Exagen Inc Aktie

Greetings, and welcome to the Exagen Inc. Q2 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tina Jacobsen, Investor Relations. Thank you. You may begin.

Thanks, operator. Good morning, and thank you for joining us to discuss Exagen's financial results for the quarter ended June 30, 2026. Today, I'm joined by John Aballi, our President and Chief Executive Officer; and Jeff Black, our Chief Financial Officer. The recording of this call, the press release announcing our financial results and a slide presentation can be accessed on our website at www.exagen.com.

Today's call will include forward-looking statements. We encourage you to review the statements contained in today's press release and the risks and uncertainties described in our SEC filings, which identify certain factors that may cause the company's actual events, performance and results to differ materially from those contained in the forward-looking statements made on today's call. We also will discuss non-GAAP financial measures on this call. Descriptions of these non-GAAP financial measures and the reconciliations of GAAP to non-GAAP financial measures are included in today's press release.

And now I will turn the call over to John Aballi. John?

Good morning, everyone, and thank you for joining us today. The second quarter was an outstanding one at Exagen, and there's a lot to be excited about. So I'll get right into the details.

This morning, we reported revenue of $19.9 million, up 16% year-over-year and the highest quarterly revenue in company history. And while total revenue was a record, we also achieved several other records in the quarter, including quarterly AVISE test volume, trailing 12-month ASP and pharma services revenue. We delivered those top line achievements while narrowing adjusted EBITDA loss to $0.1 million, essentially breakeven and a significant improvement compared to the $1.7 million loss in the second quarter of last year. Based on the strength of the first half of 2026, we are increasing full year revenue guidance to $72 million to $75 million.

Results like these don't happen by accident. They reflect execution against the same 3 core objectives we've prioritized for the last several years. First, expanding adoption of our products; second, increasing ASP through disciplined revenue cycle management; and third, delivering a steady cadence of innovation to address the unmet needs of our clinicians. In our business, individual quarters will always have some variability, but the structural changes we've made are clearly improving our long-term trajectory of both volume and ASP. Q2 was the strongest demonstration yet that our strategy is working and our business can scale.

As always, we anchor to our mission. Autoimmune disease is diagnosed too late and too inconsistently, and it's the patients that suffer. Exagen exists to bring clarity to that complexity. We have now surpassed 1.2 million AVISE CTD results delivered to clinicians and their patients since product inception. That's a meaningful milestone, but we're just getting started. With just over 3% share of an autoimmune testing market, we estimate at more than $2.2 billion and growing about 5% annually, the opportunity ahead of us is significant. We intend to continue to earn share the same way we build trust in this underserved channel through the best science, more timely answers and world-class service.

Let me start with clinical adoption. AVISE CTD volume reached nearly 39,000 tests in the second quarter, up 11% year-over-year and the highest quarterly volume in Exagen's history. I also want to put that volume record in context. In 2023, we deliberately reset our ASP strategy and rebuilt our commercial approach, accepting that volume would contract as a consequence. This quarter, volume exceeded those previous levels, and we crossed that threshold with a trailing 12-month ASP nearly 40% higher than it was back then.

We established the right strategy, executed with discipline and have now rebuilt the volume base on a dramatically stronger economic foundation. The quality of that growth is exactly what we want to see. Over 2,800 clinicians ordered AVISE CTD in the quarter, up approximately 9% year-over-year, which speaks to the value our testing has established within the rheumatology community.

Sales force productivity reached record levels with trailing 12-month AVISE CTD revenue per territory of over $1.4 million in the second quarter. This is compared to roughly $1.3 million for the full year 2025. The investments we've made to upgrade, expand and enhance the training of our sales organization are delivering. We continue to advance the clinical aptitude of the team and the momentum has carried into the current quarter.

Turning to ASP. Trailing 12-month ASP is the metric we use as operators to assess the performance of our business because it smooths the variability associated with accrual accounting and the timing of collections. We believe it's the most reliable indicator of progress in what is a highly critical area of our business. In the second quarter, trailing 12-month ASP expanded to $446, up $18 per test or 4% versus last year and marking our 13th consecutive quarter of growth.

Our revenue cycle team deserves recognition for another quarter of strong collections, including meaningful recoveries on older claims. The performance reflects years of disciplined work to structurally improve how this team operates. This year, our revenue cycle strategy has shifted more towards optimization of our processes. We're leveraging analytics and AI to prioritize where the highest value opportunities lie to automate appeals and to streamline medical record extraction. Together, these initiatives have driven trailing 12-month ASP from $284 at the end of 2022 to $446 today, and I'm confident there's more ground to gain.

Pharma services also delivered a record quarter with quarterly revenue crossing the $1 million point for the first time. This is a business we've built deliberately over the past couple of years and the strong results are early proof that the unique data, biobank and scientific capabilities we've assembled serve not only clinicians, but also partners developing the next generation of autoimmune therapies.

During the quarter, we began to build on the success we've achieved in incorporating AI across RCM processes by investing in the development of customer-facing applications. This AI-powered commercial infrastructure is designed to deepen clinical engagement, support AVISE utilization and embed Exagen directly in the rheumatology workflow. It's early, and we'll share more as development progresses. But over time, we believe the investment will complement our commercial team and reinforce Exagen's leadership within autoimmune diagnostics.

On the evidence front, we published a systematic review validating real-world AVISE Lupus performance. This manuscript is one of the most extensive evidence generation efforts behind any novel lupus diagnostic, pooling years of data representing 3,100-plus patients across 14 medical centers into the most diverse analysis of the AVISE test to date. Most notably, AVISE Lupus identified approximately 25% of SLE patients who were missed by conventional markers. And this was noted by the authors, including some of the most prominent lupus physicians in the space. AVISE meaningfully influences diagnosis, physician confidence and patient management. This is the kind of clinical impact we strive to deliver across our portfolio, and this manuscript helps make the impact clear.

And on that note, our innovation engine remains on track. Our myositis offering, the first new stand-alone product for Exagen in many years, continues to progress towards commercialization in early 2027, and we remain committed to a cadence of approximately 1 new product every 12 or so months thereafter. We've deliberately built an R&D to commercial machine that can deliver on that cadence, and our channel is eager for what's to come.

Before I hand it over, I want to take a second to highlight the immense progress we've made. In 2022, our full year adjusted EBITDA loss was around $40 million and worsening. This quarter, we approached breakeven adjusted EBITDA while setting records across the business, and we did it before our next wave of products has even launched. This is what disciplined execution compounds into, a business that grows, innovates and generates cash. Sustained profitability is within reach, and we intend to cross that threshold through the same disciplined execution that brought us here, delivering on our commitments and building a durable long-term organization.

With that, I'll turn it over to Jeff for additional comments on the financials.

Thank you, John, and good morning, everybody. As John just highlighted, our second quarter results reflect another strong quarter of execution across the business. We achieved record top line performance driven by record testing volume and trailing 12-month ASP and a record contribution from our pharma services offering.

Starting with revenue, we generated $19.9 million in the second quarter, an increase of 16% year-over-year and 15% sequentially. AVISE CTD test volume grew 11% year-over-year, reflecting continued strength in clinician adoption and utilization as well as the impact of last year's investment in commercial expansion. Our commercial investments are delivering solid returns. Even with several sales territories under 1 year old, productivity continued to ramp.

Trailing 12-month CTD revenue per territory grew about 6% year-over-year and ordering clinicians increased approximately 9%. AVISE CTD trailing 12-month ASP expanded to $446 per test, up 4% compared to last year. Execution of our revenue cycle management initiatives supported a strong in-period ASP result, which included over $1 million collected from claims older than 360 days. Notably, our total cash collections in the first half of 2026 exceeded first half 2025 levels by $9 million. Over time, we continue to target an ASP of at least 50% of our Medicare reimbursement or approximately $600 to $650 per test, recognizing that this will take time and that quarterly contribution from our revenue cycle initiatives can be variable.

Pharma services generated revenue of just over $1 million in the second quarter, up over 200% compared to the second quarter last year, reflecting continued execution against contract backlog and broadening contribution from this offering. To put our 2026 performance in perspective, in 2024, we generated just over $100,000 in full year pharma services revenue, growing to $1.7 million in 2025 and now to $1.3 million in only the first half of 2026. At the same time, we grew our contract backlog in Q2 by about $1 million to over $6 million. And while revenue recognition from this business can fluctuate significantly from quarter-to-quarter, we see this as another long-term growth lever with the trend line tracking positively.

Moving to gross margin. We reported just over 61% for the second quarter, up approximately 90 basis points compared to last year. Gross margin in the quarter benefited from ASP expansion, operating leverage and ongoing COGS rationalization that has streamlined workflows in the lab and reduce costs across our supply chain. We remain confident that gross margin will progress to the mid-60s over time as we achieve further ASP expansion, generate additional scale and fixed cost leverage and further optimize costs.

Turning to expenses. Total operating expenses for the second quarter were just under $14 million or approximately 70% of revenue, a significant improvement compared to 75% in the second quarter last year. And this performance reflects the operating leverage inherent in our model. We delivered 16% revenue growth while holding OpEx growth to 7%. While OpEx level will vary from quarter-to-quarter, that kind of discipline will continue as we scale even with planned investments in the R&D pipeline. Note that second quarter OpEx included noncash stock-based compensation of about $1 million, an increase of over $0.5 million versus second quarter last year.

Breaking out the components of OpEx, second quarter SG&A was $12.5 million, an increase of just under $1 million compared to second quarter '25, driven primarily by increased stock-based compensation and investment in commercial talent and territory expansion. R&D was $1.4 million in the second quarter, down modestly compared to last year due primarily to timing of investments while continuing to support pipeline development, including the preparation for our myositis product launch expected in early 2027.

Adjusted EBITDA loss, which excludes depreciation and noncash stock-based comp expense, improved significantly at a loss of just over $100,000 in the second quarter compared to $1.7 million loss in the second quarter last year. While we don't expect adjusted EBITDA to sustain at this level in the second half of '26, this quarter's roughly $20 million in revenue and near breakeven adjusted EBITDA are strong proof points for our operating model that demonstrate the leverage we believe the business will deliver as we scale.

Turning to the balance sheet. We generated $3.1 million in cash in the second quarter, ending the period with cash, cash equivalents and restricted cash of just under $25 million. This improvement reflects the rebound following heavy cash used in the first quarter associated with our revenue cycle management process, where we hold claims in the first quarter of the year. With $37 million in cash and accounts receivable at June 30, we continue to believe that our balance sheet provides the runway needed to support the business to reach sustainable adjusted positive EBITDA and positive free operating cash flow.

Shifting to guidance. Today, we raised our 2026 revenue outlook to reflect strong execution-driven first half performance. We now expect full year revenue of $72 million to $75 million, up from our previous guide of $70 million to $73 million. Our updated outlook continues to assume high single-digit volume growth for the full year, reflecting improved revenue cycle management performance in the first half, supporting a full year mid-single-digit ASP growth compared to our Q4 2025 ASP exit rate. Our guide also incorporates the seasonality impact we typically experience in the second half of the year.

In closing, our second quarter results are a clear demonstration of the scale and leverage we've committed to building and reinforcing our view that the business is positioned to reach adjusted EBITDA breakeven at around $80 million in annual revenue.

With that, operator, we will now open the call for questions.

[Operator Instructions] The first question is from Dan Brennan from TD Cowen.

This is William on for Dan. So guidance was raised by $2 million at the midpoint. Is there any reason there isn't a fair amount of conservatism baked here on both ASP and volumes? Last year, you did see a sequential uptick in volumes from 2Q to 3Q. So just trying to understand if there's conservatism there.

Thanks so much for the question. Very valid. Our thinking on this is for Q2, we had a very nice quarter. And relative to our original projections, we're a couple of million above where we expected to be. The second half of the year, you're right. Last year, we had a phenomenal second half, which didn't have the typical seasonality. It was relatively flat compared to our Q2, but wasn't down. We had 10 years of seasonality prior to that. And so I think from our standpoint, just keeping that in the back of the mind is an important factor as we crafted our guidance this time around.

Got it. And then how should we expect sales force expansion contribution to volumes in the second half? Are you expecting any contribution there?

Well, we definitely expect contribution. We're putting a lot of investment into those folks, and we're actually really excited about the caliber of individuals that we've been able to find and attract to our company. I know we've spoken in the past, but I sit in on the interview of anyone who comes into the company, especially on our sales organization and man, we really have some fantastic folks. They're actually here doing some training this week as well or a few of them are.

So our investments in that group remain very strong. And we have, I think, certainly the best autoimmune sales force out there. So therefore, we expect a pretty decent contribution. But most of these expansion territories were starting from a relatively low basis. And so it will take a little bit of time before they really move the top line number in a meaningful way. But over time, call it, the next 6, 9, 12 months, I think that 10% expansion in our sales force that we executed in the back half of last year should really start to drive some meaningful volume growth for our organization.

The next question is from Bill Bonello from Craig-Hallum Capital Group.

First one is just a simple housekeeping question. Can you give us the AVISE revenue for the quarter?

Yes. Thanks so much for the question. So AVISE CTD revenue for the quarter was $17.7 million.

Perfect. That is what we calculated, but wanted to be sure we were doing it right. And then -- just can you talk to us -- great to see the progress on ASP. Just trying to get a sense of where you're at in terms of getting paid for some of the new markers that you've launched. To what extent the improvement that we've seen in ASP is more related to revenue cycle management versus opportunity in front of us on getting paid for additional markers?

Sure, Bill. This is Jeff Black. Thanks for the question. I appreciate you participating in the call. I'll answer it a couple of different ways. I think we're starting to really look at the ASP on a blended basis across the entire AVISE CTD panel. I know we've communicated in the past what our expectation was on the new biomarkers. So we'll certainly share that with you.

Combined T-Cell, RA33 and PAD4, our overall expectation we'd communicated was going to be somewhere in that $100 range. Where we're tracking today is really in the mid-90s. So we're tracking very well. We don't think there's any reason we couldn't ultimately get to that target, particularly since that a lot of those claims in the last year are still going through appeals and revenue cycle management. So we're encouraged by the traction. It has been a contributor. Like I said, it's in that mid-90 range and tracking very well.

The next question is from Kyle Mikson from Canaccord Genuity.

Congrats on the great quarter. So I had like a multipart guidance question on the components. So on ASP, you raised that kind of guidance from like, I think, low single-digit growth to now mid-single digit, even though the trailing 12-month ASP was kind of flat like quarter-to-quarter. So that's interesting. I'm just curious what you're seeing with just kind of collecting and the RCM benefit, I think you were mentioning. And then maybe some progress commercial payers, like if anything, any progress that you expect to sort of help an inflection maybe towards year-end?

And then on the volume side, I mean, I guess it just looks like roughly like similar second half volumes to first half, which I guess makes sense. But just looking at prior years, even though you have some seasonality factors like in the fall and November and so forth, maybe just point to some areas of upside in volume specifically that we could hope for.

Yes. Thanks so much for the questions, Kyle, and for joining this morning. So just to kind of take these one at a time. On the guidance side, very proud of now 13 consecutive quarters of increasing ASP. That's not easy to do as I think you'll see across the industry. And I think it speaks a lot to the fact that we have the right strategy in place, the right team, and we're executing diligently.

And as I tried to mention a second ago, really a ton of credit goes to our revenue cycle team. They're firing on all cylinders. And I think the more exciting thing from our standpoint is we still have a lot of optimization that we're working into the process and feel very optimistic about the future as well.

If you take a look at year-over-year, I believe we're up 4% on ASP. So I think we're tracking exactly as you said it. So low single digits is what we've communicated in terms of growth expectations year-over-year in the past, progressing to mid-single digits is what is baked into the guidance. And as we've said, projections on ASP improvement over time are always difficult to nail down timing and magnitude. So that's what we think is a reasonable expectation for us looking into the second half.

The middle part of your question, progress with commercial payers continues to be very strong. Our Medicare rate is static. And so progress over the last 13 quarters has really been with our private payer groups. And we have been highly effective in our administrative law judge hearings. We've been very effective in our appeals efforts. We've continued to develop evidence, which substantiates our report and our processes have improved materially over the last few years.

So from our standpoint, that trailing 12-month progression and improvement in growth is 100% attributable to progress with commercial payers. We tend to focus more on cash collections and the blended ASP rather than activity related to some of those individual payers. And my reason for that is I think that's what really matters. And I also think that there can be a dislocation between activity and results over time. So that's what we try to point people to. That's what we've been consistent in communicating and I'm very proud of the way the teams have operated.

The last part of your question related to volume, first half roughly equal to second half, I think you nailed that as well. Just keep in mind, second half tends to have less actual business days with a pretty strong slate of holidays coming in, especially in Q4. We also tend to see from a physician standpoint, for some reason or another, the second half tends to be higher on vacations for our clinical group. So July through December, we just end up functionally with less working days than we do typically see in the first half.

And as I mentioned a little bit with the prior question, I think it's just important to recognize we have had seasonality in the business. Last year was a phenomenal year for us. We're trying, honestly, like hell to continue to grow the business in the second half and match what we did last year, if not exceed it. But at the same time, I think you have to live in reality, too. So hopefully, that addresses each of your points.

Yes, that was great, John. I'll give you a break. Maybe for Jeff on the framework on the path to breakeven EBITDA has proven to be remarkably accurate. Basically, like this quarter, you're at that $80 million run rate, just under the 63% gross margin. I guess, though, going forward, maybe you'll be close to the $80 million kind of annualized run rate. But how should we expect gross margin to sort of track? I think the last time we spoke, it sounded like maybe like high 50s, close to 60s for the rest of the year. I mean, at this point, it seems like maybe you could eclipse that.

Yes, Kyle, thanks for the question. Yes, I think even last call, I think we had called 60% for 2026 more aspirational, right? And to think about it more in the high 50s. We actually think there's now a track to ending the year at that 60% or above. So we've seen very good traction. ASP expansion done a really nice job at managing fixed costs, managing supply chain costs. So I think the 60% range is a lot more realistic now and less aspirational for the year.

The next question is from Max Masucci from ROTH Capital Partners.

Congrats on a strong print. First, on sales force productivity, the 5 territory reps you hired in 2025, I believe, are beyond the 6- to 9-month ramp. Just curious if those reps provided a noticeable boost to volume growth in Q2 or if the strength was more broad-based across the entire force and it'd be great to know what's really driving the productivity higher, if you've adopted any new tools or strategies that are making an impact.

Yes. Max, welcome to the call, and happy to have you follow the story. From a sales rep productivity standpoint, great question. So trying to pick this apart a little bit. We added 5 territories last year. One of those additions essentially split in existing territories. So you could argue kind of starting over a little bit in 6 areas. We see a pretty decent distribution of productivity at this point in time. We have one of our expansion territories has almost doubled in the time that we've added that group.

And then we're seeing kind of right consistent with our national growth on the, call it, the lower end of the growth profile for the expansion territories, so if that makes sense. So somewhere around 10%, 11% growth on the lower end of our expansion territories up to 80%, 90% growth on our higher-end performing territory. So still broad there, different reasons at play. Some of that has to do with potential. Some of that has to do with ramp time for the individual learning curve of that rep.

But I think the great thing from our perspective is very confident in the people we have. And over the last 6 to 9 months, certainly proved out the -- almost 12 months now, certainly proved out the thesis that the territories that we chose were the right areas to expand. And that's always a critical variable that you hope to get right and you don't know until you go back out and do it. So happy with that.

We saw growth really across the entire nation. So what's driving that? I think the refresh of the product last year with the addition of the new analytes certainly reinvigorated the sales force, but it also expanded our utility into rheumatoid arthritis, where we had classically or historically been focused more on the lupus side. And that's a big deal. And I think you're seeing it play out. We saw it play out in the back half of last year with some of the momentum and that really showed up here in Q2.

So very proud of the team. I've been in the field quite a bit. I was actually in the field last week as well. We still have a lot of room to run. So our team is still working on getting that messaging out. We're still working on articulating the clinical value in a more precise and tailored way. And as I mentioned as well, our evidence generation efforts continues to mature.

Our systematic review that we just had really refreshes some of the lupus clinical data. And to be identifying 25% of patients missed by conventional serologies is a really big value for clinicians. And so having that printed and out and able to market, I think just in general, it is enhancing the clinical value of the product, and our team is really pushing it. So more to come.

Great. And just a follow-up. So I think historically or more recently, about 1/3 of your ordering clinician growth has come from outside of rheumatology, GPs, internist, OB/GYN, pulmonology. Just curious, is that becoming a deliberate sort of channel strategy? And just how the ordering trends for those types of docs compared to what you're seeing in rheumatology?

Yes, it's a really good question. We still see general 80-20 rule here that most of our business comes from our rheumatologist call point. Now at the same time, you're right on in that referral network into rheumatology is finding a significant amount of utility with AVISE CTD, especially with the enhanced biomarkers. And I think multiple reasons at play there, but some of it the workforce shortage within rheumatology is certainly lending to that. I actually think that this will be very interesting as we launch myositis as well. That primary call point will be the rheumatologist. It will keep it within our core sales channel, but it has applicability into pulmonology and some of the other subspecialties that manage these patients.

And internally, as we look for further sales expansion, this is understanding what that outside room demand looks like is a pretty decent predicate for our next wave of expansion. And so I think we'll know more here as we start 2027, but we're seeing pretty decent growth within some of these other specialties.

The next question is from Mark Massaro from BTIG.

Congrats on a strong quarter. I wanted to ask about the myositis launch. Can you just give us a sense for what we should be on the lookout for in terms of any data readouts, timing? And then can you give us maybe a sneak preview on how you're thinking about pricing the test?

Yes. Mark, thanks for the question. So very excited about the myositis opportunity. Just as a reminder for folks, this is the #1 asked for product amongst our rheumatologists clinical base. So when our teams in the field, and this is our product development team, our marketing team, our sales or myself, as we talk to our clinicians and ask them how we can better serve them, this comes up, and it's not even close to the #2 asked for offering.

So really excited to be able to provide a comprehensive solution here for folks that we think will dramatically impact patient care and find folks at very high risk of some pretty dangerous clinical outcomes. So that development remains on track. By the way we had to bring 2 new platforms into our laboratory, get those analytically validated. That's all occurred. We have to obviously get the sample cohorts to conduct clinical validation. All of that's in process and remains on track. Very happy with the way the teams are executing there. And so we remain in line with our expectations to launch commercially in the first part of 2027.

So pricing-wise, from our standpoint, we're going to launch similar to what we did with the analytes that we launched last year, and that is there's methodology-based CPT codes that correspond with the various analyte testing. So you would have ELISA-based testing, for example, has an established CPT code. That's all been vetted, and we believe we have the right set of codes to build this out.

We don't have a significant track record of billing all of these codes. And so as we launch from a revenue standpoint, we're going to mirror very close to cash collections and then over time, establish that accrual rate and then we'll be able to set an expectation publicly as well. So that's how we'll launch for reimbursement. And we expect, as our clinical validation matures to be able to provide algorithmic interpretation and potentially pursue value-based reimbursement long term, but that's going to be down the line. The initial launch will be with established CPT codes.

Yes, that makes sense. That's really helpful. And then you guys are making a lot of strides commercially with all the metrics you've provided. You're really knocking on EBITDA positivity here. On the other hand, you're basically saying that you can get to adjusted EBITDA breakeven at $80 million of revenue. I guess my question is, it looks like you could do it sooner than that. So how should we think about the -- some of the factors that would lead you to not getting there before $80 million? Is that investments you're making in the business? Maybe is there any way you can quantify some of those investments you're making in the business, whether it's headcount or R&D, that would be really helpful.

So if I understand the question, Mark, you're just saying what are the risks to reaching adjusted EBITDA positivity and why not a little bit sooner.

Yes.

Okay. Great. Thanks for that question. I think it's absolutely relevant. So we're not guiding on adjusted EBITDA positivity. I think we're very close. Obviously, with the results that we turned in this quarter, we're knocking on the door there. From our standpoint, second half seasonality is going to come into play with hitting a sustained $20 million-plus revenue number on a quarterly basis. We're also right around the corner from a product launch. So I don't think we're too far off. And whether we're plus or minus a quarter, we've got the balance sheet to get there, and we just want to get there in a measured, sustainable fashion.

And I think we've tried to grow the business, but with an eye towards profitability, and that's what we've executed on for the last several of years. So risk-wise, there's always reimbursement risks that exist in this business. I guess, theoretically, you could also have some hit from a volume standpoint, a key client or something like that, but nothing is foreseen at this point in time. And in fact, if anything, most of what we're seeing is very positive related to the efforts and energy that the team is executing against. So I think we're well on track, and it should be around the corner.

Fantastic. And one last one. You guys have been collecting close to $1 million or a little over $1 million in prior period collections in the last couple of quarters. Obviously, you've made some good changes to revenue cycle management. Should we expect these initiatives to continue or at least to be able to collect from prior periods in the coming quarters?

Yes, Mark, this is Jeff. Yes, I guess the way I would answer that maybe flippantly is as long as there is an appeals queue, and we're focusing on revenue cycle management and maximizing the appeals process, then yes, we do expect that we'll continue to see excess cash. That said, the better we do in any given quarter, we're kind of working against ourselves because that typically has an impact on the accrual rate. So the better we do, the higher our accrual rate will go. And we try to be very conservative as much as we can about the accrual rate and not get ahead of ourselves. But -- the expectation is we're seeing really nice momentum.

First half of this last -- of this year, we collected about $2.3 million in cash greater than 360 days. Just to put that in perspective, I think a year ago for the full year, it was about $1.5 million and in '24 was $2.7 million for the full year. So we're tracking well ahead of historical trends.

The next question is from Matthew Parisi from KeyBanc Capital Markets.

On the great quarter. This is Matt Parisi on for Paul Knight at KeyBanc Capital Markets. I was wondering if you could give an update regarding the local coverage determination. Last we heard there was an expectation of an update in mid- to late 2026. Is that still the expectation?

Matt, thanks so much for the question. That is still our expectation, but we don't control it, and it's a fairly opaque process. So just as a reminder, where we sit now, we have completed request in to MolDX. We've actually had that in since the summer of 2022 and are waiting for their feedback. Our reimbursement with Medicare continues to be very stable and no changes there. So -- but still looking for that next step, which would either be a CAC meeting or a draft LCD to come out. So no update as of right now. We do -- with the generation of this new systematic review, we're working to get that in front of the MolDX team and review it with them. So we maintain a very good relationship with that group, but no update now.

Appreciate the insight. And then if I can ask one more, does Exagen expect to expand its sales force in advance of the myositis launch? Or would the current sales force be focused on both the AVISE CTD test and then myositis?

Yes. Great question. So we anticipate selling it concurrently with the AVISE CTD offering along with the rest of our portfolio. So our existing sales force will go through training on the myositis product here at the end of Q3 in anticipation of the launch. It will be available to all 45 territories and the clinicians within those territories. And like I said, it's a very consistent call point, primarily the rheumatologists with some applicability into the referral network.

It may have more applicability into the pulmonology space than, call it, CTD does currently, but we'll just have to figure that out over time and that won't be our initial push. So we'll stick within our existing customer base and offer it with our existing team. We do anticipate taking a look at sales expansion opportunities after the launch because we want to -- depending on the uptake, that changes the opportunity rating essentially of each expansion opportunity. So we'll get through that launch and then look to the next wave.

There are no further questions at this time. I would like to turn the floor back over to John Aballi for closing comments.

Fantastic. And thanks so much. I really appreciate everyone joining the call today. This was about as fun as quarters get from my perspective. We had records in revenue, volume, trailing 12-month ASP and pharma services revenue, all delivered at essentially breakeven adjusted EBITDA. That's been a milestone that have been a long time coming from my perspective. And in fact, 3 years ago for our organization, that combination would have sounded crazy, to be honest. Our team made it a reality through consistent disciplined execution, and I'm really proud of the group here.

The talent and character across Exagen continues to transform the organization into what I think is the preeminent diagnostic company serving autoimmune patients. And honestly, I'm as excited about the opportunity ahead of us as I've been since joining just a few years ago. We're within reach of the financial inflection we've been building toward. And while others are focused elsewhere, we'll keep chipping away to build a truly incredible autoimmune powerhouse.

We appreciate the support of all our stakeholders and look forward to updating you on our progress. Thanks again.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Exagen First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Tina Jacobsen, Vice President of Investor Relations. Thank you. You may begin.

Thanks, operator. Good morning, and thank you for joining us to discuss Exagen's financial results for the quarter ended March 31, 2026. Today, I'm joined by John Aballi, our President and Chief Executive Officer; and Jeff Black, our Chief Financial Officer.

The recording of this call, the press release announcing our financial results and the slide presentation can be accessed on our website at www.exagen.com. Today's call will include forward-looking statements. We encourage you to review the statements contained in today's press release and the risks and uncertainties described in our SEC filings, which identify certain factors that may cause the company's actual events, performance and results to differ materially from those contained in the forward-looking statements made on today's call. We also will discuss non-GAAP financial measures on this call. Descriptions of these non-GAAP financial measures and the reconciliations of GAAP to non-GAAP financial measures are included in today's press release.

And now I will turn the call over to John Aballi. John?

Good morning, everyone, and thank you for joining us. We're starting 2026 off well. Today, we reported record first quarter revenue of $17.3 million, up 12% year-over-year and with continued improvement in profitability metrics as we execute our plan. Gross margin was 59% and adjusted EBITDA loss reduced to $2.2 million, a 14% improvement versus last year. These results continue our efforts to build Exagen into a durable company that compounds value over time by prioritizing 3 core objectives: expanding adoption of our products, increasing ASP through disciplined revenue cycle execution and delivering a steady cadence of innovation that meets the unmet needs of our clinicians.

Q1 was another good example. We are executing and our strategy is working. At the same time, our mission remains our anchor point. Autoimmune disease is still a category where patients often struggle to get clear answers and clinicians like the tools to diagnose and treat with confidence in a timely manner. We exist to change that, and we'll do so by pairing better science with best-in-class execution.

Our innovation efforts are on track, and we believe Exogen is well positioned to bring clarity to the complexities of autoimmune disease, ultimately improving outcomes for patients. When I look at our market opportunity, I'm incredibly energized by what's ahead. Drawing on our knowledge of the space and third-party research, we estimate the autoimmune testing market at over $2.2 billion, growing about 5% annually. With just over 3% market share today, we believe there is significant and realistic opportunity to systematically gain share by bringing better science, more timely results and world-class service to our underserved channel. Driving adoption within that opportunity will be central to volume growth. And in the first quarter, AVISE CTD test volume grew 10% year-over-year, which compared to a 5% market growth rate suggests we continue to earn share in the quarter.

Test volume remained in the mid-30,000 quarterly run rate range. I feel very positive about that performance, especially in light of a couple of week disruption related to winter storms in late January and early February that reduced patient access and physician office days in specific U.S. regions. Demand outside of the weather-impacted weeks tracked well with our expectations. We entered Q2 focused on execution and 1 month in have seen a strong start, consistent with expected ordering patterns.

In fact, year-to-date, we've seen several weeks where testing volume has exceeded 2025 weekly highs, and this is obviously just over a quarter into the year. A big part of my optimism stems from a review of our sales metrics, which continue to show a broadening of our ordering base. Ordering clinicians were up 15% year-over-year, reflecting continued penetration and engagement within our channel. Our team is executing well, and the results continue to build. Now to ASP, one of the clearest indications that our operating strategy is translating into durable business improvement. We expanded trailing 12-month ASP to $444, up $25 per test or 6% versus last year.

Strength in the first quarter was driven by continued progress in revenue cycle management and favorable collections timing. We've now delivered 12 consecutive quarters of increasing trailing 12-month ASP and view this metric as the most reliable indicator of progress as it smooths the variability associated with accrual accounting and timing of collections. Overall, we're encouraged by continued improvement in our underlying reimbursement. It reinforces that we're investing in the right processes and the right tools to drive sustainable ASP expansion over time. In the first quarter, we continue to advance our processes around innovation and remain on track with our development priorities. We've been deliberately building the R&D to commercial muscle to deliver a dependable cadence for new products with the objective of launching approximately 1 product every 12 or so months to our clinician base.

Our next key priority is an offering for myositis, our first new stand-alone product since 2020, currently targeted for commercialization in early 2027. This is among the most requested diagnostic need within our channel and will fit well with our commercial reach. Myositis is an autoimmune disease that can present in many forms, but often causes chronic muscle inflammation, progressive weakness or rapidly progressing interstitial lung disease. Left untreated, it can lead to irreversible damage that extends beyond the muscles to vital organs. And in the most severe forms, this results in complications leading to complete loss of lung function or even death. The testing dynamic for myositis is similar to connective tissue disease, where specifically with early disease, symptomatic presentation is ambiguous and the differential is broad.

While roughly 100,000 patients in the U.S. are affected by the disease currently, we believe this number dramatically underrepresents the true disease prevalence given the number of patients that ultimately go on diagnosed due to inadequate tests in the market. We believe the patient population under evaluation for myositis is many times this number. While most clinicians rely on conventional testing today, the vast majority of them lack confidence in those results. We're developing a comprehensive offering that will bring clarity to this population that clearly needs a better solution. We are also excited about our scientific visibility to start 2026. At autoimmunity 2026, a key autoimmune conference this month in Prague, Exagen had 9 abstracts accepted, including several tied to our myositis research and continued evidence generation across the AVISE portfolio. We've also had 2 manuscripts accepted for publication related to our research in myositis and SLE. Those should be out for publication later this month as well.

Our progress reflects the rigor, quality and practicality of the work our clinical team is driving. Looking ahead, we are reaffirming our full year 2026 revenue guidance of $70 million to $73 million. We're incredibly pleased with the start to 2026 while working to build successive quarters and ultimately years of profitable growth. We remain focused on our priorities and delivering consistent execution. To close, I want to thank our team. The quality of this organization continues to improve and the solid results we're delivering are the product of real collaboration across every function. I am grateful for the tremendous energy, the effort and the high character that our people bring every day in service of autoimmune patients and clinicians.

With that, I'll turn it over to Jeff for additional comments on the financials.

Thank you, John, and good morning, everyone. 2026 is off to a solid start with first quarter results reflecting continued deliberate execution across the business. Once again, we achieved record top line performance by growth in both testing volume and ASP. I'll dive into the financial results, starting with revenue. First quarter 2026 revenue reached $17.3 million, an increase of 12% compared to last year.

Testing volume grew 10%, driven by continued momentum from the investments we made last year to upgrade and expand the commercial organization. The team's productivity continues to ramp. In fact, even with many of our new territories less than a year old, we drove a 4% improvement in sales productivity based on trailing 12-month volume per territory. And as John mentioned, we increased the number of ordering clinicians in the first quarter by 15% year-over-year. These are both clear indications that our commercial investments are translating into tangible performance gains. Our Avaya CTV trailing 12-month ASP expanded 6% to $444. Execution of our revenue cycle management initiatives supported a strong in-period ASP result, including the collection of over $900,000 in claims older than 360 days. Over time, we continue to target an ASP of at least 50% of our Medicare reimbursement or approximately $600 to $650, recognizing that the quarterly contribution from our revenue cycle initiatives can be variable.

Our pharma services offering generated roughly $300,000 of revenue in the quarter. Early efforts here are coming to fruition. We now have over $5 million in contract backlog value and growing that we expect to realize over the next 2 to 3 years. Moving to gross margin. We reported 59% for the first quarter of 2026, relatively unchanged compared to first quarter 2025 and up 360 basis points sequentially. Gross margin in the quarter benefited from the strength of our in-period ASP and our continued COGS rationalization that is streamlining workflows in the lab and reducing costs across our supply chain. We remain confident that gross margin will progress to the mid-60s over time as we achieve further ASP expansion, generate scale and fixed cost leverage and further optimize costs.

Turning to operating expenses. First quarter 2026 OpEx was $13.6 million, up about 9% compared to last year. We continue to exercise expense discipline and direct incremental spend toward growth investments, including commercial and R&D initiatives. Breaking out the components of OpEx, first quarter SG&A was just over $12 million, an increase of 8% compared to our first quarter 2025 and driven primarily by investment in commercial talent and territory expansion. Notably, revenue growth continues to consistently outpace SG&A growth, indicating sustained operating leverage in the business. R&D accounted for about $1.6 million of OpEx in the first quarter, growing over 20% compared to last year to support continued pipeline development, including preparation for the myositis product launch expected in early 2027.

Our adjusted EBITDA loss, which excludes depreciation and noncash stock comp expense was $2.2 million in the first quarter, a 14% improvement compared to last year. Please refer to the press release we issued earlier today for a reconciliation of our net loss to adjusted EBITDA. Turning to cash. We ended the first quarter with cash, cash equivalents and restricted cash of just under $22 million and ahead of our internal expectations. We continue to maximize our revenue cycle management, which includes beginning the year by holding most claims.

Consistent with previous years, this temporarily increases accounts receivable and results in a higher use of cash in the first half of the year, which we expect to normalize in the second half. We continue to believe that our balance sheet provides us the runway needed to support the business to sustainable positive free operating cash flow. Shifting to guidance.

As John mentioned, we're reaffirming full year 2026 revenue guidance of $70 million to $73 million. The midpoint continues to assume high single-digit percent volume growth and low single-digit percent ASP growth relative to our Q4 2025 in-period rate of approximately $430. In closing, we remain committed to creating and sustaining shareholder value through financial and operational discipline as we deliver better care for autoimmune disease. Our financial performance reflects continued execution across top line expansion, cost management and targeted investment to create a durable business well positioned for self-funded growth and scale.

Operator, we will now open the call for questions.

[Operator Instructions]

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

Congrats on a great quarter. I wanted to talk about the quarterly like in quarter ASP for a second. It was good to see the improvement in the trailing 12 months, but the quarterly was interesting. So it looks like maybe like 470 or high 400s, and that would obviously be a pretty big increase from the last few quarters. But I bring it up because it just seems like your first quarter ASP is typically the highest of the year of any of the 4 quarters. And so as we think about the step down going forward, if that is the case, just -- what's the progression going to look like? I know you have the ASP guidance, but maybe just talk a little bit about the seasonality, what you're seeing with RCM and that stuff and how we should just be thinking about it as it kind of builds to the full year TTM.

Kyle, thanks a lot for the question. Appreciate it. When we look at this quarter, very happy with how our revenue cycle team was able to deliver, specifically related to the prior period cash collections, which drove some of that upside or outsized performance in the quarter.

Tough for us to project that each quarter going forward or know exactly that prior period collections tends to be a little bit lumpy for us. So I don't think we're ready to say that there's going to be a step down in sequential quarters to characterize exactly the size of it. But our revenue cycle approach has yielded pretty decent returns as it relates to prior period collections in quarters in the past, and it was great to see it happen again this quarter. Looking forward to it in future quarters as well. But the exact magnitude is always difficult for us to project. Anything you'd add, Jeff?

Yes, Kyle, I would say you had done the calculation on in-period. Our out-of-period collections, just to put in perspective, we said about $900,000 in out-of-period greater than 12-month collections. Put that in perspective, we did about $1.5 million for the entire year last year.

So tracking very nicely. And again, very hard to predict whether that becomes a run rate or otherwise. But that had about a $25 impact on the in-period ASP. So we are tracking ahead of that Q3 or Q4 exit rate, which is encouraging. But again, I think it's too early for us to make a call on what we expect Q2 in terms of whether it's continued enhancement. We'll say we did see a full quarter of collections for PADD 4.

So that's tracking right around where we expect it to be. And then some of the increase is really relative to payer mix, which can change quarter-to-quarter. But again, very encouraged about a $25 impact on the out-of-period collections. Hoping that we'll continue to see that traction, but not yet ready to make the call.

Okay. Yes, John, that was helpful. And Jeff, that was a really good color there as well. On the ordering physicians in the quarter, that increased, I think, 15%, I guess, year-over-year. That's great to see. I just was wondering what were some of the reasons for that. And then I think that might imply like a lower average test order per doctor, which is probably extend that a cohort of newer to AVISE clinicians.

On this though, what are some of the ordering trends of the more recent cohorts of physicians given several developments in the autoimmune field the last few years?

Great question, Kyle. So you're exactly right. The ordering physician base increased 15% year-over-year to about just over 2,700 physicians here for the first quarter. A big part of that has to do with our sales expansion. Obviously, with the additional territories we added in the back half of last year, those folks really high-caliber individuals, but they've just gotten into the field, established those relationships, and we're seeing the traction there. As it relates to orders per physician, you're on the mark there as well. I think part of the lower orders per physician for Q1, you would be related to more of the weather impact, to be honest with you.

We had about 2 weeks in the end of January, early February, where we lost around 30% or so, 1/3 of our volume for those 2 weeks just related to that severe weather in the Northeast. And so that, on an average basis, orders per physician would pull that number down a little bit. So that's all we're seeing there. The weeks outside of the weather impact, we saw very robust demand on orders per physician, physician base and here into Q2 as well.

Awesome. Perfect. And then finally, Jeff, you were mentioning the R&D expense this quarter was a bit elevated, partially due to preparation for the myositis launch, I guess, early next year. I just was wondering if you guys could talk about how much education or like additional marketing is going to have to be kind of executed, I guess, this year for that test? And how much of this is maybe R&D versus like an SG&A type thought process?

Yes. I'll let John chime in on some details. But generally, this is going to be new product really outside of AVISE CTD, but it will be distributed through the same sales channel. So the expectation is we're adding to the bag. So there will be some incremental marketing efforts, but we don't expect to see OpEx ramp up substantially. We will continue to see investment this year on the R&D side. But this is -- will be our first stand-alone product beyond AVISE CTD really since, what, 2020.

2020. So really excited about it, and we don't think it's going to add really incremental burn. It's really just adding to the existing bag.

The way we take a look at this, Kyle, or at least the way I think about it internally is we have to have very strong relationships with our customer base, but also the other innovators in the field and the KOLs. And that serves several purposes, but one of them being as you launch a new product and you conduct studies with folks, that can serve very much as incredibly powerful marketing material related to the new product. So we've already started that. We've got abstracts actually an accepted manuscript now related to myositis and some of the research we're doing there. And that's all done with the existing budget. And a big part of that or credit goes to our research team for having those relationships, finding creative ways to conduct studies in call it, economical way, and we'll continue to do that. There may be some marketing expense that is associated with the product launch, but it will be measured and generally consistent with our current operating profile.

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

So on the -- first of all, on the volume, on the weather, you talked about a couple of tough weeks. Any sense of maybe what the impact on volume growth might have been? I mean, did you, in theory, lose a day or 2 of productivity? Or how might we think about that?

Bill, thanks so much for the question. So the way we have characterized it is for those 2 weeks, we lost about 1/3 of volume over the course of 2 solid weeks. So that's a couple of thousand tests. That should be, I think, give you the exact color you need.

Yes. And then just to expand on that, is there anything else just as we see the ASP trend moving in the right direction, is there anything different that's happening at all on the volume front in terms of either maybe walking away from some lower-priced business or being more cautious about some of the accounts you're adding? Or would we say that maybe differential in the growth rate and the sequential downtick would pretty much all be the weather?

So great question. So in the quarter, the impact of volume was pretty much weather related. I mean, not really any other drivers there or motivators there. And then on the ASP side, really what's driving that continues to be just our are the strategy we employed a few years ago. And we just continue to get better at it. Our appeals continue to get better. These are long cycles, as you know. And as we learn through various successes or failures in our appeal efforts, we adjust our approach and make changes there. We're always evaluating our Medicaid patient population is maybe one area that I would say continues to evolve and certainly on the managed Medicaid side, what level of patient responsibility the market can support there. And so those are some changes we have made here in Q1, but I don't think those are big contributors to volume impact. They may have had some impact on the ASP side, but mostly ASP gains are due to wins on the revenue cycle side.

Okay. That's really helpful. And then maybe just a follow-up on that on the ASP side. So obviously, having improvement on the both the collections front and it sounds like on the fighting denials and all of that. Can you just remind us maybe what some of the key opportunities are? I know as we were going through last year, there were some really specific opportunities you saw where you -- for things that you could get paid for because of some of what you had added to the product over the course of the last year? And maybe just give us a little bit of an update on how you're feeling about that and where those opportunities stand today?

Yes, absolutely. Thanks for the chance to expand on it. From my standpoint, opportunistically, we continue to pursue prior period collections. I mean we've talked about this a little bit with the new product launches, and you have your initial payment or your initial ASP, call it, from when you perform the test. And then over the course of about a 12-month, maybe even a little bit longer 12- to 18-month period, you're able to continue to work with the insurance company, with the patient in various ways through appeals, advocacy, what have you, and drive further collections. And that's what we anticipated doing with the new product launches on the existing product. And it's just -- it's coming to fruition to have 900,000 in prior period collections here in Q1 when all of last year, we had about $1.5 million.

That's phenomenal. We are, to be honest, so proud of the team because it's coming from multiple payers and through multiple initiatives. And so it's not just one single win that drove this, but it's on improving some of those collections for the new product launches. It's on the base business across multiple payers. And our level of payer engagement just continues to improve as well. I mean here in the first quarter, we had -- I said it on -- we had presentations to 3 different medical directors at various Blues plans. They continue to be engaged. We're not -- these aren't just join a conference call, they sit silent and you present your your clinical doc and then the call is over. There's high levels of engagement, lots of Q&A, follow-up requests for additional material. So we are -- our strategy of getting the attention of various payers. It's yielding improvement in ASP on the individual claim level for multiple CPT codes, and we'll just continue marching along. And that's been the strategy from day 1 and just continues to improve in terms of efficacy.

Okay. And then if I could, just one last follow-up on that, but -- and that's helpful. But just in terms of getting paid for the additional markers. And obviously, that's part of the success presumably on the prior period collections. But as you look forward, are you feeling -- how are you feeling about consistency of payment for those additional markers? Are you thinking that's going to be -- I hate to say easier, but you -- as you look forward, do you expect to see maybe the rate of denials moderate or a bit given the success you've had with the prior period collections? Or is it too early to say on that?

No, -- so it definitely will improve the rate going forward, especially just because we're on accrual accounting, right? So as you have a track record of improved collections, you can actually accrue it and then it will factor into the rate going forward, right? So from that perspective, we'll have greater certainty, we'll have greater clarity because we'll have firsthand experience in seeing this through full cycle for -- this is more specific to the new marker reimbursement.

So from that perspective, we'll improve. But I think the other thing I would say is we now have a 3-year track record of consistent improvement in ASP. And so I have a lot of confidence that our processes work and that they'll continue to yield positive results over time as well. So all of that will be factors. The way to really lock it in, as you know, is through in-network contracting and then your velocity of payments will improve. And I don't know that you ever sleep soundly at night regarding this area. But at the same time, it may speed everything up a little bit.

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

Maybe, guys, just on pacing for the year, just Q2 Street is just shy of $18 million. Can you give us some flavor about maybe price volumes, you guys seem okay with that number? How do we think about that?

And from a guidance standpoint, we are guiding quarterly. I think we feel very comfortable about our annual guide that $70 million to $73 million. Obviously, a very nice quarter here for Q1, some of it driven by the prior period collections that we aren't quite ready to earmark for the rest of the year each quarter. So we're still filling it out. We'd like to get another quarter behind us before we take a look at that annual number. And I think the quarterly spread is what it is on the analyst side, but I don't think we're too far off.

Okay. And then maybe just one follow-up on the weather. So you lost those a couple of thousand tests, I guess, in Q1. So I guess, presumably, do those come back in Q2? Or are they gone? And does that kind of create a favorable comp in Q2?

Yes. So because the sample type that we work in is peripheral blood, it's got a viability component to it. Really, it gets moved -- those tests get moved theoretically. If we were dealing with paraffin-embedded tissue or fixed tissue or something like that, you could envision a catch-up period that's maybe a little bit more realistic. But for us, in essence, those are gone. Those are clinic days that are completely gone. There's only so many patients that a physician can see in a single day. So those are essentially gone.

Got it. Okay. Maybe you could just give us an update on the path towards an LCD. I know that's been on file for a couple of years now. Just wondering kind of any update there, how we think about that? And what kind of -- if, in fact, that were to come, how do we think about the impact that would mean on your ASP uplift?

Sure. So maybe I'll start with the impact first. Impact-wise, in LCD is a very nice progress for our organization. It will memorialize the coverage with Medicare that we have, I guess, in plain sight, but also allow us to leverage leverage that for Medicare Advantage conversations and even policy discussions related to commercial lives with various plans. So we're looking forward to it, still waiting, continue to have a very good relationship with the MolDX team, meet with them on a regular basis, about every quarter just to get an update. We do have -- our body of evidence supporting AVISE CTD continues to expand. In fact, we had a systematic review, a very significant publication for us internally, just get accepted for publication. That will come out maybe in a month's time or so. And we look forward to updating the MolDX team with that evidence as well. But where we sit right now is we're in the queue. They are unable to tell us exactly where in the queue we are, but we remain in the queue and they have a complete understanding of of our product and the clinical evidence behind it. But that's about all we can say at the moment.

Okay. And just in terms of the Northwell transition, I think you guys felt pretty good that other customers weren't looking to kind of switch from direct bill to kind of, I guess, third-party pay. Just any update there? How do you feel about that? Does that still remain the case today?

Yes. Well, it's still things. I think from my perspective, it's really unfortunate that we weren't able to find a path there. But as it relates to our broader client bill business, no further change. In fact, I think our relationship with our client bill customers continues to be very strong. maybe adjusted our approach a little bit, and we have a lot of senior leadership highly tuned into our client bill accounts and just continue to foster them as we do with really any other account. So no further updates, if you will. And as it relates to Northwell, we continue to find ways to serve their clinician base outside of the system itself, but see it unlikely -- see it as unlikely that a client bill arrangement comes back in the near future.

Got it. But you're not really hearing like you think it is kind of more of a one-off, I guess, is still the case, correct?

Yes. And that happened in July of last year. And since then, we continue to have, like I said, strong relationships with our client bill business. So pretty close to the definition of one-off, in my opinion.

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

It was really nice to see the 15% increase in ordering clinicians. Can you give us a sense, are these all specialists, so I presume rheumatologists? Or perhaps did you see any increase in breadth? And then related to that, can you speak to any potential opportunity to market to primary care or more generalist clinicians?

Yes. Mark, thanks for the question. Very interesting one. From the physician base standpoint, we still target the rheumatologists as our primary customer, and that's what we saw in terms of the expansion, continued growth, but roughly proportional to what we had previously. So about 2/3 devoted to the rheumatology channel and then about 1/3 of that expansion coming outside of it. When we see utilization of the test outside of rheumatology, it can come in a few different ways, general practitioners, internists, but we also see it in the women's health side, so OBG, but also pulmonology as well.

And so we don't have targeted -- we want to keep our sales team focused -- and I think you really need to take a look at what the potential is for those physicians before you start targeting and marketing to them. And so from our standpoint, where we've seen expansion outside of the rheumatology specialty work well, it's when the rheumatologist is still involved even if behind the scenes. They know their referral network very well, and they know which physicians for whatever geographic reason are seeing some of these patients, and they'll help direct us in that respect. So that's what we saw with this expansion as well.

Okay. That's great. And I think you expanded to, I believe, 45 territories. Can you just speak to how you're feeling about the productivity of some of the newer reps? How do you think they're ramping? And if they're not fully ramped, do you see any potential for some pickup in the back half of the year?

Yes. So first of all, they're fantastic people and been really excited about how we've -- how they've been able to come in. We've modified our training now a couple of times to cater to really refine it over the last couple of years, and it's working well. We just had our -- we split training into 2 phases. The first is kind of welcome to rheumatology, remove the dear in the headlights sort of perspective. And we bring them back after a couple of months in the field to dive deeper into the science, but also really do more of a Q&A and tailor it to what they're seeing and the challenges that they're facing in their territories. And we did that here in late December.

So we've now had a quarter with our new reps going through Phase 2 of the training and -- and so they're still getting their feet under them. I think we typically see production consistent with our goal targets somewhere in that 6- to 9-month range. But to truly get running, it takes a little bit longer than that. And we've had a few of our territories land some pretty big accounts, clients, which is telling me that they understand the product, they're able to convey the clinical utility of the product in an effective way and develop that relationship. So very happy with how pretty universally these 5 territories have gotten acclimated to rheumatology and our product, but still a ways to go. And I would think you see a continued build throughout the year. We'll also look to expand our sales organization even further once we have those folks adequately supported. So maybe that comes in the back half of the year or so, we'll have to see.

Okay. Fantastic. And then my last question. I know in prior calls, there had been more discussion around the newer biomarkers launched in 2025. I know you've talked about PADD 4, I think RE33, some others. Just curious how that is ramping? And to what extent do you see potential upside in ASPs as we try to tune up our models? I'm just wondering how those are progressing relative to your internal expectations?

Yes. The new markers, I think generally inside the building, we're very happy with the decision to pursue that research and ultimately commercialize those markers. And I think part of what gives us that optimism or excitement is we've actually started to land pharma contracts related to testing with the new markers. We actually have 2, specifically for PAD4 and RA-33. So our unique RA markers are not only grabbing the attention of our clinical base and being useful in that context, but we're seeing that utility spread into our pharma partners.

And obviously, as you have these new markers incorporated into various trials and subsequent publications leveraging these, it's just going to continue to build. And we continue to be the only group in the U.S. providing these markers and just very excited to drive that innovation into the field. Specifically as it relates to ASP, I think our revenue cycle operations continue to improve the ASP that we're able to generate on our test, but specifically those new markers. And we're still gaining confidence with what that looks like full cycle. I mean PADD 4 launched in September of this past year. So we're 6 months in, and we don't guide on ASP. And so I think from that standpoint, it's going to be tough for me to give you some direction there. But we like how the first quarter shaped up related to ASP. Some of that prior period collection was related to the new markers, and we'll just continue to build from here.

Great. Actually, John, just to clarify that, the pharma business that you're landing, how much of this is lupus related versus RA or any other type of autoimmune disease?

That's an interesting question. So it's interesting, Mark, because you sign a contract for up to a certain amount of service and some of that's dependent on trial enrollment, right? But we have -- right now, we have a pharma business heavily focused in lupus, but actually quite a bit in RA as well. We've never broken it out publicly, Jeff. What would you...

Yes, it's a great question, Mark. Historically, clearly, lupus, the expansion of the contract backlog, which has expanded from in the 4s to the $5 million range over the course of the last 90 days. A lot of that has been driven by RA. I would still say a bigger percentage is lupus, but we are seeing sort of a growing contribution from RA.

Yes, we're doing at least 1/3 of our biopharma business in RA. It may be higher than that, but at least 1/3.

Our next question comes from the line of Matthew Parisi with KeyBanc Capital Markets.

This is Matthew Prices on for Paul Knight at KeyBanc Capital Markets.

Congrats on the quarter. I believe you called -- on the last call, you called out that ACR is now advocating for the AVISE CTE test. Can you talk to any impact that you're seeing as a result of that advocacy?

Matthew, thanks for the question. And you're exactly right, very happy to have found a path that ACR can play in helping us drive greater access to our test. And given that we're at various forms of discussions with different payers, I would hesitate to call out a payer by name, but it's been a very positive impact. And any time you have physicians advocating for your product directly to the payer, I think tough to mess that up, to be honest with you. And so we welcome it. We welcome the partnership. We really appreciate that they recognized the role diagnostics play in the ecosystem and that there needs to be a path for advocating greater access for patients. It just continues.

So it wasn't a onetime event. It's a partnership that we formed with the ACR and the physicians there, and they're committed to speaking on our behalf and advocating for their constituency related to access. So I would just say it remains strong and continues.

That's great to hear. And then if I can squeeze in one more. You previously mentioned revenue per territory in the range of $430,000. Do you have like an updated revenue per territory number for the quarter? And then how should we really think about that as you ramp up the new territories?

Yes, Matt, I think that the number you're referring to is a quarterly number. So the annualized number would be north of $1.5 million. That continues to be, what I would say, our target, $1.5 million plus, and we're tracking right about there, maybe moderately improved given the results of Q1.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Aballi for any final comments.

Thanks so much. I really appreciate everyone who joined the call today. And it's really a lot of fun to start the year off the way we have. Basically, we're continuing our momentum from the second half of '25, but reigniting our progress in ASP gains. And I don't think anything is more fun than that. I'm incredibly proud of our team. As I have been now for several years, they continue to deliver in transforming this organization into really the preeminent diagnostic company serving autoimmune patients.

Progress at the company is coming first, but we've consistently improved our trajectory, and we have put ourselves in a position to own the autoimmune diagnostic space. And while others are focused elsewhere, we'll continue to chip away at this opportunity and build a truly incredible autoimmune powerhouse. We appreciate the support of all stakeholders and look forward to continuing to update on our progress. Thanks so much again.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Greetings. Welcome to Exagen Inc.'s Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. At this time, I'll turn the conference over to Tina Jacobsen, Vice President of Investor Relations. Thank you, Tina. You may now begin.

Good morning and thank you for joining us. Earlier this morning, Exagen released financial results for the quarter ended December 31, 2025. John Aballi, our President and Chief Executive Officer; and Jeff Black, our Chief Financial Officer, will host this morning's call. The recording of today's call and the press release announcing the quarterly results can be found on the company's website at www.exagen.com.

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

In addition, we will discuss non-GAAP financial measures on this call. Descriptions of those non-GAAP financial measures and the reconciliations of GAAP to non-GAAP financial measures are included in today's press release.

With that, I'll turn the call over to John Aballi, our President and CEO.

Good morning, everyone, and thanks for joining the call today to review our 2025 performance. Before we get into the details, I want to start with why what we are working toward matters so much. Autoimmune disease is still diagnosed too late, too imprecisely and too inconsistently. Consequently, it's the patient that suffers. Every delay, every misclassification, every uncertain answer shows up as real human cost. I'll put a finer point in the problem with a comparison to oncology, where it's well known how important it is to get the diagnosis right as soon as possible and at the earliest stages of the disease when the course of action can be directed towards a cure.

Significant investment has gone into improving the precision around and detection of disease in oncology. And the results show as the median time to diagnosis is about 4 months regardless of the type of cancer. And this is when measured from initial clinical suspicion to the date of diagnosis. I want to contrast that with autoimmune disease, where the diagnostic journey can be dramatically longer. For lupus, the often sided average time to diagnosis is around 6 years. And for rheumatoid arthritis, it's roughly 2 years. This diagnostic gap is at the heart of what we're working to address. Autoimmune patients are suffering in a broken system.

At Exagen, we exist to solve this problem, not with more noise, but by listening to our customers and developing better solutions. And over the past few years, we've been deliberately rebuilding our company so that we have the foundation to make a profound impact on the future of autoimmune care, impact for patients who want clarity, impact for clinicians who want confidence and impact for a health care ecosystem that desperately needs a better solution. As we work to address these significant unmet needs, we expect to have a meaningful impact for our investors as well. What I hope you'll come away with today is how Exagen is evolving into a company that doesn't just participate in an area of autoimmune diagnostics. We are working to own the entire space, providing more comprehensive care for the channel that relies on us and to move the field forward.

Today, I'll cover the progress we've made, the momentum we're seeing and just as importantly, what we've deprioritized so we can stay focused on what truly moves the needle. Our story is about discipline, conviction and building something durable, and that's the lens we'll maintain going forward. With that framing and given that we've come to the end of another year, I want to start with a review of the progress made since I joined in 2022 because it highlights our ability to reshape and build a viable business. A lot of the work that needed to be done early on was behind the scenes. We have strong science and a meaningful mission, but the organization needed a healthier operating foundation to consistently translate that into durable financial performance and a platform for innovation. So we rebuilt the core of our company deliberately and systematically.

First, we advanced our revenue cycle management efforts, and I've detailed this at length, but it started with upgrading our customer service routinely, collecting clinical records, establishing a prior authorization process and getting great at appeals so we could continue to improve reimbursement in a sustainable way. Next, we restructured our sales force pretty much from the start, reducing the team by roughly 1/3, managing out those that couldn't perform along with people that didn't fit the culture we were building, while steadily upgrading the overall talent level across the entire organization. We've continued to cultivate a culture that is conducive to innovation, hard work, integrity, all with the dose of humility and the group of folks that currently comprise Exagen certainly embody this spirit.

Third, we reviewed our R&D efforts and streamlined the portfolio, discontinuing lower potential initiatives and prioritizing the opportunities our clinicians were advocating for, projects with clear commercial viability. This effort brought to the surface a significant number of challenges, including consolidating operations from multiple locations and walking away from programs with significant sunk costs. But where we sit now is at a place where we've launched 3 sets of innovative markers into the clinic within an 18-month period. We've educated clinicians and are having real impact on patient care. We have manuscripts pending, which highlight the caliber of science we're now regularly conducting, and we're shortening the time for patients to be diagnosed correctly and treated effectively, our impact highlighted in the most meaningful way.

Lastly, we transitioned away from unprofitable customers and processes. That's always a gamble because it's challenging to estimate second and third order impacts that result from these types of decisions, but we knew they were the right decisions if we were going to succeed in rebuilding this company. None of these actions were easy, especially as a microcap public company, but they're exactly the kinds of decisions that build a business clinicians and patients can rely on to advance the field long term. The result today is straightforward. And while there remains a lot of work to do, the financial reflection of our decisions continues to materialize. I'll highlight a few of our results from last year to make the point. First, I want to highlight volume because it reflects extraordinary execution and our sales team is absolutely killing it.

In 2025, we reset the volume run rate from roughly 30,000 tests in the first quarter to 35,000 plus in the following quarters. Q4 was the highest Q4 testing volume in Exagen's history, and this marks the second consecutive quarter that I'm able to make that claim. What's especially encouraging is we buck typical second half seasonality, which is, in our view, a real testament to the durability of the turnaround efforts we've driven and a consequence of having the right team in place. To give you a sense of how impressive this is, we've averaged approximately 1% volume growth from 2022 through 2024, essentially flat as we're rebuilding many aspects of the company. In 2025, the team delivered over 11% testing growth with strong momentum heading into 2026. Additionally, in 2025, we expanded our sales force from 40 to 45 territories, found incredible people to join our team, and we expect our new sales reps productivity to continually improve over time as these folks get fully up to speed. We are very much on the right track in this area of our business.

Now switching to ASP and the cleanest way to measure progress here is by viewing it on a trailing 12-month basis. At the end of the year, trailing 12-month ASP was approximately $441 versus $411 at the start, up about 7%. That's meaningful execution for any diagnostics company and is being driven by the launch of our new product enhancements and the processes we've rebuilt over the last couple of years, cleaner revenue cycle management, more effective appeals, consistent medical director engagement and strong payer advocacy. Looking forward, there are several drivers to support further ASP expansion, including continued revenue cycle execution and the continued traction we expect from new biomarkers now that they're roughly 12 months into commercialization.

We also have the American College of Rheumatology now advocating for us, a first for our company and something that's materialized over the last 3 months with specific plans to drive medical policy progress with payers. It has taken us almost 2.5 years to secure solid advocacy from the ACR, and we're excited to see what may come from greater engagement with them. Progress with market access, including the local coverage determination could be an additional catalyst, though timing is always difficult to predict with these types of things. And finally, our team continues to secure promising meetings with medical directors at various plans. We recently met with 12 different medical directors at various Blue's plans and have other scheduled meetings here in early 2026 to continue educating and advocating for patient access to the AVISE franchise. This has been the core objective of our strategy over the past couple of years, and it's exciting to see the progress in a few of these areas. Our strategy works, and now it's about scaling our efforts with discipline while driving a regular cadence of innovation.

Turning to our pipeline. We have 5 promising assets in development and are formalizing a product cadence intended to expand our addressable market opportunity by launching one product each year. That's an important evolution for us because it builds clinical relevance and reinforces discipline, steady innovation executed reliably aligned to the needs of our customers. I'll preview a few of the opportunities we're evaluating. First, we feel particularly good about developing a solution to address myositis, a chronic inflammatory condition that's often evaluated under suspicion of a connective tissue disorder. It's a meaningful clinical predicament within our channel where we've already earned distinction and wouldn't require heavy incremental investment to commercialize. It is easily the most requested offering amongst our clinical base. And if we can develop an offering that meets the needs of our clinicians, we believe demand could ramp quickly.

We also continue to evolve important efforts with lupus nephritis and disease activity measures for both SLE and RA, but we'll refine the reimbursement pathway before committing to a time line there. Additionally, we continue to advance our presence internationally and domestically in the autoimmune field with recent manuscript submissions that highlight solutions under development. Those manuscripts will be posted to our website once accepted, but this continues to be a positive consequence of the efforts of our scientific team to support high-quality science with a practical commercial benefit. Later this month, we're looking forward to the International Autoimmune Conference in Prague, where we expect to present 7 abstracts. And even further in the year, we expect additional abstract presentations at AACR. We have lots of activity on this front.

With the progress of the organization over the last couple of years, it's clear that we continue to build a company well positioned to bring innovative products to the rheumatology community and fully expect 2026 to be another exciting year. We are, therefore, guiding revenue expectations for the full year to be between $70 million to $73 million. I'm going to let Jeff cover the assumptions behind that in a moment, but we believe this reflects continued progress with both volume and ASP contributing to growth as we position the organization for long-term profitability.

To close, I'm very encouraged by our progress, while mindful of the hard work that lies ahead. We've demonstrated strong execution, and that execution has fundamentally strengthened Exagen's long-term position. Today, we are very proud to distinctly serve a vast unmet need in several autoimmune diseases by delivering timely, actionable answers that can be -- that can dramatically improve patient lives and create clinical clarity. Looking ahead, we intend to expand our reach across autoimmune disease. With the organization better positioned operationally, we can build a differentiated company that through innovative diagnostic tools, addresses multiple high-impact clinical dilemmas in one of the largest and most underserved markets in health care.

As we execute that vision, we're focused on delivering sustainable profitable growth by prioritizing 3 simple objectives: First, advancing adoption. We are driving volume growth through an upgraded and expanding sales force and generating evidence to support our innovation. Second, continuing to expand ASP. We're continuing to effectively execute our revenue cycle optimizations and market access initiatives while engaging with payers at a level we haven't in the past. And third, driving innovation. We're creating a foundation for a meaningful innovative cadence, evaluating select inorganic opportunities and prioritizing R&D efforts that can support our intent to own the autoimmune diagnostics space. I look forward to updating you on our continued progress in the future.

And with that, I'll turn it over to Jeff.

Thank you, John, and good morning, everybody. In 2025, our team continued to structurally reposition the business for profitable long-term growth, and we're pleased to see that work translate into financial results. Namely, we achieved record top line performance, and that was driven by both growth in testing volume and ASP. While we experienced some ASP headwinds in the second half of the year, we expect this as transitory and are encouraged by the overall momentum we're seeing in the business as we've entered 2026.

I'll dive into the financial results, starting with revenue. Full year 2025 revenue reached a record $66.6 million, a near 20% increase over 2024 with volume up over 11% and trailing 12-month ASP up over 7%. Our investments to upgrade and expand the sales team drove a clear volume inflection in 2025. Quarterly volumes stepped up significantly between Q1 and the following quarters, offsetting the typical second half seasonality. We've sustained that volume momentum into the first quarter of '26, underscoring the durability of the commercial improvements we're executing.

As John mentioned, the new biomarkers we launched in early 2025 are earning traction. By year-end, the combined T cell and RA33 ASP was approaching $80 per test, nearing the roughly $90 contribution we anticipate over time. We also expect the PAD4 biomarkers we introduced late in 2025 to contribute to at least $10 to ASP over time. We continue to focus on optimizing revenue cycle management, commercial payer engagement and market access initiatives. Notably, in 2025, our revenue cycle initiatives continue to generate out-of-period cash collections with over $1.5 million in cash collected on claims older than 360 days. These initiatives will continue to be priorities as we drive ASP over time to our target of at least 50% of our Medicare reimbursement rate in the $600 to $650 range. The momentum of our pharma services offering continues to be robust. In 2025, the business generated $1.7 million of revenue, up significantly from roughly $100,000 in 2024. Our efforts here are bearing fruit now with over $4 million in backlog value that we expect to realize over the next 2 to 3 years, and we expect that will continue to grow.

Moving to gross margin. We reported just over 58% for the full year 2025 compared to about 60% in 2024, reflecting the ASP pressure we experienced in the second half of the year. We continue to aggressively manage COGS by streamlining workflows in the lab and continued efforts to reduce costs across our supply chain. And in fact, COGS per AVISE CTD test tracked well below our internal target in 2025, which was a positive offset to the gross margin impact from ASP. Over time, we remain confident that gross margin will progress to the mid-60s as we achieve further ASP expansion, generate scale and fixed cost leverage and further optimize costs.

Turning to expenses. Full year 2025 operating expenses were $53 million, up about 13% compared to 2024, a growth rate meaningfully lower than our 20% revenue growth, indicating early signs of scale in the business. We continue to exercise strong expense discipline, directing incremental spend toward commercial and R&D investments while holding the line on G&A. Breaking out our full year OpEx, SG&A was $47 million, an increase of 13% compared to 2024, with most of that growth coming from our investment in commercial talent and territory expansion. R&D accounted for just over $6 million of OpEx in 2025, growing 16% to support the launch of our 7 new markers as well as continued pipeline development. We continue to heavily prioritize our inflection to positive EBITDA, and we'll manage expenses through that lens without compromising the advancement of our new product pipeline. On that note, our adjusted EBITDA loss, which excludes depreciation and noncash stock comp expense was $9.8 million for 2025, a moderate improvement over 2024. Please refer to the press release issued earlier today for a reconciliation of our net loss to adjusted EBITDA.

Turning to cash. We ended 2025 with cash, cash equivalents and restricted cash of just over $32 million. Compared to 2024, we reduced our operating cash burn before debt service and benefited from $26 million in net proceeds from our debt refinancing, follow-on offering and ATM utilization. In 2026, we will continue to focus on maximizing our revenue cycle, beginning the year by holding most claims. Consistent with prior years, this will lead to an increase in AR and a subsequent higher use of cash in the first half of the year, which will normalize in the second half. With over $43 million in cash and accounts receivable at the end of 2025, we expect that our balance sheet provides us the runway needed to support the business to sustainable positive free operating cash flow.

Shifting to guidance for the full year 2026, we expect total revenue of $70 million to $73 million with both volume and ASP growth contributing. The midpoint of this guide assumes high single-digit volume growth for the full year and low single-digit ASP growth from our Q4 2025 in-period ASP rate. With respect to ASP, we continue to believe that trailing 12-month ASP is the most meaningful way to measure progress. That said, we exited Q4 '25 with an ASP slightly below the level of our trailing 12-month ASP, so we do have some ground to make up. We continue to have strong conviction in the long-term opportunity for ASP because the strategic initiatives that drove the metric from $280 to $441 per test over the last 3 years continue to progress. The initiatives are structurally improving our ASP profile, and we expect the contribution to be more -- become more visible late in 2026 and beyond.

As a reminder, ASP expansion directly supports profitability and cash generation. we believe the business will reach breakeven adjusted EBITDA and begin to generate cash at roughly an $80 million revenue run rate with some variation depending on the mix of ASP and volume. This revenue threshold is up moderately compared to our original target due to increased investment in long-term growth drivers, both commercial and R&D. This also implies an ASP in the high $400s to $500 range, which we now expect will generate gross margin in the low to mid-60s, given that our COGS per test is running favorable to our original target. We're confident in achieving positive adjusted EBITDA as we cross those thresholds, and this remains one of our highest priorities.

In closing, we remain focused on creating sustaining long-term shareholder value through disciplined operational and financial execution, prioritizing profitable growth and R&D innovation that will contribute to a consistent cadence of new product introductions. As John detailed, the progress we've achieved over the past few years is a testament to the impact of our strategic priorities and our team's ability to execute at a high level. We intend to continue earning your confidence in 2026 and beyond.

And we'll now open the call for questions.

[Operator Instructions] The first question comes from the line of Dan Brennan with TD Cowen.

Maybe just to start off, you just kind of assume now free cash flow positivity, EBITDA positivity around $80 million. I think the prior guide reflected $70 million. I think you just spoke to some of the issues, the investments in the business. Maybe you could speak to a little bit more now why you think it's the appropriate time to make these investments and to kind of forgo a little bit of when you reach that profitability target?

Sure, Dan. This is Jeff. I appreciate the question, and thanks for being on the call. Yes, the prior breakeven revenue level was $75 million, and that was assuming a 60% margin. We've now clearly have more clarity, and we have made investments in the commercial organization. So we've done a commercial expansion. We've returned to what we'll call a thoughtful reinvestment in the pipeline. And so we have actually upgraded the team, added some new members on both the commercial and R&D side. So we have ticked up the OpEx a bit. I think the encouraging piece is that we now have a COGS profile that in that high $400s to $500 million range, we should be in that mid-60% gross margin. So really, the impact here is that we have ticked up a bit on OpEx, but the margin profile of the business, we're actually very encouraged by, particularly as we get ASP back up toward that $500.

Got it. And then maybe, John, you talked about the myositis, talked about demand would ramp quickly. It's the most requested offering. Just kind of where does that sit in terms of a potential kind of commercialization target?

Dan, thanks for the question. And just one other comment on the cash flow positive question you just asked. One of the reasons I think it's really the right time is primarily because when we achieve cash flow positivity, we want it to be a durable achievement. And I think one of the things we're really proud of but also shown here in 2025 is that our investments in R&D can pay off. And we can develop enhancements or new products on a relatively reasonable investment level that end up generating revenue and ultimately profits that make a lot of sense. And the clinical impact on top of it is pretty exciting. So that, I think, gives us a lot of encouragement, the strength of the balance sheet as well.

But as it relates to myositis, myositis is very interesting clinical dilemma. Quite a few patients who are under evaluation for connective tissue disease are also under evaluation for -- can be under evaluation for a form of myositis. And if you have elevated levels of creatinine kinase, which is pretty frequent for these patients, the suspicion grows. And so we're developing a product there. It's been -- I guess, one of the benefits of adding our Chief Scientific Officer, Michael Muller, to the organization really helped frame this opportunity for us, but also set the development path for us. So we've conducted internal feasibility studies. We're on the path towards validating these assays. It's going to actually be on a few different platforms and a highly comprehensive offering. So pretty excited about the clinical value it will bring. Our goal is starting 2027 to have this offering ready for the clinic.

Okay. And then if I could sneak one more in, Jeff, on the guide for the low single-digit ASP increase versus 4Q, that's the annual. So what does that imply for 4Q '26? Like what's the trailing 12-month ASP? And has there been any more, I don't know, feedback from the field? Are there any other customers that are contemplating a move to institutional pay? Or do you think that's kind of just that one and done?

Yes, Dan. So we haven't disclosed what our expected trailing 12-month ASP is. And clearly, the timing of continued gains, always very difficult to predict. But the way we think about it is that we did see a reset. We all know about that, right? So our in-period ASP in the fourth quarter was slightly below what our trailing 12 months. So we have some ground to make up. The expectation is that we'll see that stabilize in the first half of the year. We should start to see incremental gains in the second half of the year.

And then any more color on the institutional pay like any other customers? Or how do we think about that kind of potential risk?

Yes, I'll take that, Dan. So from my perspective, and I want to be very clear, we view the Northwell situation that we discussed in Q3 as a onetime event. And it was a short-term setback, not a structural change to the business. We've seen no further degradation there. And we've actually gone line by line through each of our client bill business, ensured that we have very good relationships there and continue to strengthen those over time. So from our perspective, the onetime event, we want to be extremely transparent with folks so that they understood the impact because it was reasonable at the time. But from our point of view, our growth initiatives on the volume side have already made up for any lost volume there. And our initiatives on the ASP side continue to make up for that loss. So we feel good about the trajectory we're on. It was a onetime setback.

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

On the last point there about the direct bill accounts, could you first frame the volume and the revenue mix from those accounts at this point, like maybe kind of exiting like '25 or kind of early '26? And then I think like the Northwell volume sort of like picking back up and rebounding and just sort of that whole transition process was sort of a theme that sort of affected your view on volume growth at least when we spoke in January. So could you just provide an update on that as well?

Kyle, thanks for the question. So to frame out the volume, it was 2% of overall volume at the time, okay? So that was in the middle of summer. From a revenue impact, I guess, the closest we've got to say is it was about a $25 contributor to ASP. So we had the onetime setback of about $25. Given that we point people to a trailing 12-month number, it will take roughly 4 quarters to fully flush through that metric, but that would be the overall impact to the business.

I think from our standpoint, we have the best product on the market, and you see that our team is able to find ways creatively to get clinicians what they want, which is access to the AVISE platform. So that's what they've been doing over the last 6 months, very comfortable with how that's progressing. Still work to do, but I think we're on a great track. I mean if you look at Q4, we had 22% volume growth when you compare it to Q4 of last year. And so from our standpoint, it was a headwind, I guess, despite that headwind, still had that type of growth. And so I don't feel very comfortable with what our team is accomplishing.

Okay. And then just on Northfolk specifically, is that contribitioning well on volumes ramping up and everything?

Yes, exactly.

Okay. All right. Sounds good. And then with the ASP tailwinds, I think you mentioned like 3 factors that give you some confidence for this year. I think the first was like RCM execution. Second was the new markers continued traction there. And then the ACR is now advocating for you guys for AVISE. I think you have some specific plans to drive velocities players as well, but that's been a multiyear process. Could you just kind of elaborate a bit on how ACR support is helping you now and how that kind of accelerates the business going forward?

Absolutely. So a few years ago, when I joined the company, I said about trying to really understand which physician body, if you will, within this space would be the right one to advocate for us. And ACR would be the Pinnacle organization, but I didn't -- and we, as an organization, didn't fully understand exactly how that group operated and who the right people were to have relationships with. From then, we just set about trying to meet people, figure out the inner workings and establish a strategy around that. And it's all culminated in really developing deep relationships with some of the clinicians on the committee for rheumatologic care. It's a subcomponent of ACR.

And I flew out to Kentucky, rural Kentucky, a wonderful trip actually this past December, met with the head of that committee. I also personally have met with other members of the committee here early to start the year. And really, it's an education campaign. They had familiarity with the AVISE platform. They know that their constituency generally prefers this platform. And so they want to help, but they didn't understand exactly how. And so those meetings were designed to figure that part out. We now and me personally have, I think, very strong relationships with some of the top people within ACR and have established the appropriate communication path for rheumatologists throughout the U.S. to ask for ACR advocacy into specific plans, commercial insurers.

And so over the last couple of months, we've had quite a few physicians write in, give very specific cases around which patients they're asking for help with. And ACR has confirmed to us on multiple occasions that they're now advocating into certain medical directors. And this group speaks on a regular basis with medical directors at the various commercial insurers. And so that pipeline has been established. That education has taken some time, but now people understand exactly why plans are doing what they're doing from a medical policy standpoint, and they're very willing to help. So I think that was all extremely encouraging, and we're working in concert, which is a lot of fun now. So we'll see how that impacts our business over the next year or 2. But at least ACR has been willing so far to conduct that advocacy.

Okay. That was great, John. And then, Jeff, on -- I know I think touched on the cash flow, the breakeven target and stuff. But if you look at consensus estimates for some of the later quarters in '26, it's like almost $20 million or so. That would annualize to $80 million. But like now, it just seems like you probably -- you're guiding to like not hitting breakeven in the second half of the year, so it's probably more of a '26 event. I mean, do you think -- is there any way to kind of provide a little bit more like a refined timing on when either kind of EBITDA positive or cash flow positive could occur in the next 2 years?

Yes. And I'll let John chime in here as well. So Kyle, I think clearly, we said 80, we've guided to $70 million to $73 million. So that would certainly imply for the full year, we wouldn't get there. But ultimately, depending on how successful we are and continue to drive ASP closer to that high $400s, $500s, that will dictate the timing of when we inflect. Not saying it's out of the -- not saying it's not in the realm of possibility for this year. The idea would be that we would get closer to that high $400s, high $500s as we enter 2027 and inflect sometime during '27. If we are more successful in driving ASP higher or we get more traction on volume that we could pull that in earlier.

And maybe what I'll add, Kyle, is we've seen volume growth exceed our expectations. On the ASP side, it's always been challenging to project or forecast the trajectory of that metric, both in timing and magnitude. So we've remained conservative on that aspect. So the guide incorporates, as Jeff mentioned, low single-digit growth on the ASP side and high single-digit growth on the volume side. We're tracking ahead of that to start the year, but we think that right now, where we're sitting, it's a pretty good balance of ambition and prudence in the guide. And we'll have to see how the year plans out. And generally, we're pretty decent at trying to beat expectations, but it's always tough to know.

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

I'm going to push a little more on some of the things that were talked about. Just the ASP, I know you like to talk about it on a trailing 12 basis, and I get that. But with the changes that have been happening, it's really hard to get a true sense of the trend when you do it that way. And you don't give enough data in the release to sort of calculate a Q4 ASP. You also sort of use that as a basis for thinking about guidance. So with all that in mind, can you tell us a couple of things, maybe what is the actual calculated ASP in the fourth quarter? And then do we think this is the low point?

Yes, Bill, thanks for the call. Thanks for the question. We don't want to get in the habit of disclosing in-period ASP, but completely understand the challenge here. There was a reset. We saw the in-period ASP really dropped starting in Q3 in that kind of $430 range. that sustained into the second half of the year -- or through the second half of the year. So the way we think about it is that we've seen a reset right to about that $430, and then we expect that we'll grow it from there. So hopefully, that's helpful. Like I said, we're not really going to get in the habit of disclosing in-period ASP because there are quarter-to-quarter fluctuations that can drive it up or down in any given quarter. But we understand the question. We understand the need for clarity. So I think the assumption is we ended right around $430, and we'll grow it from there.

Okay. And I guess, just is it safe to say then there wasn't a dramatic decline from Q3 to Q4 sequentially?

Very safe to say that, Bill. In fact, and when you take a look at the client bill loss that we talked about, as we talked about, that was around a $25 annual impact. But in the trailing 12-month ASP, you only see a $6 or so impact every quarter. So it's cumulative. So we won't see the full effect of that really until the end of the second quarter. So it's encouraging that we didn't see additional degradation in Q4 because we've seen gains in other areas.

Okay. That's helpful. And then just, I guess, trying to understand the guide a bit better. So first of all, I just want to make sure I heard what you said so that I can get the numbers to tie. When you say the midpoint is high single-digit volume and then low single-digit ASP, you're talking about low single-digit ASP relative to sort of the Q3, Q4 level or trailing 12? Or what is the metric there?

Yes, that's right. Great question, Bill. It's relative to where we ended, so relative to the second half ASP level.

Okay. Okay. And okay. That's helpful. So probably all in -- I mean, the guide, the midpoint, 7% if you're high single-digit volume, assuming all in on a year-over-year basis, we're still talking about ASP being down for the year then?

Yes. No, I think if you were to apply this low single digit to the exit rate. And I think like I said to Dan, we didn't disclose our expected trailing 12-month ASP. But I think it's safe to assume that we would end the year with a trailing 12-month ASP that is comparable, hopefully slightly above where we ended 2025.

Okay. And then the last thing is just trying to understand on the gross margin pressure. I mean from a trailing 12-month basis or even an absolute basis, the ASP is really not down. It's up on a trailing 12-month basis, and it's flat to up on an actual basis versus Q4 of last year and yet the margin is down almost 700 basis points. I guess I'm just -- I'm assuming that what's happening there is you added a bunch of biomarkers and because you're not getting paid what you hope to get paid on those biomarkers that even though your cost is better than your expectations, that's kind of what is causing the gross margin pressure because the ASP alone just doesn't seem to make sense to explain it.

Yes, Bill, I think you're spot on, right? So we added 7 new biomarkers that added incremental costs. Our COGS per test is still running well below what our target was. So that ASP pressure had less of an impact on the gross margin because we overperformed on the COGS. But we did increase our COGS per test relative to the 7 new biomarkers that we added. So you're absolutely right.

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

Yes, there's been a lot asked about ASP. I do appreciate you quantifying the lost client bill account as a $25 million full year impact to ASPs. But I wanted to just maybe dig in on that last topic you guys just hit in the Q&A, which is on the new biomarkers. Can you just give us a sense for where are you now in terms of trying to get paid on those new biomarkers? Obviously, the cost is there, but what I don't know is how well you've been making traction to get paid on the new markers? Or is this something that you think is really a 2026 or 2027 initiative?

Sure, Mark. Yes, thanks for the question. So yes, when we launched the new biomarkers, T cell and RA33 beginning of January, our expectation, and we still have this expectation is that we'd be at about a $90 ASP. That was our accrual in Q1. We -- based upon actual cash collections throughout Q1 and Q2, we -- as you recall, we brought that accrual down to the mid-70s. We've since through revenue cycle management have been successful in continuing to drive that up. And so now it is approaching that $80 range. So we still think that throughout the course of 2027 that we'll be able to drive that up in the $90 range. The other piece of it is the anti-PAD4 biomarkers that we released in the fourth quarter or actually late third quarter. We expect that will have at least a $10 contribution. We would expect that to grow even beyond that throughout the course of '26.

Okay. That's helpful. And then I believe there -- I think there's a local coverage determination in progress for rheumatologic disease. Can you just speak to any visibility you have on where that is and what that could look like if it does go through, how do you think that might impact your ASPs going forward?

Thanks for the question, Mark. So we maintain regular contact with the team at MolDX. That would be the group that's currently constructing and ultimately will issue a draft LCD related to our product. Our understanding is similar to what you just framed out, and that is that it will be more broad than specific to our test alone and likely cover testing in rheumatologic conditions. That will be a long time coming. Our original submission was in the summer of 2022, and there's been some nuances there that I won't bore people with.

But from our perspective, remains in the queue, on track, and we don't have a ton of clarity as to when the draft ultimately comes out. We maintain our reimbursement from Medicare and Noridian, our home MAC. We've had no disruption there and continue a great relationship with that group as well. So just waiting for that to come out. Ultimately, the language that is specifically in that LCD will be very important and critical to us as it relates to the AVISE platform, but also future products in our pipeline because if it's a more broad LCD, I think we're one of the best positioned companies to develop new products underneath that umbrella. And so again, the language will really matter. And if it covers portions of rheumatoid arthritis, if it takes a look at other aspects of SLE and maybe even other conditions, I think we've got the right pipeline to feed into that.

That's great. And maybe just to clarify that last point. Do you think it's fair to say that if the LCD does go effective that your effective pricing for what you're billing will stay the same?

That is true. The LCD will only relate to basically memorializing our coverage in a public document. And so that will likely help us with Medicare Advantage. It may even help us with some commercial insurers having that out there. But pricing is independent of that, and we have our own PLA code. It's on the clinical lab fee schedule. So pricing will not change as a result of the LCD.

Okay. That's great. And then maybe just last one. You've talked about having some conversations with health plans and you've got meetings scheduled. I'm just curious, are any of these conversations around perhaps needing to furnish additional data? Or is this more perhaps a discussion around in-network pricing? I'm just curious what some of the factors might be when -- when you're having conversations, can you give us a flavor, high level of just what these plans are asking about?

Yes. Thanks for the opportunity. So specifically, medical directors, at least the calls that I've been on, I've been on, I believe, almost every single one of them, they want to know how badly do the clinicians want the test and how much is it impacting their clinical care? Are they changing decisions, right? And are patients experiencing improved outcomes as a result. So we have the data that demonstrates positive impact in each of those areas, and it's tying it all together for them.

We also recognize that some of the data was published as far back as 2012, 2014. And so expecting medical directors to do a 10-year look back on your data is probably we can make it easier. And so we've actually developed and submitted now a systematic review tying together what we believe is one of the largest evaluations of diagnostics in the systemic lupus community, tying together the performance of AVISE across around 10 different studies. So that is -- that manuscript took us about a year of working on. It basically builds the chain of evidence for everything that question-wise, we're hearing from medical directors and has been submitted for publication. But I think medical directors are looking for contemporary data that continually shows the utility for patients and clinicians. And we need -- our R&D team is very aware of that right now and continues to develop manuscripts that address that. So we don't get specific asks for studies right now, but we're not waiting either.

Our next question is from the line of Matthew Parisi with KeyBanc Capital Markets.

This is Matthew Parisi on for Paul Knight at KeyBanc Capital Markets. I was wondering if you could give a bit more detail on the recent sales force ramp and how that's coming along? And then when we can expect to see the full impact of the additions?

Matthew, I appreciate the question. So where we sit right now is we have 45 sales territories across the U.S. This is up from 40 basically at the start of 2025, middle of 2025. So we've expanded a little over 10%. And the challenging thing here is finding the right people. That's incredibly critical to us. We're in a service industry. The folks who represent our product actually become part of the product, and it's highly impactful on our brand and reputation. So we take our time there. We have a very nice pipeline of candidates, but it can -- our process is very thorough, right? We meet people in person, multiple folks engage with the candidate. I meet with every single candidate myself. So that process has generally worked out for us.

And what we've seen are 5 additions to our team that are just superb individuals, really high-caliber folks that have come in and done exactly what we expected, which is conduct themselves very professionally and learn the product and get after it. What we've seen is some folks, just given their background and experience, have a shorter learning curve, whether they know rheumatology or diagnostics specifically. And so those folks hit the ground running. Others come from different walks of life and may take a little bit longer. Learning curve may be a little bit steeper there. We're very patient as long as you have the character traits we're looking for. So over the course of second half of last year, we really worked and invested in training those folks.

In the last training session, we flew everyone here back to San Diego for a second phase of training after they've been in the field for a little bit, had familiarity with the product. And we really worked through that next level of clinical consultation and how you can be a true partner to the clinic. So that really occurred as recently as December. We expect at least to become proficient with the lupus portion of the clinical consultation, that to happen within about a 6-month period of time. So I would expect you really start to see people hitting their strides here in the spring. But more broadly to our entire sales organization is the rheumatoid arthritis component to selling here. And given that we now have -- last year, we launched 2 waves of product innovation related to rheumatoid arthritis, our whole team has had to adapt in this sense.

And so we've continued to build marketing material. There's obviously a feedback loop here, but that's a growing opportunity for us that to be honest, I'm a little unsure exactly how long it will take us to recognize the full opportunity. I hope it's a ways out because we're getting some very positive feedback and these patients really need help. So we'll see over time. But I would expect spring to summer, you really start to see those territories become more independent. And then at that point, those new territories that is, at that point, we'll look to our next wave of expansion.

All right. So then we can expect -- well, maybe not more territories being added in '26, we could expect potential more additions to the sales force itself.

No, those are one and the same to us. And I think the way I view it is just -- I'm not going to commit to an exact expansion plan, especially because we want to find the right people. We want to find the right opportunity throughout the U.S. And once we feel that we have adequately supported the folks we added recently, then we'll move forward. So it's really predicated on those factors internally.

Yes, that sounds great. And then if I could just squeeze in one more. I was just wondering, you previously provided the full year test volume number, and I wonder if you guys could get that today.

Yes. Very proud of how the full year progressed. It's 137,000 and -- for AVISE CTD tests. So we broke the 137,000 mark. And again, a lot of that based on second half momentum. Very proud of the team there.

The next question is from the line of Andrew Brackmann with William Blair.

Maybe just pick up on some of the volume commentary there. Any way to sort of break out the growth that you saw in Q4 and for the full year 2025, just in terms of new account adds versus maybe utilization increases or same-store sales on the volume side there? I'm just trying to sort of get a sense of the specific drivers. And then I guess somewhat related to that, I would assume that you have some sort of halo effect from these new markers that you launched throughout 2025. So I know you probably can't be all that specific, but any sort of way to sort of estimate how much of the growth that you saw for the full year came from sort of this increase in engagement that those new markets provided for you?

Andrew, thanks for the question. So to try to give you some precision here, we finished 2024 with 2,370 ordering physicians. That was our run rate, if you will, which was relatively flat from 2023, about the same. Here in 2025, we finished the year with 2,690 basically. So we're up several hundred growing our physician base. Our orders per physician are up. So we're seeing growth by expansion of the number of physicians utilizing the test, but also greater penetration within each account. So very happy with those metrics. And again, that's part of the reason why I'm saying I think our sales team is killing it because they're really doing a fantastic job working extremely hard, but also the test is providing strong clinical value. And I think that's great evidence of it.

As it relates to the halo effect, great question. So the way to answer this, I believe, is really through the conversations I've had with the team. And from what I can tell, I think we're very early innings in terms of selling into the rheumatoid arthritis space. Clinicians have had positive interactions generally across the board, across the U.S., but it's still something that they're using for those tough to find patients, patients where they have a high suspicion of multiple disorders, that type of thing. And I think what it will take is more and more experience with the product, identifying patients that have this condition and then ultimately treating them and ending up with a positive outcome. So I think more to be seen there. I think the halo effect gets you in the door, but I think we're still very early innings in terms of actual growth related to it.

This now concludes our question-and-answer session. I'd like to turn the floor back over to John Aballi for closing comments.

Thanks so much. I'm very aware that many of you have been through volatility with the stock. Our commitment is to keep making hard rational decisions and continue showing our progress quarter after quarter. We've assembled the best team in the industry, and we're executing consistently. I'm highly confident that our results will compound into something extraordinary over time, and thanks for your partnership.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation. Have a wonderful day.

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" B. Riley Securities, Inc., Research Division

" Canaccord Genuity Corp., Research Division

" BTIG, LLC, Research Division

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" Craig-Hallum

" KeyBanc Capital Markets

" TD Cowen, Research Division

Good morning, ladies and gentlemen, and welcome to Exagen Inc. Q3 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I will now hand you over to Ryan Douglas. Please go ahead, sir.

Good morning, and thank you for joining us. Earlier this morning, Exagen, Inc. released financial results for the quarter ended September 30, 2025. John Aballi, our President and Chief Executive Officer; and Jeff Black, our Chief Financial Officer, will host this morning's call.

A recording of today's call and the press release announcing the quarterly results can be found on the company's website at www.exagen.com. As today's call includes forward-looking statements, we encourage you to review the statements contained in today's press release and the risks and uncertainties described in our SEC filings, which identify certain factors that may cause the company's actual events, performance and results to differ materially from those contained in the forward-looking statements made on today's call. In addition, we will discuss non-GAAP financial measures on this call. Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. I'll now turn the call over to John.

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

Compared to last year, year-to-date, we've grown revenue by 19%, comprised of 8% growth in testing volume and 9% growth in ASP. This synergistic impact is exactly how we anticipated our top line performance would evolve when we set our strategy a few years back. These numbers highlight the power of combining volume with reimbursement growth and what effect that can have on top line when both are moving in the same direction.

Our team is energized by the opportunities we continue to see in both areas, which I'll break down further in a second.

But first, let's start with our recent product launch. At the end of Q3, we successfully launched assays for the detection of anti-PAD4 antibodies, our second novel set of rheumatoid arthritis biomarkers this year. While we expect the revenue impact from PAD4 to be modest, it continues to differentiate our rheumatoid arthritis offering and demonstrates our ability to bring new markers to the clinic quickly and effectively.

The feedback from clinicians has been encouraging, and we're seeing growing interest in how these markers can impact patient care. I personally saw some of this clinical interest at the American College of Rheumatology meeting in Chicago last week, where multiple physicians wanted to dive deeper into the science with our team and where we had a robust attendance at our conference presentation on these markers.

We've also had several clinicians share firsthand experience with the testing, highlighting the clinical need for better biomarkers in this patient population, but also several examples where the anti-PAD4 markers were the only serological abnormalities in clinically ambiguous patients. This is highlighting the true value of the markers in the clinic.

One specific example that was shared was when a patient had anti-PAD4 positivity as the only abnormality in their serological profile. And because of this was referred for x-rays where she had evidence of erosive changes. It's important to intensify treatment for these patients as anti-PAD4 antibodies also serve as a prognostic marker for highly erosive disease, but this pathology tends to respond better to treatment escalation. So hopefully, this patient is able to get their disease under control soon, and our biomarker testing led to the diagnosis and gave insight to guide the treatment in this patient. This is one of the many examples of our clinical utility these markers can bring and that we are hearing about from our customers.

With the launch of these markers, we have now completed the development of one of the most sensitive serologic evaluations for rheumatoid arthritis available on the market today. I'm very proud of the work our team has done to deliver these tests to the clinic and in a field which hasn't historically seen a lot of biomarker innovation. We are setting a course to change that and better personalize care for these patients.

To remind everyone of the impact our testing now has, conventional biomarker profiling for rheumatoid arthritis consists of rheumatoid factor and anti-CCP antibodies, which are positive in approximately 70% of clinically diagnosed RA patients.

With the addition of RA33 antibody testing and our new assays for detection of anti-PAD4 antibodies, our serologic profiling will be positive in approximately 85% of patients, thereby capturing approximately half of the RA patient population, which would have historically been diagnosed as seronegative RA.

Additionally, these patients, which are positive for RA33 antibodies are more likely to have milder disease, which tends to respond favorably to methotrexate. Patients positive for anti-PAD4 antibodies generally have more aggressive disease, but are likely to respond more favorably to treatment escalation. This level of precision in predicting the disease course and treatment response is exciting to bring to rheumatoid arthritis patients and it is just the start of what we are doing in this field.

Lastly, and this is rare for biomarker innovation, these efforts require less than $3 million in investment, and we expect revenue payback in less than 24 months. We won't always be able to contribute to the clinic in such a valuable way with a relatively small investment and quick return, but we do believe that with our current commercial channel, we can innovate long term with decent returns on investment.

Switching to AVISE CTD testing volume trajectory. Q3 volume was the highest we've ever recorded for a third quarter period. And notably, we did not see the typical quarterly slowdown. In fact, volume remained strong into October, which is a positive trend for Q4 and indicates to me that our team is back to growing the business after helping our customer base adapt to the billing changes we implemented a couple of years ago.

Our expansion into new territories is also starting to pay off. We see meaningful contributions from these regions, and our per territory productivity remains strong. Of note, 2 of our recent expansion territories emerged as top-performing growth territories this past month, and we have others trending similarly.

Total ordering physicians and orders per clinician continue to trend upward, and we're seeing increased engagement from both new and existing physicians. This is a testament to having the right team in place and the stability and focus we've built over the past 1.5 years.

We currently operate with 45 sales territories, up from 42 at the end of Q3. Our focus remains on profitable growth, and we will continue adding territories where we see clear opportunity, strong physician engagement and can find the right talent.

Now let's talk about ASP, which is top of mind for me. We've made significant progress over the past 2 years with our trailing 12-month ASP for CTD now at $441, a 9% increase year-over-year. However, it's important to acknowledge that we're not seeing the full second half ASP expansion I had anticipated.

The new biomarker reimbursement, while accretive, has not ramped as quickly as I had hoped. We still believe there's a path to further ASP gains and our efforts around appeals, revenue cycle operations and payer education are showing incremental progress. But the reality is these gains are coming more gradually than I expected.

Additionally, we lost a large high ASP direct bill account this quarter, which is weighing on our current ASP as we convert this business into a standard commercial insurance payer mix.

Both of these items have temporarily slowed our trajectory. But as I've constantly conveyed throughout my time here, this is why I view it critical to gauge our success relative to a trailing 12-month measure, which does continue to climb. We continue to be very diligent with our revenue cycle operations and have a strong strategy employed to secure the higher reimbursement we ultimately expect, but you are seeing a somewhat muted ASP reflected in our top and bottom lines as we work through these efforts.

Turning to our pharma and CRO business. We generated nearly $800,000 in revenue this quarter, bringing our year-to-date total to $1.2 million. Our order backlog now stands at $3.5 million and continues to grow. While this revenue stream can be lumpy, it's an important and expanding part of our business. We're encouraged by the momentum we're seeing in this area.

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

We submitted and had accepted 6 different abstracts covering the bulk of our pipeline efforts. One ultimately was chosen for a plenary talk and in general, we continue to showcase our company as an innovative presence within the rheumatology field. It was a highly successful meeting in this regard.

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

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

In closing, I want to thank our team for their dedication and execution and our partners and shareholders for their continued support. We continue to build something special at Exagen. And while the path is never perfectly linear, our progress is real and our opportunity remains significant. Thank you. And with that, I'll turn it over to Jeff for additional comments on the financials.

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

Fourth quarter revenue of $17.2 million was our highest quarter in history, just beating out the second quarter and a nearly 40% increase over the third quarter of 2024. Even considering over $1 million in downside revenue adjustments in Q3 of last year, we still delivered over 25% revenue growth. And this is against seasonality headwinds we typically see in the third quarter, which we curtailed through growth in CTD test volume, up 15% from Q3 of last year and almost 2% sequentially.

Year-to-date through the third quarter, we grew revenue 19% to roughly $50 million with trailing 12-month ASP up over 9% and volume up over 8%. As John mentioned, we're also seeing significant momentum in our Pharma Services business, which generated revenue of $780,000 in the third quarter.

Year-to-date through Q3, we recognized $1.2 million in Pharma Services revenue versus about $100,000 in 2024.

Our business development team has done a fabulous job of securing additional contracts and developing a strong pipeline that we expect will continue to grow. Today, we have up to $3.5 million under contract in pharma services, representing future potential revenue opportunity.

The timing of deliverables and related revenue recognition are often lumpy from quarter-to-quarter, so we remain cautious to guide on specific timing of this revenue.

Our trailing 12-month AVISE CTD ASP grew $37 year-over-year to $441 per test. The trailing 12-month number remains our best indicator of ASP traction due to the typical ebbs and flows of reimbursement in any one quarter. As John mentioned, we're behind expectations on our ASP acceleration, but we remain confident that we'll drive further expansion through revenue cycle management enhancements, commercial payer engagement and market access initiatives. These remain priorities for us and are core tenets to our success in driving reimbursement gains.

As John also mentioned in the third quarter, our most significant ASP headwind was a loss from one of our higher volume, high ASP direct bill accounts. Importantly, we offset the revenue impact of this pullback with an overall increase in volume, which is a testament to our commercial team and ability to drive diversification of our physician base.

As to the T cell and RA33 biomarkers we launched in January, we saw a moderate expansion in ASP and related accrual rate versus the second quarter, and we continue to expect over time to realize our long-term target. It's also important to note that while we launched our newest biomarker, PAD4, late in the third quarter and began billing for it, none of this volume was reflected in revenue.

At the end of Q3, we had not established a payment history on this marker, so we did not record an accrual rate. We should see a moderate expansion in ASP in the fourth quarter for PAD4 as we establish an early payment history and related accrual rate.

Gross margin in the third quarter was just over 58%, up about 260 bps compared to the third quarter of 2024. Excluding the impact of over $1 million in downside revenue adjustments in the third quarter of last year, gross margin in the quarter was down about 175 bps from just over 60% in 2024.

Year-to-date, gross margin was just over 59% and up about 60 bps over the same period in 2024.

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

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

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

Operating expenses for the third quarter were $13.2 million, up from $11.6 million in Q3 of '24, and this increase was in part due to increased R&D spend for PAD4 and other pipeline initiatives as well as SG&A associated with our first sales territory expansion since John took over and another key commercial leadership addition to the team.

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

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

From a balance sheet perspective, we have the flexibility to make the investments needed to support these initiatives and invest opportunistically as we see fit. But equally important, we have the ability to modulate spend down or up as needed, all with an eye toward preserving our path to positive free cash flow.

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

Our adjusted EBITDA loss in the third quarter is $1.9 million compared to $4 million in the third quarter of 2024. And year-to-date through Q3, our adjusted EBITDA loss improved $1.5 million or nearly 20% to $6.1 million for the first 9 months of 2025.

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

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

Turning to our balance sheet. We ended the third quarter with $35.7 million in cash and cash equivalents, up from $30 million at the end of Q2 with accounts receivable of about $11 million.

Excluding financing proceeds during the third quarter, we generated net cash of $2.3 million compared to net cash usage of $2.4 million a year ago. We also enhanced our cash position in the third quarter through opportunistic but disciplined placements under our ATM sales agreement with TD Cowen Securities.

We raised just over $3.4 million at an average price of $9.83 per share, taking advantage of share price momentum and higher volume trading days throughout the quarter.

We remain very well positioned from a balance sheet perspective with over $45 million in combined cash and accounts receivable at September 30 that we expect will fund our existing business to positive free cash flow and up to an additional $50 million in available future credit capacity if and when needed.

In closing, we continue to deliver value to shareholders through solid operating and financial execution. We delivered another quarter of record revenue in Q3, a third consecutive quarter of AVISE CTD volume growth, continued ASP expansion, and we remain on track to deliver from 17% to over 25% revenue growth in 2025. We will now open the call for questions.

[Operator Instructions] Our first question comes from Anderson Schock of B. Riley Securities.

Congrats on all the ASP progress. So first, you mentioned on the second quarter earnings call, $430,000 per territory. Do you have an updated revenue per territory for the third quarter? And how should we think about the productivity ramp of these new territories?

And thanks so much for the question. So the was $430,000 per territory was a record for us. And just so that people have kind of the background trajectory, that was from -- up from the high 200s. So we've made -- you're right, we've made material progress in the revenue per territory, all really on the back of the ASP gains that we've seen as an organization.

For the third quarter, it was right around that level, slightly below. I think that's more a factor of we added the additional territories. And so you have that denominator growing and give it a little bit of time as we see those territories bearing fruit, and we do expect it to increase over time. So you're just under that $430,000.

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

Yes. So we've not broken this out yet, and we hesitate to proclaim a number without having a robust history of collections there. So that's what we're doing right now. We're gathering that information, developing that history and then we'll establish it. Happy to provide an update on a future call. We expect it to be relatively modest compared to the $90 expectation that we had for the prior markers. This is a set of ELISA-based assays, 2 markers as opposed to 3 in the case of RA33 or 3 also in the case of the T cell analytes.

So less markers, lower cost platform, build on the generic codes. It's going to be in the low single-digit dollars or maybe even in the double digit, but it's not going to be anything like what we had previously.

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

So we actually completed our first statement of work related to that platform. And just so that everyone is aware, we have some fantastic technology that we've licensed out of Johns Hopkins really with multiple intended use opportunities really to change the way these patients are managed for the better.

And lupus nephritis affects about half of all lupus patients. This technology has been shown when you look at certain proteins in the urine of lupus patients, there's the potential to diagnose the disease through a noninvasive manner. That's something we continue to pursue and have published on from an abstract perspective.

We're looking at therapeutic response and then even prediction of long-term kidney function or prognosis really.

And so we have completed our first profiling effort. We're in discussions on subsequent efforts there, but it went successfully. It was a small project and look forward to doing more.

The next question comes from Kyle Mikson of Canaccord Genuity.

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

So maybe just like if there's a way to kind of think about the progression going forward and maybe just like think of this more realistically when you can get to $500 again or maybe there's some other trailing 12-month metric that we should kind of model out and kind of think about as we look at 2026, the quarters and so forth?

Kyle, thanks for the question. So I guess, first and foremost, there's no other metric, and I'd be skeptical if I did provide a different metric as people change targets when they get hard. So that's not the approach we take here at Exagen. From our perspective, $500 is still very realistic. It's really just a timing thing. And so we outlined a couple of contributing factors in Q3. We actually had a large client bill account that for purely financial reasons, it's a hospital system in the Northeast. They made the determination to no longer to cancel that contract. That had some ASP headwind.

We believe over time, we can build it back through the commercial -- the standard commercial insurance route, but it takes a little bit of time. We haven't had as much history with some of those payers, those regional payers in the Northeast, given that we've built through the hospital system through a client bill arrangement.

Related to the new markers, you're exactly right. You're right on there, $90 was our expectation at the start of the year. We had mentioned on the Q2 call that we were coming in the low 70s, around $72. We're up from there, actually continue to go up almost on a daily basis, but expected to be at the $90 now, and we're not.

So I still believe that we're on the path to $90. It's through our standard revenue cycle operations that we'll get there. We believe we'll get there. Additionally, we've launched these new PAD4 markers, and we haven't recognized any revenue there because we don't have a good track record for an accrual rate to establish an accrual rate. So those will be lifts over, call it, the coming quarter or 2 or 3 is progress in converting that client bill account, which had some reasonable volume associated with it, continued work on the new biomarkers that we launched at the start of the year, establishing accrual rate for the current product launch and then just our underlying groundswell of efforts that we've continued to work on.

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

Okay. Perfect. And then on just on volume, it seems like that was kind of sequentially flat, I think, like quarter-over-quarter, if I do the math right. And that's actually -- I think that's actually stronger than your typical seasonality. So that's good, maybe just confirm if that's true. And then if we should think about a drop-off or step down in the fourth quarter, just given ACR and the other seasonal factors.

And on that point, given the ASP, as you characterize it, the challenges, would you like kind of pull back on rep expansion at this point? Or are you still kind of all systems to building out the team going into next year?

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

So contributing territories in Q3 was somewhere still around that 40 level. So from that perspective, I think it was a very strong quarter. We've also seen the volume increase into Q4. October was a fantastic month for us.

We've now understand what that final volume number is, and it was our highest month in several years. So from that perspective, I think we've got our team with the right incentive structure. We've got the right team, and we're highly focused in delivering the clinical value and the messaging and education around that, that is driving business and adoption. So I think as it relates to the sales expansion question, there's no reason why we wouldn't continue to expand if we have the right opportunities in front of us. Right now, we're making sure that the 5 territories we've added in the last 4 months or 5 months are well supported, well-educated and are set up for success. And we'll continue to add as those opportunities arise.

We did add to our sales leadership side that was more opportunistic. Someone I had worked with previously became available and I think very highly of that individual. So we took advantage of the opportunity to bring them on board. And again, it just sets us up for future growth. So we did go up in Q3.

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

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

Yes. That's a very interesting set of questions. So from my perspective, excited about the progress on the pharma revenue side to deliver $800,000 far and above what we've done historically as it relates to testing services. And so I'm very proud of that, proud of the team and took a lot of energy and effort, but well worth it. And I think we've delivered for our pharma partners. They have time constraints, they have quality requirements. They want flexibility. And in all of those facets, clearly, we're demonstrating our ability to differentiate ourselves in the market, and it's working out for us.

So where could this go? I mean the pharma services in general, tends to be a lumpy business. As you know, you complete a project and you tend to get recognized revenue consistent with that project when the work is completed. And so there'll be certain quarters with outsized performance versus others. But for the year or on an annual basis, I do expect this to continue to grow. There's a lot of opportunity, a lot of pharma development.

You see new diseases getting approved for biologics in this space. Sjogren's, for example, is one that just came with Novartis. There's other diseases as well that people are looking for biomarkers and better diagnostic biomarkers and better markers of disease activity, and we believe we're well positioned or well suited for that.

Also given that our base methodology within AVISE is flow cytometry, I think that we're well positioned to offer something unique there as well. So we'll continue to refine our business plan, our business model, understand how we can add value.

I'll just give you one example, but when a pharma organization comes to a service provider, what they're looking for is speed -- at times, what they're looking for is speed to get some of these assays validated and available for them in clinical trial testing at a high-quality level.

We generally meet the quality thresholds given our commercial pipeline and the fact that we have access to so many patients and so many different samples, our ability to validate assays and develop new assays, I think, is really substantial and a huge competitive advantage for us. So that's part of the differentiation we're able to offer amongst many other things, but we'll have to see how it progresses. But yes, it's trending in the right direction.

Our next question comes from Mark Massaro of BTIG.

This is Vidyun on for Mark. So just one on the sales force expansion. I understand that you just hired these reps. But could you just remind us how you're thinking about targets in terms of per rep and kind of the time that it takes for them to reach maturity and hit their stride?

So from our perspective, we set profitability targets for -- on a per territory basis. And that has to do with both the compensation structure. So once you reach a certain scale, there's profitability bonuses that end up coming into play. But then as it relates to opportunity, we're looking for a minimum level of profitability or contribution margin that at least sustains the price of having a field-based presence in that area. And so that naturally relates to number of tests, but it also changes as our ASP changes.

So from our perspective, we tend to split our largest territories provided we still believe or have done enough research to believe that there's substantial opportunity there. And so that's really the mechanism that we're approaching the sales expansion process with. And it generally takes -- I mean, it's always tough to generalize, but it generally takes around 9 months for -- 6 to 9 months for someone to start to contribute. There's multiple exceptions of that, and I tried to highlight that in the prepared remarks.

But we've got 2 in the Southeast where 2 territories where they were our highest growth by percentage and 2 of our top 5 nationally were some of these expansion territories. So that's exciting for us. I guess it reinforces that we made the right choice from a personnel standpoint. We found the right person to join our team, but we're also doing a really nice job evaluating the opportunity there. So we'll continue to do that, but somewhere in the 6 month to 9 month range.

So I would expect by year-end, heading into '26, we start to really realize the full potential of now this 45.

Okay. Perfect. And then just a follow-up on the kind of slower-than-expected traction with ASP lift for the new biomarkers. Can you just help us think about steps you can take in terms of driving payment for these biomarkers or what it is exactly that's holding up payment here?

Yes. Great question. So as it relates to extra color on the ASP side. From our perspective, some of the denials that we're seeing are related to basically medical policy for these new markers and it's the diagnostic code in conjunction with the procedural code being used is not approved from a payer standpoint.

We believe that through an appeals process, a robust appeals process that we've architected and implemented now here over the last couple of years that we can be successful long term, but initial denials are higher than I had originally expected. So that's really the basis for it. There's some other nuances there that we think we can improve upon, for example, out-of-network denials and things like this, but these are unique markers, and we're the only lab that's offering them. And so there is no in-network alternative, especially for this suite of analytes.

So from our perspective, it has to do with revenue cycle operations probably being the most effective lever in this space. Still working on some physician efficacy advocacy along with patient advocacy, but those will be secondary or tertiary tactics that we employ, and then we'll have to take it from there.

Our next question comes from Ross Osborn of Cantor Fitzgerald.

This is [ Matt ] on for Ross today. I guess just one for me. You reiterated a path to mid-60s gross margin over time. I guess can you kind of expand on what the key unlocks are to get there, whether it's further automation, volume scale, repair mix normalization and how you're thinking about that timeline to start seeing incremental leverage?

Sure. Yes. How's it going? This is Jeff. Yes, I'll take that. I think multiple levers, right? I think we continue to say and believe that ASP expansion will be the best way to accelerate margin into that mid-60 range. And so as John laid out, there is a strategy to continue to expand ASP with just better revenue cycle management and continued improvements there. We also, as I mentioned, are seeing our COGS per test on AVISE CTD actually well below target, which is very encouraging. And that's been a function primarily of just better optimization of labor, and we really haven't had to make the significant investment in labor that we would have expected to keep up with the volume, particularly with the new biomarkers. All of that has come before any real optimization we've made in either assay development or lab operations.

So we do think there is real opportunity for further optimization in workflow. But I would say that the biggest driver is going to be the ASP expansion. And just to add some more color to that. John mentioned that we did see a pullback, and we lost a pretty high volume -- relatively high-volume, high ASP account. If you were to normalize for that, we would already be above the 60% gross margin range for the quarter. So we're still tracking, and we're really encouraged because our COGS profile is much below where we expect it to be.

The next question comes from Andrew Brackmann of Will Blair.

Maybe just on the volume front, accelerated volume growth again here in the quarter. A lot has been asked sort of on rep productivity. But as you sort of think about the drivers of that volume growth, how should we sort of parse out the sort of levers between the expanded commercial team, more efficient rep productivity, but then also just the launch of markers from earlier this year and then there's still just the massive penetration that you have in front of you, the penetration potential that you have in front of you?

Andrew, thanks a lot for the question. So maybe more of a qualitative answer. It's always tough to pinpoint or address this with precision. But from my perspective, having something innovative and clinically useful to discuss with our client base has reinvigorated our sales team for sure, but also the interest on the customer side. So I think the fact that we launched these new markers is very much a positive, and we're seeing that energy, I guess, kind of rekindle here in the second half of the year with the recent launch of these additional markers -- especially now that we've got unique marker set specific to rheumatoid arthritis, it really does open up the clinical conversation and provide that additional value for folks. So that's where I would rank that at the top.

We've talked at length about having stability and such a high-caliber team in our organization. And I really believe that, that's a significant contributing factor to our growth right now. We've got groups of folks who really take learning the science seriously, really work hard, and you're seeing the results of that. I mean as long as you pretty consistently stay customer-centric, work to satisfy the needs of your customer and are generally concerned with adding value to their clinical practice, I think you can be relatively successful. And this area of medicine is highly driven by relationships. It's very clear that even the patient clinician approach here, it's chronic disease management, the relationship there is very key, and it is with our organization as well. And we we've really worked to build trust and establish that trust.

We want testing performed where it's going to be useful. And not widely -- our test is not useful in every clinical context when you're trying to diagnose the connective tissue disease. So we really want to understand how clinicians where they're struggling and where this can add value. And our team, I think, as master is probably too strong of a word, but come close and continue to improve in this area. And I think we're seeing the results of that.

So the new markers, I think, are a very strong contributing factor, stability in the team, along with a heightened focus in the clinical messaging, and that's what you're seeing here.

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

Yes. So maybe I'll just share a little bit of how I think about the direct bill opportunity. I think it's an interesting opportunity. It's approaching 20% of our revenue. It's on the order of 8% to 10% of our volume. So it gives you a sense of that relationship there. I think it's an interesting part of the business. in the sense that the people or the entity that you're negotiating with from a pricing standpoint also handle medical policy for all intents and purposes, right? So it's a combination negotiation, if you will. And it allows those entities to get access to more innovative technology sooner. In that sense, they can determine when and if they want access to certain technology. But it also tends to put that offering and that relationship at risk at times because they can decide to switch just as quickly.

And so our understanding of this transition was it was a financially motivated decision, didn't really take into account the clinical impact or, to be honest, the desires of the rheumatology group at this organization. But nevertheless, it was made and from their perspective in their best interest. And -- but they're still offering our test, using it in clinical practice. We're just converting more to commercial insurance.

And so we know that that's a little bit longer road in terms of getting back to the ASP that we ultimately aspire to, but it's one that we're well versed in and know the appropriate tactics.

So the client bill opportunity is interesting. I think we're probably at close to the max level of client bill business that I want to take for organization.

We'll see if other opportunities arise. But long term, I think it's better that we work with insurers. I think it's a better relationship in that regard. It can be tougher short term. But longer term, I think that's a better competitive advantage and a more reliable approach.

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

I just want to follow up on the question that Andrew was just pushing on to just make sure I understood what you said. So in terms of that client, they are still ordering the test. They simply moved from being client bill to third-party bill? Or -- and then if that's correct, was there sort of any associated impact on volume at that client? Or are you seeing steady volumes and just the change in ASP?

Yes. Bill, opportunity to expand a little bit more. So specifics related to this account, which happy to go into, probably won't go into as much detail with each of these instances. But with this account specifically, one -- when the contract was terminated, and we were given fairly short notice here, talking about a few days, when the contract was terminated, access to the testing was suspended. So the hospital system froze the EMR and actually paused access for their clinician base. They actually stopped drawing it with their in-house laboratory as well drawing the blood, et cetera. So really, everything came to a halt initially.

Given our close relationships with the rheumatology division there and their desire to continue to have access to this test, they pursued an alternative route, and we worked with them on the logistics to revive that. So where we're at now is the volume has returned because we've been able to logistically provide phlebotomy access for them along with helping them establish a new ordering process, et cetera.

And we're not back exactly to where we were, but it's certainly trending in the right direction and much better than when we were informed of the transition.

So you did have some suspension related to volume. I believe we're trending back in a very positive way there with optimism on the trajectory. And then most of the impact has been ASP.

Okay. That's really helpful and nice to see the acceleration in volume growth even with that. situation. So the second thing because to me, volume growth really seems like the exciting story here, the uptick, but ASP obviously matters. So just on the higher denials than you had expected, a couple of questions. Why do you think that's happening? Why do you think you're seeing greater denials than you had expected? And then is that dynamic exclusively related to the new markers? Or are you seeing an uptick in denials across the board?

Yes, that's a great question. So our base business, no notable changes in payer behavior that are worth going into a level of detail on this call, right? So we remain on a positive trajectory for the base business. It is related to the new markers as to why we're seeing a higher level of scrutiny than I expected. Well, I think it comes down to incentives for the most part, insurers are oftentimes profitable organizations, and they're looking for ways to curtail utilization. And this is one way, either through prior authorization, implementations, medical record requests. They throw a lot of hurdles in place to see if the clinicians truly really want this type of offering. And that's what we're seeing. So some of it is related to the ICD-10 code, the diagnostic code being used in conjunction with billing, but this is what we're provided by the client. So not a lot that we can do there.

Just tough to simulate all of these situations ahead of time. I think we did a reasonable job on our end in estimating this and still believe that long term, that $90 aspiration is within reach. We're climbing to it. I think we're in the mid-high 70s now. We were in the low 70s a quarter ago.

So even over a 3-month period of time, you've seen almost a 10% change in that new marker reimbursement for the positive. It just is going to take us a little bit of time to work through this. And ultimately, where do we land? Not entirely sure. Is it $85? Is it 95? I don't know. But I just think it's important and prudent to be transparent with this, and that's kind of what we're working on.

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

Yes. Tactically and procedurally, it's very similar. And so that's why I feel confident that from an architecture standpoint, from a process standpoint, we have the infrastructure in place to address this at scale.

On the content, now that's obviously going to change because most of what we've been doing is having discussions around AVISE lupus and what the body of evidence is behind that in terms of clinical validity and utility. Now these are new markers. And so the body of evidence is not as deep, although with the rheumatoid arthritis markers, they've been studied for many years, RA33, body of literature out there for 20-plus years, the PAD4 autoantibodies, body of literature out there.

So we're able to leverage some of that science that's been conducted by other institutions and infuse that into our appeals process, but it does require us to update the appeal letters and to structure that content a little bit differently. And there's going to be a learning curve naturally with some of that. But the process and tactics remain the same.

The next question comes from Matthew Parisi of KeyBanc.

This is Matt Parisi on for Paul Knight at KeyBanc. You've previously mentioned ALJ hearing wins during the prior quarters. And I was wondering if there has been any further ALJ hearing wins for Exagen in 3Q?

Matt, none that we disclosed publicly. We have continued a robust appeals efforts. We are, I think, making some material progress there. This past quarter, we actually presented in front of multiple medical directors at various plans. And so we're getting the attention and the audience and the opportunity that we've sought out strategically, and we'll continue to make incremental progress there.

We have filed for future ALJ hearings, but no notable update in that regard.

Our next question comes from Dan Brennan of TD Cowen.

Great. Maybe just one more on the account, the direct account. I know it was asked, like did you size it just so we can get a sense of as we look forward, if that's still in the comp, kind of we can back that out. And then like what's the difference between the direct realized price versus the commercial realized price?

Yes. Dan, thanks for the question. So in terms of in-quarter ASP impact, you're talking on a blended rate, a little north of $20, right? So you've got a headwind of about $20 for the in-quarter ASP impact of that account alone.

Volume-wise, we didn't cut it out or carve it out because we believe that volume is continuing to come back over time. And so we'll just have to see. It will be a slight headwind near term, but hopefully returning to normal levels or even improving as we continue to add more clinical value in that context.

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

Yes. No, that helps. I mean your trailing 12-month ASP, right, still has been ticking up nicely even this quarter, another $13 or so sequentially. So I guess within the context of the $65 million to $70 million guide, is the assumption that the ASP continues to go up? Or is it like maybe flat because of this kind of account loss? Just how do we think about that realized price in 4Q from a trailing 12-month basis?

Yes. We don't split it out by ASP or volume. And you can see -- I think one of the things is over the course of this year, that $65 million to $70 million guide has generally stayed about the same with a little bit improved clarity at the end of Q1 or Q2, but generally stayed about the same. And we believe that we'll fall within that range even despite some of these headwinds. So again, I'm proud of the team for executing in multiple ways. And I think given the fact that we do have progress on ASP and volume simultaneously, put us in a good position to reach those objectives. From a Q4 specifically, I think we've got a few different ways to get there. We -- even as it relates to the year-end cash flow positivity objective.

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

And Dan, just to add to answer your question on the guide, I think about it -- the way to think about it is that the low end of the range would assume very little, if any, ASP expansion in the fourth quarter, right? And clearly, obviously, the high end of the range would include continued and maybe some accelerated expansion, but the low end would really assume that we don't do much in the way of ASP expansion in the fourth quarter.

Got it. I got that. comps, you've done a really nice job, obviously, on the volume as you've kind of optimized for the profitability and the cash burn, and you've had really nice volume growth in Q3 and kind of year-to-date. As we look ahead, like comps do get more difficult. Obviously, the market is large. I mean, is double-digit growth like reasonable to think about as we go into 2026?

So we've not set a base guide or objective for our top line growth. We think it will be driven by 2 factors. Volume, we've said likely to grow in the mid- to high single digits, and we're seeing that, if not a little bit higher for this year as we've really established a strong sales organization, but also with the new marker launch.

ASP is inherently difficult to project and especially timing. And I think you're seeing that play out real time here with these quarterly results, but also just in the past, we've had periods of time where we've seen pretty extreme acceleration. And I think as long as that trajectory continues upwards over time, we'll be in a pretty good spot organizationally with both factors contributing.

Got it. Maybe just one final one. There's been a bunch of questions on denials and payment and your confidence, obviously, with these differentiated markers that you guys will be successful. I think in the past, like when we -- a lot of diagnostic companies, including yourselves, commercial payers tend to really drag their heels and investors like to look at like what the opportunity is over time, maybe not in the next 6 months or 12 months, but maybe over the next 2 years, 3 years, like what's that opportunity set for like where can realized price get to? So I think in the past, maybe you guys have talked about something $500, $600. Like any way to think about as we look ahead, no timetable attached to it, but is there any change in kind of what's happened here that would dissuade you from thinking you can get to like kind of $600 plus or minus? Or how do we think about the longer-term opportunity on realized price capture?

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

So we're close, and we're close to transforming the organization in a very positive way, and I still think that's a reasonable expectation for us.

Longer term, it should be higher.

Higher than the $600 or the $500?

Yes, than the $60.

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

Thanks so much. Year-end has come or is coming fast. And I really just want to thank the team here at Exagen for their continued dedication and performance.

We have an ambitious quarter ahead with key milestones to accomplish, and I look forward to finishing the year strong. Thanks to everyone on the call for their partnership as we work to establish a dominant company in the autoimmune space. Thanks for your time this morning.

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