Q4 2023 Neogenomics Inc Earnings Call
Participants
Kendra Sweeney; Vice President, Investor Relations; Neogenomics Inc
Christopher Smith; Chairman of the Board, Chief Executive Officer; Neogenomics Inc
Jeffrey Sherman; Chief Financial Officer, Executive Vice President, Treasurer; Neogenomics Inc
Alex Nowak; Analyst; Craig Hallum
David Westenberg; Analyst; Piper Sandler Companies
Puneet Souda; Analyst; Leerink Partners
Matthew Sykes; Analyst; Goldman Sachs
Andrew Brackmann; Analyst; William Blair & Company
Mark Massaro; Analyst; BTIG
Michael Matson; Analyst; Wells Fargo Securities, LLC
Mason Carrico; Analyst; Stephens Inc.
Andrew Cooper; Analyst; Raymond James
Derik De Bruin; Analyst; BofA Global Research
Tejas Savant; Analyst; Morgan Stanley
Daniel Brennan; Analyst; TD Cowen
Presentation
Operator
Welcome to the NeoGenomics' fourth-quarter and full-year 2023 financial results conference call and webcast. (Operator Instructions)
Please note this call is being recorded and an audio replay will be available on the company's website. Kendra Sweeney, Vice President of Investor Relations, you may begin your conference.
Kendra Sweeney
Thank you, John. Good afternoon, everyone, and welcome to the NeoGenomics' Fourth Quarter and Full Year 2023 financial results call with me today to discuss the results are Chris Smith, Chief Executive Officer, and Jeff Sherman, Chief Financial Officer. Additional members of the management team are available for Q&A, including Vishal's decree President of Advanced Diagnostics, Warren Stone, President of Clinical Services, Melody Harris, President of Enterprise Operations, and LEO Levo, General Counsel and Head of Business Development. This call is being simultaneously webcast we will be referring to a slide presentation that has been posted to the Investors tab on our website at ir dot NeoGenomics' dot com. starting on slide 2. During this call, we will make forward-looking statements regarding our anticipated future performance. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to our most recent Forms 10 K, 10 Q and eight K we filed with the SEC identify important risks and other factors that may cause our actual results to differ materially from the forward-looking statements. The forward-looking statements made during this call speak only as of the original date of the call, and we are under no obligation to update or revise any of these statements during this call.
In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results, the non-GAAP financial measures presented should not be considered an alternative to the financial measures required by GAAP should not be considered measures of liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table available in the press release we issued this afternoon. I will now turn the call over to Chris Smith, Chief Executive Officer of Neogen.
Christopher Smith
Let me say Thanks, Kendra, and welcome, everyone. Thanks for joining us this afternoon to go through our fourth quarter and full year financial results. As always, I really want to begin with our mission and vision statement because it's what motivates our company and our teammates on a daily basis, our mission and neos to save lives by improving patient care. And we just had our global sales meeting at at the end of January and many of our teammates shared how cancer has impacted them or their families and how we're making a difference in their lives. It's always a great reminder of why we do what we do. And I'm so proud of the impact we're having on patients and local communities we serve.
Now let's move to Slide 4 and get into the fourth quarter highlights. As you can see, we had another strong quarter growing revenue, 12% over prior year to $156 million. Clinical Services revenue increased 20%, driven by strong volumes across all our modalities and another increase in revenue per test. As a highlight, NGS grew in excess of 40% and now represents over 25% of our clinical revenue. The strong growth in clinical services helped to mitigate the expected lower revenue in ATX due to a strong comparable in ADX in Q4 of 2022 as well as macro conditions in pharma sector and margin optimization initiatives that we took in 2023.
From an adjusted EBITDA perspective, our progress has outpaced our internal plans we achieved positive EBITDA in the third quarter of 2023 and significantly improved again this quarter. Adjusted EBITDA was 900, up 900% as compared to Q4 last year to a positive 9 million. Adjusted gross profit was $73 million, representing a 46.7% margin, an improvement of 225 basis points compared to Q4 and 2022.
Turning to Slide 5. For the full year 2020 results, revenue was up 16% versus prior year to 592 million, driven by penetration in the community oncology market, higher volumes, a shift to higher margin modalities and improvements in revenue cycle management.
Adjusted gross profit was 264 million, representing adjusted gross margins of 44.7% and adjusted EBITDA was positive $3 million for the full year, an improvement of $51.5 million or 107% versus prior year.
Now on slide 6, I'm pleased that the fourth quarter continued the trend that we've seen throughout 2023, a consistent sequential improvement in revenue, adjusted gross profit and adjusted EBITDA. Notably, our revenue growth has been strong each quarter of the year. We've built our momentum of reaching positive adjusted EBITDA in Q3 and carried that into Q4. We believe that we've laid solid foundation for growth in 2023 and expect that momentum to continue as we move throughout 2024.
Let's move on to Slide 7. As you may recall, at the beginning of the year, we laid out our four focus areas for 2023 that included profitably growing the core business, accelerating advanced diagnostics, driving value creation and enhancing our people and culture.
The more time I spend in the business, I'm more impressed I am with our unique competitive position in the marketplace with a breadth of cancer tests, our operational capabilities and passionate teammates that lead our business every single day. We are a leader in oncology testing with significant share of patient test volume in the US. Our deep relationships with community pathologists and oncologists provide us an advantage in the market. And our focus on oncology testing has allowed us to develop extensive patient databases and relationships, and we view ourselves as a collaborative partner to pathologists, oncologists, hospitals and biopharma companies. We serve beyond these beyond these market conditions, strong execution by our teammates and enable us to deliver such strong quarterly and full-year results to our stakeholders. Our teammates are the foundation of our company, and we have strengthened our team throughout the year with key hires at all levels of the organization, including sales, lab operations, corporate functions. These new hires joined a highly talented group of individuals of varying backgrounds and experiences. Contributory distinguished culture that reflects our commitment to diversity, equity and inclusion. And this afternoon, I'm going to focus on our three financial priorities. We continue to profitably grow our core business as we execute on our commercial strategy, protect, expand and acquire, which has contributed to our strong volume growth, increase AUP and improved mix. Execution of this strategy enabled us to serve more than 600,000 patients during the year. Our continued improvement in turnaround time has contributed to or add at or above market growth rates across all modalities. In addition, the mix shift towards higher value modalities and tests have supported the delivery of yet another quarterly improvement in revenue per test. Over the last 18 months, we have doubled the size of our sales force increasing coverage and penetration. We also introduced NEO access in the oh six software solutions to support providers in their clinical decisions and inform patients with upfront benefit checks as well as to identify patients who may be mark biomarker eligible for new therapies or a clinical trial. As a result of our increased coverage, clinical support and patient centric mentality, we maintained our customer experience leadership in the market with a three point improvement in Net Promoter Score, which is now at 70 within our advanced diagnostic division, which includes pharma services, informatics and R&D, we continue to focus on acceleration of innovation in R&D. Adx gross margins improved 368 basis points over Q4 of 2022. We built a robust product development roadmap to maintain a competitive position in solid tumor therapy selection, MRD. and E., with the goal to gain market share and solid tumor and maintain our leadership position in here.
On the R&D front, we launched 12 new or upgraded assays across human solid tumor in 2023 with an informatics, we announced a collaboration to advance team research and AI solutions with a dataset that covers over 1 million patient lives across more than 1,000 oncology clinics. The progress and innovation was displayed throughout the year as we presented new data at several conferences. We have focused on driving value creation from a financial perspective, and we are pleased that we have delivered even further margin expansion in Q4 with efficiencies driving enhanced operating leverage.
Our enterprise operations team has delivered yet another quarter of progress in turnaround time, ending the year with 28% improvement over Q4 of 2022. We have now completed the consolidation of three international labs, primarily into our Cambridge U.K. location. Earlier this year, we kicked off our Lindero project that will bring all of our prior acquisitions that were utilizing separate LIM systems onto one platform, which will further enable our digital transformation strategy. We have now completed the first phase of user requirements and expect to begin to see the benefits of wins in the back half of 2024.
Before I hand it over to Jeff, I do want to address the ongoing litigation regarding radar it's our policy not to comment on ongoing litigation. However, I will say that Neose committed to serving cancer patients with MRD testing, and we believe that we have several viable pathways to accomplish that, we've appealed the preliminary injunction, the Federal Circuit and have been granted an expedited hearing, which will occur on March 29th. We intend to vigorously pursue the appeal In addition, we have move for an administrative stay in a state pending appeal from the Federal Circuit Court. That briefing was completed February 20th.
Now let me turn the call over to Jeff to review our Q4 and full year financials in more detail. Jeff?
Jeffrey Sherman
Thanks, Chris, and good afternoon, everyone. I'll begin with a little more detail on our operating results for the quarter. As Chris said, we continue the year with revenue experiencing double digit growth over prior year. Fourth quarter revenue was 156 million, a 12% increase over the prior year and a 2.4% increase from Q3 23. Revenue growth was driven by growth in clinical test volumes, a continuing shift to higher value tests and improvement in revenue per test, driven by business mix and revenue cycle improvements. Adjusted EBITDA improved 900% from prior year to positive $9 million. Q4 marks the fifth consecutive quarter that adjusted EBITDA increased from prior year. We generated significant operating leverage as revenue favorability flowed through to the bottom line with over 60% of revenue growth flown to adjusted EBITDA.
Looking at slide 9, Clinical Services revenue of 130 million was an increase of 20% year over year, driven by a 13% improvement in revenue per test and a 6% increase in volume. The growth in optimization of our sales force, along with the effective execution of the commercial strategy, resulted in higher volume growth.
Turning to Slide 10. Average revenue per clinical test increased by 13% over prior year to $441, representing an improvement for the 11th consecutive quarter versus prior year as we maintain focus on higher value tests and revenue cycle management initiatives. As we shared with you in the past, NGS is a strategic priority and accounts for over 25% of our total clinical revenue for the year. New NGS portfolio additions and the focused effort of our sales team continue to fuel accelerated NGS growth.
Turning to slide 11, as we forecasted on prior quarterly calls, advanced diagnostics revenue declined 17% over the prior year in Q4, but was up 5% sequentially to 26 million. Adx revenue did grow each of the first three quarters of 2023 versus 2022. However, Q4 of 2022 was an unusually strong ADX quarter with revenue growth of over 40% versus prior year. The expected decline in revenue was partially due to macroeconomic conditions in pharma R&D spend, as well as our decision to rationalize our global testing sites and low margin contracts. The focus on profitability and margin growth is driving performance in ADX with adjusted gross margins expanding by 368 basis points versus the prior year similar to our clinical strategy in 2023. We are expanding our ADX sales organization in 2024 to further accelerate profitable growth and expect to see benefits from this initiative as the year progresses.
Looking at the income statement on slide 12, adjusted gross profit increased 17.8% over prior year, and adjusted gross margin was 46.7%, an improvement of 225 basis points over the fourth quarter of last year. Adjusted EBITDA was positive $9 million, an 11 million or 900% improvement versus prior year. These significant improvements were driven by both higher gross profit and disciplined cost management, which highlight the operating leverage in the business.
Regarding operational expenses, sales and marketing expense was 18.1 million as we continued to increase our commercial investment. G&a was 59.8 million and R&D expense was $7.1 million.
Turning to the balance sheet on slide 13, we ended the fourth quarter with cash and marketable securities of four and 15 million. We continue to make good progress and diligently managing our cash and are focused on accountability and disciplined oversight of operating expenses.
Cash flow from operations was a positive 18 million in the quarter, an improvement of $21.5 million or 583% from Q4 of 22.
Now let's briefly review our full year 2023 financial results. Starting on Slide 15. For the year we increased revenue by 16% over prior year, driven by increases in test volume, revenue per test and NGS revenue and clinical services.
Adjusted gross profit increased by 27.5% to 264 million as a result of higher revenue and effective cost management. Adjusted EBITDA improved 51.5 million versus prior year due to improvements in revenue and gross profit.
Looking at the balance sheet on slide 16, we ended the year with cash and marketable securities of 415 million. Cash flow from operations improved $64 million or 97% from 2022. This strong performance in reducing our cash burn and provides us with multiple avenues to address our upcoming convertible notes due in 2025. We expect to provide more clarity on our near term maturities on our Q1 2024 financial results call.
Now turning to our 2024 outlook. We continue to see strong revenue growth and an increase in NGS product mix and are very encouraged by our new and updated tests, which provide higher operating leverage to the bottom line, we have made the necessary and appropriate investments in our teammates to ensure that we have a world-class group of people who are aligned with our mission of serving patients and saving lives. As we continue to build this business brick-by-brick, I am more confident in our future than ever.
Moving on to Slide 18. For the full year 2024, we expect revenues of 650 to 660 million, representing 10% to 12% growth and adjusted EBITDA to be in a range of 21 to $24 million, representing 600% to 700% growth.
In summary, 2023 represented a strong year of execution and financial performance, which positions us well to continue that momentum in 2024. We will continue to invest in growth initiatives, including investments in sales force optimization and expansion in our clinical and ADX businesses and increasing investments in R&D, product and business model innovation to further enhance our menu of tests. In addition, we will be making targeted investments and operating efficiencies, including automation and consolidating in our multiple lens systems into one consolidated platform over the next 24 months. These investments will drive long-term margin growth in the future and are reflected in our annual adjusted EBITDA guidance range. Based on our cost structure, the revenue growth in 2024 will drive operating leverage, and our adjusted EBITDA growth will exceed our revenue growth. We anticipate, and we anticipate the seasonality of our business to be reflected in each quarter of 2024. Therefore, we expect revenue to be down sequentially in Q1 24 in a range of 148 to 151 million, representing 8% to 10% growth over prior year and expect our strategic initiatives to drive a higher growth rate as the year progresses.
Based on our strong performance in 2023 and our confidence in our strategic initiatives in 2024 and beyond, we are increasing our long-range revenue growth target in outlying years from 7% to 9% to 10% plus in our core business, excluding MRD.
Christopher Smith
Thanks, Jeff. I'm very proud of our team's Q4 and full year progress, including strong revenue growth of 16% for 2023 and significant improvement in adjusted EBITDA and cash flow from operations. We saw meaningful progress in the execution on our strategic priorities and therefore were able to reach the high end of our raised guidance.
Our guidance for 2024 and beyond reflects our confidence in our business. We believe are well on our way to becoming the leading cancer testing information and decision support company. We will continue to build on the foundation we have laid over the past several quarters to deliver long-term sustainable growth. I'm excited for our teammates and our customers and most of all for the patients we serve on a daily basis. Thanks for taking time to connect with us today, and I'll throw it back to the operator.
Question and Answer Session
Operator
Thank you. And at this point we will open the line for questions. The company asks that each person limit their questions to one so that we may hear from everyone within the hour allotted for this call. (Operator Instructions)
And the first question comes from Alex Nowak with Craig-Hallum. Please proceed.
Alex Nowak
Okay. Good afternoon, everyone.
Hey, congrats on the results.
I'm sure that you've had a lot of questions on the call around the guidance and digging into it. But I guess I wanted to ask one around the STA. and the LDT. and it's got potential of FDA coming on issuing final rules depending on the definition of an LDT Neo could have a wide variety in its portfolio.
So I'm just curious what you've talked a little bit in the past, but what does the team internally doing now, just in case the FDA does decide, hey, we're going to move forward and issue a final rule.
Christopher Smith
Yes, thanks for that. Look, I mean, obviously, we like other companies in our sector are watching that closely, and we're on the ACLA board. And so I think we've seen it coming, like I would say a couple of things I would say our progress or our focus on this started probably 18 months ago when we came together as a management team, we started bringing in people who come from regulated background. So if you think about like the folks on this call, the three division presidents myself, Jeff, all of those come from FDA regulated backgrounds. I think we started to build a quality system that way. And we moved to one quality system. We took all the acquisitions and move them to one. All of our R&D projects are now under design control. So we've kind of been starting to operate believing this is coming. That being said, there's still a lot to unfold once the ruling comes out. I think there's a there's a lot of people in the industry who wonders if it's if it's constitutional. But from our perspective, we think it's probably not if it's probably wind. And it looks like even if all these things occur, companies are going to have 3 to 3.5 years. We get prepared. So we feel very confident in our ability to manage that as it comes on a look a lot will depend on what his grandfather and what what is not. But I think we feel really good about our position in the marketplace. And we think for companies like us, it could be end up becoming a competitive advantage.
Alex Nowak
All right. Thank you so much.
Operator
Our next question comes from David Westenberg with Piper Sandler. Please proceed.
David Westenberg
I think, Hey, Greg. Good job, guys. So I really like the update on the if I heard it right, you updated the long-term plan to 10% growth. Can you talk about specifically on because that's a big 150 basis point at least swing there. So what specifically is happening versus that long-term rent growth and that you feel confident that this is not just trend, this is multi-year And long term, and that's assuming I heard that correct?
Christopher Smith
Yes, you did.
I mean, Jeff, put it in there at the end of all of it is kind of like some of the best news like Raytheon, I'll say something. And then maybe I'll have Jeff comment more. But look, I think when we gave long-term guidance in April of last year, we were pretty new management team. And I think as we've come together and now have well over a year under our belts, we understand the levers to pull in the business much better. We understand the market significantly better. We undertake and stand things around revenue cycle management and accelerated growth and where the gaps are in the products. And so we guided this year for 24, 10% to 12%. But what we're seeing in that core business, just because of the market dynamics and market growth, our leadership position, the things that we can do, we feel very confident in that 10 plus number. But do you want to?
Yes.
Jeffrey Sherman
So I would add to that, we made multiple comments about adding sales force people to our team and then sales force optimization and really focused on how do we help them be more efficient. So we actually think we can get a lot of operating leverage, just new technology and back-office support for our sales people, both in our clinical team and in our ADX team. And so I think that that's another big component. We've been growing faster than the market across all modalities. We have a strong focus on NGS and are clearly seeing positive results there. So I think our view is your confidence level has increased based upon our performance in 2023 as well?
As Chris said, the team overall just getting more comfortable with our teams with our position in the market and where we're investing dollars to raise our long-term growth target to that 10% plus.
Christopher Smith
Yes, David, I'd say the other one, I mean, if you look at NGS, especially solid tumor. We're incredibly under-indexed. And you could see that business is growing rapidly and that market is still relatively penetrated but growing double digits. So I think there are a lot of factors that we feel really good about where we are from a physician perspective.
David Westenberg
Great. That's a great segue into my second one because you I think you're launching into liquid. So could we expect an accelerated time line in the liquid or like a market traction, just given what you're doing right now in hematological malignancies? And then you transfer that into solid tumor, which has been going really fast.
Let me let you obviously like what I mean by that fits in kind of the R & D group with the Shaw and under development, which are unique to anything you want to share just kind of what we're doing with liquids and some of the products that we've disclosed.
Jeffrey Sherman
Yes, David, thanks for your question. On the liquid side, we will plan to launch a CGP assay for liquid biopsy going into 2024, probably towards the second half of 2024 but will accelerate on the on the clinical side ourselves that we're looking into. But I do think there is a place for liquid fund, both the pharma and the clinical side which we'll see an acceleration in terms of penetration into that market, especially on the pharma side, in particular, because we're hearing a lot from pharma companies that they just don't have enough tissue to spend it along with all the testing they want to do. So this really gives them the opportunity to choose both liquid or solid from that perspective.
David Westenberg
Yes, you'll probably see that in Pharma in Lee, late half of the year and then moving into clinical in 2025, early cancer, right.
Operator
And great job on the quarter can be read up next, we have Puneet Souda with Leerink Partners. Please proceed.
Puneet Souda
It goes up from Chris.
Jeff, thanks for taking the questions. And I think things, Chris, I'll wrap my question into two questions sort of into one and yet obviously, again, congrats on the LRP. increase here. Maybe can you elaborate what is the clinical volume growth that we ought to think about in that sort of long term on guide, I mean, at one point, NeoGenomics' used to grow that number at 15% growth. But I know the mix has changed today. There's more NGS in here. So maybe could you elaborate on that? How should we think about the AUP and the clinical volume growth this year in 2020 for the AUPS. continued to ramp throughout the year for clinical and 23. So just wondering sort of how should we think about that for 24? Thank you.
Christopher Smith
Yes. Maybe I'll take a little bit and then throw it to Jeff. But look, the way we think about our business is really a portfolio effect. And so if you think about it. We really do. We have informatics, we have Pharma, we have clinical. And obviously, when we look at building out both this year's guidance and next is outline year's guidance we take into account all of those factors. We have not broken down specifically units are the AP. I will say though, on the AP. two things significantly driving and Jeff will give you more of a what is our mix, right? Where we're selling a lot more NGS. But the other thing is we think we have a lot of runway on revenue cycle and just the amount of when you look at this industry as a whole, I think it's willful and its ability to get paid for the work. What it's doing. And I think we're our team is really becoming masterful is identifying those levers, which is probably 15 different levers within that group.
But Jeff, do you have anything else more on?
Jeffrey Sherman
Yes, I think yes, I mean, we haven't disclosed specific and we didn't we gave original guidance, didn't disclose, you know, volume or HP. But I think as Chris said, given our given our positioning on both our clinical sales force and execution as well as our anticipated additions on the ADM side, we certainly feel good that we're going to achieve that revenue growth?
I think on the revenue per test for AE. and P. as close to, as Chris said, there's a few things driving that in the quarter or that NGS. mix. I said this last quarter is driving over 60% of the increase in AUP. So just the NGS. volume continue to accelerate is driving meaningful upside on revenue per test. And you can see that stepping up throughout the year in 2023.
And then the other factor, as Chris also said, were revenue cycle specific initiatives. The first is on just getting paid for the work. We're doing a lot of specific initiatives to drive that. We saw good improvement in that in 2023 and then there's also the pricing side where we're having some success in getting price increases as well, where that hasn't historically been. It has been a strength of ours. So again, I think the way I think about the revenue side is we have volume drivers. We have mix drivers. We have pricing drivers and we have RCM drivers and they're going to hit at different intervals and different paces throughout the year. But the overall combination of those is going to get us for our revenue growth over time.
Puneet Souda
Got a couple of guys.
Christopher Smith
Thank you. Thank you.
Operator
Okay.
The next question comes from Matt Sykes with Goldman Sachs. Please proceed and that.
Matthew Sykes
Hey, good afternoon, guys. How are you doing?
I Congrats on the quarter.
Maybe just following up on Tony's question, but focusing on the mix side of it and obviously the NGS mix you guys have talked about and that's driving a lot of that.
But I'm just wondering in terms of like as you think about the runway for mix shift, there's clearly probably customer groups where it was easier to kind of switch them into NGS from market, the NGS to them, does mix shift get harder you think over the course of this year and into 25? Or do you just see a lot of runway and lack of awareness where you're able to continue to drive that mix shift over time.
And then just my second part, just quick one for Jeff.
Just any views on the gross margin outlook for 24 within that guide?
Christopher Smith
Yes.
Thanks, Matt. Look, I think when you look at this business, one of the things that we really like as we've gotten to know the business well is that we're very under-indexed both on NGS as a total percentage of revenue for the Company as well as in solid tumor.
And do you think there's going to be some earning calls that come up in 90% of the revenue is NGS. And so I think we believe very strongly in that ability on that mix shift.
I'd say the second big one is I think you could argue this year should be better because of our increased focus going to oncology and the only community oncologists versus just the hospitals and the pathologist and expanding that sales force there and to be able to go out and spend time. And one of our lever points is that we're the market leader in heat and really using that to be a door-opener for us for solid.
But maybe I'm transitioning this business I did warn here, but maybe warn you one more maybe more because I think everything you just said, I agree 100%.
Jeffrey Sherman
I mean, we've communicated it right now. The ratio is roughly 25% of the business. I think as that ratio increases, certainly it gets marginally harder, but I wouldn't discount the fact that we are launching new products last year, it was probably midyear by the time we're starting to see some traction take place. So looking to benefit from the annualization of those new products that were launched in last year, particularly those are the MGH related. And so that's one that certainly will provide the opportunity for us. And then, as Chris said, the continued penetration in the community oncology segment, which is where we've invested a lot of incremental sales resources into is another reason why we believe we can drive growth in NGS, which will support that mix.
Yes, you can take a guess then on the margin side, you know, Matt, I would look at adjusted gross margins increasing in a range of 150 to 175 basis points over the next over the next year or 2024.
Matthew Sykes
Thanks.
Operator
I mean we have Andrew Brackmann with William Blair. Andrew, please proceed.
Andrew Brackmann
And I guess good afternoon, Chris. Thanks for taking the questions. Maybe on the inorganic front. I guess as you guys are making progress here on increasing profitability, can you just sort of talk about balancing that dynamic with your sort of appetite for adding to the bag here over time. Any considerations that we should sort of be thinking about? Thanks, Andrew. I got to tell you I missed the very first thing you said was well Okay. So inorganic growth.
Christopher Smith
Okay. Sorry, I missed.
Yes. Look, I think it's a unique scenario when a company looks at accelerating growth and how much do you put on the bottom line versus how much you invest with. We believe that this business has a very unique opportunity to grow low double digits on revenue and mid 10s plus on profitability. I think for us, our we look at where we can invest the dollars that we think are going to give a long-term ROI. So we spend a lot of time as a leadership team talking about what these initiatives are and when are we going to strategically invest in them. So for example, this year, one of the big ones is when last year a big one was expanding the clinical sales force. So we believe that you can have that balance. Like Jeff always says, it's not it's not either or it's and and I think our view is that we want to grow revenue faster gross margins, faster growth in operating profit faster. And I think we run our business to do that. So I think we feel really good about that balance. But Jeff, do you want to get from a financial perspective?
Jeffrey Sherman
Yes, I think I think the other thing that gives us confidence is just our capital structure as well and our ability and you know, to really significantly change our cash burn and actually position ourselves for actually starting to produce gas in 2025. So I think having having the clear path to being adjusted EBITDA positive for all of 23. And certainly, we expect that effort for 24. And then really it's an investment I think rigor and discipline that we have used over the last 12 months on where we're going to be investing dollars and how are we doing that in a strategic fashion over time to drive the business. And I think, as Chris said, clearly with had an ROI projects that are going to pay for themselves over time. And I just think we've had a lot more rigor and discipline in the process, which gives us confidence in the investments we've made.
Andrew Brackmann
Okay, thanks, guys.
Operator
Up next we have Mark Massaro with BTIG. Please proceed.
Mark Massaro
Emma, Chris has gone good.
Yes.
Congrats on the quarter on lots of great progress on the clinical side.
I guess my question is more on Pharma Services.
I know you know, your predecessors talked a lot about pharma services and informatics, and there is a large precision oncology company out there that's monetizing big data about it with some pretty sizable revenue. So I'm just curious like you guys are doing a great job, just growing revenue and profitability on. Maybe just give us an update on how you see the pharma services business shaping out how you can monetize some of the big data and maybe just give us a sense for how you're thinking about the growth of that business going forward.
Christopher Smith
If things look like I think when we came in, I mean, I think the first thing is we made a very conscious decision that that business had a lot of pieces to it that were not profitable. And so our focus was and we've talked about this in the whole company, but especially in pharma, let's get the house in order and let's get let's get this gross margin moving, and you could see that we've made great progress on there. I think when we think about the pharma business, so we do believe it's kind of the tip of the spear from a technology perspective because the pharma companies go well in front of clinical on new innovations and new technology. We saw that, for example, and on R&D so we believe it's a place to be. But before we can start accelerating growth, we had to get the baseline right. And that's what 23 was all about. And now you heard Jeff, one of our in the last year, we spent a lot of money and time expanding the clinical sales force. We're expanding now the pharma and the informatics sales force because we feel like there's great growth opportunities there, but we felt like we had it the revenue kind of, right, the ship first on informatics that we have significant points of data because of our patients that we test. And I think as Charles and all of the shops have been and maybe talk more about the infomatics, but I think it is as the Shaw analogy come together and kind of look at those things that we can do there is runway, but there's a lot of work to do. And I think that the company you're probably referring to. It was not our top priority, but it's becoming more of a priority. But I think for us, again, it's about the portfolio we got to be able to perform in clinical and all of the activity you want to talk more about especially informatics and the data?
Jeffrey Sherman
Yes.
I think as we look at the data that we have within the Company. One of the nice things of our NEO has is data across all of our modalities, whereas others maybe we'll happen primarily in NGS, but as we grow our NGS product portfolio, our data will also grow at the same time. So what we can get to in a couple of years, it's going to be much different than where we are today in terms of our data offerings as a whole. And on top of that, the limbs investment that we're doing, which will allow us to structure the data in the right way will also make us successful for the informatics side. So altogether, the next couple of years, we still have a long way to go there. I mean, I think we have to build into the right steps, but how we're building it is more important right now for the next year and getting it two years out as to what we can do with that data from where we are today.
Mark Massaro
Sounds good.
Operator
Congrats on the progress, and thanks for the next question comes from Mike Matson with Needham & Company.
Please proceed.
Michael Matson
And hey, guys.
Just wanted to ask one on the wind projects.
So you mentioned you could start to see some of the benefits of that in the second half so I'm just curious what those benefits could be needed, the margins per turnaround times our market share all the above?
Yes. Look, I think there's a line it's probably all the other amenities on the call as well. Melanie, do you want to take that initially?
Kendra Sweeney
And then, Jeff, maybe you could talk about financial stuff, but Melanie, so I think first and foremost, Mike, it's really around operational efficiency and productivity in the way, but I think we're going to we're expecting to see a lot of that pickup with regard to leverage there because we currently are on multiple different systems. And obviously, that causes a lot of cutting and pacing and things like that that we were hoping to eliminate. And but it's more than Charles mentioned, the ability to use our data better. It's really an overall enterprise digital architecture that we're working and wins is the start of that. But we're also leveraging various platforms for better connectivity to our patients, better connectivity to EMR and that our connectivity into our billing systems and our back end ERP. And then wind system is really the big driver for all of that for us.
Jeffrey Sherman
Jeff comments on the cost structure, and I would add one other thing as well, and they will give us just better visibility from a client service perspective on where our tests are in the process and allow for really self-service on where tests are in the process. So I think it helps our client communication and given an up-to-date on where we are with the testing process. And then we are making a capital investment that will have some operating expenses. And with that over the next two years. So we have factored in those operating expenses into our guidance. And again, I think this is one of those investments that is going to pay long-term dividends. We'll start seeing it on the gross margin side, as Melanie noted, from an efficiency standpoint. And I think over time, it could have upside benefits as well as we improve our client service.
Christopher Smith
Yes, maybe Warren, you can talk to this. But look, we're spending probably as much on the customer experience component as we are on the lands as far as digitization. And it's interesting I think in this business for us to ultimately get to where we want to go. We got to win on customer experience and we got to win on the ability to serve the patient.
And I think you want to just give what we're doing on the on the digitization and the platform, how did that sort of tie to less bullish on what Manny said in terms of lenders being this sort of foundational element for us despite a digital transformation, this is providing the building blocks for us. And additionally, we're investing in in a what we're calling a digital front, water to our customers, which will be the platform for self-service in Liberia platform to allow customers to track the status of testing in real time, something that is missing today and ultimately allows increased stickiness to those customers, which is an important element from a Protect, Expand and acquire our commercial strategy.
So something else that we look to expect to see value in the latter part of 2024 time.
Michael Matson
Great.
Thanks.
Operator
Okay.
Your next question comes from Mason Carrico with Stephens Inc., please proceed.
Mason Carrico
Imation. Hey, guys, thanks for the question here. So for the ADX business, you had called out, you know, we've framed it up in previous quarters. These the headwinds that you'd be facing rationalizing some testing sites, low margin business as well as you're facing some macro conditions. So I guess the question is, could you kind of break out I guess how much of an impact each of those two buckets have. And as we look ahead into this year, when do you think we start to lap kind of rationalizing that, that low margin business going forward? And really how are you thinking about accelerating growth in this business this year?
Christopher Smith
Yes.
Why don't I take it upfront and then Vishal, you can pick it up I mean, we made that decision, but those contracts took some time. So I think you'll start to see on that piece start to kick in probably in the second half of the year. We haven't broken out where the impact is, but I think even more importantly, we saw maybe talk about strategically all the things that your team is doing in other modalities just NGS and why that's still relatively new and why give confidence in the acceleration of the growth?
Yes.
Jeffrey Sherman
If you look at what pharma is coming up to us for right. We are still investing heavily in modalities. What I call our traditional modalities, like I see that's not going anywhere from an oncology pharma pharma perspective. That's our bread and butter but as we launch new products in the NGS side in particular, and we're seeing that trend. And as Chris mentioned, usually what we see in pharma is a movement in moving towards technologies three to five years ahead of clinical. We're already seeing that trend moving from FISH as an example to NGS, but we didn't have the right products until we launched them last year. So we're starting to see that movement into more and more usage cases and NGOs, which also have higher AUPs for that matter. So we're also investing in our BD team. We invested a lot in the clinical side from a sales perspective. We're investing now on the ABX side and rebuilding WPD team and making sure that we have the tools and expertise that will allow us to grow in 2020 for Manitoba liquid biopsy because that's going to be a yes, liquid biopsy is something that we get approached by from pharma. All the time is we do a lot of tissue testing right now, which is what we've built our business on. But on a liquid side, especially for solid tumor and as Chris mentioned earlier, we're very much underpenetrated on the solid tumor side because we didn't have the right product mix. And now we're launching our liquid biopsy CGP. which will allow us to make that offering to pharma where they don't have to issue to give to us for samples that have been sitting around three, five, 10 years old from clinical trials that have been completed. So we're able to go back and actually trying to get some of that business with our new offerings that we're planning to this year.
Mason Carrico
That's helpful. Thanks, guys.
Operator
You said up next we have Andrew Cooper with Raymond James.
Andrew Cooper
Please proceed, and-or.
Hey, guys. Thanks for your time.
And maybe just first focusing on price for a little bit here or AUP, I should say.
Can you just give a sense for how much more runway is there in that 40% of the increase that's come from RCM and pricer.
Maybe asked another way, what can we expect that to contribute on a yearly basis? And once the mix is stabilized or in the scenario where kind of on an apples to apples basis, we think about mix being stabilized?
Christopher Smith
Yes.
Our current product without I mean, without kind of getting into granular specifics, we said earlier, NGS was driving about 60%. We are still seeing mix improvement and other aspects of the business, which is driving a component of AUP or revenue per test is well, I think in terms of the initiatives. We think pricing is a multiyear opportunity for us. And we also think the revenue cycle initiatives that are just increasing the amounts where we're getting paid for what we expect to be paid as a multiyear opportunity. So I think we have excuse me, we have, yes, multiple year opportunity to continue to close the gap between what we're expected to be paid and what we are being paid. And again, as I've said in prior calls, it is multifaceted. I mean, there are similar clearly identifiable areas of prior authorizations or medical necessity or medical records that we're dealing with. And then there's the payer policy aspects, which are a little bit harder, particularly with the larger panel tests. And so as some of the biomarker legislation gets improved, gets approved and states over time. That will also help close the gap for per-click for a specific test where we may not be getting reimbursed today or we're not being reimbursed fully. So again, I think there's a lot of different areas that we've identified that we have our team is working on to close that gap and see a multiyear runway.
Okay, great. And then maybe just one more on the LRP update, obviously great to see. Maybe just any context for what that does or doesn't do to the EBITDA margin expectations that you laid out back in April and whether that number can be a little bit higher for 26 or maybe how we think about even beyond that time frame where adjusted EBITDA margins might go in the event of kind of that a little bit faster revenue growth?
Jeffrey Sherman
Yes.
So what we said almost a year ago was we expected EBITDA margins to be in the mid to high 10s by 2027, obviously going towards the higher end of going to above the high end of that range. I think will help accelerate that. I don't know that it changes meaningfully meaningfully when we achieve that mid to high 10s, but it could it could pull forward. I think a period of time. And it also just our ability to generate operating leverage off that revenue growth, I think will help the adjusted EBIT adjusted EBITDA growth over time as well.
We initially said, we expected to be adjusted EBITDA positive in 2024. Obviously, we achieved that in 2023. So again, almost probably pulling forward somewhat a year on that front. So I think as we look at our ability to generate operating leverage and revenue growth, it clearly will benefit in our long-range plan from from an adjusted EBITDA and adjusted gross margin basis?
Christopher Smith
Yes, Andrew, I think as we like I talked about earlier, we've seen the levers and the ability to grow. We pull multiple ones to get to leverage and pull through on this business. We saw this year the significant amount of our growth dropping to the bottom line. And so I think that we that's enhanced kind of our confidence in some of these things. Now we still have things like Value Capture program where we want to go get anywhere from 10 to $15 million a year. We want to improve gross margins and get gross margin leverage by 100 basis points every half. I mean, all those are in fundamental, but I think now like when you think about mentality on her side on the operations. She now has the detailed plans in place and we can see that. So I think it just has given us a greater sense of confidence in our ability to deliver.
Operator
And I'll stop there thinking as the next question comes from Derik De Bruin with Bank of America. Derek, please proceed.
Derik De Bruin
I'd say good afternoon.
You have John Tim for Derek here on. I'm going to trying to ask this one more time. Great tech, great to hear that 2024 guide and update on the long-term guide here, if any, any other details that you could share on what the split is going to be between the clinical services and advanced diagnostics? I think you previously talked about how the clinical services would be a bigger portion of the sales. But some Yes.
Would be helpful to know any additional thoughts that you might have.
Jeffrey Sherman
Yes, we have, as Chris said, earlier, we really view it as an overall portfolio and we guide on a portfolio basis. So we haven't we haven't broken out that individually. We do expect both of them to grow in the year. We just haven't broken out and don't plan on breaking out in our guidance data and answers.
But I did want to ask about the patent infringement ruling against radar that was in December on any expectations as to I know it's not included in the guidance, so not expecting any financial impact there on the top line or the bottom line, but and any expectations in terms of when you think this might get resolved or some like if if it comes to getting rid of it, what what impact that could have on the bottom line.
Christopher Smith
Yes.
I'm going to let Ali address live questions, but two quick points. So our guide does not include any radar in it, number one, but number two, we do believe MRD's import. So I'll just put that and then I'll throw to Ally deliver kind of walk through how the legal side is churn.
Kendra Sweeney
We don't have any visibility to the timing. What we know is that we've requested expedited and expedited hearing, and we've been granted that Expedition and the hearing was, as Chris said, on March, is scheduled for March 29th. And so various factors kind of contribute to the US Federal Circuit Court of Appeals timing on a decision, including whether or not the decision is presidential whether there's a dispensing opinion on the panel of three judges. We have also may I have motion for day pending the appeal and that motion was fully briefed. Like Chris said, as of today. And so timing on that is within a couple of weeks from now. That's sort of what we know in terms of timing on the appeal as far as the infringement of matters in District Court. Those are ongoing and they are in the discovery stage. The North Carolina case has been set for trial in March of 2025 and the Delaware case has been set for trial in October of 2020.
Derik De Bruin
Appreciate all the color, and thank you.
Operator
(Operator Instructions)
Tejas Savant, Morgan Stanley. Please proceed.
Tejas Savant
Hey, guys. Good evening charges. I just wanted to push on that similar line of questioning there curious, Chris, in terms of the comments you made in your prepared remarks about your options available, you're right, can you give us a sense for how quickly you could pivot to perhaps a new version of radar as a workaround for the litigation. And that's something we've seen other peers in the industry, a resort to in relatively short order. And I was curious if that was an option that you are actively exploring at the moment as well?
Christopher Smith
Yes, they are saying, look, I would say that we're actively exploring all options around MRD with the first situation that we believe vigorously about our position from a legal. So I mean, obviously, that's where we're going. That being said, we have been in development for additional MRD products yield beginning probably 12 months before the seven it even started. So I would say that that's been ongoing. And I would say with us, we believe like a lot of the products that we're trying to bring to market. We think there's even credit will need from a patient perspective, especially for products that continue to improve sensitivity. And I would say that we saw the team in R&D operate with an incredible sense of urgency, but it's not just from a technology perspective, but it's from an IP perspective that they're looking at it from a commercialization perspective, but we haven't given any time lines just that we're operating with a sense of urgency.
Tejas Savant
Got it. Fair enough. And then just one quick follow-up. For me on the biomarker Bill, can you lay out, Chris, what proportion of your tests you think could benefit from incremental commercial payer coverage you're given even the states that have currently passed the legislation.
Jeffrey Sherman
In fact, I don't think it's very exciting where we believe the value will come is on any NGS test, which is a panel of 50 or larger G that where today reimbursement from a third party payer perspective is quite minimal. So that's where we see the benefit in terms of I think what portion of our business that is, et cetera, say, we actually haven't commented on yet.
Christopher Smith
And one of the things we will talk more about some of the strategic priorities in 24 when we get together after Q1, but one of them is to launch our new comprehensive 2.0, which is a significant larger panel. And so obviously, that will be an important tool for us Got it. That's helpful.
Tejas Savant
Appreciate the time, guys.
Operator
Your next question comes from Dan Brennan with PD. Cowan.
Please proceed again.
Daniel Brennan
Great.
Thanks for taking an interest or good afternoon, excuse me that back on maybe just a question back to the liquid offering. Any color on what type of reimbursement we can expect and how should we think about framing the opportunity from like a revenue potential.
Perfect.
Christopher Smith
And I'll take that talk a little bit about was fire market.
And yes, so the good news here is that I mean, there is a reimbursement that's established just similar to what you see with the tissue tests. And we expect something from a reimbursement perspective, at least for Medicare would be in a similar type of dollar amount as what we see on the tissue side of things with potential for higher, depending on what kind of status we get. But the reality is that we're also seeing NCCN Guidelines get updated at the same time. And you saw that on the lung space in late 2023, where it changed from tissue not being available, especially in lung cancer too of tissue or liquid being at the same time or in with the independent of each other. So I think you're seeing the guidelines are changing and that also helps with the whole reimbursement story and the clinical adoption, of course, especially in the community-based setting. So I think having a good offering that is widespread, it's going to be critical for us for commercial growth.
Daniel Brennan
Great.
And then maybe just sticking on NGS clinical market volumes by growing north of 30. Just wondering for your volume growth, how much we're thinking about like the market growth versus converting your customers from, say, legacy test to NGS. Could you just give us a sense of like maybe I know you're not going to distill the exact number for each, but I'm just wondering how far along your customers are and is that is that a big driver for you that you're kind of bringing forward some of these more community hospitals and doctors towards NGS?
Christopher Smith
Thank you.
Yes, I'll let Warren take it. But remember, we have three distinct strategies that we focus on and really from a field compensation perspective, they're incentivized on home. Do you want to talk a little bit about what's going on?
Yes.
Jeffrey Sherman
I think there's a couple of dynamics that are taking place. And certainly we've got customers that may not be using NGS today use these different modalities that we moving into NGS. That's the first kind of motion. Second is we have a number of smaller two single gene and smaller panels that are available and nice moving customers to larger panels. And then obviously, we have the dynamic of customers which haven't been near our customers in the past that are now we now address is particularly relevant in the community oncology setting. So those are kind of at least three kind of areas where we see sort of growth from an NGL perspective, it really plays into our commercial strategy, which again, it's around protecting existing customers, but secondly, expanding share of wallet where we drive various sort of gap analysis strategy to identify which customers to target with a different NGS offerings, which could be one of those three, not meaning NGS moving to NGA. So using a single small airlines for large panel.
Christopher Smith
And then thirdly, as you acquire elements of our commercial strategy, which is gaining new customers, which haven't been supporters of NEO in the past, and the third one is obviously the toughest getting new customers, but by far the biggest opportunity where we just hadn't been spending time to starting about 12 months ago, which is those community oncologists.
Daniel Brennan
Great. Thank you.
Thank you.
Operator
We have reached the end of the question and answer session, and I will now turn the call over to Chris Smith for closing remarks.
Christopher Smith
Okay. Thank you. Mike, I just appreciate everybody taking the time to get together and get some more color on what's going on inside the business. We kind of talk about the state side of the business. I think we feel incredibly good about where the businesses and where the business is heading. I think we're ahead of where we thought the early plans were being and I think as we continue to go for each quarter, we'll tried to give you more insight into the business and how we continue to build this long-term sustainable growth. Again, thanks, for your time today and take care.
Operator
This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
