Neogenomics Inc (NEO) 2023 Q1 法說會逐字稿

Welcome to the NeoGenomics First Quarter 2023 Financial Results Conference Call and Webcast. (Operator Instructions) Please note this call is being recorded, and an audio replay will be available on the company's website. Kendra Sweeney, Vice President of Investor Relations, you may begin your conference.

Thank you, Paul. Good afternoon, everyone, and welcome to the NeoGenomics First Quarter Financial Results Call. With me today to discuss the results are Chris Smith, Neo's Chief Executive Officer; and Jeff Sherman, Neo's Financial Officer. Additional members of the management team are available for Q&A, including Vishal Sikri, President of Advanced Diagnostics; Warren Stone, President of Clinical Services; and Melody Harris, President of Enterprise Operations. This call is being simultaneously webcast. We will be referring to the slide presentation that has been posted to the Investors tab on our website at ir.neogenomics.com. Starting on Slide 2.

During this call, we will make forward-looking statements regarding our anticipated future performance such as our operational and financial outlooks and projections or assumptions for that outlook, opportunities and strategies for our products and related effects on our financial and operating results. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to our most recent Forms 10-K, 10-Q and 8-K we filed with the SEC to identify important risks and other factors that may cause our actual results to differ materially from those contained in or suggested by the forward-looking statements.

The forward-looking statements made during this call speak only of the original date of the call, and we undertake no obligation to update or revise any of these statements. In addition, during this call, in order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. The non-GAAP financial measures presented should not be considered an alternative to the financial measures required by GAAP, should not be considered measures of liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table available in the press release we issued this afternoon.

I will now turn the call over to Chris Smith, Chief Executive Officer of NeoGenomics.

Thanks, Kendra, and welcome, everyone. Thanks for joining us this afternoon to go through our first quarter financial results. We're going to start on Slide 3. We like to begin every presentation we do, whether it's to our teammates or customers or investors with our mission and vision statement because it's what motivates our company and teammates on a daily basis. Our mission is to save lives by improving patient care. Before we dive in, I do want to thank all of our teammates for everything they do every single day to make Neo such a great place to be and to transform so many patients' lives.

Now let's move to Slide 4 and get into the first quarter financial highlights. We started the year very strong as we continue momentum from 2022 into 2023. First quarter revenue was $137 million, a 17% increase over the prior year. Clinical Services revenue increased 16%, driven by strong volumes across our modalities and an increase in revenue per test. Notably, the first quarter was our eighth consecutive quarterly increase versus prior year in revenue per test. In addition, NGS revenue growth continued to be strong. Pharma Services revenue, which includes Informatics, increased 22%, driven by improved growth in high-margin modalities, -- adjusted EBITDA improved 63% and adjusted gross profit was $60 million, a 38.5% increase over the prior year.

Moving to Slide 5. The first quarter continued momentum we have seen throughout the past 4 quarters. Historically, our business is seasonal with the first quarter being a little softer than others. So, this year-over-year accelerated growth is a testament to the strong execution by our Neo teammates and the growing demand for our products from our existing client base as well as new customers. We are pleased with the performance as some of our operating and revenue cycle initiatives are taking hold, and we believe that we have the ability to continue to drive improvements in the business throughout the remainder of 2023 and beyond.

Turning to Slide 6. At NeoGenomics, we have approximately 2,200 teammates worldwide focused on developing innovative oncology diagnostic solutions. We have a significant share of oncology patient testing volume in the U.S. and one of the largest patient oncology databases. Our belief is that everything we do starts with our patients. And if we do the right things in this underserved and growing market, we are ultimately going to create long-term shareholder value. At our Investor Day last month, we laid out our strategic priorities for the next 18 to 24 months, which are probably grow our core business, accelerate advanced diagnostics, drive value creation and enhance people and culture. We have a great team at NeoGenomics and continue to enhance this team and our strong mission-driven culture is critical to our long-term success. While much of this won't be visible to outside the organization, this work is a key foundation to everything else we do operationally.

For today's call, I'm going to focus on our other 3 priorities. In Q1, we made great progress in all 3. As we move to Slide 7, let me touch on a few highlights in each of the focus areas. Beginning with profitably growing the core business, we continue to see strong growth in our clinical volumes across all modalities. NGS revenue growth continued to be strong, a result of our product offering and ongoing sales force expansion and optimization, which has allowed us to reach oncologists and pathologists more effectively as well as creating strong growth in revenue per test. Additionally, we set a record in Q1 for the highest volume of test processed per quarter in the history of NeoGenomics, a testament to our core business growth.

For our second priority, accelerating advanced diagnostics, we repositioned our go-to-market approach with successful launch of RADAR MRD assay in 4 indications: breast, lung, head and neck and colorectal. The radar assay has been available over the last year for use in clinical research studies and pharmaceutical collaboration. Now it's fully available to U.S. clinicians to detect small amounts of cancer fragments with up to 10x greater sensitivity than other tests available in the market, which allows clinicians to identify cancer recurrence earlier.

In the first quarter, we also expanded our NGS portfolio with 3 new tests, including neo comprehensive for solid tumors. We have completed our MolDx emission for RADAR in breast cancer and are track for submitting 2 additional indications by year-end. In addition, we have completed the build-out of our pharma and informatics sales force teams, which positions us well for continued growth. And our third priority, driving value creation is well underway. We have prioritized an increase in productivity and efficiency, and we're beginning to see results here as well. Even with a significant increase in testing volumes, we have continued to improve turnaround times by 17% in the first quarter, thereby delivering results to patients and clinicians even sooner. Additionally, we have generated significant operating leverage as a large percentage of revenue favorability fell through to the bottom line. Overall, it was a fantastic quarter. Now I'd like to turn the call over to Jeff to review our financial results in more detail.

Thanks, Chris. Good afternoon, everyone. I'll begin with a little more detail on our operating results for the quarter. As Chris said, we started the year with accelerating revenue growth and continued improving financial performance. First quarter revenue was $137 million, a 17% increase over the prior year. Q1 represents the highest revenue growth by quarter since Q2 of 2021. Revenue growth was driven by growth in clinical test volume, a continuing shift to higher complexity tests, improvement in revenue per test and reductions in turnaround times. Turning to Slide 9. Clinical Services revenue of $115 million was an increase of 16% year-over-year, driven by a 7% increase in volume and higher revenue per test. We are encouraged that our sales force optimization strategies, enabling us to reach oncologists and pathologists continue to show progress.

Turning to Slide 10. Average revenue per clinical test increased by 8% to $402, representing an improvement for the eighth consecutive quarter versus the prior year as we turn our focus to higher-value tests and revenue cycle management initiatives. Turning to Slide 11. Pharma Services revenue increased by 22% to $22 million compared to the first quarter of 2022 driven by both price and higher volume in pharma as well as by strong revenue growth from informatics. Looking at the income statement on Slide 12. Adjusted gross margin was 43.5%, an improvement of 670 basis points over the first quarter of last year. Adjusted EBITDA was negative $7 million, a $12 million or 63% improvement over the first quarter of 2022.

These significant improvements were driven by both higher gross profit and lower operating expenses and highlight the operating leverage in the business. Regarding operating expenses, sales and marketing expense was $16.3 million. G&A was $61.5 million, and R&D expense was $7.4 million. In addition, there was $4.7 million in restructuring costs in the quarter related to the previously announced organizational restructuring and footprint optimization. Turning to the balance sheet on Slide 13. We ended the first quarter with cash and marketable securities of $418 million. Our cash burn in the quarter was $20 million, an improvement of $14 million or over 40% from Q1 2022. Our strong financial position provides us the financial flexibility to continue to invest in the business and achieve our strategic and financial objectives. Given our Q1 financial performance and continued progress executing on our strategic priorities, we are revising our revenue and adjusted EBITDA guidance for the year.

Turning to Slide 15. We previously had revenues at $545 million to $555 million, representing 7% to 9% growth in 2023. We are revising that range upward and now expect total revenue between $555 million and $565 million for the year, representing 9% to 11% growth. Adjusted EBITDA was negative $27 million to negative $22 million and is now a negative $22 million to negative $18 million, representing a 54% to 63% improvement. We continue to see strong revenue growth and an increase in NGS product mix and are very encouraged by the opportunities for RADAR and Neo comprehensive. As the year progresses, our year-over-year comparisons will get more difficult, but we believe we have a strong foundation and dedicated teammates to deliver financial results. While we continue to be focused on driving operational efficiencies, we will also continue to invest in the business to capitalize on our future growth opportunities. Our strategic focus remains to deliver long-term sustainable growth. With that, I'll turn it back over to Chris.

Thanks, Jeff. As we move to Slide 16, it provides a quick summary of the quarter. We're very pleased with our year-over-year progress, including strong revenue growth of 17% and significant improvement in adjusted EBITDA. In addition, we saw meaningful progress in the execution on our strategic priorities. Therefore, we are raising our full year guidance. We are well on our way to becoming the leading cancer testing information and decision support company. We will continue to build on the foundation we have laid over the past several months to deliver long-term sustainable growth. I'm excited for our teammates and our customers and most of all, the patients with cancer who we serve on a daily basis. Thank you for your time, and I'll turn it back to you, operator.

(Operator Instructions) And the first question today is coming from Puneet Souda from SVB Securities.

Chris, first one, and congrats on the strong quarter here. And when we look through the cadence for the rest of the year, what are some of the things that you are sort of watching out for? I mean, because the guide increase, you beat our number by $10 million. The guide was increased by a proportionate amount. But just sort of wondering what sort of things that you're counting as prudent in the guidance, if I may.

Yes. Look, I think that's a fair question, and we're probably going to get it asked. I mean you're asking for folks that have been following us. And look, I think there were a couple of things (inaudible). I think when we came in and evaluated the business as a relatively new leadership team. We saw a great franchise with significant opportunities. And we put these strategic focus initiatives into place and really began executing it. And candidly, I think that those are coming to fruition quickly, right? And I think in any business, like how long does it take for a rep to become effective? Or how quickly can you improve operating efficiencies?

Or how do you get leverage? I mean, launching new products -- and I think what you're seeing is that these -- like -- and I always talk about the portfolio effect. But what's happening is a lot of things are coming together. And so, we feel very comfortable raising the [guidance]. You know that our nature is generally we want to overpromise -- excuse me, under promise and over deliver. And I think that's what we try to do by setting initial guidance. And I think as we're getting to know the business and it's performing well, we feel really good about where that's going. So, I don't know -- I hope that answers your question.

Look, I would say MRD, if we get radar MolDx, we submitted in the first quarter for breast, which is one where we believe we're incredibly differentiated on sensitivity. We launched -- we were probably behind our competitors on solid tumor with NGS. We launched a new solid tumor product for NGS. So, I think those are important things. And then these reps that we're hiring, whether it's in informatics, pharma or in the clinical, getting them to get traction. And so now it's about this long-term sustainable growth. So, we just -- we've talked a lot about expanding Houston, that's well underway. And so, there's a lot of things operationally whether IT infrastructure set that we're working on. But I think some of these initiatives where you can move the lever from a financial perspective are taking hold.

Yes. And I would just add, I think we just need to continue to focus on strategic execution. As Chris noted, with the new salespeople coming on, ramping them up, making sure we're getting the right education and training on that. I think will also have an impact. And look, we're going to continue to make investments as we said, as the year progresses as well. So, we'll continue to make investments in the second, third and fourth quarters, which will have long-term benefit as well.

Yes. And we've talked about this. It's a great business, but it needs to execute. And I think what you're seeing is execution.

Got it. That's super helpful. On AUP, that obviously improved in the quarter. Sort of how much of that was NGS contribution and sort of when we think about the overall guide, how are you contemplating the AUP within the context of this guide? Jeff...

Yes, I think when we gave guidance, we didn't break out the different buckets. But I would say we had good progress in revenue cycle initiatives. The NGS volume mix continued to be strong, and that also contributed to the revenue growth. And we've also talked about, we've had some pricing success as well. So, I'd say all of those are factors that contribute and I think give us pretty good visibility for the remainder of the year on AUP.

The next question is coming from Alex Nowak from Craig-Hallum Capital Group.

Chris, it's actually Chase on for Alex. I guess, first from us, a little bit more on the qualitative side. Since you split the organization, the sales force into that new structure that you outlined pretty well in the Analyst Day. I guess any more kind of smaller kind of more specific kind of details that you can give us on any major wins or kind of new progress that you've seen that maybe you were a little bit stagnant on before that this new structure has kind of allowed you to target your customer base in a different way.

Yes. I'll take it, and then I'll let Warren who's here, who's leading that group to follow up. Look, I think at the end of the year -- so first of all, we don't disclose specific customer wins or losses, right? I mean this is a highly competitive industry, and we're pretty sensitive putting that out there. But I will say, and Warren, maybe can expand. We talked about in the fourth quarter that for the first time in probably 18 months, we won more than we had lost. So, we are winning more accounts than losing. And then I think Warren talked a little bit about that at Investor Day, but do you want to add any more color without specific accounts?

Yes. I think that's spot on, Chris. We spoke about the commercial strategy at the Investor Day, which was protect, expand and win. And ultimately, that played out really well in quarter 1. Ultimately, we won more new customers than we lost. And specifically, we may have lost 7 and we won 28. So, the net effect is positive there. And that's ultimately, as we start to use digital tools, particularly Salesforce and other AI-enabled tools, we're able to gain execution traction, and these are some of the results that we're starting to see printer.

Yes. And I think a testament is look what the volume growth was, I mean north of 7%. So, I think you're getting both.

Yes, that makes sense. And then last from us. You had a large lab here within MRD acquisition with Haystack, I guess now becoming kind of competition there, and certainly, they're going to bring a large non-MRD menu as well, how do you think you kind of you'll compete there with them also being able to offer kind of a full service offering kind of like your value proposition?

Yes. So, a couple of things. I'm going to answer and then I'll let Vishal who's on the line also. So, look, at the end of the day, I mean, Quest was a big competitor already that offered a heck of a lot of tests in oncology. And so, we're competing against them every day. And look, I think that acquisition is great for the market. It's a $20 billion or going to be a $20 billion market. It's less than 1% penetrated. So, I think competition is great. That being said, HayStack not even commercial yet. So, there's a long way to go before MRD is in the bag with Quest being sold. And I always joke that people don't die of indigestion. I mean of starvation they dive in digestion with acquisitions. So they got to still -- look, I -- we're sticking to our plan. And I think, look, I applaud the acquisition. I think it was a good acquisition. It will be good for the market, but I wouldn't -- we're not -- that's not something that we're focusing on our own knitting versus worrying about them right now. Do you want to comment any more of Vishal?

No, I think you said it, Chris. I think it's overall good for the MRD market as a whole shows you that that's where the market and the clinical practice is moving to. Having said that, they're pre-revenue right now, and they have a long way to go. So, we're pretty comfortable where we are today.

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

Congrats on really a strong print here. So, I just want to get back to the gross margins. Now the gross margins were way up sequentially. Mix is really good. I think historically, in 2019-ish, you were in the high 40s. Do you have higher confidence now that you can really get to that? Are you seeing that leverage in the GM so we could see that maybe get up into the 40s, maybe faster than we had thought initially just given the really good sequential step-up in returning to that?

Yes. I think we said on Investor Day, we expect to return to the company's historical margins by 2026. Obviously, continuing to perform well and execute will give us more confidence of getting there over time. But I think, again, similar to Q4, Q1 is just a good example of the company's ability to generate operating leverage on that revenue growth. And so, I think adding growth will certainly happen will certainly help drive that. As you look at Q4 versus Q1, we did see, as expected, a decline in pharma, and there's relatively more fixed cost in our pharma business than our clinical business. And so, you did see clinical gross margins up $3.6 million and pharma down $5.6 million, but we were expecting that. So overall, it came in stronger than we were initially expecting. So, I think clinical is really helping to drive that. And so, I think the mix of the business in any particular quarter can have an impact. But overall, we are very focused on returning the company to profitability and producing free cash flow. And I think this is another good quarter in progress to get to that point.

Got you. You have a lot of analysts, so I think this is a short question here. Can you remind us where you're at? I think on the Analyst Day, you said -- you talked about sales force hires. And where are you at in those hires? And has this been hitting the P&L yet? Because again, you did get really good operating leverage. But -- so anyway, just that quick remind...

I'll let Warren go into detail, and if Vishal wants to comment at all on his. But I mean the shales is full with Farm and radar much smaller sales forces, but you also want to give an update where...

Yes. I'll start just on the cost side. So, you're not seeing much of a ramp yet in sales and marketing expense. Look, we also did some revisions in some of our comp plans as well. So, I think there's a lot of factors in there. But I think I would expect to see sales and marketing ramp as the year progresses as more of these reps come on, start being productive, having commission and salary cost. And so, there was some in the quarter. It was offset by some other things in the quarter, but I would expect more to progress. And that is part of the investment we talked about in Investor Day for our guidance that you should expect that number to ramp throughout the year.

So, David, very similar. I think if you take what Jeff said from a cost perspective, I think the sales or revenue evolution is pretty self-explanatory. We're rapidly bringing people on. I think we have 6 more positions to fall, which will be done by the end of this month. And some of those were filled earlier in January, they are starting to get to productivity now. And we really feel that we're in full stride as we get into H2.

Those 6 or 3 or H1 higher than you've got the...

The 6 of the H1 hires, and then there's a Phase II in terms of further sales force expansion that we will do in the latter part of this year.

The next question is coming from Dan Brennan from TD Cowen.

Chris, congrats on the quarter. Maybe starting off just on Nevada and kind of radar. Just kind of remind us, so you're expecting a decision this year, back half, Q3, Q4, any way for us to think about timing there? And then I heard you said during the prepared remarks, you're expecting 2 more indications this year. I thought I don't know at the Investor Day you said 3, but maybe just maybe a little more color on that front as well.

Yes. I'm going to let Vishal jump in, but I want to clarify, we submitted breast in Q1. And historically, they take a 60-ish first pass review time line. So, we'll be in communication with them in Q2, just so you know on that one. And maybe Vishal can even talk about how we're managing all of that around a MolDx and breaking up breast in a different disease states, et cetera. Vishal, you want to take that?

Yes, absolutely. So yes, as Chris mentioned, we submitted in Q1, we do expect to have that conversation with them in Q2 or early Q3. It all depends on the time lines from their side. But we do expect 2 additional indications to go in this year and a total of 3 for the year is what we had said.

Got it. Okay. And then maybe just on NGS, I know you're not giving us too much color there, but just any way to think about the impact or just qualitatively, the impact, I think you talked about maybe 20% growth at the Investor Day. So -- and kind of what's the early traction on new comprehensive from customers that you've rolled it out with?

Yes. I'll let both of those guys take that. But look, remember that our thing was to be above 20%. So, I can tell you that we were well above 20% for the quarter. But do you guys want to give...

I think in terms of Neo comprehensive, we only launched the product in mid-March. And I'd say we met our expectations in the month of March, and that trend continues.

Vishal, do you got anything else?

No, I think that's it, right. I mean, we're on target to where we thought we would be.

And the next question is coming from Andrew Brackmann from William Blair.

Chris -- maybe on the Pharma Services revenue line, can you maybe peel back the onion there a little bit and just sort of talk about the makeup of that number. Could we sort of take this to be a more healthy number, I guess, with more of those profitable projects coming through? Or is that still something that's sort of in flux and that should start to improve throughout the year?

Yes. Let me let kind of Jeff and Vishal talk about it, but we don't disclose or break out the specifics in that (inaudible). I mean we talk about informatics, but -- but I think, Jeff and Vishal can probably paint some color.

Yes. So, I'll start, and I'll let Vishal jump in. So, we said Q4 was pretty strong, right? And we had some big significant radar growth in Q4, and we had some pretty strong informatics growth. I would say overall, all 3 had good growth. Our legacy pharma informatics and in Nevada in the quarter. So, I'd say we're certainly on track to where we expect it to be. We haven't gotten into the specifics, but I think we are set up pretty well as we look at the rest of the year. And Vishal, do you want to add anything else?

No, I think you're right... Right? I think as we look to a seasonal effect that always you see at the pharma business, in general, Q1 has always been our lowest quarter for the year. So, I mean, we do expect that where we are and how the quarter has gone that we do see good growth going into the rest of the year.

And the next question is coming from David Delahunt from Goldman Sachs.

Congrats on the strong quarter. Any additional color on the drivers of that increased volume that led to the beat?

Yes. I mean we kind of hit it. I mean we really spent a lot of time -- look, I think we've talked about that we hired -- we started hiring 20 oncology reps in the second half of the year and then have rapidly tried to expand that. We've been pretty open that we're going to get to 45 by the end of the year. I think we'll get 2/3 of the way there in the first half. I think when you start to get new folks -- and to be fair, I would say a lion's share of that group is coming from the industry. So, they have deep relationships and knowledge. I think they can make an impact relatively quickly. I mean I think one of the things we've talked about this business that we like is that there's -- it's not -- you're not placing an analyzer in the hospital basement or 5-year contract, right? You can move business pretty quick.

And so, I think I'd say the expansion and the optimization definitely of the field. I mean I would say that Warren talked about this. I think our go-to-market strategy and the way that we think about winning accounts and doing bid process and being more thoughtful in places where we maybe don't have a product category. So, remember, we have over 600 tests. I think -- and I use that a lot on the word optimization. I think what you're seeing is a lot of things around execution. And that's...

Yes. And I would add just a couple of things that we hit on an Investor Day. One is a sense of urgency and 2 is accountability. And I think Warren and the leadership team have certainly brought that. So, I just think it's focused on execution and its leadership and it's holding people accountable for results.

And maybe just 2 other things that I'll add.

I do a shout out to Melody too. I would say our turnaround time. No one's asked ops question, but Melody's on the call. And we should talk about turnaround. I'm sorry, weren't interrupt. You may have been throwing…

I want to just mind just say thanks. I think ultimately, it's much easier to execute a strategy when your turnaround times are going and continue to improve. And A number of our clients have recognized that. So that's positive. And that's helped us also expand share of wallet, which is really the in our Protective fan Win strategies. It's not only about retaining existing customers, winning new ones. It's selling more to existing customers, and we've done that effectively. And that's really supported by the improved turnaround times that Melody and the team from the upside are doing a great job on.

And the next question is coming from Tejas Savant from Morgan Stanley.

Chris -- good start to the year. So, congratulations. Just one on neo comprehensive, perhaps to kick things off. I know you mentioned it's still early days in the launch, but perhaps Vishal can take this. Any color you can share on the degree of switching you're seeing in those sort of oncology accounts from existing sort of users of other people's tests? And how many of those are essentially sort of first-time CGP users that at least so far, Vishal?

Okay. I think it's still a little bit early. We launched just a year -- sorry, a month ago. So, I think we're still going to look at that. I would say that right now, where we thought we would be, we're well on track for that and meeting where -- from a forecast perspective. But I think it's still early days to see how much of it is coming from market share taking from other competitors and so on.

Got it. Okay. Fair enough. And then on the pharma side of things, guys, I mean, any evolution in your thought process around just midcap biotech funding? Any sort of sample shipment delays or budget constraints that you're picking up on, especially at your smaller customers?

Vishal, do you want to take that?

Yes, I can take that one, too. So, what we do see is that there is an impact that we're seeing in some of our traditional modalities in general, but we still see very strong demand for our -- what I call our high-margin modalities like NGS, like RADAR and so on. So -- but we do see a little bit of impact, but we think that we can make it up on the other side.

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

I guess I'll start with an ops question since nobody else had yet. We talked about it a decent amount at the Analyst Day. But when we think about that automation journey, the sort of lab optimization, expanding in Houston, all of those moving parts that I think are -- so far, you've managed well. Just what inning do you feel like we're in? And where are sort of derisk points versus the derisking gates that you'll be getting through that we can sort of try to track as you move from where you are to ultimately where you want to be to continue to be able to direct those margins better?

I'll give the high level and then I'll let Melody give you more color. Look, I think we're still early. I would say second ending, I mean, I think, look, I think when we bought Inivata they had pretty good -- I mean, automation, we didn't have a lot of that. It's one of the things Melody spending time on. But Melody, do you want to give some more color around what's going on?

Sure. So, I would agree with Chris. We're maybe inning 2 and 3 for this journey automation. We have taken -- as Chris said, the INVITA line was fully automated. That remains fully automated. And so, we'll replicate that in the Houston expansion as we go there. And then we're slowly starting to add automation to our other modalities. And so, we showed you some of that Investor Day with the deep neural network AI that we're starting to use in our cytogenetics line. We're adding more automation in our molecular line. So that's beginning, we're taking good steps there. You asked about some of derisk points. Supply chain will, of course, be a risk as we expand in Houston as we're trying to get some of our long lead items for that buildout and then similar supply chain issues on automation pieces. But because that rolls out relatively slowly, that's not going to be as much of a risk for us.

Melody, do you want to also talk about your networking, you're starting to think about the flow together with all the dry lands?

Absolutely. So, we are scanning more and more of our images and our -- we're doing digital HMEs and uploading to the network so that we can move our analysis away from the wet lab itself. The locations for the wet lab and the build-out around that can be more expensive than if we are in office space or less expensive real estate space where we can hold our analysts in those locations. And so, by digitizing our work, we're able to load into the network, do the analysis over the network. And then we're also gaining some advantage across time zones that's helping us improve our turnaround times there.

Go ahead. Okay. If I can just sneak one more in on...

He didn't have the question you might as well... Thank you for giving us...

Just appreciate it. Just on kind of the OpEx side as well. When we think about this sort of transition, selling more into the oncology suite driving more of these sort of advanced diagnostics. When we think about the back end of billing and reimbursement, I think historically, a lot more sort of hospital billing versus maybe where you end up. What's the spend, what's the lift that you need to do? And where are you in kind of that process to continue to stay up to speed and keep up with hopefully the growing volumes that maybe go a little bit more kind of the traditional payer route than what your historical business might have been?

Yes. I think from the revenue cycle side, as part of our IT evaluation, we're clearly evaluating our current revenue cycle platform and seeing how do we enhance that. So, I do think that's probably more of a 2024 from a capital investment perspective, but we're certainly sizing that and looking at that for the back half of the year. But I think the infrastructure is in place, but I do think there are some technology investments that we can make that will help accelerate revenue cycle and give us a little bit better visibility. But I think we have a good structure in place. I think some technology adds will help on that. And that will clearly be a focus as we go in the back half of the year, looking at how do we optimize going forward in 2024 and beyond.

The next question is coming from Mike Matson from Needham.

This is Joseph on for Mike. I think probably only one question, maybe love to ask. So, I appreciate all the color you guys gave on the increases in revenue per test with revenue cycle management as well as just those higher priced assays in GS assays. But I didn't hear any you say anything around maybe pruning of the test menu. I believe maybe at the Investor Day or previously, there had been talk about maybe taking out some of the lower price tests or maybe test that don't really see a large amount of volume aren't really ones that really move the needle. So, I was curious about that if any work has been done on there.

Yes. I think that's an ongoing effort. I'm not sure you'll see material impact in AUP from that, but that is an ongoing effort that we're looking at, and I think we'll continue to refine over time.

Okay. Okay. And then I guess, maybe a similar question just for Pharma Services though. In terms of shifting towards trying to get to the earlier phases were where can, I guess, be completed, the throughputs higher. That's a similar thing that's just going to be an ongoing thing work over time?

I think -- yes, I think we started certainly in the second half of 2022. I think that continues, and I think we've had pretty good success there. And clearly, the focus is on near-term revenue generation, both in how we are compensating reps and even our whole approach. I think the whole approach of really taking out bookings even from our earnings really says we're focused on clear revenue drivers that we have better visibility on in the next couple of quarters versus over multiyear periods.

Yes. Okay. Absolutely.

The next question is coming from Derik De Bruin from Bank of America.

So, a couple of questions. So, you had a -- looks like a 5% quarter-on-quarter increase in price. Is that sustainable that sort of run rate? Or is there anything unusual, just basically thinking about how to look at pricing the rest of the year? And I guess when you sort of look at this, are you getting -- are you doing things with the pricing at your competitors' rates? Are you pricing a premium? Just sort of thinking about how to think about that 400 number and how that moves up.

Yes. Well, some of these obviously have set reimbursement but not all the cause of that process. And look, I think pricing is one of these levers that we significantly under managed as a company, whether it's standard price increase, whether it was chasing revenue cycle management or improving our relationships with payers and getting a premium for the services and things. And so, I do think it's sustainable. I don't know that I would say what the percentage was every quarter. But look, 8 quarters in a row, we've been doing it. I think especially when you look short term, when I think short term of 12, 18 months, our mix will continue to be lifted. We're a leader for sure on NGS and heme, but we're way far behind on share from a solid, which is where the market is moving, which would be probably our highest ASP. And so, as we continue to grow our share of that market, it's going to also help us. So, I think there's a lot of things going on. And so, I will say internally, it's our goal to do that. I don't think we'd go out and disclose how much, but I would say, yes, I mean, it's...

Yes, I think we have -- I wouldn't extrapolate 1 quarter for any type of trending. It was a strong -- it was definitely a strong quarter, but we do expect the levers that we are pulling, which are higher intensity tests, revenue cycle improvements as well as pricing benefits, all are going to have a positive impact over time. But I wouldn't try to guide you to a specific quarterly impact. But in Q1 was definitely a strong quarter.

Got it. And that sort of leads to my next question. I'm just how to sort of think about the second quarter. I mean Q1 came in so strong. And as you pointed out, it's usually your seasonally weakest quarter. Just some thought on the quarter-to-quarter increase there. I'm not sure -- I'm not quite sure what to make of the modeling at this point. Just is there any general thoughts on it? I mean I mean, I don't know if you would model what you've historically seen in terms of jumping between Q1 and Q2? Just any sort of like thoughts.

Yes. I think we said in Investor Day that we expected a progression throughout the year from -- on a quarter-over-quarter basis. So, I'll kind of just stick with that as you think about the quarters versus the prior year quarters as you think about revenue for the rest of the year.

Yes. But I would definitely -- I said that in the first question, like, look, I think we're getting momentum from the initiatives. And so enough that we significantly raised guide. So, I think we feel good about how things will continue.

The next question is coming from Mark Massaro from BTIG.

Okay. Yes, I was on mute. So, you haven't -- not really -- you guys haven't had a question on RADAR yet. So, I recognize that you're not quite 2 months launched, but you're coming up on 2 months. The market leaders seem to have some degree of entrenchment in CRC. You guys are launched in head and neck in lung as well as breast and CRC. I guess, recognizing that it's really early. Are there any takeaways out of the first almost 2 months of launch in terms of volumes? And I'm curious if that strong volume growth that you had in Q1 included some volumes from RADAR clinically.

Yes, it really wouldn't have had any Revenue... Because clinical side. Yes, on the clinical side because we are just sending kits out late. So, by the time a kid gets out, turns gets in, we run the test like we wouldn't have had any revenue. But Vishal, you want to talk about how it's going? And Lauren, do you want to jump in too.

Yes. So, I would -- as Chris mentioned, Q1, because of the -- how long it takes to complete the testing and so on, we wouldn't have seen that in Q1. But I would say that where we feel that we have our strengths in breast cancer in head and neck cancer, we're starting to see good progress there in line with where we thought we would be. So, I think that's really positive. And the market uptake, especially because of the high sensitivity of the RADAR assay really is showing in those type of cancers. I would also say that we're getting good interest from people that are starting to use it that want to see applications in other cancers where they feel that sensitivity matters. So, we're also exploring those type of opportunities at the same time (inaudible).

And then I do want to press into volumes again. We haven't seen volume growth like this in approximately 2 or 3 years. So, I think we could -- investors could probably benefit from -- I know you talked about NGS was well above 20%. What are you seeing in terms of end market demand? How much of the volume growth came from the hiring of new reps? And any commentary about end markets like in fish and flow?

Yes. Look, I would say in the quarter, I'll talk -- in the quarter, I would say really, every modality grew above where we had been growing that business over the last months. And I think a lot of that was back to this thing of winning a lot more accounts. And look, I think the obvious one everybody wants to focus on is NGS because it's kind of out there is being talked about. But we're seeing really, for example, heme, NGS is a business that's not supposedly growing. And I will tell you, our business grew significantly because we're the market share leader, we were moving share.

That's a new rep. I would say Warren talks a lot about expanding the wallet or winning. I would say that, look, we know where the industry is growing, and I think we were growing below the industry. And I think what you're starting to see is a business that's executing from a field perspective. And I do believe our strategy of having a rep group for pathologists and a rep group on oncologist is very unique in this industry, but making a significant impact on what the number of reps that we have can do compared to a rep group that call us on oncologists and pathologists because it is such a different call point.

Congrats on the quarter.

And the next question is coming from Mason Carrico from Stephens.

This is Jacob Krahenbuhl on for Mason. Congrats on a really strong quarter. A lot's already been covered here. So maybe just a quick one on your revenue cycle management initiatives. And this amount have already been touched on a little bit earlier, but you guys have talked about a number of initiatives on this front at your most recent Analyst Day. So, I was just wondering if you can maybe give us a further update on what's been implemented so far and what initiatives are still ahead of you on this front?

Yes. We've done a fair amount of work on getting more billing information upfront in the billing process when we get a test requisition and moving more to more automated ordering of our tests. So those -- we've made good progress on both of those in the quarter. I would say we've also made progress just on getting paid for work that we're doing. So, I think there's a lot of focus on just looking at the test we've done, how we've been paid historically, particular payers or patients and what we need to do to get -- actually get paid, and we've seen some improvement in some lift in our revenue as a result of that. Where again, we already had the test volume. We already have the cost, but where we're having more success in actually getting paid for the work done. So, both of those are probably 2 of the bigger areas that we've made progress on, and I think are still see a lot of opportunity to improve as we go throughout the year.

Thank you. And there were no other questions in queue at this time. I would now like to hand the call back to Chris Smith for closing remarks.

All right. Thanks, Paul. And everyone on the call, thanks for catching up this afternoon. It was great to be able to share the quarter with you and then also go through some questions, and we'll look forward to seeing you on the market. (inaudible) Take care. Bye.

Thank you. This does conclude today's conference. You may disconnect at this time, and have a wonderful day. Thank you for your participation.