Earnings call: Lucid Diagnostics reports robust growth in Q2 2024

Lucid (NASDAQ:) Diagnostics (ticker: LUCD) has reported significant progress in its second quarter of 2024, with a notable 500% increase in revenue from the previous year, reaching $1 million for the quarter. The company’s EsoGuard test volume saw substantial growth both quarterly and annually, setting a new record. Lucid’s engagement in health fair events and direct contracting has also expanded. The company’s cash reserves remain strong at $24.9 million, despite an average quarterly burn rate of $10.6 million.

Key Takeaways

• Lucid Diagnostics’ revenue climbed to $1 million in Q2 2024, a fivefold increase year-over-year.
• EsoGuard test volume grew by 31% over the quarter and 44% compared to the previous year.
• The company hosted over 50 health fair events, marking a 60% increase from the prior quarter.
• Direct contracting and revenue cycle management have shown progress.
• Lucid Diagnostics is focused on securing broad coverage and reimbursement for EsoGuard.
• Meetings with CMS MolDX have been productive, and market access strategies with commercial payers are ongoing.
• The cash balance stood at $24.9 million at quarter’s end, with a quarterly burn rate of $10.6 million.

Company Outlook

• Lucid anticipates modest quarter-on-quarter growth due to its lean sales team.
• Expansion plans beyond firefighters to include police departments, municipal groups, unions, and employers.
• Coverage pathways expected to be established later this year or early in the following year.

Bearish Highlights

• The company acknowledged a decrease in payment rate due to medically unnecessary claims.
• A backlog of $12.5 million in claims exists, with ongoing efforts in appeals.
• Until broader medical policy coverage is obtained, the percentage of denied claims may not decrease significantly.

Bullish Highlights

• Lucid Diagnostics has a complete body of outstanding clinical data supporting the EsoGuard test.
• Multiple published clinical validity and utility studies demonstrate EsoGuard’s effectiveness.
• Direct contracting initiatives are gaining traction, expected to lead to pre-negotiated contracted payments.

Misses

• Despite increased test volumes, the company faces challenges with payment rates and claim denials.

Q&A Highlights

• Discussions with the MolDX leadership group were productive, focusing on data submission for Medicare coverage.
• The company is engaging with commercial payers to secure medical policy coverage.
• The EsoGuard BE-1 study showed a pre-cancer sensitivity of 88%.
• The ENVET-BE study indicated that the EsoGuard test more than doubles pre-cancer detections.

In summary, Lucid Diagnostics has demonstrated strong growth in the second quarter of 2024, underscored by a significant increase in revenue and test volume for their EsoGuard product. While they face challenges with payment rates and claim denials, the company is actively engaging with various stakeholders to improve market access and coverage. With a solid cash balance and ongoing initiatives to expand their reach and secure reimbursement, Lucid Diagnostics appears to be strategically navigating the path forward in the diagnostic space. The company’s progress and future plans will be further discussed at the upcoming Canaccord Genuity Growth Conference.

InvestingPro Insights

Lucid Diagnostics (LUCD) has shown a promising trajectory with their EsoGuard test, and recent financial data from InvestingPro provides additional insights into the company’s performance and potential. The company’s market capitalization stands at $41.41 million, reflecting its position in the market. Despite the lack of profitability over the last twelve months, analysts are optimistic about Lucid’s sales growth, with two analysts revising their earnings estimates upwards for the upcoming period, indicating potential confidence in the company’s direction.

InvestingPro Data highlights that Lucid Diagnostics has experienced a tremendous 370.5% revenue growth in the last twelve months as of Q1 2024, which aligns with the company’s reported increase in revenue and test volume. However, it’s worth noting that Lucid has a negative gross profit margin of -111.1%, suggesting costs exceed revenues at this stage, which is a common scenario for growth-focused companies investing heavily in expansion.

An InvestingPro Tip that may be particularly relevant to investors is that Lucid holds more cash than debt on its balance sheet, providing a cushion for operational flexibility and potential investments. This is a vital sign of financial health, especially for a company that is quickly burning through cash with a quarterly burn rate of $10.6 million. Additionally, the company does not pay dividends, which is typical for companies focused on growth and reinvestment.

For readers who are keen on in-depth analysis and additional perspectives, there are more InvestingPro Tips available at where a total of 9 additional tips can be found to help investors make informed decisions. The fair value estimates from analysts and InvestingPro, at $3 and $0.9 respectively, may also guide investors on the potential valuation discrepancies and opportunities.

In conclusion, while Lucid Diagnostics faces challenges with profitability and high cash burn rates, the significant sales growth and strategic initiatives for market access and coverage bode well for the company’s future. The insights from InvestingPro highlight both the opportunities and risks associated with Lucid, offering a comprehensive view for potential investors.

Full transcript – Lucid Diagnostics Inc (LUCD) Q2 2024:

Operator: Good morning, and welcome to the Lucid Diagnostics Second Quarter 2024 Business Update Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Matt Riley, Lucid Diagnostics Director of Investor Relations. Please go ahead.

Matt Riley: Thank you, operator, and good morning everyone. Thank you for participating in today’s business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer of Lucid Diagnostics, along with Dennis McGrath, Chief Financial Officer of Lucid Diagnostics. The press release announcing our business update and financial results is available on Lucid’s website. Please take a moment to read the disclaimers about forward-looking statements in the press release. The business update, press release, and the conference call all include forwarding statements and these forwarding statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer and in our files to the Securities and Exchange Commission. For a further list and a description of these and other important risks and uncertainties that may affect future operations, see Part I, Item 1A, entitled “Risk Factors,” in Lucid’s most recent Annual Report on Form 10-K filed with the SEC and any subsequent updates filed in the Quarterly Report on Form 10-Q and subsequent Form 8-K. Except as required by law Lucid disclaims any intention or obligation to publicly update or revise any forward-looking statement to reflect change and expectations or in events, conditions, or circumstances on which those expectations may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. I would now like to turn the call over to Dr. Lishan Aklog, Chairman and CEO of Lucid Diagnostics. Take it away, Lishan.

Dr. Lishan Aklog: Thank you, Matt. Good morning, everyone. Thank you for joining our quarterly update call today. As always, I’d like to thank our long-term shareholders for your ongoing support and commitment. Our team remains singularly focused on driving this Lucid Enterprise towards its substantial commercial potential and to enhance on long-term shareholder value. We’re very pleased with the solid progress the team has made over multiple fronts during the past second quarter and in recent weeks. We are now fully armed with a complete body of outstanding clinical data and our poised to make our final push towards broad coverage and reimbursement to drive EsoGuard revenue and revenue growth. Let’s start with some highlights. First on commercial execution, our revenue for the second quarter of 2024 was $1 million, that was a flat relative the prior quarter and up approximately 500% on an annual basis. EsoGuard test volume, as we previously reported, was 3,147 tests, which is a 31% increase on a quarterly basis at 44% annually, and that represents record EsoGuard quarterly test volume. Our CYFT events continued to thrive. We held over 50 high-volume health fair events during the quarter, and that’s a 60% increase relative to the prior quarter. In partnership with the Fort Worth Fire Department we held our first to large CYFT event with upfront contracted payment. We’ve made solid progress in direct contracting, and our direct contract initiative targeting benefit brokers, third-party administrators, and self-insured entities to offer EsoGuard as a covered benefit. We also have made, continued to make progress with our revenue cycle management processes, including prior authorization expansion, physician and professional society advocacy, and our pricing, as Dennis will describe in more detail, is holding with median [ph] out-of-network allowed amounts remaining near the Medicare rate. Some key strategic accomplishments. Again, as I stated earlier, we are now fully armed with the complete body of outstanding clinical data. Much of this has come in recently. We reported on the NVET-BE clinical utility study which showed positive data with a 2.4-fold increased in yield of endoscopy and the BE-1 clinical validation data which is also just recently released showing EsoGuard sensitivity of 88% and negative predictive value of 99%. We’ll discuss both of these studies in greater detail later. The previously released data from the Cleveland VA clinical validation study was published in a peer-reviewed journal, the American Journal of Gastroenterology, and showed similar EsoGuard sensitivity of 88% and negative predictive value of 99%. Last month, we held a productive meeting with the CMS MolDX program focused on EsoGuard clinical data, and we look forward to submitting our data and working with the MolDX team to ultimately secure Medicare coverage. The American Foregut Society, a leading professional society focused on esophageal disease, published a formal statement that strongly advocated for commercial payer coverage of EsoGuard to align with guidelines of biomarker legislation. This was a formal request, it was strongly worded, and we believe it’ll have an impact on seeking coverage from commercial payers. So, for those of you who are new to the Lucid story, just a few slides to provide you some background on our company. Lucid is a commercial stage cancer prevention medical diagnostic company. We’re focused on early pre-cancer detection, and the mission is to prevent esophageal cancer deaths in a well-defined, at-risk population. We have two technologies, EsoGuard esophageal DNA test and EsoCheck cell collection device. The EsoGuard test is the first and only commercially available test that’s capable of serving as a widespread screening tool to prevent esophageal cancer death through the early detection of esophageal pre-cancer. EsoGuard performance is really unprecedented for a molecular diagnostic test. Here we show, compare the EsoGuard performance in various categories, compared to some comparable, compared to some other early detection tests, including Cologuard, the colorectal stool test, and the Guardant Shield, colorectal blood test, which was recently approved. And I say it’s unprecedented, really, around its ability to detect pre-cancer and early pre-cancer. So you can see, this is pooled data from multiple recent clinical validation studies that show 100% sensitivity for cancer, which is kind of, compares very favorably to these other tests. Pre-cancer sensitivity, however, is 83%, substantially greater than the other tests, and really any other test in this category. And then most notably, early pre-cancer sensitivity remains high at 86% while other tests have no ability to detect early pre-cancer. EsoGuard even has a high sensitivity of 91% in the very shorter segments of disease. 99% negative predictive values, so very low, false negative rate, and a positive predictive value of approximately 30%, which is comparable to other such tests. The commercial opportunity here is very large. There’s a very well-defined population of 30 million, approximately 30 million people in the United States who are at risk with chronic heartburn and are already recommended for pre-cancer testing. Medicare has established a rate of $1,938, and our out-of-network payments with commercial payers have held up, pricing has held up in that range. So, very large addressable market, a lot of opportunity for us to generate revenue, substantial revenue, even with low levels of penetration. Our gross margin for the next test in the door as our current volumes is approximately 90%, which we believe will give us an opportunity to drive our business moving forward. We have a multi-pronged commercial strategy with multiple venues and multiple locations where patients can get access to our test. We have physical test centers now located in 23 cities. Our dominant approach right now is what we call our satellite Lucid test center model, where our team partners with typically primary care physicians and performs cell collection at the physician’s office. We also have physician practices who are building programs around — typically specialists, who are building programs around the EsoGuard test where they perform the test itself. We have a mobile test unit in Florida, which provides us with a good opportunity for visibility and marketing. As I hinted at earlier, we have these large Check Your Food Tube health fair type events. We’ve initially focused on firefighters, but we’re expanding to other targets. We’re starting to get some increased traction with larger health systems. These are longer lead times, but really are high value once we have programs in place, and we’re looking forward to expanding our efforts in that area. So, as previously noted, we had record quarterly test volume this past quarter at just over 3,100 tests. Revenue has been flat compared to the last quarter, and this commercial activity has been with a flat head count for sellers over the past couple of quarters, and really a 30% decrease in the head count compared to our peak in approximately the fourth quarter of 2022. So really this represents an increase in the productivity of our sales force. On the commercial execution side, let me first talk about high volume Check Your Food Tube pre-cancer detection events, as I mentioned earlier. We had over 50 such events during this past quarter. That represents a 60% increase relative to the first quarter of 2024. We’re happy to note an important milestone where we tested our 4,000th firefighter recently, and we continue to have a very robust pipeline of events scheduled full through October. Direct contracting remains an important part of our near-term strategy, which we believe will meaningfully contribute to long-term revenue growth. We’re deploying additional resources to this initiative, and we held, as I mentioned, our first large CYFT event where we received up-front contracted payment with the Fort Worth Fire Department. This is a really important milestone. We’ll increasingly seek to have guaranteed revenue from the CYFT events outside of the usual insurance claims process whenever possible. We are making solid progress targeting benefit brokers, third-party administrators, and other self-insured entities in our effort to offer EsoGuard as a covered benefit to, in the near term, drive contractually guaranteed revenues. We continue to make solid progress with our revenue cycle management processes related to out-of-network payments. This remains a critical aspect of converting our test volume growth into revenue. The median allowed payment amount remains stable near to the Medicare rate. We’re making good progress on streamlining the processes for prior authorizations to eliminate denials. Our appeals process is getting more sophisticated and targeted, and we are seeing higher percentages of claims that are being turned over on appeals, and we have better processes for those appeals, particularly in those patients where the appeal is related to the designation of being medically not necessary. Dennis will discuss some of these numbers in more detail later. We held a highly anticipated and productive meeting with the MolDX leadership group. It was an in-person meeting last month, and it was very productive. We really look forward to – the focus was on our data, and we look forward to submitting our data formally and working with the MolDX team to ultimately secure Medicare coverage. We also continued to pursue an active market access strategy with commercial payers that’s focused on securing medical policy coverage with regional plans and trying to leverage biomarker legislation, which now exists in multiple states, and trying to secure pilots with national plans. As I stated from the onset, we are really now fully armed with what is now a complete body of outstanding clinical data, and this positions ourselves really well for this final push towards broad coverage and determination. This table shows the data. Here it is, I won’t go through each of these, but just to highlight a few, I’ll talk briefly about the most recently released data for the EsoGuard BE-1 and the ENVET-BE studies. As you can see, those are working their way through peer review. We’ve had some recent publications and now have multiple published studies, basically four clinical validity studies. Those are the top four, and four clinical utility studies that demonstrate the clinical utility of ENVET-BE. So, the EsoGuard BE-1 study, which the data was recently released on preprint and its awaiting peer review publication, was a study that included 93 patients in a screening population. So these were not preselected patients who had known disease. Pre-cancer sensitivity was 88%. There were no, not unexpectedly, there were no cancers detected in this population, and very similar results with negative predictive values in the 99% range and a positive predictive value of 30%. This is a multi-center study led by Dr. Nick Shaheen of UNC. The ENVET-BE study, which was recently released on preprint and we announced that last week in a press release, is awaiting peer review. This study provided real-world data to confirm the utility of EsoGuard as a non-invasive triage tool to significantly increase the positive yield of invasive upper endoscopy, I was noted. In BioWorld, it demonstrates that our EsoGuard test more than doubles pre-cancer detections. It reported on 199 patients where EsoGuard was used as a triage tool to invasive endoscopy, so positive patients got endoscopy, negative patients did not. And the yield of endoscopy was increased by 2.4 fold relative to what it would have been if endoscopy was performed without triage using EsoGuard. So really excellent clinical utility data to supplement our overall clinical evidence. Let me pass the baton on now to Dennis, who will cover our financials.

Dennis McGrath: Thanks, Lishan. Good morning, everyone. The summary financial results for the second quarter were reported in our press release and was published earlier today. On the next three slides, I’ll emphasize a few key financial highlights from the quarter, but I encourage you to consider those remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q. With regard to the balance sheet, cash at quarter end June 30th was $24.9 million. During the quarter, we closed the Series B-1 Convertible Preferred financing in the amount of $11.6 million. The average quarterly burn rate for the trailing four quarters is $10.6 million. The burn in the second quarter included $7.4 million from ongoing operations, which is in line with the previous quarter, $2.5 from the quarterly MSA, or Management Services Agreement, and $1.6 million reduction to the intercompany debt to PAVmed (NASDAQ:). We disclosed in the 10-Q that our ability to fund operations beyond one year from today is largely dependent upon how revenues ramp over the next four quarters, which is dependent upon how the reimbursement landscape for both government and private health insurers continues to improve. Additionally, our direct contracting efforts with self-insured employers and/or corporate finance activities, including refinancing any outstanding debt at the time, can also work to exceed that threshold. The increases in other assets of approximately $2 million reflects the GAAP accounting for the three-year lease renewal of our California Lab. That also is reflected in the long-term liabilities with the corresponding $2 million increase. Included in other current liabilities is the $11.2 million fair value of the Senior Convertible Debt, which reflects a sequential quarterly decrease of $1.9 million. During the quarter, the company issued approximately 2.1 million shares in satisfaction of conversion notices from the debt holder. Shares outstanding, including unvested restricted stock awards as of last week, are approximately 54 million shares, which includes approximately 750,000 shares issued subsequent to quarter end in connection with conversion notices from the convertible debt holder. The GAAP outstanding shares as of June 30th of $49.3 million are reflected on the slide as well as on the face of the balance sheet in the 10-Q. GAAP shares do not reflect unvested restricted stock award amounts. At present, PAVmed continues to be the single largest shareholder of Lucid Diagnostics, with ownership of just under 60% of the common shares outstanding. Furthermore, PAVmed maintains the controlling financial and controlling voting interest in the company at greater than 50%. As you’re aware, Lucid’s recent financings included the issuance of a series of voting convertible preferred securities, whereby the preferred shareholders are significantly incentivized to delay conversion of the preferred shares into common shares until 2026, namely the second anniversary from closing. If all of the preferred shares outstanding were converted to common shares as of today, there would be an additional 51.6 million shares outstanding. With regard to the P&L, this slide compares this year’s second quarter to last year’s second quarter on certain key items. I trust you will review the information in my comments in light of the cautionary disclosure at the bottom of the slide about supplemental information, particularly non-GAAP information. Revenue of approximately $1 million for the second quarter is about even with the previous two quarters and reflects more than a six-fold increase over the prior year’s second quarter. The amount reflects actual cash collections for the quarter plus a small amount of invoiced e-cigar tests delivered to the VA. Test volume of 3,174 tests for the quarter represents almost $8 million in submitted claims at our $2,499 ASP. It’s worth repeating what we’ve communicated in past quarters about revenue recognition. A key determinant in how revenue is recognized at this point in our reimbursement journey is the probability of collection. Therefore, due to the fact that we are in the early stages of the reimbursement process, means revenue recognition for claims submitted to traditional government or private health insurers will be recognized when the claim is actually collected versus when the patient report is delivered, invoiced, and submitted for reimbursement. As you will see in our 10-Q, this is called variable consideration of the jargon of GAAP’s ASC 606 revenue recognition guidelines, and presently there is insufficient predictive data to reflect revenue when the test report is delivered to the referring physician. For billable amounts contracted directly with employers and that are fixed and determinable, will be recognized as revenue when our contracted service is delivered. Generally that means when the report is delivered to the referring physician. Our non-GAAP loss for the second quarter of $9.7 million is in line with each of the trailing six quarters with an average of $9.6 million. The non-GAAP net loss per share has been relatively flat for each of the last six quarters at plus or minus $0.001 between each of the six quarters with an average of $0.22 per share. On a GAAP EPS basis, non-cash charges accounted for approximately $0.19 per share. With regard to our operating expenses, this slide is a graphic illustration of our operating expenses after eliminating non-cash expenses for the periods reflected. Total non-GAAP OpEx is $10.6 million for the second quarter and is in line with the trailing six quarters, with an average of $10.3 million. Cost of revenue primarily consists of EsoCheck devices, lab supplies, and fixed lab facility costs and is in line with the last several quarters. Non-GAAP G&A expense is sequentially up slightly by about $400,000, which is mostly reflective of some hiring in our market access reimbursement department, and some patent expenses. Let me close with a few reimbursement highlights for the first half of this year. In the second quarter, we billed, as I mentioned, 3,174 tests, reflecting just under $8 million in pro forma revenue. During the second quarter we collected $976,000. Of that amount we collected, about 35% of the $976,000 claims paid were from those submitted in the current quarter, about 45% from claims submitted in the first quarter, and the balance from claims submitted last year, with the longest dated item nearly 12 months ago. Our Revenue Cycle Manager is reporting that the turnaround times have been increasing for the largest payers, and we’ve seen an increase in claims being designated medically not necessary. The RCM has a mitigation plan for both issues, including increasing the speed to follow-up with the late payers and proactively soliciting medical records to use in appeals at an earlier stage in the process. We submitted reimbursement claims for nearly 5,600 claims during the first half of the year, representing just under $14 million in pro forma revenue. About 77% have been adjudicated, 23% are pending. Out of the 77% that have been adjudicated, about 25% resulted in an allowable amount by the insurance company with a weighted average during that period of time of about $1,540 per test, one thousand five hundred forty dollars per test. Of those denied, about 43% are deemed not medically necessary or require prior authorization Additionally about 26% were deemed to be non-covered. With that operator, let’s open it up for questions.

Operator: Thank you, sir. [Operator Instructions] Our first question comes from the line of Mike Matson (NYSE:) from Needham. Go ahead, please.

Dr. Lishan Aklog: Morning, Mike.

Unidentified Analyst: Hi Dennis, hi Lishan. This is Joseph on for Mike today.

Dr. Lishan Aklog: Hi, Joe.

Unidentified Analyst: Hey, how are you doing?

Dr. Lishan Aklog: Great.

Unidentified Analyst: Just in terms of, I guess, the MolDX meeting, did you have the recent data, especially the clinical utility data to be presented in that pre-submission meeting? And then I guess when would be the next one where you would have, I guess, another batch of data to show them? And is there a timeline in terms of final dossier submission in 2024, or do you think that may be pushed out to 2025?

Dr. Lishan Aklog: Okay, a couple of questions there. So, the data that we reviewed during the pre-submission meeting included the three clinical utility studies, and the three clinical utility studies. We did not review the – spend much time on the original paper from the STM. One of those was not, was in preprint and has not yet been published in terms of the CV data. We did not have the data, the fourth CU data, the ENVET-BE study prepared at the time, but we did discuss that we were – what we expect – the additional data we expected in the pipeline. We do not expect to have another formal pre-submission meeting. This meeting was really our first formal reintroduction since the early days when we first submitted well prior to the LCD. And our next step is to collect the data, put it together in a dossier as you mentioned, and submit it for consideration. One of the gating items for that is the publication of the ESOGUARD BE-1 data, which is preprint now and has been submitted to a journal and is currently under peer review. So that will be the gating item for us to put a final package together and to submit it. So, really, in terms of a timeline as to when that will happen and when – what the subsequent steps are, it’s a little bit hard to say right now, but certainly would expect that the B1 data will get published soon enough for us to be able to do so this year.

Unidentified Analyst: Okay. Yeah, all that color is very helpful. And then I guess just looking at payment rate for in the quarter, obviously EsoGuard volume was up a fair amount sequentially. I think it was 30% which is great. The payment rate was down. Obviously I understand some of the details that Dennis gave in terms of the increases and what was being medically not necessary. But just comparing that or you know framing that up with the large CYFT event where you guys did have a contracted payment. I’m just kind of wondering how those two forces came in contact with each other. Well, maybe what was that contracted payment rate, if you could talk about that. But the way I assume it is that you had 100% payment rate for everybody in that event. Also, was that recognized in this quarter then?

Dennis McGrath: [Multiple Speakers] Yes, go ahead.

A – Dr. Lishan Aklog: Yes. So the contracted amount was paid in advance, and we deferred that revenue, and we needed to defer that revenue because the event actually occurred in the third quarter, and therefore will be recognized in the third quarter.

Unidentified Analyst: Okay. That’s very helpful then. And then I’ll just maybe just ask one more. You know, with the current cash burn that you guys are laying out, as well as the recent financing, what does maybe your cash runway look like right now?

Dennis McGrath: Yeah, $25 million in cash burn, just around $10 million. You’ve got a little more than six month worth of cash.

Unidentified Analyst: Okay, okay, beautiful. Well, thank you guys very much and congrats on the record quarterly e-cigar volume.

Dr. Lishan Aklog: Okay, thanks Joseph.

A – Dennis McGrath: Thanks Joseph.

Operator: Our next question comes from the line of Kyle Mikson from Canaccord. Go ahead, please.

Dr. Lishan Aklog: Kyle, good morning.

Kyle Mikson: Hey, guys. Thanks for the questions. Congrats on the progress. Just given all of the clinical evidence you are building now, it’s very encouraging, and it seems like it’s going to be very useful for reimbursement and stuff. I mean how are you thinking about like partnering with a large distribution, I guess like partner. Like whether it could be like a larger you know healthcare company diagnosis company with a large network or health system or some sort of like conglomerates, like vendor I guess as well. I mean just at this point, I feel like it’s like a pretty legitimate story, and like just, how are you thinking about that sort of a partnership model?

Dr. Lishan Aklog: Yeah, that’s – I think we’ve talked about this on and off over the previous quarters. I don’t think we’re quite there yet, Kyle. I think we’ll need to get to a higher percentage of realized reimbursement. But certainly with the data we have, the progress we’ve made, that’s certainly a consideration, but I don’t expect that that’s going to be a true near-term event, because obviously those kinds of contractual arrangements require that you have precision payment to justify the expense on both sides. Dennis, did you want to add anything to that?

Q – Kyle Mikson: All right, great. And then, yeah look Lishan, what’s been the reaction in the medical community or among the payers to all the most recent studies I guess, and just like to building portfolio of data? You know, does that actually result in like an increase in adoption, or is volume going to be kind of stable until coverage from Medicare accelerates here?

Dr. Lishan Aklog: Yeah. I think – thanks Kyle. I think the way I would characterize it is that we have – our adoption is already quite good. Our volumes are really driven by the number of folks we have in the field. As I mentioned, we actually have fewer reps in the field with greater productivity. But look, the data is being well-received, especially the clinical validation data, which is something that the physicians focus on. The clinical utility is generally more something that the payers focus on more. But the clinical validity data with these kinds of sensitivities, really high negative predictive values, solid PPVs, we do numerous peer-to-peer events. There was one associated, a large one associated with the Fort Worth Fire Department event that I was able to attend, and as you said, it helps – it’s really critical to have data. So even though people generally have been quite enthusiastic about the prospect of having a non-endoscopic biomarker test as an alternative to endoscopy with good early data, as we’ve locked down the clinical quality data in particular, that’s just strengthened the enthusiasm within the physician community.

Q – Kyle Mikson: Alright, that was great. Thanks for that. And then Dennis, you mentioned that 43% of the – like you know, I think it was like over 5,000 claims submitted in the first half of the year were deemed not medically necessary. Maybe will you show, Dennis, could you just like dive more into that and what that means? Like, why is that a reaction or why are you seeing that reaction among these groups, so that’s interesting.

Dennis McGrath: Yeah medically, so the 43% included the combination of two things. Medically not necessary was about 25% and 18% were prior, not required a prior authorization. The medical not necessary designation tends to be the jargon when it may not be covered, may need additional information. And obviously that’s puzzling, because all of these patients meet the guidelines, the criteria that have been well established for a long period of time. And that gives us the ability to appeal that claim, demonstrating that it was medically necessary based upon the patient’s criteria. So each of those denials on that basis becomes a tool for us on the appeals process, and we’re making progress on the appeal side. We’re seeing an increase of those overturned in the appeal process. One other comment that might be important in the overall scheme of things is that the total backlog of tests and submitted claims that we are still working through all of this process, is about $12.5 million. So this becomes an opportunity for us. It becomes an opportunity for our market access team to engage with the payers, to submit additional information to demonstrate it was medically necessary, and may be overturned in the appeals.

A – Dr. Lishan Aklog: Maybe I could just add one, emphasize one thing Dennis said Kyle, which is that, this is actually – these are obviously out-of-network claims, so you expect to get denials on some reasonable number of them. When we see medically unnecessary, we actually embrace that, because that gives us an opportunity to make the case, not just for that individual claim, but more generally with the higher-up medical director, other person that’s reviewing that. And one of the things that Dennis mentioned, but I just want to emphasize, is that we have – we’re armed with substantially more firepower entering into those, and we’ve had increases in our appeals. So now we have not just the data, not just the guidelines, but as we mentioned, we now have physician advocacy letters within the local communities, as well as the society letter. So the AFS letter, which is worth reading if you haven’t, is quite powerful. It basically calls the insurance companies out and says, you need to pay for this test. It’s important for our clinical management of these patients. And on the prior auth portion, as we’ve hinted at without going into too much detail, because it can get a little bit wonky, we’re really beefing up our prior authorization processes, so that for payers and in locations where that’s a common, we can actually get prior authorization submitted prior to the test actually being performed to facilitate that. So those are both areas that we actually have something actionable that we can – that we believe is already leading to an increase in the success of our appeals and will hopefully continue to do so.

Kyle Mikson: And with prior auth, the – 37% of the claims that were, I guess, billed in the second quarter, I guess were in fact in the current quarter. Is that 35% like a pretty normal rate or do you want to see that increase going forward? In other words, do you want to see more like the book-to-bill ratio, I guess, kind of like be more even over time? And just help us think about how that metric could change as you get coverage and so forth.

Dr. Lishan Aklog: Yeah, the expectation would be, as we move to medical policy and more of the engagement with the insurers, that should be a 30 to 45-day turnaround time from submission of claim to payment. So obviously it’s stretched out while we’re in this early part of the reimbursement journey, particularly since we’re dealing with out-of-network and may require additional submitted data to get them paid. So it is being stretched out at this point in time, and it is also being reported by the Revenue Cycle Manager that during this out-of-network, the payments are getting stretched. With medical policy, it becomes much more streamlined. It’s not without headaches, but the expectation is that we should collect more of what’s billed in a quarter and ultimately recognize revenue once the report is delivered, and that would then be in the current quarter.

Kyle Mikson: Yeah okay. Thanks guys.

Dr. Lishan Aklog: Thanks Kyle.

Operator: Our next question comes from the line of Ross Osborn from Cantor Fitzgerald. Go ahead, please.

Dr. Lishan Aklog: Hey Ross.

Ross Osborn: Hey guys. Thanks for taking our questions. Starting off, I was just hoping if you guys could provide some more color on your direct contracting engagement, just in terms of what’s planned for the balance of this year.

Dr. Lishan Aklog: Yeah, so I can tell you a bit about the activity and with some of the expectations with regard to how that will translate. So we now have three full-time employees who are working on this. They are working on it on a couple of fronts. One is just directly engaging with employers, literally calling employers and looking to have our test offered as a covered benefit within their plan. We’ve also had a lot of great success with engaging with brokers. They are a really key part of this infrastructure. They work with third-party administrators and with companies. And we’re starting to get some traction with brokers who are now out there on our behalf pitching EsoGuard as a covered benefit within packages, and actually the mechanics of doing so. So doing so by just adding riders to benefit plans to add EsoGuard as a rider. And so we’re still in the early stages of this, but there’s a lot of activity, a lot of – we have again, we have three full-time employees who are working diligently on this, and we are starting to see some traction. I think what you should expect over the coming quarters is some of our traditional CYFT events, such as the firefighter events, to result in pre-negotiated contracted payments. Both those should happen more quickly. Getting on these plans and sort of altering their benefit programs has a longer lead time, but we think we have enough folks on it right now, a lot of activity that should start generating some activity there. And again, when we do so, those will translate into contractually guaranteed revenue.

Ross Osborn: Okay, great. And then I realize you mentioned that your sales force is demonstrating productivity gains, but as we’re entering into 2025, do you plan on selectively adding to the sales force or do you still think you’re at sufficient headcount?

A – Dr. Lishan Aklog: We’re playing it really quarter-by-quarter at this point. We have a really good sales training process. We know how to train folks and add them, but we’re paying a lot of attention to maintaining our OpEx flat. We’re obviously encouraged by the increased productivity. That could very well continue, particularly since the CYFT events tend to be more efficient. They don’t require as much sort of foot time of reps going from office to office. But our threshold, there is a threshold, but it’s a threshold for us starting to steadily increase our sales team, very similar to what Kyle was asking. The threshold for considering entering into partnerships would be sort of a meaningful increase in the percentage of our test that we’re generating revenue on. So for the foreseeable future, we’ll assume it’s flat, but obviously, we look forward to there being an inflection point in the realization of revenue, which would allow us to justify increase in the sales team.

Ross Osborn: Got it. Thanks for taking our questions.

Dr. Lishan Aklog: Thanks, Ross.

Operator: Our next question comes from the line of Anthony Vendetti from Maxim Group. Go ahead, please.

Dr. Lishan Aklog: Good morning, Anthony.

Anthony Vendetti: Thanks. Good morning, Dennis. Good morning, Lishan. Just following up on the – Hi. Just following up on the medically – tests that are deemed not medically necessary. I know you’ve talked about it, but I think it’s really important to try to understand exactly the trajectory. So when its out-of-network claims, and I know you look at it as an opportunity, because you can have these discussions and you have three employees focused on this, and I know this is complicated with third-party administrators, brokers, and so forth. Generally these plans come up for renewal once a year, but in the meantime, it sounds like you are making progress with getting amendments to the plans, which is great. With all the data you have, and you put out a lot of data, which is also awesome in terms of supporting the fact that these tests are necessary. It prevents Barrett’s Esophagus and esophageal cancer down the road. Do you believe, because I know it’s a long process, but do you believe this 25%, 26% that are still being deemed medically necessary, is that sort of where it’s going to stay for a little while, or are you expecting it to improve quarterly or sequentially just a little bit, and then maybe over the next year see significant improvement in that. I’m just curious, as you see it unfold, what’s the trajectory?

Dr. Lishan Aklog: Yeah, great. Thanks Anthony. Let me touch on that, and see if we can provide some additional color, and I’m sure Dennis will have some additional thoughts. So I just want to make sure that we’re clear that the out-of-network process where we’re submitting claims and seeking to get paid on claims is different than the direct contracting initiative. I think you were suggesting that, but I didn’t want – acknowledging that, but I didn’t want folks to get confused. So when we are working on the direct contracting side where we’re getting EsoGuard added as a covered benefit, that does not need to go through the traditional claims process that we’re talking about here. So those are two separate initiatives. But to your direct question about the medically unnecessary, until we have more – until we have medical policy coverage, it’s reasonable to expect that the percentage that get denied immediately of out-of-network claims that get denied initially, sorry to say, initially based on medically unnecessary, may go down, but not necessarily dramatically. We do think we’ll have some ability to drive that down as another. There are a variety of initiatives. We can’t cover them all here, but another RCM initiative we have is really having, making sure that claims are submitted with full medical histories and literally with the medical notes. And we have – the team’s done a great job of coming up with streamlined processes to do so, so that the claim gets submitted with the actual medical history, with the risk factors that demonstrate that are consistent with the guidelines. That doesn’t mean that all of those will get winnowed down, but that should winnow it down somewhat. But still, if medical policy is not available, then there is generally sort of an administrative knee-jerk thing to say, well, this is medically unnecessary, because we don’t have a policy, and then we have the opportunity to engage on appeal and to leverage the physician advocacy letters as well as the society advocacy letters to get those appeals turned around. That might be different on the prior authorization side, so that our efforts to get more patients to have prior authorization should drive that portion of that 43%, whatever, what that number was. Dennis, did you have anything you’d like to add to that?

Dennis McGrath: No, I think you hit it on the head. It’s reasonable to assume that medically not necessary will go down as policy changes, improvements in policy change. Prior to that, even though now we are addressing that by giving more of the clinical data up front with a submitted claim, you could even in the non out-of-network environment see more of the just non-covered go up. What will change is medical policy changes will change all of those categories, and that’s what we’re driving with clinical data to move that needle.

Anthony Vendetti: Okay. No, that’s helpful. And in terms of – and I know it’s probably hard to make sure this happens most of the time or definitely probably impossible to make it happen all the time, but how do you make sure that when the claims are submitted, is that part of the revenue cycle management? Sort of, it’s under their purview to make sure that the claims get submitted with all the medical history and so forth to prove that, hey, this person meets that criteria, or is it – yeah okay.

Dr. Lishan Aklog: That’s a – I’m going to jump in. I think that’s a joint effort by both teams. By our team, that includes everybody on our team, the field team. That includes the sales team communicating with the physician practice, the clinical team that’s there at the time of the cell collection, the laboratory team who’s processing the samples as they come in, and Quadax or Revenue Cycle Management. So there are a bunch of procedures, standard operating procedures that we continue to hone and improve on, to make sure to understand what – with their expertise, with Quadax’s expertise, what we think will improve. Like, for example, the specific effort to drive the prior authorization processes and advance the efforts to get the physician notes in with that. So it’s a joint effort on strategy, but the execution requires execution with multiple folks within our team in coordination with Quadax, the RCM manager.

Anthony Vendetti: Okay. No, that’s helpful. I know it’s a process, but the good news is obviously the tests are going up.

Dr. Lishan Aklog: Yeah. [Multiple Speaker] Maybe it’s the way you said it, Anthony. It’s not like we outsource it to them and say, call us if it works. I mean, it’s a back and forth, and we keep honing our operations in the field and the lab to feed the data to maximize their ability to be successful on their site.

Anthony Vendetti: Excellent. Okay. Thanks so much. I’ll hop back in the queue. I appreciate it.

Dr. Lishan Aklog: Great. Thanks Anthony.

Operator: Our next question comes from the line of Mark Massaro from BTIG. Go ahead, please.

Mark Massaro: Hey, guys. Thanks for taking the questions. So congrats on the strong volume quarter, record and up sequentially by 31%. You did host over 50 events in Q2. That is up from, I think, 32 in Q1. So I’m just curious what you think your event number might look like in Q3, because I’m just trying to determine if it’s reasonable, if you think volumes can grow sequentially or are you going up against a tough comp?

Dr. Lishan Aklog: Yeah, I think it’s hard to say, Mark. I mean, we’re certainly not pushing a story that we’re sort of – we’re going to see some dramatic quarter-on-quarter growth every quarter moving forward. I think our stance from the other – from a couple of quarters ago, I guess was last quarter to say that our expectations are generally given the sales, given the lean sales team, even with higher productivities to see modest quarter-on-quarter growth. We’re obviously happy that that increased. That, as you sort of hinted, could change depending on how our CYFT volume goes. And so there is certainly the possibility of having another quarter up, up similar to what it was this quarter. But we really would prefer to kind of assume that that may be noisy and choppy with some overall growth and given that both, the CYFT event and the more traditional volume is still driven by a relatively lean sales team.

Mark Massaro: Yeah, that makes sense. And so it’s nice to see you test over 4,000 firefighters. You’ve made strong inroads in that group of folks. I think you talked about expanding to other targets, other types of end markets. I guess, are you willing to share some of those? And I would assume these folks are higher risk.

Dr. Lishan Aklog: Yeah, sorry to interrupt, Mark. I thought you were done. Yeah sure, you know it’s interesting, because what ends up – the way we see this progressing is sort of the lines are going to start getting a bit blurred between what we’re talking about, what we’ve been experiencing over the last year and a half with these firefighter focused, Check Your Food Tube events and expanding into other similar groups, for example, police departments or other municipal groups, teachers, and so forth. But that starts to blend into unions, and that starts blending into employers, and that actually starts blending into our direct contracting initiatives as well. So there is close collaboration actually between our sales team, our field sales team, which is driving most of the current Check Your Food Tube event volume with firefighters and our employer markets and our contracting team who are looking to call on more employers, and then kind of the unions fall sort of in between. But yeah, it starts – the expansion starts with other groups that are similar to firefighters. I mentioned police and other municipal groups. But then we’ll start to blur into just unions in general, but also employers.

Mark Massaro: Okay, great. So I believe there’s been at least 15 states that have moved to pass biomarker bill legislation. You guys did talk about it. But I’d be curious to know if you are having any conversations with commercial payers, specifically about the biomarker bills, and if you could maybe just share any type of intelligence with respect to when – I think a lot of other labs talked about 2025, when we can start to see this start to move. But just curious if you’ve had conversations with any regional plans, like perhaps Blue’s plans about whether or not your test is eligible to qualify under the biomarker bill language or how we should think about this as we exit the year.

Dr. Lishan Aklog: So, yeah, the answer is, yes. We do have – we have conversations with multiple plans in multiple states, and our market access team is very cognizant of this legislation. And as you sort of hinted that, regional blues are actually a key target in that area. We are having those conversations, and there’s a bureaucratic element to it that requires more work than it probably should, because we definitely qualify under it, because most of these biomarker tests state that mandate coverage. I mean, they obviously have their – every one of them has their own language, but just as a general theme, that mandate coverage based on FDA approval or recommendation and guidelines, right? So, we really feel absolutely that we qualify under the latter. But there is a bureaucratic process as you might assume, that the payers are not necessarily sprinting to this process, but we think it’s inevitable. So I think we’ve had conversations, we’ve had some progress in a couple of states. We’re working – our team is working diligently there. And I think the general sense you are getting, that that traction will start picking up and we’ll start seeing coverage pathways that take advantage of this legislation later towards the end of this year or early next year is probably a reasonable assessment.

Mark Massaro: Okay, great. That’s it for me. Thank you.

Dr. Lishan Aklog: Thanks Mark.

Dennis McGrath: Thanks Mark.

Operator: Our next question comes from the line of Ed Woo from Ascendiant Capital. Go ahead, please.

Ed Woo: Yeah, congratulations on the progress and on the quarter. As you guys possibly move to having more of these Check Your Food Tube events with upfront contracted payments, has there been any pressure to negotiate down the testing prices?

Dr. Lishan Aklog: You know, the way these events are structured, it’s sort of a potpourri of what works for both sides. And so there are a variety of pricing models that we explore with these folks that some of them are risk sharing in some regard, so they vary a lot. I wouldn’t say there’s pressure on pricing so much as there is what you might expect there to be in terms of sort of working out the details of a contractual arrangement. You know, how many, over what time, is it a maximum number, just a variety, is it a per day, per diem structure? There’s sort of a menu that we present and look at a contractual arrangement accordingly. Dennis, did you want to add anything to that?

Dennis McGrath: Yeah, no, it does depend upon the event. So we could engage in a fixed amount for that particular day and have all comers up to a certain level. And it’s unpredictable based upon firefighter schedules, whether or not that’s going to be 50 or 200. And we look at it for that particular event, what’s profitable for us, for our team being there in that particular day, and it always calculates out to be a very profitable day for us. There’s not much more to add, other than what Lishan indicated. We have a lot of flexibility in that regard to fit the particular need and circumstances of that department at that particular time of the event.

Ed Woo: Great. Well, thanks for the explanation. I wish you guys’ good luck. Thank you.

Dr. Lishan Aklog: Thanks, Ed.

Dennis McGrath: Very good, Ed. Thank you.

Operator: Thank you. There are no further questions at this time. I’d now like to turn the call back over to Mr. Lishan Aklog for final closing comments.

Dr. Lishan Aklog: Well, that’s great. Thank you all for your time and for your questions. I really appreciate that. I do want to mention that we have a fireside chat tomorrow at the 44th Annual Canaccord Genuity Growth Conference, so we’re looking forward to that. And as always, we look forward to keeping you abreast of our progress via news releases and periodic calls such as this one. And the best way to do so and to keep up with our news updates and events is to sign up for our email alerts on the Lucid Investor Relations website, and to follow us on Twitter, LinkedIn, and on our website. So thank you, everybody. I really appreciate it, and have a great day!

Operator: Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day!

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