Title

Presentation

NeoGenomics, Inc. misses on earnings expectations. Reported EPS is $-0.05 EPS, expectations were $0.1.

Operator: Welcome to the NeoGenomics Second Quarter 2023 Financial Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. Please note this call is being recorded, and an audio replay will be available on the company’s website. Kendra Sweeney, Vice President of Investor Relations, you may begin your conference.

Kendra Sweeney: Thank you, Jenny. Good morning everyone and welcome to the NeoGenomics second quarter financial results call. With me today to discuss the results are Chris Smith, Chief Executive Officer; and Jeff Sherman, Chief Financial Officer. Additional members of the management team are available for Q&A, including Vishal Sikri, President of Advanced Diagnostics; Warren Stone, President of Clinical Services; and Melody Harris, President of Enterprise Operations. This call is being simultaneously webcast. We will be referring to a slide presentation that has been posted to the Investors tab on our website at ir.neogenomics.com. Starting on Slide 2. During this call, we will make forward-looking statements regarding our anticipated future performance, such as our operational and financial outlooks and suggestions, our assumptions for that outlook, opportunities, and strategies for our products, and related effects on our financial and operating results.

We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to our most recent Fort 10-K and 10-Q and the 8-K we filed with the SEC to identify important risks and other factors that may cause our actual results to differ materially from those contained in or suggested by the forward-looking statements. 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. During this conference call, in order to provide greater transparency regarding our operating performance, we will refer to certain non-GAAP financial measures that involve adjustments to GAAP results.

The non-GAAP financial measures presented should not be considered 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. I’ll now turn the call over to Chris Smith, Chief Executive Officer of NeoGenomics.

Chris Smith: Thanks, Kendra, and welcome, everyone. Thanks for joining us this morning to go through our second-quarter financial results. We like to begin every presentation we do, whether it’s to our teammates, our customers, or investors, with our mission and vision statement because it’s what motivates our company and our teammates on a daily basis. Our mission is to stabilize by improving patient care. And before we dive in, I want to thank all our teammates for the impact that they make on patients every single day. Now let’s move to Slide 4 and get into the second quarter financial highlights. We had another strong quarter as we continued the momentum from Q1 into Q2. Second quarter revenue was $147 million, an 18% increase over the prior year.

Clinical service revenue increased 17%, driven by strong volumes across our modalities and an increase in revenue per test. Notably, the second quarter was the ninth consecutive quarterly increase versus the prior year in revenue per test. In addition, we had significant NGS revenue growth well above our 20% stated internal target. Advanced Diagnostics revenue, which includes pharma services and informatics, increased 22% from prior year, driven by the strength of our core pharma business, informatics, and the ramp-up in RaDaR. Adjusted EBITDA improved 87% to a negative $2 million, and adjusted gross profit was $65 million, representing a 44% margin and a 33% increase over the prior year. Turning to Slide 5. Our second-quarter financial results contributed to strong numbers for the first half of 2023.

For the half, revenue was up 17% versus the prior year to $284 million, driven by an increase in both clinical and advanced diagnostics revenue. Adjusted gross profit was $124 million, representing an adjusted gross margin of 44%. Adjusted EBITDA was a negative $9 million, an improvement of $26 million or 74% over the first half of 2022. During the first half of the year, we served well over 300,000 individual patients, which is a testament to the mission of our company and a leading indicator of the improved operational capacity within our labs. Going back to Q2 on the next Slide 6. The second quarter delivered sustained performance improvement in revenue, gross margin, and adjusted EBITDA. We are proud of this year-over-year accelerated growth because it’s a direct result of the strong execution by our Neo teammates and the growing demand for our products from our existing clients as well as new customers.

Our operating and revenue cycle initiatives implemented in the second half of 2022 continue to enable accelerated growth, and we believe we have the ability to continue to drive improvement in the business throughout the second half of 2023 and beyond. As we move to Slide 7, let me remind you of the strategic priorities we laid out at the beginning of the year, probably grow the core business, accelerate advanced diagnostics, drive value creation, and enhance people and culture. As we look at transforming the business, it’s about focus, collaboration, and execution, and our team continues to deliver results against these strategic initiatives. 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 of the organization, this work is foundational for everything else we do operationally. This morning, I’m going to focus on our other 3 priorities. Turning to Slide 8, let me touch on a few highlights from these strategic priorities for the quarter. We continue to see strong growth in clinical volumes across all modalities. Our product offering and our sales force optimization continue to deliver significant NGS revenue growth as well as growth in revenue per test. Additionally, we continue to refine our laboratory operations. We set an internal record for the number of test processes in the quarter, and thanks to our teammates in the lab who support this core business growth. Even with these strong volume trends, we continue to grow revenue faster than volume.

Following our last THREE quarters of significant improvement in turnaround time, we saw a more normal improvement of 3% in the second quarter, aligned with the significant growth in volume. In July, we received our first Medicare coverage decision for radar and breast cancer. Following this approval, which is effective retroactively as of March 24, 2023, the RaDaR assay is now covered for certain Medicare patients in the U.S. with HR-positive and HER2-negative breast cancer. This decision is a major milestone for us following our acquisition of Innovata. We always believe RaDaR’s superior sensitivity and specificity would enhance patient care and improve outcomes, and we are thrilled that the supporting clinical evidence met MolDX program’s high standard for coverage.

Additionally, we remain on plan for submitting two additional indications as well as expanded breast indication to MolDX by year-end. In June, our RaDaR assay received its first pan-cancer commercial coverage by Blue Shield of California. This decision is a good indicator of the progress we and the industry are making as commercial payers are beginning to acknowledge the clinical and economic utility of RaDaR in the MRD setting. The pan-cancer coverage highlights the breadth of our data across various cancer types, which we believe is a key differentiator. Looking forward to the rest of the year, we think there are opportunities to expand coverage with additional indications. We published compelling data at ASCO in June with five poster presentations and one oral abstract on long breast and head and neck cancers.

These posters highlighted RaDaRs’ accuracy and sensitivity over current standards of care and its use across tumor types and settings. We have data complete or in progress in additional indications where we can pursue payer coverage. We have focused on driving value creation from a financial perspective and are pleased that we have delivered even further margin expansion from Q1 and have generated significant operating leverage as revenue favorability fell through to the bottom line. Last month, we added three excellent directors to our Board of Directors. I’m confident that their varied backgrounds, experience, and professional accomplishments will provide Neo with additional skills and insights that will enhance our execution against our strategic priorities and long-range planning.

Now let me turn the call over to Jeff to review our financial results in more detail. Jeff?

Jeff Sherman: Thanks, Chris, and good morning, everyone. I’ll begin with a little more detail on our operating results for the quarter. As Chris said, we continued the year with revenue experiencing accelerated double-digit growth in both clinical and Advanced Diagnostics over prior year. Second quarter revenue was $147 million, an 18% increase over the prior year and a 7.1% increase from Q1 of ‘23. Revenue growth was driven by growth in clinical test volume, a continuing shift to higher complexity tests, and improvement in revenue per test. Adjusted EBITDA improved $14.2 million from prior year to negative $2 million. Q2 marks the third consecutive quarter that adjusted EBITDA increased from prior year. We generated significant operating leverage as revenue favorability fell through to the bottom line.

Looking at Slide 10. Clinical Services revenue of $123 million was an increase of 17% year-over-year, driven by an 8% increase in volume and an 8% increase in revenue per test. Higher volume is driven by growth within our existing client base as well as new sales and demonstrates that our sales force optimization strategies enabling us to reach oncologists and pathologists continue to show progress. Turning to Slide 11. Average revenue per clinical test increased by 8% to $417, representing an improvement for the ninth consecutive quarter versus the prior year as we maintain our focus on higher-value tests and revenue cycle management initiatives. On Slide 12, Advanced Diagnostics revenue increased by 22% to $24 million compared to the second quarter of 2022, driven by both price and higher NGS volume in legacy Pharma as well as growth in informatics and radar revenue.

Adjusted gross margin improved 770 basis points, representing the fourth consecutive quarter at 600 basis points or more of improvement over prior year. At our Investor Day in April, we shared our strategy with you relating to profitability and growth in our advanced diagnostics business. One of the ways we plan to accelerate profitable growth was through rationalization of our global testing sites and contracts, which meant walking away from some of our smaller unprofitable contracts that also didn’t deliver meaningful revenue. As we execute on this strategy, especially on what new projects we take on, we begin to see a temporary pullback in pharma revenue towards the latter half of the year and into the first half of 2024. We are confident that this will guide us to sustainable and profitable growth in the short term, midterm, and most importantly, the long term.

We don’t believe this will be material to the overall growth projections for the company. Looking at the income statement on Slide 13. Adjusted gross margin was 44.1%, an improvement of 505 basis points over the second quarter of last year. Adjusted EBITDA was negative $2 million or $14.2 million or 8% improvement over the second quarter of 2022. These significant improvements were driven by both higher revenue and gross profit and highlight the operating leverage in the business. Regarding operating expenses, sales, and marketing expense was $18.9 million as we continue to invest in the expansion of our sales force. G&A was $60.3 million, and R&D expense was $7.5 million. In addition, there was $3.1 million in restructuring costs in the quarter related to the previously announced organizational restructuring and footprint optimization, which is part of our value capture program to gain operating leverage.

Turning to the balance sheet on Slide 14. We ended the second quarter with cash and marketable securities of $409 million. We continue to make good progress in diligently managing our cash burn and are focused on accountability and disciplined oversight of operating expenses. Cash flow from operations improved $15 million or 91% from Q2 of ‘22. On a year-to-date basis, cash flow from operations improved by $32 million or 69%. Our strong financial position provides us the financial flexibility to continue to invest in the business and achieve our strategic and financial objectives. Given our Q2 financial performance and continued progress executing on our strategic priorities, we are revising our revenue and adjusted EBITDA guidance for the year.

Turning to Slide 16. We previously had revenues at $555 million to $565 million, representing 9% to 11% growth in 2023. We are revising that range upward and now expect total revenue between $565 million and $575 million for the year, representing 11% to 13% growth. This includes the expectation of slower revenue growth in Advanced Diagnostics in the second half of 2023 due to the very strong revenue performance in the fourth quarter of 2022 and the repositioning of the business for more profitable contracts. Adjusted EBITDA was negative $22 million to negative $18 million and is now negative $13 million to negative $10 million, representing a 73% to 79% improvement. We continue to see strong revenue growth and an increase in NGS product mix and are very encouraged by the opportunities for RaDaR and other new tests, which provide accelerated leverage to the bottom line.

As we stated at the beginning of the year, our year-over-year comparisons will get more difficult as the year goes on, but we believe we have a strong foundation and dedicated teammates to deliver financial results. While we continue to be focused on driving operational efficiencies, we will also continue to invest in the business to capitalize on our future growth opportunities. Our strategic focus remains to deliver long-term sustainable growth. With that, I’ll turn it back over to Chris.

Chris Smith: Thanks, Jeff. We are very pleased with our year-over-year progress, including strong revenue growth of 18% and significant improvement in adjusted EBITDA. We now have our first radar commercial payer, pan-cancer coverage, and our first Medicare approval in HR-positive and HER2-negative breast cancer, and we’re generating additional data that will support expanded coverage in the future. We saw meaningful progress in the execution of our strategic priorities, and therefore, we are raising our guidance for the full-year results. We are well on our way to becoming the leading cancer testing information and decision support company. We will continue to build on the foundation we have laid over the past several quarters to deliver long-term sustainable growth. I’m excited for our teammates and our customers and, most of all, for the patients that we serve on a daily basis. Thanks for your time, and now I’ll turn it back over to the operator for Q&A.

Operator: Thank you, Chris. [Operator Instructions] Thank you. Your first question is coming from Dan Brennan of TD Cowen. Dan, your line is live.

Chris Smith: Hey, Dan.

Dan Brennan: Hey, Chris. How are you doing? Thanks for the questions. Congrats on the quarter. Maybe the success you guys had obviously got people excited here and just kind of looking at the full-year guidance, a nice raise. Maybe could you just unpack a bit of how we think about clinical and advanced diagnostics in the back half of the year? You called out tough comps, which you do have, but it still feels like maybe you’re baking in some cushion in the back half of the year. Just kind of can you help us think through the back half of your guidance?

Chris Smith: I mean, we just raise your calling me outstanding we got a cushion. Look to unpack it, and I’ve got to Shaw in Warren here. But I think the way to think about it is, first of all, as you know, we had a big Q4 last year in pharma and a lot of that early RaDaR in the pharma. So we’ve got a big comp in pharma. In addition, when Vishal took over that business, and we dug into it, I think there was a – we talked about this in prior calls that there was a big focus on bookings and not revenue, and we are booking unprofitable, small, I think, projects. And we had opened up labs in places like China and Singapore and just weren’t seeing the pull-through. So I think the strategy was to read kind of transform that business, which meant that we had to cut loose some of those unprofitable smaller projects.

And so I think Michel and Dennis and the team have done a fantastic job of rebuilding that field organization and focusing them really kind of on the top 30 pharma. So what you’ll see is, I mean, I think you’ll still see nice growth, but between the comparable in Q4 and kind of this transformation they’re going through, we think it will slow a little bit, and then we’ll get a nice recovery as we go into the second half of next year. If you look at the clinical side of the business, look, I would say the difference there is things are happening faster than I think we originally had projected, and that business is growing at a much faster rate coming off a very low performance in really in ‘21 and the beginning of ‘22. And so I think that conversion to NGS and our focus on driving NGS growth, the expansion of the field force, and the optimization, we think gives us good continued growth.

But I don’t – do you want you guys – I know I just kind of threw a lot, but…

Warren Stone: I’d say the trajectory from a clinical perspective in the second half of the year looks very similar to what we’re seeing in the first half of the year. It’s probably how it summarized that kind of if you already get Chris.

Vishal Sikri: I think Q4 of ‘22 was a very strong revenue quarter for us. And with our refocus that we’ve had, I think we’ve been a lot more strategic as to the high-margin accounts that we’ve been going after.

Dan Brennan: Great. Maybe just one on RaDaR. Congrats on the MolDX coverage. It looks like that was probably based on the TRIP study given the 5-year post kind of surveillance. Just kind of wondering can you help us think through what that opportunity looks like for you. And then secondarily, I know you talked about you have other indications in breast that you’ve either filed for or you have some data that you’re submitting. I’m just wondering, could you speak a little bit to kind of what’s forthcoming later this year from a breast perspective? And then if you can shed any insight on the other two indications. Thank you.

Chris Smith: Yes. Look, obviously, we’re excited about getting that approval. But Vishal, do you want to highlight kind of what’s going on in your timelines?

Vishal Sikri: Yes. So we haven’t broken it down by quarter yet, but our plan is to expand our breast coverage. We did use the TERP study data to get the initial coverage in breast cancer really shows that we understand now what it takes to go through MolDx from our perspective, and we want to expand on that with the additional risk coverage that we will go through. And then we haven’t really listed out yet the other two applications that we’re applying for beyond the breast cancer, but more to come on that in the near future.

Warren Stone: Yes. I would say I would add to that. I think the takeaway is we learned from previous submissions, and I think we are where we expected to be on track with our MolDx coverage as we reformatted our plan to Quebec to MolDx for breast.

Dan Brennan: Great, guys. Thank you very much.

Chris Smith: Thank you.

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

Chris Smith: Hi, Andrew.

Unidentified Analyst: Hi, guys. Thais is actually, Dustin on for Andrew. Thanks for taking our questions. Just to start on the Advanced Diagnostics segment. Just wondering where the pipeline stands in the fee-for-service radar business today? And then secondarily, how much does RaDaR have the ability to reduce those clinical trial costs? And how does that stack up versus the competition?

Chris Smith: Yes. So a couple of things. So we do not on the pharma break out individually what percent of the pharma revenue is RaDaR. I think you probably know we started moving there a year before really getting clinical coverage. So I’d say that’s one thing just to think about is that we started that process really last year. On the clinical side, we’ve been pretty clear that we don’t have any material revenue in our plan, and that has not changed even though we’ve gotten coverage. I mean, obviously, we’re out selling it and there’s coverage. But I think our view is that we’re building for the long-term. And so we still have a clinical evaluation program going on, and we kind of think our strategy is brick-by-brick, but I would not say any of the raise was built into that. As far as the clinical trials and helping it to offset, I don’t know, Vishal, if you want to…

Vishal Sikri: Yes. I mean, we are obviously in a lot of discussions with the different pharma companies and building that into their clinical trials, but it’s relatively early still, and how MRD is going to be looked at, even from an FDA perspective, from a clinical surrogate biomarker perspective, there’s a lot of discussions ongoing. So at this time, I would say we’re still early on with that process.

Unidentified Analyst: Understood. Our next question is on neo-comprehensive. Just a general update on how the uptake has been on that panel and the feedback from the community there. Thank you.

Chris Smith: Yes. So I think as you probably know, I mean, we’ve been the market leader in heme. And I think we continue to do fantastic on heme. We felt like we were behind on solid tumors. So we brought that product out. I would say that we’re already developing our next-generation solid tumor, which will come out. Our target is probably Q2, Q3 of next year in the clinical side of that business and earlier in pharma. And I think the way that we’re really thinking about it now that we have a competitive solid tumor offering is a portfolio. And what we’re really focused on in the whole portfolio of NGS is that we want that to grow above 20% because the market is growing above that or at that or above that. So look, I think as we stated in the script or in the prepared remarks that we’re growing significantly faster than that, we don’t really break out like individually how much in heme or how much in new comprehensive, but I think it’s a product where we’re getting out in front of our customers.

And a lot of times, it’s new customers where we just hadn’t had solid tumor business or we had possibly lost it in prior years because we didn’t have a competitive offering.

Warren Stone: And maybe just building on that in terms of the sort of portfolio aspect, in addition to the physical product, we launched some of the sorts of the tech elements, which was the near access near SEQ, which are digital tools, which are really enabling the oncologists, etcetera, which is also proving to be very positive amongst both existing customers and new customers, which was obviously part of the strategy of acquiring new customers for this portfolio.

Unidentified Analyst: Got it. Appreciate the response there. Thank you.

Chris Smith: Thanks.

Operator: Thank you very much. Your next question is coming from Alex Nowak of Craig-Hallum Capital Group. Alex, your line is open.

Alex Nowak: Great. Good morning, everyone. With regards to RaDaR and the breast indication by Medicare, could you just kind of walk through the logistics of recurring tumor samples in patients 5 years after diagnosis? Just how many patients can you still get access to that tissue sample call it, a longer time after the diagnosis actually occurs?

Chris Smith: Vishal, do you want to take that?

Vishal Sikri: Yes. I can take that. Alex, so one of the things that we’ve been out there now since March, and we started what we call the clinical evaluation program. And we’ve focused our energies on a clinical evaluation program in applications that we know we were going after in – from a box Medicare reimbursement perspective. So this is one of the things we did look at, how hard has it been to get access to these samples that are posted here? And I would say that because of our relationships with the hospitals that we have, actually, that hasn’t been the biggest challenge for us at this point as to getting access to the tissue through a clinical evaluation program, we are getting tissue in the door and educating the oncologists as to the value of the RaDaR test even in this type of setting, which is more surveillance.

Alex Nowak: Okay. Excellent. That’s great to hear. And then there’s been some more talk recently about the FDA putting out another proposal, which in regulated lab development has. And we’ll obviously have to see if that proposal even comes out or if the proposal will even go final. But maybe just to preempt it a little bit, remind us how many LDTs as Neal sell today? And any rough game plan that the team’s talking about internally on how to push us through a regulatory pathway, it would ultimately go final.

Chris Smith: Yes. So look, I think as you probably know, I mean, ACLA is pretty close to that, and a lot of us in the industry are on that board. And I think there’s a lot of dialogue going back and forth. I think that our belief is that the FDA is definitely going to have an influence in this industry. And so I think when we all got together as a leadership team about a year ago, we brought in someone to run the quality kind of regulatory side of our business that had FDA experience. And so we’ve started that process already internally with the belief that things are coming. I think – look, I don’t want to speculate on this because there have been a lot of speculations whether old tests that have been around for a long time, get grandfathered, our university hospitals carved out?

Is it going to be stuff around NGS? So I think, again, we’re waiting. We think something is going to come out in late August or September. And I think our view has been really over the last 6 months to begin to prepare for when something does occur, that we’re ready to react.

Alex Nowak: Alright. Excellent. Appreciate the update. Thank you.

Chris Smith: Alright. Thank you, Alex.

Operator: Thank you very much. Your next question is coming from David Delahunt from Goldman Sachs. David, your line is live.

Chris Smith: Hi, David.

David Delahunt: Hi, guys. Congrats on the strong quarter. So really pleased to see the first positive MolDx coverage decision for breast. I’m curious if you could help us understand what the broader coverage definition could look like that I believe you said you’re going to pursue later this year. And it sounds like this is more of a surveillance purpose. Are you going to pursue coverage for therapy response monitoring at some point?

Chris Smith: Yes. So two things. I’m going to hit the hit, and then I’ll turn it over to Vishal. Look, I think, as you probably know, this is a pretty competitive market. right now, not only in MRD, a lot of people have products under development or a lot of activity there and, obviously, in places like NGS. And so we really don’t disclose kind of the details, but I think Vishal can probably give you more coverage about how we’re thinking about stuff going forward.

Vishal Sikri: Yes. I mean, if you look at where MRD is being utilized, right? So if you Surveillant is one aspect of things. And what’s really nice about looking at Surveillant 5 years post is that a lot of women do recur 5 years. And oncologists are worried about these women and it’s such a tool that we can provide now to help in that effort. But going into the adjuvant setting, going into the neoadjuvant setting is another place where we’re obviously paying very close attention to and are working toward studies and coverage in that area as well. So I think you’ll see that. But I think our focus is very much in commercializing now post 5 years, but also, at the same time, coming out with publications in the other settings where MRD is being used, which is in the neoadjuvant and the adjuvant setting.

David Delahunt: Great. Thanks. And it’s good to see the increased profitability and gross margin. Is there any updates you could give us about the lab automation efforts in California and Florida?

Chris Smith: Yes. I mean I think Mel’s on the call, and Mel can add some additional color. I mean, I think there’s – we talked about this back when Catalyst was initially formed last summer that kind of rolled into what we call value capture. A lot of those initiatives were around driving operating efficiencies within the lab. I would say the bigger, longer-term is around automation. I would say that depending on the lab, we have a level of automation. But Melody, do you want to kind of update kind of where we are in that process?

Melody Harris: Yes, sure. In particular, we’re focusing on the newer product lines around NGS. And so we are in the process of adding what I would call a little bit of opportunistic automation. So we’re adding liquid handlers and things into those lines. We are just kicking off an effort that will explore wider end-to-end automation, and that’s something that you’ll be seeing from us in the coming quarters.

Chris Smith: Thanks, Melody.

David Delahunt: Great. Thanks, guys.

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

Chris Smith: Hi, David.

Unidentified Analyst: I am actually, John on for David. Thanks for taking the question. So you got the sense that utilization was high across the industry in the quarter. What’s your sense for if you’re gaining share?

Chris Smith: Yes. Look, I think we believe that we are – I mean, I think we’ve talked about this that each quarter, we’ve been winning more than we’re losing. And I think that’s an important indicator. I think the other thing is if you look at all our modalities, they were up pretty close to right at high single or double digits. And a lot of those modalities are growing 2% to 4% per year. So we’re growing faster than the market. Obviously, NGS, we grew significantly more than 20%. So our belief is that we are moving share. Warren, do you want to comment a little bit more?

Warren Stone: I think it highlights, I think the growth was really brought back – it came from all of the modalities and both some of the sorts of legacy or traditional mobilities grew, as Chris said, well above market as far as we are concerned. And then Cherito remains our strategy to focus on NGS. And it’s a combination of those two and the disciplined execution that’s driving the results.

Unidentified Analyst: Okay. Great, thank you.

Chris Smith: Thank you.

Operator: Thank you so much. Your next question is coming from Mark Massaro of BTIG. Mark, your line is open.

Chris Smith: Hi, Mark.

Mark Massaro: Hey, Chris, congrats on a great quarter. So about 5 months ago, you guys launched Neo comprehensive solid tumor and Neo comprehensive myeloid disorders. And of course, you also launched RaDaR into the clinic. Can you just give us maybe an update as to which of those might have benefited you in Q2? And can you give us a sense for what some of the gating factors would be, I would think reimbursement would be one of them. But just general commentary about those product lines and how they might have contributed in Q2?

Chris Smith: Yes, I’m going to let Warren kind of take that because we really do talk about this portfolio, but I do know there was some good reimbursement as opposed to the launch of Neo comprehensive, but do you want to give more color?

Warren Stone: Yes. So I think, again, as Chris said earlier, it’s really around – and you touched on it to a suite of products that we launched in the latter part of quarter one, all of them NGS focused. And ultimately, if we look at that performance and aggregation, we’re very pleased in terms of how things are developing, and they’re actually collectively ahead of internal expectations that we set ourselves. From a reimbursement perspective, within the suite of products that we launched in quarter one, it was only RaDaR where we were working towards reimbursement at that particular point. And I think Vishal has covered that on the call already. In addition, we have seen some – we do see some opportunity down the road for some further enhancement from a reimbursement perspective around the suite of products that we launched, which was sort of part of the strategy that led us to actually develop these products in the first place.

Vishal Sikri: Yes. And I would add, I mean, the relatively new products, so they’re ramping. So some impact, but not a huge impact in the second quarter. We’re expecting to see more as the quarters progress.

Mark Massaro: Okay. Great. And then just a second question here. I wanted to get a sense for how you see your NGS volume continuing to grow. I know occasionally, I get questions from investors that don’t even understand which NGS products you have because it generally hasn’t been a focus for Neo over the years. But maybe just giving us a sense for what’s been driving the growth? I think – I imagine it’s probably some of the smaller panels. But when do you see maybe the bigger panels starting to kick in as we think about 2024?

Vishal Sikri: Again, a great question. So I think if we look at the NGS portfolio per se, obviously, we have the portfolios were both in the heme and in the solid tumor. The heme’s been more, I would say, traditional and we classify ourselves as a market leader in that space. And despite that, we’re still seeing very attractive growth rates probably above market in terms of how we define market growth in the heme space. The solid tumor is where we did launch the suite of products earlier on this year. And those are, obviously, as a percentage, obviously growing exponentially more, but it’s off a smaller base. And as Jeff said a few minutes ago, those are the ones that continue to ramp. So we’re really benefiting from strong demand from NGS on the heme side of things, where we have a strong base, which is being supplemented by some very solid growth coming from new products, also supported again by those above the test solutions that we launched in conjunction, so near access and Neos.

Chris Smith: Yes, Mark, I think a couple of things to think about. I think you highlighted, I think we were behind, candidly, on NGS. And I think there’s been a significant focus. I think in the quarter, kind of two unique people. We hired a Vice President really of payer relations on the reimbursement side, and Vishal hired a new Vice President of Global R&D. And I think if you think about where we’re spending our time right now, it’s expanding that portfolio and NGS, especially solid for the years to come. So look, there’s, I think, high expectations internally that we need to be bringing new innovations to market because we are behind. So I would say that there’s a huge focus in the organization there kind of getting back to where we believe solid was going and making sure we’re getting more than our share.

I think the other thing that Warren touched on that, I think we’ve really under-talked about was these wraparound services. I mean, this is a service business, and everybody can run an NGS test and get a result, but it’s really around the customer experience. And I would say that all of the stuff that we’re even talking about today, while there’s products to them, it really is about this service offering that’s focused on patients and customer experience and how do we make it easy to do business with Neo, which I don’t know that it always was. So that would be the other thing I think that’s helping us.

Mark Massaro: Alright. Thanks so much.

Chris Smith: Thank you.

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

Tejas Savant: Hi, good morning. And congrats on the strong quarter here. Maybe one on ADX for you, Chris, and Vishal. Feel free to chime in as well. You talked about the tougher comps in your pursuit of profitability here heading into year-end in the first half of ‘24. But how do you see that sort of unfolding in light of the tougher macro backdrop and perhaps pushback on pricing from some more budget-conscious customers? And is there anything in the back half guide that you’re baking in for those headwinds?

Chris Smith: Yes. Look, I think, I mean, obviously, pricing believe is a challenge, right? I mean, I think I don’t know that I’ve ever been in a business or a time in healthcare, and I don’t know, 35 years where it wasn’t. I feel like we have not been impacted by that. I think we’ve been pretty open and honest about that we did do price increases, and we believe that we were in certain cases out of the market from a pricing perspective. So the thing that I love about it, it creates a conversation with a customer. And so why we may have a set target internally on a price increase, we may not get all of that, but we get something and we have those conversations. So I don’t know that that has had a big impact. I will say closing some of these international pharma locations has impacted our business, and we knew that kind of going in when we made that tough decision.

But I feel like that’s all been taken into account when we raised the guidance on revenue growth. Do you want to – I got Vishal here and Tasman let Vishal comment a little bit more about the pharma and what’s going on in the macro.

Vishal Sikri: Yes. Let me tell us, I mean, the way I look at this is that because of the broad offering that we have, we’re not just offering one test, which is what some of our competitors are doing. We have multiple tests that we offer, whether it’s an IAC, CyTOFs NGS. It’s all about having that balance in general, right? So I think where we see potentially where in the past, where we were focusing heavily on, let’s say, IAC. Now we’re focusing more on the NGS side of things so that we can actually have better margins accordingly. So it’s really this balance. So, because of the broad offering that we have right now, I think we are able to manage that accordingly. Which is a similar strategy in the clinical, right, and we think that you can really come to Neo and meet all your cancer testing needs, which you can’t do with a lot of our competitors.

Tejas Savant: Got it. And then a quick follow-up on sort of the exit trends in ‘23 and ‘24. Chris, I mean is there any reason why you wouldn’t be able to grow the top line in that sort of low teens range next year? Gross margins, I mean you have done – you have had some terrific progress there over the last few quarters here. Obviously, it can’t continue up like in the several hundreds, but certainly, on a full-year basis, approaching sort of 50%, is that sort of a fair yardstick to use as we think about 2024?

Chris Smith: Yes. I am going to let Jeff kind of highlight a couple of specifics. But look, we believe that there is a significant opportunity in this business. And I think if we talk about this, I had it in my prepared remarks. It really was about focus and execution. And I think what you are starting to see is our ability to really utilize this broad footprint of our lab, but also our commercial organization that’s not just focused on oncologists, but also pathologists and be able to pull through multiple tests. So, I think that’s helping us on the revenue. If you think about the operating efficiencies of the profit side, it really is about improving that gross margin consistently and then being more diligent on OpEx. I think look, candidly we were kind of out of control several years ago and spending a lot faster than revenue was growing.

And I think that hurt the business. So, I think a lot of this is around diligence and execution. But as far as how far we can go, Jeff, do you want to comment, I know you have talked about this publicly.

Jeff Sherman: Yes. So, I would say, first of all, this year, we have seen very strong revenue growth, and we have seen very strong pull-through on the bottom line. And I think we are focused on what are the levers that are going to drive our operating performance. So, top-line revenue growth is certainly one, being more efficient on the gross margin side through automation and some of the things that Melody and her team are working on to drive adjusted gross margin is another and then really getting operating leverage on the OpEx line as well. So, I would say we are not going to get into 2024 yet, but I think we had good momentum in the business. We are continuing to invest in our sales force, and you are going to continue to see resources being added there.

We clearly think we are seeing the benefit from that on the top-line revenue growth. And so as we look at 2024, it’s really about what are those levers again that are going to drive improved margin performance. So, it’s top line revenue growth. It’s focusing on higher-margin tests, NGS growth, continuing to see revenue cycle management improvements, which we have benefited from this year, and then getting operating leverage from a cost management side. So, I think the team feels good that we continue to have a lot of opportunities to capitalize on as we go into 2024, and we will certainly talk more about that as we exit Q4 and give guidance for next year. But we think we are on a good trajectory, and we expect to see continued improvement as we go into next year.

Chris Smith: Yes. You kind of remember this from our old life together where I was, look, high water covers a lot of stumps. And I think especially, look, if you are driving revenue above market, in a market that’s growing, pick a number, 6% to 8% in unit, like I think it creates huge opportunities, especially when we look at things like NGS, which have higher margins. So, I think that’s been a big focus on ours is driving revenue growth.

Tejas Savant: Very helpful guys. Appreciate the color.

Chris Smith: Thank you. Take care.

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

Chris Smith: Hey Derik.

Derik De Bruin: Hi. Good morning. Thanks for taking my question. Just sort of following up on some of the things that Tejas was asking. On price, obviously, there is a lot of companies that are introducing or have solid tumor and heme panels on the market. What’s the pricing dynamic in that thing? I mean are you pricing on par with peers, or are you pricing a little bit less? I am just sort of curious in terms of how the competitive dynamic on that is since there is a lot of companies that are out there doing it?

Chris Smith: Warren, do you want to take that?

Warren Stone: I don’t think there is a significant difference in price in terms of how we are going after gaining market share here. We are very much in a very similar ballpark. And obviously, as you know, it also depends on how we build to the various customers, whether it’s a client bill or if we build into third-party payers, etcetera. But I can’t say that when we look at larger panels and compared to the competition that our price positioning is in any way, meaning to be different from those people that we are competing with. It’s in a very narrow band.

Chris Smith: Yes. I think Derik, a lot of it is not only the price in the pull-through on reimbursement. And I am surprised that this industry, just in talking with my peers, how many people are not getting paid for the work they do. And that’s been a huge initiative for us. And I would say, we talk about building out sales, but I would say it’s really building up the commercial organization and being innovative and strategic and making sure that we are getting paid for the work that we are doing. And that’s – look, we think we have years to go there on what we call our revenue cycle management initiatives, but that has been a huge impact, so helping our pricing. As we get paid.

Derik De Bruin: Yes. You actually just preempted or started to go on to my next question on this one in terms of the payer dynamic. And obviously, there is a lot of these companies out there, like what is the pushback from payers and they don’t pay you, right? Obviously, there is value in sort of doing the NGS testing. But when you don’t get paid, what is the pushback? And how do you offset that?

Chris Smith: I mean there is a whole host of issues. Sometimes it’s prior authorization, sometimes there is a medical necessity, sometimes it’s medical records. And so I think – and sometimes we may not even have a contract. And so I think there is a host of reasons for us. And I would say we are focusing on kind of driving all of those down using automation, getting information more upfront even before we start the testing process. So, I think it’s been a focus area of our team really starting in the back half of last year, and we have seen good progress throughout this year and still think there is a lot of runway. And then on the managed care pricing side, it’s really about how we go to market there, getting tests covered isn’t just pricing.

It’s getting tests covered as well. And so we have added some resources with expertise to help us not only get contracts, but gain coverage for individual-specific tests. Yes. And I think the one thing that is a little bit different from us and some of our competitors is we have a lot of contracts over – we have over 200 contracts with payers. So, I think it’s a lot different when you have a contract versus you are running a test without a contract. And I think that’s been a strategic decision is that we will have contracts and we will have GPO contracts. And I think that’s probably helping us as well.

Derik De Bruin: Great. Thank you very much.

Chris Smith: Thanks Derik.

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

Chris Smith: Hey Mike.

Unidentified Analyst: Hey everyone. This is Joseph on for Mike. Maybe starting off with S&M, it’s been taken up the last few quarters. You are in this, like, I guess, you could say soft launch of RaDaR. I believe you kind of had mentioned that, you won’t be giving out free, but maybe give it out more selectively. But as you are – as you have received reimbursement from Medicare and then one private payer, is the decision to start ramping that expense a bit more, or do you think the idea is more way for expanded breast or another indication covered before we start seeing that ramp-up?

Chris Smith: Look, we have talked pretty openly about our field expansion plan this year and that we had talked about, I think adding more resources in the second half of the year. That’s built into the guide. So, what we have guided you on that has that additional expansion in the field organization. I think from there, as we go into ‘24, we have also talked about, look, I think that this industry does not operate very efficiently from a sales force perspective or what we call sales optimization. And so a lot of focus on tools and resources to make our current field organization significantly more efficient. And so not spending time doing things that aren’t driving revenue. And that’s really a ‘24 activity. So, you won’t see a huge expansion in ‘24 because we believe we can get significantly more efficient and go to market with what we have got to get to the numbers that we want to get to.

Unidentified Analyst: Okay. That’s helpful. And then maybe at the Investor Day, you guys had detailed the expectation to return to historical margins by 2026. Maybe given all the success so far on the top line and the operating leverage you guys have seen plus the comp since the call today. Is there any reason why that milestone couldn’t come sooner, say, in 2025? But yes, I just wanted to get your thoughts on that.

Chris Smith: Yes. We are clearly ahead of where we said we were going to be for this year, and we see a lot of room. As I have said, a lot of drivers are going to help improve the company’s performance. And the team is clearly focused on that. We are not going to get into any more long-term guidance at this point. But I think, look, we are headed in the right direction. We have good momentum. We have a lot of levers we are executing on, and so we expect to see the performance continue to improve, and we are clearly ahead of where we thought we would be at Investor Day and have raised guidance now two quarters pretty materially from where we started the year. So, I would say, yes, we expect to see continued progress, and we are definitely ahead of where we expected to be at Investor Day.

Unidentified Analyst: Okay. Thank you. Congrats on the great quarter.

Chris Smith: Thank you.

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

Chris Smith: Hey Mason.

Mason Carrico: Hi Chris. Maybe just a couple of quick ones here for me on the breast cancer indication. First off, just high level, what’s demand look like in this patient population? How often are these patients, 5 years post-diagnosis, no active disease seeing their oncologists for a follow-up? And what does compliance to that follow-up schedule look like generally?

Chris Smith: Yes. So, if we look at the population itself, right? I mean we did get it in the most common subtype of breast cancer, which makes up approximately 73%, 74% of all breast cancer cases. If you look at post-5 years, you will have over 27% of all breast cancer survivors living with a personal history. And they do go and see their oncologists on a regular basis because one of the concerns oncologists are telling us that they have with this population is that a large percentage of these women do recur post-5 years and the only tool that they have – primary tool that they have right now is looking at imaging. So, any tool we can provide them to help with that effort does help. So, from that perspective, imaging is typically done once or twice a year, depending on the oncologist. And we really have mimicked based off that as to how frequent the testing will occur. And that is what is also shown in the coverage that we got.

Jeff Sherman: Yes. And I think if you look at the data we presented, RaDaR picks it up significantly sooner than imaging. And look, it’s still early days with MRD. But I think if you look at all of these aging population and doing annual checks, whether it’s breast or prostate or whatever it is, I think the reality of life is that preventative health, people are going to start checking more and more. And so look, like we have said, it’s early days. I think the other thing is that we felt like we wanted to get a certain indication in through MolDX and get approval. I think this is a brick-on-brick process. I think where we made a mistake in colorectal is we, I don’t think had a strategic approach. So, I do want to be clear, we are not stopping with just a portal, like as Vishal mentioned, we will submit on expanding towards the end of the year. So, it is an ongoing basis. It’s just not one-and-done.

Mason Carrico: Got it. No, that makes sense. And do you have the opportunity for ADLT pricing for this indication? How are you thinking about that? If you do, when do you plan on filing? Any color there?

Chris Smith: Yes. I think ADLT will be difficult for this indication in particular, but we were looking at other applications more than just this indication.

Mason Carrico: Got it. Thanks guys.

Chris Smith: Thank you.

Operator: [Operator Instructions] Your next question is coming from Andrew Cooper of Raymond James. Andrew, your line is live.

Andrew Cooper: Hi everybody. Thanks for sneaking me in. A lot has already been asked. So, maybe just one on the ASP trends to start, trying to get an understanding of how much of this is mix driven versus like you mentioned, Chris, earlier, better collections, better revenue cycle success. So, can you give us a bit of a sense for kind of what’s driving what in ASPs?

Chris Smith: Yes. Look, I think we talk about units and pricing, but we don’t break out like individually. And I think the reason is because it is a portfolio effect. And so I think it really isn’t just one thing driving its multiple. But Jeff, do you want to speak…

Jeff Sherman: Yes, I think that’s right. And I think the mix will change from quarter-to-quarter, but I would say we are seeing strong NGS growth driving it. We are seeing pricing increases both for our direct client bill and some of our payer contracts, and we are seeing a revenue cycle. So, I think those will shift and can change from quarter-to-quarter, but we have got teams focusing on all three of those and continue to see opportunities there into this year – into the back half of this year and into next year, and I would say, years to come, really, as we think about, as Chris said, the revenue cycle opportunities and just overall pricing increases to help offset the cost increases we experienced as a company. And we hadn’t done that as effectively historically, and I think we are much more focused on it now.

Andrew Cooper: Great. And then maybe just one more, it’s already sort of been touched on, but just as you had your folks in the field, specifically selling into the oncologists for a little bit of time now with Neo comprehensive, really more recently with RaDaR and RaDaR with coverage. Anything that’s changed the way you think about that build-out and that optimization of that sales force in terms of where you send them, where they’re focusing, anything on that front or anything that surprised you out of kind of the early days of each of these respective launches.

Chris Smith: Yes. I think we’ll certainly be getting a lot more experience now than what we obviously had before we started. And I think some of our assumptions have held true. Others have changed slightly. One of the areas that transparency, it’s obviously a space where we haven’t had as much access as what we may be had in hospitals, etcetera. So, access has proven to be a little bit more challenging. So we’re equipping the team with much more specific targeting data and sort of very clear reasons to call, so to speak so that we could address some of the access challenges. Also, as we look to recruit additional people through the investment, making sure we’re getting those people with relationships is a second way that we’re looking to address the access challenge as well.

So that’s the one. I think the second is also that maybe some of the selling or some of the buying is starting to take place significantly higher within organizations than maybe what we’ve received before. So not only a bottom-up strategy, which is important when you’re introducing new emerging technologies, but also focusing on the top-down sort of strategy as well, was maybe an area where we’ve identified an opportunity, and we’re looking to calibrate moving forward. But I’d say the majority of our assumptions have held true.

Warren Stone: And I think the other one you’ve talked about is just it’s a different buying cycle than we used to and maybe like that we – our NPS is higher, about our overall NPS, but why it’s higher…

Jeff Sherman: So maybe that’s a good quarter. Thanks, Chris. One of the things that we do regularly is get feedback from our customers and a broad cross-section of customers to understand their experience with Neo and classical NPS processes and other processes. And what we definitely see is as we segment between our traditional hospital segment where we’ve been very strong and maybe some of the community oncology setting, there certainly is a delta in how we perceived and it’s got a little bit to do with – actually a lot to do with how sort of buying decisions are taken and the buying process in the community oncology setting versus the hospitals. And we’re adjusting our internal processes here to accommodate that.

The Neo access product that I spoke about earlier is a big lever for us here because that certainly streamlines the ordering process and provides access to a wealth of information that’s relevant to that target segment. So again, we are adjusting our processes internally to cater for different market segments.

Chris Smith: Yes. And I think the other thing that we kind of learned is that by not – and we talked about this when we did it, we were going to pace the expansion of the field. And so rather than going out and hiring everybody, I think one of the things that we’ve done is we’ve learned and we’ve adapted. For example, we just had Neo University, which is our summer sales meeting where we brought in the whole field organization, and it’s all-around training. So everybody does the sales meeting at the end of the year, which is kind of more pomp and circumstance and you set the goals and the strategies. But this was intense training. And I think that’s what you’re going to see is that look, we’re going to make decisions, we’re going to learn, we’re going to adapt and we’ll keep moving forward.

And I think learning about this buying cycle and how we do things is making a benefit. And I just got told by Kendra that we’re out of time. So anyway, thanks, everybody, for the time today. We really appreciate you dialing in and spending a little bit of time hearing how the business is moving forward, and we look forward to talking to everybody soon. Take care.

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