Q4 2022 Neogenomics Inc Earnings Call
Good morning, welcome to the Neogenomics fourth quarter and full year 20 twenty-two earnings conference call.
As a reminder, this call is being webcast life and recorded and there will be references to a slide presentation in conjunction with remarks.
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W Dot I R Dot Neogenomics dotcom.
And advance the slides yourselves I will now turn the call over to Chris Smith at Neogenomics.
Thanks, Paul and good morning, everyone I'd like to welcome you to the Neogenomics fourth quarter of 2022 conference call. Joining me for this call or Jeff Sherman, Our Chief Financial Officer to solve secret President of our newly created advanced Diagnostics Division worn stone President of our clinical service Division and Melody Harris President of Enterprise Opera.
Asian.
Before we begin our prepared remarks, Jeff will discuss the forward looking statement and non-GAAP measures used for this car yeah.
This conference call includes forward looking statements about our 20th twenty-three initiatives 20, twenty-three financial outlook growth opportunities and anticipated operating results and performance. Each forward looking statement is subject to risks and uncertainties that could cause the actual results to default materially from those projected in such statements.
Additional information regarding these risk factors appears under the heading forward looking statements in the press release, we issued this morning and in the risk factors section in our annual report on Form 10-K for the year ended December 31st 2022 that will be filed with the Securities and Exchange Commission.
Forward looking statements made during this call speak only as if the original date of the call and we undertake no obligation to update or revise any of these statements.
In addition, during this conference call in order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. The non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by gap should not be considered measures of liquids.
And are unlikely to be comparable to non-GAAP financial measures provided by other companies and.
Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure and a table available in the press release, we issued this morning. Please be advised that we're going to limit the number of questions to one per person in order to get more people a chance to ask questions within the one hour that has been.
Lot it for this call.
Thanks, Jeff.
On today's call I will begin by discussing our fourth quarter and full year financial operating results and then Jeff overview, the fourth quarter and detail and provide 20 twenty-three guidance before turning to call back to me to share our goals in key areas of focus for 2023.
Well then opened up the line for Q&A as we conclude the call.
If you look at our mission is the way we love to start all our presentations weather's with an investor our teammates or even our customers because it what's drives and motivates our organization on a daily basis and before I dive in the car I just want to thank all our global teammates for all they do every single day to transform so many patients lives.
Turning to slide five we finished 2022 on a high note that some of our strategic operating initiatives began to show results revenue was $139 million, a 10% increase over fourth quarter of last year and up 8% sequentially also the fourth quarter in a row of sequential growth.
This revenue increase was driven by both are clinical services.
<unk> and significant recovery in the farm a service business.
And the quarter, we saw an improvement in revenue per test from the prior year for the seventh consecutive quarter.
[noise] adjusted gross profit was $62 million, representing Jested gross margin of 44.5%, which was a significant improvement from both Q4 last year and sequentially.
Adjusted EBITDA loss was $1 million.
These significant improvements were driven by both higher gross profit and lower operating expenses and highlights the operating leverage in this business.
We finished building out our executive team in the quarter is Jeff Sherman joined US CFO worn stone joined as President of our clinical services Division and melody Harris joined Us as president of Enterprise operations.
Finally, we initiated an organizational restructuring process, including integrating the Nevada business. We believe that this reorganization will result in approximately $25 million a annualized operating savings, while helping us to accelerate revenue growth I.
I would note that not all these savings will flow through the income statement as we continue to invest in strategic initiatives to drive long term sustainable growth. This includes investing in the race strategic priorities, including the expansion and optimization of our commercial salesforce investing in radar investing in revenue cycle management as well as strategic R&D efforts.
We edition, we are investing in automation to help drive efficiencies in the business as well as improving our turnaround times for our patients and our customers.
Turning to slide six for the full year 2022 results revenue was up 5% versus prior year to $510 million driven by an increase in both clinical and pharma revenue adjusted gross profit was 207 million representing adjusted gross margin of 41%.
Adjusted EBITDA losses $48 million.
During the year, we served over 625000 patients and had over 1 million test ordered which is a testament to the mission of the company.
Now on slide seven I'm Preece at the fourth quarter continue the trend we have shown throughout 2022 of consistent sequential improvements and revenue adjusted gross profit adjusted.
Suggested gross profit margin and adjusted EBITDA.
Notably our revenue growth has accelerated each quarter throughout the year.
We are pleased with the improvement shown throughout the year as some of our initiatives operating initiatives have taken hold we believe that we have the ability to continue to drive improvement in the business in 2023 and beyond.
Turning to slide aid and highlighting the clinical services results revenue increased 4% over the fourth quarter of 2022 <unk>.
Revenue per test was up 1.6% in volume increased 2.3%, even as we saw a continued mixing shift towards the higher value and larger panel tests.
We are pleased that some of the investments in the field resources that we made earlier in the year are beginning to pay off.
Turning to slide nine farmers service showed strong recovery in the second half of 2022, both Q3 and Q4 represented record revenue quarters with the fourth quarter, showing 41% revenue growth over prior year.
Performance was driven by project Prioritization. In addition to a focus on moving to higher margin modality is like mgs, ensuring that the lab was able to deliver in a timely manner.
We saw especially strong growth in radar performa with the fourth quarter seeing over 300% of growth from the prior year.
This radar performance highlights the value of data is presented that ASKO and other key conferences and we expect strong growth in radar as we continue into 2023.
Lastly, the informatics division delivered record revenue quarter, as well driven by solid growth, 38% over revenue from the prior year I will now turn the call over to Jeff to discuss our financial results in more detail.
Thanks, Chris I'm very excited to join Neogenomics to help advance the company's mission and drive long term sustainable growth and profitability.
Turning the slide 10, we finished the year with accelerating revenue growth and improving financial performance in the fourth quarter.
Revenue growth of 10.3% was driven by clinical test volume growth of 2.3% and improving mix of higher complexity tests pricing improvements and strong results in our farm a business Guy.
Gap gross margin was 41%.
Gross margin, which excludes in Nevada related amortization expense was 44.5% and improvement of 460 basis points over the fourth quarter of last year.
Just to gross margin performance demonstrates our ability to generate operating leverage in the business with revenue growth, while also reducing our cost per test adjust.
Just a gross margin I'll also improved by 280 basis points sequentially with most of the revenue growth over Q3 falling to the adjusted gross profit and adjusted EBITDA lines.
Turning now the operating expenses sales and marketing expense increased by $1.2 million or 7.7% year over year to $17.1 million, primarily due to higher commissions from the revenue growth.
This expense category will fluctuate sound from quarter to quarter.
G&A costs decreased by four and a half million dollars or 7.3% year over year to $57.9 million.
On a sequential basis G&A decreased by three and a half million dollars or 5.6%.
As Chris noted, we started a reorganization in the fourth quarter in an effort to optimize our G&A spend and enable execution of our strategic priorities.
With regard to catalysts, which has been discussed in prior quarters. Those initiatives are focused primarily on driving operational efficiencies and are well underway.
Therefore, they have been built into our annual operating plan and going forward, we will no longer provide catalysts specific financial updates.
The increase in gross profit and decrease in operating expenses drove a significant improvement and adjusted EBITDA on both the year over year and sequential basis and the quarter. Adjusted EBITDA was a negative $1.2 million and $8.6 million improvement from last year and at $10.4 million improvement versus last quarter.
Turning to the balance sheet on slide 11, we exited the fourth quarter with $438 million in cash and marketable securities Dsos finished a year at 79 four days with improvement in each quarter in 2022.
Our strong financial position provides us the financial flexibility to continue to invest in the business and achieve our strategic and financial objectives.
Now I'm, turning to our 2023 guidance and operating priorities.
Turning the slide 13 for the full year 2023, we expect revenue of $545 million to $555 million, representing 7% to 9% growth.
Adjusted EBITDA in a negative 2000 $70 million to negative $22 million as we continue to work to drive the business back to profitability we.
We expect to be adjusted EBITDA positive in the fourth quarter of 2023.
While we are providing annual guidance and do not expect to be providing quarterly guidance in the future given the seasonality of our business. We wanted to provide some guard rails for the first quarter.
The fourth quarter has typically been our strongest in recent years as patients and high deductible health plans increased our screening visits at the end of the year.
R farmer clients also tend to ramp up spending as the year progresses.
While we expect to see year over year revenue growth of 79% in Q1 versus the prior year, we will be down sequentially from Q4, we.
We also expect to see adjusted EBITDA improvement from over Q1 of last year.
Based on our cost structure. This revenue growth will drive operating leverage and our adjusted EBITDA growth will exceed our revenue growth.
While we will continue to be focused on driving operational efficiencies. We will also continue to invest in the business to expand our future growth opportunities I will now turn the call back over to Chris to review, our operating priorities for 2023, Thanks, Jeff.
Turning to slide 14, the more time I spend in this business the more impressed I am with our unique competitive advantage and position in the marketplace and the assets, we can leverage to progress the business going forward.
We are a leader in oncology testing with a significant share of the patient test volume in the United States <unk>.
In particular are deep relationships with community pathologist provide us with an advantage in the market.
Our primary focus on oncology testing has allowed us to develop extensive data patient databases and relationships and we view ourselves as a collaborative partner to pathologist oncologist and Biopharma companies.
As Jeff has indicated we believe this should allow us to drive meaningful top line growth, while returning to being a profitable company.
Moving on to Slide 15, we wanted to give you a brief overview of how we organize the business and established a strategy for 2023 and beyond will be going into much more detail at our April 4th Investor day as.
As we developed our long term strategic vision, we thought about how best take advantage of our unique position in the marketplace and decided to realign the business into two business units or divisions clinical services division as well as the advanced Diagnostics Division.
This will allow us to support our long term success.
The enterprise Operation Group will support the optimization of these two divisions.
The clinical service division is structured to Maximise core business revenue growth and profitability by enhancing the client experience.
Also it will focus on portfolio optimization and commercial execution.
Functions within this group include oncology diagnostics or our core or are based business community based pathology in oncology sales patient engagement and clinical decision support which used to be called Trapelo.
The advanced Diagnostics division is responsible for evaluating future market trends and developing technologies and products that will help neogenomics maintain its leadership position in the oncology market. This means a renewed focus on mgs.
D technology, such as radar multi omics and data capturing commercialization.
Functions in this division include farm of services, which we believe is the tip of the spear for driving innovation in our industry informatics centralized R&D as well as the former in Nevada business.
This new centralized R&D function will enable us to capitalize on innovation of in Nevada, while enhancing the new development process for products.
The key focus of enterprise Operation Group is the end to end delivery of diagnostic and laboratory services in support of both business units from test order all the way through to report delivery.
Functions in this group include laboratory services supply chain operational excellence information technology data services.
Quality and regulatory and facilities.
Turning to slide 16, as we look to the next few years and our key strategic priorities they fall broadly into four buckets.
Enhancing our people and culture.
Profitably growing our core business.
Accelerating advanced diagnostics and.
Improving profitability we.
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.
Much of this won't be visible outside of the organization. The work is key foundation to everything we do operationally on a day to day basis.
And the clinical business as we look to accelerate growth a key initiative in 2023 will be to optimize the field organization, including expanding our oncology Salesforce, we will focus on improving the customer experience systematically addressing all client and patient touch points and improving the end to end process.
In addition, there'll be a deep focus on including turnaround time through operational efficiency and up.
Excuse me automation.
With the formation of the advanced diagnostic Division, we are especially excited about our product launches in Q1 for radar with for specific indications as well as neo comprehensive our new ngf's offering.
Coming off a strong Q4 and pharma informatics businesses, we look for continued growth and the realisation of activity started in 2022, two and drive improve profitability. The team will focus in 2023 on developing a market leading enterprise data strategy capitalizing on our extensive patient database.
Finally, as we execute on the growth plans within each of these divisions, we will work to drive improve profitability will do this by increasing our productivity and efficiency as well as managing our SG&A and R&D spent and.
In addition, we believe an enhanced focus on revenue cycle management will help drive profitable growth.
Despite the intense focus on cost controls and profitability, we will continue to make strategic investment in the business to support this long term these long term growth drivers.
In summary, we are pleased by the significant amount of progress that we made in the fourth quarter and throughout the year why we still have a lot of work to do we believe that we have put the foundation in place for long term sustainable growth.
We believe that growing high single digits and returning to profitability places us in a unique position in the diagnostics market between large full service reference labs, and primarily mgs only companies.
I am excited about what lies in front of us in 2023 and look forward to sharing our progress on our first quarter call.
Paul.
Thank you at this point, we would like to open the lines for questions.
Mentioned at the beginning of this call we would like to ask each person to limit their questions to one so that we may hear from everyone I'm still keep within the hour for this call.
If you would like to ask a question. Please press star one on your telephone keypad at this time.
Using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Please press star one.
On your phone if you wish to enter into the queue. Thank you.
Please hold while we pull for questions.
The first question today is coming from.
Novak from Craig Harlem.
Alright, great.
Hey, Greg Good morning, everyone. So yeah, a lot of stuff going on here a lot of places we could ask questions that I want to add this one first on the on the sales organization I think the displayed in organizations make sense, but.
But how is the sales for its gonna be structure here going forward just to ensure that they're supposed to be selling the core products, but also they are gonna be selling and focusing on the higher growth advanced diagnostic business as well.
Yeah. Thanks, Alex I'll I'll give just a quick overview of then I have a warrant maybe add a little more color since we've been working together on that plan, but like our our view is we're going to have to separate sales organizations because the difference in call points, but they will report to the exact same regional director, so think about being in pods to be able to capitalize on synergies and <unk>.
Partner ships in addition.
One of the things we haven't done on the ecology side, where we've been spending time, there within Gis and even early days discussions around radar. We really haven't offered are full menu. There. We really had been focusing that all of the pathologist and we think there is incredible cross selling opportunities, but maybe let me let warned give a little more color around how we're going to focus on the the difference between the mgs in the core business.
<unk>.
Thank you Chris appreciate that Sydney two separate sales force is reporting to a single regional director educated strategy, we understand that to to touch points of the pathologist and then college is the difference.
Touch points required from an oncologist perspective and.
That's part of the expansion as well I think it's imperative dress closer to expand the amount of portfolios an oncologist sales team has available to them too obviously drive increased value and wrap the services.
Able to provide with our sales team to the oncologist market segments.
Yeah, and Alexander expansions going on right now so we have.
Yeah, we have I don't think we've disclosed the exact number but several several sales positions that were recruiting for to expand that group.
Okay I will give you the one thank you alright. Thanks.
Thank you. The next question is coming from Mark Massaro from BTG.
Hey, Mark How're you doing.
Hey, Chris How's it Goin', thanks for taking the questions congrats on the recovery here.
I guess can you just give us a sense for.
You know some of the puts and takes with respect to the drivers of the volume increase I know the prior year you guys had some challenges. So maybe if you could just walk through some of the product lines or maybe some maybe high level perspective on where you're seeing the growth come from and then.
Related to that as you see 7% to 9% for the full year what are some of the areas of the business that you think will pick up and.
And maybe if you could just speak a little bit more about the strength, you're seeing and farmers services.
Do you think this is an industry trend or do you think this is more company specific.
Okay, well I'll try to answer all three parts of your one of your one question.
Look I think.
It was a good quarter without question, we talked about at the Q3 results that look I think a lot of people have historically looked at unit growth and we intentionally are trying to move business into Mgs and you may give up three single gene test to excel in Ngf's panel. So why you give up actually to taz to get that right.
Three to one is too you're giving up two tests in volume you're gaining revenue in gross profit dollars I will say what you saw early in the fourth quarter was both I mean, that's the reason you saw good unit growth was we didn't just continue to move business in the mgs, but we also saw nice gross and I would call. It that core business and I think we've talked about this in Q3 early in the year, we believe we launched.
Market share I think going through the initial field expansion of adding 20, plus oncology reps in the middle of the year last year, we started moving sure back in I think it's not like we ever had lost entire account that didn't happen, but we were losing certain segments and I think what you're seeing is some of that traction and look it takes time and greater maybe six months.
With with new sales reps to get in and start to move it. So I I think that's that's one.
Look if you look at the 7% to 9% growth for the year from a guidance perspective, we really believe it's a portfolio effect in this business and I think I think at times, that's probably been underestimated without question are based business or core business, which has been with the pathologist is a key factor, but it's also layering in some of these higher value test.
Actually as we roll out radar and a new gn ngf's offering through both sales forces, but it's also around informatics environment and the importance of both of those business and what you saw in queue for I think you'll start to see throughout the year that will it won't be just one or two things will be this portfolio effect and what happened in the fourth quarter and what we believe we can do the shears manage all those levers and then finally.
Look to pharma look just a real shot out of the Shah and his vision and he brought in a strong sales leader to partner with him and really the second half of this year and I think what we have happened as we started putting some I would say governance and disciplined into that group and I think it's about how do we identify the right customers how do we.
Identify the right profitable test so I don't know that I would say, it's an industry trend as much as the company taken advantage of where opportunities are in our deep relationships and look we have a broad testing menu and look in to be fair in the fourth quarter of the team did a fantastic job with radar.
Getting that going with clients and that's why that business was up 300%.
So I hope I got all.
I got them all.
Yep. That's helpful. Thanks, guys alright, thank you.
Thank you and the next question is coming from.
From William there.
Life.
<unk>, Hey, guys, Hey, Hey, Chris how you doing morning, then thanks for taking the questions. Maybe just an EBITDA guide here, obviously improvement expected there, but I I guess sort of as we think about the longer term here. How are you guys thinking about the incremental margins moving forward and just sort of trying to gauge a little bit around the progression of that over the intermediate term just sort of given the.
Leverage that you're starting to see and the model. Thanks, Yeah, Andrew Let me just say that high level of my throat to Jeff but look.
You know this business without question you had the opportunity to get leverage I think as you started to drive growth and look we had the right side of the business with some some operating expense tough decisions that we made but you know there really is the opportunity there, but maybe let me have Jeff give you some more insight on how he's thinking about the margins.
Thanks, Chris Yeah, I think as we're looking at 2022 and then looking at 2023.
We're expecting to see consistent performance throughout the year and as you look at our revenue guidance in our adjusted EBITDA EBIT guidance. I mean, if you took took the mid point, we're growing revenue $40 million at the midpoint of our guidance and adjusted EBITDA.
Prudent of $24 million, so we're getting pretty good conversion of the revenue growth almost 60% as you think about the drivers in the business and our ability to generate operating leverage I think Q4 was it was a great example of adding incremental revenue and holding costs.
Seeing cost improvements and I think as we think about margin improvement throughout 2023 and into the future. We think we can do both we think we can continue to generate top line revenue growth.
<unk> margin improvement and get that operating leverage I think that will be the formula going forward. We said, we would expect to be EBIT a positive.
In the fourth quarter, and so I think you should see a progression throughout the year similar as as we saw in 2022.
Andrew one other thing on that and you've heard me talk about one of our key initiatives. This whole thing around revenue cycle management I start talking about that in the Q3 earnings look we're still unpacking that but we believe just because of the history of the company and just the way we built the business. We think there's a lot of opportunity around revenue cycle management, where we just haven't spent the <unk>.
<unk> are invested in the resources and so look it's going to take time to continue to do that but that obviously is going to also help us.
Drive margin improvement.
That's great. Thanks.
Thank you.
Thank you. The next question is coming from.
From SBB Securities.
Thanks, Thanks, Chris.
Question so on.
On N. G. S. Can you just remind us what was sort of the growth there a U P improvement from the current levels. How should we think about that for 2000 twenty-three within the guide within the context of the guide.
And and could you talk a little bit about the turnaround time improvements or where you are today and where you would like to be.
Yeah. Thanks for neat look I mean, we have not gone out and given specific surround the modality and kind of the growth, but without question. We are seeing very nice growth in mgs and like I think it's a place where we historically have been behind the market and I would say that we're starting to move closer into the market. We're really excited.
About Q1, so as you think about our business going forward launching neo comprehensive which is going to be our ngf's offering in Q1, we think gives us a very competitive offering in the marketplace, especially in solid tumor where we think we have maybe have been a little bit behind because we continue to really lead and <unk> on that side, but so that's a big you know I think.
I think live for us kind of as we move forward.
Yeah.
Yeah.
And the <unk>.
Real quick turnaround time look I think that for US had been a journey look at the end of the day I think again I'm coming back to N. G. S. We I.
I would say that our stated turnaround time in the marketplace was probably a little bit behind competitive I will say that the new neo comprehensive as 10 days.
Which we think again as competitive and look our goal is to outperform our goal is always is a company whether it's with investors are with customers or with patients as to under promise and over deliver so but our stated time will be.
Will be 10 days out there. So look I think turnaround time on all fronts is continue to improve its going to be one of melodies key focus as she comes in but we feel good about the trends in words movement and then finally on au pier revenue per test.
We're continuing to see is that business shifts to that to the higher complexity panels, that's helping drive some revenue per test we are continuing to see some some pricing improvement and will expect to see some of those throughout the year and finally as Chris already noted we think we have revenue cycle management opportunities.
Further drive our revenue and obviously, that's one of the bigger benefits. There is that typically is going to be following almost 100% to the bottom line.
Got it alright. Thanks.
I'm really in the quarter and improvements.
Thank you.
Thank you. The next question is coming from <unk>.
Stanley.
Slash.
Hey, guys good morning, and thanks for the time here.
So I'll ask one on <unk> and then just a big picture one on the on the guidance philosophy are so on radar Chris you know, that's a really strong crashing in the farmer side any updates to shatter in terms of your conversations with CMS. Following your conversation on CRC one of your peers recently got a breast M. R. D decision that.
Does that impact sort of your data generation strategy or or your you know, perhaps your timelines to reimbursement et cetera, and then one for Jeff perhaps on the on the on the guide can you just walk us through you know at a high level of conservatism that you've baked in your you know, it's it's a new management team. So <unk>, obviously, you know curious to Cal.
<unk>, including any color you can share on on this N G. S mix shift assumption, which kidney is going to be probably one of the biggest factors driving upside. The numbers you are in a go forward basis.
Yeah, Let me touch it briefly and then I'm gonna throw the first part of that to the Shah and and Jeff and come back on it kind of just.
Up around the Mgs look we think it's good for the market that.
Tara got breast I mean, obviously, we pretty much know publicly disclosed that's are really what we believe is our big differentiator is and these were the highly sensitive test is important and so breast is really important for us when we launch in here in the next in the next month, but we think by getting traction out in the marketplace in an indication we think it's good for the whole.
Industry, because it's the industry significantly Underpenetrated Vishal do you want to maybe add a little more color around well, how you're thinking about radar and the roll out and got me from as Chris mentioned, we are rolling up at four separate indications going into Q1. So I think that's gonna be a good start for us when the terror getting breast indication is really shows that.
Is looking at expansion opportunities and this will help her adoption out there in the marketplace. So we actually do this is a very strong.
Strong signal that this is a good sign for the practice from a clinical perspective also that there's more adoption occurring there.
Yeah, and I think we've publicly disclosed that we will be submitting breast in the first half of the year colorectal in the second half of the year as well as one other indication. This year is kind of a route and know that we want to beat all those timelines right.
As far as Medicare.
And then on the guidance.
I think we're guiding to what we think we can realistically achieve.
And the year, we try to factor in you know.
Anything that could could happen negatively as we think through that while we've talked about alrighty, we have we have cost savings that.
That are have been baked into our annual operating plan, but we're also making investments we're investing in our sales force we're investing in technology, we're investing in radar as well and so I think if you look at that I think it's a balanced approach to 2023 I think we've finished the year.
Strong and saw performance improving each quarter I think we're looking at a continuing to get better as we go through 2023, but I would say, we believe it's realistic and achievable in the team's definitely committed to delivering it yeah. I think the other thing around that just talks about that we're really focused.
On this long term sustainable growth. So it's not about driving just strong earnings. This year in three years from now wondering what's happened I think one of the challenges. The business had is what's the business with like five years from now 10 years from now 20 years from now so we will and I talked about this in the script that look of the $25 million, we picked up on the <unk> a lot of that.
Being reinvested for dividends that will see in two three years from now and that's why we really want to see this brick on brick continually building a sustainable long term growth.
Very helpful. Thanks, guys.
Thank you.
Thank you. The next question is coming from David Westberg.
Davis.
Hey, David Uhm, Hey cause. Thank you for taking the question in in <unk> I'm really a lot of progress here, So I'm gonna stick with the with the N G. As in kind of the molecular I think historically.
Molecular pcr's pleasant, Yeah. It's been you know really kind of small quarter per cent of the business and then N. G. S was kind of a fraction of that can you talk about a little bit more color on where N. G. S. As kind of taking this from taking it from P. C. R. I <unk> anything around there is a black hair as a whole growing as a whole.
And then can you kind of maybe talk about how that conversion to N. G. S. As kind of looking are we looking from a single gene to hot spot testing or hot spot test to comprehensive and you know does new comprehensive kind of change that equation, even more positive and then finally just on the on the N. G. S is is this purely a conversion.
Or is there even maybe some share taking oh brown.
And I realized that was a really long questions. So that was that's OK, David I'll I'll try to unpack parts of it and I'm not throw it to the shore and then more than the two of them can tank EMU on some of them are getting into the deeper insights into it look I think.
Coming back to your last one about moving share. So look I think one of our challenges is was if you think about neo we really created this niche specialty oncology testing market and I think we did it was by offering a full service of sweets and is N. G. S started to take off over the last.
Three five years I think we got behind especially on the on the on the solid tumor side and I think what happened was that where we would have potentially loss shared some of these key accounts two things I think happened. This year I I think one was we expanded our field organization with an oncology group in in the summer and we originally brought them on because.
We thought we'd get radar for colorectal and we did so we've pivoted and had that group, especially in Q3 and Q4 start to focus on N G. S.
On the oncologist. So we started winning business that we would have never for example had before that was new business, but I would say that our pathology Salesforce also did a really nice job of going back and gaining share from accounts, where we had existing relationships on on the <unk> and you know I think people lose lose sight that we really are if we're not the the market leader one of the.
Market leaders on team and so I think you saw a lot of things coming together well for us because of those key strategic decisions that started.
In the August September timeframe, and I think that's where you saw saw the lip getting into kind of neo comprehensive and more detailed how we see that going forward and the impact I'm gonna throw it to the Shah and more into let them kind of boats share some insight.
Question on single gene testing too hot spot or comprehensive genomic profiling, what we basically see is more of a movement comprehensive like profiling and if you look at the test that we are launching this quarter. That's really the trends that we see continuing and these are extremely strong product launches, which are coming out with both on the heme site, but also the solid.
Humor site, but that's only a product perspective right. It's the surrounding areas that makes it even more I would say impact led war and talk a little bit about that site.
Maybe just and additionally, if I go to the show and I'd say that up to other factors first and foremost overall, we've seen a reduction in the number of clients that we've lost so we came to our clients. We've also fortunate.
Then a few new lines, we've done really really well on the <unk> side of things some weakness on the southern humor and that's ultimately we need a comprehensive is gonna play extensity for us moving forward.
Thanks, guys.
Thanks, David Thank you.
Thank you. The next question is coming from a director Bruhn from Bank of America Carolinas.
Caroline.
Hey, Derek.
Good morning, this is John on for Derek.
Hey, John .
So I wanted to ask about the guide so you have the 7% to 9% growth and of course in the quarter you had a great both from the beta and God and dramatic business growing nicely.
Uhm Goin' forward, what kind of contribution are you expecting from the two seconds for clinical services farm of services given all these dynamics.
Yeah. So look I I would say John we have not split that out and the Guy I think there'll be more follow up discussions and we will get into much more detail around some of that is we have investor day.
In early April , but I want to come back to we think it's a portfolio effect. We spent a lot of time looking at all the levers in this business that can that can be pulled and I don't I think sometimes the challenge has been the focus just on one or two and I think the unique thing about our business is that we have the ability we believed to really win in four key areas right farm in informatics, but also.
The pathologist and now with the oncologist and so for US, it's really about executing and all four of those areas in getting this portfolio effect and look sometimes the great thing about a portfolio effect. There are quarters, where you have one quarter. One business may do significant better let's use pharma for example, pharma record quarter in queue for a 41% big movement in radar I think that have that even surprise.
Does how quickly we started moving in radar. So when you get that you you beat where you are even for example in the guide and I look our goal is to always have that happened, but we also realize we're managing a portfolio and that's where that that kind of seven to nine guide comes.
Gotcha I appreciate that I thought I would ask.
But with with the radar still growing really really nicely in the quarter I wanted to see like what kind of impact or contribution if you're able to tell us that might have on the.
It's a 2023.
Yeah, I'll look at two things on that so we again, we don't we haven't disclosed the exact amount in radar, but I will share that we've been very open and we have disclosed that there will be no meaningful revenue for radar in the clinical side of the business that the meaningful revenue for radar. This year in 2023 will be in the pharma side of the business and that's as much color as we've given.
We do expect to start driving revenue in radar as you know in the clinical side, we're going to launch it in late Q1, but we are launching without multi extra or Medicare reimbursement there'll be a lot of focus on third party payers and starting to move that but look as we've talked to you know one of the key where.
We're doing this call from our global sales meeting and.
And we had one of the leading oncologists in the world in speaking to the to the field organization and just talking to him last night, we actually bought out a barbecue place. So we brought this high level oncologist to a barbecue join and but listen in that conversation like it would almost be like criminal knock.
This product out now than to wait for.
For the Medicare reimbursement and I think that's a mistake, sometimes it's industry makes his way to launch these products until you get Medicare because there's a lot of patients that could benefit and when he starts to talk about the impact that radar can have on some of his patients. It was exciting so we're going to live and learn but but to be fair no meaningful revenue is in the forecast for radar in the clinical side of the business and.
2023, and we will be investing in radar as well so as we're expecting to see continued strong growth. We are also investing and continue to invest in radar and that was part of our strategic initiatives in terms of however, I hope, it's a lot of unresolved twenty-three yeah.
Thanks, Thank you.
[noise] shape that.
Thank you and the next question is coming from Tom Stephens from Kevin.
<unk>.
Hey, Hey, guys.
Have something cool to what a good job that so so just the <unk>.
Bigger picture, one I'm kind of how you see clinical utilization some your big labs developing over the next few days, so I think clinical with something like a high forties gross margin, but the pandemic I.
I guess as you get your new for my is up and running for you to <unk> nation wide.
Where do you see those guys logging sending out with the high complexity tests and then how does that link to longtime free cashflow public Timothy so obvious you're exiting twenty-three.
Plosive only just EBITDA, how does that fit into your <unk> I'm, calling community I was 24 25, thanks very much.
Yeah, I <unk> add a little bit of color and when we get together on Investor day, we're going to talk about the long term.
Guard rails on the guide so we haven't sure that but look we we do not disclose the profitability by lab, but let me maybe give you a little color without question. Our largest lab is in Orange County, California, and you know I will tell you some melodies here.
And have melody give a little insight on how she is thinking about level loading in and we were managing but she was in Houston yesterday, we think Houston's one of our biggest opportunities that historically has been a farm a lab for US we love the Houston, Texas market close to the medical center, Great Labor pool, and so a lot of movement and discussion around how do we <unk>.
Span there look I think Fort Myers is amazing if you get a chance to come down to Investor day, you'll get a chance to tour that lab I would say, it's a state of the art lab as good as probably anything in the world.
But I think one of our challenges has been down in Fort Myers is just building out kind of the labor pool in Fort Myers compared to places like Orange County, California, or Houston to be able to pull through so we're going to continue to move business from some of our our our busy California lab to both of those locations and try to do a much better job, but maybe <unk>.
He has not.
Chimed in yet so maybe throw that's a melody who's kind of her whole life is around site plans and thinking about.
Gross margin improvement, Thanks, Chris Hi, Tom Yeah. So we're working on that Chris mentioned load Levelling.
We have perhaps too much volumes for the our capacity and our a D lab. So we're working on moving that primarily focusing on Houston was just their touring some new space that we're gonna be expanding too and we're working.
In breaking down.
An integrated processes. So when we acquired a lab, we would keep the processes that they had we're not we're not driving is much operational leverage off of that is I'd like to see so big themes for us in 2023 are around load levelling and site optimization as well as standardization of processes and.
And then a longer term process is really revamping all of our technology services and bringing a lot of good.
<unk>.
Automation into the labs, yeah lots of initiatives I think it's a really good 0.1 thing is that we had not really integrated so we had done five before acquisitions in five years and there's been a lot of time spent on integrating those you saw some of that in the restructuring and I called out the in Nevada.
Integration, but I think mentally brings up a really good point about standardization around processes and probably behind for example in automation in certain places. So we feel really good about the runway in front of us on the gross margin, but it is about execution right. So I think we've we've now identify those opportunities like we will be in Houston before the end of the year operational and that new lab, but.
I think it is about about the execution.
Oh right.
Alright, My first name is sometimes even muscle.
Yep.
Thank you. The next question is coming from Nathan Cherico from Stevens based on your line of Slash.
He Mason.
Hey, guys, maybe a quick one on the farm of services business here [noise] I think in previous quarters. There was some commentary around the goal of focusing on earlier stage work, which converts to revenue faster than later stage projects, which have become an increasing proportion of backlog over the past few years. So first is.
That still a goal in second have you guys been successful in adding an increasing mix of earlier stage products over the last few quarters or how are you guys thinking about that dynamic at this point.
Yeah, Let me show you Wanna take that okay. So yes, we have had success in moving to what we call. The earlier stage studies versus prospective studies, let's talk about earlier stage, where basically looking at samples coming in and big Bashes retrospective samples that have been collected from previous studies and that was a big driver for Q4.
For us so we definitely saw a shift as we asked our sales team to really changed their focus of that aspect. We also saw a shift and that type of work with the N G. As in radar. So you see that as you start to get the larger samples coming in our high margin modalities and doesn't really what caused the uplift in queue for for us.
That's a trend that we're going to monitor as a focus for us going into 2023 and.
Making sure that the team is heavily focused on that approach.
Perfect. Thanks, guys.
Yeah.
Thank you. The next question is coming from <unk> from Goldman Sachs.
Emma.
Hey, guys. This is Dave <unk> so.
Regarding the <unk>, Nevada resort.
Where did you find the most opportunity for savings.
And on the flip side building out the oncology and path sales forces could you tell us more about the opportunities for partnership and revenue synergies there.
Yeah look I I would say that the <unk> was not just in Nevada. So I wanted to be clear on that the <unk>. The entire organization looking at where we had redundancies and we thought we we could get better operating leverage but a big component was.
I would say the majority of around the in about it was around G&A.
We had looked at I would say G&A services, and we had a lot of duplication I would say the other positive that came out of that is really in Nevada thinking that becoming our R&D engine and through that process. We combined the two R&D organizations and so I think that was another I think kind of really good pick up there. So you can.
You guys are all throughout the second question is on first questions what was that.
It was just telling me yeah.
<unk>, Yeah, Yeah look I would say that when you imagine what our business is ultimately going to look like it's going to be every territory will have one of each and so look I think it's we're building to that throughout the year I think you'll see a big wave here in the first quarter to get that oncology group.
Up too much closer in size again, we haven't kind of gone out and said that just.
High level, there's probably anywhere from 45 to 50.
Territories, and I think we believe that there is opportunity to be able to to be able to add people and all those geographies.
Thank you.
Thank you. The next question is coming from Mike Matson from.
From Needham and company.
Slash.
Yeah, I think so just just a couple on radar I guess, so and I apologize I did during the call. It waits. He may have gone through this my prepared remarks, or something but you mentioned, you're gonna be submitting for reimbursement for breast in the first half of colorectal in the second half I thought that the message maybe this was from the prior management team but.
The color rectal you felt like you didn't have enough.
Data and that there was more work to be done there. It just I just more broadly can you just kind of give us a sense of your confidence in both the data that you do have in both of those indications needed to support <unk>.
Yeah. So two things on that so we we did submit for colorectal as you know last year, and we did not yet and the reason that colorectal got pushed the second half of the year was two fold number one we believe that first of all we are significantly more and better data and breast I think when you look at the breast data, it's as good as anything in the industry on how.
Sensitive that test is and the differentiation between R. M. R D product and others on the market. So look weak feel like that was look look at let's accelerate that because we have great data and the ability to get through the X look the reason that colorectal move to the second half of the year can leaves we had to go back and do more data and so I think everybody has thought we would.
Repackaging submitted again in the first half, but we didn't think that was prudent for the business. We felt like we look if we go back in and we want to make sure that we get approval, which meant that the team had to go back and do some more data around that but in doing that we want to accelerate.
And we will also add a third indication this year. So we will actually at the end of the year, we would've submitted three things to multi expert.
Or a radar.
Okay got it actually I guess I was thinking that the second half of colorectal is actually better than what I would've thought it would've taken in terms of timing to get that data. So that's a positive I guess my view, but alright, and then just the apartment services business I mean, it was very strong, but you know another kind of diagnosis company report last night, saying that they're expecting a lot of weakness.
<unk> space I mean, just given macro headwinds are you worried at all that you need <unk>.
Farm a biotech companies are gonna be you know trying to rein in third party spending.
Yeah, I mean look we see this on a regular basis right. We do see consolidation occurring on the farm a side, we do see the number of trials that are out there are are slowing down. However, it also comes down to where we want to have our focus we talked a little bit of one of the questions earlier about early stage versus late.
Stage and a retrospective versus perspective samples so as we shift our focus also to the right area. I think we are going to continue to see the growth that we saw going into a beautiful yeah and I also think look radar I think a lot of these other companies don't have radar to be able to offer. So I think that's all that are helping us on the gross side.
Okay got it. Thank you. Thank you.
Thank you and the next question is coming from Andrew Cooper for Raymond James.
His life.
Hi, everyone. Thanks for the questions.
Well I've I've seen coverage. So maybe just one I think I don't remember, who said it but somebody who use the words portfolio Optimate optimization I think generally we think about that meaning shrinking.
<unk> menu I know Lauren mentioned, expanding kind of what's available out there for the oncology pets, but maybe just walk us through a little bit of that and then <unk>.
On a similar front when we think about radar and the tracking and Karma you know how should we be thinking about the indications. There is the is the right assumption that you know where your focus clinically with the launch it is likely we're talking about is having the most interested in anything else to think about in that regard.
Yeah, I'll look I think on the product you know <unk>.
Rationalization look I think one of the challenges.
The neo got into over the years as a growing company I think we were offering certain test that we were not making money on candidly and there just wasn't big demand. So some of that rationalization is.
Basically what I would call and was pruning pruning the bushes like taking away test. So we just think there's not longterm value and we're losing money profitability on I warned you have anything else you want to add on the product rationalization I mean, I'll I'll put it like this I mean, the exercise that we need to go to series, which you would typically be expecting a call business. This this is <unk>.
Slightly more mature so we're looking at those areas, which just no longer viable and want to rationalize at the same time, there's a few strategies that we are going to deploy which would extend life cycles of upfront us by may be shifting some some <unk> from <unk> and other technologies, It's a complete review of.
The portfolio.
To the three by three lines. It didn't show, we can maximize both the growth and profitability.
And Michelle you Wanna talk about the farm and thanks for the question there. So on the radar side with the pharma, what's really nice about this is that pharma wants to look at M. R. D type testing across multiple cancer types. So while we are launching with four indications, where we think that will have the immediate clinical value to patients farmers looking much broader than.
That so I think of what we see actually is what's starting up and pharma on a much broader cash on the pad Kassar perspective will eventually result in specific indications on the clinical side downstream.
Okay.
Hey, Paul I think that kind of draws us to the end of our queue with with questions. I just wanted to take a minute and thank everybody for taking time to join US. This morning and go through the queue for in the year end results like we're really excited about where the businesses headed and you know I think we talk a lot about we think momentum is a very real thing whichever way momentum is moving in.
In the business and we feel good about the momentum that we're carrying from Q4 into 2023, we hope everybody has an opportunity to join us in Fort Myers, you know for the Investor day, and won't get much deeper into the strategy and some of the levers that we're pulling on the business, but for that thanks, again and and take care.
Thank you. This does conclude today's conference you may disconnect at this time and have a wonderful day and thank you for your participation.
Restaurant and bar.