Q3 2019 Earnings Call
Please standby.
All lines have been placed in listen only mode. After the presentation there'll be a question answer session. If you should require assistance during the call. Please press star zero in an operator will assist you at this time, it's my pleasure to turn the floor <unk> Mr., Doug Vanoort, Chairman and CEO Mr., Ben or the floor is yours.
Thank you Tom and good morning, everyone.
I'd like to welcome everyone to Neogenomics third quarter 2019 conference call.
Joining me for murder Fort Myers headquarters is Rob Shovlin, President of our political Division George Cardoza, President cover Pharma services Division.
Bill Bonello, Chief strategy, and a corporate development officer, and director of Investor Relations and Catherine Mckenzie, Our Chief Accounting Officer.
Before we begin our prepared remarks, Bill Bonello will read the standard language about forward looking statements.
This conference call may contain forward looking statements, which represent our current expectations beliefs about or operations performance financial condition and growth opportunities.
Any statements made on this call that are not statements of historical are forward looking statements. These statements by their nature involve substantial risks and uncertainties certain of which are beyond their control should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect actual outcomes and results could.
Really from those indicated in the forward looking statements.
Any forward looking statements speak only as of today and we undertake no obligation to update any such statements to reflect events or circumstances. After today.
Before turning the call back to Doug I want to let everyone know that we will be making a copy of our prepared remarks spread this morning's call available on the Investor Relations section of our website. Shortly after the call is completed we also won they let everyone know they were going to limit the number questions to two per person in order to give more people a chance to.
Good question within the one hour limit that has been a lot it for this call.
Thank you Bill.
For today's call I'll briefly review some quarter three highlights Katherine Mckenzie will then provide a more detailed reviews the financial results.
And I'll then sure with you several initiatives and investments that we're making to drive both near term and long term growth.
Well they have time for questions and answers.
Let's begin with border three highlights.
[laughter] quarter three results were excellent.
We have significant momentum heading into the end of the year.
Revenue increased 51% year over year to $105 billion, whereas organic revenue growth once again greater than 20%.
Adjusted EBITDA increased 32% year over year to $15 million, both divisions had very strong performance.
[laughter] clinical division test volumes increased 35% year over year with combined company organic volume growth approaching 13%.
Year over year growth rates have accelerated each quarter since acquiring genoptix late last year.
We once again drove growth across all testing modalities.
Next generation sequencing in molecular testing growth rates also accelerated and we're well in excess of 50%.
We believe those growth rates reflect a steady increase in market share with very high rates of the customer retention in both the legacy Neogenomics and the Genoptix customer base.
[laughter] critical division revenue per test increased 15% to $369, marking the fifth straight quarter in which revenue per test as increased on a year over year basis.
That increase primarily reflects the addition of Genoptix and a favorable change in the mix of test volume.
As expected revenue per test increased sequentially as we continue to work through and transition genoptix reimbursement to the Neogenomics managed care contract rates at slightly more favorable terms unexpected.
[noise] pharma services revenue increased 26% year over year to $12 million.
New bookings in the quarter were a record $28 million and the backlog increased 22% year over year to more than a $118 million.
We achieved outstanding revenue increases in flow cytometry, and very strong increases in immunohistochemistry.
We opened our new office in Singapore during the third quarter as our global expansion remains on track and we are winning global studies as a result.
The pharma business has great momentum and is well positioned to capitalize on a robust environment for oncology therapy development.
Importantly, we also saw significant growth and profitability.
Gross margin increased nearly 200 basis points year over year, and 50 basis points sequentially.
48.6%.
Adjusted EBITDA grew 32% to $15 million and we're very pleased with the increase in profitability, particularly since we increased our R&D spending significantly and the Genoptix business is initially dilutive to EBITDA.
Adjusting for the impact from the Genoptix business, the incremental EBITDA contribution in the quarter approximated approximated, 25% inline with our long term guidance of 25%, a 35% EBIT contract EBITDA contribution on revenue growth.
In summary, we are pleased with a quarter three results and feel good about our outlook for the future.
I'll now turn the call over to capture in Mckenzie, our Chief accounting officer to discuss some of the details of quarter three financial results.
Thank you that.
I've already touched on some of the high plains of revenue and profitability. So I'll focus my commentary on some of the other important financial metrics in the quarter.
Our average cost of fiscal preclinical testing also known as our cost per cap decreased 4% year over year on a pro forma basis to approximately $190. Despite adding 124 net new employees during the quarter.
We continue to benefit from increasing scale automation and process improvement.
On a reported basis cost per test increased 12% year over year due to the addition of Genoptix.
For test increased 2% sequentially, reflecting the impact of additional employees hired during the quarter to support our rapid growth as well as our test mix shifting to higher price and higher costs Ngs panel.
While we continue to expect to drive reductions in cost per test going forward. The reductions may be mitigated to some extent by continued test mix shift to higher cost next generation sequencing panel.
As a reminder, these next generation sequencing panel also on higher revenue per test and higher margin.
Although the year over year decline, maybe lower than normal in Q4, two to the high level of investment made to accommodate growth and upgrade our next generation sequencing products and capabilities during the quarter.
General and administrative expenses increased 57% or $12 million year over year to $33 million, primarily due to the addition of Genoptix.
<unk> expense increased by $3 million sequentially, largely due to the influx of new hires incremental growth related investments and other onetime item.
Sales and marketing costs increased 67% year over year to $12 million driven by the acquisition of Genoptix and the expanded five of our sales teams on both the clinical and pharma side of the business.
Research and development costs increased nearly fivefold driven by continued investments in new test development, including our next generation sequencing and FDIC initiative.
We exit Q3 $179 million in cash and $109 million and that.
We have approximately $115 million availability on our credit facility.
Dsos declined four days year over year, and one day sequentially to 80, Dave.
Cash collections were especially strong in the quarter.
Cash flow from operations was strong at $19 million per quarter.
We are increasing our full year 20, nice revenue and earnings guidance.
We now expect consolidated revenue to be in the range of $401 million to $406 million versus our previous guidance of $388 million to $402 million.
We now expect adjusted EBITDA to be in the range of $56 million to $58 million versus our previous guidance of $54 million to $58 million.
The increase in guidance reflects a better than expected third quarter results and our growth momentum I will now turn the call back over to dots to provide commentary on our key growth initiatives.
Thank you Catherine.
Before addressing your questions I'll share some thoughts about our business.
As you can tell from our quarterly results, we continue to benefit from our position as a leading cancer testing provider in the United States.
Where we are experiencing very high growth in both divisions and our outlook suggests that that growth is likely to continue with our foreseeable future.
In the clinical division, we have recently added some of the largest and most recognizable hospital systems and oncology practices in the country with most of that business still in front of us.
And in the pharma services business, our backlog of signed contracts is larger than ever and our pipeline remains robust.
With that his background I'd like to focus my comments on two key topics.
First actions that we're taking to focus and fortify our operations to accommodate high levels of growth, including the final phase of the Genoptix integration.
And second investments, we're making to enable those high level high levels of growth to continue well into the future.
In terms of fortifying our operations. We've recently taken a number of actions to maintain a laser focus on execution and to ensure that we consistently deliver exceptional service that is expected of us.
First we hired and Onboarded almost 200 fulltime employees during the quarter.
The additional technical staff and pathologist has put us in a much better position to accommodate continued growth while maintaining exceptional service.
Second we added much needed facility capacity in Fort Myers, and Elise Oviedo. This is providing additional lab an office space to accommodate existing volume and allow us to have capacity until the new Fort Myers headquarters and lab facility is completed in 2021.
Third we significantly upgraded our next generation sequencing instrumentation and ask days during the quarter.
We moved our assays to the high throughput noahs seek instruments upgraded our chemistry and optimized our pipeline.
We also incorporated emphasize thats microsatellite instability, and TMB tumor mutational burden into most of our ngs panels.
David our Gls and upgraded our physician reports.
With ngs growth rates well over 50%. These upgrades are providing us with much needed capacity higher quality and the ability to streamline and further automate the workflow and processes.
Fourth.
We delayed the planned migration of Genoptix customers to the Neogenomics systems and processes by three months.
This is providing our teams additional time to finalize plans and prepare more thoroughly for a seamless client migration process.
We feel very good about the Genoptix integration.
Well, we made a decision to delay we are on track with all other integration activities and synergies are tracking as expected.
Customer retention is our top priority during the integration period and so far so good.
In fact, we have already stemmed the volume decline occurring when we took the business over and organic growth for the combined company has been better than we expected at the beginning of the year.
We also passed on several smaller M&A opportunities, which could have been a distraction to our teams.
With these actions we feel that our lab operation is ready to seamlessly complete the genoptix integration and we'll be in great shape to accept greater volume with higher levels of productivity and efficiency.
Now, let's turn our attention to investments, we're making to enable high levels of growth to continue well into the future.
I will highlight just a few of these investments this morning.
First we continue to invest in new test development, particularly in next generation Seca sequencing.
We are in various stages of development with several next generation sequencing panels, including a comprehensive genomic profile for hematologic cancer, a 500, plus gene solid tumor profile, a suite of liquid biopsy offerings and ngs based tests for minimal residual disease.
Yes.
We have a well defined plan and a much broader and deeper organizational capability to execute it than ever before.
Second.
We continue to invest in companion diagnostics.
We have a unique and powerful capability to help develop invalidate companion diagnostic tests and too quickly respond to new drug approvals with that timely launch of companion diagnostic test.
Among the most important of those capabilities is our wide scale and scope across pharma and clinical markets.
Broad reach to oncologists, and pathologists and access to a massive quantity of oncology specific test result data.
Few labs have our same ability to take an oncology companion diagnostic test across the continuum from development through clinical trials and into the market.
This capability is clearly a synergy of operating both the pharma services and clinical services operation focused in oncology and increasingly our services are of interest to both pharma and clinical clients.
We are currently winning pharma services business because of our companion diagnostic capabilities and boosting our clinical services market share by being first to market with companion diagnostic tests.
We have a track record of responding quickly to new drug approvals I'll give you several recent examples.
We already have several often offerings for end track, including.
40, our K inhibitor therapies, including a small fusion panel incorporating and track one two and three.
Immunohistochemistry, and TR case screening panel and the fish and track one two and three assay.
We have also incorporated and track into our neo tight next generation sequencing panels.
We have also been a leading provider if not the world's leading provider of PDL, one testing for lung cancer and other neoplasms.
And we were quick to market with the SD 142 assay for triple negative breast cancer as well as assays for other new indications.
We have talked at length about Pixthree, CA, which is the companion diagnostic for Novartis take break and have seen uptake that is even better than we expected.
We also were quick to market with the Cogent Therascreen companion diagnostic PCR assay for FGF far in metastatic bladder carcinoma.
And we have already including included read into some of our small fusion panels and have incorporated rep testing into several of our neo type offerings.
In addition, we have over two dozen companion diagnostic assays in our pipeline of signed projects for a variety of pharma and biotech companies and are increasingly in discussions to add to the pipeline.
Finally, we have begun to make initial investments in data and informatics.
We're quite excited about the possibilities here.
Over the past year, a number of leading payers providers and pharma services companies have approached us to partner on data and informatics related issue initiatives.
We have developed their strategy and plans have begun to build our team and our investing to develop our capabilities and initial products.
Areas of particular interest for US based on market research include clinical decision support.
Real World analytics clinical trials matching and several other exciting ideas.
We anticipate that informatics and data will enhance our competitive position in both clinical and pharma services and eventually be an incremental source of revenue for the company.
The need for precision oncology diagnostics is growing and changing rapidly.
We believe that investments in advanced technologies companion diagnostics, and informatics have the potential to create exciting opportunities for future growth and continued market leadership for our company.
In summary quarter three results were extremely strong and we feel good about our momentum heading into the rest of the year.
More importantly, our leading position in the market is proving to offer significant sustainable competitive advantages today and in the future and we remain committed to further strengthening that position over time.
I'll now hand, the call back over to build Brunello to lead us through a question and answer period.
At this point, we'd like to open up the call for questions Incidentally, if you're listening to this conference call via webcast only and we'd like to submit a question. Please feel free to email us at Bill Dot Bonello at Neogenomics Dot com during the Q and a session and we will address your questions.
At the end.
The call if the subject matter hasn't already been addressed by our call in listeners as mentioned at the beginning of this call we would like to ask each person to limit their questions. The too. So that we may hear from everyone and still keep within the hour allotted for this call.
Operator, you May now open the call for questions.
Thank you, Sir and ladies and gentlemen, if you'd like to ask your question at this time of the Star one on your touched on telephone. Please make sure. Your mute function has turned off to a lot of your signal to reach our equipment again that star one at this time, if you'd like to ask your question. We'll go first to for need SUTA with SVB Leerink.
Yes, Hi, Doug.
Brad sort of impressive quarter here.
So first question if I could I was hoping to touch on the guidance raise and Genoptix you have steadily increased guidance throughout the year and as you proceed here in the final phase of Genoptix. Your recent hiring the capacity expansion. The ngs effort I mean, it's clear that the growth as accelerating so wanted to touch on two.
Points I mean, given what we're seeing here in the fourth quarter implied guide that is still looks a bit conservative anything there that you would point to in terms of.
Anything that gives you a pause in the near term and then.
Second secondly on Genoptix, if you could elaborate on what's left at this point and that integration, it's being much more smooth there compared to your.
I was sort of lost integration. So just help help me on those two points I just have a quick follow up.
Great great well thanks.
Relative to the guidance.
Our incremental EBITDA contract contribution, which is implicit in that guidance is consistent with our long term guidance, which is in the range of 25% to 35% incremental.
EBITDA on the revenue growth and at the midpoint of the raised from the initial guidance. Our EBITDA raise is about 36% I think.
At the midpoint of our raise versus the last guidance in quarter two the EBITDA raise is approaching 30%. So I think it's quite consistent.
The quarter quarter, three was a little better than we expected. So we did take the guidance.
As you point out we are still in the midst of the Genoptix integration. So we do want to be prudent with our guidance.
In quarter four we expect to make continued investments in next generation sequencing, we are investing as I mentioned in the script in informatics.
But we feel very good or bad the business. There is no pause in our momentum and.
I think our guidance reflects a prudent as well as confidence.
In terms of the Genoptix integration, Rob Shovlin is here he is leading the the integration effort to along with the clinical division so allow us.
To address that sorry, good morning, funny, so the integrations going really well we've made tremendous progress this year and I think the acquisitions contributing as we expected. It to Q3 was really a quarter lots of ITC system projects through Q3, we completed nearly 300.
We implemented nearly 300 different IP user stories of which two thirds where integration related so we're basically doing Nic release every week.
We did decide to move the final phase of integration, which is the last waves of client migration out to Q1 of 2020.
We did this to allow time for to ensure that our systems are implemented and stabilize before impacting clients, but changes and to your point. This was a lesson that we learn from the Clarion integration, where we got a little too aggressive what client migration and that had a stabilized afterwards, so we apply.
That lesson learned and we're allowing the systems to stabilize and.
The ready for client migration in Q1.
So it's it's also been great to see that our sales team has continued to grow the business without integration distractions to this point, it's a little too early to see any revenue synergies just yet, but we have seen some cost synergies realized in the quarter.
That's great. Thanks. Thank you both on Ngs, if I could.
Doug This is increasingly becoming a focus for you and clearly for the market as well.
Highlighted strong growth last quarter again this quarter. So just wanted to get to sort of a longer term view here.
What's your expectation for Ngs contribution.
Longer term.
And is it taking any business a wave away from the current test or is it just the overall market growth and so just help us get situated here and.
Ngs contribution in sort of the longer term again, ngs seems to be becoming a larger piece of the story here is that the right way to think about it.
It is the right way to think about it preneed.
I think I mentioned that the ngs and molecular growth rates were in excess of 50% during the quarter and thats a continuation of very strong momentum.
I guess is becoming.
A greater part of our mix, but it's still relatively low we have a comprehensive menu and.
As you know we were offering every discipline and interestingly every single test modality increased.
During the quarter. So that indicates we're taking market share, but I think ngs will over time take market.
So some of the mix away from some traditional fish testing, particularly in that solid tumor fish area.
But I think that we expect ngs generally to continue to grow at an outsize pace relative to our other tests modalities for as far as my I can see.
Alright, great. Thank you congrats again.
Thanks, Tony.
Well take our next question from Kevin knowledge with Craig Hallum.
Good morning, Thanks for taking the questions Doug Thanks for the commentary a lot of information there, but wanted to go back to the data and informatics investments you're making.
Can you.
Thanks.
What could this ultimately.
And I guess, how long will it take.
Convert that into our revenue for the company.
Yes, Kevin Thanks for the question about informatics.
And Bill Bonello is here and is actually leading our strategy development and informatics efforts. So below will address this I'll just say upfront that we have invested a lot of time and energy and money in developing our informatics strategy.
The general idea is that we would both strengthen our existing businesses in clinical and pharma and develop and independent revenue stream and we've got a lot of great plans and thoughts here and with that let me just turn it over to Bill see if he has anything to add to add yes.
Kevin I would say, it's still obviously very early days.
We do have lots of requests from our clients as Doug mentioned on the call, including payers and add provider clients as well as our pharma clients to collaborate on various data initiatives. We have a number of projects that are actually in place right now some of which are.
Revenue generating, albeit not hugely revenue generating.
We do have a pretty robust pipeline of additional projects, but more importantly, we have a road map of products that we want to develop and Thats really where our time and energy is focused today is on.
Getting our organization in place and.
Those products up and developed and working.
And as sort of pilot fashion with our various customers to make sure that we're meeting meeting their needs. So there'll be a little bit of revenue, we probably won't break that out.
In the near term, but it will help a little bit, but it will be a bit before.
It's a significant needle mover promo revenue standpoint in the meantime, we do think it's already reinforcing our strategic position in both of our divisions.
That's helpful. Thanks for the detailed here Bill.
I guess on top of that.
You know clearly you guys are making investments you talked about the R&D investments you made during the quarter.
Okay.
You made I guess kind of a combined question how much more do you plan on investing and informatics and I guess, what other capabilities do you want to add and then on the hiring side.
Position could you feel and do you have much left that you want to do on that front.
Kevin we continue to make investments in our business that I think we will for some time. This is.
Company wishes operating in exciting area precision.
Medicine in oncology is growing very rapidly we're.
At this part of the evolution of the company, we think it's prudent to focused on growth and growth related investments. So we're going to continue to do that.
We are investing heavily in next generation sequencing as we mentioned a couple of times now and into sprint.
We're also investing in capacity, we're investing in people I mentioned, we hired about 200 full time and hard time folks during the quarter I think weve hired over 400 people. So far this year and that is or want to keep up with our current volume.
Gross but also we are investing in new capabilities.
For example, informatics is a new capability that we're investing in we're investing pretty heavily in our pharma services Division.
Globally, you know that we put in a new lab in Singapore, we've increased our business development team and pharma outside the us pretty significantly.
We've added technical resources in a big way I think.
We've increased the number of molecular pathology is by about four times from where we were just just about a year ago.
We're increasing our hiring in the area of bio in for Matt Titians variance scientists.
Pathologists.
This is a growth growth business, we intend to continue to grow at outsize pace and our investments I think reflect that.
Thanks, Doug and congrats on nice quarter.
Thanks, Kevin.
Well take our next question from Brian Weinstein with William Blair.
Hey, guys. Thanks for taking the questions first.
Can you talk about the impact and sustainability of test mix on the on the pricing as well as kind of just get a better understanding of contribution year, obviously, I think ngs and the lack you are higher but can you give a little bit more specific on what you see there versus more traditional testing methodologies and how to think about where average revenue average recognize revenue for two.
Goes longer term why we try not continue here.
Well there are a lot of cross currents, Brian in average unit price you can see we mentioned it has been up five consecutive quarters.
That is genoptix.
They increase.
Genoptix test mix in our overall mix, but.
Next generation sequencing has as that's grown at very high growth rates has come in at higher prices and that has impacted our average unit price that I think we'll continue to impact our average unit price.
We also have gotten some benefit in our average unit price because of good cash collections.
And you'll see that in the quarter. When you have a chance to look at our financial results you will see cash from operations was very strong and as Katherine mentioned, our days sales outstanding sort of reflects that so Pete can fluctuate.
It has fluctuated, but I think we're on the right track and we have a heck of a lot of opportunities to further improve average unit price beyond test mix with just plain good old fashioned collecting cash for the work that we do we have a lot opportunity to do that.
Okay and then the second one can can you describe a little bit more and get a little bit more detail to us on the nature of the backlog that you are building on the services side, how do you see that developing in terms of time to bringing that backlog to revenue and.
And any other details that you can provide on efforts that George and the team are making to continue to add to that thanks.
Yes, let me make one brief comment and then George will fill it in.
I would say that we are really excited about pharma services in the backlog increased the 20 $828 million of new sales was again a record we've got a terrific sales team in clinical but also in pharma services and our our products are really in.
Good demand we've made a lot of good progress in our infrastructure.
So George you want to take it yes, obviously, we're pleased to have a record backlog and yet we are winning more phase two in phase three studies, which are by nature longer than maybe a quick research project or a phase one study so on timing of our backlog has gone out of that but we used above our backlog already made money we haven't.
Very rigorous dormant policies, so ill things do come out of our backlog if we don't.
And I think you've seen the growth in the backlog conversion to the 41% year to date revenue both of you see so.
We're very excited about the backlog certainly where we're winning business now in Europe are winning business now and global studies I don't really could help and when you are two of those sales.
Remain very bullish and the backlog is a nice time for future growth.
Thank you guys.
Thanks Brent.
We'll take our next question from Steve anger with Needham.
Mr. Andrew Your line is open please check your mute button.
Sorry about that.
Doug you talked about large wins with health systems and oncology groups briefly and I was wondering.
And that these fees were relatively untapped and I was wondering if you could provide some additional color there.
Yes, I can provide additional color there.
I would say that increasingly our capabilities are our scope of services our comprehensive menu.
Our emerging informatics capabilities are.
Our more interesting too large players. So for example, let's take large hospital systems, we have a somewhat unique capability to serve them and help them to standardize their practices monitor their testing understand their costs across.
They are wide scope of hospital systems regionally or even nationally and and so that that's helped us the land a number of big hospital systems as clients and we're just penetrating their hospitals.
Yes.
I think we've got a lot a room to grow through those activities.
Switching over to the oncology group side as I think most people know oncology group practices. Many of them are getting larger and our ability to serve large oncology group practices with multiple offices regionally within the state or or region, Italy.
Or even nationally as is somewhat unique and we can offer them partnerships, which allow us to.
To benefit from their testing.
As well as to offer them some capabilities around.
Internalizes.
Certain testing, which might be quick turnaround test understanding their data better.
And a variety of other services that I think are of interest to them. We've just started to.
Well, we've been penetrating oncology group practices for quite some time, but we've got some opportunity to continue to do that.
Great and then.
As far as the FDA initiative is concerned.
I guess, how long do you think it will take you to complete.
The change.
The sort of compliance as far as your lab operations and is that a drain or drain on EBITDA at the moment.
We are investing a lot of money and time and resource in this SDMA process.
Let's say, we made a lot of progress so our our infrastructure is.
In the assays that we intend to bring to the FDA is largely da compliant at this point, that's not a small feet by the way because that requires a heck of a lot of validation and documentation, including systems documentation and validation for for those.
Areas. So I think we made excellent progress there we have invested a lot of money in in resources to make that happen in terms of taking the test through the FDA process, we're still working on that with the FDA.
The asfotase require different kind of validation than we're used to under a cap CLIA regulatory environment, which as you know most labs just about all labs are subject to.
And so we're working through that with the FDA I think we've got a little bit more work to do with the assay that we intend to bring through the FDA, but I would stress that the infrastructure is in our opinion most important because that allows us to bring multiple tests through the FDA in the future.
Consider that to be.
Appropriate and to our advantage.
Okay, and just one last one on the cost per test trend I guess is the.
Yes, I realize there's a mix issue and that we should expect perhaps the cost per test to rise as the.
The sophistication of the test increase in the mix I was just wondering if but theres also this dynamic of incremental staff hiring and I know that you're hiring a lot of people.
Is there a point in time, where that sort of.
Staff additions sorta normalizes, and I know you're hiring lots of people still.
And your facilities in that.
Beyond 2020 or sometime in 2020.
Yes, Steve as of Kathryn.
We've had a lot of progress selling cost per tonne pro forma basis, we've decreased 4% year over year. So you do see that increase which are not that you're seeing the increase with our investment in and people and our investment in technology and as we continue to go forward I think we still see a lot of opportunity we have a lot.
Different things are going to impacts that cost per cap, including your NDS mix growth and the.
Additional headcount, but I think that you'll see that theres opportunity going forward and we should see that in the.
Coming quarters.
Yes, Steve.
Volume growth really does play a role in reducing cost per test and as Katherine said, we have lot of initiatives. In addition to volume growth automation initiatives and so forth lean initiatives once we get through the Genoptix integration we are just.
Looking our jobs here, because we think we've got a lot opportunity to reduce cost per test once everything is on the same platform.
Excellent.
Thanks.
Well take our next question from John Shoe with Raymond James.
Thank you.
Doug if we could just go back to the guidance again, it seems like everything is trending well.
You mentioned Genoptix volume is actually you extend the losses, there and then the organic volume does accelerate every quarter. So again just on the maybe on the revenue side. If I said another way out can you help us think about the implied sequential decline at the midpoint, what's what type of scenario would kind of drug the low end of the range it or is there any.
Conservatism in there for instance, I know a year ago there was some.
Anomalies in terms of the testing volume in November so perhaps.
Some conservatism that you can speak too.
Well, we try to be prudent first of all in our and our guidance.
We have raised our guidance you know every really every quarter this year and.
We don't see anything in our results that would.
Give us pauses I think someone asked before.
But but.
This is a very competitive market do we have a lot going on here and we think it's just wise to be relatively prudent but.
You know are we just had a meeting yesterday reviewed all of the pharma pipeline for each representative in the pharma services Division and George and I were.
Feeling very good about that we just had a similar review in the clinical Division you know just a while ago. So I think the long term growth prospects in both of our divisions are very very strong and we may have some fluctuations in the short term, but do we feel pretty darn good about it.
Okay, Great and then maybe you could just provide a quick update on the the CFO search process any color you can provide there.
And given maybe given your comments on the laser focus on execution.
At this point would you say that the search would preclude you from capital deployment, just help us think about.
Some of those dynamics. Thank you.
Yes, thanks for asking about the CFO search so we are in the midst of a CFO search we've hired.
A recruiting executive recruiting firm and we've had some initial interviews and we're going through that process.
On a.
Timely basis.
I do want to mention to everyone. Though in response to your question, we had a very very good and deep financial.
Staff here. So we have a CFO for the clinical division, who is terrific as CFO for the pharma Division is terrific you heard Catherine here Katherine spend with us for.
Two and a half years now I guess and she is terrific. We've got as a great new treasurer. So we have a very very strong financial organization.
That in a.
Not having a CFO in no manner is impeding any kind of analysis or capital deployment decisions or anything else. So things are moving along.
I think very well and.
No.
I'm not worried about that.
Okay, great. Thanks again.
We'll take your next question from Bruce Jackson with a benchmark company.
Good morning, and thanks for taking my question. If we can focus on the companion diagnostics business for a moment, you've got 24 projects in the pipeline, maybe you could talk a little bit about launch cadence and is there anything notable that some on the near term horizon.
Thanks Bruce.
Actually I think I said in excess of two dozen.
We have a lotta companion diagnostic work.
In our in our company right now.
I would say that.
You might you might see a companion diagnostic launch by us in the next couple of quarters.
I would say some of these companion diagnostic projects will take a year or two and sometimes more.
We're launching companion diagnostics in our clinical division in the normal course, as new drugs get approved and as our.
Partner suppliers develop a companion diagnostic tests that will use but I think importantly, we're developing a number of those ourselves with the pharmacy services Division.
George you want to add anything yes, I think you've seen as of the example, with the success of that victory CA I mean, we've gone away any projection that we came up with for that so I mean, the neogenomics. The day one readiness program certainly is a very compelling to the pharma division on the pharma services customers. They see the value that we have.
I think a great service from us pre approval on the pharma services side, and then already day, one to commercialize it. So it's certainly a unique offerings as Neogenomics is very few companies that have that continue on that we have and that's the reason why we continue to win business.
Great. Thank you and congratulations on the quarter.
Great Thanks versus.
And we'll go next to Joe Munda with first analysis.
Good morning can you guys hear me okay.
We can Joe thanks.
Real quick Doug talked in your prepared remarks about capacity expanding capacity due to demand.
Two questions. There if you could give us some sense of how much capacity will increase.
The increase versus prior and then maybe an update on the progress of the new facility and when you expect to break ground.
Yes, thanks for asking about capacity Joe.
In terms of capacity.
Yes, there are two kinds of capacity, while there are lots of different times, but ill talk about to a one is just plain people capacity. So in our business is.
It just takes goods skilled trained people to do the work that we have.
They're not easy to find and so we're thrilled to have hired over 200 people in the quarter.
We are.
We actually have sort of a recruiting machine now and it's recruiting on boarding training getting people productive and all that stuff. So I would say that we are we have good momentum increasing capacity in terms of people in terms of facilities.
Maybe a little less positive, but we did open another facility here in Fort Myers, that's freed up some space.
We have another facility and Elisa V.A. Ho, which we're working on and I would say within the month, we'll be moving folks.
Around to add a lot of capacity lab capacity and at least of the I hope we do have some capacity in.
Carlsbad as well that we are looking to to optimize our Houston lab is getting close to being full frankly, you remember as you've covered us before that that lab was not full you know a year ago.
So I think on the capacity side, we're making good progress in 2021, we will have.
Probably by fall, the new headquarters and lab facility in Fort Myers operational.
And that will enable us to move business around and free up a lot of capacity and I think.
Hold us in good stead for a number of years after that.
We.
We have names of the roads in Fort Myers.
And I think we're going to break ground here in the next couple of months.
What roads called Neogenomics way and the others called the assay Avenue I think.
Okay, and then yes.
Hi.
Yes, sorry.
Yes.
Hi, I'm sure Steve Jones would have been buying for a name of the street, there as well, but I guess.
Yes.
And.
So given the script here.
On the pharma side of the business.
Can you talk a little bit about the PPD collaboration have you seen any incremental revenue as a result were assigned business as a result of that relationship and then.
George I was wondering if you could talk to us a little bit about the pricing you're seeing on the pharma side is it getting stronger.
Any color there would be great. Thanks.
No we don't breakout individual customer data, but certainly we're very pleased with the PBD Alliance, where it will enter the second year that now and even yesterday. We won a couple of contract. So I mean, it continues to go quite well.
And yet we've got a very good relationship with them. They also are tremendous helped to us over in Singapore, where literally located right across the hall from them and.
About three months, our people working out of their conference room, So theyve been a very valuable partner with us and just strategically the ability.
Have you know that CRM solution for our pharma customer that wants that is very important strategically I really don't want to bifurcate contract and just want sort of a one.
Just want to write one shack in how everything manage centrally so I think the neo continues to be a really good part era and we're quite pleased with that so.
I don't see.
In terms of overall pricing environment.
Yes, there's always some competition now one of the things about our division as we do a lot of custom assay and we really do tend to compete probably on a little bit of a higher end and maybe most.
Speed is very important to our customers were able to bring our custom assay is fairly quickly. So that also sort of eliminates a lot of pricing competition, because we do tend to move faster than the big guys.
Generally I think theres always.
Little bit of competition in the market, but we really haven't seen anything significant in terms of overall trends and again I think our positioning in the market day shield us a lot because we're really coming at it from.
What are the high science side as opposed to may be going through that procurement door.
Okay. Thank you.
And that is Armenia, didnt meet its radio off Joe with the Neogenomics way.
Okay.
Hi. This are no question for today I'd like turn call back over to Mr., Ben or for any closing comments.
Okay. Thanks, very much as we end the call I'd like to recognize the approximately 1600 neogenomics team members around the world for their dedication and commitment to building a world class oncology diagnostics company.
And on behalf of our Neogenomics team I want to thank everyone here for your time joining us. This morning for those of you listening that our investors or considering an investment in neogenomics. We thank you for your interest in our company.
Good bye.
Ladies and gentlemen that does conclude today's teleconference. We appreciate your participation you may disconnect your lines now and have a great.