EXAGEN, INC. Q3 2026 EARNINGS CALL - EXAGEN INC

Explicit Guidance:

• Reiterated full-year 2026 revenue guidance of $72 million to $75 million, assuming high single-digit volume growth and mid-single-digit ASP growth.
• Anticipates double-digit revenue growth (11–12%) for the full year 2026, driven by high single-digit volume growth and low-to-mid single-digit ASP growth.
• Maintains target for adjusted EBITDA breakeven at an $80 million annual revenue run rate with approximately 60% gross margins.
• Long-term ASP target remains $600 to $650 per test (roughly half the Medicare rate of $840 for unique PLA code), a goal expected to be achieved over time.

Business-Segment Outlook:

• Autoimmune Diagnostics (iCTD): Volume expected to maintain high single-digit annual growth; Q4 subject to normal seasonality with fewer clinic days due to holidays.
• Myositis Offering: Launch scheduled for early 2027; validation package submission to NY State Department of Health targeted by end of January. The platform will utilize the existing sales force, with potential expansion into pulmonary (Interstitial Lung Disease) and broader iCTD space in 2027 pending launch feedback.
• Pharma Services: Year-to-date revenue nearly doubled (up ~85%) to $2.2M; contract backlog stands at $5.5 million. Revenue recognized will fluctuate quarterly but viewed as a meaningful long-term growth lever, contributing significantly to Q3 revenue ($0.9M).
• AI & Software: Integration of acquired AI-enabled workflow optimization platform for rheumatology expected to deepen customer engagement in 2027, potentially shortening the sales learning curve and expanding market reach.

Market and Competitive Outlook:

• Estimated current market share of 3–4% in a $2 billion+ autoimmune testing market, with a significant opportunity to capture share via product expansion.
• Pricing & Reimbursement: Expect low single-digit headwinds from potential PAMA implementation on generic CPT codes; offset expected via revenue cycle optimization, new evidence (systematic review), and expansion of unique PLA code coverage.
• Market Access: Progress noted with regional IDNs, military plans (TRICARE), and national plans; systematic review actively driving payer policy reviews.
• Competition: Myositis offering positioned as unique quantitative 17-marker profile with faster turnaround (1 week vs. industry 4–8 weeks) and prognostic capability (e.g., lymphoma risk, statin-induced myositis detection).

Macro / Industry Outlook:

• Regulation (PAMA): Awaiting congressional finalization; no full impact assumed in 2027 guidance, with confidence that revenue cycle strategies will overcome minor blended rate impacts.
• Regulation (LCDs): No updates on Local Coverage Determinations for iCTD; continued engagement with Medica/coverage teams to educate on systematic review data.
• Seasonality: Continued expectation of Q4 volume contraction due to holiday closures and societal meetings impacting physician clinic days.

Strategic Initiatives:

• Product Launch: Myositis platform launch (early 2027) supported by completed clinical/analytical validation; first standalone new product since CEO tenure.
• Acquisition: Integration of acquired Israeli-based AI workflow software to provide day-to-day clinician presence and operational efficiency.
• M&A/Capital: Opportunistic use of ATM facility ($6.5M raised this quarter) and drawdown of $5M from expiring debt tranche to strengthen balance sheet; pro forma cash balance at Q3 close projected at > $33 million.
• Event: "Exogen Forward" webcast scheduled for December 15 at noon ET to detail myositis offering and platform evolution.
• Commercial Expansion: 45 sales territories (up from 42); focus on ramping new reps and expanding ordering physician base (up 5% YoY).

Risks and Headwinds to Outlook:

• PAMA Implementation: Potential low single-digit negative impact on blended ASP if generic CPT code median rates decline further, though revenue cycle strategies are expected to mitigate this.
• Seasonality: Q4 volume may be pressured by reduced physician clinic days during holidays and annual meetings.
• Revenue Cycle Variability: Aged claim collections (e.g., >360 days) are lumpy and can cause quarterly ASP volatility (e.g., Q3 collections contributed ~$800k vs. $1.3M in Q2).
• Launch Uncertainty: Myositis ramp-up pace in 2027 is still being modeled and will depend on initial market reception and feedback; management cautions against "getting out over their skis" regarding sales expense increases.
• Clinical Advocacy: ACR advocacy progress is ongoing but not yet translating to universal payer coverage; reimbursement remains a longer-term cycle.

Management Tone on the Future:

• High Confidence: Management expresses strong confidence in the execution strategy, citing a "record year" trajectory and 14 consecutive quarters of ASP improvement.
• Long-Term Focus: Reiteration of focus on building a sustainable platform rather than short-term product sales; belief in the "next leg of growth" supported by a strengthened balance sheet.
• Strategic Clarity: Clear transition narrative from a single-product company to an "autoimmune platform," with confidence that current investments in commercial and scientific capabilities will drive double-digit growth.

Miscellaneous:

• Cash Flow Runway: Pro forma cash balance provides sufficient runway to reach sustainably positive adjusted EBITDA and operating cash flow, allowing for disciplined capital management.
• Stock-Based Comp: Non-GAAP operating expenses increased due to a $600k one-time in-process R&D charge and higher stock-based compensation.
• Data Insights: Trailing 12-month ASP reached $451 (up $10 YoY); total iCTD tests launched since reaching ~1.3 million.