NeoGenomics Reports 51% Revenue Growth to Record $96 Million in the First Quarter

FT. MYERS, FL / ACCESSWIRE / April 30, 2019 / NeoGenomics, Inc. (NASDAQ: NEO), a leading provider of cancer-focused genetic testing services, today reported its results for the first quarter of 2019.

First Quarter 2019 Highlights:

• Consolidated revenue increased 51% to $95.6 million
• Clinical Services revenue increased 51% to $86.2 million
• Pharma Services revenue increased 45% to $9.4 million
• Gross profit increased 73% to $47.1 million

Douglas M. VanOort, the Company's Chairman and CEO, commented, "We are certainly pleased with our very strong first quarter financial results. Revenue growth in both our Clinical and Pharma services divisions exceeded expectations, and momentum accelerated throughout the quarter. The integration of Genoptix, while demanding, is progressing well and is on track. Profitability improved significantly as a result of better operating leverage and cost efficiency. We are excited with our excellent start to 2019, and by the opportunities for continued growth in revenue and profitability as the year unfolds."

First Quarter Results

Consolidated Revenues for the first quarter of 2019 were $95.6 million, an increase of 51% over the same period in 2018. Clinical test volume(1) increased by 31% year over year. Average revenue per clinical test ("Revenue per Test") increased by 15% to $368 primarily due to the acquisition of Genoptix as well as the benefit of reimbursement initiatives.

Consolidated gross profit improved by $19.8 million, or 73%, compared to the first quarter of 2018, to $47.1 million. Consolidated gross margin improved by approximately 625 basis points year-over-year to 49%. Gross margin improvement reflects the impact of volume growth, higher revenue per test, productivity gains, and cost efficiencies. Average cost-of-goods-sold per clinical test ("Cost per Test") increased by 5%, reflecting the impact of the Genoptix acquisition, partially offset by continued efficiency.

Consolidated operating expenses increased by $19.8 million, or 80%, compared to the first quarter of 2018, primarily due to the Genoptix acquisition as well as increases in payroll and payroll related costs as a result of an increased number of employees, and $1.3 million in acquisition and integration related costs.

Net loss in the Quarter was $2.4 million compared to net income of $0.6 million in the prior year's first quarter. The net loss for the quarter reflects an accrual related to Health Discovery Corporation litigation of $4.9 million, net of tax.

Adjusted EBITDA(2) was $13.8 million in the Quarter, a 49% improvement from the prior year. Adjusted Net Income(2) was $7.2 million compared to Adjusted Net Income of $2.5 million in the prior year.

Cash collections remained strong with Days Sales Outstanding ("DSO") stable at 78 days.

Use of Non-GAAP Financial Measures

The Company's financial results and financial guidance are provided in accordance with accounting principles generally accepted in the United States of America (GAAP) and using certain non-GAAP financial measures. Management believes that presentation of operating results using non-GAAP financial measures provides useful supplemental information to investors and facilitates the analysis of the Company's core operating results and comparison of core operating results across reporting periods. Management also uses non-GAAP financial measures for financial and operational decision making, planning and forecasting purposes and to manage the Company's business. Management believes that these non-GAAP financial measures enable investors to evaluate our operating results and future prospects in the same manner as management. The non-GAAP financial measures do not replace the presentation of GAAP financial results and should only be used as a supplement to, and not as a substitute for, the Company's financial results presented in accordance with GAAP. There are limitations inherent in non-GAAP financial measures because they exclude charges and credits that are required to be included in a GAAP presentation, and do not therefore present the full measure of the Company's recorded costs against its net revenue. In addition, the Company's definition of the non-GAAP financial measures below may differ from non-GAAP measures used by other companies.

Definitions of Non-GAAP Measures

Non-GAAP Adjusted EBITDA

"Adjusted EBITDA" is defined by NeoGenomics as net income from continuing operations before: (i) interest expense, (ii) tax expense, (iii) depreciation and amortization expense, non-cash stock-based compensation expense, and if applicable in a reporting period, acquisition-related transaction expenses, (vi) non-cash impairments of intangible assets, (vii) debt financing costs, (viii) and other significant non-recurring or non-operating (income) or expenses.

Non-GAAP Adjusted Net Income

"Adjusted Net Income" is defined by NeoGenomics as net income available to common shareholders from continuing operations plus: (i) non-cash amortization of customer lists and other intangible assets, (ii) non-cash stock-based compensation expense, (iii) non-cash deemed dividends on preferred stock, (iv) non-cash amortization of preferred stock beneficial conversion feature, and if applicable in a reporting period, (v) acquisition related transaction expenses, (vi) non-cash impairments of intangible assets, (vii) debt financing costs, (viii) and other significant non-recurring or non-operating (income) or expenses.

Non-GAAP Adjusted Diluted EPS

"Adjusted Diluted EPS" is defined by NeoGenomics as Adjusted Net Income divided by Adjusted Diluted Shares outstanding. Adjusted Diluted Shares outstanding is the sum of Diluted shares outstanding and the weighted average number of common shares that would be outstanding if the preferred stock were converted into common stock on the original issue date based on the number of days such common shares would have been outstanding in the reporting period. In addition, if GAAP Net Income is negative and Adjusted Net Income is positive, Adjusted Diluted Shares will also include any options or warrants that would be outstanding as dilutive instruments using the treasury stock method.

Basis for Non-GAAP Adjustments

NeoGenomics' basis for excluding certain expenses (income) from GAAP financial measures, are outlined below:

Amortization of intangible assets - The intangible assets that give rise to this amortization expense relate to acquisitions, and the amounts allocated to such intangible assets. The terms of amortization vary by acquisition and type of asset. NeoGenomics excludes these items to provide a consistent basis for comparing operating results across reporting periods, pre- and post-acquisition.

Deemed dividends on preferred stock- GAAP accounting for the unique structure of the Series A Redeemable Preferred Stock requires the Company to assume that such preferred stock would be outstanding for its entire ten-year term. In addition, GAAP requires that the escalating preferred dividend rate over time be accelerated for accounting purposes and amortized on a straight-line basis over the ten-year life of the instrument, irrespective of the minimal contractual requirements for "paid in kind" stock dividends in the early years. Since such implied dividends were not paid in cash, and since the Company believed that such preferred stock would have been redeemed within the first three years it was outstanding, before any significant dividends accrued under the contractual terms, the Company believed these non-cash expenses were not meaningful in evaluating the operating performance of the Company and it would have been misleading to not adjust for such expenses across reporting periods.

Amortization of preferred stock beneficial conversion feature - This non-cash expense is also a direct result of the complex GAAP accounting requirements for our Series A Redeemable Preferred Stock. The Company believes this expense is not meaningful in evaluating the operating performance of the Company, distorts comparisons across reporting periods, and that it would be misleading to not adjust for such expenses across reporting periods.

Non-cash, stock-based compensation expenses - Because many of the company's full-time physicians reside in California, state regulations against the corporate practice of medicine require us to retain their professional service corporations rather than hire them as employees. Prior to ASU 2018-07, which we adopted in the second quarter of 2018, GAAP provided that variable stock- based compensation treatment be applied for non-employee service providers. This variable accounting treatment can cause significant fluctuations in quarterly expense based on changes in the Company's stock price from one quarter to the next and result in large positive or negative impacts to total operating expenses. Without adjusting for these non-cash expenses, the Company believed it would have been been difficult to compare financial results from core operations across reporting periods on a consistent basis.

Acquisition and integration expenses - We incurred significant expenses in connection with our recent acquisition of Genoptix related to transaction costs and integration expenses. These expenses include acquisition-related transaction costs, consultants, severance, systems integration and conversion expenses, and other costs related to integration activities. In order to compare across periods on a consistent basis we believe it is appropriate to exclude these expenses.

Other significant non-recurring income and expenses - Certain other items, if any, that neither relate to the ordinary course of our business nor reflect our underlying business performance are also excluded, including applicable expenses and/or proceeds related legal settlements among other items. We believe that the exclusion of such items that are not indicative of our ordinary operations provides a more useful comparison of our underlying business performance from period to period.

SOURCE: NeoGenomics, Inc.

Released April 30, 2019