Great. Thanks, everyone, for joining us. I'm Matt Sykes, the life sciences tools and diagnostics analyst at Goldman Sachs. I have the pleasure of having the senior management team from NeoGenomics here today. Chris Smith, the CEO, Jeff Sherman, the CFO, and Warren Stone, President of Clinical Services. Chris, Jeff, Warren, thank you very much for joining us today.
Yeah, thank you.
Thank you.
Maybe if we'll start out, Chris, and you guys can chime in as well. Just sort of set the stage in terms of talking about first quarter results and some of the trends you're seeing in the business and what your expectations are for the second half of this year.
Yeah. Look, it was a nice first quarter. We continued the momentum that we carried from Q4 and grew the business 17%. I think, two really highlights of it is Warren's group, which is really what I call our base or our core business. The clinical business was up 16%, and our pharma business was up 22%. I think, based on the momentum that we see in the business and some of the initiatives that we put in place, we raised guidance coming out of that. I think that showed a good indication, the faith of kind of this business and the growth trajectory going forward. I think we feel really good about the rest of the second half of this year. We launched a couple key products in Q1.
We launched our MRD product, which is RaDaR.
Mm-hmm.
We launched it initially into four indications, then we also launched an NGS solid tumor product with more than 500 genes. For us, that was really important because we've always kind of owned the heme side of NGS, but we're probably behind on the solid tumor. The NeoGenomics Comprehensive, which was a new product that we launched at the end of March, and so it's going well. I think we feel really good as we move into the second half.
I would just add from an earnings perspective, we continue to see, as we saw in Q4, just very good conversion of that revenue growth into adjusted EBIT. It's almost converted about 60% of the revenue growth on the bottom line and saw a significant improvement from Q1 of 2022 versus our performance in Q1 2023. I think not only are we getting the top-side growth, but we're managing the costs and seeing the pull-through on the bottom line.
Got it. At the Investor Day back in April, you highlighted a couple of key strategic priorities for midterm. It was profitability, the core acceleration of Advanced Diagnostics and value creation. Maybe give us an update on where you feel like... I know it was just April, it was a couple months ago.
Yeah, yeah. No.
We would love to kind of get an update from you in terms of those key priorities, where you feel you are.
We kind of said really what I would say for the next 12 to 24 months, really, these three areas that we thought were important, and one had been that we had lost growth in our core business or our clinical service business. How do we accelerate that growth but do it profitably? The second is that I think that from an advanced diagnostics, that's really where these new technologies lie, in R&D and the new innovations. We wanted to really start to make an impact there, obviously, it's about how do we get value creation. Maybe to start, Warren, since most of the stuff that sits in around accelerating that core business, do you wanna talk a little bit about what's happening in-
Sure
in clinical service side?
A couple of things. I think first and foremost, really established a commercial strategy that we've aligned the commercial organization to go out and execute again. That was first and foremost. We've done a fairly significant amount of hiring from a sales resource perspective. Traditionally, we've had a strong sales team focused, as Chris said, more on the heme and targeting hospitals, looking to expand there. Right now, we're probably at a 60/40 ratio, 60% of people targeting hospitals, 40% now in the community oncology space. Really building out that sales organization and with that investment from a resource point of view and leveraging the commercial strategy, focusing on disciplined execution. I think it's a combination of those three things that's really starting to drive momentum, and that's ultimately driving volume.
With our fixed cost leverage, it's starting to make the core business sort of return to some of its prior profitability. As we talked about in Q1, I mean, it was strength across the board in all modalities. We saw, you know, really above-market growth in all the modalities in Q1. We really did see some traction kind of building as we, you know, finished the quarter.
Staying in that, in that kind of that base business, I think when Warren talked about the field organization, historically, we've been pathology-focused or hospital, and now we're very unique, I think, compared to some of our competitors, in that we have a sales force focused on colleagues. Think of it more of as a hunter and then one that's really more relationship, you know, on the pathologist and hospital, more of a kind of a gatherer or a farmer. Bringing them together under one leadership team has really created a lot of synergies in the selling and going back and forth. You know, if you've seen one territory, you've seen one territory, and everyone was different.
Mm.
I think what we wanted to do is bring that together. I think we got traction. If you kind of pivot over to Advanced Diagnostics, that's where our pharma business sits. It's also where our informatics business sits, and we saw really great growth in both those businesses, some of that being set off with RaDaR. You know, we launched RaDaR probably a year earlier into the pharma side of the business and really being able to get good traction, but it's also now where these new innovations are sitting and then bringing things. We feel really good there. Jeff talked really on value creation. I mean, I think we saw operating efficiencies, which was really important, improvement on the gross margin and dropping about 60% of that revenue growth through.
The other thing is that's where we kind of think about things like turnaround time. If you think about this business, it really is a service business, and so we believe we got to win on customer experience, and so a lot of effort under this kind of creating value sits there on how do you win with the, with the customer, and it is things like turnaround times and making it simpler, easier to do business. We have a huge initiative in the company about making it easier to do business with NeoGenomics, and so I think feeling really good about the movement of there. I think the other thing in the quarter, it's really where we stabilized the leadership change. You go back to a year ago, you know, the three of us weren't here.
You know, I started late summer, you know, Jeff came in, and Warren really, you know, in Q4. I think getting that leadership team now to move together, and having quarters under our belt is making a big, big difference.
Just maybe following up on the, on the commercial, footprint, where do you feel you are today? Because I feel like on the gathering side, you had a lot of that in place. There might need to be some reshuffle.
Right
re-energizing it. On the hunter side, and particularly in the oncology, is sort of where you're kind of moving towards. How do you feel you're positioned today, either from a footprint standpoint or from a skill set standpoint, in order to kind of drive that growth?
Yeah, I'll kind of answer a little bit and then throw it over to Warren. If you think about, like, on the oncology side, I think one of the things that's helped us over the last quarter, we opened a new headcount to go hire people out of that sector, and we were able to hire people that knew the industry because of what had gone on with some of our competitors. I think we feel really good on the talent pool that we've been able to bring in the organization. I would say, when you think about the footprint, look, our goal is, by the end of the year, we'll be at about 100 reps, split 50/50.
You know, I think, and I'll let Warren talk to this in specific, but I think when you look at the effectiveness of a sales rep in this industry, I don't think it's in a very effective commercial industry.
Mm.
You know, we think that, as we go through 2024, just by driving improvements in the effectiveness of our field organization, we'll add approximately another 100 salespeople. We'll double the sales force without doubling it. Warren, do you want to talk a little bit about what you're doing to be able to do that, how we-
Yeah
improve that from in the mid-20s into the 50s?
Maybe just to reemphasize a few points there. First and foremost, the investment that we made on the oncology space was, it was truly an investment. We didn't repurpose internal resources. We went out and recruited people with that skill set in mind, and as Chris said, there was a fair amount of opportunity in the market based on some of the actions that our peers had taken. We really looked to acquire that hunter mentality with an oncology background, which has really helped us accelerate the onboarding process really nicely. That's encouraging. Looking to get to the 50/50 split by the end of the year, as Chris said.
One of the real opportunities is taking lessons from a sales and commercial execution perspective that lie within sort of adjacent industries, where I'd say the effectiveness from a commercial execution is much stronger by using predictive analytics, by using CRMs more effectively, by using leading indicators and vulnerability indexes to understand what's happening within the dynamics of your customers, so that we could really transform the effectiveness of the 100 people that we'll have by the end of the year. We feel we have the opportunity, through investments in back-office functions, de-burdening our sellers with certain activities and investing in tools and in infrastructure, we could probably double the productivity of our 100 salespeople, so they could effectively act like 200 people.
That's really one of our focuses and using a lot of the sort of best practices that come from tech, life science tools to be able to do that. A couple of pilots that we've run have shown really strong responsiveness from customers, particularly in the oncology space.
Maybe talk a little bit about You said that you want to make things easier for your customers, and NGS is a relatively new initiative for you. How do you change that perception in the marketplace of NeoGenomics? You mentioned all-new management team. There's probably a lot of coordination had to take place. How do you feel like you are changing that perception in the market, and what's sort of the timeframe you give in terms of how you can kind of change that impact on customers?
Yeah, I think there's two things you kind of brought up, kind of changing the perception, but also how do you improve the customer experience? Look, I think we were a turnaround. I think people that know NeoGenomics know it was a turnaround story, and I think you have to start with people and culture. I think, you know, one thing is that the people that work in Neo are very mission-driven, and I think we had kind of lost that focus on the patient. I would say that's been a 180-degree turn in the company. You can no longer find our share price anywhere in the company, but you can find every single day how many patients that we helped. I think that has brought a lift in the step of our team.
If you're in the finance group doing an accounts payable, look, you could go do that anywhere, but you really probably ended up at Neo because you also wanted to make an impact on patients' lives, and I think we focused a lot on trying to embrace that. I think that starts to translate out into the marketplace and the way that we think about the business, that, look, if we do what's right for the patient, we're ultimately going to do what's right for our company, which is then going to be ultimately what's right for the shareholder. I think that was a shift.
Along those lines, though, I would say that, when we talk about making it easier, this thing around customer experience, look, we were behind on turnaround time, and it's hard to say you're going to win in a service business when you're behind on turnaround time. Really through Q3, Q4, and Q1, it was to get that operating efficiencies back so we could beat a promise date. I think the way that we talk about it, if your dad had cancer and I told you I'd give you a result in 10 days, and I give it to you in 12 days, that's a huge problem. I mean, underpromise and overdeliver. Instead of 10 days, let's deliver that turnaround time in 9 days.
I think that's kind of at the heart, but it comes down to this culture and having this kind of servant mentality to the patients that we serve. Look, it'd be great to get their feedback as well, but I think that has been the process that everybody we've brought in, I think we have a saying that, "Look, we're going to hire for capability, but we first hire for character." I think that's making a difference inside the organization.
I'll build on that. I think the culture aspect that Chris spoke about is fundamental. When we launched our pan-cancer, you know, comprehensive solution earlier this year, we didn't just launch a test. We actually launched an entire solution for the community oncologists, which came with a whole new ordering web-based platform, which was really designed and through ethnographic studies with oncologists to really align to what they wanted in an ordering platform, which also allowed for decision support in terms of what tests to order. It allowed oncologists to understand what kind of reimbursement is this patient got for this test and what kind of out-of-pocket expenses are there. It also allowed for an interactive results view of reports.
We didn't just launch a test, we launched a solution, which has significantly streamlined the ordering process for that, whether that be the M.A., the P.A., or the oncologist themselves are potentially requisitioning this test. We understand that as we move into the community oncology space, we need to reposition slightly versus how we position ourselves to the pathologist or the hospital space.
Maybe moving towards the NGS portfolio, I think last quarter you announced 3 new tests, and I know we're very early innings here, but maybe talk about, 1, how these new offerings fit into the overall NGS portfolio, and then any early customer feedback that you're getting on that?
Yeah. Yeah, absolutely. It was, all of those tests were launched in the 1st quarter, and actually late in the 1st quarter. I would say there was no revenue that we would speak to from a 1st-quarter performance point of view. One of those were a heme NGS. The others were solid tumor. Obviously, really looking to confirm our position as market leader from a heme perspective, from a myeloma point of view. Then the other three, which included RaDaR, were on the solid tumor side of things. I'd say, looking forward now and understanding feedback from customers, it's been overwhelmingly positive in terms of what they're seeing from a results perspective, from an experience point of view.
Right now, if we look at the performance relative to our internal forecast, I'd say I'm really satisfied in terms of how those NGS products that we launched earlier this year are performing thus far.
If you think about the NGS portfolio, I mean, if you look at kind of NeoGenomics, our view was, look, we should be growing at or above market. If you think about some of these old tests that have been around, those markets are growing anywhere from 1%-4%. One of the things we kind of publicly said is that, look, we've got to grow greater than 20% every quarter in NGS, 'cause that will accelerate us to get at or above market. In the first quarter, we grew well beyond 20% even before we launched those products. I think that's one of the things that we're talking about publicly. Look, you should judge us on, can we grow that NGS business significantly faster than where market is?
'Cause if we are doing that, then that means we're growing faster than the market. That's been a big initiative inside the company, and one thing these new oncology reps are helping us do.
Shifting to RaDaR, you know, kind of made it fully available to U.S. clinicians last quarter. You had mentioned biopharma had been open. There's a number of indications. Maybe talk about sort of the value proposition of RaDaR, and what differentiates this test versus the competition. I think we all know it's a very large market.
Yeah.
There's plenty of room, but there's also probably, too much discussion about the competitive environment before we are today.
Yeah.
We'd love to hear kind of what the value proposition is for RaDaR.
Yeah, look, I, as you probably know, I mean, a lot of people are talking about a $20 billion market-
Yeah
... less than 1% penetrated. Look, for us, I think there was a lot of discussion on what to do with that product. Before we had started, and right kind of as we were acquiring that business in Inivata, they were moving towards bringing out colorectal 'cause that had been really the entrée of the competitor in front of us, and we really didn't have a lot of clinical data.
Mm-hmm.
I think that was number one, is we didn't have a lot of clinical data when we submitted to MolDX. The second thing is that it's not a highly sensitive cancer state. It's pretty easy. It sheds a lot, so you can pick up cancer cells relatively, and probably not the ideal. Our product works great there, but not as differentiated as you look at more sensitive cancers like breast or lung or head and neck. As we launched the product and we were having kind of discussions, and this really started with the CHIRP data that Harvard presented at ASCO a year ago, that just talked about-
Mm-hmm
. the sensitivity of that test in breast cancer. Look, we're about 10 times more sensitive than the other product that's really commercially available on the market. So we wanted to launch 'cause we wanted to get early adopters' experience and to get feedback before we even had MolDX approval. We did submit to MolDX. It's under review right now for breast cancer, which we believe is one of the indications where we think we'll stand out. I think that was kind of the first place, but the second place was, is that I think this industry has always thought you got to get Medicare or-
Mm
or a MolDX approval before you can launch. Look, we've had great conversations with commercial payers; is they're interested. I think when you get to, is this really this big of an industry? I think it's the next step is showing clinical utility. Yes, I understand, you know, where we are from a, from a cancer recurrence perspective, but what does that mean? That's where I would say all the new data is gonna be going, moving forward, is showing what that clinical utility is. I would say, look, where we differentiate ourselves is really highly sensitive cancers, and I think being able to manage the relationships we've already built with the pathologist.
Because we're tissue informed, you have to get the block of tissue, and our relationships are with the pathologist, and that's where that's gonna come from. We think ultimately that will be a huge advantage. Having our two field organizations reporting to one, is that we have the relationships there, unlike, again, some of our competitors that are very oncology-focused and not really pathology-focused. Those would be a couple key places.
Just talking about data, I think you talked about the PENELOPE-B study in breast at ASCO. There's also the Lima study in lung. Maybe talk about some of the data that you've shown there and how that can differentiate you versus competition.
Yeah, we were just talking about-
Yeah.
Well, you wanna talk about ASCO and kind of just how some of the papers that were presented?
We presented seven papers at ASCO, all very, very favorably received in terms of the presentations, and actually created some really good groundswell, I'd say, amongst the participants at ASCO, and really substantiating exactly what Chris has just said. It's really, for us, it's about the sensitivity. That is the difference between us and a lot of the competition that we have out there. It's clear that this is still a market that's developing. There's still a lot of discussion around the utility of this and what one does when one identifies circulating tumor DNA, et cetera.
Yeah, the key is studies, and then we continue to do further studies to provide this data and ensure that, you know, we can provide physicians and oncologists with actionable outcomes when they do get a result.
Do you wanna talk about that conversation you're having?
you know, chemotherapy.
Yes, I mean.
You do adjuvant therapy?
Yeah, we were having a conversation with two actually breast surgeons and talking about what stage you want to use, where you could use MRD and RaDaR in particular, and so neoadjuvant, adjuvant, and then obviously surveillance. One of the discussions was, you know, could you use RaDaR in an adjuvant setting? You've obviously done an operation, a procedure at that particular point, and really the discussion boiled down to, well, you know, why on earth would you use RaDaR in an adjuvant setting? You're giving chemotherapy. The question was, well, why are you giving chemotherapy? It was simply said, "Well, because there's likely to be circulating tumor DNA." Really the question was, well, there's likely to be, but wouldn't you like to know?
Why give a patient chemotherapy if they didn't need to have chemotherapy? 'Cause that would significantly affect the sort of outcomes of that particular person's life moving forward. It really became a robust debate at ASCO in terms of, okay, there's a utility in an adjuvant setting now, because, you know, it's tradition for us to just to prescribe chemo because that's what we've done. A very simple test, especially if you've already done the fingerprint from the solid tumor, you could get the results in days, and you could choose to potentially stop doing chemo much sooner than you would previously. It can really affect patient outcomes by using this even in an adjuvant setting, which is sort of new thought.
A lot of discussion was around neoadjuvant. Obviously in the surveillance is where, a lot of the discussion has been. Even in the adjuvant setting, we're starting to see more and more utility for the solution.
Obviously early days in the, in the disease state, and I think people are gonna learn a lot more about it. No, I think having the advantage of having access to that tissue.
Yeah
is gonna be a big, I think, a big advantage for us.
It's critical.
In shifting to the biopharma business, you talked a little bit about the strong results in the quarter. There's always been a lot of discussion about end market demand health, particularly as it relates to emerging biotech. I think in the quarter, you said that you're gonna be able to offset that with other areas of your business. Maybe talk about the biopharma business as it stands today, maybe any changes or improvements you made to that business, and how you've kind of refocused that business and how you see the growth trajectory playing out in terms of the end market demand.
I'd say there were several changes that happened. Vishal Sikri, who runs that business, isn't here today, but I think we came in and we kind of evaluated. There were a couple things. One was we had over 700 projects, and half of those projects were less than $10,000. While in our informatics business, we're really with the big pharma companies. If you look at the top 30 pharma companies that do about $150 billion a year in R&D, we probably weren't as strong there as we wanted to be on the pharma side. A lot of time on trying to expand into that top 30, and I think that's bode incredibly well for us on studies that we were able to turn, I think, pretty quick.
The second thing of those things, we were losing money on.
Mm.
A lot of those. I think there wasn't a focus on running that business properly. I think there was a conscious decision, whether it was pricing strategies or the ability to hold from accountability perspective, and I think that shifted really as we moved from Q3 into Q4. The last one was we used to pay on bookings, and so there was this whole thing from a sales perspective about getting bookings, even if that revenue was never captured. We pivoted how we compensate the field organization on the pharma side. It's almost like what we did on the clinical side. We used to pay on base business, now we pay incentivized on growth. I think changing some of those comp structures and all three of those things, I think have started to add a benefit for us.
Like I said, you know, we grew beyond 20% for us in the quarter with pharma, which was great. I would say that, you know, bookings look incredibly good going forward, I think as a business, I think being able to reposition that business while you're in the middle of it, was a positive that the team was able to do.
We also focused on the cost side as well.
Yes.
Some of the cost optimization we did in Q1 was focused on the pharma business and making sure it was completely integrated into the company. Just helping the overall profitability of the pharma business. I remember back before you guys joined, there was a slowing backlog conversion within the biopharma business, and some of that might have had to do with the sort of composition of the different projects that you had going on. Maybe talk about how you addressed that or kind of changed the business. You know, to either shorten that time or just simply change the type of customers and projects you're bringing on.
I think it kind of goes back to, back to the, I think, signing up two things. Number one, signing agreements that really aren't gonna be profitable or even if they're short term, they're low value. I think the second thing was the way that I think we were compensating. Some of that probably was not ever gonna be recognized. I think one of the things we went away from, look, bookings don't make sense. If we're gonna get revenue five years from now, and that makes sense internally, it makes sense, but when you're reporting bookings, you can't put them in the bank. I think that's why we started really focusing more on revenue. Now, we still do incentivize some on bookings, but it's been this big pivot.
Jeff, maybe focusing on some of the financial areas. I mean, one thing that I kind of want to tie into financials that you talked about earlier that I think is important driver is just turnaround time. Improving turnaround time sometimes takes investment to do it, but the results of which probably create additional operating leverage as well. Could you maybe talk about sort of how you're balancing, you know, improving the logistics and investing to improve that turnaround time without sort of, you know, changing your sort of path to profitability goals and everything else that you're trying to manage?
Yeah, it's another area where we had a new leader join in December, Melody Harris, who's over our enterprise operations, and it's really about how do we optimize, you know, our lab operations, which includes logistics, and this includes automation. As we talked about some of the investments we were making as a result of some of the cost savings things we did in Q1, certainly automation in our lab operations is a focus. I think as we look at how we approach-
you know, lab operations, how do we approach where we're doing tests, our cost profiles, all that is kind of encompassed in what Melody is working on. I'd say it's a work in progress. You know, she's been here 6 months, you know, 5, 6 months now. We've got some other team members helping to focus on that. As we go forward, we're gonna continue to make investments in technology and in automation, and we do think that's gonna help increase productivity and increase effectiveness in getting results on. I would say from an investment standpoint, clearly we have baked into our guidance for the year, what we think we need to invest to make that happen.
As we're seeing, you know, good strong volume growth, we're still having to manage that increased growth and try to get those productivity enhancements. I'd say it's a work in progress, but I think we have a good plan how to continue to optimize and capitalize on those investments and really drive increased productivity.
Some of it was also level loading. I mean, if you think about our business.
Yeah
... we have a large lab in Orange County, a large lab in Fort Myers, a large lab in Houston, and then with the Inivata acquisition, we bought a lab in Raleigh, and some of that also was getting closer to the customer on turnaround time. Instead of doing a test for an East Coast customer out on the West Coast, moving that... Look, you kinda think it's silly, but you save a day and you save a freight in a FedEx turnaround. It's improving profitability, it's improving turnaround time. I think there's a lot of blocking and tackling that was done. A lot of it was done through this program that we really kinda stopped talking about, which was Catalyst. It was started last summer, which was these initiatives focused on reducing cost, but it was really about improving operating efficiency.
It didn't take huge capital projects. It took very specific rifle shot, focus, and effort to come in and improve it. When we started doing that, it enhanced turnaround time, but it also started to enhance the profitability of the business. Some of it was, again, I come back to blocking and tackling, things that you could do.
Related to this discussion, and you might have addressed a lot of it previously, but, you know, I remember back to, you know, prior to you joining, some of the issues that the company had was a fixed cost base that was quite high. As kind of COVID impacted revenue, you started getting this negative operating leverage.
Mm-hmm.
Some of it had to do with probably consolidating the lab footprint. Also maybe talk about some of the changes you've made to the fixed cost base, because I do think that hasn't been talked about enough, and I just wonder, as growth continues to accelerate, are we gonna get some, you know, surprises in terms of people underestimating the operating leverage?
Yeah
that's in this business today versus what it was before?
I think, look, easy things, like, for example, we had a lab in China, a lab in Singapore, and a lab in rural Switzerland, that really we had very little volume going through them. So we made the decision to close those labs. I think the other thing was we had never really integrated. We'd done, you know, four acquisitions over a five-year period, and we had not integrated back office functions. Things continued to run. Third one was Inivata. It was a business that we acquired, that was burning $50 million a year of cash. There was no discipline put in to try to integrate that. Look, in the first quarter, we announced that we took out $25 million of annualized costs.
It ended up being closer to $30 million of annualized costs, part of that was just making some tough decisions that probably needed to be made, you know, prior. I think that, you know, the company went through a lot of transformation going into COVID and coming out of COVID, and then bought Inivata and just never right-sized the business. I think that, you know, closing some of these labs, I think bringing more discipline and accountability into the organization - I mean, we believe a lot in empowerment, but with accountability, I think, and holding, you know, driving to certain metrics, I think, has made a huge difference. We don't disagree.
We think there continues to be a lot of runway on the leverage of the business to get back to or even potentially beyond the profitability that the company was back in the years like 2018.
I think we can get operating leverage on the gross profit line as well as the adjusted EBITDA line as well. Clearly, we went through a period of time where, you know, our OpEx was growing faster than revenues. We've really stopped that completely and reversed that and are getting operating leverage. It's operating leverage on the gross margin line and on the adjusted EBITDA line. That, that top line growth will help, and if we can manage the expenses at a much slower pace, we're gonna get that operating leverage. That, that focus is the balanced approach. It isn't just revenue growth for the sake of revenue growth. It's revenue growth that actually drives profitability on a long-term basis.
We start talking about long-term sustainable growth, how do you keep brick on brick and.
I ask the unfair follow-up question is, like, as you're managing expenses, how are you gonna outgrow the market? Like, balancing that equation.
Yeah
is hard, but, how do you guys kinda see that?
I think commercial optimization is a huge one. I think, again, if you come back to an industry that has not... I don't think it's as sophisticated from a sales commercialization perspective or as optimization as other industries, and that would be one. I think technology. So one of the things I think for us, sometimes it's not how much you spend on R&D, it's what you're spending it on. I think we've changed our approach on the way that we're looking at new innovations to bring them to market and... I think those two were huge. For us, it's about how you continue to like, we're way behind, I think, on automation in the lab. As we bring more and more automation in, it improves the profitability.
This winning begets winning, I think, and that's important.
If I could just build on that, Chris, I think one of the things that excites me, coming back to a turnaround time, I think we're in a fortunate position that our turnaround times are very competitive, feedback we get from our customers. If we look at our labs today, and particularly our primary labs here in California and back in Florida, not highly automated yet. We have a lot of leverage in terms of investment into automation that's gonna drive a lot of leverage. Yes, there's investment upfront, but that's strategic, where we know that we're gonna get a fantastic return by making those investments. It's gonna drive capacity, it'll drive customer experience, and it will drive leverage. Sort of some obvious investment opportunities.
I think people underestimate this customer experience in this business. It's kind of funny, when Warren and I start, we go out and see customers because we're not happy with where our service level is, and what you find is no one's good at it. Right? It's kind of like, you know, if you stay at a Holiday Inn, and they ask you where the bathroom is, they tell you it's. Take a right, and take a left, and cross the pool. If you go to The Ritz-Carlton, they walk you to the restroom.
Yeah.
I think it's that mentality that you have to bring that every single day, and it's shocking how receptive customers are to it, 'cause they wanna do business with us. We've been around a long time. It's a great franchise. I think those things play out over the long term.
Got it. Jeff, I think margins came in last quarter, around 40% or so on the gross margin side. Can you maybe talk us through sort of the dynamic phasing for the rest of the year in terms of margins, and maybe if you have a view, sort of what you think the long-term gross margin that this business can support?
Yeah, I mean, we expect revenue growth to continue throughout the year, you know, on a fairly consistent pace, and we expect margins to grow with that. We didn't necessarily put a target out there on the gross margin side. We did say in our Investor Day that we thought we could get to the company's historical adjusted EBITDA margins by 2026, and we'll expect to see improvement, you know, over the next couple of years. The RaDaR business upside would be on top of that, would be incremental to that. I think we have a good platform, continuing to grow the business, get operating leverage, you know, see the company turn a positive adjusted EBITDA.
We also said we'd be positive adjusted EBITDA in 2024, so I think we're obviously, you know, getting very close to that point, see that happening and building on that by continuing to see, you know, market-level growth, continuing to see growth in the pharma business, Advanced Diagnostics, and then getting that operating leverage. We really see a formula of doing that and really starting to produce cash flow in 2025. By 2026, we think we can get back to those historical-
Mid-teens
adjusted EBITDA margins in the mid-teens.
We did also say in Investor Day, we'd probably get 100 points, basis points each half on the gross margin. We think, for long term, that we can keep driving that improvement.
Just on the balance sheet, talk a little bit how you feel about it right now in terms of your ability to get to that, the path to profitability and how you're thinking about capital deployment?
Yeah, we exited, you know, the quarter with over $400 million in cash. You know, I had the benefit of inheriting a very good balance sheet. We've got about $200 million of converts coming due in 2025 at a 1.25% rate and another $330+ million coming due in 2028 with a 25 basis point rate. We've got a very good capital structure today. We start producing positive free cash flow in 2025. I think we'll be in a very strong position to have the flexibility to do what we need to do, whether that's continuing to invest in the business, looking at opportunistic opportunities for investments.
I think from a balance sheet perspective, we're have a great, you know, great amounts of liquidity today. The performance continues to improve. We'll be starting to add to liquidity starting in 2025, and we'll be well-positioned to continue to invest in the business and really look at opportunities from there.
Got it. Maybe the time we have left, Chris, I mean, we got to know each other during the Ortho Clinical-
Yeah
days, and one thing I always appreciate about you is sort of the under-promising and over-delivering. If you could kind of pinpoint what you think is still misunderstood about NeoGenomics and what you want investors to kind of understand about, one, the progress you've made, but two, sort of how you're gonna, you know, persistently outgrow the market.
Yeah, look, I think one is that first one you mentioned. I think whether you're a sales rep or, you know, whether you're a CEO, I think it's important to underpromise and overdeliver. I think that builds long-term sustainable growth. I think that's one. I think people underappreciate the franchise of NeoGenomics and the importance of the full array of tests. You know, I think the market's been very drawn to NGS, or now they're talking about MRD, but the number of t-tests that oncologists and pathologists run is significant, and I think that gives us an advantage in the marketplace, and I think that's been probably underappreciated. I think the other thing is that the bones of this business is still was still very good. It was an execution play. It wasn't that it was a terrible strategy.
It was basically blocking and tackling, and I think that probably, at times, was. That's why I think we were able to do the turnaround pretty quickly, because a lot of the bones of the business that were there were incredibly valuable. It was just about, how do we focus on the, you know, I call it the chosen few. You can't be all things to all people, and that's, I think, is paying off.
I would just add all that on top of the strong financial profile.
Yeah
and returning to profitability very, in a very near term, will give us the opportunity to continue to invest and be opportunistic, you know, in a marketplace, where there's others that may be challenged on that front.
Great. Well, with that, we're out of time.
Thank you.
But Chris-
Thanks for the time, thank you.