Ladies and gentlemen, greetings and welcome to the Personalis Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Caroline Corner from Investor Relations. Please go ahead.

Thank you, operator. Welcome to Personalis’ fourth quarter 2024 earnings call. Joining today’s call are Chris Hall, Chief Executive Officer and President; Aaron Tachibana, Chief Financial and Chief Operating Officer; and Rich Chen, Chief Medical Officer and EVP, R&D. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements within the meaning of U.S. securities laws. For example, any statements regarding trends and expectations for our financial performance this year and longer term, cash runway, revenue expectations and timing, reimbursement goals, size and booking of orders, products, services, technology, clinical milestones, the outcome and timing of reimbursement decisions, expectations for our existing and future collaboration activities, cost expectations, our market opportunity, and business outlook. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. We encourage you to review our most recent filings with the SEC, including the risk factors described in our most recent filings. Personalis undertakes no obligation to update these statements, except as required by applicable law. Our press release with our third quarter 2024 results is available on our website www.personalis.com under the Investors section and includes additional details about our financial results. Our website also has our latest SEC filings, which we encourage you to review. A recording of today’s call will be available on our website by 5 P.M. Pacific Time today. Now, I'd like to turn the call over to Chris for his comments and fourth quarter business highlights.

Thank you, Caroline. Good afternoon everyone and thank you for joining us for our fourth quarter and full year 2024 call. For those of you joining for the first time, welcome. Personalis is a leader in the fast growing MRD testing market. MRD stands for Minimal Residual Disease and involves using blood, which is commonly called a liquid biopsy instead of imaging or invasive biopsies to monitor therapy effectiveness and to detect cancer recurrence. The MRD market is expected to mature into a $20 billion market and with our ultra-sensitive MRD test NeXT Personal we believe Personalis is positioned for success. Our technology is able to spot cancer when there's only one fragment of tumor DNA circulating and a million DNA fragments in blood. Our tumor profiling platforms and tests are cutting edge. We're able to see more with high sensitivity and as a consequence, our platforms and tests are used by many of the world's top biopharma companies to improve clinical trial results, personalize treatment, empower a new generation of therapies. Before we dive into our 2024 accomplishments, I want to share another case from this last quarter that highlights the power of our ultra-sensitive test, NeXT Personal, to change care. During the last call, I discussed how a physician using NeXT Personal was able to spot a recurrence of breast cancer and get their patient access to therapy ahead of imaging. This quarter one of our cases involved a woman in her 70s with stage 3 lung cancer that was being treated with chemotherapy plus immunotherapy. The doctor did a series of three NeXT Personal tests over several months that showed the level of circulating tumor DNA was increasing with each test, suggesting the treatment regimen wasn't working. Notably, all the results were in the ultra-sensitive range. As…

Thank you, Chris. I will discuss our fourth quarter and full year 2024 results and then cover our guidance for 2025. Total revenue for the fourth quarter of 2024 was $16.8 million representing a 15% decrease compared with $19.7 million for the same period of the prior year. The decrease in revenue was expected and driven by lower volume from Natera who has continued to reduce test volume as a transition to their own in-house lab and also lower volume from the VA MVP as 2024 task order was mostly fulfilled in the third quarter. These reductions were partially offset by a 6% increase in biopharma revenue compared with the same period of the prior year. In addition, we recognized $0.2 million of clinical revenue from our NeXT Dx tumor profiling test. Gross margin was 27.1% in the fourth quarter compared with 26.5% for the same period of the prior year. The year-over-year increase of 60 basis points was primarily due to favorable customer mix from the increase in biopharma volume. In the fourth quarter, we saw an impact of approximately 8 percentage points to our gross margin due to unreimbursed test cost. Excluding those costs, gross margin would have been approximately 35%. Operating expenses were $22.7 million in the fourth quarter compared with $29.2 million for the same period of the prior year. Most of the year-over-year decrease was attributed to actions taken to reduce headcount in 2023. The fourth quarter R&D expense was $11.5 million compared with $13.6 million for the same period of the prior year and SG&A expense was $11.2 million compared with $11.5 million for the same period of the prior year. In the fourth quarter of 2023, we classified $4 million of employee severance cost as restructuring within the income statement and it's included…

Thank you. [Operator Instructions] The first question comes from the line of Thomas Flaten from Lake Street. Please go ahead.

Hey, good afternoon, guys. Thanks for taking the question. Congrats on the quarter. Hey Aaron, just sticking with guidance for a second, you have grouped together Enterprise Sales and the VA MVP program. Should we read into that that there are continuing Natera revenues, or is there a different enterprise customer in there?

So, Thomas, basically what we've done is we've guided both together. So there would be revenue from both. Right? The VA contract is $7.5 million, so you can assume $7.5 million to $8 million for the VA balance would be for enterprise customers.

Great. And then maybe for Chris, I know you've mentioned how many tests you've done, but we haven't heard. At least I don't recall hearing the number of customers you've had. And then if you were willing to share that and then any thoughts on reorder rate for those physicians that have been using the test so far? NextDx sorry.

Yes, we're closing in on about 300 doctors last quarter using the test now, so that continues to Grow really nicely. You see that in the volume that's coming from both our organic group, which is only just a small group of about 4-ish people, and then Tempus, which has got a couple hundred people out carrying the message to doctors. So, closing on 300, the retention has been super high. We talked about it last quarter. We talked about how, it was in the high 90s reorder rate. We're not going to disclose that quarter-over-quarter and, so many moving parts about what doctors, do and how they practice. But we feel like, that we feel the retention has been high and we feel like the value is just being underscored every day. About 40% of our results, of our positive results are in the ultra-sensitive range. When physicians start to see the power of that, they're sold. And there's so many success stories that we run into around finding cancer sooner and being able to intervene and being able to see things, therapeutic response and get the physician, get the patient on the right therapy. And these things are underscoring the value and helping to cement the retention.

Super helpful. Thanks for taking the questions.

Thanks, Thomas.

Thank you. The next question comes from the line of Yuko Oku from Morgan Stanley. Please go ahead.

Hi, this is Madison on for Yuko. Thanks for taking the question. Congrats on the quarter. Just wondering if we could start, I realized you gave color on first quarter, but wondering how we should be thinking about the phasing of the top line as we look out to the rest of 2025?

Yes. So basically in terms of the revenue guide, $85 million at the midpoint and the way we look at it, Madison is it's probably half first half, half of the revenue in the second half and in terms of the mixture there. So Biopharma is going to be probably 40% first half, 60% second half. But the enterprise customers, enterprise revenue would be the opposite. In addition, clinical sales, the guide there is $3 million to $10 million. Most of that is going to be in the second half primarily because it's pending reimbursement.

Got it. Okay, that's very helpful. And then on gross margins, I know last quarter I think you noted a potential headwind about 15 percentage points to 18 percentage points from unreimbursed tests. Is that still how you're thinking about it? And then just given the uncertainty of the specific timing of reimbursement, how should we be thinking about the GM cadence over the year?

Yes. So that's the primary reason why we did provide a gross margin guide. Our gross margin guide for the full year of 2025 is 21% to 23%. In 2024, we achieved 32%. If we didn't have the unreimbursed test costs in 2024, we probably would have been around 36% and going into 2025, we assume no unreimbursed test costs. Gross margins would be up between 40% and the low 40s. So there would be approximately 17% to 18% of headwinds due to the unreimbursed test cost.

Okay, thank you.

Thank you. [Operator Instructions] The next question comes from the line of Swayampakula Ramakanth from H.C. Wainwright. Please go ahead.

Thank you. Thanks, Chris and Aaron. So when you talked about the three areas that you would be monitoring for growth in 2025 and beyond, regarding when you're talking about the clinical usage, you said, not only utilizing the Tempus commercial team, but also you will increase. You will be building a commercial team. Is this -- how much of an impact is it going to be on SG&A in 2025, or is this going to be pending reimbursement and all that? So most of that will actually be in late 2025, early 2026. How should we think about that, please?

Yes, I mean, we've always said we'll have a small team. I mean, we're mostly planning on depending on Tempus, but we'll always, have a small team for some of the relationships and also to work with the Tempus team in the field and be able to fill in some gaps and work and you learn a lot from doing that. We expect that team to be small. We've always said it will be relatively small investment in the next year or two, and nothing about today's call suggests that's not the case. And we'll continue to just grow it as we go through the year by onesies and twosies and a little bit more aggressive as we have line of sight exactly on reimbursement. But you always want to get in front of it because it takes some time to find the right people and get them into place and get them trained, but it won't be meaningful financially.

Okay. And then talking about the reimbursement, it's great that you already have one submission done for breast cancer in terms of how, what to expect on that in the sense, in general, how long does it take for some of these submissions to come to a decision point? And in terms of the next one is, I thought you said lung cancer. If that is true, is there any way we can gauge the timing on it or is this just TBD?

Yes -- I mean, so we have never said that the next one would be lung cancer IO therapy monitoring. What we have gotten to this point is all three of the key publications have been submitted and the lung cancer and the IO have been submitted. The journey of going through that process with journals is variable. And, if the lung cancer one gets accepted before the IO one we'll submit with for lung cancer, and if the IO one gets submitted sooner, then we'll submit for IO sooner. Our intention, to be clear, while we're saying we expect to get two of three over the finish line, we're shooting for all three. Our goal is to have all three accepted and all three submitted and move the ball forward on all three. And that's what our internal goal is and that's what we're shooting for. But I mean, I think there's, realistically something, always tends to happen. The time on the, the time from submission onwards, I think we think about it as six months, plus or minus in general. I think sometimes it goes as long as nine and it could go as fast as three, but that's sort of where it is. But I expect the back half of the year is when we'll start being able to make announcements on that. But we were super excited to be able to move the ball forward and be able to get to the point where we could submit. And the submission looks great and we're really confident that we're on the right track here.

Yes, perfect. Thanks for taking my questions. Thank you.

Thanks.

Thank you. The next question comes from the line of Dan Brennan from TD Cowen. Please go ahead.

Hi, this is William Ruby on for Dan. Just one question for you. With a cash usage of $75 million to $80 million, are you anticipating that you'll potentially look to the capital markets this year?

So we have plenty of capital in terms of what we've got on the balance sheet. What we've been saying William, is that we have cash to get us to cash flow break even. In terms of going back to the markets to raise capital, we'll have to look at how things, come together the rest of the year. And if there's an area where maybe we need to further invest in, call it evidence or other areas of our business, and we'll look at different opportunities. But sitting here today, there's no specific need to come back to the market.

Thank you.

Sure.

Thank you. Ladies and gentlemen, as there are no further questions, this concludes the question-and-answer session. The conference of Personalis has now concluded. Thank you for your participation and you may now disconnect your lines.

Thank you.