NeoGenomics - Q1 2023
May 8, 2023
Transcript
Operator (participant)
Welcome to the NeoGenomics first quarter 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.
Kendra Sweeney (VP of Investor Relations and ESG)
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 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, such as our operational and financial outlooks and projections, our 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, 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, we undertake 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.
Chris Smith (CEO)
Thanks, Kendra. Welcome everyone. Thanks for joining us this afternoon to go through our first quarter financial results. We're going to start on slide three. 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. Let's move to slide four and get into the first quarter financial highlights. We started the year very strong as we continue the 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. 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%. Adjusted gross profit was $60 million, a 38.5% increase over the prior year. Moving to slide five. The first quarter continued momentum we have seen throughout the past four quarters. Historically, our business is seasonal, with the first quarter being a little softer than others.
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 we have the ability to continue to drive improvements in the business throughout the remainder of 2023 and beyond. Turning to slide six. 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 18-24 months, which are: profitably 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 key foundation to everything else we do operationally. For today's call, I'm going to focus on our other three priorities. In Q1, we made great progress in all three. As we move to slide seven, 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 tests 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 four 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 10 times greater sensitivity than other tests available on the market, which allows clinicians to identify cancer recurrence earlier. In the first quarter, we also expanded our NGS portfolio with three new tests, including Neo Comprehensive for solid tumors. We have completed our MolDX submission for RaDaR in breast cancer and are on track for submitting two 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. 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. I'd like to turn the call over to Jeff to review our financial results in more detail.
Jeff Sherman (CFO)
Thanks, Chris. Good afternoon, everyone. I'll begin with a little more detail on our operating results for the quarter. As Chris said, we start 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 nine, 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 Salesforce 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-$555 million, representing 7%-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%-11% growth. Adjusted EBITDA was negative $27 million to negative $22 million and is now negative $22 million to negative $18 million, representing a 54%-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.
Chris Smith (CEO)
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. 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 (participant)
At this point, we will open the line for questions. The company asks that each person limit their questions to one so that we may hear from everyone within the hour allotted for this call. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. 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. The first question today is coming from Puneet Souda from Leerink Partners.
Chris Smith (CEO)
Puneet, how you doing?
Puneet Souda (Senior Research Analyst)
Hey, I'm good, Chris. Thanks for taking the questions.
Chris Smith (CEO)
Sure.
Puneet Souda (Senior Research Analyst)
First one and congrats on the strong quarter here. You know, 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 increased... You beat our number by $10 million. The guide was increased by a proportionate amount. Just sort of wondering, you know.
Chris Smith (CEO)
Yeah
Puneet Souda (Senior Research Analyst)
... what sort of things that you're counting as prudence in the guidance, if I may?
Chris Smith (CEO)
Yeah. Look, I think that's a fair question, and we're probably gonna get it asked. I mean, you're asking it for folks that have been following us. Look, I think there were a couple of things, Puneet. I think we, you know, when we came in and evaluated the business, you know, 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. Candidly, I think that those are coming to fruition, you know, quickly, right? 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? I think what you're seeing is that these like...
I always talk about the portfolio effect, but what's happening is a lot of things are coming together, we feel very comfortable raising the guidance. You know that our nature is generally, you know, we want to underpromise and overdeliver. I, you know, I think that's what we try to do by setting initial guidance. I think as we're getting to know the business and it's performing well, you know, we feel really good about where that's going. I don't know. I hope that answers your question. I would say MRD, you know, if we get RaDaR, MolDX, you know, we submitted in the first quarter for breast, which is one where we believe we're incredibly differentiated on sensitivity. You know, we were probably behind our competitors on solid tumor.
With NGS, we launched a new, you know, solid tumor product for NGS. I think those are important things. Then these reps that we're hiring, whether it's in informatics, pharma or in the clinical, getting them to get traction. Now it's about this long-term sustainable growth. We just, you know, we've talked a lot about expanding Houston, that's well underway. There's a lot of things operationally, you know, whether, you know, IT infrastructure set that we're working on. I think some of these initiatives where you can move the lever from a financial perspective are taking hold.
Jeff Sherman (CFO)
Yeah. I would just add, I think we just need to continue to focus on strategic execution, as Chris noted, you know, with the new sales people coming on, you know, ramping them up, making sure we're getting the right education and training on that, I think will also have an impact. Look, we're gonna continue to make investments, as we said, as the year progresses as well. We'll continue to make investments in the second, third and fourth quarters, which will have long-term benefit as well.
Chris Smith (CEO)
Yeah. We've talked about this. It's a great business, but it needs to execute. I think what you're seeing is execution.
Puneet Souda (Senior Research Analyst)
Got it. That's super helpful. On AUP, that obviously improved in the quarter. Sort of how much of that was NGS contribution? Sort of when we think about the overall guide, how are you contemplating the AUP within the context of this guide? Thank you.
Chris Smith (CEO)
Jeff.
Jeff Sherman (CFO)
Yeah. I think when we gave guidance, we didn't break out, you know, 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, you know, to the revenue growth. We've also talked about we've had some pricing success as well. I'd say all those are factors that contribute and I think, you know, give us pretty good visibility for the remainder of the year, on AUP.
Puneet Souda (Senior Research Analyst)
Got it. Okay. Great, guys. Thank you.
Chris Smith (CEO)
Thanks.
Operator (participant)
Thank you. The next question is coming from Alex Nowak from Craig-Hallum Capital Group. Alex
Chris Smith (CEO)
Hey, Alex.
Operator (participant)
Your line's live.
Speaker 17
Hey, Chris. It's actually Chase on for Alex. Thanks for taking the question. I guess first from us, a little bit more on the qualitative side. Since you've split the organization, the sales force into that new structure that you outlined, pretty well on the Analyst Day, I guess any more kinda smaller, kinda more specific kind of details that you can give us on, you know, any major wins or kinda 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?
Chris Smith (CEO)
Yeah, I'll take it, then I'll let Warren, who's here, who's leading that group, you know, follow up. I think at the end of the day. First of all, we don't disclose specific customer, you know, wins or losses, right? I mean, this is a highly competitive industry, we're pretty sensitive to putting that out there. I will say, Warren maybe can expand, you know, we talked about in the fourth quarter that for the first time in probably 18 months, we won more than we had lost. We are winning more accounts than losing. I think Warren talked a little bit about that at Investor Day. Do you wanna add any more color without specific accounts?
Warren Stone (President, Clinical Services)
I think that's spot on, Chris. We spoke about this, the commercial strategy at the Investor Day, which was protect, expand, and win. Ultimately, that played out really well in quarter one. Ultimately, we won more new customers than we lost. Specifically, we may have lost seven and we won 28. The net effect is positive there. That's ultimately, you know, as we start to use digital tools, particularly Salesforce and then other AI-enabled tools, we're able to gain execution traction, and these are some of the results that we're starting to see.
Chris Smith (CEO)
Yeah. I think, you know, a testament is look what the volume growth was. I mean, up well, north of 7%. I think you're getting both, so.
Speaker 17
Yep, that makes sense. Last from us. You had a large lab here with an MRD acquisition, with Haystack. I guess, you know, with now becoming kinda competition there, certainly they're gonna bring a large non-MRD menu as well, you know, how do you think you'll compete there with, you know, them also being able to offer, you know, kind of a full service, offering, kind of like your value proposition?
Chris Smith (CEO)
Yeah. A couple of things I'm gonna answer, and then I'll let Vishal, who's on the line also. 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. We're competing against them every day. Look, I think that acquisition is great for the market. You know, it's a $20 billion or gonna be a $20 billion market that's less than 1% penetrated. I think competition is great. That being said, Haystack's not even commercial yet. There's a long way to go before MRD is in the bag a bit with Quest being sold. You know, I always joke that people don't die of indigestion, I mean, of starvation, they die of indigestion with acquisitions. They gotta still.
Yeah, look, we're sticking to our plan. I think, look, I applaud the acquisition. I think it was a good acquisition. It'll be good for the market. I wouldn't, you know, we're not, you know, that's not something that we're focusing on our own knitting versus worrying about them right now. Do you wanna comment any more, Vishal?
Vishal Sikri (President, Advanced Diagnostics)
No, I think you said it, Chris. I think it's overall good for the MRD market as a whole, shows you that, you know, 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.
Speaker 17
Thanks for the thoughts, guys.
Operator (participant)
Thank you. The next question is coming from David Westenberg from Piper Sandler.
David Westenberg (Senior Research Analyst, Managing Director)
Hi. Thank you so much for taking the question, and congrats on really a strong print here. Hello. I'm just gonna get back to the gross margins. Now, the gross margins were way up sequentially. Mix is really good. I think historically, you know, in 2000, you know, 19-ish, you were in the high forties. 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 forties, maybe faster than we thought initially, just given the really good sequential step up and returning to that?
Chris Smith (CEO)
Yeah, I think we said on Investor Day, we expect it to return to the company's historical margins by 2026. Obviously, you know, continuing to perform well and execute will give us more confidence of getting there over time. I think, again, similar to Q4, you know, Q1 is just a good example of the company's ability to generate operating leverage on that revenue growth. I think, you know, adding growth will certainly help drive that. As you look at Q4 versus, you know, Q1, you know, we did see, as expected, a decline in pharma, and there's relatively more fixed costs in our pharma business than our clinical business.
You did see, you know, clinical gross margins up $3.6 million and pharma down $5.6, but we were expecting that. Overall, you know, it came in stronger than we were initially expecting. I think clinical is really helping to drive that. I think the mix of the business in any particular quarter can have an impact. Overall, you know, we are very focused on returning the company to profitability and producing free cash flow, and I think this is another good quarter, you know, in progress to get to that point.
David Westenberg (Senior Research Analyst, Managing Director)
Gotcha. 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 know, you talked about Salesforce hires and, where are you at in those hires, and has this been hitting the P&L yet? 'Cause again, you did get really good operating leverage. Anyway, I'll just that quick reminder. Thank you.
Chris Smith (CEO)
Yeah. I'll let Warren go into detail and if Vishal wants to comment at all on his. I mean, Vishal's is full with pharma and RaDaR, much smaller sales forces. You also wanna give an update where you-
Warren Stone (President, Clinical Services)
Yeah, I'll start just on the cost side. 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. I think there's a lot of factors in there. 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 costs. There was some in the quarter. It was offset by some other things in the quarter, I would expect more to progress, and that is part of the investment we talked about in Investor Day for our guidance. You should expect that number to ramp throughout the year. Yes. 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 six more positions to fill, which will be done by the end of this month. Some of those were filled earlier in January. I'd say we're starting to get to productivity now, and we really feel that we're in full stride as we get into H2.
Chris Smith (CEO)
Those six are for your H1 hires, then you've got another...
Warren Stone (President, Clinical Services)
Correct.
Chris Smith (CEO)
for this year.
Warren Stone (President, Clinical Services)
Yeah. The six of the H1 hires, then there's a phase two in terms of further sales force expansion that we'll do in the latter part of this year.
Operator (participant)
Thank you. The next question is coming from Dan Brennan from TD Cowen.
Chris Smith (CEO)
Hey, Dan.
Dan Brennan (Managing Director, Life Science and Diagnostic Tools Research Analyst)
Great, thanks. Hey, Chris, how you doing? Thanks for thanks for the question today. Congrats on the quarter. Maybe starting off just on Inivata and kind of RaDaR. Just kind of remind us, so you're expecting decision this year, back half Q3, Q4? Any way for us to think about timing there? I heard you say during the prepared remarks you're expecting two more indications this year. I thought I don't know if the investor day you said three, but maybe just a little more color on that front as well.
Chris Smith (CEO)
Yeah, I'll let, I'm gonna let Vishal jump in, but I wanna clarify. We submitted breast in Q1, and historically, they take a 60-ish first pass review timeline. We'll be in communication with them in Q2, just so you know on that one. Maybe Vishal can even talk about how we're managing all of that around amending and breaking up breast in a different disease states, et cetera. Vishal, you wanna take that?
Vishal Sikri (President, Advanced Diagnostics)
Absolutely. As Chris mentioned, we submitted in Q1. We do expect to, you know, have that conversation with them in Q2 and early Q3. It all depends on the timelines from their side. We do expect two additional indications to go in this year, and we're a total of three for the year, is what we had said.
Dan Brennan (Managing Director, Life Science and Diagnostic Tools Research Analyst)
Got it. Okay. 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, you know, qualitatively the impact, I think you talked about maybe 20% growth at the investor day. What's kind of the early traction on Neo Comprehensive from, you know, from customers that you rolled it out with?
Chris Smith (CEO)
Yeah, I'll let both those guys take that. look, remember that our thing was to be above 20%. I can tell you that we were well above 20% for the quarter. do you guys wanna give?
Warren Stone (President, Clinical Services)
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.
Chris Smith (CEO)
Okay. Vishal, you got anything else?
Vishal Sikri (President, Advanced Diagnostics)
No, I think that's it, right. I mean, we're on target to where we thought we would be. So...
Dan Brennan (Managing Director, Life Science and Diagnostic Tools Research Analyst)
Got it. Okay. All right, I'll get back in the queue. Thank you.
Operator (participant)
Thank you. The next question is coming from Andrew Brackmann from William Blair.
Chris Smith (CEO)
Hey, Andrew.
Andrew Brackmann (Analyst)
Hey, guys. Hey, Chris, good afternoon. 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? Do we sort of take this as 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? Thanks.
Chris Smith (CEO)
Yeah. Let me let, kind of Jeff and Vishal talk about it, we don't disclose or break out the specifics in that pharma. I mean, we talk about informatics, I think Jeff and Vishal can probably paint some color.
Jeff Sherman (CFO)
Yeah. I'll start, and I'll let Vishal jump in. We said Q4 was pretty strong, right? We had some big, significant RaDaR growth in Q4, and we had some pretty strong informatics growth. I would say, you know, overall, you know, all three had good growth, you know, our legacy pharma informatics and Inivata in the quarter. I'd say, you know, we're certainly on track to where we expect it to be. We haven't gotten into the specifics, but I think we are, yeah, I think we are set up pretty well as we look at the rest of the year. Vishal, if you wanna add anything else.
Vishal Sikri (President, Advanced Diagnostics)
No, I think you're 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. 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.
Andrew Brackmann (Analyst)
Okay. I'll stick to one. Thanks, guys.
Chris Smith (CEO)
Thank you.
Operator (participant)
Thank you. The next question is coming from David Delahunt from Goldman Sachs.
Chris Smith (CEO)
Hey, Dave.
David Delahunt (VP)
Hey, guys. Congrats on the strong quarter. Any additional color on the drivers of that increased volume that led to the beat?
Chris Smith (CEO)
Yeah, I mean, we kinda hit it. I mean, we really spent a lot of time. Look, I think we've talked about that we started hiring 20 oncology reps in the second half of the year and then have been rapidly tried to expand that. We've been pretty open that we're gonna 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, 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 you're not placing an analyzer in the hospital basement for five-year contract, right? You can move business pretty quick. I think, you know, I'd say the expansion and the optimization definitely of the field. I mean, I would say that, you know, 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. Remember, we have over 600 tests. I think I use that a lot under the word optimization. I think what you're seeing is a lot of things around execution, and that's, you know.
I would add just a couple things, a couple of themes that we hit on Investor Day. You know, one is a sense of urgency, and two is accountability. I think Warren and the leadership team have certainly brought that. I just think it's focused on execution, and it's leadership and it's holding people accountable for results.
Warren Stone (President, Clinical Services)
Maybe just two other things that I'll add.
Chris Smith (CEO)
I was gonna say, I do a shout-out to Melody too.
Warren Stone (President, Clinical Services)
Yeah.
Chris Smith (CEO)
I would say our turnaround time. No one's asked an ops question, but Melody's on the call.
Warren Stone (President, Clinical Services)
Yes.
Chris Smith (CEO)
We should talk about turnaround. I'm sorry, Warren, I didn't even wanna interrupt, but you may have been throwing.
Warren Stone (President, Clinical Services)
No, that's exactly right.
Chris Smith (CEO)
...a few kudos there.
Warren Stone (President, Clinical Services)
I wanted to throw Melody in and just say, thanks. I think, you know, ultimately, it's much easier to execute a strategy when your turnaround times are good and continue to improve. A number of our clients have recognized that. That's positive.
Chris Smith (CEO)
Yeah
Warren Stone (President, Clinical Services)
That's helped us also expand share of wallet, which is really the E in our protect, expand, win strategy. It's not only about retaining existing customers and winning new ones, it's selling more to existing customers, and we've done that effectively. That's really supported by the improved turnaround times that Melody and the team from the ops side are doing a great job on.
Speaker 17
Fantastic. Great work.
Chris Smith (CEO)
Thanks.
Vishal Sikri (President, Advanced Diagnostics)
Thanks.
Operator (participant)
Thank you. The next question is coming from Tejas Savant from Morgan Stanley.
Chris Smith (CEO)
Hey, Tejas.
Tejas Savant (Executive Director and Senior Healthcare Equity Analyst)
Hey, Chris. Good evening. Good start to the year, congratulations. Just one on Neo Comprehensive, perhaps to kick things off. I know you'd mentioned, you know, 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, you know, in those sort of oncology accounts from existing sort of users of other people's tests? How many of those are essentially sort of first time CGP users that at least so far, Vishal?
Vishal Sikri (President, Advanced Diagnostics)
Tejas, I think it's still a little bit early. We launched this a month ago. I think we're still gonna look at that. I would say that, right now, where we thought we would be, we're well on track for that and meeting you know, from a forecast perspective. I think it's still early days to see how much of it's coming from market share taking from other competitors and so on.
Tejas Savant (Executive Director and Senior Healthcare Equity Analyst)
Got it. Okay, fair enough. On the pharma side of things, guys, I mean, any evolution in your thought process around just mid-cap biotech funding? Any sort of sample shipment delays or budget constraints that you're picking up on, you know, especially at your smaller customers?
Chris Smith (CEO)
Vishal, you wanna take that?
Vishal Sikri (President, Advanced Diagnostics)
Yeah, I can take that one too. What we do see is that there is an impact that we're seeing on 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. But we do see a little bit of impact, but we think that we can make it up on the other side.
Tejas Savant (Executive Director and Senior Healthcare Equity Analyst)
Got it. Thank you.
Operator (participant)
Thank you. The next question is coming from Andrew Cooper from Raymond James.
Chris Smith (CEO)
Hey, Andrew.
Andrew Cooper (Vice President, Equity Research Analyst)
Hey, Chris. Hey, everybody. Thanks for the time and nice quarter. I guess I'll start with an ops question since nobody else has yet. You know, we talked about it a decent amount at the Analyst Day, when we think about that, you know, that automation journey, the sort of lab optimization, expanding in Houston, all of those moving parts that I think are, you know, so far you've managed well. Just what inning do you feel like we're in and, you know, where are sort of the risk points or the de-risking, you know, gates that you'll be getting through that we can sort of try to track as you move from, you know, from where you are to ultimately where you wanna be to continue to be able to drive those margins better and better?
Chris Smith (CEO)
I'll give the high level and then let Melody give you more color. Look, I think we're still early. I would say, you know, second inning. 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's spending time on. Melody, do you wanna give some more color around what's going on?
Melody Harris (President, Enterprise Operations)
Sure. I would agree with Chris. We're maybe inning two, inning three for this journey. Automation, we have taken, as Chris said, the Inivata line was fully automated. That remains fully automated, we'll replicate that in the Houston expansion as we go there. We're slowly starting to add automation to our other modalities. We showed you some of that on 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. That's beginning. We're taking good steps there. You asked about some of the risk points.
You know, 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 build out, and then similar supply chain issues on automation pieces. Because that rolls out relatively slowly, that's not gonna be as much of a risk for us.
Chris Smith (CEO)
Hey, Melody, you wanna also talk about your networking you're starting to think about and pull together...
Melody Harris (President, Enterprise Operations)
Sure
Chris Smith (CEO)
...with all the dry labs?
Melody Harris (President, Enterprise Operations)
Absolutely. We are scanning more and more of our images and our, we're doing digital H&Es 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. 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.
Andrew Cooper (Vice President, Equity Research Analyst)
Thanks.
Chris Smith (CEO)
Great. That's super. Oh, go ahead.
Andrew Cooper (Vice President, Equity Research Analyst)
If I can just sneak one more in, that was helpful.
Chris Smith (CEO)
I guess you can. He didn't ask the question, you might as well. Thanks for giving this.
Andrew Cooper (Vice President, Equity Research Analyst)
Just, appreciate it. Just, on kind of the OpEx side as well, you know, 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 and billing and reimbursement, you know, 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?
Chris Smith (CEO)
Yeah. I think from the revenue cycle side, you know, we're as part of our IT evaluation, we're clearly evaluating our current, you know, revenue cycle, you know, platform, and seeing how do we enhance that. 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. I think, you know, the infrastructure is in place, but I do think there are some technology investments that we can make that will help accelerate, you know, revenue cycle and give us a little bit better visibility. 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, you know, going forward in 2024 and beyond.
Andrew Cooper (Vice President, Equity Research Analyst)
Great. Thanks, guys. I'll stop there.
Chris Smith (CEO)
Thank you.
Operator (participant)
Thank you. The next question is coming from Mike Matson from Needham.
Chris Smith (CEO)
Hey, Mike.
Speaker 18
Hey, guys. This is Joseph on for Mike. I think probably only one question maybe left to ask. Appreciate all the color you guys gave on, you know, the increases in revenue per test, you know, with revenue cycle management as well as just this higher priced assays, NGS assays. I didn't hear 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 priced tests or maybe tests that don't really see a large amount of volume, aren't really ones that, you know, really move the needle. Was curious about that if any work's been done on there.
Chris Smith (CEO)
Yeah, 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.
Speaker 18
Okay. Okay. I guess maybe, similar question just for pharma services, though. In terms of, you know, shifting towards, trying to get to the, you know, the earlier phases where work can, I guess, be completed, the throughput's higher, that's a similar thing that's just gonna be an ongoing thing, work over time?
Chris Smith (CEO)
I think Yeah, I think we started certainly in the second half of 2022. I think that continues, and I think we've had, you know, a pretty good success there and clearly the focus is on, you know, 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, you know, clear you know, revenue drivers that we have better visibility on in the next couple quarters versus over multi-year periods.
Speaker 18
Yes. Okay. Absolutely. Thank you very much for taking our questions.
Chris Smith (CEO)
Thank you.
Operator (participant)
Thank you. The next question is coming from Derik de Bruin from Bank of America.
Chris Smith (CEO)
Hey, Derik.
Derik de Bruin (Managing Director, Life Sciences Tools and Diagnostics Analyst)
Hi. Good afternoon. How are you?
Chris Smith (CEO)
Good.
Derik de Bruin (Managing Director, Life Sciences Tools and Diagnostics Analyst)
Couple of questions. You know, 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, you know, and I guess when you sort of look at this, are you getting? You know, are you doing things at the pricing at your competitors' rates? Are you pricing a premium? Just sort of thinking about how to think about that 402 number and how that moves up.
Chris Smith (CEO)
Well, some of these obviously have set reimbursement, but not all that follows that process. Look, I think pricing is one of these levers that we significantly under manage 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. I do think it's sustainable. I don't know that I would say what the percentage was every quarter, but look, eight 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.
You know, we're a leader for sure on NGS and heme, but we're way far behind on share from a solid, which would be probably our highest ASP. As we continue to grow our share of that market, it's gonalso help us. I think there's a lot of things going on. I will say internally, it's our goal to do that. You know, I don't think we'd go out and disclose how much, but I would say yes. I mean, it's...
Andrew Cooper (Vice President, Equity Research Analyst)
Yeah, I think we have room.
Chris Smith (CEO)
I wouldn't extrapolate one quarter for any type of trending. It was definitely a strong quarter. We do expect the levers that we are pulling, which are higher intensity tests, revenue cycle improvements, you know, as well as pricing, benefits, all are gonna have a positive impact over time. I wouldn't try to guide you to a specific quarterly, you know, impact. In Q1 was definitely a strong quarter.
Derik de Bruin (Managing Director, Life Sciences Tools and Diagnostics Analyst)
Got it. That sort of leads to my next question on just how to sort of think about the 2nd quarter. I mean, you know, Q1 came in so strong, and as you, as you pointed out, it's usually your seasonally weakest quarter. Some thought on the, you know, the quarter-to-quarter increase there. Not sure, you know, not quite sure what to make of the modeling at this point. Is there any general thoughts on it? 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 thought.
Vishal Sikri (President, Advanced Diagnostics)
Yeah. I think we said in Investor Day that we expected, you know, a progression throughout the year, you know, from, you know, on a quarter-over-quarter basis. I would kind of just stick with that as you think about the quarters versus the prior year quarters, you know, as you're thinking about revenue for the rest of the year.
Chris Smith (CEO)
Yeah, I said that in the first question. Like, look, I think we're getting momentum from the initiatives, you know, enough that we significantly raised guide, you know. I think we feel good about how things will continue.
Derik de Bruin (Managing Director, Life Sciences Tools and Diagnostics Analyst)
Got it. Thank you very much.
Chris Smith (CEO)
Yeah.
Operator (participant)
Thank you. Once again, ladies and gentlemen, if you wish to enter the Q&A queue, please press star one on your phone at any time. The next question is coming from Mark Massaro from BTIG.
Chris Smith (CEO)
Hey, Mark. Mark, you there?
Operator (participant)
Mark, your line is live.
Mark Massaro (Managing Director, Senior Equity Research Analyst)
Hey, guys. Thanks for taking the questions. Can you hear me, Chris?
Chris Smith (CEO)
Yes, we can. We got you.
Mark Massaro (Managing Director, Senior Equity Research Analyst)
Okay. Yeah, I was on mute. You haven't not really, you guys haven't had a question on RaDaR yet. I recognize that you're not quite two months launched, but you're coming up on two months. You know, the market leaders seem to have some degree of entrenchment in CRC. You know, you guys are launched in head and neck, in lung, as well as breast and CRC. I guess, you know, recognizing that it's really early, are there any takeaways out of the first almost two months of launch, in terms of volumes? I'm curious if that strong volume growth that you had in Q1 included some volumes from RaDaR clinically.
Chris Smith (CEO)
Yeah. It really wouldn't have had any revenue because-
Vishal Sikri (President, Advanced Diagnostics)
On the clinical side.
Chris Smith (CEO)
Yeah, on the clinical side, 'cause we were just sending kits out late. By the time a kit gets out, turns, gets in, we run the test, like we wouldn't have had any revenue. Vishal, you wanna talk about how it's going, and Warren, you wanna jump in too?
Vishal Sikri (President, Advanced Diagnostics)
As Chris mentioned, Q1, because of the how long it takes to complete the testing and so on, you wouldn't have seen that in Q1. 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. I think that's really positive. The market uptake, especially because of this 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 wanna see applications in other cancers where they feel that sensitivity matters. We're also exploring those type of opportunities at the same time, Mark.
Mark Massaro (Managing Director, Senior Equity Research Analyst)
Okay. I do wanna press into volumes again. You know, we haven't seen volume growth like this in approximately two or three years. Investors could probably benefit from. You know, I know you talked about NGS was well above 20%. What are you seeing in terms of end market demand? You know, how much of the volume growth came from the hiring of new reps? Any commentary about end markets, like in FISH and Flow?
Chris Smith (CEO)
Yeah. Look, I would say in the quarter, In the quarter, I would say really every modality grew above where we had been growing that business over the last 18 months. I think a lot of that was back to this thing of winning a lot more accounts. Look, I think the obvious one everybody wants to focus on is NGS because it's kind of out there, it's being talked about. 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, you know, Warren talks a lot about expanding the wallet or winning.
You know, I would say that, look, we know where the industry is growing, and I think we were growing below the industry. I think what you're starting to see is a business that's executing from a field perspective. I do believe our strategy of having a rep group for pathologists and a rep group on oncologists 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 calls on oncologists and pathologists, 'cause it is such a different call point.
Mark Massaro (Managing Director, Senior Equity Research Analyst)
Excellent. Congrats on the quarter.
Chris Smith (CEO)
Thanks.
Operator (participant)
Thank you. The next question is coming from Mason Carrico from Stephens Inc. Mason-
Chris Smith (CEO)
Hey, Mason.
Operator (participant)
Your line is live.
Jacob Johnson (Analyst)
Hey, this is Jacob Johnson doing for Mason. Thanks for taking our questions, and congrats on a really strong quarter. A lot's already been covered here, maybe just a quick one on your revenue cycle management initiatives. This might 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. 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?
Chris Smith (CEO)
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 automated ordering of our tests. 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. I think there's a lot of focus on just looking at the tests we've done, how we've been paid historically, particular payers or patients, and what we need to do to get, actually get paid.
We've seen some improvement and some lift in our revenue as a result of that, where again, we've already had, we already had the test volume, we already had the cost, but where we're having more success in actually getting paid for the work done. Both of those are probably two 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.
Jacob Johnson (Analyst)
All right. Got it. I'll leave it at one. Thanks.
Chris Smith (CEO)
Thank you.
Operator (participant)
Thank you. 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.
Chris Smith (CEO)
All right. Thanks, Paul. Hey, 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. We'll look forward to seeing you on the market. Be well. Take care. Bye.
Operator (participant)
Thank you. This does conclude today's conference. You may disconnect at this time, and have a wonderful day. Thank you for your participation.