever of our growth.

Speaker Change: Sure Good morning, Mark Thanks for the question.

Speaker Change: As you said no. There is no changes in expectation for growth of the business. We've said that projections of ASP increases over time are inherently difficult just given the magnitude and the dependencies on certain payer behavior. So thats always a challenging thing to forecast that's one lever of our growth from a volume standpoint.

Mark Massaro: From a volume standpoint, the 8% sequential growth quarter over quarter is fantastic. Just historically, Q3, Q4 has seen kind of a leveling. Q1, Q2 has been really where we build from a volume standpoint, but we'll see. Again, like I said, you know, the sales team, this is not the message to them. This is just if you look at this from an analyst standpoint or evaluate the business, these have been historical trends that seem to sit within the rheumatology community and the way clinical practice is handled here, so no change in terms of our outlook. Still very optimistic, like the trajectory, like that both levers are leading to growth here, and we'll see kind of how we perform in the back half of the year.

Speaker Change: The 8% sequential growth quarter over quarter Thats fantastic.

Speaker Change: Historically Q3, Q4 has seen kind of a leveling Q1 Q2 has been really where we build from a volume standpoint.

Speaker Change: But we will see again like I said.

Speaker Change: The sales team. This is not the message to them. This is just if you look at this from an analyst standpoint or evaluate the business. These had been historical trends that seem to seem to sit within the rheumatology community in the way clinical practices handled here. So no change in terms of our outlook, so very optimistic like the trajectory like that both levers.

Speaker Change: Our.

Speaker Change: Leading to growth here, and we'll see kind of how we perform in the back half of the year.

Mark Massaro: Okay, great. You mentioned the biopharma ad. Nice to see.

Speaker Change: Okay, Great you mentioned, the Biopharma AD nice to see I know that used to be a pretty significant piece to the exiting business strategy over the years going back to the IPO.

John Aballi: I know that used to be a pretty significant piece to the Exagen business strategy over the years going back to the IPO. Can you maybe just remind us how many of your 40 or so reps are driving the pharma demand? I can't imagine it's all 40 of your reps. So is there a specialized team? I could probably use a refresher on that. And then how should we think about biopharma, you know, over the next couple of years? I mean, I don't expect huge wins in the near term per se, but I'd just curious how you view this test and treat strategy and what types of... what types of deals you're looking to sign.

Speaker Change: Can you, maybe just remind us how many.

Speaker Change: Of your 40, or so reps, who is driving the pharma demand.

Speaker Change: Imagine it's all 40 40 of your reps. So is there a specialized team I could probably use a refresher on that and then how should we think about.

Speaker Change: Biopharma over the next couple of years, I mean, I don't expect huge.

Speaker Change: Wins in the near term per se, but just curious how you view this test and treat strategy.

Speaker Change: What types of.

Speaker Change: What types of deals you are looking to sign.

John Aballi: Absolutely. This was a great development for us in Q2, and just to be clear, our business model is to serve community-based rheumatologists in their clinical practice. That's where AdviseCTD holds the greatest clinical value in the day-to-day management of patients with suspected underlying connective tissue disease. So our biopharma revenue and especially the contracts that we've signed more recently are not in that vein, and we don't dilute the message from our sales organization in this regard.

Speaker Change: Absolutely.

Speaker Change: This was a great development for us in Q2, and just to be clear our business model is to serve the community based rheumatologists in their clinical practice, that's where advise CTD holds.

Speaker Change: The greatest clinical value is in the day to day management of patients.

Speaker Change: With respect to underlying connective tissue disease, so our biopharma revenue.

Speaker Change: And especially the contracts that we've signed more recently.

Mike Nuremberg: In that vein and we don't dilute the message from our sales organization. In this regard so we have under our Chief Medical Officer, Dr. Mike Nuremberg, We have established a small team of small biopharma team and they've been actively working for the last nine months or so and seeing what businesses out there.

John Aballi: So we have, under our chief medical officer, Dr. Mike Nirenberg, we have established a small team, a small biopharmaceutical team, and they've been actively working for the last nine months or so to see what business is out there. And it seems to be getting some initial good feedback is really the message I wanted to convey. You know, it's great to see the new contract come in.

Speaker Change: And.

Speaker Change: And it seems to be some initial good feedback is really the message I wanted to convey is great to see the new contract come in we.

John Aballi: We do offer a differentiated service in this area. We're known for our high-quality testing. We have proprietary markers for clinical trials, enrollment, that is, or further characterization of these patients.

Speaker Change: We do offer a differentiated service in this area, we're known for our high quality testing, we have proprietary markers for clinical trials.

Enrollment that is or further characterization of these patients and so.

John Aballi: That, combined with the quality of testing that we perform, we're starting to enhance or build a brand within the pharmaceutical community. And so, we'll see how this business evolves. I'm sure you're aware, and some of the other companies that you follow, biopharma revenue is incredibly lumpy and also difficult to forecast. So layering some of that stuff on, but we'll take it because it tends to be a higher-margin business. And then also, from our standpoint, we've adjusted the way that we set up these contracts so that there is some level of minimum performance.

Speaker Change: That combined with the quality of testing that we perform we're starting to enhance our build a brand within the pharma community and so we'll see how this business evolves Im sure Youre aware and some of the other companies.

Speaker Change: That you followed biopharma revenues incredibly lumpy and also difficult to forecast.

Speaker Change: So Larry some of that stuff on but we'll take it because it tends to be a higher margin business.

Speaker Change: And then also from our standpoint, we've adjusted the way that we've set up these contracts that there is some level of minimum minimum performance. So we do expect this to be a meaningful impact to the organization hence.

John Aballi: So we do expect this to be a meaningful impact on the organization, hence my reason for mentioning it. But I am unsure exactly how big or large of a business this can become; it just seems to be a good first start, but it is a separate team.

Speaker Change: My reason for mentioning it, but unsure exactly how big or or large of a business. This can become just seems to be a.

Speaker Change: Good first start.

Speaker Change: But it is a separate team.

Mark Massaro: Got it, got it. I will also reiterate my pleasure working with Kamal over the years and welcome Jeff to the organization. But I want to put my third question here on the T cell markers. So I know you've talked about being able to identify more patients with SLE who otherwise would have tested negative. So, inherently, I think that provides a significant opportunity for you. But I'm just curious if you've had additional time perhaps to think about what that opportunity could mean in dollars, because I think people are trying to figure out the incremental revenue, you know, I know some companies who launched next gens, there's not always a revenue inflection that, you know, perhaps it's greater ease of use, or, you know, there are other characteristics of a next gen launch.

Speaker Change: Got it got it.

Speaker Change: I will also reiterate my pleasure.

Speaker Change: Pleasure working with come all over the years.

Speaker Change: Welcome Jeff to the organization.

Speaker Change: I want to put my third question here on the T cell markers.

Speaker Change: So I know you've talked about being able to identify.

Speaker Change: More patients with SLE, who otherwise would have tested negative.

Speaker Change: So inherently I think that provides a significant opportunity for you, but I'm just curious if you've had.

Speaker Change: Additional time, perhaps to think about what that opportunity could mean in dollars because I think people are trying to figure out the incremental.

Speaker Change: I know some companies who launched next gens.

Speaker Change: It's not always a revenue inflection.

Speaker Change: Perhaps it's greater ease of use or there are other characteristics of the nexgen launch, but but over the next several years, how should we think about the incremental change in demand for for <unk>.

Mark Massaro: But, over the next several years, how should we think about the incremental change in demand for exogen? And then, as it relates to pricing, do you see any potential path to get a higher price from payers as a result of next gen?

Speaker Change: And then as it relates to pricing.

Do you see any potential path too.

Speaker Change: Get a higher.

Speaker Change: Price.

From payers as a result of the Nexgen.

John Aballi: That's a great question. So to explain to everyone, one of the things that makes Advice CTD unique and so valuable to clinicians is that we've taken the time to research and then subsequently demonstrate through our own trials what the most relevant markers are for aiding a diagnosis when a broad differential is being evaluated. So these product enhancements, as you mentioned, Mark, improve the sensitivity of two sub-profiles within advised CTD. So specifically, within the systemic lupus, erythematosus, and the rheumatoid arthritis sub-profiles.

Speaker Change: That's a that's a great question so to explain to everyone. One of the things that makes advise CTD unique and so valuable to clinicians is that we've taken the time to research and then subsequently demonstrate through our own trials what the most relevant markers are for aiding a diagnosis when abroad differentials being evaluated so these product enhancements.

John Aballi: So these enhancements will be available individually, but also as part of a revised CTD offer. We do expect an immediate clinical benefit to physicians, but also to reflect that benefit in ASP virtually from launch. I'd like to see exactly how that reimbursement lands once we start getting claims adjudicated, but I've said it will be margin accretive and meaningful. We've also now come out and said with this earnings call that within a year of launching both product enhancements, we expect to be a cash flow positive organization. And historically, we've said that we've reached that level with 60% margins and around $75 million in revenue.

Speaker Change: <unk> as you mentioned mark improve the sensitivity of of two sub profiles within advise CTD, so specifically within the systemic lupus erythematosus and and the rheumatoid arthritis sub profiles. So these enhancements will be available individually, but also as part of our revised CTD offering.

Speaker Change: We do expect an immediate clinical benefit to physicians.

Speaker Change: But also to reflect that benefit in asps virtually from launch so.

I would like to see exactly how that reimbursement lands. Once we start getting claims adjudicated, but I've said, it will be margin accretive and meaningful.

Speaker Change: We have also now come out and said with this earnings call.

Speaker Change: Within a year of launching both.

Speaker Change: Product enhancements that we expect to be cash flow positive organization and historically, we've said that we've reached that level with 60% margins and around $75 million in revenue. So.

John Aballi: So from a run rate standpoint, our organization is starting to move in that direction, and at least our initial projections are that we'll be there towards the end of that first year of launch for both product enhancements. So that's how we're thinking about it internally. You never really have certainty until you start to get some of those claims adjudicated and see how it goes, but these are additional markers that we're adding into CTD so that you understand kind of operationally how this is being handled.

From a run rate standpoint, our organization is starting to move in that direction and.

Speaker Change: And at least our initial projections are that we're there.

Speaker Change: Towards towards the end of that first year of.

Speaker Change: March of both product enhancements. So that's how we're thinking about internally you never really have certainty until you start to get some of those claims are adjudicated and see how it goes but these are additional markers that we're adding into CTD. So that you understand kind of operationally. How this is how this is being handled.

John Aballi: Volume impact Volume impact, you know, it takes time to educate folks on the utility of these new markers, what value they bring clinically, how to use them, and especially because we're doing it across two disease states. So, that will take some time as well. As we're looking at it, you know, about a year is what our current expectation is to get a full realization of the ASDP impact, gain confidence there, but also to get that message out and have it resonate with clinicians such that we're driving volume.

Speaker Change: Volume impact, yes, it takes time to educate folks on the utility of these new markers what value they bring clinically how to use them.

Speaker Change: And especially we are doing it across two disease states.

Speaker Change: So that will take some time as as we're looking at it about a year is what our current expectation is.

Speaker Change: To get a full realization of the impact gain confidence there, but also to get that message out and haven't resonate with clinicians such that we're driving volume.

John Aballi: And that combination likely gets us above that 60% level, kind of in the low 60s is how we're looking at it from a margin standpoint. And then having our top line kind of hit that mark of cash flow positivity.

Speaker Change: And that combination.

Speaker Change: Likely gets us above that 60% level kind of in the low 60% is how we are we're looking at it from margin standpoint, and then.

Having our topline kind of hit that mark of cash flow positivity.

Mark Massaro: Okay, great. Congrats on the strong quarter.

Speaker Change: Okay, great congrats on the strong quarter.

Thanks Mark.

Speaker Change: Yes.

Mark Massaro: Our next questions are from the line of Dan Brennan with TD Callen. Please receive your answer.

Speaker Change: Our next questions are from the line of Dan Brennan with TD Cowen. Please proceed with your questions.

Daniel Brennan: Great, thanks for the questions. Maybe the first one just on the better-than-expected kind of EBITDA levels that you're seeing, 3.6 million loss in the first half. I think the guide now you raised by 6 million right from Andrew Brackmann, Dustin Scaringe, Kyle Mikson, Ross Osborn, Ryan Douglas, Unknown Attendee

Dan Brennan: Great. Thanks, Scott Thanks for the questions.

Dan Brennan: Maybe the first one just on the better than expected.

Speaker Change: EBITDA levels that Youre seeing $3 6 million loss in the first half I think the guide now you raised by $6 million right from.

Dan Brennan: 18 million down to $12 million, so really nice raise arguably still looks conservative given the first half run rate could you just speak a little bit more.

Speaker Change: How do we think about cost trends in the back half of the year.

Speaker Change: I know you discussed the new products and what that's going to entail, but I'm just kind of trying to foot how like a $3 6 million dollar first half loss translates into a $12 million full year loss.

John Aballi: Great. Good morning, Dan. Thanks for the question. It's certainly a good one.

Speaker Change: Great. Good morning, Dan Thanks for the question.

Certainly a good one highly relevant.

John Aballi: Relevant. The way we look at it, we're being very prudent with managing the expenses of the organization, but, From an OPEC standpoint, Yeah, that less than $12 million per quarter is not a run rate to model. So we do expect some of our costs to increase, especially when you're launching two new product enhancements. As you would expect, we're going to have a marketing campaign associated with these product enhancement launches.

Speaker Change: The way, we look at it we're being very prudent with managing expenses the organization, but.

Speaker Change: From an opex standpoint.

Speaker Change: Yes that less in.

Speaker Change: $12 million per quarter is not a run rate to model. So we do expect some of our cost to increase, especially when you are launching two new product enhancements.

Speaker Change: As you would expect we're going to have a marketing campaign associated with these product enhancements launches there will be some.

John Aballi: There will be some commission impact from a sales standpoint, but there's also some increased R&D expense. The methodology for one of these product enhancements is flow cytometry.

Speaker Change: Commission impact from a sales standpoint, there is also some increased R&D expense.

Speaker Change: The methodology for one of these product enhancements as flow cytometry.

John Aballi: We have to have prospective samples in order to validate this asset. And so, you know, we're running a clinical trial from that, and we have to time everything perfectly so that we validate when the assay is ready, and we're ready to do that analytical validation. So those expenses are likely to increase in the back half of the year. That's what we factored in, in terms of our guide on the adjusted EBITDA side.

Speaker Change: You have to have prospective samples in order to validate this assay and so.

Speaker Change: We're running a clinical trial from that and we have to time everything perfectly so that we validate when the assays ready and we're ready to do that analytical validation. So.

Speaker Change: Those expenses are likely to increase in the back half of the year. So.

Speaker Change: That's what we factored in in terms of our guide on the adjusted EBITDA side also as we've said, it's very difficult to forecast prior period or out of period collections and so we had $2 million in terms of the impact here in the first half where we.

John Aballi: Also, as we've said, it's very difficult to forecast prior period or out-of-period collections, and so we had $2 million in terms of the impact here in the first half. We're working hard to see what we can collect in the back half of the year, but we do expect this, over time, to continue to reduce as it gets factored into the accrual rate. I think those two factors are important to keep in mind.

Speaker Change: Working hard to see.

Speaker Change: What we can collect in the back half of the year, but we do expect this over time to continue to reduce as it gets factored into the accrual rate. So I think those two factors are important to keep in mind. The other thing maybe I'll just point you to is in our 10-K.

John Aballi: The other thing I'll just point you to in our 10K, maybe you would have picked up on that we had 170 FTEs here at Exagen at the end of last year. That number is likely a little too low as we've gone through the year. It's not going to be dramatically above that, but there were a few key positions that we had to fill within the organization here, and we have done so more recently. Those are all factors that we're taking into account.

Daniel Brennan: Got it. Thank you for that.

Speaker Change: Maybe you.

Speaker Change: Would have picked up on that we had 170 ftes here at <unk> at the end of last year.

Speaker Change: That number is likely a little too low.

Speaker Change: As we've as we've gone through the year it's.

Speaker Change: It's not going to be dramatically above that but there were a few key positions that we had to fill within the organization here have done so more recently and so.

Speaker Change: Those are all factors that we're taking into account.

Daniel Brennan: And then maybe just on the new market and on the last call, you discussed some of the performance enhancements in terms of the area under the curve and better sensitivity and kind of those factors. Could you just maybe speak to a little bit of what you're hearing from the field as you get ready to launch these products, like on a kind of volume basis? What kind of maybe penetration increases could we see?

Speaker Change: Got it. Thank you for that and then maybe just on the new markets and on the last call you discussed some of the performance enhancements in terms of area under the curve and better <unk>.

Speaker Change: <unk>.

Speaker Change: Kind of those factors could you just maybe speak to a little bit of like what you're hearing from the field.

Speaker Change: As you get ready to launch these products like from a kind of a volume basis.

Speaker Change: Maybe penetration increases could entail just given the better performance could you could you kind of shake some of the doctors that haven't been using the test kind of into your user base because of that just any any color there would be helpful.

John Aballi: Certainly. So, you know, timing-wise, we're going to certainly have a large educational campaign here in Q4 as we get close to launching these, and it just happens, you know, kind of perfect timing, if you will, that the Rheumatology Society Meeting is also in Q4. So we'll get a lot of feedback here in the month of November as we... as we work with folks. But we've done a lot of market research up to this point.

Speaker Change #100: Certainly so timing wise, we're going to certainly have a large educational campaign here in Q4.

Speaker Change #101: As we get close to launching these and it just happens kind of perfect timing. If you will that the rheumatology societal meeting is also in Q4. So we will get a lot of feedback here in the month of November as we.

Speaker Change #101: As we work with folks, but we've done a lot of market research up to this point and pretty universally the feedback is very positive clinically this is a challenging.

John Aballi: And pretty universally, the feedback is very positive. Clinically, this is a challenging dilemma for folks. You've got suspected connective tissue disease differential with a patient, and the more accurate tests that you can provide, the better. That's why they use it for CTD now.

Speaker Change #101: Dilemma for folks you've got suspected.

Speaker Change #101: Connective tissue disease differential with the patient and the more accurate test that you can provide the better thats why they use of ICD now and we're making it only that much more improved so.

Daniel Brennan: We're making it only that much better. So, from our standpoint, the feedback's been very positive. It certainly continues to address a high clinical need within the rheumatology community. We'll see exactly how it shapes out volume-wise in 2025. But positive so far has been very key, or feedback so far has been very positive.

Speaker Change #102: From our standpoint, the feedback has been very positive. It certainly continues to address high clinical need within the rheumatology community will see exactly how it shapes out volume wise in 2025, but positive. So far has been very <unk> or feedback so far has been very positive.

Daniel Brennan: Got it. And then maybe last one in terms of the claims that you've been holding. Just kind of remind us, like, are you fully processing a lot of the claims given where pricing is today? Just how do we think about that as we look out to the back half of the year in the 25?

Speaker Change #103: Got it and then maybe last one in terms of the claims that <unk> been holding just kind of remind us like are you fully kind of processing a lot of the claims given where pricing is today just how do we think about that as we look out to the back half of the year into 25.

John Aballi: Yep, so at the beginning of each year, we hold claims. It's a strategy that we have that we believe improves our revenue cycle opportunities. And so we do that, and then in late Q2 into Q3, we release those claims out to the various insurance organizations, and then go from there. And so we've done that here in Q2, you see our AR increased by about a million. Our cash position is very strong, so it's played out, or is playing out, very similar to how it did last year. And we'll see kind of how the back half of the year goes in terms of this, but claims are being released, and it's just business as usual in that regard.

Speaker Change #104: Yes, so at the beginning.

Speaker Change #104: Of each year we.

Speaker Change #104: Old claims.

Speaker Change #104: It's a strategy that we have that we believe improves our revenue cycle opportunities and so we do that.

Speaker Change #104: And then in late Q2 into Q3, we released those claims.

To the various insurance organizations and then go from there and so we've done that here in Q2 of <unk> increased by about $1 million, our cash position is very strong so.

Speaker Change #104: It's played out or is playing out very similar to how it did last year and.

Speaker Change #104: And we will see kind of how the back half of the year goes in terms of this but claims are being released and just business as usual in that regard.

Daniel Brennan: Great. Okay. Thank you very much.

Speaker Change #104: Great. Okay. Thank you very much.

Ross Osborn: Our next question is from the line of Ross Osborn with Cantor Fitzgerald. Please proceed with your question.

Ross <unk>: Our next question is from the line of Ross <unk> with Cantor Fitzgerald. Please proceed with your questions.

Ross Osborn: Hey, good morning, everyone, and congrats on the results. Maybe we should start off with just a bigger question from us. Given your success in turning Exagen around to grow in an efficient manner, how are you thinking about the longer term story at this point? Just in terms of your product portfolio, with the business reaching cashflow break even in a year or so, are you thinking more about bringing a new test at this point, or is there a runaway for the revised CTD test long enough that it will be the focus for the next several years?

Hey, good morning, everyone and congrats on the results.

Ross <unk>: Starting off with just a bigger question from US given your success in China any extra turnaround occurring in an efficient manner. How are you thinking about the longer term story at this point.

In terms of your product portfolio with the business, reaching cash flow breakeven in a year or so.

Speaker Change #107: Thank you all more about bringing a new test at this point or is there a runaway for their <unk> CTD test long enough that it that it will be the focus for the next several years. Thank you.

John Aballi: Hey Ross, good morning. I appreciate the question. Unknown Attendee, John Aballi, Ryan Douglas, Dustin Scaringe, Kyle Mikson, Ross Osborn, It's exciting to see and it's exciting to be operating a business that is very close in this regard, right? And I think that that's certainly what I've wanted to do, and I'm really looking forward to it over the next couple of years. I think we'll be able to do some fun things as we move into more capital allocation-type strategies. And so... From our perspective, Advice CTD still has quite a bit of room to go. You know, if we take a look at how we're thinking about this.

John Aballi: Thank you. Hey, Ross.

Speaker Change #107: Hey, Ross good morning, I appreciate the question.

Speaker Change #108: To fund question to ponder to be honest, especially.

Ross <unk>: Given where we're joined the organization a couple of years ago.

Ross <unk>: Was something that I thought about but.

Ross <unk>: It wasn't quite at the forefront of.

Of what of what I had to work on and so it is coming more into view I appreciate that perspective from our standpoint. The organization is transforming and we've shown material progress that was.

Ross <unk>: <unk>.

Ross <unk>: It's exciting to see and it's exciting.

Ross <unk>: To be operating a business that is very close and in this regard right and I think that Thats certainly what I've wanted to do and I'm really looking forward. It over the next couple of years I think I think we'll be able to do some fun things as we move into.

Ross <unk>: <unk>.

Ross <unk>: More capital.

Ross <unk>: Location type.

Ross <unk>: Strategies so.

Ross <unk>: From our perspective.

Ross <unk>: <unk> still has quite a bit of room to go if we take a look at how we're thinking about this.

John Aballi: 40 to 45 million Americans are ANA positive and then subsequently referred into rheumatology for clinical evaluation of a suspected autoimmune condition. We think that we're somewhere in the kind of mid-single digits in terms of market penetration with advised CTD. So we've got a lot of room on that front. I think these new product enhancements will work in terms of clinical adoption and what the impact is there. We also think that from an ASP perspective, we still have some room to go. And, as I mentioned, kind of that 500 mark is a good cliff.

Ross <unk>: Yeah.

Ross <unk>: 40, 40% to 45 million Americans are positive and then subsequently referred into.

Ross <unk>: Rheumatology for clinical evaluation of suspected autoimmune condition.

Ross <unk>: We think that we're somewhere.

Ross <unk>: Kind of mid single digits in terms of market penetration with advise CTD. So we've got a lot of room on that front I think these new products enhancements, we'll see.

Ross <unk>: How they work in terms of clinical adoption and what the impact is there. We also think that from an ASP perspective.

Ross <unk>: We still have some room to go and as I mentioned kind of that 500.

Ross <unk>: <unk> is a good cliff so that that set of decent growth from our perspective, just on the base business. Additionally, one of the things we've done over the last two years has completely revamped our R&D.

John Aballi: So that's decent growth from our perspective just on the base business. Additionally, one of the things we've done over the last two years is completely revamp our R&D efforts. And we do have exciting opportunities there. The rheumatology community is not the only area where they need proprietary information and diagnostics. And so disease activity scores both in SLE along with rheumatoid arthritis are something that we're actively looking at. We've also looked at diagnostic and therapeutic response within a subset of SLE patients, those with lupus nephritis.

Ross <unk>: Efforts and we do have exciting opt.

Ross <unk>: Opportunities there.

Ross <unk>: The rheumatology community. This is not the only area, where they need proprietary information.

Ross <unk>: Information and diagnostics and so disease activity scores both in SLE, along with rheumatoid arthritis are something that we're actively looking at we've also looked at diagnostic and therapeutic response within a subset of SLE patients those with lupus nephritis.

John Aballi: And there are a few other efforts that seem to look promising from the research that we've done. So we'll continue to build out our own pipeline of opportunities. And first and foremost, that starts with customer needs. And I think we've got a good handle on that. But then we'll also, as we become a cash flow positive and, subsequently, a profitable organization, look for what else is out there and see how we can enhance our business profile in that regard from an inorganic opportunity standpoint. So, it's fun to be thinking about it. That was one of the reasons why I'm super excited for Jeff to join and be able to leverage some of his experience there, so we'll see where it goes.

Ross <unk>: And there's a few other efforts that seem to look promising from the research that we've done so well we will continue to build out our own pipeline of opportunities and first and foremost that starts with customer need and I think we've got a good handle on that.

Ross <unk>: But then we'll also as we become cash flow positive and subsequently a profitable organization lift for what else is out there and see how we can enhance.

Ross <unk>: Our business profile in that regard from inorganic opportunity standpoint, so fun to be thinking about it.

Ross <unk>: That was one of the reasons why I am Super excited for Jeff to join and be able to leverage some of his experience there. So.

We'll see where it goes.

Ross <unk>: Okay.

Ross Osborn: All right. Sounds great. Congratulations again on the progress. Thank you.

Speaker Change #109: Alright sounds great. Congrats again on the progress thank you.

Ross <unk>: Thanks Ross.

Andrew Brackmann: Our next questions are from the line of Andrew Brackmann with William Blair. Please proceed with your questions.

Speaker Change #110: Our next questions are from the line of Andrew <unk> with William Blair. Please proceed with your questions.

Andrew Brackmann: Hey guys, good morning. Thanks for taking the questions. Maybe on the advice enhancements, can you maybe just be a bit more specific on training and education plans around these ads? Anything that we should sort of be on the lookout for, whether it's industry conferences, KOL events, peer-to-peer, anything like that? We'll back up to you. Thank you.

Andrew <unk>: Hey, guys. Good morning, Thanks for taking the questions maybe on the advise enhancements can you maybe just be a bit more specific on training and education plans around these add anything that we should sort of be on the look out for whether it's industry conferences kols events peer peer or anything like that in the back half of the year.

Andrew <unk>: Good morning, Andrew So.

John Aballi: Good morning, Andrew. So, it's... We've already started in terms of internal training, and the month of August will actually be a heavy month training-wise for our organization. We're having regional meetings within our sales organization, pulling them into centralized locations and spending two days really diving deep into the clinical value proposition and the clinical benefit that these markers are going to provide. The team's been preparing for this for a couple of months now, and I'll be attending portions of it. So, very excited to see kind of where we sit internally from a training standpoint, call it end of August, beginning of September. So those are some internal efforts.

Speaker Change #112: <unk> already started in terms of internal training.

Speaker Change #113: In the month of August will actually be a heavy month training wise for our organization, we're having regional meetings within our sales organization pulling them into a centralized locations and spending two days.

Speaker Change #114: Really diving deep into the the clinical value proposition and the clinical benefit that these markets are going to provide.

Speaker Change #114: The team has been preparing for this for a couple of months now and I'll be attending portions of those so very excited to see kind of where we sit internally from a training standpoint call. It end of August beginning of September. So those are those are some internal efforts, obviously, we're revamping all of our marketing material.

John Aballi: Obviously, we're revamping all of our marketing material. Our advice CTD report is changing as a result of this. We're taking that opportunity to enhance the way that we provide just even the advice, the standard advice analytes, but then also these new ones. Our interpretation of that report is changing, and it'll be very educational. Be happy to show and share some of that stuff as it becomes fully mature, but maybe in the next month, month and a half, that will occur.

Speaker Change #114: Our advice CTD report is changing as a result of this we're taking that opportunity to enhance the way that we provide.

Speaker Change #114: Even the advice the standard advice analytes, but then also these new ones are interpretation on that report is changing and it'll be very educational theirs.

Speaker Change #114: Be happy to show and share some of that stuff as it as it becomes fully mature, but maybe in the next month month and a half that will occur as I mentioned <unk> in the month of November that's going to be a key date for us. Its mid November there will have a strong educational campaign.

John Aballi: As I mentioned, ACR is in the month of November. That's going to be a key date for us. It's mid-November there. We'll have a strong educational campaign. We are already... Slated to have some presentations there on on these topics and so excited Excited to get that information out there and really start the commercialization of these enhancements So those are the main things that are occurring and then we'll see we're also In the midst of publishing a couple of manuscripts which highlight the studies that we've run a clinical validation if you will of these markers So those will hit the public domain ideally sometime before the end of the year tough to Control publication timelines, but ideally before the end of the year So you'll see those things at the public public domain and then obviously we'll see the reaction from physicians Probably here manifesting Q1

Speaker Change #114: We're already.

Speaker Change #114: Slated to have some presentations there on on these topics and so excited.

Speaker Change #114: Excited to get that information out there and really start the commercialization of these enhancements.

Speaker Change #114: So those are the main things that are occurring and then we will see we're also in the midst of publishing a couple of manuscripts, which highlight the studies that we've run a clinical validation. If you will of these markers. So those will hit the public domain ideally sometime before the end of the year tester.

Speaker Change #114: Control publication timelines, but ideally before the end of the year. So youll see those things hit the public domain and then obviously, we'll see the reaction from physicians probably here manifest in Q1.

Andrew Brackmann: Perfect. That's actually a good segue to where I wanted to go next, really just around sort of data generation. So sounds like you've got some manuscripts coming around validation, but anything that we should be on the lookout for in terms of clinical utility studies, just how are you thinking about the importance of running those? That's a great question.

Speaker Change #114: Perfect that's actually a good segue.

Speaker Change #115: Where I wanted to go next really just around sort of data generation. So it sounds like you've got some remaining ships coming around validation, but anything that we should be on the look out in terms of clinical utility studies, just how are you thinking about the importance of running those thank you.

John Aballi: That's a great question. Clinical utility is a key part of reimbursement in this space and something that we put at the heart of our product enhancements and product launches. We have clinical trials set up with folks, and we're in discussions with others taking a look at clinical utility. It'll be a little soon to demonstrate clinical utility exactly when we launch these markers, but it is something that we're actively working on, and more to come, maybe in 2025 as those trials continue to enroll and we start to see the results of some of it.

Speaker Change #116: That's a great question clinical utility as a key part of reimbursement in this space and something that we are.

Speaker Change #117: At the heart of our product enhancements and product launches, we have clinical trials setup with folks and we're in discussions with others, taking a look at clinical utility.

Speaker Change #118: It'll be a little soon to demonstrate clinical utility exactly when we launch these markers, but it is something that we're actively working on.

John Aballi: So right now, focused on analytical validation and clinical validation, both of those results from initial readouts are very strong. It's the reason we're launching these. And then, subsequently, we'll look to see how clinical behavior is enhanced with the launch of these markers here in 25.

Speaker Change #118: And more to come.

Speaker Change #118: Maybe in 2025 as those trials continue to enroll and we start to see the results of some of it. So right now focused on analytical validation clinical validation both of those results from.

Speaker Change #118: From initial Readouts are very strong. It's the reason we're launching these and then subsequently we'll look to see how clinical behavior is enhanced.

Speaker Change #118: With the launch of these markers here in 'twenty five.

Speaker Change #119: Great. Thanks, guys.

Andrew <unk>: Thanks, Andrew.

John Aballi: Thank you. We've reached the end of the question and answer session. I'll now turn the call over to John Aballi for closing remarks.

Speaker Change #120: Thank you we've reached the end of the question and answer session I will now turn the call over to John the Bali for closing remarks.

John Aballi: Great. I want to end by extending a huge thanks to the team at Exagen for executing at a very high level and continuing to trust in the process and buy into the changes we've made at the organization. As we continue to evolve our business, our performance is showcasing the transformation. It's exciting to see. It continues to be exciting to communicate, and I look forward to providing our next update in a few months.

Great I want to end by extending a huge thanks to the team at <unk> for executing at a very high level and continuing to trust in the process and buy into the changes we've made at the organization.

Speaker Change #121: As we continue to evolve our business our performance is showcasing the transformation.

Speaker Change #121: It's exciting to see it continues to be exciting to convey.

Speaker Change #121: And I look forward to providing our next update in a few months. Thanks all.

Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change #122: This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.