Q2 2023 NeoGenomics Inc Earnings Call
Welcome to the Neogenomics second quarter 2023 financial results conference call and webcast at this time all participants are in a listen only mode.
Of note. This call is being recorded and an audio replay will be available on the company's website.
Pension Sweeney Vice President of Investor Relations you May begin your conference.
Yes.
Thank you Jenny good morning, everyone and welcome to the Neogenomics second quarter financial results call with me today to discuss the results are Chris Smith, Chief Executive Officer, and gesture Aman Chief Financial Officer additional members of our management team are available for Q&A, including Michelle's degree President of advanced diagnostics.
He has done as president of clinical services and melody Harris President of enterprise operations.
This call is being simultaneously webcast, we will be referring to a slide presentation that has been posted to the investors tab on our web site at IR Dot Neogenomics dotcom.
Starting on slide two during this call we will make forward looking statements regarding our anticipated future performance, such as our operational and financial outlook and projection our assumptions for that outlook opportunities and strategies for our products and related effects on our financial and operating results.
We caution you that such statements reflect our best judgment based on factors currently known to us.
And then actual events or results could differ materially. Please refer to our most recent Form 10-K, and 10-Q and the 8-K, we filed with the SEC to identify important risks and other factors that may cause our actual results to differ materially from those contained in or suggested by the forward looking statements.
The forward looking statements made during this call speak only as of the original date of the call and we undertake no obligation to update or revise any of these statements.
During this conference call in order to provide greater transparency regarding our operating performance, we will refer to certain non-GAAP financial measures that involve adjustments to GAAP results. The non-GAAP financial measures presented should not be considered an alternative to the financial measures required by GAAP and should not be considered measures of liquidity and are unlikely to be comparable.
Q2, non-GAAP financial measures provided by other companies.
Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table available in the press release, we issued this morning.
I'll now turn the call over to Chris Smith, Chief Executive Officer of Neogenomics.
Thanks, Kendra and welcome everyone.
Thanks for joining us this morning to go through our second quarter financial results, we'd like to begin every presentation, we do whether its to our teammates our customers our investors with our mission and vision statement, because it's what motivates our company and our teammates on a daily basis. Our mission is to save lives by improving patient care and before we dive in I want to thank all of our teammates.
The impact that they make on patients every single day.
Now, let's move to slide four and get into the second quarter financial highlights.
Had another strong quarter as we continue the momentum from Q1 into Q2 second quarter revenue was $147 million, an 18% increase over the prior year clinical.
Clinical service revenue increased 17% driven by strong volumes across our modalities and an increase in revenue per test, notably the second quarter was the ninth consecutive quarterly increase versus prior year and revenue per test.
In addition, we have significant mgs revenue growth well above our 20% stated internal target.
Advanced diagnostics revenue, which includes pharma services and informatics increased 22% from prior year driven by the strength of our core pharma business informatics and the ramp up in radar.
Adjusted EBITDA improved 87% to a negative $2 million and adjusted gross profit was $65 million, representing a 44% margin and a 33% increase over prior year.
Turning to slide five our second quarter financial results contributed to strong numbers for the first half of 2023.
For the half revenue was up 17% versus prior year to $284 million driven by an increase in both clinical and advanced diagnostics revenue.
Adjusted gross profit was $124 million, representing an adjusted gross margin of 44%.
Adjusted EBITDA was a negative $9 million, an improvement of $26 million or 74% over the first half of 2022.
During the first half of the year, we serve well over 300000 individual patients, which is a testament to the mission of our company and a leading indicator of the improved operational capacity within our labs.
Going back to Q2 on the next slide six the second quarter delivered sustained performance improvement in revenue gross margin and adjusted EBITDA.
We're proud of this year over year accelerated growth because it's a direct result of the strong execution by our teammates and the growing demand for our products from our existing clients as well as new customers.
Our operating and revenue cycle initiatives implemented in the second half of 2020 to continue to enable accelerated growth and we believe we have the ability to continue to drive improvement in the business throughout the second half of 2023 and beyond.
As we move to slide seven let me remind you of the strategic priorities, we laid out at the beginning of the year, probably grow the core business accelerate advanced diagnostics drive value creation and enhanced people and culture.
As we look at transforming the business, it's about focus collaboration and execution and our team continues to deliver results against these strategic initiatives, we have a great team at Neogenomics and continuing to enhance this team and our strong mission driven culture is critical to our long term success, while much of this won't be visible to the outside of the organization. This work is.
Foundation for everything else, we do operationally this morning, I'm going to focus on our other three priorities.
Turning to slide eight let me touch on a few highlights from these strategic priorities for the quarter.
We continue to see strong growth in clinical volumes across all modalities, our product offering and our sales force optimization continues to deliver significant NGL revenue growth as well as growth in revenue per test. Additionally, we continue to refine our laboratory operations, we set an internal record for the number of tests processed in the quarter and.
Thanks to our teammates in the lab to support this core business growth.
Even with these strong volume trends, we continue to grow revenue faster than volume following our last three quarters, a significant improvement in turnaround time, we saw a more normal improvement of 3% in the second quarter aligned with the significant growth in volume.
In July we received our first Medicare coverage decision for radar in breast cancer. Following this approval, which effective retroactively as of March 24, 2023. The radar assay is now covered for certain Medicare patients in the U S with HR positive in her two negative breast cancer. This.
<unk> is a major milestone for us following our acquisition of antibiotics.
We always believe radar superior sensitivity and specificity with enhanced patient care and improve outcomes and are thrilled that the sporting clinical evidence met mol Dx programs high standard for coverage.
Additionally, we remain on plan for submitting two additional indications as well as expanded breast indication to mol Dx by year end.
In June our radar assay received its first pan cancer commercial coverage by Blue Shield of California.
This decision is a good indicator of the progress we and the industry are making as commercial payers are beginning to acknowledge the clinical and economic utility of radar in the <unk> setting.
Pan cancer coverage highlights the breadth of our data across various cancer types, which we believe is a key differentiator.
Looking forward to the rest of the year, we think there are opportunities to expand coverage with additional indications.
We published compelling data at <unk> in June with five poster presentations and one oral abstract in lung breast and head and neck cancers. These posters highlighted radars accuracy and sensitivity over current standards of care in its use across tumor types and settings.
We have data complete or in progress and additional indications, where we can pursue payer coverage.
We are focused on driving value creation from a financial perspective and are pleased that we have delivered even further margin expansion from Q1 and have generated significant operating leverage as revenue favorability fell through to the bottom line.
Last month, we added three excellent directors to our board of directors I'm confident that their varied backgrounds experienced and professional accomplishments will provide me with additional skills and insights that will enhance our execution against our strategic priorities and long range planning now let me turn the call over to Jeff to review our financial results in more detail.
Jeff.
Thanks, Chris and good morning, everyone I'll begin with a little more detail on our operating results for the quarter as Chris said, we continued the year with revenue experiencing accelerated double digit growth in both clinical and in advanced diagnostics over prior year second.
Second quarter revenue was $147 million, an 18% increase over the prior year and a seven 1% increase from Q1 of 'twenty three.
Revenue growth was driven by growth in clinical test volume, a continuing shift to higher complexity tests and improvement in revenue per test adjusted EBITDA improved $14 2 million from prior year to negative $2 million.
Q2 marks the third consecutive quarter that adjusted EBIT increased from prior year, we generated significant operating leverage as revenue favorability fell through to the bottom line.
Looking at Slide 10 clinical services revenue of $123 million was an increase of 17% year over year, driven by an 8% increase in volume and an 8% increase in revenue per test.
Higher volume is driven by growth within our existing client base as well as new sales and demonstrates that our sales force optimization strategies enabled us to reach oncologists and pathologists continue to show progress.
Turning to slide 11 average revenue per clinical test increased by 8% to $417, representing an improvement for the ninth consecutive quarter versus the prior year as we maintain our focus on higher value tests and revenue cycle management initiatives.
On slide 12 advanced diagnostics revenue increased by 22% to $24 million compared to the second quarter of 2022, driven by both price and higher NGL volume and legacy pharma as well as growth in informatics and radar revenue.
Adjusted gross margin improved 770 basis points, representing the fourth consecutive quarter of 600 basis points or more of improvement over prior year.
At our Investor Day in April we shared our strategy with you relating to profitability and growth in our advanced diagnostics business one of the ways. We plan to accelerate profitable growth was the rationalization of our global testing sites and contracts, which meant walking away from some of our smaller unprofitable contracts that also.
Didn't deliver meaningful revenue.
As we execute on this strategy, especially on what new projects. We take on we begin to see a temporary pullback in pharma revenue towards the later half of the year and into the first half of 2024.
We are confident that this will guide us to sustainable and profitable growth in the short term mid term and most importantly, the long term. We don't believe this will be material to the overall growth projections for the companies.
Looking at the income statement on Slide 13, adjusted gross margin was 44, 1% an improvement of 505 basis points over the second quarter of last year. Adjusted EBITDA was negative $2 million of $14 2 million or <unk> 87 improvement, 7% improvement over the second quarter of 2022 <unk>.
Improvements were driven by both higher revenue and gross profit and highlight the operating leverage in the business.
Regarding operating expenses sales and marketing expense was $18 9 million as we continue to invest in the expansion of our sales force G&A was $60 3 million and R&D expense was $7 5 billion. In addition, there was $3 1 million in restructuring costs in the quarter related to the previously announced organizational.
<unk> and footprint optimization, which was part of our value capture program to gain operating leverage.
Turning to the balance sheet on slide 14, we ended the second quarter with cash and marketable securities of 409 million, we continue to make good progress and diligently managing our cash burn and our focus on accountability and discipline oversight of operating expense cash flow from operations improved $15 million or 91.
Percent from Q2 of 'twenty two on a year to date basis cash flow from operations improved by $32 million or 69%.
Our strong financial position provides us the financial flexibility to continue to invest in the business and achieve our strategic and financial objectives.
Given our Q2 financial performance and continued progress executing on our strategic priorities, we are revising our revenue and adjusted EBITDA guidance for the year.
Turning to slide 16, we previously had revenues at $555 million to $565 million, representing 9% to 11% growth. In 2023, we are revising that range upward and now expect total revenue between $5 $65 and $575 million for the year, representing 11% to 13% growth.
This includes the expectation of slower revenue growth in advanced diagnostics in the second half of 2023 due to the very strong revenue performance in the fourth quarter of 2022 and repositioning the business for more profitable contracts.
Adjusted EBITDA was negative 22 to negative $18 million and is now a negative <unk> 13 to negative $10 million, representing a 73% to 79% improvement.
We continue to see strong revenue growth and an increase in NGL products mix and are very encouraged by the opportunities for radar and other new tests, which provide accelerated leverage to the bottom line as we stated at the beginning of the year our year over year comparisons will get more difficult as the year goes on but we believe we have a strong foundation.
Asian, and dedicated teammates to deliver financial results, while we continue to be focused on driving operational efficiencies. We will also continue to invest in the business to capitalize on our future growth opportunities our strategic focus remains to deliver long term sustainable growth.
With that I'll turn it back over to Chris. Thanks, Jeff We are very pleased with our year over year progress, including strong revenue growth of 18% and significant improvement in adjusted EBITDA. We now have our first radar commercial payer pan cancer coverage in our first Medicare approval in HR positive in her two negative breast cancer and we're generating.
Additional data that will support expanded coverage in the future.
We saw meaningful progress in the execution of our strategic priorities and therefore, we are raising our guidance for the full year results, we are well on our way to becoming the leading cancer testing.
Information and decision support company, we will continue to build on the foundation, we have laid over the past several quarters to deliver long term sustainable growth I'm excited for our teammates and our customers and most of all for the patients that we serve on a daily basis. Thanks for your time and now I'll turn it back over to the operator for Q&A.
Thank you Sir at this time, we are opening the floor for questions. If you would like to ask a question. Please press star one on your telephone keypad now.
Formation time will indicate your line is and Nicky you May press star two if he would like to remove your question from the keys. So any participants using speaker equipment. It may be necessary to pick up your handset this fully depressed the stock east.
Please hold a moment won't be poll for questions.
Yeah.
Okay.
Yeah.
Thank you. Your first question is coming from Dan Brennan of T D Cowen John Hele.
Hey, Dan.
Hey, Chris how are you doing thanks, Scott Thanks for the questions. Congrats congrats on the quarter.
Maybe the success you guys had obviously.
It gets people excited here and just kind of looking at the full year guidance, a nice raise maybe you could give us unpack a bit how we think about clinical in advanced diagnostics in the back half of the year you called out tough comps, but you do have but it still feels like maybe you are baking in some cushion in the back half of the year just kind of can help us think through that back half of your guidance.
Well, Dan you're already there like I mean, we encourage his trades and you're calling me I'll say, hey, we've got to push it.
Look I look.
To unpack it and I've got the Shaw and and Warren here, but I think the way to think about is first of all as you know we had a big Q4 of last year in pharma and a lot of that early radar and the farmers. So we've got a big comp in pharma. In addition, when Michelle to go over that business and we dug into it I think there was a we talked about this you know in prior.
Calls that there was a big focus on bookings and revenue and we are booking unprofitable small I think projects and we had opened up labs in places like China, and Singapore and I'm just weren't seeing the pull through so I think the strategy was to really kind of transport, our transform that business, which met.
That we.
We had to cut loose some of those unprofitable smaller projects and so I think the Michelle and Dennis and the team did a fantastic job of rebuilding that field organization and focusing them really kind of on the top 30 pharma. So what we what youll see is I mean, I think youll still see nice growth, but between the comparable in Q4 and kind of this.
Transformation, they're going through we think it'll slow a little bit and then we'll get a nice recovery as we go into the second half of next year. If you look at the clinical side of the business look I would say the difference. There is things are happening faster than I think we originally had projected and that business is growing at a much faster rate coming off of very low performance in really.
21, and the beginning of 'twenty, two and so I think that conversion of Ngls and our focus on driving NGL growth the expansion of the field force and the optimization. We think gives us good continued growth, but I don't do any one of you guys I know I, just kind of threw a lot but.
Yes, I'd say that <unk> from a clinical perspective in the second half of the year.
Very similar to what we're seeing in the first half of the year is probably how I would summarize that.
Kind of if you already gave Chris.
Michelle and David's point I.
I think Q4 of 22 was a very strong revenue quarter for us.
With our refocused that we've had I think were better a lot more strategic is too high margin accounts that we've been going after.
Great. Thanks for that maybe just one on radar congrats on the Mol Dx coverage. It looks like that was probably based on the trip study given the five year post kind of surveillance just kind of wondering can you help us think through what that opportunity looks like for you and then secondarily I know you talked about you have other indications in breast that.
You either file for or you have some data that are you know you're submitting so I'm just wondering could you speak a little bit to kind of what's forthcoming later this year from a breadth perspective, and then if you could shed any insight on the other two indications. Thank you. Yeah look obviously, we're excited about getting that approval, but vishal do you want to highlight kind of what's going on yes. Your guys' time.
Yes so.
We haven't broken it down by quarter, yet, but our plan is to expand our breast coverage.
We did use the <unk> study data to get the initial coverage of breast cancer really showed that we understand and know what it takes to go from the <unk> perspective, and we want to expand on that with the additional risk coverage that we will go through.
We haven't really missed it out yet what are the other two applications that we're applying for beyond the breast cancer, but more to come on that.
Near future, Yes, I would say I would add to that I think the takeaway is we learned from previous submissions and I think we are where we expect it to be and on track with our <unk> coverage as we reformatted our planted go back more dx for breast.
Great guys. Thank you very much thank you.
Thank you. Your next question is coming from Andrew Blackman from Andrea Your line is live.
Andrew.
Hey, guys. This is actually Justin on for Andrew Thanks.
Thanks for taking our questions just to start off on the advanced Diagnostics segment, just wondering where the pipeline stands and that fee for service radar business today, and then secondarily.
How much does radar have the ability to reduce those clinical trial costs and how does that stack up versus the competition.
Yeah. So a couple of things so we do not on the farm a breakout individually what percent of the pharma revenue is radar I think you probably know we started moving there a year before really getting clinical coverage. So I'd say, that's one thing just to think about is that we started that process. The process really in last year on the clinical side we've been.
Pretty clear that we don't have any material.
Revenue in <unk>.
Our our plan and that has not changed even though we we've got coverage I mean, obviously, we're out selling it in and Theres coverage, but I think our view is that we're building for the long term and so we still have a clinical evaluation program going on and we're kind of I think our strategy is brick by brick but I.
I would not say any of the raise was built into that.
As far as the clinical trials and helping us to offset I don't know Vishal, if you want to yeah.
We're obviously in a lot of discussions with the different pharma companies and building that into their clinical trials.
Relatively early still.
<unk> is going to be looked at even from a FDA perspective.
Ah clinical clinical surrogate biomarker perspective, there's a lot of discussions ongoing so at this time I would say that we're still early on with that process.
Understood.
Our next question is on new comprehensive just a general update on how the uptake has been on that panel and the feedback from the community there. Thank you.
Yes, so I think as you probably know I mean, we've been the market leader in <unk> and I think we continue to do fantastic on heme. We felt like we were behind on solid tumors. So we brought that product out I would say that we're already developing our next generation of solid tumor, which will come out or.
Our target is probably Q2 Q3 of next year, the clinical side of that business and earlier in pharma and I think the way that we're really thinking about it now that we have a competitive solid tumor offering as a portfolio and what we're really focused on in the whole portfolio of Ngls is that we want that to grow above 20% because the market is growing.
That are at or above that so look I think as we stated in the script or in the prepared remarks that we're growing significantly faster than that we don't really break out like individually how much in heme or how much a new comprehensive but I think it's a product where we're getting out in front of our customers and a lot of times, it's new.
New customers, where we just hadn't had solid tumor business or we had possibly losses in prior years, because we didn't have a competitive offering.
And maybe just building on that in terms of the sort of portfolio. In addition to the physical product. We launch some of these are about the elements, which was then Yang <unk>.
Digital tools, which are really enabling the oncologist accenture, which is also proving to be very positive among both existing customers and Utica estimates, which was obviously part of the strategy acquiring new customers with this portfolio.
Got it I appreciate the responses there. Thank you.
Thanks.
Thank you very much. Your next question is coming from Alex.
Craig Hallum still great.
Alex Your line Okay.
Great.
Morning, everyone, Hey, with regards to the radar in the breast indication by Medicare could you just kind of walk through the logistics of preferring tumor samples and patients five years. After diagnosis just how many patients can you still get access to that tissue sample.
Oh call it a.
Longer time after the diagnosis is actually occurs.
Michel you want to take that yeah, I can take that Alex So one of the things that.
We've been out there now since March and we started what we call the clinical evaluation program and we have focused our energies with the clinical evaluation program.
Applications that we know we were going after.
From a whole VX Medicare reimbursement perspective. So this is one of the things. We did look at how hard has it been to get access to the samples that are posed by here and I would say that because of our relationships with the hospitals that we have actually.
That hasn't been the biggest challenge for us at this point is to getting access to the tissue through a clinical evaluation program, we are getting tissue in the door.
Educating the oncologists as to the value of the radar test EBIT at this type of setting.
Which is more surveillance.
Okay excellent that's great to hear and then there's been some more talk recently about the FDA putting out another proposal to regulate lab developed paths and we'll obviously have to see if that proposal even comes out or the proposal will even go final, but maybe just the preempted a little bit remind us how many LTE teeth as Neil itself today and any rough game plan the teams talking about <unk>.
Internally I'm out of questions through a regulatory pathway if it ultimately we'd go final.
Yeah. So look I think as you probably know <unk> pretty close to that in a lot of us in the industry are on that board and.
I think theres, a lot of dialogue going back and forth I think that our belief is that the FDA is definitely going to have an influence in this industry and so I think when we all got together as a leadership team about a year ago, we brought in.
Someone to run the quality kind of regulatory side of our business that had deep.
FDA experience and so we've started that process already internally.
With the belief that things are coming I think look I don't want to speculate on this because there are have been a lot of speculations weather.
Tests that have been around for a long time gets grandfathered.
Our university hospitals carved out is it going to be stuff around Ngls. So I think again I. We're waiting we think something is going to come out in late August or September and I think our view has been really over the last six months to begin to prepare for when something does occur that we're ready to react.
Alright excellent I appreciate the update thank you.
Alright take care.
Thank you very much. Your next question is coming from David Delahunt from Goldman Sachs. David Your line is live.
Hey, David.
Hey, guys. Congrats on the strong quarter, so really pleased to see the first positive mol Dx coverage decision for breast.
I'm curious if you could help us understand what the broader coverage definition could look like but I believe you said you're going to.
Pursue later this year.
And it sounds like this is more of a surveillance purpose for you John .
And to pursue coverage for therapy response monitoring at some point.
Yes, so two things I'm going to hit the high and then I'll turn it over to Vishal look I think as you probably know this is a pretty competitive market right now not only in <unk> a lot of people are have products under development or a lot of activity there and obviously in places like India and so we really are.
Don't disclose kind of the details, but I think vishal can probably give you more coverage about how we're thinking about stuff going forward. Yes, I mean, if you look at where <unk> is being utilized right. So if youre surveillance is one aspect of things and what's really nice about looking at <unk> five years.
Is that a lot of women do recur five years and oncologists are worried about these women and as such the tool that we can provide now to help with that effort.
But going into the adjuvant setting.
<unk> is another place where we're obviously paying very close attention to and are working two words.
Studies coverage in that area as well, so I think youll see that but.
I think our focus is very much commercializing now post five years, but also at the same time coming up with publications and the other settings, where <unk> is being used which is in the neo adjuvant in the adjuvant setting.
Great. Thanks.
And it's good to see the increased profitability and gross margin. So any update you could give us about the lab automation efforts in California and Florida.
Yeah.
Yeah, I mean, I think in MLD is on the call and melody can add some additional color I mean, I think we talked about this is back when catalyst was initially formed last summer or that kind of rolled into what we call value captured a lot of those initiatives or around driving operating efficiencies within the lab I would say the bigger longer term.
Is around automation I would say that depending on the lab, we have a level of automation, but melody do you want to kind of update kind of where we are in that process.
In particular, we're focusing on the newer product lines around Ngls and so we are in the process of adding what I would call a little bit of opportunistic automation, so, we're adding liquid handlers and things into those lines.
We are just kicking off an effort that will explore wider end to end automation and that's something that you'll be seeing from us in the coming quarters.
Thanks Molly.
Thanks, guys.
Thank you. Your next question is coming from David Westenburg from Piper Sandler David <unk> David.
Hi, This is actually John on for Dave Thanks for taking the question.
So you get the sense that what People's blood utilization was higher across the industry in the quarter Whats your sense for if you're gaining share. Thank you.
Yes look I think we believe that we are I mean, I think we've talked about this that each quarter, we've been winning more than we're losing and I think that's an important indicator I think the other thing is if you look at all of our modalities. They were up pretty close to right at high single or double digits in a lot of those modalities are growing too.
Two 4%.
Per year, so we're growing faster than the market, obviously Ngls, we grew significantly more than 2000 and so our belief is that we are moving share Warren do you want to comment a little bit more because I think you hit the highlights I think the growth is really broad based that came from all of them are identities.
But some of the sort of legacy or traditional mobile entities grew as Christine well above market as far as we're concerned and then deteriorate itself remains our strategy to focus on the combination of those two and the disciplined execution that is driving the results.
Alright, great. Thank you.
Thank you.
Thank you. So much. Your next question is coming from Mark Massaro of C. T. I G. Mark Your line is hey, Mark.
Hey, Chris Congrats on a great quarter.
So about five months ago, you guys launched neo comprehensive solid tumor.
And Neil comprehensive myeloid disorders and of course, you also launched a radar into the clinic.
Can you just give us maybe an update as to which of those might have.
Mike of benefited you in Q2 and can you give us a sense for what some of the gating factors.
Would be I would think reimbursement would be one of them, but just general commentary about those product lines and how they might have contributed in Q2.
Yes, im going to let Warren kind of take that because we really do talk about this portfolio, but I do know there was some good reimbursement as opposed of launch of Neocart rents are or do you want to give to give more color. Yes. So I think again as Chris said earlier three of their ads and you touched on it to a suite of products that we launched in the latter part of quarter, one all of them.
<unk> focus.
Ultimately if we look at that performance in aggregation we intend.
In terms of how things are developing.
They actually collectively ahead of internal expectations that we set ourselves.
Reimbursement perspective within the suite of products that we launched in quarter. One it was any radar, where we were working towards reimbursement that particular pointed I think vishal. This is Kevin that on the call already.
In addition, we have seen some we do see some opportunity down the road for some further enhancement format and reimbursement perspective around the suite of products that we launched which was sort of part of the strategy that led us to develop these products in the first place and I would add I mean, they're relatively new.
Products, so they're ramping so some impact but not a huge impact in the second quarter, we're expecting to see you know more as the quarters progress.
Okay, Great and then just a second question here.
Wanted to get a sense for how you see your Ngls volume continuing to grow I know occasionally I get questions from investors that that don't even understand which mgs products you have because it's generally hasnt been a focus for me over the years, but maybe just giving us a sense for what.
What's been driving the growth I think caught my eye I imagine, it's probably some of the smaller panels, but when do you see maybe the bigger panels starting to kick in as we think about 2024.
Against the graduation, so I think if we look at the NGL portfolio the sale of a Cvs portfolios in the heme and in the solid tumor. The heme is be more I would say traditional and.
We classify ourselves as a market leader in that space and despite that we still seeing very attractive growth rates, probably above market in terms of how we would.
Defined market growth and in the heme space in solid tumors, where we did launch the suite of products earlier on this year and.
Those all have achieved as a as a percentage obviously growing exponentially more but it's also it's off a smaller base and as Jeff said, a few minutes ago. Those otherwise that that continues to ramp. So we're really benefiting from strong demand from <unk> on the <unk> side of things, where we have a strong base, which is being supplemented by some very.
Solid growth coming from new products also supported again by the best Test solutions that we launched in conjunction and your access and EIC.
Yes, Mark I think a couple of things to think about and you I think you highlighted I think we were behind candidly LNG asset and I think theres been a significant focus I think in the quarter kind of two unique people, we hired a vice president really a payer relations on the reimbursement side and Michelle hired a new vice President of global R&D and I think if you think about where we're spending our <unk>.
Right now, it's expanding that portfolio and Ngls, especially solid for the years to come. So look there's I think high expectations internally that we need to be bringing new innovations to market. Because we were behind so I would say that there is a huge focus in the organization. They are kind of getting back to where we believe solid was going in and making sure.
We're getting more than our share I think the other thing that Warren touched on that I think we've really understood talked about was these wrap around services. I mean, this is a service business and everybody can run in Ngls doesn't get resolved, but it's really around the customer experience and I would say that.
All of the stuff that we're even talking about today, whether it's products to them. It really is about this service offering in this focus on patients and customer experience and how do we make it easy to do business with Neal, which I don't know that it always was so that would be the other thing I think that's helping us.
Alright, thanks, so much thank.
Thank you.
Thank you. Your next question is coming from Tejas Savant from Morgan Stanley .
Your line is open.
Hey, guys good morning, and congrats on the strong quarter here.
Maybe.
One on <unk> for your question and Michelle feel free to chime in as well.
You know you talked about the tougher comps in your pursuit of profitability here heading into year end in the first half of 'twenty four but how do you see that sort of unfolding in light of the tougher macro backdrop, and then perhaps seen a pushback on pricing from some more budget conscious customers.
Is there anything in the back half guide that you're baking in for those headwinds.
Yes look I think I mean, obviously.
Pricing is always a generally try and I mean, I think I don't know that I've ever been in a business or a time in health care and I.
I don't know 35 years, where it was I feel like we have not been impacted by that I think we've been pretty open and honest about that we did do price increases and we believe that we were in certain cases out of the market from a pricing perspective. So the thing that I love about it it creates a conversation with a customer and so why we.
They have a set target internally on a price increase we may not get all of that but we get something and we have those conversations. So I don't know that that has had a big impact I will say closing some of these international.
Pharma locations has impacted our business and we knew that kind of going in when we made that up.
A decision, but I feel like that that's all been taken into account when we raised the guidance on revenue growth do you want to can I got vishal here in <unk>, maybe let Michelle comment a little bit more about the farm and what's going on in the macro yes.
I mean, the way I look at this is that because of the broad offering that we have we're not just offering one test, which is where some of our competitors are doing we have multiple tests that we offer whether it's in Iac's, Idaho fish Ntfs, it's all about having that balance in general right. So I think we're we see potentially.
Where in the past, where we were focusing heavily on let's say IAC now we're focusing more on the IGF side of things. So that we can actually have better margins. Accordingly. So it's really this balance so because of the broad offering that we have right now I think we're able to manage that accordingly, which.
Which is similar strategies in clinical right that we think that you.
You can really come in and meet all your cancer testing needs, which you can't do with a lot of our competitors.
Got it.
And then a quick follow up on sort of the exit trends in 'twenty three 'twenty four.
Chris I mean is there any reason why you wouldn't be able to grow the top line and that sort of low teens range next year.
Gross margins I mean, you've done they've got some terrific progress there over the last few quarters here.
Obviously, it's gone continue like you know in the.
Several hundreds, but certainly on a full year basis, you know approaching sort of 50% does that sort of a fair yard stick to use as we think about 2024.
Yeah, I'm going to let Jeff kind of highlighted a couple of specifics, but look we believe that there is significant opportunity in this business and I think when we talk about this I had it in my prepared remarks, it really was about focus and execution and I think what you're starting to see is our ability to really utilize this broad.
<unk> footprint of our lab, but also our commercial organization, that's not just focus on oncology, but also pathologists and be able to pull through multiple test. So I think that's helping us on the revenue. If you think about the operating efficiencies of the profit side. It really is about improving that gross margin consistently and then being more diligent on opex I think.
Candidly. We are we were we were kind of out of control several years ago on spending a lot faster than revenue was growing and I think that hurt the business. So I think a lot of this is around diligence and execution, but as far as how far we can go Jeff do you want to.
Talked about this publicly.
I would say first of all in this year, we've seen very strong revenue growth and we've seen very strong pull through on the bottom line and I think we're focused on what are the levers that are going to drive our operating performance. Our topline revenue growth is certainly one being more efficient on the gross margin side through automation and some of the things the melody.
And her team are working on to drive adjusted gross margin is another and then really getting operating leverage on the Opex line as well. So I would say, we're not we're not going to get into.
2024, yet, but I think we have good momentum in the business, we're continuing to invest in our sales force you guys continue to see resources being added there. We clearly think we're seeing the benefit from that on the topline revenue growth and so as we look at 2024, it's really about what are those levers again that are going to drive improved <unk>.
Performance. So its topline revenue growth, it's focusing focusing on higher margin tests and GFS growth continuing to see revenue cycle management improvements, which we've benefited from this year and then getting operating leverage from our cost management side. So I think the team feels good then we continue to have a lot of opportunity.
To capitalize on as we go into 2024, and we will certainly talk more about that as we exit Q4 and give guidance for next year, but we think we're on a good trajectory and we expect to can see expect to see continued improvement as we go into next year.
You kind of remember this from our old life, together, and where I was it looks high water covers a lot of stops and I think especially look if youre driving revenue above market in a market that's growing pick a number 6% to 8% and unit like I think it creates huge opportunities, especially when we look at things like Ngls, which have higher margins. So.
That's been a big focus on ours is driving revenue growth.
Very helpful guys I appreciate the color.
Thank you take care.
Thank you very much. Your next question is coming from Derik de Bruin of Bank of America. Derrick Your line is live.
Hey, Derik.
Hi, good morning, Thanks for taking my question.
Just sort of following up on some of the things that tejas.
Was asking on price.
Obviously theres a lot of companies that are introducing or have.
Solid tumor and heme panels on the market.
The pricing dynamic.
And that thing I mean are you pricing on par with peers, the pricing a little bit less I'm, just sort of curious in terms of how the competitive dynamic on that is because theres a lot of there's a lot of companies that are out there doing it.
Warren you Wednesday.
I don't think there is a significant difference in price in terms of how we're going off of gaining market share again, we very much in a very similar ballpark and obviously as you know it also depends on how we build to the various customers whether it's a client. So if you are willing to third party payers et cetera, but I cant say that if we look at loss.
Chip panels and compared to the competition that our price positioning is in any way meaning to be different from those people that we are competing with.
Very narrowed that yeah, I think there's a lot of it is not only the prices of the pull through on reimbursement and I'm surprised that this industry.
And talking with my peers, how many people are not getting paid for the work they do and Thats been a huge initiative for us and I would say, we talked about building out sales, but I would say, it's really building out the commercial organization of being innovative and strategic and making sure that we're getting paid for the work that we're doing in that look we think we have years to go there on what we call our revenue side.
Management initiatives, but that has been a huge impact so helping our pricing.
Yes.
You actually just preempted or started to go into my next question on this one in terms of the payer dynamic and.
Obviously, you know there's a lot of these companies out there like what is the pushback from payers and they don't pay you right.
Obviously theres value in sort of doing the engineers testing, but when you don't get paid what is the pushback and how do you offset that.
I mean, there's a whole host of other issues, sometimes its prior authorization sometime this medical necessity, sometimes its medical records.
And so I think and sometimes sometimes we may not even have a contract and so I think there's a host of reasons for us and I would say, we're focusing on kind of driving all of those down using automation getting information more upfront even before we start start the testing process. So I think it's been a it's been a focus area of <unk>.
Our team really starting in the back half of last year and we've seen good progress throughout this year and still think there's a lot of runway and then on the managed care pricing side, it's really about how we go to market. There you know what our what getting tests covered isn't just pricing its getting test covered as well so.
We've added some resources with expertise to help us not only get contracts that game coverage for individuals specific tests, yeah, and I think the one thing that is a little bit different from us and some of our competitors. We have a lot of contracts over to over to Andrew we have over 200 contracts with payers. So I think it's a lot different when you have a contract versus.
As youre running a test without a contract and I think that's been a strategic decision is that we will have contracts and we will have GPO contracts and I think that.
That's probably helping us as well.
Great. Thank you very much.
Thanks, Eric.
Thank you. Your next question is coming from Mike Matson from Needham <unk> Company, Mike Your line is live Hey, Mike.
Hey, everyone. This is Joseph on for Mike.
Maybe starting off with <unk>.
It's been ticking up the last few quarters.
You are in this I guess you could say soft launch of radar I believe you had mentioned that.
You wont be giving out free, but maybe given it out more selectively but.
As you are.
As you as you have received reimbursement from Medicare and then one private payer.
Is the decision to start ramping that expense a bit more or do you think it's.
The idea is more weight for expanded breast or another indication covered before we start seeing that ramp up.
Yeah look we've talked pretty openly about our field expansion plan. This year and that we had talked about I think adding more resources in the second half of the year. That's built into the guidance. So what we've guided you on that as that additional expansion of the field organization I think from there as we go into 'twenty. Four we've also talked about look I think that this.
Industry does not operate very efficiently from a salesforce perspective, or what we call sales optimization and so a lot of focus on tools and resources to make our current field organization significantly more efficient.
And so not spending time doing things that are driving revenue and that's really a 24 activity. So you won't see a huge expansion in 'twenty four because we believe we can get significantly more efficient and.
Go to market with what we've got to get to get to the numbers that we want to get too.
Okay.
That's helpful and then.
Maybe.
At the Investor Day, you guys have detailed the expectation of return to historical margins by 2026.
You know maybe given all the success so far on the topline and the operating leverage you guys are seeing plus the comments on the call today as you know.
Is there any reason why that milestone couldnt come sooner say in 2025.
I just wanted to get your thoughts on that.
Yes, we're clearly ahead of where we said we're going to be for this year and we see a lot of room as I said a lot of drivers are going to help improve the company's performance and I and the team is clearly focused on that.
We're not going to get.
And to any more long term guidance at this point, but I think we're headed in the right direction. We have good momentum we have a lot of levers we're executing on.
And so we expect to see the performance continued to improve and we're clearly ahead of where we thought we'd be.
At Investor Day, and have raised guidance now two quarters pretty materially from where we started the year. So I'd say, yes, we expect to see continued progress and we're definitely ahead of where we expect it to be you know at Investor day.
Okay. Thank you congrats on the great quarter. Thank you. Thank you.
Thank you very much. Your next question is coming from Nathan <unk> from Stephens Nathan Your line is live.
Hey, Jason.
Hey, Chris maybe just a couple quick ones here for me on the breast cancer indication.
First off just high level, what's demand look like in this patient population how often are these patients.
Five years post diagnosis, no active disease seeing their oncologists for a follow up and what does compliance to that follow up schedule look like generally.
Yes, so if we look at the population itself right.
I'd get it in the most common subtype of breast cancer, which makes up approximately 70, 374% of all breast cancer cases, if you look at post five years, you will have over 27% of all breast cancer survivors, who are living with a personal history and they do go NFC their oncologists on a regular basis because one of the concerns oncologists are telling us that they have with.
This population is that a large percentage of these women do recur post five years and the only tool that they have primary tool that they have right. Now is looking at imaging. So any tool we can provide them to help with that effort does help so from that perspective.
Imaging is typically once or twice a year, depending on the oncologist and we really havent mimicked based off that hit OS to how frequent testing will occur and that is what is also shown in the.
And the coverage that we got yeah, and I think if you look at the data we presented at radar picks it up significantly sooner than imaging and look it's still early days with Emaar D. But I think if you look at all of these.
<unk> population and doing annual checks, whether its breast or prostate or whatever it is I think the reality of life is that preventative health people are going to start checking more and more and so look it like we said it's early days I think the other thing is that we felt like we wanted to get.
A certain indication in through Mol, Dx and get approval I think this is a brick on brick process I think where we made a mistake in colorectal is we I don't think had a strategic approach. So I do want to be clear, we're not stopping with just a portion.
Vishal mentioned, we have a we will submit an expanded exact rest before the end of the year. So it is an ongoing basis is just not one and done.
Got it no that makes sense and do you have the opportunity for a DLT pricing for this indication how are you thinking about that if you do when do you plan on filing any color there.
Yes, I think <unk> will be difficult for this indication in particular, but what we're looking at for other applications more than just this indication.
Got it thanks guys.
Yes.
Thank you very much just a reminder, Sarah are any more questions. Please press star one on your fine keypad.
Your next question is coming from Andrew Cooper of Raymond James Andrew Your line is live.
Hey, everybody. Thanks for sneaking me in a lot's already been asked so maybe just one on.
On the ASP trends to start.
Yes, I'm trying to get an understanding of how much of it is mixed driven versus like you mentioned, Chris earlier better collections better revenue cycle success. So can you give us.
A bit of a sense for kind of what's driving what.
<unk>.
Yeah look I think we talk about units and pricing, but we don't break out like individually and I think the reason being is because it is a portfolio effect and so I think it really isn't just one thing driving it's multiple but Jeff do you want to yes, I think thats right and I think the mix will change from quarter to quarter, but I would say we are seeing.
Strong Ngls growth.
Driving it we're seeing pricing increases both for our direct client bill and some of our payer contracts and we're seeing revenue cycle. So I think those will shift and can change from quarter to quarter, but we've got teams focusing on all three of those and continue to see opportunities there.
This year into the back half of this year and into next year and I would say years to come really as we think about as Chris said the revenue cycle opportunities.
And just overall pricing increases to help offset the cost increases we experienced as a company we hadn't done that as effectively historically and I think we're much more focused on it now.
Great and then maybe just one more if its already sort of been touched on but just as you had your folks in the field specifically selling into the oncologists for a little bit of time now with Neo comprehensive really more recently with radar and radar with coverage anything Thats changed the way you would think about that build out and the optimization of that.
Salesforce in terms of where you stand on where they are focusing.
Anything on that front or anything that surprised you out of the early days of each of these respective launches.
Yes, I think you said, you'll be getting a lot more experience now and then what we obviously had before we started and I think some of our assumptions have held true others, others have changed slightly.
One of the areas that.
Transparency is obviously a space, where we haven't had as much access as what you've maybe had hospitals et cetera is that access has proven to be a little bit more challenging. So we're equipping the team with much more specific targeting data.
And set a very clear reasons to call. So to speak so that we can address some of the access challenges also as we look to recruit additional people through the investment making sure we get in those people with relationships is a second way that we're looking to address the the access challenges as well. So that's the one I think the the second.
This also that maybe some of the selling or some of the buying is going to take place significantly higher within organizations than maybe what we see before us not only a bottom up strategy, which is important.
Introducing new emerging technologies, but also focusing on the top down sort of strategy as well with maybe an area, where we have identified opportunity and we're looking to calibrate moving forward.
But I would say the majority of our assumptions of how true.
And I think the other when you've talked about is a different buying cycle than we used to and maybe highlight that we had in our NPS is higher yes, let's talk.
Our overall <unk>. So maybe that's a good color. Thanks, Christine one of the things that we knew Arabian Indian is get feedback from our customers in a broad cross section of our customers to understand their experience with and classical NPS processes and other processes and what we definitely see it as we segment between.
Our traditional hospital segment, we have been very strong and maybe some of the community oncology setting the Sydney is a delta in how we perceived and it's got a little bit to do with actually a lot to do with how sort of buying decisions are taken in the buying process in the community oncology setting versus the hospitals and where we are adjusting our E.
Thermal processes here to accommodate the neo access product that I spoke about earlier is a big lever for MTA because that certainly streamline the ordering process and provides access to a wealth of information that's relevant to that target segments. So again, we are adjusting our processes internally.
For a different market segments.
The other thing that we kind of learned is that by now and we talked about this when we did it we were going to pace the expansion of the field and so rather than going out and hire and everybody I think one of the things that we've done is we've learned and we've adapted and we for example, we just had neo University, which is our summer sales meeting, where we brought in a whole field organization and it's all around training so everyone.
Does the sales meeting at the end of the year, which is kind of more pump and circumstance and he said the goals and strategies, but this was intense.
Training and I think thats, what youre going to see is that look we.
We're going to make decisions, we're going to learn we're going to adapt and we keep moving forward and I think learning about this buying cycle and how we do things is making it benefits and I just got told by Kendra that we're out of time.
So anyway, thanks, everybody for the time today, we really appreciate you dialing in and spending a little bit of time hearing how the business is moving forward and we look forward to talking to everybody soon take care.
Thank you everybody. This does conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day.
Your participation.