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Operator: Good morning. Welcome to the NeoGenomics Fourth Quarter and Full Year 2020 Earnings Conference Call. As a reminder, this call is being webcast live and recorded, and there will be references to a slide presentation in conjunction with remarks. Because there is a short delay between the live telephone audio and the presentation being shown on the webcast, for the best experience, please either use the webcast for both the audio and video content or if you’re dialed in by phone, please download the slides on the Investor Relations site at www.ir.neogenomics.com, and advance the slides yourselves. I will now turn the call over to Chris Smith at NeoGenomics.

Chris Smith: Thanks, Paul, and good morning, everyone. I’d like to welcome you to the NeoGenomics’ fourth quarter 2022 conference call. Joining me for this call are Jeff Sherman, our Chief Financial Officer; Vishal Sikri, President of our newly-created Advanced Diagnostics Division; Warren Stone, President of our Clinical Service Division; and Melody Harris, President of Enterprise Operations. Before we begin our prepared remarks, Jeff will discuss the forward-looking statement and non-GAAP measures used for this call. Jeff?

Jeff Sherman: This conference call includes forward-looking statements about our 2023 initiatives, 2023 financial outlook, growth opportunities and anticipated operating results and performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these risk factors appears under the heading Forward Looking Statements in the press release we issued this morning and in the Risk Factors section in our annual report on Form 10-K for the year ended December 31, 2022 that will be filed with the Securities and Exchange Commission. The forward-looking statements made during this call speak only as of the original date of the call and we undertake no obligation to update or revise any of these statements.

In addition, during this conference call, in order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. The non-GAAP financial measures presented should not be considered to be an alternative to the financial measures required by GAAP, should not be considered measures of liquidity, and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table available in the press release we issued this morning. Please be advised that we are going to limit the number of questions to one per person in order to give more people a chance to ask questions within the one hour that has been allotted for this call.

Chris Smith: Thanks, Jeff. On today’s call, I will begin by discussing our fourth quarter and full year financial operating results. And then, Jeff will review the fourth quarter in detail and provide 2023 guidance before turning the call back to me to share our goals and key areas of focus for 2023. We’ll then open up the line for Q&A as we conclude the call. If you look at our mission, it’s the way we love to start all our presentations, whether it’s with an investor, our teammates or even our customers, because it’s what drives and motivates our organization on a daily basis. And before I dive in the call, I just want to thank all our global teammates for all they do every single day to transform so many patients’ lives. Turning to Slide 5.

We finished 2022 on a high note as some of our strategic operating initiatives began to show results. Revenue was $139 million, a 10% increase over fourth quarter of last year and up 8% sequentially, also the fourth quarter in a row of sequential growth. This revenue increase was driven by both our Clinical Services business and significant recovery in the Pharma Service business. In the quarter, we saw an improvement in revenue per test from the prior year for the seventh consecutive quarter. Adjusted gross profit was $62 million, representing an adjusted gross margin of 44.5%, which was a significant improvement from both Q4 last year and sequentially. Adjusted EBITDA loss was $1 million. These significant improvements were driven by both higher gross profit and lower operating expenses and highlights the operating leverage in this business.

We finished building out our executive team in the quarter as Jeff Sherman joined us as CFO; Warren Stone joined as President of our Clinical Services Division; and Melody Harris joined us as President of Enterprise Operations. Finally, we initiated an organizational restructuring process, including integrating the Inivata business. We believe that this reorganization will result in approximately $25 million of annualized operating savings, while helping us to accelerate revenue growth. I would note that not all these savings will flow through the income statement as we continue to invest in strategic initiatives to drive long-term sustainable growth. This includes investing in the right strategic priorities, including the expansion and optimization of our commercial sales force, investing in RaDaR, investing in revenue cycle management, as well as strategic R&D efforts.

In addition, we are investing in automation to help drive efficiencies in the business as well as improving our turnaround times for our patients and our customers. Turning to Slide 6. For the full year 2022 results, revenue was up 5% versus prior year to $510 million, driven by an increase in both Clinical and Pharma revenue. Adjusted gross profit was $207 million, representing an adjusted gross margin of 41%. Adjusted EBITDA loss was $48 million. During the year, we served over 625,000 patients and had over 1 million test order, which is a testament to the mission of the company. Now on Slide 7. I’m pleased that the fourth quarter continued the trend we have shown throughout 2022 of consistent sequential improvements in revenue, adjusted gross profit, adjusted gross profit margin and adjusted EBITDA.

Notably, our revenue growth has accelerated each quarter throughout the year. While we are pleased with the improvements shown throughout the year as some of our operating initiatives have taken hold, we believe that we have the ability to continue to drive improvement in the business in 2023 and beyond. Turning to Slide 8 and highlighting the Clinical Service results. Revenue increased 4% over the fourth quarter of 2022. Revenue per test was up 1.6% and volume increased 2.3%, even as we saw a continued mix and shift towards the higher value and larger panel tests. We are pleased that some of the investments in the field resources that we made earlier in the year are beginning to pay off. Turning to Slide 9. Pharma Service showed strong recovery in the second half of 2022.

Both Q3 and Q4 represented record revenue quarters, with the fourth quarter showing 41% revenue growth over prior year. Performance was driven by project prioritization in addition to a focus on moving to higher-margin modalities like NGS, ensuring that the lab was able to deliver in a timely manner. We saw especially strong growth in RaDaR for Pharma with the fourth quarter seeing over 300% of growth from the prior year. This RaDaR performance highlights the value of data sets presented at ASCO and other key conferences, and we expect strong growth in RaDaR as we continue into 2023. Lastly, the Informatics division delivered a record revenue quarter as well driven by solid growth of 38% over revenue from the prior year. I will now turn the call over to Jeff to discuss our financial results in more detail.

Jeff Sherman: Thanks, Chris. I’m very excited to join NeoGenomics to help advance the company’s mission and drive long-term sustainable growth and profitability. Turning to Slide 10. We finished the year with accelerating revenue growth and improving financial performance in the fourth quarter. Revenue growth of 10.3% was driven by clinical test volume growth of 2.3% and improving mix of higher complexity tests, pricing improvements and strong results in our Pharma business. GAAP gross margin was 41%. Adjusted gross margin, which excludes Inivata-related amortization expense, was 44.5%, an improvement of 460 basis points over the fourth quarter of last year. The adjusted gross margin performance demonstrates our ability to generate operating leverage in the business with revenue growth while also reducing our cost per test.

Adjusted gross margin also improved by 280 basis points sequentially, with most of the revenue growth over Q3 falling to the adjusted gross profit and adjusted EBITDA lines. Turning now to operating expenses. Sales and marketing expense increased by $1.2 million or 7.7% year-over-year to $17.1 million, primarily due to higher commissions from the revenue growth. This expense category will fluctuate some from quarter-to-quarter. G&A costs decreased by $4.5 million or 7.3% year-over-year to $57.9 million. On a sequential basis, G&A decreased by $3.5 million or 5.6%. As Chris noted, we started a reorganization in the fourth quarter in an effort to optimize our G&A spend and enable execution of our strategic priorities. With regard to Catalyst, which has been discussed in prior quarters, those initiatives are focused primarily on driving operational efficiencies and are well underway.

Therefore, they have been built into our annual operating plan, and going forward, we will no longer provide Catalyst-specific financial updates. The increase in gross profit and decrease in operating expenses drove a significant improvement in adjusted EBITDA on both the year-over-year and sequential basis. In the quarter, adjusted EBITDA was a negative $1.2 million and $8.6 million improvement from last year and a $10.4 million improvement versus last quarter. Turning to the balance sheet on Slide 11. We exited the fourth quarter with $438 million in cash and marketable securities. DSO finished the year at 79.4 days with improvement in each quarter in 2022. Our strong financial position provides us the financial flexibility to continue to invest in the business and achieve our strategic and financial objectives.

Now turning to our 2023 guidance and operating priorities. Turning to Slide 13. For the full year 2023, we expect revenue of $545 million to $555 million, representing 7% to 9% growth. Adjusted EBITDA in a negative $27 million to negative $22 million, as we continue to work to drive the business back to profitability. We expect to be adjusted EBITDA positive in the fourth quarter of 2023. While we are providing annual guidance and do not expect to be providing quarterly guidance in the future, given the seasonality of our business, we wanted to provide some guardrails for the first quarter. The fourth quarter has typically been our strongest in recent years as patients and high deductible health plans increased their screening visits at the end of the year.

Our Pharma clients also tend to ramp up spending as the year progresses. While we expect to see year-over-year revenue growth of 7% to 9% in Q1 versus the prior year, we will be down sequentially from Q4. We also expect to see adjusted EBITDA improvement from — over Q1 of last year. Based on our cost structure, this revenue growth will drive operating leverage and our adjusted EBITDA growth will exceed our revenue growth. While we will continue to be focused on driving operational efficiencies, we will also continue to invest in the business to expand our future growth opportunities. I will now turn the call back over to Chris to review our operating priorities for 2023.

Chris Smith: Thanks, Jeff. Turning to Slide 14. The more time I spend in this business, the more impressed I am with our unique competitive advantage and position in the marketplace and the assets we can leverage to progress the business going forward. We are a leader in oncology testing with a significant share of the patient test volume in the United States. In particular, our deep relationships with community pathologists provide us with an advantage in the market. Our primary focus on oncology testing has allowed us to develop extensive data, patient databases and relationships, and we view ourselves as a collaborative partner to pathologists, oncologists and biopharma companies. As Jeff has indicated, we believe this should allow us to drive meaningful top-line growth while returning to being a profitable company.

Moving on to Slide 15. We want to give you a brief overview of how we’ve organized the business and established a strategy for 2023 and beyond. We’ll be going into much more detail at our April 4 Investor Day. As we developed our long-term strategic vision, we thought about how to best take advantage of our unique position in the marketplace and decided to realign the business into two business units or divisions, the Clinical Services division as well as the Advanced Diagnostics division. This will allow us to support our long-term success. The enterprise operation group will support the optimization of these two divisions. The Clinical Service division is structured to maximize core business revenue growth and profitability by enhancing the client experience.

Also, it will focus on portfolio optimization and commercial execution. Functions within this group include oncology diagnostics or our core or our base business, community-based pathology and oncology sales, patient engagement and clinical decision support, which used to be called Trapelo. The Advanced Diagnostics division is responsible for evaluating future market trends and developing technologies and products that will help NeoGenomics maintain its leadership position in the oncology market. This means a renewed focus on NGS MRD technologies such as RaDaR, MultiOmyx and data capture and commercialization. Functions in this division include Pharma Services, which we believe is the tip of the spear for driving innovation in our industry, informatics, centralized R&D, as well as the former Inivata business.

This new centralized R&D function will enable us to capitalize on innovation of Inivata while enhancing the new development process for products. The key focus of enterprise operation group is the end-to-end delivery of diagnostic and laboratory services in support of both business units from test order all the way through to report delivery. Functions in this group include laboratory services, supply chain, operational excellence, information technology, data services, quality and regulatory and facilities. Turning to Slide 16. As we look to the next few years and our key strategic priorities, they fall broadly into four buckets: enhancing our people and culture, profitably growing our core business, accelerating advanced diagnostics, and improving profitability.

We have a great team at NeoGenomics and continuing to enhance this team and our strong mission-driven culture is critical to our long-term success. While much of this won’t be visible outside the organization, the work is a key foundation to everything we do operationally on a day-to-day basis. In the Clinical business, as we look to accelerate growth, a key initiative in 2023 will be to optimize the field organization, including expanding our oncology sales force. We will focus on improving the customer experience systematically addressing all client and patient touch points and improving the end-to-end process. In addition, there will be a deep focus on including turnaround times through operational efficiency and — excuse me, automation.

With the formation of the Advanced Diagnostics division, we are especially excited about our product launches in Q1 for RaDaR with four specific indications as well as Neo Comprehensive, our new NGS offering. Coming off a strong Q4 in Pharma and Informatics businesses, we look for continued growth and the realization of activity started in 2022 to and drive improved profitability. The team will focus in 2023 on developing a market-leading enterprise data strategy capitalizing on our extensive patient database. Finally, as we execute on the growth plans within each of these divisions, we will work to drive improved profitability. We will do this by increasing our productivity and efficiency as well as managing our SG&A and R&D spend. In addition, we believe an enhanced focus on revenue cycle management will help drive profitable growth.

Despite the intense focus on cost controls and profitability, we will continue to make strategic investment in the business to support this long term — these long-term growth drivers. In summary, we are pleased by the significant amount of progress that we made in the fourth quarter and throughout the year. While we still have a lot of work to do, we believe that we have put the foundation in place for long-term sustainable growth. We believe that growing high-single digits and returning to profitability places us in a unique position in the diagnostics market between large full-service reference labs and primarily NGS-only companies. I am excited about what lies in front of us in 2023 and look forward to sharing our progress on our first quarter call.

Paul?

Operator: Thank you. At this point, we would like to open the line for questions. And the first question today is coming from Alex Nowak from Craig-Hallum. Alex, your line is live.

Alex Nowak: All right. Hey, great. Good morning, everyone. So, yes, a lot of stuff going on here, a lot of places we could ask questions on. I want to ask this one first on the sales organization. I think the split in the organization makes sense. But how is the sales force going to be structured here going forward, just to ensure that they’re still going to be selling the core products, but also they’re going to be selling and focusing on the higher growth advanced diagnostics business as well?

Chris Smith: Yes. Thanks, Alex. I’ll give just a quick overview, and then I’ll have Warren maybe add a little more color since we’ve been working together on that plan. But look, our view is we are going to have two separate sales organizations because of the difference in call points, but they will report to the exact same regional director. So, think about being in pause to be able to capitalize on synergies and partnerships. In addition, one of the things we haven’t done on the oncology side, where we’ve been spending time there with NGS and even early days discussions around RaDaR, we really haven’t offered our full menu there. We really had been focusing that all in the pathologists. And we think there’s incredible cross-selling opportunities. But maybe let me — let Warren give a little more color around how we’re going to focus some — on the difference between the NGS and the core business.

Warren Stone: Thank you, Chris. Appreciate that. So certainly, two separate sales forces reporting to a single regional director, that’s clearly the strategy. We understand that the two touch points of the pathologists and oncologists are different, higher touch points required from an oncologist perspective. And so hence, that’s part of the expansion as well. I think it’s imperative for us also to expand the amount of portfolio that our oncologist sales team has available to them to obviously drive increased value and wrap the services they were able to provide with our sales team to the oncologist market segment.

Chris Smith: Yes. And Alex, that expansion is going on right now. So, we have — I don’t think we’ve disclosed the exact number, but several, several sales positions that we’re recruiting for to expand that group.

Alex Nowak: Okay. I will keep it to one. Thank you.

Chris Smith: All right. Thanks.

Operator: Thank you. The next question is coming from Mark Massaro from BTIG. Mark, your line is live.

Chris Smith: Hey, Mark. How are you doing?

Mark Massaro: Hey, Chris. How is it going?

Chris Smith: Great.

Mark Massaro: Thanks for taking the questions. Congrats on the recovery here. I guess, can you just give us a sense for some of the puts and takes with respect to the drivers of the volume increase? I know the prior year, you guys had some challenges. So maybe if you could just walk through some of the product lines or maybe some maybe high-level perspective on where you’re seeing the growth come from? And then, related to that, as you see 7% to 9% for the full year, what are some of the areas of the business that you think will pick up? And maybe if you could just speak a little bit more about the strength you’re seeing in Pharma Services? Do you think this is an industry trend? Or do you think this is more company specific?

Chris Smith: Okay. Well, I’ll try to answer all three parts of your one question. Look, I think from a — it was a good quarter, without question. We talked about at the Q3 results that, look, I think a lot of people have historically looked at unit growth, and we intentionally are trying to move business into NGS. And you may give up three single gene tests to sell an NGS panel. So, while you give up actually two tests to get that right, three to one is you’re giving up two tests in volume, you’re gaining revenue and gross profit dollars. I will say what you saw really in the fourth quarter was both. I mean, the reason you saw good unit growth was we didn’t just continue to move business into NGS, but we also saw nice growth, and I would call it that core business.

And I think we talked about this in Q3. Early in the year, we believe we lost market share. I think going through the initial field expansion of adding 20-plus oncology reps in the middle of the year last year, we started moving share back. And I think it’s not like we ever had lost an entire account. That didn’t happen, but we were losing certain segments. And I think what you’re seeing is some of that traction. And look, it takes time and greater, maybe six months with new sales reps to get in and start to move it. So, I think that’s one. Look, if you look at the 7% to 9% growth for the year from a guidance perspective, we really believe it’s a portfolio effect in this business. And I think at times, that’s probably been underestimated. Without question, our base business or our core business, which has been with the pathologist is a key factor, but it’s also layering in some of these higher-value tests, especially as we roll out RaDaR and our new NGS offering through both sales forces, but it’s also around Informatics and Pharma and the importance of both of those businesses.

And what you saw in Q4, I think you’ll start to see throughout the year that we’ll — it won’t be just one or two things. It will be this portfolio effect. And what happened in the fourth quarter and what we believe we can do this year is manage all those levers. And then finally, look to — Pharma, look, just a real shout out to Vishal and his vision. And he brought in a strong sales leader to partner with him in really the second half of this year. And I think what happened is we started putting some, I would say, governance and discipline into that group. And I think it’s about how do we identify the right customers, how do we identify on the right profitable test. So, I don’t know that I would say it’s an industry trend as much as it’s a company taking advantage of where our opportunities are in our deep relationships.

And look, we have a broad testing menu. And look, to be fair, in the fourth quarter, the team did a fantastic job with RaDaR getting that going with clients, and that’s why that business was up 300%. So, I hope I got all — I think, I got them all.

Mark Massaro: Yes. That’s helpful. Thanks, guys.

Chris Smith: All right. Thank you.

Operator: Thank you. And the next question is coming from Andrew Brackmann from William Blair. Andrew, your line is live.

Chris Smith: Hey, Andrew.

Andrew Brackmann: Hey, guys. Hey, Chris, how are you doing? Good morning, and thanks for taking the questions. Maybe just on the EBITDA guide here, obviously, improvement expected there. But I guess, sort of as we think about the longer term here, how are you guys thinking about the incremental margins moving forward? I’m just sort of trying to gauge a little bit around the progression of that over the intermediate term, just sort of given the leverage that you’re starting to see in the model? Thanks.

Chris Smith: Yes, Andrew, let me just hit a high level and I’m going throw it to Jeff. But look, and you know this business without a question, you have the opportunity to get leverage. I think as you started to drive growth. And look, we had to rightsized the business with some operating expense, tough decisions that we made. But there really is the opportunity there. But maybe let me have Jeff give you some more insight on how he’s thinking about the margins.

Jeff Sherman: Thanks, Chris. Yes, I think as we’re looking at 2022 and then looking at 2023, we’re expecting to see consistent performance throughout the year. And as you look at our revenue guidance and our adjusted EBITDA guidance, I mean, if you took the midpoint, we’re growing revenue $40 million at the midpoint of our guidance and adjusted EBITDA improvement of $24 million. So, we’re getting pretty good conversion of the revenue growth, almost 60%. And as you think about the drivers in the business and our ability to generate operating leverage, I think Q4 was a great example of adding incremental revenue and holding costs and seeing cost improvements. And I think as we think about margin improvement throughout 2023 and into the future, we think we can do both.

We think we can continue to generate top-line revenue growth and see margin improvement and get that operating leverage. So, I think that will be the formula going forward. We said we expect to be EBITDA positive in the fourth quarter. And so, I think you should see a progression throughout the year, similar as we saw in 2022.

Chris Smith: Yes, Andrew, one other thing on that, and you heard me talk about one of our key initiatives this whole thing around revenue cycle management, I started talking about that in the Q3 earnings. And look, we’re still unpacking that. But we believe just because of the history of the company and just the way we’ve built the business, we think there’s a lot of opportunity around revenue cycle management, where we just haven’t spent the time. We’re invested in the resources. And so, look, it’s going to take time to continue to do that, but that obviously is going to also help us drive margin improvement.

Andrew Brackmann: That’s great. Thanks guys.

Chris Smith: Thank you.

Operator: Thank you. The next question is coming from Puneet Souda from SVB Securities. Puneet, your line is live.

Puneet Souda: Thanks. Thanks, Chris, for taking the questions. So, on NGS, can you just remind us what was sort of the growth there? AUP improvement from the current levels, how should we think about that for 2023 within the guide — within the context of the guide? And could you talk a little bit about the turnaround time improvement sort of where you are today and where you would like to be?

Chris Smith: Yes. Thanks, Puneet. Look, we have not gone out and given specifics around the modalities and kind of the growth. But without question, we are seeing very nice growth in NGS. And look, I think it’s a place where we historically have been behind the market, and I would say that we’re starting to move closer into the market. We’re really excited about Q1. So, as you think about our business going forward, launching Neo Comprehensive, which is going to be our NGS offering in Q1, we think gives us a very competitive offering in the marketplace, especially in solid tumor, where we think we’ve maybe have been a little bit behind because we continue to really lead and aim on that side. But — so that’s a big — I think lift for us kind of as we move forward. Yes. What’s the other — oh, the turnaround time…

Puneet Souda: AUP…

Chris Smith: Yes. So, real quick on turnaround time. Look, I think that for us has been a journey. Look, at the end of the day, I think, again, I’m coming back to NGS. We — I would say that our stated turnaround time in the marketplace was probably a little bit behind competitive. I will say that the new Neo Comprehensive is 10 days, which we think, again, is competitive. And look, our goal is to outperform — our goal is always, as a company, whether it’s with investors or with customers or with patients is to under promise and over deliver. So — but our stated time will be 10 days out there. So, look, I think turnaround time on all fronts has continued to improve. It’s going to be one of Melody’s key focuses as she comes in, but we feel good about the trends and where it’s moving.

Jeff Sherman: And then, finally, on AUP or revenue per test, we’re continuing to see as that business shifts to the higher complexity panels, that’s helping drive some revenue per test. We are continuing to see some pricing improvement, and we’ll expect to see some of those throughout the year. And finally, as Chris already noted, we think we have revenue cycle management opportunities to further drive our revenue. And obviously, one of the bigger benefits there is that typically is going to be falling almost 100% to the bottom line.

Puneet Souda: Got it. All right. Thanks. Congrats on the quarter and improvements.

Chris Smith: Thank you.

Operator: Thank you. The next question is coming from Tejas Savant from Morgan Stanley. Tejas, your line is live.

Tejas Savant: Hey, guys. Good morning, and thanks for the time here. So, I’ll ask one on RaDaR and then just a big picture one on the guidance philosophy here. So, on RaDaR, Chris, you noted a really strong traction on the Pharma side. Any updates to share in terms of your conversations with CMS following your conversation on CRC? One of your peers recently got a breast MRD decision there. Does that impact sort of your data generation strategy or your — perhaps your timelines to reimbursement, et cetera? And then, one for Jeff, perhaps on the guide. Can you just walk us through at a high level, the conservatism that you’ve baked in your — it’s a new management team, so investors are obviously curious to calibrate, including any color you can share on this NGS mix shift assumption, which clearly is going to be probably one of the biggest factors driving upside to numbers here on a go-forward basis?

Chris Smith: Yes, Tejas, let me touch it briefly, and then I’m going to throw the first part of that to Vishal and then Jeff can come back on the kind of stuff around the NGS. Look, we think it’s good for the market that the Natera got breast. I mean, obviously, we pretty much now publicly disclosed. That’s our — are really what we believe is our big differentiator is in these — where the highly sensitive test is important. So, breast is really important for us when we launch in here in the next month. But we think by getting traction out in the marketplace in an indication we think it’s good for the whole industry because the industry is significantly underpenetrated. But Vishal, do you want to maybe add a little more color around how you’re thinking about RaDaR and the rollout and…

Vishal Sikri: Yes. I mean, as Chris mentioned, we’re rolling out with four separate indications going into Q1. So, I think that’s going to be a good start for us. With Natera getting breast indication, it really shows that CMS is looking at expansion opportunities, and this will help our adoption out there in the marketplace. So, we actually view this as a very strong signal that this is a good sign for the practice from a clinical perspective, also that there’s more adoption occurring there.

Chris Smith: Yes. And I think we’ve publicly disclosed that we will be submitting breast in the first half of the year, colorectal in the second half of the year, as well as one other indication this year is kind of where we’re at and know that we want to beat all those time lines, right, as far as Medicare.

Jeff Sherman: And then, on the guidance, look, I think we’re guiding to what we think we can realistically achieve in the year. We try to factor in anything that could happen negatively as we think through that. But we’ve talked about it already, we have cost savings that have been baked into our annual operating plan. But we’re also making investments. We’re investing in our sales force. We’re investing in technology. We’re investing in RaDaR as well. And so, I think as you look at that, I think it’s a balanced approach to 2023. I think we finished the year strong and saw performance improving each quarter. I think we’re looking at it continuing to get better as we go through 2023. But I would say we believe it’s realistic and achievable, and the team is definitely committed to delivering it.

Chris Smith: Yes. I think the other thing around that, when Jeff talks about that, we’re really focused, Tejas, on this long-term sustainable growth. So, it’s not about driving just strong earnings this year and three years from now, wondering what’s happened. I think one of the challenges the business had is what’s the business look like five years from now, 10 years from now, 20 years from now. So, we will — and I talked about this in the script that look, of the $25 million we picked up on the rework, a lot of that is being reinvested for dividends that we’ll see in two, three years from now. And that’s why we really want to see this brick-on-brick continually building a sustainable long-term growth.

Tejas Savant: Very helpful. Thanks, guys.

Chris Smith: Thank you.

Operator: Thank you. The next question is coming from David Westenberg from Piper Sandler. David, your line is live.

Chris Smith: Hey, David.

David Westenberg: Hey, Chris. Thank you for taking the question and congrats on really a lot of progress here. So, I’m going to stick with the NGS and kind of the molecular. I think historically, molecular PCR plus NGS has been really kind of small 25% of the business, and then NGS was kind of a fraction of that. Can you talk about a little bit more color on where NGS is kind of taking this from? Is this taking it from PCR? Anything around there? Is the molecular as a whole growing as a whole? And then, can you kind of maybe talk about how that conversion to NGS is kind of looking? Are we looking from single gene to hotspot testing or hotspot test to comprehensive? And does Neo Comprehensive kind of change that equation even more positive? And then, finally, just on the NGS is, is this purely a conversion? Or is there even maybe some share taking overall in the business? And I realize that was a really long question, so…

Chris Smith: That was, but that’s okay, David. I’ll try to unpack parts of it, and then I’m going to throw it to Vishal and then Warren, the two of them can tag team you on some of — getting into the deeper insights into it. Look, I think coming back to your last one about moving share. So, look, I think one of our challenges was, if you think about Neo, we really created this niche specialty oncology testing market. And I think we did it by offering a full service of suites. And as NGS started to take off over the last particularly three, five years, I think we got behind, especially on the solid tumor side. And I think what happened was that’s where we would have potentially lost share in some of these key accounts. Two things, I think, happened this year.

I think one was we expanded our field organization with an oncology group in the summer, and we originally brought them on because we thought we’d get RaDaRs for colorectal and we did. So, we pivoted and had that group, especially in Q3 and Q4 start to focus on NGS on the oncologist. So, we started winning business that we would have never, for example, had before. That was a new business. But I would say that our pathology sales force also did a really nice job of going back and gaining share from accounts where we had existing relationships on the NGS. And I think people lose sight that we really are — if we’re not the market leader, we’re one of the market leaders on heme. And so, I think you saw a lot of things coming together well for us because of those key strategic decisions that started maybe in the August-September timeframe.

And I think that’s where you saw the lift. Getting into kind of Neo Comprehensive and more detail of how we see that going forward and the impact, I’m going to throw it to Vishal and Warren to let them kind of both share some insights.

Vishal Sikri: Yes. I mean your question on single-gene testing to hotspot or comprehensive genomic profiling, what we basically see is more of a movement to comprehensive (ph) profiling. And if you look at the tests that we’re launching this quarter, that’s really the trend that we see continuing. And these are extremely strong product launches, which are coming out, both on the heme side but also the solid tumor side. But that’s only a product perspective, right? It’s the surrounding areas that make it even more, I would say, impact, and we’ll let Warren talk a little bit about that side.

Warren Stone: Yes. And maybe just in addition before I go to Vishal, I’d say that — two other factors. First and foremost, overall, we’ve seen a reduction in the number of clients that we’ve lost, so retained our clients. We’ve also fortunately won a few new clients. We’ve done really, really well on the heme side of things, some weakness on the solid tumor, and that’s ultimately where Neo Comprehensive is going to play extensively for us moving forward.

David Westenberg: Thanks, guys.

Chris Smith: Thanks, David.

Warren Stone: Thank you.

Operator: Thank you. The next question is coming from Derik De Bruin from Bank of America. Derik, your line is live.

Chris Smith: Hey, Derik.

Unidentified Analyst: Hey, good morning. This is John on for Derik.

Chris Smith: Hey, John.

Unidentified Analyst: So, I wanted to ask about the guide. So, you have the 7% to 9% growth. And of course, in the quarter, you had a great growth from RaDaR and you had Informatics business growing nicely. Going forward, what kind of contribution are you expecting from the two segments, the Clinical Services and Pharma Services, given all these dynamics?

Chris Smith: Yes. So, look, I would say, John, we have not split that out in the guide. I think there’ll be more follow-up discussions and we will get into much more detail around some of that as we have Investor Day in early April. But I want to come back to it. We think it’s a portfolio effect. We spend a lot of time looking at all the levers in this business that can be pulled. And I don’t — I think sometimes the challenge has been you focus just on one or two. And I think the unique thing about our business is that we have the ability, we believe, to really win in four key areas, right, Pharm and Informatics, but also with the pathologists and now with the oncologists. And so, for us, it’s really about executing in all four of those areas and getting this portfolio effect.

And look, sometimes, the great thing about our portfolio in fact, there are quarters where you have one quarter, one business may do significant better. Let’s use Pharma, for example. Pharma, a record quarter in Q4 of 41%, big movement in RaDaR, I think that have — that even surprised us, how quickly we started moving in RaDaR. So, when you get that, you beat where you are even, for example, in the guide. And look, our goal is to always have that happen, but we also realize we’re managing our portfolio, and that’s where that kind of 7% to 9% guide comes.

Unidentified Analyst: Got you. Appreciate that. But with the RaDaR still growing really nicely in the quarter, I wanted to see like what kind of impact or contribution if you’re able to tell us that might have on 2023?

Chris Smith: Yes. Look, two things on that. So, we — again, we don’t — we haven’t disclosed the exact amount on RaDaR, but I will share that we’ve been very open, and we have disclosed that there will be no meaningful revenue for RaDaR in the clinical side of the business, that the meaningful revenue for RaDaR this year in 2023 will be in the pharma side of the business, and that’s as much color as we’ve given. We do expect to start driving revenue in RaDaR. As you know, in the clinical side, we’re going to launch it in late Q1, but we’re launching without MoIDx or Medicare reimbursement. There’ll be a lot of focus on third-party payers and starting to move that. But look, as we’ve talked to, one of the key — we’re doing this call from our global sales meeting.

And we had one of the leading oncologists in the world and they’re speaking to the field organization. And just talking to him last night, we actually bought out a barbecue place. So, we brought this high-level oncologist to a barbecue joint. And — but listen, in that conversation, like it would almost be like criminal and not get this product out now and for the Medicare reimbursement. And I think that’s a mistake sometimes this industry makes is wait to launch these products until you get Medicare because there’s a lot of patients that could benefit. And when he starts to talk about the impact that RaDaR can have on some of his patients, it was exciting. So, look, we’re going to live and learn, but to be fair, no meaningful revenue is in the forecast for RaDaR in the clinical side of the business in 2023.

Jeff Sherman: And we will be investing in RaDaR as well. So, as we’re expecting to see continued strong growth, we are also investing in — continuing to invest in RaDaR and that was part of our strategic initiatives in terms of how we’re…

Chris Smith: A lot of investment in ’23, yes. Okay. Thank you.

Unidentified Analyst: Appreciate that.

Operator: Thank you. And the next question is coming from Tom Stevens from Cowen. Tom, your line is live.

Chris Smith: Hey, Tom.

Tom Stevens: Hey, guys. Congrats on the quarter. A really good job there. So, just a more bigger picture one on kind of how you see Clinical utilization in some of your bigger labs developing over the next few years. So, I think Clinical was something like a high 40%-s gross margin prior to the pandemic. I guess as you get your up and running for utilization, where do you see those gross margins setting out with the higher complexity test? And then, kind of how is that linked to long-term free cash flow positivity? So obviously, you’re exiting ’23 positive on adjusted EBITDA. How does that feed into your boarder view on profitability on ’24, ’25? Thanks very much.

Chris Smith: Yes. Jeff can add a little bit of color. And when we get together on Investor Day, we’re going to talk about kind of long-term guardrails on the guide. So, we haven’t shared that. But look, we do not disclose the profitability by lab. But let me maybe give you a little color. Without question, our largest lab is in Orange County, California. And I would tell you — so Melody’s here, and I can have Melody give a little insight on how she’s thinking about level loading and the way we’re managing. But she was in Houston yesterday. We think Houston is one of our biggest opportunities, that historically has been a pharma lab for us. We love the Houston and Texas market, close to the medical center, great labor pool. And so, a lot of movement and discussion around how do we expand there.

Look, I think Fort Myers is amazing. If you get a chance to come down to Investor Day, you’ll get a chance to tour that lab. I would say it’s state-of-the-art lab, it’s good as probably anything in the world. But I think one of our challenges has been down in Fort Myers is just building out kind of the labor pool in Fort Myers compared to places like Orange County, California or Houston to be able to pull through. So, we’re going to continue to move business from some of our busy California labs to both those locations and try to do a much better job. And maybe Melody has not chimed in yet, so maybe I’ll throw that to Melody, who’s kind of her whole life is around site plan and thinking about gross margin improvement.

Melody Harris: Thanks, Chris. Hi, Tom. Yes. So, we’re working — as Chris mentioned, load leveling. We have perhaps too much volume for our capacity in our AV labs. So, we’re working on moving that primarily focusing on Houston. I was just there touring some new space that we’re going to be expanding to. And we’re working in breaking down old non-integrated processes. So, when we acquired a lab, we would keep the processes that they had. We’re not driving as much operational leverage off of that as I’d like to see. So, big themes for us in 2023 are around load leveling and site optimization as well as standardization of processes. And then, a longer-term process is really revamping all of our technology services and bringing a lot of good digital automation in to the lab. So, lots of initiatives.

Chris Smith: I think it’s a really good point, Melody. Like one thing is that we had not really integrated. So, we’ve done five — I mean, four acquisitions in five years, and there’s been a lot of time spent on integrating, as you saw some of that in the restructuring, and I called out Inivata integration. But I think Melody brings up a really good point about standardization around processes and probably behind, for example, in automation in certain places. So, we feel really good about the runway in front of us on the gross margin, but it is about execution, right? So, I think we’ve now identified those opportunities, like we’ll be in Houston before the end of the year, operational in that new lab, but I think it is about the execution.

Tom Stevens: All right. Looking forward to Investor Day. Thanks very much.

Chris Smith: I hope we’ll see you in April. Yes.

Tom Stevens: Yes.

Operator: Thank you. The next question is coming from Mason Carrico from Stephens. Mason, your line is live.

Chris Smith: Hey, Mason.

Mason Carrico: Hey, guys. Maybe a quick one on the Pharma Services business here. I think in previous quarters, there was some commentary around the goal of focusing on earlier-stage work, which converts to revenue faster than later-stage projects, which have become an increasing proportion of backlog over the past few years. So first, is that still a goal? And second, have you guys been successful in adding an increasing mix of earlier-stage products over the last few quarters? Or how are you guys thinking about that dynamic at this point?

Chris Smith: Yes. Let me — Vishal, you want to take that?

Vishal Sikri: Yes, I can. So, yes, we have had success at moving to what we call the earlier-stage studies versus prospective studies. When we talk about earlier stage, we’re basically looking at samples coming in big batches, retrospective samples that have been collected from previous studies. And that was a big driver for Q4 for us. So, we definitely saw a shift as we asked our sales team to really change their focus in that aspect. We also saw a shift in that type of work with the NGS and RaDaR. So, you see that as you start to get the larger samples coming in, in our high-margin modalities, and that’s really what caused the uplift in Q4 for us. And that’s a trend that we’re going to monitor. It’s a focus for us going into 2023, and we’re making sure that the team is heavily focused on that approach.

Mason Carrico: Perfect. Thanks, guys.

Chris Smith: Thank you.

Operator: Thank you. The next question is coming from Matt Sykes from Goldman Sachs. Matt, your line is live.

Chris Smith: Hey, Matt.

Unidentified Analyst: Hey, guys. This is Dave on for Matt. So, regarding the Inivata reorg, where do you find the most opportunity for savings? And on the flip side, building out the oncology and path sales forces, could you tell us more about the opportunities for partnership and revenue synergies there?

Chris Smith: Yes. Look, I would say that the reorg was not just Inivata. So, I want to be clear on that. The reorg is the entire organization looking at where we had redundancies and we thought we could get better operating leverage. But a big component was Inivata. I would say the majority around the Inivata was around G&A, where we had looked at, I would say, G&A services, and we had a lot of duplication. I would say the other positive that came out of that is really Inivata, I think of that becoming our R&D engine. And through that process, we combine the two R&D organizations. And so, I think that was another, I think, kind of a really good pick-up there. So, you pivoted — you guys are all throwing second questions on first question. So, what was the — it was just — tell me it’s sales force, yes.

Unidentified Analyst: Yes.

Chris Smith: So, look, I would say that when you imagine what our business is ultimately going to look like, it’s going to be every territory will have one of each. And so, look, I think it’s — we’re building to that throughout the year. I think you’ll see a big wave here in the first quarter to get that oncology group up too much closer in size. Again, we haven’t kind of gone out and said just high level, there’s probably anywhere from 45 to 50 territories, and I think we believe that there’s opportunity to be able to add people in all those geographies.

Unidentified Analyst: Thank you.

Operator: Thank you. The next question is coming from Mike Matson from Needham & Company. Mike, your line is live.

Mike Matson: Yes, thanks. Just a couple on RaDaR, I guess. So — and I apologize, I did join the call a little late, so you may have gone through this in the prepared remarks or something. But you mentioned you’re going to be submitting for reimbursement for breast in the first half, and colorectal in the second half. I thought that the message — maybe this was from the prior management team, but the colorectal, you felt like you didn’t have enough data and that there was more work to be done there? And just more broadly, can you just kind of give us a sense of your confidence in both — the data that you do have in both of those indications to support MolDX?

Chris Smith: Yes. So, two things on that. So, we did submit for colorectal, as you know, last year, and we did not get. And the reason that colorectal got pushed to the second half of the year was twofold. Number one, we believe that we — first of all, we have significantly more and better data in breast. I think when you look at the breast data, it’s as good as anything in the industry on how sensitive that test is and the differentiation between our MRD product and others on the market. So, look, we feel like that was — look, let’s accelerate that because, A, we have great data and the ability to get through MolDX. Look, the reason that colorectal moved to the second half of the year, candidly, is we had to go back and do more data.

And so, I think everybody has thought we would repackage it and submit it again in the first half, but we didn’t think that was prudent for the business. We felt like we, look, if we go back in, we want to make sure that we get approval, which meant that the team had to go back and do some more data around that. But in doing that, we want to accelerate breast. And we’ll also add a third indication this year. So, we’ll actually at the end of the year, we would have submitted three things to MolDx for RaDaR.

Mike Matson: Okay. Got it. Actually, I guess I was thinking that the second half for colorectal was actually better than what I would have thought it would have taken in terms of timing to get that data. So that’s a positive, I guess, in my view. But all right. And then just the Pharma Services business, I mean, it was very strong, but another kind of diagnostics company reported last night was saying that they’re expecting a lot of weakness in that space. I mean, just given macro headwinds, are you worried all the pharma biotech companies are going to be trying to rein in third-party spending?

Vishal Sikri: Yes. I mean, look, we see this on a regular basis, right? We do see consolidation occurring on the Pharma side. We do see the number of trials that are out there are slowing down. However, it also comes down to where we want to have our focus. We talked a little bit on one of the questions earlier about early stage versus late stage, and retrospective versus prospective samples. So, as we shift our focus also to the right area, I think we are going to continue to see the growth that we saw going into Q4.

Chris Smith: Yes. And I also think, look, RaDaR, I think a lot of these other companies don’t have RaDaR to be able to offer. So, I think that’s really helping us on the growth side.

Mike Matson: Okay. Got it. Thank you.

Chris Smith: Thank you.

Operator: Thank you. And the next question is coming from Andrew Cooper from Raymond James. Andrew, your line is live.

Chris Smith: Hey, Andrew.

Andrew Cooper: Hey, everyone. Thanks for the questions. A lot have been covered, so maybe just one. I think — I don’t remember who said it, but somebody used the words portfolio optimization. And I think generally, we think about that meaning shrinking menu. I know Warren mentioned expanding kind of what’s available out there for the oncology folks. But maybe just walk us through a little bit of that. And then, on the similar front, when we think about RaDaR and the traction in Pharma, how should we be thinking about the indications there? Is the right assumption that where you’re focused clinically with the launch is likely where Pharma is having the most interest? And anything else to think about in that regard?

Chris Smith: Yes. Look, I think on the product rationalization, look, I think one of the challenges that Neo got into over the years as a growing company, I think we were offering certain tests that we were not making money on, candidly, and there just wasn’t big demand. So, some of that rationalization is basically what I would call almost pruning the bushes, like taking away test that we just think there’s not long-term value, and we’re losing money profitability on it. Warren, do you have anything else you want to add on the product rationalization?

Warren Stone: I mean, I would put it like this. I mean, the exercise that we need to go through is what you would typically expect in a core business. This is a portfolio that is slightly more mature. So, we’re looking at those areas which are just no longer viable and want to rationalize. At the same time, there’s a few strategies that we are going to deploy, which will extend life cycles of products by maybe shifting some modalities from molecular into NGS and other technologies. So, it’s a complete review of the portfolio to look to revitalize it and ensure we can maximize both the growth and profitability.

Chris Smith: Thanks. And then, Vishal, do you want to talk about the Pharma…

Vishal Sikri: Yes, Andrew, thanks for the question there. So, on the RaDaR side, with the Pharma, what’s really nice about this is that Pharma wants to look at MRD-type testing across multiple cancer types. So, while we are launching with four indications where we think that we’ll have the immediate clinical value to patients, Pharma is looking much broader than that. So, I think our — what we see actually is what’s starting up in Pharma on a much broader cancer — on a patent cancer perspective will eventually result in specific indications on the clinical side, downstream.

Chris Smith: Okay. Hey, Paul, I think that kind of draws us to the end of our queue with questions. I just want to take a minute and thank everybody for taking time to join us this morning and go through the Q4 and the year-end results. Look, we’re really excited about where the business is headed. And I think we talk a lot about we think momentum is a very real thing, whichever way momentum is moving in the business, and we feel good about the momentum that we’re carrying from Q4 into 2023. We hope everybody has an opportunity to join us in Fort Myers for the Investor Day, and we’ll get much deeper into the strategy and some of the levers that we’re pulling on the business. Before that, thanks again, and take care.

Operator: Thank you. This does conclude today’s conference. You may disconnect at this time, and have a wonderful day. Thank you for your participation.