Good day, and thank you for standing by. Welcome to the Myriad Genetics third quarter 2026 financial earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Matthew Scalo. Go ahead.
Good afternoon, and welcome to the Myriad Genetics third quarter 2026 earnings call. During the call, we will review financial results we released today, and afterwards, we will host a Q&A session. Our earnings release was issued this afternoon on Form 8-K and can be found on our website at investor.myriad.com. I'm Matt Scalo, Senior Vice President of Investor Relations, and on the call with me today are Sam Raha, our President and Chief Executive Officer, and Ben Wheeler, our Chief Financial Officer. Joining for Q&A will be Vishal Sikri, Executive Vice President of Commercial, and Mark Verratti, our Chief Operating Officer. This call can be heard live via webcast at investor.myriad.com, and a recording will be archived in the Investor section of our website along with the slide presentation.
Please note that some of the information presented today contains projections or other forward-looking statements regarding future events or the future financial performance of the company. These statements are based on management's current expectations, and the actual events or results may differ materially and adversely from these expectations for a variety of reasons. We refer you to the documents the company files from time to time with the SEC, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. I'll now turn the call over to Sam.
Thanks, Matt. Good afternoon, everyone, and thank you for joining us. I want to start by welcoming Vishal Sikri to our earnings call. Vishal joined Myriad in 2025 as our SVP of Product and was recently promoted Executive Vice President of Commercial, where he is now overseeing sales, marketing, and product. Vishal has a deep understanding of molecular diagnostics and oncology, as well as extensive business and commercial leadership experience. As Matt mentioned, Vishal is here in the room and available to participate in the Q&A portion of our call today, along with Mark Verratti. Before we discuss third quarter results, I want to start by framing the context for the last few months.
We understand the key challenges that we've been facing, continued softness in our prenatal health business, reimbursement pressure on HCT, and financial stability, and we have been taking decisive actions to address the challenges. I am pleased by the progress we're making on multiple fronts. To materially strengthen Myriad going forward, we've been advancing our work on a number of initiatives. First, we've done a rigorous review of our product portfolio to determine how to maximize shareholder value and sharpen Myriad's focus. This led to the definitive agreement to divest our prenatal health business, which we recently announced. Next, we have been working on a set of initiatives to address reimbursement pressures. Our increased revenue per test for the Cancer Care Continuum business in Q3 compared to Q2 reflects our team's ongoing work and early progress with payer engagement and revenue cycle efforts.
Next, we've been working on the Ascend initiative, which we introduced on the second quarter call, to modernize how we operate as a company to both better serve customers and increase our ability to win in the market while improving productivity, efficiency, and our cost structure. This initiative is about optimized processes and organizational design supported by new tools and technologies. We're working on Ascend with a leading consulting firm, and while this is a multi-year initiative, we've already started taking actions. We will share more about Ascend and its expected impact as we move into 2027. Finally, we've redoubled our focus on business execution and results to ensure we can demonstrate operational, commercial, and financial progress on a consistent quarterly basis. With that, let me dive into our third quarter performance and highlights.
Third quarter total revenue of $202.7 million was supported by growing demand for our cancer care and mental health offerings, with 4% volume growth of Cancer Care Continuum tests and 3% volume growth of our mental health tests, offset by 11% decline in the volume of prenatal health tests. For average revenue per test, we reported an increase of 1% year-over-year in Q3, compared to a decrease of 9% year-over-year in Q2. In fact, Q3 revenue per HCT test, while down 6% year-over-year, improved 9% sequentially over Q2 of 2026. The improvement in total average revenue per test reflects test mix and early progress addressing payer friction through enhanced engagement and revenue cycle management initiatives. We outlined a number of these initiatives on our second quarter call, and Ben will share more about this later.
While we are pleased with the results from these activities so far, we know that revenue cycle management requires unrelenting attention and engagement as conditions evolve. Let me reemphasize that HCT remains a highly profitable business line with attractive margins, strong cash generation, and significant long-term volume growth opportunities. In terms of profitability, the sequential improvement of revenue per test flows through the P&L, and our gross margin of 67.9% improved 130 basis points compared to Q2, along with a meaningful quarter-over-quarter improvement in adjusted EBITDA of -$5.3 million and adjusted EPS at -$0.11. On October 20th, we announced that Myriad has signed a definitive agreement to sell the prenatal health business to Labcorp. This is an all-cash deal for $210 million plus inventory, which values this business at 1.3x trailing 12-month revenue.
We are pleased with the outcome, and early investor feedback has been unanimously positive as well. I'll speak further to the benefits of this transaction in a moment. Looking at the full year of 2026, given the steady volume growth of our Cancer Care Continuum and mental health tests, along with improving average revenue per test in Q3 over Q2, we are raising the midpoint of our 2026 revenue guidance modestly. Total revenue guidance moved to a range of $780 million-$790 million. This update reflects conservative assumptions related to prenatal health testing volume. Ben will share more on our guidance later. We expect the sale of the prenatal health business to unlock significant value for Myriad and our shareholders, resulting in a new Myriad that has materially strengthened financial profile in terms of revenue growth rate, profitability, and liquidity.
Working with Labcorp, when the transaction closes, we expect a smooth transition that preserves uninterrupted patient access to our prenatal tests, and a good opportunity for our approximately 500 team members who will move to Labcorp to continue serving prenatal healthcare providers. Importantly, the transaction will enable the new Myriad to be even more focused on the sizable, attractive Cancer Care Continuum market opportunity. Now, turning to third quarter performance by business. In Q3, the Cancer Care Continuum business generated revenue of $124 million, up 1% year-over-year, reflecting test volume growth of 4%, the 98,000 tests being offset by a 3% decline in average revenue per test. HCT volume grew 6% year-over-year, with volume growth in both the unaffected and affected population continuing to be strong. In fact, unaffected HCT in Q3 marked its highest volume record recorded in the last three years.
We continue to drive steady volume growth in HCT, enabled by a combination of our clinically relevant content, strong market position, and improving commercial execution. It's encouraging to see the continued guideline expansion for HCT, including the updates by NCCN earlier this year, including multi-gene panel testing for all patients with endometrial cancer and also for colorectal cancer and gastric cancers, regardless of age and family history. Guideline expansion is expected to continue to support growth in years to come. For prostate cancer, we continue to receive positive feedback on Prolaris + AI, which we launched mid-year. However, we believe our volume has been impacted by the NCCN guideline, which recommends blood-based biomarker testing and imaging in certain situations prior to biopsy. Turning to Precise MRD. We're pleased to report on the latest positive data using our test.
At the ESMO conference a couple of weeks ago, our collaboration partner, the National Cancer Center Hospital East, presented data on the clinical significance of ultrasensitive MRD testing using our Precise MRD test in the assessment of colorectal cancer patients enrolled in the MONSTAR-3 study. While the overall study is still maturing, in this interim analysis, 91% of patients who recurred were MRD positive in Precise MRD one month after surgery, higher than has been reported with other assays in previous analyses. Further, the remaining 9% who recurred were identified as positive via serial testing. Approximately half of the post-surgery ctDNA positive results were detected at an ultrasensitive level, and 35% of patients who have recurred so far had their first positive detection at an ultrasensitive level. In essence, this illustrates the power of Precise MRD for earlier detection to help inform medical management and can benefit patient care.
We look forward to strong data readouts and additional presentations and publications in 2027. Regarding commercial availability, we have spoken about how we are engaging new customers at early access sites. In fact, just last week, I had the chance to personally meet with some Precise MRD customers to hear their input directly. For early access, we continue to closely monitor test utilization, customer experience, and our internal operational efficiency. We expect Precise MRD reimbursement for breast cancer to begin first half of 2027. We submitted to MolDX this summer. Consistent with past commentary, we would expect reimbursement for colorectal and renal cancer later in 2027. We intend to continue prudently managing testing demand until reimbursement is established. Turning now to mental health. In the third quarter, GeneSight generated $40 million in revenue, up 2% year-over-year on 3% year-on-year volume growth.
We continue to expand the ordering provider base, reaching over 40,000 ordering clinicians in the third quarter, and this steady volume growth reflects positive underlying demand and sales performance. We remain disciplined with a strong focus on capital efficiency while delivering growth with GeneSight. Now moving to our prenatal health business. As I have already discussed the announcement of the sale, I will be brief. In Q3, the prenatal health business generated revenue of $39 million, down 12% year-over-year, reflecting a modest decline of 1% in average revenue per test, while volume declined 11%. That being said, FirstGene testing volume showed a nice ramp, and we look forward to working closely with Labcorp to provide continuity prenatal testing for healthcare providers and patients. Finally, we have used this slide since the beginning of the year to track progress of key actions and milestones, product launches, publications, and submissions.
The check marks show that as we near the last part of the year, we have successfully completed the majority of these important milestones related to HCT, prostate cancer, and Precise MRD. These actions will support our growth in Cancer Care Continuum as we go forward. With that, I will turn it over to our CFO, Ben Wheeler. Ben?
Thanks, Sam. Let me start by reviewing our third quarter financial results. We reported revenue of $202.7 million, up 6% sequentially and down 1% year-over-year. Overall, test volumes declined 1% sequentially and 2% compared with the prior year period, as continued strength in hereditary cancer testing and mental health were offset by prenatal health. Average revenue per test increased 7% sequentially and 1% year-over-year, a meaningful improvement from the 9% year-over-year decline we reported in the second quarter. This improvement reflects product mix, a more normalized year-over-year comparison with prior period change in estimate impact to revenue, and early progress from our revenue cycle initiatives. I will spend a few minutes on that progress in more detail. While we are encouraged by the improvement in Q3, average revenue per test can fluctuate in any particular quarter or year due to a number of factors.
Longer term, we continue to expect modest headwinds to hereditary cancer testing average revenue per test, consistent with our prior commentary. We generated gross margins of 67.9% in the third quarter, up 130 basis points sequentially, but down 200 basis points year-over-year. Sequential growth reflects the improved average revenue per test. Our laboratory operations continue to perform at a high level, reflecting strong operating discipline and efficiency. Adjusted operating expenses were essentially flat sequentially, but increased $10 million year-over-year. The year-over-year increase reflects targeted investments made earlier in the year to strengthen commercial capabilities. Our capital allocation philosophy remains unchanged. We will continue to prioritize investments with the highest expected returns while maintaining a disciplined focus on operating efficiency and shareholder value creation.
Taking all of that into account, we generated an adjusted EBITDA loss of $5 million and an adjusted EPS loss of $0.11 in the third quarter. As I mentioned, third quarter average revenue per test increased 1% year-over-year, primarily reflecting test mix. Within hereditary cancer testing, while average revenue per test remains below prior year levels, this slide shows the meaningful sequential improvement we saw in the third quarter. We believe this reflects early progress from our revenue cycle optimization and MyRisk reimbursement initiatives. As we announced last quarter, we're implementing targeted process improvements, AI-enabled workflow acceleration, and other capabilities to reduce reimbursement friction. In parallel, we launched a payer-by-payer market access strategy focused on policy engagement, LBM collaboration, and reimbursement optimization to strengthen long-term access and support sustainable reimbursement for hereditary cancer testing.
The key takeaway is that we're seeing encouraging early progress addressing reimbursement friction, but there is more work to do. We continue to expect modest pressure on hereditary cancer testing average revenue per test over time, but we believe that we are building the capabilities and processes necessary to navigate an increasingly complex reimbursement environment more effectively. Next, I'll speak to Myriad's profitability and liquidity. Third quarter adjusted EBITDA was a loss of $5 million, a significant improvement from the second quarter. This sequential improvement was driven by stronger revenue performance and disciplined operating expense management, with adjusted operating expenses remaining flat quarter-over-quarter. We remain in a strong financial position. We ended the quarter with approximately $182 million in available capital. This provides us the financial flexibility to invest in our strategic priorities and fund key growth opportunities while maintaining a disciplined approach to capital allocation.
Next, I'll address the recently announced agreement to divest the prenatal health testing business. As Sam discussed, we believe this transaction is transformational for Myriad. In 2025, we refreshed our growth strategy and made a deliberate decision to prioritize the Cancer Care Continuum. Since that time, it has become increasingly clear that our prenatal testing business was unable to generate attractive returns in the near term, particularly given recent dynamics in the prenatal market. We therefore moved quickly to find what we believe is the best long-term home for this business. This transaction achieves a number of strategic and financial priorities. First, it sharpens our focus and allows us to prioritize resources and investment on the Cancer Care Continuum, where we believe Myriad has the strongest opportunities to create long-term value. Second, we expect the transaction to meaningfully improve the financial profile of the remaining company.
Importantly, the combination of a stronger growth profile and higher gross margins should accelerate our path to sustainable profitability. Third, this $210 million plus inventory all-cash deal will significantly strengthen our balance sheet and enhance our financial flexibility. We are evaluating potential uses of the net proceeds, including debt reduction, internal and external growth investments, and other general corporate purposes. It is too early to be more specific on capital allocation, but the transaction meaningfully expands our financial flexibility. Finally, we recognize this transaction affects many of our colleagues, and we do not take that lightly. At the same time, we believe this is the right strategic decision for both businesses and puts Myriad in a more focused, financially stronger, and more competitive position going forward. Next, I will speak about guidance.
Factoring in our solid Q3 performance and our updated outlook for the remainder of the year, we are raising the midpoint of our full year 2026 revenue guidance to $785 million from $780 million. This increase primarily reflects the improvement in average revenue per test we experienced in the third quarter, partially offset by some potential softness in prenatal health given the deal announcement. To provide greater insight into the underlying business, we are also providing separate 2026 revenue guidance for prenatal health and the Cancer Care Continuum and mental health businesses. Now let me turn the call back to Sam.
Thanks, Ben. I would like to conclude by summarizing the key points from this call. The combination of the planned divestiture of the prenatal health business, the advancement of our ongoing work to mitigate reimbursement pressures, the implementation and benefits from the Ascend initiative over the midterm, and improved operational and commercial execution is setting up the new Myriad to have a materially stronger financial profile, increased predictability, and increased focus and intentionality on the Cancer Care Continuum to serve more patients and clinicians and win in the market. We recognize the work ahead. We are energized by it and the opportunities that will unlock. We are pleased with our Q3 results and look forward to building on that in Q4 as we head into 2027. I will now pass the call back over to Matt for Q&A. Matt.
Thanks, Sam. As a reminder, during today's call, we use certain non-GAAP financial measures. A reconciliation of the GAAP to non-GAAP financial results and a reconciliation of GAAP to non-GAAP financial guidance can be found in our earnings release and under the investor relations section of our website. Now we are ready to begin our Q&A session. Operator?
Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Bill Bonello with Craig-Hallum. Your line is open.
Hey, guys. Thanks very much. Fun to be on a quarter where things are moving in the right direction. Specifically to that, I was hoping to ask a multi-part question on hereditary cancer pricing. Just trying to understand a little bit more the dynamic there. So here is the multi-part. Is the decline in ASP a function of not getting paid, or is it a function of getting paid at lower rates? If it is the latter, you are getting paid at lower rates, is that something that is resulting from contracts that you are renegotiating? Then let us assume it is that, maybe you can give us some sense of where you are in that contracting cycle, whether most of the big contracts have been negotiated down, if there is still some big ones ahead of us.
Finally, just when you say you expect modest headwinds going forward, can you put some bookends around that? I know you have in the past, but maybe you can remind us.
Hey, Bill. Thank you very much for the question, the multi-part question. Again, we are pleased by the early progress that we are making on reimbursement and average revenue per test on HCT. Let me turn it over to Ben to provide you some specifics on your questions.
Bill, when we are thinking about the softness that we have experienced from an HCT average revenue per test standpoint, that softness is really driven by an increase in zero pay. More frequently, we are not getting paid or we are experiencing denials. It is not a byproduct or a result of contract changes or a change in medical policy. When we experience variability in ASP, it is generally revenue cycle friction, as we refer to it, and that is going to be tied to denials. As Sam said, we are pleased with the early progress that we have seen based on our revenue cycle management optimization initiative, and then we also referenced the MyRisk reimbursement initiative, both on our Q2 call and on our call today.
There is lots of work still to be done, but we are happy with the early wins, and we feel like that is what we saw drive the improvement in ASP in Q3.
In terms of what you are expecting for modest headwind going forward?
Yes. We frame that as 1%-5%, maybe more like 3%-5% in some years, and that is from an average standpoint, Bill. If you think about it, some years it may be in excess of 5%, like this year, and some years it might be down 1%, or we may even be flat. Generally speaking, in the medium to long term, we would say an average decline of 1%-5%, maybe skewing 3%-5% most recently.
Okay. Then just one last follow-up to that. I know that the zero pays are supposed to be a function of what the payer is seeing, whether they think it is an appropriate claim or not. But do you think your price position in the market plays into that at all? If so, how do you kind of deal with that?
Yeah. So, Bill, I do not think that it is specific to our price position. I think it is more about the amount of money that people spend in specialty diagnostics and maybe in hereditary cancer testing. So oftentimes we will see as payers are managing their P&Ls, they make changes sometimes in their prior authorization requirements or medical record requests, and that is where we see the increase in denials.
Okay. Thanks a lot.
Hey, Bill, just one point.
Oh.
that we had said, sorry, yeah, previously, which is what we are seeing is not so different than what the broader industry is seeing. For example, as ACLA, we collectively are taking some actions to improve on that. But the longer a test is on the market, the more subject it is to various reimbursement pressures. We have a portfolio which has a number of tests that have been on the market longer, so it is more pronounced perhaps for us at the moment.
Great. Thank you very much. Very helpful.
One moment for our next question. Our next question comes from the line of Kyle Boucher with TD Cowen. Your line is live.
Hey, good afternoon, guys. Thanks for taking my questions. I wanted to start with another question, or just a question general on guidance, sort of what is embedded for the fourth quarter. I think the midpoint of the guide sort of reflects a maybe just north of $10 million Q-over-Q decline. But I think if we look across hereditary cancer and GeneSight, volume looks pretty good across both of those. So I guess, what are the puts and takes there on the fourth quarter? Then just second to that, were there any major out-of-period adjustments this quarter?
Kyle, thank you for the question. Ben, these are right up your alley.
Kyle, when we think about the updated guide, it really is as simple as the two pieces that we called out in the prepared remarks, and that is, we're really pleased with the outperformance of, we'll say, about $10 million during Q3. If we update the midpoint of our guidance by that Q3 beat and then soften the expectation for prenatal in Q4 as a result of some potential volume softness tied to the deal announcement, that's how we get from a midpoint of $780 million to $785 million off of a $10 million outperforming Q3. Maybe said differently, maintaining assumptions around Q4 with the exception of softening the volume tied to about half of or $5 million worth of prenatal revenue is how it all comes together. As it relates to—
Got it.
Oh, sorry, Kyle. I was just going to answer that second question. As it relates to out-of-period or change in estimate to revenue, insignificant for the quarter.
Got it. Okay. Maybe just one more question. Just obviously much more focus now, your strategic focus on the Cancer Care Continuum, but I guess can you just talk a little bit more about maybe what some of your key areas of focus are post the divestiture of the prenatal business early next year? You said there's a number of different things that you guys could do in terms of use of proceeds. Maybe there's no update on that right now, but I guess just sort of how are you thinking about the different options? And then I guess, what does the business really look like from a growth and profitability perspective, excluding the prenatal business?
Hey, Kyle. I'd start by saying, as you can understand, we have been completely heads down focused on the strategic review and the resulting transaction, also the initiatives to improve reimbursement and so forth. We are now getting deep into 2027 planning, and we're going to have more specifics for you coming up. With that being said, Ben, what color might you add?
Kyle, in the presentation associated with our prepared remarks, we showed that we expect revenue growth to improve over 100 basis points post-divestiture. We also showed that we expect gross margins to increase or improve by greater than 500 basis points. We didn't talk about general profitability. We'll get into more details as we get closer to 2027. We don't want to get ahead of guidance there before we formally communicate that. But we can say that we expect meaningful progress in 2027 as it relates to bottom line profitability. When we think about a more focused organization, we think about the work that we're doing from an Ascend standpoint, and then also those revenue ASP initiatives, those are going to layer in during the year at different points in time.
We're excited about what it means and what the organization will look like, but it's not the right time to discuss from a quantification standpoint what that looks like. But I'll reemphasize that we're excited about the work ahead, the work we've done, and what we expect the improvement and profitability profile to look like as we progress through 2027.
Hey, Ben, the other question that Kyle had, and I know it was in your prepared remarks, but if you can speak to again, any thinking we have around the proceeds?
Yeah, absolutely. We're contemplating use of proceeds across multiple facets or multiple fronts. Part of that will include some level of debt repayment. We're also looking at growth opportunities internally and externally, and naturally just to fund typical operations as we continue to drive for things like MRD and competing in the market and the Cancer Care Continuum in new ways.
Got it. Thanks, guys.
As a reminder, to ask a question, you'll need to press star one one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. This concludes the Q&A answer session. I would now like to turn the call back over to Matthew Scalo.
Thanks, Grace. This concludes our earnings call. A replay will be available via webcast on our website for one week. Thank you all for joining us this afternoon, and have a good night.