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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to                   
Commission File Number: 001-35756
NEOGENOMICS, INC.
(Exact name of registrant as specified in its charter)
 
Nevada 74-2897368
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
12701 Commonwealth Drive,Suite 9,Fort Myers, 
Florida 33913
(Address of principal executive offices) (Zip Code)
 
(239) 768-0600
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock ($0.001 par value)NEOThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  S No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  S   No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
S
Accelerated filer
Non-accelerated filerSmaller Reporting Company
 Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes     No  S
As of November 3, 2021, the registrant had 123,122,449 shares of Common Stock, par value $0.001 per share outstanding.




TABLE OF CONTENTS
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 




FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements generally can be identified by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intends,” “may,” “plan,” “potential,” “project,” “will,” “would” and similar expressions, although not all forward-looking statements contain these identifying words. These forward-looking statements address various matters, including the Company’s strategy, future operations, future financial position, future revenues, changing reimbursement levels from government payers and private insurers, projected costs, prospects and plans and objectives of management. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties that could cause our actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risks set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2021, and in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q.

Forward-looking statements include, but are not limited to, statements about:
Our ability to respond to rapid scientific change;
The risk of liability in conducting clinical trials and providing research services and the sufficiency of our insurance to cover such claims;
Our ability to implement our business strategy;
The potential impact to our business operations, customer demand and supply chain due to the ongoing global COVID-19 coronavirus pandemic and its related variants;
The expected reimbursement levels from governmental payers and private insurers and proposed changes to those levels;
The application, to our business and the services we provide, of existing laws, rules and regulations, including without limitation, Medicare laws, anti-kickback laws, Health Insurance Portability and Accountability Act of 1996 regulations, state medical privacy laws, international privacy laws, federal and state false claims laws and corporate practice of medicine laws;
Regulatory developments in the United States including downward pressure on health care reimbursement;
Our ability to maintain our license under the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”);
Food and Drug Administration, or FDA regulation of Laboratory Developed Tests (“LDTs”);
Failure to timely or accurately bill for our services;
Our ability to expand our operations and increase our market share;
Our ability to expand our service offerings by adding new testing capabilities and overcome capacity constraints;
Our ability to develop or acquire licenses for new or improved testing technologies;
Our ability to meet our future capital requirements;
Our ability to manage our indebtedness;
Our ability to manage the quality of our investment portfolio;
Our expectations regarding the conversion of our outstanding 1.25% Convertible Senior Notes due May 2025 (the “2025 Convertible Notes”) or our outstanding 0.25% Convertible Senior Notes due January 2028 (the “2028 Convertible Notes”) in the aggregate principal amount of $201.3 million and $345 million, respectively, and our ability to make debt service payments under the 2025 Convertible Notes or 2028 Convertible Notes if such notes are not converted;
Our ability to have sufficient cash to pay our obligations under the 2025 Convertible Notes or the 2028 Convertible Notes;
The dilutive impact of the conversion of the 2025 Convertible Notes or the 2028 Convertible Notes;
Our ability to protect our intellectual property from infringement;
Our ability to integrate acquisitions and costs related to such acquisitions;
3


The effects of seasonality on our business;
Our ability to maintain service levels and compete with other diagnostic laboratories;
Our ability to hire and retain sufficient managerial, sales, clinical and other personnel to meet our needs;
Our ability to successfully scale our business, including expanding our facilities, our backup systems and infrastructure;
Our handling, storage and disposal of biological and hazardous materials;
The accuracy of our estimates regarding reimbursement, expenses, future revenues and capital requirements; and
Our ability to manage expenses and risks associated with international operations, including anti-corruption and trade sanction laws and other regulations, and economic, political, legal and other operational risks associated with foreign jurisdictions.
The forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this report, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements


4


PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOGENOMICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, 2021
(unaudited)
December 31, 2020
ASSETS
Current assets
Cash and cash equivalents$340,565 $228,713 
Marketable securities, at fair value202,144 67,546 
Accounts receivable, net104,964 106,843 
Inventories21,834 29,526 
Prepaid assets14,618 11,547 
Assets held for sale10,050  
Other current assets15,755 4,555 
Total current assets709,930 448,730 
Property and equipment (net of accumulated depreciation of $112,185 and $92,895, respectively)
107,172 85,873 
Operating lease right-of-use assets102,310 45,786 
Intangible assets, net450,802 120,653 
Goodwill525,802 211,083 
Restricted cash3,161 21,919 
Investment in non-consolidated affiliate 29,555 
Prepaid lease asset 20,229 
Other assets7,210 4,503 
Total non-current assets$1,196,457 $539,601 
Total assets$1,906,387 $988,331 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$28,536 $24,965 
Accrued compensation32,283 24,727 
Accrued expenses and other liabilities18,088 11,654 
Current portion of equipment financing obligations1,564 2,841 
Current portion of operating lease liabilities6,988 4,967 
Pharma contract liabilities5,278 4,029 
Total current liabilities92,737 73,183 
Long-term liabilities
Convertible senior notes, net531,779 168,120 
Equipment financing obligations152 967 
Operating lease liabilities72,336 42,296 
Deferred income tax liabilities, net57,706 5,415 
Other long-term liabilities14,432 4,056 
Total long-term liabilities676,405 220,854 
     Total liabilities769,142 294,037 
Commitments and contingencies (Note 14)
Stockholders’ equity
Common stock, $0.001 par value, (250,000,000 shares authorized; 123,217,010 and 112,075,474 shares issued and outstanding, respectively)
123 112 
Additional paid-in capital1,110,590 701,357 
Accumulated other comprehensive (loss) income(390)10 
Retained earnings (accumulated deficit)26,922 (7,185)
     Total stockholders’ equity1,137,245 694,294 
     Total liabilities and stockholders’ equity$1,906,387 $988,331 

See the accompanying notes to the unaudited Consolidated Financial Statements.
5


NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
NET REVENUE:  
Clinical Services$102,227 $108,733 $300,119 $275,599 
Pharma Services19,113 16,711 58,478 42,852 
Total revenue121,340 125,444 358,597 318,451 
COST OF REVENUE74,101 71,379 216,794 190,011 
GROSS PROFIT47,239 54,065 141,803 128,440 
Operating expenses:
General and administrative63,839 36,128 158,953 107,085 
Research and development7,409 1,964 13,360 6,129 
Sales and marketing15,704 11,304 46,677 34,757 
Total operating expenses86,952 49,396 218,990 147,971 
(LOSS) INCOME FROM OPERATIONS(39,713)4,669 (77,187)(19,531)
Interest expense, net1,296 2,458 3,375 4,825 
Other income, net(89)(11)(431)(7,639)
Gain on investment in and loan receivable from non-consolidated affiliate, net(17,750) (109,260) 
Loss on extinguishment of debt   1,400 
Loss on termination of cash flow hedge   3,506 
(Loss) income before taxes(23,170)2,222 29,129 (21,623)
Income tax benefit(2,822)(335)(4,283)(10,378)
NET (LOSS) INCOME$(20,348)$2,557 $33,412 $(11,245)
Adjustment to net (loss) income for convertible notes in diluted EPS (1)
NET (LOSS) INCOME$(20,348)$2,557 $33,412 $(11,245)
Convertible note accretion, amortization, and interest, net of tax 1,975   
NET (LOSS) INCOME USED IN DILUTED EPS$(20,348)$4,532 $33,412 $(11,245)
NET (LOSS) INCOME PER SHARE
Basic$(0.17)$0.02 $0.28 $(0.10)
Diluted$(0.17)$0.04 $0.28 $(0.10)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic122,559 110,461 119,087 107,605 
Diluted122,559 119,191 121,356 107,605 
(1) This adjustment compensates for the effects of the if-converted impact of convertible notes in net income. Since an entity using the if-converted method assumes that a convertible debt instrument was converted into common shares at the beginning of the reporting period, net income is adjusted to reverse any recognized interest expense (including any amortization of discounts).
See the accompanying notes to the unaudited Consolidated Financial Statements.
6


NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
NET (LOSS) INCOME$(20,348)$2,557 $33,412 $(11,245)
OTHER COMPREHENSIVE (LOSS) INCOME:
Net unrealized loss on marketable securities, net of tax(57)(21)(400)(21)
Unrealized loss on effective cash flow hedge, net of tax   (1,000)
Cash flow hedge termination reclassified to earnings   2,661 
   Total other comprehensive (loss) income, net of tax(57)(21)(400)1,640 
COMPREHENSIVE (LOSS) INCOME$(20,405)$2,536 $33,012 $(9,605)

See the accompanying notes to the unaudited Consolidated Financial Statements.


7


NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands, except share data)
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)(Accumulated Deficit) Retained EarningsTotal
Shares Amount
Balance, December 31, 2020112,075,474 $112 $701,357 $10 $(7,185)$694,294 
Cumulative-effect adjustment from change in accounting principle— — (23,271)— 696 (22,575)
Premiums paid for capped call confirmations— — (29,291)— — (29,291)
Common stock issuance ESPP Plan23,917 — 1,024 — — 1,024 
Issuance of restricted stock, net of forfeitures83,220 — (614)— — (614)
Issuance of common stock for stock options260,167 — 2,239 — — 2,239 
Issuance of common stock - public offering, net of underwriting discounts4,693,876 5 218,495 — — 218,500 
Stock issuance fees and expenses— — (242)— — (242)
ESPP expense— — 241 — — 241 
Stock-based compensation expense - options and restricted stock— — 2,412 — — 2,412 
Net unrealized loss on marketable securities, net of tax— — — (160)— (160)
Net loss— — — — (22,114)(22,114)
Balance, March 31, 2021117,136,654 $117 $872,350 $(150)$(28,603)$843,714 
Common stock issuance ESPP Plan31,839 — 1,245 — — 1,245 
Issuance of restricted stock, net of forfeitures146,392 — (163)— — (163)
Issuance of common stock for stock options354,310 1 4,429 — — 4,430 
Issuance of common stock - private placement, net of private placement fees4,444,445 4 189,859 — — 189,863 
Issuance of common stock for acquisition597,712 1 29,174 — — 29,175 
Stock issuance fees and expenses— — (102)— — (102)
ESPP expense— — 298 — — 298 
Stock-based compensation expense - options and restricted stock— — 4,208 — — 4,208 
Net unrealized loss on marketable securities, net of tax— — — (183)— (183)
Net income— — — — 75,873 75,873 
Balance, June 30, 2021122,711,352 $123 $1,101,298 $(333)$47,270 $1,148,358 
Common stock issuance ESPP Plan27,210 — 1,020 — — 1,020 
Issuance of restricted stock, net of forfeitures160,971 — (304)— — (304)
Issuance of common stock for stock options317,477 — 3,374 — — 3,374 
Stock issuance fees and expenses— — (35)— — (35)
ESPP expense— — 236 — — 236 
Stock-based compensation expense - options and restricted stock— — 5,001 — — 5,001 
Net unrealized loss on marketable securities, net of tax— — — (57)— (57)
Net loss— — — — (20,348)(20,348)
Balance, September 30, 2021123,217,010 $123 $1,110,590 $(390)$26,922 $1,137,245 
See the accompanying notes to the unaudited Consolidated Financial Statements.

8


NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands, except share data)
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive (Loss) IncomeAccumulated DeficitTotal
Shares Amount
Balance, December 31, 2019104,781,236 $105 $520,278 $(1,618)$(11,357)$507,408 
Common stock issuance ESPP Plan34,330 — 796 — — 796 
Issuance of restricted stock, net of forfeitures76,618 — (212)— — (212)
Issuance of common stock for stock options503,873 — 2,897 — — 2,897 
Stock issuance fees and expenses— — (15)— — (15)
ESPP expense— — 194 — — 194 
Stock based compensation expense - options and restricted stock— — 1,991 — — 1,991 
Loss on effective cash flow hedge— — — (1,038)— (1,038)
Net loss— — — — (6,978)(6,978)
Balance, March 31, 2020105,396,057 $105 $525,929 $(2,656)$(18,335)$505,043 
Common stock issuance ESPP Plan41,058 — 928 — — 928 
Issuance of restricted stock, net of forfeitures24,786 — (824)— — (824)
Issuance of common stock for stock options183,443 — 2,014 — — 2,014 
Issuance of common stock - public offering, net of underwriting discounts4,751,500 5 127,288 — — 127,293 
Stock issuance fees and expenses— — (209)— — (209)
ESPP expense— — 211 — — 211 
Stock based compensation expense - options and restricted stock— — 2,424 — — 2,424 
Equity component of convertible note issuance— — 30,912 — — 30,912 
Tax liability related to convertible note issuance— — (9,330)— — (9,330)
Gain on effective cash flow hedge— — — 38 — 38 
Cash flow hedge termination reclassified to earnings— — — 2,661 — 2,661 
Convertible note debt issuance costs— — (108)— — (108)
Net loss— — — — (6,824)(6,824)
Balance, June 30, 2020110,396,844 $110 $679,235 $43 $(25,159)$654,229 
Common stock issuance ESPP Plan29,853 — 808 — — 808 
Issuance of restricted stock, net of forfeitures(1,124)— (237)— — (237)
Issuance of common stock for stock options584,845 1 4,845 — — 4,846 
Stock issuance fees and expenses— — (29)— — (29)
ESPP expense— — 222 — — 222 
Stock based compensation expense - options and restricted stock— — 2,494 — — 2,494 
Adjustment to tax liability related to convertible note issuance — — 1,524 — — 1,524 
Convertible note debt issuance costs— — (30)— — (30)
Net unrealized loss on marketable securities, net of tax— — — (21)— (21)
Net income— — — — 2,557 2,557 
Balance, September 30, 2020111,010,418 $111 $688,832 $22 $(22,602)$666,363 
See the accompanying notes to the unaudited Consolidated Financial Statements.

9


NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) 
(unaudited) 
 Nine Months Ended September 30,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)$33,412 $(11,245)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation21,807 18,705 
Amortization of intangibles14,683 7,387 
Non-cash stock-based compensation12,396 7,536 
Non-cash operating lease expense6,167 6,365 
Amortization of convertible debt discount1,904 2,705 
Amortization of debt issue costs133 138 
Loss on debt extinguishment 1,400 
Loss on termination of cash flow hedge 3,506 
Gain on investment in and loan receivable from non-consolidated affiliate, net(109,260) 
Interest receivable on loan receivable from non-consolidated affiliate(391) 
Write-off of COVID-19 PCR testing inventory and equipment6,061  
Other non-cash items1,388 371 
Changes in assets and liabilities, net
Accounts receivable, net2,475 (9,455)
Inventories3,196 (5,704)
Prepaid lease asset(4,435)(10,142)
Prepaid and other assets(11,796)(6,757)
Accounts payable, accrued and other liabilities15,313 (9,335)
Net cash used in operating activities(6,947)(4,525)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities(180,961)(53,396)
Proceeds from sales and maturities of marketable securities44,736 3,000 
Purchases of property and equipment(52,155)(17,591)
Business acquisitions, net of cash acquired(419,404)(37,000)
Loan receivable from non-consolidated affiliate(15,000) 
Investment in non-consolidated affiliate (25,600)
Net cash used in investing activities(622,784)(130,587)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of equipment financing obligations(2,537)(4,331)
Repayment of term loan (97,540)
Cash flow hedge termination (3,317)
Issuance of common stock, net12,110 10,761 
Proceeds from issuance of convertible debt, net of issuance costs334,410 194,466 
Premiums paid for capped call confirmations(29,291) 
Proceeds from equity offerings, net of issuance costs408,133 127,293 
Net cash provided by financing activities722,825 227,332 
Net change in cash, cash equivalents and restricted cash93,094 92,220 
Cash, cash equivalents and restricted cash, beginning of period250,632 173,016 
Cash, cash equivalents and restricted cash, end of period$343,726 $265,236 

10


Nine Months Ended September 30,
20212020
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
   Cash and cash equivalents$340,565 $233,233 
   Restricted cash, non-current3,161 32,003 
Total cash, cash equivalents and restricted cash$343,726 $265,236 
Supplemental disclosure of cash flow information:
Interest paid$1,792 $1,638 
Income taxes paid, net$113 $209 
Supplemental disclosure of non-cash investing and financing information:
Fair value of common stock issued to fund business acquisition$29,174 $ 
Equipment acquired under financing obligations$ $428 
Property and equipment included in accounts payable$2,184 $3,521 

See the accompanying notes to the unaudited Consolidated Financial Statements.
11

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1. Nature of the Business
Nature of the Business
NeoGenomics, Inc., a Nevada corporation, and its subsidiaries (the “Parent,” “Company,” or “NeoGenomics”), operates as a certified, high complexity clinical laboratory in accordance with the federal government’s CLIA, and is dedicated to the delivery of clinical diagnostic services to pathologists, oncologists, urologists, hospitals, and other laboratories as well as providing clinical trial services to pharmaceutical firms.
COVID-19 Pandemic Update
In December 2019, a novel strain of coronavirus (“COVID-19”) was identified and the disease has since spread across the world, including the United States (“U.S.”). In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The outbreak of the pandemic is materially adversely affecting the Company’s employees, patients, communities and business operations, as well as the U.S. economy and financial markets. The full extent to which the COVID-19 outbreak will impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets. As the COVID-19 pandemic continues, the Company’s results of operations, financial condition and cash flows may continue to be materially adversely affected, particularly if the pandemic continues to persist for a significant amount of time.
The Company anticipates that the cash on hand, marketable securities and cash collections are sufficient to fund near-term capital and operating needs for at least the next 12 months.
At the end of the first quarter 2021, due to the broad roll-out of the COVID-19 vaccine and a sharp decline in COVID-19 polymerase chain reaction (“PCR”) testing demand, the Company made the decision to exit COVID-19 PCR testing and the Company recorded a $6.1 million expense related to the exit from COVID-19 PCR testing. This amount consisted of write-offs of $5.3 million for all remaining COVID-19 PCR testing inventory recorded to cost of revenue and $0.8 million for all remaining COVID-19 PCR testing laboratory equipment recorded to general and administrative expenses on the Consolidated Statements of Operations for the nine months ended September 30, 2021. There were no such amounts for the three months ended September 30, 2021.
Coronavirus Aid, Relief and Economic Security Act
The Federal government passed legislation that the President of the United States signed into law on March 27, 2020, known as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On April 10, 2020, the U.S. Department of Health & Human Services announced that Medicare-enrolled providers would receive a portion of a direct deposit disbursement totaling $50 billion. The $50 billion is part of a $100 billion Public Health and Social Service Emergency Fund created by the CARES Act. Payments made under the CARES Act are intended to reimburse healthcare providers for health care related expenses or lost revenues attributable to COVID-19 and are not required to be repaid provided that recipients attest to and comply with certain terms and conditions, including limitations on balance billing for COVID-19 patients. In the absence of specific guidance to account for government grants in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company accounts for such grants in accordance with international accounting standards for government grants. Such amounts are recognized when there is reasonable assurance that the Company will (1) comply with the conditions associated with the grant and (2) receive the grant. There was no grant income recognized for the three and nine months ended September 30, 2021. For the nine months ended September 30, 2020, the Company recognized $7.9 million in grant income related to the CARES Act. There were no such amounts for the three months ended September 30, 2020. CARES Act grant income is classified in other income, net, on the Consolidated Statements of Operations.
The CARES Act permits the deferral of payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due on December 31, 2021 and the remaining 50% due on December 31, 2022. As of September 30, 2021 and December 31, 2020 the total accrued deferred social security taxes related to the CARES Act was $5.9 million. At both September 30, 2021 and December 31, 2020, this amount was recorded evenly between accrued expenses and other liabilities and other long-term liabilities on the Consolidated Balance Sheets.
Additionally, the CARES Act included an Employee Retention Tax Credit (“ERTC”) provision designed to encourage employers to keep employees on their payroll. The ERTC is a refundable tax credit against certain payroll taxes paid by employers for eligible wages paid between March 13, 2020 and December 31, 2020 that meet the requirements of the ERTC provision. On March 11, 2021, the American Rescue Plan Act was enacted extending the deadline of the ERTC to December 31, 2021 and expanded who is eligible to claim the credit. For the three and nine months ended September 30, 2021, the Company recognized $3.7 million and $4.4 million, respectively, under the ERTC which was included in loss from operations
12

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
on the Consolidated Statements of Operations. During the three and nine months ended September 30, 2020, the Company recognized $1.1 million under the ERTC.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim Consolidated Financial Statements are unaudited and have been prepared in accordance with GAAP for interim financial information. All intercompany transactions and balances have been eliminated in the accompanying Consolidated Financial Statements.
The accounting policies of the Company are the same as those set forth in Note 2. Summary of Significant Accounting Policies, to the audited Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, except for Business Combinations, Assets Held for Sale, Stock-Based Compensation, Income Taxes and the impact of the adoption of new accounting standards discussed under Recently Adopted Accounting Guidance.
Unaudited Interim Financial Information
Certain information and footnote disclosures normally included in the Company’s annual audited Consolidated Financial Statements and accompanying notes have been condensed or omitted in these accompanying interim Consolidated Financial Statements and footnotes. Accordingly, the accompanying interim unaudited Consolidated Financial Statements included herein should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The results of operations presented in this Quarterly Report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited Consolidated Financial Statements include all adjustments and accruals, consisting only of normal, recurring adjustments that are necessary for a fair statement of the results of all interim periods reported herein.
Use of Estimates
The Company prepares its Consolidated Financial Statements in conformity with GAAP. These principles require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the Consolidated Financial Statements. Actual results and outcomes may differ from management’s estimates, judgments and assumptions. Significant estimates, judgments and assumptions used in these Consolidated Financial Statements include, but are not limited, to those related to revenues, accounts receivable and related allowances, contingencies, useful lives and recovery of long-term assets and intangible assets, income taxes and valuation allowances, stock-based compensation, business combinations, and impairment analysis of goodwill. These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected on the Consolidated Financial Statements prospectively from the date of the change in estimate.
Business Combinations
The Company accounts for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. The Company bases the estimated fair value of identifiable intangible assets acquired in a business combination on independent third-party valuations that use information and assumptions provided by its management, which consider estimates of inputs and assumptions that a market participant would use. Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, estimated cost savings, cash flows, discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with acquisitions are expensed as incurred in general and administrative expenses. Results of operations and cash flows of acquired companies are included in the Company’s operating results from the date of acquisition.
Assets Held for Sale
Assets to be disposed of by sale are reclassified as held for sale if their carrying amounts are expected to be recovered through a sale transaction rather than through continuing use and when the Company commits to a plan to sell the assets. Assets classified as held for sale are measured at the lower of their carrying value or fair value less cost to sell. Such assets are classified within current assets if there is reasonable certainty that the sale and collection of consideration will take place within one year. Upon reclassification as held for sale, long-lived assets are no longer depreciated or amortized, and a measurement for impairment is performed to determine if there is an excess of carrying value over fair value less costs to sell. Any remeasurement is reported
13

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
as an adjustment to the carrying value of the assets. Subsequent changes to estimated fair value less the cost to sell will impact the measurement of assets held for sale if the fair value is determined to be less than the carrying value of the assets.
The Company owns 43,560 square feet of our Carlsbad, California facility. During the third quarter of 2021, the Company committed to selling this property and the associated land and concluded that these assets met the held for sale criteria. As of September 30, 2021, $10.1 million was recorded as assets held for sale within current assets on the Consolidated Balance Sheets for this property and associated land and reflects its carrying value which was lower than its fair value less costs to sell. We expect to sell this property within one year; however, there can be no assurance that the sale of this property will be completed in the time frame we expect or at all.
Stock-Based Compensation
The Company measures compensation expense for stock-based awards to employees, non-employee contracted physicians, and directors based upon the awards’ initial grant-date fair value. The estimated grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method.
Prior to 2021, the Company estimated the fair value of stock options using a trinomial lattice model. On January 1, 2021, the Company began applying the Black-Scholes option valuation model (“Black-Scholes”) on a prospective basis to new awards. The Company expects the use of Black-Scholes to provide a more ubiquitous estimate of fair value. Like the prior trinomial lattice model, Black-Scholes is affected by the stock price on the date of the grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected term of the option, expected risk-free interest rate, the expected volatility of common stock, and expected dividend yield, each of which is more fully described below. The assumptions for expected term and expected volatility are the two assumptions that significantly affect the grant date fair value.
Expected Term: The expected term of an option is the period of time that the option is expected to be outstanding. The average expected term is determined using the Black-Scholes model.
Risk-free Interest Rate: The risk-free interest rate used in the Black-Scholes model is based on the implied yield at the grant date of the U.S. Treasury zero-coupon issue with an equivalent term to the stock-based award being valued. Where the expected term of a stock-based award does not correspond with the term for which a zero coupon interest rate is quoted, the Company uses the nearest interest rate from the available maturities.
Expected Stock Price Volatility: The Company uses its own historical weekly volatility because that is more reflective of market conditions.
Dividend Yield: Because the Company has never paid a dividend and does not expect to begin doing so in the foreseeable future, the Company assumed no dividend yield in valuing the stock-based awards.
The Company measures the fair value of its performance-based stock awards issued to employees based on the closing market price of the common stock on the trading date immediately preceding the grant date. Compensation expense for stock units with performance metrics is calculated based upon expected achievement of the metrics specified in the grant. Any expense is recognized in the Company’s Consolidated Statement of Operations on a straight-line basis over the requisite service period.
Income Taxes
Deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Also, the effect on deferred taxes of a change in tax rates is recognized in income in the period that included the enactment date. Temporary differences between financial and tax reporting arise primarily from the use of different depreciation and amortization methods and lives for property and equipment and recently acquired Inivata developed technology intangible assets, recognition of accounts receivable, compensation related expenses, and various other expenses that have been allowed for or accrued for financial statement purposes but are not currently deductible for income tax purposes.
The provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and any estimated valuation allowances deemed necessary to recognize deferred tax assets at an amount that is more likely than not to be realized.
Management assesses the recoverability of its deferred tax assets as of the end of each quarter, weighing available positive and negative evidence, and is required to establish and maintain a valuation allowance for these assets if it is more likely than not that some or all of the deferred income tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed.
As of December 31, 2020, expected future reversals of the Company’s deferred income tax liabilities provided objectively verifiable positive evidence to support the recoverability of its deferred tax assets. However, on January 1, 2021, the Company
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NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
adopted ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) using the modified retrospective approach, which resulted in a decrease of approximately $6.6 million in the Company’s deferred income tax liabilities. In addition, approximately $2 million of valuation allowance against the Company’s deferred income tax assets was established upon adoption of ASU 2020-06, resulting from the decrease in deferred income tax liabilities available to support the recoverability of deferred tax assets. The valuation allowance represents the portion of the Company’s U.S. deferred income tax assets that are not more likely than not to be realized in future periods, primarily related to Federal and California research and development tax credit carryforwards.
A cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome. Cumulative loss in recent years is commonly defined as a three-year cumulative loss position. As of September 30, 2021, the Company’s U.S. ongoing operations were in a three-year cumulative loss position. Management determined that sufficient objectively verifiable positive evidence did not exist to overcome the negative evidence of the Company’s U.S. cumulative loss position. Accordingly, the Company’s estimated annual effective tax rate applied to the Company’s pre-tax (loss) income for the three and nine months ended September 30, 2021, respectively, included the unfavorable impact of valuation allowance expected to be established against the Company’s deferred income tax assets expected to be created in 2021 for additional U.S. net operating loss and tax credit carryforwards.
As of September 30, 2021, the Company’s total valuation allowance against U.S. deferred income tax assets is forecasted to be approximately $18 million including deferred income tax assets from the acquisitions of Intervention Insights, Inc., d/b/a Trapelo Health, and the U.S. subsidiary of Inivata Limited, a private limited company incorporated in England and Wales. For further details regarding the acquisitions of Trapelo Health and Inivata Limited, please refer to Note 3. Acquisitions. The Company also continued to maintain a full valuation allowance against deferred tax assets in Switzerland, Singapore and China, which increased from $2.6 million as of December 31, 2020 to $3.8 million as of September 30, 2021. No valuation allowance was determined to be required for deferred income tax assets from the acquisition of Inivata Limited, the British entity.
The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records a liability for uncertain tax positions, if deemed necessary. The Company follows a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying Consolidated Balance Sheets. At September 30, 2021 and December 31, 2020 the Company had an uncertain tax position related to Federal and State R&D tax credit carryforwards. No interest and penalties have been accrued, as the income tax credits are carried forward to offset income tax liabilities in future years.
Recently Adopted Accounting Guidance
In August 2021, the FASB issued ASU No. 2021-06, Presentation of Financial Statements (Topic 205), Financial Services-Depository and Lending (Topic 942), and Financial Services-Investment Companies (Topic 946) (“ASU 2021-06”), Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses, and No.33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. This update amends certain SEC disclosure guidance that is included in the accounting standards codification to reflect the SEC’s recent issuance of rules intended to modernize and streamline disclosure requirements. The Company adopted this pronouncement upon issuance and the impact of the provisions of this standard on its Consolidated Financial Statements was immaterial.
In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements, which updates various codification topics by clarifying disclosure requirements to align with the SECs regulations. The Company adopted this pronouncement on January 1, 2021 and the impact of the provisions of this standard on its Consolidated Financial Statements was immaterial.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entitys own equity. Among other changes, ASU 2020-06 simplifies the accounting for convertible instruments by removing the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such convertible debt instruments. Similarly, the debt discount, that is equal to the carrying value of the embedded conversion feature upon issuance, will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives
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NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
and Hedging, or (2) a convertible instrument was issued at a substantial premium. In addition, ASU 2020-06 requires the application of the if-converted method for calculating the impact of convertible instruments on diluted earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. ASU 2020-06 can be adopted on either a fully retrospective or modified retrospective basis.
The Company adopted ASU 2020-06 on January 1, 2021 using the modified retrospective approach, and accordingly the Company recorded an adjustment that reflects the 1.25% Convertible Senior Notes due 2025 as if the embedded conversion feature had not been separated. The impact upon adoption on the Consolidated Balance Sheets included an increase of approximately $27.2 million in convertible senior notes, net, a write-off of approximately $6.6 million in deferred income tax liabilities, establishment of approximately $2 million of valuation allowance against deferred income tax assets, and a decrease of approximately $23.3 million in additional paid-in capital. In addition, upon adoption, there was an adjustment to increase the beginning balance of retained earnings on the Consolidated Balance Sheets for previously recognized interest expense, net of tax effects, of approximately $2.7 million for amortization of debt discount related to the carrying value of the embedded conversion feature upon issuance, as well as a decrease to the beginning balance of retained earnings of approximately $2 million for the establishment of valuation allowance against the Company’s deferred income tax assets. There was no impact to the Companys earnings per share calculation. For further information regarding the 1.25% Convertible Senior Notes due 2025, please refer to Note 8. Debt.
Accounting Pronouncements Pending Adoption
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08”). This update amends guidance to require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606). At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendments is permitted including adoption in an interim period. If the Company early adopts in an interim period, the Company is required to apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The amendments in ASU 2021-08 should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04) which provides for temporary optional e