Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.19.3.a.u2
Acquisitions
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Acquisitions Acquisitions
On December 10, 2018 (“the Acquisition Date”), the Company acquired all of the issued and outstanding shares of common stock of Genesis Acquisition Holding Corp (“Genesis”), and its wholly owned subsidiary, Genoptix, Inc. (“Genoptix”, and collectively with its subsidiaries and Genesis, referred to herein as “Genoptix”), for a purchase price consisting of (i) cash consideration of approximately $127.0 million, which included an approximately $2.0 million estimated working capital adjustment and adjustments for estimated cash on hand of Genoptix on the Acquisition Date and (ii) 1.0 million shares of NeoGenomics’ common stock pursuant to the Agreement and Plan of Merger dated October 23, 2018 (the “Merger Agreement”).
Cartesian Medical Group, Inc. (“Cartesian”) is a California professional corporation that provided hematopathology and other pathology services to Genoptix as an independent contractor. Cartesian was consolidated into Genoptix as a variable interest entity. Subsequent to December 31, 2018, the professional services agreement between Genoptix and Cartesian was terminated and the Company entered into separate Medical Services agreements with the entities owned by the physicians who were previously employees of Cartesian. The termination of its agreement with Cartesian did not have an impact on its Consolidated Financial Statements.
The Company issued approximately 1.0 million shares of common stock as consideration for the acquisition of Genoptix. This common stock was issued as unregistered shares, which carried a minimum six-month holding period before such common stock could be sold to the public. We estimated the fair value of the common stock consideration using inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820, Fair Value Measurements. The key assumption in the fair value determination was a 5 percent discount due to lack of marketability of the common stock as a result of the restrictions imposed on the holder. The Acquisition Date fair value of common stock transferred is calculated below (in thousands, except share and per share amounts):
Common Stock Valuation
Amount
Shares of common stock issued as consideration
1,000,000   
$ 13.94   
Value of common stock issued as consideration
$ 13,940   
Issue discount due to lack of marketability
$ (697)  
Fair value of common stock at December 10, 2018
$ 13,243   

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on the Acquisition Date and measurement period and other adjustments recorded during 2019. Included in the measurement period and other adjustments is a $2.4 million working capital adjustment to the original cash consideration, as defined within the Merger Agreement, of which $0.4 million was received in cash with the remainder received as a return of common stock. The Company has finalized its valuation of certain assets and liabilities.

The acquisition fair values below are presented as of December 10, 2018 (in thousands):

December 10, 2018
(As Initially Reported)
Measurement Period and Other Adjustments December 10, 2018
(As Adjusted)
Current assets $ 22,172    $ 2,765    $ 24,937   
Property and equipment 21,029    (428)   20,601   
Identifiable intangible assets 71,792    (3,463)   68,329   
Goodwill 50,873    709 51,582   
Long-term assets 170    —    170   
Total assets acquired $ 166,036    $ (417)   $ 165,619   
Current liabilities (10,769)   (1,430)   (12,199)  
Long-term liabilities (1)
(15,265)   1,847    (13,418)  
Net assets acquired $ 140,002    $ —    $ 140,002   

(1) Includes $14.7 million and $12.9 million as initially reported and as adjusted, respectively, in deferred tax liabilities associated with tangible and intangible assets acquired.

Of the $68.3 million of acquired intangible assets, $54.2 million was assigned to customer relationships which are being amortized over fifteen years, $0.7 million was assigned to the Genoptix trade name which is being amortized over one year, and $13.4 million was assigned to trade marks which are assigned as indefinite-lived assets.
The goodwill arising from the acquisition of Genoptix includes revenue synergies as a result of our existing customers and Genoptix’ customers having access to each other’s testing menus and capabilities and also from the new product lines which Genoptix adds to the Company’s product portfolio, including the use of COMPASS and CHART trademarks. None of the goodwill is expected to be deductible for income tax purposes. The fair value of accounts receivable acquired is approximately $16.6 million, net of a $1.5 million fair value adjustment.
The following unaudited pro forma information (in thousands) has been provided for illustrative purposes only and is not necessarily indicative of results that would have occurred had the acquisition of Genoptix occurred on January 1, 2018, nor are they necessarily indicative of future results.
For the Year Ended December 31, 2018
(unaudited)
Revenue $ 367,988   
Net loss $ (1,999)  
Net income available to common stockholders $ 1,401   

The following unaudited pro forma information (in thousands) has been provided for illustrative purposes only and is not necessarily indicative of results that would have occurred had the Acquisition been in effect since January 1, 2017, nor are they necessarily indicative of future results.
For the Years ended December 31,
(unaudited)
2018 2017
Revenue $ 367,988    $ 356,711   
Net income (loss) attributable to common stockholders 1,401    (42,930)  
Income (loss) per share $ 0.02    $ (0.53)  
Basic 85,618    80,426   
Diluted 91,568    80,426   

The unaudited pro forma consolidated results during the year ended December 31, 2018 and 2017 have been prepared by adjusting our historical results to include the acquisition of Genoptix as if it occurred on January 1, 2017. These unaudited pro forma consolidated historical results were then adjusted for the following:

Adjustments to reflect amortization expense associated with the acquired assets, partially offset by the elimination of the amortization and depreciation expense associated with Genoptix historical assets.
Remove interest expense under the Credit Facilities as the Company has paid cash for the acquisition of Genoptix and has paid all outstanding debt balances of Genoptix.
As noted above, the unaudited pro forma results of operations do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future.