管理層發言
Good afternoon, and welcome to the NeoGenomics Second Quarter 2026 Financial Results Call. Please be advised that today's conference is being recorded. I will now turn the call over to Abhishek Jain, Chief Financial Officer.
Before we begin, I would like to introduce Andrew Brackmann, who recently joined NeoGenomics as our new Vice President of Investor Relations. Andrew spent nearly a decade in sell-side equity research covering the diagnostics sector. He also covered NeoGenomics directly, giving him a deep understanding of both the company and its competitive landscape. Beyond his analytical depth, Andrew is known for building genuine long-term relationships with the people he works with. We're excited to have Andrew on board to lead and shape our Investor Relations strategy and deepen our relationships across the investor and analyst community. Now let me turn the call over to Andrew to get us started. Andrew?
Thank you, Abhishek, and good afternoon, everyone. I am excited to be joining NeoGenomics in this role. Having covered the stock for the last eight years during my time at William Blair, I have been inspired by the team's ability to leverage its well-earned channel strength and provide new and holistic testing solutions for patients. I see this strategy as driving durable, profitable growth that benefits NeoGenomics over the long term for all stakeholders. With recent new product launches further expanding growth opportunities across large end markets, now is a great time to join the company. In this role, it is my goal to partner with the investment community in an ongoing effort to better articulate and communicate our strategy and differentiation. This is something I believe to be a real opportunity to improve upon based on my experience on the sell side. I'm confident my skill set and experience across financial markets will be helpful in this regard. Now let's get into today's call. Representing NeoGenomics here today are Tony Zook, Chief Executive Officer; Warren Stone, President and Chief Commercial Officer; and Abhishek Jain, 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. During this call, we will make forward-looking statements regarding our future financial and business performance, 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, and objectives of management and financial guidance. We caution you that the actual events and/or results could differ materially from those expressed or implied by the forward-looking statements. These forward-looking statements made during this 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 most recent Forms 10-K, 10-Q and 8-K that were filed with the SEC to identify important risks or 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 GAAP results. The non-GAAP financial measures presented should not be considered an alternative to the financial measures required by GAAP, should not be considered measures of liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table available in the press release we issued this afternoon and in the slide deck available in the Investors section of our website. I will now turn the call over to Tony.
Well, thank you, Andrew, and welcome to the team. We're very pleased to have you join us, and good afternoon, everyone. At NeoGenomics, our leading 25% market share across hematology diagnostics and therapy selection makes us a trusted provider of oncology testing solutions for pathologists, oncologists and patients. We're leveraging this leadership position as a trusted partner in hematology by expanding our menu of solid tumor testing offerings in the large, underpenetrated markets of therapy selection and MRD, where we've recently launched new products, expanding our PanTracer Family and RaDaR ST. Our entry into these markets is driving growth across our entire NGS business while providing halo effects to the rest of our portfolio. They're also helping to drive increases in our gross margin. In the second quarter, our strategy drove this intended effect, and we remain confident in our objective of driving durable and profitable growth over the near and long term. As it relates to the second quarter results, these reflect the consistency that investors have come to expect from this team. We're raising guidance because of these results as well as the underlying clinical strength we're seeing in the back half of this year. Total revenue in the quarter was $201.7 million, up 11% year-over-year and ahead of the 9% growth we guided to for the quarter. Our top line performance continues to be driven by our clinical business, which grew by 14% in the quarter as AUP increased 12% and volumes exceeded our target and grew 2%. Moreover, our growth in NGS is proving to be durable with revenue growing 26% year-over-year and again comprising one-third of our clinical revenue. The mix shift towards higher-value testing continues, and we believe our NGS portfolio is well positioned to drive more predictable and profitable revenue growth in the future. Alongside this growth, our go-to-market approach continues to evolve as well. This quarter, we reorganized our commercial team into two dedicated ecosystems, one focused on oncology and one on pathology, sharpening accountability as we scale towards our next phase of growth. Warren will cover this in more detail shortly. While the 14% growth in our clinical business is exceeding our expectations, our nonclinical business is falling short of expectations. In particular, our Pharma business, which accounts for roughly 5% of total revenue, continues to face headwinds even as bookings increase. The decline in Pharma was slightly offset by 17% growth in our ODS business, but still not enough to offset the weakness for our entire nonclinical business. So we're adjusting expectations for pharma revenues for the full year. Abhishek will cover the specifics, but we're taking corrective actions and remain committed to returning to year-over-year growth for our entire nonclinical segment in 2027 as we've discussed in the past. Turning to margins. We saw significant margin improvement this quarter as we anticipated. Adjusted gross margin expansion of 260 basis points year-over-year was driven primarily by strong AUP growth of 12% as well as improvements from our Lab of the Future initiative, which spans across automation, digital pathology and instrument upgrades among other initiatives. Warren will discuss our Lab of the Future initiative in more detail momentarily. Beyond the gross margin expansion, we also maintained operating expense discipline in the quarter, helping to drive 36% growth in our adjusted EBITDA. On the product front, this quarter was less about new launches and more about converting the launches we discussed last quarter into real commercial traction. Our PanTracer Family and RaDaR ST together address a combined $33 billion market opportunity across therapy selection and MRD and round out a portfolio that spans the cancer care continuum from initial diagnosis through recurrence monitoring. Early feedback for these products is encouraging, and our expectations for these products in 2026 are unchanged, contributing modestly to revenue this year while driving pull-through in other areas of our portfolio. This is something unique to NeoGenomics as we have the capabilities and menu that other pure-play NGS providers don't have. As we look ahead, we continue to see more meaningful contributions from these specific products over the coming years. This is especially true for RaDaR ST, where reimbursement decisions will be key to driving future revenue. In the quarter, we submitted an additional RaDaR ST indication to MolDX and now have three pending submissions. If successful in achieving these reimbursement wins as well as with commercial payers over the longer term, these reimbursement wins will significantly improve our ability to drive revenue in this large market. Beyond the commercial traction we're seeing across our portfolio, we continue to invest in the pipeline that will sustain our growth well beyond 2026. Notably, our next-generation whole genome sequencing MRD assay remains on track, and we expect to generate data for this assay in 2027 and be ready for a potential clinical launch in 2029. Our companion diagnostics capabilities were strengthened with the recent launch of PTEN, a new FDA-approved immunohistochemistry companion diagnostic for prostate cancer. This test, which is available stand-alone or as part of our PanTracer Pro offering, identifies patients who may be eligible for AstraZeneca's newly approved TRUQAP and allows us to reach into urologic oncology, a new setting for us. For our pharma and biopharma partners, work continued in the second quarter with new biomarker data presented at ASCO, supporting our partners who are advancing ADCs, BiTEs, bispecifics and targeted therapies. We're also developing a low sample input AML MRD Flow assay designed to deliver higher sensitivity and faster turnaround times across CLL, B-ALL and multiple myeloma. In sum, the second quarter builds on many of the favorable trends we saw in the first: steady top line growth, expanding margins and continued scientific and pipeline progress against our 2026 priorities. Perhaps more important is that we're delivering consistent results, which underpin our confidence in our updated guidance ranges. We remain in the early stages of penetrating the solid tumor therapy selection and MRD markets and the groundwork we're laying now in our science, our lab operations and our product portfolio positions us well for the years ahead. With that, I'll turn the call over to Warren, who will provide more detail on how we continue to win in the community and on the progress of our commercial and operational initiatives this quarter.
Thank you, Tony, and good afternoon, everybody. I want to begin with a brief update on our commercial momentum before turning to the operational progress, including our Lab of the Future initiative that is supporting the launches that Tony just discussed. Our primary focus remains in the community setting where approximately 80% of patients seek treatment. Community oncologists are guideline-driven and focus on certainty. They choose partners that reduce friction and enable confident treatment decisions under real operational and time pressure. This is precisely the value that NeoGenomics offers. That differentiation again delivered strong results in the second quarter. Clinical revenue grew 14% year-over-year with every test modality growing at or above market, led by NGS, which grew 26%. The five NGS products across hematology and solid tumor that we launched since 2023 and have consistently tracked continue to drive growth across the NGS portfolio, growing over 30% and now representing 26% of our total clinical revenue. Clinical volumes increased 2%, exceeding our expectations, while NGS volume was broad-based across both heme and solid tumor testing, growing 14%. Our large NGS panels grew well above 20% in the quarter through increased market penetration and continuous mix shifts from our targeted gene panels to these larger NGS panels. As Tony mentioned, our leadership position in heme continues to serve as a trusted foundation from which we are expanding adoption of our broader portfolio. This proven model, combining a broad test menu, fast and reliable turnaround times, deep payer coverage and workflow integration is what differentiates us in the community. This activation of the initial Epic Aura integrations announced in April will strengthen our differentiation and has the potential to drive higher test adoption per site while supporting the rollout of our next-generation capabilities, including the PanTracer Family and MRD. We expect benefits from these integrations to begin in 2027. Combined, our broad portfolio of testing, leading market share in heme and ability to remove friction from our customers are helping deliver the strong results I've just mentioned. They also lead to an industry-leading customer experience as evidenced by our Net Promoter Score in the high 70s across both pathology and oncology. As one of our oncology customers put it, we deliver an excellent experience that they've come to trust completely. A recent example illustrates our differentiation in practice. A Florida medical center and cancer institute sought to accelerate decision-making for lung cancer patients, but faced workflow challenges coordinating blood collection at surgery with tissue-based diagnostic workups completed weeks later. Our field and customer support teams worked with the hospital surgery, pathology, pulmonology and oncology teams to build an integrated workflow that allows for blood-based testing to begin while tissue is in transit, delivering comprehensive molecular insights in under 10 days from diagnosis and eliminating the need for additional patient visits or blood draws. Hospital lab managers described our coordination as critical to patient care. Turning now to new products. With RaDaR ST, we currently have two indications that have received Medicare reimbursement through MolDX: HPV-negative head and neck cancer and a subset of breast cancers. We previously submitted two additional indications to MolDX and during the second quarter, submitted a third indication. If all five of these indications are approved, as we anticipate, we would have access to over 40% of the total addressable market for tumor-informed MRD testing. While it remains early in the launch, early insights are encouraging. Roughly 30% of RaDaR ST orders included another test from NeoGenomics' menu; two-thirds of all orders are for indications where we already have approved reimbursement for MolDX and one-third of the orders from patients on Medicare are for indications where we already have reimbursement in place. On the scientific front, we continue to build evidence behind RaDaR ST and at ASCO and AACR this year, we presented new clinical data across a range of tumor types. This reinforces evidence supporting our current and future reimbursement submissions. In our PanTracer portfolio, since securing MolDX reimbursement for PanTracer LBx in early March, we have been focusing on driving adoption throughout the year. We continue to see strong physician interest in the coordinated workflow PanTracer Pro enables, combining comprehensive genomic profiles with IHC and auxiliary tests from a single sample and requisition. Turning to our commercial organization. We remain committed to expanding our clinical commercial organization as new products launch and gain momentum and additional RaDaR ST reimbursement approvals come through. We remain on track to exceed 160 commercial representatives during the third quarter, and we'll continue to assess the size of our commercial organization over the coming years based on market penetration rates and reimbursement wins across products like RaDaR ST and therapy selection. With these recent commercial investments, we have achieved scale in our oncology sales specialist team, allowing us to optimize our structure and organize our commercial organization around two dedicated ecosystems, one for pathology and one for oncology, supported by aligned marketing, medical science liaison and other teams. This sharper focus will enhance execution, strengthen accountability and better position us to sustain growth across both businesses. As Tony mentioned, our Lab of the Future initiative is a meaningful driver of margin expansion. This program spans six areas: digital pathology, AI-assisted lab automation, instrument platform upgrades, our NeoLIMS implementation, strategic procurement and laboratory footprint optimization. This quarter, we closed two dry labs, optimized administrative footprint, further balanced volumes across our laboratory network, exited low-margin non-oncology business acquired with the Pathline acquisition and captured additional AI-driven automation efficiencies. We also completed the transition of PanTracer LBx as our first clinical assay to the NovaSeq X platform, an important milestone that we believe allows us to process liquid biopsy volumes with greater throughput, improved turnaround time and lower per-test cost as volume scales, supporting both our gross margin expansion goals and our ability to serve more patients. We expect continued efficiency gains from the Lab of the Future program to support gross margin expansion goals for the remainder of the year. In summary, we're executing a clear strategy, winning the community with a broad and integrated portfolio by reducing friction and delivering actionable insights across the cancer care continuum from diagnosis to recurrence monitoring. Our ongoing investment in commercial expansion, EHR integration and customer experience delivered durable growth, while our Lab of the Future initiative contributes to improved gross margin. With that, I'll hand over to Abhishek to walk us through the financial results.
Thank you, Warren, and good afternoon, everyone. In my remarks today, I will discuss our second quarter financial results and our updated 2026 guidance. We reported total revenue of $201.7 million, up 11% year-over-year, which exceeded our prior guidance by approximately $4 million. Clinical revenue grew a strong 14% year-over-year, driven by a 2% increase in test volumes and a 12% increase in AUP. We are pleased to see the mix shift towards high-value testing continue to build with NGS revenue growth of 26%, driven by volume growth of 14%. Also, the mix shift towards high-value testing remained a key contributor for AUP growth of 12% year-over-year. In addition, AUP benefited from continued work on RCM initiatives, including managed care pricing gains and pull-through improvement. Turning to our nonclinical business. We reported revenue of $14.5 million, a decline of 15% year-over-year. Pharma revenue declined 26%, which was partially offset by 17% growth in our Oncology Data Solutions business. And while Pharma revenue came below our expectations for Q2, we believe that we are near the bottom for this business. Adjusted gross margin for the second quarter was 48.1%, an expansion of approximately 260 basis points versus the prior year period. Adjusted gross profit increased by a healthy $14.5 million or 18% over the prior year to $96.9 million. This expansion was driven by AUP growth, volume leverage and Lab of the Future efficiencies. We also absorbed the impact of higher freight costs and fuel surcharges. Gross margin expansion remains a key focus area for us, and we are pleased to see that our efforts have started to yield results on this metric. Total operating expenses in the quarter were $101.6 million, a decrease of 3% from the prior year period adjusted for a large nonrecurring impairment expense that we recognized in the second quarter of 2025. As we stated previously, while we continue to invest in sales and R&D to drive higher clinical test volumes and AUP, we plan to offset these investments with improved G&A leverage, which we expect will continue to decline as a percent of revenue. This is exactly what we delivered in Q2. Sales and marketing spending increased $3.2 million or 13%, reflecting continued investment in the commercial organization. Research and development spending increased $1.7 million or 19%, supporting our pipeline priorities. These increases were more than offset by an $8 million decline in general and administrative expenses, which was driven by continued expense discipline across the organization and a step down from one-time expenses incurred in the second quarter of 2025. Adjusted EBITDA was $14.4 million, up 36% year-over-year, representing revenue pull-through of approximately 19%, driven by the gross margin expansion and operating expense discipline that we just discussed. Turning now to our balance sheet. During the quarter, we successfully raised $316 million through a convertible senior notes offering due in 2032 and used a portion of the proceeds to retire $276 million of our existing convertible senior notes due in 2028. We also entered into capped call transactions and repurchased shares of our common stock for an aggregate purchase price of $25 million intended to reduce potential dilution. We generated approximately $20 million in operating cash in this quarter and invested $8 million in capital purchases, including our investment in NovaSeq X to move LBx on this platform. Also, as we announced last week, we reached a settlement with the DOJ regarding a legacy self-disclosed matter. As part of the settlement, we paid roughly $10 million. And while this has already been reserved for in our financials, this will impact our cash from operations in the third quarter. We ended the quarter at a healthy $145.5 million in cash and cash equivalents while having strengthened our capital structure and extended our convert debt maturity from 2028 to 2032. Turning now to our 2026 guidance. Considering our strong second quarter revenue performance, we are raising our full year '26 revenue guidance to a range of $802 million to $806 million, up from $797 million to $803 million discussed previously. The key assumptions underlying the midpoint of our revised revenue guidance are as follows: First, we expect our clinical business to grow in the low teens for the full year, driven by the continued strength in our NGS business. We expect our NGS business to grow in the mid-20s versus our prior estimate of low 20% growth. Second, no change in RaDaR ST or PanTracer Liquid revenue assumptions, both of which remain in the mid-single-digit millions. Finally, we now expect our nonclinical business to be down high single digits year-over-year in '26 as compared to our earlier guidance of down low to mid-single digits. Regarding the quarterly cadence, we suggest modeling approximately 10% revenue growth in the third quarter, up from 9% to 10% discussed previously and above 10% in the fourth quarter of 2026. For gross margin, we anticipate approximately 100 to 150 basis points of improvement for the full year 2026. We're also raising our full year '26 adjusted EBITDA guidance to a range of $56 million to $58 million versus $55 million to $57 million previously, representing year-over-year growth of over 30% at the midpoint. We are targeting adjusted EBITDA to grow in the low 30s year-over-year in the third and the fourth quarter. With that, let me turn the call over to Tony.
Thanks, Abhishek. In closing, we view this as a very strong quarter for NeoGenomics as total revenue increased 11%, clinical revenue increased 14%, and we expanded our margins. We have achieved and remain on track for key catalysts we outlined at the beginning of this year across new product launches, reimbursement and sales force expansion. These set us up well to further deliver consistent results and drive durable and profitable revenue growth. I'd like to thank you for your continued interest in NeoGenomics. And operator, this concludes our prepared remarks. So please open the line for questions.
分析師問答
Our first question comes from David Westenberg with Piper Sandler.
Just great job on the quarter here. So I wanted to get into NGS growth. It was 26% again in the quarter. You have really liquid in the back half of the year to really get this to take off. You're getting all these MRD indications. At the same time, you probably do have some tough comps. So how should we think about the back half of the year? Is there conservatism here in the NGS guide? What are you leaving room for in the guide in NGS right now in the back half of the year? And you have one more.
Yes. David, it's Tony. Thanks very much for the question. I'll kick us off on kind of the NGS bigger picture. And then Abhishek, you can also go into the guide implications in the second half of the year on NGS. So Dave, our view of this is we think we have a very durable position with NGS now. As you said, we exited '25 at about 22% growth, and that's why we guided below the 20s. Now in the first quarter of '26 we did 26% in Q1, and we matched that again in Q2 at 26%. That's why we're raising the guide to the mid-20s now. And if you break down that Q2, of that 26%, about 14% was volume and 12% was AUP, of which about two-thirds was mix. So when we look at this at the macro level across the blended portfolio, that 14% feels pretty good to us, because remember we're driving an intentional shift from single panels to large panels. And as Warren said, the large panel is at 20% growth. And we see strong growth in heme; the five products growing at 30%. So we see our position going into the second half of the year as one of strength. We do think there's opportunities for us in the portfolio and equally, we think it's durable. And so with that, Abhishek, anything about key highlights on the guidance component that Dave was asking about?
Yes, I think Tony covered it well. For the second half, we are raising our NGS revenue growth for the full year to now be in the mid-20s as compared to the low 20s that we had guided previously. This is predicated upon our strong performance that we have seen in the first half, particularly the larger panels that Warren alluded to in his prepared remarks; those have been growing above 20%.
I think just for the sake of clarity though, MRD is not included in NGS numbers. NGS is reported like-for-like. MRD is reported separately and will be included in clinical.
Great. And then, Tony, can you give us a little bit more color on what's happening in biopharma? I mean I think everyone had it negative at high single digits, but you said you just spent time working on it. It is only 6% of revenue. Can you remind us the need for this business overall? It is such a small portion of the portfolio, you almost wonder if nobody owns Neo for its pharma services. So anyway, if you could just kind of remind us the importance of it and what you're going to be doing there, what's going on?
Yes. Sure, Dave. Again, maybe just to kick things off: in the quarter, we were very pleased with a lot of performance across the business, primarily on the clinical side with revenue, volumes, and AUP—there was a lot to be excited about. But an area where we just didn't hit our own expectations was on the nonclinical pharma side, primarily. What I would tell you is that we liked that bookings were up significantly in Q2. So the new team that's in place is driving and delivering what we expected from the bookings. We just didn't see the same pull-through rate that we saw historically from the 2025 bookings that were in place. That's what led to the slight downward revision in expectations for the year. We're still confident that we can get this back to growth. The bigger question as to why: we still believe there's opportunity here for us to leverage that pharma experience. It gives us earlier access for some of our key products. We stay at the front edge of what's happening in the marketplace. So there's a lot of reasons to stay engaged. And if you look at how our portfolio will emerge over time, with whole genome in both MRD and in heme, we think that there's going to be opportunity there. So we think it's important to maintain focus on our clinical business, but we still think there's opportunity here if we can get this thing going into 2027. Hope that helps.
I'll just add to what Tony said that, taking the conversation one level higher, given the fact that pharma is 5% of our business, you're talking about a roughly $10 million business out of $200 million of revenue. Now even $0.5 million can swing the percent by a few points. So basically, you're talking about a $0.5 million impact on a $200 million business, which could be like a rounding adjustment for the overall business. From a focus standpoint, it's basically our clinical business. On pharma, yes, we did not meet expectations, but it is a small portion of our overall portfolio.
The next question comes from Puneet Souda with Leerink Partners.
Following up on that, again, this nonclinical pharma business is 5% overall and has been under pressure. Can you talk a little bit about how core this is to NeoGenomics ultimately? Obviously, you're doing well on the clinical side and on the AUP and other product launches as well. Maybe just talk to us about how core this is and what the plans are ahead? Okay, that's helpful. And then just a quick follow-up on your AUP—congrats on that. Volume ahead of us, too. But on the AUP side, it's driven by mix shift. Given competition dynamics in the marketplace, what is the level of sustainability for this AUP growth? How should we think about the mix of AUP versus volume growth for clinical in the next two quarters? And any color on '27 would be helpful.
Puneet, I'll kick us off. What is core to us is our clinical business. That's what's core to us and what's going to drive our performance and growth. I view pharma as more opportunistic: it gives us early R&D access, early market access, and it will probably suit our emerging portfolio a lot better than it suited our existing portfolio. I do not consider it to be anywhere near as strategically important as the clinical side of the business. But it's an area we can leverage over time and one we want to make sure is on the right trajectory into 2027.
Building on that, one of the things you would have seen is increased investment from an R&D perspective. We're becoming increasingly excited about the products that will come to market, including the WGS Tony referenced. We feel it's imperative that we have access into pharma to get early readouts on how those products perform, get early clinical studies, and make adjustments before we bring those products to market from a clinical perspective once reimbursement is available. So we see pharma as an enabler of our clinical business, but not an area in which we're going to be making any meaningful new heavy investments; it's important, but enabling.
On the AUP, the 12% growth had two components. The first is our RCM initiatives, which drive pricing gains through managed care, pull-through improvements and pricing actions. The second component is the mix shift toward higher-value testing—primarily NGS—which has a higher AUP than much of our portfolio. Given that NGS volume growth has been strong, we believe the AUP benefit will continue in future quarters. We also see significant runway on the RCM side because there are opportunities to improve contract pricing. For example, this past quarter we increased contractual pricing with one of the top 10 national payers. From a Q3 and Q4 standpoint, expect more AUP-led growth. For Q3, model volume growth around 1% to 1.5%, primarily because a high-volume, low-value contract that peaked in Q3 '25 is no longer contributing the same way. The most revenue growth in clinical will come from AUP in the near term, but the mix should shift in 2027 toward more volume-led growth—mid-single digits—where you may see some softening in AUP growth rates.
The next question comes from Tycho Peterson with Jefferies.
Thinking about RaDaR and the third indication you just submitted: first, are there milestones we should track over the next 12 months as you expand the indication set? How do you think about the opportunity in terms of increased patient eligibility versus improved testing cadence? And I don't think you're changing your TAM assumptions; you said over 40%. I think you had said 45% previously when you had four indications. So I want to make sure the TAM assumptions haven't changed.
Tycho, we're excited about adding a third indication. We still believe the two additional indications we previously discussed should receive reimbursement before the end of the year, and we expect the third indication's review to conclude in the latter part of the first half of 2027 given typical timing. We're making commercial investments in anticipation of these additional indications and will expand active promotion as those approvals occur. Regarding TAM, if all five indications are approved, that would give us access to over 40% of the TAM for tumor-informed MRD. I don't believe the 45% number was something we publicly provided previously.
Okay. And then for Abhishek, on the gives and takes on OpEx: you're increasing SG&A with new hires and R&D for the innovation funnel, and you've talked about reductions to G&A over the next 12 to 24 months. Where will you get the leverage on G&A, and is the algorithm of a 250 to 300 basis point operating expansion still viable under the new framework?
Great question. Driving operating leverage in G&A is a focus area. Our G&A as a percent of revenue was relatively high in 2025 versus peers. We are targeting G&A in the low 30s percent of revenue this year and hope to reduce it further in outer years, perhaps below 30% in 2027. As we get benefits from our efficiency initiatives, we'll have the opportunity to reinvest into the sales organization and R&D. The plan is to balance investments for growth with improvements to the bottom line.
I'll add that beyond G&A, we see other efficiencies across the enterprise—Lab of the Future initiatives, workflow optimization and other operational improvements—that can help offset investments in sales and development. We'll highlight specific opportunities as we head into 2027.
Last one: you submitted comments to CMS on prior authorization. Any progress to expect there?
We continue to study the various initiatives and potential iterations—PAMA, CRASH and others. We remain engaged with ACLA and monitoring the developments, but our view hasn't fundamentally changed: we don't see anything currently that would be a significant impact to our business in 2027. We'll continue to stay close to it and work with the relevant stakeholders.
The next question comes from Bill Bonello with Craig-Hallum.
I want to revisit mix shift with a longer-term view. You mentioned strong NGS growth coming from legacy customers transitioning from targeted panels to CGP. Can you give a sense of how much runway you still have? What percent of customers aren't using CGP yet or rarely use liquid biopsy? And the same for MRD: any sense for how long this path can continue. Also, to the extent you're seeing competitive takeaways, what's driving that?
Thanks, Bill. The opportunity for mix shift isn't limited to NGS; it exists across modalities. It is most notable within NGS as targeted panels move to CGP. We have a broad-based targeted panel portfolio that is well covered in the community setting because that's what's in guidelines today. We're proactively targeting customers and driving that shift, and it has runway well beyond 2026 and into the following years. Mix shift is also happening in other modalities. Regarding takeaways, it's hard to precisely quantify, but we've learned how to manage life cycle transitions effectively. The key success factor is workflow integration—making it easy for clinicians and pathologists to adopt our larger panels and broader offerings.
The next question comes from Dan Brennan with TD Cowen.
Congrats on the quarter. Could you dig into PanTracer Liquid this quarter? How is the launch going? Initially, is it an alternative to tissue testing where tissue isn't available, or are you seeing orders for liquid and tissue together? Is there upside as you see more use of a blood-based test?
Part of the liquid strategy was to round out the PanTracer Family. We're seeing robust category growth overall and liquid contributes to that. Growth is coming through multiple channels: market penetration where oncologists who weren't using liquid before are starting to adopt it; some share gains from competitors where we have strong workflow positions; and increased attachment rates where liquid and solid are ordered concurrently. Attachment rates improved in Q2; we're mid- to high-teens percentage there. We're also tracking serial testing and see some uptick, although it's still relatively small. Reflex testing when tissue is QNS/TNP is another natural opportunity. PanTracer Liquid fits well into that coordinated workflow.
Got it. And on volumes: can you remind us how much that high-volume, low-value contract was a weight this quarter and what's baked into the back half? Core clinical volumes were a bit lighter than expected—was that the drag?
Previously we said that the high-volume, low-value contract made up about 3% to 4% of our volumes in 2025—about 50,000 tests on the midpoint. It grew through Q3 2025, which was the peak quarter, and we exited that contract in Q4. The compare for Q3 '26 will therefore be the most difficult. Excluding this dynamic, we've typically been in the mid-single digits on volume growth and would have been similar if adjusted for this contract.
The next question comes from Subbu Nambi with Guggenheim Securities.
You called out an $8 million investment to transition PanTracer LBx to the NovaSeq X. How should we think about CapEx plans into the second half? What's the transition timeline? Any expected gross margin benefit this year or next from the transition?
This is our first transition to the NovaSeq X on the liquid platform. We will next transition heme sequencing to NovaSeq X, which will take a few quarters and occur in the early parts of 2027. Given liquid is a small portion today, we won't see significant gross margin benefit from the liquid transition in 2026. The gross margin benefit from the heme transition will start to be visible in late 2027.
I agree with Abhishek; those are the key points. The NovaSeq X transition supports throughput, turnaround time and lower per-test cost as volumes scale, and the material benefits will accrue as we migrate larger portions of our volume, particularly heme, in 2027.
For accounts that are integrated but utilize a competitive MRD test, what percent of those accounts do you feel you'll be able to capture for indications that are applicable? How should we think about share win this year and longer term?
Right now, we are actively promoting RaDaR ST only for the two indications where we have reimbursement because we're managing cost and profitability. We're satisfied with early traction: roughly two-thirds of incoming RaDaR ST orders are within those indications. As additional indications are approved, especially the ones expected later this year, that will expand the indications we can actively promote and substantially increase the TAM we can address. That will enable us to be more competitive and take share, particularly among larger users who prefer a pan-cancer solution. Volumes should increase nicely once we secure further indications later in the year.
I'll add that RaDaR ST extends our continuum from diagnosis to therapy selection to recurrence monitoring. We view NeoGenomics as an oncology diagnostics company, not just an MRD company. We're balancing reach and profitability, and our gating factor for more aggressive commercial expansion is the indication and reimbursement flow through year-end.
The next question comes from Mason Carrico with Stephens.
On pharma: does returning to growth next year rely on booking additional projects beyond what's in the backlog today? What's giving you confidence that the segment will return to growth next year?
Yes, Mason. Returning to growth will depend on continued incremental bookings. The confidence comes from Q2 where bookings were at an all-time high even though revenue pull-through lagged. We feel very good about bookings; now we need to execute on pull-through and continue to drive bookings for 2027.
Last year you noted Northeast revenue grew faster than the national average. How did that segment perform in Q2 and did that dynamic continue?
We continue to see that trend. The Northeast remains significantly above average—about 50% above the company average—and we're now seeing improvement in NGS pull-through in that region as well. The approach of shorter turnaround time testing to create an access point and then pull through higher-value testing is working, and we see the higher-value testing coming through now.
The next question comes from Mike Matson with Needham.
Good to see the progress with Medicare coverage of RaDaR. Can you give insight into the process and timing for getting private insurer coverage for the test?
We have a broad contracting footprint—300-plus contracts across the company—which gives us a strong starting point for private payer discussions. Bringing new tests into contracts takes effort: establishing policy, negotiating coverage, and agreeing pricing. We have started those conversations and in one case this quarter we secured a meaningful contractual pricing increase with a top-ten national payer for our liquid products. Coverage expansion takes time, but the groundwork and relationships are there.
On the new convertible notes, any material change in interest expense from the refinancing?
There is a modest change: the new convertible senior notes carry a coupon of 0.75%, versus 0.25% on the prior notes—a 50 basis point differential between the two converts at a high level.
The next question comes from Mark Massaro with BTIG.
On the decision to reorganize the commercial team into separate oncology and pathology ecosystems: remind us the size of the pathology business relative to oncology, and what steps are you taking to ensure continuity across the reorganization?
We've wanted to get to this structure for some time but lacked sufficient scale on the oncology sales specialist side. With recent investments, we now have scale—about equally balanced teams—and roughly 60-plus people in each ecosystem. Historically, generalist managers had to manage different sales cadences and rhythms; separating the ecosystems tailors structure, messaging and support to the distinct sales motions of pathology versus oncology. This sharper focus should improve targeting, execution and outcomes while maintaining continuity of service to customers.
On RaDaR ST launch: any sense for account wins, number of ordering clinicians, and uptake in breast? Do you think the business could materially inflect in 2027 or will it take longer?
We're seeing a broad array of wins: penetration in the community, new MRD users joining through EAP and competitive takeaways from large group oncology practices. RaDaR ST is a competitive product with sensitivity down to 1 part per million, and attachment rates are strong—about 30% of RaDaR ST orders include other NeoGenomics tests, largely NGS and some auxiliary testing. Two-thirds of orders today are in indicated uses. We expect acceleration as additional indications become approved; meaningful uptick is likely in 2027 with further acceleration into 2028.
Mark, we'll provide more detailed positioning and updates as the indication flow becomes clearer and as we approach 2027. We'll talk about 2027 dynamics next year, but the expectation is acceleration tied closely to reimbursement and indication expansion.
We have reached the end of the question-and-answer session, and I will now turn the call over to Tony Zook for closing remarks.
Well, first off, I'd again like to thank everybody for joining us on the call. I'd also like to thank our roughly 2,400 teammates for their continued hard work and unwavering commitment to our mission. With meaningful progress on our therapy selection and MRD test offerings during the second quarter, I'm excited for the remainder of the year as well as 2027 and beyond as these high-value tests represent a growing portion of our clinical business. I look forward to our next quarterly update in October, and thank you again, and have a great day.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.