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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 September 30, 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 November 2, 2023, the registrant had 127,465,820 shares of Common Stock, par value $0.001 per share outstanding.

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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						27
Item 3. Quantitative and Qualitative Disclosures About Market Risk						37
Item 4. Controls and Procedures						37
PART II OTHER INFORMATION
Item 1. Legal Proceedings						38
Item 1A. Risk Factors						38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						38
Item 3. Defaults Upon Senior Securities						38
Item 4. Mine Safety Disclosures						38
Item 5. Other Information						38
Item 6. Exhibits						40
SIGNATURES						41

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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

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•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

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NEOGENOMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

						(unaudited) September 30, 2023						December 31, 2022
ASSETS
Current assets
Cash and cash equivalents						$	306,239					$	263,180
Marketable securities, at fair value						96,025						174,809
Accounts receivable, net						132,640						119,711
Inventories						24,053						24,277
Prepaid assets						18,676						15,237
Other current assets						9,317						8,077
Total current assets						586,950						605,291
Property and equipment (net of accumulated depreciation of $154,840 and $131,930, respectively)						94,517						102,499
Operating lease right-of-use assets						87,131						96,109
Intangible assets, net						381,910						408,260
Goodwill						522,766						522,766
Other assets						4,967						5,109
Total non-current assets						1,091,291						1,134,743
Total assets						$	1,678,241					$	1,740,034
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable						$	16,819					$	20,510
Accrued compensation						47,594						40,141
Accrued expenses and other liabilities						18,679						15,070
Current portion of equipment financing obligations						4						70
Current portion of operating lease liabilities						6,213						6,584
Contract liabilities						3,617						7,557
Total current liabilities						92,926						89,932
Long-term liabilities
Convertible senior notes, net						537,475						535,322
Operating lease liabilities						62,007						68,952
Deferred income tax liabilities, net						25,370						34,750
Other long-term liabilities						13,035						13,055
Total long-term liabilities						637,887						652,079
Total liabilities						$	730,813					$	742,011
Commitments and contingencies (Note 11)
Stockholders’ equity
Common stock, $0.001 par value, (250,000,000 shares authorized; 127,261,476 and 126,913,992 shares issued and outstanding, respectively)						$	127					$	127
Additional paid-in capital						1,181,876						1,160,882
Accumulated other comprehensive loss						(1,846)						(3,899)
Accumulated deficit						(232,729)						(159,087)
Total stockholders’ equity						$	947,428					$	998,023
Total liabilities and stockholders’ equity						$	1,678,241					$	1,740,034

See the accompanying notes to the unaudited Consolidated Financial Statements.

5

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NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
NET REVENUE
Clinical Services			$	127,553					$	106,162					$	365,578					$	310,588
Advanced Diagnostics			24,401						22,620						70,513						60,435
Total net revenue			151,954						128,782						436,091						371,023
COST OF REVENUE			89,643						79,889						259,075						239,952
GROSS PROFIT			62,311						48,893						177,016						131,071
Operating expenses:
General and administrative			61,486						64,282						183,343						188,481
Research and development			5,285						7,312						20,182						23,651
Sales and marketing			17,610						16,809						52,770						50,179
Restructuring charges			2,125						—						9,883						—
Total operating expenses			86,506						88,403						266,178						262,311
LOSS FROM OPERATIONS			(24,195)						(39,510)						(89,162)						(131,240)
Interest (income) expense, net			(2,840)						139						(6,831)						2,366
Other expense (income), net			96						(25)						(520)						212
Loss before taxes			(21,451)						(39,624)						(81,811)						(133,818)
Income tax benefit			(2,935)						(2,772)						(8,169)						(12,255)
NET LOSS			$	(18,516)					$	(36,852)					$	(73,642)					$	(121,563)
NET LOSS PER SHARE
Basic			$	(0.15)					$	(0.30)					$	(0.59)					$	(0.98)
Diluted			$	(0.15)					$	(0.30)					$	(0.59)					$	(0.98)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic			125,687						124,425						125,358						124,055
Diluted			125,687						124,425						125,358						124,055

See the accompanying notes to the unaudited Consolidated Financial Statements.

6

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NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

						Three Months Ended September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
NET LOSS						$	(18,516)					$	(36,852)					$	(73,642)					$	(121,563)
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized gain (loss) on marketable securities, net of tax						726						(1,048)						2,053						(4,466)
Total other comprehensive income (loss), net of tax						726						(1,048)						2,053						(4,466)
COMPREHENSIVE LOSS						$	(17,790)					$	(37,900)					$	(71,589)					$	(126,029)

See the accompanying notes to the unaudited Consolidated Financial Statements.

7

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NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands, except share data)

												Common Stock												Additional Paid-In Capital						Accumulated Other Comprehensive (Loss) Income						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
Issuance for common stock for ESPP																		78,302						—						1,029						—						—						1,029
Issuance of restricted stock, net of forfeitures																		(194,448)						—						(1,527)						—						—						(1,527)
Issuance of common stock for stock options																		60,073						—						610						—						—						610
Stock issuance fees and expenses																		—						—						(18)						—						—						(18)
Stock-based compensation expense - ESPP																		—						—						255						—						—						255
Stock-based compensation expense - options and restricted stock																		—						—						5,450						—						—						5,450
Net unrealized gain on marketable securities, net of tax																		—						—						—						262						—						262
Net loss																		—						—						—						—						(24,331)						(24,331)
Balance, June 30, 2023																		127,144,418						$	127					$	1,172,850					$	(2,572)					$	(214,213)					$	956,192
Issuance for common stock for ESPP																		64,785						—						863						—						—						863
Issuance of restricted stock, net of forfeitures																		(35,670)						—						(41)						—						—						(41)
Issuance of common stock for stock options																		87,943						—						1,026						—						—						1,026
Stock issuance fees and expenses																		—						—						(1)						—						—						(1)
Stock-based compensation expense - ESPP																		—						—						279						—						—						279
Stock-based compensation expense - options and restricted stock																		—						—						6,900						—						—						6,900
Net unrealized gain on marketable securities, net of tax																		—						—						—						726						—						726
Net loss																		—						—						—						—						(18,516)						(18,516)
Balance, September 30, 2023																		127,261,476						$	127					$	1,181,876					$	(1,846)					$	(232,729)					$	947,428

8

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NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands, except share data)

												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
Issuance of common stock for ESPP																		89,374						—						807						—						—						807
Issuance of restricted stock, net of forfeitures																		773,010						1						(311)						—						—						(310)
Issuance of common stock for stock options																		94,974						—						743						—						—						743
Stock-based compensation expense - ESPP																		—						—						293						—						—						293
Stock-based compensation expense - options and restricted stock																		—						—						3,332						—						—						3,332
Net unrealized loss on marketable securities, net of tax																		—						—						—						(1,047)						—						(1,047)
Net loss																		—						—						—						—						(35,303)						(35,303)
Balance, June 30, 2022																		125,679,573						$	126					$	1,146,997					$	(4,056)					$	(99,548)					$	1,043,519
Issuance for common stock for ESPP																		150,585						—						1,133						—						—						1,133
Issuance of restricted stock, net of forfeitures																		493,907						1						(6)						—						—						(5)
Issuance of common stock for stock options																		237,972						—						1,961						—						—						1,961
Stock-based compensation expense - ESPP																		—						—						257						—						—						257
Stock-based compensation expense - options and restricted stock																		—						—						4,023						—						—						4,023
Net unrealized loss on marketable securities, net of tax																		—						—						—						(1,048)						—						(1,048)
Net loss																		—						—						—						—						(36,852)						(36,852)
Balance, September 30, 2022																		126,562,037						$	127					$	1,154,365					$	(5,104)					$	(136,400)					$	1,012,988

See the accompanying notes to the unaudited Consolidated Financial Statements.

9

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NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) 

(unaudited) 

						Nine Months Ended September 30,
						2023						2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss						$	(73,642)					$	(121,563)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation						27,872						25,894
Amortization of intangibles						26,350						25,470
Non-cash stock-based compensation						17,643						20,009
Non-cash operating lease expense						6,860						7,375
Amortization of convertible debt discount						2,015						1,989
Amortization of debt issuance costs						139						136
Loss on disposal of assets, net						334						3,066
Impairment of assets						1,703						—
Gain on sale of assets held for sale						—						(2,048)
Other adjustments						122						1,428
Changes in assets and liabilities, net
Accounts receivable, net						(12,928)						136
Inventories						(252)						(403)
Prepaid and other assets						(5,165)						(3,605)
Operating lease liabilities						(5,871)						(7,086)
Deferred income tax liabilities, net						(9,380)						(12,781)
Accrued compensation						7,453						(313)
Accounts payable and other liabilities						(2,990)						(12)
Net cash used in operating activities						(19,737)						(62,308)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities						(6,756)						(73,973)
Proceeds from maturities of marketable securities						87,963						89,812
Purchases of property and equipment						(21,695)						(26,357)
Proceeds from assets held for sale						—						12,098
Net cash provided by investing activities						59,512						1,580
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of equipment financing obligations						(66)						(706)
Issuance of common stock, net						3,350						10,733
Net cash provided by financing activities						3,284						10,027
Net change in cash and cash equivalents						43,059						(50,701)
Cash and cash equivalents, beginning of period						263,180						316,827
Cash and cash equivalents, end of period						$	306,239					$	266,126

Supplemental disclosure of cash flow information:
Interest paid						$	2,121					$	2,145
Income taxes paid, net						$	175					$	155
Supplemental disclosure of non-cash investing and financing information:
Purchases of property and equipment included in accounts payable						$	636					$	1,144

See the accompanying notes to the unaudited Consolidated Financial Statements.

10

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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 Stock-based Compensation and new accounting standards discussed under Recent Accounting Pronouncements as referenced below.

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, 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.

Segment Reporting

The Company has historically reported its activities in two reportable segments; (1) the Clinical Services segment and (2) the Pharma Services segment. In the second quarter of 2023, the Pharma Services segment was rebranded as the Advanced Diagnostics segment. Functions within the Clinical Services segment include oncology diagnostics, community-based oncology and pathology sales, patient engagement, and clinical decision support. Functions within the Advanced Diagnostics segment include pharma services, informatics, R&D, minimal residual disease, liquid biopsy and therapy selection business development. For further financial information regarding reportable segments, please refer to Note 13. Segment Information.

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 and nine months ended September 30, 2023 and 2022.

Stock-based Compensation

In the second quarter of 2023, the Company began granting performance stock units (“PSUs”) subject to a market condition to certain of its executives as part of its executive compensation program. The number of shares awarded will be subject to adjustment based on the achievement of an absolute total shareholder return (“TSR”) performance target. If the TSR

11

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

performance target is achieved, the awards will vest at the end of the three-year requisite service period so long as the employee remains employed with the Company through the applicable vesting date.

The Company measures compensation expense for stock-based awards to employees, non-employee contracted physicians, and directors based upon the awards’ initial grant-date fair values. Stock-based compensation expense for stock options, restricted stock awards, restricted stock units and performance awards is recorded over the requisite service period in general and administrative expenses on the Consolidated Statements of Operations. For awards with only a service condition, the Company expenses stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with a market condition, the Company expenses the grant date fair value at the target over the vesting period regardless of the value that the award recipients ultimately receive. The fair values of stock option grants are estimated as of the date of grant by applying the Black-Scholes option valuation model (“Black-Scholes”). The fair value of restricted stock with a market condition is estimated at the date of grant using the Monte Carlo simulation model (“Monte Carlo”). The Black-Scholes and Monte Carlo models incorporate assumptions as to stock price volatility, the expected life of options or restricted stock, a risk-free interest rate and dividend yield. The fair value of restricted stock without a market condition is estimated using the current market price of the Company’s common stock on the date of grant.

Black-Scholes is affected by the stock price on the date of the grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include the expected term of the option, expected risk-free interest rate, the expected volatility of common stock, and expected dividend yield; each of which is described below. The assumptions for expected term and expected volatility are the two assumptions that significantly affect the grant date fair value.

Expected Term: The expected term of an option is determined using the simplified method under SAB 107 which represents the average between the vesting term and the contractual term. The Company utilizes the simplified method to determine the expected life of the options due to insufficient exercise activity during recent years.

Risk-free Interest Rate: The risk-free interest rate used in the Black-Scholes model is based on the implied yield at the grant date of the U.S. Treasury zero-coupon issue with an equivalent term to the stock-based award being valued. Where the expected term of a stock-based award does not correspond with the term for which a zero-coupon interest rate is quoted, the Company uses the nearest interest rate from available maturities.

Expected Stock Price Volatility: The Company uses its own historical weekly volatility because that is more reflective of market conditions.

Dividend Yield: Because the Company has never paid a dividend and does not expect to begin doing so in the foreseeable future, the Company assumed no dividend yield in valuing the stock-based awards.

The fair value of the PSUs granted during the nine months ended September 30, 2023 was estimated as of the grant date using the Monte Carlo, which requires management to make assumptions regarding risk-free interest rates and volatility of the Company’s stock price. The Monte Carlo incorporates the same assumptions as Black-Scholes as to stock price volatility, the risk-free interest rate and dividend yield. The Company utilized the expected life of the PSUs for the expected term of the award, as the vesting term and contractual term of the awards are identical.

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 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.

12

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NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 September 30, 2023 and December 31, 2022.

						September 30, 2023
(in thousands)						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Financial Assets:
Short-term marketable securities:
U.S. Treasury securities						$	25,850					$	—					$	(175)					$	25,675
Yankee bonds						2,605						—						(37)						2,568
Agency bonds						6,041						—						(98)						5,943
Municipal bonds						12,731						—						(828)						11,903
Commercial paper						2,973						—						—						2,973
Asset-backed securities						9,235						—						(90)						9,145
Corporate bonds						38,977						—						(1,159)						37,818
Total						$	98,412					$	—					$	(2,387)					$	96,025

13

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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 $1.6 million and $0.9 million of accrued interest receivable at September 30, 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 and nine months ended September 30, 2023. Realized gains or losses for the three and nine months ended September 30, 2022 were immaterial.

The following tables set forth the fair value of available-for-sale marketable securities by contractual maturity at September 30, 2023 and December 31, 2022.

						September 30, 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						$	25,675					$	—					$	—					$	25,675
Yankee bonds						2,568						—						—						2,568
Agency bonds						3,572						2,371						—						5,943
Municipal bonds						2,962						8,941						—						11,903
Commercial paper						2,973						—						—						2,973
Asset-backed securities						9,145						—						—						9,145
Corporate bonds						25,210						12,608						—						37,818
Total						$	72,105					$	23,920					$	—					$	96,025

14

---

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 September 30, 2023 and December 31, 2022.

						September 30, 2023
(in thousands)						Level 1						Level 2						Level 3						Total
Financial Assets:
Cash equivalents:
Money market funds						$	299,539					$	—					$	—					$	299,539
Marketable securities:
U.S. Treasury securities						25,675						—						—						25,675
Yankee bonds						2,568						—						—						2,568
Agency bonds						5,943						—						—						5,943
Municipal bonds						11,903						—						—						11,903
Commercial paper						—						2,973						—						2,973
Asset-backed securities						—						9,145						—						9,145
Corporate bonds						—						37,818						—						37,818
Total						$	345,628					$	49,936					$	—					$	395,564

15

---

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 and nine months ended September 30, 2023 and September 30, 2022.

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 September 30, 2023 and December 31, 2022 due to their short-term nature.

Note 4. Goodwill and Intangible Assets

The following table summarizes the carrying amounts of goodwill by segment at September 30, 2023 and December 31, 2022 (in thousands):

						September 30, 2023						December 31, 2022
Clinical Services						$	458,782					$	458,782
Advanced Diagnostics						63,984						63,984
Total						$	522,766					$	522,766

Intangible assets consisted of the following (in thousands):

												September 30, 2023
						Amortization Period (years)						Cost						Accumulated Amortization						Net
Customer Relationships						7 - 15						$	143,101					$	63,062					$	80,039
Developed Technology						10 - 15						310,226						49,108						261,118
Marketing Assets						4						549						342						207
Trademarks						15						31,473						4,797						26,676
Trade Name						2.5						2,584						2,161						423
Trademark - Indefinite lived						—						13,447						—						13,447
Total												$	501,380					$	119,470					$	381,910

16

---

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 and nine months ended September 30, 2023 and 2022 (in thousands):

						Three Months Ended September 30,												Nine Months Ended September 30,
						2023						2022						2023						2022
Amortization of intangibles included in cost of revenue						$	4,853					$	4,853					$	14,560					$	14,559
Amortization of intangibles included in general and administrative expenses						3,931						3,637						11,790						10,911
Total amortization of intangibles						$	8,784					$	8,490					$	26,350					$	25,470

The estimated amortization expense related to amortizable intangible assets for each of the following periods as of September 30, 2023 is as follows (in thousands):

 

Remainder of 2023			$	8,783
2024			33,447
2025			33,343
2026			33,308
2027			32,758
Thereafter			226,824
Total			$	368,463

 

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 June 30, 2023. 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 third 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 September 30, 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 fourth 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 $12.30 on September 29, 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 September 30, 2023. The interest expense recognized on the 2028 Convertible Notes includes $0.6 million, $1.1 million and $26,000 for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the nine months ended September 30, 2023. The interest expense

17

---

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 September 30, 2022. The interest expense recognized on the 2028 Convertible Notes includes $0.7 million, $1.1 million and $25,300 for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the nine months ended September 30, 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.

At September 30, 2023, the estimated fair values (Level 2) of the 0.25% Convertible Senior Notes due 2028 was $245.8 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 June 30, 2023. 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 third 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 September 30, 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 fourth 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 $12.30 on September 29, 2023.

The interest expense recognized on the 2025 Convertible Notes includes $0.6 million, $0.3 million and $37,900 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 September 30, 2023. The interest expense recognized on the 2025 Convertible Notes includes $1.9 million, $0.9 million and $0.1 million for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the nine months ended September 30, 2023. The interest expense recognized on the 2025 Convertible Notes includes $0.6 million, $0.3 million and $37,200 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 September 30, 2022. The interest expense recognized on the 2025 Convertible Notes includes $1.9 million, $0.9 million and $0.1 million for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the nine months ended September 30, 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 September 30, 2023, the estimated fair values (Level 2) of the 1.25% Convertible Senior Notes due 2025 was $187.3 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

Equity Incentive Plan

Effective May 25, 2023, the Company adopted the NeoGenomics, Inc. 2023 Equity Incentive Plan (the “2023 Plan”) as approved by the Board of Directors on March 28, 2023 and the Company’s stockholders on May 25, 2023. The 2023 Plan replaced the NeoGenomics, Inc. Amended and Restated Equity Incentive Plan, as most recently amended and subsequently approved by the stockholders on May 25, 2017 (the “Prior Plan”). The 2023 Plan allows for the award of equity incentives including stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance units, and other stock-based awards to certain employees, directors, or officers of, or key non-employee advisers or consultants, including contracted physicians to the Company or its subsidiaries. The 2023 Plan provides that the maximum aggregate number of shares of the Company’s common stock reserved and available for issuance under the 2023 Plan is 3,975,000. Additionally, effective May 25, 2023, any remaining unissued shares from the Prior Plan are available for the grant of new awards under the 2023 Plan.

18

---

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company recorded approximately $7.2 million and $4.3 million for stock-based compensation in general and administrative expenses on the Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022, respectively, and approximately $17.6 million and $20.0 million for the nine months ended September 30, 2023 and 2022, respectively.

Stock Options

The Company recorded approximately $3.0 million and $1.6 million for stock-based compensation related to stock options in general and administrative expenses on the Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022, respectively, and approximately $7.0 million and $6.4 million for the nine months ended September 30, 2023 and 2022, respectively.

A summary of the stock option activity under the Company’s plans for the nine months ended September 30, 2023 is as follows:

 

						Number of Shares						Weighted Average Exercise Price
Outstanding at December 31, 2022						4,214,617						$	16.48
Granted						1,644,070						$	17.17
Exercised						(223,044)						$	10.70
Forfeited						(1,142,470)						$	21.11
Outstanding at September 30, 2023						4,493,173						$	15.84
Exercisable at September 30, 2023						1,126,578						$	21.05

The fair value of each stock option award granted during the nine months ended September 30, 2023 was estimated as of the grant date using a Black-Scholes model with the following assumptions:

			Nine Months Ended September 30, 2023
Expected term (in years)			4.0 - 6.5
Risk-free interest rate (%)			3.3% - 4.4%
Expected volatility (%)			53.3% - 67.9%
Dividend yield (%)			—
Weighted average grant date fair value per share			$9.04

As of September 30, 2023, there was approximately $15.8 million of unrecognized stock-based compensation expense related to stock options that will be recognized over a weighted-average period of approximately 1.9 years.

Restricted Stock

The Company recorded approximately $3.4 million and $2.4 million for stock-based compensation related to restricted stock in general and administrative expenses on the Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022, respectively, and approximately $8.9 million and $12.8 million for the nine months ended September 30, 2023 and 2022, respectively.

A summary of the restricted stock activity under the Company’s plans for the nine months ended September 30, 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						986,142						$	16.90
Vested						(548,543)						$	14.00
Forfeited						(385,489)						$	15.72
Nonvested at September 30, 2023						2,046,971						$	13.79

As of September 30, 2023, there was approximately $18.8 million of unrecognized stock-based compensation expense related to restricted stock that will be recognized over a weighted-average period of approximately 1.9 years.

19

---

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Performance-Based Restricted Stock Units

In the second quarter of 2023, the Company granted 305,105 PSUs subject to a market condition to certain of its executives with an aggregated grant date fair value of approximately $6.7 million. The number of shares awarded will be subject to adjustment based on the achievement of a TSR performance target. If the TSR performance target is achieved, the awards will vest at the end of the three-year requisite service period so long as the employee remains employed with the Company through the applicable vesting date. Compensation cost for the PSUs is recognized straight-line over the requisite service period, regardless of when, if ever, the market condition is satisfied.

The Company recognized approximately $0.6 million and $0.9 million of stock-based compensation related to the PSUs in general and administrative expenses on the Consolidated Statements of Operations for the three and nine months ended September 30, 2023, respectively. There were no such amounts for the three and nine months ended September 30, 2022.

A summary of the PSU activity under the Company’s plans for the nine months ended September 30, 2023 is as follows:

						Number of Stock Units						Weighted Average Grant Date Fair Value
Nonvested at December 31, 2022						—						$	—
Granted						305,105						$	21.83
Vested						—						$	—
Forfeited						—						$	—
Nonvested at September 30, 2023						305,105						$	21.83

The fair value of each PSU granted during the nine months ended September 30, 2023 was estimated as of the grant date using a Monte Carlo with the following assumptions:

			Nine Months Ended September 30, 2023
Expected term (in years)			3.0
Risk-free interest rate (%)			3.6% - 4.0%
Expected volatility (%)			68.4% - 69.9%
Dividend yield (%)			—