NeoGenomics, Inc. 2026 Q3 Earnings Call

Thank you, Sylvie, and good afternoon, everyone. Representing NeoGenomics here today are Tony Zook, Chief Executive Officer, Warren Stone, President and Chief Operating Officer, and Abhishek Jain, Chief Financial Officer. This call is being simultaneously webcast and a recording will be available following the conclusion at ir.neogenomics.com. During this call, we will make forward-looking statements regarding our future financial and business performance, our planned leadership transition, planned future operations and related expectations with respect to timing and performance, future financial position, future revenues, growth potential and expected growth drivers, projected costs and capital expenditures, prospects and plans, estimates of market size and position, the implementation of our new revenue cycle management platform and its anticipated benefits and effects on the timing of our collections, objectives of management and financial guidance.

We caution you that the actual events or results could differ materially from those expressed or implied by the forward-looking statements. These forward-looking statements made during the call speak only as of the original date of this call, and we undertake no obligation to update or revise any of these statements. Please refer to the information disclosed on the safe harbor statement slide in the deck posted on our website, as well as the information under the heading Risk Factors in our annual report on Form 10-K and our subsequent quarterly results on Form 10-Q and current reports on Form 8-K filed with the SEC to identify important risks and other factors that may cause our actual results to differ materially from the forward-looking statements. These documents can be found in the investors section of our website or on the SEC's website.

During this call, we will also refer to certain non-GAAP financial measures that involve adjustments to our 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 the non-GAAP financial measures provided by other companies. Any non-GAAP financial measure referenced on this call are reconciled to the most directly comparable GAAP financial measures in a table available in the press release we issued earlier today and in the slide deck available in the investors section of our website. I will now turn the call over to Tony.

Thank you, Andrew, and good afternoon, everyone. We are excited to report another strong quarter, which shows we have the right strategy in place, the right team to execute it, and we are delivering consistent results because of this. Our business is continuing to gain momentum, and our third quarter results show it. Clinical revenue grew 13% year-over-year. NGS revenue grew a strong 29%, and our adjusted gross margins expanded by over 300 basis points. All of which allow for us to increase both total revenue and adjusted EBITDA guidance for the year. We made a lot of progress on key initiatives this quarter and are well-positioned to deliver a strong finish to 2026 and a continuation of these trends into 2027. Before I walk through the quarter highlights in more detail, I want to acknowledge that this will be my last earnings call as CEO of NeoGenomics.

As we announced earlier this month, effective January 4, 2027, Warren Stone, our current President and Chief Operating Officer, will become Chief Executive Officer of NeoGenomics and join our board. I will support his transition and remain actively involved as our new Executive Chair. We shared three messages at the time of transition announcement that I want to reinforce. First, these roles cement our leadership team well into the future. Warren, Abhishek, and the broader leadership team in place have helped drive our recent progress and will continue to do so. Second, this change comes from a position of strength. Succession is best done when the business is performing at or above expectations, which is exactly where we are. Warren has earned this promotion, and I am confident that he is the best person to lead NeoGenomics well into the future.

Finally, with our strategy firmly in place and not changing, now is the time to accelerate execution and advancement of that strategy. Warren will remain focused on the same value drivers that our team has been fixated on, and he will speak to that in a moment. As I step into the role of Executive Chair, I see great opportunity for NeoGenomics over the coming years as our business shifts to higher value, advanced testing modalities. Today, NGS represents about a third of our clinical revenue and only 10% of our clinical volumes. Over time, we expect NGS and MRD together to ultimately approach two-thirds of our revenue. With that inversion, we see the potential for durable and accelerating revenue growth, which will also drive disciplined margin expansion, just as we saw in the third quarter.

We will continue to seek ways to remove operational complexity, upgrade our infrastructure, and invest where we see the highest ROI, namely in our clinical business across the NGS and MRD franchises. Now let us get into the third quarter highlights. Total revenue grew to $209 million, up 11% year-over-year, and ahead of our expectations of approximately 10% growth. Our entire clinical business, which makes up roughly 93% of our revenue, is gaining momentum and exceeded our expectations. This is driven in large part by strength in NGS, with its higher margin revenue growing 29% as strong trends across both heme and solid tumor continue. On the much smaller non-clinical side, quarterly results met our expectations, though still represented a modest headwind to total revenue growth, declining approximately 10% or $1.5 million year-over-year. As a reminder, our non-clinical business is made up of two parts.

One, our high-margin Oncology Data Solutions business, or ODS, which is an emerging opportunity for us, selling proprietary real-world evidence to pharma customers. And two, our pharma service business, which supports customers through drug development and clinical trials, and historically has been comprised of legacy lower-value tests. Looking ahead, as we have done in all parts of our business, we continue to evaluate the low-margin commoditized contracts in our legacy pharma testing, which are not strategic to our business. However, we remain committed to more high-value services which move us up the pharma value chain. On the margin front this quarter, we again saw significant improvement. Adjusted gross margins expanded by over 300 basis points, driven by mix shifts, strong AUP growth of 11%, and Lab of the Future initiatives. Together with operating expense discipline, this drove adjusted EBITDA to $19 million, well above our expectations.

Beyond our financial results, we achieved several important business milestones in the third quarter. In August, RaDaR ST received MolDX coverage for immunotherapy treatment response monitoring, our third Medicare-covered indication and a cornerstone of our MRD launch. We continue to expect two additional indications to be granted reimbursement by MolDX, one potentially by year-end and the other by mid-2027. Warren will discuss recent customer feedback and other payer successes shortly. Separately, we continue to advance Lab of the Future initiatives and investments in digital transformation, including upgrades to sequencers in our revenue cycle management system. Lastly, our pipeline continues to advance, and we expect several tests and upgrades to move closer to clinical availability in the coming quarters and years. In the third quarter, we upgraded our flagship NGS test, our NEO Comprehensive Heme Panel, to include UBA1 and to detect variants at allele fractions as low as 3%.

These additions, along with turnaround times as fast as eight days, further differentiate the test. In MRD, our next-generation whole genome assay remains on track, with data generation expected next year and a potential clinical launch in 2029. In sum, this was another strong quarter for NeoGenomics, with our team of over 2,400 individuals delivering the consistency that investors expect. As Warren takes over as CEO in January, I expect that he and the team will continue to execute on the objectives in front of them. With that, let me turn it over to Warren.

Thank you, Tony, and good afternoon, everybody. I want to begin by thanking Tony, our board, employees, and the shareholders for their confidence in me as I take over the CEO role early next year. I am excited and grateful for the opportunity to lead NeoGenomics, something I have prepared for during my time with the company. Let me start by sharing a bit about what inspires me about the opportunity ahead. At NeoGenomics, we are a pure-play precision oncology company focused on the community, where approximately 80% of patients seek treatment. Today, we estimate roughly 60% of patients are still not receiving advanced comprehensive genomic profiling, which could lead to improved treatment decisions and outcomes.

We have the opportunity to be the company that brings these tests to more patients through our leadership in hematology, our trusted position in the community providers, a broad test menu that spans diagnosis to recurrence monitoring, and our growing oncology field force. Now, it is about leveraging our strength and momentum to advance the execution of our strategy and accelerate value creation. Our focus areas remain consistent, delivering durable NGS growth, driving MRD uptake with RaDaR ST, and investing in our business while driving profitability through operational excellence. I will briefly touch on each of these today. First, let me begin with NGS, which we view as our key value driver. In the quarter, NGS grew 29% and volumes grew 17%, with large panel volumes growing above 25%. We view these trends as durable, based on new product launches, mix shifts to higher-value tests, and our integrated portfolio offerings.

In hematology, new therapies are driving demand for our tests, and we have upgraded our flagship NEO Comprehensive Heme Panel as we continue to deliver industry-competitive turnaround times. In solid tumor, PanTracer family, inclusive of Pro, Tissue, and LBx, are seeing strong uptake while driving halo effects across the entire portfolio. LBx in particular, is seeing increasing utilization and managed care reimbursement tailwinds following the MolDX reimbursement decision earlier this year. In total, we estimate large panel therapy selection penetration in the community setting to be around 35%-40%, leaving substantial room for our business to grow. As we drive more wins with commercial payers and deliver more integrated testing solutions across the entire testing journey, our momentum should grow. As we view it, our NGS therapy selection and expanding portfolio provides us a unique opportunity to differentiate ourselves.