Q2 2022 Neogenomics Inc Earnings Call

[music].

Good day, ladies and gentlemen, and welcome to the Neogenomics second quarter 2022 earnings call. At this time, all participants have been placed on a listen only mode.

The floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host Lynn Patrick Ma'am the floor is yours.

Thank you, Mike and good morning, I'd like to welcome everyone to Neogenomics second quarter 2022 conference call joined.

Joining me for this call from our Fort Myers headquarters are Bill Bonello, Our Chief Financial Officer, Dr. David Shalwar, President of our clinical Division Vishal secrete President of our pharma services Division and President of the Nevada, and Charlie Edson, our director of Investor Relations.

Joining on the call via phone or darker Shashi Kulkarni President of lab operations, and Chief Scientific Officer, and Chris Smith, our incoming Chief Executive Officer, and member of our board of directors.

Before we begin our prepared remarks, Charlie will discuss the forward looking statements and non-GAAP measures used on this call.

This conference call include forward looking statements about our 2022 initiatives 2020 financial outlook growth opportunity and anticipated operating results and performance.

Each forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Additional information regarding these risk factors appears under the heading forward looking statements in the press release, we issued this morning and in the risk factors section of our annual report on Form 10-K for the year ended December 31, 2021 that is filed with the Securities and Exchange Commission. The forward looking statements made on this call speak only as of the original date.

The call and we undertake no obligation to update or revise any of these statements. In addition, during the conference call in order to provide greater transparency regarding our operating performance.

We refer to certain non-GAAP financial measures that involve adjustments to GAAP results.

non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP.

Would that be considered to be measures of liquidity.

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 our press release, we issued this morning before I turn the call back to Lynn I want to let everyone know that we will be making a copy of our prepared remarks.

<unk> for this morning's call available on the Investor Relations section of our web site. Shortly after the call is completed.

We also want to let everyone know that we are going to limit the number of questions to one per person in order to give more people a chance to ask questions within the one <unk> that has been allotted for this call.

Thank you Charlie.

For today's call I will begin by sharing an update on the state of our company and the exciting progress we have made since our last earnings call, including an update on recent leadership appointments and progress on our radar assay.

So, but Nello will then review our second quarter financial results before turning it back to me to discuss our companywide 18 months performance improvement initiatives that we have labeled project catalyst.

Finally, I will introduce new CEO , Chris Smith, who will provide his perspective on why he chose to join Neogenomics and his plans during the first few months on the job Chris will officially join me on Monday August 15th and we are thrilled that he is taking over as our company's next leader.

We will then have time for questions and answers.

Since our prior CEO transition, we committed to three key priorities.

Hearing a permanent CEO stabilizing the company, including key additions to the executive leadership team and developing a plan to drive improvements in our operating performance.

We said that we would not stand still during this transition and we are pleased to report that we have made considerable progress on all fronts.

I am incredibly proud of our leaders and employees throughout our company during a challenging time in our business. Our people have rallied together as we welcome talented new leaders embark on project catalyst and continue to move radar forward.

First and foremost we are excited that we successfully completed the search for a permanent CEO investment four months and that our incoming CEO , Chris Smith, who will start on Monday.

The board prioritized four key criteria and seeking CEO candidates.

Diagnostic industry experience, a strong cultural fit our track record of operational execution and our strategic growth orientation.

Not only just Chris possess all of these attributes in space, but he brings other important qualities such as prior public company CEO experience.

Chris is an exceptional leader with a very strong reputation and the board is delighted to have recruited a CEO of his caliber to lead the company.

We will discuss Christmas background in greater detail when we introduced some later in the prepared remarks.

In addition to recruiting a new CEO , we made excellent progress toward addressing priority number two and stabilizing the leadership team and our workforce as a whole.

We were pleased to be able to recruit industry veteran vishal trickery in may to serve as both president of our pharma services Division and President and Chief commercial officer of in Nevada.

Vishal brings a unique skill set with experience leading both more traditional pharma services businesses and highly innovative technology oriented diagnostic companies.

New leaders, Dr. Shashi Kulkarni and Dr. David <unk> have hit the ground running since joining in March and the board and I are pleased with the leadership and experience that each is bringing to neogenomics.

Just last week with the endorsement of Chris Smith, we confirm the appointment of <unk> as General Counsel and corporate Secretary Ali.

Ali previously served as interim General counsel has been with the company for three years and is a talented leader employer.

Together with <unk>, a very experienced leader, whom we appointed as Chief compliance officer in March we have excellent oversight of our legal and compliance functions policies and programs.

Okay.

We have added some exceptional talent to our leadership team over the last six months and the leadership team and I have prioritized visible leadership and meaningful engagement with our people at all levels.

I am confident that the organization is stabilized and that the leadership team is motivated aligned and stronger than ever.

The entire executive leadership team has met Chris personally and they are very excited to work with him as he takes the reins of our organization beginning on Monday.

Our third priority was to develop plans to improve operational performance.

Since April we have worked to diagnose the causes of underperformance and have developed a plan project catalyst to drive improvements over the next 18 months.

We have already taken several near term actions that I would describe as no regrets type changes that any new executive would agree are necessary.

As we launch more comprehensive project catalyst initiatives incoming CEO , Chris Smith will be heavily involved I.

I will describe project catalyst in more detail after bill reviews, the financial results.

Before I hand, the call over to Bill I would like to update you on the progress of radar, which remains an important part of our future.

We continue to have productive discussions with multi <unk> and recently resubmitted our initial submission for colorectal cancer last month.

We believe that our latest submission meets the criteria needed to garner reimbursement in the syndication and we are hopeful that we will receive coverage for CRC in the coming months.

In parallel we are pursuing reimbursement in additional cancer types, and we anticipate being able to file a second submission for breast cancer to <unk> in the first half of 2023.

The chirped HR positive her two negative breast study that was orally presented at <unk> and concurrently published in the journal of clinical oncology showcase radars combination of elite sensitivity and specificity for this indication.

We continue to make progress generating evidence for radar and we have several studies ongoing that we believe will further bolster our dataset.

We are in late stage discussions with many biopharma companies to incorporate radar radar into their clinical studies and are making progress with finalizing these negotiations.

The buzz at <unk> for radar was significant including a plenary session highlighting the value of radar across multiple cancer types that received a standing ovation and we are confident that we will find several opportunities in the coming quarters.

I will now turn the call over to Bill Bonello, who will review quarter two financials.

Thank you Lynn.

Revenue increased 3% year over year to $125 million.

Clinical services revenue increased 4% year over year to $106 million Clint.

Clinical test volume increased 3% sequentially, but was down 3% year over year.

Volume growth continues to be impacted by the dynamics that we discussed on our last earnings call.

These factors include operational challenges that are having a short term impact on customer service and an ongoing market shift from smaller targeted panels to larger more comprehensive offerings.

We are working to upgrade our NPS product offering and to improve our lab operations and we are starting to make progress in both areas.

Average revenue per test increased 7% year over year to $387.

Positive contributions from our ongoing strategic reimbursement.

Efforts more than offset the Medicare rate cuts, which went into effect at the beginning of this year.

Pharma services bookings were $46 million in Q2.

We ended the quarter with a backlog of $299 million, which was up 6% sequentially and 26% year over year.

While pharma services revenue increased 6% sequentially to $19 million revenue was down 4% year over year.

We are obviously not satisfied with our current revenue conversion trends and have been taking action to drive increased revenue growth.

Our sales force is placing a greater emphasis on projects with shorter revenue conversion cycles, and our project management team is implementing processes to pull revenue through earlier in the lifecycle of a project.

While we will increase our emphasis on near term revenue growth. We will also continue to build out our backlog of large clinical studies and companion diagnostic opportunities.

Our informatics revenue, which is reported in pharma services continues to grow at a rapid clip.

We are excited about the progress of those initiatives.

GAAP gross margin was 35, 1% adjusted.

Adjusted gross margin, which includes excludes in Nevada related noncash amortization expense was 39%.

Adjusted gross margin declined 450 basis points year over year.

The year over year decline was driven by wage inflation higher supply cost and increasing logistics costs.

We're pleased to report the gross margin improved 225 basis points sequentially as we were able to leverage higher volume and AEP.

While we are encouraged by the sequential improvement in gross margin, we still have significant room for improvement.

We have a long list of cost and process efficiency plans, we are evaluating as part of project catalyst and we believe that we can continue to drive gross margin improvements over time as these projects are completed.

We have been able to pass through some of the higher costs that we are incurring due to inflation and we anticipate that we will see some benefit from price increases during the second half of the year.

We're also pleased to report that on July 20 bps, we officially moved our last clinical testing operation from our previous Fort Myers lab to our new facility.

Operating expenses increased $8 million year over year.

$4 million.

The primary driver of this increase is absorbing a full quarter of operating expenses in Nevada, which was acquired in June of last year.

Also we have continued to make significant investments in radar supporting what we believe to be a leading assay for minimal residual disease and recurrence testing.

Reducing G&A expense is another area of focus for product project catalysts, and we've already identified a number of opportunities to reduce costs G&A expense decreased $7 million sequentially from Q1.

Adjusted EBITDA loss was $16 million for the quarter, which is a $3 million improvement from Q1.

Turning to the balance sheet, we exited quarter, two with $466 million in cash and marketable securities.

Dsos of 81 days represents a four day improvement sequentially and are consistent with our normalized range.

I would like to spend a little time discussing our outlook for the remainder of the year.

We withdrew our 2022 revenue and EBITDA guidance in March in conjunction with the departure of our previous CEO .

But we did provide some guardrails on our Q1 call and we will do so again today.

We continue to view 2022, as a rebuilding year, where our primary focus is to improve our current product offering drive operational efficiencies generate clinical evidence in support of radar and lay a foundation to support sustainable profitable growth over time.

From a seasonality standpoint, Q2 is typically our strongest quarter of the year.

Thus it is possible that Q3 revenue could come in modestly below Q2.

We now expect that full year revenue will be flat to up modestly on a year over year basis in terms of profitability. We expect the Q3 adjusted EBITDA loss to be similar to or modestly greater than what we reported in Q2.

We continue to expect to see improvement in Q4.

We look forward to reinstating guidance once Chris has had a chance to get his arms around the business and has a better sense of where we are headed.

We currently expect to reinstate guidance when we report Q4 earnings in February .

I will now turn the call back to Lynn, who will provide more details around project catalyst before introducing our incoming CEO Chris Smith.

Thank you Bill as I mentioned, we have engaged our entire organization with the recent launch of project catalyst, an 18 month plan to improve our business that will take us through the end of 2023.

This initiative encompasses four key areas or pillars of focus lab optimization people and capabilities competitive growth and insights and analytics each.

Each pillar is led by an appropriate member of our executive leadership team.

Over the past two months, we have engaged employees at all levels to identify initiatives to drive improvements in efficiency and effectiveness in these key areas.

We have identified a number of critical projects each led by an internal change agents we.

We have conducted a detailed analysis and estimated the time and net benefit associated with each initiative.

The leadership team is evaluating and prioritizing the most important initiatives in order to develop project plans and determine implementation timing.

Some projects are already underway and others will kickoff in the coming months.

We anticipate that the benefits from these initiatives were well outpace the $15 million benefit that we discussed last quarter we.

We expect to provide an updated target once Chris is a bit more settled into his new role.

While in the early stages of implementation project catalyst is a significant focus for our team and we are excited about the level of engagement, we have around the initiative internally.

We expect progress to translate into improving performance over time, and we look forward to providing future updates.

In the meantime to better illustrate our efforts I want to share two specific examples of the kinds of no regrets changes we have already undertaken within our laboratory to improve our efficiency and margins.

One of these changes is with ancillary testing.

There are instances, where our process in certain test has evolved to include an early readout from a faster turnaround time methodology on a specific gene that is later duplicated as part of a larger panels.

This early readout may have made sense at one time for one particular customer, but this process had been scaled to become our standard procedure.

As technology has evolved not only has that early readout become less impactful, but we are also incurring duplicate and unnecessary costs due to running multiple tests without the corresponding ability to bill for both instances.

We have already started the process of removing instances of ancillary testing from our lab processes and anticipate that the changes will improve both efficiency and margin over time, while retaining our high quality.

We are also taking opportunities to introduce automation into our laboratory processes, where possible and we are excited to share that we have implemented a new cytogenetics artificial intelligence software that we expect will improve efficiency in our dry laboratory backend analysis companywide.

While still early days and implementation, we are already seeing productivity gains for sites that have gone live with the software.

We are in the process of evaluating similar tools across other modalities of testing as we look for further efficiencies.

We are excited about the progress we have made to date on project catalyst no regrets initiatives and look forward to providing future updates on our progress.

Shifting the discussion to the most exciting development of the call I would like to introduce our incoming CEO Chris Smith.

Before I share a few details about Christmas background, I want to underscore that the CEO search process was thorough and competitive and the opportunity attracted many impressive candidates from the diagnostic industry.

After prioritizing the list of interested candidates the search committee interviewed nearly 10 individuals and then all board members and our Chief Culture Officer interviewed several finalist candidates.

Chris was without question, our first choice and I would like to explain why.

First Chris brings to neo a very impressive background and a successful track record of delivery as a CEO in the diagnostic industry.

He served as CEO of ortho clinical diagnostics from 2019 to May 2022.

During this leadership ortho clinical successfully completed an initial public offering raising $1 $4 5 billion.

And achieved accelerated revenue growth alongside improved profitability.

He also successfully guided the company through a combination with <unk> that closed in may of this year.

Chris also served as CEO of Copel <unk>, a publicly traded med Tech company from 2015 to 2019.

During his tenure, Chris oversaw a 35% organic improvement in annual revenue and increased profitability.

In addition to his proven success in operational delivery profitable growth and the creation of shareholder value Chris stood out from the others because of this dynamic and inspiring leadership style.

What especially impressed us as how mission driven and patient focused chris's, coupled with his passion for leading through people and culture.

We concluded that out of all of the candidates we met in the search process for a CEO over the past several years, Chris is far and away the best fit for the culture of Nab.

The board and I have complete confidence in Chris and we are very excited to welcome him to Neogenomics as our next CEO .

I would now like to turn the call over to Chris to introduce himself.

Please note that because Chris is not officially started yet he will not participate in the Q&A portion of this call.

Thanks, Lynn I'll keep my comments brief, but I did want to introduce myself and echo the excitement from my side is.

As the clear market leader in cancer testing and information market Neogenomics has a critical role to play in the lives of millions of cancer patients.

Given the company's long standing relationship with community Pathologists and oncologists I believe Neal remains ideally positioned to bring world class cancer care towards needed most.

Typically I see meaningful value in combining strong clinical business with pharma service capabilities, and <unk> information and antibodies liquid biopsy technology platform.

This is important neogenomics is a company that puts the patient first.

It has a very mission driven culture.

Building part of the company in the oncology space was such an important mission with central factor in my decision to join.

As I joined <unk> genomics particular, mumble I plan to spend the next few months, Bob in the market with customers patients and our teammates both in laboratories and in the field to gain a deeper understanding of the flow of our business and I'm excited to get started.

I'll now turn the call back over to Lynn to include her prepared remarks.

Thank you Chris.

In summary, during a challenging time in our business our people have rallied together as we welcome talented new leaders embark on project catalyst and continue to move radar forward on the leadership front, we have added some exceptional talent over the last six months highlighted by the announcement of our incoming CEO , Chris Smith, who joined us on Monday.

We have a compelling strategic position in the cancer diagnostics market and we are positioned well for improving execution under new leadership.

Serving as interim CEO of Neogenomics has been an honor and an incredibly rewarding experience.

I'd like to take this opportunity to thank the board of directors the leadership team and our entire organization for their terrific support you have provided provided to me and the leadership team during this transition.

And now I am thrilled to resume my role as independent Board Chair women and to welcome Chris as our CEO .

I am more confident than ever in the bright future ahead of Neogenomics.

I will now hand, the call over to Charlie Edson to lead us through Q&A.

At this point, we would like to open up the call for questions Incidentally, if you're listening to this conference call via webcast only and would like to submit a question. Please feel free to a malls that Charlie Dodson at Neogenomics Dot com during the Q&A session and we will address your questions at the end if the subject matter hasnt already been addressed by our call in liquids as.

As mentioned at the beginning of this call we would like each person limit their questions to one that we may hear from everyone and still keep within the one hour allotted for this call. Operator, you may now open up the call for questions.

Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask but while posing your question you. Please pickup your handset is listening on speaker phone to provide optimal sound quality. Please hold while we poll for questions.

We do have our first questioner and it comes from Brian Weinstein from William Blair.

Chris if you're still listening welcome aboard and I heard a deep sigh of relief from you. It sounds like a weight has been lifted off of your shoulders. So congratulations to you on completing this process.

We will have kind of higher level.

<unk> at some point, but really wanted to kind of dig into a little bit of.

In the near term dynamics here so.

When we look at clinical testing on the unit side.

Obviously down.

It was year over year.

Can you just maybe sequentially can you talk about.

What's going on that Youre seeing in terms of market dynamics. There. We've heard from other companies that there may have been a little bit of a weakness in the second quarter in terms of <unk>.

Volumes in the space are you guys seeing anything on that front or was this continued to be more neogenomics specific and if you can talk also about on the ASP side.

Obviously, a nice tick up there was there anything onetime in nature or any kind of look backs or anything like that that they sort of benefited June how should we think about kind of asp's going forward. Thanks guys.

Thanks, Brian I'm going to ask David to comment on the first part of the question and then bill to comment on Asps.

Great. Thanks Lynn Thanks for the question, yes, So I mean, there's no doubt that volume has not come back as we had expected following COVID-19. So I think that they are.

He has some hangover there, but I think that most of.

What we see impacting our volume is really internal medicine, it's really around the operational.

Service levels that we continue to work on to improve as well as the offering for <unk> and the move to more comprehensive panel. So.

Not discounting a hangover from Covid, but we believe that that that volume decline is mostly in our control and are parts of the business, but we are actively trying to improve on.

Thanks, David.

Yeah. Thanks for the question Bryan, we're really pleased with what we're seeing on the AEP side and.

And we are absolutely getting benefits from the efforts that our strategic reimbursement team.

Has taken.

In terms of.

Improvements in our overall pricing.

As we look forward, we do think we should continue to have some modest benefit from the price increase that we put into effect at the beginning of July that takes a while to flow through.

And so.

AEP is that was going to bounce around a little bit from quarter to quarter.

But in general.

We feel we feel confident that this is a.

Relatively sustainable level.

Our next question comes from Alex Nowak from Craig Hallum.

And then Chris welcome to Neogenomics.

Hoping we could touch on radar can.

Can you maybe expand a bit on why the resubmission here until <unk> and then regarding these recurrent assessments.

Two tests out in the market with two different indications one Scott adjuvant decision, making that has got both adjuvant decision, making and recurrence monitoring. So what is the anticipated label I guess for radar with a tumor informed approach when youre going after multi X furniture.

Thanks, Alex I'll ask Michel to take those questions. Thanks, Alex so with the Resubmission to multi extra colorectal we had some discussions with them and they asked for some additional information around our whole exome sequencing data, which we were able to provide and thats what led to the Resubmission and we're quite confident based off our R. R.

Going discussions with them that we have met the criteria for the.

Approval through multi X and we will find out in the next couple of months obviously on this in terms of.

The other assays, which are on the market, we feel that we're well positioned.

For from a clinical perspective, not just in colorectal, but as we go through other cancer types like breast cancer and lung cancer looking at both looking at recurring just looking at monitoring a neo adjuvant and so on we believe that the value of the radar technology will shine and especially in those indications as well.

Excellent. Thank you.

We now hear from David Westenburg from Piper Sandler.

Hi, Thanks for taking the questions and congrats Chris and the whole team here.

Alright.

So you have some real a real softball here, but I am kind of curious in terms of what the team have you made all the hires that you have expected to make is there any any seats still that you need to do and do you feel comfortable with kind of the layers below management that you really have the solid team in place.

But like we're looking at it.

That stable steady Eddie good customer service orientation that we've always thought it to be thank you.

Thanks, David.

So firstly I would say as I as I said in our prepared remarks that I think we have added significant talent to the to the team.

And so the senior team.

As of now.

Those roles are filled and we havent really motivated I think and committed team.

That said, we have obviously, Chris Smith, joining on Monday, and he needs to get in and learn the business get to know the team and determine what the needs are for the company going forward that we want to give him space and time to do that but he appreciates. The the great leaders, we have on the team and as I mentioned has met all of them on the executive team in terms of the <unk>.

Strength below we have continued to add some great leaders as well over the past number of months.

And I feel really good about those additions I think as with any company. We can always continue to strength and I would expect that as Chris comes in he will want to put as an imprint on the business and look to where we can strengthen certain capabilities in the organization. So I think you can take confidence that we are stable, we haven't really committed group of leaders at all levels and.

We will continue to strengthen that going forward.

Our next question Puneet Suda from SBB Securities.

Hi, guys. Thanks for taking the question so.

Just one on.

Pharma for me and then just briefly on NPS on farm I was a bit softer versus sort of the strong backlog that we have seen before so.

Could you elaborate a bit.

Happening in that part of the business.

And also on <unk>.

GFS contribution in the quarter, what can you provide us there and wondering if the <unk>.

ASP uptake was part of it was <unk> contribution maybe just talk to us about the sort of share shift dynamics and Ngls that you've talked about in the prior quarter as well. Thank you.

Okay, I'll ask Michel to comment on the first part and then and then Dave Okay. So on the pharma backlog continues to grow which is great for us and we see positive growth. There we are seeing some softness on the revenue conversion.

That's something that we're addressing a lot of it and we believe right now it has to do with <unk>.

Sample makeup from the different clinical trials that we're getting and we're looking at this in a lot of detail in addressing it. So that's where we see from bookings to revenue conversion, that's something that we're addressing.

Okay.

So for NCS.

We continue to.

You're going to see that we have.

And the more comprehensive panels, so I'll start with that.

Since our Q1 call we have evaluated identified a few solutions on a broader broader panel and continue to validate those for future launch.

Our current state.

<unk> is not.

At the rate of the market, but we are seeing some growth there and from in.

Perspective, ASP perspective, depending on your acronym.

We are seeing favorable mix in NPS as part of our of our offering mix is actually driving.

Some of the ASP.

Favorability.

Got it thanks guys.

We now have Dan Brennan from Cowen.

Great. Thanks.

Multi part I wanted to follow up on the Ngls.

So could you just give us a sense of.

Your core clinical business.

About it as a high single digit type growth.

Just wondering since you've begun to talk about this mds impact more beginning last quarter like where are you seeing the biggest impact on your base business IHG flow fish molecular and is that high single digit is still appropriate.

And then maybe Im just wondering on the second half outlook Bill if I'm doing the math right. It looks like you're kind of implying Q4 may be down low single digits to down maybe as much as like high single digits on a revenue basis.

Fair and kind of why would the degree of decline curve. Thanks.

Okay. Thanks, Dan.

Dave comment on the first part of the question, yes. So when we take a look at the core business and modalities.

Below where we think the market rates are for those modalities.

There is an <unk> part of that for sure.

But we think that the majority of the volume decline is back to the two main things that we've talked about before which is our operational challenges in the lab as well as the offering for four mgs and.

And I hope I don't think we comment on specific modalities. So I'll just keep it general.

That but we do think that the.

There is growth in the core when we get the lab operations.

Back to where we have been historically.

Thanks, Dave.

Yeah. Thanks, Dan I think we can walk through offline sort of the specifics, but I don't think its necessarily.

Our expectation that that.

Q4 would be down on a year over year basis, we did say on the call that on a sequential basis Q3 could be down.

Sequentially relative to Q2, because Q2 is always our strongest quarter of the year.

Okay.

Our next question is Andrew Cooper from Raymond James.

Hey, Thanks for the question and welcome Chris as well.

Maybe just a high level one.

Thinking about the financials, a little bit. Thanks, Bill you commented on.

The prior comment about EBITDA breakeven exiting Q3, and I know historically, you said EBITDA would improve quarter over quarter and assuming both now thinking about <unk>.

So clearly the case, so I guess, maybe just walk through some of the community.

Thoughts there whether that can easily exit rate is still on the table and how we should be thinking about.

The pathway to improving profitability through to 18 month project catalyst program.

Thanks, Sandra Bell to to come in.

Sure. So let me start with the Q3, that's simply a function of.

If we do see a sequential decline in revenue it wouldn't be typical or atypical than to see that pressure.

Low through on the profitability standpoint, so that's just kind of normal calendar <unk>.

We do continue as I said on the call do you expect to drive an improvement as we move into Q4 and some of these catalyst initiatives take on.

More of a hold in terms of 2023 profitability.

That is absolutely what we have been working towards or exiting 2023.

But obviously, we have a new CEO coming in on Monday, and he is going to want to take a look at the business in <unk>.

Think about the places that we need to make investments and think about the tradeoffs between cost improvement and accelerating growth and so.

I think at this point, we just don't want to commit to any 2023 metrics.

Okay. Thanks.

We're hearing from Mark Massaro from BTG.

Hey, guys. Thanks for the questions and Chris welcome to Neogenomics.

Maybe a couple more on the precision oncology MRV side.

I guess can you expand a little bit.

<unk>.

Essentially what youre thinking about in terms of.

Actually this is on the therapy selection side.

In terms of expanding to broader panels I know in the past you've talked about looking to be perhaps more competitive with other larger labs in the space on the DNA RNA side.

So can we expect a broader tissue based tests.

To be launched later this year and then I also wanted to ask on liquid and then finally have you seen any uptake in the envision first lung product.

Okay. Thanks, Mark I'll have Dave first comment, yes, so so as.

As we mentioned at the Q1 call I mean, we have evaluated we do recognize the need for the broader panel and we are validating actually a couple of candidates right now.

So I don't know that I want to say by the end of the year or early next year as the timing, but we are actively validating candidates for a more competitive more competitive offering.

IBM, Phil Yes, so Ivy FL.

We are seeing modest growth on small numbers.

And part of the <unk>.

Activity right now with IVF, those actually gearing up for radar as well. So it's the same the same lab.

We're running both of them in or will be running both of the men. So it'd be felt is showing modest growth, but we are also gearing up for radar as well operationally.

Okay. Thank you.

Our next question is Derik de Bruin from Bank of America.

Hi, Good morning, Thank you for taking my question and welcome Chris as well.

Just a follow up.

So.

Just to clarify I mean does that and does your guidance then imply.

Pharma services being.

Not growing into the back half of the year I mean, if you're if your asps are stable and yet youre still expecting to see <unk> growth in clinical services to the extent so going back to Dan Brennan's question.

I mean.

Are you expecting pharma services to be down in the back half.

Thanks to our cost Delta respond, yes, so a couple of things.

We tried to provide you some guardrails that we want to be crystal clear that we haven't issued any kind of official guidance.

For for where we'll be.

And at this point I don't think we're going to get into.

Discussing specifics of the individual.

The individual business lines as you saw.

Our pharma services revenue was down in the first quarter of the year and it was down again in the second quarter of the year. We are taking a number of actions to try and accelerate that growth but.

It doesn't necessarily mean that will be.

The effective added achieving those outcomes.

In time to impact the third and fourth quarters of the year, that's yet to be.

Determined we're confident that we can grow over the long term, but we really want to shy away from giving any short term guidance.

Thank you.

We now have to house savant from Morgan Stanley .

Hello. This is you call on for Tito. Thank you for taking our questions.

First Lynn based on your conversations with Chris was the view that the company needs to commit is the view that the company needs to commit to an accelerated portfolio.

Your NGF modalities or has the mandate to take more conservative approach that focuses on near term profitability with slower pivot to Ngls overtime.

Thanks for the question first of all Chris It Hasnt started yet so I want to make sure that we give him ample time to get into the business learn it and come up with its own perspective on the business.

I would say as of right now we continue to be very committed to an NGF product offering that will be competitive in the marketplace.

And continue to invest in those areas that are going to deliver value over time, so stay tuned for more from Chris as he gets into the business.

Okay understood and then as a follow up some of your industry peers are reporting delayed decision to commit to a project in some cases also reducing the number of projects that enter the pipeline with efforts underway now to secure.

More earlier stage preclinical business to convert more quickly are you seeing that as well.

Now let me, let Michelle comment on that yes, we definitely are seeing delays for the later stage project in terms of enrollment in the oncology space in particular because of still getting out of the COVID-19 side of things. However, we do know that opportunities are there to get these samples and from the early stage trials and we get that conversion going.

Revenue, so that's where our focus is starting to become a continuing actually but also accelerating in that space.

Okay. Thank you.

We now have David Delahunt from Goldman Sachs.

Yes, great to hear Chris is starting Monday looking forward to working with him again on radar any additional color you can give on how we should think about volume and how do you anticipate the mix of clinical versus Biopharma.

Thanks, David I'll ask Michel to comment.

So.

Volume wise, we are not going to provide exact guidance on the exact numbers there, but I think from the interest that we've seen at <unk> on the pharma side, it's been extremely positive.

<unk> I would say with where with the plenary session with dining ovation at the data that we're showing across multiple cancer types. In particular, we can really say that the radar technology that works across multiple cancers, and we will have value there and foremost recognizing that so our goal is to get some of these deals signed over the next.

Couple of quarters.

Announce those on the clinical side I'll pass it to David.

Yes. So thanks, so on the clinical side of it we're gearing up for the Mol Dx assuming a positive result from the Resubmission with Mol Dx and we'll look hopefully within the fourth quarter pending a positive positive feedback.

To launch it into the market.

We're geared up.

The precision medicine manager of the sales reps that we had planned for this year already we've already completed trading previously that we're actually doubling down in and refreshing the training.

So we're ready to go when the Mol Dx.

As a group.

Great. Thanks, Josh.

The question is Mike Matson Needham.

Yes. Good morning, Thanks for taking my questions.

I wanted to ask about this.

You book this new lab and that you've gone through this transition and it sounds like its goal going into the new one it sounds like thats, mostly done, but how much did that transition how much of that factored into the service level challenges, we've had as well as the gross margin.

Declines that you've seen is that has that been a factor in the fact that you are now fully in the new lab should that lead to an improvement on some of those issues.

Thanks, Mike I'm going to have bill address that question, yes, So Mike I don't think that the.

Sort of duplicative operations are redundant operations really impacted our service levels in a meaningful way that probably wasn't one of the contributors certainly it had an impact on our gross margin.

And our costs were not quantifying that but it will be one of the factors that should allow us do you see gross margin improvement.

Into the future.

Okay got it thanks.

Our next questioner is Mason Curico from Stephens incorporated.

Hey, guys. Thanks for taking the question.

Just one quick one on pharma services here.

Or provide any additional color on biopharma demand for radar, maybe what type of projects you're seeing the most demand for and how these timelines for radar projects in terms of going from backlog to revenue compare to.

The average timelines of projects that you guys currently have in your backlog.

Yes.

So.

With radar in particular with pharma, what we're seeing is more interest rate initially on the early stage site, which should then get.

Get the revenue conversion happening faster, but our goal obviously with radar is to also look at this to later stage trials and Thats now with the data out at <unk>. We're also seeing more interest in that so the initial focus early stage trial faster revenue recognition and then in the future will be on the more on the later stage trials that will be a place too.

III trials.

Got it thanks guys.

There are currently no further questions in the queue at this time I would like to direct the floor back to Lynn our hosts for final thoughts.

Yes.

Yes.

Yes.

Thank you as we end the call I'd like to recognize the of our 2000 and 125 Neogenomics team members around the world for their dedication and commitment to building a world class oncology diagnostics and information company on behalf of our Neogenomics team I want to thank you for your time and joining US. This morning for those of you listening that are investors or are considering.

During an investment in Neogenomics, we thank you for your support and interest in our company.

Thank you.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day.

You for your participation.