Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

May 9, 2023

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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 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
S
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
 
   
 
 
 
 
   
 
 
 
 
 
 
 
 




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;
3


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)
(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.
5


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.
6


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.

7


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.

8


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.
9

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
10

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 

11

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 

12

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 

13

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 
14

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.
15

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
 
16

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.
17

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 (1)
$ 912  $ 800 
Long-term pharma capitalized commissions (2)
632  715 
Total pharma capitalized commissions $ 1,544  $ 1,515 
Current pharma contract liabilities