Biodesix, Inc. ($BDSX)

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Biodesix First Quarter 2026 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Chris Brinzey, Investor Relations. You may begin.

Thank you, operator, and good afternoon, everyone. Today, Biodesix released results from the first quarter of 2026. Leading the call today will be Scott Hutton, Chief Executive Officer. He is joined by Robin Harper Cowie, Chief Financial Officer. An audio recording of today's call and the press release announcement with the quarterly results can be found in the Investor Relations section of the company's website at biodesix.com. As today's call includes forward-looking statements, we encourage you to review the statements contained in today's press release and the risks and uncertainties described in our SEC filings, which identify certain factors that may cause the company's actual events, performance and results to differ materially from those contained in the forward-looking statements made on today's webcast. In addition, we will discuss non-GAAP financial measures on this call. Description of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. I would now like to turn the call over to Scott Hutton, Chief Executive Officer. Scott?

Thank you, Chris, and thank you all for joining today. Biodesix delivered an exceptional start to 2026 with first quarter results that demonstrate continued momentum across our commercial, operational and strategic priorities. Revenue growth accelerated, margins expanded, and we continued to demonstrate operating leverage as we progress towards profitability. As a reminder, our focus in 2026 centers on 3 objectives: driving top line growth, improving operational efficiency and leverage and advancing our pipeline to support long-term expansion. In the first quarter, we made meaningful progress across all 3 objectives. Total revenue for the quarter was $25.6 million, representing 42% growth year-over-year, accompanied by strong operating discipline and execution. Starting with our Diagnostic Testing business, revenue grew 37%, driven by accelerating test volume growth and improved ASPs over the first quarter of 2025. Total test volumes grew 29% year-over-year due to increased adoption from both pulmonology and primary care, with test volumes from primary care now representing 15% of total tests delivered in the quarter. In support of both health care provider and payer adoption, we continue to present and publish clinical data for our on-market test. Specifically, Nodify Lung testing, which is used by pulmonologists and primary care providers to triage patients by risk of lung cancer, helping determine who needs intervention versus surveillance and allowing higher-risk patients to be prioritized for prompt follow-up. In February, we announced the publication of the largest lung nodule biomarker clinical validation study that included over 1,100 patients, leveraging our ongoing real-world evidence study, CLARIFY. The study demonstrated consistently strong Nodify CDT test performance with high specificity or low false positive rates regardless of nodule size or other patient risk factors. Recent data on patients without biomarker testing reported that 40% of malignant nodules had progressed in tumor size between the time of the first detection and the time of initiation of definitive treatment, underscoring the urgent clinical need for tests like Nodify Lung to expedite diagnosis and enable earlier intervention when outcomes are most favorable for the patient. Turning to Development Services, revenue in the quarter nearly doubled year-over-year. This reflects execution on contracted programs as well as continued success securing new agreements, reinforcing the strength and differentiation of our development platform. The depth and breadth of our offering was recently highlighted with several presentations at AACR in April. It is especially exciting to see our multi-omic technologies combined with advanced data informatics, translating into meaningful clinical impact on our pipeline product concepts and fueling strong interest in our Development Services offering. Additional data on our pipeline products, including our genomic and proteomic MRD and ROR test, the VeriStrat test clinical utility in prostate cancer and our new AI-based digital diagnostic test will be shared at upcoming conferences and events throughout the course of the year. Gross margin for the quarter was 84% on a GAAP basis and 82% excluding a onetime sales and use tax recovery, representing a 300 basis point improvement year-over-year. Margin expansion continues to be driven by scale in Diagnostic Testing, improved pricing realization and ongoing workflow optimization in the laboratory, resulting in decreasing cost per test. We are encouraged by the consistency of these trends and strong revenue growth and operating leverage and believe they reinforce the scalability of our model. As a result of the performance across both Diagnostic Testing and Development Services in Q1 and our continued progress towards profitability, we are raising our full year 2026 revenue outlook. With that, let me turn it over to Robin to review our financial performance. Robin?

Thanks, Scott, and good afternoon, everyone. Total revenue for the first quarter was $25.6 million, representing a 42% increase over the prior year period. Diagnostic Testing revenue was $22.3 million, an increase of 37% year-over-year. The increase in lung diagnostics revenue was driven by growth in test volumes and high average revenue per test. Test volumes were approximately 17,800, an increase of 29% year-over-year, supported by an average of 100 sales representatives in the field in the quarter, and we expect to continue our commercial expansion as described in prior calls at a cadence of about 6 representatives per quarter through 2026. Improvements in average revenue per test over the prior year were primarily driven by additional payer coverage and improvements to revenue cycle management, continuing the trend that began in the third quarter of 2025. We believe recent improvements in average revenue per test reflect durable changes in payer coverage and revenue cycle execution rather than discrete or onetime effects. Development Services revenue for the first quarter was $3.3 million, an increase of 99% year-over-year, driven by delivery against our contracted programs and the addition of new Development Services agreements. We finished the quarter with approximately $10.4 million in contracted business following accelerated revenue conversion velocity in the quarter. We continue to see strong demand and visibility across our Development Services pipeline and do not expect the timing of these completions to impact our full year expectations. Gross margin for the first quarter was 84%, which included a onetime recovery of $0.4 million related to previously paid sales and use taxes. Excluding the onetime recovery, gross margins were 82%, representing a 300 basis point improvement over the prior year period. Year-over-year margin expansion was driven by growth in lung diagnostic testing, improvements in average revenue per test and decrease in average cost per test. Gross margins continue to reflect Biodesix's strong operational efficiency and execution. Operating expenses, excluding direct costs and expenses, were $27.6 million, an increase of 18% year-over-year, supporting the 42% revenue growth delivered during the quarter. The increase in operating expenses is driven by a 19% increase in sales, marketing and general and administrative expenses due to our planned commercial organization expansion. The company expects continued operating leverage as our expanded sales team advances along the productivity curve and converts growing experience into sustained performance. R&D expense for the quarter was $3.3 million, representing a 14% increase over the prior year period. R&D investment reflects continued clinical studies supporting adoption of our lung diagnostic tests and progress across our pipeline. Net loss for the quarter was $7.8 million, a 30% improvement compared to the prior year period. Adjusted EBITDA, which excludes noncash and other onetime items, was a loss of $4.1 million, representing a 35% improvement over the first quarter of 2025. We also strengthened our balance sheet, ending the quarter with $25.6 million in unrestricted cash and cash equivalents, a 35% increase compared to the fourth quarter, providing solid runway to support our growth initiatives. The change in cash balance includes $16.8 million of at-the-market net proceeds raised during the quarter, partially offset by planned cash outflows that occur annually during the first quarter. Looking ahead to the remainder of 2026 and in addition to our planned headcount expansion, we expect sales productivity to continue to improve as our various sales cohorts gain experience and tenure, which remains a key driver of operating leverage through 2026. Following the strong first quarter performance and improved visibility into demand and execution, we are raising our full year revenue guidance to $108 million to $114 million. The increased midpoint represents 25% growth over 2025, which reflects the strength of the first quarter while remaining consistent with our full year planning assumptions. We also expect continued progress towards sustained adjusted EBITDA profitability, driven by increasing sales productivity, expanded clinical evidence supporting the Nodify Lung test, growth in the Development Services pipeline and demonstrated operating leverage. With that, I'll turn it back to Scott for some closing thoughts before we begin the Q&A.

Thank you, Robin. In April, Biodesix was recognized as a Top Workplace for the third consecutive year. This recognition reflects who we are at our core, a team built on trust, collaboration, growth and shared ownership of results. Our culture here at Biodesix is not aspirational. It is operational. Our first quarter performance reflects that discipline and reinforces our confidence in the scalability and durability of our business model. We continue to see significant opportunities ahead as adoption expands, clinical evidence grows and our commercial organization continues to mature. We remain focused on executing with discipline, improving capital efficiency and delivering meaningful value to patients, providers, partners and shareholders. In closing, I want to thank the entire Biodesix team for their continued focus, discipline and commitment to our mission and culture. Let's now move to questions. Operator, let's start the Q&A session.

[Operator Instructions] And our first question is from the line of Andrew Brackmann with William Blair.

I wanted to focus on the commercial team. I think you called out about 15% of volumes were coming from the primary care channel there. So clearly, something is working. So I guess as you sort of think about some of the learnings or successes in some territories that are driving a lot of that volume growth, how transferable are those to other territories? And I guess, where are we in the process of amplifying these learnings just sort of across the entire sales force?

Yes. Thanks, Andrew. Great question. It's been about 3 quarters since we brought on that first sales cohort focused on primary care physicians. So you nailed it. We continue to learn, but we had some immediate learnings that we've been able to apply. We had our National Sales Meeting at the end of February, which is a great opportunity for us to share best practices and to roll that out. What we've learned is still that starting with the pulmonologists building a really strong relationship, allowing them to help us with introductions into their referral network really aids in a smooth transition. It allows the pulmonologists to track those patients through that referral process. And we're continuing to see that growth across the United States. We really started more in the Northeast when we first had our initial hires, and we're seeing that transition and progress more westward. And so it has been transferable. We feel good about the progress we've made. And I think we knew with a high level of confidence based upon our early pilot experience that this was the right decision. And so we think this confirms that we've made the right decision. We've still got a lot of opportunity to grow. And I'll just remind everybody, what it really did was opened up the addressable market that was serviceable to us. And so we knew that about 49% of those patients with incidentally found nodules are stuck in primary care. So we think that we've begun tapping into that. And we're really confident that over time what it will start to show is that we're getting to patients earlier. And we know in this scenario, earlier detection and diagnosis is going to lead to better outcomes.

Perfect. Appreciate all that color. And then just on the evidence front, Scott, you called out the publication of the validation study in February. Can you maybe just sort of talk about what that publication, what impact it's had on the field? And I think in particular, you sort of mentioned across that study, there's low false positives regardless of the nodule size. Are you seeing an increase in the use of Nodify in the smaller nodules? And I guess, how big of an opportunity is that for you in the grand scheme?

Yes. For us, it really is about data development. I think there's a continued opportunity for us to educate and empower pulmonologists and primary care physicians to utilize Nodify testing. So the more we can publish and present it gives us opportunities to put new data out in front of health care professionals, and that's what this did. You nailed it. We know that not only do physicians want to get to these patients earlier, but they want to be bolder than they've been in the past. Something has to change because we haven't seen a significant change in screen detection over the last 10 to 15 years. And so we are seeing an increase in smaller nodules. But that goes hand-in-hand with the advent of robotic bronchoscopies where these interventional pulmonologists feel more confident that they can get to some of the smaller nodules that they wouldn't have been able to get to easily and successfully in the past. And so we thought the time was right. We're excited to get that data out. And I would add that additionally whenever we see strong performance in a real-world environment, it really starts to show that these tests are durable, that our growth is sustainable and that we're going to continue to have a significant impact with the health care professionals that we serve.

Our next question comes from the line of Thomas Flaten with Lake Street.

Scott and Robin, just a question to follow up on the PCPs. I'm just curious what you're hearing anecdotally from the PCPs, their level of comfort at retaining these patients with this test result in hand. Do they feel comfortable with the referral networks? I get that having it come from the pulmonologist is probably helpful. But anything you can share on their experience that they've had? I know it's only been 3 quarters, but I'm just curious if there's anything you can share.

Yes. Thanks, Thomas. It's a great question. Speaking on behalf of that -- those health care professionals in the primary care setting, one of the things that we anticipated and we've confirmed is they've got an abundance of patients that are eligible for Nodify testing. They still have questions as to how to take those and interpret those test results and defining who they refer on versus who they keep to monitor or surveil. And so what we've seen is through our brochures and materials, sharing of publications and data, they've become very comfortable with how those test results can better inform what they do with those patients, building that confidence. One of the things we have seen in primary care is they're very comfortable with Diagnostic Testing. It's what they do. They understand it. They have phlebotomy services on site. And so from a workflow kind of implementation, we've actually found primary care to be really accessible and receptive of Nodify testing. So we're excited to continue to help educate them. One of the things that we really focus on is ensuring that when those patients are referred on that they stay in contact with that pulmonologist, right? That primary care physician will always be that patient's primary care physician. So they, over time, will gain additional confidence as they see what ends up happening for those patients. And hopefully, we're able to see a [ stage ] shift, and we're starting to see patients live longer, which will build even more confidence within the primary care community.

And then just sticking with this theme, you called out in a prior response that what are the PCPs going to do with the incidentally identified nodules, but you didn't mention the screening nodules. I'm curious what you're hearing from the PCPs and not necessarily that having a bit access to your test is going to help them get more patients into screening, but if they've shared anything anecdotal about pushing the high-risk patients into the screening programs, and by that, I mean, low-dose CT, and maybe more broadly, if you've seen any change in the trends there in number of patients getting pushed into that screening protocol?

Yes. It's been one of the challenges regardless of whether you talk to pulmonology or primary care physicians. 10 years ago, lung cancer screening compliance for those screen-eligible patients was low to mid-single digits. We've seen improvements in the last 5 to 10 years. But most of the reports out there will still state that it's less than 15% to 20% of the screen-eligible patient population. So we've come a long way. We still have a significant room to grow and improve. One of the beauties of Nodify testing is our test works not only in incidentally found nodules, but also in screen detection. So as we see more support and compliance with screening programs, it will only increase this opportunity for us. So we have seen that a little bit but we're still not there. I do think the advent of blood-based screening test in lung cancer will help, and we think this will benefit Nodify testing and the Biodesix team.

Your next question comes from the line of John Wilkin with Craig-Hallum.

Just a couple of questions on the guide. Wondering if you can break out a little bit just in terms of how much is baked into the guidance for Development Services versus testing revenue. I know Q1 came in really strong. And just trying to get a sense of what you're expecting with that business for the remainder of the year.

Yes, absolutely. We're anticipating that the Development Services revenues for the full year remains consistent with where we had expected it to be. We had a little bit of a pull forward in the quarter. So we're able to recognize more revenue earlier in the year. So we expect the services business to remain consistent with those expectations. And the majority of the increase is included in the lung diagnostics revenues.

Perfect. That's super helpful. And then on the lung side, how much, if any, additional ASP expansion are you guys factoring in for the remainder of the year? And is that something that we should expect to see continued progress on? Or will -- is growth at least embedded in the guide more skewed towards the volume side?

Growth in the guide is absolutely weighted towards volume. We do anticipate that we'll see a little bit better ASP versus the first quarter. I anticipate somewhere like what we saw midyear last year, fourth quarter was skewed higher due to the onetime collections that we had in that quarter. So while we anticipate a little bit improvement in ASP, we're very pleased with where we are right now and the improvements made both through coverage contracting and revenue cycle management. So volumes should be the growth driver.

Your next question comes from the line of Kyle Mikson with Canaccord Genuity.

Congrats on the quarter. It looked like the -- I think that you did better on the pharma front this quarter. Could you maybe talk about the pipeline funnel there? And yes, I wanted to start there. Maybe like specifically what's -- like what's most attractive with your portfolio relative to maybe prior years that's helping you succeed on that front?

Yes, Kyle, great question. This was more of a kind of a cadence or timing scenario. We had a number of retrospective samples that came in earlier than we anticipated and forecasted. So we were able to pull a couple of those forward, those contracts. So we don't see it changing kind of what our long-term performance is. And just as a reminder, this has historically been about 8% to 10% of our total annual revenue. We continue to see great progress and momentum within the Biopharma Services and Development Services front. And you may have noticed that we exited the quarter with $10.4 million in contracted dollars out there to be recognized over the coming months and quarters. We've stayed above that $10 million mark for quite some time now. So that gives us a lot of confidence about what the future looks like. And it really isn't a shift or a change. This momentum has been building over the last few years. And it's really interest across our portfolio on the genomic side and the proteomic side, right, being a company that is focused on multi-omic solutions resonates with our Biopharma Services partners. And so our team continues to do a great job on that front. And we're excited about the rest of the year. We've got -- we just finished AACR, and we've got ASCO upcoming. And so those 2 meetings usually set us up for a strong second half.

Perfect. And then you had a great top line beat and your gross margin has been really solid in the past few quarters. Did you specify how you're going to reinvest those dollars, sales force, new products, new markets? Just how do you guys think about that? And then with respect to the EBITDA positivity going forward, how does that affect that kind of pathway?

Yes. We're obviously very pleased with the gross margins and the continued improvement that we've seen over the last several quarters. The team works very, very hard to not only improve our ASPs, but also gain real efficiencies and productivity improvements within our operations to drive down the average cost per test. The dollars that are coming in through those gross margins go to support the business. And our main focus is our commercial expansion, growing the top line revenue and then getting to adjusted EBITDA -- sustained adjusted EBITDA positivity and cash flow positivity. So I guess the dollars really are going towards commercial. And we're still on track. We are executing to plan and on the path to profitability.

And then on that note, anything additional to like pipeline investment? Just because I feel like sales force is kind of an obvious one and you're going to be consistent with, I guess, several perhaps or almost double-digit reps per quarter, but anything on the pipeline maybe going forward, maybe partnerships perhaps that you can kind of accelerate with this extra funding?

Yes. Well, we hope so, right? We -- as we look towards the remainder of 2026, we think we've got great opportunities to highlight progress being made, investments and the return on those investments and hopefully, additional partnership and collaboration opportunities. We'll look forward to sharing those when we get there. But for us, it really is about control what we can control. We worked long and hard to build what we believe is the strongest and best pulmonology-focused sales team in the market, and we want to continue to give them an opportunity to flex and demonstrate that we can continue to build this market. Last year, in the beginning of the fourth quarter, we had an R&D Day. We'll look forward to providing more on kind of our R&D and Development Services front in the second half. But anything that happens between now and then, we're going to share that broadly and celebrate it.

[Operator Instructions] Our next question comes from the line of Dan Brennan with TD Cowen.

Pradeep Ambrose on behalf of Dan Brennan. Can you quantify how much quarter 1 revenue was impacted by weather versus typical seasonality?

Yes, it's a great question. Like everybody else, particularly those in the areas of the country that were impacted by the series of storms, we were as well. It was a pretty significant impact to us in the late January, early February time frame as the FedEx hubs across the country were impacted. But we were very pleased with how the team responded and clearly finished the quarter strong to end with a nice strong beat for the quarter.

Okay. And with no further questions in queue, this does conclude today's conference call. You may now disconnect.