CareDx, Inc (CDNA) Q3 2025 Earnings Call Transcript

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Overview

The earnings call summary reflects a positive outlook with strong financial metrics, optimistic guidance, and strategic initiatives like EPIC integration. Despite some uncertainties, such as the LCD policy impact and transplant volume trends, the company's growth in test volumes, ASP stability, and revenue cycle management victories are encouraging. The Q&A section reinforced confidence in ASP and volume growth, with analysts generally responding positively to management's explanations. The potential $15 million headwind is a reimbursement issue rather than a utilization change, mitigating concerns. Overall, the sentiment is positive, suggesting a 2% to 8% stock price increase.

Key Financial Performance

Total Revenue $100.1 million, grew 21% year-over-year. The growth was driven by record revenue in testing services, patient and digital solutions, and lab products businesses.

Adjusted EBITDA $15.3 million, more than double compared to Q3 last year. This increase was attributed to revenue growth and operating leverage.

Testing Services Revenue $72.2 million, an increase of 19% year-over-year. Growth was driven by a 13% increase in test volume across heart, kidney, and lung organs.

Patient and Digital Solutions Revenue $15.4 million, representing 30% growth compared to last year. The growth was attributed to the adoption of CareDx pharmacy as the pharmacy of choice for transplant patients.

Lab Products Revenue $12.5 million, up 22% year-over-year. Growth was driven by distributed NGS transplant test kits and PCR-based rapid HLA typing kits.

Revenue Per Test $1,436, increased 5% year-over-year. This includes $5.9 million in revenue recognized from cash collections in excess of receivables on historical claims.

Cash Collections $119 million in Q3, with record collections of approximately $90 million from testing services. This was driven by improvements in revenue cycle management.

Gross Profit $70.9 million, increased 190 basis points to 70.9%. This improvement was driven by top-line performance and input cost discipline.

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Operating Highlights

HistoMap Kidney: A new tissue-based molecular test launched at the American Society of Nephrology meeting. It integrates advanced histopathology with molecular insights to help clinicians make precise and timely decisions for kidney transplant patients. It will be available for clinical study in early 2026 and commercial use later in the year.

AlloSeq Tx11: Next-generation HLA typing solution launched at the American Society of Histocompatibility and Immunogenetics Annual Conference. It offers enhanced Class II coverage and expanded non-HLA markers for broader transplant organ profiling.

Score 7.0: Modernized analysis software for QType, designed for scalability and regulatory alignment, supporting future ABO typing and IVDR compliance.

Revenue Growth: Total revenue grew 21% year-over-year to $100.1 million in Q3 2025. Testing services revenue increased by 19%, patient and digital solutions revenue grew by 30%, and lab products revenue rose by 22%.

Market Expansion: CareDx expanded its presence in transplant centers, including launching EPIC Aura integrations at Boston Children's Hospital, which improved operational efficiency and reduced order turnaround time by 20%.

EPIC Aura Integration: Implemented at Boston Children's Hospital, leading to a 20% reduction in order turnaround time and a 60% reduction in specimen holds. Expected to service 10% of total volume by year-end 2025 and 50% by year-end 2026.

Revenue Cycle Management (RCM) Improvements: Automated key processes with AI, resulting in a 200% improvement in appeals volume, 60% improvement in claims submission time, and a 1,300 basis point reduction in claims rejection rate.

Leadership Appointments: Suresh Gunasekaran and Dr. Jeff Teuteberg joined the leadership team, bringing expertise in academic medical centers and transplantation to advance CareDx's mission.

Evidence Generation: Published significant studies, including the SHORE registry study on heart transplantation, validating the use of HeartCare for noninvasive heart transplant surveillance.

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Risk or Challenges

Regulatory Policy Uncertainty: The draft LCD policy for molecular testing for solid organ allograft rejection, expected to be finalized in early 2026, introduces potential limits on surveillance testing. These limits could conflict with clinical guidelines and restrict clinician decision-making, potentially impacting patient outcomes and business operations.

Operational Efficiency Challenges: While progress has been made in revenue cycle management (RCM) and EPIC Aura integrations, these initiatives are still ongoing. Delays or inefficiencies in these areas could impact operational scalability and margin expansion.

Market and Competitive Pressures: The company operates in a highly competitive market for transplant diagnostics and solutions. Maintaining leadership and innovation in this space requires significant investment and could be challenged by competitors.

Economic and Payer Mix Variability: Revenue per test and cash collections are subject to variations in payer mix, coverage, and contracts. These factors could introduce financial unpredictability.

Supply Chain and Product Launch Risks: The launch of new products like HistoMap Kidney and AlloSeq Tx11 involves risks related to supply chain, regulatory approvals, and market adoption. Delays or issues in these areas could impact revenue growth.

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Guidance & Outlook

Revenue Guidance: The company raised its 2025 revenue guidance to $372 million to $376 million, reflecting strong performance in the third quarter. Fourth quarter revenue is expected to range between $101 million to $105 million.

Adjusted EBITDA Guidance: Full-year adjusted EBITDA guidance has been raised to $35 million to $39 million, up from the previous range of $29 million to $33 million. Fourth quarter adjusted EBITDA is expected to range between $10 million to $14 million.

Testing Volume and Revenue Per Test: Fourth quarter testing volume is projected to range between 52,000 to 54,000 tests. Revenue per test is expected to be $1,400 to $1,420, inclusive of $4 million to $6 million of collections in excess of receivables.

Patient and Digital Solutions Revenue: Fourth quarter revenue for Patient and Digital Solutions is expected to range between $15 million to $16 million.

Lab Products Revenue: Fourth quarter revenue for lab products is expected to range between $12 million to $12.5 million.

HistoMap Kidney Launch: HistoMap Kidney, a tissue-based molecular test, will be available in early 2026 for clinical study and later in the year for commercial use.

EPIC Aura Integration: The company expects 10% of total testing volume to be serviced through EPIC Aura integrations by year-end 2025, increasing to 50% by year-end 2026.

Draft LCD Policy Finalization: The draft LCD policy for molecular testing for solid organ allograft rejection is expected to be finalized in early 2026. The company plans to update its long-range financial assumptions once the policy is finalized.

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Shareholder Return Plan

Share Repurchase: We repurchased an additional 2 million shares during the quarter at an average price of $12.87. Year-to-date, we have repurchased approximately 9% of shares outstanding.

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Key Q&A

Q:How should we think about the durability of ASP impacts from revenue cycle management initiatives moving forward?

A:John Hanna stated that the third quarter was a record for cash collections, with momentum continuing into the fourth quarter. Over the last six months, base revenue per test increased by 5%. He expressed confidence in the durability of ASP due to strong cash collections on historical claims, which will increase base ASP for future claims. Revenue cycle management victories improve predictability of revenues per test over time.

Q:How do we think about the rollout of the EPIC Aura integration for other accounts planned for 2025 and 2026?

A:Keith Kennedy mentioned that there are about 150 active discussions with hospitals and transplant centers, with plans to go live at about 40 centers in 2026. Typically, there is a 10% uplift in volume post-integration. While there isn’t enough real-world evidence yet, they observed a 20% reduction in order turnaround time and a 60% reduction in specimen holds, which are positive indicators for future volume growth.

Q:Were there any prior period collections in the quarter?

A:John Hanna confirmed approximately $5.9 million in cash collections exceeding historical claims, which was a positive benefit.

Q:Should we consider $1,400 as the new floor for ASP moving forward?

A:John Hanna guided a fourth-quarter ASP range of $1,400 to $1,420, which should be used in models. He emphasized using revenue per test as the framework, as it removes variability from out-of-period adjustments.

Q:What is the impact of prior period collections on ASP and revenue per test?

A:John Hanna clarified that $5.9 million in prior period revenue was collected, and cash collections were 124% of revenue booked in the quarter. This is indicative of future ASP, and revenue per test is the preferred metric for future quarters.

Q:What are the trends in transplant volume and their impact on testing volumes?

A:John Hanna noted that transplant volumes across solid organs have been relatively flat year-over-year, with no acceleration in kidney transplant volumes as anticipated. He speculated that media scrutiny on transplant practices may have dampened growth. However, he remains confident in growth over the next 2-3 years due to the IOTA program.

Q:What are the nuances behind the guidance raise for the fourth quarter and any preliminary thoughts on 2026?

A:John Hanna explained that the fourth-quarter guidance includes volume growth of 52,000 to 54,000 tests (midpoint 17% year-over-year increase) and ASP of $1,400 to $1,420, inclusive of $4 million to $6 million in cash collection benefits. He deferred discussion on 2026 until clarity on the LCD is achieved.

Q:What is the impact of product reimbursement mix on ASP?

A:John Hanna stated that HeartCare, being a mature product, has higher reimbursement rates, while the faster-growing kidney product has lower reimbursement. The product reimbursement mix has a minimal impact, around 1-3 percentage points on total price.

Q:When will the IOTA program become a meaningful tailwind?

A:John Hanna expected the IOTA program to impact kidney transplant volumes starting in the third quarter, but media scrutiny slowed progress. He anticipates a pickup in the fourth quarter and more material impact in 2026.

Q:What is the $15 million surveillance headwind related to the LCD, and will it require protocol changes?

A:John Hanna clarified that the $15 million headwind is a reimbursement issue, not a utilization change. They continue to promote the validated ARTS protocol (7 tests in the first year, 4 in subsequent years) and do not anticipate clinician behavior changes.

Q:What is the delta in patient testing frequency at centers with protocols versus those without?

A:John Hanna noted significant growth in kidney surveillance testing since reinitiating protocols in August 2024. Centers with protocols show higher testing frequency, and the growth in kidney volume is nearly 20% year-over-year.

Q:Have there been shifts in center behaviors with the IOTA program rollout?

A:John Hanna observed increased adoption of blood-based monitoring for surveillance in anticipation of the IOTA program. However, no growth in kidney transplant volumes has been seen yet, partly due to media scrutiny on transplant practices.

Q:What is the impact of the SHORE study on test adoption and volume growth?

A:John Hanna stated that the SHORE study significantly impacted HeartCare adoption, with strong growth in 2024 and 2025. Multiple analyses of the data set have driven adoption, and further publications are expected to reinforce its value.

Q:Review of Unclear Management Responses

A:Management avoided providing direct answers or clarity on the following: 1. Preliminary thoughts on 2026 guidance were deferred until clarity on the LCD is achieved. 2. Specific timing for when the IOTA program will become a meaningful tailwind was vague, with only speculative comments provided. 3. The impact of the $15 million surveillance headwind on clinician behavior and testing protocols was not fully addressed, as management emphasized reimbursement issues without detailing potential changes in practice.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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