NeoGenomics - Q2 2023

Transcript

Operator (participant)

Welcome to the NeoGenomics Q2 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)

Thank you, Jenny. Good morning, everyone, and welcome to the NeoGenomics Q2 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, and Melody Harris, President of Enterprise Operations. 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 2, 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, and that actual events or results could differ materially. Please refer to our most recent forms, 10-K and 10-Q, and the 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 as of the original date of the call, and we undertake no obligation to update or revise any of these statements. During this conference call, in order to provide greater transparency regarding our operating performance, we will 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 morning. I'll now turn the call over to Chris Smith, Chief Executive Officer of NeoGenomics.

Chris Smith (CEO)

Thanks, Kendra, and welcome everyone. Thanks for joining us this morning to go through our Q2 financial results. We like to begin every presentation we do, whether it's to our teammates, our customers, or our investors, with our mission and vision statement, because it's what motivates our company and our teammates on a daily basis. Our mission is to save lives by improving patient care. Before we dive in, I want to thank all our teammates for the impact that they make on patients every single day. Now, let's move to slide four and get into the Q2 financial highlights. We had another strong quarter as we continue the momentum from Q1 into Q2. Q2 revenue was $147 million, an 18% increase over the prior year.

Clinical service revenue increased 17%, driven by strong volumes across our modalities and an increase in revenue per test. Notably, the Q2 was the 9th consecutive quarterly increase versus prior year in revenue per test. In addition, we had significant NGS revenue growth well above our 20% stated internal target. Advanced Diagnostics revenue, which includes pharma services and informatics, increased 22% from prior year, driven by the strength of our core pharma business, informatics, and the ramp-up in RaDaR. Adjusted EBITDA improved 87% to a negative $2 million, and adjusted growth profit was $65 million, representing a 44% margin and a 33% increase over prior year. Turning to slide 5, our Q2 financial results contributed to strong numbers for the first half of 2023.

For the half, revenue was up 17% versus prior year to $284 million, driven by an increase in both clinical and advanced diagnostics revenue. Adjusted gross profit was $124 million, representing an adjusted gross margin of 44%. Adjusted EBITDA was a negative $9 million, an improvement of $26 million or 74 over the first half of 2022. During the first half of the year, we served well over 300,000 individual patients, which is a testament to the mission of our company and a leading indicator of the improved operational capacity within our labs. Going back to Q2, on the next slide, six, the Q2 delivered sustained performance improvement in revenue, gross margin, and Adjusted EBITDA.

We are proud of this year-over-year accelerated growth because it's a direct result of the strong execution by our Neo teammates and the growing demand for our products from our existing clients as well as new customers. Our operating and revenue cycle initiatives, implemented in the second half of 2022, continue to enable accelerated growth, and we believe we have the ability to continue to drive improvement in the business throughout the second half of 2023 and beyond. As we move to slide 7, let me remind you of the strategic priorities we laid out at the beginning of the year: profitably grow the core business, accelerate advanced diagnostics, drive value creation, and enhance people and culture. As we look at transforming the business, it's about focus, collaboration, and execution, and our team continues to deliver results against these strategic initiatives.

We have a great team at NeoGenomics, continuing 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 foundational for everything else we do operationally. This morning, I'm going to focus on our other three priorities. Turning to Slide 8, let me touch on a few highlights from these strategic priorities for the quarter. We continue to see strong growth in clinical volumes across all modalities. Our product offering and our sales force optimization continues to deliver significant NGS revenue growth, as well as growth in revenue per test. Additionally, we continue to refine our laboratory operations. We set an internal record for the number of tests processed in the quarter, and thanks to our teammates in the lab who support this core business growth.

Even with these strong volume trends, we continue to grow revenue faster than volume. Following our last three quarters of significant improvement in turnaround time, we saw a more normal improvement of 3% in the Q2, aligned with a significant growth in volume. In July, we received our first Medicare coverage decision for RaDaR in breast cancer. Following this approval, which effective retroactively as of March 24, 2023, the RaDaR assay is now covered for certain Medicare patients in the U.S. with HR positive and HER2 negative breast cancer. This decision is a major milestone for us following our acquisition of Innovata. We always believed RaDaR's superior sensitivity and specificity would enhance patient care and improve outcomes, and are thrilled that the supporting clinical evidence met MoldDX program's high standard for coverage.

Additionally, we remain on plan for submitting two additional indications as well as expanded breast indication to MoldDX by year-end. In June, our RaDaR assay received its first pan-cancer commercial coverage by Blue Shield of California. This decision is a good indicator of the progress we in the industry are making, as commercial payers are beginning to acknowledge the clinical and economic utility of RaDaR in the MRD setting. The pan-cancer coverage highlights the breadth of our data across various cancer types, which we believe is a key differentiator. Looking forward to the rest of the year, we think there are opportunities to expand coverage with additional indications. We published compelling data at ASCO in June, with five poster presentations and one oral abstract in lung, breast, and head neck cancers.

These posters highlighted RaDaR's accuracy and sensitivity over current standards of care and its use across tumor types and settings. We have data complete or in progress in additional indications where we can pursue payer coverage. We have focused on driving value creation from a financial perspective, and are pleased that we have delivered even further margin expansion from Q1, and have generated significant operating leverage as revenue favorability fell through to the bottom line. Last month, we added three excellent directors to our board of directors. I'm confident that their varied backgrounds, experience, and professional accomplishments will provide Neo with additional skills and insights that will enhance our execution against our strategic priorities and long-range planning. Now let me turn the call over to Jeff to review our financial results in more detail. Jeff?

Jeff Sherman (CFO)

Thanks, Chris, and good morning, everyone. I'll begin with a little more detail on our operating results for the quarter. As Chris said, we continued the year with revenue experiencing accelerated double-digit growth in both clinical and in Advanced Diagnostics over prior year. Q2 revenue was $147 million, an 18% increase over the prior year, and a 7.1% increase from Q1 of 2023. Revenue growth was driven by growth in clinical test volume, a continuing shift to higher complexity tests, and improvement in revenue per test. Adjusted EBITDA improved $14.2 million from prior year to negative $2 million. Q2 marks the third consecutive quarter that Adjusted EBITDA increased from prior year. We generated significant operating leverage as revenue favorability fell through to the bottom line.

Looking at Slide 10, clinical services revenue of $123 million was an increase of 17% year-over-year, driven by an 8% increase in volume and an 8% increase in revenue per test. Higher volume is driven by growth within our existing client base, as well as new sales, and demonstrates that our sales force optimization strategies, enabling us to reach oncologists and pathologists, continue to show progress. Turning to Slide 11, average revenue per clinical test increased by 8% to $417, representing an improvement for the ninth consecutive quarter versus the prior year, as we maintain our focus on higher-value tests and revenue cycle management initiatives.

On Slide 12, Advanced Diagnostics revenue increased by 22% to $24 million compared to the Q2 of 2022, driven by both price and higher NGS volume in legacy pharma, as well as growth in informatics and RaDaR revenue. Adjusted gross margin improved 770 basis points, representing the fourth consecutive quarter at 600 basis points or more of improvement over prior year. At our Investor Day in April, we shared our strategy with you relating to profitability and growth in our Advanced Diagnostics business. One of the ways we plan to accelerate profitable growth was through rationalization of our global testing sites and contracts, which meant walking away from some of our smaller, unprofitable contracts that also didn't deliver meaningful revenue.

As we execute on this strategy, especially on what new projects we take on, we may begin to see a temporary pullback in pharma revenue towards the later half of the year and into the first half of 2024. We are confident that this will guide us to sustainable and profitable growth in the short term, midterm, and most importantly, the long term. We don't believe this will be material to the overall growth projections for the company. Looking at the income statement on Slide 13, adjusted gross margin was 44.1%, an improvement of 505 basis points over the Q2 of last year. Adjusted EBITDA was -$2 million of $14.2 million, or 87% improvement over the Q2 of 2022.

These significant improvements were driven by both higher revenue and gross profit, highlight the operating leverage in the business. Regarding operating expenses, sales and marketing expense was $18.9 million, as we continue to invest in the expansion of our sales force. GA was $60.3 million, and R&D expense was $7.5 million. In addition, there was $3.1 million in restructuring costs in the quarter related to the previously announced organizational restructuring and footprint optimization, which was part of our value capture program to gain operating leverage. Turning to the balance sheet on slide 14, we ended the Q2 with cash and marketable securities of $409 million. We continue to make good progress in diligently managing our cash burn, and are focused on accountability and disciplined oversight of operating expense.

Cash flow from operations improved $15 million, or 91% from Q2 of 2022. On a year-to-date basis, cash flow from operations improved by $32 million or 69%. 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 Q2 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 16, we previously had revenues at $555 million to 565 million, representing 9 to 11% growth in 2023. We are revising that range upward and now expect total revenue between $565 million and $575 million for the year, representing 11 to 13% growth.

This includes the expectation of slower revenue growth in advanced diagnostics in the second half of 2023, due to the very strong revenue performance in the Q4 of 2022, and repositioning the business for more profitable contracts. Adjusted EBITDA was -$22 million to -$18 million, and is now -$13 million to -$10 million, representing a 73 to 79% improvement. We continue to see strong revenue growth and an increase in NGS products mix, and are very encouraged by the opportunities for RaDaR and other new tests, which provide accelerated leverage to the bottom line. As we stated at the beginning of the year, our year-over-year comparisons will get more difficult as the year goes on, 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. We are very pleased with our year-over-year progress, including strong revenue growth of 18% and significant improvement in Adjusted EBITDA. We now have our first RaDaR commercial payer, pan-cancer coverage, and our first Medicare approval in HR positive and HER2 negative breast cancer. We're generating additional data that will support expanded coverage in the future. We saw meaningful progress in the execution on our strategic priorities, and therefore, we are raising our guidance for the full year results. 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 quarters to deliver long-term, sustainable growth. I'm excited for our teammates and our customers, and most of all, for the patients that we serve on a daily basis.

Thanks for your time, and now I'll turn it back over to the operator for Q&A.

Operator (participant)

Thank you, Chris. At this time, we are opening the floor for questions. If you would like to ask a question, please press star 1 on your telephone keypad now. A confirmation tone will indicate your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before you press the star keys. Please hold a moment whilst we poll for questions. Thank you. Your first question is coming from Dan Brennan of TD Cowen. Dan, your line is live.

Chris Smith (CEO)

Hey, Dan.

Dan Brennan (Managing Director and Senior Research Analyst)

Hey, thank you. Hey, Chris, how you doing? Thanks.

Chris Smith (CEO)

Good.

Dan Brennan (Managing Director and Senior Research Analyst)

Thanks for the questions. Congrats, congrats here on the quarter. maybe the success you guys had, obviously, gets people excited here. Just kind of looking at the full year guidance, a nice raise. Maybe could you just unpack a bit how we think about clinical and Advanced Diagnostics in the back half of the year? You know, you called out tough comps, which you do have, but it still feels like maybe you're baking in some cushion in the back half of the year. Just kind of can you help us think through that back half of your guidance?

Chris Smith (CEO)

Well, Dan, you're like... I mean, we, we just raised, and you're calling me out, saying we've got cushion. Look, to unpack it, and I've got Vishal and Warren here, but I think the way to think about it is, first of all, as you know, we had a big Q4 last year in pharma, and a lot of that early RaDaR in the pharma. We've got a big comp in pharma. In addition, when Vishal took over that business and we dug into it, I think there was. We talked about this, you know, in prior calls, that there was a big focus on bookings and not revenue, and we were booking unprofitable, small, I think, projects. We had opened up labs in places like China and Singapore and, just weren't seeing the pull-through.

I think the strategy was to kind of transform or transform that business, which meant that we had to cut loose some of those unprofitable smaller projects. I think Vishal and Dennis and the team have done a fantastic job of rebuilding that field organization and focusing them really kind of on the top 30 pharma. What you'll see is, I mean, I think you'll still see nice growth, but between the comparable in Q4 and kind of this transformation they're going through, we think it'll slow a little bit, and then we'll get a nice recovery as we go into the second half of next year.

If you look at the clinical side of the business, look, I, I, I would say the difference there is things are happening faster than I think we originally had projected, and that business is growing at a much faster rate, coming off a very low performance, you know, in, really in 2021, in the beginning of 2022. So I think that conversion to NGS and our, our focus on driving NGS growth, the expansion of the field force and the, the optimization, we think gives us good continued growth. I don't-- do either one of you guys? I, I, I know I just kind of threw a lot, but,

Warren Stone (President of Clinical Services)

Yeah, I'd say the trajectory from a clinical perspective in the second half of the year looks very similar to what we're seeing in the first half of the year. It's probably how it summarized that, the color that you already gave, Chris.

Chris Smith (CEO)

Yeah. Vishal, anything you want to add to that?

Vishal Sikri (President of Advanced Diagnostics)

Yeah, same. I mean, I think, Q4 of 2022 was a very strong revenue quarter for us. With our refocus that we've had, I think we've been a lot more strategic as to the high-margin accounts that, that we've been going after.

Dan Brennan (Managing Director and Senior Research Analyst)

Great. Thanks for that. Maybe just one on RaDaR. Congrats on the MultiX coverage. Looks like that was probably based on the CHIRP study, given the 5-year post, you know, kind of surveillance. Just kind of wondering, can you help us think through what that opportunity looks like for you? Then secondarily, I know you talked about you have other indications in breast that you've either filed for or you have some data that are, you know, you're submitting. I'm just wondering, could you speak a little bit to kind of what's forthcoming later this year from a breast perspective, and then if you can share any insight on the other two indications? Thank you.

Chris Smith (CEO)

Look, obviously, we're excited about getting that approval, but, Vishal, do you want to highlight kind of what's going on...?

Vishal Sikri (President of Advanced Diagnostics)

Yeah, sure.

Chris Smith (CEO)

with your guys' timelines?

Vishal Sikri (President of Advanced Diagnostics)

Yeah. You know, we haven't broken it down by quarter yet, but our plan is to expand our breast coverage. You know, we did use the CHIRP study data to get the initial coverage, and breast cancer really showed that we understand now what it takes to go through MultiX from our perspective, and we'll want to expand on that with the additional breast coverage that we will go through. Then we haven't really listed out yet what are the other two applications that we're applying for beyond the breast cancer, but more to come on that in the near future.

Chris Smith (CEO)

Yeah, I would say, I would add to that. I think the takeaway is, you know, we learned from previous submissions, and I think we are, we are where we expected to be and on track with our MultiX coverage as we, you know, reformatted our plan to go back to MultiX for, for breast.

Dan Brennan (Managing Director and Senior Research Analyst)

Great, guys. Thank you very much.

Chris Smith (CEO)

Thank you.

Operator (participant)

Thank you. Your next question is coming from Andrew Brackman from Blair. Andrew, your line is live.

Chris Smith (CEO)

Hey, Andrew.

Andrew Brackman (Research Analyst)

Hey, guys, this is actually Dustin on for Andrew. Thanks for taking our questions. Just to start on, on the Advanced Diagnostics segment, just wondering where the pipeline stands on the fee-for-service RaDaR business today. Then secondarily, how much does RaDaR have the ability to reduce those clinical trial costs, and how does that stack up versus the competition?

Chris Smith (CEO)

Yeah, a couple things. We do not, on the pharma, break out individually what percent of the pharma revenue is RaDaR. I think you probably know we started moving there a year before really getting clinical coverage. I'd say that's one thing just to think about, is that, you know, we started that process really in, in last year. On the clinical side, we've been pretty clear that we don't have any material, you know, revenue in our, our plan, and that has not changed even though we, we've gotten coverage. I mean, obviously, we're out selling it and there's coverage, but I think our view is that we're building for the long term, we still have a clinical evaluation program going on, and we kind of think our strategy is brick by brick.

I would not say any of the raise was built into that. As far as, you know, the clinical trials and helping it to offset, I don't know, Vishal, if you wanna...

Vishal Sikri (President of Advanced Diagnostics)

Yeah, I mean, we, we are obviously in a lot of discussions with the different pharma companies and building that into their clinical trials, but it's relatively early still, in how MRD is going to be looked at, even from a FDA perspective, from a clinical, clinical surrogate biomarker perspective. There's a lot of discussions ongoing. At this time, I would say that we're still early on with that process.

Andrew Brackman (Research Analyst)

Understood. Our next question is on NeoComprehensive. Just a general update on how the uptake has been on that panel, and the feedback from the community there. Thank you.

Chris Smith (CEO)

Yeah. I think as you probably know, I mean, we've been the market leader in heme, and I think, you know, we continue to do fantastic on heme. We felt like we were behind on solid tumor, so we brought that product out. I would say that we're already developing our next generation of solid tumor, which will come out. Our target is probably Q2, Q3 of next year in the clinical side of that business and earlier in, in pharma. I think the way that we're really thinking about it, now that we have a competitive solid tumor offering, is a portfolio. What we're really focused on in the whole portfolio of NGS is that we want that to grow above 20% because the market's growing above that, or at that, or above that.

Look, I, I think as we stated in the, in the script or in the, you know, prepared marks, that we're growing significantly faster than that. We don't really break out, like, individually how much in heme or how much in NeoComprehensive. I think it, it's a product where we're getting out in, in front of our customers, and, and a lot of times it's new customers where we just hadn't had solid tumor business, or we had possibly lost it in prior years because we didn't have a competitive offering.

Warren Stone (President of Clinical Services)

Yeah. And maybe just building, building on that in terms of the sort of portfolio aspect. In addition to the physical product, we, we launched some of the sort of about the test elements, which was the NeoAccess, NeoSeq, which are digital tools which are really enabling the, the oncologist, et cetera, which is also proving to be very positive amongst both existing customers and new customers, which was obviously part of the strategy, acquiring new customers for this portfolio.

Andrew Brackman (Research Analyst)

Got it. Appreciate the responses there. Thank you.

Chris Smith (CEO)

Thanks.

Operator (participant)

Thank you very much. Your next question is coming from Alec Nowak of the Craig-Hallum Capital Group. Alex, your line is open.

Chris Smith (CEO)

Okay. Hey, Alan.

Alec Nowak (Analyst)

Great. Good, good morning, everyone. Hey, with regards to RaDaR and the breast indication by Medicare, can you just kind of walk through the logistics of procuring tumor samples in patients five years after diagnosis? Just how many patients can you still get access to that tissue sample, you know, call it a, a longer time after the diagnosis actually occurs?

Chris Smith (CEO)

Vishal, you want to take that?

Vishal Sikri (President of Advanced Diagnostics)

Yeah, I can take that. Hey, Alex. One of the things that, you know, we've been out there now since March, and we started what we call the clinical evaluation program. We've focused our energies with the clinical evaluation program in applications that we know we were going after in, you know, in, in the, from a MolDX Medicare reimbursement perspective. This is one of the things we did look at: how hard has it been to get access to these samples that are post 5 year? I would say that because of our, our relationships with the hospitals that we have, actually, that hasn't been the biggest challenge for us at this point, as to getting access to the tissue.

Through our clinical evaluation program, we are getting tissue in the door and educating the oncologists as to the value of the RaDaR test, even in this type of setting, which is more surveillance.

Alec Nowak (Analyst)

Okay, excellent. That's great to hear. You know, there's been some more talk recently about the FDA putting out another proposal to regulate lab developed tests. We'll obviously have to see if that proposal even comes out or if the proposal will even go final. Maybe just to preempt it a little bit, remind us how many LDTs does Neo sell today, and any rough game plan the team's talking about internally on how to push these through a regulatory pathway if it ultimately would go final.

Chris Smith (CEO)

Yeah. Look, I think as you probably know, I mean, ACLA is pretty close to that, and a lot of us in the industry are on that board. I think there's a lot of dialogue going back and forth. I think that our belief is, is that the FDA is definitely gonna have an influence in this industry. I think when we all got together as a leadership team about a year ago, we brought in, someone to run the quality, kind of, regulatory side of our business that had deep, FDA experience. We've started that process already internally, with the belief that things are coming. I think...

Look, I don't want to speculate on this because there are, have been a lot of speculations, whether old, you know, tests that have been around for a long time gets grandfathered, you know, are university hospitals carved out? Is it gonna be stuff around NGS? I think, you know, again, we're waiting. We think something's gonna come out in late August or September, and I think our, our view has been really over the last six months, to begin to prepare for when something does occur, that we're, we're ready to, to, to react.

Alec Nowak (Analyst)

All right. Excellent. Appreciate the update. Thank you.

Chris Smith (CEO)

All right. Take care.

Operator (participant)

Thank you very much. Your next question is coming from David Delahunt from Goldman Sachs. David, your line is live.

Chris Smith (CEO)

Hey, Dave.

David Delahunt (Research Analyst)

Hey, guys. Congrats on the strong quarter. Really pleased to see the first positive MolDX coverage decision for breast. I'm curious if you could help us understand what the broader coverage definition could look like, that I, I believe you said you're going to pursue later this year. It sounds like this is more of a surveillance purpose. Are you going to pursue coverage for therapy response monitoring at some point?

Chris Smith (CEO)

Yeah. Two things. I'm, I'm gonna hit the high, then I'll turn it over to Vishal. Look, I think, as you probably know, this is a pretty competitive market right now, not only in, in MRD. A lot of people are, are- have products under development or a lot of activity there, obviously in places like NGS. We really don't disclose kind of the details, but I think Vishal can probably give you more coverage about how we're thinking about stuff going forward.

Vishal Sikri (President of Advanced Diagnostics)

Yeah, I mean, if you look at where MRD is being utilized, right? Surveillance is one aspect of things, and what's really nice about looking at surveillance five years post, is that a lot of women do recur five years, and oncologists are worried about these women, and this is such a tool that we can provide now to help in that effort. Going into the adjuvant setting, going into the neoadjuvant setting, is another place where we're obviously paying very close attention to and are working towards, you know, studies and coverage in that area as well.

I think you'll, you'll see that, but, you know, I, I think, our focus is very much in commercializing now post five-year, but also at the same time, coming out with publications in the other settings where MRD is being used, which is in the neoadjuvant and the adjuvant setting.

David Delahunt (Research Analyst)

Great, thanks. It's good to see increased profitability and gross margin. Is there any updates you could give us about the lab automation efforts in California and Florida?

Chris Smith (CEO)

Yeah, I mean, I think, Melody's on the call, and Melody can add some additional color. I mean, I think there's, we talked about this as back when Catalyst was initially formed last summer, that kind of rolled into what we call value captured. A lot of those initiatives were around driving operating efficiencies within the lab. I would say the bigger, longer term is around automation. I would say that depending on the lab, we have a level of automation. Melody, do you want to kind of update kind of where we are in that process?

Melody Harris (President of Enterprise Operations)

Yeah, sure. In particular, we're focusing on the newer product lines around NGS, and so we are in the process of adding what I would call a little bit of opportunistic automation, so we're adding liquid handlers and things into those lines. We are just kicking off an effort that will explore wider end-to-end automation, and that's something that you'll be seeing from us in the coming quarters.

Chris Smith (CEO)

Thanks, Melody.

David Delahunt (Research Analyst)

Great. Thanks, guys.

Operator (participant)

Thank you. Your next question is coming from David Westenberg from Piper Sandler. David, your line is open.

Chris Smith (CEO)

Hey, David.

David Westenberg (Managing Director and Senior Research Analyst)

Hi, this is actually John on for Dave. Thanks for taking my question. We got the sense that lab utilization was high across the industry in the quarter. What's your sense for if you're gaining share? Thank you.

Chris Smith (CEO)

Look, I think we believe that we are. I mean, I think we've talked about this, that each quarter we've been winning more than we're losing. I think that's an important indicator. I think the other thing is, if you look at all our modalities, they were up pretty close to right at high single or double digits. A lot of those modalities are growing 2 to 4%, you know, per year. We're growing faster than the market. Obviously, NGS, we grew significantly more than 20. You know, our, our belief is that we are moving share. Warren, do you want to comment a little bit more?

Warren Stone (President of Clinical Services)

Chris, I think you hit the high notes. I think the growth was really broad-based. It came from, from all of the modalities and, and both some of the sort of legacy or traditional modalities grew, as Chris said, well above market as far as we're concerned. Then, the cherry on the top remains our strategy to focus on, on NGS. It's the combination of those two and the disciplined execution that's driving the results.

David Westenberg (Managing Director and Senior Research Analyst)

All right, great. Thank you.

Chris Smith (CEO)

Thank you.

Operator (participant)

Thank you so much. Your next question is coming from Mark Massaro of BTIG. Mark, your line is open.

Chris Smith (CEO)

Hey, Mark.

Mark Massaro (Managing Director and Senior Equity Research Analyst)

Hey, Chris. Congrats on a great quarter. About five months ago, you guys launched Neo comprehensive solid tumor and Neo comprehensive myeloid disorders. Of course, you also launched RaDaR into the clinic. Can you just give us maybe an update as to which of those might have benefited you in Q2? Can you give us a sense for what some of the gating factors would be? I would think reimbursement would be one of them, but just general commentary about those product lines and how they might have contributed in Q2.

Chris Smith (CEO)

Yeah, I'm going to let Warren kind of take that because we, we really do talk about this portfolio, but I do know there was some good reimbursement as opposed to launch of Neo Comprehensive. Do you want to give, give more color?

Warren Stone (President of Clinical Services)

Yes. I think, again, as Chris said earlier, it's really around it, and you touched on it, too, a suite of products that we launched in the latter part of quarter one, all of them NGS focused. Ultimately, if we look at that performance in aggregation, we're very pleased in terms of how things are developing, and they're actually collectively ahead of internal expectations that we set ourselves. You know, from a reimbursement perspective, within the suite of products that we launched in quarter one, it was only RaDaR where we were working towards reimbursement at that particular point, and I think Vishal has covered that on the call already. In addition, we have seen some...

We do see some opportunity down the road for some further enhancement from a reimbursement perspective around the suite of products that we launched, which was sort of part of the, the strategy that led us to actually develop these products in the first place.

Chris Smith (CEO)

Yeah, and I, and I would add, it's, I mean, they're relatively new products, so they're ramping. You know, some impact, but not, not a huge impact in the Q2. We're expecting to see, you know, more as the quarters progress.

Mark Massaro (Managing Director and Senior Equity Research Analyst)

Okay, great. Then just, second question here. Wanted to get a sense for how you see your NGS volume continuing to grow. I know, you know, occasionally I get questions from investors that, that don't even understand which NGS products you have, because it's generally hasn't been a focus for Neo over the years. Maybe just giving us a sense for what's been driving the growth. I think, I, I imagine it's probably some of the smaller panels, but when do you see maybe the bigger panels starting to kick in as we think about 2024?

Warren Stone (President of Clinical Services)

Again, a great question. I think, if we look at the NGS portfolio per se, obviously we have portfolios both in the heme and in the solid tumor. The heme has been more, I would say, traditional, and we classify ourselves as a market leader in that space, and despite that, we're still seeing very attractive growth rates, probably above market in terms of how we would define market growth in the heme space. The solid tumor is where we did launch the suite of products earlier on this year. Those are obviously, as a percentage, obviously growing exponentially more, but it's off, it's off a smaller base. As Jeff said a few minutes ago, those are the ones that continue to ramp.

We're really benefiting from strong demand, from NGS on the heme side of things, where we have a strong base.

Vishal Sikri (President of Advanced Diagnostics)

... which is being supplemented by some, some very solid growth coming from new products. Also supported again by those above the test solutions that we launched in conjunction, so Neo Access and NeoSeq.

Chris Smith (CEO)

Yeah, Mark, I think a couple of things to think about, and I think you highlighted. I think we were behind, candidly, on NGS, and I think there's been a significant focus. I think, you know, in the quarter, kind of two unique people. We hired a Vice President, really, of a payer relations on the reimbursement side, and Vishal hired a new Vice President of global R&D. I think if you think about where we're spending our time right now, it's expanding that portfolio, and NGS, especially solid for the years to come. Look, there's, I think, high expectations internally that we need to be bringing new innovations to market because we're behind.

I would say that there's a huge focus in the organization there, kind of getting back to where we believe solid was going and, and making sure we're getting more than our share. I think the other thing that Warren touched on, that I think we've really talked about, was these wraparound services. I mean, this is a service business, and everybody can run an NGS test and get a result, but it's, it's really around the customer experience. I would say that, you know, all of the stuff that we're even talking about today, while there's products to them, it really is about this service offering, this focus on patients and customer experience, and how do we make it easy to do business with NeoGenomics, which I don't know that it always was. That would be the other thing I think that's helping us.

Tejas Sawant (Executive Director and Senior Research Analyst)

All right, thanks so much.

Chris Smith (CEO)

Thank you.

Operator (participant)

Thank you. Your next question is coming from Tejas Sawant, from Morgan Stanley. Tejas, your line is live.

Chris Smith (CEO)

Hey, Tejas.

Tejas Sawant (Executive Director and Senior Research Analyst)

Hey, guys. Good morning, and congrats on the strong quarter here. Maybe one on ADX for you, Chris, and Vishal, feel free to chime in as well. You know, you talked about the tougher comps and your pursuit of profitability here heading into year-end in the first half of 2024. How do you see that sort of unfolding in light of the tougher macro backdrop and perhaps, you know, pushback on pricing from some more budget-conscious customers? Is there anything in the back half guide that you're baking in for those headwinds?

Chris Smith (CEO)

Yeah, look, I, I think, I mean, obviously, pricing is always a challenge, right? I mean, I think... I don't know that I've ever been in a business or a time in healthcare in, you know, I don't know, 35 years, where it wasn't. I feel like we have not been impacted by that. I think we've been pretty open and honest about that we did do price increases, and we believe that we were, in certain cases, out of market from a pricing perspective. The thing that I love about it, it creates a conversation with the customer, and so why we may have a set target internally on our price increase, we may not get all of that, but we get something, and we have those conversations. I don't know that that has had a big an impact.

I will say closing some of these international, pharma locations has impacted our business, and we knew that kind of going in when we made that tough, you know, decision. I feel like, you know, that that's all been taken into account when, when we raised the guidance on revenue growth. I got Vishal here, and Tejas, maybe let Vishal comment a little bit more about the pharma and what's going on in the macro.

Vishal Sikri (President of Advanced Diagnostics)

Yeah, I mean, Tejas, I mean, the way I look at this is that because of the broad offering that we have, we're not just offering one test, which is what some of our competitors are doing. We have multiple tests that we offer, whether it's an IHC, Cyto, FISH, NGS. It's all about having that balance in general, right? I think where we see potentially, you know, where in the past, where we were focusing heavily on, let's say, IHC, now we're focusing more on the NGS side of things so that we can actually have better margins accordingly. It's really this balance, though, because of the broad offering that we have right now, I think we're able to manage that accordingly.

Chris Smith (CEO)

Which is similar strategy in the clinical, right? That we think that you can really come to Neo and meet all your cancer testing needs, which you can't do with a lot of our competitors.

Tejas Sawant (Executive Director and Senior Research Analyst)

Got it. Then a quick follow-up on, sort of, you know, the exit trends in 2023 and into 2024. Chris, I mean, is there any reason why you wouldn't be able to grow the top line in that sort of, you know, low teens range next year? Gross margins, I mean, you've had some terrific progress there over the last few quarters here. Obviously, you know, it can't continue, you know, up like, you know, in the several hundreds, but certainly on a full year basis, you know, approaching sort of 50%, is that sort of a fair yardstick to use as we think about 2024?

Chris Smith (CEO)

Yeah. I'm going to let Jeff kind of highlight a couple of the specifics, but look, we believe that there's significant opportunity in this business, and I think if we talk about this, I, I had it in my prepared remarks, it really was about focus and execution. I think what you're starting to see is our ability to really utilize this broad, you know, footprint of our lab, but also our commercial organization that's not just focused on oncologists, but also pathologists, and be able to pull through multiple tests. I think that's helping us on the revenue. If you think about the operating efficiencies of the profit side, it really is about improving that gross margin consistently and then being more diligent on OpEx.

I think, look, candidly, we, we were, we were kind of out of control several years ago on spending a lot faster than revenue was growing, and I think that hurt the business. I think a lot of this is around diligence and execution, but as far as how far we can go, Jeff, do you want to comment?

Jeff Sherman (CFO)

Yeah, sure.

Chris Smith (CEO)

I know you've talked about this publicly.

Jeff Sherman (CFO)

Yeah. I would say, first of all, in this year, you know, we've seen, you know, very strong revenue growth, and we've seen very strong pull-through on the bottom line. I think we're focused on what are the levers that are going to drive our operating performance. Top-line revenue growth is certainly one, being more efficient on the gross margin side through automation and some of the things that Melody and her team are working on to drive adjusted gross margin is another, and then really getting operating leverage on the OpEx line as well. I would say we're not, we're not going to get into, you know, 2024 yet, but I think we have good momentum in the business. We're continuing to invest in our sales force, you're gonna continue to see, you know, resources being added there.

We clearly think we're seeing the benefit from that on the top line, revenue growth. As we look at 2024, it's really about what are those levers again, that are gonna drive improved margin performance. It's top line revenue growth, it's focusing on higher margin tests, NGS growth, continuing to see revenue cycle management improvements, which we've benefited from this year, and then getting operating leverage from a cost management side. I think the team feels good that we continue to have, you know, a lot of opportunities to, to capitalize on as we go into 2024, and, and, and we'll certainly talk more about that as, as we exit Q4 and, and, and give guidance for next year.

We think we're on a good trajectory, and we expect to continue to see expect to see continued improvement as we go into next year.

Chris Smith (CEO)

Yes, you kinda remember this from our old life together, where I was. Look, high water covers a lot of stumps. I think especially, look, if you're driving revenue above market in a market that's growing, you know, pick a number, 6 to 8% in unit, like, I think it creates huge opportunities, especially when we look at things like NGS, which have higher margins. I think that's been a big focus on ours, is driving revenue growth.

Vishal Sikri (President of Advanced Diagnostics)

Very helpful, guys. Appreciate the color.

Chris Smith (CEO)

Thank you. Take care.

Operator (participant)

Thank you very much. Your next question is coming from Derik De Bruin of Bank of America. Derek, your line is live.

Chris Smith (CEO)

Hey, Derek.

Derik de Bruin (Managing Director and Senior Equity Research Analyst)

Hey, good morning. Thanks for taking my question. Just sort of following up on some of the things that Tejas was asking. On price, you know, obviously there's a lot of companies that are introducing or have, you know, solid tumor and heme panels on the market. What's the pricing dynamic in that thing? I mean, are you pricing on par with peers? Are you pricing a little bit less? I'm just sort of curious in terms of how the competitive dynamic on that is, since there's a lot of, there's a lot of companies that are out there doing it.

Chris Smith (CEO)

Yeah, Warren, you want to take that?

Warren Stone (President of Clinical Services)

I don't think there is a significant difference in price in terms of how we're going after gaining market share here. We very much in a very similar ballpark. Obviously, as you know, it also depends on how we bill to the various customers, whether it's a, a client bill, or if we bill into third-party payers, et cetera. I can't say that when we look at larger panels and compare to the competition, that our price positioning is in any way meaning to be different from those people that we are competing with. It's in a very narrow band.

Chris Smith (CEO)

Yeah, I think, Derek, a lot of it's not only the price, it's the pull-through on reimbursement. I'm surprised that this industry, just in talking with my peers, how many people are not getting paid for the work they do.

Derik de Bruin (Managing Director and Senior Equity Research Analyst)

Yeah.

Chris Smith (CEO)

That's been a huge initiative.

Derik de Bruin (Managing Director and Senior Equity Research Analyst)

Mm-hmm.

Chris Smith (CEO)

-for us. I would say we talk about building out sales, but I would say it's really building out the commercial organization and being innovative and strategic, and making sure that we're getting paid for the work that we're doing. That's. Look, we think we have years to go there on what we call our revenue cycle management initiatives, but that's, that has been a huge impact. Helping our pricing, is we're getting paid.

Derik de Bruin (Managing Director and Senior Equity Research Analyst)

Yeah. You, you actually just preempted or started to go onto my next question on this one in terms of the payer dynamic. You know, obviously, you know, there's a lot of these companies out there. It's like, what is the pushback from payers when they don't pay you, right? You know, obviously, there's value in sort of doing the NGS testing, but when you don't get paid, what is the pushback and how do you offset that?

Jeff Sherman (CFO)

I mean, there, there's a whole host of, of issues. You know, sometimes it's, it's prior authorization, sometimes it's medical necessity, sometimes it's, it's medical records, and sometimes, sometimes we may not even have a contract. I think there's, there's a host of, of reasons for us, and I would say we're focusing on kind of driving all those down, using automation, getting information more upfront, even before we start, start the testing process. I think it's been a, it's been a, a focus area of our team, really starting in the back half of last year, and we've seen good progress, you know, throughout this year and, and still think there's a lot of runway. On the you know, the managed care pricing side, it, it's really about how we go to market there.

You know, getting tests covered isn't just pricing, it's getting tests covered as well. So, you know, we've, we've added, we've added some resources with expertise to help us not only get contracts, but gain coverage for individual specific tests.

Chris Smith (CEO)

Yeah, I think the one thing that is a little bit different from us and some of our competitors, is we have a lot of contracts, over two-.

Warren Stone (President of Clinical Services)

Over 200.

Chris Smith (CEO)

We have over 200 contracts with payers. I think it's a lot different when you have a contract versus you're running a test without a contract. I think that's been a strategic decision, is that we will have contracts and we will have GPO contracts. I think that is probably helping us as well.

Derik de Bruin (Managing Director and Senior Equity Research Analyst)

Great. Thank you very much.

Jeff Sherman (CFO)

Thanks, Derek.

Operator (participant)

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

Chris Smith (CEO)

Hey, Mike.

Mike Matson (Managing Director and Senior Research Analyst)

Hey, everyone. This is Joseph on for Mike. Maybe starting off with S&M. You know, it's been ticking up the last few quarters. You know, you're in this, like, I guess you could say, soft launch of RaDaR. I believe you kind of had mentioned that, you know, you, you won't be, you know, giving out free, but maybe giving it out more selectively. You know, as you are, as you, as you have received reimbursement from Medicare and then, you know, one private payer, is the decision, you know, to start ramping that expense a bit more, or do you think it's, the idea is more wait for, you know, expanded breast or another indication covered before we start seeing that ramp up?

Chris Smith (CEO)

Yeah, look, we've talked pretty openly about our field expansion plans this year, and that we had talked about, I think, adding more resources in the second half of the year. That's built into the guide. What we've guided you on that has that additional expansion in the field organization. I think from there, as we go into 2024, we've also talked about, look, I think that this industry does not operate very efficiently from a sales force perspective or what we call sales optimization. A lot of focus on tools and resources to make our current field organization significantly more efficient, so not spending time doing things that aren't driving revenue. That's really a 2024 activity.

You won't see a huge expansion in 2024 because we believe we can get significantly more efficient and, and, and, go to market with what we've got and get, and get to the numbers that we want to get to.

Andrew Cooper (Director and Senior Research Analyst)

Okay, that's, that's helpful. Then, maybe, you know, at the Investor Day, you guys have detailed the, you know, expectation to return the historical margins by 2026. You know, maybe given all the success so far on the top line and, you know, the operating leverage you guys have seen, plus the comments and, you know, the call today, you know, is there any reason why that milestone couldn't come sooner, you know, say, in 2025? Yeah, I just want to get your thoughts on that.

Vishal Sikri (President of Advanced Diagnostics)

Yeah, well, we're, we're, we're clearly ahead of where we said we were gonna be for this year, we see, you know, a lot of room. As I said, a lot of drivers are gonna help improve the company's performance. The team is clearly focused on that. You know, we're not gonna get, get in, into any more long-term guidance at this point, I think, look, we're headed in the right direction. We have good momentum. We have a lot of leverage we're executing on. We expect to see the performance continue to improve, we're clearly ahead of where we thought we would be at Investor Day and, you know, have raised guidance now, you know, two quarters prematurely from where we started the year.

I'd say, yes, we expect to see continued progress, and we're definitely ahead of, of where we expected to be, you know, at Investor Day.

Andrew Cooper (Director and Senior Research Analyst)

Okay, thank you. Congrats on the great quarter.

Vishal Sikri (President of Advanced Diagnostics)

Thank you.

Chris Smith (CEO)

Thank you.

Operator (participant)

Thank you very much. Your next question is coming from Mason Carrico, from Stephens. Mason, your line is live.

Chris Smith (CEO)

Hey, Mason.

Mason Carrico (Research Analyst)

Hey, Chris. maybe just a couple quick ones here for me on the breast cancer indication. First off, just high level, what's demand look like in this patient population? How often are these patients, you know, 5 years post-diagnosis, no active disease, seeing their oncologist for a follow-up? What does compliance to that follow-up schedule look like generally?

Vishal Sikri (President of Advanced Diagnostics)

Yeah. If, if we look at the population itself, right? I mean, we did get it in the most common subtype of breast cancer, which makes approximately 73 to 74% of all breast cancer cases. If you look at post five years, you, you'll have over 27% of all breast cancer survivors living with a personal history. They do go in and see their oncologist on a regular basis, because one of the concerns oncologists are telling us that they have with this population is that a large percentage of these women do recur post five years, and the only tool that they have, primary tool that they have right now is looking at imaging. Any tool we can provide them to help with that effort does help.

From that perspective, we, you know, imaging is typically done once or twice a year, depending on the oncologist, and we really have mimicked based off that, you know, as to how frequent the testing will occur. That is what is also shown in the coverage that we got.

Chris Smith (CEO)

Yeah, I think if you look at the data we presented, you know, RaDaR picks it up significantly sooner than imaging. Look, it's still early days with MRD, but I think if you look at all these, you know, aging population and, and doing annual checks, whether it's breast or prostate or whatever it is, I think the reality of life is that preventative health, people are gonna start checking more and more. Look at like we said, you know, it's early days. I think the other thing is that we felt like we wanted to get a certain indication in through Moldex and get approval. I think this is a brick-on-brick process. I think where we made a mistake on colorectal is we, I don't think, had a strategic approach.

I, I, I do wanna you be clear, we're not stopping with just a portion. Like, you know, as Vishal mentioned, we will submit on expanded...

Vishal Sikri (President of Advanced Diagnostics)

Exactly

Chris Smith (CEO)

... breast before the end of the year. It is an ongoing basis. It's just not one and done.

Mason Carrico (Research Analyst)

Got it. No, that makes sense. Do you have the opportunity for ADLT pricing for this indication? How are you thinking about that? If you do, when do you plan on filing? Any color there?

Vishal Sikri (President of Advanced Diagnostics)

Yeah, I think ADLT will be difficult for this indication in particular, but we're looking at for other applications more than just this indication.

Mason Carrico (Research Analyst)

Got it. Thanks, guys.

Chris Smith (CEO)

Thank you.

Operator (participant)

Thank you very much. Just a reminder, if there are any more questions, please press star one on your phone keypad. Your next question is coming from Andrew Cooper of Raymond James. Andrew, your line is live.

Andrew Cooper (Director and Senior Research Analyst)

Hey, everybody. Thanks for for sneaking me in. A lot's already been asked. Maybe just one on the ASP trends to start. You know, trying to get an understanding of, of how much of this is mix driven versus, like you mentioned, Chris, earlier, you know, better collections, better revenue cycle, success. Can you give us a, a, a bit of a sense for kinda what's driving what in in ASP?

Chris Smith (CEO)

Yeah, look, I think we talk about units and, and pricing, but we don't break out, like, individual. I think the reason being is because it is a portfolio effect, and so I think it really isn't just.

Speaker 18

... one thing driving its multiple. Jeff, do you want to explain?

Chris Smith (CEO)

Yeah, I think that's right. I think the mix will change from quarter-to-quarter. I would say, you know, we are seeing strong NGS growth, you know, driving it. We're seeing pricing increases, both for our direct client bill and some of our payer contracts, and we're seeing revenue cycles. I think those will shift and can change from quarter-to-quarter. We, we've got, you know, teams focusing on all three of those and continue to see opportunities there, you know, into the back half of this year and into next year. I would say years to come really, as we think about, as Chris said, the revenue cycle opportunities and just overall pricing increases, to help offset the, you know, the cost increases we experience as a company.

We, we hadn't done that, as effectively, historically, and I think we're much more focused on it now.

Speaker 18

Great. Maybe just one more. It's, it's already sort of been touched on, but just as you've had your folks in the field, specifically selling into the oncologists, you know, for a little bit of time now with Neo Comprehensive, you know, really more recently with RaDaR and RaDaR with coverage. Anything that's changed the way you think about that build-out and that optimization of that sales force in terms of where you send them, where they're focusing, anything on that front or anything that surprised you out of kind of the early days of, of each of these respective launches?

Warren Stone (President of Clinical Services)

Yeah, I think we're certainly beginning a lot more experience now than what we obviously had before we started. I think some of our assumptions have held true, others have changed slightly. One of the areas that, transparently, it's obviously a space where we haven't had as much access as what we've maybe had in hospitals, et cetera. Access has proven to be a little bit more challenging, so we're equipping the team with much more specific targeting data and sort of very clear reasons to call, so to speak, so that we could address some of the access challenges. Also, as we look to recruit additional people through the investment, making sure we're getting those people with relationships is a second way that we're looking to address the access challenge as well.

That's, you know, that's the one. I think the, the second is also that maybe some of the selling or, or some of the buying is going to take place significantly higher within organizations than maybe what we've perceived before. Not only a bottom-up strategy, which is important when you're introducing new emerging technologies, but also focusing on the top-down sort of strategy as well, was maybe an area where we, we've identified opportunity and we're looking to calibrate moving forward. I'd say the majority of our assumptions have held true.

Speaker 18

I think the other one you talked about, it's just, it's a different buying cycle than we, than we used to, and maybe...

Warren Stone (President of Clinical Services)

Yeah.

Speaker 18

Highlight that we had our NPS is higher, which-

Warren Stone (President of Clinical Services)

Yeah, maybe-

Speaker 18

We talk about our overall NPS, but how it's higher.

Warren Stone (President of Clinical Services)

So maybe that's a good call out. Thanks, Chris. One of the things that we do regularly is, is get feedback from our customers and a broad cross-section of, of customers to understand their experience with, with Neo and, and classical NPS processes and other processes. And what we, we definitely see is as we segment between our traditional hospital segment, where we've been very strong and maybe some of their community oncology settings, there certainly is a delta in, in how we're perceived. It's got a little bit to do with, actually, a lot to do with how sort of buying decisions are taken and, and the buying process in the community oncology setting versus the hospitals. We're, we're adjusting our internal processes here to accommodate that.

The Neo Access product that I spoke about earlier is a big lever for us here because that certainly streamlines the ordering process and provides access to a wealth of information that's relevant to that target segment. Again, we are adjusting our processes internally to cater for a different market segments.

Chris Smith (CEO)

Yeah, I think the other thing that we kinda learned is that by not... We talked about this when we did it, we were gonna pace the expansion of the field. Rather than going out and hiring everybody, I think one of the things that we've done is, we've learned and we've adapted. For example, we just had Neo University, which is our summer sales meeting, where we brought in the whole field organization, it's all around training. You know, everybody does a sales meeting at the end of the year, which is kinda more pomp and circumstance, and you set the goals and the strategies.

This was intense, you know, training, and I think that's what you're gonna see, is that, look, we're gonna make decisions, we're gonna learn, we're gonna adapt, and we're gonna keep moving forward. I think learning about this buying cycle and how we do things is making a benefit. I just got told by Kendra that we're out of time. Anyway, thanks, everybody, for the time today. We really appreciate you dialing in and spending a little bit of time hearing how the business is moving forward, and we'll look forward to talking to everybody soon. Take care.

Operator (participant)

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