NeoGenomics, Inc.

Welcome to the NeoGenomics fourth quarter and full year 2023 financial results conference call and webcast. At this time, all participants are in a listen-only mode. Please note, this call is being recorded and an audio replay will be available on the company's website. Kendra Sweeney, Vice President of Investor Relations, you may begin your conference.

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

Hey, thanks, Kendra, and welcome, everyone. Thanks for joining us this afternoon to go through our fourth quarter and full year financial results. As always, I really want to begin with our mission and vision statement because it's what motivates our company and our teammates on a daily basis. Our mission at Neo is to save lives by improving patient care, and we just had our global sales meeting at the end of January, and many of our teammates shared how cancer has impacted them or their families. and how we're making a difference in their lives. It's always a great reminder of why we do what we do, and I'm so proud of the impact we're having on patients and local communities we serve. Now let's move to slide four and get into the fourth quarter highlights. As you can see, we had another strong quarter, growing revenue 12% over prior year to $156 million. Clinical services revenue increased 20%, driven by strong volumes across all our modalities, and another increase in revenue per test. As a highlight, NGS grew in excess of 40% and now represents over 25% of our clinical revenue. The strong growth in clinical services helped to mitigate the expected lower revenue in ADX due to a strong comparable in ADX in Q4 of 2022, as well as macro conditions in pharma sector and margin optimization initiatives that we took in 2023. From an adjusted EBITDA perspective, our progress has outpaced our internal plans. We achieved positive EBITDA in the third quarter of 2023 and significantly improved again this quarter. Adjusted EBITDA was up 900% as compared to Q4 last year to a positive $9 million. Adjusted growth profit was $73 million representing a 46.7% margin, an improvement of 225 basis points compared to Q4 in 2022. Turning to slide five for the full year 2023 results, revenue was up 16% versus prior year to $592 million, driven by penetration in the community oncology market, higher volumes, a shift to higher margin modalities, and improvements in revenue cycle management. Adjusted gross profit was $264 million, representing adjusted gross margins of 44.7%, and adjusted EBITDA was positive $3 million for the full year, an improvement of $51.5 million, or 107% versus prior year. Now on slide six, I'm pleased that the fourth quarter continued the trend that we've seen throughout 2023 of consistent sequential improvement in revenue, adjusted gross profit, and adjusted EBITDA. Notably, our revenue growth has been strong each quarter of the year. We've built a momentum of reaching positive adjusted EBIT on Q3 and carried that into Q4. We believe that we've laid solid foundation for growth in 2023 and expect that momentum to continue as we move throughout 2024. Let's move on to slide seven. As you may recall, at the beginning of the year, we laid out our four focus areas for 2023. They included profitably growing the core business, accelerating advanced diagnostics, driving value creation, and enhancing our people and culture. The more time I spend in the business, the more impressed I am with our unique competitive position in the marketplace, with a breadth of cancer tests, our operational capabilities, and passionate teammates that lead our business every single day. We are a leader in oncology testing with a significant share of patient test volume in the US. Our deep relationships with community pathologists and oncologists provide us an advantage in the market and our focus on oncology testing has allowed us to develop extensive patient databases and relationships, and we view ourselves as a collaborative partner to pathologists, oncologists, hospitals, and biopharma companies we serve. Beyond these market conditions, it's the strong execution by our teammates that enable us to deliver such strong quarterly and full-year results to our stakeholders. Our teammates are the foundation of our company, and we have strengthened our team throughout the year with key hires at all levels of the organization including sales, lab operations, corporate functions. These new hires joined a highly talented group of individuals of varying backgrounds and experiences who contribute to our distinguished culture that reflects our commitment to diversity, equity, and inclusion. This afternoon, I'm going to focus on our three financial priorities. We continue to properly grow our core business as we execute on our commercial strategy, protect, expand, and acquire. which has contributed to our strong volume growth, increased AUP, and improved mix. Execution of this strategy enabled us to serve more than 600,000 patients during the year. Our continued improvement in turnaround time has contributed to or at or above market growth rates across all modalities. In addition, the mix shift towards higher value modalities and tests has supported the delivery of yet another quarterly improvement in revenue per test. Over the last 18 months, we've doubled the size of our sales force, increasing coverage and penetration. We also introduced NeoAccess and NeoSeq software solutions to support providers in their clinical decisions and inform patients with upfront benefit checks, as well as to identify patients who may be biomarker eligible for new therapies or a clinical trial. As a result of our increased coverage, clinical support, and patient-centric mentality, We maintained our customer experience leadership in the market with a three-point improvement in net promoter score, which is now at 70. Within our advanced diagnostic division, which includes pharma services, informatics, and R&D, we continue to focus on acceleration of innovation in R&D. ADX gross margins improved 368 basis points over Q4 of 2022. We built a robust product development roadmap to maintain a competitive position in solid tumor therapy, selection, MRD, and heme, with the goal to gain market share in solid tumor and maintain our leadership position in heme. On the R&D front, we launched 12 new or upgraded assays across heme and solid tumor in 2023. Within informatics, we announced a collaboration to advance heme research and AI solutions with a data set that covers over a million patient lives across more than 1,000 oncology clinics. The progress and innovation was displayed throughout the year as we presented new data at several conferences. We have focused on driving value creation from a financial perspective, and we are pleased that we have delivered even further margin expansion in Q4 with efficiencies driving enhanced operating leverage. Our enterprise operations team has delivered yet another quarter progress in turnaround time, ending the year with 28% improvement over Q4 of 2022. We have now completed the consolidation of three international labs, primarily into our Cambridge, UK location. Earlier this year, we kicked off our LIMS project that will bring all of our prior acquisitions that were utilizing separate LIMS systems onto one platform, which will further enable our digital transformation strategy. We have now completed the first phase of user requirements and expect to begin to see the benefits of LIMS in the back half of 2024. Before I hand it over to Jeff, I do want to address the ongoing litigation regarding radar. It's our policy not to comment on ongoing litigation. However, I will say that NEO is committed to serving cancer patients with MRD testing, and we believe that we have several viable pathways to accomplish that. We've appealed the preliminary injunction to the Federal Circuit and have been granted an expedited hearing, which will occur on March 29th. We intend to vigorously pursue the appeal. In addition, we have moved forward for an administrative stay and a stay pending appeal from the Federal Circuit Court. That briefing was completed February 20th. Now let me turn the call over to Jeff to review our Q4 and full-year financials in more detail.