NEO

Good afternoon, welcome to the NeoGenomics second quarter 2026 financial results call. At this time, all participants are in a listen-only mode. 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 diagnostic 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 relation strategy and deepen our relationships across the investor and analyst community. Let me turn the call over to Andrew to get us started. Andrew?

Thank you, Abhishek, 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 betters Neo 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 am confident my skill set and experience across the financial markets will be helpful in this regard. 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 or results could differ materially from those expressed or implied by the forward-looking statement.

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 investor 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 measures 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. Good afternoon, everyone. At NeoGenomics, our leading 25% market share across hematology diagnostics and therapy selection make 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, under-penetrated 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 volume 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 a 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 non-clinical 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 non-clinical business. 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 non-clinical 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 expenses 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 contribution 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 standalone 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'll 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 focused 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 shift 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, 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 and 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, pharmacology 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. The 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'd 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 Neo's menu. Two-thirds of orders are for indications we already have approved reimbursement from MolDx. 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 based behind RaDaR ST. 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, our 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 will 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, the 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 Neo LIMS implementation, strategic procurements, and laboratory footprint optimization. This quarter, we closed two dry labs, optimized administrative footprints, further balanced volumes across our laboratory network, exited low-margin non-oncology business acquired with Pathline, 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 TAT, and lower per-test cost at volume scale, 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 Austin initiatives, including managed care pricing gains and pull-through improvement. Turning to our non-clinical 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. 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 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 trade 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 non-recurring 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 cap 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 investments 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 2026 revenue guidance to a range of $802 million-$806 million, up from $797 million-$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 low teens for the full year, driven by the continued strength in our NGS business. We expect our NGS business to grow in 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 non-clinical business to be down high single digits year-over-year in 2026 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%-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 2026 adjusted EBITDA guidance to a range of $56 million-$58 million versus $55 million-$57 million previously, representing year-over-year growth of over 30% at the midpoint. We are targeting adjusted EBITDA to grow in low 30s year-over-year in the third and 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. Operator, this concludes our prepared remarks. Please open the line for questions.

Thank you. Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, please press star one if you have a question or a comment. Our first question comes from David Westenberg with Piper Sandler. Please proceed.

Thank you for taking the question. Great job on the quarter here. I wanted to get into NGS growth. It was 26% again in the quarter. You have PanTracer liquid in the back half of the year, really to get this supposed to take off. You're getting all these MRD indications at the same time. You probably do have some tough comps. 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? One more.

Yeah. Hey, 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. David, our view of this is we think we have a very durable position with NGS now. As you said, we exited 2025 at about a 22% growth, and that's why we got to the low 20s. In the first quarter, 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. If you break down that Q2, if you look at that 26%, it's like 14% was volume and 12% was AUP, which about two-thirds of that was mixed.

We start to look at this at the macro level across a blended portfolio, that 14% feels pretty good to us because remember, we're driving an intentional shift from single panels to large panels. As Warren said, that large panel is at 20% growth, and we see strong growth in heme and the five products growing at 30%. We see our position going into the second half of the year as one of a position of strength. We do think there's opportunities for us in the portfolio and equally well, we think it's durable. With that, Abhishek, anything about key highlights on the guidance component that Dave was asking about?

Yeah, I think you have covered well, Tony. For the second half, we are basically raising that okay, our NGS revenue growth for the full year is going to be now in the mid-20s as compared to the low 20s that we had guided for previously.This is predicated upon our strong performance that we have seen in the first half, particularly the larger panels that Warren kind of alluded to in his prepared remarks. Those have been growing above 20.

Got it.

Dave, just for sake of clarity there, MRD is not included in the NGS numbers. The NGS is like for like. MRD, as reported, will be included in clinical.

Great. No, thank you for that clarification. Tony, can you give us a little bit more color on what's happening in biopharma? I think everyone had it negative at high single digits, you said you spend 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, nobody owns Neo for its pharma services. 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. Thank you.

Yeah, sure, Dave. 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, AUP. There was a lot to be excited about, an area where we just didn't hit our own expectations was on the non-clinical pharma side, primarily. What I would tell you, Dave, that we liked in the quarter, bookings were up significantly in Q2. 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 downturn in expectations for the year. We're still confident that we can get this back to growth. The bigger question as to why.

Well, we still believe that 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. There's a lot of reasons to want to stay engaged, 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. We think it's important to not lose our focus in clinical, we still think there's opportunity there if we can right this thing going into 2027. Hope that helps.

Yeah. I'll just kind of add to what said that just taking the conversation maybe one level higher here, given the fact that pharma is 5% of our business, you're talking about a $10 million business out of $200 million of revenue. Now, even a half a million dollar can swing the percent by five points, Dave. Basically, you're talking about now half a million dollar impact on a $200 million business, which could be like a rounding adjustment for the overall business. I just want to make sure that from the focus standpoint, it's basically our clinical business. On the pharma, yes, of course, we did not meet the expectation, but such a small portion of our overall portfolio.

Thanks, Dave.

Okay. The next question comes from Puneet Souda with Leerink Partners. Please proceed.

Yeah. Hi, guys. Thanks for the questions here. Following up on that, again, this business, as you pointed out, non-clinical business, pharma business is 5% overall. It has been under pressure. Can you talk a little bit about how core is this 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 is this, and what are the plans ahead. Thank you.

Yeah, Puneet. Again, I'll kick us off. I would say, what is core to us? Our clinical business. That's what's core to us. That's what's going to drive our performance and our growth. I look at pharma as more opportunistic. One that we can leverage, from our R&D perspective, one that we can get early market access, one that will probably suit our emerging portfolio a lot better than it suited our existing portfolio. I do not consider it in waiting to be anywhere near of strategic importance as we see the clinical side of the business. But it's an area that we can leverage over time, and one that we want to just make sure we get correct moving into 2027. Warren, you want to add anything else?

Yeah. Building on that, I think one of the things you would have seen within the thoughts was the increased investment from R&D perspective. We're becoming increasingly excited about the products that will come to market. More of them, more cutting edge, the WGS that Tony had spoken about. We feel it's imperative that we have access into pharma to get early readouts in terms of how those products perform, get some early clinical studies, make adjustments, et cetera, before we actually bring those products to market from a clinical perspective once reimbursements are variable. We kind of see it as an enabler of our clinical business, but not an area that we're going to be making any meaningful investments in.

Okay, that's helpful. Just a quick follow-up on, your AUP came in really strong, versus last quarter. Again, congrats on that. Volume ahead of us, too. Maybe just on the AUP side, look, it's driven by mix shift. I appreciate that. Given the competition dynamics in the marketplace, how sustainable is this AUP growth? How should we think about or the sort of the mix of AUP versus volume growth for clinical in the next two quarters? If you can provide anything on 2027, that'd be helpful too. Thank you.

Sure. Quite a few questions there Puneet. Let me take a shot at it. On the AUP, the 12% growth, I would say that there have been two pieces to it. The first piece is, of course, the RCM, the true RCM initiatives, which is basically how you are able to drive the pricing gains through the managed care, through the pull-through, so on and so forth, and the price increases. That's the first component. The second component is as we kind of continuously seeing this mix shift towards the high-value testing, and again, that's depending on the NGS revenue growth that we are seeing, which has been very strong. As we know that the NGS AUP is much more higher compared to rest of our portfolio.

Given the fact we believe that the NGS volume growth is pretty durable, we believe that we will continue to see this AUP benefit in the future quarters to come. That basically gives us the comfort. At the same time, I would say that there is a meaningful runway left for us on the RCM side as well, because still there are opportunities for us to improve the pricing on the contracts that we currently have got. The good news is that we have 300 contracts. Just to give you an example that, this past quarter, we actually were able to increase the contractual price with one of the top 10 national payers. The point being that there is still more runway left on our RCM improvements. That gives us the belief that this is durable.

Now, from the Q3 and Q4 standpoint, what I'm suggesting that we will still have a more heavy AUP-led growth in the Q3 and Q4. Q3, I would suggest that we should be looking at the volume growth at about one and a half points, and that is primarily because of same dynamics that we have discussed in the past, that this high volume, low value contract that we exited, it basically peaked in Q3 2025. You will still see the most revenue growth in the clinical would come from the AUP growth, but the mix will start to shift in 2027 where we feel that the volume growth is going to be mid-single digit or so, what we used to see previously. Accordingly, we will start to see some softening on the AUP growth numbers as well.

That's great. Very helpful context. Thank you.

Thanks, Puneet.

The next question comes from Tycho Peterson with Jefferies. Please proceed.

Hey, thanks. Just think a little bit about RaDaR, the third indication here. Maybe just, first of all, are there milestones we should be tracking over the next 12 months, as you expand the indication set? How do you think about the opportunity here in terms of increased patient eligibility versus improved testing cadence? I don't think you're changing your TAM assumptions. You're saying now over 40%. I think you said 45% previously when you have four indications. I just want to make sure the TAM assumptions haven't changed either.

Tycho, let me take that.

Yes, please.

I think we're really excited about the fact that we've added a third indication. We still believe that the two that we had spoken about previously, we should receive reimbursement at the end of the year. We expect somewhere in the latter part of the first half of 2027 for this third indication. Again, thinking about this sort of 12-month review cycle is what we're working on there. Again, we're in the process of making some commercial investments in anticipation of those additional indications becoming available and being able to expand the indications that we actively promote. Again, it's something, as I said in my prepared remarks, we continue to evaluate as new products and new reimbursement become available. I would expect that we would further invest in our oncology sales team moving forward, in 2027 and beyond.

I think from a TAM perspective, the 40%, if all five are approved, it gives us access to the 40%. That is meaningfully up from where we were with just the prior two indications. I'm not sure where that 45 came from. I don't believe that's something we've publicly shared before.

Okay. Yeah, the 45 is when you have four indications. One for Abhishek then, just thinking about the gives and takes on OpEx. You're bringing up SG&A with new hires, R&D with the innovation funnel, and I know you've talked about reductions to G&A over the next 12 to 24 months. Maybe just talk about where you'll get the leverage on G&A, and is the algorithm of a 250 to 300 basis points operating expansion still viable under the new framework?

No, that's a great question. In fact, probably one of the focus areas for us is to drive the operating leverage in the G&A, Tycho. When we look at the numbers, we feel that our G&A spend, as compared to some of our peer groups, is definitely higher. When I look at the G&A only, it was like, what, 38% or so as a percent of revenue in 2025. We are targeting low thirties this year. We hope that the number, the percent on the G&A will continue to reduce further in the upcoming years, perhaps lower than 30% in 2027.

Given the fact that G&A, we do have more opportunities as we kind of start to get the benefit of some of the work that the team has been doing, we would basically have the opportunity to invest back into our sales organization and in advancing our pipeline initiatives through the R&D programs. This is how we basically kind of see as to how this whole thing is going to pan out. We'll see as to, okay, what is the right level of investments, because we do think that there are a lot of fast growth opportunities, and we just want to make sure that we are balancing the need to put the money back for the growth and then dropping to the bottom line.

Tycho, the only thing I would add to Abhishek's comments is that our focus, while it's on the G&A area right now, we think there are other efficiencies across the enterprise that we're going to be able to drive rather significantly, and we'll probably do a better job of highlighting those for you and your colleagues going into 2027. When you start to really look at some of the work that Warren is doing in the Lab of the Future and his teams, there's ample opportunity for us to drive efficiencies that we think can help the bottom-line performance as well as offset some of the investments we want to make in sales and the development side of the business. Thanks.

Okay. The last one, just you submitted comments to CMS on prior authorization. I'm just curious how we think about any progress there.

On CMS?

Yeah, just on the challenges around prior authorizations. Is that something we should see some traction on?

Yeah. What we looked at, all the initiatives that are being discussed at this point in time Tycho, PAMA, CRASH, ACA, all of these various issues. We continue to study all of them because as you know, there's multiple potential iterations of these things. Our view hasn't really fundamentally changed that much. We've assessed them, we continue to work with ACLA, we look at our portfolio, and we don't see anything here that would be a significant impact to our business in 2027. We'll continue to stay close to it. We'll work with ACLA, it's not something we're anticipating to be significant.

Okay. Thank you.

Thank you.

The next question comes from Bill Bonello with Craig-Hallum. Please proceed.

Hey, thanks a lot. Want to revisit one of the questions sort of about the mix shift, but maybe with a longer-term point of view than what happens in the next 2 quarters. You did mention some of the strong NGS revenue growth coming from legacy customers transitioning, obviously from targeted panels to CGP, which we see in the ASP. Can you just give us some sense of maybe how much runway you still have on that front? Not specifically where ASP is going to go, but what percent of your customers maybe aren't using CGP testing right now, are still ordering targeted panels, maybe rarely use liquid biopsy, and maybe the same thing on MRD, even though you say that wasn't in the numbers. Just to give us some sense of how long this path can continue.

Then just part two of that would be to the extent that you are seeing competitive takeaways, maybe you could talk about what's driving that.

Thanks, Bill. I'll take that question. I think maybe before I talk specifically about NGS, the opportunity for mix shift does not only exist within NGS. We have the unique opportunity because of our broad portfolio that we see mix shift happening across other modalities as well. It's probably most notable, though, within NGS and exactly what you just articulated, targeted panels moving to CGP, et cetera. Yeah, I'd say the runway is still robust. We have a fairly broad-based targeted panel portfolio, and it's well covered throughout the community setting because that's what's in guidelines today. We're sort of proactively targeting customers and driving that shift, and it's part of how we target our commercial organization. This is an opportunity that has runway well beyond 2026, and probably into a few years beyond that as well.

I want to reiterate, it's not just with regards to NGS. There's other opportunities with other modalities as well. In terms of competitive, you asked the question with regards to competitive takeaways. It's pretty difficult to track that specifically. We've learned over the years as we've done life cycle management in terms of how to do it effectively. A key success factor here is workflow integration.

Okay. Thanks a lot.

Thanks, Bill.

The next question comes from Dan Brennan with TD Cowen. Please proceed.

Great, thanks. Thanks for the questions. Congrats on the quarter. Maybe could you just dig in a little on PanTracer liquid this quarter? Just give us some color on what you're seeing from the launch. When you've discussed it in the past, you've discussed it as really an alternative to solid tumor testing in maybe cases where they don't have access or it's more specific to the tumor type. We've heard through oncologists, there's just a lot of ordering liquid and tissue together or using liquid serially later in the cancer types. I'm just wondering how the early experience is going and kind of what's assumed, is there potential upside as you maybe see more use of a blood-based test?

Thanks, Dan. I'll take the question. First and foremost, let's say again, part of the liquid strategy was to round out our PanTracer family. We're seeing category growth, very robust category growth overall, and liquid is a contributor of that growth as well. We're seeing growth coming through multiple channels where we certainly market penetration, identifying oncologists within the community that aren't using liquid, that are starting to use liquid. That's attractive for us. We're also seeing some share gains as well from certain competitors where we have strong position within workflow and customers on the heat side as well. That's working out really nicely. We're starting to see an increased attachment rate as well, where we're seeing liquid and solid coming in concurrently.

That increased a little in the second quarter, and we're sort of mid to high teens as the percentage rate there as well. That's also starting to gain traction and obviously that's an opportunity where we've now got two high-value tests that have been run on a single patient. The serial testing question that you actually posed is something we're starting to track, and we actually are starting to see some uptick there, although that's still relatively small at this particular point, and we see that as an opportunity. Naturally, the other big opportunity that we're tapping into is the reflex when on the tissue side of things, where we get a QNS, this is a natural opportunity. This is slotted in nicely within our PanTracer family.

Got it. Thanks for that. Maybe just back to the kind of volumes, which you discussed kind of the pace of the back half. Could you just remind us how much that high volume, low value contract was a weight this quarter, kind of what's baked in for the back half of the year? Core clinical volumes were a bit lighter where we were thinking X NVS, but I think that's likely because of this factor. I'm just trying to tease out the drag in Q3 under Q4 and kind of when that lapses and what it means. Thank you.

Yeah, sure, Dan. What we had basically said previously that this high volume, low value contract made up about 3%-4% of our volumes in 2025. If you were to take the midpoint, that's almost like 50,000 tests for 2025. It kind of grew from Q1 to Q2 to Q3, and Q3 was the peak quarter. Then, of course, in the Q4, we had called out that we were exiting from this particular contract. That's where the compares for the Q3 2026 for us will be the difficult most. That's the reason why we are calling this particular piece out. Excluding this particular dynamic, we have basically typically been in the mid-single digits on the volume growth, and we would have been pretty similar if we were to adjust for this time.

Great. Thank you.

Thanks, Dan.

The next question comes from Subbu Nambi with Guggenheim Securities.

Hey, guys, this is Subbu Nambi. Thank you for taking my question. You guys called out the $8 million in NovaSeq X transition. I'm curious to know how should we think about CapEx plans into second half? What's being transition timeline? Any expected gross margin benefit either to this year or next year? How should we think about those things?

I can start, and then, of course, I will need Warren to kind of opine on a few other pieces. This is basically our first transition to the NovaSeq X on the liquid platform. We are now going to be starting our most important piece, which is the heat transition to the NovaSeq X, which is going to take a few quarters and in the early parts of 2027. From the gross margin benefit perspective, given the fact that liquid is a very small portion, we're not going to be getting the benefit on the gross margin expansion for this transition as of right now. Similarly for the heat movement of the transition, we'll start to see the gross margin expansion related to the NovaSeq transition in 2027, latter part. I'll put it this way. If there's something else, Warren, that you want to.

No, I think you've hit the key, the salient points there, Jain.

Okay. Thank you for that. Warren, for you, for accounts you are integrated with, but who utilize a competitive MRD test, what % of those accounts do you feel you'll be able to capture in the indications that are applicable? How should we think about share win over the course of this year and longer term? I know it's a sort of unfair question, but anything that you could tell us to be helpful.

Yeah. I think what's important here is right now we're only actively promoting RaDaR ST for the two indications that we have reimbursement for. Simply because we're trying to manage the cost and profitability dynamic. I'm very confident of the fact that when we get the additional indications, particularly the two that are due this year, that's going to significantly expand the indications and the TAM that we can address. I think that's going to allow us to be much more competitive in terms of taking share, simply because there is a desire for more of a sort of pan-cancer solution from these larger users. Right now, we're very satisfied with how things are progressing considering we laser focus on the two indications that we have. As we said earlier, two-thirds of the incoming volume is for those indications.

We expect volumes to increase nicely once we get further indications approved later on in the year.

Yes, Subi, I guess the only thing I would add to that is we've always maintained that RaDaR ST, we're excited about it because we see it extending our continuum right from diagnosis to therapy selection to recurrence monitoring. We look at ourselves as an oncology diagnostics company and not just only an MRD company. We're not, at this point, just taking all comers or really casting a really wide net here. We want to get that balance right, and our gating impact is going to be the indications. As we secure those indications by year-end, that's when we become much more aggressive in reaching frequency and messaging.

Perfect. Thank you so much, guys.

Thank you.

The next question comes from Mason Carrico with Stephens. Please proceed.

Hey, guys. Thanks for taking the questions. A question on pharma. Does returning to growth next year rely on you guys booking additional projects beyond what's in the backlog today? I guess, what's giving you confidence or what visibility do you have into that segment of the business returning to growth next year?

The answer is yes, Mason, it is very much dependent on us continuing to drive incremental bookings. The confidence that we have comes from this quarter, while we didn't hit our revenue goal from the pull-through from 2025, the actual bookings were all-time highs for us in Q2, right? We feel very, very good about what it means for us potentially for 2027 and beyond. Now we just need to execute and pull through the 2025 as well as continue to drive the bookings. It's dependent on bookings. We are seeing bookings increase, and we're going to continue to push hard for that by the end of the year.

Got it. Last year, I think you highlighted that northeast revenue grew maybe one and a half times faster than the national average. Could you frame up how that segment performed in Q2 and whether that dynamic continued?

Yeah, I can. That was the Q1 sort of indication we put out there. We're seeing a very similar trend. The only addition that I'll add to that is we're now seeing nice improvement in sort of NGS pull-through as well. The idea was to get those shorter turnaround time testing first. That creates an access point into the customer, pull through higher value testing, we're now seeing that higher value testing coming through as well. Overall, still about 50% above the average, but seeing high-value testing now too.

Thanks, Mason.

Got it. Thanks.

The next question comes from Mike Matson with Needham. Please proceed.

Yeah, thanks. Good to see the progress with the Medicare coverage of RaDaR, but I was just curious if you could give us any insight into the process and timing for getting some private insurer coverage of the test.

Yeah, I can take that question, Mike. As you know that, we actually have a fairly wide coverage. For a lot of our tests, we have like 300+ contracts across the company. Now it's a matter of as to how do we kind of include some of the newer tests that we are basically launching to the same contract. The good news is that we have a foot in the door and we are able to kind of start to have these conversations, but at the same time, I'll say that it does take a lot of effort to move the needle in terms of getting first the policy and then the coverage through the contract, and then making sure that you have the right amount of pricing when you are discussing the contract.

I just want to basically highlight that, I just said that we actually won one of the top 10 national accounts this particular quarter where the contractual rate was fairly small for our liquid product, and we were able to successfully negotiate a fairly sizable increase in that particular pricing. Of course, we'll start to see the impact on our credentials as we basically ramp up the volumes, but that's the kind of effort that the team has been doing on the managed care side to drive the policy and the coverage.

Okay, thanks. Just a quick one on the new convertible or the rollover, I guess, of the convert. Is there any material change in the interest expense related from the refinancing?

Yeah. There's a little bit of a change in the interest rate. Our new senior notes, the convert senior notes, is at 75 basis points, and previously we had 25 basis points. There's a 50 basis point differential between the two converts at a high level.

Okay. All right. Thank you.

Thanks, Mike.

Okay, our next question comes from Mark Massaro with BTIG. Please proceed.

Hey, guys. Thank you for the questions. The first one is on the decision to reorg the commercial team, splitting oncology and pathology. Maybe can you just remind us the size of your pathology business relative to the oncology business? What steps are you taking to ensure that there's continuity in that decision?

Yeah. Thanks, Mark. I'll take that question. We've wanted to get to this point for quite some time. We just didn't have sufficient scale on the oncology sales specialist side of things. We're actually now, with the investments that we've made leading up to this quarter and will make this quarter, we're about equally balanced, and you could think about 60+ people in each of those teams now. It's basically given us the scale. We've always had a pathologist, what we call a TBM, territory business manager, and oncology sales specialist, but they're rolled up to a generalist manager. Ultimately, we were seeing that the generalist manager was struggling with the difference in sales cadence, sales rhythms, et cetera.

We've got the pathology business, we're a market leader, looking to sort of protect and grow, where we're trying to penetrate oncology with new products where we're not the market leader and in some cases, a later entrant. There's just two different sales motions, and we felt it would make sense for us to structure the organization through two distinct ecosystems, one for pathology, which is the same sales team and sales management, but also distinct supporting structures. You think about messaging and positioning, it's all targeted towards pathology. The same on the oncology side of things. I think this is going to sharpen our focus. It's going to improve our targeting. I think ultimately, it's going to result in better outcomes, which is going to allow us to sustain the growth.

Fantastic. On the RaDaR ST launch, I recognize it's early days since you launched clinically in February. Can you just give us any sense for perhaps account wins, number of ordering clinicians? Are you encouraged at what you're seeing with breast or do you think that you will get a greater uptake when you have expansion of breast?

How should we think about that business inflecting? Is that something that you think can materially inflect in 2027, or could that take a little bit longer?

We are seeing, coming back to account wins, and then we'll talk about the sort of growth and inflection. Yeah, we're seeing quite a large array of different types of wins. We certainly are penetrating in the community, which is where we focused, and it's a combination of new users of MRD that are coming on board, which came on board through EAP programs and other programs. Also through competitor takeaways in some large group oncology practices as well. It's pretty a broad array of orders that are coming in, and it's largely because this is a very competitive product. We have indicated we are able to detect down to as low as one part per million, so it's a very competitive product. We continue to see great attachment rates.

About 30% of incoming RaDaR ST orders actually come in with other testing from Neo, largely NGS, but some auxiliary testing as well. That's very attractive. We're getting a lot of in indication. Two-thirds of the orders today are coming with in indication, and that's truly what we're promoting. I'm optimistic as these additional indications become available and we're able to cover a much larger portion of the TAM, that we're going to see acceleration. We definitely see a meaningful uptick in 2027 and acceleration in the latter part of 2027 into 2028.

Mark, we'll be able to better position the final part of your question about 2027, 2028, I think when we see the indication flow and how the year-end closes. We'll talk 2027 in 2027, but we'll note that question for next time.

That's very helpful. Thanks, guys.

Thank you.

Thank you.

We have reached the end of the question and answer session. I will now turn the call over to Tony Zook for closing remarks.

Well, first off, I again just 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. Thank you again and have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.