Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Acquisitions

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Acquisitions
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Acquisitions
Note E – 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 includes an approximately $2.0 million estimated working capital adjustment and adjustments for estimated cash on hand of Genoptix on the Closing Date and (ii) 1.0 million shares of NeoGenomics’ common stock pursuant to the Agreement and Plan of Merger. The acquisition expands NeoGenomics' reach into oncology practices, and accelerates the company's progress and growth objectives.

Cartesian Medical Group, Inc. (“Cartesian”) is a California professional corporation that provided hematopathology and other pathology services to Genoptix as an independent contractor. Cartesian is consolidated into Genoptix as a variable interest entity. Subsequent to December 31, 2018, the professional services agreement between Genoptix and Cartesian is expected to be terminated and the Company will enter into separate Medical Services agreements with the entities owned by the physicians who were previously employees of Cartesian. The Company does not anticipate the termination of its agreement with Cartesian having 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 uncertificated shares, which carries a minimum six-month holding period before they may 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. 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 
Stock price per share on closing date
$ 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 at the Acquisition Date. The Company is in the process obtaining input from third-party valuation firms of its tangible and intangible assets and other information necessary to measure the remaining assets acquired and liabilities assumed; thus, the provisional measurements of current assets, property and equipment, intangible assets, goodwill, current liabilities, net deferred tax liabilities and long-term liabilities are subject to change.
The preliminary acquisition fair values below are presented as of December 10, 2018 (in thousands):

Current assets, including cash and cash equivalents of $1,381  $ 22,172 
Property and equipment  21,029 
Identifiable intangible assets  71,792 
Goodwill  50,873 
Long-term assets  170 
Total assets acquired  166,036 
Current liabilities  (10,769)
Long-term liabilities (1)  (15,265)
Net assets acquired  $ 140,002 

(1) Includes $14.7 million in deferred tax liabilities associated with tangible and intangible assets acquired.

Of the $71.8 million of acquired intangible assets, $56.6 million was provisionally assigned to customer relationships which are being amortized over fifteen years, $0.7 million was provisionally assigned to the Genoptix trade name which is being amortized over one year, and $14.6 million was provisionally assigned to trade marks which are assigned as indefinite-lived assets. We recorded approximately $0.3 million of amortization expense for the year ended December 31, 2018.
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 provisional fair value of accounts receivable acquired is approximately $16.7 million, net of a $1.4 million fair value adjustment.

The Company recognized acquisition related transaction costs of approximately $2.3 million during the year ended December 31, 2018. These costs include due diligence, legal, consulting and other transaction related expenses associated with the acquisition of Genoptix. These expenses were included in general and administrative expenses in our consolidated statements of operations for the year ended December 31, 2018.

The amount of revenue and earnings of Genoptix since the date of acquisition that are included in the consolidated statement of operations as of December 31, 2018 are as follows (in thousands):

For the period December 10, 2018
through December 31, 2018 
Revenue  $ 4,629 
Gross Margin  $ 2,600 
Net (Loss)  $ (334)

The following unaudited pro forma information (in thousands) have been provided for illustrative purposes only and are 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.

Years ended December 31,
(unaudited) 
2018  2017
(as adjusted) 
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 years ended December 31, 2018 and 2017 have been prepared by adjusting our historical results to include the Acquisition 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 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.