Q3 2025 Exagen Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to exiting Inc. Q3 25 in conference call.

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good morning and thank you for joining us earlier this morning, Exodus Financial results for the quarter ended, September 30th 2025,

John Bali our president and chief executive officer and Jeff black, our Chief Financial Officer will host. This morning's call.

A recording of today's call and the press release announcing. The quarterly results can be found on the company's website at www.acon.com

As today's call includes 4 looking statements, we encourage you to review the statements contained to today's press release and the risk and uncertainties described in our SEC filings, which identify certain factors that may cause a company's actual events, performance and results to differ materially from those contained in the forward-looking statements made on today's call.

In addition, we'll discuss non-GAAP financial measures on this call. Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. I will now turn the call over to John.

Good morning everyone and thank you for joining us. I'm pleased to report that Q3 was the strongest quarter in exogenous history, driven by robust volume growth and continued execution across our commercial scientific and operational teams.

Compared to last year year to date, we've grown Revenue by 19% comprised of 8% growth in testing volume and 9% growth in asp.

This synergistic impact is exactly how we anticipated. Our Topline performance would evolve when we set our strategy, a few years back.

These numbers highlight the power of combining volume with reimbursement growth and what effect that can have on Topline when both are moving in the same direction.

Our team is energized by the opportunities. We continue to see in both areas which I will break down further in a second. But first, let's start with our recent product launch.

At the end of Q3, we successfully launched assays for the detection of anti- pad for antibodies. Our second novel, set of rheumatoid, arthritis biomarkers this year while we expect the revenue impact from pad 4 to be modest. It continues to differentiate our rheumatoid arthritis offering and demonstrates our ability to bring new markers to the clinic quickly and effectively

The feedback from clinicians has been encouraging and we're seeing growing interest in how these markers can impact patient care.

I personally saw some of this clinical interests that the American College of Rheumatology meeting in Chicago last week.

Where multiple Physicians wanted to dive deeper into the science with our team and where we had a robust attendance at our conference presentation on these markers?

We've also had several commission share firsthand experience with the testing highlighting the clinical need for better better biomarkers in this patient population but also several examples where the anti pad for markers were the only serological abnormalities in clinically ambiguous patients.

Joseph changes.

It's important to intensify treatment. For these patients is ADD anti pad for antibodies. Also serve as a prognostic marker, for highly erosive disease, but this pathology tends to respond better to treatment escalation. So hopefully, this patient is able to get their disease under control soon and our borrow marker testing led to the diagnosis and gave insight to guide the treatment in this patient. This is 1 of the many examples of our clinical utility these markers can bring and that we are hearing about from our customers.

With the launch of these markers. We have now completed the development of 1 of the most sensitive serologic, evaluations for rheumatoid arthritis, available on the market today,

I'm very proud of the work. Our team has done to deliver these tests to the clinic and in a field which hasn't historically seen a lot of biomarker innovation.

We are setting a course to change that and better personalized care for these patients, to remind everyone of the impact. Our testing now has conventional biomarker profiling for rheumatoid, arthritis consists of rheumatoid factor and anti-ccp antibodies, which are positive in approximately, 70% of clinically diagnosed ra patients,

With the addition of RA 33 antibody testing and our new assays for detection of anti pad, for antibodies, our serologic profiling will be positive in approximately 85% of patients. Thereby capturing approximately half of the ra patient population, which would have historically been diagnosed as Sero. Negative ra

Additionally these patients which are positive for ra 33, antibodies are more likely to have milder disease, which tends to respond favorably to methane.

Patients positive for anti pad for antibodies generally have more aggressive disease but are likely to respond more favorably to treatment escalation.

This level of precision in predicting the disease course. And treatment response is exciting to bring to rheumatoid arthritis patients and it's just the start of what we're doing in this field.

Lastly, and this is rare for biomarker innovation, these efforts required less than $3 million investment, and we expect revenue payback in less than 24 months.

We won't always be able to contribute to the clinic in such a valuable way with a relatively small investment and quick return, but we do believe that with our current commercial Channel, we can innovate long term with decent Returns on investment.

Switching to advised ctd. Testing volume trajectory

Q3 volume was the highest we've ever recorded for a third quarter period.

And notably we did not see the typical quarterly slowdown. In fact, volume remains strong until October which is a positive trend for Q4 and indicates to me that our team is back to Growing the business. After helping our customer base adapt to the billing changes, we implemented a couple years ago

Our expansion into new territories, is also starting to pay off.

We see meaningful contributions from these regions and our per territory productivity remains strong of Note. 2 of our recent expansion, territories emerged as top performing growth territories, this past month and we have others trending. Similarly

Total ordering positions and orders per clinician. Continue to trim Trend upward and we're seeing increased engagement from both new and existing Physicians.

This is a testament to having the right team in place and the stability and focus. We built over the past year and a half.

We currently operate with 45 sales, territories up from 42 at the end of Q3.

Our focus remains on profitable growth, and we will continue adding territories where we see clear opportunity, strong physician engagement, and can find the right talent.

Now, let's talk about ASP which is top of mind for me.

We've made significant progress over the past 2 years with our trailing 12-month ASP for ctd now at 441, a 9% increase year-over-year.

It's important to acknowledge that. We're not seeing the full second half of ASP expansion. I had anticipated.

The new biomarker reimbursement, while creative, has not ramped as quickly as I had hoped.

We still believe there's a path to further ASP gains and our efforts around appeals revenue, cycle, operations, and pear. Education are showing incremental progress, but the reality is, these games are coming more gradually than I expected.

Additionally, we lost a large High ASP. Direct bill account this quarter, which is Weighing on our current ASP. As we convert this business into standard Commercial Insurance, payer mix,

both of these items have temporarily slowed, our trajectory

But as I've constantly conveyed throughout my time here, this is why I view a critical to gauge our success relative to a trailing 12-month measure, which does continue to climb.

We continue to be very diligent with our revenue cycle operations, and have a strong strategy employed to secure the higher reimbursement. We ultimately expect, but you are seeing a somewhat muted, ASP reflected in our top and bottom lines as we work through these efforts.

According to our farmer and cro business, we generated nearly 800,000 in Revenue. This quarter, bringing our year-to-date total to 1.2 million.

Our order. Backlog now stands at 3 and a half million dollars and continues to grow.

We're encouraged by momentum. We're seeing in this area.

As I mentioned, I was recently in Chicago attending the American College of Rheumatology annual conference where we had a strong presence this year highlighting, new abstracts and deepening. Our interactions with clinicians

we submitted and had accepted 6 different abstracts covering the bulk of our pipeline efforts 1 ultimately was chosen for a plenary talk. And in general we continue to showcase our company as an Innovative presence within the Rheumatology field.

It was a highly successful meeting in this regard.

Looking ahead, we remain on track to deliver, 65 to 70 million in Revenue, with the ability, to be cash, flow positive at the high end of our range though. The timing of sustained cash flow positivity, may be pushed to 2026 as we continue to navigate the ASP challenges. I just detailed

Generating cash remains a core near-term, goal and we're committed to achieving it in a disciplined sustainable way.

In closing, I want to thank our team for their dedication and execution, and our partners and shareholders for their continued support.

we continue to build something special of Exogen and while the path is never perfectly linear, our progress is real and our opportunity remains significant

Thank you. And with that, I'll turn it over to Jeff for additional comments on the financials.

Thank you, John. And good morning everyone.

As John mentioned, we delivered another strong quarter, highlighted by our third consecutive quarter of volume growth continued, ASP expansion and a balance sheet that we expect secures our Runway to positive free, cash flow.

Third quarter, revenue of 17.2 million was our highest quarter in history. Just beating out the second quarter and a nearly 40% increase over the third quarter of 2024.

Even considering over 1 million dollars in downside Revenue adjustments, in Q3 of last year, we still delivered over 25% Revenue growth.

And this is again seasonality headwinds. We typically see in the third quarter, which we curtailed through growth in ctd, test volume up, 15% from Q3 of last year and almost 2% sequentially.

Year to date through the third quarter. We grew Revenue 19% to roughly $50 million with trailing 12-month, ASP up over, 9% and volume up over 8%.

As John mentioned.

We're also seeing significant momentum in our former Services business which generated.

Revenue of 780,000 in the third quarter.

Year to date through Q3, we recognize 1.2 million in pharmaceutical Services. Revenue versus about 100,000 dollars in 2024.

our business development team has done a

Fabulous job of securing additional contracts and development, a strong pipeline that we expect will continue to grow.

Today we have up to 3.5 million under contract in Farmer Services. Representing future potential, Revenue opportunity. The timing of deliverables and related Revenue. Recognition are often Lumpy from quarter to quarter. So we remain cautious to guide on specific timing of this Revenue.

Our training 12-month device ctd ASP grew 37 year-over-year to 441 per test.

The training 12-month number remains, our best indicator of ASP traction, due to the typical es and flows of reimbursement. In any 1 quarter.

As John mentioned, we're behind expectations on our ASP acceleration but we remain confident that will drive further expansion through revenue cycle management enhancements.

Commercial payer engagement and Market access initiatives. These remain priorities for us and our core tenants to our success in driving reimbursement. Gains

As John Al also mentioned in the third quarter are most significant. ASP headwind was a loss from 1 of our higher volume High, ASP direct Bill accounts.

Importantly, we offset the revenue impact of this pullback with an overall increase in volume, which is a testament to our commercial team and ability to drive diversification of our of our position base.

As to the T-cell and RA33 biomarkers, we launched in January. We saw a moderate expansion in ASP related to the crude rate versus the second quarter, and we continue to expect, over time, to realize our long-term target.

Our newest biomarker pad 4 late in the third quarter and began billing for it. None of this volume was reflected in Revenue.

At the end of Q3, we had not established a payment history on this marker. So we did not record an approval rate.

We should see a moderate expansion in ASP in the fourth quarter for pad 4 as we establish, an early payment, history and related acrel rate.

gross margin in the third quarter was just over 58% up about 260 basis points compared to the third quarter of 2024

Excluding the impact of over a million dollars in downside Revenue adjustments, and the third quarter of last year, gross margin in the quarter was down about 175 basis points. From just over 60% in 2024

Year to date. Gross margin was just over 59% and up about 60 basis points. Over the same period in 2024.

Gross margin has been favorably impacted in 2025 by our continued. ASP improvements. Even with an increase in cogs related to our new biomarkers.

In fact, our per test of ictd cost is running favorable to initial expectations, offsetting some of the ASP headwinds and allowing us to maintain our gross margin, profile near that 60% level.

we still see a path to the mid-60s over time as we remain focused on driving further, ASP expansion and aggressively managing cogs,

Operating expenses for the third quarter were 13.2 million up from 11.6 million in Q3 of 24. And this increase was in part due to increased R&D, spend for pad 4 and other pipeline initiatives, as well as sgna associated with our first sales territory expansion. Since John, took over and another key commercial leadership, addition to the team,

we expect operating expenses to remain roughly at these levels for the next several quarters. And we'll continue to allocate resources responsibly as we've done in the past.

At the same time, we remain focused on disciplined Capital, allocation to commercial clinical and R&D initiatives that we believe have a high probability of driving accelerated. Long-term growth

From a balance sheet perspective, we have the flexibility to make the Investments needed to support these initiatives and invest opportunistically as we see fit.

But equally important, we have the the ability to modulate spend down or up as needed, all with an eye toward preserving, our path to positive free cash flow.

Our net loss for the third quarter was 7 million compared to 5 million in the same period last year. But it's important to note that the 7 million loss. And the most recent quarter includes about 3 million in non-cash expenses related primarily to the fair value adjustments from our new debt facility with perceptive which we closed in May of this year.

Our adjusted. EBA loss in the third quarter is 1.9 million compared to 4 million in the third quarter of 2024 and year to date through Q3 are adjusted. EBA loss. Improved, 1.5 million, or nearly 20% to 6.1 million for the first 9 months of 2025.

We maintain our focus on positive adjusted, evida in the near term and believe that ASP growth is the most important lever for achieving this goal.

Please refer to our earnings release issued earlier today for a Reconciliation of adjusted evaa to net loss.

Turning to our balance sheet. We ended the third quarter with 35.7 million in cash and cash equivalents up from 30 million at the end of Q2.

With accounts receivable of about 11 million.

Excluding financing proceeds during the third quarter, we generated net, net, cash of 2.3 million.

Compared to net cash usage of 2.4 million, a year ago.

We also enhanced our cash position in the third quarter through opportunistic but disciplined placements under our ATM sales agreement with TD Ken Securities. We raised just over 3.4 million at an average price of 9.83 cents per share, taking advantage of share price, momentum and higher volume trading days throughout the quarter.

We remain very well positioned from a balance sheet perspective with over 45 million dollars in Combined. Cash, and accounts receivable at September 30th that we expect will fund our existing business deposit of free, cash flow and up to an additional 50 million in available future credit capacity. If and when needed

We need to deliver value to shareholders through solid operating and financial execution.

We deliver another quarter of record Revenue in Q3.

A third consecutive quarter of a vise entity volume growth.

Continued. ASP expansion.

And we remain on track to deliver from 17% to over 25% Revenue. Growth in 2025,

we will now open the call for questions.

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Office question comes from Anderson, Scott of B Riley Securities. Please go ahead.

Hi. Thank you for taking the questions and congrats on all the ASP progress. So, uh, first you mentioned on the second quarter earnings call, uh, 430,000 per territory, do you have an updated uh, Revenue per territory for the third quarter? And how should we think about the productivity ramp of these new territories?

Morning Anderson. Uh, thanks so much for the question. So the 4:30 was, uh, 430,000 per territory was a record, um, for us and just so that people have kind of the background and trajectory that was from up from the high 200s. So we've made you're right, we've made material progress in the revenue per territory, um, all really on the back of the ASP gains that we've seen as an organization for the third quarter, it was right around that level slightly below. Uh, I think that's more a factor of we added, um, uh, the additional territories. Um, and so you have that denominator growing and give it a little bit of time. Uh, as we see those territories bearing fruit and we do expect it uh, to increase over time. So um, you were just under that 430.

Okay. Got it. And then with the launch of your ra markers, at the end of the third quarter. So once establishing a payment history for these, is there, an incremental, uplift to ASP that you're targeting similar to the $90 increase with the lupus biomarkers launched in January.

Yeah. So we've not broken this out yet, and we hesitate to um uh proclaim a number without having uh, robust history of collections there. So that's what we're doing right now. We're Gathering that information, uh, developing that history and then, we'll establish it. Uh, happy to provide an update on a future call. We expect it to be relatively modest compared to the 90 expectation that we had, uh, for the prior markers. You know, this is a set of Eliza based assays 2 markers as opposed to 3 in the case of r33 or uh, 3. Also in the case of the T Cell analytes. So uh, less markers, um, lower cost platform. Uh, build under generic codes. It's going to be, you know, um, in the low, single digit dollars or, or maybe even, um, in the double digit. But it's not, it's not going to be anything like what we had previously

Okay, got it. And then you also mentioned on the last call. You're approaching your first Pharma partnership with the urine platform. Are there any updates, you could provide their

so, we actually completed our first uh, statement of work related to, uh,

Platform and just so that everyone's aware, you know, we have, um, some fantastic technology that we've licensed out of John's Hopkins. Really, with multiple intended, use opportunities, uh, really to change. The way these patients are managed for the better and lupus nephritis, affects about half of all Lupus patients. This technology has been shown

when you look at,

Certain proteins in the urine of Lupus patients. Uh, there's the potential to diagnose the disease through a non-invasive manner. That's something we continue to pursue and have published on, uh, from an abstract perspective. Uh, we're looking at therapeutic response and then even long-term prediction of long-term kidney function or prognosis, really. Um, and so we have completed our first profiling effort. We're in discussions on subsequent, uh, efforts there but it, it went successfully. It was a small project and look forward to doing more.

Okay, got it. Thank you for taking our questions.

The next question comes from Kyle mikson. I've kind of called genuity please. Go ahead.

Hey guys, thanks for the questions.

Good quarter. Um, so I guess on the ASP, um, you know, topic, John and Jeff, um, you know, maybe just level set and provide some more, um, some framework of how we should think about approaching $500, because that was the target before. And you had that 90 dollar, um, incremental from the bio, the new biomarkers that was just referenced in the last question. So maybe just like, um,

if there's a way to kind of, think about the progression going forward and maybe just like, think of this more realistically, when you can get to 500 again, or maybe there's some other challenge, 12 months metric that we should, um, kind of, you know, model out and and kind of stick up out as we look at 2026, the quarter and so forth. Thanks.

Morning Kyle. Thanks for the question. Uh, so I guess first and foremost there's no uh,

No, no other metric and I'd be skeptical if I did provide a different metric, you know, as um, people change targets, um, when they get hard. So, uh, that's not the approach. We take here at oxygen from our perspective. 500 is still very realistic. Um, it's really just a timing thing. And so, we outlined a couple contributing factors in. Q3 we actually had a large client bill, uh, account that, uh, for purely financial reasons, it's a hospital system in the Northeast, they made the determination, uh, to no longer to cancel that contract that had some ASP headwind. We Believe, over time, we can build it back to the commercial, uh, the standard Commercial Insurance.

Throughout, but takes a little bit of time. We haven't had as much, uh, history with some of those payers, those Regional payers in the Northeast given that we've uh, built through the hospital system, uh, through a client bill Arrangement, uh, related to the new markers. You're exactly right. You're right on there. 900 was our

Expectation at the start of the year, we had mentioned on the Q2 call that we were coming in the low 70s around. 72 were up from there actually, uh, continue to go up almost on a daily basis. Um, but expected to be at the 90 now and we're not so I still believe that we're on the path to 90. It's, um, through our standard revenue cycle operations that we'll get there. We believe we'll get there. Additionally, we've launched these new pad for, um, markers. And we haven't recognized any Revenue there because we don't have a good track record for an acurate to establish an acre rate. So those will be lifts over call it the coming quarter too, uh or 3 is, you know, progress in converting that client bill, uh, account which um, you don't have some reasonable volume associated with it. Uh, continued work on the new biomarkers that we launched at the start of the Year, establishing a cool rate for the current, uh, product launch. And then, you know, just our underlying ground swell of efforts that we've

Continue to work on. So I think you'll see, um, over time that trailing 12-month, number continue to rise. I just had expected the trajectory uh to be a little bit more steep at this point in time. 9% year-over-year. Um is still reasonable. Um, but uh, we'd like it to be faster. So uh, that's the right metric and we'll continue to work at it.

Okay, perfect. And then on on just think, simple on volume. It seems like that was kind of

A sequentially. Um, flat. I think like quarter of a quarter if we do the math, right? And that's actually, I think that's actually stronger than your typical seasonality. So that's, that's good. So, maybe just confirm if, that's if that's true. Then if we should think about, you know, a drop off a step down in the fourth quarter, just given ACR and the other kind of seasonal factors. And then at that point, you know, um, given the ASP, as you characterize on the challenges, would you like kind of, um, pull back on, you know, Rapids rapid expansion at this point? Or are you still kind of all systems, go building out the team, don't expect next year?

Those are great questions. So just to be clear volume is actually up in Q3 relative to Q2, um, a couple of percent. So, uh, from that perspective and looking at historical seasonality, that's a meaningful, um, uh, change, you know? Um, and so we're very proud of that. I think the teams worked extremely hard, that was you know really with about the same number of sales territories, we had 42 um at the end of the

Uh is driving business and adoption. So I think as it relates to the sales expansion question, uh, there's no reason why we wouldn't continue to expand if we have the right opportunities in front of us, uh, right now we're making sure that the 52s we've added in the last 4 or 5 months are well, supported well educated and um are set up for success and we'll continue uh to add as as um as those opportunities arise. We did add to our sales leadership side, that was more opportunistic. Uh, someone I had worked with previously became available and I think very highly of that individual. So we took advantage of the opportunity to to bring them on board and again it just sets us up for future growth. So um uh we did go up in Q3, I would expect

Um, somewhat of a step down in Q4 just mostly a function of business days. Uh, I think in Q4 you've got, uh, some pretty significant holidays. We had ACR, uh, the week-long, uh, conference, that actually occurred in October. So our October performance was in light of ACR occurring in this month. So, we're on the right trajectory. I would still expect a slight step down, but overall, we're setting ourselves up very well, um, for continued growth through 2 mechanisms, ASP and volume.

Perfect. And then finally, I would like to ask about the Pharma business so that was so 800,000 in Revenue, the clerk compared to 100,000 for all of last year. That's pretty impressive. So, um, I guess why, why is so strong now, um, this year? And then could that be even more material in 2026? Could that be like a real business line that you could actually start to kind of break out? And, and, and kind of additionally, is that an area? You would, you would partner or acquire in given the, the unmet need and autoimmune disease.

Yeah. Um, that's a very interesting set of questions. So, from my perspective, excited about the progress. On the farmer Revenue side, you know, to deliver 800,000 far and above what we've done historically as it relates to testing services, um, and so, um, very proud of that proud of the team and took a lot of energy and effort, but uh, well worth it and I think we've uh, delivered for our farmer Partners, you know, they have time constraints, they have quality requirements, they want flexibility. And in all of those facets, uh, clearly we're demonstrating our ability to differentiate ourselves in the market and, uh, and it's working out for us. So,

Where could this go? I mean the farmer services in general tends to be a lumpy business. Uh um as you know you complete a project and you tend to get recognized Revenue consistent with that project. Um when the work is completed. And so there'll be certain quarters with outsized performance versus others. But for the year um, or on an annual basis, I do

Expect this to continue to grow. There's a lot of opportunity, a lot of farm and development. You see? Um, new diseases, um, getting approved uh, for biologics, uh, in this space shrs, for example, is 1 that just came, um, with, uh, with Novartis. Uh, there's other diseases as well that, you know, people are looking for biomarkers and better Diagnostic biomarkers and better markers of disease activity and we believe we're well positioned or well suited for that. Also given that our base, um, methodology within advise is flowmetry. You know, I think that we're well positioned, uh, to offer something unique there as well. So we'll continue to refine our business plan, our business model, uh, understand how we can add value. Uh I'll just give you 1 example. But when a farmer organization comes to uh service provider, what they're looking for is speed at times what they're looking for is speed to get some of these assays validated and avail

For them in clinical trial, testing at a high quality level, um, we generally meet the quality thresholds, given our commercial Pipeline and the fact that we have, um, access to so many patients, and so many, uh, different samples, our ability to validate assays, uh, and develop new assays. I think is

It's really a substantial and a huge competitive Advantage for us. So that's part of the differentiation, we're able to offer amongst many other things. But um, we'll have to see how it progresses. But yes, it's training in the right direction.

Awesome. I appreciate the call, John. Thanks.

Thanks Kyle.

On next question comes from Mark marrow of PT. Please go ahead.

Um, this is giving it on for Mark. Thanks for taking the questions. Um, so just 1 on the sales force expansion, um, I understand that you just hired these reps. Um, but could you just remind us how you're thinking about, um, Targets in terms of re per rep? Um, and kind of the time that it takes for them to uh reach maturity and hit their stride. Thanks.

Vivian, hope you're doing well. So from our perspective, um,

we set profitability targets for on a per territory basis. And um, and that has to do with both the compensation structure. So, once you reach a certain scale, uh, there's profitability bonuses that that end up coming into play. Um, but then, as it relates to opportunity, uh, we're looking for a minimum level of profitability or um contribution margin that at least sustains the price of having a field-based presence in that area. And so um, as a and so that naturally relates to a number of tests but it also changes as our ASP changes. Um, so from our perspective, we tend to split our largest territories provided. We still believe or have done enough research to believe that, um, their substantial opportunity there. Um, and so that's really the mechanism that we're approaching uh, the sales expansion, uh, process with. Um, and uh, it generally takes, I mean, it's always tough to generalize but it just

Generally takes around 9 months for 6, to 9 months, for someone, to start to contribute, there's multiple exceptions of that. And then I, I

Tried to highlight that in the prepared remarks. But, uh, We've Got 2 in the um, Southeast where 2 territories, where they were, uh, highest growth uh, by percentage and uh, 2 of our top 5, nationally were some of these expansion territories. So that's exciting for us. I guess it reinforces that. We made the right choice from a Personnel standpoint. We found the right person to join our team but we're also uh, doing a really nice job, evaluating the opportunity there. So we'll continue to do that. Uh, but somewhere in the 6 to 9 month range, so I would expect by year, end heading into 26, we start to really

Realize the full potential of of now this 45.

We kind of slower than expected traction. Um with ASP left for the new biomarkers. Um, can you just help us? Think about um steps you can take um in terms of driving payment for these biomarkers or what it is? Exactly. Um that's only got payment here. Thanks.

Yeah, great question. So as it relates to extra color on the ASP side, um,

From our perspective, uh some of the denials that we're seeing are related to um uh basically medical policy for these um, for these new markers. And it's, you know, the diagnostic code in conjunction with, um, the procedural code being used is, is not approved from a payer standpoint, we believe that, you know, through an appeals process, a robust appeals process that we've architected and and implemented now here, uh, over the last couple of years that we can be successful long term but initial denials are, um, are higher than I had originally expected. So that's really the basis for it. Um, there's some other nuances there that we think we can improve upon, for example, out of network denials and things like this, but these are unique markers and we're the only lab that's offering them. And so, uh, there is no in network alternative especially for this Suite of of analytes. So, from our perspective, it has to do with revenue cycle, operations, probably being the most effective lover.

In this space. Um still working on some physician advocacy along with patient advocacy but those will be secondary or tertiary um tactics that we employ. Um and then and then we'll have to take it from there.

Perfect. Thanks for taking the questions.

Our next question comes from Ross. Osborne of Canto first Gerald, please go ahead.

Hey guys, this is Matt on ferocity. Thanks for taking the questions. Um, I guess just 1 from me, you know. Uh, you you reiterated about, uh, mid-60s gross margin over time, I guess, can you kind of expand on what the key unlocks are to get there? Whether it's further, automation, volume scale, repair, mix normalization and how you're thinking about that timeline to start seeing incremental Leverage.

Tests on a vise ctd actually. Well below Target, which is very encouraging and that's been, that's been a function, primarily of just better optimization of Labor and we really haven't had to make the significant investment in labor that we would expect it to keep up with the volume particular with the new biomarkers. Um, all of that has come before any real optimization we've made in either, you know, ACI development or or, you know, lab operations. So we do think there is real opportunity for further optimization and workflow, but I would say that the biggest driver is going to be the the ASP expansion and just to add some more color color color to that.

Um, John mentioned that we did we did see a pullback and we we lost a a pretty high volume uh relative to the high volume High, ASP account. Um, if you were to normalize for that, we would already be above the 60%, gross margin rate for the quarter, so we're still tracking, um, and we're really encouraged because our cogs profile. Um, is much much below where we expected it to be.

Got it. Super helpful color. Thanks for taking the questions, guys.

Thanks man.

The next question comes from Andrew Brackman of All Blair. Please go ahead.

Hi guys. Good morning. Thanks for taking the question. Um, maybe just on the volume front, you know, accelerated volume growth again here in the quarter. A lot's been asked sort of on rep productivity, but as you sort of think about the drivers of that volume growth, how should we sort of parse out?

The, the sort of Leverage between the expanded commercial team or efficient rep productivity, but then also just the launch of markers from our earlier this year. And, and then just still just the massive, uh, penetration that you had in front of you that penetration potential, that you have in front of you. Thanks.

Morning Andrew. Thanks a lot for the question.

So um maybe more of a qualitative answer. It's always tough to pinpoint or, you know, uh address this with Precision. But um from my perspective having something Innovative and um uh clinically useful to discuss uh with our client base is reinvigorated, our sales team for sure, but also the interest on the customer side. So I think the fact that we launched these new markers is uh,

Um is very much a positive and we're seeing that energy. I guess kind of rekindle here in the in the second half of the year with with the recent launch of these additional markers. Addition, you know, especially now that we've got uh unique Marker set specific to rheumatoid arthritis, it really does open up the clinical conversation and provide that additional value, um, for folks. So that's that is where I would rank. Uh, I would rank that at the top, we've talked at length about having stability, and, um, and such a high caliber team in our organization. Uh, and I really believe that that's a significant contributing factor to our growth right now. We've got groups uh groups of folks who really take learning the science. Seriously really to um work hard and uh and you're seeing the results of that I mean as as long as you

Pretty consistently. Stay customer Centric. Worked to satisfy the needs of, um, of your customer. And, uh, are generally concerned with adding value to their clinical practice. I think you can be relatively successful and this area of medicine is highly driven by relationships. It's very clear that, uh, you know, even the patient clinician, uh, approach here. It's chronic disease management, the relationship, there is very key and it is with our organization as well. And we've, we've really worked to build trust and establish that trust. We want testing performed um where it's going to be useful and not. Um,

Uh, not widely our test is not useful in every clinical context when, when you're trying to diagnose a connective tissue disease. So we really want to understand how clinicians where they're struggling and where this can add value. And uh and our team I think has

Masters, probably too strong of a word, but come close. Uh, and continue to improve in this area. Uh, and I think there was we're seeing the results of that. So the new markers top, I think are very strong contributing factor stability in the team along with a heightened focus in the clinical messaging. And and that's what you're seeing here.

Okay. That's that that's a great color. And then just on the loss of that large uh direct Bill, customer any more color you can maybe give on the magnitude of of the headwind that that caused asps in the quarter. And then as you look at at that entire book of business for direct Bill, any other risks out there that you might see popping up uh in terms of other customers going down this route. Thanks.

Opportunity, it's, uh, approaching 20% of our Revenue. It's on the order of 8 to 10% of our volume. So gives you a sense of that relationship there. I think it's an interesting part of the business, uh, in the sense that the person the people or the entity that you're negotiating with, from a pricing standpoint, also handle medical policy for all intents and purposes, right? So it's a um, combination negotiation, if you will and um, it allows those entities to get access to more Innovative technology sooner. Um, uh,

In that sense they can determine when if they uh want access to to certain technology. Um,

But it also tends to put that, uh, offering or that relationship at risk, uh, at times because they can decide to switch, uh, just as quickly. And so, our understanding of this transition was, it was uh, financially, motivated decision, uh, didn't really take into account the clinical impact or, um, to be honest, the um, desires of the Rheumatology, um, a group at this organization. But, uh, nevertheless, it was made and, uh, from their perspective and their best interest and, uh, but they're still offering our our test using it in clinical practice. We're just converting, uh, more to, uh, commercial insurance and uh, and so we know that that's a little bit longer Road in terms of getting back to the ASP that we ultimately aspire to. But it's 1 that we're um, well-versed in and and

To know the appropriate tactics. So

the client will opportunity is interesting. I, I think we're probably at close to the max level of client, build business that I want to take, um, for organization. Um, we'll see if other opportunities arise but long-term, I think it's better that we work with insurers. Um, I think it's a, uh, better relationship in that. In that regard can be tougher, short term, but longer term, I think that's, uh, a better competitive advantage and a more reliable approach.

Great. Thanks guys.

Yep.

Our next question comes from Bill bonello of Craig Helen. Please go ahead.

Hey guys. Uh, I just want to follow up on, on the question that Andrew was just pushing on to just make sure I understood what, what you said? Um, so in, in terms of that client, they are still ordering the the test. They simply moved from being client bill to third-party bill or

and then if, if that's correct, was there sort of any Associated impact on on volume at that client? Or are you seeing steady volumes and just the change in in asp?

Yeah. Good morning Bill and thanks for the question opportunity to expand a little bit more. So, you know, specifics related to this account which uh, happy to go into probably won't go into as much detail with uh, each of these instances. But, uh, with this account specifically

1? When the contract was terminated and we were given, you know, fairly short notice here talking about a few days. When the contract was terminated, um, access to the testing was suspended. So, um, the hospital system froze. The EMR and uh, actually paused to access for their clinician base. They actually, uh, stopped drawing it with their uh, in-house laboratory as well. Drawing the blood Etc. So really everything came to a halt initially, um, given our close relationships with the Rheumatology, uh, division there, um, and their desire to continue to have access to this test, they, um, pursued, an alternative route. And we worked with him on the logistics to revive that. So where we're at now? Is, uh, the volume has returned, uh, because we've been able to logistically provide potty, um, access for them along with, uh, helping them, establish a new ordering process, Etc. And we're not back exactly to where we were. But it's, it's certainly

Trending in the right direction and, um, and much better than when we were informed of the transition. So, uh, you did have some suspension related to volume. Uh, I believe we're trending, uh, back in in a very positive way there uh, with optimism on, on the trajectory. And then, um, most of the impact has been asp.

Okay. That's that's really helpful. Uh and nice to see the acceleration in volume growth, even with that um, situation. So the the second thing and, um, because to me volume growth, really seems like the, you know, exciting story here the uptick but, um, you know,

Respected. Um, a couple of couple of questions. You know, what, why do you think that's happening? Why do you think you're seeing greater denials than you had expected? And then is that Dynamic exclusively related to the, to the new markers, or are you seeing an uptick in denials across the board?

Yeah, that's a great question. So our base business, uh, I've no notable changes in payer behavior that uh are worth going into level detail on this call, right? So we remain on a on a positive trajectory for the base business, it is related to the new markers as to why we're seeing a higher um, level of scrutiny than I expected. Well, I think it comes down to incentives, um, for the most part. Um, you know, insurers are often times profitable organizations and they're looking for ways uh took her tail utilization. And this is 1 way either through prior authorization, implementations medical record requests. They throw a lot of hurdles in place to see if the clinicians truly, really want this type of offering and uh

And that's what we're seeing. Um, so some of this related to the, um, ICD 10 code, uh, you know, the diagnostic code being used in conjunction with billing, but this is what we're provided by the client. So not a lot that we can do there. Um, just tough to simulate all these situations ahead of time. I think we did a

Reasonable job on our end. Um, in estimating this, and still believe that long term that $90 aspiration is is Within Reach. Uh, we're climbing to it. I think we're in the mid to high 700s. Now we're in the low 70s, a quarter ago. So even over a 3-month period of time, you've seen, uh, um, you know, almost a 10% change in that new marker, reimbursement for the positive. Uh, it just is going to take us a little bit of time to work through this. And ultimately, where do we land? Not entirely. Sure. You know. Is it 85? Is it 95? I don't know. But uh, just think it's important and prudent to be transparent with this and um, and that's kind of what we're working on.

That's really helpful and then just the The Playbook is it is it, you know, radically different what you're trying to do here in in terms of, you know, working through denials and and, you know, eventually getting these additional markers paid for then sort of what you've done over the past 2 years, where you've driven a, you know, sort of massive increase in in, in ASP, uh, through revenue cycle management. Just just trying to understand how unique this particular situation might be relative to what you've done in the past.

Yeah tactically and procedurally. It's very similar and so that's why I feel confident that you know from an architecture standpoint from a process standpoint we need we have the infrastructure in place to address this at scale.

on um, the content now that's obviously going to change because, um, most of what we've been doing is having discussions and um

Uh, around advised lupus and what the body of evidence is behind that in terms of clinical validity and utility. Now, these are new markers. And so, the body of evidence is not as deep. Although, with the rheumatoid arthritis, markers, they've been studied for many years ra33, body of literature out there for 20, plus years, the pad 4, uh, Auto antibodies body of literature out there. So we're able to leverage, you know, some of that science that's been conducted by other institutions and Infuse that into our appeals process. But it does require us to update, you know, the appeal letters and um to structure that content a little bit differently and and there's a going to be a learning curve naturally with some of that. But um, but the process and tactics remain the same.

All right. Thank you very much, really appreciate that additional color.

Thanks Bill.

The next question comes from Matthew Parisi of KeyBank. Please go ahead.

Uh, yes, this is Matt Parisi on for Paul Knight at KeyBank. Congratulations on the quarter. You've previously mentioned ALJ hearing wing wins during the prior quarters, and I was wondering if there have been any further ALJ hearing wing wins for Exagen in Q3. Thanks.

Yeah. Hey man. Good morning and thanks so much for the question.

Incremental progress there. We have filed for future alj. Um um hearings uh but no no notable um

Update in that regard.

Sounds great. Thank you.

Next question comes from Dan.

Of TD Cohen, please go ahead.

Great thanks. Uh, thanks for the questions. John and Jeff. Um, maybe just 1, more on the account, the direct account. Um, I know it was asked like, did you sign it? Just so we can get a sense of

As we look forward, if that's still in the comp kind of we can back that out and then like what's the difference between the direct realized price versus the commercial realized price?

Yeah, um, good morning, Dan? Thanks for the question. So in terms of in quarter, ASP impact, um, you know, you're talking, um, on a blended rate, uh, a little north of $20, right? So you've got a headwind of about $20 for the in quarter, ASP impact of that, uh, account alone, volume wise. We didn't cut it out, or carve it out because we believe that volume is continuing to come back over time. And so, you know, we'll just have to see, it'll be a slight headwind near term but hopefully returning to normal levels or even improving. Um, as we continue to add more clinical value in that context.

Um, but the ASP should also start to improve as as we develop, uh, a history and, and a better relationship with the payers in that region. So hopefully that gives you a little bit of a feel. Um, so it was significant but, um, but also something for us opportunity, wise to work on, um, does that help?

Yeah, not that helps. Um, yeah, I mean your trailing 12-month ASP, right? Still has been ticking up nicely even this quarter, another 13 dollars or so sequentially. So I guess within the context of the 65 to 70 million guide

Is the assumption that the ASP continues to go up? Or is it like maybe flat because of this kind of account loss to how do we think about that realized price in 4q from a trailing 12-month basis?

Yeah, we we don't split it out by ASP or volume and you can see you know, I think 1 of the things is over the course of this year that 65 to 70 million guide as um, has generally stayed about the same, you know, with a little bit improved Clarity, um, at the end of q1 or Q2, but, uh, generally stayed about the same and and we believe that we'll fall within that range, uh, even despite some of these headwinds. So, again, I'm proud of the team for executing in multiple ways. And, and I think, uh, given the fact that we do have progressed on aspn V and volume simultaneously, you know, put us in a good position to reach those objectives. Um, from a Q4 specifically, I think we got a few different ways to get there. We you know uh, even as it relates.

Relates to the.

Uh, year-end, um, cash flow positivity. Um,

Objective: You know, from our perspective, we have some things in the works with various payers that could get us there for sure. ASP will be the most sensitive lever to get us there, but we'll also have to see how volume comes in. I think we should be cautiously optimistic as it relates to volume progression, because just because of the holiday season.

Um, really. So

And then just just to add to that, to answer your question on the, on the guide. I think, think about it, it would

The way you think about it is that the low end of the range would assume very little, if any ASP expansion on the fourth quarter right now, clearly obviously the high end of the range would include continued and maybe some accelerated expansion but the low end would really assume that we we don't do much in the way of ASP expansion in the fourth quarter.

Got it. I got that. Um,

Optimized for the profitability and the cash burn. Um, and you've had some really nice volume growth in Q3 and kind of year to date as we look ahead like it, you know, comes to get more difficult.

Obviously the Market's large is, I mean is double digit growth like reasonable to think about as we go into 2026.

Periods of time where we've seen pretty extreme acceleration and and I think as long as that trajectory continues upwards over time, uh we'll be in a pretty good spot organizationally with both factors contributing.

Got it, maybe just 1 final 1, you know there's been a bunch of questions on denials and payment your confidence, obviously with these differentiated markers that you guys will be successful. I think, in the past like you, you know, when we a lot of diagnostic companies including yourself, uh, you know, commercial payers tend to really drag their heels and investors like to look at like, what the opportunities over time. Maybe not in the next 6 or 12 months, but maybe over the next 2, 3 years, like, what's that, what's that opportunity set for like, you know where real, where can realize price get to? So I think in the past, maybe you guys have talked about something 5 600 like any any way to think about it? As we look ahead.

You know, no timetable attached to it, but is there any change in kind of what's happened here? That would dissuade you from thinking you can get to like you know, kind of 600 plus or minus or how do we think about the the longer term opportunity on realized price capture thank you.

Yeah. Um,

Our, you know, uh, relatively near-term goal remains that half of Medicare rate. I think that's still a viable objective for us to meet in that time frame. And and so that would put us kind of at that 600 range, um, uh, and as we achieved that that continues to dramatically transform our organization, you know, we believe that current volume, uh, we'd be, uh, cash flow positive organization at the 500.

$100 range. So, um, we're closed. Uh and we're close to transforming the organization in a very positive way. And I still think that's a reasonable expectation for us.

Longer term, it should be higher.

Higher than the 600 or the 500. Yes, then the 600.

Got it. Terrific. Okay. Thank you.

Ladies and gentlemen with no further questions in the question, queue, I will now hand over to John Pauly for closing remarks.

Thanks so much, um, you're in has come or is coming fast and I, I really just want to thank the team here at oxygen for their continued dedication and performance.

We have an ambitious quarter ahead with key Milestones to accomplish and I look forward to finishing the Year Strong.

Thanks to everyone on the call for their partnership as we work to establish a dominant company in the autoimmune space.

Thanks for your time this morning.

Thank you, sir. Ladies and gentlemen, that concludes the event. Thank you for attending and you may now disconnect your lines.