NeoGenomics Q1 2025 Earnings Report

NeoGenomics EPS Results

• Actual EPS: -$0.08
• Consensus EPS: -$0.02
• Beat/Miss: Missed by -$0.06
• One Year Ago EPS: -$0.02

NeoGenomics Revenue Results

• Actual Revenue: $168.04 million
• Expected Revenue: $171.38 million
• Beat/Miss: Missed by -$3.34 million
• YoY Revenue Growth: +7.60%

NeoGenomics Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, April 29, 2025
• Conference Call Time: 8:30AM ET

NeoGenomics (NASDAQ:NEO) is a provider of cancer-focused diagnostic testing and contract research services. The company operates clinical laboratories that support physicians, hospitals and other healthcare organizations with information used to help diagnose, classify and monitor cancer.

Its testing services include anatomic pathology, immunohistochemistry, flow cytometry, cytogenetics, fluorescence in situ hybridization, molecular testing and next-generation sequencing. NeoGenomics also provides biopharmaceutical companies with clinical trial testing, central laboratory services, biomarker development and other research services intended to support the development of oncology therapies and companion diagnostics.

Founded in 1999, NeoGenomics serves healthcare providers and pharmaceutical and biotechnology customers primarily in the United States, with additional capabilities supporting international clinical research programs. The company is headquartered in Fort Myers, Florida, and has expanded its laboratory and service network through organic growth and acquisitions. Chris Smith serves as the company's president and chief executive officer.

NeoGenomics Q1 2025 Earnings Call Transcript

Key Takeaways

• First quarter revenue of $168 million, up 8% YoY, with adjusted EBITDA of $7.1 million (+102%) driving a raised 2025 revenue guide while reaffirming EBITDA expectations.
• Clinical test volumes grew 8% YoY and NGS revenue rose 18%, with five new NGS products now comprising 22% of clinical revenue and a target of 25% annual NGS growth.
• Acquisition of Pathline establishes a Northeast lab footprint, adds $12–14 million in 2025 revenue and, despite a near-term EBITDA drag, is expected to deliver positive adjusted EBITDA and synergies starting in 2026.
• Non-clinical (pharma/biotech) revenue declined ~16% in Q1 due to trade/tariff headwinds, potential NIH funding cuts and completed trials, with a full-year drop anticipated.
• Preparing to launch PanTRACER liquid biopsy under an early access program later this quarter, upgrading the PanTRACER tissue panel and completing analytical validation of RADAR 1.1 for next-gen MRD planning in 2027.

Presentation

[Operator]

Greetings, and welcome to the NeoGenomics First Quarter 2025 conference call. At this time, all participants are on a listen-only mode, and the question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Kendra Sweeney, VP of Investor Relations. Kendra, you may begin.

[Kendra Sweeney, VP of Investor Relations at NeoGenomics]

Thank you, Ali. Good morning, everyone, and welcome to the NeoGenomics First Quarter 2025 financial results call. With me today to discuss the results are Tony Zook, Chief Executive Officer, Jeff Sherman, Chief Financial Officer, Warren Stone, President and Chief Operating Officer, and Andrew Lukowiak, Chief Innovation Officer. Additional members of the management team are available for Q&A, including Kareem Saad, Head of Strategy and Transformation, Ali Olivo, General Counsel and Head of Business Development, and Dr. Nate Montgomery, VP of Clinical Services. This call is being simultaneously webcast, and we will be referring to a slide presentation that has been posted to the Investors tab on our website at ir.neogenomics.com. During this call, we will make forward-looking statements regarding our future performance. We caution you that actual events or results could differ materially.

[Kendra Sweeney, VP of Investor Relations at NeoGenomics]

These forward-looking statements made during this call speak only as of the original date of this call, and we undertake no obligation to update or revise any of these statements. Please refer to our most recent Forms 10-K, 10-Q, and 8-K we filed with the SEC to identify important risks and other factors that may cause our actual results to differ from the forward-looking statements. During this call, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. The non-GAAP financial measures presented should not be considered an alternative to the financial measures required by GAAP and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measures in a table available in the press release we issued this morning.

[Kendra Sweeney, VP of Investor Relations at NeoGenomics]

I will now turn the call over to Tony Zook, Chief Executive Officer of NeoGenomics.

[Tony Zook, CEO at NeoGenomics]

Thanks, Kendra. Good morning, everyone, and thank you for joining us today. On today's call, we'll discuss the highlights of our first quarter financial results and provide an update on our key business growth drivers. Before we discuss our financials, I want to thank our teammates for their unyielding commitment to our mission and their hard work throughout the quarter. Our profound mission-driven culture is what attracted me to NeoGenomics, and it's what drives me and our 2,400 teammates every day. Since officially becoming CEO on April 1, I've met with shareholders, our teammates in the labs, and our sales force in the field to gain a deeper understanding of our business. Many shareholders I've met over the last few weeks have asked, under my tenure, what stays the same and what changes?

[Tony Zook, CEO at NeoGenomics]

First and foremost, Neo's unique, patient-centric culture is what motivated me to join the board a few years ago, and I believe it will continue to propel this company forward. The things that have been working, our commitment to cancer patients served in the community setting, and financial discipline across the company stay the same. As we enter the next phase of growth, we will dedicate more resources to innovation through research and development, business development, and commercialization of new products to provide patients with more options for their care while expanding our market reach. I believe that Neo has a tremendous opportunity to further capitalize on our position as a leader in oncology solutions by offering a broad test menu that serves cancer patients and providers where they are, with a focus on the community setting.

[Tony Zook, CEO at NeoGenomics]

By most industry estimates, 80% of all cancer patients choose to be treated in the community setting, where they can recover in the comfort of their homes, surrounded by their loved ones and trusted doctors. Our deep relationships with community hospitals and oncologists provide us with a competitive advantage and a responsibility to deliver accurate results quickly to inform treatment decisions. We've taken steps to set our organization up for greater success, including the alignment of our commercial and operations teams under the leadership of Warren Stone, who's been elevated to the role of President and COO. In addition, in March, we announced the acquisition of Pathline, a New York State-approved lab based in New Jersey, which allows us to expand our capabilities and accelerate growth by establishing a local presence in the Northeast.

[Tony Zook, CEO at NeoGenomics]

We expect to grow incremental top-line revenue with contributions from the acquired business this year, while operational consolidation efforts and synergies are expected to yield cost savings and help generate positive adjusted EBITDA from this acquisition starting next year. I look forward to working with this team over the coming years to execute on our long-term strategy and solidifying our position as the market leader in community oncology. With that, let's get into the Q1 highlights on the next slide. We had a solid start to the year with revenues of $168 million and adjusted EBITDA of $7.1 million. Clinical testing volumes increased 8% versus prior year, with a 3% increase in revenue per test. Our progress continues with adjusted EBITDA performance, with over 100% improvement for the quarter, making Q1 our seventh consecutive quarter of positive adjusted EBITDA.

[Tony Zook, CEO at NeoGenomics]

With continued strength of our clinical business and the acquisition of Pathline, we are raising our full-year 2025 revenue guide while reaffirming our adjusted EBITDA guide. Now, let me hand it over to Warren Stone, President and Chief Operating Officer, to give an update on the business and some insights into its growth.

[Warren Stone, President and COO at NeoGenomics]

Thanks, Tony. Let's turn to slide five. I'm pleased to share that the clinical volumes grew 8% in the first quarter, with NGS revenue growth of 18%. Since Q1 of 2023, we have launched five NGS products that account for 22% of our total clinical revenue in Q1, which demonstrates our ability to penetrate the market with new and relevant products and the value of our sales channel. Based on the most recent market data, the NGS market is growing 10%-15% annually, and we believe we can continue to grow meaningfully above this rate. The Q1 NGS growth rate is impacted by the annualization of new products, one less calendar day than 2024, and difficult comps with over 50% NGS revenue growth in Q1 2024.

[Warren Stone, President and COO at NeoGenomics]

We expect that with our upcoming product launches, as well as the maturation of our expanded sales force, we will be able to further accelerate growth and achieve the 25% annual growth in NGS that we outlined in our long-range plan. To fuel the accelerated growth, we have completed the expansion of our commercial resources to drive market penetration into community oncology and to support the launch of key products targeted to this segment. With approximately 140 salespeople on our team, we are approaching a one-to-one ratio between the hospital pathology and community oncology call points. These new teammates are joining at a very exciting time for NeoGenomics as we prepare to launch pancreas and liquid biopsy later this quarter and kick off our commercial collaboration with Adaptive to deliver advanced minimal residual disease testing for our heme customers starting in the third quarter.

[Warren Stone, President and COO at NeoGenomics]

This partnership will enhance our ability to drive incremental custom Compass cases. In addition to new tests, the recently closed acquisition of Pathline will help accelerate growth in clinical settings. Historically, we have been underpenetrated in the Northeast market because the lack of physical presence in the area hampered our ability to deliver expected physician experience. Now, we'll be able to offer an improved experience across the cancer care continuum and anticipate that our comprehensive menu of oncology test solutions will drive incremental business. With greater reach from an expanded commercial organization and a physician presence in the highly relevant region, we will continue to penetrate both new and existing customers with a sharpened focus on NGS testing.

[Warren Stone, President and COO at NeoGenomics]

As we penetrate deeper into new accounts and maintain our priority of delivering exceptional customer experience, we have signed an agreement with Epic to interface with clients, which will allow us to scale bidirectional interfaces at an accelerated rate. Through the Epic partnership, we will embed test ordering and discrete genomic data into existing workflows and deliver test reports directly into the EMR, reducing turnaround time and enabling improved patient care. These integrations also support our AR collection efforts, since being able to pull medical necessity or prior authorizations out of Epic creates less payer friction. We are beginning to see the benefits of the investments we made in EMR last year with the 300+ new interfaces, and we expect to start activating Epic integrations to customers in the second half of the year, with revenue benefits being recognized shortly thereafter.

[Warren Stone, President and COO at NeoGenomics]

We have experienced a significant increase in revenues and improved customer stickiness with client integrations. In the non-clinical setting, we're experiencing macro factors that have impacted our business beyond what we have anticipated. Specifically, the pharma and biotech spend has not rebounded sufficiently to facilitate growth in that business. Recent tariff announcements and other trade headwinds, as well as potential cuts in NIH funding and grants, are anticipated to result in reduced R&D spend across non-clinical customer base. While the non-clinical portion of our business accounts for around 10% of our total revenue in the quarter and is diluted to our growth today, we continue to believe in the strategic value of this business and are confident it will return to growth.

[Warren Stone, President and COO at NeoGenomics]

Now, let me hand over to Andrew Lukowiak, Chief Innovation Officer, to talk about upcoming products and clinical data that will provide our commercial organization with tools to expand their reach.

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

Thanks, Warren. Consistent with our prior quarter statements, our innovation strategy is focused on three key areas: product development, clinical evidence generation, and research. Beginning with product development, the bulk of our existing test menu has historically been directed towards the diagnostics market, but more and more, we are building out our test menu to cover therapy selection as well. In alignment with this strategy, early last week, we announced the successful completion of our PanTracer LBx and liquid biopsy analytical validation. PanTracer LBx is a blood-based test that analyzes circulating tumor DNA to identify key genomic alterations in patients with advanced stage solid tumors. It is designed to support treatment decisions when tumor tissue is unavailable or insufficient, a common challenge in oncology care.

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

In the validation study, PanTracer LBx demonstrated strong concordance with comparable products across multiple biomarker classes, including MSI and TMB, which can aid in the selection of various immunotherapeutic treatments. We have submitted this study along with our analytical validation data for approval by MolDX. We will present a poster with a portion of the details of the associated validation package later this morning at AACR. Furthermore, in preparation for a full clinical launch planned later this quarter, we are currently allowing select physicians to use the assay on a limited basis ahead of commercial availability. The Evaluation Assessment Program, or EAP, is intended to optimize the full launch by testing and identifying opportunities to streamline logistics, reporting, and customer support. Physician interest in the participating program has been strong, and we were very pleased to see the program oversubscribed in just five days of announcing the EAP.

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

This level of interest only furthers our belief that our clinical customers, particularly those in the community oncology space, are eager to consolidate their testing needs with a single comprehensive testing service provider. In addition to PanTracer LBx, we will also launch an upgrade to our on-market NeoComprehensive NGS panel, which will now be called PanTracer Tissue. The upgrade will include the option of the addition of HRD, which provides predictive and prognostic value in ovarian cancer therapy selection, and the potential to be useful in other tissue types as data and guidelines continue to evolve. This PanTracer product suite, consisting of PanTracer LBx, PanTracer Tissue, and PanTracer Tissue HRD, provides an easily accessible set of tests that can be used independently or in a complementary manner for comprehensive genomic profiling in the community oncology setting.

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

Now, turning our attention to the MRD space, we continue to support RaDaR 1.0 under the legally approved carve-outs for patients and clinical trials already using the technology. We have also remained dedicated to the development of RaDaR 1.1, which has now successfully completed analytical validation and is available for downstream operational readiness activities when warranted. In addition to advancing our RaDaR technology, we remain dedicated to our next-gen MRD research program, focused on generating IP that is entirely separate and distinct from our RaDaR portfolio. Our research team includes one of the original pioneers of ctDNA technologies, and we are leveraging his leadership and the team's scientific expertise to identify novel approaches for the ultra-sensitive detection of low-shedding cancers.

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

Under this program, we expect 2025 to serve as a year for IP development, 2026 for building products and trials, with a projected next-gen MRD product launch in the 2027 timeframe. Lastly, just this morning, we announced a collaboration with Ultima Genomics to expand future clinical test offerings in oncology using the UG100 sequencing platform. As a pioneer in high-quality, low-cost whole genome sequencing, Ultima represents an ideal partner for Neo to collaborate with to continue delivering the best-in-class oncology testing solutions to our customers in the community setting. Today's announcement represents a first step in a series of strategic moves that Neo intends to make to leverage our internal R&D resources more effectively, allowing us to translate innovations rapidly and efficiently towards the benefit of patient care. Now to Jeff for our first quarter financial results.

[Jeff Sherman, CFO at NeoGenomics]

Thanks, Andrew. We saw continued earnings momentum in Q1, with another quarter of positive adjusted EBITDA growing 102% over the prior year to positive $7 million. The combination of clinical test volume growth and improvements in revenue per test due to test mix and RCM initiatives continue to drive revenue growth. Adjusted gross margins improved by 146 basis points to 47%, with adjusted gross profits up 11% to $79 million. Total revenue for the quarter was $168 million, an increase of 8% over prior year, and in line with the previous range we provided of 8%-10% growth for Q1 2025. Total test volume was the highest in the company's history and was also up sequentially by 1.4% over Q4. The year-over-year increase in revenues reflects increasing test volumes and higher revenue per test due to increased ordering of higher-value NGS tests and strategic reimbursement initiatives.

[Jeff Sherman, CFO at NeoGenomics]

Total clinical revenue continued with double-digit growth and increased by $15 million, or 11.3%, in the quarter, against a very strong comp of 17.1% growth in Q1 of 2024. This strong clinical growth was partially offset by non-clinical revenue declining by $3.4 million, or 15.8%. The first quarter of 2024 was our most difficult comp for this year, with 13.9% total revenue growth and an extra day due to leap year, which impacted the overall revenue growth rate. As our expanded sales force penetrates deeper into the community oncology setting, we are seeing increased adoption of NGS testing, which is driving higher volume growth. The strong demand for NGS testing and the insights it provides continues to fuel revenue growth and earnings.

[Jeff Sherman, CFO at NeoGenomics]

We continue to believe ongoing state biomarker legislation being passed will also provide a long-term tailwind to improve pricing and cash collections, but this is a process that will take time to develop. The Pathline acquisition is expected to lower our AUP, adjusted gross margins, and adjusted EBITDA for the remainder of 2025 as we work to optimize the operations and service offering. However, we expect Pathline will accelerate our volumes, revenue, and earnings growth in 2026 and beyond as we build on their strong platform with the expanded Neo test menu, including our full NGS test offerings. As Warren noted, for the non-clinical business, macro factors around tariffs and uncertainty regarding the NIH budget and subsequent grants have caused our customers to delay spending, which impacted our revenue.

[Jeff Sherman, CFO at NeoGenomics]

On top of this, most pharma trials utilizing RaDaR 1.0 have now wrapped up, and our inability to sell new RaDaR 1.0 contracts due to the negotiated settlement further impacts revenue. As 2025 progresses, there is heightened uncertainty around pharma and biotech spending, but we are continuing our efforts to position Neo to grow pharma revenue through the introduction of new products, a more streamlined go-to-market approach, and enhanced sales enablement efforts. We now expect our pharma revenue to decline this year, but will be offset with incremental clinical revenue growth in 2025. Looking at our first quarter financial overview on slide nine, adjusted gross profit increased by 11% over prior year as a result of revenue growth and operating leverage generating higher adjusted gross profit and margins.

[Jeff Sherman, CFO at NeoGenomics]

Regarding operating expenses, sales and marketing expense was $23 million, an increase of 12%, reflecting our continued investment in the expansion of our commercial sales organization and support staff. R&D expense increased 34% to $10 million in the quarter, and our 2025 guidance also incorporates ramping investments in R&D targeted to drive future products and long-term IP value. Finally, G&A expense increased to $68 million, driven by higher technology costs to drive customer engagement, increased compensation costs, and expenses associated with the Pathline acquisition and CEO transition. We ended the first quarter with cash and marketable securities of $358 million, a decrease of 7% versus prior year. As is typical, cash outflows were the highest in Q1 due to annual bonus payments, with cash flow from operations a negative $25 million and improvement of 2% over Q1 of 2024.

[Jeff Sherman, CFO at NeoGenomics]

We still intend to pay off our May 2025 convertible notes with a principal balance of $201 million using existing cash and marketable securities and expect to have sufficient liquidity to invest in the sales force expansion, product development, and future potential business development opportunities, including licensing, partnerships, and strategic tuck-in acquisitions. Let's move on to our full year 2025 guidance. For the full year, we are revising the guide to reflect the incremental revenue and costs associated with our acquisition of Pathline. We now anticipate revenue of $747 million-$759 million, representing 13%-15% growth, while adjusted EBITDA of $55 million-$58 million remains unchanged. We expect Pathline to contribute $12 million-$14 million in revenue in 2025 and have a negative adjusted EBITDA impact of $2 million in the second quarter, with an additional potential impact of negative $1 million for the remainder of the year.

[Jeff Sherman, CFO at NeoGenomics]

We have begun the integration activities for Pathline, aligning operations and consolidating resources, and expect to begin realizing synergies in the second half of the year. We expect revenue in the second quarter to be in the range of $183 million-$187 million, with adjusted EBITDA of $9 million-$11 million, with the near-term earnings drag from Pathline. Finally, the majority of our supplies are sourced from U.S.-based manufacturers at this time, so we believe the potential cost impact of many new tariffs would be manageable and offset with other savings initiatives. We will continue to take a balanced approach to investments, with increasing adjusted EBITDA, enabling further investments to drive operating efficiencies in the business, and targeted investments in R&D to drive future product innovation for our well-established commercial channel.

[Jeff Sherman, CFO at NeoGenomics]

We view 2025 as a full year story as our sales force matures and new products are introduced, complemented by financial discipline that fuels earnings. With that, I'll hand it back to Tony to wrap up.

[Tony Zook, CEO at NeoGenomics]

Thanks, Jeff. It's been an eventful few weeks in my seat. The more time I spend with our teammates, the more excited I am about the work we're doing to sustain performance that delivers these results and benefits patients and their families. We have ambitious plans and an exciting opportunity ahead of us. I look forward to reporting our continued progress next quarter. Now, let me hand the call over to Kendra for questions.

[Kendra Sweeney, VP of Investor Relations at NeoGenomics]

Thanks, Tony. That concludes our prepared remarks this morning. Let's go ahead and open the line for questions. Ali?

[Operator]

Thank you, Ma'am. At this time, we'll be conducting our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue, and you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Andrew Brackmann with William Blair. Your line is live.

[Andrew Brackman, Equity Research Analyst at William Blair]

Hi, guys. Good morning. Thanks for taking the questions. Tony, maybe to start where you sort of left off there, can you maybe just sort of talk to us about the last 30 days at the helm? Is there anything that maybe made you more optimistic about the business or its outlook? I guess conversely to that, any areas of the business that you think maybe need a little bit more attention than you thought coming in here? Thanks.

[Tony Zook, CEO at NeoGenomics]

Thanks, Andrew. I would say that I haven't seen anything of surprise, to be honest. I have seen many, many things that have confirmed my observations coming in. I really enjoy the management team. I've had the opportunity to engage with the next level of leadership across the organization, and just see an abundance of talent there. From a business perspective, as we stated, very strong, solid performance for the quarter with volume that was its highest, the NGS growth above market. All of that was confirmatory for me coming in. Very good interactions with the R&D team to get more focused in where we want to go. That's been a very positive occurrence. As we said, there were some fairly strong headwinds on the pharma side, but that was not unexpected.

[Tony Zook, CEO at NeoGenomics]

We kind of anticipated that, even seeing the early days of the non-flush at the end of the quarter. All in all, it's been a very positive experience. I think I've benefited in large part from the two or three-month run-in. I had the opportunity to really get out and about and get a good appreciation for the organization. Thanks for that.

[Andrew Brackman, Equity Research Analyst at William Blair]

Perfect. Maybe just on NGS here, I think Warren, you called out five new products drive 22% of the clinical revenue. Can you maybe just unpack that a little bit for us? Is that sort of broad-based across the five tests, or is there maybe one or two that drive that? Related there, as we sort of think about these new product launches later this year, in particular, PanTracer LBx, is this the type of growth trajectory that we should anticipate over the next couple of years for that product, or is there going to be something different? Thank you.

[Warren Stone, President and COO at NeoGenomics]

Yep. Good morning, Andrew. Thanks for the question. I think the five products that we've sent today, there are a couple that have a larger contribution than others, but they're all contributing very meaningfully to that 22% of revenue. Again, the majority of those are going into the community, which is part of our strategy. The success here is obviously the combination of the products that we've launched, but also the investments we've made from a field sales perspective that we've been talking about. We've been very strategic in the investment of resources in parallel with product launches. We've just done exactly the same thing ahead of PanTracer LBx or Liquid, which, as we said, we will look to launch commercially later this quarter. The investment into the up to 140 salespeople aligns with that launch.

[Warren Stone, President and COO at NeoGenomics]

We remain very optimistic in terms of our ability to continue to penetrate into community oncology, as demonstrated by those five products that I referenced.

[Andrew Brackman, Equity Research Analyst at William Blair]

Great. Thank you.

[Operator]

Thank you. Our next question is coming from Dan Brennan with TD Cowen. Your line is live.

[Dan Brennan, Managing Director and Senior Equity Research Analyst at TD Cowen]

Great. Thank you. Maybe the first question would just be on the pharma business. You talked a lot about some of the headwinds that are happening right now. Maybe could you just walk through the full year guide? I think you said decline. Maybe just elaborate on kind of what's expected in Q2 and for the rest of the year on the pharma and kind of what your visibility is on reaching those goals.

[Jeff Sherman, CFO at NeoGenomics]

Yeah. Dan, this is Jeff. If you looked at our non-clinical business, which includes pharma last year, we were down $7 million roughly for the year. I think that's probably a range, as we think about this year, a similar range that we're expecting for pharma as we look at this year. Pharma, the majority of the non-clinical, represents roughly about three-quarters of the non-clinical revenue. We do expect our informatics business, which is oncology data services, now to grow for the year. We do expect that our clinical revenue growth will help offset that. As you think about our guide for the year, we added $12 million-$14 million for Pathline. The midpoint of that is $13 million, but that's for three quarters. If you annualize that, that's roughly about $17 million plus.

[Jeff Sherman, CFO at NeoGenomics]

Very much in line with the initial revenue range of $20 million. As we think about the things that are going to drive growth in the back half of the year, it will be the NGS growth. It will be liquid biopsy helping to drive growth, and it will be the maturing of the sales force, significant sales force expansion that we brought in in Q4 and Q1 of this year. I think that's what gives us confidence. We'll see revenue growth accelerate in the back half of the year.

[Dan Brennan, Managing Director and Senior Equity Research Analyst at TD Cowen]

Okay. Got that. Maybe just on the guide itself, you just mentioned—sorry about that. I'm trying to speak here. Yeah. You just mentioned Pathline, $17 million. That is below the $20 million. Is that conservatism? Just kind of what's going on with Pathline? As we think about the Q2 guide, just how much of Pathline is in that Q2 guide versus the underlying core NEO? I know you cited some headwinds this quarter with leap year and a tough comp. Are there any things we should be thinking about for Q2 in terms of any factors that might influence the Q2 clinical numbers? Thank you.

[Jeff Sherman, CFO at NeoGenomics]

Yeah. Q1 and Q2 were our strongest revenue growth quarters last year. We grew almost 14% in Q1 and about 12% in Q2. Q2 is still a little bit of a tougher comp, and the comps get easier in the back half of the year. Look, I think it's a new acquisition, so we've got to integrate customers. We're looking at the product offerings as well. We certainly think we'll have a strong platform to grow in that business and not just their core business, but NGS growth going into 2026. I think we just think it'll take time to ramp up the business. It's a new acquisition, and we're just getting to learn the customers. Hopefully, we'll see good growth there going into 2026 as well. I think in terms of if you look at that $13 million, it's roughly $4 million plus a quarter.

[Jeff Sherman, CFO at NeoGenomics]

I would expect $3 million to $4 million for Pathline in the second quarter.

[Dan Brennan, Managing Director and Senior Equity Research Analyst at TD Cowen]

Okay. I'll get back in the queue. Thank you.

[Operator]

Thank you. Our next question is coming from Tejas Savant with Morgan Stanley. Your line is live.

[Tejas Savant, Research Analyst at Morgan Stanley]

Hey, guys. Good morning, and thanks for the time. Maybe just one on the balance sheet. After paying down the convert, it looks like you have about $150 million in cash. There's another, I think, $340 million convert in January 2028. Just walk us through how you're thinking about sort of flexibility to invest in the business in the multiple NGS launches plus MRD development coming up. Also, you've got inorganic tuck-ins that you've talked about in the past, potentially. Just walk us through the capital deployment and internal investment flexibility here in the context of the converts and where you'll be on after the paydown.

[Jeff Sherman, CFO at NeoGenomics]

Sure. Thanks for the question. I would say this year, Q1 is our highest cash burn quarter, as is fairly typical, and we'll build cash throughout the remaining of the year. We'll expect to enter 2026 in a position of strength. We actually expect to produce positive free cash flow in 2026. Our cash balance will start growing in 2026. As our earnings continue to grow, we'll have a variety of options available for the 2028 converts, including paying a portion of them or all of it off or refinancing with both straight debt or convertible notes. I think as our financial performance continues to prove, we'll have significant options to deal with the 2028 converts. I mean, it's very low cost, basically fixed debt right now. It's got a 25 basis point coupon. It's actually very good long-term financing for us.

[Jeff Sherman, CFO at NeoGenomics]

As we think about our investments going forward, we think that cash liquidity will be sufficient to do the things we need to do, including licensing partnerships and strategic tuck-in acquisitions. As that cash flow starts to grow, it'll provide us more flexibility to continue to invest in the business. Our guide already contemplated R&D continuing to grow. Again, a good chunk of our R&D investment this year is for RaDaR 1.1 and next-gen MRD, and we really don't have anything on our long-range guide for that. We are really funding future potential upside and revenue out of our existing cash flow.

[Tejas Savant, Research Analyst at Morgan Stanley]

Got it. That's super helpful. Maybe a couple on the pipeline for either Tony or Warren here. On the PanTracer or liquid biopsy launch, can you just share how many of your customers do you see eventually ordering both NeoComprehensive and PanTracer concurrently? Should we just think of these as the comprehensive offering first, and in case tissue is not available, then you kind of reflex to the LBx assay? Second, on the MRD sort of timelines that you laid out, is there anything you can do to pull forward that sort of Next-Generation assay timeline? Are you at this point done with clear validation of RaDaR 1.1? Thank you.

[Tony Zook, CEO at NeoGenomics]

Warren, if you wouldn't mind handling the first part, and then Andrew, we'll throw it to you for the MRD update.

[Warren Stone, President and COO at NeoGenomics]

Yeah.

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

Sounds good.

[Warren Stone, President and COO at NeoGenomics]

Thanks. As Andrew mentioned in the script, we're actually rebranding our NeoComprehensive to PanTracer Tissue. Obviously, the liquid biopsy product we launched is PanTracer LBx. We've actually done that because we wanted to simplify the ordering process from a community oncology perspective, particularly with regards to those that fall within therapy selection. That simplifies the ordering workflow. We anticipate a big portion of the testing to be for lung testing. From a guideline perspective, concurrent testing is now something that has been included in the guideline. Although the core point is identical for the two products, we would expect a fair amount of concurrent testing on the lung side of things.

[Warren Stone, President and COO at NeoGenomics]

In other cases, more likely a case of where physician preference, because we're hearing more and more that physicians like the flexibility of the faster turnaround time, and it eliminates the need for block retrieval. Sometimes they go with a liquid first strategy. Others still go with what's perceived as the gold standard, which is the solid first when tissue is available. It's going to be physician preference on other indications outside of lung.

[Tony Zook, CEO at NeoGenomics]

Andrew, would you mind picking it up on next-gen MRD?

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

Absolutely. In terms of next-gen MRD, I think if the question is, is there any opportunity to accelerate the timeline? I think what we've actually laid out is a reasonable but aggressive schedule in the sense that we really are starting from developing brand new IP this year, moving into developing those kind of foundational elements into a true product in 2026, which is also going to have to include some clinical work to get to a launch schedule by 2027. I do think foundationally, that is probably a realistic timeline. I would say there is always the opportunity for acceleration through partnerships, which Kareem Saad and myself continue to explore along the way. I think as a starting point, this represents really a very, I'll say, aggressive but achievable timeframe. When it comes to RaDaR 1.1, I think you asked the question about analytical validation.

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

Yes, analytical validation has been completed for that product at this time. We are really just kind of queuing up for being operationally ready at this point in time.

[Tejas Savant, Research Analyst at Morgan Stanley]

Got it. Super helpful, guys. Thank you.

[Tony Zook, CEO at NeoGenomics]

Yep.

[Operator]

Thank you. Our next question is coming from Mike Matson with Needham & Company. Your line is live.

[Mike Matson, Managing Director and Senior Equity Research Analyst at Needham & Company]

Yeah. Good morning. I guess, Tony, I just wanted to ask about your comments on M&A. You have already done one since you've joined the company or, I guess, become CEO with Pathline. Should we expect a pickup in M&A activity over the next couple of years?

[Tony Zook, CEO at NeoGenomics]

Yeah. Thanks for the question, Mike. I've shared my thoughts that I believe that Neo has a tremendous strength in the community oncology setting and the community hospital setting. We are only strengthening that with our field force investments. I do believe that that is a leverageable asset. You see examples of that with the Adaptive partnership and now with the Pathline acquisition. We will continue to work with Kareem and Ali and the rest of the team and identify opportunities that we think could help generate incremental value for the organization and our shareholders. We see them more as tuck-in and licensing opportunities, nothing transformational in scope. We believe we have the firepower to do that. We will continue to look at these types of opportunities and make determinations based on the value that we think they can bring.

[Tony Zook, CEO at NeoGenomics]

We want them to be accretive in a relatively short period of time. We want to do this in a very responsible manner. It is a strength, and I hope that we can more fully leverage it and become a partner of choice.

[Mike Matson, Managing Director and Senior Equity Research Analyst at Needham & Company]

Okay. Got it. And then just as far as the annual guidance, I mean, you're effectively maintaining the organic guidance, but you do have sort of an increased headwind from the non-clinical side. I understand that you expect upside on the clinical business to offset that. I mean, should we be modeling things maybe at the lower end of the range now, just given that kind of incremental headwind in the non-clinical business?

[Jeff Sherman, CFO at NeoGenomics]

Yeah. Look, I think we've provided a range that we think makes sense and is achievable. Look, I think I would say our forecasting accuracy has improved. The variance between actual performance and guidance or consensus in the past has shrunk. I would expect it's a reasonable range to assume that we're providing. What we've seen in the past over the last couple of quarters is revenue guidance has still been above the top end of our guidance. I certainly wouldn't point people towards that. I would point you to our guidance range as a reasonable basis where we think our performance is going to land. We expect to be in that range.

[Mike Matson, Managing Director and Senior Equity Research Analyst at Needham & Company]

Okay. Got it. Thank you.

[Operator]

Thank you. Our next question is coming from Matt Sykes with Goldman Sachs. Your line is live.

[Matt Sykes, Vice President and Senior Equity Analyst at Goldman Sachs]

Hi. Good morning. Thanks for taking my questions. Maybe just one on the average revenue per test. Noted the sequential step-down in Q1. You've made a lot of progress over the past year on that. Just from a modeling perspective, how should we think about average revenue per test as we move through the year? Have we hit sort of a ceiling in the near term in terms of what you can do, or is there still room to improve that? Any puts and takes for the sequential step-down this quarter?

[Jeff Sherman, CFO at NeoGenomics]

Yeah. I would say you have to, Matt, look at the mix of tests first. Adding Pathline, Pathline has quite a bit of a lower AUP. The blended rate, it's going to negatively impact our blended AUP. I would say when you look at it from an actual modality basis, we continue to make progress. We continue to see our overall AUP go up by modality. That's driven by selling more NGS. It's driven by RCM initiatives. It's driven by pricing initiatives. The mix of the modalities will have an impact on our overall AUP. You can see situations where our overall volume is growing, and AUP may be growing less or flat just because of the mix of tests.

[Jeff Sherman, CFO at NeoGenomics]

NGS will help that over time, but I would not expect to see the rate of growth that we saw in prior years, particularly when we are adding some lower volume tests for Pathline. Now, again, with Pathline, we expect that is a jumping-off point. As we get into the back half this year and in 2026, we will see more NGS growth pull through Pathline. That is going to certainly impact the AUP over the next couple of quarters negatively.

[Matt Sykes, Vice President and Senior Equity Analyst at Goldman Sachs]

Got it. Thanks, Jeff. Very helpful. One for you, Warren. Just with the commercial and operations under your leadership, could you maybe call out some of the potential synergies you could sort of apply to that, both being under your leadership, whether it's sort of ease of ordering for providers that will help your commercial team or other kind of examples of how you can drive some synergies now that those are both under your leadership?

[Warren Stone, President and COO at NeoGenomics]

Matt, yeah. Thank you. Great question. I'd say, I mean, there's a number. And the two that I'll probably pull out, the first one is what I just simply call order cash. It's that whole workflow, which now sort of falls within my accountability and just identifying areas of leverage opportunity to improve that workflow, whether it's around the customer experience side of things, taking friction out of that process, whether it's around thinking about our site network and how do we optimize where we do our testing to maximize gross margin, and ultimately the cash collection side of things. Already starting to see a number of real opportunities there, which is going to benefit both the customer and ultimately the P&L as well.

[Warren Stone, President and COO at NeoGenomics]

I think a second area for me, which is starting to surface pretty readily, is just around portfolio and how we can optimize, vitalize, and even in some cases, prune our portfolio to ensure that we are focused on the most relevant products that are needed in terms of diagnosis, therapy selection, and MRD. Sort of high level, but really starting to see a lot of opportunity here to create value.

[Tony Zook, CEO at NeoGenomics]

Matt, I would only add one. I've already seen it. With the Pathline integration, it's just a great example when you have all the operations leaders and the sales leaders in the same room as they're laying out the plan for that integration. It just seems to go much faster and much more seamless. I've already seen some of the early benefits as well.

[Matt Sykes, Vice President and Senior Equity Analyst at Goldman Sachs]

Great. Thank you very much.

[Operator]

Thank you. Our next question is coming from David Westenberg with Piper Sandler. Your line is live.

[David Westenberg, Managing Director and Senior Research Analyst at Piper Sandler]

Hi. Thank you for taking the question. First, I just want to talk about or ask about the sales force maturity. On average, how long does it take for your sales force to reach full kind of productivity? Where are we at right now with the sales adds?

[Warren Stone, President and COO at NeoGenomics]

Yes. Great question. Thank you, David. I think we've completed the adds right now. In terms of the investment that we had indicated that we would make at the back end of last year and the beginning of this year, that process is principally complete. In terms of time to productivity, it really does depend on where the person came from. How much knowledge do they have on oncology diagnostics? How many relationships do they have within the target customers, etc.? That does create a little bit of variability. We're typically seeing the sort of six to nine months is sort of a timeframe that we're seeing from the time somebody starts to when they start showing value. If you've been in the oncology setting and it's a similar territory, you're probably getting there in six months.

[Warren Stone, President and COO at NeoGenomics]

If oncology is new to you or your territory is new to you, it may take a little longer.

[David Westenberg, Managing Director and Senior Research Analyst at Piper Sandler]

Got it. If we're just thinking about contributions here from sales forces as an isolated variable, I mean, we should probably look at this as kind of a Q4 and maybe even into 2026 as kind of the acceleration point.

[Warren Stone, President and COO at NeoGenomics]

Yes. Some of the resources were added last year. We started the expansion in late 2023 and the balance this year. We certainly are anticipating leverage in the second half of the year aligned with the liquid biopsy launch that is planned for late this quarter.

[David Westenberg, Managing Director and Senior Research Analyst at Piper Sandler]

Got it. Great. And then just a really quick question for Jeff here. Can you talk about, was there any impact of wildfires in Southern California? I think you've made the acquisition of Genoptix, Clarient. I'm guessing you have a very high percentage of revenue in Southern California. If that is indeed the case, could you see any benefits in the later half of the year? Because cancer testing doesn't just go away. It kind of just gets pushed back. Thank you.

[Jeff Sherman, CFO at NeoGenomics]

Yeah. Our lab is in Orange County, which really wasn't impacted by the fires at all. I would say no material impact from the fires in the quarter.

[Operator]

Thank you. Our next question is coming from Mason Carrico with Stephens. Your line is live.

[Mason Carrico, Equity Research Analyst at Stephens]

Hey, guys. Thanks for the questions. Maybe going back to a prior question here around ASP and asking it a different way. I realize Pathline is going to be dilutive to ASP near term, but have your expectations around the runway for core Neo's ASP changed at all compared to maybe a quarter ago? I think last quarter when you guys gave guidance, you talked about clinical revenue growth this year being driven by a similar mix of volume and ASP growth as it was last year.

[Jeff Sherman, CFO at NeoGenomics]

Yeah. I would say on balance, I would say it's probably a little more heavily weighted to volume growth than AUP growth this year in 2025. Again, I think we expect to continue to see progress at a modality level. As we're adding business, sometimes we're adding business in lower volume modalities, lower value modalities as well. It is really just a mix of business and how that drives AUP. On a discrete modality basis, we're still seeing progress. It's just more mix driven. I would expect more of the revenue growth to come from the volume side and a little bit less from the AUP side in 2025.

[Mason Carrico, Equity Research Analyst at Stephens]

Got it. Okay. Could you also just talk about how quickly you'll expect to begin driving adoption of the broader portfolio with Pathline customers? It seems like, and correct me if I'm wrong here, but that's more of a 2026 opportunity. Just could you give us a sense of how much of that benefit is baked in this year, why it shouldn't be playing out more materially in the back half if it's not really baked in? Any details there?

[Tony Zook, CEO at NeoGenomics]

Actually, Kareem, do you want to talk to that? Otherwise.

[Kareem Saad, Head of Strategy and Transformation at NeoGenomics]

Yeah. I mean, I can add real quick. We still have to do a lot of validations of our existing Neo tests in the Pathline lab. That is going to take probably a good part of the next quarter or a couple of quarters. Minimal benefit this year because of that. We will start seeing the spike probably around the Q4, but more probably Q1 of next year timeframe.

[Mason Carrico, Equity Research Analyst at Stephens]

Got it. Thank you.

[Operator]

Thank you. Our next question is coming from Mike Riskin with Bank of America. Your line is live.

[Michael Ryskin, Research Analyst at Bank of America]

Hey, this is Aaron on for Mike. Thanks for taking the question. I know you already talked about MRD a little bit and that timeline, but I wanted to get a sense of how you're thinking about the evolution and the competitive landscape of MRD and just the maturation at that point. Thanks.

[Tony Zook, CEO at NeoGenomics]

Yeah. I'll kick us off and turn it over to Andrew. Thanks for the call, Aaron. I guess at the highest level, we still see the MRD market as very, very attractive. The penetration rates are still relatively low, especially in the community environment. We still think there is ample opportunity for us to leverage our offerings and look with the entirety of our portfolio and grow a significant presence in that sector. We are optimistic about what our opportunities lie with that. With Andrew, perhaps maybe a little bit more color?

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

Yeah. No, happy to add that in, Tony. Thanks for the question. I think I'll start maybe by jumping off of what Tony said. This is still a fairly underpenetrated market. I think we're just in the early innings of how we think about sensitivity. I'd say we're starting to see more and more companies start to focus on ultra-sensitive applications. I still think that's pretty much in the early innings. I think there's a lot of time left in these next three years to not only prove out the analytical nature of this ultra-sensitive approach, but you're going to have to prove it out in the clinical setting as well. The idea here is, look, we do have some of the pioneers of ctDNA technology in-house as part of our prior acquisition.

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

I think they really do set us up for having kind of that intellectual advantage over the next several years to ensure we're kind of moving to where the market is going in regards to sensitivity and potentially other evolving needs of the market. I think that's probably how I see kind of that landscape evolve over the next several years.

[Michael Ryskin, Research Analyst at Bank of America]

Great. Thank you.

[Operator]

Thank you. Our next question is coming from Andrew Cooper with Raymond James. Your line is live.

[Andrew Cooper, Vice President of Equity Research at Raymond James]

Hey, everybody. Thanks for the questions. Maybe just first to stick on MRD, you talked about queuing up for operational readiness for 1.1. Maybe just remind us some of the hurdles there and how you think about that launch as the October trial nears and kind of what thresholds or stage gates you need to get through before we see that out commercially.

[Tony Zook, CEO at NeoGenomics]

Andrew, do you want to just speak a little bit about some of the work that's still ongoing?

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

Yeah. No, I think that'd be great. Look, I think there's probably two major elements that we're driving through at this point in time. One is the bridging studies. Again, remembering that we have claims on our RaDaR 1.0 product. We believe there is good equivalency between 1.0 and 1.1 in terms of performance. We intend to go to MolDX to demonstrate bridging so that those reimbursements, those indications for use can be transferred over to the 1.1 product. I think that's one area of focus. The second area of focus when we talk about operational readiness is really kind of exercising that operational muscle, ensuring all the validations on the production side are ready to go, the systems are ready, commercial is ready to go. That's really the second arm. Those are the two elements of focus at this point.

[Andrew Cooper, Vice President of Equity Research at Raymond James]

Okay. Helpful. Just maybe one on the P&L a little bit. At least for our numbers, R&D was a little higher, sales and marketing a little bit lower for the quarter. Just maybe some context to think about the jumping-off points there. I know, Warren, you mentioned the sales force ramp is largely in place at least now. Should we think about build from the 1Q levels and maybe what magnitude? Kind of same question on R&D would be great. I'll jump back in the queue.

[Jeff Sherman, CFO at NeoGenomics]

Yeah. I would say I would expect sales continue to grow throughout the year, both as revenue increases. You'll see some commission expense grow with revenue as well as just the incremental ads that we're adding in Q1 playing out. I expect a little more growth on the sales side as the year progresses. R&D, I would say, was probably a little bit higher in Q1 due to some validation work we were doing on the liquid product. I would expect that would probably come down a little bit as the year progresses from a total dollar perspective.

[Andrew Cooper, Vice President of Equity Research at Raymond James]

Great. Appreciate the questions.

[Operator]

Thank you. Our next question is coming from Mark Massaro with BTIG. Your line is live.

[Mark Massaro, Managing Director and Senior Equity Research Analyst at BTIG]

Hey, guys. Thank you for taking the questions. I wanted to ask about the partnership with Adaptive. I think many people recognize the value of ClonoSeq as perhaps one of the fastest-growing tests in the heme space. I would love to get some clarity around how this partnership will be additive to you. I appreciate that you're planning to launch in Q3. I believe that this is tied into your Compass and Chart menu. I'm trying to get a sense for how it will be incremental to NeoGenomics. Should we expect any revenue contribution in 2025 or 2026? Just strategically, can you remind us how this sort of is beneficial to Neo?

[Warren Stone, President and COO at NeoGenomics]

Yeah. Mike, it's Warren. Yeah. Thanks for the question. A couple of aspects there. First and foremost, Adaptive really plays in the academic medical center. That's sort of where their primary focus is. Whilst from a Neo perspective, we're much more focused in the community, both community hospital as well as community oncology. This is a joint collaboration where Adaptive will be promoting our Compass in those academic medical centers, something we don't do today. We anticipate that that awareness and promotion will drive incremental Compass cases coming from academic medical centers. Also, if we think about the community setting, both the oncology and the community hospital setting, the fact that we are now able to offer ClonoSeq as part of our Compass menu, we believe it's going to make that suite of offerings that much more attractive, which will drive incremental demand for Compass.

[Warren Stone, President and COO at NeoGenomics]

Compass is highly relevant for us because it's of the highest AUP tests that we have. The more volume we can grow of that particular test, the better for us. That is really where the value comes. From an overall testing perspective, the ClonoSeq is still going to be tested by Adaptive. The Compass is still going to be tested by, or performed, should I say, by NeoGenomics. Billing will still be done by the two entities per se. The incremental value really comes from the incremental volume that the partnership will generate. We certainly anticipate that to start coming to fruition in the second half of the year.

[Tony Zook, CEO at NeoGenomics]

Warren, could you just maybe take a moment to benefit at the patient and physician level with the one sample, I suppose?

[Warren Stone, President and COO at NeoGenomics]

Yeah. The key aspect here in terms of the value from a physician/patient perspective is very often the sample type is a bone marrow, which is a very painful extraction. In today's world, if you're looking to get diagnosed and then having to have a ClonoSeq MRD run, it's two separate sample extractions. Therefore, it's subjecting the patient to two painful experiences. By combining the Compass, which supports diagnosis, and the MRD, ClonoSeq at the same time, it's a single sample that gets drawn once. Therefore, it has a massive benefit from a physician perspective in terms of their ability to treat, but also a massive patient benefit as well.

[Tony Zook, CEO at NeoGenomics]

Maybe, Mark, just to add a reminder on the second point that Warren mentioned, this is an exclusive relationship for the term of the agreement. Neo would be the only company in a position to provide that combination of diagnostic testing and MRD recurrence monitoring testing off of the same TRF. That reinforces that strategic value, as we mentioned in the past. Yeah.

[Warren Stone, President and COO at NeoGenomics]

Thanks, Mark.

[Mark Massaro, Managing Director and Senior Equity Research Analyst at BTIG]

Okay. Fantastic. Just a quick clarification question. You submitted PanTracer LBx to MolDX for reimbursement coverage. Is that something that you think can come in maybe at the end of this year? Just give us a sense if you're expecting a draft or a final to come in. I'm just wondering if you think you can go straight to final.

[Tony Zook, CEO at NeoGenomics]

Andrew, would you pick that up for us, please?

[Andrew Lukowiak, President and Chief Scientist Officer at NeoGenomics]

Yeah. I think when thinking about MolDX, you have to integrate a turn or two with MolDX in terms of ensuring that they feel confident in the package that's been provided. I think that's just good standard practice. I think their turns usually take somewhere in the nature of, we'll say, 60-90 days, and you have time to respond. Think of a two-turn model. I think end of year is probably a reasonable place to kind of triangulate against at this point in time.

[Mark Massaro, Managing Director and Senior Equity Research Analyst at BTIG]

Great. Thanks, guys.

[Operator]

Thank you. Our next question is coming from Jack with Jefferies. Your line is live.

[Operator]

Yeah. Hi. Good morning. This is Jack on for Tycho. Thanks for taking our question. You called out macro headwinds on the non-clinical side. I guess thinking about macro uncertainty, particularly tariffs and funding headwinds among providers, do you expect that to impact oncology volumes or ASPs in any capacity? If so, I guess what actions are you taking to offset changing customer behavior among providers? Any puts and takes there would be great. Thanks.

[Jeff Sherman, CFO at NeoGenomics]

Yeah. I do not think we are expecting any impact on the clinical volume side. I mean, I think when you are dealing with cancer patients, they are going to need to have care. Our expectation is we are not expecting any major impact from that. I think the only other thing you could say macro is if a recession causes impact to the number of insured employees. We have not seen anything yet. We will just continue to monitor that.

[Jeff Sherman, CFO at NeoGenomics]

Okay. Great. With the LDT final rule being vacated, do you see any incremental upside to your margin expansion target of 250-300 basis points?

[Jeff Sherman, CFO at NeoGenomics]

We had baked into the guide expectations for increasing resources there over time. It was not really material for the first couple of years. It was just in terms of some reporting requirements, etc. We are looking at new products, basing new products on a design control framework. I would not expect any material change to our guide based upon that.

[Operator]

Thank you. Our final question today is coming from Puneet Souda with Leerink Partners. Your line is live.

[Puneet Souda, Senior Research Analyst at Leerink Partners]

Yeah. Hi, guys. Thanks for the question here. First one, correct me if I'm wrong, but the way you're pointing out to the NGS growth, it does appear to be lower versus before. I'm just trying to understand, is that just largely comp, or what is the longer-term NGS growth expectation? More importantly, the AUP, the core AUP, is that lower beyond just the Pathline dilution? What I'm trying to get to is how should we think about the overall growth for clinical volumes and revenue for NeoGenomics going forward and longer term? I think that's really the key question here, core to your business.

[Jeff Sherman, CFO at NeoGenomics]

Yeah. The comp, Puneet, in Q1 of last year, we did have the PanTracer solid tumor was really ramping. It was introduced at the end of Q1 in 2023 and was really starting to ramp. We saw over 50% NGS growth in Q1 of last year and 40-some plus % growth in Q2. Some of this is just the difficult comp. We still expect we're going to grow over 25% in NGS for the year. The back half of the year, the comps will get easier, and the overall growth continues. I think in terms of our overall clinical growth, we've seen very strong volume growth. You're seeing some volume growth at lower AUP modalities, as I talked about. It's going to be a blend of both. We're certainly focused on NGS growth.

[Jeff Sherman, CFO at NeoGenomics]

As we enter new contracts, sometimes we'll see lower AUP tests come in as well. I think it's just how those new business wins kind of play out over the year will impact the AUP. I don't know, Warren, if you want to add anything.

[Warren Stone, President and COO at NeoGenomics]

No, I think, Jeff, you've covered it. I don't think there's too much more to add there.

[Puneet Souda, Senior Research Analyst at Leerink Partners]

Okay. And then just a—go ahead, sorry.

[Jeff Sherman, CFO at NeoGenomics]

No, no.

[Puneet Souda, Senior Research Analyst at Leerink Partners]

Just a quick follow-up on cost, if I may. What are other initiatives that you have in place in order to lower the cost, just given the NGS growth? Is it the softer near-term second half or does recover and lower core AUP growth?

[Jeff Sherman, CFO at NeoGenomics]

Yeah. I would say from an overall operating leverage perspective, we continue to get operating leverage just with volume growth. We still have a relatively large fixed cost lab infrastructure. Adding incremental volume will generate operating efficiencies there. We have several initiatives underway to continue to drive operating efficiencies. Our LIMS project is continuing. That will be a long-term driver of operating efficiencies when we can have lab and pharma staff working off of one platform and really being able to commingle staff more efficiently. I would say secondly, just from an automation kind of lean Six Sigma perspective, we still have a lot of work underway in our labs on how to optimize our process flow. That includes lab automation. It includes how we use technology differently. That remains, we would say, a significant opportunity.

[Jeff Sherman, CFO at NeoGenomics]

As we've looked at our success so far in terms of improving turnaround time, even with increasing volume, that's been more kind of manual brute force over the last two years. We're really now getting into the phase of really evaluating where we have operating efficiencies and automation opportunities. We'll be capitalizing on those, I'd say, for the next couple of years.

[Warren Stone, President and COO at NeoGenomics]

I think I'll add to that just briefly as well, Puneet. I think, as I said earlier, sort of site footprint is probably another area that is going to create some leverage. Secondly, we haven't moved fully to the NovaSeq X yet. That's going to create further enhancements in terms of cost per test on the NGS side of things. Andrew also mentioned in his commentary about the Ultima partnership. That's going to provide further opportunity. We expect further opportunities down the road as well. I think there's numerous opportunities to drive cost saving.

[Operator]

That's all.

[Tony Zook, CEO at NeoGenomics]

With that, everyone, I want to thank all of you for taking the time to join us this morning. I'll close the way I began. I am truly excited to be a member of the NeoGenomics team. I think we have an exciting road ahead with many, many opportunities. We will look forward to sharing the results of those as we get together in the future. Thanks, everybody.

[Operator]

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.

Participants

Executives

• Andrew Lukowiak, President and Chief Scientist Officer
• Jeff Sherman, CFO
• Warren Stone, President and COO
• Kareem Saad, Head of Strategy and Transformation
• Kendra Sweeney, VP of Investor Relations
• Tony Zook, CEO

Analysts

• David Westenberg, Managing Director and Senior Research Analyst at Piper Sandler
• Matt Sykes, Vice President and Senior Equity Analyst at Goldman Sachs
• Mason Carrico, Equity Research Analyst at Stephens
• Tejas Savant, Research Analyst at Morgan Stanley
• Mike Matson, Managing Director and Senior Equity Research Analyst at Needham & Company
• Andrew Cooper, Vice President of Equity Research at Raymond James
• Mark Massaro, Managing Director and Senior Equity Research Analyst at BTIG
• Analyst at Jefferies
• Andrew Brackman, Equity Research Analyst at William Blair
• Puneet Souda, Senior Research Analyst at Leerink Partners
• Michael Ryskin, Research Analyst at Bank of America
• Dan Brennan, Managing Director and Senior Equity Research Analyst at TD Cowen