Neogenomics Inc (NEO) Q3 2022 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the NeoGenomics Third Quarter 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mr. Chris Smith, CEO of NeoGenomics. Chris, the floor is yours.

Thanks, Jenny, and good morning, everyone. I’d like to welcome you to NeoGenomics’ third quarter 2022 conference call. Joining me for this call from our Fort Myers headquarters are Bill Bonello, our Chief Financial Officer; Vishal Sikri, President of our Pharma Services Division and Inivata; Dr. Shashi Kulkarni, President of Lab Operations and our Chief Scientific Officer. Before we begin our prepared remarks, Bill will discuss the forward-looking statements and non-GAAP measures used on this call. Bill?

This conference call includes forward-looking statements about our 2022 initiatives, 2022 financial outlook, growth opportunities, and anticipated operating results and performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these risk factors appears under the heading Forward-Looking Statements in the press release we issued this morning and in the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2021, that is filed with the Securities and Exchange Commission. The forward-looking statements made during this call speak only as of the original date of the call and we undertake no obligation to update or revise any of these statements. In addition, during the conference 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 to be an alternative to financial measures required by GAAP, should not be considered to be 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 morning. Before turning the call back to Chris, I want to let everyone know that a copy of our earnings presentation is available on the Investor Relations section of our website. We also want to let everyone know that we are going to limit the number of questions to one per person in order to give more people a chance to ask questions within the one hour that has been allotted for this call.

Thank you, Bill. As you look at the first slide, one thing you'll begin to see in all of our presentations is that we'll talk directly about the mission and the number of patients that we're able to impact on a daily basis. And I'm really excited about joining you for my first earnings call with this great team at NeoGenomics. Today's call, I will begin by discussing our recent performance. Bill will then review our third quarter financials in detail before turning it back to me to provide some initial observations for my first three months with the company on the current state of the business and highlight some of the actions we're already taking to drive improvements. We will then have time at the end for questions and answers. However, before we jump into our third quarter performance, I want to talk a little bit about our team. As most of you know, at the end of the quarter on September 28th, Fort Myers, Florida, where our corporate headquarters and one of our testing labs is located, was severely impacted by Hurricane Ian, a strong category four storm. While I was only a few weeks into my role here at Neo, I was able to be part of a team from a response perspective. I couldn't be more proud of how we reacted; our team was prepared and responded as well as I could have hoped, coming together to ensure that patient care disruption was very minimal. But they were also there for each other. Some of our employees were significantly affected by the storm. One of the reasons I was so excited to join Neo was the dedication to the mission of serving patients and the culture of NeoGenomics that I've heard so much about. The team's response just reinforced my enthusiasm about the passion towards patient care and the great opportunity we have ahead of us. I want to thank everyone for their dedication during such a trying time. Now let's move on to the third quarter performance. Third quarter results are encouraging: revenue growth increased 6%, pricing was strong, and adjusted gross margin improved sequentially while adjusted EBITDA loss declined for the second quarter in a row. We also saw meaningful improvements in turnaround time, a key indicator in our markets. While we have a lot of room for improvement, we are definitely moving in the right direction. We have seen consistent sequential improvement in all key categories throughout the year. As I mentioned, revenue increased 6% year-on-year to $129 million, driven by improvements in revenue per test in our clinical business and high-teens growth in our pharma service business. I'm especially pleased to report that we've already performed over 800,000 tests and helped approximately 450,000 patients year-to-date. As we move to the individual divisions, clinical service revenue increased 4%. Revenue per test increased 5% and volume declined 1%. We did see an uptick in volume at the end of the quarter, which continued into October despite the impact from Hurricane Ian. Importantly, we saw better growth in our high-margin modalities including NGS. And as a reminder, as more and more customers move from multiple single-gene tests to NGS panels, we will see a decline in volume but a positive impact on our revenue. Revenue per test increased year-over-year for the sixth consecutive quarter. This improvement has been driven by our strategic focus on higher value tests and improvements in reimbursement and collections. While we are encouraged about the opportunities for revenue per test, I would remind everyone that it's not unusual to see volatility in this metric from quarter to quarter. Pharma services, which is our business that focuses on pharmaceutical companies and our partners, saw revenue grow 18%, driven by strong NGS volume from our large pharma partners. While we're encouraged by this improvement, pharma services is still not performing at the profit level we expect, and we are pursuing initiatives to improve profitability and drive innovation in this business. I will discuss these initiatives in greater detail later in the presentation. I will now turn the call over to Bill who will review third quarter financials in greater detail.

Thank you, Chris. Chris focused on the revenue results; I will highlight the rest of the income statement. GAAP gross margin was 38%, adjusted gross margin, which excludes Nevada related non-cash amortization expense, was 41.7%. Adjusted gross margin declined 120 basis points from the third quarter of last year primarily due to wage inflation, higher supply costs, and increasing logistics costs. Adjusted gross margin improved 270 basis points sequentially, driven by the combination of increases in clinical revenue per test and decreases in clinical cost per test, along with leverage on increased pharma services revenue. We're encouraged by the steady sequential improvement in gross margin and see opportunity for continued improvement over time. In addition to the revenue and cost saving opportunities that we've identified through Project Catalyst, we also expect to benefit from improvements in revenue cycle management and continue to make a shift to more profitable offerings. A strategic repositioning of our pharma services business and the opportunity for radar revenue. Sales and marketing expense increased $1 million, or 7% year-over-year to $17 million, primarily due to the expansion of our precision medicine sales team. G&A expense increased $400,000 or 1% year-over-year to $64 million, primarily due to inflation. The sequential increase in G&A expense is primarily related to nonrecurring costs associated with Project Catalyst. Reducing G&A expense is a major area of focus for the company. We've already initiated a number of cost-saving programs and expect to take additional actions in the months to come. Adjusted EBITDA loss was $12 million for the quarter, which is a $5 million improvement for Q2, but an $8 million greater loss than Q3 of last year. Turning to the balance sheet, we exited quarter three with $444 million in cash and marketable securities. DSOs were flat sequentially at 80 days, consistent with our normalized range. I would like to spend a little time discussing our outlook for the fourth quarter. As a reminder, we went through our 2022 revenue and EBITDA guidance in March in conjunction with the departure of our previous CEO. We did provide some guardrails on our Q1 and Q2 calls, and we'll do so again today. We expect revenue to be flat to up modestly on a sequential basis in Q4, and up modestly year-over-year for both the quarter and the full year. We expect adjusted EBITDA to improve modestly from Q3 levels. We continue to view 2022 as a rebuilding year, where our primary focus is to improve our current product offering, drive operational efficiency, generate clinical evidence in supportive radar, and lay a foundation for long-term sustainable, profitable growth. We expect to incur certain one-time charges as we make investments to drive improvements in both growth and profitability longer term. We intend to reinstate annual guidance and provide a more detailed review of our strategy and growth outlook when we report Q4 earnings in February. I will now turn the call back to Chris.

Thanks, Bill. We'll turn to Slide 13. Since joining the company in mid-August, I've spent the past two and a half months meeting with customers, patients, and teammates both in the field and in our labs to gain a deeper understanding of our business. After two and a half months, I truly believe that NeoGenomics can be the leading provider of cancer testing information and decision support in oncology testing. I especially see this in community settings where the vast majority of care occurs and where we already are the market leader. We have a strong foundation in the market having established deep and long-standing relationships with thousands of community pathologists and oncologists, many of whom send us the vast majority of their testing. The breadth of our test menu is still a competitive advantage, even with the proliferation of large NGS panels, but the connection with our customers runs much deeper than our test offering. These physicians see Neo as a true partner in delivering care to their patients. Our teammates are deeply committed to our mission of improving patient care, and that commitment matters to our customers. We've also built a solid foundation to serve biopharma companies with offerings that cover the continuum of pharma activity from discovery and translational medicine all the way through commercialization. With the expansion of our precision oncology, decision support, and informatics capabilities, we're very well positioned for the next phase in our journey. That said, there is no doubt that we need to significantly improve execution. I believe that we've had some of the elements of an effective strategy in place for years, but we simply have not executed on those initiatives. From a customer-facing standpoint, we need to enhance the customer experience and win on service. This includes reducing turnaround time, making it easier to do business with us, expanding and optimizing our field and sales organization, while improving our product offering. I'm confident that when we do these things, we'll start to accelerate growth, increase our market share, increase our volume growth, and ultimately improve profitability. From a financial perspective, we need to increase the productivity and efficiency of our labs; we need to begin to tightly manage our SG&A spend and focus investment on the chosen few and not try to be all things to all people. Finally, we need to get paid for the work that we're doing, which means that we need to significantly increase our focus on revenue cycle management. I spent the first 60 to 90 days learning the business, including our strengths and areas where we need improvement, and over the next 60 to 90 days with the team we will finalize our strategic direction for the business going forward. In the short time that I've been with the company, several people, including teammates and investors, have asked whether we focus on revenue growth in lieu of profits, or sacrifice growth to drive profitability. Candidly, I believe we need to and that we can do both. From the get-go, we will target building sustainable long-term profitable growth. As we do this, we will balance our focus between efforts to drive operational efficiency and investments to drive innovation and growth. We will set clear priorities about which opportunities to pursue and, importantly, not to pursue, and then ultimately, we will focus the entire organization on execution. Moving to Slide 5, while we need to execute better, we are pointed in the right direction with Project Catalyst, which is really all about execution and driving efficiency. This program has been a framework for identifying, prioritizing, and executing operational improvements and will become the foundation for our annual value capture movement going forward. Let me tell you about some of the actions that we're taking as part of Project Catalyst to improve customer experience, accelerate growth, and drive profit. One of the key areas of focus has been on lab optimization. We have deployed deep neural network (DNN) technology to automate cytogenetics analysis with over 40% efficiency gains. We have also deployed automation platforms for fish and molecular that will deliver major improvements in lab throughput. We're developing a digital pathology solution for NGS that will improve specimen flow and improve turnaround time. We are also working to rationalize our lab footprint to enhance workflow, achieve economies of scale, and create testing centers of excellence. We've already begun to see improvements in both turnaround time and cost per test throughout the quarter as these initiatives are taking hold, but there's definitely still opportunity for improvement. As part of the competitive growth pillar, we have established an enhanced revenue cycle management program to further improve revenue per test, improve billing practices, and enhance strategic reimbursement. Revenue cycle management will be a focus area in Q4 and a top priority in 2023. We're also continuing with efforts to improve both our product mix and our client experience. We're currently validating an improved NGS panel that will cover approximately 500 genes, include both DNA and RNA, and report MSI, TMB, and CNVs. We expect this new assay to have significantly better turnaround time than our current panels. We have additional initiatives underway in all the pillars and we will update you on these activities as they continue to occur and then more around our strategic direction on our Q4 earnings call next year. Moving to Slide 16, I want to spend a minute on radar. I'm also personally very excited about the prospects of radar, our proprietary assay for the detection of MRD and recurrence, and want to talk just a bit about our plans to commercialize this test. As we noted in our press release on October 28th, we were informed by MolDx that additional clinical evidence is needed in order to secure Medicare coverage for radar for colorectal cancer. As a result of our discussions with MolDx, we decided to initiate a multi-pronged approach in launching radar. First, we will work with MolDx and begin additional data collections for colorectal cancer. Second, because of the strength of our published clinical data in breast cancer, we have decided to accelerate our commercial launch of radar for breast cancer into Q1 of next year alongside the launch of colorectal cancer. We already have a body of published clinical data including a peer-reviewed study published in the Journal of Clinical Oncology and presented during the plenary session at ASCO this summer. Our initial focus will be to continue to gather clinical data, to gain early adopter experience, and generate evidence to support both reimbursement and adoption. Our managed care and field organization team will work to secure payment from commercial payers and private patients while we continue to work closely with Medicare and other payers to gain coverage. While we were disappointed in the decision from MolDx, we remain confident in the assay's performance. We will expand our clinical research studies for colorectal as well as other cancers and are incredibly confident in our ability to secure reimbursement from Medicare and other payers. But as a reminder, as we previously disclosed in these calls, we do not anticipate generating any meaningful clinical revenue from radar until at least 2024. As we move to Slide 20, I want to talk about reimagining our pharma service business. We are repositioning our pharma service business first to improve profitability and drive innovation, and then to accelerate growth. Over the past couple of years, we have focused too heavily on bookings at the expense of being selective about the types of projects that we perform and the profitability of the business. This transition is more about discipline than it is about capabilities. We have most of the capabilities that we need to deliver high-value projects. That said, we need to sacrifice some near-term revenue growth as we work to improve our mix of business and enhance innovation partnerships with our pharma partners. We expect our pharma service business to be an important engine for ongoing innovation for the entire company. Under Shashi and Vishal's leadership, we're building a product roadmap that will increase our presence in precision oncology and afford us the opportunity to work closely with our clinical partners to enhance patient care in the community setting. Importantly, we will be strategic in our approach to innovation, focusing our investments only on the chosen few projects that have high potential to drive significant improvement in patient care. We will also be mindful of the return on these investments, consistent with our strategy of pursuing profitable growth. We expect that these initiatives will have a meaningful impact on both revenue growth and profitability over time. While we do expect to drive improvements in margin, we may choose to reinvest some of these gains for future growth of the company. In summary, we are pleased with the progress that we've made this quarter and are confident that we're starting to move the company in the right direction. We still have a lot of heavy lifting in front of us, and we acknowledge that some of the improvements will take time, but we are laying a solid foundation. We look forward to providing more detailed plans when we report our fourth quarter earnings next year.

At this point, we'd like to open the call for questions. Incidentally, if you are listening to this conference call via webcast only and would like to submit a question, please feel free to email us at [email protected] during the Q&A session, and we will address your question at the end if the subject matter hasn't already been addressed by our call and listeners. As mentioned at the beginning of this call, we would like to ask each person to limit their questions to one, so that we may hear from everyone and still keep within the hour allotted for this call. Operator, you may now open up the call for questions.

Your first question is coming from Alex Nowak of Craig-Hallum Capital Group.

Chris, great to hear from you for the first time, thank you. I’m looking forward to working with you and have a lot of questions to ask. Maybe just one from me: could you expand on some of the internal changes you're making at Neo to the sales force? Lately, there's been one team calling on pathologists, another team was ramping late last year to call on oncologists for the Precision Medicine function. Now that plan has been halted; there really hasn't been a hunter and gatherer structure at Neo either. So how are you thinking about the sales force now and also going after the four operating units that you outlined on page 13?

Look, I think ultimately in our business, our field organization is one of our greatest assets. As you probably know, we have these deep relationships with pathologists that are key to our operations. But as we introduced radar, and with the industry's pivot towards more precision medicine, a lot of that business has moved to oncologists. So the strategy to hire a separate sales force to call on oncologists was a great idea. I will say the one place that we have changed is that we now have one leader over all of sales to our clinical customers. So we will not have two sales leaders running it through one leadership team, but we will have separate folks calling on different teams. That being said, I think we've probably underestimated the breadth of our menu and the impact it can have on oncologists as well. So that historically wasn't a call point. We think we're going to get more pull-through from that group, not just from the radar product or NGS. So you'll see now more of a partnership in the marketplace with our two reps working hand in hand, trying to provide the best possible coverage and care. I hope that answers your question.

It does. Thanks for the update.

Your next question is coming from Andrew Brackmann of William Blair.

Obviously, you're seeing continued sequential improvement throughout the year. Recognizing where we are in the calendar, can you give us some major building blocks you're thinking about as we fine-tune our models for next year?

Yes, look, I think we've shared some of those in the call, but I think the way you should think about it is that one slide. It's about driving customer engagement and improving customer experience, and then driving operating profit. I believe we did a great job in the middle of this year of rolling out Project Catalyst, which is really about driving efficiencies. I will also highlight one new initiative, which has already gained some traction even in the short time I've been here: revenue cycle management. You can expect a lot of lift there because, candidly, in our business, we're not getting appropriately compensated for all the work that we do. I think creating a focus to excel in this area will lead to more cohesive and broader sales reach next year. I believe that’s one area where we can do much better: optimizing the field organization. We made a personnel change there, and I think that's going to be positive for the company going forward. The next focus is around enterprise operations, where we think we can get significant improvements in lab margins. This includes optimizing our lab footprint and doing what we do better every single day. Finally, we need to prioritize new product innovation. Radar will be a significant product for us, and there are many other innovations in the pipeline. We plan to share further details in Q4 around our strategic plan, fielding a comprehensive roadmap to where we are headed.

Your next question is coming from Matt Sykes of Goldman Sachs.

This is Dave on for Matt. Chris, congrats on your strong start at Neo. Can you tell us more about RaDaR? How many indications do you expect to be applicable in the next two to five years? Of the more than 125 pharma partners you currently have, what percent do you expect to use RaDaR eventually?

RaDaR is one of our most exciting prospects. Looking at the company's horizon for the next three to five years and where cancer care is headed, I believe it is set to be one of the major innovators. We have Vishal with us this morning who's deeply involved with this every day, including in the pharma side. Vishal, do you want to provide some additional insights?

Yes, thank you. If we look at the indications that we already have publications on, they are in breast cancer, head and neck cancer, and a little bit in immuno-oncology and bladder cancer. We're going to expand on those indications and advance those as quickly as possible. We're also seeing increased interest from pharma in additional indications, such as pancreatic and ovarian cancers, and we're building that evidence now. In the coming years, we anticipate a growing interest in RaDaR from our existing customer base after our ASCO plenary presentation. We've integrated our pharma and the Neo teams together, which has improved visibility into RaDaR. We expect to see significant interest in this throughout 2023.

Your next question is coming from Puneet Souda of SVB Securities.

NGS is obviously an important growth driver for you. The conversion towards molecular testing is happening across the company, especially in oncology. Can you remind us what growth you saw there in the quarter, and what NGS growth is baked into the guidance? Additionally, regarding MRD spending, could you characterize for us the level of moderation relative to before? How should we think about this area moving forward?

That's a lot in your question, so let me try to break it apart. Starting with the NGS side: we're really excited about our performance in molecular. We had incredibly strong double-digit growth in molecular and even stronger performance in NGS for the quarter. This is largely due to our successful integration of the NGS offering into both sales forces. You'll see growth in revenue as we move from multiple single-gene tests to NGS panels. I would tell you that every quarter, I will keep an eye on this metric because it’s crucial for our cross-selling opportunities. Regarding spending: it's essential for us to achieve balance here. The antibody and related business pursued aggressive innovation spending without integrating that company properly. While we may have under-invested in R&D and other critical areas, it's about pacing: investing smartly where it matters long-term as we pursue sustainable, profitable growth.

Your next question is coming from Andrew Cooper of Raymond James.

Can you provide a bit more detail regarding validating the broader NGS panels? Also, what do the expected revenue implications look like, particularly with the button-up pharma strategy? Can you size the impact of prioritizing profitable projects?

I appreciate your inquiries, so let’s tackle them separately. On NGS, I’ll pass that to Shashi, who leads that area.

Yes, to provide our current offerings, we will release innovative assays covering both DNA and RNA for comprehensive genomic profiling. We’ve also been assessing whole exome and transcriptome assays as well as opportunities in liquid biopsy. We plan to bring these products to market in the next 18 months with substantial customer demand already emerging.

Exactly. We believe that RaDaR positions us uniquely in the market. Using existing components enhances our ability to enter wider clinical settings. Moving to the pharma piece, I’ll turn this over to Vishal.

Historically, we’ve accepted projects based on volume without prioritizing profitability. Moving forward, we’ll be more strategic about the projects we accept, ensuring they add long-term value. While we’ll still manage bookings, we’ll put more emphasis on profitability, particularly focusing on those projects that align with our core competencies.

Your next question is coming from Derik de Bruin of Bank of America.

This is John on for Derik. If I could probe deeper into the NGS winds and overall volume trends, should we expect volume to taper down in the coming quarters? How should we assess ASP stability looking ahead? Regarding your pipeline and prioritizing profitability—what should we expect from OpEx as we go deeper into this?

Let’s tackle OpEx first – we won’t provide guidance until next year. However, believe we can remain within the guardrails Bill established to ensure we’re on track. When we pivot to NGS, it’s an interesting transition. It’s paramount to sustain our growth as we optimize our sales organization to articulate the value of NGS. I expect our focus to produce gradual improvements in both volume and pricing as we revisit our strategies.

Your next question is coming from Mark Massaro of BTIG.

Hey, thanks for taking my question. Congrats, Chris, on your start at NeoGenomics. I wanted to understand your radar MRD strategy better. You mentioned launching CRC and breast in Q1 of 2023. I know that in your release you mentioned that MolDx sought a direct comparison with other MRD tests. Did you submit a full clinical study earlier? Are you pursuing a head-to-head with Natera and Guardant, or going the route of full clinical studies? Additionally, regarding volumes despite not recognizing Medicare revenue, how might this impact ASPs?

Yes, that’s an excellent question. This was rooted in the clarity of our data around breast. Our original intent was to go after colorectal, but that's where we lacked adequate data. Hence, we opted to drive commercial interest with early adopters while we pursue coverage discussions behind the scenes. For the second query, Vishal, do you want to cover that?

Yes, we have access to both paths: a head-to-head or a larger clinical study. Discussions with MolDx are ongoing to clarify what’s feasible. While we thought we submitted sufficient data, we are working on clarifying their expectations as we replenish our sample library.

Exactly. We have a lot of strong data for our breast product, and our goal is to highlight its unique capabilities as we build momentum in the market while seeking reimbursement.

Your next question is coming from Mason Carrico of Stephens Incorporated.

Looking at volume growth in September and October, could you provide further insights there—either qualitatively or quantitatively? How do these compare in early Q4 relative to Q3?

We typically avoid sharing month-to-month specifics, but it’s notable that our lab was shut down for several days due to the hurricane. Seeing stable volume growth despite that is encouraging. However, moving forward, we intend to encourage ongoing improvement in service and turnaround times, which is essential for sustained growth.

Your next question is coming from David Westenberg of Piper Sandler.

This is John on for Dave. Thanks for the good quarter. Historically, NeoGenomics has maintained a low R&D spend. How should we consider R&D spending over the next five years? Will this be more opportunistic, like with Nevada, or is it part of a new structure?

When we provide guidance in our Q4 earnings, I think we’ll clarify this. Much of our past R&D investment has not focused on future innovation. The key is reallocating existing resources effectively. Balancing short-term cost with long-term payoff is essential to our strategy as we integrate with existing operations.

Your next question is coming from Tejas Savant of Morgan Stanley.

A question around RaDaR—did I hear right that you need clinical utility evidence for Medicare? Is this a shift in standards from MolDx? Could you clarify where you see the raft of required studies for the MRD? Second, on your backlog, you noted a skew towards larger clinical stage work. Will this remain prioritized, or are you shifting focus to profitability?

Yes, you're correct. We’re seeing an evolving stance from MolDx regarding evidence requirements. Our existing competitors are accepted without the same scrutiny as we face. We’ve integrated significant measures to ensure we have the science to support our outcome, thus the creation of clinical utility studies, focusing on how RaDaR is changed in detection sooner than current standards of care. Regarding pharma strategy, we do need to remain selective about the projects we take, making decisions based not simply on immediate bookings but long-term strategic alignment.

Integrating both processes allows us to better confront market demands while tracking profitability to ensure we grow responsibly without sacrificing long-term goals.

Your next question is coming from Dan Brennan of Cowen.

Wondering about the long-term view for your core clinical business and the path back to mid-single, high-single-digit growth. How much of this improvement depends on your control over operations versus dealing with rising competitive pressure?

I believe everything is within our control. We must enhance what we do to maintain customer loyalty while also being vigilant toward competition. The market landscape has changed dramatically over the past years. We’re not just working on retaining our current customer base, but also on growing market share, and I see a big shift in the organization that reflects that will to win.

That's great to hear. Just to clarify on key projects in NGS—do you feel there's a necessity for increased investment to compete, or are you confident with your innovations as they stand?

We’re set to release some critical products within the year, and I believe we’ve allocated existing resources efficiently. Investment in some areas is essential but mostly reallocation of efforts—focusing on a defined set of high-potential projects is key to our success.

Your next question is coming from Mike Matson of Needham & Company.

In terms of Project Catalyst, the expected savings of $15 million reflects significant progress, contributing about 300 basis points of margin improvement. Given the recent transition, do you anticipate needing additional restructuring or programs like Project Catalyst 2.0 to achieve positive EBITDA margins?

Project Catalyst is changing the way we operate—think of it as part of a cultural shift rather than a limited-time initiative. We aim to reveal formalized goals regarding value capture to build a future optimized for cost-savings. It's a long-term focus on ongoing improvements—over time, I believe you’ll notice a consistent evolution toward profitability, so we’re not reposturing to merely reflect the past; we want to ensure that we’re growth-oriented as well.

Your next question is coming from Derik de Bruin of Bank of America.

I believe we're at the end of the call. I want to take a moment to thank everyone for their time today. Before we conclude, I want to recognize the over 2000 Neo teammates globally for their dedication and commitment to building a world-class oncology diagnostic information and decision support company. Whenever a company undergoes significant change, it presents challenges, but our team has genuinely embraced that challenge. I’m proud of their vigor and desire to move the organization forward. We'll share more details around strategy in Q4, and we hope to engage with all of you in the marketplace soon. Thanks again for your participation today, and take care.

Thank you. Ladies and gentlemen, that does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.