Good day ladies and gentlemen and welcome to the CareDx 2016 Q2 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I'd now like to turn the call over to Ms. Caroline Corner, of Westwicke Partners. Ma'am you may begin.

Thank you for participating in today’s call. Joining me from CareDx are Peter Maag, President and Chief Executive Officer; and Charles Constanti, Chief Financial Officer. Earlier today, CareDx released financial results for the quarter ended June 30, 2016. The release is currently available on the Company’s Website, www.caredx.com. Before we begin, I’d like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, our examination of historical operating trends and our future financial expectations are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and descriptions of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. CareDx disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast today, August 10, 2016. In addition, on today’s call, we will refer to various non-GAAP financial measures in which we exclude certain items from our US GAAP financial results. We believe that in order to properly understand our short-term and long-term financial trends, investors may wish to review these measures as a supplement to financial performance measures determined in accordance with US GAAP. Please refer to today’s press release announcing our second quarter 2016 results for a reconciliation of these non-GAAP performance measures to our US GAAP financial results. I'll now turn the call over to Peter.

Thanks, Caroline. Good afternoon everyone. I’d like to begin with a patient focused snippet as we do on all of our calls. Paul Conway visited CareDx in the second quarter. He is a kidney transplant recipient who have managed its kidney disease for over 34 years. Paul was Agency Chief of Staff at the US Department of Homeland Security. As you think about the security that TSA provide, please think of him. But more importantly, Paul has made it his mission to support fellow kidney transplant recipient. He is now heading the American Association of Kidney Patients as their President. Paul has taken more than 125,000 tablets since his transplant. At CareDx, our goal is to help patients like Paul to receive personalized care, facilitate compliance, and reduce this mind-boggling number of medications. In our agenda for today, I'm now going to provide a summary of our recent performance highlights, focusing on our core and on our launch products in both our pre-and post transplant efforts. I'll then ask Charles to dive deeper into our second quarter financials and then we look forward to your questions. Now let me update you on some of the progress we’ve made at CareDx. It is exciting to be reporting our first greater than $10 million revenue quarter. With $10.7 million, we have had a strong quarter driven by AlloMap U.S volume growth of 12%, an uptick on collections and the integration of the Olerup business into our P&L. This performance demonstrates our execution against the three objectives stated during our IPO. The first one was core AlloMap, second develop a cell-free DNA surveillance solution for transplantations, and thirdly add to our scope and capabilities through external growth. At the end of my update, I will speak about some of our future goals now…

Thank you, Peter. This financial results that we're discussing today for the three and six months ended June 30, 2016, our preliminary and may be updated with the filing of the upcoming quarterly report on form 10-Q for the quarter ended June 30, 2016. The complications of the acquisition of Allenex during the quarter, including acquisition accounting, valuations, US GAAP conversions, interim period cutoffs, and summer vacations in Europe, all impacted our quarter and we are near to completing the close process and our independent auditor is near completing its review of our financial statements. Preliminary revenue was $10.7 million, up from $7.1 million in the second quarter of 2015. AlloMap U.S test volume grew 12% year-over-year contributing to AlloMap revenue of $7.2 million. We recognized $3.4 million of revenue from Olerup in the second quarter reflecting revenue recognition beginning on April 14 -- on the April 14 acquisition date. Preliminary operating expenses in Q2 were impacted by the acquisition of Allenex. We typically refer to Allenex as Olerup. We included Olerup's operating expenses and our results beginning April 14. In addition, there were a number of costs and charges that we have excluded from our non-GAAP results in Q2. As part of the purchase accounting for the acquisition, we recorded a preliminary step up in Olerup's inventory value that has amortized the cost of goods sold. We also recorded intangible assets, including customer relationships, technology, and trademarks that are subject to amortization together with tax effects. During Q2, we incurred $1.6 million of costs including banking and legal fees together with costs to re-audit Olerup's 2014 and 2015 financial statements under U.S standards and produce pro forma financial statements that were filed in May 2016. These acquisition related costs were excluded from our non-GAAP results together with stock-based compensation…

Thank you, Charles. We started off strong into the second half of the year based on continued execution against our plans. As we are building out CareDx as a genomic information company in transplantation, we will have a series of exciting milestones coming up. Stay tuned for updates on AlloSure, Olerup, QTYPE, AlloMap, and our big data project. We appreciate you joining the call. We are now happy to address any questions.

[Operator Instructions] And our first question comes from the line of Bill Quirk with Piper Jaffray. Your line is now open.

Great. Thanks. This is actually Alex Nowak filling in for Bill today. Good afternoon. Just wanted to start on the preliminary gap-fill rates, Just curios with the conversations that you’re having with CMS and the MACs that are willing to meet, what are you hearing from them about getting those gap-fill rates when you reversed in the final gap-fill amounts?

Alex, thank you so much for the question. And as I was mentioning in the call, the local MACs that are -- have submitted these low prices for AlloMap are actually not meeting with us. And there is very little to none information exchange between these MACs and us. So, I think this is going towards what I mentioned to the reconsideration process and it will be finally on the CMS level, that will finally determine the AlloMap pricing. But given our past experience and that we’ve done those in the last year, we are pretty confident that we will be overturning and reverting back to the established pricing of 28.21.

Okay, perfect. And then, just [indiscernible] with the AlloMap business on the volume side is obviously pretty growth in the quarter. Just curious, you mentioned a new pilot program you’re initiating, were you’re going into transplant centers. I was just curious what is the volume growth in those centers where you’re actually partnering with them?

You know these are -- I would say that these are pilots that we monitor very closely in terms of the volume effect. I think even more important is that this protocol adherence that we allow patients to follow their protocols. One of the biggest opportunities for AlloMap overall is actually that these centers are following their protocols that they’ve set for the patient. And this will allow us to do that by, for example, doing facilitating home draws at the patient's home and get the blood samples drawn at their home. There is a volume effect, but I think it is even more important to consider that from a customer service perspective and making sure that patients are following their regular protocol and being compliant.

Okay. Thank you. And then just last question, I will jump back into the queue. I don’t believe you mentioned this on the call, but when do you expect to launch AlloSure with -- to your clinical customers, maybe not as a reimbursed test as of yet, but when do you expect to get them to your clinical lab?

No, AlloSure -- thank you for the question and AlloSure is available today. So it is analytically validated. Its clinically validated now with DART. We feel very comfortable. So if we were to receive an order, AlloSure is available for patients today.

Okay, perfect. That’s very helpful. Thank you.

Thank you. And our next question comes from the line of Eric Criscuolo with Mizuho. Your line is now open.

Hi. Good afternoon, guys. So peter on the -- just a couple of things. I think you guys are been going through some little -- some issues on the collections side of the business. Could you maybe talk about any improvements you’re seeing there and if it's fully behind you or if there is still some improvement left?

[Indiscernible] have trials comment on the [indiscernible] he came into the organization and made a significant contribution in that area. But no, I think we're -- the $7.2 million in AlloMap revenue actually turns -- tells you that we’ve well advanced and we have come through the valley, so to speak and climb out. We are not completely there yet, but I think the initial results makes me very helpful. What do you think?

Yes, I think the approach that we set out and talked about in the last quarter is bearing fruit. So we’ve seen an uptick in cash collections in Q2. We see that uptick continuing to this date. So I think the plans underway are bearing fruit. As Peter said, there's still work to go, but we’re on the right path.

Okay. Thank you for that. And then just back to the CMS pricing decision, do you just to get it straight in my head as far as what I could expect, the final implemented price that you think you can get reversed up to the -- where the price level is now, that decision will come in November, is that correct?

Well, it will be the official final price, it will be part of the clinical lab fee schedule that is always published somewhere in the last week of November, maybe sometimes in the first week of December, but it is in that timeframe. And that's really when we know that we've been successful in overturning and the final price determined. I think we'll get some indication maybe earlier, but in terms of seeing it black and white on a piece of paper I was -- I'm trying to be cautious and saying that that's probably the time that we see the final price for AlloMap for 2017.

Okay, great. That’s perfect. Thank you for that clarification. And then, just another clarification for me. I think in your prepared remarks you had said something along the lines of 90% Medicare coverage in kidney was alpha for three years. Was that 90% Medicare coverage -- was that the your kidney market is 90% Medicare or that 90% of Medicare it covers kidney for three years, but that's not the actual piece of the pie, is it 90% or less than that?

No, kidney transplantations most of them, if not all, are undergoing dialysis. That's one of the prerequisites of being a Medicare patient. So most of these patients that are in dialysis are actually Medicare patient. So 90% of the kidney transplant patients are Medicare patients. So our reimbursement will be focused on getting reimbursement for AlloSure, for these Medicare patients, which will be making 90% of all kidney transplantations. To give you a bit of perspective, there are probably 17,000 kidney transplantations in the U.S and 90% of those patients are Medicare patients.

Perfect. Thank you very much. That’s it for me.

Thank you. And our next question comes from the line of Paul Knight with Janney Montgomery. Your line is now open.

Good morning. Congratulations on the close of Allenex. Couple of questions. It looks like obviously with 12% trade volume growth, it looks like pricing was up sequentially from Q1, is that the right read and why is that and then why -- what’s with the good volume pick up?

I mean, I think the volume pick up is just a really good quarter for AlloMap. We are extremely pleased. We said that AlloMap is kind of grow in the 5% to 10% range and we exceeded that in this quarter. So this is a really good volume growth for AlloMap. In terms of the pricing, Paul, I think there's still a little bit in the catch-up because we are on these cash collection. So we don't see a pricing effect, but really picking up on collections being able to recuperate some of these outstanding test. So the $7.2 million revenue is really a function of good volume growth and associated with an improved collection process.

And then working down the lines, it looks like with the inclusion of Allenex, your R&D, sales, general administrative in total was maybe bit higher than perhaps I had pro forma it out. Are they heavier in costs, you have to bring down costs, and held the revenue organic revenue growth look at Allenex right now. So two questions, the organic rate, how did it feel in the quarter and then do costs have to come down?

Yes, we’re completely in launch mode for Olerup QTYPE. And as you see these costs might be a little bit skewed towards that pre-launch event in the third, fourth quarter this year for Olerup QTYPE. But in terms of the overall structure of the P&L, I wouldn't expect major changes to that P&L going forward. Charles what do you think?

Yes, Olerup was in the quarter as we talked about since April 14. So normalizing for that operating expenses would increase sequentially. But I think what we're seeing in the quarter is, I would say kind of a base level for operating costs. There could be some increases going forward relative to wrapping and launching events. But I wouldn’t expect costs to be trending down on a non-GAAP basis.

And then lastly the growth rate you’re hoping at Allenex to achieve this low to mid-single digit level?

Yes, on a pro forma basis, yes.

Okay. Thank you.

Thank you. And our next question comes from the line of Pierre Osland with Craig-Hallum. Your line is now open.

Thanks. Good afternoon, Peter and Charles. Wanted to follow-up first on Alex's question on the pilot. The pilot program actually so it’s a part in the remedial question. I'm just sort of curious if you can give a little bit more background on kind of what you're doing in the pilot program and sort of how you envision the outcome or the deliverable, if you will, and you take that to the -- to other centers with protocols that perhaps aren't adhering as well or do you take that to centers without protocols, do you take it above?

While I think the biggest opportunity is really for AlloMap is that now that we have established significant presence and established protocols, that these protocols are adhered too. And since these patients are with these transplant centers throughout their lifetime, it's really a coordinating and partnering with these transplant centers making sure that the patients are being compliant on their own these protocols. We have partnered with leading hospitals, one of them is Tampa, another hospital in Dallas, Texas where we actually partner with the sender we coordinate the blood draw we talk to the patient, offer them that they get the blood draw done in the patient's home and then facilitate the entire process. So by the time that the patient shows up for their routine visit in the hospital, the clinician already have the AlloMap score and it can guide intervention based on the AlloMap scoring which is a significant change to what happens today, where the patient goes into the center, gets an AlloMap. Two days later is being called and potential interventions are being considered. So this is what we would call the pre-visit blood draw, which will have significant impact on how these patients are treated on the line. Once these pilots are successful, yes, we do think that we can roll that out in many centers in the United States, because these pre-visit blood draw make a lot of sense, if you think about it.

I would have to agree. Thank you for that. On the AlloSure side, the kidney side, you have the update on the DART trial in June and I believe at that time you indicated that the -- I think it was the American Society of Nephrology in November was sort of the next read, if you will, it is the first I guess -- first would be is that still the case and then what kind of incremental information do we expect at that point. And then what are the next one or two milestones on the data side from there.

Yes, on the data side it's really the continued readout of DART. We were in full-fledged progress of publications and presentation. The DART trial is so rich on inside the new information that we believe we can make a substantial contribution on how these kidney transplant patients are managed going forward. So anticipate a little bit of a firework in the next 6 to 12 month based on the DART data that we have generated. I think most exciting and we’ve said that all along is that how do we engage with the Moldex program and CMS in terms of how do we ensure reimbursement for AlloSure. And that's really guiding around how this goes and the next clinical activity plans and undertakings. So we’re laser sharp focused on reimbursement of this product and profiling around clinical utility.

Okay. I think that's all I have for now. Thank you.

Thank you. [Operator Instructions] And our next question comes from the line of Nicholas Jansen with Raymond James. Your line is now open.

Hey, guys. Quick question on Allenex, just trying to get a better sense of how we should be thinking about the QTYPE rollout, when we could potentially see a broader inflection in their revenue growth rate relative to the flattish low single-digit level that we’re seeing today?

Yes, I mean, QTYPE is a great product that allows us to broaden our base. I mentioned how many HLA transplant vendors, Olerup is already present in today. QTYPE is this product that promises rapid turnaround time on an extremely accurate typing. We launch this product initially with a 11 low size, which is really at the base of where -- what these HLA transplant centers are looking for or transplant labs are looking for. So we have high hopes and pretty exciting about the product. What we will need to happen for this to really go significantly high in terms of growth rate is that we profile this product and validate the product on multiple platforms. We have the ROSE lifecycle [ph] initially available, but there will be other platforms that we validate the product and that is going to be an undertaking that we will do together with customers on terms of prioritizing the validation of that product. But its -- I think it's a game changer for the company in terms of making rapid turnaround time solutions available for HLA typing.

And then secondly on AlloSure just trying to get a better sense of how we should be thinking about the roadmap here from both a volume perspective than a revenue perspective. I believe, Peter, I think I heard you say something about 2019 kind of revenue expectations or thoughts or aspirations and just want to try again, get a better sense of the roadmap to that number.

Yes and thank you Nick. That allows me to reiterate our aspiration of 2019, $100 million Company. I think we haven't given that number out in the past and so it is in your yardstick for the Company to be measured again. We feel that taking a step back having the combination of the two organizations, it's the right time to not only talk about genomic information company, but also put some metrics in place that allow us to say where is this going. Now the $100 million will really have probably two major components. One is the pre-transplant side and the post-transplant side and then we will have the AlloSure side on the kidney versus other transplant -- the post-transplant care in other organs. So in terms of AlloSure that will be really a growth driver for us an organization as anticipated. If you model our business, right now we have guided the $40 million, $42 million year-end. So you can drive the deltas to the 219 based on that.

Okay. But are you viewing the pre-transplant and post-transplant opportunity excluding AlloSure is different than let's call it the low to mid single-digit core number that you're growing this year and I guess why I’m asking is, if you are that seems like as a pretty sizable AlloSure contribution over the next three years. So I'm just trying to get a sense of when we should see certain reimbursement milestones and thing on those lines to achieve that bogey.

Yes, I think we have in our models and you have in our models if I look reimbursement for AlloSure in the year 2017 there is some revenue associated with AlloSure and in order to then achieve $100 million total company revenue, that's probably what’s currently in the plans for us to do so. I think it all hinges about how frequently is AlloSure used in the -- in post-transplant and then what's the reimbursement price on AlloSure? And as we get clarity on these milestones, we will be able to update these numbers.

Great. And last one just on share count, just wanted to get a better sense of how we should thinking about sequential, I know it wasn’t a full quarter impact of all the stuff. So, is there any specifics you could provide there as we tune up our models.

Yes, this is Charles. So we exited the -- we're currently around the 8, close to 19 million shares. I think, so that was the [indiscernible] what our average would be for the quarter, for Q3.

Thank you.

Thank you. And I’m not showing any further questions at this time. I would now like to turn the call back to Mr. Peter Maag, Chief Executive Officer for closing remarks.

Well, thank you very much for your interest in CareDx as we’re building our presence as a genomic information company along the pre-and post-transplant continuum. Our stop at CareDx is dedicated to making a difference in patient life, our ongoing -- your ongoing support and attention as we develop novel solutions to improve care of these patients is very much appreciated. We will keep you updated on our [indiscernible]. Good afternoon.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.