Q4 2024 NeoGenomics Inc Earnings Call
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Speaker Change: Welcome to the Neogenomics 4th Quarter and Full Year 2024 Financial Results Conference Call and Webcast.
Speaker Change: At this time, all participants are in a listen-only mode. Please note this call is being recorded and an audio replay will be available on the company's website. Kendra Sweeney, Vice President of Investor Relations, you may begin your conference.
Speaker Change: Thank you, Holly. Good morning, everyone, and welcome to the Neogenomics 4th Quarter and Full Year 2024 Financial Results Call.
Kendra Sweeney: With me today to discuss the results are Chris Smith, Chief Executive Officer, Jeff Sherman, Chief Financial Officer, Warren Stone, Chief Commercial Officer, and Andrew Lukowiak, Chief Innovation Officer.
Kendra Sweeney: Additional members of the management team are available for Q&A, including Melody Harris, Chief Operations Officer, and Kareem Saad, Head of Strategy and Transformation.
Kendra Sweeney: This call is being simultaneously webcast and we'll be referring to a slide presentation that has been posted to the investors tab on our website at ir.neogenomics.com.
Kendra Sweeney: During this call, we will make forward-looking statements regarding our future performance. We caution you that actual events or results could differ materially. And the forward-looking statements made during this call speak only as of the original date of this call, and we undertake no obligation to update or revise any of these statements.
Kendra Sweeney: Please refer to our most recent Forms 10-K, 10-Q, and 8-K we filed with the SEC.
Kendra Sweeney: to identify important risks and other factors that may cause our actual results to differ from the forward-looking statements. During this call, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results.
Kendra Sweeney: The non-GAAP financial measures presented should not be considered an alternative to the financial measures required by GAAP and are unlikely to be comparable to non-GAAP financial measures provided by other companies.
Kendra Sweeney: Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measures in a table available in the press release we issued this morning.
Kendra Sweeney: I will now turn the call over to Chris Smith, Chief Executive Officer of NeoGenomics.
Chris Smith: Thanks, Kendra. And good morning, everyone. Thanks for joining us today. On today's call, we'll discuss the highlights of our fourth quarter and full-year financial results and provide an update on key business growth drivers.
Chris Smith: Before we discuss the financial results, I just want to thank our teammates for their unyielding commitment to our mission and their hard work throughout the year. Our mission and vision, which is about saving lives by improving patient care, is what attracted me to NEO and it's what drives me and our teammates
Chris Smith: of 2200 across the United States and in the UK every day.
Chris Smith: I want to thank my teammates for the work they've put in over the last several years to transform this company. As many of you know, when I took the NEO CEO role, it was with the commitment to help lead a turnaround of NEO back to growth and profitability.
Chris Smith: This transformation occurred much quicker than I originally anticipated. We have now grown revenue double digits for nine consecutive quarters and have turned around adjusted EBITDA from a negative $48 million in 2022 to a positive $40 million in 2024.
Chris Smith: With the company now in a strong financial position, I decided it was time for me to retire.
Chris Smith: While I retire on April 1st, I'm confident in the future growth potential of NEO. We compete in a very large and growing market with a broad test menu. We enjoy a leadership position in the community setting, and we have a world-class management team.
Chris Smith: In addition, I think our incoming CEO, Tony Zook's deep commercial experience, especially around launching new products in R&D, as well as having the opportunity to interact with the management team and learn the business as a board member over the last few years made him the right choice as the next CEO to lead NEO into the future.
Chris Smith: With that, let's get into the Q4 highlights on the next slide.
Chris Smith: As you can see, we had another strong quarter with revenue of $172 million, growing revenue by double digits for the ninth consecutive quarter. Clinical testing volumes increased 9% versus prior year, with a 5% increase in revenue per test.
Chris Smith: Adjusted gross margins improved to 48 percent, the highest in 20 quarters or five years. As a highlight, we saw 24 percent growth in NGS in the quarter and 34 percent for the year.
NGS now represents over 30% of our total revenue.
Chris Smith: From an Adjusted EBITDA perspective, our progress continues with 27% improvement for the quarter, making Q4 our sixth consecutive quarter of Adjusted EBITDA.
Chris Smith: We make key investments in our commercial and enterprise operation organizations throughout the year. These investments, combined with the entire organization's efforts to enhance customer experience, has enabled us to serve nearly 700,000 patients in 2024.
Chris Smith: which I believe positions us well to achieve our goal of serving 1 million patients annually by 2028.
Chris Smith: The success we experienced throughout the transformation and the continued momentum of our quarterly financial results enabled us to raise our long-range financial plan last month.
Chris Smith: We're not going to be in the habit of adjusting this number annually, but given our understanding of the business today versus where our new management team was at Investor Day in April 2023, we wanted to provide a clear picture of the business as we see it over the next few years.
Chris Smith: Our long-range financial plan targets top-line growth to 12 to 13 percent annually. Notably, this excludes any revenue from MRD.
Chris Smith: We believe the company has the potential to continue to grow the NGS business by 25% annually which would outpace the market growth rates Which we believe is around 15%
Chris Smith: We think about our gross margins, we see about 100 to 150 basis points of expansion each year. When you take that with the revenue, our disciplined approach to OPEX and our focused investment strategy, it gives us about 250 to 300 basis points of growth in adjusted EBITDA margins.
Chris Smith: Our confidence in continuing to execute on this broad range of growth layers, as well as the large addressable market in our business, is what drives our LRP performance over the next several years.
Chris Smith: The statistics are clear. One in two men and one in three women are projected to be diagnosed with cancer in their lifetime and 80% of those new patients will choose to be treated close to home in a community setting.
Chris Smith: Our value proposition has always been how do we provide patients with the same cancer care they'd receive at an academic center like MD Anderson in the community setting where they live and are being treated, like Greenville, South Carolina.
Chris Smith: Our broad menu of over 500 tests and our relationship with hospital pathologists and community oncologists gives us confidence in our long-range plan.
Chris Smith: On that, let me turn it over to Warren Stone, our Chief Commercial Officer, to give an update on the business and some highlights and insight into the growth. Warren. Thanks, Chris. And good morning, everybody. Let's turn to slide seven.
Warren Stone: The optimization of our commercial business is one of our key drivers in achieving long-term sustainable growth. Our field organization continues to effectively execute our commercial strategy protect, expand, acquire.
Speaker Change: to deliver volume growth, increased AUP, and improved mix driven by strength and NGS. NeoGenomics drove significant organic volume growth in the fourth quarter across the portfolio as our commercial and lab operations teams continues to execute.
Speaker Change: Growth is especially robust across NGS with revenue growth of 24% in the quarter, driven by competitive account wins, improved mix, and adoption of large test panels across heme and solid tumor.
Speaker Change: As we shared on the third quarter call, we're expanding our commercial resources to drive market penetration into community oncology and to support the launch of key products targeted to this segment.
Speaker Change: We anticipate we'll be at 140 salespeople when the expansion is complete, approaching a one-to-one ratio between hospital pathology and community oncology call points.
Speaker Change: Most of these team members have been on board and attended our global sales meeting last week, joining at a very exciting time for NEO as we look to launch new tests in the coming months, including Pantracer liquid biopsy.
Speaker Change: With greater reach from an expanded commercial organization, we will continue to penetrate both new and existing accounts with our comprehensive menu of oncology testing solutions.
Speaker Change: A key differentiator for NEO is our broad menu of over 500 tests, which addresses diagnosis and precision medicine needs in NCCN guideline approved panels and comprehensive pan-cancer panels. This allows us to meet providers where they are in terms of how they choose to treat their patients.
Speaker Change: To enhance our comprehensive menu, which already includes flow MRD tests, and to further our leadership position in HEIM, we announced a multi-year exclusive strategic commercial collaboration with Adaptive that will advance minimal residual disease monitoring options for patients with select blood cancers.
Speaker Change: Under this partnership, patients will have access to COMPASS and CHART comprehensive and personalized assessment services alongside ADAPTIV's NGS-based clonal-seq MRD assay, all from one single bone marrow sample.
We believe MRD is an integral part of patient care.
Speaker Change: not only as a prognostic tool, but also to guide clinical decision-making, and this exclusive collaboration reflects a broader commitment to providing the best-in-class personalized diagnostic testing for patients throughout their cancer journey, while strengthening our leadership position in heme testing.
Speaker Change: We'll continue to evaluate opportunities for in-licensing and strategic partnership arrangements to enhance our efforts to drive innovation and bring optionality to patients who can benefit from MRD testing.
Speaker Change: While we focus on growing commercial footprint, we always keep the patient as a priority. We know the difference a day makes while waiting for test results. So the entire organization works to get results back to physicians quickly.
Speaker Change: I'm proud to say our lab improved turnaround time by 11% annually compared to 2023, even with a significant increase in test volumes.
Speaker Change: Providing a seamless user experience to our customers is at the heart of our commercial strategy.
Speaker Change: Last year we implemented over 300 new interfaces with ordering accounts across community oncology practices and hospitals, a 3x increase over 2023. As a result, more than 40% of our customers now have custom interfaces directly with us.
Speaker Change: We see a material increase in revenue with each customer we establish an interface with as it enables stickiness in the relationship by making it easier to do business with us.
Speaker Change: We intend to continue to invest in the acceleration and the deployment of more comprehensive interfaces to support our customers as we expand our commercial presence.
Speaker Change: The trust our partners have in us to deliver on turnaround time and meet our commitments has once again improved our Net Promoter Score to 74 in 2024, up from 70 in 2023.
Speaker Change: Importantly, oncology-specific respondents, which is reflective of our new target market, has improved from 42.
Speaker Change: in 2023 to 64 in 2024. This is especially proud of this improvement as community oncology is a tough market to penetrate and notably less sticky than the hospital business.
Speaker Change: In the farmer setting, we did not see the customary year-end budget flush that fuels revenue in the fourth quarter. These macro conditions and the limitations of selling new rate of contracts resulted in a softer quarter.
Speaker Change: As we enter 2025, we have concluded the preparations and implementation of our revised commercial strategy.
Speaker Change: This model better aligns with the needs of our farmer customers and their buying processes resulting increased value and shorter sales cycles. Additionally, it allows NIO to capitalize on operational synergies which will enhance quality and customer experience.
Speaker Change: Now, let me hand over to Andrew Lukowiak, Chief Innovation Officer, to talk about upcoming products and clinical data that will provide our commercial organization with tools to expand their reach.
Andrew Lukowiak: Thanks Warren. Turning to slide nine, I'd like to focus on innovation.
Speaker Change: We believe innovation is another critical driver for delivering long-term sustainable growth.
Speaker Change: Identifying and executing on the right opportunities positions us well to capitalize on this rapidly evolving market, both now and for the long term.
Speaker Change: We organize these opportunities into three distinct but complementary segments, products, studies, and research.
Speaker Change: Let's begin with products. The bulk of our existing test menu has addressed the diagnostics market, but more and more we are moving our business into therapy selection.
Speaker Change: We believe the therapy selection market is around $13 billion in size, with only about 35% penetration.
Speaker Change: So to aid in capturing share of this market, we are launching NEO Pantracer liquid biopsy in the clinical setting in the first half of this year.
Speaker Change: To the clinical customer, Antracer liquid biopsy will be a comprehensive and highly sensitive liquid biopsy test complementing traditional tissue testing for therapy selection in advanced stage solid tumor patients.
Speaker Change: We will also launch an upgrade to our neo-comprehensive NGS panel to include HRD.
Speaker Change: Beyond the therapy selection market, we continue the development of Radar version 1.1.
which is on track to complete CLIA validation.
Speaker Change: We continue to support Radar 1.0 under the legally approved carve-outs for patients and clinical trials already using the technology.
Speaker Change: The next prong of innovation is the generation of clinical evidence. We are accelerating investment to participate in outcomes-based clinical studies that help drive adoption, support reimbursement, and expand our current clinical applications.
Speaker Change: We'll give a more detailed update of our clinical studies in the coming months.
Speaker Change: Last, but perhaps most important, is the development of a dedicated research program to enhance our MRD portfolio.
Speaker Change: This program focuses on applying a directed intentional approach to generating intellectual property specific to the field of MRD
Speaker Change: including the development of both broad core technologies as well as targeted innovations that would be cancer type specific.
Speaker Change: We're pleased to announce that this program is already operational, with multiple opportunities actively being explored.
Speaker Change: And now, I'll hand it back to Jeff for some color on some margin expansion.
Jeff: Thanks, Andrew. We are excited about what you and your team are working on, and you're already having an impact on our R&D efforts.
Jeff: We are executing our margin expansion initiatives to deliver sustainable growth. Through a combination of efforts, including automation, staffing efficiencies, and higher value tests, we drove over 240 basis points of gross margin improvement in the second half and full year of 2024 versus prior year.
Jeff: We've provided you with some high-level updates on our plans to improve and upgrade our lab information management system. The migration to one single LIMS system is a multi-year process, and each quarter we continue to make progress.
Jeff: We have now combined our clinical and pharma workflow, blending COGS and operating expenses into one single segment and increasing efficiencies.
Jeff: Now let me go into our fourth quarter and full year financial results.
Jeff: I'll start with a little more detail on our operating results for the quarter.
Jeff: We delivered a strong overall performance in Q4 with yet another quarter of double-digit revenue growth increasing 11% over the prior year to $172 million.
Jeff: The combination of clinical test volume growth, the ongoing shift to higher value tests, and improvements in revenue per test due to RCM initiatives continue to drive revenue growth.
Jeff: Adjusted gross margins improved by 134 basis points to 48%, with adjusted EBITDA improving 3 million, or 27%, from the prior year to $12 million.
As Chris said, Q4 was our sixth consecutive quarter
Jeff: Total revenue for the quarter, reminding that we are reporting one single segment going forward, grew to $172 million, an increase of 11% over prior year.
Jeff: The increase in revenue reflects increasing test volumes and higher revenue per test due to increased ordering of higher value NGS tests and strategic reimbursement initiatives.
Jeff: As our expanded sales force penetrates deeper into the community oncology setting, we are seeing increased adoption of NGS testing, which is driving higher volume growth. The strong demand for NGS testing and the insights it provides continue to fuel revenue growth and earnings.
Warren Stone: As Warren noted, we did not see the expected pharma budget plunge with year-end projects in the fourth quarter that we had expected and had observed in prior years, which impacted our revenue.
Warren Stone: On top of this, we were limited in our ability to sell new radar contracts due to the preliminary injunction and negotiated settlement.
Warren Stone: We entered 2025 confident that we are positioned to grow our pharma relationships, and we did see growth in informatics, now called oncology data solutions, in the fourth quarter and for the full year.
Warren Stone: Looking at our fourth quarter financial overview on slide 14, adjusted gross profit increased by 14% over prior year as a result of revenue growth and operating leverage, generating higher adjusted gross profit and margins.
Warren Stone: Regarding operating expenses, sales and marketing expense was $22 million, an increase of 24 percent, reflecting our continued investment in the expansion of our commercial sales organization and support staff.
Warren Stone: R&D expense increased 12% to $8 million in the quarter, and our 2025 guidance also incorporates ramping investments in R&D targeted to drive future products and long-term IP value, as Andrew noted.
Warren Stone: Finally, G&A expense increased to $63 million, driven by higher technology costs to drive customer engagement, increased compensation costs, and higher depreciation expenses.
Warren Stone: We ended the fourth quarter with cash and marketable securities of $387 million, a decrease of 7% versus prior year. Cash flow from operations was positive $10 million as we continue to make investments in the business to fuel long-term sustainable growth.
Warren Stone: We still intend to pay off our May 2025 convertible notes with the principal balance of $201 million using existing cash and marketable securities.
Warren Stone: Turning to slide 15, for full-year 2024 results, revenue was up 12% versus prior year, at $661 million, driven by deeper penetration in the community setting, higher volumes, a continuing shift to higher margin modalities, and execution of revenue cycle management initiatives.
Warren Stone: Adjusted gross profit was $311 million, representing an adjusted gross margin of 47% or an improvement of 245 basis points.
Warren Stone: Cash flow from operations improved 460% to positive $7 million, and adjusted EBITDA increased over 1,000% to positive $40 million, an improvement of $36 million over prior year.
Let's move on to our full year 2025 guidance.
Warren Stone: Warren and Andrew talked about the investments we are making into the commercial organization and in R&D. We are investing more heavily in the first half of the year than we initially anticipated to enable accelerated growth in the back half, with the typical seasonality of Q1 being the softest.
Warren Stone: For the full year, we expect revenues of $735 to $745 million, representing 11 to 13 percent growth and adjusted EBITDA of $55 to $58 million, representing an improvement of 38 to 45 percent.
Warren Stone: While we do not give quarterly guidance, we wanted to give clarity into the weighting of the year due to these investments in H-1 and the ramp of revenue in H-2.
Warren Stone: Similar to last year, we expect first quarter revenues to be about 23% of full year revenue, representing growth of 8-10%, and we expect 8-10% of the adjusted EBITDA for the year to be earned in Q1.
Warren Stone: We will continue to take a balanced approach to investments with increasing adjusted EBITDA, enabling expanded investments in our commercial organization.
Warren Stone: further investments to drive operating efficiencies in the business and targeted investments in R&D to drive future product innovation for our well-established commercial channel.
Warren Stone: In summary, 2024 represented a strong year of execution and financial discipline, which positions us well to continue the momentum into 2025.
Warren Stone: And with that, I'll hand it back to Chris to wrap up. Thanks, Jeff. Wow, it's been a great quarter, contributing to a very strong year. I'm so proud of our teammates for working so hard to sustain performance that delivers these type of results.
Chris Smith: Before we wrap up, let me give a quick update on RADAR litigation as to whether RADAR 1.1 infringes two of Natera's patents.
Chris Smith: and it's still ongoing. A jury trial is currently scheduled for October 2025. And as you've heard the team talk about today, we remain committed to bringing patients optionality in MRD testing and are confident in our position in the market.
Chris Smith: So, to round out the call, in 2024, we saw four consecutive quarters of double-digit year-on-year revenue growth.
Chris Smith: and positive adjusted EBITDA in all quarters, as well as the highest adjusted gross margin in 20 quarters in Q4.
Chris Smith: We served nearly 700,000 patients on the path to our goal of serving 1 million patients annually by 2028. We saw meaningful progress in the execution on our strategic priorities and expect this momentum to continue throughout the year, which allowed us to raise our long-term gains earlier this year.
Kendra Sweeney: Our 2025 guidance reflects our confidence in the business and our teammates who will help us along the way. So now let's hand the call back over to Kendra for questions. Thank you. Thanks, Chris. That concludes our prepared remarks this morning. Let's go ahead and open the line for questions. Holly?
Speaker Change: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Holly: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Speaker Change: Your first question for today is from Andrew Brackman with William Blair.
Hey Andrew. Hi guys.
Andrew Brackman: Hi Chris, good morning. Thanks for taking the questions to the entire team. Maybe just to start here on the guide, you know, if we look back over the last few years, investors have really sort of rewarded those revenue beats.
Andrew Brackman: As we sort of think big picture for the full year 2025, can you maybe just sort of talk to us about where some of the levers are for potential upside to the range for the year? And then I guess conversely, where might there be a little bit more risk than we might typically expect for NEO?
Speaker Change: Yeah, when you said the very beginning, did you say investors did not reward the beats or did? Did.
out there, yeah.
Speaker Change: Yeah, I'm sorry. So look, I would say that we continue to see very good momentum in NGS
Speaker Change: You know, the quarter was at 24%, the year was at 34%, but remember, we had a tough comparable in Q4 of last year, and one of the things that I think we'll see great opportunity is the second half of the year, the launch of liquid biopsy. We're going to launch it in the first half, but now we probably have...
Speaker Change: I'm just going off the top of my head here, but probably 35% more people in the field than we would have a year ago. And even the people that we had in the field a year ago now have time and grades, so I think that gives us a really nice...
Speaker Change: opportunity I think from a revenue perspective. We're obviously excited about the the adaptive partnership and I think we think that
Bye!
Speaker Change: you know, has good opportunity. And look, it's going to take us through the first half of the year to get all the systems in place. So that's a big second half.
Speaker Change: I think opportunity for us. And look, I would say the one thing that we continue to see is good progress on HEME and the momentum on HEME.
Speaker Change: And I think that's been really, I think people have underestimated, the key market's growing about 10 or 11% and we are the market leader and so we continue to use that as a lever. So those would be the three that jump out. We are still gonna launch another solid tumor.
Speaker Change: probably beginning of late Q2, Q3. So I think all those things hopefully will give us. Look, if you look at, look, risk to the business, look, I would say our biggest risk has always been, you know, our ability to take advantage of the opportunity. I think the community setting.
Warren Stone: We have such a leadership position there. But look, the pharma business has been more of a challenge, candidly. We didn't see that flush of the business in the Q4. We've restructured that whole field organization now that it's under Warren's leadership, and that kicked off kind of late Q4 into Q1.
Warren Stone: But, you know, the pharma business has been a little bit challenged, plus we haven't been able to sell new radar. And so getting through this court case in October, we think, is going to give us some nice clarity on the future.
Speaker Change: Great, that's good color. And then maybe just back to Warren's comments on further in licensing and partnerships and participating in MRD in various ways. Now that the adaptive partnership has sort of been signed here, have your requirements for any of these deals sort of changed at all? And if so, how have they? Thanks.
Speaker Change: Yeah, I'm going to let Kareem, actually, who runs strategy and BD, talk to that, but I will tell you, Andrew, I think one of the greatest...
Speaker Change: things that we have is our distribution channel. I would say it's best in class. And so I think we just didn't have the talent. We chose not to invest in DED and bring in the talent to build out that business when we first all got together because we were trying to get the house in order. But now, you know, Karim's been here eight months.
Karim: seven months. And so he's built a team, but let me let him talk a little bit about how we think about that. Yeah, Andrew, I'd say no change in the overall requirements or the criteria that we use to evaluate these opportunities.
We look at strategic fit.
you know, potential for how we can plug these partnerships
Karim: Broad test menu that we bring to our customers and then we look at the financial
Karim: parameters of these opportunities and make sure to make sure that they're accretive to our business both on the top line but also on the bottom line. So it really hasn't changed and again now.
Karim: We're in the process of activating the partnership and we'll probably go live with a partnership in the second half of the year So that's you know, we're excited about that
Karim: And I will say, we are seeing a lot more interest in inbound calls from companies in various stages of product development, given our distribution channel. I think the adaptive announcement
Karim: is probably even accelerating that a little bit more. So we're seeing a lot of activity from companies that have interesting products that are looking for a partner.
Great. Thanks, guys.
Take care.
Your next question is from
Reporting from Puneet Suda at Lerink
Anthony. Yeah, hi guys. Yeah, thanks Chris.
Karim: So, first one, if you can elaborate on AUP assumptions that you have in the guide, obviously NGS is an important contributor there.
Karim: maybe Liquid, Pantracer, but you have Revenue Cycle too. So just trying to get a sense of AUP contribution that you expect here in the full year. And then – yeah, let me pause there. I'll come back for follow-up.
Karim: Yeah, we didn't break it out separately in our guide, but I would say, you know, I would expect somewhat of a similar mix between volume and AUP growth, you know, that we saw over the last year is what I would contemplate for 2025.
Karim: Got it. And then if I look at the Pantracer product, you are launching that product in the first half. Maybe just elaborate a bit on sort of the gross margin impact that you expect from that, and maybe just also help us understand. You have a well-established competitor in the market.
Karim: commercial strategy here? Is it more about gaining ground with new accounts or in the community oncology setting? Or is it taking more share? Maybe just help us understand the strategy there. And lastly, for the pharma business, what is the growth expectation for that this year, just given that business is disappointed?
Thank you.
Karim: Yeah, so it was to take it two ways, but you know, I'm going to have Jeff talk about the gross margin and then Warren talk a little bit about the opportunity.
Karim: Yeah, so from a gross margin perspective, you know, I would put this in the category of a high-value test, you know, here at NEO. So, I think from a reimbursement standpoint, we expect it to be competitive with what's on the market, and I think given our overall cost profile, you know, it will be, you know, accretive to overall gross margin.
Karim: solid tumor biopsies and obviously the liquid biopsy and and having the the back of the common backbone is going to make it very easy to Reflex and and particularly in the lung setting But for all sort of solid tumor cancers where liquid biopsy is playing an increasingly important role
Speaker Change: From a targeting perspective, we've seen a lot of success as we've gained share on the neocomprehensive solid tumor and feedback from ordering physicians in the fact that this has been a gap within our portfolio. So based on that feedback, we feel confident that we're able to leverage our broader menu, provide a solution to consolidate testing both across the heme and the solid tumor side of things within one lab. So that remains a very compelling value.
Thank you very much.
Speaker Change: Yeah, and I think, you know, people, we talk about this a lot, Vaneet, but every one of our competitors' customers is buying more tests, probably, from us than they are from our competitors because of our broad menu.
Speaker Change: and that's why I think we saw traction in the solid. They were getting solid from one of our competitors who had a great test, but they're doing everything else and the ability to do kind of the end-to-end has really helped us.
Speaker Change: And then on the pharma side, you know, I would say our non-clinical revenue now, which really includes our pharma and our oncology data solutions. I mean, if you look at 2024, I mean, it was down.
Speaker Change: you know, 7% for the year, and we did talk about Q4 even being softer, where we typically see a budget flush.
Speaker Change: And, you know, we saw other analysts reporting this as well. It clearly just did not happen, as has been a pretty historical practice.
Speaker Change: So, it did grow sequentially from Q3 to Q4, but came in a little bit lighter than we were expecting. So, we are seeing, you know, we believe stabilization there and expect to see some growth, but it'll be modest growth. You know, on the pharma component of the business, more growth on the informatics or oncology data services business.
Speaker Change: and then I think clinical will continue to be driving good growth as it has been.
Okay, got it. Thank you.
Bye.
Speaker Change: Your next question for today is from Tycho Peterson at Jeffries.
Hey Tyco
Speaker Change: Yeah, hi. Hi, guys. This is Jack. I'm from Tyco. Appreciate you taking our question.
I guess first
Speaker Change: I think you touched on it during the call, but it would be great to get a timeline update for Radar 1.1 and also 2.0
Speaker Change: and then following that, you know, the MRD space looks to be.
increasingly competitive.
Speaker Change: you know, with notable coverage determinations recently and launches on the horizon.
Speaker Change: I guess, how do you expect to compete in a bit more crowded field this time versus when you launched 1.0? And what are your expectations for original 1.0 users with respect to adoption of 1.1? Are there any indications that those customers will be sticky and perhaps, you know, easier wins?
Speaker Change: Yeah, so I think it was about seven in questions in there, but I'll try to dissect them. And I'm not surprised you're digging deep in MRD after you guys note last night, which was a good note.
Speaker Change: Look, you know, I think we gave clarity. A lot of things, you know, we are building towards this trial in October. We talk about we're clearing CLIA validation.
Speaker Change: really at the very late Q1, early Q2. So we feel really well-positioned. Our bridging study that shows clinical effectiveness and equivalency between 1.0 and 1.0.
Speaker Change: Point one is well on its way. You know, it's a different path from old DX than it would be for example for legal So I we feel very good. Look I continue to like that people are building that market You know, I look I and I think there's good tests and good companies
Speaker Change: But, you know, I think your guy's note was at $20 billion. I think, you know, there's other notes out there at $30 billion market. And we feel very confident we're going to get our share. And you have to remember that the inventors...
Speaker Change: We believe the inventors of MRD really sit in Cambridge, right? So we have some of the smartest people around MRD and so...
Speaker Change: We feel really good not only about 1.1, but the future, and I wouldn't say 2.0, I would say next gen, and it's one of the reasons we brought Andrew in to really build up that research program, and I think we've pivoted significantly over the last six months on what are we going to be working on, not only today, but what are we going to work on five years from now.
Speaker Change: Look, I think we can continue to feel pretty good about where we'll be from our position in the marketplace. Doesn't mean that we're not going to have competition, but I think that's good for business.
Speaker Change: We can't build on that, just on a couple of things, Chris. I think maybe two points. I think the note last night said this as well. You know, sensitivity remains of the most important buying drivers for ordering physicians. And I think that's the next-gen strategy, is to get to a technology that is significantly more sensitive to address.
lower shedding cancers and the adjuvant and near-adjuvant setting.
Speaker Change: But I think our strategy is not to have a next-gen and nothing else. We likely will run 1.1 in parallel with next-gen to allow for cost optimization. In the surveillance setting, you don't need the sensitivity, so therefore you don't need to sequence as deep, and the 1.1 solution is going to provide a long-term strategy there for us, while the next-gen will focus on areas where you need a greater sensitivity, deeper sequencing, higher cost in the adjuvant, near-adjuvant setting for lower shedding cancers.
Thanks.
Thanks.
Speaker Change: Great, and then if I could just squeeze in an eighth question here. I'm going to have you jump back in the queue just because of time, if that's okay. Okay. All right, thank you.
Your next question is from Mason Carrico at Stevens.
Hey, Macy.
Mason Carrico: Hey guys, thanks for taking the questions here. Would you be willing to talk a bit about revenue contribution from new products in 2024 as well as just remind us of the cadence of products that rolled out over the last 12 months as we think about modeling out the clinical business this year?
Speaker Change: Yeah, you want to talk about the cadence, like when we rolled out the new, the new large panel? So, maybe we've, over the last two years, if you go back to January of 2023 through end of 2024, we've launched 13 new products. And I'd say material in nature, there's been some line extensions, etc. But material in nature, 13 new products.
Speaker Change: In last year, there was seven of them that were brought to market at different stages throughout the market. The greater majority of those were NGS-based products, so that enables our NGS growth.
Speaker Change: We haven't actually reported the actual contribution that new products actually have delivered within the strategy, but naturally, it's a clear component that's driving the growth within the NGS that we've reported. Yeah, remember, we launched, when we say 13, many of those were small, so we're not.
Speaker Change: significant but you know they filled the bag but I would say the ones to think about it is in Q, late really Q2 of 23 we launched the new large
Speaker Change: panel solid, and then in Q3 we did the new large panel of Keen. And that's why I talked about the comparables as we got into Q4. And our view is that we need to launch
Speaker Change: several kind of line extensions smaller product each year but really one to two major products every probably 12 to 18 months and so you're going to see the liquid
Speaker Change: You're going to see the liquid biopsy come out this year. You'll see really a line extension on our already large panel with HRD. And then really it's in the first half of 26 when we'll launch another significant new panel.
Speaker Change: So think about it that way, probably every 12 to 18 months you fight the comparables. But as Warren mentioned, we don't break out individually the products, we do break out obviously individually NGS, and most of these products roll into NGS.
Speaker Change: Okay, and then, sorry if I missed this, but have you guys started to see any benefit from the biomarker legislation? What are your expectations around that this year? Is that baked into the guide at all, or would that be upside?
Speaker Change: Yeah, it's part of our overall RCM, you know, Strategic Reimbursement Initiatives, and I would say it's been slow. I mean, I think just because the legislation is passed, it does not mean that payers flip the switch and start paying us. So, I'd still kind of drive it as hand to hand combat in the trenches, because you still have to kind of work with each payer and states where it happened and you're operating with payers that are operating in 50 states that have multiple different payment systems.
Speaker Change: pretty complex process, but we think it's definitely going to be a tailwind long term and it's part of the incremental opportunity we see over the next several years to have more of these large panel tests being required to be paid for by the biomarker legislation.
Got it. Thank you.
Bye-bye. Bye. Bye-bye.
Your next question is from Tejas Savant with Morgan Stanley.
Hey guys, good morning. How you doing?
Good. How are you?
Speaker Change: So Chris, I want to go back to the point about using your channel to push through partner assays. I think Jeff, you pointed to Adaptive as one example, but there's other similar activity that's been spurred by that announcement. So can you talk a little bit about what's your long-term philosophy about the shared economics of those arrangements? And more specifically, can you share a little bit more color on how you plan to reject
Speaker Change: balanced focus for situations where there may be partial overlap with your own assays. I think the adaptive case was unique in that sense, it's largely sort of complementary. But you know, in a field like MRD, you could envision sort of overlapping, you know, customer bases and value propositions, so just some clarity on that would be great.
Speaker Change: Yeah, look, I think the adaptive, you're right, was a very unique in the sense that it's additive, but I would say that the majority of the things that we are looking at in licensing, probably more than we're probably looking at more in licensing than we are strategic partnerships, but.
Speaker Change: They would be relevant to our current portfolio. They wouldn't probably compete. Because you've got to remember, in MRD, there's multiple ways.
Speaker Change: to look at it, you know, whether it's tumor-naive or tumor-informed, things like that. So, I think we feel pretty good. As far as our field organization, we shift.
Warren Stone: based on where we are trying to drive behaviors. And Warren can talk more about this, but if you look at the folks that are living more in the oncology.
Warren Stone: Clinical setting, they are more incentivized on kind of non-hospital products, so think about heavily weighted on NGS type of things.
Warren Stone: where the hospital group is probably more incentivized on hospital-based products. And so I think as we bring these products out, it depends on how we establish them. We don't publicly disclose how we do that, but we feel very good on the ability to steer the field organization where we feel like they need to spend their time.
Warren Stone: but but I don't think I'm trying I'm looking at Kareem and like maybe Kareem yeah I mean I think we're probably we're exploring a large number of things I don't know that any of them are going to
Speaker Change: Yeah, I don't think I think one of the key strategic drivers for these partnerships
is that
Speaker Change: There are products and capabilities that are complementary to our existing product set.
and our customers are looking for.
Speaker Change: a provider of comprehensive testing across the board. And so for us, that's really the main criteria that drives a lot of these partnerships. And so we try to minimize the overlap intentionally and deliberately. So that's the whole point. And I think coming back to one of the comments that Karim made earlier in the strategic rationale, core point overlap is something that's imperative. I would struggle at this stage to support an opportunity
Speaker Change: a commercial organization to a different core point which would then significantly dilute the efforts from a core business perspective. So that comes back to sort of how we select these deals.
Speaker Change: Got it. That's actually super helpful. I have a quick follow-up really for Jeff on the guide.
Speaker Change: I think 1Q, at the midpoint, Jeff, you're calling for about 3% EBITDA margins. The full year is around 8%.
Speaker Change: And you talked about the ramp, you know, upfront, OPEX, back-end loaded on revenue. Where are you thinking about sort of exit rates for EBITDA margin in the fourth quarter this year? And is it fair to model that as a jumping-off point for 26? Or should we think of a slight sort of one-cue reset off of which it starts building again with a year-over-year increase next year?
Speaker Change: Yeah, I think from a trending perspective, Q1 is clearly our weakest quarter. If you go back four or five years, it's always been the weakest quarter of the year. So if you look back at last year, you know, Q1 was about.
Speaker Change: a little bit shy of 9% of adjusted EBITDA for the year. And then the adjusted EBITDA built and the margin improved throughout the year. So I would expect kind of a similar dynamic in 2025 with Q1, you know, being our weakest quarter. You know, I said in that 8 to 10% range.
Speaker Change: You know, we are increasing some investment in sales expansion, enablement, as well as R&D. You know, as I said in my prepared remarks, but we do think as you have those salespeople ramping throughout the year, you'll see more back end benefit from that as well. Yeah, I want to make sure I understand, but you're also talking about the jump off from 25, or were you talking about the gross margin jump off at 25 into 26, or the adjusted EBITDA?
I would say, yes, sir, I wouldn't agree.
Speaker Change: Yeah, so I would say you will see a similar dynamic, I think, play out because of the seasonality of the business. So you'll see a Q4 exit rate, I would expect it will decline in Q1 2026 and then build again throughout the year just because of the nature of the business. Right, but be up against Q1 of 2025. Correct. Right, so it's kind of that stair step type of thing. I mean, we do face, you know, some of the high deductible dynamics that others in the industry have talked about as, you know, patients kind of race to.
Speaker Change: treatment in the Q4 of the year, and then there's kind of a, you know, a little bit of a slowdown in Q1, and you can have more weather impact in Q1 as well, so.
Got it. Fair enough. Thank you, guys.
Thank you.
Speaker Change: Your next question for today is from Mark Massaro with BTIG.
Hey Mark. Hey guys.
Speaker Change: Hey, this is actually Vivian for Mark. Thanks for taking the questions. A lot has been asked so I'll just keep it to one maybe. Just the latest on Radar V2, it sounds like you may have an inclination to keep pursuing V2 over inorganic growth. Could you just explain your latest thinking around investing in V2 versus M&A?
Thanks.
Speaker Change: Yeah, I think you're talking about what we're calling our next-gen, you know, radar. Look, we're going to go down both avenues. I mean, I just think because of our deep
understanding and insight into
Speaker Change: how to develop those products. A lot of that, our internal stuff, has historically been tumor-informed, so we haven't spent as much time on the research side on tumor-naive. So I think, look, I would say that we're pursuing both opportunities.
Speaker Change: Look, I want to be really clear because we're talking a lot about new products.
Speaker Change: Look, there is a lot of development going on organically, but on the inorganic, we are not going out and buying companies that are not accretive. So this isn't a strategy that we're going to go buy Inovata. We're going to go buy some great MRD product that loses $50 million a year. These are very rifle shot.
Speaker Change: mainly in-source licensing where companies have innovative technologies and we may be looking at one or two disease states to be able to take on to that product and be able to offer it. So they just wanted to be clear on that.
Yep, understood. Thanks for taking the question. Thanks.
Thank you. Bye.
Your next question is from Matt Sykes at Goldman Sachs.
Matt Sykes: Hey Matt. Hey guys, this is Prashant Kodan for Matt. Thanks for taking the question. So you mentioned in your slides a 51% improvement.
Matt Sykes: in the Gardner Productivity Index on the clinical services side. Can you just talk about the drivers there and how you maintain innovation to stay competitive given your lower R&D spend as a percentage of sales relative to your competitors?
Warren Stone: Yeah, it's kind of two different things, but I'll let Warren talk about the Gartner Index. Yeah, it is two different things, but one of the things that we started to do going back in, well, when I first started to late 22, early 23 was to assess the sort of maturity and the productivity of our commercial organization because we're looking to invest there, but if you haven't got a high productivity, it's kind of you're throwing good money off the bat in many instances. So there's a standardized assessment
Warren Stone: measure the productivity of a commercial organization, and through that measurement you're able to identify areas where your productivity is lacking or productivity leaks. We have systematically gone after addressing those leaks, and we continue to do so. We've still got a road ahead of us, but ultimately through back-office investments in resources, the investments in new systems and tools.
Warren Stone: and also investments in standardized sales process have been the sort of three key things that we've invested in over the last two plus years that's allowed for this 50% productivity improvement. So this is important because as we're layering on additional resources, which gives us additional reach, but the existing resources are also more productive. So it's sort of a compounding effect in terms of the impact that we have within the marketplace.
Warren Stone: And then obviously you layer on new products that we've been launching from an R&D perspective that we spoke about earlier, and that really fuels the growth. The combination of innovation and increased productivity is what's been driving the growth within the organization.
Thanks.
Speaker Change: Got it, that's helpful. And then could you just talk about some of the reasons why providers or health systems would not want NGS-based testing and how are you looking to overcome those barriers?
Speaker Change: would not. Nate's on the call. Maybe if you want to talk to Dr. Montgomery to provide a medical perspective on that.
Nate: Yeah, you know, I think in general the trend is that we're seeing less and less of that. The movement is definitely towards panel testing. I think NGS is increasingly incorporated into guidelines.
Nate: Of course, there are going to be situations where cost could drive a desire, in particular circumstances, to take a more focused approach. But the trend is certainly moving more and more away from that, and I think we would all expect it to continue in that regard.
There are a handful of other circumstances where perhaps...
Nate: again, where there's a particular biomarker of interest, where there could be some benefits of sensitivity from a more focused assay. But again, these will increasingly be a smaller and smaller slice of all molecular testing occurring in the oncology space.
Amazing. Thank you.
Your next question is from Mike Mattson with Needham.
Hi, everybody. This is Joseph.
Nate: Very good, thank you. I guess I'll just ask my two questions together if that's alright. So the 2028 target to you know 1 million patients served, I guess just maybe trying to understand how this
Nate: mashes up with the revenue target. I mean, just based off of, you know, some loose math, it's somewhere around like 9% volume growth to get you to the 1 million patients.
Nate: So that we should kind of think of it as like a base case, high single digits, something like that, 9, 10% volume growth and the rest coming from.
Nate: pricing improvements. And then the second question, real quick, neocomprehensive, launching there with HRD,
Speaker Change: this year. Is that something that, you know, clinicians have been kind of asking a lot about that's maybe limiting neocomprehensive growth? Should we kind of be thinking this is maybe some type of inflection or more of just like an incremental add-on to the test?
Speaker Change: Yeah, I'll start on the million patient. I would say, you know, I would say that that's, you know, a goal we're, you know, looking at kind of at a macro level, but it also includes pharma patients. So it's a little bit of apples and oranges in terms of the patient mix.
And so I wouldn't, I wouldn't.
Speaker Change: use that to, you know, drive a volume growth projection on the long-range plan. I think, you know, as we continue to build out our sales force, it's going to be, I think at the end of the day, it's going to be, as it has been, a continued mixture of both, both volume growth
and increases in revenue driven by higher value tests.
Speaker Change: RCM initiatives and pricing gains. So I would say, you know, it's been it's been kind of a balanced approach between the two, maybe a little more heavily weighted on the volume growth side over the last, you know, two years, but I wouldn't extrapolate on the million patients to try and, you know,
discern a volume number.
Speaker Change: On the HRD question, I think this comes back a little bit to what Dr. Montgomery was saying earlier in that
portfolio today.
Speaker Change: Okay, great. Yeah, super helpful. Thank you for taking our questions.
Speaker Change: Your next question for today is from Dan Brennan with TD Cowen.
Speaker Change: Hey Dan. Great, thank you for, hey good morning. Thanks for taking the questions. Maybe the first one just on the advanced diagnostics business since I know that was kind of the weak spot in the quarter.
Speaker Change: If you go back to 3Q, I know management sounded pretty positive about the business bottoming.
Speaker Change: and I know you cited No Flush as the culprit this quarter, but I'm just kind of wondering if you could dig in a little bit here. I know you talked about a new go-to-market.
Speaker Change: Sounded pretty positive about building a robust pipeline of opportunities back at Q3 so any more color on kind of what's happening on the ground and kind of what does the backlog look like and When you say grow in 25, are we thinking like low single-digit growth? Is that the right way to think about it?
Speaker Change: Yeah, so maybe let me kind of address it. Look, we obviously talked about that pharma flush. And look, I would definitely say that we,
Speaker Change: I would definitely say that we feel significantly better going into this year than I think coming
Speaker Change: last year. I think when we went from the third quarter kind of moving in the fourth quarter, we thought we'd get that flush. We don't really report any more on bookings, but I will tell you that we're having significantly more activity than we would have in this time last year. So I think all the trends look good.
Speaker Change: Yeah, it was and it was up sequentially, Dan, it wasn't as up as much as we expected to be Q3 to Q4 and that budget flush, budget flush has been pretty, I mean, pretty much.
Speaker Change: very consistent over the last multiple years and we just didn't see it. But I would say, as Chris said, the activity starting out the year has given us a view that we should see growth. I think, again,
Speaker Change: coming off of the non-clinical business being down 7% last year and 12% in the fourth quarter, you know, we expect there to be growth. And, you know, seeing modest growth there is what I would expect is going to help the overall growth trajectory given the continued strong performance of clinicals.
Yeah.
Speaker Change: And yeah, I mean, there's a challenge here. It's a long sales cycle. So this is a much longer sales cycle to convert.
Speaker Change: from sort of creating bookings to actually convert those bookings into revenue, particularly in prospective studies where they need to obviously enroll patients to get sampled, those types of things. So it is a long sales cycle and that's going to hamper the ability and how quickly we can turn this around.
We remain very confident in the business.
Speaker Change: Great, thanks for that. And then maybe just kind of a high-level one on the clinical business.
Speaker Change: You know, sequencing, I think, in your deck said it grew 34% for the year.
Speaker Change: Do you guys still have a bunch of products coming out this year which support continued really strong growth? I'm just wondering.
Speaker Change: Like, we're coming out with, like, 32% sequencing growth this year with 4% core.
Speaker Change: Just wondering if you can comment at all on kind of those assumptions, or if not.
Speaker Change: maybe just on the core side, like, you know, kind of how did the year end up and...
Speaker Change: Any way to think about what the right trajectories is for that business in 2025? So the way maybe to think, yeah, the way to think about that is that we see...
Speaker Change: kind of the modalities. To put NGS aside, we would say that modalities are, we are seeing generally growing three to four percent and we've talked that we will grow, we have been and we project to continue to grow faster than the market.
Speaker Change: and I think the way we look at NGS is that NGS in the marketplace is growing anywhere from 15 to 20 percent and the same thing we project it will continue to grow significantly faster than the market. So I think that's kind of the clarity that we've given. I don't know, Jeff, if you want to share anything.
Speaker Change: more, but I think that's the way we kind of think about it. And the reason we like that really is if you're moving the modalities...
Speaker Change: the lower modalities, you're moving share. And so I think everybody gets into this NGS growth in the market and everybody's excited.
Speaker Change: John Doe did 100 last year, he'll do 120 this year of NGS. Great.
Speaker Change: But we also focus significantly on moving share and I think that's one of the places that we continue to win And that's why we think there's other modalities growing more than market. That's why we call it out is we think that's a good indicator
Great. Thank you, Chris.
Your next question is from Andrew Cooper with Raymond James.
Speaker Change: Hey, Andrew. Hey. Hey, everybody. Thanks for the time. A lot already asked, but maybe just digging in a little bit more, kind of linked to something you just touched on. But as we think about that pace of clinical AST or AUP stepping up,
Speaker Change: How should we think about that pace in 25 and maybe the delta in 25 versus 24 prior years of
Speaker Change: What's RCM initiatives, what's MIX, and what sort of traditional, you know, price capture in terms of driving that ASP growth as we move forward? Sure.
Speaker Change: So we talk a lot about, you know, I don't know, roughly 60% of our business is direct client bills, so we're billing the hospitals direct, and we, as a company, have a policy that all of our materials, labor, everything's going up, so we pass, we do push through a price increase, so we feel pretty good.
Speaker Change: When you look at the other part of the business, I would say there's things that are moving in the direction we need. One is the biomarker laws, but also it's an area we've now...we don't probably talk a lot about it on the investment because it's not hiring 30 more people, but we are continuing to expand the payer relations.
Speaker Change: because it doesn't mean anything to get those buyer markers if we can't pull them through. So I think we feel pretty good about where the AUP... Yeah, and I would say from a mixed perspective, if you looked at 2024, roughly about 60% of the overall increase in AUP was driven from NGS and the balance was...
Speaker Change: a mixture of other test mix, price increases, and revenue cycle initiatives. I think that's probably a reasonable way to think about it for 2025.
Okay, helpful. And then maybe just one.
Speaker Change: Very quick one. You know, thinking back to 3Q, you had the hurricanes right there at the start of the fourth quarter. You talked about potentially a little bit of impact, but it probably gets made up. Just any color there on potential hurricane impacts, and if anything from the West Coast fires as well, we'd love your insights. Yeah, I definitely think all of those events have impacts on the business at a moment in time.
Speaker Change: Because we're really not an elective procedure type of business, historically we think the majority of that stuff eventually flushes through, you just are delaying when you see.
Speaker Change: your physician. I think the challenge is getting in to see docs, you know. I joked in the call about Greenville, South Carolina because that's where my mom lives and she has cancer and even getting in to see hers, right, in Greenville, like it's just it's tough. And so I think what you see is when these big events happen, it delays
Speaker Change: things. So it's hard to put a finger on where it is. It's definitely disruptive. I think because we have redundancy, we're able to take care of the existing patients pretty quickly because we like when it's a hurricane here, we move it to California. If we're really impacted by the fires in California, we move it here. Look, we're just hoping that there's never an earthquake and a hurricane at the same day on the West Coast.
Speaker Change: and the East Coast, but I think for us we were pretty good shape.
Perfect. I'll stop there. Thanks, everybody.
Speaker Change: Thanks, everybody. Look, we appreciate you taking the time and catching up. And everybody have a wonderful day. Take care. Thank you.