NeoGenomics, Inc. (NEO) Earnings Call Transcript & Summary

All right. It's great. Thanks, everyone, for joining us. I'm Matt Sykes for the Life Science Tools and Diagnostics Analyst at Goldman Sachs. I have the pleasure of having the senior management team from NeoGenomics here today. Chris Smith, the CEO; Jeff Sherman, the CFO; and Warren Stone, President of Clinical Services. Chris, Jeff, Warren, thank you very much for joining us.

Yes. Good to be here.

Thank you.

Maybe if we'll start out, Chris, and you guys can chime in as well, just sort of set the stage in terms of talking about first quarter results and some of the trends you're seeing in the business and what your expectations are for the second half of this year?

Yes. So look, it was a nice first quarter. We continued the momentum that we carried from Q4 and grew the business 17%. I think two really highlights of it is Warren's group, which is really what I call our base of our core business. The clinical business was up 16% in our pharma business was up 22%. So I think based on the momentum that we see in the business and some of the initiatives that we put in place, we raised guidance coming out of that. So I think that showed a good indication in the face of kind of this business and the growth trajectory going forward. So I think we feel really good about the rest of the second half of this year. We launched a couple of key products in Q1. We've launched our MRD product, which is RaDaR. We launched it initially into four indications. And then we also launched an NGS solid tumor product with more than 500 genes. And for us, that was really important because we've always kind of owned the heme side of NGS, but we're probably behind on the solid tumor. So the Neo Comprehensive, which was a new product that we launched at the end of March. And so is going well. So I think we feel really good as we move into the second half.

Yes. And I would just add, from an earnings perspective, we continue to see, as we saw in Q4, just very good conversion of that revenue growth into adjusted EBITDA. It's always almost converted about 60% of the revenue growth on the bottom line and saw a significant improvement from Q1 of '22 versus our performance in Q1 '23. So I think not only are we getting the top side growth but we're managing the costs and seeing the pull-through on the bottom line.

Got it. And I think Investor Day back in April, you highlighted a couple of key strategic priorities for midterm sort of profitability of the core acceleration of advanced diagnostics and value creation. Maybe give us an update on where you feel like -- I know it was just April a couple months I think we would love to kind of get an update from you in terms of those key priorities, where you feel you are.

Yes. So we kind of set really what I would say for the next 12 to 24 months, really these three areas that we thought were important. And one had been that we had lost growth in our core business or our Clinical Services business. So how do we accelerate that growth but do it profitably. The second is, is that I think that from an advanced diagnostics, that's really where these new technologies lie in R&D and the new innovations we wanted to really start to make an impact there. And then obviously, it's about how do we get value creation. And maybe to start, Warren since most of the stuff that sits around accelerating that core business. Do you want to talk a little bit about what's happening in the Clinical Service side?

So a couple of things. I think, first and foremost, really established a commercial strategy that we've aligned the commercial organization to go out and execute again. So that was first and foremost. We've done a fairly significant amount of hiring from a sales resource perspective. Traditionally, we've had a strong sales team focused, as Chris said, more on the heme and targeting hospitals looking to expand there. Right now, we're probably at a 60-40 ratio, 60% of people targeting hospitals, 40% now in the community oncology space. So really building up that sales organization. And with that investment from a resource point of view, and leveraging the commercial strategy, focusing on disciplined execution. And I think it's a combination of those three things that's really starting to drive momentum and that's ultimately driving volume. And with our fixed cost leverage, it's starting to make the core business sort of returned to some of its prior profitability.

As we talked about in Q1, I mean it was strength across the board in all modalities. So we saw really above-market growth in all the modalities in Q1. So we really did see some traction kind of building as we finish the quarter.

Yes. And staying in the kind of the base business, I think when Warren talked about the field organization, historically, we've been pathology-focused our hospital. And now we're very unique, I think, compared to some of our competitors in that we have a sales force focused oncologists. Think of it more of as a hunter and then one that's really more relationship on the pathologist, the hospital, more of kind of a gatherer or a pharma and bringing them together under one or leadership team has really created a lot of synergies in the selling and going back and forth. Because if you've seen one territory, you've seen one territory and everyone was different. And I think what we want to do is bring that together. So I think we got traction. If you kind of pivot over to advanced diagnostics, that's where our pharma business sits. It's also where our informatics business sits, and we saw really great growth in both those businesses. Some of that being set off with RaDaR. We launched RaDaR probably a year earlier into the pharma side of the business and really being able to get good traction, but it's also now where these new innovations are sitting in and bringing things. So we feel really good there. And then Jeff talked really on value creation. I mean I think we saw operating efficiencies, which was really important improvement on the gross margin and dropping about 60% of that revenue growth through. The other thing is that's where we kind of think about things like turnaround time. If you think about this business, it really is a service business. And so we believe we've got to win on customer experience. And so a lot of effort under this kind of creating value sits there on how do you win with the customer. And it is things like turnaround times and making it simpler, easier to do business. We have a huge initiative in the company about making it easier to do business with Neo. And so I think feeling really good about the movement of there. I think the other thing in the quarter, it's really where we stabilized the leadership change. So if you go back to a year ago, the three of us weren't here. I started late summer. Jeff came in and Warren really in Q4. And so I think getting that leadership team now to move together and having quarters under our belt is making a big difference.

And just maybe following up on the commercial footprint. Where do you feel you are today? Because I feel like on the gathering side, you had a lot of that in place, there might need to be shuffle and reenergizing it. On the hunter side, and particularly in the oncology is sort of where you're kind of moving towards. How do you feel you're positioned today either from a footprint standpoint or from a skill set standpoint in order to kind of drive that growth?

Yes. I'll kind of answer it a little bit and then throw it over to Warren. If you think about like on the oncology side, I think one of the things that's helped us over the last quarter, we opened new headcount to go hire people out of that sector. We were able to hire people that knew the industry because of what had gone on with some of our competitors. So I think we feel really good on the talent pool that we've been able to bring in the organization. I would say when you think about the footprint, look, our goal is by the end of the year, we'll be at about 100 reps split 50-50. And I think -- and I'll let Warren talk to this in specifics. But I think when you look at the effectiveness of a sales rep in this industry, I don't think it's in a very effective commercial industry. And so we think that as we go through '24, just by driving improvements in the effectiveness of our field organization, we'll add approximately another 100 salespeople, we'll double the sales force without doubling it. And Warren, do you want to talk a little bit about what you're doing to be able to do that, how we improve that from in the mid-20s into the 50s?

Yes. So maybe just to reemphasize a few points there. So first and foremost, the investment that we made on the oncology space was it was truly an investment. We didn't repurpose internal resources. We went out and recruited people with that skill set in mind. And as Chris said, there was a fair amount of opportunity in the market based on some of the actions that our peers have taken. So really look to acquire that hunter mentality with their oncology background, which has really helped us accelerate the onboarding process really nicely. So that's encouraging. Looking to get to the 50-50 split by the end of the year, as Chris said. But one of the real opportunities is taking lessons from a sales and commercial execution perspective that lie within sort of adjacent industries where I'd say the effectiveness from a commercial execution is much stronger by using predictive analytics by using [CRMs] more effectively by using leading indicators and vulnerability indexes. To understand what's happening within the dynamics of your customers so that we could really transform the effectiveness of the 100 people that we'll have by the end of the year, and we feel we have the opportunity through investments in back office functions, deburdening our sellers with certain activities and investing in tools and in infrastructure, we could probably double the productivity of our 100 salespeople, so they could effectively act like 200 people. So that's really one of our focuses and losing a lot of the sort of best practices come from tech, life science tools to be able to do that. A couple of pilots that we've run have shown really strong responsiveness from customers, particularly in the oncology space.

Maybe talk a little bit about -- you said that you want to make things easier for your customers. And NGS is a relatively new initiative for you. And so how do you change that perception in the marketplace of NeoGenomics? You mentioned all new management team, probably a lot of coordination had to take place. But how do you feel like you are changing that perception in the market? And what sort of the time frame you give in terms of how you can kind of change that impact on...

Yes, I think there's two things you kind of brought up kind of changing the perception, but also how do you improve the customer experience. Look, I think we were a turnaround. I think people that know NeoGenomics knows the turnaround story. And I think you have to start with people and culture. And I think one thing is that the people who work in Neo are very, very mission-driven. And I think we had kind of lost that focus on the patient. And I would say that's been 180-degree turn in the company. You can no longer find our share price anywhere in the company, but you can find every single day, how many patients that we helped. And I think that has brought a lift in the step of our team. If you're in the finance group doing an accounts payable, look, you could go do that anywhere, but you really probably ended up a Neo because you also want to make an impact in patients' lives. And I think we focused a lot on trying to embrace that. I think that starts to translate out into the marketplace and the way that we think about the business that, look, if we do what's right for the patient, we're ultimately going to do what's right for our company, which is then going to be ultimately what's right for the shareholders. So I think that was a shift. Along those lines, so I would say that when we talk about making it easier this thing around customer experience, look, we were behind on turnaround time. And it's hard to say you're going to win in the service business when you're behind on turnaround time. So really through Q3, Q4, in Q1, it was to get that operating efficiencies back. So we could beat a promise date. And I think the way that we talk about it if your dad had cancer, and I told you I'd give you results in 10 days, and I give it to you in 12 days, that's a huge problem. Let's over -- I mean, under promise and over deliver. So instead of 10 days, let's deliver that to around time in 9 days. And so I think that's kind of at the heart, but it comes down to this culture and having this kind of serve it mentality to the patients that we serve. And look, it would be great to get their feedback as well. But I think that has been the process that everybody we brought in. And I think we have a saying that, look, we're going to hire for capability, but we first hire for character. And I think that's making a difference inside the organization.

I'll build on that. I think the culture aspect that Chris spoke about is fundamental. But when we launched our pan-cancer comprehensive solution earlier this year, we didn't just launch a test. We actually launched an entire solution for the community oncologists, which came with a whole new ordering web-based platform, which was really designed and through ethnographic studies with oncologists to really align to what they wanted in an ordering platform. which also allowed for decision support in terms of what tests to order. It allowed oncologists to understand what kind of reimbursement is this patient got for this test and what kind of out-of-pocket expenses are there. It also allowed for an interactive results view of reports. So we didn't just launch a test. We launched a solution, which has significantly streamline the ordering process for that, whether that be the MA, the PA or the oncologists themselves are potentially requisitioning this test. So we understand that as we move into the communo-oncology space, we need to reposition slightly versus how we position ourselves to the pathologist or hospital space.

And then maybe moving towards the NGS portfolio. I think last quarter, you announced three new tests, and I know we're very early innings here, but maybe talk about, one, how these new offerings fit into the overall NGS portfolio? And then any early customer feedback that you're getting on that?

Yes. So yes, absolutely. It was -- all of those tests were launched in the first quarter and actually led in the first quarter. So I would say there was no revenue that we would speak to from our first quarter performance point of view. One of those were a heme NGS and the others were with solid tumor. So obviously really looking to really confirm our position as market leader from a heme perspective, from a myeloid point of view. And then the other three, which included RaDar, were on the solid tumor side of things. And I'd say, looking forward now and understanding feedback from customers, it's been overwhelmingly positive in terms of what they're seeing from a results perspective from an experience point of view. And right now, if we look at the performance relative to our internal forecast, I'd say I'm really satisfied in terms of how those NGS products that we launched earlier this year are performing thus far.

And if you think about the NGS portfolio, I mean, if you look at kind of Neo, our view is, look, we should be growing at or above market. And if you think about some of these old tests that have been around. Those markets are growing anywhere from 1% to 4%. So one of the things we kind of publicly said is that look, we've got to grow greater than 20% every quarter in NGS because that will accelerate us to get at or above market. And in the first quarter, we grew well beyond 20% even before we launch those products. So I think that's one of the things that we're talking about publicly. Look, you should judge us on, can we grow that NGS business significantly faster than where market is because if we are doing that, that means we're growing faster in the market. So that's been a big initiative inside the company and one thing these new oncology reps are helping us do.

Shifting to RaDaR, you kind of made it fully available to the U.S. clinicians last quarter, you had mentioned biopharma has been opened. There's a number of indications. Maybe talk about sort of the value proposition of RaDaR and what differentiates this test versus the competition. I think we all know it's a very large market. There's plenty of room, but there's also probably too much discussion about the competitive environment for where we are today, but we'd love to hear kind of what the value proposition is for RaDaR.

Yes. Look, as you probably know, I mean, a lot of people are in a $20 billion market, less than 1% penetrated. Look, for us, I think there was a lot of discussion on what to do with that product. So before we had started and right kind of as we were acquiring that business in Nevada, they were moving towards bringing out colorectal because that had been really the entree of the competitor in front of us. And we really didn't have a lot of clinical data. And I think that was number one is we didn't have a lot of clinical data when we submitted the MolDx. The second thing is that it's not a highly sensitive cancer state. It's pretty easy. It sheds a lot, so you can pick up cancer cells relatively and probably not the ideal. Our product works great there, but not as differentiated as you look at more sensitive cancers like breast or lung or head and neck. And so as we launched the product and we are having kind of discussions, and this really started with the CHIRP data that Harvard presented at ASCO a year ago that just talked about the sensitivity of that test in breast cancer. And look, we're about 10x more sensitive than the other product that's really commercially available in the market. And so we wanted to launch because we wanted to get early adopters experience and to get feedback before we even had MolDx approval. So we did submit to MolDx, it's under review right now for breast cancer, which we believe is one of the indications where we think we'll stand out. So I think that was kind of the first place. But the second place was is that I think this industry has always thought you got to get Medicare or a MolDx approval before you can launch. And look, we've had great conversations with commercial payers because they're interested. I think when you get to is this really this big of an industry, I think it's -- the next step is showing clinical utility. So yes, I understand where we are from a cancer recurrence perspective, but what does that mean? And that's where I would say all the new data is going to be going moving forward is showing what that clinical utilities. But I would say, look, where we differentiate ourselves is really highly sensitive cancers. And I think being able to manage the relationships we've already built with the pathologist because we're tissue informed, you have to get the block of tissue. And our relationships are with the pathologies and that's where that's going to come from. So we think ultimately, that will be a huge advantage, having our two field organizations reporting to one is that we have the relationships there, unlike again, some of our competitors that are very oncology focused and not really pathology-focused. So those would be a couple of key places.

Just talking about data. I think you talked about the PENELOPE Study in breast at ASCO. There's also the LIMA study in lung. Maybe talk about some of the data that you've shown there and how that can differentiate you versus competition.

Yes, we were just talking about that. Warren, why don't you talk about ASCO and kind of just how some of the papers that we're presenting?

Yes. So we presented 7 papers at ASCO, all very, very favorably received in terms of the presentations. And actually created some really good groundswell, I would say, amongst the participants at ASCO and really substantiating exactly what Chris has just said. It's really for us, it's about the sensitivity. That is the difference between us and a lot of the competition that we have out there. But it's clear that this is still a market that's developing. There's still a lot of discussion around the utility of this. And what one does when we identify circulating tumor DNA, et cetera. So yes, the key is studies, and then we continue to do further studies to provide this data and ensure that we can provide physicians and oncologists with actionable outcomes when they do get a result.

Do you want to talk about the conversation you're having lately about chemotherapy and I know you do adjuvant therapy?

Yes. We were having a conversation with two actually breast surgeons and talking about what stage you want to use where you could use MRD and RaDar in particular, and sort of neoadjuvant adjuvant and then obviously, surveillance. And one of the discussions was, could you use RaDaR in an adjuvant setting. So you've obviously done an operational procedure at that particular point. And really the discussion boil down to, well, why on earth would you use RaDaR in an adjuvant setting, you're giving chemotherapy? And the question was, well, why are you giving chemotherapy and it was simply said, well, because there's likely to be circulating tumor DNA. And really the question was, well, there's likely to be, wouldn't you like to know? Why give a patient chemotherapy if they didn't need to have chemotherapy because that would significantly affect the sort of outcomes of that particular person's life moving forward. So it really became a robust debate at ASCO in terms of, okay, there's a utility in an adjuvant setting now because it's traditional for us to just to prescribe chemo because that's what we've done. But a very simple test, especially if you've already done the fingerprint from the solid tumor, you can get the results in days and you could choose to potentially stop doing chemo much sooner than you would previously. So it can really affect patient outcomes by using this even in an adjuvant setting which is sort of new thought. A lot of discussion was around neoadjuvant and obviously, in the surveillance is where a lot of the discussion has been, but even in the adjuvant setting, we're starting to see more and more utility for the solution.

But obviously, early days in the disease state, and I think people are going to learn a lot more.

Got it. No. But I think having the adjuvant of having access to the tissue is going to be a big -- I think it would big...

It would be critical.

Shifting to the biopharma business, you talked a little bit about the strong results in the quarter. There's obviously been a lot of discussion about end market demand health, particularly as it relates to emerging biotech. I think in the quarter, you said that you're going to be able to offset that with other areas of your business. Maybe talk about the biopharma business as it stands today. Maybe any changes or improvements you made to that business and how you kind of refocused that business and how you see the growth trajectory playing out in terms of the end market demand?

So I'd say there were several changes that happened. [indiscernible] who runs that business isn't here today, but I think we came in and we kind of evaluated there were a couple of things. One is we had over 700 projects and half of those projects were less than $10,000. And while in our Informatics business, we're really with the big pharma companies. If you look at the top 30 pharma companies that do about $150 billion in R&D, we probably weren't as strong there as we wanted to be on the pharma side. So a lot of time on trying to expand into that top 30. And I think that's boding incredibly well for us on studies that we were able to turn I think, pretty quick. The second thing of those things, we were losing money on a lot of those. And I think there wasn't a focus on running that business profitably. So I think there was a conscious decision whether it was pricing strategies or the ability to hold from accountability perspective. And I think that shifted really as we move from Q3 into Q4. And then the last one was we used to pay on bookings. And so there was this whole thing from a sales perspective about getting bookings even if that revenue was never captured in we pivoted on how we compensate the field organization on the pharma side. It's almost like what we did on the clinical side. We used to pay on base business, now we pay incentivized on growth. And so I think changing some of those comp structures and all three of those things, I think it was started to add a benefit for us. Like I said, we grew beyond 20% for us in the quarter with pharma, which was great. And I would say that bookings look incredibly good going forward. And so I think as a business, I think being able to reposition that business, why you're in the middle of it, where it was a positive...

And we also focus on the cost side as well. So some of the cost optimization we did in Q1 was focused on the pharma business and making sure it was completely integrated into the company. So just helping the overall profitability in the pharma business.

I remember back before you guys joined, there was a slowing backlog conversion within the biopharma business. And some of that might have had to do with the sort of composition of the different projects that you have going on. Maybe talk about how you address that or kind of change the business to not -- to either shorten that time or just certainly change the type of customers and projects you're bringing on?

Yes. I think it kind of goes back to the, I think, signing up two things. Number one, signing agreements that really aren't going to be profitable even if they're short term or low value. But I think the second thing was the way that I think we were compensating some of that probably was not ever going to be recognized. And so I think one of the things we went away from bookings don't make sense. If we're going to get revenue 5 years from now. And that makes sense internally, it makes its sense but when you're reporting bookings, you can't put them in the bank. And so I think that's why we started really focusing more on revenue. Now we still do incentivize some on bookings, but it's been this big pivot.

Jeff, maybe focusing on some of the financial areas. I mean, one thing that I kind of want to tie into financials that you talked about earlier that I think is an important driver is this turnaround time. And improving turnaround time sometimes takes investment to do it. But the results of which probably create additional operating leverage as well. Could you maybe talk about sort of how you're balancing improving the logistics and investing to improve that turnaround time without sort of changing your sort of path to profitability goals and everything else that you're trying to manage?

Yes. It's another area where we had a new leader joined in December, Melody Harris, who's over our enterprise operations. And it's really about how do we optimize our lab operations, which includes logistics and it includes automation. And so as we talked about some of the investments we were making as a result of some of the cost savings, things we did in Q1 and certainly automation in our lab operations is a focus. So I think as we look at how we approach lab operations, how do we approach where we're doing tests, our cost profiles. All that is kind of encompassed in what Melody is working on. And I'd say it's a work in progress. She's been here 6 months, 5, 6 months now. We've got some other team members helping to focus on that. And as we go forward, we're going to continue to make investments in technology and in automation. And we do think that's going to help increase productivity and increase effectiveness and getting results on. So I would say from an investment standpoint, clearly, we have baked into our guidance for the year, what we think we need to invest to make that happen. And as we're seeing good, strong volume growth, we're still having to manage that increased growth and try to get those productivity enhancements. So I'd say it's a work in progress, but I think we have a good plan how to continue to optimize and capitalize on those investments and really drive increased productivity.

Some of it was also level loading. I mean, if you think about our business, we have a large lab in Orange County, a large lab and Fort Myers, a large lab in Houston. And then with the Inivata acquisition, we bought a lab in Raleigh. And some of that also was getting closer to the customer and turnaround time. So instead of doing a test for an East Coast customer out on the West Coast, moving that in, look you kind of think it's silly, but you save a day and you save freight FedEx turnaround, it's improving profitability, it's improving turnaround time. So I think there's a lot of blocking and tackling was done. A lot of it was done through this program that we really kind of stopped talking about, which was catalyst that was started last summer, which was these initiatives focused on reducing cost, but it was really about improving operating efficiency and -- so it didn't take huge capital projects. It took very specific rifle shot focus and effort to come in and improve it. And when we started doing that, it enhanced turnaround time, but it also started to enhance the profitability of the business. Some of it was like, again, I come back to blocking and tackling, things that you could do.

Related to this discussion, and you might have addressed a lot of it previously, but I remember back to -- prior to joining some of the issues that the company had was a fixed cost base that was quite high and as kind of COVID impacted revenue, you started getting this negative operating leverage. And so some of it had to do with probably consolidating the lab footprint, but also maybe talk about some of the changes you've made to the fixed cost base because I do think that hasn't been talked about enough, and I just wonder as growth continues to accelerate. Are we going to get some surprises in terms of people underestimating the operating leverage that's in this business today versus what it was before?

So I think, look, easy things, like, for example, we had a lab in China lab in Singapore and a lab in Rolle, Switzerland, that really had very little volume going through them. So we made a decision to close those labs. I think the other thing was we had never really integrated. We've done four acquisitions over a 5-year period, and we had not integrated back-office functions, things continue to run. Third one is Inivata. It was a business that we acquired that was burning $50 million a year of cash. There was no discipline put in to try to integrate that. So look, in the first quarter, we announced that we took out $25 million of annualized costs and ended being closer to $30 million of annualized cost. And part of that was just making some tough decisions that probably needed to be made prior. And I think that the company with through a lot of transformation going into COVID and coming out of COVID and then bought Inivata and then just never rightsized the business. So I think that closing some of these labs, I think bringing more discipline and accountability in the organization. I mean, we believe a lot in empowerment, but with accountability, I think, and holding driving to certain metrics, I think, has made a huge difference. And so we don't disagree. We think there continues to be a lot of runway on the leverage of the business to get back to or even potentially beyond the probability that the company was back in the years like '18.

Yes. And I think we can get operating leverage on the gross profit line as well as the adjusted EBITDA line as well. So clearly, we went through a period of time where our OpEx is growing faster than revenues. We've really stop that completely and reverse that and are getting operating leverage, but it's operating leverage on the gross margin line and on the adjusted EBITDA line. So that top line growth will help. And if we can manage the expenses at a much slower pace. We're going to get that operating leverage. And that focus is the balanced approach. It isn't just revenue growth for the sake of revenue growth. This revenue growth that actually drives profitability on a long-term basis. We start talking about long-term sustainable growth, how do you keep brick on brick and...

Because then I asked the unfair follow-up question is like how you're managing expenses, how are you going to outgrow the market. And so like balancing that equation is hard. But how do you guys kind of see that...

Well, I think commercial optimization is a huge one. And I think, again, if you come back to an industry that has not -- I don't think it's sophisticated from a sales commercialization perspective as optimization as other industries and that would be one. I think technology. And so one of the things I think for us, sometimes it's not how much you spend on R&D, it's what you're spending it on. And I think we've changed our approach on the way that we're looking at new innovations to bring them to market. And -- but I think those two were huge. And then for us, it's about how do you continue to -- like we're way behind, I think, on automation in the lab as we bring more and more automation and improve the profitability. So this winning begets winning, I think, and that's important.

If I just build on that, Chris. I think one of the things that excites me and coming back to our turnaround time, I think we're in a fortunate position that our turnaround times are very competitive feedback we get from our customers. But if we look at our labs today, and particularly our primary labs here in California and back in Florida, not highly automated yet. So we have a lot of leverage in terms of investment into automation that's going to drive a lot of leverage. Yes, there's investment upfront, but that -- it's strategic, where we know that we're going to get a fantastic return by making those investments. It's going to drive capacity. It will drive customer experience and it will drive leverage. So sort of some obvious investment opportunities.

Yes. I think people underestimate this customer experience in this business. And it's kind of funny when Warren and I started, we go out and see customers because we're not happy with where our service level is. And what you find is no one's good at it, right? And it's kind of like you stay the Holiday Inn and they ask you where the bathroom is, they tell you it's down to -- take a right and take a left and cross the pool. If you go to the Ritz Carlton, they walk you to the restroom. And I think it's that mentality that you'd have to bring that every single day, and it's shocking how receptive customers are to it because they want to do business with us. We've been around a long time. It's a great franchise. And so I think it's -- I think those things play out over the long term.

Got it. And then, Jeff, I think margins came in last quarter around 40% or so on the gross margin side. Can you maybe talk us through sort of the dynamic phasing for the rest of the year in terms of margins? And maybe if you have a view, sort of what you think the long-term gross margin that this business can support?

Yes. I mean we expect revenue growth to continue throughout the year on a fairly consistent pace, and we expect margins to grow with that. We didn't necessarily put a target out there on the gross margin side. We did say at our Investor Day that we thought we could get to the company's historical adjusted EBITDA margins by 2026. And so we'll expect to see improvement over the next couple of years. And then the RaDaR business upside would be on top of that would be incremental to that. So I think we have a good platform continuing to grow the business, get operating leverage, see the company turn to positive adjusted EBITDA. And we also said we'd be positive adjusted EBITDA in 2024. So we think we're obviously getting very close to that point, see that happening. And building on that by continuing to see market level growth, continuing to see growth in the Pharma business, advanced diagnostics and then getting that operating leverage. We really see a formula of doing that and really starting to produce cash flow in 2025. And by 2026, we think we can get back to those store adjusted EBITDA margins in the mid-teens.

And we did also say at Investor Day, we'd probably get 100 points -- basis points each half on the gross margin. So we think for the long term that we can keep driving that improvement.

And then just on the balance sheet, talk a little bit how you feel about it right now in terms of your ability to get to the path to profitability and how you're thinking about capital deployment?

Yes. So we exited the quarter with over $400 million in cash. I had the benefit of inheriting a very good balance sheet. So we've got about $200 million of converts coming due in '25 at a 1.25% rate and another $330-plus million coming due in '28 with a 25 basis point rate. So we've got a very good capital structure today. We start producing positive free cash flow in 'mean'25 then we'll be in a very strong position to have the flexibility to do what we need to do, whether that's continuing to invest in the business, looking at opportunistic opportunities for investments. So I think from a balance sheet perspective, we have great amounts of liquidity today. The performance continues to improve. We'll be starting to add to liquidity starting in 2025, and we'll be well positioned to continue to invest in the business and really look at opportunities from there.

Got it. Maybe at the time we have left, Chris, I mean, we got to know each other during the ortho clinical days. And one thing I always appreciate that you as sort of the under promising and over delivering. If you could kind of pinpoint what you think is still misunderstood about NeoGenomics and what you want investors to kind of understand about, one, the progress you've made, but two, sort of how you're going to persistently outgrow the market?

Yes. Look, I think one is that, first one you mentioned. I think whether you're a sales rep or whether you're a CEO, I think it's important to underpromise and overdeliver. I think that builds long-term sustainable growth. I think that's one. I think people underappreciate the franchise of Neo and the importance of the full array of tests. I think the market has been very drawn to NGS or now they're talking a lot about MRD, but the number of tests that oncologists and pathologists run is significant, and I think that gives us an advantage in the marketplace. And I think that's been probably underappreciated. I think the other thing is that the bones of this business is still -- was still very good. It was an execution play. It wasn't that it was a terrible strategy. It was basically blocking and tackling. And I think that's probably at times was. And that's why I think we were able to do the turnaround pretty quickly because a lot of the bones of the business that were there were incredibly valuable. It was just about how do we focus on the -- I call it the chosen few. You can't be all things to all people, and that's, I think, is paying off.

And I would just add the financial -- all that on top of the strong financial profile and returning to profitability in the very near term will give us the opportunity to continue to invest and be opportunistic in a marketplace where there's others that may be challenged on that front.

Great. Well, with that, we're out of time. Chris, Jeff, Warren, thank you very much.

Thanks for the time. Appreciate it.