NEOGENOMICS INC

Previous wording

We believe we are a leading provider of Heme Molecular and NGS testing and one of the key providers of solid tumor NGS testing solutions. These tests are interpreted by NeoGenomics’ team of molecular experts and are often ordered in conjunction with other testing modalities. NGS panels are one of our fastest growing testing areas, and clients can often receive a significant amount of biomarker information from very limited samples. These comprehensive panels can allow for faster treatment decisions for patients as compared to a series of single-gene molecular tests being ordered sequentially. We have a broad molecular testing menu, and our targeted NeoTYPE panels include genes relevant to a particular cancer type. These tests are complemented by IHC and FISH tests, as necessary. In addition, we offer molecular-only NGS-targeted and comprehensive panels which combine DNA and RNA into a single work stream in order to report a full spectrum of genomic alterations, including mutations, fusions, copy number variations, and splicing mutations, as well as tumor mutation burden (TMB) and microsatellite instability (MSI) for solid tumor cases. This comprehensive molecular test menu allows our clients to obtain most of their molecular oncology testing needs satisfied by our laboratory. This is attractive to our clients as patient samples do not need to be split and then managed across several laboratories. The acquisition of Inivata in June of 2021 provided us with oncology liquid biopsy technology capabilities. InVisionFirst®-Lung is a highly sensitive, targeted plasma-based assay for patients with non-small cell lung cancer, and RaDaR® is a liquid biopsy assay designed to detect residual disease and recurrence in plasma samples from patients with solid tumor malignancies. We expect our molecular laboratory and NGS capabilities to be a key growth driver in the coming years.

Current wording

We are a leading provider of Heme oncology Dx testing, which includes Molecular and NGS testing, and one of the key providers of solid tumor NGS testing solutions. These tests are interpreted by NeoGenomics’ team of molecular experts and are often ordered in conjunction with other testing modalities. NGS panels are one of our fastest growing testing areas, and clients can often receive a significant amount of biomarker information from very limited samples. These comprehensive panels can allow for faster treatment decisions for patients as compared to a series of single-gene molecular tests being ordered sequentially. We have a broad molecular testing menu, and our targeted NeoTYPE panels include genes relevant to a particular cancer type. These tests are complemented by IHC and FISH tests, as necessary. In addition, we offer molecular-only NGS-targeted and comprehensive panels which combine DNA and RNA into a single work stream in order to report a full spectrum of genomic alterations, including mutations, fusions, copy number variations, and splicing mutations, as well as tumor mutation burden (TMB) and microsatellite instability (MSI) for solid tumor cases. This comprehensive molecular test menu allows our clients to obtain most of their molecular oncology testing needs satisfied by our laboratory. This is attractive to our clients as patient samples do not need to be split and then managed across several laboratories. The acquisition of Inivata in June of 2021 provided us with oncology liquid biopsy technology capabilities. InVisionFirst®-Lung is a highly sensitive, targeted plasma-based assay for patients with non-small cell lung cancer, and RaDaR® is a liquid biopsy assay designed to detect residual disease and recurrence in plasma samples from patients with solid tumor malignancies. We expect our molecular laboratory and NGS capabilities to be a key growth driver in the coming years.

Previous wording

•Execute Neo Comprehensive 2.0 launch;

Current wording

•Execute towards Neo Comprehensive 2.0 launch;

Previous wording

•Execute liquid biopsy Comprehensive Genetic Profiling (“CGP”) launch; and

Current wording

•Execute towards liquid biopsy Comprehensive Genetic Profiling (“CGP”) launch; and

Previous wording

Results of Operations for the Three Months Ended March 31, 2024 as Compared to the Three Months Ended March 31, 2023

Current wording

Results of Operations for the Three and Six Months Ended June 30, 2024 as Compared to the Three and Six Months Ended June 30, 2023

Previous wording

Clinical Services and Advanced Diagnostics net revenues for the periods presented are as follows:

Current wording

Clinical Services and Advanced Diagnostics net revenues for the periods presented are as follows ($ in thousands):

Previous wording

Clinical Services revenue for the three months ended March 31, 2024 increased $19.7 million when compared to the same period in 2023. The increase in Clinical Services revenue reflects an increase in test volume, a more favorable test mix, and an increase in average unit price due to strategic reimbursement initiatives.

Current wording

Clinical Services revenue for the three and six months ended June 30, 2024 increased $18.2 million and $37.9 million, respectively, when compared to the same periods in 2023. The increase in Clinical Services revenue reflects an increase in clinical testing volume, a more favorable test mix and an increase in average unit price due to strategic reimbursement initiatives.

Previous wording

Cost of revenue includes compensation and benefit costs, including stock-based compensation, for performing tests, maintenance and/or depreciation of laboratory equipment, rent for laboratory facilities, laboratory reagents, probes and supplies, delivery and courier costs relating to the transportation of specimens to be tested, and amortization for acquired intangible assets.

Current wording

Cost of revenue includes compensation and benefit costs for performing tests, maintenance and/or depreciation of laboratory equipment, rent for laboratory facilities, laboratory reagents, probes and supplies, delivery and courier costs relating to the transportation of specimens to be tested, and amortization for acquired Inivata developed technology intangible assets.

Previous wording

The consolidated cost of revenue and gross profit metrics for the periods presented are as follows:

Current wording

The consolidated cost of revenue and gross profit metrics are as follows:

Previous wording

(3) Advanced Diagnostics cost of revenue for both the three months ended March 31, 2024 and 2023 includes $0.6 million of amortization of acquired intangible assets. Advanced Diagnostics cost of revenue for the three months ended March 31, 2024 also includes $0.1 million of non-cash stock-based compensation. There were no such amounts recorded for the three months ended March 31, 2023.

Current wording

(2) Advanced Diagnostics cost of revenue adjustments for the three months ended June 30, 2024 includes $0.6 million of amortization of acquired intangible assets and $0.1 million of stock-based compensation. Advanced Diagnostics cost of revenue adjustments for the three months ended June 30, 2023 includes $0.6 million of amortization of acquired intangible assets. Advanced Diagnostics cost of revenue adjustments for the six months ended June 30, 2024 includes $1.2 million of amortization of acquired intangible assets and $0.2 million of stock-based compensation. Advanced Diagnostics cost of revenue adjustments for the six months ended June 30, 2023 includes $1.2 million of amortization of acquired intangible assets. There were no stock-based compensation amounts recorded for the three and six months ended June 30, 2023.

Previous wording

Consolidated cost of revenue increased 10.2% for the three months ended March 31, 2024 when compared to the same period in 2023 primarily due to higher compensation and benefit costs, an increase in supplies expense, an increase in technology fees, and an increase in depreciation expense. These increases were partially offset by a decrease in shipping fees.

Current wording

Consolidated cost of revenue increased 5.7% and 7.9% for the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023. The increases were primarily due to higher compensation and benefit costs, an increase in supplies expense, and an increase in depreciation expense.

Previous wording

Gross profit margin for the three months ended March 31, 2024 was 41.9% compared to 39.9% in the same period in 2023. The increase of 2.0% for the three months ended March 31, 2024 was primarily related to the increase in revenue offset by higher compensation and benefit costs and an increase in supplies expense.

Current wording

Gross profit margin for the three and six months ended June 30, 2024 was 44.1% and 43.0%, respectively, compared to 40.8% and 40.4%, respectively, in the same periods of 2023. The increases of 3.3% and 2.6% for the three and six months ended June 30, 2024, respectively, were primarily related to the increase in revenue offset by higher compensation and benefit costs and an increase in supplies expense.

Previous wording

General and administrative expenses increased $4.2 million for the three months ended March 31, 2024, when compared to the same period in 2023. This increase was partially due to a $4.2 million increase in legal and professional fees, and a $1.8 million increase in compensation and benefit costs. These increases were partially offset by a decrease of $1.1 million in technology and equipment costs, and a $0.5 million decrease in credit card fees.

Current wording

General and administrative expenses increased $3.0 million for the three months ended June 30, 2024, when compared to the same period in 2023. This increase was partially due to a $3.2 million increase in compensation and benefit costs, and a $2.7 million increase in legal and professional fees. These increases were partially offset by a decrease of $0.6 million in technology and equipment costs, a $0.5 million decrease in credit card fees, and a $0.3 million decrease in insurance costs.

Previous wording

Research and development expenses increased $0.2 million for the three months ended March 31, 2024 when compared to the same period in 2023 primarily due to a $0.3 million increase in compensation and benefit costs, and a $0.3 million increase in technology and equipment costs partially offset by a $0.4 million decrease in professional fees.

Current wording

Research and development expenses increased $0.4 million for the three months ended June 30, 2024 when compared to the same period in 2023. This increase was primarily due to a $0.3 million increase in compensation and benefit costs, and a $0.3 million increase in technology and equipment costs. These increases were partially offset by a $0.1 million decrease in facilities costs and a $0.1 million decrease in supplies costs.

Previous wording

Restructuring charges decreased $2.3 million for the three months ended March 31, 2024, when compared to the same period in 2023. The charges were comprised of $0.7 million in severance and other employee costs, $1.0 million in Facility Footprint Optimization costs, and $0.7 million of consulting and other costs. We are continuing the restructuring program in 2024 and expect to incur additional restructuring charges of approximately $3.8 million. Our restructuring activities are expected to be complete by December 31, 2024.

Current wording

Restructuring charges decreased $1.5 million and $3.8 million for the three and six months ended June 30, 2024, respectively, when compared to the same period in 2023. For the three months ended June 30, 2024, the charges were comprised of $0.7 million in severance and other employee costs, $0.7 million in Facility Footprint Optimization costs, and $0.1 million of consulting and other costs. For the six months ended June 30, 2024, the charges were comprised of $1.4 million in severance and other employee costs, $1.7 million in Facility Footprint Optimization costs, and $0.8 million of consulting and other costs. We are continuing the restructuring program in 2024 and expect to incur additional restructuring charges of approximately $1.7 million. Our restructuring activities are expected to be complete by December 31, 2024.

Previous wording

Interest income for the three months ended March 31, 2024 and 2023 is as follows (dollars in thousands):

Current wording

Interest income for the three and six ended June 30, 2024 and 2023 is as follows (dollars in thousands):

Previous wording

Interest income was $4.8 million for the three months ended March 31, 2024 compared to $3.2 million for the same period in 2023. Interest income includes interest earned on funds held in our cash equivalent and marketable securities accounts. The increase in interest income for the three months ended March 31, 2024 was due to the higher interest rate environment experienced when compared to the same period in 2023.

Current wording

Interest income was $4.6 million and $9.4 million for the three and six months ended June 30, 2024, respectively, compared to income of $4.3 million and $7.5 million for the same periods in 2023, respectively. Interest income includes interest earned on funds held in our cash equivalent and marketable securities accounts. The increase in interest income for the three and six months ended June 30, 2024 was due to the higher interest rate environment experienced when compared to the same periods in 2023.

Previous wording

Interest expense for the three months ended March 31, 2024 and 2023 is as follows (dollars in thousands):

Current wording

Interest expense for the three and six months ended June 30, 2024 and 2023 is as follows (dollars in thousands):

Previous wording

Interest expense was $1.7 million for the three months ended March 31, 2024 compared to expense of $1.8 million for the same period in 2023. Interest expense for the three months ended March 31, 2024 and 2023 primarily reflects the effective interest rate on the 2028 Convertible Notes and the 2025 Convertible Notes which is 0.70% and 1.96%, respectively. Interest on the 2028 Convertible Notes and 2025 Convertible Notes began accruing upon issuance and is payable semi-annually.

Current wording

Interest expense was $1.7 million and $3.4 million for the three and six months ended June 30, 2024, respectively, compared to expense of $1.8 million and $3.5 million for the same periods in 2023, respectively. Interest expense for the three and six months ended June 30, 2024 and 2023 primarily reflects the effective interest rate on the 2028 Convertible Notes and the 2025 Convertible Notes which is 0.70% and 1.96%, respectively. Interest on the 2028 Convertible Notes and 2025 Convertible Notes began accruing upon issuance and is payable semi-annually.

Previous wording

The following table provides consolidated net loss for each period along with the computation of basic and diluted net loss per share for the three months ended March 31, 2024 and 2023 (in thousands, except net loss per share data):

Current wording

The following table provides consolidated net loss for each period along with the computation of basic and diluted net loss per share for the three and six months ended June 30, 2024 and 2023 (in thousands, except net loss per share data):

Previous wording

“Adjusted EBITDA” is defined by NeoGenomics as net (loss) income from continuing operations before: (i) interest income, (ii) interest expense, (iii) tax (benefit) or expense, (iv) depreciation and amortization expense, (v) non-cash stock-based compensation expense, and, if applicable in a reporting period, (vi) restructuring charges, and (vii) other significant or non-operating (income) or expenses, net.

Current wording

“Adjusted EBITDA” is defined by NeoGenomics as net (loss) income from continuing operations before: (i) interest income, (ii) interest expense, (iii) tax (benefit) or expense, (iv) depreciation and amortization expense, (v) stock-based compensation expense, and, if applicable in a reporting period, (vi) restructuring charges, (vii) intellectual property (“IP”) litigation, and (viii) other significant or non-operating (income) or expenses, net.

Previous wording

The following is a reconciliation of GAAP net loss to Non-GAAP EBITDA and Adjusted EBITDA for the three months ended March 31, 2024:

Current wording

The following is a reconciliation of GAAP net loss to Non-GAAP EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2024:

Previous wording

(4) For the three months ended March 31, 2024, other significant (income) expenses, net, includes site closure costs, fees related to non-recurring legal matters, and other non-recurring items. For the three months ended March 31, 2023, other significant (income) expenses, net, includes CEO transition costs, fees related to a regulatory matter, and other non-recurring items.

Current wording

(1) For the three months ended June 30, 2024, other significant (income) expenses, net, includes site closure costs, severance costs, and fees related to non-recurring legal matters. For the three months ended June 30, 2023, other significant (income) expenses, net, includes fees related to a regulatory matter and other non-recurring items. For the six months ended June 30, 2024, other significant (income) expenses, net, includes site closure costs, severance costs, and fees related to non-recurring legal matters. For the six months ended June 30, 2023, other significant (income) expenses, net, CEO transition costs, fees related to a regulatory matter and other non-recurring items.

Previous wording

The following table presents a summary of our consolidated cash flows for operating, investing and financing activities for the three months ended March 31, 2024 and 2023 as well balances of cash and cash equivalents and working capital:

Current wording

The following table presents a summary of our consolidated cash flows for operating, investing and financing activities for the six months ended June 30, 2024 and 2023 as well balances of cash and cash equivalents and working capital:

Previous wording

Cash used in operating activities during the three months ended March 31, 2024, was $25.9 million compared to $12.7 million in the same period in 2023. This $13.2 million increase was primarily driven by our operating results (net loss adjusted for depreciation, amortization of intangibles, and other non-cash charges) which resulted in $6.5 million of lower cash used by operating activities year-over-year, offset by a $19.7 million increase in cash used resulting from net changes in operating assets and liabilities. The increase in cash used related to our operating activities was primarily driven by an improvement in gross profit of $10.7 million. In addition, timing of cash receipts and cash payments in the ordinary course of business caused operating cash flow to fluctuate from period to period.

Current wording

Cash used in operating activities during the six months ended June 30, 2024 was $12.0 million compared to $14.2 million in the same period in 2023. This $2.2 million decrease was primarily driven by our operating results (net loss adjusted for depreciation, amortization of intangibles, and other non-cash charges) which resulted in $14.9 million of lower cash used by operating activities year-over-year, offset by a $12.6 million increase in cash used resulting from net changes in operating assets and liabilities. The decrease in cash used related to our operating activities was primarily driven by an improvement in gross profit of $23.3 million. In addition, timing of cash receipts and cash payments in the ordinary course of business caused operating cash flow to fluctuate from period to period.

Previous wording

During the three months ended March 31, 2024, cash provided by investing activities was $14.5 million compared to $23.7 million of cash provided by investing activities in the same period in 2023. This change was primarily due to a decrease in proceeds from sales and maturities of marketable securities of $20.3 million, as well as a $6.8 million decrease in purchases of marketable securities.

Current wording

During the six months ended June 30, 2024, cash provided by investing activities was $21.8 million compared to $38.7 million in the same period in 2023. This change was primarily due to a $22.4 million decrease in proceeds from maturities of marketable securities, partially offset by an increase in purchases of property and equipment of $1.2 million .

Previous wording

During the three months ended March 31, 2024, cash provided by financing activities was $0.8 million compared to $1.4 million in the same period in 2023. The cash provided by financing activities during the three months ended March 31, 2024 consisted of $0.8 million for the net issuance of common stock. The primary reason for the decrease in cash provided by financing activities year-over-year was the timing of cash payments for stock option exercises which can fluctuate from period to period.

Current wording

During the six months ended June 30, 2024, cash provided by financing activities was $2.8 million compared to $1.4 million in the same period in 2023. The cash provided by financing activities during the six months ended June 30, 2024 consisted of $2.8 million for the net issuance of common stock. The primary reason for the increase in cash provided by financing activities year-over-year was the timing of cash payments for stock option exercises which can fluctuate from period to period.

Previous wording

We had $331.9 million in unrestricted cash and cash equivalents as of March 31, 2024 in addition to $52.9 million of marketable securities available to support current operational liquidity needs. We anticipate that the cash on hand, marketable securities and cash collections are sufficient to fund our near-term capital and operating needs for at least the next 12 months. Operating needs include, but are not limited to, the planned costs to operate our business, including amounts required to fund working capital and capital expenditures, continued research and development efforts, and potential strategic acquisitions and investments.

Current wording

We had $355.1 million in unrestricted cash and cash equivalents as of June 30, 2024 in addition to $32.8 million of marketable securities available to support current operational liquidity needs. We anticipate that the cash on hand, marketable securities and cash collections are sufficient to fund our near-term capital, and operating needs for at least the next 12 months. Operating needs include, but are not limited to, the planned costs to operate our business, including amounts required to fund working capital including the convertible senior notes due 2025, capital expenditures, continued research and development efforts, and potential strategic acquisitions and investments.

Previous wording

We forecast capital expenditures in order to execute on our business plan and maintain growth; however, the actual amount and timing of such capital expenditures will ultimately be determined by the volume of business. We currently anticipate that our capital expenditures for the year ending December 31, 2024 will be in the range of $35.0 million to $40.0 million. During the three months ended March 31, 2024, we purchased, with cash, approximately $5.6 million of capital equipment, software and leasehold improvements. We have funded and plan to continue funding these capital expenditures with cash and financing.

Current wording

We forecast capital expenditures in order to execute on our business plan and maintain growth; however, the actual amount and timing of such capital expenditures will ultimately be determined by the volume of business. We currently anticipate that our capital expenditures for the year ending December 31, 2024 will be in the range of $35.0 million to $40.0 million. During the six months ended June 30, 2024, we purchased, with cash, approximately $18.7 million of capital equipment, software and leasehold improvements. We have funded and plan to continue funding these capital expenditures with cash and financing.