Good noon, everyone. Thanks for joining us for the final day of the Raymond James Institutional Investors Conference. For those who don't know me, I'm Andrew Cooper, cover diagnostics and life science tools for Raymond James. Happy to have Natera CFO, Mike Brophy, with me this afternoon. We're gonna do a little bit of fireside chat, and then we'll head downstairs for a breakout in Amarante One afterwards. Please join us there. Maybe just to start, Mike, you know, can you give folks who are maybe a little bit newer to the story a couple minutes on just who Natera is, where you fit in the landscape, and some of the topical items of late?
Yeah, no. Thanks for having me. It's always great to be here. You know, we just announced our Q4 results. That's always a good call because it's a great kind of, you know, recap of 2025, and we get to set the guide and the expectations for 2026. I thought that, you know, that was very well-received when we did it. I mean, just a quick summary, you know, on the quarter we had another fantastic kind of revenue growth quarter. Signatera volumes were yet another kind of record absolute quarter, and also a record kind of just growth unit quarter as well. Gross margins were extremely strong in the quarter.
You know, with all in we were at, I think we're about 67%, and then, even backing up the true ups, we were close to 64% for gross margins in the quarter. That's, you know, that's about a 240 basis point climb just sequentially off of Q3. We had a couple of tailwinds that probably don't repeat every single time, but nonetheless, I mean, I think that kind of gives you kind of good confidence that, you know, we're continuing to grind higher and higher on gross margins as the top line continues to accelerate. We also came, you know, we actually generated net income in the quarter. I didn't really, I didn't pump that as much up on the call per se. There was like a.
We did an acquisition, that triggered like a deferred tax, benefit that was more of an accounting thing. I bring that up just to point out that we continue to narrow, the, you know, the operating losses and, you know, it was close enough to actually generate net income for a quarter, which I think maybe we did that once in 2016 or something, but it's been a minute.
I would just flag that's GAAP.
Yeah.
If they had made all the adjustments you see from some others, it's a little different number.
No, as a Charlie Munger fan, I try to just give you the numbers and then. I do talk to people about cash flows, and so I think that's a proxy for a lot of those types of things. I think cash flow is a relevant metric, and we, you know, we hit our target for the year. We generated more than $100 million of free cash flow, which we're very happy about. Going into 2026, I mean, you know, a good kind of strong guide to start the year. Same kind of mindset that we've always had with financial guidance, in that we want to set something that we think is a strong target, but it also strikes us as achievable.
I think we you know, we did our best to strike that balance on the call. What's implied in that guide is, you know, another very strong growth year really across the portfolio, Women's Health, Organ Health, and especially Signatera. Continued pricing improvement sequentially for Signatera through the course of the year, really just based on the, you know, the couple of items we have more within, you know, our control in terms of activity around just grinding higher on Medicare Advantage compliance for covered services. I think upside to that would be, you know, broader coverage for Signatera, which we're working on as fast as we can.
One other point, thing I'd point out on the guide is just, you know, on the OpEx guide, continue to keep our foot on the gas in terms of the, you know, the R&D spend. You know, very ambitious set of projects, clinical trials, new, you know, new product development that we wanna stay aggressive on. You know, the SG&A guide was actually implied at the midpoint, you know, basically stable SG&A year-on-year, which I think it just at a high level I think gives you an indicative sense of kind of where we are in the cycle of the company, where the top line is just continuing to accelerate.
You see continued progress on the gross margin line, getting some leverage, getting some scale on the sales and general line, while we continue to stay aggressive on R&D for the future. Really well-positioned for 2026. Very excited about all the opportunities and happy to be here with you, Andrew.
Perfect. We're gonna touch on a lot of what we just hit on there, I wanna start with Signatera. You know, you guys pretty quickly got to 50% of oncologists ordering, the kind of penetration is clearly starting to show. Wanted to ask, you know, when we think about the next, call it 12, 24 months, how do you think about what's the bigger driver between indication expansion, penetration into the remaining 50%, or depth of ordering across more of these folks who have already used it with the rest of their patients?
You know, the good news is that one core set of activities of operates on all of the vectors, you know, you just mentioned, right? I think there is a very significant opportunity just to expand Signatera to physicians that haven't ordered the test yet. It's kind of amazing to think about, because when you walk around the academic conferences now, I just can't tell you how different the tone is now versus even maybe even two years ago in terms of... I think you'd be hard-pressed to find, you know, a physician or scientist at those conferences that doesn't think that MRD and recurrence monitoring is an important part of the continuum of care now.
Yet, obviously, you know, there's a lot of white space out there for us to go and grow into in terms of physician adoption. I think that maybe even the arguably a bigger opportunity is, you know, depth within a, within a practice, and I think that's actually kind of happening kind of in real time. What we used to see with accounts that would start adopting Signatera is they would usually start with colorectal cancer or some very discreet indication and then very gradually build. We're seeing a little bit more of a trend now where You see accounts adopting Signatera and just a kind of adopting much more broadly in their practice.
I think that's just a function of the time that we've had available to us to make the case for the value of Signatera and all the clinical trial data that we've been able to read out across a broad set of tumor types really encourages that broad adoption. Like, how do we, how do we move it forward from here? I mean, sorry to be boring, but it's kind of the standard playbook, right? It's, have the best possible product we can have, and we're gonna stay very aggressive in terms of the product development cycle, particularly for Signatera. Be very ambitious in the clinical trial program that you wanna pursue.
Not just in the, you know, the biggest tumor types that we've all talked about, but beyond that, there's a large set of tumor types where it's, you know, 30,000-70,000 new patients every single year, where Signatera has very strong data already. There are compelling use cases, and we're running a lot of times what would be considered kind of the seminal or landmark trial for MRD in those tumor types. And just continue to turn the crank on all the other things. I mean, the operational execution required to deliver a test like this at scale, is truly demanding, and I think we're kind of at a place where we know how to do that.
It's honestly, as just someone or as an executive just around the company, it's just a pleasure to see us kind of operating at that tempo. There's more to do there to just continue to delight customers with the customer service aspect.
Perfect. Maybe on new indications, I think the comment with earnings was, you know, 30%-35% of volume is non-covered areas today.
Yeah.
That a $200 million of kind of potential if those start to get covered and it's, you know, it's not one thing, it's not two things, but a, a good handful. Maybe just give a refresher on what you have at MolDX today, how you think about that buildup, and, you know, I think in the back of our heads, there's a hope that at some point this becomes more of a pan-cancer versus every incremental indication as they get kind of smaller and smaller down the road. Just would love the latest there in your thoughts.
Yeah. No, I think that's right. I mean, I think that is, that is a big opportunity. Just the volume that we deliver to Medicare patients where we don't yet have coverage from Medicare for that cancer type, has been something that as the business has grown, and again, grown kind of not concentrated in one or two tumor types, but grown kind of across the continuum of indications, has become on, in absolute units a, you know, a really important target for us to run to. Just to hit the marks. We've delivered a lot of the data, but then you've got to kind of go through that process.
It's a quite rigorous process to go through with the MolDX program, with Medicare to make the case for coverage in these various indications and different tumor types. Historically, that's the way we've done it. We've just grinded it out, you know, tumor type by tumor type, and now the most common cancers in the United States were very well covered by Medicare. We are kind of in that next tier that I was alluding to in terms of incidence rates that we're pursuing coverage on. I think that needs to remain kind of the base case. That's my base case for the business, is that, you know, you just continue to interact in a constructive way with Medicare.
Over, you know, second half of this year and first half of next year, you start to see more coverage, more indications covered, more announcements just kind of flowing in one by one. I think that would hold us in good stead and that would allow us to meet all of our goals. And, I think upside to that kind of base case would be if we could go faster in a, in a broader setting, but we'll just gotta see.
Maybe just on kind of the last point and mentioning timeline a little bit, just remind folks, you know, the 2026 guide, you talk about basically $30 of ASP still to come. You know, it feels like most of that is can you get paid a little bit better from MA as opposed to new indications. I guess, is that the right takeaway, and how do you think about what's in the guide and what's, you know, out there for you to win above that?
Yeah. I do. That is, that's a great. Thanks for characterizing it that way. I mean, the, the guide kind of implies, we continue to execute and get coverage, get actually reimbursed from these Medicare Advantage plans, where we already have a coverage policy and there's really the only reason why we're not getting paid is some administrative reason that we've got to just work collaboratively with that payer and understand, you know, what is the disconnect and just fix it. That's been a linear process for us. I mean, if you rewind a couple years, we used to get paid, you know, 30% of the time for Medicare Advantage plans and 85% of the time for Medicare fee-for-service.
It's, you know, when it's a covered service, we get reimbursed 99% of the time for Medicare fee-for-service, and there's still that gap with the, with Medicare Advantage, whereas we're kind of up to 80%. That just means that there's a long tail of smaller MA plans that we just got to engage with. We got a lot of long history of doing that, as I mentioned, in a collaborative way, and we'll do that. The $30 would be, hey, continued execution on that front. Then upside from there is, I think, you know, more progress in biomarker status, which I think we can have some of that this year, and broader reimbursement, you know, just from, just from the Medicare indications.
Like I said in the prepared remarks on the earnings call, I'm a little bit biased to the upside, you know, on that guide, if I had to lean one way or the other. I think that's a good way to start the year.
For sure. Perfect. I wanna talk about guidelines a little bit. I still think they're important, but we haven't been kind of as front and center on them.
Yeah
Y ou know, CRC is the one people are looking for. There's a lot of other cancer types. You know, how do we think about what that progress looks like from here? I know we're waiting on the 2026 update for CRC, but, you know, what should we expect in terms of the nuance and the wording? Then how impactful is it at this point, given you have the adoption you do even before that?
Yeah, the guidelines are still very important. I think, you know, the story will be different for every single cancer type for the immediate future here, where, you know, each NCCN guideline committee is there's a specific one for each cancer. These are folks that are obviously steeped in the care of that particular cancer type and the use case. So we've got a number of very compelling prospective outcome studies that I've already read out that one could argue, you know, should be up for consideration for guideline inclusion. You mentioned CRC, and then we've got, you know, a another slate of large outcomes datasets coming over the next, call it, you know, 18 months to two years between de-escalation data in Japan and then readouts from CIRCULATE-US coming as well.
You know, I'm cautiously optimistic that like as those read out, I think we, you know, we'll be able to make an even more compelling case for guideline inclusion colorectal cancer. It's ultimately, it's not really for us to decide. It's up for the professional societies and the guideline committee to decide, that's appropriate. That's the way, you know, it ought to be. Away from colorectal cancer, I mean, we did have a fantastic, very large prospective phase III readout in muscle-invasive bladder cancer that just based on the strength of that data, I think the kind of the consensus expectation among physicians and certainly among the PIs is that that data was strong enough to merit an FDA approval for atezolizumab, guided by Signatera with Signatera in the label.
What usually happens in that scenario is that, when there's going to be an FDA approved drug, there's typically a, you know, a guideline update just to accommodate the fact that there's a new on-label therapy available. Since we're in the label for the drug, I would anticipate some level of inclusion within muscle-invasive bladder cancer. There again, that's just I, you know, I'm not reflecting feedback that I have from anyone around the process. That's just sort of, you know, outside looking in. Honestly, you know, taking a step back on guidelines as a topic, they're critically important, you know, over the long-term, you know, vision for adoption of Signatera in clinical practice because, you know, you've just got to have...
It is part and parcel with having the right data to have, you know, 80%, 90%, and 90% of physicians adopt to the test. You've just got to have the, you know, the best outcomes data available that should merit guideline inclusion. I don't think that there's a, like a business case or investment thesis that really hinges around specific timing or we've got to get a certain guideline inclusion by a certain time. We're content to just let the process kind of play out organically and play our role, which is to do what we can to support kind of the best available kind of outcomes data, you know?
Yeah, perfect. Makes sense. You know, I want to touch on the portfolio and how much it's sort of expanded within MRD in the last, call it, 12 months. You've got Signatera Genome, you've got Latitude, you're going to drop in phased variants here, you know, in pretty short order. I guess, you know, why is it important to have that breadth and to have kind of the approach that you do to have each of those? Then how do you think they all sort of shake out in the market, you know, from a, from an adoption perspective?
Yeah. One of the reasons why I like working here is that, you know, my colleagues have and I have been together for a long time now. This is year 11 for me at the business, and I'm kind of the newcomer among the management team, among our operating committee. I mean, the other guys have been here for a couple of years longer. I mean, Steve, our CEO, was the first commercial employee that was hired here back in 2010.
I think one of the things that Steve and our Chairman, Matt, bring to our culture is this intensity around understanding what are the problems that the patient and the physician are facing and solve those problems with a level of intensity, like really take it seriously, work backward from that, and let the problems, let the unmet needs dictate what your product, you know, roadmap should look like. When you do it that way, you don't have to be so smart about, like, what competitors are doing or, you know, any of the other things that are easy to get wrong, you know. You can just ask the patients what they need, see what the physicians need and solve it.
You know, one thing that we solved is, you know, on the tumor-naive MRD front. There is a niche, there's an application for tumor-naive MRD. I think rewinding to 2020 when MRD was just kind of launching, like, as a topic and we really created a category, there was kind of an open question as to whether or not physicians would be able to order a tumor-informed MRD, like would it actually work, and could we logistically deliver it? I think what we've shown over the last, you know, five, six years is definitively the answer is yes to both. We can deliver it very seamlessly, and the data is kind of without comparison, you know, versus any other approaches.
Having said that, you know, you still have niche indications where, getting access to the tissue to run a personalized MRD test is inconvenient. You know, if you have an older lung cancer patient, you may not want to, you know, stick a large bore needle into that person's chest and extract some tissue to then run Signatera. You might like to offer that person an MRD test. Perfect case study for tumor-naive MRD. Similarly, you know, you can have physicians, despite the track record we've had with delivering, Signatera over the last five, six years, you can still have physicians that are new to this, and they're a little worried about the logistics.
You know, they're a little worried, like, "Can you really deliver a test that's personalized for every single one of my patients? You know, what if we run into some kind of issue?" Well, with the existence of the Latitude test, you know, the response can be, "Look, physician, doc, you can order the Signatera test, if we run into some hold up with the lab, with the pathology lab, or we get a, you know, an FFPE block that has no tissue in it. You know, these things can happen. You know, we can reflex to the tumor-naive test. It's an excellent test. The preliminary data is amazing.
We'll continue to fill out the data, over time. We'll deliver that, and in the background, we'll continue to work the problem, and we'll get the patient onto the gold standard Signatera offering for the second time point. I think, like, those are just two examples of questions or challenges that a physician and a patient might have that we're trying to proactively solve with a product launch. That's, that's on the Latitude side. It's a similar answer, I think, on the, you know, the launch of the Genome product.
If you look out, you know, into the future in the business, it's actually quite heartening to see that there's actually a chunk of the, you know, of the physician community that it has totally buys into the idea that personalized MRD is going to work, and they've seen all of our data and they're convinced. They're so convinced that they're willing to say, "Hey look, like, whatever you guys have in the, as the, you know, as Signatera today, I just want, you know, something that has the potential to boost sensitivity in the future." So I think in the future, once it's fully characterized with outcomes data, I think that'll be an interesting thing to see. Like, can we actually continue to improve the performance of the test over time.
That's always been our objective. Right now the test is available, if a physician just wants to kind of order the Genome, if they've already bought in, they have a particular patient that has a particular need where they might want to use a Genome backbone test. Very soon they'll be able to have a Genome backbone test that also has phased variants layered in that will be the most ultrasensitive test as measured by limit of detection that's available. It's just a kind of on the other end of the continuum, just proactively kind of addressing a, you know, a physician's question or need.
I'm gonna ask one you may say you need to hold off for the answer, 'cause you guys don't tend to do your product development in public. One thing just talking to some other companies and kind of hearing how they think about it, there's this talk of adding apps and adding extra kind of data points to reports. Just kind of curious how you think about that and, you know, I think Genome kind of opens up a little bit more of that potentially.
Just would love sort of the view there and how you think about sort of the competitive landscape from the perspective of maybe not what Signatera or Signatera Genome is today, but what it can be, you know, five, 10 years from now when we have more of that data, more ability to kind of dig in on, you know, some of what's generated from what you're doing now?
Well, a lot of that type of stuff is available right now. I mean, I, and I love that. I mean, I think, like, one of the real promises of MRD is, all of the information that you can generate from the MRD test, that you can then, you know, put into the clinical decision-making. We've always trusted physicians to kind of take in disparate pieces of information that are available, and this is, you know, patient history, patients', what are their personal needs and preferences going forward? What, what was the result from their path lab? You know, how is their tumor graded? What does the CT scan look like?
You know, we ask the oncologist to kind of take all these things into consideration, leverage her, you know, in many cases, decades of experience, and formulate a plan with the patient, okay? One of the reasons why MRD has gotten such dramatic uptake is that the minimal residual disease test fits in perfectly into that care continuum to just empowers the physician with more and more information. We give a ton of information. It's not just You know, when you get a test report on Signatera, you don't just get, "Hey, positive or negative." You also get a quantitative score, mutated fragments per ML of plasma. We've actually published some very interesting data to show the outcomes are, can be pretty differentiated for patients based on how quickly that score is changing.
If your mutated fragments, your tumor load is kind of a proxy for what that score is, if that's increasing quickly, right? You're in a more difficult situation than if it's increasing more slowly. We've kind of shown that in a couple different data sets. It becomes something that patients really like to know. I mean, the entire patient report becomes something that is quite user-friendly. I have this, maybe you'll forgive me this, like, quick story. I'm on a trip in Mexico with a high school graduate of my like a kid of mine just graduated high school. We're doing a trip with some of the boys and some of the parents. I don't know all the parents super well.
This is like what, some of you younger people, like, this is what you get into when you have kids. Like, you get thrown together with these people that you'd otherwise never hang out with. I'm in Mexico with these other adults that, like, I don't know that well. You know, I didn't know one of the dads, and one of the reasons why I hadn't interacted with him is he had had a terrible journey with colorectal cancer, stage three colorectal cancer over the preceding two years. You know, this guy's a pretty successful property developer in Austin, and he's getting treated at MD Anderson. I thought, "Well, this guy's definitely getting Signatera." I just didn't wanna bring it up.
Yeah.
You know, I just let it go, you know? Unprompted, the guy brings up his cell phone, shows me his Signatera result, and gives me an amazing, five-minute elevator pitch on how important this test was and why he felt comfortable coming to Mexico, is that the results were pretty good, and he's not gonna have some kind of health emergency right now on this trip. It's just, like, very heartening to see that.
Just also kind of gives you a sense of just how prevalent Signatera is becoming just among cancer patients and survivors today. That type of data, I know it's a super long answer to your question, but, like, that type of data is we're delivering that right now, and the sky's the limit. There's more and more things that we can deliver, whether it's, like, particular resistance mutations. There's a ton of things that we can deliver that come off of the core conversation we're having right now with our customers.
Perfect. No, that was super helpful. I am looking at the clock now, and I'm thinking maybe we need to move a little bit.
I think I filibustered on that one.
No, that was fantastic. Maybe just to touch on Women's Health. I feel like it's an important, you know, pretty big piece of the business still. You still are looking for volume gains there, which I think given where that market is, continues to be an impressive thing. I think you said mid-single digits for kind of this year is where the baseline is. You know, what are the key factors that let that keep being the case in a market that we all feel like is, you know, pretty well penetrated here in the U.S.? Just a little bit of flavor for kind of how you think about driving that.
The business has done amazingly well. I think, you know, to set, you know, the guide, you know, I mentioned, I think this is like a, you know, mid-single-digit volume grower. It probably grows faster than that on revenues, particularly in carrier screening. I think there's it remains a huge opportunity as patients continue to avail themselves more and more of broader panels for carrier screening to understand, like, a broader set of conditions for which they might be a carrier. That's becoming increasingly, you know, of higher and higher interest to patients and physicians. We have a very ambitious plan in terms of, you know, product development and clinical trials, as always, with Women's Health.
If you look back over our history, you'll kind of notice that, you know, once a year, once every 18 months, we have a, you know, some major new feature launch, new product launch in Women's Health. I think the previous one might have been the launch for our RH test, you know, about 18 months ago, about a year ago. The most recent one is the Fetal Focus test. It's just, it's consonant with the effort that we've always had there. We all know it's a competitively challenging market, lots of different entrants, you know, lots of labs have come and gone.
The reason why I think one of the reasons why we've had amazing staying power in Women's Health is that kind of commitment to continue to innovate, to just always be launching cool new features and products, that patients and doctors care about, along with continuing to deliver kind of best in class kind of customer service and letting people have the comfort in knowing that, you know, this is, this is a test that has, you know, a very ambitious you know, seven-year, 18,000-20,000 patient, you know, outcomes trial, that will just never be matched again. I mean, it's just, it's a huge undertaking. That kind of commitment to data is what keeps us in the pole position there.
Maybe just on Fetal Focus. I mean, I think when we look at the landscape, there's some players that are moving more towards, "Hey, we want it to be a combined offering," versus you took the approach of, you can always add it on, but it's a stand-alone test as well. What made that the right approach for you guys? Just kind of how do you think about that competitive piece of it.
Yeah. I just want to make sure that that's clear. Like, the way that the Fetal Focus gets offered is on par with the way that the single gene is offered more generally in the market. It's available, you know, as a frontline offering.
Right.
The way that this will work is, you know, mom will get a carrier screening test, if mom is a carrier for a, you know, potential carrier for inherited disorder, she doesn't have cystic fibrosis, but she may be a carrier of the mutation, for example. You have a conversation, right? I mean, historically, you might screen dad and have dad get a carrier screening test. This is now a new option. You might avail yourself of the single gene NIPT. The way that we offer the test is effectively frontline. It's the exact same way that, you know, other labs would offer it.
Okay, helpful. We've got two minutes left, so maybe just a couple finance questions—
Yeah.
— since we do have the CFO here. You know, you talked about positive cash generation without the prior period collections. You know, can you frame where the businesses sit maybe on an individual basis? Meaning how profitable is Women's Health? Where is Oncology in terms of. Obviously, you're investing a lot, as I think you should be, which I'm going to ask a question about as well.
Yeah.
Y ou know, can you frame where you are in that sort of build to positivity in each of the businesses?
You can just see it, you know, just looking kind of at the, at the total company, right? If you just look at, pick a metric, revenue, scaling, gross margin, compare that to the OpEx growth. I mean, the, you know, the gross profit dollars are growing much more quickly than the OpEx is growing, and what that yields is, you know, your losses continue to narrow. I think we had a very narrow kind of EBIT loss even, you know, in Q4. The way for us to get to kind of sustainable kind of earnings per share generation every single quarter is just to grow our way there.
I mean, I think there's like a whole range of companies that felt like that, you know, they got to a certain level of spend, maybe post the pandemic, and then they had to make a huge, you know, pullback. We never did that. We just said, "Look, we're gonna grow our way to profitability," because the, you know, the products we have are so high value that really the way to make the enterprise work is just to really just grow the top line and grow the, you know, the market opportunity.
Since I said I would ask it, you know, the R&D line's growing a lot.
Yeah.
I think it's the, you know, like you said, SG&A is gonna be flattish. R&D is where you're growing.
Yeah.
I think you still turn down a lot of opportunities for studies, or at least some. Maybe just frame for us how you, how you look at the ROI on a study-by-study basis, and what makes the study that you're most excited about different from kind of the one that maybe you say, "Eh, not so much"?
We-
'Cause I think everybody comes to you and wants to run a study with you, right?
Well, everything we do here, every project within R&D, every, you know, if we look at acquisitions, you know, everything, you just kind of normalize all the different ways to deploy capital by looking at them on an ROIC basis, you know. Really, our bias with respect to clinical trials is to be aggressive, right? Is, you know, if there's an ambitious clinical trial that we can run, that, you know, that we can drive, we wanna do it. Clinical trials that partners wanna run are almost always fantastic. I wouldn't say that there's like a, you know, some committee where we're turning down most of the clinical trials or anything like that.
Like, usually there's something to do with like, hey, we wanna make sure that if we're gonna put our time into a clinical trial, that the endpoints actually inform you know, standard of care in some way that's not already informed. I mean, it's usually we have some critique of like the design to make sure that it's gonna be right. Honestly, rarely do we pass on a trial that we think has the right level of ambition for the company, you know?
Perfect. We're a minute over. I always like to end with if there's anything you want to leave the investors with or what you think is, you know, most underappreciated, the classic closing question.
No, I look, I think like. Honestly, I think the business is pretty easy to understand now. I mean, you have a core technology. It drives one strategy that we deploy across these three different areas. We're gonna be very aggressive in terms of having the best products, having the best data, having the best commercial channels, and the resulting kind of scale and revenues and margins that we're rapidly generating allow us to get to, you know, much higher revenue numbers over time, on, you know, relatively stable OpEx growth. I think, you know, we're at a pretty steady state place now.
Perfect. Thank you so much, and we'll head down to Amarante One for the breakout.