Veracyte Inc

NASDAQ:VCYT

Earnings Call Analysis

Strong Growth and Raised Guidance Amid Strategic Expansions

Veracyte reported its strongest quarter to date, achieving $114.4 million in revenue, a 27% year-over-year increase. The firm’s GAAP net income hit $5.7 million, with an adjusted EBITDA margin of 21%. Demand for Decipher and Afirma tests surged, driving testing revenue up by 31%. The company is on track to meet its goal of a 25% adjusted EBITDA margin, and has raised its 2024 revenue guidance to $432-$438 million. Strategic initiatives include global expansion of IVD products, and the development of new cancer diagnostics. Veracyte ended the quarter with nearly $236 million in cash, expecting to close 2024 with $260-$270 million.

Strong Revenue Growth and Profitable Quarter

Veracyte delivered an impressive second quarter for 2024, reporting revenue of $114.4 million, which marks a robust 27% increase compared to the same quarter last year. Notably, testing revenue alone surged by 31%. This remarkable performance is attributed to higher demand for their core products, Decipher and Afirma. The company's GAAP net income stood at $5.7 million, and they achieved an adjusted EBITDA margin of 21%, reflecting strong cost management and operational efficiency.

Momentum from Key Product Offerings

The company's growth trajectory is primarily driven by Decipher and Afirma. Decipher saw a remarkable 43% year-over-year revenue growth, fueled by higher testing volumes and the successful integration of new physician accounts. This momentum is expected to continue as the market penetration for both prostate and thyroid cancer diagnostics increases, moving from 35% and 60% towards targeted levels of 80% in the future. Moreover, the updated NCCN guidelines recognize Decipher’s role in treatment decisions, further incentivizing its adoption.

Strategic Long-Term Growth Initiatives

Marc Stapley, the CEO, highlighted five strategic imperatives driving Veracyte’s future growth: expanding Decipher and Afirma revenues, launching multiple IVD products, addressing new cancer challenges, and creating a comprehensive patient journey. A key milestone includes the submission of the Prosigna nCounter test for approval under the IVDR framework, which is essential for broader product rollout internationally.

Guidance for 2024 and Beyond

Veracyte raised its total revenue guidance for 2024 to between $432 million and $438 million, a significant increase from previous guidance of $402 million to $410 million. This upward revision indicates a projected revenue growth rate of approximately 25%, up from an initial expectation of 15% to 18%. The company anticipates adjusted EBITDA margins to remain slightly higher in the latter half of the year compared to the first half, continuing their momentum toward the goal of sustaining a 25% adjusted EBITDA margin.

Operational Efficiency and Cost Management

The company reported that non-GAAP gross margins improved to 71%, an increase of 350 basis points from the prior year. Efforts in billing and collections were recognized, positively impacting average selling price (ASP), which has seen a compound annual growth rate (CAGR) of 5% over the past two years. Operational expenses, while rising due to increased R&D spending, have been managed effectively within the growing revenue context.

Cash Flow and Financial Stability

Veracyte generated approximately $29.6 million in cash from operations during the quarter, ending with a strong cash and cash equivalents balance of $235.9 million. This financial health allows the company the flexibility to invest in strategic initiatives and maintain a healthy operating buffer, reinforcing their fiscal strength amidst expanding operations.

Future Innovations and Market Expansion

Veracyte is committed to innovation, particularly in the areas of minimal residual disease (MRD) testing, with plans to launch a muscle-invasive bladder cancer test using their whole genome platform by 2026. This could potentially tap into substantial unmet needs within oncology, further extending their market reach.

Final Thoughts and Outlook

Overall, Veracyte is demonstrating strong performance with notable growth in its core offerings. The company's ability to leverage data and technology to improve patient care, along with their strategic initiatives for market expansion, positions them favorably in the diagnostics landscape. Investors may find Veracyte an attractive opportunity as the company continues to capitalize on substantial growth momentum while focusing on profitability.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Veracyte Second Quarter 2024 Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Shayla Gorman, Senior Director, Investor Relations. Please go ahead.

[Shayla Gorman, executive]

Good afternoon, everyone, and thank you for joining us today for a discussion of our second quarter 2024 financial results. With me today are Marc Stapley, Veracyte's Chief Executive Officer; and Rebecca Chambers, our Chief Financial Officer. Veracyte issued a press release earlier this afternoon detailing our second quarter 2024 financial results. This release, along with the business and financial presentation is available in the Investor Relations section of our website at veracyte.com.

Before we begin, I'd like to remind you that various statements that we may make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties, and the company can give no assurance they will prove to be correct. Additionally, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte files with the Securities and Exchange Commission, including Veracyte's most recent Forms 10-Q and 10-K.

In addition, this call will include certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP financial measures are included in today's earnings release accessible from the IR section of Veracyte's website. This quarter, we have updated our non-GAAP measures to exclude stock-based compensation to provide better comparison to our peers and help investors gain a better understanding of our performance. Further, all comparisons to prior periods are to the updated non-GAAP metrics that exclude stock-based compensation. We have included a schedule of the non-GAAP adjustment for prior periods in today's earnings presentation available on the Investors section of our website.

I will now turn the call over to Marc Stapley, Veracyte's CEO.

[Marc Stapley, executive]

Thanks, Shayla, and thanks, everyone, for joining us today. I couldn't be more pleased to share with you the drivers of what I believe is Veracyte's best quarter to date. Importantly, we saw an acceleration of demand for both Decipher and Afirma that exceeded even our highest expectations coming into the quarter. As a result, we delivered second quarter revenue of $114.4 million, growing 27% compared to the prior year period. Testing revenue grew 31% over the prior year period, well ahead of our expectations.

With our disciplined focus and strong fiscal management, this overperformance on top line growth contributed to our most profitable quarter to date. We generated $5.7 million in GAAP net income and our adjusted EBITDA margin was an industry-leading 21%. I have previously stated that I believe a well-run specialty diagnostics company like ours could achieve 25% adjusted EBITDA margins, and as you can see, we are well on our way to reaching that level of profitability.

Before I get into this quarter's performance, I want to remind you that we are highly focused on 5 strategic imperatives: one, continued growth in Decipher; two, continued growth in Afirma; three, launch of multiple IVD products to expand geographically; four, solving new cancer challenges; and five, serving more of the patient journey.

Regarding number three, I am pleased to share that we just submitted our existing Prosigna nCounter test for approval under the IVDR framework. Recall that this is a foundational step that we expect to enable the launch of future IVD test in oncology around the world and drive the commercialization of our IVD portfolio.

Turning to number four, we're making good progress on solving new cancer challenges with NIGHTINGALE, our pivotal trial for naval swab. And with respect to #5, we continue to forge our way across the patient journey with the development of our first MRD test for muscle-invasive bladder cancer using our whole genome platform, a platform that is extensible across multiple indications. We expect these 3 longer-term strategic imperatives will layer on new revenue growth S curves a number of years from now on top of what we believe is durable Decipher and Afirma growth.

Now turning to the current quarter. I have talked before about the power of our Veracyte Diagnostics platform, which I believe is behind our strong performance and impressive growth. This unique approach relies on broad sets of genomic and clinical data, deep bioinformatic and AI capabilities and a powerful evidence generation engine. This flywheel for growth builds increasingly strong and differentiated evidence to clinical validity and utility that ultimately drive guideline inclusion and combined with our proven commercial and managed care excellence, ensures broad adoption and reimbursement for our on-market diagnostics.

Evidence of this can be seen in the positive trend in ASP we've delivered, driven by our managed care and billing teams, ensuring that patients, who are indicated for diagnostic testing are able to access those tests and that we have paid appropriately and timely when our products are selected by physicians for those patients. Our ASP has grown at a 5% CAGR over the last 2 years, as we focused on gaining new contracts and resolving prior payment challenges.

Another key to the Veracyte Diagnostics platform is the flywheel of evidence generation led by our clinical and medical teams that fuels adoption and guideline inclusion. The outstanding Decipher and Afirma volume growth that we're seeing is a direct result of this flywheel in action, together with the execution of our talented commercial teams.

Specifically on urology testing, for the second year in a row, we saw a step function change in demand for Decipher during the second quarter. Sequentially, Decipher prostate grew by 3,400 tests, as we delivered approximately 19,900 tests in the quarter, a new record, now reaching more patients in a single month than we did in a whole quarter when we acquired Decipher in 2021.

Importantly, volume growth, which equated to 32% year-over-year was driven by both new physician adoption and deeper penetration into existing accounts. This is another favorable data point that gives us the confidence that Decipher has plenty of headroom for durable future growth with the majority of the market still unpenetrated.

The updated NCCN guidelines published in February were a significant catalyst to adoption, as Decipher prostate received the highest evidence level rating among molecular test in the guidelines and was included in the principles of risk stratification section, which details treatment implications based on the NCCN classification and Decipher score. This result underscores both the mountain of evidence behind the test, as well as its broad utility for patients diagnosed with prostate cancer from those who are low risk and on active surveillance to those, who are intermediate risk, all the way up to NCCN high-risk patients and patients after surgery.

Even with the level of evidence behind the Decipher prostate test today, we are committed to continuing to support additional research to advance prostate cancer science. In the second quarter alone, there were 3 newly published Decipher prostate test studies, including a real-world data population-based analysis of Decipher linked to the National Cancer Institute's SEER database demonstrating the test's clinical utility.

And we are very eager to be able to offer prognostic and predictive insights to patients with metastatic disease, a cohort for whom more information can make an even greater difference of pivotal moments in their cancer journeys. Given that WPS issued a local coverage determination or LCD for metastatic prostate cancer last week, we now expect the finalization of the Palmetto LCD soon. This will provide an additional vector for growth accounting for an estimated 30,000 of the 300,000 newly diagnosed prostate cancer patients annually.

Moving to Afirma, we also reported a new quarterly volume record with approximately 15,700 test results or 17% year-over-year growth. This performance for test has been on the market for over a decade is a testament to our diagnostic platform and commercial approach and supports our positive outlook for our long-term growth profile, fueled by both Decipher and Afirma. The differentiated level of evidence for the performance of the Afirma test alongside the ease of use for physicians, drove volume increases with growth coming from new customers and our current customer base.

Our research-use-only or RUO Afirma GRID offering is another way we continue to further our leadership in the endocrinology market. This tool provides physicians with additional data to advance the science around thyroid nodules and cancer. This quarter at ENDO 2024, the Annual Meeting of the Endocrine Society, 3 studies leveraging information from Afirma GRID were presented, highlighting the importance of this tool in helping to unlock new molecular insights from thyroid tumors, which may ultimately further personalize treatment of the disease. This quarter, approximately half of physicians ordering Afirma chose to receive the RUO Afirma GRID information, demonstrating a high level of interest in contributing to research.

We also achieved a significant milestone in June, as MolDX finalized an expanded local coverage determination for Afirma, adding reimbursement for Medicare and Medicare Advantage patients with Bethesda V thyroid nodules for those that are suspicious for cancer. There are up to 30,000 patients with nodules classified as Bethesda V annually, of which we assume approximately 1/3 will be covered under Medicare and Medicare Advantage. This is an important step in both expanding our market for Afirma, as well as furthering our leadership in endocrinology.

Our confidence in continued growth driven by Decipher and Afirma only increased with this quarter's outstanding performance. With durable market share gains, further penetration into existing accounts, expanded indications and more use cases in our available market, we are making progress towards the 80% penetration for both prostate and thyroid cancer molecular tests from 35% and 60%, respectively, coming into the year.

Further, paired with the ASP improvements in the Decipher and Afirma volume catalyst delivered this year so far, there is compelling evidence that we are trying to continue to deliver robust revenue growth for the foreseeable future, near term, mid-term and even long term, especially in the case of Decipher. We plan on underpinning this growth with continued profitability and cash generation, while also investing in future innovation.

With that, I will now turn to Rebecca to review our financial results for the quarter and heightened expectations for 2024.

[Rebecca Chambers, executive]

Thanks, Marc. Q2 was a fantastic quarter with $114.4 million in revenue, an increase of 27% over the prior year period. We grew total volume to approximately 39,000 tests, a 23% increase over the same period in 2023. Testing revenue during the quarter was $107 million, an increase of 31% year-over-year, driven by Decipher and Afirma volume along with ASP growth.

Total testing volume was approximately 36,000 tests. Testing ASP was approximately $2,950, which included approximately $4 million of prior period collections. It is important to recognize that while these adjustments are for tests delivered in prior periods, this result is driven by sustainable efficiencies in our billing and collections processes. Adjusting for the impacts in the quarter, testing ASP would have been approximately $2,850.

Second quarter product volume was approximately 3,000 tests and product revenue was $3.9 million. We continue to expect supply chain issues to suppress supply of the Prosigna nCounter test in the second half of this year and perhaps beyond. Biopharmaceutical and other revenue was $3.6 million, down 22% year-over-year.

Moving to gross margin and operating expenses, I will highlight our non-GAAP results. Our non-GAAP metrics exclude where applicable, the amortization of acquired intangible assets, stock-based compensation, other acquisition-related expenses, restructuring costs and certain other adjustments.

Non-GAAP gross margin was 71%, up approximately 350 basis points compared to the prior year period. Testing gross margin was 74%, up 250 basis points compared to the prior year period due to ASP improvements and prior period cash collections.

Product margin was 52% due to favorable manufacturing variances. With investments in service support in the second half of the year, we expect product margin to be below historical averages.

Biopharmaceutical and other gross margin was negative 4%, down year-over-year due to lower fixed cost absorption. In July, we executed our voluntary reduction plan in Marseille, which is expected to benefit our cost structure going forward. However, given our anticipated second half revenue, we expect full year biopharma and other gross margin to be at or slightly below the second quarter level.

Non-GAAP operating expenses were up 14% year-over-year to $59 million. Research and development expenses increased by $3.5 million to $14.6 million, given personnel additions with the C2i acquisition and increased costs related to our NIGHTINGALE clinical studies.

Sales and marketing expense declined by $800,000 to $21.9 million due to lower personnel costs from the Envisia sales force reduction, partially offset by higher commissions.

G&A expenses were up $4.7 million to $22.6 million, driven by higher variable compensation given our updated full year outlook and other personnel costs.

Moving to profitability metrics, as Marc shared, we are proud of our Q2 results. We recorded GAAP net income of $5.7 million, inclusive of a $3 million restructuring charge in relation to our Marseille location. We delivered adjusted EBITDA of $24 million or 21% of revenue, well on our way towards our goal of sustained 25% adjusted EBITDA margins. We also generated $29.6 million of cash from operations and ended the quarter with $235.9 million of cash and cash equivalents.

Turning now to our 2024 outlook. We are excited to raise our total revenue guidance to $432 million to $438 million from our prior guidance of $402 million to $410 million. This reflects a significant improvement in the outlook for our testing business with revenue growth of approximately 25%, a substantial increase compared to our prior guidance of 15% to 18%. We are also raising our cash guidance and expect to end 2024 with between $260 million to $270 million in cash, cash equivalents and short-term investments.

Moving to the third quarter, we are forecasting a sequential decline in total revenue, given typical seasonality and the impact of prior year period cash collections in the second quarter. We expect Q4 revenue to be a sequential step-up from Q3. Additionally, we anticipate adjusted EBITDA margins in the second half of the year to be slightly above the first half of the year, as we sustain our fiscal discipline.

I am thrilled with our strong start to 2024 and our commitment to driving revenue growth with a focus on profitability and continued cash generation. I am further grateful for the contributions of all of our employees towards our vision of helping cancer patients globally.

We'll now go into the Q&A portion of the call. Operator, please open the lines.

[Operator]

[Operator Instructions] Our first question is from the line of Mason Carrico with Stephens, Inc.

[Mason Carrico, analyst]

Marc or Rebecca, could you remind us, what steps you still need to take or go through, I guess, once this metastatic LCD is finalized in order to secure coverage and how you're thinking about the time line there?

[Marc Stapley, executive]

Yes, happy to. So once we get the finalization from Palmetto, which will cover Noridian as well, we'll have to go through the tech assessment process, which will take a number of months. And then obviously, we've got to train ourselves force and make sure we do a structured rollout, as they work with physicians to make sure they understand the metastatic tests and how it's to be deployed. And then we've got to go through the billing process.

So we think of this as a 2025 activity more so than 2024, with really starting in the first half and obviously ramping up as the year goes on. A reminder that there are roughly 30,000 patient incidences per year of metastatic that could apply here, and roughly 2/3 or so would be Medicare or Medicare Advantage. The other element of this is, of course, we'd have to work through commercial payers as well, and that takes a little bit longer.

[Rebecca Chambers, executive]

And just to be abundantly clear on this, Mason, there's nothing currently embedded in our 2024 guide for metastatic.

[Mason Carrico, analyst]

Perfect. Okay. That's helpful. And then on the cash generation during the quarter, the balance sheet is in great shape. Could you talk about how you're thinking about capital allocation going forward? What are some of the key internal investments you're making here? How does M&A fit in? Do you plan on adding commercial heads anywhere throughout the organization?

[Marc Stapley, executive]

Yes. If you think about organically, the investments that we're making, we've been making all the investments that we feel like we need to make. We've been generating positive cash flow for a little while here. Obviously, this quarter was very strong. But we're not -- we've not been holding back is probably the best way to say in terms of adding commercial teams. We're getting tremendous leverage out of the commercial team. We've got every sales rep we need. We're adding a couple here and there, wherever we need to launch new territories.

And then on the R&D side, we're investing in 3 long-term growth drivers and programs that each are roughly equal, give or take a few million dollars in terms of the investments that we're making in each of them. And together, they account for more than half of our R&D spend. So organically, I don't think our positive cash generation really changes much around our strategies and focus.

In terms of M&A and that type of activity, again, I don't think it really changes much. We've always said the type of targets that we'd be interested in would be something that has a clear path to reimbursement and positive growth and revenue generation. We don't want to take on multiyear R&D projects. We've got enough of those that we're working on ourselves. And so, there's not a lot of, I'd say, suitable targets out there.

Having said that, we always kick the tires. We always take a look at whatever comes our way and given how well we've been performing and the strength of our balance sheet, as you can imagine, we get a lot of inbounds. So no change in our approach here, and we'll continue to positive generate positive cash flow going forward and deploy it. We're right in the middle or about to start our 2025 budgeting process. So we haven't even decided the capital allocation for next year.

[Operator]

Our next question comes from the line of Tejas Savant with Morgan Stanley.

[Yuko Oku, analyst]

This is Yuko on the call for Tejas. With IP litigation increasingly coming into point of focus, particularly in light of TwinStrand IP licensing by Exact Sciences, what are the implications, if any, for your MRD portfolio strategy? Could we see you participate in any patent pool sharing along the lines of what we saw between Personalis and Myriad recently?

[Marc Stapley, executive]

Yes. Great question. So as you know, we acquired our C2i business in early this part of this year. And as we mentioned when we did that, we took a very specific approach of looking for an asset that is a whole genome-based approach because really, primarily, it fits with our Veracyte Diagnostic platform of more data is better. And so, for every time you run the sample, you get a whole genome. And you'll see -- you've seen us leverage that kind of approach with Decipher now Afirma with GRID. So that was the primary purpose.

Secondarily, of course, we looked at the freedom to operate in the IP landscape and that approach gives us a lot more room than I think some of the targeted approaches that you're seeing a lot of this activity around. And so, we don't [ feel ]. We don't believe that, that is a -- I mean, you never know, but we don't believe that, that is an area of concern for us because specifically of the approach that we've taken. Going forward, I don't think there's necessarily any need for us to get involved in patent pools and so on, and we'll see where this -- how this whole space evolves over time.

[Yuko Oku, analyst]

Got it. And with respect for Bethesda V for Afirma, with about 1/3 of the population coming from Medicare, how quickly do you think that commercial payers could come on board following the reimbursement. Have you started to have discussions with payers already?

[Marc Stapley, executive]

Yes. I mean, over a period of time, there has already been some element of commercial payers paying for Bethesda V. So now Medicare has caught up with that. And then there are some that are obviously now with the LCD, we're able to go to those commercial payers and leverage that to try and drive an update in policy. So we'll continue that activity. It takes a long time. There's a lot to go and do a lot of blocking and tackling and there are other big priorities, too. So Bethesda V remember is about 30,000 patients. So we're getting some of that already.

[Rebecca Chambers, executive]

Yes. And I was just going to add, in the volume number that we cite for Afirma, the Bethesda V samples are included in that, that are being run and reimbursed for or better being run for Afirma at this point in time. And then the commercial component is also embedded in that ASP for Afirma. So just, so you can have an understanding of where we're at.

[Operator]

Our next question comes from the line of Andrew Brackmann with William Blair.

[Margarate Boeye, analyst]

This is Maggie Boeye on for Andrew today. Maybe just to start on the Decipher front. Just as you think about the levers of growth in the back half of the year and into 2025, how much of that should come from elevated incidents versus account penetration and then versus share gains?

[Marc Stapley, executive]

Yes. Great question. I actually don't think it's really to do with incidents, although the incidences of prostate cancer are going up. If you look at some of the data there, it's kind of high single-digit growth, and the incidence is, of course, metastatic for us enables us to target that entire $300,000 a year annual incidence of prostate cancer now. So it gives us the final piece of that puzzle.

What we're seeing and what we believe we're going to continue to see is both penetration in the market. If you remember at the beginning of this year, we said the market is about 35% penetrated. So there's a lot of white space to go after there. So further penetration in that market and even further share gains, it's pretty evident in the numbers that we're posting. We're seeing a combination of both and they're both significant drivers.

And I do think -- I mentioned this in the prepared remarks, but I do think the NCCN Level 1 the guidelines and the specific table around that are a significant driver of what we're seeing as a step function increase this quarter and maybe a new normal, too early to tell in terms of the growth curve. But certainly, it stepped up in Q2 like it did this time last year when we got the first NCCN. So clearly, a significant factor in growth. And this is why we said plus, obviously, the ASP gains that Rebecca talked about, this is why we've said we feel very comfortable with the durability of the growth in Decipher.

[Rebecca Chambers, executive]

Yes. Absolutely. I was going to add in the ASP gains, but I think it's really important to note, Maggie, that we had 2 major catalysts for Decipher really present themselves over the course of the first quarter, which were manifested in the second quarter, which Marc cited. And I think those were really great wins for the internal teams, which drove both the publications and support of NCCN Level 1, and as well as the conversations with the major payer that we cited.

[Margarate Boeye, analyst]

Great. And then maybe just one on the pipeline. Could you level set us on MRD and then just what we should be expecting in terms of catalysts and data generation for the MRD assay and just how we should be thinking about the next 6 quarters or so before it comes to market?

[Marc Stapley, executive]

Yes. Thanks for reminding us of the timing there. And remember, the MRD, our approach is while this is a platform, a whole genome platform that's going to address multiple indications. And you can imagine us thinking about the indications that we're currently in, as well as new indications. We are starting with our first -- and it's more than a proof of concept, but think of it as a pilot MRD launch in muscle invasive bladder cancer. And so, we will launch that test in 2026. You will see us do -- we will suggest to do the tech assessment, get the reimbursement, again, train the sales force, very similar to what we talked about for Decipher metastatic.

But we've got to run some samples there and do some of that activity, as well as setting up our CLIA lab regarding the automation [ or ] we don't do whole genome today, so we have to ingest that into our lab. We do transcriptome today. So we're going to have to add that workflow and do the necessary activities around that. So that's why it takes a little bit longer to get that launched. And so, I think what we will probably share with you first is when we've done that tech assessment, and we're clearly seeing that path to reimbursement.

[Operator]

Our next question comes from the line of Mike Matson with Needham & Company.

[Joseph Conway, analyst]

Hey, Marc, hey, Rebecca. This is Joseph on for Mike. So I guess, first question, just around Afirma GRID. Marc, you talked about the 3 studies presented at ENDO in your prepared remarks. Just taking a look at those abstracts it seems like GRID is kind of powering some new discoveries in thyroid cancer research. I'm just wondering if any of those kind of molecular insights that have been found or could be found -- could be implemented in an updated Afirma or an add-on clinical test in the future, just kind of wondering how GRID RUO could progress in the future?

[Marc Stapley, executive]

Yes, it's a great question, and I can draw comparisons here to Decipher and what we've seen there. But let me just start by reminding everybody that GRID is our whole transcriptome approach is fueled by the fact that we run a whole transcriptome. It's ordered roughly half of the time in both Afirma and Decipher's case. And it's clearly fueling new research, and you cited the 3 that came out at ENDO 2024.

And included in that look things like new biomarkers or groups of biomarkers that people are doing analysis on, researchers are doing analysis on to determine there's correlations there, and that is really what we can do. We've seen that actually with Decipher, where there have been some specific biomarkers that have been used multiple times, and I'm trying to remember the name [ proptosis ] is one of them in Decipher, where there have been a number of publications around that.

And so, I think you're going to see similar things with Afirma. It's really helping to renew investment and research around endocrinology and thyroid cancer, and it's wonderful to see that. And so, whether those end up being commercial tests in the future is to be determined. But again, remember, from our standpoint, the fact that we run a whole transcriptome means we always have that data for every patient. So it will be nice to see some new tests in the future potentially, but I'll wait and see how that pans out.

[Joseph Conway, analyst]

Okay. Okay. Great. Yes. That's very helpful. And then just maybe a quick one. Do you have an approximation for NIGHTINGALE in terms of data release for clinical utility? Or is that kind of too far out to put a quarter down or for an approximation?

[Marc Stapley, executive]

Yes. Too far out really to put a quarter down. It's one of our long-term growth drivers, as you know. And what we need to actually do is complete the study. That's step number one. Analyze the data at several points along the way. See when we have the clinical utility take the refill that we have, take it to get it published, take it to MolDx and go forward from there. And so, it's multi-years before we get to that point. We're still enrolling for NIGHTINGALE at this point. We still got close to 100 sites enrolling. And as I said last quarter, I'm not going to predict when that finishes, but we're progressing.

[Operator]

[Operator Instructions] Our next question comes from the line of Prashant Kota with Goldman Sachs.

[Prashant Kota, analyst]

Congrats on the quarter, really strong results. A lot of questions have already been asked, but just going back to Afirma, how are you thinking about ASP trajectory given the addition of GRID and Bethesda V classification. So for example, once GRID is potentially becomes available for patients, as opposed to RUO, yes.

[Marc Stapley, executive]

Maybe I'll tackle that last time and Rebecca, you can hit the ASP. But I see, GRID, as a research-use-only tool for the foreseeable future. I don't think that becomes a clinical tool. It could lead to, as we mentioned earlier, some clinical discoveries that end up in a clinical setting in the future. But I don't see that right now. The -- it's Afirma clinical test, as we have it and then the research use only GRID to power research. Rebecca?

[Rebecca Chambers, executive]

Yes. So on the ASP front, obviously, the Bethesda V -- the Bethesda V updated LCD is great news for us, as Marc highlighted in the script. And in parallel, obviously, the large payer on the Decipher side in the first quarter is also another positive trend for us on ASP. So when I think about ASP in general, I would like to think about it more at the total testing level and the high-level positive trends that we have to that end. We cited a 5% CAGR over the last 2 years on ASP.

And I think when it comes down to it, these were the things that we need to continuously do to drive ASP growth above and beyond the volume growth that we're delivering. And so, you can do the rough math on 1/3 of the 30,000 patients being the Medicare for Bethesda V and back into, if you assume whatever our penetration level is and share level is for Afirma, you come back into the actual dollar magnitude there, but it won't necessarily be hugely impactful, but it is another important driver, if you will, to that continued ASP gains over a multiyear period.

[Prashant Kota, analyst]

Got it. That's really helpful. And then as far as evidence generation for your tests, are there any notable upcoming studies we should be aware of, aside from NIGHTINGALE?

[Marc Stapley, executive]

Always. The level of activity around Decipher continues to be very, very broad studies that we're involved in as well as many studies, where we're aware of it, but we're not necessarily driving it and others are, again, fueled by GRID in many respects. And so, you should expect to see more there. There's always a nice steady cadence of studies, and now I think that should pick up with GRID for Afirma. And then in other indications between lung and breast, there's a lot of activities going on. So yes, nothing that I would point to right now as specifically notable, just keep an eye on the steady rollout.

[Operator]

Our next question comes from the line of Thomas DeBourcy with Nephron Research.

[Tom DeBourcy, analyst]

I was just wondering, I guess, kind of sort of a combination that -- the level of investment in C2i in the quarter or for the year and/or how are you kind of thinking about your adjusted EBITDA margin trajectory from here? I know you haven't given long-term guidance towards that margin, but obviously, the level of spend of C2i can obviously be a ceiling on that level. So any additional commentary you have in terms of how you balance those?

[Marc Stapley, executive]

Yes. Great question. Glad you brought that up. If you think about C2i, one thing that is important to note is we certainly didn't take on the burn run rate of the company as a stand-alone company because we're adopting a very different approach to how we're utilizing that MRD capability and platform. And we've already kicked off our first project product, if you like, as we talked about earlier. And so, what happened is we now have legacy Veracyte team members working very closely with the C2i team on that project. And we have C2i team members working on other Veracyte projects. So those expenses have become very blended. And so, we don't even talk about or think about the C2i expense run rate or burn anymore. It's just now part of Veracyte.

If you think about that investment in MRD, which is really the bulk of what the C2i team brought to the table that is -- as I said earlier, there are 3 big projects. It's MRD. It's the nasal swab with our NIGHTINGALE study in particular. And then it's our 3 IVD projects or products that we're launching. If you take each of those, they're roughly similar in size, give or take a couple of million dollars either way. And together, all 3 make up more than half of our total R&D spend. So yes, I don't see a significant change in the trajectory of spend that we've been tracking for R&D given that acquisition or anything else.

And then I'll let Rebecca...

[Rebecca Chambers, executive]

Yes. So I think that plays very nicely into the adjusted EBITDA look forward perspective as well, Thomas. I think Marc highlighted that we don't see meaningful changes in such trajectory. That being said, we also commented in our prepared remarks that the second half would -- that adjusted EBITDA in the second half would be slightly higher than the adjusted EBITDA in the first half and that we're going into our 2025 budgeting season. And so, therefore, we can't necessarily comment on when or the duration to get to that 25% adjusted EBITDA goal. But obviously, we're headed in the right direction.

We're incredibly proud of the portfolio approach we take to managing this company. And philosophically, I don't think anything will change on a go-forward basis. In any given year, you can obviously have puts and takes, but we've abided by the philosophy now for many, many years, both here and elsewhere, and I don't foresee that changing.

[Marc Stapley, executive]

Thanks. I do want to just punctuate that. The 21% adjusted EBITDA for the quarter, I think, is a significant milestone for us, and it's great to see it into what we've been heading towards that kind of a level of profitability and growth, and it's about -- I think it's about 600 basis points higher than we achieved in Q1. So really, really impressed to see that and it's certainly something that we want to sustain and grow from.

[Operator]

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Marc for closing remarks.

[Marc Stapley, executive]

Thank you, Lauren. I appreciate it. So in closing, I believe that our Decipher revenue growth of 43% year-over-year, Afirma revenue growth of 21% year-over-year, our 21% adjusted EBITDA margin and almost $27 million of cash generation in the quarter sets us apart. After that, the durable growth in both tests that we're experiencing and our 3 incremental long-term growth drivers, Veracyte clearly has a very unique profile in the diagnostics industry that is not getting the attention, I believe, is warranted [ at ] the space. Molecular diagnostics proving their value when supported by evidence, and I believe that Veracyte is leading that charge.

I want to thank all the approximately 850 employees at Veracyte, who have contributed to this excellent performance over many years to make a difference in the lives of over 500,000 patients that we have served to date with our advanced diagnostic tests. I look forward to updating you again on our Q3 earnings call. Thank you.

[Operator]

Ladies and gentlemen, this concludes our call today. Thank you for joining us. You may now disconnect.