Sema4 Holdings Corp - Ordinary Shares - Class A Stock

Good day, and thank you for standing by. Welcome to the GeneDx. Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Sabrina Dunbar of Investor Relations. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today. On the call, we have Katherine Stueland, Chief Executive Officer; Kevin Feeley, Chief Financial Officer; and Mark Gardner, President. Earlier today, GeneDx released financial results for the second quarter ended June 30, 2026.

Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, updated 2026 guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, August 3, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.

Please refer to our second quarter 2026 earnings release and slides available at ir.genedx.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results. Additionally, please refer to our most recent annual and quarterly filings with the SEC for a discussion of factors that could cause actual results to materially differ from forward-looking statements.

With that, I will turn the call over to Katherine. Thank you, Sabrina.

And good afternoon, everyone. Our team demonstrated incredible focus and agility to deliver a solid second quarter. We hit a new record resulting more than 30,000 exome and genome tests in a quarter, which represents 32% year-over-year growth. We reported $114.4 million of total revenue, exceeding our guide and returned to profitability 1 quarter earlier than we had previously expected. Based on our second quarter performance and our continued momentum into Q3, we are reaffirming our full year 2026 guidance.

Demand for our services has never been higher. And as we continue to drive adoption of our exome genome, we must be relentless in our efforts to improve the rate at which we get paid for our services. It's the single biggest opportunity for us, as we shared on the last call, we've organized the business around 3 key imperatives: first, optimizing unit economics; second, growing utilization of Exelon genome and third, delivering leading products that unmatched scale, all while managing our capital responsibly.

Optimizing unit economics is our first priority because we're under earning on our potential and we see significant room for improvement of this Q2 baseline. Our long-term vision remains unchanged. We believe that genome will increasingly become the standard for diagnosing all heritable disease and we're continuing to optimize our commercial and operational strategies to bridge this transition. Our strategy took hold in the second quarter as mix moderated with steady month-over-month mix gains back into our excel products, including reflex.

In tandem, we saw coverage begin to catch up with the clinical demand with Carillon announcing a new coverage policy that expanded commercial genome coverage from 47% to 87% in just 1 quarter. Our team plays a pivotal role in these coverage expansions through advocacy and evidence generation, and we'll continue to pursue coverage expansion opportunities for both exeland genome. This is our market development strategy in action.

By serving the market out of coverage, we demonstrate demand in medical necessity. That unpaid volume is prime for us to accrete revenue in new markets as coverage expands. Now our greatest focus is translating coverage into payment. We'll spend the majority of our time today discussing how we'll get paid far more for our tests and in doing so, be in the fullness of time, revenue growth rates converge with or exceed volume growth in the future.

We're committed to serving families during their moments of greatest need. They are at the center of everything we do. To reach them, we're making strong progress against both of our foundational and expansion markets and demand continues to be a source of strength and optionality. We've proven we can maintain our leadership position through this genome transition and our competitive positioning is directly translatable. Clinicians choose DX and returned to GDX because of the quality and reliability of our results, our leading turnaround time, our deep data and expertise and the customer support infrastructure we have built specifically for the complexity of rare disease.

As genomic testing moves into the mainstream, our ability to transform a genome's worth of information into a single, actionable answer will only increase in importance. In summary, demand is strong, and we're now leading into a large multiyear opportunity to improve ARR, which will serve as a significant revenue tailwind. We are confident we can drive collections to the industry standard of 70%, and we're building on the strength of our team to realize this massive revenue opportunity ahead.

With that, I'm happy to pass the call over to the newest addition to our executive team, Mark Gartner. I was elated to welcome Mark to the team back in June, and he has brought in experience from across the industry and passion for what we do. to ensure our capabilities to keep pace with the growing demand for our services. I'm excited for you to hear directly from him. Mark, please take it away.

Thank you, Katherine, and good afternoon, everyone. I'm excited to be here and really grateful for the opportunity to serve patients and customers in this critical segment of the advanced diagnostics industry. I joined GenX because I saw a company with proven clinical leadership, a strong market position and a tremendous opportunity ahead. And 6 weeks in, that conviction has only grown. The quality of our products, our varying classification and interpretation capabilities, our affinity database and our scale are just some of the things that set us apart as the leader in rare disease testing.

I've also observed that while we have grown quickly, we need to strengthen specific elements of our operations to unlock the next phase of growth. Today, I'll walk you through what I believe to be the 2 most impactful areas for improvement. Revenue cycle management and commercial operations. We bring significant value to the health care system, and we should be paid fairly for our services. I agree with Katherine that we are under-earning today on both exome and Geo testing. And this is a significant opportunity that the whole of our company gets rallied around. To be specific, we are focused on 4 operational levers to improve the blended average reimbursement rate of the company.

First, mix management. By managing our exome versus mix in the near term, we have more time to build the internal processes needed to maximize payment on whole genome volume in the long term. Mix improved during the second quarter and continued to improve throughout July. Second, expand payer coverage. Payer coverage is moving in the right direction as a direct result of TDX's evidence and advocacy but still lags clinical demand and includes too much red tape; third, implement payer-specific workflows. Medical necessity criteria, documentation requirements and prior authorization processes vary across payers. And we need to build workflows to ensure that we meet every administrative requirement to collect payment.

When done well, this approach improves prior authorization approval rates, reduces avoidable denials and increases the percentage of tests for which we are ultimately paid. While we're focused -- in the near term on improving RCM processes for genome, I would note that our exome business will also continue to see improvements in collection rate. Fourth, we have to invest in technology. We're applying artificial intelligence and other systems and processes around or across our entire revenue cycle operations to build a more intelligent and scalable function.

This includes internal controls and customer experience features to collect and submit billing information that enables consistent and reliable payment. This is a longer-term capability and under development. We've already made progress on all 4 of these actions, and we expect to begin to influence rates in the quarters to come. I'm confident based on the data we've seen during Q2 and our ability to drive ARR improvements of this Q2 baseline.

Next on commercial. Our core market of geneticists and pediatric neurologists continue to perform well. We maintained our approximately 80% market share among Genevois while expanding our pediatric neurology market share grew up 5%. So while Genesis may have moved from XM to GM over the past year, they did not leave GeneDx. At the same time, it could still take years to reach a genetic system. Thus diversifying call points will enable us to unlock our total addressable market and bring the power of genomic testing to patients with a much shorter diagnostic journey.

This strategy is driving our investment approach. For example, based on changes in the AP guidelines, we invested in building out our commercial team to serve general pediatrics in early 2026. In Q2, we saw our highest growth ever in this channel and we're seeing the early signals that typically perceive larger scale adoption, including increased engagement with our field reps and medical science liaisons, new account creation and first orders from new clinicians.

Across all markets, we'll continually adjust coverage models as necessary to ensure that each dollar we invest in the Salesforce has an appropriate return on investment in the longer term. In summary, by driving process excellence in revenue cycle management and prudently investing in call point diversification, we will drive sustainable long-term growth for the company.

I'll now pass it to Kevin to walk through our financials and the leading indicators we will use to track progress over time.

Thanks, Mark, and good afternoon, everyone. Total revenues were $114.4 million, up 11% year-over-year. Exome and genome revenues were $100.3 million, up 17%, with Texoma genome result volume of 30,785 tests, up 32%. The Unit growth was broad-based across genetics, pediatric neurology and the NICU with early contributions from general pediatrics and prenatal. Total company gross margin was 70%, up sequentially from 69% in the first quarter. We returned to profitability with adjusted net income of $0.4 million, an $8.6 million improvement from the first quarter. .

The blended average reimbursement rate in the second quarter was $3,258 per test, roughly flat quarter-over-quarter and in line with expectations. The primary driver of the larger ARR variability against 2025 is the product mix shift into genome. There have been no meaningful changes to our contracted pricing. We view this Q2 blended ARR as the new baseline for the remainder of the year and are working against 3 key levers to improve it: product mix, payer coverage and underlying collection rates.

First, on mix. In the second quarter of 2026, Genome represented 32% of all insurance-based outpatient volume mix down from close to 40% in the first quarter, demonstrating steady mix share gains back into Exxon reflex each month of Q2 and continuing through July. That second quarter Genome mix is up from only 15% in 2025 and is what drives the divergence between our volume and revenue growth rates year-over-year. Although genome contracted rates are lower than at own by comparison, I'll underscore that genome gross margins are healthy.

Second, on payer coverage. While payer coverage is moving in the right direction, coverage varies significantly between exome and genome and understanding that gap is important context for the forward-looking ARR outlook. On the commercial side, approximately 98% of commercial lives have some level of excellent coverage, up from approximately 90% in the first quarter. Genome is earlier in that journey. Approximately 87% of commercial lives now have some level of genome coverage, up significantly from 47% last quarter representing a structural shift in reimbursement outlook for genomes.

The primary driver of that increase was Carillon. On the Medicaid side, 39 states now cover exome or genome testing with Mississippi coming online July 1. The full impact of coverage expansion takes time to flow through our blended ARR and revenue based on collections and accrual lags. It's important to acknowledge that across both commercial and Medicaid plans, not all coverage policies are great and equal even with written policy, genomic testing remains out of reach for too many children as claims are denied by overly restricted eligibility criteria and administrative barriers.

In the second quarter, approximately 67% of our outpatient genome volume was submitted to payers with an active positive coverage policy. Looking at the evolution here, that rate is up from 38% in the second quarter of last year and up from 46% just last quarter. The uptrend has continued in July, given the role in the advancements of policy coverage. And third, outpatient genome collection rates, which are affected by both coverage and our own operational effectiveness.

Our operational underlying outpatient genome collection rate, which is the percentage of claims paid today stands at approximately 32%, flat with the first quarter and down from 43% in the second quarter of 2025. That decline in collections from last year reflects an investment we made into developing the market by accepting volume ahead of coverage. Importantly, it reflects a tremendous opportunity for us. When in the fullness of time, we get paid more often for these volumes with greater coverage and with better RCM.

As Katherine rightly pointed out, we are under-earning versus our full potential. As an illustration of the opportunity, if we were to double that 32% collection rate, what are zeros in our blended ARR today become paid units, driving revenue uplift that falls directly to the bottom line. Now I focus on GENOMHIRoR because of the large year-over-year mix shift and its larger place in the future of the business and also the fact that Exome already operates at a gross margin above the total company average.

However, outpatient exon collection rates are comparable to genome, which means there's a ton of room to improve. Most denials are addressable and will work to put into the work we'll put into RCM aims to benefit the entire portfolio. We do not expect improvements to be perfectly linear, but in terms of pacing Q3 collection rates should remain roughly flat as our payer specific workflows are still being built out and incrementally implemented.

As a reminder, our revenue recognition reflects collection experience over a trailing period, and thus, it takes a couple of quarters to fully capture improvements in coverage and the impact of operational actions. We expect to see meaningful improvements in Q4 2026, with the most significant uplift coming in 2027 as both expanded coverage and stronger operational execution compound together. Beyond operational effectiveness, that collection rate and thus ARR could always have some underlying variability from the single payers administrative behaviors, tightening coverage policy or contracting change. However, we serve a diversified payer base, so the impact of any single payer action is usually moderated.

Moving down the income statement. Beyond ARR uplift, genome gross margins have room to expand from lower COGS over time. Today, whole genome cost is nearly twice as much to produce than exome. The difference there is almost entirely higher reagent costs, which we expect will come down as utilization for genome grows and manufacturers advance their technology. We expect cost per test to stay relatively flat for the second half of 2026 with step improvements in 2027.

Operating expenses were approximately $80 million, which was slightly better than expected. We completed the full $25 million of annual cost actions committed to on our last call. And we've recalibrated our investment pace while continuing to protect core investments in our proven growth channels and operational infrastructure. On to the balance sheet subsequent to the close of the quarter, we further fortified our financial position through a $50 million expansion of our existing debt facility and a concurrent equity investment from a valued strategic partner Blackstone Life Sciences.

This brings our pro forma liquidity to approximately $188 million as of June 30, 2026. This opportunistic capital expansion ensures that GenX is fully capitalized well beyond sustained positive cash flow while maintaining the flexibility to invest in high-growth strategic opportunities.

Turning to guidance. We're reaffirming our full year guidance range of $475 million to $490 million in revenues. We continue to expect exomagenome volume growth of at least 30% and exome genome revenue growth of at least 20%, gross margin of approximately 70% and to be profitable for the full year. For the third quarter, we expect revenues between $122 million and $124 million exon genome revenue of $110 million to $112 million on volume of approximately 33,200 tests. The blended ARR, there is approximately $3,300 a testing. Expect gross margins of approximately 70% and approximately $2 million in adjusted net income.

With that, I'll turn it back to Katherine part to Q&A.

Thank you, Kevin. GeneDx is positioned for long-term sustainable profitable growth. For 25 years, clinicians have relied on GDX to resolve their most challenging cases because our accuracy is proven. Deep clinical loyalty has enabled us to shepherd the market through major shifts before, beginning 15 years ago with the transition from single gene test and multi-gene panels for XL and beginning now from Exxon to genome. Innovation accelerates, and we're leading the way.

We have the strategy, the team and the operating plan to capture the significant opportunity ahead. I want to say thank you to our dedicated employees for all of their extraordinary work and to our shareholders for their continued support. Without you, our work and service of the ever-growing number of families needing answers would not be possible.

With that, operator, please let's open up the lines for questions.

[Operator Instructions] And our first question comes from Dan Brennan of TD Talen.

You gave a lot of obviously, a ton of detail on the focus on getting better payment rates. I was hoping maybe you could just -- there's a lot of numbers in there. I was hoping maybe you can just elaborate a little bit on the pacing in 3Q, 4Q. Kevin, I heard you say that it seems like 4Q could see a meaningful uplift just given the timing it takes. Maybe can you just review -- I got the numbers -- so be like why is the pace a little slower? And then b, what's the kind of upside case you're exiting for 4Q and what could that mean for next year?

Yes. Thanks, Dan. Look, there's a natural lag between operational improvements and those improvements blending through our accrual rates. We'd expect the collection rate to remain roughly flat with Q3 with meaningful improvements beginning in Q4. And in 2027, the upside is real. It just takes time to flow through replacing a premium getting paid and guiding with that discipline. .

Okay. And maybe just on the mix, you have the reflex. -- you're getting the whole genome down. I know on the last call, you talked about, obviously, you want to provide the best service to customers, you don't want to dissuade them from getting what they want. But maybe just speak to a little bit of how you're managing that mix. You've got it down kind of what you're baking for the back half of the year. And from a competitive standpoint, if your competitors are pushing a whole genome, does that put you at a disadvantage at all that you're trying to favor the exome against that?

Certainly. Well, first, we continue to see, as I said in my prepared remarks, the future is indeed genome. We expect that all inherited disease will be diagnosed off of a genome. But in the meantime, we have several services that we're able to provide to give our clinicians regardless of what channel they're in. the right technology to get the diagnostic deals that they need to get the right answer to their patients. Remember, 80% of the time, patients with genetic disease can be diagnosed with an exome. And so we see really good uptake with that product.

And if they need more information, then we can quickly reflect them be on exome to a genome. And because we've been able to drive down our turnaround times, we can do all of that after than other labs can run at genome. So we've been successful in really managing the transition we saw in Q2, and we continue to drive, I would say, a really meticulous approach to the sales force to ensure that we are giving customers what they want utilizing the various tools that we have.

If I'm still live, maybe just last 1 to sneak in. We had modeled realized price to kind of flattish after '26 because you were just getting to this level, and I think the Street and ostihad similar maybe low single-digit pricing I know, Kevin, in the past, you've talked about how you'd be willing to go in contract with payers to secure higher payment rates even if it meant like you don't -- you give away some of the upside. But tone sounds different now with Mark. It sounds like you feel there's like all this upside on getting realized price. Any way for us to think about where this -- what this can mean beyond '26 in terms of what the capture could look like?

Yes. Look, in terms of '27, I think to keep flat in '27 and beyond misses a core central opportunity for us. Today at 32% genome collection rates reflect where we are in the coverage maturity, not where we think we're going. We've brought in that volume to deliberately build the clinical evidence to expand payer policies that's worked as represented by that, frankly, massive jump in commercial coverage from 47% to 87% in just 1 quarter. .

But look, all collection rates for Acom and genome are well below where we think a mature diagnostic test should typically live at or around 70%, that would be doubling today's collection rate. And we think that represents meaningful structural opportunity for us as we progress. As we said, it won't be linear, but in 2027 and beyond, we expect this work to pay -- pay off handsomely in that regard.

And our next question comes from Mark Massaro of BTIG.

I was hoping that maybe you could double-click on the Carillon opportunity, recognizing that, that is a very, very significant lift that you -- that you talked about, but I was just wondering if you could maybe frame what needs to happen next. Is this just getting in front of commercial payers? And I think I heard you say this is a big lift in 2027, but can you just walk me through why it wouldn't be a lift in Q3 and Q4? And any potential for that?

Yes. So Mark, thank you for that. It is indeed in a single quarter, just a massive opening up of possible patients and revenue for us moving forward. So it's a really positive development. As Kevin has shared in his comments, coverage leads and payment lag. So there's just a massive opportunity ahead to raise our collection rates and revenue based on Carillon extended coverage to about 56 million lives but payers don't always operationalize everything immediately. So it takes some time.

Kevin, anything you want to add?

Yes. I would just add that certainly, we're not counting on anything in that regard for the third quarter here. but some contribution beginning in the fourth quarter of 2026, but then more fully in 2027 to account for that natural lag.

Okay. Perfect. And then if you don't mind, I want to ask the same question on Medical. Obviously, these are different payers. But can you just walk us through the same thought process as to when you expect a benefit in -- if there could be anything in Q3 versus Q4?

Yes, monitoring it closely. Look, California pricing for their genome within medical fee for service. They published a rate a couple of months ago, and that became effective just July 1. And so it's pretty early, but monitoring adjudication experience closely to see that they're paying often and at that price. I think some of the larger work to do is to make sure that MCOs in the state of California now following medical policies and guidelines, which they're required to do under regulatory frameworks.

But we want to see some data further accumulated that the MCOs, which is the largest proportion of volume are going to follow policy. We have counted on some uplift based on recent trends that we can see, but continue to view it as a massive long-term when that Medical has put out policy but still monitoring it closely and expect a greater uplift in 2027.

Fantastic. Last 1 for me. It was encouraging to hear the progress with rising engagement with the general pediatrician market with orders coming in. Is there any way to quantify what those orders are when do you think it might be material enough to quantify them? And then are there any lessons learned? I know it's early, but perhaps can you talk about ways that maybe you've optimized the early launch and how you can attack that in a bigger way in 2027?

Certainly. Well, as a reminder, it's been just over a year since the guidelines published. We're still in the early stages of commercial activity post guidelines. We're pleased that we are investing in the channel. We're seeing clinicians in the gene channel ordering exome testing predominantly, and we're seeing some good interest there. It's a different call point, though.

I'll let Mark comment a little bit more on that.

Obviously, this is 1 where depending on the specifics of each of the practices some of those practices are more attractive than now. There's obviously a greater emphasis amongst deal mental and behavioral specialists to order more exomes than you might see in amongst the rest of the General Peds call point. So we're definitely seeing that there are differences even within the overall channel pediatrics channel. The other thing I would note is that we think that this is an area where as more and more general practitioners are becoming corporatized or are part of larger groups that that's actually an opportunity to aggregate demand and to set policy for the larger corporate entity.

So we think that by being really focused on higher productivity physicians and by concentrating on how we win corporate accounts. We think that that's a way to expand the market. But so far, the evidence is that it has a very high return on investment.

And our next question comes from William Bonello of Craig Hallum.

I'll ask my 2 questions. One, I'm trying to understand, so it sounded like you said a pretty significant improvement in mix actually in Q2 versus Q1. But we actually saw the ASP or ARR go down, not a ton, but slightly. And with the improvement in mix, we might have thought it would move the other direction. So is something else getting worse? Are you seeing an uptick in the rate of denials? Are you seeing pricing pressure? I mean, why wouldn't it flow through to higher ARR rather than lower ARR?

Yes. It's a great question, Bill and high. Look, the mix improvement is real moving from 40% to 32% with the differential there flowing back into the reflex product, an important bridge that allows us more time to mature collection processes for genome. But the reality is exome collection rates roughly flat underlying from quarter-to-quarter. There was some slight variation in payer mix. That led to about that $50 variation that's within 1% of Q1. I think the way we would read that is the blended ARR has stabilized. It's flat and now represents a new base for us to work off of the building blocks that we described in terms of operational improvements is being deployed now that will take some time.

We're not happy with the 32% collective rate on genome and exon collection rates are comparable to that. We have work to do. And frankly, we think that represents the largest opportunity the company has to meaningfully increase our earnings power over time.

If you'll indulge me and let me sneak in a third, I don't have to, but just I want to follow up on that. When you're saying some collection is roughly the same. I mean I thought in the past, we had gotten all the way up to like 55% collection rates or something on exome. And so if we're down at sort of 32-ish or something, maybe I'm just not understanding what you're saying.

No, you're tracking well, Bill. The nuance there is those collection rates we saw are for the outpatient insurance-based volume only. And so what I mean by that is, excluding the NICU, the NICU was collected and what bus that rate back up towards the 50% range in total. What we'll be tracking and calling out specifically, so you can all track along with us is the improvements in the underlying outpatient insurance-based rate, which is where we see the largest opportunity at.

Okay. That makes a ton of sense. If I can ask what was going to be my second question. I'm just trying to wrap my head around the guidance, and I may be remembering commentary a little bit wrong from last quarter. But I thought we were kind of expecting some steady improvement in ARR over the course of the year. And I appreciate all the reasons not to necessarily expect that, and that seems really prudent but you held your volume growth rate flat and your revenue guidance flat or your volume guidance and your revenue guidance flat, I'm just sort of wondering how we reconcile maybe ARR not improving at the same rate, but revenue and volume being still where you expected?

Yes. I mean, look, the guide reflects July trends that we had the benefit of seeing, which showed mix continuing to move in the right direction and core channel demand really healthy at this point and reflex volume for the first time on a single-month basis since we launched that product, reflects volumes exceeding T-Note in the month of July. And so we took stock in the totality, what we see as really positive trends that played out throughout the second quarter and into July and incorporated all that into the new guide that we just provided here. .

Our next question comes from David Westenberg of Piper Sandler.

Okay. I'm going to truly ask just 1 and 1 follow-up here. So can you just -- I'm going to get into the H2 guidance, how much visibility do you have on collection rates in Q4. Secondly, on like the sales force ramp and their productivity, how much productivity are you seeing right now? And how much of productivity gains are in the Q4 guidance? I'm thinking about specifically? That's 1 follow-up.

Yes. Look, in terms of visibility, it was a commitment of ours to improve that following the first quarter call. And we think we've done that. I've had the benefit of adding a number of folks to my financial leadership team. We brought in some exciting revenue cycle leaders with experience doing this at very large scale of companies. You all know very well in addition to March. So beyond Mark joining a whole host of new talent really with the goal of upping experience levels operating at much larger scale than we have. .

And we've accumulated data trends, like I said, through July and those data points throughout the second quarter and into July and for what we see as the outlook that we provided.

And on the sales activity -- with regard to the I would just say that -- what we've seen is that while our traditional call points continue to deliver at a very high rate per rep, if you actually look at the incremental number of new physicians incremental number of new orders. We think that these emerging markets actually represent a significant amount of our future growth. They, by now actually represent a meaningful and impactful amount of our overall volume growth for the quarter. And frankly, a lot of these folks, we just hired in the first part of this year. So attrition they would have a learning curve and they would get more productive as the year goes on. So we see that accelerating in the back half of the year.

Kevin, just going to stick with the question on you. And congrats on the return to profitability -- the operating cash flow was 1 of the high points we've seen in quite a while. And I think investors are also kind of seeing the Blackstone facility and that happened in the quarter. So we just want to think about how you're thinking about cash flow expenses from here out for the rest of the quarter? And what GDX needs to be do to become a sustainably cash flow positive company over the next couple of years?

Sure. And Dave, thanks for the question. I'll kick it off and then hand it over to Kevin. Just to say, as we committed on the last call, we have succeeded in that $25 million OpEx cut. And we've organized the company around the 3 biggest levers, which is improving unit economics, driving utilization of Axioma genome and delivering best-in-class products, and we have organized everyone around all of our capital deployment around those 3 efforts. Anything that doesn't fall into that is opportunity to continue to make sure that we've got the right capital management strategy. So we feel like we've got the right focus in place.

Yes, as you pointed out, Dave, Q2 certainly will be the high point of the year. Q2 reflecting the lag from the first quarter operating loss, which in large part was driven by the heavy commercial investment into expanding the sales team as well as some other investments. The second quarter was a heavier CapEx cycle than what we might expect moving forward as we've significantly increased the sequencing fleet to keep pace with the increase in genome volume that we've seen over the past year.

We think that has now reached a point of leveling out. And Q2 did have some certain onetime payments as well as the lag between the fact that earning $1 today takes some more time to collect it in cash. The things kind of improve that picture moving forward. First, as I mentioned thing as we've completed the execution at a net $25 million in cost from our plan. That work is behind us and in current run rates.

Second, the RCM improvements we've talked about will begin to increase our earnings power or so in the fourth quarter as collection rates rise, and then third is volumes continue to grow. We do get some compounding COGS leverage that improves operating margins over time. So I would expect about $10 million approximately in the third quarter, but the fourth quarter returning to cash flow generation and that Blackstone financing gives us ample runway to get there without any sort of compromise. And by 2027, we expect all of those factors to converge in strong sustained cash generation.

And our next question comes from Kyle Mikson of Canaccord Genuity.

It's good to see a clean quarter. I want to ask what the reflex testing. So that volume mix continues to expand at a pretty rapid clip, I saw recently and the reflex mix is much higher in 4Q than you would have expected. How does that impact the guidance, especially ARR?

What's in the guidance, our expectation of how those mix would evolve over time. And look, think about Reflex together with exome, it's designed to be reimbursed at the exome rate. So there could be some interplay between exome and Reflex, but ultimately, see that genome mix rate at or slightly lower than where it is today in the back half of the year, and we've incorporated that into the guidance. .

All right. Great. And then if the outpatient genome mix decreased by so much here, what other end markets kind of benefited the most? Was it the emerging with the NICU and Gene or the established kind of end markets, which volume, which area did volume increased the last?

Yes. Look, the reflex product, like I said, is in large part meant to be a bridge offering where we're seeing the greatest interest is in the geneticist forum. As Mark said, the secular shift to genome and its interest has not slowed down but what we have seen is many of those genome orders moving to reflex taking advantage of the exome to reflex structure that we've put up. The product is operating better than initial expectations when we first launched it in February.

And I would just add in the gene sector, we're seeing good utilization of our race product. So it's predominantly Axon so there's a healthy mix Again, as we're in each channel, we learn more about what product works, what services work and what the sales force needs to do to make sure we've got the right mix.

Our next question comes from Tycho Peterson of Jefferies.

And welcome, Mark. Curious how you'd characterize the competitive landscape now. I mean I think you've called out at some of the conferences, competitive forces as a factor of that whole genome shift. Any comments you'd make on kind of just the shifting competitive landscape? .

Sure. I'll kick it off and then would love Mark to share his perspective on it. One, I would say we're still the dominant player. We still have 80% market share amongst genetics. We're out 50% for pediatric specialists. So we're continuing to be the market leader, and we're evolving and developing new markets in Genk, mainly because of the quality and accuracy of our product, the customer experience the underlying data that ensures that people's confidence in our answers.

But yes, we keep our eyes on competition. We've made it this is a really attractive and it's a very large market that will require more than GDX, having more voices out there really opens up markets faster that helps shape payer policy testers in general faster. So we're going to continue to be the leader, and we also welcome competition for those reasons. Mark?

Tycho, it's great to hear your voice again. And I would just say that what really characterizes a lot of our competition right now is who's able to both measure variation and match variation the best. And there are a lot of different ways to measure genomication. But at the end of the day, the Infinity database is a unique asset for matching that variation to drive discovery. And so what we find is that our customers are loyal to that because it produces a higher diagnostic yield and it gets better answers for the patients. So we feel like we can maintain our leadership through continuing to invest in that data asset and continue to drive discovery in the market.

Okay. That's helpful. And then the 1-minute genome, where are you in rolling that out? And how critical is that to the ramp in the back half of the year?

Certainly. So we've made some really good progress with 1 minute ordering, which in the past we've talked about as an unlock predominantly for general pediatricians who was designed by them for them. We think has the potential to unlock more volume across all of the channels. So it will be later this summer with, I would say, a rolling set of features. We're going to continue to put out kind of an MVP and continue to iterate on it, but all is on track there. .

Kevin, I would just add that, obviously, 1 of the things about these emerging markets is that the customer service expectations are different. And so we're obviously learning from that, and we're adjusting our approach commensurate with the maturity of those markets. And so I feel really proud of the work of the team on that. And I think we're really going to be able to accelerate growth with people who are frankly not that used to ordering exome genome testing.

And our next question comes from Sabu Nambi of Guggenheim.

Kevin, last quarter, you were really helpful in telling us the exon genome mix. And it would be really helpful if you could tell us what your assumptions are for exon genome mix in 3Q and then in 4Q, and where do you see yourself exiting this year? This is all acknowledging that payer coverage is improving at a rapid rate for DNO?

Yes. In terms of mix, we would expect that genome mix that we cited to come down some offering at around approximately 30%, maybe slightly lower in the second half of the year. And recent data order flows over the past several weeks help frame that expectation. .

And then I want to probe a bit on the operational pillars and focus in the prepared remarks. Mark, can you expand a bit on what's different about this approach compared to what was being done before? Just trying to understand how this new approach will materially change things in the near term?

Yes, I would say that with regard to like developing payer-specific processes, that's something where historically, we've frankly not invested enough in the systems and process muscle to really execute against that. The team has already brought on a number of key personnel to help lead that, so I'm just sort of shepherding that further along. But I think with some of the people that we brought in from the industry who really have sort of been there and done that before, you really have a playbook that's relatively straightforward.

It just comes down to complying with exactly what the payers need you to comply with in order to get paid. And it's a very attention and detail-oriented process, but it's something where I think that we're seeing tremendous improvement in that.

And Tim, you hired a bunch of sales rep, how is the productivity going on with the new reps? Are we seeing returns from that investment already? Should we expect that group to still be ramping to full productivity throughout the end of the year?

Well, I'd say that we already see what we would say is a positive return on investment so far. And absolutely, we think that those teams will continue to accelerate in their productivity. And things like 1 minute ordering actually just complement that. It's not just about adding reps. It's also about adding processes and market-specific customer service elements to really drive adoption. So we feel like that should continue to accelerate at the time.

Next question comes from Keith Hinton of Freedom Capital Markets.

I have 1 on volumes and then a follow-up on gross margin. So for volumes in the quarter and the back half of the year, can you just talk a little bit about the contributions from the foundational markets versus how much of the growth came from the various expansion markets, so sort of any granularity you can give there for the quarter? And kind of what's baked into the guide? And then I'll follow up on gross margin.

Yes. Look, we've seen broad-based contribution, the majority of growth in terms of units, of course, coming from genetics, Peter and the NICU maybe in that ranked order, just given the much larger base. If you were to double-click into those newer markets of general pediatricians and prenatal lower unit contribution, but significant year-over-year growth rates or even quarter-over-quarter growth rates just off of a much smaller base. And we would expect through the second half of the year to see contribution from all those channels.

I think signals through July continues to show we're in the right markets, and they're growing in the direction that we'd expect them to. I think, frankly, if you look at contribution, we still have significant headroom to penetrate and grow in those core foundational markets of genetics, neuro and the NICU like notwithstanding early contributions we're seeing from the new markets.

Great. That's helpful. And then on gross margin, I believe, based on the numbers I'm looking at, that you guys were able to improve gross margin, almost 200 bps quarter-over-quarter even though the ExGen ASP was slightly down. So can you just talk a little bit about sort of what drove that quarter-over-quarter efficiency gains? And how we should think about the sustainability going forward as hopefully ASP starts to come up?

Yes. Maybe I'll start and then see if Mark has some additional color to layer in. Thanks for pointing that out. I think the team here continues to focus really on 2 fronts. How do we continue to improve wet lab efficiency certainly see reductions in input costs as utilization for genome grows. But also, we are still in the early innings of deploying advanced technology across the dry side stack. Having made significant efficiency gains, there still remains a large opportunity to further expand gross margins. We saw some of that this past quarter. That's helping us get more efficient.

We have reached a point of pretty impressive economies of scale. But I think 1 area most excited is to get Mark's fresh perspective. on where we can continue to see step change and realize even greater efficiencies over time.

I think this is 1 of the more exciting opportunities that we actually have as a company is leveraging the power of machine learning and AI and other tools like that, coupled with our data, coupled with the talented varying scientists that we have on the team to really drive productivity on that. And I would say that we had very significant improvements in dry lab productivity in Q2. And we're obviously trying to continue to drive that for several years to come.

By now, in a lot of ways, motor productivity that comes from the dry lab in some cases, actually is larger than that than you would see from the WeLab. So Exciting stuff.

Thank you. This concludes our question-and-answer session. I'd like to turn it back to Katherine Stein for closing remarks.

Excellent. Well, we appreciate everyone's time tonight. We look forward to talking to you soon over the coming days and have a good evening. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

All right. Good morning, everyone. I'm Evie Koslosky, the life science tools and diagnostics analyst here at Goldman Sachs. I'm joined here today by GeneDx CFO, Kevin Feeley. Thank you so much for being here.

Yes. Thanks for having me.

GeneDx has been the market leader in rare disease diagnostics for some time, kind of beginning with expert geneticists, I guess, now moving into new markets where these patients can be diagnosed earlier. What prompted this shift into the non-geneticists markets like pediatric neurology?

Yes. Look, I think it really starts with the problem we're trying to solve. Nearly 1 in 10 Americans has an undiagnosed rare disease and it's a much larger patient population than I think the name rare disease gives rise to. And if you look at where those patients have been diagnosed in the past, it's primarily been expert geneticists at the end of what we call this diagnostic odyssey, patients progressing through nearly a decade of disease progression without a diagnosis.

There's about 2,000 clinical geneticists in the United States. And while they're serving patients very well, there's not enough of them to handle the large unmet medical need that's out there for rare disease. So beginning 2023, we moved for the first time into a space, primarily pediatric neurology in order to expand the physician population servicing exome and genome.

What we're embarking on over the next several years is moving into a far wider subset of pediatric specialists and ultimately into more primary care setting, that being the general pediatrician on the back of new American Academy of Pediatric guidelines that came out last summer. It was the first time in 11 years that genetic testing guidelines have been updated by AAP and opens up the door to move beyond that small subset of clinicians into a much larger physician set. We're in the early innings of that. But ultimately, what we want to do is diagnose disease far earlier in life and ultimately put an end to what we call that diagnostic odyssey.

Great. And then I guess you mentioned some of the markets. Maybe walk through some of these newer markets that you're going after. And if you could kind of help size these opportunities relative to one another?

Yes. So look, as I said, about 2,000 clinical geneticists in the U.S. By comparison, how large is the general pediatrician population, the 60,000 general pediatrician in the United States. Those American Academy of Pediatric guidelines are specific for children with global intellectual developmental delay, and we think there's something closer to 25,000 pediatricians who are serving and looking for global DIID. What that should mean ultimately is hundreds of thousands of patients available specific to that indication and that call point alone.

And then, of course, what we'd like to see over the next several years and into the next decade is a continued expansion of those guidelines and payer policies to acknowledge that beyond DDID, there's a broad spectrum of conditions, disease types, disorders that exome and genome can play a role in diagnosing. On top of that legacy call points of geneticists and pediatric neurologists, we're still in early market development of serving the NICU, the neonatal intensive care unit, with a rapid whole genome where speed is of the essence.

These are vulnerable patients. If you look at the NICU alone in the United States, there's about 800 Level 3 and Level 4 NICUs. We think that is the target population. We, a couple of years ago, put out a study in partnership with Seattle Children's and University of Washington called SeqFirst. It outlines a meaningful change in care through use of a rapid genome for what is about 60% of admittances in Seattle Children's. We're seeing that level of utilization in that hospital system. And now, of course, what we want to do is pull the rest of the NICUs across the country into that level of ordering. That should produce by itself in the NICU, something north of 200,000 tests a year that should be run.

And so again, we've got massive new markets that are in the early days of being developed to really move outside of what has been this legacy core of expert clinical geneticists and frankly, moving exome and eventually whole genome for all into an integral part of the medical stack across nearly every physician type.

Yes. I mean these are obviously fairly large opportunities as you outlined. I guess how do you think about balancing the investments and strategic focus on each of these new markets simultaneously?

Yes. I mean if you think about what we've embarked on in introducing new call points, there's also then a double-click there into what are the indications or disease types that we're talking to those physicians about. Frankly, today, it's not the wide spectrum of every disorder and disease that exome and genome can diagnose. But those that there is underlying guidelines and payer policy to at least have a fighting shot to be reimbursed on. And we'd expect that to continue over time as the technology becomes more well known by payers, by guideline bodies like the American Academy of Pediatrics.

It's up to us to ensure that they have the clinical evidence, that they have the health economic evidence to continually put out new guidelines, new policies to expand the number of indications that we'll attempt to sell through. But our market approach today is to improve the acumen of nonexperts, whether that's pediatric specialists, eventually adult specialists, of course, the primary care setting to ensure that they're aware of the power of the technology and then focus on where are the pockets of volume that we can bring in that might be today covered by reimbursement policy, and we'd expect that to continue to evolve and advance over time.

So it takes a lot of education with respect to physicians to ensure that they're aware of where their patients may have underlying payer policy, and that's the type of volume we want to go after today while seeing that expand over time.

Great. And then I think within the NICU market, I guess, if you could talk through what challenges are maybe more unique to this specific market? And how have you adjusted your strategy to address some of these specific challenges?

Yes. The NICU is an exciting and interesting place. It differentiates itself from the outpatient market in that today, the NICU business for us is predominantly cash pay. So you have got a hospital system who relies on the DRG or a pathway to submit for reimbursement themselves. And then our relationship with the hospital system is a B2B contract where we're being paid for every test.

What that offers to us is far more predictability with respect to the payment stream, but of course, then comes down to ensuring that hospital systems are aware of the value proposition. And so if they're going to use those precious DRG dollars to pay for our test. It's up to us to ensure that we're not just providing excellent patient care through the use of the rapid genome, but that they're seeing the economic benefit to run that NICU most efficiently and cost effectively.

And so if you look at the studies that we put out with Seattle Children's, it clearly shows the clinical benefit of intervention with the rapid genome from the majority of patients in the NICU. What we're hard at work doing now is bringing to hospital administrators, NICU management, the economic arguments around the value proposition. It's a compelling case to be made, but it's one that needs to be made across the wide variety of constituents in the NICU. So we've got to influence the Chief Medical Officer of the hospital system on the clinical benefit, but the CEO and the CFO of the hospital system that this is a good use of dollars. That means a longer sales cycle. It likely means a longer time to develop that market, but we've got a team of people focused on that every day.

Awesome. And I guess moving to sort of the general pediatrician. Most of these providers are not ordering genetic testing today. So what's your approach on sort of opening up this newer market?

Yes. To us, if you look at the evolution, it's been about a year since AAP guidelines have been put out. We've been hard at work ensuring that those guidelines are well known and understood by pediatricians. Frankly, the first time many pediatricians are hearing about an update from AAP on genetic testing, they're hearing that for the first time from our sales rep out in the field. Like I said, it was 11 years between that update and pediatricians are very busy clinicians.

And so a lot of education, a lot of acumen building. That's what we've been busy at work the past several quarters, laying the groundwork for a pretty exciting launch of a new customer experience designed for nonexperts like a pediatrician. So some extensive work with focus groups and market research to really understand what are the workflow impediments by a pediatrician that we can overcome to enable them to order a test.

It starts with the ordering process itself. Diagnosing rare disease on an exome/genome is phenotypically based. And therefore, the more clinical records, the more symptoms, the more physical characteristics, the more information that we can obtain in the ordering process, the better. Today, that's a fairly arduous task that experts like geneticists are accustomed to.

The pediatrician office is a fast-paced, busy place. They don't have much time with a patient. And so what we've heard loud and clear over the past year engaging with the community is they understand the guidelines, they understand the medical need. They will be orders of these tests so long as we can set the conditions to make it easier on them with respect to that workflow.

So we've developed a number of mechanisms to accomplish what we like to call 1-minute ordering, sort of seamless ordering where we could take that burden off of the pediatrician themselves. This is an area, particularly where AI is our friend. So it takes scraping of medical records and other electronic means to pull that information into the order form without placing that burden on the physician or their staff.

And beyond more seamless ordering process, clinicians in that cohort have told us, if you look at our report today, it's fairly cumbersome and complex. It's geared towards the expert geneticists that we've been serving for 20 years. And we've heard loud and clear from busy pediatricians, they would like to see a more simplified order -- more simplified report come through with the diagnosis. And so we have some features launching later this summer in that regard.

And then finally, pediatricians, they want to feel equipped to provide a diagnosis if a diagnosis is there. And so beyond a positive result, what they'd like to see is help in managing the family with next steps. So something akin to a care plan or action items that can be taken by the family so that the pediatrician can feel like a hero in that regard rather than just providing the diagnosis. So all of that frames out what is a new customer experience that we'll be releasing throughout the course of the next several months, really geared towards moving the usability of these tests into the non-expert space.

And the report that you mentioned that would be specific to the pediatrician, you wouldn't then update the [ Genesys One ] as well. That would be the same report that you've done in the past. You would just give a new report to pediatricians to make it easier to read?

Yes, it's been interesting as we've looked at what is the customer experience across ordering the resulting pathways for nonexperts. At the same time, expert geneticists have told us they love our report. It gives them a treasure trove of information with respect to variants of unknown significance, ancillary findings. It's fairly detailed and they like that detail.

And so staying true and honoring that physician base that has frankly built the business, we're going to allow them to continue to receive that more detailed report. So I think more of a choose your own adventure depending on how detail of a report you would like. Not every clinician is built the same, and they ought to have options in that regard.

And then I guess, thinking about your core testing business and the shift from exome to genome, I guess you saw a faster-than-anticipated transition to genome in the first quarter. What strategies do you have in place to drive utilization while balancing between the 2 and I guess, make sure you're driving kind of the right test volume?

Yes. I think if you look at the past several quarters, we have seen this accelerated shift into genome over exome. But important to understand that's really just within the geneticists cohort. So those expert geneticists are now at the point where, frankly, they're receiving the genome that for the past 20 years, they've been waiting for, one that comes in days, one that is not cost prohibitive, one that's simple to understand.

Achieving that is what GeneDx has been working towards for the past 20 years, all with the promise of eventually serving all hereditable disease diagnosis on a whole genome backbone. And those experts who've been using exome and genome for decades now, clinical geneticists, in large part, are ready for that pivot, and we want to enable that pivot. We're not seeing that same accelerated shift from exome to genome in other subspecialists.

So within pediatric neurologists, still exome predominant. Exome serving them really well, easy to understand, diagnosing the diseases and disorders that they're most interested in. And so what we're now hard at work doing is ensuring that we're optimizing test mix, messaging to serve the clinician type with the product that fits them best. In many cases, that will be genome. In many cases, that will be an exome today, eventually moving the market towards whole genome.

And in some cases, serving them with a new product that we launched mid-February, which is an exome to genome reflex. In that case, the physician effectively gets the best of both worlds. That's been on the market for a few months now. I think we're seeing nice uptake. There's a split across geneticists. Some just want the genome that they want, and we're there to serve them with that. But we are seeing some physicians like the option of the reflex offering.

So there'll be a place in the market for both. It's not necessarily a matter of one being better than the other. But we want to find the right product fit to maximize the level of insight that the physician is looking for, while at the same time, looking at underlying payer policies, performing things like prior authorization. And if a genome is not covered, but an exome is, that plays into the calculus of whether or not that is "good volume" for us to be had because there's a unit economic argument for us to run a healthy business.

And so what we've been embarking on is while in parallel, how do we expand access for whole genome, how do we improve collection rates for whole genome, we don't want to impede the eventual shift of the market towards whole genome for all, but we want to make sure we're doing so responsibly where we can both service patients and physicians and also run a good business. And there's a place in the market for exome, reflex and genome at various levels across different physician types.

Yes. I do want to dig into the reflex test in a minute, but I think touching specifically on the genome unit economics, what levers do you have to improve the profile of that test, both in the near term and then also in the long term?

Yes. It starts with access and payer policy. If you look at underlying commercial payer policies, exome is written into over 90% of commercial payer policies with respect to medical necessity. Now we don't get paid today on 90% of our test, but it's at least acknowledged in nearly all commercial contracts.

Genome only about half. And that's a matter of bringing to those payers the clinical evidence, the economic arguments to bring policy coverage up to parity where exome is. We've run that playbook before. It's a matter of payer engagements continually bringing signals of strong demand by clinicians as well as evidence to ensure that they're properly setting medical policy in that regard.

And then, of course, there's more blocking and tackling revenue collections. And how do we improve that? It's another area where there's some interesting AI tools and process flows out there to ensure that upfront, we're matching each order to underlying payer policy, to ensure the propensity to pay is increased by capturing required documentation, medical history and other requirements that might improve the chance of getting paid.

And then I think third, beyond improving the reimbursement stature for genome, the cost curve still has a lot of room to come down. If you look at the difference between exome and genome today, the largest gap remains on input costs with respect to reagent kits and consumables in the wet lab. And I think, frankly, that's a matter of just continually showing more demand. And as we increase volumes for whole genome and are able to show that demand to manufacturers, it likely will mean putting some pressure to see those input costs come down in line closer to where exome is today.

So a lot of work to improve access, to improve collection rates, to optimize test mix between the 3 products. And then at the same time, continual efforts to bring down costs, both in the wet and the dry lab. I think where GeneDx is a unique advantage given our size and scale and a decade of optimizing the interpretation platform for both exome and genome, we have near cost parity on the dry side of the lab. So after the sequencer with respect to analysis and interpretation, we've now gotten the time there by the clinical staff down to minutes and not hours for both exome and genome. And so the largest gap is on the wet side with respect to input costs. And I think there's a lot of confidence that over time, we will see some relief there.

Awesome. And you mentioned the reflex test earlier. I guess maybe walk us through the mechanism for ordering that test and then how you expect it to shift the split of volumes between exome and genome in the short term?

Yes. So it's an intentional choice by the physician upfront to order a reflex product. That's not a unique feature in the industry, but it is a choice by the physician to first receive an exome report. If that has the relevant findings they're looking for, then the process effectively stops and we submit for reimbursement on the exome.

In this case, they'll receive that report. And then if there's additional relevant findings on the additional genomic content, they receive a second report. And so if you're a physician, you have to accept receiving 2 reports. Ours happens to be a fairly quick follow. And the fact of the matter is you can receive your 2 reports from GeneDx likely well ahead of receiving a single whole genome report from any competitor in the marketplace today. And so we're still able to offer turnaround times that are favorable in that regard.

What this allows the physicians to do, so what do they get in return for that? Go back to the fact that I said exome is in more commercial contracts than genome today. And so there's the ability potentially for the physician to see less friction in the billing processes. By that, I mean, there's a higher propensity that the exome will be covered, and therefore, the patient won't face a denial. And unfortunately, those denial rates often lead to a patient calling their physician, and it's not a phone call that clinicians like to receive.

And so what we want to do is maximize the insurance coverage the patient is actually paying for, and we can do that by submitting for the exome while at the same time, giving the clinician the full insight they're looking for. And in this case, we're able to enable that because of the rapid turnaround times we have to deliver both reports at quick speed.

Yes. Thinking more broadly, GeneDx is the first mover and has a first mover advantage with specialists, and you've demonstrated clear market leadership there. I guess how durable do you feel this moat is in that space specifically?

Which clinician type?

The specialists of GeneDx?

Look, we've been serving the geneticists community for 20 years, 8 out of 10 clinical geneticists in the United States order their exome and genome for us. With respect to durability, we saw in the past several quarters, competition approach that existing geneticists base and try to take a genome-first message to them. Frankly, most of those geneticists were ordering an exome.

I think what we saw was, of course, some of our competition was able to successfully convince those clinicians to move from exome to genome. But what you saw in the first quarter, we grew the entire portfolio about 34%. We didn't see the clinician base leave. We didn't see those genome orders leave GeneDx and move to competition. What we saw was the conversion from exome to genome, but that installed base stayed with GeneDx. And I think it was a really positive sign to us that there was a wave of competition, and we were frankly successful at defending against that competition.

Now it meant to a mix shift within the portfolio that happened sooner and quicker than we initially thought. But at the end of the day, we wound up keeping those orders. And I think that showed through in the strength of the aggregate number of tests that we resulted through in the first quarter.

Ultimately, what will win in the marketplace across all clinician types, whether it's experts or nonexperts is service. And service in our space is defined as clinical quality, who can provide the highest diagnostic yield, the least amount of variance of unknown significance. And frankly, that's GeneDx given the data set that we have to work with. We've got the largest, most well annotated curated genomic data set in the country, if not the world, it's specifically been built for rare disease over the past 3 decades. That data set gets stronger every day with every sample that we run through it.

And so first, you'd look towards clinical quality. Next would be speed and turnaround times, our ability to operate at large scale. We continually bring down turnaround times well ahead of anybody on the market. And then ultimately, it's ease of use. And so things like the customer experience that we're rolling out later this summer. As I said, it's designed for the nonexperts, but we certainly believe the expert community will find that customer experience with features that are pretty exciting and interesting. And so ultimately, made the best product win, and our durability will be defined by our ability to continually improve service in that regard.

You mentioned [Technical Difficulty]. I guess how do you think about AI impacting the business? And maybe talk to some of the benefits related to use in clinical diagnostics, especially given this data asset that you have?

Yes. It's only a net benefit across the whole of the enterprise that being AI. But in particular, GeneDx as part of the analysis and interpretation platform has developed proprietary tools, ML and other AI features into our processes long before it was as high on the investor radar as it is today. It's core to why the team today could deliver an exome/genome result in the time frame that we do.

As I said earlier, on the dry side in terms of analysis and interpretation, we have it down to minutes, not hours. If you go back, I started with the company 10 years ago, our turnaround times were months, about 3 months to return a result. We now have a 2-day whole genome available on the NICU. Our average turnaround time in the outpatient market is 3 weeks and frankly, leaning towards 2 weeks at this point. And so we're only able to do that because of automation in the wet lab and because of AI and other interpretive tools that we've built, most of which are proprietary and have been specifically geared towards exome and genome and in the rare disease setting.

And so that AI tools, ML is only as strong as the underlying data set it sits on. And so we've got this unique combination of the right data set and the right tools. And I think now what we want to do over time is continually lean into reducing that ultimate time to diagnose [Technical Difficulty] that goes back to improving the service to make the moat with respect to our market share that much more durable.

At the same time, we're leaning in, as you can imagine, across all aspects of the business, whether it's SG&A functions. But I think ultimately, there's a number of areas where AI is our friend. First and foremost, it's the production processes, but really exciting with respect to seeing over time, how we can deploy new technology in the revenue cycle. So looking at underlying collection rates today, they're not where we want them to be.

So we've talked about improving payer policies, but adhering to those payer policies means parsing through a complex web of thousands of conditions with respect to medical necessity criteria and documentation requirements that in the past was manually intensive work and ultimately led to revenue cycle leakage vis-a-vis denials. And I think where we want to turn our focus to is how do we deploy AI to improve revenue cycle. We know payers on the other side are likely doing the same, and we need to combat them in that regard.

And how differentiated, I guess, is the Infinity data set? How long would it take someone to catch up? And then kind of beyond the data advantage, how do you see your tech and commercial capabilities stacking up in the market?

I mean the data set has been, as I said, intentionally built for rare disease over the past 20 years. We're now well past 1 million whole exome and whole genome, well over 8 million phenotypic data points. Specifically, nearly all of those samples enriched for rare disease, physicians over time searching for unknown conditions at the end of that diagnostic odyssey. Nearly 60% of all cases since inception, we've captured parent-child trios.

What that's allowed us to do is not just sequence the symptomatic child in those cases, but the otherwise perceived healthy asymptomatic adult in those cases. That's enabled us to have more de novo gene variant findings than most or nearly anyone out in the marketplace. And so to recreate that asset would not just be a matter of running 1 million genomes, which would be a costly and time-consuming thing to do all by itself, but ensuring that those cases were stemmed from the clinic with physicians searching for answers. How long would it take to recreate?

Well, it took GeneDx about 20 years to create that data set. I think the answer there depends on how quickly we can run. And we're going to continue to run fast. The head start is only as good as our ability to keep pace. We continually take market share. Pretty proud of the aggregate volume in exome and genome that we produced in the first quarter. And so that data set is getting stronger and bigger every day. And so the answer to your question is it would take many years and a whole lot of capital in order to recreate it overnight.

Yes, very differentiated. Touching on the guide for the year, maybe walk us through some of the moving pieces and then how things have trended since the first quarter call?

Yes. If you look at the guide reset we put out on our last call, demand is healthy. Demand is not the challenge. I think ensuring that we pull that demand through to revenue and how that revenue stacks up against the comparison where the previous comp was more exome heavy with respect to mix, looking at exome versus genome has been the challenge. And so the team is focused on ensuring that we're driving for healthy volumes with the right mix at the right clinician point that we're optimizing the revenue cycle, that we're improving reimbursement stature.

Those things are going to take time. They're not going to take weeks. They're going to take months before that materializes into a higher revenue base for whole genome. But that's what was contemplated in the guide that we took down. And so since our last call, operating under the framework consistent with what we put out in that guide, which is to say demand is heavy, and we're working through a comparison here where there just is the reality that gross margins for whole genome are lower than exome, and it's going to take some period of time before we can improve that.

But thus far, really pleased with how total demand is coming through. I think ultimately shows that not only do we withstand that last wave of competition, but a lot of what we're bringing to the market in terms of messaging and the overall experience is resonating well. And so thus far, I'd say the quarter is consistent with the framework that we put out on our last call.

We have just about a minute left. So maybe to wrap up, what do you feel is the most underappreciated or misunderstood piece of the GeneDx story today?

Yes, it's a good question. Look, I think given the expectation miss we had in the first quarter, what has been lost in a lot of the noise and volatility we've seen in the stock was what you saw in the first quarter was, yes, a shift in volume from exome to genome, and that played a part in how we stacked up against expectations, but inherently, a shift of the portfolio towards genome is not a bad thing.

Now there is a short-term comp in terms of reimbursement rate and gross margin against exome, and we need more time to get margins between those 2 products near parity with each other. But it's been our long-term intention to drive the market over time in a controlled rational way towards genome. It's why we picked our ticker symbol, WGS. We do see a world where eventually whole genome sequencing is embedded in the medical stack, and that we're the market leader in providing that.

So I think with some of the short-term market dynamics, what maybe is not well appreciated is we didn't lose share towards a product that isn't part of our future. Ultimately, we're building market share for the long term. And I think we were able to deliver on that demand in a healthy way in the first quarter despite there being a gap in expectation there.

And then the other, frankly, is our largest asset beyond the data set. And that's 1,300 employees thereabout at this company through -- some of that volatility up and down over the past several years has really kept a fairly steady and stable mindset with respect to bringing the highest quality test at the best speed, getting paid fairly for that work at the forefront of everything they do. And so at a conference like this, a lot of noise with respect to short-term volatility in our stock price. I'd say the morale and culture within the company is far more stable, focused on the long term and driving down what is our key metric, which ultimately is the age of diagnosis and bringing that closer to at or around birth rather than letting disease progress through the course of a decade.

That's great. We can end it there. Thank you so much.

Great. Thank you.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the GeneDx First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be reminded that this conference call is being recorded.

At this time, I'd like to introduce your host for today's presentation, Ms. Sabrina Dunbar of Investor Relations. Ma'am, please begin.

Thank you, operator, and thank you to everyone for joining us today. On the call, we have Katherine Stueland, President and Chief Executive Officer; and Kevin Feeley, Chief Financial Officer. Earlier today, GeneDx released financial results for the first quarter ended March 31, 2026.

Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, May 4, and we're under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results. Please refer to our first quarter 2026 earnings release and slides available at ir.genedx.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.

With that, I'll turn the call over to Katherine.

Thanks, Sabrina, and good afternoon, everyone. In the first quarter, GeneDx continued our mission of enabling everyone to live their healthiest life through genomics, leading the shift from diagnosing genetic conditions using multi-gene panels to the most comprehensive genetic test available, exome and genome. In Q1, exome and genome volume grew 34% year-over-year, demonstrating robust demand in our foundational markets and indicating positive early momentum in our expansion markets. Our competitive advantage continues to set us apart from others in the market. The combined strength of our large, diverse data set, GeneDx Infinity, our team of genetics experts and our advanced technology underpins product fundamentals that cement our leadership position as evidenced by a loyal and growing customer base that drove the 34% volume growth in Q1.

While volume growth outpaced our expectations, total revenue was $12 million lower than expected. We conducted a thorough channel-by-channel business review to diagnose what happened and what we learned that it was driven by 2 factors. First, approximately $5.5 million was due to a lower-than-expected blended average reimbursement rate for exome and genome. And second, approximately $6.5 million was due to softer-than-expected performance from our noncore business lines. As a result, we're updating our outlook for the year and now expect total revenue to be in the range of $475 million to $490 million with strong continued exome and genome volume growth of at least 30% and gross margins of approximately 70%. We're also committed to returning to profitability on an adjusted basis for the full year and expect profitability to grow significantly into 2027 and beyond as we continue to lead and shape this large and ever-expanding market.

Now I want to walk you through the Q1 revenue dynamics in more detail. Starting with the blended average reimbursement rate. ARR was primarily impacted by product mix with no structural changes in pricing. Through our business review, we identified clear opportunities to improve reimbursement dynamics, spanning commercial execution and revenue cycle management, and our team has already taken action.

Moving to our noncore business lines, which includes Fabric and our biopharma business. It's been 1 year since we've closed the Fabric Genomics acquisition, and it has become increasingly clear that the interpretation as a service product is best suited for international markets. We're fully integrating the Fabric team technology and services into the GeneDx brand, and we're focusing our resources to support international growth and key domestic drivers. We're lowering our expectations for revenue contribution in 2026 accordingly.

On the biopharma and data business, we saw positive underlying momentum but fell short of delivering Q1 revenue due to a longer-than-anticipated sales cycle. As we continue to build demand for our data asset and engage with biopharma companies, large and small, our conviction around this business continues to strengthen. These partnerships can offer meaningful long-term value creation for patients and for GeneDx and the value proposition will grow alongside our clinical testing business.

With more than 2.5 million patients, more than 1 million exomes and genomes and more than 8 million matched phenotypic profiles, our contactable database stands apart. We have rightsized revenue contribution to the 2026 guide based on high probability deals in our pipeline, positioning this business as upside as it continues to ramp. With our guidance now reflecting these shifts and with the strong performance thus far in Q2, we're confident in the path forward with a massive focus on our core diagnostics business as the primary driver.

Let's walk through each of the customer segments to give you more color. Starting with Geneticists. As we continue to lead the market transition from multi-gene panels to exome and genome, geneticists are leaning into genome. This is an exciting development. We chose the ticker symbol WGS because we've always believed that the market would move to genome over time, but the speed of this transition in Q1 outpaced our expectations. We made the strategic decision to begin capturing the share. Importantly, the experts are the clinicians who are interested in genome. Most patients in the outpatient setting remain best served by exome testing given that it covers approximately 85% of known disease-causing mutations.

GeneDx is best positioned to lead the genome future by leveraging our scale, brand, clinician relationship, first-mover advantage and vast data sets, GeneDx Infinity. Infinity enables us to interpret both coding and non-coding regions of the genome with speed and precision. And as genome coverage matures, access improves and volume scale, the flywheel effect of this additional data will compound our competitive advantage across our portfolio. Informed by early data, we launched a reflex offering in February to balance clinical demand with a relatively higher gross margin product. Customer feedback has been positive and early adoption reinforced that we can actively manage this market transition.

Looking at pediatric specialists, we continue to deliver steady growth supported by exome utilization, high clinician retention and robust same-store sales in the quarter. However, the blended exome ARR came in lower than expected based on the mix of tests submitted with parental comparator samples, a shift that we've already mobilized to correct with customer experience features, sales messaging and incentives. We expect a return to long-standing exome reimbursement norms in the near future. In the NICU, we're seeing good progress driven by rapid and ultra-rapid genome. It has been just over a year since the first study data was published, demonstrating how a programmatic approach to testing can ensure that every NICU baby who needs a genome receives one.

Genome ARR and gross margins are desirable in the inpatient setting. And with a robust set of institutions already ordering from us, our focus remains on increasing utilization as accounts mature. We've expanded the sales team to accelerate this ramp and plan to leverage our dominant market position to fuel continued growth. General pediatrics is our largest long-term opportunity and our earliest stage market. We're beginning to see encouraging signals with early exome orders coming in as our sales reps get accounts up and running. It typically takes several touch points and meetings before the first order is placed, and we're seeing that progression play out.

While volumes are still modest, our experience is reinforcing that education, awareness and service are all critical in this market. Our tailored customer experience for non-expert clinicians remains on track and upcoming workflow enhancements, including streamlined registration, bundled ordering and improved post-test guidance are all designed to reduce friction and accelerate uptake in the second half of the year. And finally, prenatal. Demand has been building steadily in this new market, and we're seeing good traction with maternal fetal medicine physicians. Importantly, genome adoption appears additive to our small but existing exome volume in this channel.

Stepping back, our core testing business is well positioned to translate demand momentum into profitable growth. We have line of sight to at least 30% volume growth and approximately 70% gross margins on the exome and genome portfolio, and we're committed to a return to profitability on the balance of the year. We've taken the decisive step of cutting $25 million of OpEx for the year, and we're putting our capital and team to work on the 3 biggest levers for the business. Number one, growing utilization of exome and genome; number two, optimizing unit economics through both ARR and COGS; and number three, delivering the leading products at unmatched scale. Aligned around these 3 goals, we're moving forward with more clarity and operating rigor than ever before.

With that, I'll pass it over to Kevin.

Thanks, Katherine. In the first quarter, we delivered $102.3 million of total revenue, including $90.6 million of exome and genome revenue, up 27% and test result volume of 27,488 tests, up 34%. The blended average reimbursement rate was approximately $3,300. Adjusted gross margin was 69%, and we reported an adjusted net loss of $8.2 million.

As Katherine outlined, 2 factors drove the quarter, mix dynamics resulting in a lower-than-expected blended average reimbursement rate and softer noncore business line performance. First, the blended ARR came in approximately $200 below expectations. I want to be very clear, on a like-for-like basis, ARR by product is relatively unchanged. There have been no meaningful contracted price changes nor any material variations in coverage or collection rates across each respective channel. Instead, the lower ARR is primarily a result of product mix shifts within the exome and genome portfolio. The impact of mix is important, so let me walk you through it.

Starting with payers, roughly 85% of the volume is insurance-based outpatient services and 15% is institutional pay. Specific to outpatient, genome was approximately 40% of volume in the first quarter, which is roughly double from a year ago. We expect that mix shift to continue, but at a far more moderate pace as we manage the transition. Both exome and genome are good for patients and our business. But in terms of ARR, an outpatient exome is closer to a blended average of $4,000 per test after all denials, and we're reimbursed more for cases with parental comparators than cases without them. In contrast, an outpatient genome blended ARR today is about half that of exome due to the relative maturity of payer coverage.

Each have a very wide array of medical necessity criteria across payers. Policies are not all created equal and policy coverage does not always equal broad access nor guaranteed payment. Over time, a strengthening coverage landscape will help close the gap between products, while continued investment in automation and AI creates meaningful opportunity to improve collection rates across both as we scale. Our team continues to make the case for expanded coverage of payers, leveraging clinical and health economic evidence like the recent SAVES Kids study to open access for both exome and genome testing, which found that the GeneDx exome and genome leads to cost savings of up to $80,000 in the first year after testing for children with neurodevelopmental disorders. That tells us testing should be covered much more broadly than it is today to deliver cost efficiencies to the U.S. health care system. We're in the early days of making the case.

And across state Medicaid programs, there are now 38 states covering either test. Go back just a few years, there were none. Additions have been coming almost quarterly, and it would be reasonable to expect momentum to continue, but it will take time. In the meantime, we'll continue to accept samples in states without coverage, which is an intentional margin investment in market share and the evidence necessary to influence policymakers. As more states adopt coverage order zero today in our blended ARR will become something more. Our strategy remains intentionally driving each market first from lower-margin panels to exome and eventually towards genome for all. While genome reimbursement is currently constrained by coverage, we expect rates to strengthen over time as clinician demand grows, clinical and economic evidence build, advocacy efforts advance and the need for biopharma to identify patient drives payer modernization.

Genome COGS are also higher than exome, specifically due to higher reagent input costs. Unprecedented, we can assume the cost curve here will continue to come down as utilization and scale grow. Not to be overlooked, approximately half of all tests we resulted in the first quarter were single-gene multi-gene panels. Conversion has always been a cornerstone of our strategy and remains both a big growth opportunity ahead and evidence that our market-leading exome will be durable for years to come. We've also taken steps to more actively manage the longer-term transition of genome, in particular with our reflex product, enabling more patient access to this innovative testing while maintaining higher unit economics. Parental sample mix also impacted the blended ARR this quarter, moving 200 basis points across the combined portfolio. We view this as a function of an opportunity for stronger field force training and execution as well as new clinician education rather than any structural shift, and we're addressing it directly.

Moving forward, we expect the blended ARR to stabilize and improve modestly over the balance of the year. To reiterate, there have been no changes to pricing and on balance, payer coverage policy has and is expected to continue to expand over the coming years. The lower realized rate in the first quarter was driven by product mix shifts within the portfolio, many of which are transitory and should have been better anticipated. We've invested significantly over the past several weeks to enhance forecasting precision, including bringing in expert external perspective to rigorously stress test our updated market assumptions and bottoms-up plan. This work reinforced our conviction in the long-term opportunity while sharpening our near-term expectations. With that added rigor and better visibility into each channel, the business is more predictable today than it was at the start of the year.

Moving to noncore business lines, where revenue fell $6.5 million short. In Fabric, the $2.5 million miss reflected legacy positioning in its go-to-market approach. The GAAP financials include a noncash impairment charge of approximately $31.3 million to write down goodwill and certain intangible assets. In biopharma and data, a $2 million miss was timing related, reflecting longer sales cycles. We're treating this business as line of sight for the purposes of guidance rather than relying on it. In multi-gene panels, a $2 million miss was caused by overestimating the timing of organic CMA uptake in the pediatric market prior to our sales force efforts ramping. This reflects a forecasting correction and should not be read as a demand signal.

So we're taking 4 actions to get the year back on track. First, improving blended ARR through tighter channel management; second, accelerating market access and revenue cycle investments; third, optimizing cost per test per genome as we scale; and fourth, enhancing forecasting precision. Finally, we've already reduced and reallocated approximately $25 million in planned spend to align investments with current performance and remain committed to full year 2026 adjusted profitability. This is not a cut out of our current run rate spend, but rather a reduction in future planned increases to match our updated revenue timing. The reductions are primarily a recalibration of our hiring and marketing timing, essentially slowing out-year nondirect expenses while protecting investments in our proven channels and more line of sight expansion markets.

Now on to guidance. We're reducing full year revenue guidance by 12% or $65 million at the midpoint. The bridge on that is $36 million from the effects of blended ARR, $11 million from lower volume contribution across new expansion markets and $18 million from noncore business lines split evenly between Fabric, biopharma and other testing. With that, we expect full year 2026 total revenues of $475 million to $490 million, exome and genome volume growth of at least 30%, translating to approximately 126,400 tests, exome and genome revenue growth of at least 20%, adjusted gross margin of approximately 70% and profitability on an adjusted basis.

In the second quarter of 2026, we expect total revenues of $110 million to $112 million, exome and genome volume of approximately 30,000 tests, exome and genome revenue of approximately $100 million, adjusted gross margin of approximately 70% and an adjusted net loss of approximately $5 million in the second quarter as we move back to profitable in the third quarter. This is a framework we can execute with confidence.

Katherine, back to you.

Thank you, Kevin. Just 20 years ago, it cost millions of dollars and multiple weeks to sequence and interpreted genome. Today, GeneDx has scaled the promise of this technology like no one else in our space with turnarounds in as little as 48 hours, and we continue to innovate. Over 300 million people are living with a rare disease globally, and we've never been more confident about our ability to drive profitable growth in service of these patients and shareholders. I recognize that resetting expectations is difficult, but it also gives us all great clarity and conviction in our ability to deliver on our commitments.

We're grateful to our shareholders for the support and patience as we continue to deliver on a bold mission. Meeting a generational shift in medicine is no small undertaking. It requires taking some big swings, learning quickly and moving forward with urgency to satisfy the growing number of patients who need our services. You have my assurance that we've recalibrated our assumptions, taken decisive actions and position the company for long-term sustainable and profitable growth. Thank you. And we'll now open the call up for Q&A.

[Operator Instructions] Our first question or comment comes from the line of Mark Massaro from BTIG.

There's a lot to digest here. I guess the first question I want to ask is on the Q2 guidance. And because clearly, when I look at it, it doesn't look like that's fully derisked either. Can you give me a sense for why you're guiding to 30,000 in Q2? And can you just give us a sense for what type of traction you're picking up in the NICU? Because I know that, that is an area where I think you have noted that you missed in 2025, and I just wanted to get a sense for how you're doing here in 2026.

Yes, I'll start. So first of all, what we're seeing in the business today is strong momentum. So I think as we arrived at the Q2 guide, it's coming from a knowing place reflective of the momentum that we're seeing in terms of volumes coming in for the quarter and overall, just the business behaving in line with the way that we want it to. So I would say we're operating from a place of strength and clarity for that Q2 guide. On NICU, I think we have continued to see with our expanded sales force, really good continued traction there. So we had a lot of ambition last year. And I would say we rightsized that in the guide. So we're feeling really good about line of sight in terms of momentum in the NICU.

Okay. Can you give us a sense for if any part of your guidance has been a function of the end markets being -- in any of the submarkets being a little different than you had expected. But I also wanted to ask about competitive dynamics. Are you seeing any changes in the field? Because you did a good job, I think, of volumes in Q1, but sort of lowering your volume uptake, I'm wondering to what extent of that might have an impact from competition?

Sure. Well, first, as we look at the channels that we're in, this is the first time that we have 4 sales teams going after different clinicians, and there's a different product for each of those clinicians. So we are learning a lot. I think reassuringly, we learned we're in the right channels. So we have a good business model. We're in the right channels as we really dug into our business review, we're not pivoting out of any of those channels because we've got the right overall strategy. The tweaks that we need to make, we talked a bit about the genome dynamic for the expert geneticists. We talked about the pediatric neurologists and how do we get them ordering more parental comparators. So that's an area that we've already actioned through sales messaging, through incentives. And so we have great confidence that, that's something that's within our control.

And similar goes for the general pediatric segment. We're pleased to be in that channel. We're learning that it takes multiple touch points and meetings to get an account activated and to start seeing orders come through. But we are seeing early signs of exome. So I would say there's more reassuring here in terms of we're in the right markets with the right products. We're tweaking our sales strategy and our commercial strategy to make sure we're really optimizing the way that we're showing up in those markets. And so I believe that we have in hand the right course correction to make sure that we can realize the guide and continue to, from my perspective, just execute on a really clear and not just achievable plan, but we want to make sure that we go out there and crush it as the leader.

Our next question or comment comes from the line of David Westenberg from Piper Sandler.

So I just wanted to talk about some of the commercial footprint here and maybe kind of some of the potential productivity per rep that we would expect to see in the back half of the year. So can you just talk about adding on those additional reps, seeing those, how we should think about productivity? And then I just kind of want to think about -- you did add you're doubling, tripling the sales force. Was there any issues with looking at some of the other parts of the business like small panels or Fabric or anything like that, that could have been impacted?

So as we look at the sales force, a couple of things. There's 4 sales teams. So we have 75 people selling to specialists about 25 of them new and added. And so we're just starting to see them move out of their early stage and starting to get into greater productivity. Gen Peds, 50 reps, they're still in their early days. And frankly, that's a new channel where we don't have a sense yet exactly what full productivity is going to look like. Is it going to mirror what we see in the specialist sector? Or is it going to be a little bit different. We're seeing that it takes several meetings to get accounts activated.

So I would say more to come as we spend more time in the field with new reps there, 10 reps in the NICU and 10 reps in the prenatal space, and they're all still in the early days. So I would say as we look at the -- one of the important factors that we're going to keep an eye on is sales force productivity and how that's changing week-to-week, month-to-month, quarter-to-quarter. But we're in the early stages with a lot of these reps. And again, I think that should give us a lot of confidence in terms of our ability to continue to generate more volume and more good healthy volume across these different sales channels.

And Dave, that was the grounding philosophy of the guide, which is to build it from the core business with tighter assumptions and less reliance on areas where visibility is limited, including what those new reps in new channels might translate to in the back half of the year. So it's a more disciplined framework than where we started the year. And at this point, it comes down to execution, and we'll learn and iterate as we move forward.

Got it. And I'll just ask one follow-up on the genome mix. I really appreciate the color around 40% and the ASP being around $200 -- I mean, $2,000. Can you talk about, is there any possibility of seeing a big coverage decision in that area? Is there blocking and tackling that you can do in the near term to get that ASP up? I mean as we're looking out a couple of years from now, can that ASP become around the same ASP as the exome? That will be my last question.

Yes. We think it can get towards parity with exome. There's a number of factors there, including improving commercial coverage, which today is far more expansive for exome than genome. And there's also, as you alluded to, a lot of blocking and tackling with respect to ensuring that as we submit claims, it's adhering to what is a wide array of medical necessity and documentation requirements.

And so how do we use better process technology automation in order to tighten up the revenue cycle in order to reduce denials, improve collection rates, all while expanding policy coverage for genome. We've run this playbook before. We just happen to be years behind exome in driving commercial payers and Medicaid towards improving coverage similar to exome. We've seen it be done. We're confident we can get it done, but there's a lot of work to do in that regard to march genome ARR up towards parity with exome it's going to take a number of quarters here. And we expect that we built that level of expectation into the blended ARR in that guide.

And I would just add, control, what you can control and the COGS side of the house is an area where we think with AI and automation that gives us a really important ability to continue to reduce our cost of goods on our genome products. So that's without a doubt going to be a huge factor for us internally because we've done that masterfully on the exome side of things and won't repeat that on the genome side.

Our next question or comment comes from the line of Dan Brennan from TD Cowen.

Maybe just the first one on the $11 million cut on the group expansion markets and the cut the volumes on exome, genome to 30%. Just walk through the thinking there. Is that just derisking, are you guys seeing something versus your original expectations?

Yes, Dan, look, we've gone through an extensive exercise through the core business, really channel by channel, bottoms-up by assumptions and tightened a number of product mix assumptions, not just exome versus genome, but how much to expect with respect to parent comparators. We've recently introduced a reflex product, which will play an important part in just one channel geneticist.

And so the outlook representative of a lot of work to tear down and rebuild assumptions really at a more granular level by channel. And in doing so, the overarching philosophy was to rely on things that are far more line of sight rather than have to pull out any heroics and improving any of those metrics or overreliance in the expansion markets and so for those new markets, namely prenatal and general pediatricians have taken those down some and the balance coming from the core foundational markets, but really to ensure that we get back to an old habit of setting expectations here that we can deliver upon.

Got it. Okay. And then maybe just one more back to price. I know it's come up a few times. Just Katherine, you led off talking about the benefit of whole genome that was a ticker symbol. So as this transition occurs, is the goal just to get the genome price back to parity with the exome to taking like a fully reimbursed exome and now you're swapping in this lower-priced genome trying to get back up there. Is that the idea? Or is there a future benefit long term for the genome? Just trying to understand that. And then Kevin, if there's any way you can give us any color as we think about the back half of the year pricing, like kind of what's baked in? I think we can solve for Q2, but in the back half. And any high-level math on this genome exome split that we can think about?

So I'll kick it off, Dan. As we have good gross margins on the genome product and the transition and the demand for genome is a really, really good thing. So we're excited about this, and we're excited about the opportunity to continue to improve the unit economics on the genome product. And we've introduced this reflex test that enables us to satisfy the need of a geneticist for more content while also having the benefit of better unit economics for us.

And on top of that, the whole genome opportunity continues to help us generate more and more data, which, of course, continues to build our competitive moat, which, by the way, is proving to indeed be effective out there, which is fantastic to see. And I think the demand is part of the way that we're measuring our effectiveness in terms of the competitive lead. So we do want to see a future where we're running genomes for everyone. But the reality is for a lot of clinicians like general pediatricians and many trios, and exome is going to do the job because it's going to satisfy information for 85% of the diseases that we can diagnose off the genome.

So I would say it's a yes and we want to continue to usher in this era that we've been thinking about for a long time. We have to continue to improve the unit economics. And we have a portfolio of products that help ensure that we can provide the right clinical information and insight for the right patient and the right customer channel at the right time.

Our next question or comment comes from the line of Bill Bonello from Craig-Hallum.

So I just want to push a little bit more on some of these pricing or ASP dynamics. So on the Genetic side, I'm assuming, but I want to confirm that the geneticists were just obviously ordering a straight-up genome, not the reflex product. I think maybe you just introduced that. And then maybe understand what happens. So going forward, are you going to offer just stand-alone genome? Or do you have to order the reflex? And then if the reflex is ordered, can you bill for an exome with payers where you're not reimbursed for a genome. That would be helpful to know. And then maybe just explain a little bit more about the shift in the parental mix and why you would be seeing suddenly fewer trios and how that's happening?

Let me start with that one, Bill, and thank you. On the parental comparator side of things, which is mainly in the pediatric neurology space, the good news is it's not a structural problem. It's an execution problem. And we've already implemented the changes in the sales force and our messaging and incentives to address it and so we've got that on track. So I would say that was purely an execution. When you're going from 1 sales force to 4 sales forces, you're going to get some things right and you're going to get some things wrong. And this is one that we got wrong, and we were thrilled to diagnose that and figure out that there was course correction immediately to be implemented.

On what we're selling to geneticist, if a geneticist wants a genome, we're selling them a genome, like full stop. So that's the way that we are operating, and we're also offering them the additional reflex product. Because our turnaround times are so fast on an exome and a genome, we can actually turn around both tests quickly. But it's essentially to the super savvy geneticist who knows for most patients, an exome is going to do it. And if they want to reflex to a genome, then they can.

Yes. Think of the reflex as a tool to manage the transition in the geneticist office only. And look, from a margin perspective, don't get confused. Genome is still a good margin test for our business, and it's a great test for patients. Exome has a higher gross margin than genome and the reflex product slots in between in terms of its gross margin profile.

Sure. Okay. But if I understand your answer right, basically, we're going to -- while there's less coverage for genome than there is for exome, you're going to just have to live through a phase as the market continues to shift to genome where you're just getting more 0 pays. Is that basically what I'm hearing?

Maybe you misspoke. So there is more coverage for exome today than genome.

Correct. That's what I was saying.

Yes. It has a higher average reimbursement rate today. And now what we've got to do is work on ensuring that access for genome expands in commercial policy that we're taking the revenue cycle in order to get the reimbursement rate between the 2 closer to parity. The reflex test will have a reimbursement rate closer to exome.

Our next question or comment comes from the line of Tycho Peterson from Jefferies.

Kevin, I want to just understand the linearity here. There's a little bit of deja vu from a year ago. I mean, different issues, but you guys guided late February. You're out second week of March on the conference circuit. When did you see the impact from the genome mix shift in the quarter? Maybe start with that and then maybe get us a little bit more comfortable that you actually have better visibility here going forward.

Yes. I was glad to see volume come in above expectations. It came in slightly ahead of expectations this first quarter a quarter ago. It was 100 tests less in terms of the consensus number. So the demand and volume number, I think we ended up exactly where we expected to. And that demand strength is what informed most of the quarter as those -- as the quarter wrapped up, trends and mix, in particular, began to crystallize at the tail end of March. That's what triggered extensive work to go back into each and every channel and reset assumptions and those reset assumptions are what's baked into the Q2 guide and full year guide that we just put out. The volume flows in terms of incoming orders were strong and continued strong through the end of April here. But the mix dynamic, we were slow to pick up on in our models and forecasting did not anticipate those as well as they should have.

And in the 30% volume guide, can you maybe just clarify what the specific assumptions are now for foundational growth versus new market growth? And what's the key driver behind the lower foundational guide?

Yes. It's effectively the core foundational markets plus the NICU make up the overwhelming portion of the guide leaving very little with respect to the expansion markets beyond that. We want to see those markets begin to develop before we bake them into forward-looking projections.

And then the $25 million on OpEx, I guess, just get us comfortable that, that doesn't have a revenue impact? And why are you no longer breaking out SG&A versus R&D? I mean we're getting a little bit less visibility here as you're leaning into OpEx.

Yes. So SG&A is broken out from R&D. What we did was combine the G&A and sales and marketing lines into SG&A. We think that's in line with all of our peers. So the $25 million in cuts, as we said on the call, more so a calibration of longer-term investments we were making, slowing some anticipated hiring plans and longer-term R&D initiatives, indirect marketing spend and some G&A build in anticipation of future growth, certainly confident that the core areas of investment remain untouched and frankly, recalibrating some dollars to ensure that we're opening up more access, improving reimbursement rates, driving volume growth, investing in the commercial expansion, AI and automation to reduce COGS. I'm confident that despite the trim outlook in future expenditures, there's certainly enough investment in terms of OpEx and CapEx to fund the growth plan that we've outlined.

And I would just add, we talked about this on the call. We've tracked every dollar and every effort to 1 of 3 areas of focus for us. One is utilization of exome and genome. Two is improving the unit economics; and three is making sure that we have the industry's leading products and services. So everything that we continue to invest in is tied to one of those 3 levers. So we have a high degree of confidence. We're not cutting into our growth strategy. We're making sure that we could trim where we could trim in order to get the team fully focused on the biggest levers for the business.

Our next question or comment comes from the line of Keith Hinton from Freedom Capital Markets.

I just wanted to push on the volume side of things a little bit since ASP has been pretty well covered. Just in terms of better understanding you did come in a little bit above expectations for the first quarter and you took the volume guide down. So I just wanted to a little bit better understand the drivers there. And then sort of related to this, it was asked about in the prior question, but I just want to push on it a little bit. There was a large genomics player that recently announced they're launching into non-oncology rare diseases with a long-read option. So just any comment on the competitive diagnostics there or competitive dynamics there, whether that was a driver of the downgraded guidance at all and maybe where you guys are in getting a long read or medium read option into the marketplace?

So thanks, Keith. I'll start just on the competitive dynamics. We haven't seen any change in competitive dynamics from our point of view. So nothing new happening out there. And so as we think about continuing to lead the way with whole genome sequencing, long read for WGS is without a doubt, an important element of something that we're working on. It will enable us to continue to drive our data set to be even more enriched on the genome side of things. So it's something that we've been able to offer to some clients in a research setting, but we'll have it available at some point in a commercially available product as well.

Yes. And Keith, look, we set the initial guide. It proved to be too aggressive, primarily with respect to mix shift, and we want to make sure we don't get that wrong moving forward, in particular with contribution from the new markets. So we believe we corrected that. And look, we understand we need to rebuild credibility and the way we do that or expect to do that is by setting a guide now that we believe we can execute on and deliver against. This guide today, we believe we can underwrite with more line of sight relying only on those more mature foundational markets, leaving volume contribution from the new channels as upside as they come.

Great. And just a quick clarification on the ASP side. So just to be clear, the reason why the average genome is lower is just because of -- it's purely because of higher denial rates, right? There's not a situation where genome has an actually when paid ASP that's meaningfully lower than exome, correct?

I refer back to the clinical lab fee schedule, which is usually the basis for every contract negotiation without sharing sort of proprietary contracted rates. Exome has a higher contracted rate today than genome and exome is in more commercial policy coverage than genome today. So it's both price and coverage. And then the overall denial rate also plays in. And we've got room to improve both the contracted status as well as the overall collection denial rates. to get those 2 ARRs over time, we think, towards parity.

Our next question or comment comes from the line of Kyle Mikson from Canaccord Genuity.

Just wanted to actually go to the noncore revenue, and I think it was like a $4.5 million headwind on the noncore, excluding other tests, so Fabric and biopharma. On the Fabric side, I think the deal milestone was $12 million in revenue for this year. clearly going to be well below that. And you have the impairment too, which is, I guess, disappointing. But what does the kind of refocus on international really mean for that business as well as powering some of these domestic competitive tests that we know about as well? And then on biopharma, I guess there's momentum, but like longer than anticipated sales cycles, that would probably imply you're going to get that revenue back on day. I'm just curious how we should think about the noncore and the health of that sort of segment.

Yes. Thank you so much. Starting with Fabric, the technology is valuable. What changed for us was the durability of the domestic commercial opportunity. And so as we've been building out and as we always had intended, Fabric interpretation as a service is a really attractive way for us to cost effectively drive international volumes. So we've been integrating the team and the technology in order to support that. And so as we think about the future for that, we wanted to rightsize our expectations for this year and make sure that we get it right.

So on the biopharma side of things, it really remains an important opportunity, not just from a patient perspective, but it fundamentally drives more testing and it gives us the requisite next steps that every diagnosed patient needs in order to figure out exactly the healthiest course of action. So the selling cycle is longer. I would say we're also like really taking a look, the data is even more robust than what we originally thought. We talked about the Komodo deal earlier this year. That's giving us really good insight into kind of the longitudinal nature of the view that is interesting to biopharma. So I would say with new products like that out there, we're learning a lot about the selling cycle. And so yes, it takes longer, but in some respects, these -- some of the deals that we were counting on at the end of Q1. We hope we'll realize another point this year. But if not, we're really ramping up the pipeline with a sales team that we continue to expand.

Yes. And then on the pricing, to tack on to that. So it does seem like in the guidance, it seems like we can get to like maybe mid-3,000s ASP or ARR by the end of the year, this year. Could you get to maybe like the high 3,000s by the end of 2027? And I also want to confirm that the '26 guidance now includes detail in there.

Yes. Look, the guide would -- I think you've got the guide at 20% exome genome revenue growth and the 30% volume growth, you can back into what that ARR is, and it's if you look at what Q1 actualized around $3,300, it's just a very slight step up above that. We want to make sure we don't get too far ahead of our skis there. So certainly not going to go above the guide. Here in 2027, of course, that's theoretical. What I'll say is we certainly believe that there's room to improve blocking and tackling on the revenue cycle to get paid more often. We certainly believe that it will become harder and harder for payers to ignore the clinical and economic evidence in support of opening up policy per genome. And those things should lead along with greater clinician demand to an improved ARR structure for whole genome in '27 and beyond for sure.

Our next question or comment comes from the line of Subbu Nambi from Guggenheim.

Just to be clear, given you give granular details, what are you assuming whole genome versus whole exome mix is going to be this year in the current guide? It used to be 70-30, right?

Yes. So in the prepared remarks, you said genome is 40% of the outpatient volume. When you load in the NICU genome is about 45% of all exome genome volume in the first quarter. Don't anticipate giving that split in terms of how the guide falls out, but what I would point you to is the volume and inferred ARR in that. And again, what underpins that is different assumptions channel by channel.

And then regarding your current market penetration, you include a slide where you have penetration by market. There is a bit of investor confusion about this analysis. To explain the confusion, let me give you an example. If a patient sees a pediatric specialist and a geneticist after being referred, that is still one patient and only one test. Does your analysis count this as one test in each specialty area, meaning in both pediatrics and geneticist market or only once based on the clinician that actually orders the test? That would be super helpful.

So I think, one, as we zoom out, remember, the diagnostic odyssey typically entails a patient seeing several different clinicians over that 5-year period. So they're starting with a general pediatrician, they're moving to a specialist and then they are getting to a geneticist. So as we take a look at the way that we're thinking about penetration, we're zeroing in on where the patients are landing and getting diagnosed. And so we're focusing on the diagnosis day as kind of the anchoring factor.

Our next question or comment comes from the line of Brandon Couillard from Wells Fargo.

Kevin, just a few clarifications. Just did you say that the spike in the genome exome mix wasn't evident until late in the quarter? And I just want to be really clear, are you assuming that, that mix is stable in the future periods or comes down? Just want to understand maybe just directionally what's embedded in the guide?

Yes. So look, the bottom line was the signals that we had internally were not showing in real time the extent of those shifts and the economic impact. And those didn't really become clear until late in the quarter and then more so until we dug in channel by channel through a fairly extensive review. What is in the go-forward expectation is now reset clinician by clinician or channel by channel, informed by experience at the end of the quarter as well as through the month of April here. And we think we've got proper expectations now at that granular level by channel and enough of a trend in which to make a call there.

Okay. And I believe you said that $25 million of OpEx savings was not in the current run rate, so I don't necessarily expect it to decline sequentially in 2Q or 3Q. Is that correct?

Yes, that's correct. I think Q1 is fairly representative on an annualized basis where we might end up. There'll be some puts and takes and some refocusing to ensure we're spending every dollar maximized in those that have a shorter payback and the most impactful ROI. But $25 million effectively came out of what was the planned expenditures for the full of the year.

Thank you. I'm showing no additional questions in the queue at this time. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speakers standby.

All right. Good afternoon, everybody. I'm Luke Sergott. I cover life science tools and diagnostics here for Barclays. With me, I have Kevin Feeley, CFO of GeneDx. Thanks again for making it. It's always a pleasure to have you guys here.

You guys have been -- over the last couple of years, just been executing against our commercial targets, right, continuing to build out the platform. Why don't you just kind of walk us through the transition that you've had -- or not the transition, but the momentum that you've been building over the last couple of years, and where you are now and kind of how you're positioned there to jump off into '26 and beyond?

Yes, and thank you, everybody, for being here. I mean, GeneDx has operated for 25 years with a focus specifically in solving the world's hardest-to-diagnose cases around rare disease. For the past several years, really focused for the first time since 2021 with full commercial efforts behind our flagship whole exome and whole genome sequencing technology, a technology, we spent the better part of the last 2 decades refining.

The core of the business had been expert clinical geneticists in the United States and about 2,000 of those really utilizing exome and genome as a last-in-line diagnosis for those hardest-to-crack cases. Most people over the past 2 decades hadn't heard of GeneDx unless you were a global expert in genetics and rare disease, and GeneDx is really where you went when you were searching for an answer.

What we've embarked on over the past several years is to move the utilization of those tests outside of just the pure expert space, beginning in 2023, launched into pediatric neurology as the first of what over time will be a wide array of pediatric specialists and eventually adult specialists as well. An exciting time for us to moving beyond specialty call points. It was summer of last year, the American Academy of Pediatrics updated their genetic testing guidelines for the first time in 11 years, calling for exome and genome to be a first-line diagnostic for children with global intellectual and developmental delay.

And so a company with a long history, but really just a couple of years now of proliferating the use of exome and genome into standard of care across multiple different physician types. We're embarking on an investment cycle to expand the commercial team to go after what we think is ultimately going to be a massive market that embeds genomics into the medical stack around the world.

And so when you guys talk about your overall market, you break it into foundational expansion into the future markets. Can you just level set and briefly describe what you mean by those before we start digging into the details of each?

Yes, happy to. Those foundational markets are those that we have most experience with, that being clinical geneticists, there's about 2,000 expert clinical geneticists in the United States, pediatric neurologists, about 2,000 pediatric neurologists in the U.S. And over the past several years, those have really been the primary outpatient call points that we've been actively engaged with. What you see in 2025 is that overwhelming majority of all volume and revenue coming from just those 2 call points with some contribution from the neonatal intensive care unit. But those 2 markets making up what we think is a foundational base of experts and foremost specialists with respect to the use of geneticists.

And then going forward, still a lot of room to grow there. 8 out of 10 clinical geneticists order their exome and genome from GeneDx and have for many years. And so fairly well established and entrenched with a strong market share in terms of clinician counts. But even those foremost experts were still only ordering for about 1/3 -- exome and genome for about 1/3 of all patients they see. Now you'd expect every patient a geneticist sees to ultimately get a genetic test, but today, they're still very much entrenched with ordering single-gene tests, multi-gene panels. And so a lot of runway to growth for multiple years to come even in that area most core of expert geneticists by converting the use of genetic tests from panels and into exome and eventually a whole genome backbone for all.

And in terms of pediatric neurologists in that foundational market, about 1/3 of all pediatric neurologists at this point are ordering exome and genome from GeneDx. So still a large runway of activating more ped neuros. It will take several more years for us to accomplish filling up that bar close to the 80% market share we have in geneticists. And that cohort of ped neuro are still ordering for about 15% penetrated in terms of patient TAM. And so we'd expect over time to continue this evolution of a replacement cycle of single-gene tests and multi-gene panels, with strong growth to come even in that -- those foundational markets, which have been where we've been commercially focused.

On top of that, we're now 2 years into commercializing the neonatal intensive care unit. We think, ultimately, there should be north of 200,000 tests a year ordered in the NICU. We've got about 25% of those NICUs with active accounts ordering at some small levels from us today. But the standard of care today is having a reality that about 5% of all patients in the NICU are getting any genetic tests. We know what good looks like there. It's what Seattle Children's is doing. They outlined that in the study we released a year ago called SeqFirst, in which they're ordering a rapid genome on 60% of all babies in their NICU and seeing the clinical and economic benefit from that. And so still in the very early innings of what are those 3 call points, which is the entirety of what we called upon in fiscal 2025.

And what we've outlined recently is a number of markets that we'll be expanding into, notably the prenatal space with the use of a late-term prenatal exome or prenatal genome, that's a diagnostic level test, and the largest market of all, the general pediatrician on the back of those AAP guidelines released last year.

All right. And so going back into the foundational market, this has been kind of the workhorse of your business right now. 80% penetrated on the general specialists or the general -- or the generalist and then you have the specialist there, lower penetration. But like you said, like something like 15% of patients. Why? I mean, what's the -- I mean, clearly, these doctors are using it, but not using it enough or using it with all their patients? What's -- why not? Typically, you see them adopt something and it's like, okay, we're just going to use this with all the patients. We check the box. We get -- I mean they're not getting paid for it, but it's -- I don't understand why there's just such a hesitance or inability to penetrate that patient population.

Yes. So it's a great question, and it mostly comes down to education and our ability to repeatedly get in front of those physicians to bring them up to speed. There were old realities around exome and whole genome sequencing that are no longer true, that being that only an expert clinician, a geneticist could understand the results of these tests and that these tests take weeks, if not months, to produce. And that they were so expensive that they were cost-prohibitive. And that's frankly what GeneDx has aspired over the past decade to solve for. We've gotten turnaround times and cost and complexity down towards parity with multi-gene panels. And frankly, that's new news for many clinicians outside of the genetic space that we run into.

And so dispelling what used to be old realities that are now myths is part of the education process. I think there's entrenched behavior. All of us in health care, there is many steeped in all forms of health care in this room know that's changing doctor behavior is one of the hardest things to do in all of health care. And so those doctors who have been accustomed to running single-gene tests or multi-gene panels for certain symptom types or hypothesis, getting them to change behavior just takes time. And again, repetition to get back to the physician's office to make sure that they're staying abreast of the technology advancements that have been immense over the past decade.

And then third, some of this is in our control. If you look over the past 3 years or so of commercialization efforts on our part, we really were just focused on a few specific diagnosis codes or indications, namely symptom types and disorders around autism, epilepsy and intellectual developmental delay, not because those are the only disorder types that our technology can diagnose, we can and do span the spectrum of all rare disease. But those are areas specifically where we saw that guidelines were in place, and therefore, had influenced payer policies already, and there was a fighting shot to get paid fairly for our services.

I think what's incumbent on us to further develop the market is continue to bring clinical evidence and economic evidence to payers, whether those payers are Medicaid programs or commercial payers, to open up the aperture of coverage. There's been an emergence of guidelines over the past half decade. We don't expect that to slow down at all, and that will further make it appealing enough for us to go target to bring volumes in. At the end of the day, an exome or genome is a better test. It's a better mousetrap than a multi-gene panel. That is well understood by physicians. We want to make sure that before we meaningfully take on that volume that there's an ability to get paid and that will continue to improve over the next half a decade here.

Yes. And I was just about to ask about the clinic. Is it like that they doubt the clinical utility of it? I mean I know you have like specific test indications themselves, but how much on that piece is of the education? And then once you get -- that feeds the reimbursement, and then they're like, oh, okay, this has been vetted. Is that kind of how the path here to adoption to the tests have come?

Yes, I think what we've seen is, sometimes it takes multiple visits that repetition to first, like I said, dispel those old myths about the test to then try and influence changing behavior and ultimately then proving that demands to payers is what really gets them to move the needle on reimbursement coverage. Clinical data, economic data helpful, the biggest tool in the tool chest is always physician demand. And so that will mean, in certain situations, bringing on volume prior to reimbursement being in place, but that's an important part of the dossier to influence the emergence of more coverage for more patients and ultimately, that's what we're in the business of doing.

And so as you guys are -- you exited the year with, I think, 50 reps in this business, adding 25 more. Your guide embeds 25% to 27% on this side from a volume growth perspective here. Walk us through the assumptions? And is this really just about -- how much is, I guess, efficiency on existing reps versus just adding on the onesies and twosies from the new reps?

Yes. So if you look at the outpatient setting, those foundational markets, last year, we really went about with roughly 50 reps, 50 bag-carrying sales reps. That team calling on specialists, geneticists, ped neuro and additional specialty types. So think specialty types like pediatric cardiologists. That team will go from 50 to 75 or has already here in the first quarter. And that allows us to layer on those additional call points of new specialists. While at the same time, they will stay turning the crank on what we see as large pockets of growth still to be had in that inner most core of those foundational markets. So geneticists, continuing to improve utilization rates to get them to order these tests for more and more of their patients. For us and the geneticists community, with 8 out of 10 are already ordering from us, it's not about winning new accounts, but it's improving utilization at existing accounts, and that will continue.

At ped neuro, like I said, there's still about 2/3 of that doctor population that we've yet to reach. We've been in that call point active for 2.5 years now. And so the additional heads will allow us to accelerate knocking on more doors, go through that education process, activate more ped neuros and continue to improve the utilization rate there while also giving them those additional call points of additional specialty types. So if you look at the components of what we guided to, 33% to 35% volume growth, good 25% to 27% of that is coming from those foundational markets alone, which have multiple years to continue to mature into.

Yes. Okay. On the -- and moving on to the expansion markets here. You talked about your general peds, your NICU, I had to write them all down here [indiscernible], prenatal, your adult specialists and the international. I think that from the adult specialist international is more kind of outside of what your core has been. So focusing on like the general peds, the NICU and the prenatal. I remember we talked about NICU last year, and it's just like notoriously tough market to penetrate. And your -- I think like the utilization is probably -- is it -- I'm not going to put words in your mouth, but was feeling was it was worse than even the utilization from like the specialists and geneticists above? Like can you just walk through why that's such a difficult market? And why -- again, like if you're in the NICU, that is a very motivated patient population to figure out what is going on. And so, I mean, I totally would be like, "I don't care, give me to test. I want to know what's going on." So why isn't it like we're seeing that pick up more meaningfully?

Yes. And it's really a market we began to commercialize in 2024. 2025, a number of key milestones, starting with that SeqFirst study I mentioned earlier, came out in February. We think that's a definitive clinical marker. We launched the health economic tool for use by hospital administrators to prove the ROI on the test in spring of last year. We began a path of implementing sites onto Epic Aura last spring. And it was in April of last year, we launched a 2-day turnaround time in the NICU to supplement the 5-day. If you look back at fiscal '25, overall volume flows did fall short of our expectation of where they were a year ago. But underlying that was a really good sign in terms of account activations. So we now have more than 25% of the target 800 Level 3 and Level 4 NICUs with a signed contract at GeneDx and actively ordering.

What we saw in '25 on the heels of an approach to work top-down through hospital systems, working through the C-suite of the hospital, whether it's the Chief Medical Officer, the CEO, the CFO, bringing attributes that they would all be most interested in, a lot of success at activating that level of the hospital to understand the clinical and economic benefits, signed contracts. That was the bright spot. Where we fell short was in improving utilization rate within those NICUs. Standard of care today has them ordering for about 5% of their births. And like I said, we know what good looks like. It should be closer to 60%.

What we're supplementing this year as a key lesson learned is, of course, we will continue that top-down approach. But inadvertently, I think, where we can and have already approved is putting in additional resources on the ground towards bottoms up to engage with folks on the floor of the NICU, so the neonatologists, the neonate nurse, the Department Chair and Department Head, work with them to ease the implementation burden, not relying on having a contract alone, but ensuring that we're working actively to educate, to help with protocols and ease the implementation in order to pull volume. That's a new go-to-market approach for the past couple of months, and we're starting to see early signals that the utilization rate in those NICUs are picking up in that regard. But there's no doubt there's a long cycle to work both top down and bottoms up to influence what is a fairly radical change in care across those neonatal units.

And are -- so from the bottoms up side, is it kind of, all right, we've laid the groundwork on the top down and the 25% of the 800. That's where you're going to deploy more of the commercial hand-to-hand combat in the NICU where you already have some presence in buy-in from the C-suite and management. And then those guys -- and then those sales and BD people will go out and just continue landing. It's like this land and expand in both...

That's exactly right. That's exactly right. And we're starting with the supplemental team, but we added 10 reps in January specific to the NICU. And as you laid out, the fertile ground for them would likely be those accounts that we've already activated while, in parallel, we continue to sign more contracts and activate more accounts.

Got you. Got you. And then on the general peds, you just -- you're adding reps across the entire business here. So you're adding, I think, 50 more here or you have a dedicated team with 50 and you're adding more in this -- like how does the general pads like -- it feels like all these like submarkets are completely different in siloed and at risk of boiling the ocean all at the same time. I mean, why is this -- like why do you need to be in general peds and then NICU? And how do they all talk to each other and feed into each other?

Yes, it's a great question. And they are very different. There are different characteristics around education levels that are necessary and then what it will take to win in each of those. And so one thing that we've done intentionally to avoid distraction factor is that specialty team that calls on the outpatient specialists segregated from the prenatal team calling on maternal fetal medicine segregated from the team calling on general pediatricians and the NICU. Obviously, they work together. They share knowledge and insight. There's some share functions around marketing and leadership, but those are all dedicated sales teams.

Rather than try to have a rep who could be good across all of those, we want the people engaging with our clients to be steeped in what exactly makes those positions tick. That's also gone into the hiring plan. So if you look at the near 100 heads that we added, for the first time, not just adding folks with specialty diagnostic experience, take general pediatrician, for an example. Yes, of course, we brought on some experienced general diagnostic reps in that space, but we've also brought on people who maybe don't have diagnostic experience, but they've been selling therapeutics or vaccines or other products to pediatricians, who understand how those offices tick and the phenotype, no pun intended, for those specific types of doctors.

And yes, I think there's a call to say, well, why go into all of those now versus take one at a time? I think, at the end of the day, there is a large unmet need. There's only GeneDx we think, in large part, that can solve for some of that at the moment. If you look at our diagnostic quality, our turnaround times, the end-to-end customer experience, we think it's necessary for us now to invest in taking market share to extend the leadership position we have in genetics, as I said, 8 out of 10 ordering from us, we think that expert support is going to carry forward as we move into the non-expert space. And we're in a unique period of time where we're ready, willing and able, and we think uniquely capable of making a big bet to enter into these new markets.

And it seems like -- so you're putting a big bet into entering in these markets. You're investing a significant amount of capital. Talk about the pull from the market side. Like what are the catalysts coming up this year that are going to help unlock this because it can't all just be on your side?

So in the general pediatrician market, the largest, we'll start there. We've done extensive research. We've been engaged with that community since guidelines have come out, focus groups, qualitative, quantitative research. I think all of that tells us that these physicians can and will be orderers, but they've outlined for us criteria, both on the front end and the back end of the diagnostic process in terms of user experience that they need to see. And so we've committed to a next-generation customer experience, effectively take the burden of a fairly lengthy ordering process off of the physician and the physician's office. That will release later this summer. And on the back end, a report that is more tailored for nonexperts, easier to read, easier to understand and digest and more so how do we arm the physician so they don't feel exposed without the knowledge to explain the diagnosis to a patient and more so what to do next with that diagnosis.

And so part of a suite of customer experience enhancements coming out later this summer. To us, that's really the starting gun for the market to really open up. And so we'll keep a milestone there to be on the lookout for. That experience is in beta testing now, being beat up fairly extensively by pediatricians. It will be designed and built for pediatricians by pediatricians. And like I said, that's in beta testing now.

On the prenatal side, we did launch a new product into that market in February. That was a prenatal genome. It supplements a prenatal exome that we've had on the menu, frankly, for many years now and have been seeing organic volumes despite the fact that never actively calling on MFNs, we started to see demand come through in terms of orders of that prenatal exome. That was really coming organically, word of mouth, peer-to-peer exchange at their conferences, them funding GeneDx. So what it told us is we were having good success selling that product without even trying. We ought to try, and so we built out a team of 10 to get to learn the market. And I think periodically throughout the year, we'll be coming back to say what are the signals and lessons learned in the first couple of quarters to identify when is the right time to expand that sales team.

The team of 10, certainly, you can envision larger. If you look at what is the go get there. About 4% of all births in the United States have some level of abnormality flagged whether through ultrasound or some other diagnosis that would make them a good candidate for this test. It's about 150,000 tests a year. So to knock on all those doors at some point, you'd expect a larger team. So another key watch out for us throughout the year is just a signal on how that market is developing. And then, of course, the NICU, we want to be able to report back definitively that step-up in that utilization rate towards what we're seeing in SeqFirst is starting to become a big reality.

That's great. Thanks. And I really appreciate the time and that's all. So we just kind of ran blasting right through and we ran quickly.

Thanks for having us.

Yes. Thank you.

Good day, and thank you for standing by. Welcome to the GeneDx Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Sabrina Dunbar, Investor Relations. Please go ahead.

Thank you, operator, and thank you to everyone for joining us today. On the call, we have Katherine Stueland, President and Chief Executive Officer; and Kevin Feeley, Chief Financial Officer. Earlier today, GeneDx released financial results for the fourth quarter ended December 31, 2025.

Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, February 23, and we're under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.

Please refer to our fourth quarter 2025 earnings release and slides available at ir.genedx.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. And with that, I'll turn the call over to Katherine.

Thank you, Sabrina, and good morning, everyone. The fourth quarter was a strong finish to a transformative year for GeneDx. We reported quarterly revenues of $121 million, bringing full year revenues to $428 million, underpinned by 54% exome and genome revenue growth. We continue to balance high growth and profitability in service of a massive unmet need, delivering accurate genetic diagnosis to the millions of patients and families seeking and waiting for it.

Today, we reaffirm our full year 2026 guidance, and we'll talk you through the elements of this growth that give us such confidence in our near- and long-term targets. 2026 is going to be a breakout year for GeneDx. We're operating in an enormous and largely untapped market with a 25-year head start. We've cemented our position as the clear leader in rare by diagnosing more patients with exome and genome than anyone else in the world.

And we have the #1 genetic test, the largest and most diverse rare disease data set and the leading technology and team. Our leadership position was further reinforced by our recent FDA breakthrough device designation, which positions GeneDx to become the first FDA-authorized comprehensive genomic solution in this category, a meaningful long-term differentiator, particularly as we enter mainstream medicine.

The clinical case, the economic case and the policy case for exome and genome are converging. And GeneDx alongside our patients is shifting the power of genomics from promise to practice. Patients are at the center of everything we do at GeneDx. Every test, every data point and every partnership comes together to create a network effect in service of faster answers, deeper understanding and expanded access to precision care.

We're opening new markets like general pediatrics to reach patients at the earliest moment possible. Rare disease affects 1 in 10 Americans, and it still takes an average of 5 years for a patient with a rare disease to receive an accurate diagnosis. The current standard of care often allows years of disease progression at a time when we can offer an accurate diagnosis in a matter of hours.

There's a huge opportunity here that looks similar to where cancer diagnostics was 15 years ago, and GeneDx is best positioned to serve this massive unmet need. Diagnosing rare disease is fundamentally a scale problem. In cancer, the key genes are well characterized, but in rare disease, most patients carry genetic changes that have never been seen before. Novel variants aren't the exception, they're the norm.

To diagnose these patients, you need to find others who share the same genetic change and the same symptoms. That means the size and diversity of your reference data set is everything. The larger your data set, the more matches you make and the more diagnoses you deliver. No one does this at the scale we do, and that's because of GeneDx Infinity.

Infinity is the world's largest and most diverse rare disease data set composed of more than 2.5 million rare genetic tests, over 1 million exomes and genomes and over 8 million phenotypic data points. More than 60% of the exomes and genomes in Infinity have parental data, which is critical for interpretation and over 50% are from patients of non-European descent, which improves their diagnostic capabilities across real-world populations.

While incredibly vast, Infinity is also deep, structured and expertly annotated to enable fast and accurate diagnosis at scale and across clinical indications. As we test more patients, the power of Infinity compounds. With over a dozen exome and genome products currently on the market, GeneDx is still chosen 80% of the time by the most discerning specialists, and we've held that share through multiple competitive cycles.

Infinity was built specifically for rare disease patient by patient, year by year in the clinic. It would take decades to replicate what we have today, and by then, we will be decades further ahead. AI models are only as good as the data they're trained on and GeneDx Infinity is the richest resource available. Our clinical experts and leading AI tools leverage Infinity to surface insights hidden within complex clinical and genomic data, and we are constantly innovating to amplify this impact.

For example, our proprietary AI gene ranker, Multiscore analyzes billions of internal and external data points to identify the most likely genes causing a patient symptoms, improving our scale, efficiency and turnaround times. AI is an enabler for us, and our team will remain at the forefront of leveraging this technology to improve outcome for patients.

We are currently operating in 6 massive untapped markets, each of which will contribute to our accelerated growth in 2026, and we're nearly tripling what was already the largest sales force in rare disease to capture the wide open space ahead of us. We have multiple levers for growth, namely: one, activating new clinicians in our existing call points; two, driving higher utilization among clinicians already ordering from us; and three, introducing our industry-leading testing to new markets.

Even with geneticist, our most established market, we have 80% clinician penetration, but still have room to grow by shifting more testing from single gene and panel approaches to exome and genome. Among pediatric specialists, we've reached about 30% of clinicians and only 15% of eligible patients, giving us 2 clear ways to grow: establishing more doctors and increasing how often they order.

In our 4 newer U.S. markets, prenatal, NICU, adult specialists and general pediatricians, there are over 1 million addressable patients, and we've barely scratched the surface with clinician adoption still in the single digits. Our first-mover position, focused sales strategy, best-in-class products, geneticist endorsements and experienced market access teams best position us to build these new markets and take dominant share early.

With that in mind, I want to walk you through our building blocks of growth, each contributing to a stacking effect of revenue and volume that will compound over time. Our foundational markets, geneticists and pediatric specialists delivered most of our growth in Q4, and there's still significant runway ahead. These markets drove nearly all of our growth in 2025 and have strong momentum entering 2026.

We will continue to layer on new indications and call points to these specialist markets, and we've expanded our dedicated sales team from approximately 50 reps in 2025 to 75 in 2026 to drive continued adoption. On top of that foundation, we're ramping in key expansion markets, the largest of which is general pediatricians. We're hearing positive feedback on our 1-minute ordering experience, which is set to launch this summer.

And in combination with a dedicated 50-person sales force, we're well positioned to begin seeing volumes really pick up in Q4. The NICU remains another key element of our expansion strategy. We know what good looks like here based on our experience with leading institutions like Seattle Children's and the recommendations outlined in the 2025 SeqFirst study.

This market takes longer to convert, but once it does, it's incredibly sticky and profitable. We have a team of 10 reps dedicated to the NICU and expect to see steady growth in 2026. We recently stepped into prenatal diagnostics with an exome and genome test intended for patients with abnormal ultrasound. We're targeting maternal fetal medicine specialists with a small team of about 10 new reps to begin driving utilization to help clinicians deliver answers in these critical moments for families.

Additionally, we began leveraging our specialist sales force to sell into adult neurologists, diagnosing patients with pediatric onset conditions that were missed as children. Lastly, we continue building an international strategy centered around software and interpretation as a service, and we have 5 reps executing in key geographies. We also see 3 key future markets on the horizon, genomic newborn screening, new channels like telemedicine and leveraging our data set for biopharma and service of patients in precision medicine and are laying the groundwork to unlock each.

As you can see, our growth is not dependent on any single market or a single bet. It's layered. It's compounding, and it's anchored in a strong and fast-growing core. By introducing our services to mainstream clinicians, we're seizing a massive growth opportunity. And as the leader in rare, we're setting the standard for what exome and genome testing should be, accurate, fast, accessible, simple to order and easy to understand, and we will continue to raise the bar.

With that, I'll pass it over to Kevin.

Thanks, and good morning, everyone. For the fourth quarter, total revenues were $121 million, up 27% year-over-year. Within that though, exome and genome revenues were $104 million, an increase of 32% year-over-year. Excluding a $6.8 million onetime payer recovery in Q4 last year, our organic growth rate was 42% for exome and genome revenues. Turning to volume.

We reported 27,761 exome and genome test results in the fourth quarter, capping a consistent trend of acceleration through the year. During -- from 24% growth in Q1 to 29% in Q2, 33% in Q3 and now exiting the year at 34%. In the fourth quarter, we saw geneticists increasingly shift towards whole genome, signaling a desire among these experts to generate even more data for their hardest to diagnose patients.

Our average reimbursement rate or ARR, for exome and genome was approximately $3,750 in the quarter. As flagged on our last call, the rate fluctuated some in the fourth quarter due to mix dynamics, but the long-term trend is up and durable. Full year 2023 was $2,500, which went up to $3,000 in 2024 and now $3,750 in 2025. And while any mix towards genome over exome in the outpatient setting may introduce some short-term ARR variability, it's ultimately what is best for both patients and our business.

Total company adjusted gross margin for the fourth quarter and full year 2025 was 71%. Genome costs more than exome today, but that's mostly a function of higher reagent costs, which we expect to continue to come down as the adoption curve ramps. Importantly, our dry side cost advantage applies equally between exome and genome. The annual trend demonstrates our proven ability to drive the cost curve down with scale over time.

Full year 2023 gross margin was 45%, which went up to 65% in 2024 and now 71% in 2025. Moving to the bottom line. Adjusted net income for the fourth quarter was $4.4 million and $4.8 million for the full year, demonstrating the leverage in our business model. Now Katherine just laid out the strategic layers of our growth. To help you model the business, here's how we expect those layers to contribute to 2026.

Let's first look at those foundational markets. First, we have deep penetration with approximately 80% share among clinical geneticists who are still only ordering for about 30% of the patients, which we believe will grow over time. The go-get here is converting multi-gene panels into exome and genome, which we view as inevitable. Even within our own business, more than half of all tests are still single gene and multi-gene panels.

Moving from -- moving those patients from exome or genome to exome or genome materially improves diagnostic yield and reduces time to diagnosis. Conversion is driven by guidelines, education, sales coverage. Repetition is key and conversion will continue to be a source of high-volume growth for years to come. And as it occurs, it will provide higher reimbursement and strong contribution margin tailwinds.

Second, in February, we went live with an exome to genome reflex testing option, allowing clinicians to start with exome if more data is needed, proceed to whole genome. This approach provides a faster, more cost-effective and comprehensive diagnostic pathway. And third, nearly 30% of pediatric neurologists now order through us, and we've reached patient penetration in the mid-teens, all after just 3 years of targeting these clinicians.

Growth here will come from both new clinician activation and increasing order rates per clinician for years to come. Moving to those expansion markets. First, the NICU remains a focus, and we're convinced these institutions should be ordering over 200,000 tests a year to address the unmet need and provide better and more efficient patient care. Nearly 25% of the target accounts are existing customers, yet utilization remains in the single digits.

As our efforts to push forward the standard of care and ease the implementation burden take hold, we aim to influence that utilization rate up to 60% over time. We're seeing early signs of improved utilization, but we'll remain conservative in our modeling assumption for the time being. Second, general pediatricians is a game changer. Following the mid-2026 launch of our custom Design 1 minute ordering workflow, we expect volumes to pick up in the fourth quarter of 2026 and accelerate into 2027.

Third, prenatal, adults and international remain wide open. We expect prenatal to begin to ramp in Q2 and adults in the second half of the year. Internationally, we're putting a small number of boots on the ground now to prepare for a broader expansion that will become a contributor in late 2026 and beyond. The primary product here will be Software and interpretation as a Service.

And in all these new outpatient markets, we will remain conservative in our volume and ARR modeling assumptions until more history is built up. Now in terms of operating expense, we're in a phase of deliberate investment to accelerate growth. Specifically, we're deploying capital to nearly triple our commercial footprint in 2026. We're also investing in a next-generation customer experience, a portal designed by pediatricians for pediatricians, which will launch later this summer.

And we're ramping our R&D to support clinical research that underpins the commercial strategy. That includes finding the right balance and market fit for things like supplementing short read with long-read sequencing and other new technologies to increase diagnostic yield and reduce turnaround times. So with all that in mind, we're reaffirming our guidance to include total revenues in the range of $540 million to $555 million, exome and genome volume growth of 33% to 35% with a baseline of 33% growth for Q1.

We expect the foundational markets to contribute 25% to 27% towards the growth rate. We expect those expansion markets to contribute 7% to 8% towards the growth rate. And we're assuming a very modest second half contribution from general pediatricians this year. The future markets are about 1%, so to put all that in context another way, 33% volume growth in 2026 would mean 32,000 tests on top of the fiscal 2025 count.

In 2025, we were only really active across geneticist, pediatric neurology and the NICU, and those delivered the 23,000 tests of growth, all accelerating throughout the year. Given current penetration status, there's no reason to think those 3 markets would slow down. And on top of it, we're now adding 100 new sales reps, approaching new markets, launching a new customer experience and doubling our marketing efforts.

We're confident in our plan to deliver. We're expecting adjusted gross margin at approximately 70%, which takes mix shift dynamics into consideration. Despite a heavy investment cycle, we expect adjusted net income positive for the full year and each individual quarter. The first quarter of 2026, in particular, will be close to breakeven as we deliberately prioritize market capture over near-term margin optimization.

As these newly deployed territories activate and ramp towards full productivity, we expect adjusted operating margin to build towards double digits by Q4 as these investments yield revenue. Before I move on, a few notes for your model. At this point in the quarter, volume is matching expectations. The huge storm in January did cost us a full day of volume, and we're experiencing another storm in the Northeast today.

We've always built that level of impact into our Q1 projections. In our case, these children are sick and missed appointments are not typically lost so much as they are rescheduled in the next quarter or maybe even 2. Beyond that, this business has a predictable seasonal rhythm. In case clarification is required, and I've been at the company for 10 years now, Q1 always steps down due to deductible reset dynamics.

All else equal, in terms of underlying fundamentals, volume in Q1 is typically lighter by a couple of days and underlying collection rates is typically down about 5% in Q1 compared to Q4 and then builds back up because of the impact of deductibles. We factored this rhythm into our guidance. Last point, as a reminder, we wound down the hereditary cancer testing line in Q3 2025.

So in terms of comps, that business line generated $2 million in Q1 of last year and $5 million in fiscal 2025. Now before we move to Q&A, I do want to hit on something Katherine might be too humble to bring up. Last week, she was named to the 2026 TIME 100 Health list. Katherine has been quick to transfer all credit to the GeneDx team here, but on behalf of our 1,400 employees and countless families we serve, we want to offer our applause.

But knowing Katherine, she would want me to point out who else was on that list because it validates exactly where this industry is going. She was honored alongside pioneers like Dr. Musunuru, Dr. Aaron Nicholas from CHOP, who saved baby KJ with a world's first patient-tailored CRISPR therapy. There were several other honorees this year related to rare disease and the pioneering work to bring gene therapies forward.

This all signals something important, rare disease and genomic medicine are having their moment. We're decades behind oncology, but we're coming fast in terms of diagnosis and eventual therapies. Now as an investor, here's why you should care about that. The evidence is clear, the science is ready. Our technology is capable. The therapies are coming and GeneDx is the engine that finds the patients who need them.

Operator, let's open up for Q&A.

[Operator Instructions] Our first question comes from the line of Subbu Nambi with Guggenheim.

Firstly, congratulations, Katherine, on that achievement, truly remarkable. Second, I have a question on guidance. Let me start with some observations. Your guidance assumes 25,200 or so tests, 200 or so more foundational tests at the midpoint.

This is impressive given that the number of foundational tests last year was 22,700, down from 25,000 in 2024. So your guidance reflects an assumption that a recent trend reverses. What is driving that? And what gives you the confidence to bake this assumption into the guide?

Yes. I think -- well, there's a lot of factors there, including the point we made on repetition. I think if you look at the overall amount of white space available in terms of penetration rates, there's just so much runway to activate new clinicians to get them to order more and frankly, continue the conversion cycle from single gene and multi-gene tests.

For the past few years now, we've really just focused a few cohorts of doctors, outpatients, geneticists and pediatric neurologists and spent most of the last 3 years specifically talking just about a few indications. that being epilepsy, intellectual development delay and autism. There's a far wider range of tests that will be ordered by those physicians over time.

And I think some of the strength that I could point to there is if you look at the comment I made on even GeneDx's volume in the fourth quarter, still more than half of all tests we ran at GeneDx despite our focus on exome or genome is single gene and multi-gene panels. And so repetition is key. We've got a strong commercial team. We've got the largest rare disease sales team in the market.

And as we said in the comments, we'll be nearly tripling the size of that team. There's still a lot of work to do to move the paradigm towards exome and genome being the test to diagnose all hereditary disease. And frankly, we're just in the early innings of that.

Could we also discuss the puts and takes for quarterly cadence this year on both volumes, ASPs and maybe gross margins?

Yes. I mean I think if you look at the cadence of any year here at GeneDx, you'd expect Q1 to be the low point in terms of volume and reimbursement rates, in particular, driven by those deductible factors I discussed as well as, of course, weather with Q4 typically being on a per day basis, the strongest. There is variability in the number of operating days.

Our business, if you look at the outpatient setting, does tend to follow or draw strength from the school calendar as well as the holiday calendar. And so to the extent you have quarters that are heavy on the inability for families to get into physicians' offices, it obviously plays a factor. But we typically see Q1 as the low point, have that ramp throughout the year.

From a seasonal strength perspective, Q4 is the strongest typically, followed by Q1, then Q3 and then Q4, then Q2, then Q3 and then Q1 from a strength perspective, and we see this year being no different.

And anything on gross margins, Kevin, as people ramp to newer call points start to order whole exome and then I'll hop back in the queue.

Yes. I mean I think overall, where we ended the year around 71% for total company, underlying that the exome genome portfolio operates significantly stronger than that. The combined exome genome portfolio in the 80s in terms of gross margin. Now the reality is we still have a long way to go to reduce cost per test. The past couple of years, we've been optimizing for reimbursement and cost per test on exome in particular.

And now it is our time to turn attention towards optimizing genome cost and reimbursement. I think we're well equipped to do that. We've got a proven playbook to do that. We're going to take many of the learnings from exome. And invariably, genome COGS will be coming down as -- I mean, we'd expect them to as the utilization ramp increases. And in large part, the combination of that demand will put pressure on payers to open up access, while at the same time, allow us to get even further economies of scale and buying power with respect to the use of genome.

What we've taken is a fairly conservative view to gross margin in terms of the guide. We want to see how some of these new markets volumes from new diagnosis codes play out and ensure that we have the ability to outperform in terms of cost and gross margin. But ultimately, as we see the conversion from panels into exome or genome, both are far more favorable, and we'd expect tailwinds from that for many years to come.

Our next question comes from the line of Bill Bonello with Craig-Hallum.

Great. I'm just going to push a little bit more on the sequential, just so we don't have kind of a repeat of last year, if you can help at all. But last year, I think we had cases down about 114 tests or so. So not a very significant sequential decline.

And on the ASP side, we were just a little under $60 down. Given what you talked about with weather and the big pop-up that we had in Q4 this year, should we be assuming a more significant sequential decline than 100 tests or so? I mean, maybe something more in the 400 to 500 range? Or how are you thinking about that?

Yes. Bill, in the prepared remarks, I said the baseline expectation for Q1 should be 33%. So if you can take the Q1 number at 33%, that would infer a decline of even 300 to 400 tests in Q1 off of Q4 sequentially would not be unexpected. Like I said, we lost a day of volume due to that storm. We're actually providing our first virtual call today given the storm in the Northeast.

And so the guide is anchored in 33% to 35% because of the dynamic of both weather and the deductible reset typical seasonal plays would ask people to look to the 33% for Q1, and then we'll build back up off of that. The good news, bad news of it all in terms of missed appointments from weather is, as I said, in our space, if a family can't get to a physician because of weather impacts, if kids are sick, they're not going to skip the appointment.

They're going to get back. But the unfortunate reality that we aim to solve here at GeneDx is it might take a quarter or even 2 or sometimes 9 months to get back into a specialist's office. And so I think the way I'd point you to is 33% is the baseline expectation, and we'll try to beat that number. I'll get a little wonky on you, Bill. But in both 2025 and 2026, Q1 has 61 operating days. Q2 is 63, Q4 has 64 and Q4 is 62 days. And so right off the bat, just calendar-wise, there's 1 less day in Q1 available than Q4 sequentially, and then you layer on seasonal deductible impacts and the weather is the way we think about it.

Yes, that makes sense. And just to be clear, the 33%, you're talking about that for both volume and revenue is a good starting point?

Yes.

Okay. That's good. And then just one follow-up, if I could. You talked about nearly tripling the commercial footprint. What's sort of the base there? Is that from where you were before the heads that you were talking about in January that you've added or triple relative to what?

Yes, call it the average through 2025. But if you look at the full year of 2025, frankly, we didn't add a lot to the base. Some reps come and go. But the way I think about it is the full size and scale of the team for the most of 2025 was about 50 sales reps calling on those outpatient markets of geneticists and pediatric neurologists. And then a small team, let's call it, 10 focused on the NICU in particular.

So 60 reps was really what we went to bat with for the balance of 2025, and we'll be adding about 100 on top of that to start the year. Now of course, there's a natural ramp and that ramp has been contemplated in the guide. We added 50 new sales reps to general pediatricians in January. We added 10 new prenatal reps in January. We're adding about 10 more reps for the NICU, but it's going to take a few quarters for those reps to get fully productive.

Our next question comes from the line of Kyle Mikson with Canaccord Genuity.

Congrats Katherine as well and I hope you're doing well in this storm in the Northeast. So just on the guidance, thanks for the 1Q framing, Kevin. But for the full year, helpful that you have this expansion in future market and the kind of the current stable base assumptions and stuff.

But as you think about upside and what you're not baking in and things like reimbursement that wasn't exactly called out, how -- could you just help contextualize that for us in terms of the excitement levels and what's actually possible to penetrate maybe in these newer areas?

Yes. Obviously, we've got greater ambitions than what is baked into the guide for the year. I think areas where we've stayed appropriately conservative, but offer potential upside we've consistently said on general pediatricians expect 18 to 24 months from guidelines to see volumes ramp. All interactions with pediatricians to date, including focus groups, extensive market research, we're out in the field, extremely positive.

I think we have immense confidence these physicians will order. The acumen and willingness to order will be there. But it's also told us we have to deliver the front-end and back-end experience that they said they would need in order to get comfortable ordering, and we launched that customer experience later this summer, the end of Q2 into Q3. And so we built some time for volumes to ramp following that launch.

It's conceivable, that takes off immediately after that launch. We're putting in the groundwork and effort now. Those reps have started. But before we build in any upside to the guide ahead of what has always been our baseline expectation, we want to get that experience launch and into the hands of folks more than the focus groups that are building it. I think prenatal is another one. We started with a small team of 10.

If you look at the size of the number of MFNs across the country, certainly, that team can and will be larger over time. But it's a new market. We started with a bit of a pilot team. We'll see how signals pull through in the next couple of months, and that may mean we have the ability to add to the sales force there, but we wanted to take a conservative approach and learn the market -- those are just 2, but I think there's plenty of areas in terms of volume that we've left out of the guide to be surprised with.

And then in terms of reimbursement rates, as I said on the call, we're taking a fairly conservative view on what payment and denial rates will be in those outpatient markets that are new. There's no reason to see a vastly different reimbursement rate or payment denial rate in those markets.

But history has told us that the first time we supply new diagnosis codes or physician types to payers, they often have an inherent reaction to auto denial those and you have to prove sustained demand and that the revenue cycle is going to keep coming back via appeal and further evidence.

And so we think we've built in a fairly conservative view to reimbursement rate. It's an area where we tend to stay on that side of conservatism. And -- we'll look for periodic updates throughout the year to see if we can't beat those numbers.

The only one I would add to that, Kyle, is the NICU setting. We've been, I would say, line of sight on NICU just given our experience in 2025. We did just bring on a new Chief Medical Officer, Dr. Linda Genen, who is a neonatologist who's also been in the business of practice management for the NICU.

We have new commercial leadership, including a neonatal nurse leading the strategy and the go-to-market there that's driving more of a protocol approach in the NICU. So I think we kept a conservative view on the NICU, but we're keeping an eye on that because I would say, 6 weeks into the year, we're seeing some encouraging signs there. So that's another one where we're going to continue to drive forward.

All right. Perfect. And then just a quick unrelated follow-up on test performance, something that's been called out recently in our conversation. So could you maybe talk about like a snapshot regarding how performance compares to some of the up-and-coming tests in your view?

And could you maintain or accelerate market share if you don't really invest in or lean into like integrating long read or these other technologies to increase diagnostic yield?

Yes. So I think as we look at the strength of our test, we deliver 2x the accuracy of another exome or genome out on the market today, and that is because of Infinity and that reference data that I spoke at length about in the prepared comments because I think as competitors start to enter the market, they're going to -- they and their customers will realize exactly how important it is to have the breadth and depth of both the genotypic and phenotypic data for your expert geneticist to be able to tap into.

So I would say at a baseline, we're absolutely confident in the importance of accuracy of our testing, not to mention the fact that we also have the scale. The turnaround times for other competitors in our space are far longer. We have our turnaround times down to about 2 weeks for an exome and a genome. So we're turning these around fast and that matters to customers. And we're doing it cost effectively, and we have the payer contracts, which, of course, is beneficial from the customer and from the patient standpoint.

So we stand in a confident position in terms of our ability to continue to keep the competitive moat extraordinarily strong amidst competitors entering the market, which, again, is not a new phenomenon. There have been dozens of these tests on the market over the past decade plus. We are going to continue to invest in R&D. Kevin mentioned layering in long-read sequencing.

We're also looking at additional technologies for really keeping an eye on how do we continue to have the best industry-leading diagnostic test out there. And if we're able to increase our diagnostic yield because of a new technology, you can bet that we're going to make sure that we're layering that in.

I think interestingly, though, as we look at how far Infinity actually gets most patients, we actually do a pretty darn good job with Infinity alone and short read, but we're seeing some encouraging additional diagnostic yield that we can get out of long read. So as new technologies come to bear, you can bet on us that we're going to have the highest diagnostic yield without a doubt.

Our next question comes from the line of David Westenberg with Piper Sandler.

I echo everybody's congratulations on all the work done in prenatal -- sorry, rare disease health. So I just wanted to talk about the general pediatrics. You noted an 18- to 24-month adoption curve following the AAPA guidelines and deployed a 50-person sales force to target this. What specific indicators, I don't know if that would be like repeat testing, number of new physicians ordering per quarter, utilization of 1-minute workflow.

What are you tracking to gauge success in that market that, that sales force expansion is working? At what point in 2026 or 2027 do you believe this translates into a material inflection in revenue?

Yes. So you're hitting on all the right key metrics, Dave. So thank you. We want to see a number of new clinicians, and then we want to see time to ramp. So we're tracking, are they going to do 1 or 2 at a time just to kind of get some experience without the 1-minute ordering and then how much faster can we actually see the 1-minute ordering start to accelerate utilization. So those are the key metrics. We're obviously going to be tracking average reimbursement rates.

So I want to make sure that we have our revenue cycle management team revved up and continuing to make sure that we're getting paid for those tests. Again, in the 1-minute ordering, we are building in the opportunity for a parent to be able to upload their child symptoms, so all the phenotypic information. We think that's going to be really powerful also in appeals denial process. So those are the main metrics that we're looking for.

And that Q4 inflection that we're anticipating where we start to see reps get productive, we have 1 minute ordering launch. And as I said in the prepared comments, the feedback on that 1-minute ordering is really positive. It was designed by and for pediatricians. We're going to keep an eye on that sales force and see -- we're looking routinely to figure out exactly when we can continue to add reps.

We know that 50 is not going to be the right size forever, but it's a great, great size just to get some experience, get some data and then really start to accelerate as we re-ramp into 2027.

Perfect. And just one follow-up here on the NICU in Q4. You mentioned a 5% penetration rate. How do you grow on that penetration rate? And what is within your control in terms of growing that? And then just again, a reminder of how it went in Q4 and there are opportunities to kind of ramp that throughout this year?

Yes. No, thank you. We learned a lot in the NICU. And we are -- with our now 10 reps out there, really having them focus on selling directly to the neonatologists. Dr. Genen is -- she's been with us for about a month, but already has made an incredible impact. As I mentioned, we have a neonatal nurse who has helped us kind of refocus the go-to-market strategy.

So -- so we're eager to let that play out for a little bit, but early signs, I would say, are good in terms of this new strategy in place, and we'll keep you posted on what that momentum looks like.

Our next question comes from the line of Dan Brennan with TD Cowen.

Congrats on the quarter and good close to the year. Maybe I had one on the growth drivers and one on pricing. Maybe I'll just start with pricing, Kevin, implied in the guide, right, is flat pricing exome genomes, but obviously, you're talking about conservatism on some of the new markets. And in your prepared remarks, you talked about continued upside on pricing. So I guess -- the first question is just kind of where do we see really pricing going?

Like kind of what's the headroom if we look out even beyond '26? And I know you had some comments in the prepared remarks on genomes and exomes. I'm wondering how those influence pricing. And is there anything baked in for Medi-Cal on pricing?

Yes. There's nothing baked in yet with respect to Medi-Cal. In fact, although policy went effective November 1, we still don't have a published price, which makes it hard to accrue and forecast. That's just working through the mechanics of the powers at Medi-Cal. And so continue to leave Medi-Cal out of the guide for now. And consistent with what's always been our approach, what we've left out of the guide, of course, is any new Medicaid state coming online. as well.

A lot of work to influence more Medicaid coverage expansion, but there's just so many factors out of our control. So the guide does effectively assume 0 new Medicaid states this year. Do I think that, that's reasonable to expect 0? I don't, but we'll always leave new Medicaid coverage out until proven otherwise. So that's one I'd point to. And then as I said, on the new markets, we've taken a fairly conservative view.

What does that mean? Back in 2023, when we first launched into pediatric neurology, which was the first outpatient call point beyond genetic, we saw for the first couple of quarters, the denial rate elevated up to about 70%, so being paid about 30%. And as you know, over the past 2 years, we've now worked that down to the point where we're getting paid in the high 50s.

And so we've taken that past experience and applied that level of expectation for the first few quarters out of the gate at those new outpatient call points. Now again, if you look at underlying policy coverage in the markets and diagnosis codes that we're choosing to pull through, there's no reason that we should see that high of a denial rate, but want to let history build up. And so I would be pleased to be surprised otherwise, but we built that level of conservatism into the ARR guide.

Great. And then maybe just on the 7% to 8% contribution from the new growth drivers. Could you share a little bit of color between the PO and prenatal since I'm assuming the PRO and yes, prenatal and/or NICU, just any relative contribution you can share with us and kind of want to inform that?

Yes. If you had to rank order those, NICU is at the top of the pack there. I think as we talked about on this call, we're seeing great early signs to start the year in the NICU in terms of increased utilization rate. And if you look back at 2025, we actually activated more NICU accounts than what was in our original plan.

Now what offset that was we didn't see the quick ramp up that we expected in terms of ordering patterns. But if you look at where has that utilization rate gone in the past couple of months, I think we're seeing great signs to start off the year. But we've -- like I said, we'll take a fairly modest approach in terms of modeling at this point until that really takes hold.

But the NICU does provide significant growth out of that expansion market layer in '26. We think we've got all the pieces in place now, including a revamped approach on how to ease implementation burden from hospital systems. After that, prenatal we've got a team of 10. It's a big opportunity. We'll see how that ramps throughout the year. But with a launch in Q1 into that market, really expecting 0 contribution in Q1, very little in Q2, but some early volumes in Q2.

And then Q3, the start of a nice ramp up. And then as we talked about pediatricians, we've taken a fairly modest view there. But just remember that in that expansion layer is the NICU, which will be the bulk of the growth here for that layer in 2026.

Our next question comes from the line of Tycho Peterson with Jefferies.

Kevin, can you maybe -- I appreciate all the color on ASPs. I mean, obviously, in the background here, you've got H.R.7118, the Genomic Answers for Children Act and Florida Sunshine Genetics Act.

Can you maybe just talk about how you're thinking about these opportunities? Obviously, more of a '27 driver than 26 drivers if it does go through for H.R.7118, but how are you kind of handicapping this over the next couple of years?

Yes. Clearly, nothing in 2026 in terms of uplift expected from any national legislation. Look, it's exciting, and we're part of a group of about 30 influencing that bill to make its way through the process. Now introducing a bill and getting it signed and across the President's desk is very different things. I think what we're seeing is great reception across policymakers.

And it could be a big deal for us, but obviously, something that we wouldn't build into our short-term expectation until we get a much clearer line of sight. So have left anything off of that pending legislation out of the outlook for now, we'll continue to do that until we get some more clarity. But overall, I'd say beyond the national stage, there continues to be great progress at state houses with respect to moving along both biomarker bills and expansion of Medicaid coverage for exome and genome.

And we'd expect another great year there. We're just going to leave it out of the expectations until they hit. But I think more and more, we're seeing policymakers understand not just that there's an unmet medical need, but it's really the best thing for them to spend their dollars wisely to prevent disease to diagnose it early. And I don't think there's any slowing down of that.

And then that's helpful. Katherine, can you maybe touch on pharma? I know you're talking about doubling the business this year. I guess any color on just kind of what sort of contracts these are? Does the recent Komodo Health partnership help pull through incremental demand there? Or is that too early? I know you've hired a bit, you hired Lisa Gurry in September.

So maybe just talk a little bit about where you are from scaling up on the pharma side. And is that mostly patient matching and longitudinal data for FDA submissions? Or are you kind of expanding the scope of what you're doing with pharma, too?

Yes. Thank you for that. So we're encouraged, I would say, by the types of conversations we're having with pharma companies. I think one of the notable shifts in our go-to-market strategy is focusing on some of the adult onset conditions. And we feel like in focusing on adult onset conditions, if it's sponsored testing or patient matching, that gives us the opportunity to work really strategically with these companies as we've seen happen in the pediatric side of things to accelerate adoption of these technologies, generate a body of evidence to be able to go to payers.

And so we're thinking across both pediatric and adult as well as many of these bespoke. We talked about CHOP and baby KJ. There are more and more -- there's more and more organizing happening amongst these parents who are becoming biotech CEOs. So how do we really work in partnership with them to put our data to work for their families and for their businesses.

So encouraged by, I think, the shift in thinking and the more expansive nature. It is everything from clinical trial matching to sponsored testing, just getting different types of docs using testing. And what's also really -- I know we've talked about this in the past, Tycho, but it is true across every condition. The more you test, the higher the prevalence is of these diseases.

And so we were sitting with a pharma company that was looking for 400 patients. We happen to have 2,300 of them in our database. and really challenge the understanding of the prior limited prevalence. So I think it's going to change the equation for investors as well. The larger patient populations are going to make it much more compelling for investors to get involved in these companies.

So more to come, but we're excited about what we're seeing and the conversations we're having and the opportunity that's ahead.

Great. And then maybe just one last one on competition. I mean we haven't really touched on it on the call. But -- and you've always said competition validates the market size. It doesn't really threaten your leadership and new entrants can help educate payers and governments.

But anything you can kind of flag here as to how you're thinking here has evolved? I mean has it -- are you going to have to counter detail more? Are you pulling forward any hiring? Just maybe just talk a little bit about the competitive environment because we're obviously all getting more questions on that, too.

Yes, yes. No. And you're right. I think competition is a good thing. I think that more -- it validates, as you said, but it also helps put more and different types of pressure on clinicians to start using this testing. So the sheer size of our sales force, I think our sales team is 6x the next largest sales team. I think we have more reps in California than one company has for their entire sales team.

So we've got a massive footprint for rare disease. We are always going to be looking to pull forward hiring. We talked about some encouraging signs in the NICU. That might be an area where we could pull forward some more hiring. We pulled forward hiring into our specialty sales team. So as a commercial person, I, of course, am always eager to see how do we continue to accelerate our growth. So I would say we're seeing positive signs across the board.

But even if we were to not hire another person, which I feel confident we'll continue to strengthen that team. We have a monster sized team compared to the next one out there. And I think more education on this is a good thing. There's plenty of wide open space. Infinity as the reference data set is going to continue to ensure that GeneDx is delivering the most accurate information, which is, of course, what's most important to these clinicians and these families, but also the turnaround times.

I said we're now at 2 weeks for exome and genome, just being able to do it better, faster, more cost effectively. All of that means we can move faster and keep adding more clinicians along the way.

Our next question comes from the line of Keith Hinton with Freedom Capital Markets.

Okay. Great. Just one question and then a quick follow-up. Just in terms of the foundational market growth, obviously, as we've talked about, looking for a little bit of an acceleration here versus last year.

So I just want to clarify, are there any sort of major new indications or disease areas you're launching in 2026 that fall into that foundational bucket? Or is this just a natural reacceleration?

No, we've got a multiyear road map for expansion of indication targets that we kicked off early 2025. As I said, we went the previous 3 years really just talking about 3 of what ultimately is a span of thousands of rare disease that our technology can diagnose. We've been taking a fairly disciplined approach to only target pulling through volumes where underlying guidelines and reimbursement policy would be secured to get paid.

And the aperture of that continues to increase in large part because of our work, but also other evidence provided by many others. And so yes, underpinning those foundational markets is, of course, effort across the commercial engine, but there's a far larger set of diagnosis types or indications that we'll be targeting in those clinician offices.

Got it. Okay. And then just on the follow-up, I'm looking at Slide 22 of the deck here and looking at the 300,000 annual patients among geneticists penetration a little bit above 30%. Kind of 2 ways to look at that on the positive side, a lot of room for growth. On the negative side, you could say you guys have been at this a long time, and it's only at 30%. So my question is sort of more geared towards that more bearish look, which is, obviously, some portion of those patients may not have a best fit for getting a next-gen versus a single or multi-gene panel.

I'm thinking about a patient that has kind of strong suspicion for a particular rare disease based either on Pheno or family history. So do you have any sort of insight based on your market research into what percent of that 300,000 patients, maybe the best clinical practice would not be in next-gen would be to start with something like a single or multi-gene panel and then flex to a next-gen if needed?

Yes. Look, I think our position has always been and remains that ultimately, there will be one test for all hereditary disease diagnosis, and it will be all genome. I think if you look to say, well, we've activated 8 out of 10 clinical geneticists who've been ordering from GeneDx, and we've held that share for at least the 10 years I've been with the company.

I think, proves the power of our service offering. You say, well, why are they only ordering for 30% of their patients? Like I said, we've not been attempting to pull through all volume types in the fourth quarter and all periods prior, there's volume we've left on the table. There would be demand out there for offering physicians a far better answer than multi-gene panels if we were just willing to take all the volume and not get paid for it.

We've been taking a fairly disciplined approach to step up those conversion rates over time in a way that's both good for patients and healthy for our business. I think we're going to continue to do so. But with the emergence of new guidelines, clinical evidence, economic support, there is and will continue to be a tidal wave of support in terms of adding exome and genome into reimbursement policy to replace those tests.

All in, we still think we're in the very early days of a generational change to replace all multi-gene panels with exome and eventually, genome will be the one test that outlasts them all.

The only thing I would add to that is by continuing to utilize single gene or multi-gene panels, we're just contributing to the diagnostic odyssey. So we've gotten the industrial strength of exome and genome to the point where multi-gene panels really should, for the most part, be retired. But their use in the settings that we're in are just continuing to proliferate the delayed diagnosis.

Our next question comes from the line of Brandon Couillard with Wells Fargo.

Kevin, just one for you. Given it sounds like you have front-end loaded the sales rep build for the year, I think you talked about a double-digit operating margin by the fourth quarter. Should we expect a modest loss to start the year here on the operating line? And just how we think about OpEx ramp moving through the year?

Yes, not a loss, but as we said, expect Q1 to be right near breakeven. So it will push the boundary there, but we expect to be able to hold it positive and then build up throughout the year as those reps in particular and some other factors start to earn their keep.

Our next question comes from the line of Mark Massaro with BTIG.

Congrats on a strong 2025 and congratulations, Katherine, for the award. I wanted to ask about -- I didn't hear a lot about EMRs for Epic. Can you just speak about your EMR strategy in '26? Should we expect that to lift? And how do we think about EMRs going into the pediatrician market?

Yes. Thank you, Mark. I'm glad you're asking this. So last year, we -- for better or for worse, I think we tied EMRs very much to the NICU, and we learned a lot. What we learned is that clinicians who have been ordering testing from us like our portal. So that's great. We continue to improve it. And so they like that workflow. And so -- and we've spent a lot of time with the team at Epic just to really understand where the opportunities are from their perspective.

They obviously see a lot of this business. So we really want to focus our Epic strategy on new customers. So general pediatricians would be a great example of a new customer where Epic can be helpful. So we are thinking about Epic as a driver for both outpatient and inpatient -- so really going in with health systems. We've been kind of reprioritizing which health systems we're going into.

So looking at it less as a current customer unlock and more as a future customer unlock. So that has been, I think, a really healthy shift for us and very much in line with what Epic sees as kind of best-in-class moving forward. So more to come on that and how it plays a part in unlocking new customer types. As we've talked about, we're also going to be releasing that 1-minute ordering.

So I think we can kind of see like in a sense, Epic is 1-minute ordering, so we can see what's going to work better for different types of clinicians. So I think we'll be tracking it. We'll share as we learn. And we're, without a doubt, enthusiastic about Epic being able to unlock more volumes, really focused on new customers who haven't had a prior experience with us ordering.

That's really helpful. And then last question for me. It looks like the NICU is going to likely be the largest source from that 7% to 8% growth from the expansion markets. I understand that you're adding 10 reps into the NICU. And you've talked about onboarding a neonatal nurse. You've talked about a lot of lessons learned last year.

So it seems like this is an important initiative for '26. Is there anything else you could just speak to that gives you confidence about maybe some of the encouraging early performance you've seen here in Q1, but how you're thinking about this building throughout the year with respect to the lessons you learned from last year?

Yes. So we're happy with what we're seeing from an ordering perspective year-to-date. So I think that's point one, and that's a great message to be able to deliver. so much so that we're taking a look at do we want to add more reps and at what point in time. The new leadership that we brought on, our Chief Medical Officer, Dr. Genen, she's super eager to be spending time in the field and to start a real peer-to-peer KOL strategy because her view is neonatologists are going to listen to other neonatologists.

So we need to kind of break the pattern of the neonatologist constantly deferring to the geneticist. And so I think the peer-to-peer work that we are going to be deploying this year, we feel like is going to be powerful. She's been making calls already, sharing great feedback on GeneDx from those who are ordering and then just in her network being able to already unlock some good opportunities for us to go get -- and so with that and then also with the SeqFirst protocol as being a really important tool for us.

I think it's really just trying to simplify the selling strategy. So we're going right to those neonatologists and activating them more directly versus having to tackle it in a more systemic way.

And I'm currently showing no further questions at this time. This does conclude today's call. Thank you all for your participation. You may now disconnect.

Good afternoon, everyone. My name is Abbey Stanley, and I'm an associate on the JPMorgan Healthcare Investment Banking team based out of New York. It is my privilege to introduce GeneDx. Today, Katherine Stueland, CEO, is going to be running through our presentation, and that will be followed by a Q&A, where we'll be joined and have Kevin Feeley, Chief Financial Officer; and Bryan Dechairo, Chief Operating Officer, join us. And with that, I will pass it off.

Hi, everyone, and thank you so much to the JPMorgan team for hosting us. 2025 was just a tremendous year for pediatric care. It was a tremendous year for GeneDx. We reported earlier this week that we delivered on more than 30% growth in terms of volume and revenue. We delivered on more than 70% gross margins. and delivered $427 million in revenue for the year, all while being a profitable and thriving company.

We also announced guidance and our outlook for 2026, which includes another year of really tremendous growth and service of an ever-growing group of patients and families who we aim to serve with great care and great purpose each and every day.

I first want to start with a story, just to really help you to appreciate the problem that we're solving. And this story is 1 of 3 hospitalizations, 2 surgeries and 1 test that changed the course of health care for this beautiful little girl named Leila.

Leila was born full term. She was seemingly healthy. And her parents noticed that something just wasn't quite right. They -- after seeing her continue to denigrate in terms of her health. They sent her to the hospital she was admitted into a NICU and unfortunately, she started going through a cascade of health crises. She had bowel obstruction, she had surgery, she had complications, she had another surgery, and she continued to get sicker over the course of months. Her parents faced what seemed like an impossible decision, do we continue to get care here? Or do we start all over at a new hospital.

Her condition did worsen. She was having trouble breathing. She had meningitis, and her parents took the really brave decision to go to a different hospital. They had been advocating for genetic testing and couldn't get access to it. So they found a hospital in Seattle, Seattle Children's, where we were doing a study with rapid whole genome sequencing in the NICU. And within days, we were able to deliver a diagnosis and bring clarity to the family, clarity to clinicians, and we are proud to say that we were able to get Leila on a healthier path.

Today, Leila is 4 years old, she's in preschool. She's a ballerina, and she's thriving. And that is the kind of outcome that we want to drive for every human who has a genetic disease. We'll talk a bit about the state of care today but Leila had the benefit of incredible parents who were advocating for her.

And I view it as our job at GeneDx to advocate for every single human on a path to getting healthier if they have an underlying genetic condition, and we can do that at scale. So ultimately, that's our goal. We want to empower everyone to be able to live the longest and healthiest life that they can through genomics.

We talk a lot about longevity, typically at my age, your age, we want to see the length of longevity from the very earliest moment of somebody's life to ensure that every single human on this planet has the ability to live a long and healthy life. We are the best of doing this in the entire industry. And we'll talk about why in greater detail, but it really comes down to 3 things.

One, we have the #1 genetic test that exists out there today. 80% of the most discerning clinicians. So 80% of geneticists who really deeply understand the field, choose GeneDx. We are the #1 brand in pediatric specialists, and we received FDA breakthrough device designation last year as, I think, a real nod to the fact that we have been and will continue to be the leader in this field.

What really sets us apart and what fuels that reputation is GeneDx Infinity, which is our underlying data assets, it's the largest and most diverse rare disease data asset, and it's informing every single patient.

So we'll talk about that in a bit. Importantly, we have the experience, the expertise and the technology. We're making new gene disease discoveries now on a weekly basis. And we're doing that with the guidance of more than 250 genetics experts who sit on our staff and who have been guiding the growth and accuracy and reputation of this company for 25 years since we were first spun out of the National Institute of Health.

So what you'll see here is really our growth trajectory. We are supercharging growth in order to help more and more families at scale. We were launched at the NIH 25 years ago, but you'll start to see a market shift in the utilization of our industry-leading technology, so whole exome and whole genome sequencing around 2021.

That's when we really established a true commercial effort based on guidelines based on reimbursement in order to fundamentally begin the shift of what we ultimately want to see as a radical change in how anyone is getting an accurate genetic diagnosis. What we're pleased to say is last year, the American Academy of Pediatrics updated their guidelines for the first time in over a decade. And they are now directing pediatricians who, as you all know, are the first line of defense for any parent to utilize our technology. And so we've been building out towards this moment to be able to ensure that we can provide the earliest possible diagnosis.

And these guidelines are probably the single most important guideline in our company's history but most importantly, the single most important guideline in pediatric genomic care that will create an entire sea change in terms of how we're diagnosing these diseases. As we look at 2026 and beyond, we'll be expanding into new markets, we'll touch on that. But I think what's really remarkable about what we've been able to do. We've added 30% more tests to our Infinity database in 2025, more than the prior 24 years combined.

So that's an immense amount of data that we continue to generate. It's genotypic and phenotypic data. So the acceleration of our adoption of testing is fundamentally shifting the way that we are administering health care today.

So I want to talk about a virtuous cycle of good here. We know that an accurate diagnosis as early as possible is the key to really changing the trajectory of anyone's health -- their outlook on their health care. In the center, you see what we do best day in and day out. GeneDx at our core is going to continue to provide the earliest possible diagnosis for as many families as possible. In testing more, we're finding that these -- the prevalence of these diseases is actually higher than what was ever believed to have existed.

So we're finding more patients, we're thus finding that there's greater interest and investors who want to start putting their capital behind rare disease therapeutics companies. And that, in turn, creates more options for patients once we diagnose them.

So as we continue to focus on what we do best which is diagnosing kids with genetic disease as early as possible. We're also able to enable precision medicine. So give them the diagnosis, connect them with the treatment that's going to ensure that they can have the healthiest possible life. And in doing all of that, we're also able to put our data asset to work for more and more pharmaceutical companies, biotech companies, researchers around the world in order to fuel drug discovery.

We want to help see a total shift in the way that rare disease therapeutics are discovered and developed, so they can be delivered more quickly to patients because we are just getting started in this journey of diagnosing not what is hundreds of thousands of people but millions of people.

So we are creating, in effect, a network effect of service to patients. And while GeneDx is in the center of this slide, I think I'd rather have you imagine that is the patient in the center of this slide.

The entire ecosystem needs to come together to work more efficiently to serve these patients. We're doing our part by diagnosing as early as possible, but we're doing it in great partnership with patient advocacy organizations. We work with policymakers to ensure that there are good policies at the state and federal level to open up access to testing. We do it with payers to ensure that more and more patients have access.

In fact, 80% of American lives are covered for our testing. We do it in partnership with health systems because we want to be able to drive utilization at scale and I'm sure that genomics is embedded broadly in these health systems. And then importantly, we want to work with biopharma, as I said, to really change the trajectory, to be able to provide as many solutions as possible for these patients.

We are currently embedded in the leading health systems today and in every children's hospital across the United States. And we're proud of that. We work in partnership with them. And we are just getting started in terms of their utilization of this testing. And so as we think about our future, we want to continue to serve these health systems, but also start to help serve health systems around the world.

And so we have global aspirations as we're thinking about the number of patients who we might be able to impact. So I've talked about GeneDx Infinity. It's the largest rare disease data set. We're very proud of what we've been able to build over the years. What Infinity is comprised of is incredibly complex to recreate, it's not impossible, but it will take many years, if not a decade or more, it will take billions of dollars to recreate this. And it is key to the reason that we provide a more accurate diagnosis than anyone in the rare disease space.

So about 1 million exomes and genomes are part of Infinity. We've run testing on more than 2.5 million patients, all enriched for rare disease. We have more than 8 million health records, more than 7 million phenotypic data points. So think about all the clinic notes that a clinician is gathering about the health of the child that gives us important context to be complementary to the genotypic information that we are looking at.

60% of the time, we're gathering information from mom and dad as well. And so it's incredibly robust. And something that we're incredibly proud of before there were state Medicaid programs that had offered coverage for these families, we were investing in those patient populations. So we actually have in the genomic space, one of the most diverse databases, that is highly representative of the U.S. population. So we're incredibly proud of what we've invested in over 25 years.

And what this means in terms of our technological advantage, we're delivering the most accurate diagnosis, 2x more so than the next database that exists. We have the most comprehensive understanding of rare disease and we have the greatest scale advantage. So we're able to upgrade or downgrade a variant of unknown significance faster than anyone else in the space, which in turn pays it forward to the next patient.

So for every sample coming in the door, we are in a virtuous cycle of product improvement, ensuring that we get more accurate with every single sample that we run. And that, of course, is accelerated with AI. We've been able to deploy technologies to help us ensure that our team of 250 experts are working in a more standardized way and also an even faster way and cost-effective way to be able to get an accurate diagnosis sooner.

So AI is a tremendous enabler for us. It is taking a look at that massive database and serving up the most likely variants that are causing this disease and also helping us underlying figure out exactly what new disease gene correlations may exist to be able to further the entire field.

So we have a large and ever-growing opportunity that is ours to continue to lead. Today, we have 80% market share, and we intend to continue to be the dominant player in this larger market that exists in the future.

We're focused today on pediatrics and rare, which we believe to be about a $25 billion market, but we aspire to do much more. We are moving into adults conditions this year, and we want to continue to drive utilization for earlier diagnosis in adults, both those that could have been diagnosed as a child and those who have adult onset conditions. And then we have further revenue opportunities and growth ahead made possible by an international expansion that we are starting this year, a biopharma and data business that is in its nascency.

And ultimately, all of this comes together to be able to ensure that we're not only providing an accurate diagnosis as early as possible but that everyone has the benefit of true precision medicine based on your genotype, what is the best possible care plan for you to help you live a healthier and longer life.

Now that's not the standard of care today. The standard of care today exists on this slide. It takes more than 5 years for a child to get an accurate diagnosis. So this is unconscionable. There is absolutely no reason why a child should have to go from having a symptom. So think about a child that age 2 having a symptom, a parent being deeply concerned and seeing disease progression over the course of 5 years. I turned 50 last year, plus or minus 5 years to me means a lot.

But to a child who's 2 years old, that means not getting a diagnosis until he or she is 7 years old, that is robbing that child of way too many years of life. That is 5 years of disease progression that is unnecessary, it's 5 years of the wrong tests on average 3 misdiagnoses, countless hospitalizations, trips to the ER.

Our health economics data is incredibly robust to talk about why earlier testing is better from a health economic standpoint. But today, this as the standard of care contributes to $1 trillion economic burden in the United States alone. And it does not have to be that way. We can provide answers within not months but within weeks and in the most needy-of cases, we can actually do a whole genome in 48 hours.

So we have the tools and the technology today. There's nothing we need to develop in order to put this in the hands of every family. We just need them to know to ask for it. They need to advocate it with their clinicians. We need to continue to raise awareness but this is a standard of care that is unacceptable in the United States. It's unacceptable in any other country. And I'm very proud that we have everything that we need to put an end of this diagnostic odyssey and really get to a place where we can start putting all of these kids and adults on a healthier journey much sooner.

So our north star is exactly that. We talk about a lot of different metrics in the company. We talk about volumes. We talk about revenues. We talk about average reimbursement rates. You talk about COGS, we talk about turnaround times. Those are all incredibly important for our ability to scale. But the 1 metric that keeps us absolutely focused on driving as many diagnoses as possible is how do we get the earliest possible diagnosis for as many families as possible.

So when we think about our business and our growth strategy, this is the message I deliver to our team every time we have a conversation. That is what drives the outperformance of this company. It is this relentless focus on making sure that we don't have families suffer unnecessarily. So our north star is very clear. It drives us. It's what drove the outperformance in 2025 and it is what will drive our outperformance, not just in '26 but in the years to follow as well.

So I want to take a few moments to talk about the markets that we've been in, and then we'll talk a bit about the markets that we're moving into. So if you think about the standard of care today, most children get diagnosed in the geneticist office. There's only about 2,000 geneticists. That's not scalable. There are very long wait times to get to see a geneticist. It can take 12 to 24 months to actually get an appointment. So that contributes to that 5-year diagnostic odyssey that just does not work.

We've been driving utilization to the earlier referral point. So think about pediatric neurologists, pediatric immunologists. So the types of specialists that a pediatrician might refer their patients into. So we've seen immense growth both in that core geneticist space, where they're starting to utilize more exomes and genomes than multi-gene panels and other technologies. So there's been a really healthy growth in that business.

We're seeing great growth in the specialist business as well, where we've seen about 30% of pediatric neurologists using our testing and in the teens in terms of the patients that we can impact in those offices. So we still have a very long runway to continue to grow in that core of our business.

And in fact, we've just added 25 more sales reps to our team of 50, so we now have 75 sales reps who are out there ensuring that we can continue to provide earlier diagnoses in these settings. So that will continue to be a really important focus for us as we think about our growth trajectory for the year.

We will be entering the pediatrician setting. So I'll talk about that momentarily as well as prenatal and adult. But the other setting that we've been in, that we've talked about quite a bit is in the NICU. The NICU setting is incredibly important, fewer than 5% of babies in the NICU get a genetic test yet we were able to show at Seattle Children's. When you test broadly, 60% of babies in the NICU would benefit from a genetic test.

So there's a really important opportunity for us to drive greater utilization there from it being a test that's used sparingly to a test that is used commonly in order to ensure that these families have answers. I talked about Leila's story. If she did not get diagnosed in the NICU she would have been sent into the health care system and on that 5-year diagnostic odyssey where she would have suffered more. So the NICU provides us with a really important opportunity as well.

But let me take a moment to focus on some of the new markets that we're going to be entering into that are going to provide growth in 2026 and 2027. I mentioned earlier, 1 of the most important opportunities for us came last June when the American Academy of Pediatrics published their guidelines that directed general pediatricians to use exome and genome sequencing for children where they think there may be global developmental delay.

At that time in June, we said it will take 18 to 24 months until we start to see real utilization that's based on our own experience with guidelines coming online. And that 18-month horizon is coming upon us in Q4. So we expect in Q4, we're going to start to see greater adoption with this general pediatrician setting. To give you an understanding of the scope. It's a massive market. There's 600,000 patients who are diagnosed with developmental delay, intellectual delay by about 25,000 pediatricians every year.

So what we've been doing in addition to hiring a team of sales reps, we've hired 50 who are being trained today. We've been -- we've begun the process of marketing of medical education. And importantly, of creating an easier workflow for these pediatricians to access testing. We started working with a group of early adopters in the fourth quarter where they gave us important insight and input to design what the ideal workflow would look like given the fact that they have about 15 to 18 minutes with every family.

So we have designed a workflow with pediatricians, for pediatricians that ensures that it is 1 minute ordering. So that ability is going to come on in the middle of this year. And so the combination of our sales reps deployed our marketing and medical education deployed and 1 minute ordering, we believe, is going to give us a tremendous uplift in terms of accessing these general pediatricians.

So we're really, really eager for this opportunity because ultimately, it means we're getting to these parents much sooner with clinically actionable information much sooner. This is the single most important opportunity for us to be able to radically change the standard of care, and to be able to really have a shot at eradicating that 5-year diagnostic odyssey.

We think that the fact that we are the #1 brand in pediatric specialists that 8 out of 10 geneticists relies on us rather than anyone else and FDA breakthrough designation, all will resonate with these pediatricians to ensure that we can continue to lead the way of how genomics can inform pediatric care in the general pediatrician setting.

We announced last week that we're moving into the prenatal setting. And this is a prenatal diagnostic genome. So this is different from carrier screening or NIPS. Those are screening tools. This is for late term pregnancies where they may suspect through a phenotypic analysis that there may be something wrong. And so this enables us to be in the MFM space and informing them as early as possible what a care plan could look like.

And so this is an important opportunity for us to continue to drive a new standard of care using our genome. We've had an exome actually on the market. We've been passively selling it, and we've seen organic growth, it provides us with importantly, a great gross margin. So we want to continue to drive utilization for this from a strategic standpoint as well.

Adult specialists are also a new market that we're going to be entering this year. And I think there's a few ways that we want to think about this adult setting. One, if you think about the fact that there has been a woeful underutilization of genomics and pediatrics, that means adults who should have been diagnosed as kids need a diagnosis. And we are diagnosing these adults today with epilepsy with autism. And in fact, in finding a diagnosis for them, we're able to get them into a clinical trial. So this is an important opportunity for us. As I like to say, we're kind of cleaning up the health care system because of the underutilization of all of our testing.

And so as we think about what comes after that, we do want to move into adult cardiology neurodegenerative disease. So think about Parkinson's disease, Alzheimer's disease, FTD, there are so many different conditions that we can do good for by utilizing our testing. And so that will be a future-unlock for us beyond 2026. But in 2026, we're going to focus on these patients that might have epilepsy or autism.

So I want to take a bit about -- to talk about how we intend to enable precision medicine to scale. And part of this includes having a global footprint. We acquired Fabric Genomics last year, which allows us to be able to take our interpretation platform, pour-in Infinity, our database, and then wherever there is a sequencer being bought anywhere in the world, we can put that interpretation platform and that centralized intelligence on top of it to be able to help patients back from where we are here in the U.S.

And so we're going to continue to drive scale. We're going to continue to harness more and more patients and more diverse patients from around the world to continue to infuse Infinity, influence the way that these conditions are diagnosed, and ultimately get to a place where we are screening every baby at birth.

We have done the largest newborn screening studies in the United States. We're very proud of the GUARDIAN study. In fact, I met a few investors today in meetings where they have had babies who are in the GUARDIAN study which is just such a wonderful thing to see come full circle.

What we've been able to see through GUARDIAN, which was done in New York, one, 70% of parents enrolled in it. So that tells us that there's demand for genomic newborn screening. Second, we're only screening for clinically actionable conditions. I think part of that is the reason why the program has been so successful. What we were able to find is that there is a clinically actionable diagnosable disease in 3.2% of these babies that otherwise would not have gotten this testing. So we went back to say, what was the average age of diagnosis for these diseases? And in our history, the average age was 7 to 11 years. So we're now able to eradicate an unnecessary decade of these kids getting sicker and for their being increased cost to the health care system.

So our evidence to support this is impressive. Our experience having done more than 22,000 is informing other states and other brands. So we're now actually seeing an NIH grant called the BEACONS grant and study, which is a multistate study looking at genomic newborn screening. And we saw in the state of Florida, where there's the most progressive child health genomics policy, the Sunshine Genetics Act, which is going to be the first time that we see it move from research into the clinic. We're really proud of the work that representative Anderson has done down in Florida to make this a reality for families. And we are able to do this at greater scale than anyone.

So this is our future of where we want to get to. Genomic newborn screening for everyone at birth. And then as soon as we can diagnose the disease, we want to be able to connect you with a treatment that's going to ensure that you can live a long and healthy life.

We're also pioneering new channels and partnerships. So in cases where a parent may be going online, we know they're going into ChatGPT, they're uploading their child symptoms. They are being amazing advocates for their child and trying to get answers as soon as possible. We want to meet them there. And so we have telehealth partners that are going to help ensure that they can get a test as soon as possible and therefore, get a diagnosis as possible.

All of this is utilizing a network of clinicians, we also are going to be driving them into the pediatricians office and asking for testing. So we want to make sure that wherever a parent is, whether it's a pediatricians clinic or online, we are there. And so we'll continue to ramp up partnerships and marketing and awareness to drive early as possible diagnoses for as many families as possible.

So we also want to unlock the biopharma opportunity. So when we talk about precision medicine, that includes having those very clear next steps and a care plan. And there's so much good work that's happening in biopharma. We want to make sure that we have the ability to impact that. So we talked about the most comprehensive longitudinal data set for rare disease ever assembled.

We want to take all of this data and be able to put it to work ultimately for patients, but through biopharma companies and researchers to help inform the way that they are developing investigational therapies gene editing, gene therapies. We want to make sure that our data can go to work with them ultimately for all of these families.

So we are assembling a broader data strategy that is a patient-centric data strategy that ultimately helps fuel our core business. There more options you have the more likely a clinician is going to be -- to utilize our testing.

So it goes back to that virtuous cycle for good ultimately for patients, for saving the health care system valuable dollars and ultimately for the mission that we're trying to achieve. I shared some of our wonderful collaborators here our biopharma companies who work with us with great urgency on behalf of their patients. It's always, I would say, a very hopeful moment when we sit down with 1 of these companies. We pull up our database, and they may be looking for a few hundred patients, and we have 2,200 patients that we can recontact that just happened yesterday and a meeting that we were in, it's incredibly hopeful because it means that we have all of the tools and technology in order to really start accelerating not only diagnoses but the precision medicine for these patients.

So we've built a high-growth business that is purpose-driven and profitable. And I want to emphasize the importance of being patient-centric and also being a profitable company. I think the diagnostics companies are entering this new phase of profitability, being patient-centric and being profitable should go hand in hand. Being profitable means we can keep investing to help more patients and just keep an eye on doing it in a profitable way in order to ensure that we can return value to our shareholders to whom we're incredibly grateful. The support that you all give us enables us to create a radically different world for these children today and children in the future.

A quick note, I mentioned our Q4 ending with $427 million in revenue, 71% gross margins and more than 30% growth in our volume. And as we look at 2026, we're guiding to $540 million to $555 million in revenue. We're looking at growth in revenue and volume of 33% to 35%, adjusted gross margins of at least 70% and doing this all while being profitable. So we're very proud of the business that we've built. We're very proud of the impact that we're having on patients.

We want to see a future where we are no longer waiting for anyone to get not just sick but sicker over years. We want to get to a place where we are predicting where we are preventive and where we can ultimately cure disease. We're starting to see it in the tiniest of humans today, whether it's at CHOP or Across the Pond in the U.K. There are so many wonderful moments right now that are happening that should give us hope for how we might be able to work differently within this ecosystem, but it all starts with an accurate diagnosis, and that's what we do best.

So thank you. And with that, I think we'll open it up for Q&A.

Thank you, Katherine. You and your team should be extremely proud, amazing work. So I'm going to kick off Q&A with a couple of questions. And if time allows, we'll open it to the floor. Again, being joined, Katherine is sitting next to Chief Financial Officer, Kevin Feeley, and Chief Operating Officer, Bryan Dechairo.

So first question for the team. As you look to the future, what opportunities are most exciting as you continue to offer earlier genetic diagnosis for more patients and families?

I'll go first. I get very excited about genomic newborn screening. That being said, we have to figure out who's going to pay for it. And so that's an area that we need to focus on. I talked about the 7 to 11 years of unnecessary disease progression, it's a no-brainer that, that will be -- from a health economic standpoint, that will be a slam dunk but we have to generate the data, and we need to work with policymakers to ensure it can get paid.

That enters that we don't have these kids going through the diagnostic odyssey. That being said, we have, as I said, hundreds of thousands, if not millions of patients that we can help today who are sick. So the AAP, the pediatric, the pediatrician opportunity to me is one of the most important contributions that we can make in pediatric.

.

Yes, more so in 2027 and beyond. But we are beginning to set the foundation for international expansion, as Katherine mentioned, we acquired an asset earlier this year that would enable decentralized testing. So allowing others to sequence locally in their own jurisdiction, whether for privacy or regulatory or for job creation purposes, sequence on soil.

Invariably, what other nations are going to find is a lack of expertise to analyze and interpret the genome at population scale is what we do best at GeneDx and so allowing us to export our differentiated capability, which is the knowledge base in that GDx Infinity data set.

I think a really important and exciting part of our future is finding a way to export that so that we can bring the promise of genomics to large-scale population centers.

I would say in the near term, I'm most excited about empowering the parents. I'm a parent of a 1-year-old and a 4-year-old and being able to reach them where they are, giving them the tools to actually activate their pediatrician give that pediatrician, the knowledge to know what to order, to have to know what to do, what's the results come in and to be comfortable with that. So the pediatrician can be the hero for that family again. That's what we're going to do this year. I think it's going to be amazing.

Yes. Wonderful, very exciting things ahead. Next question is you spoke about GeneDx Infinity as your competitive advantage as your data moat. How durable is that advantage? And how do you differentiate the scale that the data set as time goes on?

It's interesting. You guys saw the 2x number on there. And a lot of people don't understand that, but 25 years in business with the fact that we grew that database by 30% this year alone over all the previous 24 years. What it means to a parent is the fact that there are thousands and thousands of children in there with 1 hit that we've seen 1 time, and they're just waiting for that second child to replicate that finding.

So if you have a kid and you want to replicate that finding, we have 2x more of those findings in our database than anywhere in the public domain or anywhere else. And so if you want to get a definite diagnosis for your child, you need to go where that data is so that you can replicate not only the new child gets the diagnosis, but that child last year or the year before, will now have a definitive diagnosis as well. And now they both get treatment. And so the only place to get that is at GeneDx.

Yes. All right. Final question as we're coming up on time. You've mentioned ongoing investments in the sales force technology, customer experience. How do you balance these investments with your commitment to profitability?

Yes. And entering a massive investment cycle to, yes, more than double the size of the commercial team, all while building a customer experience for the general pediatrician continuing to invest in innovation. I think it is our intention to take available gross profit dollars as they grow, invest it back in the business, all while staying profitable. I think we have the ability to do that with sharp measurement, ROI analysis, all ensuring that every dollar we spend honors our shareholder capital provided to us with a time horizon for a payback in a relatively reasonable period of time.

We're balancing both long-term investments and short term, opening up new markets but believe that we've got the team that has the experience to make those investments in a smart way that honors and -- are good stewards of capital.

Yes, I would add to that. This is an incredibly mission-based company. Everyone who joins GeneDx has some sort of personal connection, and that makes a really special culture. But this management team over the past several years has taught this entire team, the financial acumen, how to be disciplined, how to make sure that we are making the right investments.

We have a rigorous approach to making sure that we are monitoring all of our investments and that we're seeing what's working, what's not working and figuring out how to course correct along the way. So we're really proud as a management team that we have arrived at a place where it is a muscle for us as a company of 1,400 people.

Every single 1 of us wants to make sure that they are good stewards of the capital in service of patients but in service of our shareholders, and we hold both of those constituents very near and dear and at equal weight. So again, we're grateful for the continued support of our shareholders who I know really feel proud of the work and the impact that we're having on the world.

Absolutely. Thank you all for coming. That's -- we're at time. Thank you to the GeneDx team.

Good day, and thank you for standing by. Welcome to the GeneDx Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded.

I would now like to turn the conference over to Sabrina Dunbar, Investor Relations. Please go ahead.

Thank you, operator, and thank you to everyone for joining us today. On the call, we have Katherine Stueland, President and Chief Executive Officer; Brian Vero, Chief Operations Officer; and Kevin Feeley, Chief Financial Officer. Earlier today, GeneDx released financial results for the third quarter ended September 30, 2025.

Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, updated 2025 guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, October 28, and we are under no obligation to update.

When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results. Please refer to our third quarter 2025 earnings release and slides available at ir.genedx.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.

And with that, I'll turn the call over to Katherine.

Thank you, Sabrina, and good morning, everyone. The third quarter was another exceptional quarter for GeneDx. We continue to drive record growth while maintaining our commitment to profitability. For us, better patient care and profitability go hand-in-hand because our ambition is truly transformative to fundamentally alter how precision health care is delivered, making it more accessible, effective and patient-centric.

We envision a world where any genetic disorder is diagnosed quickly to prevent disease progression and ensure everyone has a chance to live a long and healthy life. Achieving that vision requires a fast-growing, disciplined, profitable business that delivers both life-changing answers for patients and long-term value for shareholders. Based on our momentum exiting this quarter, we're raising our 2025 revenue guidance to $425 million to $428 -- our North Star, the goal that drives each and every one of us at GeneDx is to diagnose disease earlier for as many families as possible.

Our strategy to do so is to: one, drive high profitable growth; two, offer the best-in-class diagnostics products and experience for clinicians and patients globally; and three, build the network effect required to usher in the next era of precision medicine. Across all 3 focus areas, we are leveraging the power of GeneDx Infinity, the largest rare disease data set to generate deep genomic insights that enable fast and reliable diagnoses and fuel the precision medicine revolution.

Just last week, the FDA granted breakthrough device designation to our ExomeDx and GenomeDx tests, offering powerful validation that our industry-leading technology is the gold standard in transforming lives and shaping the future of health. There are over 10,000 rare diseases impacting 1 in 10 Americans, most of them children, and it still takes an average of 5 years to reach an accurate diagnosis. Receiving an accurate genetic diagnosis is a pivotal milestone in a patient's journey that is often not the end.

Today, 95% of rare diseases have no approved treatment. But as the largest provider of rare disease diagnosis in the world, GeneDx will be central in changing that. As we look to our future, GeneDx isn't just the starting point for rare disease. We're the nexus, connecting patients, biopharma, health systems, payers, policymakers and advocacy to unlock the full potential of genomic medicine.

We recently announced 2 key executive hires, Lisa Gauri as Chief Business Officer; and Dr. Mimi Lee as Chief Precision Medicine Officer, to unite our data diagnostics and partnerships so that clinical adoption, equitable access and therapeutic advancements reinforce one another, creating a network effect.

We are uniquely positioned to move our system from sick care to health care and strengthened by the network effect, we will deliver on the promise of precision medicine for all. What fuels our business is growth in diagnostic testing at scale, and our strategy is twofold.

We're deepening our penetration while widening the market, enabling us to serve more patients today while opening access for patients tomorrow. Our existing markets of geneticists and pediatric neurologists continue to deliver impressive growth, and we have ample room to run. And with updated guidance from the American Academy of Pediatrics now in place, we can now shorten that multiyear diagnostic odyssey by meeting parents where they go first, their pediatricians.

Our commercial build-out is underway, and we expect to nearly double our sales force over the coming quarters with a dedicated GeneDx team. We're also leading medical education on updated guidance, expanding GeneDx's authority as the leader in genomics to this new cohort of clinicians, many of whom are learning about these changes for the first time from us.

We're also investing in customer experience to drive utilization. The opportunity is significant, and we expect it will take 18 to 24 months from the June update before we see real adoption.

Turning to the inpatient setting. The NICU remains underpenetrated and continues to be a focus with less than 5% of NICU patients receiving any genetic testing today. We have 8 Epic Aura integrations live and are on track to deliver at least 12 by the end of the year.

Our ultra rapid genome continues to prove its value for critically ill infants. And as protocols evolve and whole system engagement increases, we're well positioned to significantly scale testing in Level 3 and Level 4 NICUs over time.

Our work to date has shown the value of testing symptomatic patients, but we know the next step forward is to enable proactive personalized care beginning at the earliest moment possible. Our leadership in genomic newborn screening from supporting pioneering research to enabling clinical adoption in Florida reflects our mission to drive true longevity and highlights our unique ability to expand access to this technology at scale.

Our work on the GUARDIAN study generated foundational clinical data to support adoption, demonstrating an over 3% true positive rate for actionable conditions at birth. This quarter, we announced our role in 2 new pivotal initiatives, the NIH with Beacon program and the Sunshine Genetics Network. These programs are relying on GeneDx as a trusted adviser in newborn screening because we have the unique talent and experience to design programs that are clinically impactful, equitable and scalable.

Broad adoption of newborn screening will flip the system from reactive to proactive, advancing our mission and accelerating impact as population scale. At the same time, exome and genome testing can have significant utility later in life. Adult conditions represent another large untapped market where GeneDx is uniquely positioned to offer diagnosis for cardiovascular conditions, neurodegenerative diseases and many others. And as we grow our footprint domestically, we're also poised to address growing opportunities internationally.

The Fabric genomics platform offers us flexibility to serve global markets at scale, and we're excited to have boots on the ground in key ex-U.S. regions to develop these markets. We're proud to have built a business that delivers both purpose and profit to fuel reinvestment and the strength of our model today is laying the foundation for an exciting future.

With that, I'll pass it over to Kevin to share more about our results.

Good morning, everyone, and thanks for joining us today. We reported third quarter 2025 revenues of $116.7 million, a 52% increase year-over-year. That total includes $98.9 million in revenue from exome and genome, up 66% from the same quarter last year.

In the third quarter, we reported 25,702 exome and genome tests. Growth there has accelerated from 24% year-over-year in the first quarter to 29% in the second quarter to now 33% in the third quarter. We expect volume growth on these tests to continue to accelerate in Q4 and offer high growth for the foreseeable future. For those new to our story, the business began by serving expert clinical geneticist 25 years ago, and now 8 out of 10 in the U.S. ordered their testing from GeneDx. I mentioned that because it's been just over 2 years since we began calling on pediatric neurologists and already 1/3 of those physicians order from us. Over the next few years, we expect to pull volume from many more call points, the largest of which is the general pediatrician.

Near-term growth should continue to be fueled by increased ordering patterns from existing accounts as they continue to convert from panels and activating more untapped pediatric neurologists. We'll also open up and penetrate additional pediatric and adult specialty call points and begin international market development. The NICU remains a compelling market for us, expected to ramp over the next several quarters and years. Of course, all of that is supplemented by the long-term potential to establish a commercial newborn screening market and by our ability to put Cenex Infinity work for biopharma and other health care partners in a way that contributes meaningfully to our revenue base.

The average reimbursement rate for exome and genome was over $3,500 a test in the third quarter. That's up from approximately $3,700 last quarter and $3,100 a year ago. With a talented team in place, our cross-functional revenue cycle efforts are positively influencing Medicaid coverage expansion and fighting for fair adjudication. And there's one big recent development to share in that regard. On November 1, the largest state Medicaid program, Medi-Cal, will begin covering whole genome testing for their members in California. We applaud their decision to become what is now the 36th state to cover exome and genome outpatient.

As I mentioned on our last call, when we begin to sell into new call points and for new indications, we inherently expect lower initial payment rates compared to our established channels like Neuro and Genetics. With this strategy to expand into new markets, some new volume may start out at lower collection rates, which in turn may have a modest impact on our average reimbursement rate in the coming quarters.

That said, any impact should be transitory. And to be clear, unit economics matter to us. Lessons from this industry's past are always top of mind when contemplating pricing and go-to-market strategies. Our view that rates will be durable and enable both high growth and attractive gross margins well into the future remains intact.

Turning to gross margin. We expanded total company adjusted gross margin of 74%, driven by favorable mix shift, improved reimbursement and lower COGS. Bryan's team continues to innovate, and they have an impressive road map to further reduce COGS by leveraging automation and AI to optimize production. GeneDx has achieved an important economy of scale advantage, and we expect to hold on to that advantage well into the future.

Adjusted total operating expenses were $71 million. That is up sequentially in terms of aggregate dollars, representing some variable costs growing with the revenue base, but primarily early investments we expect will drive volume growth mid-2026 and beyond. Total OpEx was 61% of revenue this quarter, and that's a number I'm quite comfortable with at this point.

I want to underscore the spend here is deliberate, representing strategic investments into accelerating our long-term growth vectors. Specifically, we've begun to build the first phase of the dedicated GenP sales team. We've added the first few sales heads in new specialty markets and key international markets. We're executing against our first ever brand campaign. We've ramped product and technology talent to design and build our next-gen customer experience for nonexperts and R&D includes innovation to our genomics program and support for clinical and health economic research as just some examples. The expense ramp reflects continued confidence in the ROI. They're all designed to drive volume in the future.

That growth, in turn, accelerates a flywheel effect, whereby our Infinity data set expands, our competitive moat strengthens, we attract new customers and economies of scale continue to improve. While these investments impact near-term operating margin, every dollar is meant to build high-quality, durable future revenues.

Expect sequential growth in our operating expense for the next several quarters, but all within a framework designed to achieve industry-leading growth rates while maintaining attractive gross margins. We have demonstrated the ability to drive operating leverage and EPS accretion. With strong demand in an ever-expanding serviceable market, we'll be reinvesting back into the business to capture an exponentially larger future and build long-term value creation. The team here has the experience to understand our responsibility to be good stewards of investor capital.

On the bottom line, we generated $14.7 million in adjusted net income and $0.51 of adjusted basic EPS in the third quarter of 2025. And we're well capitalized with cash, cash equivalents, marketable securities and restricted cash totaling $156 million as of September 30, 2025.

Cash flow for the third quarter included $9 million in free cash flow generated and $12 million in ATM proceeds net of fees from the issuance of 101,367 shares of common stock.

Now an update on guidance before turning over to Bryan. We're raising top line total revenue guidance to between $425 million and $428 million for full year 2025. Just as a reminder, in the third quarter, we discontinued our hereditary cancer offerings. That business generated $1.2 million in this third quarter of 2025 and $3.3 million in the same quarter last year. It will be near 0 in the fourth quarter of this year.

We're raising exome and genome revenue guidance to deliver between 53% and 55% growth for full year 2025, which is exome and genome revenues of $358 million to $361 million. As a reminder, when looking at the prior year comp, the fourth quarter of 2024 included a discrete benefit of $6.8 million we called out on our fourth quarter 2024 call. $5.8 million of that benefit was exome and genome. Excluding that, the full year growth rate is 57% to 60%.

We again reaffirm our expectation to deliver at least 30% exome and genome volume growth for full year 2025. As had always been expected, volume growth has accelerated throughout the year, and the guide implies a fourth quarter exit of at least 34%. We're raising expectation for full year 2025 adjusted gross margin to between 70% and 71%. And we once again reaffirm our expectation to remain profitable.

I'll now hand it over to Bryan, our Chief Operating Officer.

Thanks, Kevin. Good morning, everyone. When children need medical care, parents like myself want an accurate diagnosis as soon as possible. That's what we do every single day at GeneDx, and we do it better than any other lab in the world because of GeneDx Infinity, the leading rare disease data set, made up of more than 2.5 million rare genetic tests, including nearly 1 million exomes and genomes and over 7 million phenotypic data points.

Infinity contains an unparalleled vast and structured reservoir of potential gene variants that cause rare condition. We reported over 25,000 cases this quarter and nearly 2/3 of those were parent-child Trios capturing mom and dad as comparator samples. That means this quarter alone, we actually sequenced more than 55,000 individuals. The scale of the data is fundamental. It takes at least 2 children with the same gene variation to validate a diagnosis for both kids and the greatest chance of finding another child with fewer child variant is within GeneDx Infinity.

Every patient enriches Infinity's data density, creating the flywheel effect and rapidly making it more difficult for competitors to catch up to our quality, speed and accuracy across diverse populations. As we're accelerating, this year alone, we are projected to add 30% more rare disease exomes and genomes into Infinity than in the previous 24 years combined.

Tapping into Infinity is our brilliant team of more than 100 MDs and PhDs and 150 genetic counselors who transform Infinity into clear trusted answers that clinicians can act on with confidence. We are also applying AI tools like our ML-powered GeneRanker Multiscore on top of GeneDx Infinity to harness the power of our data, scale our platform and increase speed and turnaround time. We already deliver answers in as soon as 48 hours in critical care settings like the NICU. But by expanding AI across our system, there's potential to turn our ultrarapid turnaround time into standard of care in every setting. Infinity, our team and our technology have helped us build a best-in-class genome, and we continue to raise the bar. We are constantly enriching our product with new genomic technologies, including medium and long-read sequencing and adding multimodal analysis beyond DNA.

Partners come to GeneDx looking to validate emerging technologies and pioneer modalities that will forever change how we diagnose disease, thus creating a virtuous cycle of innovation that not only future-proofs our product leadership, but enhances our ability to serve more patients with speed, accuracy and scale over time. As showcased in the science we delivered at the ASHG conference, these programs generate data that compounds upon our massive library of more than 1,000 peer-reviewed publications, further exemplifying GeneDx position at the forefront of genomic innovation.

In parallel, we are radically simplifying genomics to enable broad adoption in everyday medicine. GeneDx is the #1 genetic testing brand amongst pediatric providers, and we are evolving our customer experience to extend that lead. On average, general pediatricians have only 10 minutes with the patient. So we need to meet them where they are with 1 minute ordering and best-in-class customer experience.

Catalyzed by the American Academy of Pediatrics clinical report in June, we are simplifying ordering and result interpretation for clinicians while enriching the patient and family experience. We are already still testing many of these customer experience innovations and are positioned for broader rollout in 2026 and beyond. With that, I'll hand it back to Katherine.

Thank you so much, Bryan. We talk about being a fast growth business and volumes because each one of those samples represents a family that is desperate for an accurate diagnosis. So we act with urgency and purpose because those patients and families are counting on us.

There are incredible opportunities ahead as we continue the broader paradigm shift already underway across health care, supported by GeneDx Infinity, and strengthened by our network of partners. GeneDx is leading the shift to proactive personalized care that begins at first, unlocking earlier diagnoses, faster breakthroughs and healthier lives for all, and we're very proud of the work we do each and every day. So thank you.

With that, I'd love to open up the line for your questions.

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

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

Absolutely. Thanks, Subbu. As I mentioned in the script, most pediatricians are hearing about the guidelines update for the first time from us. So whether it is at AAP or as we're starting to engage with pediatricians on education, they're hearing about it from us.

So I think that underscores the massive need for education and why it reaffirms our view that it will take 18 to 24 months beyond education, it's also going to require workflow. So I would say what we saw in the quarter was the vast majority of growth coming from our core, which is great. And no meaningful uptake in terms of orders from pediatricians from CMA and no notable changes on CMA or orders from general peds. But really good engagement.

I would say the research that we've done with pediatricians is affirming how important our opportunity is. And it's not if they're going to order an exome or a genome, it's how they're going to order it. And is it going to be through an improved ordering process that we're building that Bryan talked about. So one minute ordering, we think, is an awesome improvement for us as we think about 2026.

Doctors are consumers, too. And so they're used to fast efficient ordering. And Epic Aura is also going to be a great way. So I would say that the feedback that we're getting from the engagement that we're having with pediatricians is really positive about the fact that they are going to order testing and want to order it from us. I think the FDA designation only further reinforces why they should order from us. Infinity is another reason why they're going to order from us in terms of accuracy. So it's not -- if they're going to order, it's how, and we feel really confident it will be from GeneDx.

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

Yes. And by the way, in case I misspoke in my prepared remarks, the third quarter average reimbursement rate was over $3,800 and so representative of a lot of strength in the third quarter and continually reducing denials. So really pleased with that third quarter result over $3,800. Yes, the guide would imply that potentially the rate could bounce around some in the magnitude of about $100 down in the fourth quarter. That's really just part of that inherent expectation as we continue to open up new call points, target indication expansion there may be some experience on the outset where rates are artificially lower to start, and we have to build up some experience and show that demand to payers. And so the guide builds in some conservatism in that regard just to level set.

And then in terms of true-ups throughout the year, the third quarter, nothing to call out, very minimal impact in terms of out-of-period adjustments in the third quarter. So that rate of over $3,800 is representative of what we think the third quarter activity will produce. And historically, we've averaged a couple of million dollars of those true-ups each quarter, but nothing that I would call out as extraordinary or onetime.

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

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

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

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

Yes, I'll start, and then we'll pass it over to Kevin. So the NICU, as I said, remains a really important opportunity. It is shocking to people when you say fewer than 5% of babies in the NICU get a genetic test. We have the clinical data. We've got the health economic data. We have the calculator that can convince the CFO that this is going to be good for their business. Hospitals are running businesses as well. And we have Epic Aura.

We're continuing to see growth in that sector. And in fact, that it's a fast-growing part of our business. We're seeing meaningful growth in terms of same-store sales on the NICU side of things. So we definitely see it as an important contributor to our overall goal of getting an earlier possible diagnosis.

And what we're also learning is that some clinicians like our portal. And so we're on track to continue to drive Epic Aura. We'll have at least 12 systems activated by the end of this year. We're seeing kind of the full test menu being ordered, which is fantastic. So we think Epic Aura continues to be a meaningful unlock for new clinicians who are working with us. And so we're going to continue to drive utilization of Epic Aura at the health system level in order to impact both outpatient and inpatient.

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

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

The strength really driven by those core outpatient markets, continued nice step-up from even that innermost core of Expert Geneticist. So we are seeing strong signals of the continued evolution of those docs putting down single-gene tests and multi-gene panels in place of exome and genome, and we'd expect that to continue for several more quarters or years to come. So in terms of same-store sales rates at Expert Geneticist continue to see nice uptake there. And then Pedneuros good account activation. We're now at a point where just over 1/3 of all Ped neuros are ordering their exome and genome from us. Not all of those are mature yet in their ramp cycle. And so good growth to come from docs we've already activated. But I think what's more exciting to us in the coming quarters is just the green space to activate more docs there.

The messaging we have for how we can serve that cohort, in particular, is really resonating. And so the next couple of quarters, we'll continue to see growth rates pretty similar to what we just produced from Pet Neuro and Geneticist. And of course, what we remain most excited about is activating even more call points in the coming quarters.

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

Yes. We've begun to build out the commercial team that, of course, includes building a dedicated general pediatrician sales team. I think we remain anchored on that initial expectation we set of about 18 to 24 months from the time those AAP guidelines dropped in June to when we would see sort of escape velocity on incoming volume.

That said, we're engaging with the pediatrician community as we speak. We attended their conference in September. And all of that has validated our thesis that the market will be real and that there will be demand out there, but we've got to build some of the tools and medical education. And so we'll, of course, be carrying some incremental commercial costs as we go through that education period. And so that's part of the step-up there.

And if we look at overall R&D spend, we continue to rev our genomic assays and technology to keep the best-in-class product in the field and build out that customer experience for nonexperts because we continue to see strong ROI opportunities and pulling through volume from even more physician types out there. So the level of step-up from Q2 to Q3, you might expect something similar into the fourth quarter from Q3 to Q4, but all within an eye towards keeping the business profitable. We maintain our commitment to keep the business in the black there so that we can continue to reinvest back into achieving industry-leading growth rates.

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

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

Sure. So we have started hiring our regional sales directors. So the leaders who are coming in and who are starting to form their teams. Frankly, there's just really good talent available to us on the market right now, and we wanted to make sure that we're hiring the best of the best. And I'm thrilled to see the talent that's coming in at the RSD level. So we expect that we're going to be -- as the regional sales directors get assembled, we want to make sure that they are discerning and recruiting the best. So I expect over the next several quarters, we'll get them up to in their seats and activated.

And then, of course, it requires training and ensuring that they have their merchant orders in the field. So we've said about double the size of the sales force today. And so we'll be opportunistic and continue to hire over the next several quarters. Our goal is to accelerate that adoption framework. We said 18 to 24 months. We still think that, that's accurate. But of course, we're going to push to see if we can pull that in as much as we can and all centers around that North Star of earliest possible diagnosis for as many families as possible. So we're hiring.

I think looking at 2 years from now, could we grow beyond that? Possibly, but we first need to see. I'd like to get this team assembled. I'd like to have them activated. We want to get the features up and running in terms of the workflow. We know it's going to require more education, more medical affairs education. So we have a lot of work to do. So I wouldn't want to commit to building the team beyond what we've built or beyond what we're hiring for today because I think that's a really healthy investment in forward leaning growth. So hopefully, that gives you a sense of how we're thinking about it.

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

Yes. So thank you for recognizing that we have been central to all of these studies. And these have all been competitive processes. And we have put our best foot forward with each of them. I think the reason why we continue to be selected is because we've done more of this than anyone in the United States. And now with Fabric, it certainly extends our opportunity to be able to do it in a standardized way regardless of if a baby is born in Los Angeles or London. Every child deserves results that are coming from the same data set, which is Infinity.

So we think that we've got a massive opportunity to be able to really lead this new era of genomic medicine. Just to give you a little bit of color on each of these programs. So obviously, with GUARDIAN, it established, I think, a responsible ethical foundation for why you can do newborn screening in a way that is going to be something that parents have demand for, 70% of parents enrolled and to be able to deliver clinically actionable information, more than 3% of babies had a clinically actionable finding.

With BEACONS, which is an NIH grant, that is looking at a federal approach to how do we operationalize it. And so we're going to be gaining more and more information on how to do this in a more standardized way across multiple states. So there's inherent goodness, I think, in that. And then, of course, Sunshine really takes it out of a research setting and into the clinic. So each one of those has an important -- is playing an important role in how we get to a place where we can drive clinical samples and start getting paid for them, which is ultimately what we want to accelerate.

I would say the one piece that we have yet to deliver on, but that we are working on with the various groups that are overseeing the steering committees of these programs is the health economics. We think that's going to be a critically important part of how we can actually start getting paid for it.

But as we talk to state Medicaid, we're talking about outpatient health economics. We're talking about inpatient health economics, and we're talking about newborn screening and why they need to start paying attention to it. So I think Florida gives us the first opportunity to say that there is a state that has a progressive approach to genomics and child health.

And we want to continue to drive kind of the competition across these other states in order to start getting paid for it. We don't anticipate that, that's going to be a '26 driver in terms of revenue. But we'd like to see how we can continue to accelerate some of these policies to get paid as soon as possible.

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

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

Sure. I'll kick it off and then I'll over to Bryan, who's been leading the charge here. So part of the rationale as we think about the future market, I think a couple of things. One, your point about, yes, clinicians do respond to FDA and FDA-approved, FDA authorized and see it as a sign of validation.

And pediatricians who are really busy looking at everything under the sun, we know that they also respond to FDA approved FDA authorized. So we think that there's a really important message to be delivered to accelerate that market. I think part of what's interesting, and this is different than in the oncology space. And as we think about the importance of FDA, in rare diseases, we're trying to open up access and open up more diagnoses, not limit them. So we don't see a real restriction coming through this designation. But I'll let Bryan comment some more on what the next steps are and how the path will look moving forward.

Thanks, Katherine. Mark, -- so the breakthrough designation is really important because what it actually shows us signals is that our test is unique. The power of our Infinity database is also unique. And it shows that what we're doing today is actually helping critical patients to make decisions that there's nothing else out there to help them with today. And that's what breakthrough designation says from the FDA's recognition.

It also is letting us know that FDA is working side-by-side with us in an accelerated regulatory framework to get this critical technology through the agency and to as many people around the U.S. and globally because FDA is also recognized by many markets around the U.S. as we expand ex-U.S. as well.

But the nice thing I would also say is not only expedited regulatory review. We are also working by the fact that we've been around for 25 years. Our process, our test is not changing. And what we're doing is we're working with FDA to understand our legacy data and all the power of our database and how it informs the accuracy that we've already been bringing to patients. It's not a new test. It's a test that we've done for many years that we lead in that place.

And so I wouldn't look at this at all as limiting access or limiting reimbursement or limiting the actual diseases that we're answering today. It will just be a partnership to accelerate the regulatory review and give that stamp of FDA approval that pediatricians look for in their medications, and they look for that in their diagnostic test as well.

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

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

Yes. In many ways, it's like choosing between your children. They're all really important to create a bit of the virtuous cycle to make us more attractive and more sticky with more and more physician types out there. And so the commercial expansion should be viewed as our confidence in the long-term market well beyond the existing physician types that we have today.

We have about 3 call points today, at least primarily, neuro, geneticist and then the NICU. You can see that expanding well beyond a dozen towards 20 over time as you slice different physician types. The largest is the general pediatrician, the 60,000 pediatricians in the U.S. There's about 25,000 of those who are ordering diagnostic tests for developmental intellectual delay, which is covered by the umbrella of those AAP guidelines. And so that's a lot of doors to knock on, and we intend to do so, bringing the best available experience to those nonexperts.

As Bryan talked about, those are really busy physicians without a lot of face time. And so it's important that we build the experience, both on the front end to honor their time, but also on the back end to make them feel comfort in providing what oftentimes is devastating diagnosis to families. And so GeneDx is one of the largest employers of geneticists and genetic counselors in the country, if not the world. And so part of the long-term road map is to force multiply those resources with technology so that nonexperts are comfortable in providing care to patients in the back end of a diagnostic result.

All of those, we think, important to capture a leading market share. Today, we hold about an 80% market share of all clinical exome and genome run in the United States, whether we hold 80% or give up a few hundred basis points here or there over the next decade, we'll see, but we intend to hold a majority market share in much larger markets to come. And we think now is the time to make some of those investments.

The only thing I would add, Tycho, 2 things. One, whatever we're putting a sales rep out there, we first are following the patients, and we're also following reimbursement. So we're not going to put a rep in a territory, whether it's in the U.S. or in a region outside the U.S. unless there's ample patients for us to help and a healthy path to reimbursement. So those have been like our core principles that I think are unique to GeneDx's business model that we're committed to.

Second, on the brand campaign, we are continuing to drive awareness of GeneDx because part of the problem is geneticists have known GeneDx, 8 out of 10 geneticists know us. We need to continue to raise awareness amongst general clinicians as well as parents. So parents know to ask for this testing that the technology exists today is paid for today by insurance companies and that we can get them an answer in a short period of time.

So we've got a strong effort there that is only being amplified by the addition of Lisa Guri, who was at Microsoft running marketing across different business units amongst other roles for about 25 years, and she was at [ Truvada ] as well. So she's going to help us also really amplify how we communicate the message, both to clinicians and to patients as well.

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

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

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

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

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

Yes. So I think as we have continued to roll out additional new indications, and again, there's 10,000 rare diseases. So we're just going to be routinely cranking out new indications over time. I think that's part of the reason why we're seeing the strong growth. It's contributing. A lot of the symptoms are overlapping. So you might have a rep who is talking about symptoms associated with epilepsy and it turns out it's cerebral palsy. You might have a rep going in talking about cerebral palsy and it turns out that it's epilepsy. Some of these -- there are dual diagnoses.

So there are very -- the new indications are certainly contributing to our growth. And I think it just speaks to the vast underutilization of testing for so many of these kids. So we'll continue to have kind of rolling indications launch. This is a core part of the way that we operate the business.

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

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

Yes. Look, with California being the most densely populated state, certainly a nice win. The probably next largest to come would be Massachusetts. So really exciting to see California come online next week in a couple of days.

Today, a couple of thousand tests that would have run through as zeros that now we might expect to get paid for. Obviously, we have to build up some history and experience to see that. And of course, with coverage now, a more focused effort to calibrate and pull more volumes through the state. So excited about a larger opportunity ahead beyond the existing volume that we have.

And then the second part of your question, Dave.

Strategy is for other states to come online from Medicare. So we've got a fantastic market access team that we only continue to bolster. We now have an East and West government affairs leader. And so they're continuing to put good data, great guidelines, health economics data in front of the state-by-state Medicaid officers. And we work with local clinicians, local parent advocates. So it's -- I would say it's a well-oiled machine, but it's within their control, not ours. So we're just getting playbook. We know they respond well, particularly to the health economic data.

The reality is we are paying for these children and the absence of accurate diagnosis one way or another using our testing upfront is an opportunity to get to the right diagnosis sooner and save all of these payers. So that message is resonating. So we'll continue to drive that until we have every single state with inpatient, outpatient. And as I said earlier, then we move on a new work. So we've got our work cut out for us, but a very optimistic path ahead.

Sounds great. I just wanted to ask one longer-term question, and that is about pricing in the longer term. Now a lot of times you're billing for codes of exome and genome. Now saying that not all exomes and genomes are the same, and there's a constant need to integrate things like methylation, long reads, skillful informatics, do you think that payers understand that constant innovation is necessary to enhance diagnostic yields and you're able to retain pricing over the long term?

And consequently to that, when you're thinking about new competitors coming in, do you feel like the constant need for improving the test does maintain pricing long term because you will be constantly needing to enhance the assays?

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

Yes. Thanks, Katherine. So on the technology front, it's really our job to continue to innovate and fund that innovation to bring the best answers to patients every day. We already have seen that with the indication expansions as we move more and more people off of panels and into genome and exome, which is what's driving the growth that we've been seeing and will continue to drive a lot of that growth.

And that takes new technologies, technologies around medium and long-read sequencing, multimodal technologies that we discussed. But what's great is that the scale of our operations that we continue to scale, we are actually able to be driving down cost of goods as we bring in more and more innovations. And so you're not seeing an increase in COGS as the innovations roll out into production. You're actually seeing COGS continue to come down with those innovations with higher diagnostic yield. And really only GeneDx with our scale can deliver that quality.

I'll hand it over to Kevin to talk about the reimbursement.

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

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

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

Yes. Certainly all within the framework and design of a future where it's significantly better. But we're entering an investment cycle here. Not every quarter will be different, and we'll have more to say about 2026 at our Q4 call. So -- but may see that EBITDA margin come down in some of these quarters as we ramp up investments and then wait to see those investments mature in terms of top line contribution.

I read through the commitment as keeping it in the black and positive, but not necessarily at these levels. But certainly, we think the business model has proven the ability to accrete EPS upwards, and there will be a time and place when we focus back on doing that. But for now, there's such a large opportunity ahead. We think it's important we make some of these investments to take advantage of that.

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

Yes. Thank you for that, Bill. So education is key. As I said, most of these pediatricians are learning about the guidelines update from us. We need to make it relevant for them. They're seeing a whole host of symptoms and issues coming into their clinic. And we have to do a lot to dispel some of the myths related to genomics. They think that it's going to take a long time. It's going to be confusing to understand. It's going to be hard to order that a geneticist should be the one ordering it.

And when we come in and we explain to them that it is covered by insurance, we can turn around their sample within a few weeks, and we're going to provide a simplified report. It changes the way that they're thinking about things. So I would say education is key to kind of setting the record straight about what we can and cannot do.

Also educating them, there's still -- there could be 12 to 24 months to begin to see a geneticist. So they may say that they would like to send a patient to a geneticist. But if you say, well, if that delays a diagnosis by 12 to 24 months, then they don't want to see that happen. They want to activate in that moment. So we're getting a lot of good, I would say, market research feedback that affirms the need to continue to educate. So education is one. Coming out of that, too, yes, we talked about workflow. Their time is precious.

And so how do we take our ordering platform today and bring it to what Bryan said was a 1-minute ordering approach. So we're building that capability as well as other ways to ensure that we can unburden the pediatrician from some of the administrative work that they may have to do. So workflow is another key investment market access and ensuring that our market access team is delivering a dossier with these updated guidelines is going to be critically important. So they've started doing that. So that's the third piece.

And then fourth is the sales rep and the sales rep going in and doing a lot of the kind of hand-to-hand combat in terms of education. But that's part of the reason why we're investing now. We would love to see an acceleration of that 18 to 24 months, but we know that there's a lot of work that we have to deliver on to educate and to smooth things out and make it easier for these clinicians to order.

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

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

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

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

Yes, makes a ton of sense.

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

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

Yes. Look, we're excited that Medi-Cal news, of course, will further bolster the reimbursement environment here. So it's certainly positive. So consider it a tailwind. Those are tests, at least the existing volume or tests that we're running and taking zeros on today. And starting next week, we'd expect to get paid for that volume.

The couple of thousand tests, I think, would understate the long-term opportunity with now Medicaid coverage in hand, it's certainly a nice talking point for our commercial team to get out there, spread that work and begin to pull in even more volumes. We're serving all 50 states, but at various levels. And so in those states where there's good reimbursement coverage, that's where we tend to amplify sales resources to pull in more volume, and we certainly plan on doing so moving forward.

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

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

Okay. Sounds good. And then Katherine, on the longer-term kind of data business, Infinity AI and multicore, you're kind of emphasizing that recently. Could you just contextualize the competitive moat that provides and what the future kind of holds there?

And then I think a follow-up to Dave's question, how critical is the longer-range sequencing data going to be to advance that asset, specifically the medium-range kind of sequencing from Roche or longer read with PacBio, et cetera?

Yes. Let me take that 2 parts. First is the Infinity database that you just were mentioning. As I mentioned in my earlier comments, the power of that database is the fact that it's a massive reservoir of of variants that we have seen in patients that have yet to be validated by a second patient. But every day, with the volume that we're having, we're validating more and more and growing that database over time. And so the AI tools that we put on top our machine learning multicore, it really just improves the accuracy, the speed and the efficiency that our clinical experts can go through and find those diagnosis. It gives us the highest accuracy in that space.

But as you're also mentioning, those same AI tools become value add to our partners like pharma, employers and others as they go out and look at the Infinity database, look at the data that it sees and really starts to actually open up the ability to have more and more drug targets, more therapies and bring more solutions to these children with these devastating diagnoses over time. And so we really see that those AI approach is expanding into our pharma and our other partnerships around the globe.

As far as our technology, the genome needs -- has some gaps in it. There's some difficult to sequence regions that we know about, which is why there are still some panels that people will order. every time that we bring in a medium read or a long read or other type of technologies, it really starts to improve the diagnostic yield for some of these other conditions, which again converts more and more folks off of panels and into the exome and genome as the best answer for all patients. And we are continuing to add more and more of these technologies for the right patients with the right phenotype.

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

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

Yes, we saw good momentum through the third quarter with accelerating volumes each month of the quarter. And so wrapped up September sort of as expected with the high point of the quarter and momentum has continued nicely.

The outperformance mostly coming in the -- or primarily coming in the outpatient side of the business. Really forming that ped neuro call point. So most of the outperformance there coming from that physician type, and we continue to see a lot of space to go activate more ped neuros and bring in more volume. Overall, really pleased with the third quarter performance.

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

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

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

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

Thank you. This does conclude today's program. Thank you all for joining. You may now disconnect.

All right. Great. Thank you, everyone, for attending this morning. It's my pleasure to welcome Katherine Stueland, CEO of GeneDx as well as Kevin Feeley, CFO of GeneDx. We have around half an hour or 35 minutes this morning. I'll go through some questions, and then we'll open it up for broader Q&A towards the end of that.

So Katherine, Kevin, pleasure to have you here.

Thanks so much for having us.

Thanks for having us.

Great. So maybe just to start off, whenever I speak with generalists or even with health care and life science investors, GeneDx is always a company that stands out as one of the few non-oncology diagnostics testing names that has really achieved strong growth, starting to have meaningful scale, a premium valuation.

And maybe for investors that aren't as familiar with rare disease testing, what do you think is really or the most important thing to understand about rare disease relative to what investors in the space might be much more familiar with in oncology and the diagnostic paradigm there?

Well, a few comments on the oncology space. The entire industry changed in 2013 when the Supreme Court determined that you couldn't patent DNA. And I think part of what is so encouraging and inspiring about what has happened in cancer diagnostics since then, we're testing more people.

There's earlier diagnosis of cancer, and therefore, people are living longer lives. My mom is 89 years old, and she is the beneficiary of early diagnosis as well as cancer immunotherapy and is healthy and cancer-free today. So when you think about the other side of the coin, which is the rare disease side, that has largely been a neglected space, save for the investments that GeneDx really started making 25 years ago in diagnosing the hardest-to-diagnose patients. So the company was actually started at the NIH, and it was started by 2 geneticists who would get the hardest cases sent into them, and they spun the company out in order to really start scaling the capability that they have.

So back in 2013, the company started investing ahead of the market in whole exome and whole genome sequencing. And so what that really has done, it's put us in a position of, one, market leadership. So 8 out of 10 genetic experts rely on GeneDx in order to diagnose children with rare diseases. And two, we've been able to amass an incredible amount of data that really puts us in the leadership position that we've earned, 80% of the market today is dominated by GeneDx. But what we see ahead is a really important opportunity to continue to open up access. The goal really is to diagnose anyone with any genetic disease as early as possible in order to achieve what has been achieved on the oncology side of things, which is earlier diagnosis leads to more options for people with rare diseases and really ensures that everyone has the greatest chance of being able to live longer and healthier lives.

I should note rare diseases, I think it's a bit of a misnomer, 1 out of 10 Americans has a rare disease and half of them are children. So they're actually quite common in aggregate. So we're talking about epilepsy, we're talking about autism, developmental delay as well as a whole host of other conditions. There's about 7,000 and a growing number of conditions as we start to really make more gene disease correlation. So we're at the earliest stages of being able to have an impact on these kids' lives. It still takes on average 5 years for a child with rare disease to get accurate diagnosis. So we really are focused on the utilization of our testing as early as possible in order to affect change.

Thank you. And maybe just a follow-on to that. So you mentioned there's a constellation of rare diseases. How should investors think about how GeneDx is positioned and where you've had the most success to date?

So as I mentioned, there's about 7,000 rare diseases today. And we've really been focused on the clinician segment of geneticist. So if you think about it through the lens of a family's journey, there's a child with a rare disease or with a symptom, I should say they're going into the general pediatrician's office. That pediatrician is referring out to another specialist. And then historically, they would refer out to a geneticist. There's very few geneticists in the world. So there's about a 12- to 18-month wait list even to get in to see one of those geneticists.

So our entire strategy is to get this testing utilized much earlier. And so about 2 years ago, we really focused the entire team on utilizing exome sequencing and utilizing whole genome sequencing, specifically in epilepsy and autism and in developmental delay.

Where we've been really focused on expanding, our additional conditions and additional symptoms. So we launched into additional indications like cerebral palsy earlier this year. We've been focused on the NICU, fewer than 5% of babies in the NICU get a genetic test. And so there's really this wide open canvas where we're getting started with epilepsy, autism and related conditions, but we have the ability to have an impact on a much broader group of patients as well.

Great. So coverage and reimbursement are always front and center for investors in this space. How should investors think about where you all sit today from a coverage and reimbursement paradigm? And how has that evolved? And how do you see that continuing to evolve going forward here?

Yes. Look, I think first and foremost, investors should know how seriously we take driving improvements to get paid fairly for our services. We think we offer a fairly unique value proposition with respect to the clinical and health economic benefit for our testing. And we continue to see guidelines and payer policies shift in favor of covering whole exome and whole genome for more and more patients. If you look at the Medicaid population, in particular, about 1/3 of all children in the United States at some point before becoming adults run through Medicaid and therefore, a fairly important cohort of payers for us.

There's been radical improvements in the coverage landscape for exome and genome. Go back 10 years, there were 0 state Medicaid programs covering these tests. We're now up to 35 states that cover exome or genome outpatients and 17 that supply supplemental dollars for inpatient coverage of a rapid genome. We've been seeing a steady pickup of more and more states. Our average reimbursement collection rate has been improving as those states roll on for coverage, and we'd expect ultimately to fill up the rest of the map, 35 states moving from 0 in just a short period of time, very helpful to our overall growth profile. But certainly, we don't expect to stop there. We'd expect a continued evolution of more states picking up coverage.

The largest population center is still without coverage or only with really narrow coverage for these probably cite California and Massachusetts still on the come. And so a lot of room for continued improvement and expansion in that overall collection rate on the Medicaid side of things, while at the same time, great steady progress at reducing denials and opening up medical policy for more and more patients on the commercial side of things in the United States. We're now at a point where we've gotten our payment rate above 50%. We're not satisfied there. We continue to add to the team, both in terms of talent as well as technology to continually ensure that every test we're submitting to insurers are following their unique requirements, and therefore, we're avoiding unnecessary denials.

We've been able to do that fairly successfully over the last couple of years, and we will continue to invest in having the best team in the industry to do that.

What do you think have been the most significant challenges you faced to date from a reimbursement perspective? And can you give us a sense of how you've approached those?

I think in general, there's just a maturity of the product. While GeneDx has been steeped in being experts in exome and genome for well over a decade, these technologies are still fairly emerging and new to payers. If you look at what is causing the vast majority of denials for us, it's very little dispute around medical necessity, but more so adhering to a web of procedural or administrative requirements, which are different payer by payer. And you put that in contrast to well-established mature products on the oncology space, so things like gene testing for BRCA1 and BRCA2, those tests have been out for a long time. They're well understood by payers, and therefore, you've got a paradigm where medical necessity criteria and administrative criteria is the same across almost every payer. That's very different if you look at whole genome where you see bespoke requirements for each payer.

And over time, we'd expect the understanding and acumen of payers to improve and mature, get to a more normalized reimbursement environment. It's, of course, incumbent on GeneDx as a leader in the space to continually bring not just the clinical evidence, but the health economic benefits to payers so that they understand that these tests are not just best for patients and physicians, but also best for the health care system at large and controlling their own cost for their own members. We've been able to create that information and bring it to payers, and we'll continue to do so.

Right. Maybe for this next one, it's more of a 2-part question. But I'm wondering if you can spend a little bit of time just talking about what is it that makes GeneDx's platform and the approach that you're all taking so differentiated? And obviously, today, you've accumulated an incredible data asset. What do you see as being the growth opportunities or potential commercial opportunities, partnering opportunities for that going forward?

So a couple of things. I think, one, competition is not new to us. There have been for many, many years now, dozens of exomes and genomes on the market through really good labs that are out there. Part of the reason that we continue to have 80% market share and that we continue to be the leader in the space is because of our data asset. That's one reason. The data asset is now comprised of more than 850,000 exomes and genomes, all enriched for rare disease. I should say while we talk about exomes and genomes, we've run well over 3 million patients with rare diseases. So that data asset actually goes far beyond the exome and genome richness that we have. But the genotypic side of the data asset that we have enriched for rare disease, 60% of the time, we're running mom and dad.

So we have healthy comparator samples that are embedded in that as well ahead of the time that state Medicaids were starting to really focus on exome and genome, we were running patient populations that were dependent on Medicaid. What that means, and this is very unique to the space, is that we have a patient database on the genotypic side of the house that is highly correlated with the U.S. population by way of diversity. So the genotypic data is incredibly rich. It's also met with more than 7 million phenotypic data points. So think about all the clinic notes, data from EMR records, information on symptoms, on medical history, on family history that comes in.

So it's that totality of data that we have that's informing every diagnosis, every patient that we're running. Our expert group of geneticists in-house are able to utilize that data to more rapidly upgrade or downgrade a variant of unknown significance, which then creates this virtuous cycle of product improvement and product development within GeneDx. So that data asset is part of the reason why we are the most accurate platform that is out there. So when we think about the competitive advantage, what are health systems and payers looking at when contemplating which lab to partner with accuracy matters as well as turnaround times and cost. And so we win all the [ time ] when it comes down to how quickly we're able to turn around answers.

Interestingly, looking back at BRCA1 and BRCA2, back in 2013, those cost about $3,500 for each of those genes. We're able to run a genome or an exome for the same cost. We're also able to turn around an exome within 3 weeks. Our rapid genome, we can turn around within 48 hours. So we've invested in the scale in order to ensure that turnaround times and costs are never a barrier either for the clinician or for the clinician when trying to figure out exactly which lab to choose. So when we think about our leadership position, those are really the reasons that we have continued to lead. We think that, that's going to be incredibly important as we think about the general pediatrician opportunity. So this summer, we had, I would say, a game-changing moment for pediatric medicine, the American Academy of Pediatrics put out new guidelines that said that pediatricians should be utilizing an exome or a genome for any child where they suspect that there may be developmental delay or intellectual delay.

And so the market leadership that we've enjoyed with expert geneticists, we believe, is really going to translate into why a pediatrician is going to work with GeneDx versus any competition that's out there. They care about what the most discerning genetic experts are thinking about when using an exome or a genome. And so that market leadership, we believe, is going to really nicely translate.

We have market research showing we are the #1 brand when it comes to diagnosing children with rare diseases. So as we think about future growth opportunities, that general pediatrician opportunity, while it's going to take some time to really take off, it's going to require education. It's going to require customer experience, product improvements and ensuring that payers are also going to pay for it. But we think that, that's one of the most important opportunities for us to have an impact on child health that gets us in there with the first line of defense for any family who has a child who is sick. And we're really excited about being able to drive that entire shift in standard-of-care at the pediatric medicine level.

Would you say that, that is the most important growth priority for you? Or how should investors think about across the constellation of different areas where you could drive growth, whether it be indication expansion or expanding to different parts of the patient population within an indication, how should investors think about where you're most focused or the prioritization of where you are in driving growth over the next, call it, 3 to 5 years?

So we're focused in 2025 on continuing to grow from what we call the core. So think about that continuum of referrals. We've been deeply embedded in the genetic space, but we've been driving utilization to that next referral call point, which are pediatric neurologists and other specialists like pediatric immunologists. So all of the growth that we've seen over the past several years and as we think about 2025, that's really where we're seeing really good uptake, both on bringing new clinicians to GeneDx as well as driving greater utilization with existing clinicians. So they're finding more and more patients in their clinics who are benefiting from testing. So as we think about the near term, our team is continuing to really focus on that core group of customers that has been serving us really well and importantly, serving more and more families well.

As we think about the longer-term opportunity, I mentioned 18 to 24 months in terms of really being able to see the general pediatrician. We have a separate commercial team that's starting to really begin the process of education with general pediatricians. And so we view that as more of a medium-term opportunity that we're starting now. As soon as those guidelines were published in June of this year, we obviously took notice, investors took notice that as we're starting to really do outreach to pediatricians, we are the ones who are informing them of this. If you think about the universe of issues and medical topics that are -- they're confronted with on a day-to-day basis, this is one piece of it. And so we need to make it a priority. That's our job.

I think part of what gives us confidence that we'll be able to do that is we've made it a priority in the pediatric neurology space. Pediatric neurologists weren't ordering genetic testing before, say, 2017, 2018 when there were more and more gene therapies that were being developed by biopharma companies. So as we think about the growth, there is our outpatient continuing to drive utilization among specialists. There's our NICU where fewer than 5% of babies in the NICU are getting a genetic test, so we want to drive utilization there. There is this universe of general pediatricians where we're starting education.

We're starting product development. We're starting conversations with market access. But then there's also some amazing opportunities in terms of newborn screening. We've done the largest newborn screening study to date. We're starting to see the first state. Florida is the first state to have legislation supporting newborn screening. And of course, in our mission of wanting to diagnose any genetic disease as early as possible, there's also a future for us to be able to do that with adults as well.

For newborn screening, how do you see that playing out or evolving both in the near term and I guess, over the longer term? Like -- and I guess, what would be your kind of ideal state of that market?

So some of the work that we've done is in collaboration with Dr. Wendy Chung, previously at Columbia now at Boston Children's. So this study, which is called the GUARDIAN study was done here in New York State. We have now sequenced more than 17,000 healthy newborns. Part of what has made this study, I think, so foundational to the future of being able to do this at scale is what Dr. Chung put together is a really ethical and responsible approach to delivering information to healthy -- what we expected were healthy newborns.

Put another way, we're only delivering clinically actionable information to these parents and to the clinician. We're not delivering risk-related information that the child in the future may have a higher risk of prostate cancer or breast cancer. We're delivering information that in that moment is clinically actionable. So we started with 200 conditions. We expanded the roster to more than 450 conditions in year 2. And what we were able to find was a positive diagnosis in 3.2% of these babies, where there was an intervention of, say, putting a child on a ketogenic diet, adding zinc as a supplement, directing them to a clinical trial or to an FDA-approved therapy, a surgical intervention to something clinically actionable at that point in time.

Interestingly, we went back to say what was the average age of diagnosis in our 25-year history at GeneDx for the diseases that we're now diagnosing at birth, sometimes ahead of symptoms manifesting, and it was 7 to 11 years, which means that we can now eradicate 7 to 11 years of unnecessary disease progression and unnecessary costs. So we have this really ethical and responsible foundation from which we can now start to deploy it. I think part of what activated the state of Florida was seeing that this is something that they could put into practice today. They liked the nature of the protocol and how it was designed. What, of course, always needs to be solved for is who's going to pay for it. So the state of Florida has gotten funding for this. It's been budgeted.

But as we think about deploying this either at the federal level or at the state-to-state level, that's always going to be a consideration. We have yet to deliver the health economics data that further substantiates it. I think empirically, we view this as it's going to be a no-brainer in terms of health economics when you think about 7 to 11 years of disease progression. But that's something that is in our future in order to really turn this into a reality for more and more patients. I think the other piece of it is we made an acquisition of a company called Fabric Genomics. Fabric gives us the ability to deploy our data and our interpretation platform regardless of where sequencing is done.

Put another way, if there's a baby born at a hospital in Tampa or a baby born at a hospital in San Francisco, we'll be able to have standardized results regardless of where that baby is born. So I think that's also an enabler for the market.

Got it. Are there other similar opportunities that you see to deploy capital in ways similar to Fabric? Or how are you thinking about that element of the business?

Yes. I mean we entered 2025 with 2 main areas of investment focus in order to accelerate and those remain true today. One would be how do we continually move the needle on improving the overall customer experience for ease of ordering and for understanding of results.

In particular, as we think about a paradigm of moving to a really busy cohort of physicians in general pediatricians, it's going to be important that we demystify the use of genomics, and we make it really easy for that busy practitioner. And so whether it's building, buying or licensing, improving the customer experience with a more guided ordering, intuitive order experience and then making sure that we support families and physicians on the [ back ] end with care plans and steps and education on what to do next will be a continued area of investment. We think that helps us not just be more attractive to new customers, but sticky with existing customers.

And so that will remain an area where we'll want to deploy capital, whether that comes in the form of building it or buying capabilities, we'll leave that to our product and development team. I think they've built the right skill set in order to analyze opportunities to ensure that we're driving forward strategic priorities with the right level of near-term ROI on those investments, whether they build the functionality or buy it. The other is continually taking advantage of our scale, advantage to lower turnaround times and costs. And so the more we can automate, in particular, on what I'll call the dry side of the laboratory after the sequence, those steps today remain fairly manual.

And as we move towards a paradigm of serving millions of patients a year at GeneDx and not hundreds of thousands, it's going to be more and more important that we take the embedded knowledge of our internal resources and force multiply them with the use of algorithms, AI and technology. And so that will remain a strategic area where we'll continue to allocate capital. And again, whether that means we acquire or buy or license is to be determined. But I'd call those out as the 2 areas that we identified to start the year and wanting to invest, and those likely will remain for the near term as the 2 top priorities for the use of capital.

That's great. Maybe one more question for me, and then I'll open it up to the audience here. But what do you think is the most underappreciated element of GeneDx and the business that you all have grown to date?

I think probably the competitive advantage that is driven by the data asset and the scale, how hard it is to actually diagnose these children, how powerful that data set really is and also the fact that we have been running really fast to continue to expand that data set. So 4 years ago, the data set was about 270,000 exomes and genomes. As I said, we're now at 850,000. And so the data moat is something that is difficult to recreate. I think it's underappreciated by anyone other than a geneticist and the growing number of clinicians who are starting to rely on us.

But I think that's probably one of the most misunderstood and underappreciated parts of GeneDx. I think the other piece, we're in a position where we have a technology today that can benefit so many families so much earlier. And so the education both of parents who today are out there on Google, they're on Gemini, they're on ChatGPT. They're some of the most motivated patient advocates for their own child to try to get an answer. And so our ability to ensure that they know that this technology exists today, that their clinician can order it, the fact that it's paid for.

I think some of the key topics that Kevin touched on in terms of scale, turnaround time and cost the fact that we've been able to make this as within reach, both in terms of speed and in terms of patient access as multi-gene panels have been historically. All of that education is something that we just started to embark on pretty recently. And so as we think about our future, we're excited to continue to lead that education, and we're excited to be the ones who are leading the market and ensuring that all of these families have the benefit of an earlier diagnosis. There is no reason that any child should have to go through a 5-year diagnostic odyssey where they are just getting sicker and sicker when we can provide this information within weeks, if not 48 hours.

So our mission every single day is time-to-diagnosis. That's one of the most important metrics for us as we think about our P&L, we've driven a culture that is about faster diagnosis for more patients that is represented in our P&L. The fact that we're a profitable company today ensures that we can make the right investment bets for the future to open up more access. But we're really proud of what we've built. We realize we're just beginning in so many ways.

Great. Thank you. Glad to open it up for any questions from the audience, please.

[indiscernible].

Absolutely. So the question is can -- do we plan to move into adjacencies beyond where we're focused today.

We feel like we have a very tall order in terms of the number of patients that we can impact with our technology today. We're always looking for additional ways to deploy that technology to help more and more patients. So that certainly is something that we could contemplate in the future. Some of the ways that we think about where to go next, and I say this on the heels of reaching profitability last year. As we think about market expansion, we look at can an exome or a genome, address the problem, the guidelines support utilization of that testing. Are payers going to pay for it? And so those are the key things that we're thinking about when we think about expansion.

So one of the reasons why as we look to newborn screening, as we look to diagnosing adults, those are the key factors that we're going to contemplate in order to make the right bets in terms of where we can deploy technology where we can ensure that we have a healthy business and where we can ensure that we can have an impact on the largest group of patients moving forward.

Any other questions? All right. We'll go ahead and wrap it up. Katherine, Kevin, thank you very much for joining us this morning. Really appreciate it.

Thank you so much for having us.

Thank you, [ Mike ].