EXAGEN, INC. Q3 2026 EARNINGS CALL - EXAGEN INC

Financial Performance:

• Q3 2026 revenue reached a record $18.4 million, representing a 7% year-over-year increase and contributing to >11% YTD revenue growth.
• Adjusted EBITDA loss was $1.9 million for the quarter, though YTD adjusted EBITDA improved by over 30%; loss-to-revenue ratio is narrowing as revenue grows faster than expenses.
• Gross margin improved to just under 59% (up 40 bps), driven by ASP expansion, operating leverage, and COGS rationalization; long-term target is mid-60s.
• Trailing 12-month Average Selling Price (ASP) hit a record $451, up $10 year-over-year; revenue cycle initiatives collected $800,000 from claims older than 360 days in Q3.
• Total operating expenses were $15.2 million (up ~$2M YoY); non-GAAP operating expenses were $13.4 million, with a one-time $600,000 in-process R&D charge and ~$600,000 increase in stock-based compensation.
• Balance sheet strengthened: ending cash and equivalents at ~$28 million, increased by $3.5 million in Q3 via ATM facility; added $5 million debt draw from expiring tranche post-quarter to end with ~$33 million pro forma cash.

Guidance and Future Outlook:

• Full-year 2026 revenue guidance reiterated at $72–$75 million, assuming high single-digit volume growth and mid-single-digit ASP growth.
• Q4 outlook anticipates typical seasonality with reduced clinic days due to holidays and annual meetings.
• Long-term goal to reach cash flow positive adjusted EBITDA at an $80 million annual revenue run rate with ~60% gross margin.
• Full-year 2027 outlook expected to deliver double-digit revenue growth, driven by new product launches, sales team expansion, and market access improvements.
• September and October 2026 performance described as "fantastic," with October volume among the highest in recent years.

Business Segments and Product Lines:

• iCTD (Connective Tissue Disease): YTD volume up 8% (approaching 1.3M tests since launch); Q3 volume in line with historical seasonality; ordered physician base grew 5%.
• Pharma Services: Q3 revenue >$900,000; YTD total $2.2 million (up ~85% YoY); contract backlog at $5.5 million with 38 biomarkers offered (up from 32).
• Myositis Offering: Launch targeted for early 2027; clinical and analytical validation complete; 17-marker quantitative profile submitted for NY state validation by end of January; addresses significant unmet diagnostic need.
• Innovation/AI: Acquired an AI-enabled workflow optimization platform for rheumatology practices to embed Exogen into daily clinic operations; new webcast "Exogen Forward" scheduled for December 15, 2026.
• Commercial Expansion: Sales team expanded from 42 to 45 territories; productivity per territory up nearly 6% over trailing 12 months.

Market and Competitive Landscape:

• Market share estimated at 3–4% of a >$2 billion autoimmune testing market; significant growth opportunity identified.
• Strong clinical validation and differentiation highlighted by two podium presentations at ACR Convergence (out of 9 abstracts).
• Competitors' alternatives for myositis testing cited as having slower turnaround times (4–8 weeks) compared to Exogen's planned <1-week turnaround.
• Payer coverage expanding: systematic review has driven progress with some "One Blues" plans; continued success with ALJ (Administrative Law Judge) appeals against denials.
• Strategic partnership with ACR Committee on Rheumatologic Care continues to advocate for broader payer access.

Risks and Challenges:

• PAMA: Potential headwinds from the Patient-Driven Payment Modernization Act if fully implemented, estimated at low single-digit impact on blended rates due to generic CPT codes; managed via revenue cycle optimization.
• Seasonality: Second half of the year faces headwinds from fewer clinic days (holidays, summer vacations).
• Regulatory: Awaiting updates on Local Coverage Determinations (LCDs) for iCTD; no current changes announced but ongoing dialogue with LCDs team.
• Customer Concentration: Mentioned past impact of losing a major customer (Northwell) on ASP and volume, requiring continued commercial investment to offset.

Management Commentary and Tone:

• Tone is highly confident and optimistic, describing 2026 as a "record year" with execution aligning with the vision to build a comprehensive autoimmune platform.
• CEO emphasized the shift from a single-product company to a platform, driven by long-term focus, clinical innovation, and disciplined capital allocation.
• Highlighted strong balance sheet management, noting ATM and debt draws were opportunistic rather than necessity-driven.
• Management expressed pride in the 14 consecutive quarters of ASP improvement and the "high character" of the team.

Analyst Questions and Answers:

• Q4 Guidance: Management expects the year to finish as a record; Q4 bridge is explained by seasonality, with confidence in high single-digit volume and mid-single-digit ASP growth.
• Myositis TAM & Ramp: Current patient testing population estimated higher than previous 100,000 estimate; launch ramp to be measured and responsible, potentially expanding into pulmonology (interstitial lung disease).
• Double-Digit Growth Drivers: Return to double-digit growth driven by myositis launch, sales team ramp-up, and revenue cycle gains, despite PAMA headwinds.
• PAMA Impact: Revenue cycle strategies expected to overcome low single-digit PAMA headwinds; ASP improvement target remains in place ($600–$650 over time).
• AI Acquisition: Viewed as a complementary strategic move to embed Exogen into clinician workflows daily, enhancing adoption of testing solutions.
• Clinical Value of Myositis: Test provides quantitative titers for monitoring therapeutic response and prognostic insights (e.g., lymphoma risk, statin-induced myositis).

Other Key Points:

• Unveiled refreshed brand identity and tagline "Clarity in Autoimmune Decisions" at ACR.
• $800,000 collected from claims >360 days old in Q3; 2.5x YTD recovery rate compared to prior year; trend remains positive despite quarterly variability.
• R&D spending increased slightly to support myositis pipeline and AI integration; adjusted EBITDA loss improvement rate averages ~37% annually since new management arrived (late 2022).
• Upcoming "Exogen Forward" webcast on Dec 15 will detail the platform strategy and myositis offering.