Veracyte, Inc. (VCYT) Earnings

Management highlights

### New Product Launches - Launched two key growth products, ProSigna LDT for breast cancer and TrueMRD for muscle-invasive bladder cancer (MIBC), expanding Verisight's portfolio across the cancer care continuum. The company is approaching the milestone of serving its one millionth patient. - ProSigna LDT is backed by level 1A prospective evidence from the phase 3 Optima trial (n=4,400 patients), which demonstrated that two-thirds of clinically high-risk ER-positive HER2-negative breast cancer patients can safely avoid chemotherapy without compromising outcomes, including premenopausal patients and those with up to nine positive lymph nodes. The test has 157 supporting publications and is the only test with validated evidence for premenopausal and higher nodal involvement patients. Early commercial engagement is strong, with active work with over 100 leading institutions, many evaluating broad system-wide adoption. The company is accelerating sales force expansion ahead of original plan to capture market demand, and is in constructive discussions for Medicare coverage. - TrueMRD for MIBC is the first commercial MRD test to use whole genome sequencing for both the baseline test and all longitudinal monitoring. It leverages Verisight's existing Decipher Bladder market position and commercial relationships, with positive early physician feedback. The whole-genome platform is extensible to multiple additional tumor types. ### Core Business & Clinical Evidence - Decipher Prostate saw strong sequential volume growth in Q2, driven by growth in new ordering physicians and record orders per physician, with particularly strong performance in intermediate/high-risk localized disease, post-prostatectomy, and biochemical recurrence settings. The 1,000 test full-year volume reduction is limited to the low-risk active surveillance segment, following a 2025 NCCN guideline that called for additional high-quality evidence for this use case. Multiple prospective and retrospective studies are underway, with initial readouts expected as soon as 2027 to support broader adoption and guideline inclusion. Over 35 new publications/abstracts featured Decipher Prostate in Q2, including level 1B evidence from the Enzymed trial supporting use in metastatic prostate cancer. Multiple high-impact presentations are planned for H2 2026. - Affirma continues to gain market share, with growing utilization among existing providers and expanding physician adoption. The Affirma Grid collaborative platform is driving a virtuous cycle of expanding evidence, with more publications and abstracts expected in 2026 than 2025. ### Financial Performance - Non-GAAP gross margin was 74.9%, up 340 basis points YoY, with testing gross margin up 200 basis points to 76%, driven by operational efficiencies, higher ASP, and prior period collections. Adjusted EBITDA was $44 million (29.2% of revenue), up 23% YoY, above the company's long-term 25% target. GAAP net income was $25.5 million, with $45.8 million in operating cash flow and $485.2 million in total cash/short-term investments at quarter-end.

Guidance

- Full-year 2026 total revenue guidance was raised to $590 million to $596 million, representing 14% to 15% YoY growth, up from the prior guidance range of $582 million to $592 million. Testing revenue guidance was raised to $576 million to $582 million (17% to 18% YoY growth), up from $570 million to $580 million prior. - Decipher Prostate full-year revenue growth guidance is maintained at 20% YoY, with expected Q3 volume of ~31,000 tests and Q4 volume of ~33,000 tests. The 1,000 test full-year volume reduction is limited to the low-risk segment, with ASP gains offsetting the volume impact on total revenue. - Affirma full-year revenue growth guidance was increased to 12% to 14% YoY, driven by better-than-expected prior period collections, ongoing ASP improvement, and a full-year 3% benefit from reduced no result rates. Q3 volume is expected to be slightly down sequentially, with a larger step up in Q4 consistent with historical seasonality. - Full-year adjusted EBITDA margin guidance is maintained at greater than 26%, in line with prior outlook. Profitability outperformance year-to-date reflects higher-than-expected prior period collections, which are not included in formal guidance, and the company is investing incremental pulled-forward sales and infrastructure spending for ProSigna. - Revenue guidance excludes near-term contributions from newly launched ProSigna and TrueMRD, as Medicare reimbursement for ProSigna LDT is still pending and commercialization remains in early stages.

Segment performance

Total company Q2 2026 revenue was $150.3 million, representing 15% year-over-year (YoY) growth, with total testing revenue of $145.7 million (19% YoY growth) across 48,389 total tests (14% YoY volume growth). - Decipher Prostate: Delivered 20% YoY revenue growth, with 17% YoY volume growth reaching just under 30,000 tests in Q2. ASP improvements contributed the remaining portion of revenue growth, driven by operational improvements, payer engagement, and higher test recoveries. Decipher Bladder saw encouraging Q2 order trends, with 13 publications and abstracts featured during the quarter. Total Decipher portfolio revenue growth is guided to 20% for full-year 2026. - Affirma: Reported 18% YoY revenue growth and 10% YoY volume growth, with approximately 18,600 tests in Q2. Revenue growth was driven by ASP gains, commercial payer reimbursement wins, and a 400 basis point volume benefit from improved no result rates from the V2 transcriptome workflow. Affirma holds a leading position in thyroid nodule molecular diagnostics and is gaining market share. - New Products (ProSigna LDT, TrueMRD): Both products launched in Q2 2026, and their revenue contributions are excluded from 2026 guidance as ProSigna's Medicare LDT reimbursement is still pending, and TrueMRD commercialization remains in early stages.

Risks & headwinds

- The low-risk Decipher Prostate segment will require additional high-quality clinical evidence, expected to read out starting in 2027, to return to double-digit growth and gain broader guideline inclusion, which creates near-term growth uncertainty for this segment. There is no guarantee that upcoming studies will read out positively, even with multiple ongoing trials. - ProSigna LDT commercial adoption is dependent on successful Medicare coverage approval and EHR integration, which represent near-term execution risks. Revenue contribution from new launches is uncertain due to the early stage of commercialization. - Future profitability may face slight headwinds as ProSigna volume grows in H2 2026, due to revenue recognition policies and delayed reimbursement approval. The company's outlook relies on unproven long-term demand for new products including TrueMRD, which has not yet demonstrated large-scale commercial adoption.

Analyst Q&A

• Q: The 1,000 test downward volume adjustment for Decipher — is this due to competition from AI-based testing? Will AI and molecular testing coexist, or will AI displace molecular testing in some workflows? /

  A: The volume reduction is isolated to the low-risk active surveillance segment, and is driven by the 2025 NCCN guideline change that removed guideline support for all tests (both molecular and AI-based) in this setting, affecting all market participants equally. We are not seeing any meaningful share loss to AI-based tests. Management believes molecular and AI testing are complementary, as they measure different biological features, and can coexist; physicians consistently prefer more information over less, rather than a one-or-the-other model. Strength in intermediate and high-risk Decipher segments remains on track, and new evidence starting in 2027 is expected to restore low-risk growth.

• Q: What is your outlook for contestable share in the existing breast cancer genomic test market for ProSigna, and where do you expect earliest uptake? /

  A: Verisight does not limit ProSigna to specific subsegments, and believes the entire ~225,000 annual U.S. ER-positive HER2-negative breast cancer population is addressable. While the Optima data adds unique validated evidence for node-positive and premenopausal patients, ProSigna already has level 1A evidence for all patient subgroups, so uptake is not limited to this group. Early market engagement has been very strong, with large centers considering full practice switches from existing tests, and management is optimistic about sustained long-term growth, but has not quantified a specific target share.

• Q: What is the current status of Medicare reimbursement for ProSigna LDT, and how is patient access handled right now? What is the timeline for approval? /

  A: ProSigna already has Medicare coverage via the existing FDA-approved version of the test; the company is transitioning to an in-house LDT, and is going through the standard Medicare technical assessment review process to confirm continued coverage. Verisight has already had productive exchanges with Medicare, management sees the path to approval as straightforward, and expects approval to come soon. Once approved, the company expects pricing around $2,500 at the low end of the expected range.

• Q: Why did you maintain 26% as the minimum adjusted EBITDA guidance when year-to-date results are meaningfully above this level? How much of this is pulled-forward ProSigna investment versus conservatism? /

  A: The incremental ProSigna investment (growing the sales force from 10 to 15 people) is not material to overall profitability. The maintained guidance reflects two core factors: 1) the company has a large pipeline of growth opportunities across MRD, Decipher, Affirma, and ProSigna that management plans to invest in to drive higher long-term growth, and 2) year-to-date outperformance has been driven by prior period collections (PPCs) that are not included in formal guidance, and ProSigna volume growth in H2 will create a slight near-term gross margin headwind due to timing of reimbursement and revenue recognition.