NEO - NASDAQ

Good morning, and welcome to the NeoGenomics Second Quarter 2025 Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I will now turn the call over to Kendra Webster, Vice President of Investor Relations.

Thank you, Tom, and good morning, everyone. Welcome to the NeoGenomics Second Quarter 2025 Financial Results Call. With me today to discuss the results are Tony

Thanks, Kendra. Good morning, everyone, and I thank you for joining us today. I'm pleased to lead this call having now completed my first quarter as CEO. Since becoming CEO in April, I've engaged with the business, including sales, operations and R&D and reexamined our strategic initiatives and financial targets from a more in-depth perspective than I could as a director. I've also met with existing and potential partners at various industry conferences and had conversations with many of our shareholders to better understand their perspectives. These conversations reinforce the significant opportunities to drive value for our customers, patients and shareholders. Cancer testing continues to be a large and attractive market. Most of our business today is in diagnostic testing, though recently, we have accelerated our offerings in therapy selection with the launch of several NGS products. In addition, our RaDaR 1.1 technology and R&D work on next-generation MRD enable us to participate in a market that's underpenetrated and rapidly growing. I acknowledge that our delivery this quarter was below expectations. While I remain extremely optimistic about the future of NeoGenomics, our team and I are doubling down on our efforts to focus the business on execution excellence as we build upon our disciplined financial and operational foundation. But before we talk about our plans moving forward, let's spend time on the quarter. We had a solid second quarter in the core clinical business, posting significant volume and share gains in key segments. However, our nonclinical revenue was below expectations. Revenue for Q2 was $181 million, slightly below our second quarter guidance range, though still representing double-digit growth of 10% year-over-year. Our clinical business continues to expand with organic growth of 13%. Strength in our clinical business was offset by continued weakness in our nonclinical revenue, driven by lower revenue from pharma and biotech customers. In the second quarter, we saw a sequential improvement in AUP, a record quarter for test volumes and NGS growth of 23%, slightly below our 25% target, but well ahead of the low to mid-teens NGS market growth rate. We continue to capture market share and clinical revenue, but we made a conscious decision to leverage the learnings from our PanTracer liquid biopsy EAP to establish an even stronger product profile for launch. This meant we delayed our launch, which resulted in lower revenue and a lower-than-targeted NGS growth rate. I'm excited to confirm that PanTracer liquid biopsy will launch commercially tomorrow and believe that our approach to bringing this product to market will positively impact patients treated in the community and our NGS growth rate later this year. We're projecting lower-than-planned revenue from pharma customers for the remainder of the year, as well as a negative impact to revenue associated with lower-than-planned volumes for PanTracer liquid biopsy and NGS mix. As a result, we've updated our 2025 financial guide, which Jeff will provide more insight on in a moment. I am confident that Neo can continue to achieve double-digit annual growth, fill product gaps through organic and inorganic activities and capture additional market share. The leadership team and I have drilled down to align our cost structure with revenues, reestablish our consistent execution and rebuild credibility with our shareholders. Investments we are making in operating efficiencies this year, including the LIMS project and digital pathology, position us well to achieve more operating leverage in the back half of this year. I think it's important to spend some time discussing our Q2 results and how we intend to accelerate growth and drive value. The pharma macro environment conditions contributed to the revenue shortfall in the quarter versus our expectations. Specifically, market uncertainty surrounding NIH funding, drug pricing, patient enrollment in clinical trials and potential tariffs are leading directly to investment volatility and creating significant headwinds for both our pharmaceutical and biotech clients. This is resulting in budget restrictions, reprioritization and consolidation of assets and postponed or canceled projects specific to our pharma services line that are more pronounced than we've experienced over the last 2 years. As we have shared in past quarters, RaDaR 1.0 is a growth driver for pharma revenue and also provided a call point to sell other testing modalities. As a result of the negotiated settlement, these RaDaR 1.0 contracts are no longer producing pharma revenue in 2025. We are adding additional testing capabilities in our portfolio to make our menu more attractive to our pharma and biotech customers, such as Paletrra, our AI-powered spatial proteomics platform, which launched in June. While we have updated our pharma go-to-market strategy and made key changes in leadership, it is taking longer than anticipated to yield results. So how do we plan to respond to these challenges? Our strategic drivers are focused on 3 areas: the customer experience, the community channel and new products. Optimizing and winning the customer experience continues to be our competitive strength. We've earned a market leadership position in Heme through our heavy investments in community hospitals, and we continue to invest in the community oncology setting. To win the customer experience, we focus on investments in our sales force effectiveness and efficiency, bidirectional interfaces and ordering portals, as well as automation and digital pathology in the lab. Last quarter, we announced our plans for EPIC integrations, which we believe will begin to impact our revenue in late 2025. We're also continuing our multiyear process of integrating our multiple LIMS into one single LIMS, which will allow us to sunset 8 legacy systems. We believe this will give us operational efficiency, enable us to further improve our turnaround times and further enhance our data asset to fuel more robust growth in our oncology data solutions business. In terms of enhancing our community channel strength, we leverage our business development capabilities to establish effective compelling partnerships like the one with Adaptive around delivering industry-leading Heme MRD tests to our customers, which we have started to bring to market through a control pilot earlier this month. Our pipeline of future opportunities continues to grow as we capitalize on the recognized strength and the unique brand recognition of our channel in the community space, coupled with our sales effectiveness. A key growth driver for clinical and pharma is focusing our R&D and business development efforts on new next-generation precision-guided products. We believe MRD and therapy selection NGS provide the biggest market opportunities and represent the largest associated unmet need. The $30 billion MRD market specifically represents significant unmet clinical needs, particularly in low shedding cancers. MRD has the potential to transform cancer care by enabling earlier detection of recurrence, more precise treatment decisions and better outcomes for patients. This also makes MRD highly relevant to biopharma partners to advance targeted therapies. We intend to make further progress here and evolve our product portfolio to be more comprehensive across the cancer care continuum. Simultaneously, we will continue building on our deep relationships with the community hospital pathologists and growing relationships with community oncologists, providing us with an even wider competitive moat and reinforcing our responsibility to inform treatment decisions with actionable insights. As I mentioned at the outset of this call, I've met with many of our shareholders to better understand their perspectives. They challenged us to rethink our confidence levels and to be transparent in our guidance, incorporating the risks and uncertainties inherent in our industry and our business. We take this feedback seriously, and I want our shareholders to know they have been heard. Revising our 2025 guidance reflects the headwinds I've discussed, while at the same time, acknowledging the efforts we've implemented to best position the company for the future. I'm confident we can achieve these forecasts. And if we execute on our action plan, I'm just as confident that there is additional upside we can capture as well. We intend to prove that one quarter at a time. As a member of the Board of Directors, I approved the update to the long-range plan we communicated earlier this year. As CEO, one of my primary objectives has been to oversee the execution of the strategy behind the plan and proactively identify opportunities to improve upon it. Here's how I think about our long-range plan. It's just that, long range. While the plan covers the company's execution of certain key metrics during the next 5 years, this does not guarantee that the plan is going to correlate exactly to our guidance for the coming year, and there will be variability from year-to-year. My confidence in the long-range plan is based on 3 key assumptions. First, we believe that the core business, which now includes Pathline, will continue to grow at a 10% plus rate even with the headwinds affecting our pharma revenue. Second, our business development activities will add incremental revenue that materializes gradually with significant growth in the out years, but the timing will be lumpy depending on deal terms and structures. Finally, as we increase our investments in R&D and launch PanTracer liquid biopsy and future products like next-gen MRD, we expect to generate incremental revenue through consistent improvement in NGS mix and growth. Beyond that, to the extent the pharma headwinds subside, there is upside. As we progress into the back half of 2025, we will continue to monitor the impact of the recently passed federal budget bill, changes in the pharma landscape and the success of our liquid biopsy launch. Consistent with our historical practice, we will release our 2026 guidance when we report our 2025 full-year earnings in February of 2026. Going forward, like many in our industry, we will not be providing external updates on our progress against the long-range plan and will instead focus on our near-term guidance targets. Based on my experience in these last 4 months, I'm more optimistic than ever about Neo's future. And with that, I'll hand it over to Jeff to further discuss our results from the quarter.

Thanks, Tony, and good morning. Second quarter total revenue growth accelerated from Q1 and increased 10% over prior year to $181 million. Total clinical revenue continued with double-digit growth and increased by 16% from prior year. Organic clinical revenue was $160 million, representing growth of 13%, driven by a 10% increase in test volumes and a 3% increase in AUP. In the second quarter, NGS testing accounted for 32% of total clinical revenue and grew by 23% over prior year. This strong clinical growth was partially offset by nonclinical revenue declining by 26% over prior year, driven by weakness in the pharma revenue Tony spoke about. The second quarter was also a difficult comp with prior year pharma revenue of $18.7 million or 10% higher than the average pharma revenue per quarter in 2024. Adjusted gross profit improved by $4.6 million or 6% over prior year. Adjusted EBITDA was $10.7 million, down 2% from prior year, while delivering our eighth consecutive quarter of positive adjusted EBITDA. The decrease was due primarily to the acquisition of Pathline as the business is ramping. Excluding Pathline, adjusted EBITDA improved by $1.4 million to $12.3 million or 13% from prior year. Average revenue per clinical test increased by 2% to $461 from the prior year and increased sequentially from Q1, even with the lower AUP Pathline volume. Excluding Pathline, AUP grew 3% over prior year due to increased ordering of higher-value tests, including NGS and strategic reimbursement initiatives. As I noted on the first quarter call, we have successfully renegotiated several managed care agreements in the second quarter, which will positively impact revenue in the second half of 2025. Q2 results include a noncash impairment charge of $20 million associated with the upcoming replacement of our IVFL test with PanTracer liquid biopsy and the write-down of Trapelo and assets held for sale. While we remain focused on 2025, our full year -- our revised full year guidance reflects the challenges of the current pharma environment and its impact on customer demand, as well as the delay in launching PanTracer liquid biopsy. At the time of our first quarter earnings call, we believe that clinical would make up for the initially projected $7 million shortfall in pharma, but demand for services has proven to be weaker than anticipated. As a result, the $7 million gap will increase, and we no longer believe that clinical can make up the pharma services shortfall for 2025. For full year 2025, we now anticipate revenue of $720 million to $726 million, representing 9% to 10% growth for the year with adjusted EBITDA of $41 million to $44 million. The Pathline integration is on track and progressing well with the potential impact to adjusted EBITDA of negative $1 million for the remainder of the year. We remain well positioned to invest in our business and capitalize on the growth opportunities in our strategic plan. We significantly reduced our debt in the second quarter with the retirement of the $201 million convertible notes due in May out of our existing cash. Cash flow from operations in the second quarter was a positive $20 million, an improvement of $6 million or 44% over the prior year, and we ended the quarter with cash and marketable securities of $164 million. Our balance sheet has no near- term debt maturities, and we continue to balance capital deployment between organic growth investments, business development and improving operating efficiencies. Our balanced approach towards capital generation and allocation reflects our commitment to our strategic focus areas. Specifically, our investments will be focused on filling gaps in our broad menu, including ultrasensitive MRD, liquid biopsy and whole genome sequencing solutions. We have improved the financial health of our business dramatically over the last several years, and we continue to progress in Q2. We are focused on executing our plan to achieve long-term sustainable and profitable growth and delivering shareholder value. To illustrate our confidence in our strategy and path forward, I, along with Tony, Warren, and additional management team members as several -- as well as several directors on our Board recently purchased additional shares. Now I will hand it back to Tony to wrap up.

Thanks, Jeff. To recap, we have strong relationships in the community setting where 80% of cancer patients are treated, operational capacity and network footprint and financial discipline and flexibility to expand our reach and generate value for our patients and shareholders alike. We will remain guided by our strategic drivers and committed to our mission and vision while focusing on generating meaningful growth and enhancing value while improving patient care. Thank you for your continued interest in NeoGenomics. And now I'll pass it over to Kendra for questions.

Thanks, Tony. All right, Tom, let's go ahead and open the line for questions.

[Operator Instructions] And our first question this morning is coming from Andrew Brackmann from William Blair.

Tony, maybe to start on setting guidance. We've seen several updates on both near- and long-term guidance updates so far this year. This is yet another one. So from a high-level perspective, and now that you're 4 months into the CEO seat, can you maybe just sort of talk about the process and philosophy for setting guidance, maybe how that's changed? And I guess maybe even more pointed here, what are some of the things that you're committed to doing to rebuild credibility with the investor base?

Yes. Thanks, Andrew. I do appreciate the question. First off, I guess, what have been my learnings now that I've had the opportunity, as you say, to sit in the chair. I will tell you, there is a big difference in seeing the company at a 10,000-feet view as a director versus the opportunity to dig deep as a CEO. And I have had a significant amount of learning. I've had the opportunity to do deep dives with R&D, with our business development teams, with R&D operations and our commercial groups and with the management team as well to be able to construct, reconstruct, deconstruct the budgets and long-range plans to understand all of the key pieces that underpin that, Andrew. So that -- I certainly have a deeper understanding of that. I've had the opportunity to meet with a lot of our investors and get their own feedback. And I can tell you, they have not been shy about sharing their own thoughts with us and made it very clear that just hitting a guide is insufficient. That's the same as a miss. And we need to be more realistic, a more balanced approach to how we can fade the business. I've been told that it is absolutely appropriate to speak with confidence on the underpinnings of your core assumptions and to express other areas as upsides. So I think that was a great learning for me as well. So I take that very seriously to heart. I've had the opportunity as well to speak with a number of our partners and potential partners. At ASCO, for example, I could tell you that there have been a real inflood of opportunistic advances by companies to see if we can work together to leverage our strength to combine with theirs. And so it certainly has been a learning. As far as what do I need to do, I think I need to speak with confidence and be transparent with how we view the business and to share that openly with people. And the biggest thing, Andrew, we now need to deliver. We missed our revenue guide this quarter. It's unacceptable. We understand that and take responsibility for it. And now moving forward, we just have to hit and exceed our goals quarter-on-quarter. Does that help?

That's very helpful. Maybe your comments on talking about the underpinnings of core assumptions, maybe as it relates to 2025 guidance, can you maybe just talk about some of the levers towards the guide down? Maybe just bridge the prior guidance to this guidance in terms of kind of the key areas that you talked about?

Yes. I will focus primarily on 2 of them, Andrew. I mean, mix is always an issue with a company of our size with the portfolio of our breadth, right? So when you're trying to manage 500 products across a landscape, you are going to see subtle shifts in mix. So that's always an issue for us to manage. But I would say that there were probably 2 large areas that are reflected in the guide. First and foremost, the pharma side, the impact of the macro environment came at a speed that I don't think we fully accounted for relative to our original guide. The combination of tariffs with pricing challenges, with NIH funding declines, all of those things factored into an environment for our pharma and biotech customers that created uncertainty. And I think that, in large part, translated into a delay in projects or reassessment of projects and sometimes stopping of projects. And so I would tell you that, that is probably the single largest contributor to the change in guidance for the year, probably representing almost 2/3 of it. As I said in my opening comments as well, we made a conscious decision to leverage our PanTracer liquid biopsy EAP learnings. And by doing so, I'm glad we did it. I believe we end up with a better product profile. And I believe we took the right requirements to improve that product profile moving forward. But not having PanTracer in the portfolio in May as opposed to our opportunity to start the commercial launch tomorrow. We're excited by the launch tomorrow, but that is a 3-month delay, Andrew. And so that does affect our overall mix and revenue for the year. And then I guess maybe a final piece is we are quite proud of our NGS penetration rate. We did 23% growth for the month -- for the quarter, but it's still a little bit behind the 25%. And we acknowledge all those factors, I think, in the guide moving forward, not least of which was as well the feedback from some of our shareholders saying, speak with confidence, what can you deliver? And if there's opportunity for upside, then surprise us later.

Your next question is coming from Yuko Oku from Morgan Stanley.

Given the focus around rolling out the PanTracer lineup and NGS tests in general being a growth driver of the company, do you see opportunities for portfolio pruning? How do you balance being one-stop shop for your customers versus focusing on allocating your resources to the most profitable products?

I'm sorry, could you just repeat the last part?

How do you balance being one-stop shop for your customers versus allocating your resources to the most profitable products?

Okay. It's a great question. First, let's start with PanTracer liquid biopsy. As you say, we are looking forward to the launch tomorrow. We believe we have a very competitive product to bring to market. It's one that our customers have actually asked us for because it complements that our family of PanTracer products. It will be a comprehensive panel over 500 genes that will include TMB and MSI that guides immunotherapies. We've been able to lower our input requirements so that we get better collection methods and yielding strong -- very strong QNS profile. We've been able to support a turnaround time that we believe will be less than 7 days and think that factors into a pretty good value proposition for our customers. And as you say, we look to the depth of the portfolio. And we believe we have solid offerings, not just in the PanTracer liquid biopsy family of products, but across the spectrum of products. Warren, any comment?

Yes. Let me add to that. So first and foremost, I'd say that our broad portfolio is absolutely a strength. When we think about labs sending out their oncology testing, they're looking to consolidate vendors that they want to send their testing to. And this puts NeoGenomics in a very unique position that we're able to address most of their needs. Having said that, yes, our strategy is to protect our position on the diagnosis side, but invest significantly in therapy selection and MRD, which are the areas where we see faster growth, larger TAMs. So with that, we definitely see opportunities to simplify the portfolio, which we have done in 2025 and we'll continue to do for the rest of the year and into the future. But our strategy is to provide a holistic solution to our oncology physicians from a diagnosis perspective, therapy selection and MRD point of view.

And then I would say from an overall portfolio perspective, you should expect we're continuing to evaluate the whole portfolio. And as Warren said, it's an ongoing process of pruning and refining based upon customer needs.

Great. And then as a follow-up question, could you also provide us with an update regarding RaDaR RD litigation? I think there was a recent order on motion to expedite. What does it mean for the trial expected to occur, I think, in the October time frame?

Yes. First, relative to the litigation, again, you can appreciate this. I'm not going to go into detail nor members of the team with any ongoing litigation. What I can update you on is that the trial is slated for October. Either way, I can tell you, though, we are committed to the MRD space. As you've seen, we are partnering with Adaptive to bring forward a great MRD Heme product into the marketplace, and we're proud to do that. We get benefit from that by being in the marketplace and taking those learnings and the added benefit to the rest of our portfolio. We're going to continue to invest in our next-gen MRD. So that is built into our R&D plans moving forward. We have done our preparatory work behind the scenes. So we have completed and submitted our bridging study to MolDX. And we are doing all the prep work we need for launch. And so I will tell you that we are prepared and ready. Now recently, Natera has filed a motion for a bench trial. We opposed that motion. We believe that we have a constitutional right under the seventh amendment for jury trial. And the court has yet to rule on that motion. So I would tell you, stay tuned. You'll know when we know, but we are coming into this space, and we are committed to the space.

Your next question is coming from Subu Nambi from Guggenheim Securities.

This is Thomas VonDerVellen on for Subu. Just to start, can you get us comfortable with the second half ramp, specifically with NGS now that PanTracer was delayed a bit and also with the continued pharma pressures, where do you feel the guide is most aggressive still? And where is it most derisked?

I actually think that we have a much more confident and balanced guide in the second half. I would tell you the greatest risk to the guide was on the pharma side. And so we have further reduced the pharma business plan. And by the way, not just in revenue, we've also taken some hard decisions relative to the cost base associated with pharma as well. So I would tell you that was the largest risk to the plan. As far as the biggest growth drivers in the plan for the second half, as you know, we've invested in our selling force, and we monitor that very, very closely. We expect to see increased effectiveness and efficiency with that investment in the sales force to help us further penetrate the NGS segment. Certainly, PanTracer liquid biopsy plays a big role in the second half in addition to just the normal back half year increase that we see historically. The Adaptive partnership is also an opportunity for us in the second half of the year. And I would also tell you that we are well on plan with our Pathline integration. And that started first and foremost with just getting the integration correct, getting it done right and making sure that there were no hiccups along the way. But as you will recall, that was a more strategic value to us. And we want to see the opportunity to further drive share of our ongoing business in the second half of the year up into the Northeast. And so Beth and Warren on their commercial teams are focusing hard there. And then finally, we are working hard on interfaces with our customer base. We think that, that has an opportunity for us in the second half of the year as well because when those interfaces go live, you have a better opportunity for increased penetration because it just makes it so much easier for customers to do business across our portfolio. So thanks for the question.

And then just for my follow-up, last quarter, you talked about, I think it was 5 products meaningfully contributing to NGS revenue. Did you have a similar concentration this quarter? And can you talk about if you expect that to evolve at all over the balance of the year?

Yes. We -- thanks again for the follow-up. We do expect it to evolve. We expect it to evolve and increase. The 5 concentrated products that we spoke to, we've talked about their ability that they represented almost 21% of our clinical revenue. That has continued to grow. And we saw in this quarter, that's up to about 23%. And relative to the broader business, all of our NTS products are now -- have eclipsed about 30% of our total revenue. And so this is an important growth driver for us. We monitor it closely, and it's one of the biggest opportunities for us over the medium and long term as well. So thanks for the follow-up.

Your next question is coming from Mike Matson from Needham & Company.

So just want to clarify the comments on the long-range plan. So you're talking about double-digit growth now. So does that -- just to be clear, are you backing off the 12% to 13% target that you set earlier this year? And so you're expecting kind of 10% plus over the next few years?

Yes, Mike, thanks for the question. What I'm -- first off, we are not backing off of our long-range plan. But what I am trying to do, Mike, is create added transparency so that there is no ambiguity of what is in it and how I view the business. And so that's why I'm trying to drive for more clarity. In my conversations with investors, they ask for that because what's in, what's out and how do you get there from here was a big question for them. So let me once again just reiterate it, if you don't mind, so that everybody can be clear. I look at this as our base business today. What do we have in our bag to sell to bring to our customers now. That is a proven. I have it. That base business, in my mind, that is a 10% growth business over the planning period. So that is our anchor position. Now you've heard us talk time and time again, we are not standing still as we sit here today. We are investing. We're doing it responsibly, but we are investing in R&D. We do plan to have more products in therapy selection and MRD. And those opportunities create incremental value above that base plan, and I'm acknowledging that, that comes later in the cycle, right? That's -- there's a lot of things we can do. I can't compress the time continuum. And so those just come later in the cycle. And then the other area that we're not going to stand still on is business development. We believe that there are plenty of opportunities for us to supplement our portfolio. We have seen that they can add incremental growth into our business in top and bottom line performance, but I also acknowledge that they're lumpy. You can't predict the exact time of those. And so from my vantage point, the long-range plan starts with your anchor position of the 10% growth in our current portfolio. We build from there with business development and, of course, new product development. And that's the plan. I also want to just reemphasize that to me, the long-range plan is just that. It's a long-range plan. It is never intended to be a forecasting vehicle for any given year. And I plan to deemphasize these conversations around the long- range plan, just like our peers do. I'm going to focus our energies on our short-term delivery, what can we deliver quarter-over-quarter and in that given year and not be focusing our energies and discussion points around a long-range plan. Is that helpful?

Yes, that definitely makes a lot clear. And then just on the nonclinical business, I mean, given the steep declines we're seeing now, I mean, would it be possible to exit that business? Is there some kind of synergies with the clinical side? And then what would that -- how profitable is that part of the business? Is it maybe an issue where it's more profitable than the clinical side and then you'd be giving -- you'd be hitting the bottom line too hard if you were to exit it?

Yes. Thanks again for the follow-up, Mike. Are there synergies across the lines, the answer for the operations team is yes. There are opportunities for that. But I think the bigger question is, are we committed to the space, right? And I can tell you that we are. We do believe in the space. It is of strategic value to us. It provides the opportunity for us to identify and to validate biomarkers early. It provides the possibility in the development of companion diagnostics. It keeps us at the forefront of emerging technologies so that we can stay not just current, but a step ahead of where we might take our own activities. It also does play a role, Mike, in accelerating the launch of new products, right? You don't have the same reimbursement hurdles in that space that you might across other parts of the business. And so we believe in the pharma space over time that it does help create value, but I also need to be reflective of the short-term impact to that, and we have adjusted our revenue lines there. And I do not personally anticipate that these changes in the environment are going to subside anytime soon, and we reflected that in our business plan moving forward.

Yes. And I would add to that. I think we still have excess capacity in our footprint as well as continuing, as we've talked about, our LIMS integration, which will allow us to increase our operating efficiencies with our pharma business as well. We don't break it out separately now, but we used to break out advanced diagnostics previously in prior periods, and it had a lower margin profile overall than the company. But as we look at excess capacity, the business development and R&D opportunities, as Tony spoke about, and then the LIMS work, we still think it's going to be a viable business for us going forward, and we think there will be a plateauing out at some point in the future, which we can build upon from a growth perspective.

Your next question is coming from Mark Massaro from BTIG.

This is [indiscernible] [Vivian] on for Mark. So maybe just one on Pathline. Just help us understand how the contribution in the quarter was tracking relative to your internal expectations. And then I know you've cited an intended benefit of cross-selling the broader portfolio with Pathline customers in the past. So just curious how you're seeing that dynamic play out.

Sure. I'd be happy to start that, and Warren can jump in any time. As far as the integration and the intended results versus actual, we are right on plan with the Pathline integration. The revenues were right in line with our expectations. And so we feel very, very good about the shape of that acquisition and the shape of the business. As you rightfully say, it's not just a business benefit relative to Pathline alone, there was strategic value associated with the acquisition. We saw the opportunity to enhance our footprint and therefore, our speed of delivery to key customers in certain segments of our market in the Northeast. And so it is our plan to continue to drive the current Pathline business, but as well take advantage of our more in-depth portfolio and bring NGS products up and through into the Northeast with greater rigor and speed. That was always intended to take place in the latter half of this year with that benefit being more realized in 2026. And of course, we will do everything in our power to pull as much of that forward as possible. And I'll look to Warren, if you want to add some additional color.

Yes. Thanks, Tony. I think you covered most of the key points. I think one of the key elements for us to really enable this capability in the Northeast was to further validate tests within this lab. And that was always planned to take place in the second quarter. And again, just to remind everybody, we closed this acquisition in the early part of the second quarter as well. So we've actually concluded the validation requirements for these additional tests that we wanted to move into the Northeast to round out the portfolio that's required in that lab. And now we are actively addressing sort of these opportunities to drive additional share of wallet and pull-through. The sort of opportunity funnel looks robust and certainly expect to see many of those come to fruition in the second half of the year. And as Tony said, that would be an upside for us in the second half and certainly some that would drive material value for us in 2026 and beyond.

Your next question is coming from David Westenberg from Piper Sandler.

So I actually wanted to talk about the 10% volume growth, and that was organic, I believe. Can you talk about what that might mean for share gains versus the market? Can you give us any context to what historical volume growth is in the market? Help us really evaluate the overall strength in the business?

Well, I would say, first and foremost, as you rightfully note, the growth was 10% across our business. We have made good growth across all the various modalities. So we continue a storyline that while our focus has been in NGS and making sure that we grow that important segment of our business, in fact, across all of our modalities, we continue to make great progress, and we see share gains across all the modalities. And so it's quite a positive for us moving forward. As you also rightfully have seen in the earnings release, it's also record high volumes for us across the business. And so for us, we see the opportunity to continue to grow volume. We do see the opportunity to grow share in our key segments, and that is what we are focused in doing.

And I would say, if you look at it from a modality perspective, we're seeing growth rates depending on the modality in the 2% to 3% to 5% range. And I would say kind of across the board, we're growing significantly faster than that.

Maybe I want to build on that just from a commercial execution perspective. And I think the development from a volume perspective is testament to a strong commercial strategy well executed. And coming back to the fact that we have our territory business managers that are looking at the pathology business and the oncology sales specialists looking more at the community oncologists from a therapy selection point of view, that really drives towards providing a solution to these ordering physicians. And although we do prioritize certain products, it's very much around providing a holistic solution across their needs. And this is what's driving the incremental volume across all modalities. And we're seeing growth greater than market, as Jeff and Tony said, against each of the modalities. But we do over-index on NGS because of the desire to move to the right into therapy selection as well. And we do that through sort of incentive compensation and other focusing mechanisms. But it really is the testament of a strong commercial strategy being well executed that's seeing this volume growth across all modalities.

And I think seeing 23% NGS growth without our liquid biopsy product is, again, continuing to see very strong growth there, above- market growth there and now adding what we believe to be a very new and important product is going to help drive more growth in the back half of the year.

Perfect. And then as we -- I mean, I know you're not giving second -- 2026 guidance, but if you can maybe talk long term, Tony, about how you think about operating margins in '26 and beyond. Is there any kind of planning on growing EBITDA faster than revenue in the years out? Is that kind of the mission here? And then back to Jeff, can you talk about some of this cash flow and operating margin seasonality that you kind of see in the business? And I'll take it from there.

Well, I will obviously wait for '26 to talk about '26, which we will do in February. But to just give you a sense over the longer-term plan, do we still see that there is operating leverage for us as an organization? The answer to that is yes. We will continue to make the right investments in our operations sites. We have made a really good progress with the LIMS project, and we look forward to having a one common LIMS system, and we can retire 8 legacy systems. There are opportunities for us to do the same thing in a number of different areas through automation, through digital pathology. So we do expect that we can increase efficiencies and effectiveness in our margins, and that, in turn, will lead to solid growth over time. And we also believe that there are going to be some midterm opportunities for us that we'll talk about in more detail that we can create more value for the company. So we have a strong financial discipline embedded in the company. We're going to build on that, and we do see plenty of opportunities for us to continue to cost reduce, find efficiencies and improve margins.

Yes. And I would add to that, and I would still characterize we think we're in the early innings of really capitalizing on both the LIMS integration as well as investing in automation and really think we have an opportunity to drive operating efficiencies there. And then from a cash flow perspective, generally, Q1 is our biggest cash burn and that played out again this year, and we start building from there. So we had a very strong cash flow quarter. We're actually free cash flow positive this quarter. And as I said in my prepared remarks, cash flow from operations was up over 40% in the second quarter. We are still very focused on revenue cycle management and making sure we're collecting what we generate from a revenue perspective and expect that cash balance will build as the year progresses with the normal seasonality with the back half growth we're expecting that we've seen historically.

Your next question is coming from Dan Brennan from TD Securities.

Maybe just one to start on the nonclinical business. It's been a kind of continued weak spot for you. I think it was down -- I think you said 26% in the second quarter. I know you don't break out guidance, but just to ideally remove or minimize the risk that kind of more shortfalls here, kind of depressed results in the back half of the year and/or the stock, it is down 40%, 50%? Like how -- can you help us frame any sense of how we think about the back half of the year, kind of what's baked into the new guidance? Like if we punch in down 50%, we would get to the midpoint of your range, not changing our clinical assumptions. I'm just wondering if you can help us do that bridge.

Yes. I think on the pharma side, I would expect a similar performance as we had in the first half of the year. We generally see a little bit stronger performance in the fourth quarter in our data business, our ODS business. So I would expect that as well. But pretty consistent with the first half with some upside in our ODS business in the fourth quarter is how I'd characterize what we're contemplating.

Okay. And then on the PanTracer side, did you -- and I'm sorry if I missed this, did you give an update on where reimbursement stands? And I know you talked about you delayed the launch due to learning from the EAP. So could you share any insights from that?

Dan, what I would tell you is that we are in ongoing conversations with MolDx, and we will share the final outcomes of those. We are confident in our path forward towards reimbursement, and that's why we are launching tomorrow.

Got it. And anything on the learnings in terms of the EAP, Tony? And did you guys break out how to think about kind of what you've put in the contribution for the back half of the year? Ideally, it's kind of modest to give you room for beats, but just kind of wondering on those 2 factors.

Yes. We haven't given a specific forecast for PanTracer in the second half of the year. Relative to the learnings, Dan, I think we found that there was opportunity for us to improve the profile of the product. We're excited by it. We'll have a very low QNS profile. We have verified a really exciting turnaround time that our customers are going to welcome. And we believe that we have a very comprehensive test that we bring forward. And so for us, it was the right decision to take and we feel more confident about when PanTracer hits the market. But as far as specific ramp-ups, I don't think we're going to be talking about that directly.

Other than I would just add, it's a new product, so it will incorporate a new product ramp.

Yes. And Dan, maybe just adding to it, I think once we -- the sort of the revised EAP that we went live with [Fed] probably a month ago or so, the demand that we saw with the revised target product profile was significant and very encouraging in terms of what we expect to see post the commercial launch tomorrow.

Got it. And I know there was one question on MRD. I know you discussed Natera looking to have a jury trial. Could you just remind us, would you mind just kind of zooming out since the next quarter and the back half of the year, we're going to get some of these key events on your MRD strategy, whether or not you can kind of launch with your existing platform to move on. Just kind of could you just reframe how to think about the various outcomes as we move into the back half of the year on MRD?

Well, again, what I would tell you, there are some things that are more concrete than others, right? What we will definitely be doing in the second half of the year is our Adaptive partnership with Heme MRD. We are in the early days of a pilot with Adaptive. We want to make sure that the partnership is seamless to our customers and that we've tested everything end-to-end. So that is going to happen. We are working through those pilots now, and we look forward to a more complete launch when both companies are satisfied that our customers see this as a great partnership. And that should be closer to the back half of the year. Relative to the RaDaR litigation, I would tell you that right now, the trial is slated for October. I can't speculate on what the results will be or when they will be. I can tell you that we have done all the back office work in preparation to be able to launch. So our bridging work and everything has been submitted. So all of that is on track. I would remind everyone that we didn't have any of those RaDaR revenues in our guide nor in our plan. So if we are successful there, that represents upside. And another area that we are doing, Dan, we are investing in next-generation MRD with Andrew and his team. We said that this would be a year where we're really specking those out. '26 would be a year of more active product development, and we look forward to those market opportunities in '27 and beyond. So that's kind of what I can give to you relative to MRD landscape times.

Your next question is coming from Tycho Peterson from Jefferies.

This is [Lauren] on for Tycho. A quick one for me, going back to the NGS growth. You guys talked about how you achieved 23% regardless of the delay in the commercial launch with PanTracer. Could you talk a little bit about how much of that is being driven by test mix shift versus true market expansion and kind of how sustainable that cadence is into 2026?

The majority of it is true market expansion. I mean, naturally, there is a mix benefit, and I think it's common knowledge that the NGS has a higher AUP than the rest of our portfolio. But if we look at true sort of volume growth, that remains significantly higher than what we're experiencing from what we're seeing from a market growth perspective. And really, again, this comes back to the commercial strategy where we have our dedicated sales team of oncology sales specialists who spend the majority of their time focused on the sale of NGS-related products within the therapy selection part of the business. And again, we're gaining traction in this space, and this is really what's driving the share gains that we are seeing, and we believe the addition of PanTracer liquid as of tomorrow will further accentuate that.

Your next question is coming from Michael Ryskin from Bank of America.

I got just a couple of small follow-ups on topics that people touched on before. So hopefully, really rapid fire. One is on PanTracer, just kind of confirming that no change to your planned ramp or planned execution in the first couple of months or first couple of quarters out of the gate. Yes, there's a delay, but the plan going forward is the same and nothing has really changed on that.

Yes. From point of launch, the plan remains the same. But of course, that point of launch had experienced about a 3-month delay.

Okay. Okay. Just making sure. Then on the pharma services, I mean, I totally hear you on what you're seeing in the end market. And yes, not surprising given what we've seen elsewhere, but still the results have lagged some of the others in the space a little bit, and we just haven't seen the same extent of weakness and it is a little bit more protracted. So I was just wondering if you could comment on your competitive positioning there. It is a relatively crowded market, and there's more and more players offering some of these services. So could you just sort of analyze your portfolio and your offerings and maybe there's something there that you're missing on pharma services or maybe from the commercial side?

Yes. Relative to pharma, I think, as I had mentioned earlier, I think portfolio does play a role. Our inability to sell RaDaR certainly led to -- RaDaR 1.0 has certainly led to some of this falloff in revenue and our inability to have a kind of a launch point within those discussions, I think, is real. And so portfolio does have a role, and that's why we were excited to bring Paletrra into the marketplace. But Michael, we also recognize that these are long selling cycles. And so while there might be some early signs there that look encouraging, I don't believe that they're going to meaningfully impact our shape for the short term. And as you talk with other companies, yes, I would tell you that there will be differences by companies. A lot depends on what are the services that they are bringing forward. Some companies have CROs. Some companies do different types of mixes. I can only react to our portfolio. And in our portfolio, I see risk in that pharma business this year, and I don't anticipate that we're going to see any leveraging or any deleveraging of those issues for the remainder of this year and into 2026.

Okay. And then the last one, if I could squeeze one more in, would be on the cash balance and just sort of future use of cash. I know you used the $200 million intra-quarter to pay down the current part of the converts as you previously talked about, but you still got a sizable chunk of the convert going forward. And now you've got this revised fiscal year guide. I know there's a near-term versus long- term dynamic. Just talk us through cash balance going forward, just confidence in the run rate for the next couple of years as you get to that -- the remaining $350 million on the convert.

Yes. We expect that we'll be generating free cash flow next year still, and the cash balance will grow consistent with our earnings growth over the plan. So certainly, we have a lot of confidence that we will continue to delever as our earnings increase, and we'll be in a very strong position in the future to deal with the 2028 converts from a position of strength.

Your next question is coming from Mason Carrico from Stephens Inc.

Two for me here. One, it seems like Pathline may have outperformed slightly in the quarter. And sorry if I missed this in the first question, but could you update us on your expectations for Pathline revenue this year and whether the contribution built into guidance has changed at all?

Yes, we haven't -- I would say Pathline, I would say, performed slightly ahead of our initial expectations, but we haven't -- we're not changing the overall guidance for Pathline.

Got it. And then on the pharma side, how much visibility do you typically have in that business in terms of revenue flowing through? Is it a single quarter, 2 quarters? How has that visibility changed given the backdrop? And could you just talk to your confidence in that segment being adequately derisked this year?

Yes. I think I'll add to that. I think the -- it is a challenging space, especially with a big part of our business U.S.-based and lots of uncertainty with regards to patient enrollment within the U.S. for clinical trials, and that really limits the line of sight that we've got. So it's less than a quarter, believe it or not, in terms of you want a high degree of accuracy, and it rapidly erodes if you go beyond that. And I think that's why we've taken a pretty conservative or prudent approach to the forecast for the remainder of this year for the Pharma Services business.

Your next question is coming from Andrew Cooper from Raymond James.

A lot is already asked. So maybe just a little more kind of diving into the guidance math. I think, Tony, you talked about a $30 million revenue cut, about 2/3 or almost 2/3 from pharma. So there's an incremental $10 million or $12 million that's coming from -- that's coming from clinical, part presumably PanTracer, but I know that's not the full amount. So is there anything else explicit to think about in terms of that step back? Or is this, hey, we really just want to derisk. We want to make sure we're in a good spot as the second half of the year plays out?

Yes. I would say, Andrew, we certainly have heard and we want to make sure that we give you with confidence what we believe we can deliver. And so that does factor in. But I would tell you that the pharma, as you mentioned, rightfully so, the delay in PanTracer liquid biopsy, that does contribute to that remaining piece. And then there is a slight mix effect that also would be there. And I'll ask Jeff if he wants to add anything.

Yes. Just within NGS, the mix of testing between blood versus solid tumor can change from quarter-to-quarter. And so I think we're seeing growth with some lower modalities from the NGS side, lower growth modalities. So I think that's just that mix element. Hard to predict quarter-to-quarter, but with the overall growth growing 23%, I still think we're going to see good growth there, but the mix will impact the revenue as well as we play out the rest of the year.

Okay. And then maybe just lastly, I think Dan tried to ask on this, but can you give us sort of an explicit what the updated PanTracer LBx looks like relative to the initial product that you did in that first EAP? Is it the turnaround time that improved? Is it QNS? Is it both? And kind of how we think about -- are you matching what's out there competitively? Do you feel like this latest iteration puts you ahead? And if so, on what particular metrics?

Yes. So I'll build on that. I think there was a number of benefits. First of all, we were able to lower our sort of input threshold that allowed us to reduce the QNS TMP levels that we were experiencing. In addition to that, by optimizing the workflow, we're able to accelerate turnaround time. So we're able to offer a significant below the published turnaround time through the EAP, which was really encouraging. And we also got feedback from select customers through the EAP that we were picking up certain genes that were being missed by a number of sort of peers or competitors out in the marketplace. So really a lot of very positive insights that came from that. And as Tony said, we believe the 3-month delay is going to be well worth in the long run.

Your next question is coming from John Wilkin from Craig-Hallum.

I'll try and keep this really quick. But if my math is right, it looks like your volume per clinical, excluding NGS and excluding Pathline, actually accelerated a little bit in the quarter. So just wondering if you could talk at all about what's driving that, if there's anything underappreciated in that.

Again, I think it comes back to a commercial strategy that's being effectively executed, seeing the value of the commercial investments that we've made and some productivity ramps. We did speak about early in the first quarter that there was a few new client wins that we had recorded. And obviously, those have ramped through the last quarter or so. And that covers the entire portfolio that we are making available to us, which, again, I think speaks to the value of NeoGenomics and the breadth of portfolio.

Your next question is coming from Puneet Souda from Leerink.

So first one, could you elaborate a bit on the size of the oncology sales force now? And how do you -- what's your strategy in continuing to compete in that market? How much of the NGS sales is sort of coming from the oncologist channel versus the pathologist channel? Maybe just help us understand that and largely because the competition here is only rising when it comes to therapy selection. You have one competitor that raised capital in the public offering. You have liquid competitors that are now launching tissue and then there are existing incumbents there. So just given all the landscape of that market, what's your NGS growth longer term? And then could you elaborate on the oncology sales force side.

Warren, do you want to just talk a little bit about size? I would like to address the stickiness question.

Yes. I think -- so we have executed against exactly the plan that we had spoken about in late last year and beginning of this year, getting our sales team to roughly that 135 people and sort of 40% of those resources fall within the oncology sales specialist side of things. The greater majority of the growth that we're seeing actually is being driven by that sales team, so coming from the therapy selection side of the business. There is some that comes through the pathology channel, et cetera, but that's the minority portion. And actually, when we speak about these new products that contributed 23% of the business in Q2, the majority of that business, too, is coming from the OSS side of the business. So despite the increasing competitive landscape, we certainly continue to penetrate effectively, and we believe the sort of 25- or-so percent growth rate that we put out there still is very much attainable, especially when we launch PanTracer liquid tomorrow.

Yes. I'd just build on [Lauren's] point with -- you had mentioned that these are competitive markets and others have invested in those markets. And we are not naive to that. We truly appreciate that. The innovators do have a degree of stickiness because they were able to get into the market first. But I was at one of the recent conferences, and I reminded people that there are other ways to create stickiness, too. And that is we bring to the dance a broad portfolio. We meet customer needs across a number of different areas. We continue to invest in those relationships, and we continue to invest in making it easy to do business with NeoGenomics. And that also comes with a degree of stickiness. And so we respect our competitors. We respect their innovation, but we also are hungry to get into those segments. And we have demonstrated over time that if we have a competitive profile product that we bring to market, even if it lags in time, we have been able to sufficiently grow those businesses. And so we believe in the profile that we have with PanTracer and the PanTracer family and respect our competitors, but believe we can grow in that environment.

And then the focus on operational execution and turnaround time continuing to improve as well, I think, has allowed us to grow and retain market share.

Got it. That's helpful. And then on the OpEx side, if I could, could you clarify if you're expecting -- and I apologize if I missed this, if you're expecting any OpEx cuts in the guide for this year? And I don't know if you can talk about next year yet.

Yes. We're not talking about next year yet, Puneet. I think we continue to achieve operating efficiencies and expect, we'll see some operating efficiencies in the back half of the year. And I think there's -- we have, I'd say, a high focus on continuing to see improvements there.

This does conclude today's question-and-answer session. I would now like to turn the floor back to Tony

I would just like to thank everybody for joining us on the call. I do appreciate the direct questions and the opportunity to present our results and as well our direction moving forward. I would like to remind everyone, though, that we did do a pretty good job on that clinical side. We grew that business 16%. We had a record quarter for volumes, really exciting NGS growth rate, and we are poised to continue to drive performance in the second half of the year. And as Andrew opened the call, I will close it. It's up to us to now deliver quarter-on-quarter and regain that confidence in our delivery. So thank you for the time, and we look forward to other conversations.