neo-20230331

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 March 31, 2023


☐			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.)

9490 NeoGenomics Way,	Fort Myers,
Florida		33912
(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 class

Trading Symbol

Name of each exchange on which registered

Common stock ($0.001 par value)

NEO

The 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

Accelerated filer

☐

Non-accelerated filer

☐

Smaller 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 May 5, 2023, the registrant had 127,578,138 shares of Common Stock, par value $0.001 per share outstanding.

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)						5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						23
Item 3. Quantitative and Qualitative Disclosures About Market Risk						33
Item 4. Controls and Procedures						33

PART II OTHER INFORMATION
Item 1. Legal Proceedings						34
Item 1A. Risk Factors						34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						34
Item 3. Defaults Upon Senior Securities						34
Item 4. Mine Safety Disclosures						34
Item 5. Other Information						34
Item 6. Exhibits						36
SIGNATURES						37

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 24, 2023, 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 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 $345.0 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;

•Our ability to realize estimated benefits from our cost reduction and restructuring efforts;

•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.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NEOGENOMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	(unaudited) March 31, 2023		December 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	275,609	$	263,180

Marketable securities, at fair value	142,306		174,809
Accounts receivable, net	118,842		119,711
Inventories	24,432		24,277
Prepaid assets	16,185		15,237

Other current assets	7,622		8,077
Total current assets	584,996		605,291
Property and equipment (net of accumulated depreciation of $138,863 and $131,930, respectively)	102,845		102,499
Operating lease right-of-use assets	93,784		96,109

Intangible assets, net	399,477		408,260
Goodwill	522,766		522,766




Other assets	5,306		5,109
Total non-current assets	1,124,178		1,134,743
Total assets	$	1,709,174	$	1,740,034
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	22,712	$	20,510
Accrued compensation	32,891		40,141
Accrued expenses and other liabilities	17,964		15,070
Current portion of equipment financing obligations	38		70
Current portion of operating lease liabilities	6,934		6,584


Pharma contract liabilities	6,067		7,557
Total current liabilities	86,606		89,932
Long-term liabilities
Convertible senior notes, net	536,037		535,322

Operating lease liabilities	67,319		68,952


Deferred income tax liabilities, net	31,715		34,750
Other long-term liabilities	13,035		13,055
Total long-term liabilities	648,106		652,079
Total liabilities	$	734,712	$	742,011
Commitments and contingencies (Note 11)
Stockholders’ equity
Common stock, $0.001 par value, (250,000,000 shares authorized; 127,200,491 and 126,913,992 shares issued and outstanding, respectively)	$	127	$	127
Additional paid-in capital	1,167,051		1,160,882
Accumulated other comprehensive loss	(2,834)		(3,899)
Accumulated deficit	(189,882)		(159,087)
Total stockholders’ equity	$	974,462	$	998,023
Total liabilities and stockholders’ equity	$	1,709,174	$	1,740,034

See the accompanying notes to the unaudited Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended March 31,
	2023		2022
NET REVENUE
Clinical Services	$	114,869	$	98,791
Pharma Services	22,351		18,378
Total net revenue	137,220		117,169

COST OF REVENUE	82,406		78,937

GROSS PROFIT	54,814		38,232
Operating expenses:
General and administrative	61,549		66,248
Research and development	7,395		7,713
Sales and marketing	16,259		16,299
Restructuring charges	4,684		—
Total operating expenses	89,887		90,260
LOSS FROM OPERATIONS	(35,073)		(52,028)
Interest (income) expense, net	(1,467)		1,301
Other expense (income), net	114		(168)


Loss before taxes	(33,720)		(53,161)
Income tax benefit	(2,925)		(3,753)
NET LOSS	$	(30,795)	$	(49,408)






NET LOSS PER SHARE
Basic	$	(0.25)	$	(0.40)
Diluted	$	(0.25)	$	(0.40)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic	125,026		123,630
Diluted	125,026		123,630

See the accompanying notes to the unaudited Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2023		2022
NET LOSS	$	(30,795)	$	(49,408)

OTHER COMPREHENSIVE GAIN (LOSS):

Net unrealized gain (loss) on marketable securities, net of tax	1,065		(2,371)


Total other comprehensive gain (loss), net of tax	1,065		(2,371)
COMPREHENSIVE LOSS	$	(29,730)	$	(51,779)

See the accompanying notes to the unaudited Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
		Shares			Amount
Balance, December 31, 2022		126,913,992	$	127		$	1,160,882	$	(3,899)	$	(159,087)	$	998,023
Issuance of common stock for ESPP		96,733	—			811		—		—		811
Issuance of restricted stock, net of forfeitures		114,738	—			(147)		—		—		(147)
Issuance of common stock for stock options		75,028	—			751		—		—		751
Stock issuance fees and expenses		—	—			(4)		—		—		(4)
Stock-based compensation expense - ESPP		—	—			275		—		—		275
Stock-based compensation expense - options and restricted stock		—	—			4,483		—		—		4,483
Net unrealized gain on marketable securities, net of tax		—	—			—		1,065		—		1,065
Net loss		—	—			—		—		(30,795)		(30,795)
Balance, March 31, 2023		127,200,491	$	127		$	1,167,051	$	(2,834)	$	(189,882)	$	974,462


	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
		Shares			Amount
Balance, December 31, 2021		124,107,500	$	124		$	1,123,628	$	(638)	$	(14,837)	$	1,108,277
Issuance of common stock for ESPP		47,853	—			971		—		—		971
Issuance of restricted stock, net of forfeitures		100,253	—			(1,049)		—		—		(1,049)
Issuance of common stock for stock options		466,609	1			6,479		—		—		6,480

Stock-based compensation expense - ESPP		—	—			249		—		—		249
Stock-based compensation expense - options and restricted stock		—	—			11,855		—		—		11,855
Net unrealized loss on marketable securities, net of tax		—	—			—		(2,371)		—		(2,371)
Net loss		—	—			—		—		(49,408)		(49,408)
Balance, March 31, 2022		124,722,215	$	125		$	1,142,133	$	(3,009)	$	(64,245)	$	1,075,004

See the accompanying notes to the unaudited Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(30,795)	$	(49,408)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	9,048		8,395
Amortization of intangibles	8,783		8,490
Non-cash stock-based compensation	4,758		12,103
Non-cash operating lease expense	2,330		2,653
Amortization of convertible debt discount	669		661
Amortization of debt issue costs	46		45

Gain on sale of assets held for sale	—		(2,048)
Impairment of assets	923		—

Other adjustments	(31)		1,126
Changes in assets and liabilities, net
Accounts receivable, net	870		1,334
Inventories	(200)		(445)

Prepaid and other assets	(1,187)		(2,044)

Operating lease liabilities	(1,722)		(2,832)
Deferred income tax liabilities, net	(3,035)		(3,765)
Accrued compensation	(7,250)		(5,985)
Accounts payable and other liabilities	4,101		2,680
Net cash used in operating activities	(12,692)		(29,040)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities	(6,756)		(16,167)
Proceeds from sales and maturities of marketable securities	40,425		36,438
Purchases of property and equipment	(9,927)		(8,219)



Net cash provided by investing activities	23,742		12,052
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of equipment financing obligations	(32)		(346)
Issuance of common stock, net	1,411		6,403




Net cash provided by financing activities	1,379		6,057

Net change in cash and cash equivalents	12,429		(10,931)
Cash and cash equivalents, beginning of period	263,180		316,827
Cash and cash equivalents, end of period	$	275,609	$	305,896


Supplemental disclosure of cash flow information:
Interest paid	$	432	$	442

Supplemental disclosure of non-cash investing and financing information:
Increase in other current assets for the sale of assets held for sale	$	—	$	12,098
Purchases of property and equipment included in accounts payable	$	1,174	$	1,061

See the accompanying notes to the unaudited Consolidated Financial Statements.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Nature of the Business

NeoGenomics, Inc., a Nevada corporation (the “Parent,” “Company,” or “NeoGenomics”), and its subsidiaries, operate as a certified, high complexity clinical laboratory in accordance with the federal government’s Clinical Laboratory Improvement Act, as amended, 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.

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 generally accepted accounting principles in the United States (“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, 2022, except for new accounting standards discussed under Recent Accounting Pronouncements.

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, 2022.

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, impairment analysis of goodwill, and restructuring reserves. 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.

Sales and Marketing Expenses

Sales and marketing expenses are primarily attributable to employee-related costs including sales management, sales representatives, sales and marketing consultants, and marketing and customer service personnel in the Clinical Services segment. Advertising costs are expensed at the time they are incurred and were immaterial for the three months ended March 31, 2023 and 2022.

Restructuring charges

Restructuring charges relate to a restructuring program to improve execution and drive efficiency across the organization. Restructuring charges consist of severance and other employee costs, costs for optimizing the Company’s geographic presence, and consulting and other costs. For further details on the Company’s restructuring activities, please refer to Note 8. Restructuring.

Recent Accounting Pronouncements

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

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 adopted this standard as of January 1, 2023 and there was no impact on its Consolidated Financial Statements.

Note 3. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy has been established based on three levels of inputs, of which the first two are considered observable and the last unobservable.

Level 1: Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

Level 2: Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments.

Level 3: Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The Company measures certain financial assets at fair value on a recurring basis, including its marketable securities and certain cash equivalents. The Company considers all securities available-for-sale, including those with maturity dates beyond 12 months, and therefore these securities are classified within current assets on the Consolidated Balance Sheets as they are available to support current operational liquidity needs. The money market accounts are valued based on quoted market prices in active markets and are included in cash and cash equivalents on the Consolidated Balance Sheets. The marketable securities are generally valued based on other observable inputs for those securities (including market corroborated pricing or other models that utilize observable inputs such as interest rates and yield curves) based on information provided by independent third-party pricing entities, except for U.S. Treasury securities which are valued based on quoted market prices in active markets.

The following tables set forth the amortized cost, gross unrealized gains, gross unrealized losses and fair values of the Company’s marketable securities accounted for as available-for-sale securities as of March 31, 2023 and December 31, 2022.


	March 31, 2023
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Financial Assets:
Short-term marketable securities:
U.S. Treasury securities	$	37,054	$	1	$	(351)	$	36,704

Yankee bonds	3,357		—		(78)		3,279
Agency bonds	6,010		—		(74)		5,936
Municipal bonds	12,804		—		(902)		11,902
Commercial paper	2,888		5		—		2,893
Asset-backed securities	21,433		—		(291)		21,142
Corporate bonds	62,136		10		(1,696)		60,450
Total	$	145,682	$	16	$	(3,392)	$	142,306

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	December 31, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Financial Assets:
Short-term marketable securities:
U.S. Treasury securities	$	56,426	$	—	$	(651)	$	55,775
Yankee bonds	5,358		—		(92)		5,266
Agency bonds	12,485		—		(116)		12,369
Municipal bonds	12,841		—		(1,030)		11,811
Commercial paper	2,846		8		—		2,854
Asset-backed securities	25,544		2		(427)		25,119
Corporate bonds	63,748		3		(2,136)		61,615
Total	$	179,248	$	13	$	(4,452)	$	174,809

The Company had $1.0 million and $0.9 million of accrued interest receivable at March 31, 2023 and December 31, 2022, respectively, included in other current assets on its Consolidated Balance Sheets related to its marketable securities. There were no realized gains or losses on marketable securities for the three months ended March 31, 2023 and 2022.

The following tables set forth the fair value of available-for-sale marketable securities by contractual maturity at March 31, 2023 and December 31, 2022.


	March 31, 2023
(in thousands)	One Year or Less		Over One Year Through Five Years		Over Five Years		Total
Financial Assets:
Marketable Securities:
U.S. Treasury securities	$	29,416	$	7,288	$	—	$	36,704

Yankee bonds	3,279		—		—		3,279
Agency bonds	3,573		2,363		—		5,936
Municipal bonds	—		11,902		—		11,902
Commercial paper	2,893		—		—		2,893
Asset-backed securities	21,142		—		—		21,142
Corporate bonds	33,083		27,367		—		60,450
Total	$	93,386	$	48,920	$	—	$	142,306

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	December 31, 2022
(in thousands)	One Year or Less		Over One Year Through Five Years		Over Five Years		Total
Financial Assets:
Marketable Securities:
U.S. Treasury securities	$	40,795	$	14,980	$	—	$	55,775
Yankee bonds	2,734		2,532		—		5,266
Agency bonds	6,470		5,899		—		12,369
Municipal bonds	—		11,811		—		11,811
Commercial paper	2,854		—		—		2,854
Asset-backed securities	23,179		1,940		—		25,119
Corporate bonds	35,377		26,238		—		61,615
Total	$	111,409	$	63,400	$	—	$	174,809

The following tables set forth the Company’s cash equivalents and marketable securities accounted for as available-for-sale securities that were measured at fair value on a recurring basis based on the fair value hierarchy as of March 31, 2023 and December 31, 2022.


	March 31, 2023
(in thousands)	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents:
Money market funds	$	263,367	$	—	$	—	$	263,367

Commercial paper	—		998		—		998
Marketable securities:
U.S. Treasury securities	36,704		—		—		36,704

Yankee bonds	3,279		—		—		3,279
Agency bonds	5,936		—		—		5,936
Municipal bonds	11,902		—		—		11,902
Commercial paper	—		2,893		—		2,893
Asset-backed securities	—		21,142		—		21,142
Corporate bonds	—		60,450		—		60,450
Total	$	321,188	$	85,483	$	—	$	406,671

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	December 31, 2022
(in thousands)	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents:
Money market funds	$	196,749	$	—	$	—	$	196,749

Commercial paper	—		36,965		—		36,965
Marketable securities:
U.S. Treasury securities	55,775		—		—		55,775
Yankee bonds	5,266		—		—		5,266
Agency bonds	12,369		—		—		12,369
Municipal bonds	11,811		—		—		11,811
Commercial paper	—		2,854		—		2,854
Asset-backed securities	—		25,119		—		25,119
Corporate bonds	—		61,615		—		61,615
Total	$	281,970	$	126,553	$	—	$	408,523

There were no transfers of financial assets or liabilities into or out of Level 1, Level 2, or Level 3 for the three months ended March 31, 2023 and 2022.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

The carrying value of cash and cash equivalents, accounts receivable, net, accounts payable, accrued expenses and other liabilities, and other current assets and liabilities, are considered reasonable estimates of their respective fair values at March 31, 2023 and December 31, 2022 due to their short-term nature.

The Company also measures certain non-financial assets at fair value on a nonrecurring basis, primarily intangible assets, goodwill, and long-lived assets in connection with periodic evaluations for potential impairment. The Company estimates the fair value of these assets using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements.

Note 4. Goodwill and Intangible Assets

The following table summarizes the carrying amounts of goodwill by segment at March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Clinical Services	$	458,782	$	458,782
Pharma Services	63,984		63,984
Total	$	522,766	$	522,766

Intangible assets consisted of the following (in thousands):


		March 31, 2023
	Amortization Period (years)	Cost		Accumulated Amortization		Net


Customer Relationships	7 - 15	$	143,101	$	58,117	$	84,984
Developed Technology	10 - 15	310,226		38,447		271,779
Marketing Assets	4	549		273		276
Trademarks	15	31,473		3,748		27,725
Trade Name	2.5	2,584		1,318		1,266
Trademark - Indefinite lived	—	13,447		—		13,447
Total		$	501,380	$	101,903	$	399,477

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


		December 31, 2022
	Amortization Period (years)	Cost		Accumulated Amortization		Net
Customer Relationships	7 - 15	$	143,101	$	55,645	$	87,456
Developed Technology	10 - 15	310,226		33,117		277,109
Marketing Assets	4	549		238		311
Trademarks	15	31,473		3,223		28,250
Trade Name	2.5	2,584		897		1,687
Trademark - Indefinite lived	—	13,447		—		13,447
Total		$	501,380	$	93,120	$	408,260

The Company records amortization expense within cost of revenue and general and administrative expense on the Consolidated Statement of Operations. The following table summarizes the amortization expense for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Amortization of intangibles included in cost of revenue	$	4,853	$	4,853
Amortization of intangibles included in general and administrative expenses	3,930		3,637
Total amortization of intangibles	$	8,783	$	8,490

The estimated amortization expense related to amortizable intangible assets for each of the following periods as of March 31, 2023 is as follows (in thousands):


Remainder of 2023	$	26,350
2024	33,447
2025	33,343
2026	33,308
2027	32,758

Thereafter	226,824
Total	$	386,030

Note 5. Debt

2028 Convertible Senior Notes

On January 11, 2021, the Company completed the sale of $345.0 million of Convertible Senior Notes with a stated interest rate of 0.25% and a maturity date of January 15, 2028 (the “2028 Convertible Notes”), unless earlier converted, redeemed, or repurchased.

The last reported sales price of the Company’s common stock was not greater than or equal to 130.0% of the conversion price of the 2028 Convertible Notes on at least 20 of the last 30 consecutive trading days of the quarter ended December 31, 2022. Based on the terms of the 2028 Convertible Notes, the holders could not have converted all or a portion of their 2028 Convertible Notes in the first quarter of 2023. The last reported sales price of the Company’s common stock was not greater than or equal to 130.0% of the conversion price of the 2028 Convertible Notes on at least 20 of the last 30 consecutive trading days of the quarter ended March 31, 2023. Based on the terms of the 2028 Convertible Notes, the holders cannot convert all or a portion of their 2028 Convertible Notes in the second quarter of 2023. The value of the 2028 Convertible Notes, if-converted, does not exceed the principal amount based on a closing stock price of $17.41 on March 31, 2023.

The interest expense recognized on the 2028 Convertible Notes includes $0.2 million, $0.4 million and $8,500 for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the three months ended March 31, 2023. The interest expense recognized on the 2028 Convertible Notes includes $0.2 million, $0.4 million and $8,400 for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the three months ended March 31, 2022. The effective interest rate on the 2028 Convertible Notes is 0.70%, which includes the interest on the 2028 Convertible Notes and amortization of the debt discount and debt issuance costs. The 2028 Convertible Notes bear interest at a rate of 0.25% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2021.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

At March 31, 2023, the estimated fair values (Level 2) of the 0.25% Convertible Senior Notes due 2028 was $258.8 million. At December 31, 2022, the estimated fair value (Level 2) of the 0.25% Convertible Senior Notes due 2028 was $218.2 million.

2025 Convertible Senior Notes

On May 4, 2020, the Company completed the sale of $201.3 million of Convertible Senior Notes with a stated interest rate of 1.25% and a maturity date of May 1, 2025 (the “2025 Convertible Notes”), unless earlier converted, redeemed, or repurchased.

The last reported sales price of the Company’s common stock was not greater than or equal to 130.0% of the conversion price of the 2025 Convertible Notes on at least 20 of the last 30 consecutive trading days of the quarter ended December 31, 2022. Based on the terms of the 2025 Convertible Notes, the holders could not have converted all or a portion of their 2025 Convertible Notes in the first quarter of 2023. The last reported sales price of the Company’s common stock was not greater than or equal to 130.0% of the conversion price of the 2025 Convertible Notes on at least 20 of the last 30 consecutive trading days of the quarter ended March 31, 2023. Based on the terms of the 2025 Convertible Notes, the holders cannot convert all or a portion of their 2025 Convertible Notes in the second quarter of 2023. The value of the 2025 Convertible Notes, if-converted, does not exceed the principal amount based on a closing stock price of $17.41 on March 31, 2023.

The interest expense recognized on the 2025 Convertible Notes includes $0.6 million, $0.3 million and $37,600 for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the three months ended March 31, 2023. The interest expense recognized on the 2025 Convertible Notes includes $0.6 million, $0.3 million and $36,800 for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the three months ended March 31, 2022. The effective interest rate on the 2025 Convertible Notes is 1.96%, which includes the interest on the 2025 Convertible Notes and amortization of the debt discount and debt issuance costs. The 2025 Convertible Notes bear interest at a rate of 1.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, which began on November 1, 2020.

At March 31, 2023, the estimated fair values (Level 2) of the 1.25% Convertible Senior Notes due 2025 was $186.8 million. At December 31, 2022, the estimated fair value (Level 2) of the 1.25% Convertible Senior Notes due 2025 was $169.6 million.

Note 6. Stock-Based Compensation

The Company recorded approximately $4.8 million and $12.1 million for stock-based compensation in general and administrative expenses on the Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, respectively.

Stock Options

A summary of the stock option activity under the Company’s plans for the three months ended March 31, 2023 is as follows:


	Number of Shares	Weighted Average Exercise Price
Outstanding at December 31, 2022	4,214,617	$	16.48
Granted	338,792	$	10.62
Exercised	(75,028)	$	10.01
Forfeited	(347,719)	$	20.56
Outstanding at March 31, 2023	4,130,662	$	15.77
Exercisable at March 31, 2023	754,142	$	29.45

The fair value of each stock option award granted during the three months ended March 31, 2023 was estimated as of the grant date using a Black-Scholes model with the following assumptions:


			Three Months Ended March 31, 2023
Expected term (in years)			4.0 - 5.5
Risk-free interest rate (%)			3.4% - 4.4%
Expected volatility (%)			54.6% - 65.7%
Dividend yield (%)			—
Weighted average grant date fair value per share			$5.66

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As of March 31, 2023, there was approximately $12.2 million of unrecognized stock-based compensation expense related to stock options that will be recognized over a weighted-average period of approximately 2.1 years.

Restricted Stock Awards

A summary of the restricted stock activity under the Company’s plans for the three months ended March 31, 2023 is as follows:


	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2022	1,994,861	$	12.71
Granted	213,710	$	10.15
Vested	(33,607)	$	23.42
Forfeited	(89,836)	$	12.16
Nonvested at March 31, 2023	2,085,128	$	12.28

As of March 31, 2023, there was approximately $15.5 million of unrecognized stock-based compensation expense related to restricted stock that will be recognized over a weighted-average period of approximately 2.3 years.

Modification of Stock Option and Restricted Stock Awards

In the first quarter of 2022, upon the Chief Executive Officer’s departure from the Company and in accordance with the terms of the Chief Executive Officer’s separation agreement, 237,960 previously granted time-based vesting stock option awards and 142,302 previously granted time-vesting restricted stock awards accelerated vesting. The Company accounted for the effects of the accelerated vesting of these stock awards as a modification, and recognized $5.9 million of incremental stock-based compensation which consisted of $2.3 million and $3.6 million for the acceleration of stock option awards and restricted stock awards, respectively, within general and administrative expenses on the Consolidated Statements of Operations for the three months ended March 31, 2022. There were no such amounts for the three months ended March 31, 2023.

Note 7. Revenue Recognition

The Company’s two reportable segments for which it recognizes revenue are (1) Clinical Services and (2) Pharma Services. The Clinical Services segment provides various clinical testing services to community-based pathology practices, oncology practices, hospital pathology labs, reference labs, and academic centers with reimbursement from various payers including client direct billing, commercial insurance, Medicare and other government payers, and patients. The Pharma Services segment supports pharmaceutical firms in their drug development programs by providing testing services and data analytics for clinical trials and research.

Clinical Services Revenue

The Company’s specialized diagnostic services are performed based on a written test requisition form or an electronic equivalent. The performance obligation is satisfied and revenues are recognized once the diagnostic services have been performed and the results have been delivered to the ordering physician. These diagnostic services are billed to various payers, including client direct billing, commercial insurance, Medicare and other government payers, and patients. Revenue is recorded for all payers based on the amount expected to be collected, which considers implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to receive based on negotiated discounts, historical collection experience, and other anticipated adjustments, including anticipated payer denials.

Pharma Services Revenue

The Company’s Pharma Services segment generally enters into contracts with pharmaceutical and biotech customers as well as other contract research organizations (“CROs”) to provide research and clinical trial services. Such services also include validation studies and assay development. The Company records revenue on a unit-of-service basis based on the number of units completed towards the satisfaction of a performance obligation. In addition, certain contracts include upfront fees and the revenue for those contracts is recognized over time as services are performed.

Additional offerings within the Pharma Services portfolio includes Informatics, which involves the licensing of de-identified data to pharmaceutical and biotech customers in the form of either retrospective records or prospective deliveries of data. Informatics revenue is recognized at a point in time upon delivery of retrospective data or over time for prospective data feeds. The Company negotiates billing schedules and payment terms on a contract-by-contract basis, and contract terms generally provide for payments based on a unit-of-service arrangement.

Amounts collected in advance of services being provided are deferred as contract liabilities on the Consolidated Balance Sheets. The associated revenue is recognized and the contract liability is reduced as the contracted services are subsequently performed.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Contract assets are established for revenue recognized but not yet billed. These contract assets are reduced once the customer is invoiced and a corresponding receivable is recorded. Additionally, Pharma Services incurs sales commissions in the process of obtaining contracts with customers. Sales commissions that are payable upon contract award are recognized as assets and amortized over the expected contract term. The amortization of commission expense is based on the weighted average contract duration for all commissionable awards in the respective business in which the commission expense is paid, which approximates the period over which goods and services are transferred to the customer. For offerings with primarily short-term contracts, such as Informatics, the Company applies the practical expedient which allows costs to obtain a contract to be expensed when incurred, if the amortization period of the assets that would otherwise have been recognized is one year or less. Contract assets and capitalized commissions are included in other current assets and other assets on the Consolidated Balance Sheets.

Most contracts are terminable by the customers, either immediately or according to advance notice terms specified within the contracts. All contracts require payment of fees to the Company for services rendered through the date of termination and may require payment for subsequent services necessary to conclude the study or close out the contract.

The following table summarizes the values of contract assets, capitalized commissions and contract liabilities (in thousands):


	March 31, 2023		December 31, 2022
Current pharma contract assets (1)	$	1,121	$	1,898
Long-term pharma contract assets (2)	—		31
Total pharma contract assets	$	1,121	$	1,929


Current pharma capitalized commissions