NeoGenomics, Inc. Price & Performance (NEO)

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Thanks for holding. We appreciate your time and patience. Please stay on the line. Anne will be back in just a moment. [indiscernible] Welcome to the NeoGenomics Fourth Quarter and Full Year twenty twenty four Financial Results Conference Call and Webcast. 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 Relations, you may begin your conference. Thank you, Holly. Good morning, everyone, and welcome to the NeoGenomics fourth quarter and full year twenty twenty four financial results call. 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. Additional members of the management team are available for Q and A in Chief Operations Officer and Kareem Saad, Head of Strategy and Transformation.

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 web site at ir.neagenomics.com. During this call, we will make forward looking statements regarding our future performance. We caution you that actual events or results could differ materially. In 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 revise any of these statements. Please refer to our most recent Forms 10 ks 10 Q and eight ks we filed with the SEC 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. 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. Any non GAAP financial measures referenced on this call are reconciled the most directly comparable GAAP financial measures and table available in the press release we issued this morning. I will now turn the call over to Chris Smith, Chief Executive Officer of NeoGenomics. 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. 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 is what drives me and our teammates 2,200 across The United States and in The UK every day. [indiscernible] 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. 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 $48,000,000 in 2022 to a positive $40,000,000 in 2024. With the company now in a strong financial position, I decided it was time for me to retire. While I retire on April 1, 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. In addition, I think our incoming CEO, Tony Zooks, deep commercial experience, especially around launching new products and R and D, as well as having the opportunity to interact with the management team and learn the business as a Board member of the last few years made him the right choice as the next CEO to lead Neo into the future.

With that, let's get into the Q4 highlights on the next slide. As you can see, we had another strong quarter with revenue of $172,000,000 growing revenue by double digits for the ninth consecutive quarter. Clinical testing volumes increased 9% versus prior year with 5% increase in revenue per test. Adjusted gross margins improved to 48% the highest in twenty quarters or five years.

As a highlight, we saw 24% growth in NGS in the quarter and 34% for the year. NGS now represents over 30% of our total revenue. From an adjusted EBITDA perspective, our progress continues with 27% improvement for the quarter making Q4 our sixth consecutive quarter of positive adjusted EBITDA. We made 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. Which I believe positions us well to achieve our goal of serving 1,000,000 patients annually by 2028. 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. 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 [indiscernible] we want to provide a clear picture of the business as we see it over the next few years. Our long range financial plan targets top line growth to 12% to 13% annually. Notably, this excludes any revenue from MRD 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%.

We think about our gross margins, we see about 100% to 100 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 two fifty to 300 basis points of growth in adjusted EBITDA margins. Our confidence in continuing to execute on this broad range of growth levers as well as the large addressable market in our business is what drives our LRP performance over the next several years.

Statistics are clear. One in two men and one in three women are projected to be diagnosed with cancer their lifetime. And eighty percent of those new patients will choose to be treated close to home in a community setting. 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, Our broad menu of over 500 tests and our relationship with Huss hospital pathologists and community oncologists gives us confidence in our long range plan. 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. Thanks, Chris, and good morning, everybody. Let's turn to Slide seven.

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 to deliver volume, growth, increased AUP and improved mix driven by strength in NGS. NeoGenomics drove significant organic volume growth in the fourth quarter across the portfolio as our commercial and lab operations teams continues to execute. 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. 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. 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 core points.

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 including pan tracer liquid biopsy, 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. A key differentiator for Neo is our broad menu over 500 tests which addresses diagnosis and precision medicine needs and NCCN guideline approved panel and comprehensive pan cancer panels. This allows us to meet providers where they are in terms of how they choose to treat their patients. To enhance our comprehensive menu, which already includes [indiscernible] and to further our leadership position in heme we announced a multiyear exclusive strategic commercial collaboration with Adaptive that will advance minimal residual disease monitoring options for patients with select blood cancers. Under this partnership, patients will have access to Compass and Chart comprehensive and personalized assessment services alongside Adaptive's NGS based clonal SEEK MRD assay, all from one single bone marrow sample, We believe MRD is an integral part of patient care not only as a prognostic tool, but also to guide clinical decision making And this is and this that 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.

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. While we focus on growing commercial footprint, we always keep the patients 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. I'm proud to say Alab improved turnaround time by 11% annually compared to 2023, even with significant increase in test volumes. Providing a seamless user experience to our customers is at the heart of our commercial strategy. 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 customer interfaces directly with us. We see a material increase in revenue with each customer we establish and interface with as it enables stickiness in the relationship by making it easier to business with We intend to continue to invest in the acceleration and deployment of more comprehensive interfaces to support our customers as we expand our commercial presence. 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.

Importantly, oncology specific respondents which is reflective of our new target market, has improved from 42 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. In the pharma setting, we did not see the customary year end budget flush that fuels revenue in the [indiscernible] These macro conditions and the limitations of selling new radar contract resulted in the softer quarter. As we enter 2025, we have concluded the preparations and implementation of our revised commercial strategy. This model better aligns with the needs of our pharma customers and their buying processes resulting in increased value Additionally, it allows Neer to capitalize on operational synergies and customer experience. Now let me hand over to Andrew Lukobiak, Chief Innovation Officer, to talk about upcoming products and clinical data that will provide our commercial organization with tools to expand their reach. Thanks, Warren. Turning to Slide nine, I'd like to focus on innovation.

We believe innovation is another critical driver for delivering long term Identifying and executing on the right opportunities, positions us well to capitalize on this rapidly evolving market both now and for the long term. We organized these opportunities into three distinct but complementary segments. Studies and research. 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. We believe the therapy selection market is around $13,000,000,000 in size with only about 35% penetration. To aid in capturing share of this market, we are launching neo pan tracer liquid biopsy in the clinical setting in the first half of this year. For the clinical customer, Antaresir 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. We will also launch an upgrade to our NEO comprehensive NGS to include HRD Beyond the therapy selection market, we continue the development of RADAR version 1.1, which is on track to complete CLIA validation. We continue to support RADAR one point zero, under the legally approved carve outs for patients and clinical trials already using the technology.

The next song 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. We'll give a more detailed update of our clinical studies in the coming months. Last but perhaps most important is the development of a dedicated research program to enhance MRD portfolio. This program focuses on applying a directed intentional approach to generating intellectual property specific to the field of MRD. Including the development of both broad and core technologies, as well as targeted innovations that would be cancer type specific. We're pleased to announce that this program is already operational with multiple opportunities actively being explored. And now, I'll hand it back to Jeff some color on some margin expansion. Thanks, Andrew. We are excited about what you and your team are working on and you're already having an impact on our R and D efforts. 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 two forty basis points of gross margin improvement in the second half and full year of 2024, versus prior year.

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 multiyear process and each quarter we continue to make progress. We have now combined our clinical and pharma workflow blending COGS and operating expenses into one single segment and increasing efficiencies. Let me go into our fourth quarter and full year financial results. I'll start with a little more detail on our operating results for the quarter. We delivered a strong overall performance in Q4 with yet another quarter of double digit revenue growth increasing 11% over the prior year to $172,000,000 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. Adjusted gross margins improved by 134 basis points to 48% with adjusted EBITDA improving $3,000,000 or 27% from the prior year to $12,000,000 As Chris said, Q4 was our sixth consecutive quarter of positive adjusted EBITDA. Total revenue for the quarter, reminding there, we are reporting one single segment going forward grew to $172,000,000 an increase of 11% over prior year.

The increase in revenue reflects increasing test volumes in higher revenue per test due to increased ordering of higher value NGS tests, and strategic reimbursement initiatives. As our expanded sales force penetrates deeper into the community oncology setting, we are seeing increased adoption of NGS testing The strong demand for NGS testing and the insights it provides continue to fuel revenue growth and earnings. As Warren noted, we did not see the which impacted our revenue. On top of this, we were limited in our ability to sell new radar contract due to the preliminary injunction and negotiated enter 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. [indiscernible] at our fourth quarter financial overview on Slide 14, we 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. Regarding operating expenses, sales and marketing expense was $22,000,000 an increase of 24% reflecting our continued investment in the expansion of our commercial sales organization, and support staff. R and D expense increased 12% to $8,000,000 in the quarter and our 2025 guidance also incorporates ramping investments in R and D targeted to drive future products and long term IP value.

As Andrew noted. Finally, G and A expense increased to $63,000,000 driven by higher technology costs to drive customer engagement, increased compensation costs and higher depreciation expenses. We ended the fourth quarter with cash and marketable securities, of $387,000,000 a decrease of 7% versus prior year. Cash flow from operations was positive $10,000,000 as we continue to make investment in the business to fuel long term sustainable growth. We still intend to pay off our May 2025 convertible notes with the principal balance of $2.00 $1,000,000 using existing cash and marketable securities. [indiscernible] Turning to Slide 15. For full year 2024 results, revenue was up 12% versus prior year to $661,000,000 driven by deeper penetration in the community setting higher volumes, a continuing shift to higher margin modalities and execution of revenue cycle management Adjusted gross profit was $311,000,000 representing an adjusted gross margin of 47% or an improvement of two forty five basis points. Cash flow from operations improved 460% to positive $7,000,000 and adjusted EBITDA increased over 1000% to positive $40,000,000 an improvement of $36,000,000 over prior year. [indiscernible] Let's move on to our full year 2025 guidance. Warren and Andrew talked about the investments we are making into the commercial organization and in R and 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 softness.

For the full year, we expect revenues of $735,000,000 to $745,000,000 representing 11% to 13% growth and adjusted EBITDA of $55,000,000 to 58,000,000 representing an improvement of 38% to 45%. While we do not give quarterly guidance, we wanted to give clarity into the weighting of the year due to these investments in H1 and the ramp of revenue in H2.

Similar to last year, we expect first quarter revenues to be about 23% of full year revenue representing growth of 8% to 10% and we expect 8% to 10% of the adjusted EBITDA for the year to be earned in Q1. We will continue to take a balanced approach to investments with increasing adjusted EBITDA enabling expanded investments our commercial organization further investments to drive operating efficiencies in the business and targeted investments in R and D to drive future product innovation for our Welles established commercial channel. In summary, 2024 represented a strong year of execution and financial discipline, positions us well to continue the momentum into 2025. With that, I'll hand it back to Chris to wrap up. Thanks, Jeff.

Well, 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.

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 at and is still ongoing. Jury trial is currently scheduled for 10/20/2025 as you've heard the team talk about today, we remain committed to bringing patients optionality in MRD testing and are confident position in the market. So to round out the call, in 2024, we saw four consecutive quarters of double digit year on year revenue growth, Positive and positive adjusted EBITDA in all quarters as well as the highest adjusted gross margin in twenty quarters in Q4. We served nearly 700,000 patients on the cash to our goal of serving 1,000,000 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 guidance earlier this year. 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?

Certainly. At this time, we will be conducting a question and answer session.

Your first question for today is from Andrew Brackman with William Blair.

Hey, Andrew.

Chris. Good morning. Thanks for taking the questions to the entire team. Maybe just to start here on the guide. If we look back over the last few years, investors have really sort of rewarded those revenue beats.

So we sort of think big picture for the full year 2025, can you maybe just sort of talk to us about some of the levers are for potential upside to the range for the year. And then I guess conversely, might there be a little bit more risk than we might typically expect for Neil and to guide you? Yes. When you said the very beginning, did you say investors did not reward the beats? Or did? They did. Yes. I'm sorry, I missed that. So look, I would say that we continue to see very good momentum in NGS. 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 opportunities in the second half of the year, the launch of biopsy. We're going to launch them in the first half.

But now we probably have 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 have now have time and grades. So I think that gives us a really nice opportunity, I think, from a revenue perspective. We're obviously excited about the Adaptive partnership, and I think we think that 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 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. And And I think that's been really I think people have underestimated. The heat market is 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 going to launch another solid tumor Probably beginning of late Q2, Q3. So I think all those things if you look at look risk to the business, look I would say our biggest risk has always been our ability to take advantage of the opportunity.

I think community setting we have such a leadership position there. But the pharma business has been more of a challenge candidly. We didn't see that flush of the business in 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. But the pharma business has been a little bit challenged because we haven't been able to sell new radar.

And so getting through this court case in October think it's going to give us a nice clarity on the future. Great. That's good color. And then maybe just back to Warren's comments on further in license 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 Yes, 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 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 BD and bring in the talent to build out that business when we first all got together we were trying to get the house in order. But now Kareem has been here eight months, Seven months.

Seven months.

And so he has built a team, but let me let him talk a little bit about how we think about Yes, 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, potential for how we can plug these partnerships into our commercial channel to leverage these technologies and complement broad test menu that we bring to our customers. And then we look at the financial parameters of these opportunities and make sure that they're accretive to our business both on the top line, but also on the bottom line. It really hasn't changed. And again, now we're in the process of activating the partnership and we'll probably go live with the partnership the second half of the year. So that's we're excited about that.

And I will say we are seeing a lot more interest in inbound [indiscernible] from companies in various stages of product development given our distribution channel. I think the adaptive announcement is probably even accelerating that a little bit more. So we're seeing a lot of activity from companies having interesting products that are looking for a partner.

Great.

Thanks guys.

Your next question is from Puneet Souda at Leerink.

Hey, Puneet.

Yes, hi guys. Yes. Thanks, Chris. So first one, if you could elaborate on AUP assumptions that you have in the guide. Obviously, NGS important contributor there, maybe liquid pan tracer but you have revenue cycle too. So just trying to get a sense of AAV contribution that you expect [indiscernible] yes, let me pause there. I'll come back for follow-up. Okay, Jeff. Yes, we didn't break it out [indiscernible] somewhat of a similar mix between volume and AUP growth. That we saw over the last year is what I would contemplate for 2025.

Got it. And then if I look at the Pan Tracer product, you are launching that product, in in the first half. Just maybe just elaborate a bit on sort of the gross margin impact that you expect from that? And maybe just to also help us understand you have a well established competitor in the market, others have emerged with liquid CGP products over the years. So what's the 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? [indiscernible] Jeff talked about gross margin and more and talk a little bit about the Yes. So from a gross margin perspective, it puts us in the category of a high value test here at Neo. So I think from a a reimbursement standpoint, we expect it to be competitive with what's on the market. And I can give it our overall cost profile, it will be accretive to overall gross margins. And I'll turn over to Warren on the commercial side.

Yes. The positioning, etcetera, great question.

So first of all, we see this pan trace liquid as a very competitive test. It's going to include TMB MSI, which is sort of becoming prerequisites from the target customer. Think what's important to understand here is that the backbone or the platform runs on is the same platform that we ran our Neo Comprehensive Solid Tumor And a big part of our strategy here is to offer a concurrent test solution between solid tumor biopsies and obviously the liquid biopsy and and having the back the common backbone is going to make it very easy to reflux. And particularly in the lung setting, but for all sort of solid tumor cancers where liquid biopsy playing an increasingly important role. From a targeting perspective, we've seen a lot of success as we we gain share on the Neo Comprehensive solid tumor. And feedback from ordering physicians in the fact that this is been a gap within our portfolio. So 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 remains a very compelling value proposition from our perspective.

Which differentiates from our competition.

Yes.

And I think people we talked about this a lot, Vineet, but every one of our competitors' customers is buying more tests probably from us than they are from our our competitors because of our broad menu.

That's why I think we saw traction in the solid. They look They were getting solid from one of our competitors who had a great test. They're doing everything else and the ability to do kind of the NDN has really helped us.

And then on the pharma side, I would say our nonclinical revenue now, which really includes our pharma and our oncology data solutions, mean, if you look at 2024, I mean, it was down. 7% for the year.

And we did talk about Q4 even being softer where we typically see a budget And we saw other analysts reporting this as well. It clearly just did not happen as has been a pretty historical practice. So it did grow sequentially from Q3 to Q4, but came in a little bit lighter than we were expecting. So we are seeing, we believe stabilization there and expect to see some growth, but it will be modest growth On the pharma component of the business, more growth on the informatics or oncology data services business And then I think clinical will continue to be driving good growth as it has been.

Okay, got it. Okay.

Your next question for today is from Tycho at Jefferies.

Hey, Tycho. Yes. Hi. Hi, guys. This is Jack on for Tycho.

I guess First, I think you touched on it during the call, but it would be great to get timeline update for RADAR 1.1 and also two point zero And then following that, the MRD space looks to be increasingly competitive notable coverage determinations recently and launches on the horizon, I guess how do you expect to compete in a bit more crowded field this time versus when you launch one point zero are there any indications that those customers will be sticky and perhaps easier wins?

Yes.

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. Look, I think we gave clarity. A lot of things we are building towards this trial in October. We talked about we're clearing CLIA validation Really, it's a very late Q1, early Q2. So we feel really well positioned Our bridging study that shows clinical effectiveness and equivalency between one point zero and one point one is well on its way. It's a different path from OLDX than it would be, for example, for legal. So we feel very good. Look, I continue to like that people are building that market. I look and I think there's good test and good companies But I think your guys know it was at $20,000,000,000 I think there's other notes out there dollars 30,000,000,000 market And we feel very confident we're going to get our share. And you have to remember that the inventors we believe the inventors of MRD really sit in Cambridge, right? So we have some of the smartest people around MRD. And so we feel really good not only about 1.1, but the future And I wouldn't say two point zero, 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 what are we going to be working on not only today, but what are we going to work on five years from now. So look, I think we can continue to feel pretty good about where we'll be from our position in the marketplace. It doesn't mean that we're not going to have competition, but I think that's good for business.

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. 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. But I think our strategy is not sort of jab next gen and nothing else. We likely will run 1.1 in parallel with next gen because 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 is going to provide a long term strategy there for us. While the NextGen will focus on areas where you need a greater sensitivity, deeper sequencing, higher cost, the adjuvant near adjuvant setting for lower shedding cancer.

Thanks. Thanks.

Great. And then just I could just squeeze in an eight question here.

I'm going to have you jump back in [indiscernible] All right. Thank you. Your next question is from Mason Carrico at Stephens.

Hey, Mason.

Hey, guys. Thanks for taking the questions here. You be willing to talk a bit about revenue contribution from new products in 2024?

It's just as well as just remind us of the cadence of products that rolled out over the last twelve months as we think about modeling out the clinical business this year?

Yes.

You want to talk about the cadence like when we rolled out the new large TAM? Yes. So maybe over the last two years, if you go back to January of twenty twenty three to end of twenty twenty four, we've launched 13 new products. And I'd say material in nature, there's been some line extensions, etcetera, but material in nature, 13 new products 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. We haven't actually reported the actual contribution that new product actually have delivered within the strategy. But naturally, it's a clear component that's driving the growth within the NGS that we've Yes, remember, we launched when we say 13, many of those were small. So we're not significant, but they filled the bag. But I would say the ones to think about is in late really Q2 of 'twenty three, we launched the new large panel solid and then in Q3, we did the new large panel Keane. And that's why I talked about the the comparables as we got into the Q4.

And our view is that we need to launch several kind of line extensions, smaller product each year, but really one to two major products every probably twelve to eighteen months. And so you're going to see the liquid you're going to see the liquid biopsy come out this year. You'll see really aligning extension on our already large panel. With HRD. And then really it's in the first half of 'twenty six when we launch another significant new panel. Think about it that way. Probably every twelve to eighteen months you fight the comparables. 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. 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? Yes.

It's part of our overall RCM 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 the 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 So it's a pretty complex process. We think it's definitely going to be a tailwind long term and it's part of the incremental opportunity we see over 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.

Your next question is from Tejas Sabant with Morgan Stanley.

Hey, guys. Good morning. How are you doing?

Good. How are you? So Chris, I want to go back to the point about using your channel to push through pop assays. I think Jeff, you pointed to Adaptive as one example, but there's other similar activity that's being spored 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 sales force incentives on your end to ensure a 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 But in a field like MRD, you could envision sort of overlapping customer basis and value proposition. So just some clarity on that would be great.

Yes. Look, I think the Adaptive [indiscernible] 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 they would be relevant to our current portfolio. They wouldn't probably because you got to remember in MRD, there's multiple ways to look at it. Whether it's tumor naive or tumor informed, things like that. So think we feel pretty good. As far as our field organization, we shift based on where we are trying to drive behavior. And Morgan can talk more about this, but if you look at the folks that are living more in the oncology clinical setting, they are more incentivized on non hospital products. So think about heavily weighted on NGS type of things.

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 I mean, 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. Yes. But I don't think I'm trying I'm looking at [indiscernible] exploring a large number of things. I don't know that any of them are going to. Yes, I don't think I think one of the key strategic drivers for these partnerships is that their products and capabilities that are complementary to our existing product set.

And our customers are looking for a provider of comprehensive testing across the board. Right. 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 Kareem made earlier in the strategic rationale, core point overlap is something that's imperative. I would struggle at this stage to find an opportunity that would drive our our 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 Got it. That's actually super helpful. I have a quick follow-up really for Jeff on the guide. I think 1Q at the midpoint, Jeff, you're calling for about 3% EBITDA margins, the full year is around %. And you talked about the ramp 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 1Q reset of which it starts building again with the year over year increase next year?

Yes. 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, Q almost about 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 a similar dynamic in 2025 with Q1 being our weakest quarter, I said in that 8% to 10% range. And we are increasing some investment in sales sales expansion in Enablement as well as R and D 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.

Yes. I want to make sure I understood, 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%?

The adjusted EBITDA?

I would say yes, so you will see a similar dynamic I think, play out with because of the seasonality of the business. So Q3 so you'll see a Q4 exit rate, it'll decline. I would expect it will look [indiscernible] in Q1 twenty twenty six and then build again throughout the year just because of the nature the business. Right. But be up against Q1 of twenty twenty five. Correct. Right. So it's kind of that stair step type of thing.

Yes. I mean we do face some of the high deductible dynamics that others in the have talked about as patients kind of race to seek treatment in the Q4 of the year and then there's kind of 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.

Your next question for today is from Mark Hey, this is actually Vivien on for Mark.

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 and A. Thanks.

Yes. I think you're talking about what we're calling our next gen radar. Look, we're going to do, we're going to go down both avenues. I mean, I just think because of our deep understanding and insight into how to develop those products. A lot of that our internal stuff has tumor informed 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 Look, I want to be really clear because we're talking a lot about new products. Look, there is a lot of development going on with it 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 in Nevada We're going to go buy some great MRD product that loses $50,000,000 a year. These are very rifle shot mainly in source licensing where companies have innovative technology 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 I just want to be clear on that.

Yes, understood. Thanks for taking the question. Thanks. Your next question is from Matt Sykes at Goldman Sachs.

Hey, Matt. Hey, guys.

This is Prashant Koda on for Matt. Thanks for taking the question. So you mentioned in your slides 51% improvement in the Gartner productivity index on the clinical services side.

You just talk about the drivers there and how you maintain innovation to stay competitive given your lower R and D spend as a percentage of sales relative to your competitors?

Yes, it's kind of two different things, but I'm going to let Warren talk about the Gartner Index.

Yes, it is two different things. But one of the things that we started to do going back in when I first started to late twenty 'twenty three was to assess the sort of maturity and the productivity of our commercial organization because are 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 that Gartner makes available that measures the productivity of commercial organization. And through that measurement, you're able identify areas where your productivity is lacking or productivity leaks. And we have systematically gone after addressing those leaks. And and we continue to do so. We've still got a road ahead of us.

But ultimately through back office investments in resource the investments in new systems and tools and also investments in standardized sales process have been the sort of three key things that we've invested in over the two plus years that's allowed for this 50% productivity improvement. So this is this is important because as we're layering on additional resources, which gives us additional reach but those resources 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.

And then obviously, you layer on new products that we've been launching from an R and 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. [indiscernible] 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 test Would not.

Nate, and Nate is on the call. Yes. Maybe if you wanted, I can Doctor.

Montgomery to provide a medical perspective on that.

Jane, I think in general, the trend is that we're seeing less and less of The movement is definitely towards panel testing. I think NGS is increasingly incorporated into guidelines.

Of course, there are going to be situations where costs could drive a desire in particular circumstances to to take a more focused approach. But the trend is certainly moving more and more away from that. And I think we would all There are a handful of other circumstances where perhaps, 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 are will increasingly be a smaller and smaller slice of all molecular testing occurring in the on Your next question is from Mike Matson Needham, Hi, everybody.

This is Joe from Mike.

I guess, I'll just ask my two questions together, if that's all right.

So the 2028 target to 1,000,000 served I guess just maybe trying to understand how this matches up with the revenue target mean, just based off of some loose math, it's somewhere around like 9% volume growth to get you to the 1,000,000 patients. So is that how 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 pricing improvements. And then the second question real quick, Neo comprehensive launching there with HRD this year, Is that something that clinicians have been kind of asking a lot about, the maybe limiting neo comprehensive growth? Should we be kind of thinking this as maybe some type of inflection or more of just an incremental add on to the test Yes. I'll start on the million patient I would say that that's a goal we're looking at at a macro level, but it also includes Pharma Pay So it's a little bit of apples and oranges in terms of the patient mix. And so I wouldn't use that to drive a volume growth projection on the long range plan. I think as we continue to build out our sales force it's going to be I think it's going to be as it has been a continued mixture both, both volume growth and increases in revenue driven by higher value tests RCM initiatives and pricing gains.

So I would say 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 two years. But I wouldn't extrapolate on the million patients to try and discern a volume number. [indiscernible] On the HRD question, I think this comes back a little bit to what Doctor. Montgomery was saying earlier in that the guidelines are changing and HRD is now designed to become more prevalent in guidelines. Today, it's in place for ovarian. And we anticipate prostate and breast to follow in the near future. And as a result, this is definitely a need that we see coming from ordering physicians that up until today we're not able to address. So this will, when we launch this product early in the second half of the year, we'll address an unmet need within our portfolio today.

Okay, great. Yes, super helpful. Thank you for taking Your next question for today is from Dan Brennan with TD Cowen.

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. If you go back to 3Q, I know management sounded pretty positive about the business bottoming. I know you cited no flush as the culprit this quarter, but just kind of wondering if you could dig in a little bit here. I know you talked about a new go to market sounded pretty positive about building a robust pipeline of opportunities back in 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, thinking like low single digit growth, is that the right way to think about it?

Yes. So maybe let me kind of address it. Look, we obviously talked about that And look, I would definitely say that we I would definitely say that we feel significantly better going into this year than I think out of probably 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 anymore 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.

Yes. And it was up sequentially, Dan. It wasn't as up as much as we expected to be Q3 to Q4. And that Budget Plus has been pretty I mean, pretty much very consistent over the last multiple years. And we just 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. And I think again, coming off of the non clinical business being down 7% last year and 12% in the fourth quarter, We expect there to be growth and seeing modest growth there is what I would expect is going to help the overall growth trajectory given the continued strong performance of clinical. [indiscernible] And I mean, the change here is along sales cycles. This is a much longer sales cycle to convert from sort of creating bookings to actually convert those bookings into revenue. Particularly in prospective studies where they need to obviously enroll patients get samples, those types of things. So it is a long sales cycle and that's going to hamper the ability and turn how quickly we can turn this around.

We remain very confident in the business.

Great. Thanks for that. And then maybe just kind of a high level one on the clinical business. Sequencing, I think, in your deck, you said it grew 34% for the year. Do you guys still have a bunch of products coming out this year, which support really strong growth. I'm just wondering, like we're coming out with like 32% sequencing growth this year with 4% core.

Just wondering if you can comment at all on kind of those assumptions or if not, maybe just on the core side, like kind of how did the year end up and any way to think about what the right trajectory is for that business in 2025?

So the way to think about that is that we see kind of the modalities. So put NGS aside, we would say that modalities are we are seeing generally growing 3% to 4% and we've talked that we will grow we have been and we project to continue to grow faster than the market. And I think the way we look at NGS is that NGS the marketplace is growing anywhere from 15% to 20%. 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 more, but I think that's the way we kind of think about it. And that's the reason we like that really is if you're moving the modalities the lower modalities, you're moving share.

And so I think everybody gets into this NGS growth in the market and everybody's we John Doe did 100 last year, he'll do 120 this year of NGS. [indiscernible] Well, 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 markets. Why we call it out is we think that's a good indicator. Great. Thank you, Chris.

Your next question is from Andrew Cooper, Hey, Andrew. Hey, everybody. Thanks for the time. Lot already asked, but maybe just digging in a little bit more kind of linked to something you just touched on. But we think about that pace of clinical ASC or AUP stepping up, How should we think about that pace in 2025? And maybe the delta in 'twenty five versus 'twenty four prior years of what's RCM initiatives, what's mix and what sort of traditional price capture in terms of driving that ASP growth? As we move forward?

So we talk a lot about, 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 is going up. So we pass we do push through a price increase. So we feel pretty good I think about that. When you look at the other part of the business, would say there's things that are moving in our moving in the way in the direction we need. One is the biomarker laws, but also is an area we've now probably talk a lot about it on the investment because it's not hiring 30 more people, but we are continuing to expand kind of the payer relations And because it doesn't mean anything to get those biomarkers that we can't phone through. So I think we feel pretty good about where the AUP And I would say from a mix perspective, if you looked at 2024, roughly about 60% of the overall increase in AUP was driven from NGS and the balance was 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 '20 Okay.

And then maybe just one very quick one. 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 probably gets made up. Just any color there on potential hurricane impacts? And if anything from the West Coast fires as well, would love your insights.

Yes. I definitely think all of those events have impacts on the business at a moment in time, Because we're really not an elective procedure type of business, historically, we think the majority of that stuff eventually pluses through. You just are delaying when you see your position. I think the challenge is getting into seeing docs I joked in the call about Greenville, South Carolina because that's where my mom lives and she has [indiscernible] 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 thing. 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 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 in the [indiscernible] And the East Coast. But I think for us, we're in pretty good shape.

Perfect. I'll stop there. Thanks everybody.

Thanks.

Thanks, everybody. Look, we appreciate you taking the time and catching up. Everybody have a wonderful day.

Thank you for your participation.