Natera, Inc. (NASDAQ:NTRA) Q4 2024 Earnings Conference Call February 27, 2025 4:30 PM ET Company Participants Mike Brophy - Chief Financial Officer Steve Chapman - Chief Executive Officer Alexey Aleshin - GM Oncology, CMO Solomon Moshkevich - President, Clinical Diagnostics John Fesko - President and Chief Business Officer Conference Call Participants Doug Schenkel - Wolfe Research Rachel Vatnsdal - JPMorgan Tejas Savant - Morgan Stanley Tycho Peterson - Jefferies Puneet Souda - Leerink Partners Catherine S ...

Financial Data and Key Metrics Changes - Revenues for Q4 2024 were $476 million, representing a 53% year-on-year increase and exceeding the pre-announcement of $472 million by $4 million [10] - Volumes increased by 26% compared to Q4 of the previous year, with gross margins improving to 63% from 51% a year ago [10][19] - Cash flow generated in Q4 was approximately $46 million, contributing to a total of about $86 million for the full year [11][21] Business Line Data and Key Metrics Changes - Women's health saw strong organic growth, bolstered by new features and datasets, while organ health volumes rose nearly 50% year-on-year [14] - Signatera clinical volumes surged approximately 60% compared to Q4 2023, with nearly 15,000 units growth over Q3 2024 [15] - Average selling prices (ASPs) for Signatera improved to roughly $1,100 in Q4, with steady progress noted for Panorama and Horizon ASPs [17] Market Data and Key Metrics Changes - The company reported significant advancements in reimbursement coverage, including Medicare's expansion for patients with Stage 1 through 3 lung cancer [13][25] - The NCCN guidelines have strengthened the position of cell-free DNA testing across various tumor types, enhancing the accessibility of Signatera [13][45] Company Strategy and Development Direction - The company plans to reinvest cash flows generated into the business to enhance growth profiles in 2026 and beyond [22][23] - Natera is focusing on expanding payer coverage and leveraging its extensive cancer exome database to improve patient care [31] - The introduction of AI tools aims to optimize claims processing and enhance operational efficiency [29] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the momentum heading into 2025, with expectations for continued revenue and volume growth [9][70] - The guidance for 2025 anticipates revenues between $1.87 billion and $1.95 billion, based on positive trends from previous quarters [69] - Management highlighted the potential for ASPs to double over the next few years as more coverage policies are established [87] Other Important Information - The company retired convertible notes early in Q4, leaving it with nearly $1 billion in cash and effectively no debt [68] - Significant clinical trial results are expected in 2025, which could further drive adoption and revenue growth [52] Q&A Session Summary Question: Potential for Signatera ASPs to reach around $2,000 - Management indicated that as more coverage policies are established, revenue per test could effectively double, aligning with the potential for ASPs to reach around $2,000 over the decade [87] Question: Feedback on genome-based products from pharmaceutical companies - Initial feedback from pharmaceutical and biotech customers has been positive, particularly for clinical research applications [88][90] Question: Volume growth expectations for Signatera in 2025 - Management expressed confidence in exceeding the previous target of 8,000 to 10,000 units per quarter, with Q1 tracking to be one of the strongest quarters ever [100][102] Question: True-ups and their impact on future guidance - Management expects true-ups to moderate over time as cash collections improve, but they do not guide on true-ups due to their unpredictable nature [108] Question: Number of markers for personalized whole-genome panels - The company is tracking 64 variants for its genome product, optimizing for sensitivity while keeping costs contained [114][118]

Revenue and Financial Performance - A significant portion of the company's revenues is expected to come from sales of Panorama, Horizon, and Signatera[15] - Product revenues for the year ended December 31, 2024, reached $1,685.1 million, a 57.5% increase from $1,068.5 million in 2023[502] - Total revenues for 2024 were $1,696.9 million, up 56.8% from $1,082.6 million in 2023[502] - The net loss for 2024 was $190.4 million, a significant improvement compared to a net loss of $434.8 million in 2023[502] - Cash, cash equivalents, and restricted cash increased to $945.6 million in 2024 from $642.1 million in 2023, reflecting a 47.3% growth[500] - Total assets grew to $1,660.7 million in 2024, up from $1,441.7 million in 2023, marking a 15.2% increase[500] - Total stockholders' equity increased to $1,195.4 million in 2024, compared to $765.3 million in 2023, reflecting a 56.3% growth[500] - The company generated net cash provided by operating activities of $135.7 million in 2024, a turnaround from net cash used of $247.0 million in 2023[514] - Revenue from insurance carriers was $1,571.8 million in 2024, up from $954.2 million in 2023, and $690.8 million in 2022, indicating strong growth in this segment[614] - Total revenues for the year ended December 31, 2024, reached $1,696.9 million, a significant increase from $1,082.6 million in 2023, and $820.2 million in 2022[614] Expenses and Losses - The company has incurred net losses since inception and expects to continue incurring losses for the foreseeable future[21] - Research and development expenses rose to $404.1 million in 2024, compared to $320.7 million in 2023, indicating a 26.0% increase[502] - Selling, general, and administrative expenses increased to $841.3 million in 2024, up from $618.3 million in 2023, a rise of 36.1%[502] - The company reported a basic and diluted net loss per share of $1.53 for 2024, improving from a loss of $3.78 per share in 2023[502] - The company has an accumulated deficit of $2.6 billion as of December 31, 2024, indicating ongoing financial challenges despite recent improvements[514] - The company reported stock-based compensation expenses of $274.4 million in 2024, up from $191.8 million in 2023[514] Debt and Financial Instruments - The company’s gross debt outstanding on its Credit Line is $80.4 million, with an interest rate that could increase annual interest expense by $0.8 million for a 100 basis point change[483] - An incremental change in the investment yield of 100 basis points would increase annual interest income by approximately $0.2 million[483] - The estimated fair value of the total principal outstanding and accrued interest of the Credit Line was $80.4 million as of December 31, 2024[622] - The company had $20.0 million remaining and available on its Credit Line as of December 31, 2024[514] Legal and Regulatory Matters - The Company was awarded $19.35 million in damages in a patent infringement case against ArcherDX, Inc.[655] - The jury awarded damages totaling $96.3 million to the Company in a patent litigation case against CareDx, Inc.[654] - The Company is involved in multiple lawsuits, including a significant case against CareDx, resulting in a jury verdict of $44.9 million in damages against the Company, although the Court later ruled that CareDx is not entitled to any damages[662] - The Company has filed a lawsuit against NeoGenomics, alleging infringement of two patents, with a trial currently scheduled for October 2025[661] - A jury found the Company liable for false advertising in a case against Guardant Health, with damages amounting to $292.5 million, and the Company plans to appeal this judgment[663] - The Company has ongoing litigation against Inivata, with claims consolidated from two separate lawsuits filed in January 2021 and December 2022[660] - The Company has consolidated two class action lawsuits related to the marketing of its Panorama test, with an amended complaint filed in April 2023[666] - Shareholder derivative complaints have been filed against the Company, alleging that management made materially false or misleading statements regarding the Company's products and operations[669] Market and Competitive Environment - The company faces intense competition in its industry, which could affect its ability to sustain revenues or achieve profitability[21] - The company relies on a limited number of suppliers for laboratory instruments and materials, which may impact its operations[20] - The company is exposed to foreign currency exchange rate fluctuations as it expands internationally, which may affect its results of operations[485] - The company does not currently believe inflation has materially affected its business, but significant inflationary pressures could harm its financial condition[486] Investments and Acquisitions - The Company acquired certain assets from Invitae for $10.5 million, with an additional payment of up to $42.5 million contingent on achieving customer volume retention targets[544] - The Company completed an underwritten equity offering in September 2023, raising approximately $235.8 million by selling 4,550,000 shares at $55 per share[519] - The Company received a warrant to purchase 3,058,485 shares of MyOme's common stock at an exercise price of $0.25 per share, exercisable starting February 2024[571] - The fair market value of the warrants as of December 31, 2024, was $11.2 million, compared to $1.8 million in 2023[574] Deferred Revenue and Performance Obligations - The company currently has $17.3 million in deferred revenue as of December 31, 2024[606] - The beginning balance of deferred revenues increased from $30.8 million in 2023 to $35.7 million in 2024, with an ending balance of $36.6 million[616] - Revenue recognized from deferred revenues at the beginning of the period totaled $13.7 million, with $10.8 million related to genetic testing services[616] - The current portion of deferred revenue includes $17.6 million from genetic testing services, $1.7 million from Foundation Medicine, and $0.5 million from the BGI Genomics agreement[616] Miscellaneous Financial Information - The company has been audited by Ernst & Young LLP since 2012, ensuring ongoing compliance and financial integrity[498] - The Company recorded noncash activities of $38.8 million related to leases for the year ended December 31, 2024, compared to $2.1 million in 2023[646] - Total operating lease liabilities increased from $78,646,000 in 2023 to $106,756,000 in 2024, an increase of approximately 35.7%[648] - The total future minimum lease payments under all non-cancellable operating leases as of December 31, 2024, amount to $140,563,000[650]

Core Insights - Natera reported a quarterly loss of $0.41 per share, slightly better than the Zacks Consensus Estimate of a loss of $0.42, and improved from a loss of $0.64 per share a year ago, indicating a 35.9% year-over-year improvement [1] - The company achieved revenues of $476.06 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 0.88% and showing a significant increase from $311.11 million in the same quarter last year, representing a 52.9% year-over-year growth [2] - Natera has consistently outperformed consensus EPS and revenue estimates over the last four quarters, indicating strong operational performance [2] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is -$0.38 on revenues of $426.69 million, while for the current fiscal year, the estimate is -$1.25 on revenues of $1.79 billion [7] - The estimate revisions trend for Natera is favorable, leading to a Zacks Rank 2 (Buy), suggesting that the stock is expected to outperform the market in the near future [6] Industry Context - The Medical Services industry, to which Natera belongs, is currently ranked in the top 34% of over 250 Zacks industries, indicating a favorable industry outlook [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be a useful tool for investors [5]

Financial Performance - Natera, Inc. announced preliminary financial results for Q4 and fiscal year 2024 on January 12, 2025[4]. - The company reported a revenue increase of 15% year-over-year for the fiscal year 2024, reaching $500 million[4]. - Natera expects revenue growth of 10-15% for the fiscal year 2025, projecting total revenue between $550 million and $575 million[4]. - Natera reported a net loss of $30 million for Q4 2024, compared to a net loss of $25 million in Q4 2023[4]. Operational Highlights - User data showed a 20% increase in test volume compared to the previous year, totaling 1.2 million tests performed[4]. - The company plans to reduce operational costs by 5% in 2025 to improve profitability[4]. Strategic Initiatives - The company is focusing on expanding its product offerings, with plans to launch two new genetic tests in Q2 2025[4]. - Natera is investing in new technology development, allocating $50 million for R&D in 2025[4]. - Natera is exploring strategic partnerships to enhance market presence, particularly in Europe and Asia[4]. - Natera is considering potential acquisitions to bolster its market position and expand its capabilities[4].

Core Viewpoint - Natera (NTRA) is showing potential for short-term gains due to its recent technical movements and positive earnings estimate revisions [1][3]. Technical Analysis - NTRA has recently reached a key level of support and has overtaken the 20-day moving average, indicating a short-term bullish trend [1]. - The 20-day simple moving average is a useful tool for short-term traders, as it smooths out price trends and provides more signals for trend reversals compared to longer-term averages [1][2]. Earnings Estimates - There have been no downward revisions in earnings estimates for NTRA in the past two months, with two estimates being revised higher, leading to an increase in the consensus estimate [3]. - This positive trend in earnings estimates supports the bullish case for NTRA [3]. Performance Metrics - NTRA has experienced a rally of 9.5% over the past four weeks, and it currently holds a Zacks Rank of 2 (Buy), suggesting potential for further upward movement [4].

Undercovered Investment Ideas - The Undercovered Dozen highlights twelve actionable investment ideas on tickers with less coverage, ranging from "boring" large caps to promising small caps [1] - Inclusion criteria for "undercovered" tickers include: market cap greater than $100 million, more than 800 symbol page views in the last 90 days on Seeking Alpha, and fewer than two articles published in the past 30 days [1] - Follow the account to receive a weekly review of twelve undercovered ideas from valued analysts [1]

Technical Analysis - Natera (NTRA) has surpassed resistance at the 20-day moving average, indicating a short-term bullish trend [1] - The stock has rallied 11.3% over the past four weeks, with a current price of $166.55 and a 20-day simple moving average of $167.272 [3] - If a stock's price is above the 20-day moving average, the trend is considered positive, while falling below it can signal a downward trend [2] Earnings Estimates - In the past two months, no earnings estimates for NTRA have been lowered, while 7 estimates have been raised for the current fiscal year, leading to an increase in the consensus estimate [4] - The positive revisions in earnings estimates, combined with favorable technical indicators, suggest potential for further gains [4] Investment Outlook - Given the combination of positive technical factors and earnings estimate revisions, NTRA may present a good investment opportunity for potential gains in the near future [4]

Core Points - Guardant Health achieved a significant legal victory against Natera, with a jury awarding $292.5 million for false advertising and unfair competition, marking one of the largest verdicts in this category in history [1][2] - The jury found that Natera intentionally misled oncologists regarding Guardant Reveal™, a test for early-stage colorectal cancer, to promote its own product, Signatera™ [2] - This verdict is seen as a major win for colorectal cancer patients, emphasizing the importance of accurate information in cancer diagnostics [3] Company Overview - Guardant Health is a leading precision oncology company founded in 2012, focused on improving patient care and accelerating cancer therapies through advanced testing and analytics [4] - The company aims to enhance outcomes across all stages of cancer care, from early detection to treatment selection for advanced cases [4]

Core Insights - Natera reported a revenue of $439.76 million for the quarter ended September 2024, marking a 63.9% increase year-over-year and exceeding the Zacks Consensus Estimate of $361.16 million by 21.76% [1] - The company's EPS was -$0.26, an improvement from -$0.95 in the same quarter last year, with a surprise of 54.39% compared to the consensus estimate of -$0.57 [1] Financial Performance Metrics - Tests Processed Volume reached 775,800, surpassing the average estimate of 740,986 from three analysts [3] - Product Revenues were reported at $436.13 million, exceeding the estimated $357.01 million by four analysts, reflecting a year-over-year increase of 64.4% [3] - Revenues from Licensing and other sources amounted to $3.63 million, compared to the average estimate of $2.94 million, representing a 17.6% year-over-year change [3] Stock Performance - Natera's shares have returned +1.6% over the past month, while the Zacks S&P 500 composite increased by +3.3% [4] - The stock currently holds a Zacks Rank 2 (Buy), suggesting potential for outperformance against the broader market in the near term [4]