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Welcome to the NeoGenomics Fourth Quarter and Full Year 2023 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 Investor Relations, you may begin your conference.

Thank you, John. Good afternoon, everyone, and welcome to the NeoGenomics fourth quarter and full year 2023 financial results call. With me today to discuss the results are Chris Smith, Chief Executive Officer; and Jeff Sherman, Chief Financial Officer. Additional members of the management team are available for Q&A including Vishal Sikri, President of Advanced Diagnostics; Warren Stone, President of Clinical Services; and Melody Harris, President of Enterprise Operations; and Ali Olivo, General Councel and Head of Business Development. This call is being simultaneously webcast. We will be referring to a slide presentation that has been posted to the Investors tab on our website at ir.neogenomics.com. Starting on Slide 2, during this call, we'll be making forward-looking statements regarding our anticipated future performance. We caution you that such statements reflect our best judgment based on factors currently known to us, and that actual events, or results could differ materially. Please refer to our most recent forms 10-K, 10-Q, and 8-K we filed with the SEC, to identify important risks and other factors that may cause our actual results to differ materially from the forward-looking statements. The forward-looking statements made during this call speak only as of the original date of the call, and we undertake no obligation to update or revise any of these statements. During this call, in order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. The non-GAAP financial measures presented should not be considered an alternative to the financial measures required by GAAP, should not be considered measures of liquidity, and are unlikely to be comparable to non-GAAP financial measures provided by other company. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table available in the press release we issued this afternoon. I will now turn the call over to Chris Smith, Chief Executive Officer of NeoGenomics.

Hey, thanks Kendra, and welcome everyone. Thanks for joining us this afternoon to go through our fourth quarter and full year financial results. As always, I really want to begin with our mission and vision statement because it is what motivates our company and our teammates on a daily basis. Our mission in Neo is to save lives by improving patient care and we just had our Global Sales Meeting at the end of January and many of our teammates shared how cancer has impacted them or their families, and how we're making a difference in their lives? It's always a great reminder of why we do what we do, and I'm so proud of the impact we're having on patients in local communities we serve. Now let's move to Slide 4, and get into the fourth quarter highlights. As you can see, we had another strong quarter growing revenue, 12% over prior year to $156 million. Clinical services revenue increased 20% driven by strong volumes across all our modalities and another increase in revenue per test. As a highlight, NGS grew in excess of 40% and now represents over 25% of our clinical revenue. The strong growth in clinical services helped to mitigate the expected lower revenue in ADx due to a strong comparable in ADx in Q4 of 2022, as well as macro conditions in pharma sector and margin optimization initiatives that we took in 2023. From an adjusted EBITDA perspective, our progress has outpaced our internal plans. We achieved positive EBITDA in the third quarter of 2023 and significantly improved again this quarter. Adjusted EBITDA was up 900% as compared to Q4 last year to a positive $9 million. Adjusted growth profit was $73 million representing a 46.7% margin, an improvement of 225 basis points compared to Q4 in 2022. Turning to Slide 5 for the full year 2023 results, revenue was up 16% versus prior year to $592 million driven by penetration in the community oncology market, higher volumes, a shift to higher margin modalities and improvements in revenue cycle management. Adjusted gross profit was $264 million, representing adjusted gross margins of 44.7% and adjusted EBITDA was positive $3 million for the full year, an improvement of $51.5 million or 107% versus prior year. Now on Slide 6, I'm pleased that the fourth quarter continued the trend that we've seen throughout 2023, a consistent sequential improvement in revenue, adjusted gross profit, and adjusted EBITDA. Notably, our revenue growth has been strong each quarter of the year. We've built a momentum of reaching positive adjusted EBITDA in Q3 and carried that into Q4. We believe that we've laid solid foundation for growth in 2023 and expect that momentum to continue as we move throughout 2024. Let's move on to Slide 7. As you may recall, at the beginning of the year, we laid out our four focus areas for 2023. They included profitably growing the core business, accelerating advanced diagnostics, driving value creation, and enhancing our people and culture. The more time I spend in the business, the more impressed I am with our unique competitive position in the marketplace with a breadth of cancer tests, our operational capabilities and passionate teammates that lead our business every single day. We are a leader in oncology testing with significant share of patient test volume in the U.S. Our deep relationships with community pathologists and oncologists provide us an advantage in the market, and our focus on oncology testing has allowed us to develop extensive patient databases and relationships, and we view ourselves as a collaborative partner to pathologists, oncologists, hospitals, and biopharma companies we serve. Beyond these market conditions, it's a strong execution by our teammates that enable us to deliver such strong quarterly and full year results to our stakeholders. Our teammates are the foundation of our company, and we have strengthened our team throughout the year with key hires at all levels of the organization, including sales, lab operations, corporate functions. These new hires joined a highly talented group of individuals of varying backgrounds and experiences contribute towards distinguished culture that reflects our commitment to diversity, equity, and inclusion. This afternoon, I'm going to focus on our three financial priorities. We continue to properly grow our core business as we execute on our commercial strategy. Protect, expand, and acquire, which has contributed to our strong volume growth increased AUP and improved mix. Execution of this strategy enabled us to serve more than 600,000 patients during the year. Our continued improvement in turnaround time has contributed to or at -- at or above market growth rates across all modalities. In addition, the mix shift towards higher value modalities in tests has supported the delivery of yet another quarterly improvement in revenue per test. Over the last 18 months, we've doubled the size of our sales force increasing coverage and penetration. We also introduced NeoAccess and NeoSeek software solutions to support providers in their clinical decisions and inform patients with upfront benefit checks, as well as to identify patients who may be marked biomarker eligible for new therapies or a clinical trial. As a result of our increased coverage, clinical support, and patient-centric mentality, we maintained our customer experience leadership in the market with a three point improvement in net promoter score, which is now at 70. Within our advanced diagnostic division, which includes pharma services, informatics and R&D, we continue to focus on acceleration of innovation in R&D. ADx gross margins improved 368 basis points over Q4 of 2022. We built a robust product development roadmap to maintain a competitive position in solid tumor therapy, selection, MRD and heme, with the goal to gain market share and solid tumor and maintain our leadership position in heme. On the R&D front, we launched 12 new or upgraded assays across heme and solid tumor in 2023. Within informatics, we announced a collaboration to advance heme research and AI solutions with a data set that covers over a million patient lives across more than a thousand oncology clinics. The progress and innovation was displayed throughout the year as we presented new data at several conferences. We have focused on driving value creation from a financial perspective, and we are pleased that we have delivered even further margin expansion in Q4 with efficiencies driving enhanced operating leverage. Our enterprise operation team has delivered yet another quarter progress and turnaround time, ending the year with 28% improvement over Q4 of 2022. We have now completed the consolidation of three international labs primarily into our Cambridge UK location. Earlier this year, we kicked off our LIMS project that will bring all of our prior acquisitions that were utilizing separate LIMS systems onto one platform, which will further enable our digital transformation strategy. We have now completed the first phase of user requirements and expect to begin to see the benefits of LIMS in the back half of 2024. Before I hand it over to Jeff, I do want to address the ongoing litigation regarding RaDaR. It's our policy not to comment on ongoing litigation. However, I will say that Neo is committed to serving cancer patients with MRD testing and we believe that we have several viable pathways to accomplish that. We've appealed the preliminary injunction to the Federal Circuit and have been granted an expedited hearing, which will occur on March 29th. We intend to vigorously pursue the appeal. In addition, we have moved for an administrative stay and a stay pending appeal from the Federal Circuit Court. That briefing was completed February 20th. Now, let me turn the call over to Jeff to review our Q4 and full year financials in more detail. Jeff?

Thanks, Chris, and good afternoon, everyone. I'll begin with a little more detail on our operating results for the quarter. As Chris said, we continued the year with revenue experiencing double-digits growth over prior year. Fourth quarter revenue was $156 million, a 12% increase over the prior year and a 2.4% increase from Q3 '23. Revenue growth was driven by growth in clinical test volume, a continuing shift to higher value tests and improvement in revenue per test, driven by business mix and revenue cycle improvements. Adjusted EBITDA improved 900% from prior year to positive $9 million. Q4 marks the fifth consecutive quarter that adjusted EBITDA increased from prior year. We generated significant operating leverage as revenue favorability flowed through to the bottom line with over 60% of revenue growth flowing to adjusted EBITDA. Looking at Slide 9. Clinical Services revenue of $130 million was an increase of 20% year-over-year, driven by a 13% improvement in revenue per test and a 6% increase in volume. The growth and optimization of our sales force, along with the effective execution of the commercial strategy, resulted in higher volume growth. Turning to Slide 10. Average revenue per clinical test increased by 13% over prior year to $4.41 representing an improvement for the 11th consecutive quarter versus prior year, as we maintain focus on higher value tests and revenue cycle management initiatives. As we shared with you in the past, NGS is a strategic priority and accounts for over 25% of our total clinical revenue for the year. New NGS portfolio additions and the focused effort of our sales team continue to fuel accelerated NGS growth. Turning to Slide 11, as we forecasted on prior quarterly calls, Advanced Diagnostics revenue declined 17% over the prior year in Q4, but was up 5% sequentially to $26 million. ADx revenue did grow each of the first three quarters of 2023 versus 2022. However, Q4 of 2022 was an unusually strong ADx quarter, with revenue growth of over 40% versus prior year. The expected decline in revenue was partially due to macroeconomic conditions and pharma R&D spend, as well as our decision to rationalize our global testing sites and low margin contracts. The focus on profitability and margin growth is driving performance in ADx, with adjusted gross margins expanding by 368 basis points versus the prior year. Similar to our clinical strategy in 2023, we are expanding our ADx sales organization in 2024 to further accelerate profitable growth and expect to see benefits from this initiative as the year progresses. Looking at the income statement on Slide 12, adjusted gross profit increase 17.8% over prior year, and adjusted gross margin was 46.7% and improvement of 225 basis points over the fourth quarter of last year. Adjusted EBITDA was positive $9 million and $11 million or 900% improvement versus prior year. These significant improvements were driven by both higher gross profits and discipline cost management, which highlight the operating leverage in the business. Regarding operational expenses, sales and marketing expense was $18.1 million as we continued to increase our commercial investment, G&A was $59.8 million and R&D expense was $7.1 million. Turning to the balance sheet on Slide 13, we ended the fourth quarter with cash and marketable securities of $415 million. We continue to make good progress in diligently managing our cash and are focused on accountability and discipline oversight of operating expenses. Cash flow from operations was up positive $18 million in the quarter and improvement of $21.5 million or 583% from Q4 of ‘22. Now let's review our full year in 2023 financial results. Starting on Slide 15, for the year, we increased revenue by 16% over prior year, driven by increases in test volume, revenue per test, and NGS revenue in clinical services. Adjusted gross profit increased by 27.5% to $264 million as a result of higher revenue and effective cost management. Adjusted EBITDA improved $51.5 million versus prior year due to improvements in revenue and gross profit. Looking at the balance sheet on Slide 16, we ended the year with cash remarkable securities of $415 million. Cash flow from operations improved $64 million or 97% from 2022. This strong performance in reducing our cash burn provides us with multiple avenues to address our upcoming convertible notes due in 2025. We expect to provide more clarity on our near term maturities on our Q1 2024 financial results call. Now turning to our 2024 outlook. We continue to see strong revenue growth and an increased NGS product mix and are very encouraged by our new and updated tests, which provide higher operating leverage to the bottom line. We have made the necessary and appropriate investments in our teammates to ensure that we have a world class group of people who are aligned with our mission of serving patients and saving lives. As we continue to build this business brick by brick, I am more confident in our future than ever. Moving on to Slide 18. For the full year 2024, we expect revenues of $650 million to $660 million, representing 10% to 12% growth, and adjusted EBITDA to be in a range of $21 million to $24 million, representing 600% to 700% growth. In summary, 2023 represented a strong year of execution and financial performance, which positions us well to continue to momentum in 2024. We will continue to invest in growth initiatives, including investments in Sales force optimization and expansion in our clinical and ADx businesses, and increasing investments in R&D, product and business model innovation to further enhance our menu of tests. In addition, we'll be making targeted investments and operating efficiencies, including automation and consolidating our multiple LIMS systems into one consolidated platform over the next 24 months. These investments will drive long-term margin growth in the future and are reflected in our annual adjusted EBITDA guidance range. Based on our cost structure, the revenue growth in 2024 will drive operating leverage and our adjusted EBITDA growth will exceed our revenue growth. We anticipate the seasonality of our business to be reflected in each quarter of 2024. Therefore, we expect revenue to be down sequentially in Q1 ‘24 in a range of $148 million to $151 million, representing 8% to 10% growth over prior year, and expect our strategic initiatives to drive a higher growth rate as the year progresses. Based on our strong performance in 2023 and our confidence in our strategic initiatives in 2024 and beyond, we are increasing our long range revenue growth target and outlying years from 7% to 9% to 10% plus in our core business excluding MRD.

Thanks Jeff. I'm very proud of our teams Q4 and full year progress including strong revenue growth of 16% for 2023, and significant improvement in adjusted EBITDA and cash flow from operations. We saw meaningful progress in the execution on our strategic priorities, and therefore we're able to reach the high end of our raised guidance. Our guidance for 2024 and beyond reflects our confidence in our business. We believe we're well on our way to becoming the leading cancer testing information and decision support company. We'll continue to build on the foundation we have laid over the past several quarters to deliver long-term sustainable growth. I'm excited for our teammates and our customers, and most of all for the patients we serve on a daily basis. Thanks for taking time to connect with us today, and I'll throw it back to the operator.

[Operator Instructions] The first question comes from Alex Nowak with Craig-Hallum.

Congrats on the results. I'm sure there's going to be a lot of questions on the call around the guidance and digging into it, but I guess I want ask one around the FDA and the LDT and the potential of FDA coming out and issuing final rules. Depending on the definition of an LDT, Neo could have a wide variety in its portfolio. I'm just curious what, you talked a little bit in the past, but what does the team internally doing now, just in case the FDA does decide, we're going to move forward and issue a final rule?

Yes, thanks for that. Look, I mean obviously, like other companies in our sector are watching that closely. We're on the HCLA Board and so I think we've seen it coming. Look, I would say a couple of things. I would say our progress or our focus on this started probably 18 months ago when we came together as a management team, and we started bringing in people who come from regulated backgrounds. So if you think about, like the folks on this call, the three division presidents, myself, Jeff, all of us come from FDA regulated backgrounds. I think we started to build the quality system that way. We moved to one quality system, we took all the acquisitions and moved them to one. All of our R&D projects are now under design control. We've kind of been starting to operate believing this is coming. That being said, there's still a lot to unfold, once a ruling comes out. I think there's a lot of people in the industry who wonder if it's constitutional. But from our perspective, we think it's probably not, if it's probably when. It looks like even if all these things occur, companies are going to have three to three-and-a-half years to get prepared. We feel very confident in our ability to manage that as it comes on. Look, a lot will depend on what is grandfathered and what is not, but I think we feel really good about our position in the marketplace. And we think for companies like us, it could be end up becoming a competitive advantage.

The next question comes from David Westenberg with Piper Sandler.

So I really like the update on the -- if I heard it right, you updated the long-term plan to 10% growth. Can you talk about specifically, because that's a big 150 basis point at least swing there? What specifically is happening versus that long-term growth plan where you feel confident that this is not just trend, this is multiyear and long-term? And that's assuming I heard that correctly.

Yes, you did. I mean, Jeff put it in there at the end. I'll it's kind of like some of the best news, and it was like right at the end. I'll say something and then maybe I'll have Jeff comment more. But look, I think when we gave long-term guidance in April of last year, we were a pretty new management team and I think as we've come together and now had well over a year under our belts, we understand the levers to pull in the business much better. We understand the market significantly better. We understand things around revenue cycle management and accelerated growth and where the gaps are in the products. And so, we guided this year for '24, 10% to 12%. But what we're seeing in that core business, just because of the market dynamics, the market growth, our leadership position, the things that we can do, we feel very confident in that 10 plus number. But do you want to?

Yes. I would add to that. We've made multiple comments about adding sales force people to our team and then sales force optimization. We are really focused on how do we help them be more efficient. And so we actually think we can get a lot of operating leverage just through technology and back office support for our sales people, both in our clinical team and in our ADx team. I think that's another big component. We've been growing faster than the market across all modalities. We have a strong focus on NGS and are clearly seeing positive results there. I think our view is -- our confidence level has increased based upon our performance in 2023, as well as, as Chris said, team overall just getting more comfortable with our teams, with our position in the market and where we're investing dollars to raise our long-term growth target to that 10% plus.

Yes. And David, I'd say the other one. I mean, if you look at NGS, especially solid tumor, we're incredibly under indexed and you can see that business is growing rapidly. And that market is still relatively penetrated, but growing double-digits. So I think there are a lot of factors that we feel really good about where we are from a position perspective.

Great. That's a great segment and a second one because I think you're launching into liquid. Could we expect an accelerated timeline into liquid or like a market traction just given what you're doing right now in hematological malignancies and then you transfer that into solid tumor, which has been growing really fast?

Let me obviously, a lot going on, but that sits in kind of the R&D group with Vishal and under development. Vishal, do you have anything you want to share just kind of what we're doing with liquids and some of the products that we've disclosed?

So on the liquid side, we will plan to launch CGP assay for liquid biopsy going into 2024, probably towards the second half of 2024, but we'll accelerate on the clinical side also that we're looking into. But I do think there is the place for liquid on both the pharma and the clinical side, which we'll see an acceleration in terms of penetration into that market, especially on the pharma side in particular because we're hearing a lot from pharma companies that they just don't have enough tissue to spread along with all the testing they want to do. So this really gives them the opportunity to choose both liquid or solid from that perspective.

And you'll probably see that in pharma in late half of the year and then moving into clinical in early ‘25.

Up next, we have Puneet Souda with Leerink Partners.

I'll wrap my question into two questions sort of into one. Obviously, again, Congrats on the LRP increase here. Maybe, can you elaborate what is the clinical volume growth that we ought to think about in that sort of long-term guide? I mean, at one point, NeoGenomics used to grow that number at 15% growth, but I know the mix has changed today. There's more NGS in here. So maybe could you elaborate on that? And then how should we think about the AUP and the clinical volume growth this year in 2024, the AUP has continued to ramp throughout the year for clinical in ‘23. So just wondering sort of, how should we think about that for ‘24?

Maybe I'll take a little bit of that and throw it to Jeff. But look, the way we think about our business is really a portfolio effect. And so if you think about it, we really, we have informatics, we have pharma, we have clinical, and obviously when we look at building out both this year's guidance and outlying year's guidance, we've taken into account all those factors. We have not broken down specifically the units or the AUP I will say though, on the AUP, two things significantly are driving, and Jeff will give you more, but one is our mix, right? We're selling a lot more NGS. But the other thing is we think we have a lot of runway on revenue cycle and just the amount of -- when you look at this industry as a whole, I think it's woeful in its ability to get paid for the work that it's doing. And I think where our team is really becoming masterful is identifying those levers, which is probably 15 different levers within that group. But Jeff, do you have anything else more on

I mean, we haven't disclosed specific and we didn't, when we gave original guidance, didn't disclose volume or AUP. But I think, as Chris said, given our positioning on both our clinical sales force and execution as well as our anticipated additions on the ADX side, we certainly feel good that we're going to achieve that revenue growth. I think on the revenue or per test or AUP as Chris said, there's a few things driving that. In the quarter that NGS mix, I said this last quarter is driving over 60% of the increase in AUP. So just the NGS volume continue to accelerate is driving meaningful upside in revenue per test. And you can see that stepping up throughout the year and in 2023. And then the other factors as Chris also said, were revenue cycle specific initiatives. The first is on just getting paid for the work. We're doing a lot of specific initiatives to drive that. We saw good improvement in that in 2023. And then there's also the pricing side where we're having some success in getting price increases as well, where that hasn't historically been a strength of ours. Again, I think the way I think about the revenue side is we have volume drivers, we have mixed drivers, we have pricing drivers, and we have RCM drivers and they're going to hit at different intervals and different paces throughout the year. But the overall, combination of those is going to get us through our revenue growth over time.

The next question comes from Matt Sykes with Goldman Sachs.

Congrats on the quarter. Maybe just following up on Puneet’s question, but focusing on the mix side of it. Obviously, the NGS mix you guys have talked about and that's driving a lot of that. But I'm just wondering in terms of like, as you think about the runway for mix shift, there's clearly probably customer groups where it was easier to kind of switch them into NGS or market the NGS to them. Does mix makeshift get harder over the course of this year and into ‘25? Or do you just see a lot of runway and lack of awareness where you're able to continue to drive that mix shift over time? And then just my second part, just quick one for Jeff, just any views on the gross margin outlook for ‘24 within that guide?

Yes, thanks Matt. Look, I think when you look at this business, one of the things that we really like as we've got to know the business well is that we're very under indexed both on NGS, as the total percentage of revenue for the company as well as in solid tumor. And do you think -- there's going to be some earning calls that come up in 90% of the revenues NGS, and so I think we believe very strongly in that ability, on that mix shift. I'd say the second big one is, I think you could argue this year should be better because of our increased focus going to oncology, the community oncologists versus just the hospitals and the pathologists, and expanding that sales force there and to be able to go out and spend time, and look one of our lever points is that we're the market leader in heme and really using that to be a door opener for us for solid. But maybe -- I probably shouldn't even have said as much as I did Warren's here, but maybe Warren give maybe more color.

I think everything that you said, I agree with a 100%. I mean, we've communicated that right now the ratio is roughly 25% of the business. I think, as that ratio increases, certainly it gets marginally harder, but I wouldn't discount the fact that we have launched new products last year. It was probably mid-year by the time we were starting to see some traction take place. Looking to benefit from the annulization of those new products that were launched in last year, particularly those are the NGS related. So that's one that certainly will provide opportunity for us. And then, as Chris said, the continued penetration into the community oncology segment, which is where we've invested a lot of incremental sales resources into, is another reason why we believe we can drive growth in NGS, which will support that makeshift.

Jeff, do you want to take?

Yes, then on the margin side, Matt, I would look at just the gross margins increasing in a range of 150 to 175 basis points over the next year over 2024.

Next we have Andrew Brackmann with William Blair.

Maybe on the inorganic front, I guess as you guys are making progress here on increasing profitability, can you just sort of talk about balancing that dynamic with your sort of appetite for adding to the bank here over time? Any considerations that we should sort of be thinking about?

Yes, Andrew, I got to tell you, I missed the very first thing you said -- inorganic growth. Sorry, I missed that. Look, I think it is a unique scenario when a company looks at accelerating growth and how much do you put on the bottom line versus how much do you invest. Look, we believe that this business has a very unique opportunity to grow low double-digits on revenue and mid-teens plus on profitability. I think for us, we look at where we can invest the dollars that we think are going to give a long-term ROI. We spend a lot of time as a leadership team talking about what these initiatives are and when are we going to strategically invest in. For example, this year is a big win. Last year was one of the big on was expanding the clinical sales force. We believe that you can have that balance. Like, Jeff always said, it’s not either or, it's and. And I think our view is that we want to grow revenue fast, gross margins faster and operating profit fastest. I think we run our business to do that. I think we feel really good about that balance. But Jeff, do you want to get from a financial perspective.

I think the other thing that gives us confidence is just our capital structure as well and our ability to really significantly change our cash burn and actually position ourselves for actually starting to produce cash in 2025. I think having the clear path to being adjusted EBITDA positive for all of 2023 and certainly, we expect that for 2024. And then really it's an investment, I think, rigor and discipline that we have used over the last 12 months, on where we're going to be investing dollars and how are we doing that in a strategic fashion over time to drive the business. I think as Chris said, clearly with having ROI projects that are going to pay for themselves over time and I just think we've had a lot more rigor and discipline in process which gives us confidence in investments we have made.

Up next, we have Mark Massaro with BTIG.

Congrats on the quarter. Lots of great progress on the clinical side. I guess my question is more on pharma services. I know your predecessors talked a lot about pharma services and informatics and there is a large precision oncology company out there that's monetizing big data with some pretty sizable revenue. I'm just curious like, you guys are doing a great job just growing revenue and profitability. Maybe just give us an update on how you see the pharma services business shaping out? How you can monetize some of the big data? And maybe just give us a sense for how you're thinking about the growth of that business going forward?

Yes, thanks. Look, I think when we came in, I mean, I think the first thing is we made a very conscious decision that, that business had a lot of pieces to it that were not profitable. And so our focus was and we've talked about this in the whole company, but especially in pharma, let's get the house in order and let's get this gross margin moving. And you can see that we did great progress in there. I think when we think about the pharma business, so we do believe, it's kind of the tip of the spear from a technology perspective because the pharma companies go well in front of clinical on new innovations and new technology. And we saw that, for example, in MRD. We believe it's a place to be. But before we could start accelerating growth, we had to get the baseline right. That's what '23 was all about. Now you heard that, Jeff, our last year, we spent a lot of money and time expanding the clinical sales force. We're expanding now the pharma and the informatics sales force because we feel like there's great growth opportunities there but we felt like we were kind of ride the ship first. On informatics we have significant points of data because of our patients that we test. I think as Vishal and I'll let Vishal step in and maybe talk more about the informatics. But I think as Vishal and Melody come together and look at the things we can do, there is runway, but there's a lot of work to do. I think that the company you're probably referring to, it was not our top priority, but it's becoming more of a priority. But I think for us, again, it's about the portfolio we got to be able to perform in clinical and all of ADx. Do you want to talk more about, especially informatics and the data?

Yeah, I think as we look at the data that we have within the company, one of the nice things about what Neo has is data across all of our modalities, whereas others maybe will have it primarily in NGS, but as we grow our NGS product portfolio, our data will also grow at the same time. So what we can get to in a couple of years, it's going to be much different than where we are today in terms of our data offerings as a whole. And on top of that, the LIMS investment that we're doing, which will allow us to structure the data in the right way, will also make us successful for the informatics side. Altogether the next couple of years, we still have a long way to go there. I mean, I think we have to build in the right steps, but how we're building it is more important right now for the next year and getting it two years out as to what we can do with that data from where we are today.

The next question comes from Mike Matson with Needham & Company.

Just wan1ted to ask one on the LIMS project. So, you mentioned you could start to see some of the benefits of that in the second half, so, just curious what those benefits could be. I mean, is it margins? Is it per turnaround times it market share, or all the above?

Look, I think there's a lot. It's probably all the above and Melody's on the call as well, Melody, do you want to take that initially and then Jeff maybe can talk about financial stuff, but Melody?

I think first and foremost, Mike, it's really around operational efficiency and productivity in the lab. But I think we are expecting to see a lot of pickup with regard to leverage there, because we currently are on multiple different systems, and obviously that causes a lot of cutting and pasting and things like that we're hoping to eliminate. But as far as then, Vishal mentioned the ability to use our data better. It's really an overall enterprise digital architecture that we're working, and LIMS is the start of that. But we're also leveraging, various platforms for better connectivity to our patients, better connectivity to EMR better connectivity into our billing systems and our backend ERP and the LIMS system is really the big driver for all of that for us. Jeff, comments on the, the cost structure?

And I would add one other thing as well. I mean, it will give us just better visibility from a client service perspective on where our tests are in the process, and allow for really self-service on where tests are in the process. So I think it helps our client communication and giving them up to date on where we are with the testing process.

And maybe Warren, you can talk to this, but look, we're spending probably as much on the customer experience component as we are on the LIMS as far as digitization. And it's interesting, I think in this business, for us to ultimately get to where we want to go, we got to win on customer experience and we got to win on the ability to serve the patient. And I think, do you want to just give what we're doing on the digitization and the platform. That's going to tie to LIMS.

Building on what said in terms of LIMS being this sort of foundational element for us to start a digital transformation. This is providing a building blocks for us. And additionally we're investing in what we calling a digital front to our customers, which will then be the platform for self-service. It'll be the platform to allow customers to track the status of test in real time. Something that is certainly missing today and ultimately will allow us to increase stickiness to those customers, which is an important element from our protect, expand, acquire a commercial strategy. Something else that we look to expect to see value in the latter part of 2024.

Our next question comes from Mason Carrico with Stephens Inc.

For the ADx business, you had called out you framed it up in previous quarters these. The headwinds that you'd be facing rationalizing some testing sites, low margin business as well as you're facing some macro conditions. I guess the question is, could you kind of break out I guess how much of an impact each of those two buckets have? As we look ahead into this year, when do you think we start to lap kind of rationalizing that low margin business going forward and really how are you thinking about accelerating growth in this business this year?

Yes, why don't I take it up front and then Vishal, can pick it up. I mean we made that decision, but those contracts took some time. So I think you'll start to see that piece start to kick in probably in the second half of the year. We haven't broken out where the impact is, but I think even more importantly, Vishal maybe talk about strategically all the things that your team's doing in other modalities, just NGS and why that's still relatively new and why you give confidence in the acceleration of the growth.

If you look at what pharma is coming up to us for, right, we are still investing heavily in modalities, what I call our traditional modalities like IAC, that's not going anywhere from an oncology, pharma perspective, that's our bread and butter. But as we launch new products in the NGS side in particular, and we're seeing that trend and as Chris mentioned, usually what we see in pharma is a movement and moving towards technologies three to five years ahead of clinical. We're already seeing that trend moving from Phish as an example to NGS. We didn't have the right products until we launched them last year. So we're starting to see that movement into more and more usage cases in NGS, which also have higher AUPs for that matter. So we're also investing in our BD team. We invested a lot in the clinical side from a sales perspective. We're investing now on the ADx side and rebuilding that BD team and making sure that we have the tools and expertise that will allow us to grow in 2024.

Maybe talk about liquid biopsy, because that's going to be a big product for you guys.

Yes, liquid biopsy is something that we get approached by from pharma all the time, is we do a lot of tissue testing right now, which is what we've built our business on. But on the liquid side, especially for solid tumor and as Chris mentioned earlier, we're very much underpenetrated on the solid tumor side because we didn't have the right product mix, and now we are launching our liquid biopsy CGP, which will allow us to make that offering to pharma where they don't have tissue to give to us for samples that have been sitting around 3, 5, 10 years old from the clinical trials that have been completed. So we're able to go back and actually try and get some of that business with our new offering that we're planning to launch this year.

Up next, we have Andrew Cooper with Raymond James.

Maybe just first focusing on kind of price for a little bit here or AUP, I should say. Can you just give a sense for how much more runway is there in that 40% of the increase that's come from RCM and price? Or maybe ask another way, what can we expect that to contribute on a yearly basis, once mix is stabilized or in the scenario where kind of on an apples-to-apples basis, we think about mix being stabilized?

Yes. Without kind of getting into granular specifics, we said earlier NGS was driving about 60%. We are still seeing mix improvement in other aspects of the business, which is driving a component of AUP or revenue per test as well. I think in terms of the initiatives, we think pricing is a multiyear opportunity for us, and we also think the revenue cycle initiatives that are just increasing the amounts where we're getting paid for what we expect to be paid is a multiyear opportunity. I think we have multiple year opportunity to continue to close the gap between what we're expected to be paid and what we are being paid. Again, as I've said in prior calls, it is multifaceted. I mean, there are some other clearly identifiable areas of prior authorizations or medical necessity or medical records that we're dealing with. And then there's the payer policy aspects, which are a little bit harder, particularly with the larger panel test. And so as some of the biomarker legislation gets approved in states over time, that will also help close the gap for specific tests, where we may not be getting reimbursed today or where we're not being reimbursed fully. Again, I think there's a lot of different areas that we have identified that we have teams working on to close that gap and see a multiyear runway.

And then maybe just one more. On the LRP update, obviously, great to see. Maybe just any context for what that does or doesn't do to the EBITDA margin expectations that you laid out back in April and whether that number can be a little bit higher for '26 or maybe how we think about even beyond that time frame, where adjusted EBITDA margins might go in the event of kind of that little bit faster revenue growth?

Yes. What we said almost a year ago was we expected EBITDA margins to be in the mid-to-high teens by 2027. Obviously, going towards the higher end of going to above the high end of that range, I think will help accelerate that. I don't know that it changes meaningfully when we achieve that mid-to-high teens, but it could pull it forward, I think, a period of time. And also, just our ability to generate operating leverage off that revenue growth, I think, will help the adjusted EBITDA growth over time as well. We initially said, we expected to be adjusted EBITDA positive in 2024. Obviously, we achieved that in 2023. Again, almost probably pulling forward somewhat a year on that front. I think as we look at our ability to generate operating leverage on the revenue growth, it clearly will benefit our long range plan from an adjusted EBITDA and adjusted gross margin basis.

Andrew, I think as we like I talked about earlier, as we've seen the levers and the ability to pull multiple ones to get leverage and pull through on this business. You saw this year the significant amount of our growth drop into the bottom-line. And so I think that we -- that's enhanced our confidence in some of these things. Now we still have things like value capture program where we want to go get anywhere from $10 million to $15 million a year. We want to improve gross margins and get gross margin leverage by a 100 basis points every half. I mean, all those are fundamental, but I think now, like when you think about Melody, on her side, on the operations, she now has the detailed plans in place and we can see that. So, I think, it just has given us a greater sense of confidence in our ability to deliver it.

The next question comes from Derik de Bruin with Bank of America.

You have John Kim for Derek here. I'm going to try to ask this one more time. Great to hear the 2024 guide and the update on the long-term guide here. Any other details that you could share on what this split is going to be between the clinical services and advanced diagnostics? I think you previously talked about how the clinical services would be a bigger portion of the sales, but would be helpful to know any additional thoughts that you might have?

As Chris said earlier, we really view it as an overall portfolio and we guide on a portfolio basis. So we haven't broken out that individually. We do expect both of them to grow in the year. We just haven't broken it out and don't plan on breaking it out in our guidance.

I did want to ask about the patent infringement ruling against radar that was in December, any expectations as to, I know it's not included in the guidance, so not expecting any financial impact there on the top line or the bottom line, but any expectations in terms of when you think this might get resolved or like if it comes to getting rid of it, what impact that could have on the bottom line?

I'm going to let Ali address legal questions, but two quick points. So our guide does not include any radar in it number one, but number two, we do believe MRD is important, so I'll just put that and then I'll throw it to Ali to let her kind of walk through how the legal side is coming.

We don't have any visibility to the timing. What we know is that we've requested expedited an expedited hearing, and we've been granted that expedition and the hearing was, as Chris said, is scheduled for March 29th. And so various factors kind of contribute to the Federal Circuit Court of appeals timing on a decision, including whether or not the decision is presidential, whether there's a dissenting opinion on the panel of three judges. We have also made a motion for a stay pending the appeal, and that motion was fully briefed like Chris said, as of today. And so timing on that is within a couple of weeks. That's sort of what we know in terms of timing on the appeal. As far as the infringement matters in district court, those are ongoing and are in the discovery stage. The North Carolina case has been set for trial in March of 2025 and the Delaware case has been set for trial in October of 2025.

Up next, we have Tejas Savant with Morgan Stanley.

I just wanted to push on that, a similar line of questioning there. I was curious, Chris, in terms of the comments you made in your prepared remarks about your options available here. Can you give us a sense for how quickly you could pivot to perhaps a new version of RaDaR, as a workaround for the litigation and that's something we've seen other peers in the industry resort to in relatively short order. I was curious if that was an option that you were actively exploring at the moment as well.

Look, I would say that we're actively exploring all options around MRD with the first situation that we believe unanimously about our position from a legal. I mean, obviously, that's where we're going. That being said, we have been in development for additional MRD products beginning probably 12 months before this even started. So I would say that that's been ongoing. And I would say with us, we believe like a lot of the products that we're trying to bring to market, we think there's an incredible need from a patient perspective, especially for products that continue to improve sensitivity. I would say that, Vishal and the team in R&D operate with an incredible sense of urgency. But it's not just from a technology perspective, but it's from an IP perspective that they're looking at us from a commercialization perspective. But we haven't given any timelines just that we're operating with a sense of urgency on it.

And then just one quick follow up for me on the biomarker bill. Can you lay out, Chris, what proportion of your tests you think could benefit from incremental commercial payer coverage here? Given even the states that have currently passed the legislation?

I don't think, so very clearly where we believe the value will come is on any NGS test, which is a panel of 50 or larger genes. That's where today reimbursement from a third-party payer perspective is quite limited. So that's where we see the benefits in terms of -- I think what portion of our business debt is et cetera. That's something we actually haven't commented on.

Yes, and one of the things we will talk more about some of the strategic priorities in ‘24 when we get together after Q1, but one of them is to launch our neo comprehensive 2.0, which is a significant larger panel. And so obviously that'll be an important tool for us.

The next question comes from Dan Brennan with TD Cowen.

Maybe just a question back to the liquid offering, any color on what type of reimbursement we can expect and how should we think about framing the opportunity from like a revenue potential perspective?

You want to take that a little bit about what's going on in the market.

The good news here is that, I mean there is reimbursement that's established similar to what you see with the tissue test. And we expect something from a reimbursement perspective, at least for Medicare, would be in a similar type dollar amount as what we see on the tissue side of things with potential for higher, depending on what kind of status we get on this But the reality is that we are also seeing NCCN guidelines get updated at the same time, and you saw that on the lung space in late 2023, where it changed from tissue not being available, especially in lung cancer to tissue or liquid being done at the same time or in with a independent of each other. I think you're seeing the guidelines are changing and that also helps with the whole reimbursement story and the clinical adoption of course, especially in the community based setting. I think having a liquid offering that is widespread is going to be critical for us for commercial growth.

And then maybe just sticking with NGS, clinical market volumes probably growing north of 30%. Just wondering for your volume growth, how much if we're thinking about like the market growth versus converting your customers from say legacy test to NGS. Could you just give us a sense of like maybe I know you're not going to distill the exact numbers for each, but I'm just wondering how far along your customers are and is that a big driver for you that you're kind of bringing forward some of these more community hospitals and doctors towards NGS?

Yes, I'll let Warren take it. But remember, we have three distinct strategies that we focus on and really from a field compensation perspective they're incentivized on all of them. Do you want to talk a little bit about what's going on?

Yes. I think there's a couple of dynamics that are taking place. Certainly, we've got customers that may not be using NGS today using a different modality that we're moving into NGS. That's the first kind of motion. Second is, we have a number of smaller genes single gene and smaller panels that are available and these we're moving customers to larger panels. And then obviously we have the dynamic of customers, which haven't been near customers in the past that are now we're now addressing and this is particularly relevant in the community oncology setting. Those are kind of the three areas where we see sort of growth from an NGS perspective. It really plays into with our commercial strategy, which again is around protecting existing customers, but secondly expanding share of wallet where we drive various GAAP analysis strategies to identify which customers to target with different NGS offerings, which could be one of those three not using NGS moving to NGS or using a single or small panel into a larger panel. And then thirdly, it's the acquire elements of our commercial strategy, which is gaining new customers which haven't been supporters of Neo in the past.

And the third one is obviously the toughest getting new customers, thus by far the biggest opportunity where we have to spend time for starting lab 12 months ago, which is just community oncologists.

We have reached the end of the question-and-answer session, and I will now turn the call over to Chris Smith for closing remarks.

Thank you. Look, I just appreciate everybody taking the time to get together and get some more color on what's going on inside the business. We kind of talked about the state of the business and I think we feel incredibly good about where the business is and where the business is heading. I think we're ahead of where we thought the early plans are being. And I think as we continue to go forward each quarter, we'll try to give you more insight into the business and how we continue to build this long-term sustainable growth. Again, thanks for your time today and take care.