管理層發言
Good morning, and welcome to the NeoGenomics Second Quarter 2025 Financial Results Call. Please be advised that today's conference is being recorded. I will now turn the call over to Kendra Webster, Vice President of Investor Relations.
Thank you, Tom, and good morning, everyone. Welcome to the NeoGenomics Second Quarter 2025 Financial Results Call. With me today to discuss the results are Tony Zook, Chief Executive Officer; and Jeff Sherman, Chief Financial Officer. Additional members of the management team will be available for the Q&A portion of our call. This call is being simultaneously webcast, and we will be referring to the slide presentation that has been posted to the Investors tab on our website at ir.neogenomics.com. During this call, we will make forward-looking statements regarding our future performance, business strategy, 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 under the heading Risk Factors in our most recent Forms 10-K, 10-Q, and 8-K that we filed with the SEC to identify important risks and other factors that may cause our actual results to differ 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 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 measures in a table available in the press release we issued this morning and available in the Investors section of our website. I will now turn the call over to Tony.
Thanks, Kendra. Good morning, everyone, and I thank you for joining us today. I'm pleased to lead this call having now completed my first quarter as CEO. Since becoming CEO in April, I've engaged with the business, including sales, operations, and R&D, and reexamined our strategic initiatives and financial targets from a more in-depth perspective than I could as a director. I've also met with existing and potential partners at various industry conferences and had conversations with many of our shareholders to better understand their perspectives. These conversations reinforce the significant opportunities to drive value for our customers, patients, and shareholders. Cancer testing continues to be a large and attractive market. Most of our business today is in diagnostic testing, though recently, we have accelerated our offerings in therapy selection with the launch of several NGS products.
In addition, our RaDaR 1.1 technology and R&D work on next-generation MRD enable us to participate in a market that's underpenetrated and rapidly growing. I acknowledge that our delivery this quarter was below expectations. While I remain extremely optimistic about the future of NeoGenomics, our team and I are doubling down on our efforts to focus the business on execution excellence as we build upon our disciplined financial and operational foundation. But before we talk about our plans moving forward, let's spend time on the quarter. We had a solid second quarter in the core clinical business, posting significant volume and share gains in key segments. However, our nonclinical revenue was below expectations. Revenue for Q2 was $181 million, slightly below our second quarter guidance range, though still representing double-digit growth of 10% year-over-year. Our clinical business continues to expand with organic growth of 13%.
Strength in our clinical business was offset by continued weakness in our nonclinical revenue, driven by lower revenue from pharma and biotech customers. In the second quarter, we saw a sequential improvement in AUP, a record quarter for test volumes, and NGS growth of 23%, slightly below our 25% target but well ahead of the low to mid-teens NGS market growth rate. We continue to capture market share in clinical revenue, but we made a conscious decision to leverage the learnings from our PanTracer liquid biopsy EAP to establish an even stronger product profile for launch. This meant we delayed our launch, which resulted in lower revenue and a lower-than-targeted NGS growth rate. I'm excited to confirm that PanTracer liquid biopsy will launch commercially tomorrow and believe that our approach to bringing this product to market will positively impact patients treated in the community and our NGS growth rate later this year.
We're projecting lower-than-planned revenue from pharma customers for the remainder of the year, as well as a negative impact to revenue associated with lower-than-planned volumes for PanTracer liquid biopsy and NGS mix. As a result, we've updated our 2025 financial guide, which Jeff will provide more insight on in a moment. I am confident that Neo can continue to achieve double-digit annual growth, fill product gaps through organic and inorganic activities, and capture additional market share. The leadership team and I have drilled down to align our cost structure with revenues, reestablish our consistent execution, and rebuild credibility with our shareholders. Investments we are making in operating efficiencies this year, including the LIMS project and digital pathology, position us well to achieve more operating leverage in the back half of this year. I think it's important to spend some time discussing our Q2 results and how we intend to accelerate growth and drive value.
The pharma macro environment conditions contributed to the revenue shortfall in the quarter versus our expectations. Specifically, market uncertainty surrounding NIH funding, drug pricing, patient enrollment in clinical trials, and potential tariffs are leading directly to investment volatility and creating significant headwinds for both our pharmaceutical and biotech clients. This is resulting in budget restrictions, reprioritization and consolidation of assets, and postponed or canceled projects specific to our pharma services line that are more pronounced than we've experienced over the last two years. As we have shared in past quarters, RaDaR 1.0 is a growth driver for pharma revenue and also provided a call point to sell other testing modalities. As a result of the negotiated settlement, these RaDaR 1.0 contracts are no longer producing pharma revenue in 2025. We are adding additional testing capabilities in our portfolio to make our menu more attractive to our pharma and biotech customers, such as Paletrra, our AI-powered spatial proteomics platform, which launched in June.
While we have updated our pharma go-to-market strategy and made key changes in leadership, it is taking longer than anticipated to yield results. How do we plan to respond to these challenges? Our strategic drivers are focused on three areas: the customer experience, the community channel, and new products. Optimizing and winning the customer experience continues to be our competitive strength. We've earned a market leadership position in Heme through our heavy investments in community hospitals, and we continue to invest in the community oncology setting. To win the customer experience, we focus on investments in our sales force effectiveness and efficiency, bidirectional interfaces and ordering portals, as well as automation and digital pathology in the lab. Last quarter, we announced our plans for EPIC integrations, which we believe will begin to impact our revenue in late 2025. We're also continuing our multi-year process of integrating our multiple LIMS into one single LIMS, which will allow us to sunset eight legacy systems.
We believe this will give us operational efficiency, enable us to further improve our turnaround times, and further enhance our data asset to fuel more robust growth in our oncology data solutions business. In terms of enhancing our community channel strength, we leverage our business development capabilities to establish effective compelling partnerships like the one with Adaptive around delivering industry-leading Heme MRD tests to our customers, which we have started to bring to market through a control pilot earlier this month. Our pipeline of future opportunities continues to grow as we capitalize on the recognized strength and the unique brand recognition of our channel in the community space, coupled with our sales effectiveness. A key growth driver for clinical and pharma is focusing our R&D and business development efforts on new next-generation precision-guided products. We believe MRD and therapy selection NGS provide the biggest market opportunities and represent the largest associated unmet need.
The $30 billion MRD market specifically represents significant unmet clinical needs, particularly in low shedding cancers. MRD has the potential to transform cancer care by enabling earlier detection of recurrence, more precise treatment decisions, and better outcomes for patients. This also makes MRD highly relevant to biopharma partners to advance targeted therapies. We intend to make further progress here and evolve our product portfolio to be more comprehensive across the cancer care continuum. Simultaneously, we will continue building on our deep relationships with the community hospital pathologists and growing relationships with community oncologists, providing us with an even wider competitive moat and reinforcing our responsibility to inform treatment decisions with actionable insights. As I mentioned at the outset of this call, I've met with many of our shareholders to better understand their perspectives.
They challenged us to rethink our confidence levels and to be transparent in our guidance, incorporating the risks and uncertainties inherent in our industry and our business. We take this feedback seriously, and I want our shareholders to know they have been heard. Revising our 2025 guidance reflects the headwinds I've discussed, while at the same time acknowledging the efforts we've implemented to best position the company for the future. I'm confident we can achieve these forecasts, and if we execute on our action plan, I'm just as confident that there is additional upside we can capture as well. We intend to prove that one quarter at a time. As a member of the Board of Directors, I approved the update to the long-range plan we communicated earlier this year. As CEO, one of my primary objectives has been to oversee the execution of the strategy behind the plan and proactively identify opportunities to improve upon it.
Here's how I think about our long-range plan. It's just that, long range. While the plan covers the company's execution of certain key metrics during the next five years, this does not guarantee that the plan is going to correlate exactly to our guidance for the coming year, and there will be variability from year to year. My confidence in the long-range plan is based on three key assumptions. First, we believe that the core business, which now includes Pathline, will continue to grow at a 10% plus rate even with the headwinds affecting our pharma revenue. Second, our business development activities will add incremental revenue that materializes gradually with significant growth in the out years, but the timing will be lumpy depending on deal terms and structures. Finally, as we increase our investments in R&D and launch PanTracer liquid biopsy and future products like next-gen MRD, we expect to generate incremental revenue through consistent improvement in NGS mix and growth.
Beyond that, to the extent the pharma headwinds subside, there is upside. As we progress into the back half of 2025, we will continue to monitor the impact of the recently passed federal budget bill, changes in the pharma landscape, and the success of our liquid biopsy launch. Consistent with our historical practice, we will release our 2026 guidance when we report our 2025 full-year earnings in February of 2026. Going forward, like many in our industry, we will not be providing external updates on our progress against the long-range plan and will instead focus on our near-term guidance targets. Based on my experience in these last four months, I'm more optimistic than ever about Neo's future. And with that, I'll hand it over to Jeff to further discuss our results from the quarter.
Thanks, Tony, and good morning. In the second quarter, total revenue growth accelerated compared to Q1, rising 10% year-over-year to $181 million. Total clinical revenue also continued to show double-digit growth, increasing by 16% from the previous year. Organic clinical revenue reached $160 million, representing a growth of 13%, driven by a 10% rise in test volumes and a 3% increase in average unit price. NGS testing contributed 32% of total clinical revenue in the second quarter, growing by 23% year-over-year. However, this strong clinical growth was partially offset by a 26% decline in nonclinical revenue compared to the previous year, primarily due to the weakness in pharma revenue that Tony mentioned. The second quarter presented a challenging comparison with last year's pharma revenue of $18.7 million, which was 10% above the average pharma revenue per quarter for 2024. Adjusted gross profit improved by $4.6 million or 6% year-over-year.
Adjusted EBITDA was $10.7 million, a decrease of 2% from the previous year, but we achieved our eighth consecutive quarter of positive adjusted EBITDA. The decline was mainly attributed to the ongoing integration of Pathline. Excluding Pathline, adjusted EBITDA rose by $1.4 million to $12.3 million, a 13% increase from last year. Average revenue per clinical test went up by 2% to $461 compared to the prior year and also increased sequentially from Q1, despite the lower average unit price due to Pathline volumes. Excluding Pathline, the average unit price grew by 3% year-over-year as we received more orders for higher-value tests like NGS and through strategic reimbursement initiatives. As I mentioned during the first quarter call, we successfully renegotiated several managed care agreements in the second quarter, which will positively affect revenue in the second half of 2025. The Q2 results include a noncash impairment charge of $20 million linked to the upcoming replacement of our IVFL test with PanTracer liquid biopsy and the write-down of Trapelo and assets held for sale.
While our focus remains on 2025, our revised full-year guidance considers the challenges in the current pharmaceutical environment and their effects on customer demand, along with delays in launching the PanTracer liquid biopsy. Initially, we expected clinical revenue to compensate for a projected $7 million shortfall in pharma services, but demand has proven to be weaker than anticipated. Consequently, the $7 million gap is expected to widen, and we now believe that clinical revenue will not fill the gap in pharma services for 2025. For the full year 2025, we now expect revenue between $720 million and $726 million, indicating a growth of 9% to 10%, with adjusted EBITDA anticipated to be between $41 million and $44 million. The integration of Pathline is on track and progressing well, with a potential negative impact of $1 million on adjusted EBITDA for the remainder of the year. We are well-positioned to invest in our business and leverage growth opportunities outlined in our strategic plan.
We substantially reduced our debt in the second quarter by paying off $201 million in convertible notes due in May using our existing cash. Our cash flow from operations in the second quarter was a positive $20 million, improving by $6 million or 44% compared to the prior year, ending the quarter with cash and marketable securities totaling $164 million. Our balance sheet has no immediate debt maturities, and we continue to manage capital deployment between organic growth investments, business development, and enhancing operational efficiencies. Our balanced approach to generating and allocating capital reflects our commitment to our strategic focus areas. We will concentrate our investments on filling gaps in our service offerings, including ultrasensitive MRD, liquid biopsy, and whole genome sequencing solutions. Our financial health has significantly improved in recent years, and we continue to make progress in Q2.
We are dedicated to executing our plan for long-term sustainable and profitable growth to enhance shareholder value. To demonstrate our confidence in our strategy and future direction, I, along with Tony, Warren, and other team members as well as several board directors, have recently purchased additional shares. Now, I’ll turn it back over to Tony to conclude.
Thanks, Jeff. To recap, we have strong relationships in the community setting where 80% of cancer patients are treated, operational capacity and network footprint and financial discipline and flexibility to expand our reach and generate value for our patients and shareholders alike. We will remain guided by our strategic drivers and committed to our mission and vision while focusing on generating meaningful growth and enhancing value while improving patient care. Thank you for your continued interest in NeoGenomics. And now I'll pass it over to Kendra for questions.
Thanks, Tony. All right, Tom, let's go ahead and open the line for questions.
分析師問答
Our first question this morning is from Andrew Brackmann from William Blair.
Tony, maybe to start on setting guidance. We've seen several updates on both near- and long-term guidance updates so far this year. This is yet another one. So from a high-level perspective, and now that you're four months into the CEO seat, can you maybe just sort of talk about the process and philosophy for setting guidance, maybe how that's changed? And I guess maybe even more pointed here, what are some of the things that you're committed to doing to rebuild credibility with the investor base?
Yes, thank you for the question. I've gained significant insights now that I've stepped into the CEO role. Being a director offers a broad view of the company, but as CEO, I've been able to dive much deeper. I've learned a lot from working closely with R&D, business development, operations, and our commercial teams, allowing me to closely analyze our budgets and long-term plans. This has given me a better understanding of our business fundamentals. I've also had discussions with many of our investors, who are clear that just meeting our guidance is not enough; it's akin to a miss. We need a more realistic and balanced approach to how we operate. I've learned the importance of confidently discussing our core assumptions while also identifying potential upsides. Additionally, my talks with partners at events like ASCO have revealed a surge of interest in collaboration that we can leverage. Looking ahead, I need to communicate confidently and transparently about our business. Most importantly, we must deliver results, especially since we fell short of our revenue guidance this quarter. We recognize this oversight and are committed to achieving and exceeding our targets consistently from now on.
That's very helpful. Maybe your comments on talking about the underpinnings of core assumptions, maybe as it relates to 2025 guidance, can you maybe just talk about some of the levers towards the guide down? Maybe just bridge the prior guidance to this guidance in terms of kind of the key areas that you talked about?
Yes, I will focus primarily on two key areas. Managing the mix is always a challenge for a company of our size and breadth. With 500 products in our portfolio, we will inevitably see subtle shifts. This is something we consistently need to address. However, two major factors are evident in our guidance. First, on the pharma side, the impact of the macro environment occurred more quickly than we initially anticipated in our original guidance. The combination of tariffs, pricing challenges, and declines in NIH funding has created uncertainty for our pharma and biotech customers. This uncertainty has led to delays in projects, reevaluations, and sometimes even halting of projects. As I mentioned in my opening comments, we made a deliberate choice to utilize our learnings from the PanTracer liquid biopsy Early Access Program. I believe this will enhance our product profile moving forward. However, not having PanTracer in our portfolio in May, as we transition to the commercial launch tomorrow, results in a three-month delay that impacts our overall mix and revenue for the year.
Additionally, we take pride in our NGS penetration rate, which grew by 23% this quarter but still falls slightly short of the 25% target. We have considered all these factors, including feedback from some shareholders, as we move forward with our guidance, emphasizing the need to confidently deliver on our commitments and potentially surprise with positive outcomes later.
Your next question is coming from Yuko Oku from Morgan Stanley.
Given the focus around rolling out the PanTracer lineup and NGS tests in general being a growth driver of the company, do you see opportunities for portfolio pruning? How do you balance being a one-stop shop for your customers versus focusing on allocating your resources to the most profitable products?
I'm sorry, could you just repeat the last part?
How do you balance being a one-stop shop for your customers versus allocating your resources to the most profitable products?
Okay. It's a great question. First, let's start with PanTracer liquid biopsy. As you say, we are looking forward to the launch tomorrow. We believe we have a very competitive product to bring to market. It's one that our customers have actually asked us for because it complements our family of PanTracer products. It will be a comprehensive panel over 500 genes that will include TMB and MSI that guides immunotherapies. We've been able to lower our input requirements so that we get better collection methods and yielding a very strong QNS profile. We've been able to support a turnaround time that we believe will be less than seven days and think that factors into a pretty good value proposition for our customers. And as you say, we look to the depth of the portfolio. We believe we have solid offerings, not just in the PanTracer liquid biopsy family of products, but across the spectrum of products. Warren, any comment?
Yes. Let me add to that. So first and foremost, I'd say that our broad portfolio is absolutely a strength. When we think about labs sending out their oncology testing, they're looking to consolidate vendors that they want to send their testing to. And this puts NeoGenomics in a very unique position that we're able to address most of their needs. Having said that, yes, our strategy is to protect our position on the diagnosis side, but invest significantly in therapy selection and MRD, which are the areas where we see faster growth and larger TAMs. So with that, we definitely see opportunities to simplify the portfolio, which we have done in 2025 and we'll continue to do for the rest of the year and into the future. But our strategy is to provide a holistic solution to our oncology physicians from a diagnosis perspective, therapy selection, and MRD point of view.
Then I would say from an overall portfolio perspective, you should expect we're continuing to evaluate the whole portfolio. And as Warren said, it's an ongoing process of pruning and refining based upon customer needs.
Great. And then as a follow-up question, could you also provide us with an update regarding RaDaR RD litigation? I think there was a recent order on a motion to expedite. What does it mean for the trial expected to occur, I think, in the October time frame?
Yes. First, relative to the litigation, again, you can appreciate this. I'm not going to go into detail nor members of the team with any ongoing litigation. What I can update you on is that the trial is slated for October. Either way, I can tell you, though, we are committed to the MRD space. As you've seen, we are partnering with Adaptive to bring forward a great MRD Heme product into the marketplace, and we're proud to do that. We benefit from that by being in the marketplace and taking those learnings and the added benefit to the rest of our portfolio. We're going to continue to invest in our next-gen MRD. So that is built into our R&D plans moving forward. We have done our preparatory work behind the scenes. So we have completed and submitted our bridging study to MolDX. We are doing all the prep work we need for launch. And so I will tell you that we are prepared and ready. Now recently, Natera has filed a motion for a bench trial. We opposed that motion. We believe that we have a constitutional right under the seventh amendment for a jury trial. The court has yet to rule on that motion. So I would tell you, stay tuned. You'll know when we know, but we are coming into this space, and we are committed to the space.
Your next question is coming from Subu Nambi from Guggenheim Securities.
This is Thomas VonDerVellen on for Subu. Just to start, can you get us comfortable with the second half ramp, specifically with NGS now that PanTracer was delayed a bit and also with the continued pharma pressures, where do you feel the guide is most aggressive still? And where is it most derisked?
I actually think that we have a much more confident and balanced guide in the second half. I would tell you the greatest risk to the guide was on the pharma side. And so we have further reduced the pharma business plan. And by the way, not just in revenue; we've also taken some hard decisions relative to the cost base associated with pharma as well. So I would tell you that was the largest risk to the plan. As far as the biggest growth drivers in the plan for the second half, as you know, we've invested in our selling force, and we monitor that very, very closely. We expect to see increased effectiveness and efficiency with that investment in the sales force to help us further penetrate the NGS segment. Certainly, PanTracer liquid biopsy plays a big role in the second half in addition to just the normal back half year increase that we see historically. The Adaptive partnership is also an opportunity for us in the second half of the year.
And I would also tell you that we are well on plan with our Pathline integration. That started first and foremost with just getting the integration correct, getting it done right and making sure that there were no hiccups along the way. But as you will recall, that was a more strategic value to us. We want to see the opportunity to further drive share of our ongoing business in the second half of the year up into the Northeast. And so Beth and Warren on their commercial teams are focusing hard there. And finally, we are working hard on interfaces with our customer base. We think that has an opportunity for us in the second half of the year as well because when those interfaces go live, you have a better opportunity for increased penetration because it just makes it so much easier for customers to do business across our portfolio. So thanks for the question.
And then just for my follow-up, last quarter, you talked about, I think it was five products meaningfully contributing to NGS revenue. Did you have a similar concentration this quarter? And can you talk about if you expect that to evolve at all over the balance of the year?
Yes, we appreciate the follow-up. We do expect it to evolve and increase. The five concentrated products we mentioned represented almost 21% of our clinical revenue, which has continued to grow, reaching about 23% this quarter. In terms of our broader business, all of our NGS products now account for over 30% of our total revenue. This is a significant growth driver for us, and we are monitoring it closely as it presents one of our biggest opportunities in the medium and long term. Thank you for your follow-up.
Your next question is coming from Mike Matson from Needham & Company.
I just want to clarify the comments on the long-range plan. You're mentioning double-digit growth now, so to be clear, are you moving away from the 12% to 13% target you set earlier this year? Are you expecting around 10% growth or more over the next few years?
Yes, Mike, I appreciate your question. To clarify, we are fully committed to our long-range plan. My goal is to enhance transparency so everyone understands the details and my perspective on the business. This is something investors have requested, as they want clarity on what's included and excluded and how we plan to achieve our goals. Allow me to reiterate: I see our current business as the foundation. We have established products ready to sell to our customers, which represent a proven base business. In my view, this base is set for 10% growth during the planning period, serving as our anchor position. We've mentioned repeatedly that we're actively investing, not remaining stagnant. We are responsibly allocating resources to research and development and plan to introduce more products for therapy selection and MRD. These initiatives will add incremental value beyond the baseline plan, although I acknowledge that they will materialize later in the cycle.
Additionally, we won’t be idle regarding business development. We see numerous opportunities to enhance our portfolio, which can drive growth in both revenue and profit, although these can be unpredictable in timing. From my perspective, the long-range plan is anchored on the 10% growth from our current portfolio, which we will build upon with business development and new product development. It's crucial to note that the long-range plan is not a tool for yearly forecasts. I intend to shift the focus away from long-term planning discussions to concentrate on our short-term results and deliverables on a quarterly basis. Does that clarify things for you?
Yes, that definitely clarifies a lot. Regarding the nonclinical business, considering the significant declines we're currently experiencing, would it be feasible to exit that segment? Are there any synergies with the clinical side? Furthermore, how profitable is that part of the business? Is it possible that it is more profitable than the clinical division, and would exiting it adversely affect the bottom line?
Yes. Thanks again for the follow-up, Mike. Are there synergies across the lines? The answer for the operations team is yes. There are opportunities for that. But I think the bigger question is, are we committed to the space? I can tell you that we are. We do believe in the space. It is of strategic value to us. It provides the opportunity for us to identify and validate biomarkers early. It provides the possibility in the development of companion diagnostics. It keeps us at the forefront of emerging technologies so that we can stay not just current, but a step ahead of where we might take our own activities. It also does play a role, Mike, in accelerating the launch of new products, right? You don't have the same reimbursement hurdles in that space that you might across other parts of the business. And so we believe in the pharma space over time that it does help create value. But I also need to be reflective of the short-term impact to that, and we have adjusted our revenue lines there. I do not personally anticipate that these changes in the environment are going to subside anytime soon, and we reflected that in our business plan moving forward.
Yes. And I would add to that. I think we still have excess capacity in our footprint as well as continuing, as we've talked about, our LIMS integration, which will allow us to increase our operating efficiencies with our pharma business as well. We don't break it out separately now, but we used to break out advanced diagnostics previously in prior periods, and it had a lower margin profile overall than the company. But as we look at excess capacity, the business development and R&D opportunities, as Tony spoke about, and then the LIMS work, we still think it's going to be a viable business for us going forward, and we think there will be a plateauing out at some point in the future, which we can build upon from a growth perspective.
Your next question is coming from Mark Massaro from BTIG.
This is Vivian on for Mark. So maybe just one on Pathline. Just help us understand how the contribution in the quarter was tracking relative to your internal expectations. And then I know you've cited an intended benefit of cross-selling the broader portfolio with Pathline customers in the past. So just curious how you're seeing that dynamic play out.
Sure. I'd be happy to start that, and Warren can jump in any time. As far as the integration and the intended results versus actual, we are right on plan with the Pathline integration. The revenues were right in line with our expectations. And so we feel very, very good about the shape of that acquisition and the shape of the business. As you rightfully say, it's not just a business benefit relative to Pathline alone; there was strategic value associated with the acquisition. We saw the opportunity to enhance our footprint and therefore, our speed of delivery to key customers in certain segments of our market in the Northeast. It is our plan to continue to drive the current Pathline business, but as well take advantage of our more in-depth portfolio and bring NGS products up and through into the Northeast with greater rigor and speed. That was always intended to take place in the latter half of this year with that benefit being more realized in 2026. And of course, we'll do everything in our power to pull as much of that forward as possible. I'll look to Warren if you want to add some additional color.
Yes. Thanks, Tony. I think you covered most of the key points. I think one of the key elements for us to really enable this capability in the Northeast was to further validate tests within this lab. That was always planned to take place in the second quarter. To remind everybody, we closed this acquisition in the early part of the second quarter as well. We've concluded the validation requirements for these additional tests that we wanted to move into the Northeast to round out the portfolio required in that lab. Now we are actively addressing sort of these opportunities to drive additional share of wallet and pull-through. The sort of opportunity funnel looks robust and certainly expect to see many of those come to fruition in the second half of the year. As Tony said, that would be an upside for us in the second half and certainly some that would drive material value for us in 2026 and beyond.
Your next question is coming from David Westenberg from Piper Sandler.
So I actually wanted to talk about the 10% volume growth, and that was organic, I believe. Can you talk about what that might mean for share gains versus the market? Can you give us any context to what historical volume growth is in the market? Help us really evaluate the overall strength in the business?
Well, I would say, first and foremost, as you rightfully note, the growth was 10% across our business. We have made good growth across all the various modalities. We continue a storyline that while our focus has been in NGS and making sure that we grow that important segment of our business, in fact, across all of our modalities, we continue to make great progress, and we see share gains across all the modalities. It's quite a positive for us moving forward. As you also rightfully have seen in the earnings release, it's record high volumes for us across the business. We see the opportunity to continue to grow volume. We do see the opportunity to grow share in our key segments, and that is what we are focused on doing.
If you look at it from a modality perspective, we're seeing growth rates depending on the modality in the 2% to 3% to 5% range. I would say across the board, we're growing significantly faster than that.
Maybe I want to build on that just from a commercial execution perspective. I think the development from a volume perspective is testament to a strong commercial strategy well executed. Coming back to the fact that we have our territory business managers that are looking at the pathology business and the oncology sales specialists looking more at the community oncologists from a therapy selection point of view, that really drives towards providing a solution to these ordering physicians. Although we do prioritize certain products, it's very much around providing a holistic solution across their needs. This is what's driving the incremental volume across all modalities, and we're seeing growth greater than market, as Jeff and Tony said, against each of the modalities. We do over-index on NGS because of the desire to move to the right into therapy selection as well. We do that through sort of incentive compensation and other focusing mechanisms. It's really the testament of a strong commercial strategy being well executed that's seeing this volume growth across all modalities.
Seeing 23% NGS growth without our liquid biopsy product is, again, continuing to see very strong growth there, above-market growth there, and now adding what we believe to be a very new and important product is going to help drive more growth in the back half of the year.
Perfect. I know you’re not providing guidance for 2026, but can you discuss your long-term thoughts on operating margins for '26 and beyond? Will you be planning to grow EBITDA faster than revenue in the coming years? Is that the goal? Also, Jeff, could you elaborate on the cash flow and operating margin seasonality that you observe in the business? I'll leave it at that.
I will obviously wait for '26 to talk about '26, which we will do in February. To just give you a sense, over the longer-term plan, do we still see that there is operating leverage for us as an organization? The answer to that is yes. We will continue to make the right investments in our operations sites. We have made really good progress with the LIMS project, and we look forward to having one common LIMS system, and we can retire eight legacy systems. There are opportunities for us to do the same thing in a number of different areas through automation, through digital pathology. So we do expect that we can increase efficiencies and effectiveness in our margins, and that, in turn, will lead to solid growth over time. We also believe that there are going to be some mid-term opportunities for us that we'll talk about in more detail that we can create more value for the company. So we have a strong financial discipline embedded in the company. We're going to build on that, and we do see plenty of opportunities for us to continue to cost reduce, find efficiencies, and improve margins.
I would add to that, and I would still characterize we think we're in the early innings of really capitalizing on both the LIMS integration as well as investing in automation and really think we have an opportunity to drive operating efficiencies there. From a cash flow perspective, generally, Q1 is our biggest cash burn, and that played out again this year. We start building from there. So we had a very strong cash flow quarter. We're actually free cash flow positive this quarter. As I said in my prepared remarks, cash flow from operations was up over 40% in the second quarter. We are still very focused on revenue cycle management and making sure we're collecting what we generate from a revenue perspective and expect that cash balance will build as the year progresses with the normal seasonality with the back half growth we're expecting that we've seen historically.
Your next question is coming from Dan Brennan from TD Securities.
To start with the nonclinical business, it has continued to be a weak spot for you. I believe it was down 26% in the second quarter. While I know you don't provide specific guidance, I would like to discuss how to mitigate the risk of potential further shortfalls in the latter half of the year and whether the stock could drop by 40% or 50%. Can you provide some insight on how we should view the second half of the year and what is accounted for in the new guidance? If we project a 50% decline, we would reach the midpoint of your range without altering our clinical assumptions. I am curious if you can assist us in making that connection.
Yes. I think on the pharma side, I would expect a similar performance as we had in the first half of the year. We generally see a little bit stronger performance in the fourth quarter in our data business, our ODS business. I would expect that as well. But pretty consistent with the first half with some upside in our ODS business in the fourth quarter is how I'd characterize what we're contemplating.
Okay. On the PanTracer side, could you provide an update on the status of reimbursement? I know you mentioned that you delayed the launch to learn from the EAP. Can you share any insights on that?
Dan, what I would tell you is that we are in ongoing conversations with MolDx, and we will share the final outcomes of those. We are confident in our path forward towards reimbursement, and that's why we are launching tomorrow.
Got it. And anything on the learnings in terms of the EAP, Tony? And did you guys break out how to think about kind of what you've put in the contribution for the back half of the year? Ideally, it's kind of modest to give you room for beats, but just kind of wondering on those two factors.
Yes. We haven't given a specific forecast for PanTracer in the second half of the year. Relative to the learnings, Dan, I think we found that there was opportunity for us to improve the profile of the product. We're excited by it. We'll have a very low QNS profile. We have verified a really exciting turnaround time that our customers are going to welcome. We believe that we have a very comprehensive test that we bring forward. It was the right decision to take, and we feel more confident about when PanTracer hits the market. But as far as specific ramp-ups, I don't think we're going to be talking about that directly.
Other than I would just add, it's a new product, so it will incorporate a new product ramp.
Yes. Adding to that, since we went live with the revised EAP about a month ago, the demand we observed with the updated target product profile has been significant and very encouraging regarding our expectations for the commercial launch tomorrow.
Got it. And I know there was one question on MRD. I know you discussed Natera looking to have a jury trial. Could you just remind us, would you mind just kind of zooming out since the next quarter and the back half of the year, we're going to get some of these key events on your MRD strategy, whether or not you can kind of launch with your existing platform to move on? Just kind of could you just reframe how to think about the various outcomes as we move into the back half of the year on MRD?
Well, again, what I would tell you, there are some things that are more concrete than others, right? What we will definitely be doing in the second half of the year is our Adaptive partnership with Heme MRD. We are in the early days of a pilot with Adaptive. We want to ensure that the partnership is seamless to our customers and that we've tested everything end-to-end. So that is going to happen. We are working through those pilots now, and we look forward to a more complete launch when both companies are satisfied that our customers see this as a great partnership. That should be closer to the back half of the year. Relative to the RaDaR litigation, I would tell you that right now, the trial is slated for October. I can't speculate on what the results will be or when they will be. I can tell you that we have done all the back office work in preparation to be able to launch. Our bridging work has been submitted.
So all of that is on track. I would remind everyone that we didn't have any of those RaDaR revenues in our guide nor in our plan. If we are successful there, that represents upside. Another area that we are doing, Dan, we are investing in next-generation MRD with Andrew and his team. We said that this would be a year where we're specking those out. '26 would be a year of more active product development, and we look forward to those market opportunities in '27 and beyond. That's kind of what I can give to you relative to the MRD landscape times.
Your next question is coming from Tycho Peterson from Jefferies.
This is Lauren on for Tycho. A quick one for me, going back to the NGS growth. You guys talked about how you achieved 23% regardless of the delay in the commercial launch with PanTracer. Could you talk a little bit about how much of that is being driven by test mix shift versus true market expansion and kind of how sustainable that cadence is into 2026?
The majority of it is true market expansion. There is a mix benefit, and I think it's common knowledge that the NGS has a higher AUP than the rest of our portfolio. But if we look at true volume growth, that remains significantly higher than what we're experiencing from what we're seeing from a market growth perspective. Again, this comes back to the commercial strategy where we have our dedicated sales team of oncology sales specialists who spend the majority of their time focused on the sale of NGS-related products within the therapy selection part of the business. We're gaining traction in this space, and this is really what's driving the share gains that we are seeing, and we believe the addition of PanTracer liquid as of tomorrow will further accentuate that.
Your next question is coming from Michael Ryskin from Bank of America.
I got just a couple of small follow-ups on topics that people touched on before. So hopefully, really rapid fire. One is on PanTracer, just kind of confirming that no change to your planned ramp or planned execution in the first couple of months or first couple of quarters out of the gate. Yes, there's a delay, but the plan going forward is the same, and nothing has really changed on that.
Yes. From point of launch, the plan remains the same. But of course, that point of launch had experienced about a three-month delay.
Okay. Just making sure. Then on the pharma services, I mean, I totally hear you on what you're seeing in the end market. Not surprising given what we've seen elsewhere, but still the results have lagged some of the others in the space a little bit, and we just haven't seen the same extent of weakness, and it is a little bit more protracted. I was just wondering if you could comment on your competitive positioning there. It is a relatively crowded market, and there's more and more players offering some of these services. Could you just sort of analyze your portfolio and your offerings and maybe there's something there that you're missing on pharma services or maybe from the commercial side?
Yes. In relation to the pharmaceutical sector, as I mentioned earlier, the portfolio does play a significant role. Our inability to sell RaDaR has certainly contributed to the decline in revenue, and the lack of a launch point in our discussions is a tangible issue. This is why we were enthusiastic about introducing Paletrra to the market. However, we also understand that these sales cycles tend to be lengthy. Although there may be some early positive indicators, I don't believe they will significantly affect our short-term performance. When speaking with other companies, it’s clear that there are variations among them, largely depending on the services they offer. Some have contract research organizations, while others have different service mixes. In our own portfolio, I perceive risks in the pharmaceutical business this year, and I do not expect any improvement or decline in these issues through the rest of this year and into 2026.
Okay. And then the last one, if I could squeeze one more in, would be on the cash balance and just sort of future use of cash. I know you used the $200 million intra-quarter to pay down the current part of the converts as you previously talked about, but you still got a sizable chunk of the convert going forward. Now you've got this revised fiscal year guide. I know there's a near-term versus long-term dynamic. Just talk us through cash balance going forward, just confidence in the run rate for the next couple of years as you get to the remaining $350 million on the convert.
Yes. We expect that we'll be generating free cash flow next year still, and the cash balance will grow consistent with our earnings growth over the plan. We have a lot of confidence that we will continue to delever as our earnings increase, and we'll be in a very strong position in the future to deal with the 2028 converts from a position of strength.
Your next question is coming from Mason Carrico from Stephens Inc.
Two for me here. One, it seems like Pathline may have outperformed slightly in the quarter. Sorry if I missed this in the first question, but could you update us on your expectations for Pathline revenue this year and whether the contribution built into guidance has changed at all?
Yes, Pathline performed slightly better than we initially expected, but we're not changing the overall guidance for Pathline.
Got it. And then on the pharma side, how much visibility do you typically have in that business in terms of revenue flowing through? Is it a single quarter, 2 quarters? How has that visibility changed given the backdrop? And could you just talk to your confidence in that segment being adequately derisked this year?
Yes. I think I'll add to that. It is a challenging space, especially with a big part of our business U.S.-based and lots of uncertainty regarding patient enrollment within the U.S. for clinical trials, and that really limits the line of sight that we've got. So it's less than a quarter, believe it or not, in terms of you want a high degree of accuracy, and it rapidly erodes if you go beyond that. I think that's why we've taken a pretty conservative or prudent approach to the forecast for the remainder of this year for the Pharma Services business.
Your next question is coming from Andrew Cooper from Raymond James.
A lot has already been covered. So maybe we can delve a bit deeper into the guidance calculations. Tony mentioned a $30 million revenue reduction, with nearly two-thirds of that coming from pharma. There's an additional $10 million to $12 million reduction related to clinical, likely partially from PanTracer, but I understand that's not the entire figure. Is there anything specific we should consider regarding this adjustment? Or is the main focus on minimizing risk and ensuring we're in a solid position as the second half of the year unfolds?
Yes. I would say, Andrew, we certainly have heard and we want to make sure that we give you with confidence what we believe we can deliver. That does factor in. But I would tell you that the pharma, as you mentioned, rightfully so, the delay in PanTracer liquid biopsy, that does contribute to that remaining piece. Then there is a slight mix effect that also would be there. I'll ask Jeff if he wants to add anything.
Yes. Just within NGS, the mix of testing between blood versus solid tumor can change from quarter to quarter. I think we're seeing growth with some lower modalities from the NGS side, lower growth modalities. That's just that mix element. Hard to predict quarter to quarter, but with the overall growth growing 23%, I still think we're going to see good growth there, but the mix will impact the revenue as well as we play out the rest of the year.
Can you provide a clear comparison of the updated PanTracer LBx to the initial product from the first EAP? What has improved, is it the turnaround time, QNS, or both? Additionally, how do you view your competitive positioning with this latest version? Do you believe it places you ahead of others in specific metrics?
Yes. So I'll build on that. There were a number of benefits. First of all, we were able to lower our sort of input threshold that allowed us to reduce the QNS TMP levels that we were experiencing. In addition to that, by optimizing the workflow, we're able to accelerate turnaround time so we're able to offer a significant below the published turnaround time through the EAP, which was really encouraging. We also got feedback from select customers through the EAP that we were picking up certain genes that were being missed by a number of sort of peers or competitors out in the marketplace. A lot of very positive insights came from that. As Tony said, we believe the three-month delay is going to be well worth it in the long run.
Your next question is coming from John Wilkin from Craig-Hallum.
I'll try and keep this really quick. But if my math is right, it looks like your volume per clinical, excluding NGS and excluding Pathline, actually accelerated a little bit in the quarter. So just wondering if you could talk at all about what's driving that, if there's anything underappreciated in that.
Again, I think it comes back to a commercial strategy that's being effectively executed and seeing the value of the commercial investments that we've made and some productivity ramps. We did speak about early in the first quarter that there were a few new client wins that we had recorded. Those have ramped through the last quarter or so, and that covers the entire portfolio that we are making available to us. This, again, speaks to the value of NeoGenomics and the breadth of the portfolio.
Your next question is coming from Puneet Souda from Leerink.
Could you elaborate on the current size of the oncology sales force and your strategy for competing in that market? How much of the NGS sales is generated from the oncologist channel compared to the pathologist channel? It would help to understand this better, especially since competition is increasing in therapy selection. One competitor has raised capital through a public offering, while others are launching tissue products and there are established incumbents. Given this competitive landscape, what do you forecast for long-term NGS growth? Additionally, please provide more details about the oncology sales force.
Yes. So we have executed against exactly the plan that we had spoken about in late last year and beginning of this year, getting our sales team to roughly that 135 people, and sort of 40% of those resources fall within the oncology sales specialist side of things. The greater majority of the growth that we're seeing actually is being driven by that sales team, so coming from the therapy selection side of the business. There is some that comes through the pathology channel, but that's the minority portion. When we speak about these new products that contributed 23% of the business in Q2, the majority of that business, too, is coming from the OSS side of the business. Despite the increasing competitive landscape, we continue to penetrate effectively, and we believe the 25 or so percent growth rate that we put out there still is very much attainable, especially when we launch PanTracer liquid tomorrow.
I'd like to expand on Lauren's point, acknowledging that these are competitive markets with significant investments from others. We recognize this reality and appreciate it. The innovators have a certain level of loyalty because they entered the market first, but I've attended recent conferences where I reminded attendees that there are alternative ways to establish loyalty. We offer a wide range of services that meet customer needs in various areas. We remain committed to nurturing these relationships and making it easier for clients to work with NeoGenomics, which fosters a sense of loyalty as well. While we respect our competitors and their innovations, we are eager to enter these sectors. Historically, we've shown that when we introduce competitive profile products to the market, even if they arrive later, we can still grow those businesses effectively. We have confidence in the PanTracer line and believe we can thrive in this competitive environment.
The focus on operational execution and turnaround time continuing to improve, I think, has allowed us to grow and retain market share.
This does conclude today's question-and-answer session. I would now like to turn the floor back to Tony Zook for closing comments.
I would just like to thank everybody for joining us on the call. I do appreciate the direct questions and the opportunity to present our results and, as well, our direction moving forward. I would like to remind everyone, though, that we did a pretty good job on that clinical side. We grew that business 16%. We had a record quarter for volumes, really exciting NGS growth rate, and we are poised to continue to drive performance in the second half of the year. As Andrew opened the call, I will close it. It's up to us to now deliver quarter-on-quarter and regain that confidence in our delivery. So thank you for the time, and we look forward to other conversations.
Thank you. This does conclude today's conference call. You may disconnect at this time and have a wonderful day. Thank you once again for your participation.