NEOGENOMICS INC
For the period ended Sep 30, 2024. Filed Nov 5, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 5, 2024
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Item 1. Financial Statements (unaudited)
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| (unaudited)September 30, 2024 | December 31, 2023 | |
|---|---|---|
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | $361,992 | $342,488 |
| Marketable securities, at fair value | 25,821 | 72,715 |
| Accounts receivable, net | 151,428 | 131,227 |
| Inventories | 24,457 | 24,156 |
| Prepaid assets | 18,235 | 17,987 |
| Other current assets | 8,308 | 8,239 |
| Total current assets | 590,241 | 596,812 |
| Property and equipment (net of accumulated depreciation of $181,340 and $158,211, respectively) | 93,038 | 92,012 |
| Operating lease right-of-use assets | 81,442 | 91,769 |
| Intangible assets, net | 348,042 | 373,128 |
| Goodwill | 522,766 | 522,766 |
| Other assets | 5,582 | 4,742 |
| Total non-current assets | 1,050,870 | 1,084,417 |
| Total assets | $1,641,111 | $1,681,229 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||
| Current liabilities | ||
| Accounts payable | $16,514 | $20,334 |
| Accrued compensation | 52,165 | 53,161 |
| Accrued expenses and other liabilities | 22,998 | 15,069 |
| Current portion of operating lease liabilities | 3,716 | 5,610 |
| Current portion of convertible senior notes, net | 200,424 | — |
| Contract liabilities | 589 | 2,130 |
| Total current liabilities | 296,406 | 96,304 |
| Long-term liabilities | ||
| Operating lease liabilities | 62,172 | 67,871 |
| Convertible senior notes, net | 339,956 | 538,198 |
| Deferred income tax liabilities, net | 22,771 | 24,285 |
| Other long-term liabilities | 11,596 | 13,034 |
| Total long-term liabilities | 436,495 | 643,388 |
| Total liabilities | $732,901 | $739,692 |
| Commitments and contingencies (Note 11) | ||
| Stockholders’ equity | ||
| Common stock, $0.001 par value, (250,000,000 shares authorized; 128,061,944 and 127,369,142 shares issued and outstanding, respectively) | $128 | $127 |
| Additional paid-in capital | 1,219,182 | 1,190,139 |
| Accumulated other comprehensive loss | (643) | (1,674) |
| Accumulated deficit | (310,457) | (247,055) |
| Total stockholders’ equity | $908,210 | $941,537 |
| Total liabilities and stockholders’ equity | $1,641,111 | $1,681,229 |
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| NET REVENUE | ||||
| Clinical Services | $145,783 | $127,553 | $421,706 | $365,578 |
| Advanced Diagnostics | 22,041 | 24,401 | 66,860 | 70,513 |
| Total net revenue | 167,824 | 151,954 | 488,566 | 436,091 |
| COST OF REVENUE | 92,944 | 89,643 | 275,723 | 259,075 |
| GROSS PROFIT | 74,880 | 62,311 | 212,843 | 177,016 |
| Operating expenses: | ||||
| General and administrative | 66,969 | 61,486 | 196,094 | 183,343 |
| Research and development | 7,684 | 5,285 | 23,190 | 20,182 |
| Sales and marketing | 20,415 | 17,610 | 62,313 | 52,770 |
| Restructuring charges | 1,009 | 2,125 | 4,951 | 9,883 |
| Total operating expenses | 96,077 | 86,506 | 286,548 | 266,178 |
| LOSS FROM OPERATIONS | (21,197) | (24,195) | (73,705) | (89,162) |
| Interest income | (4,673) | (4,525) | (14,099) | (12,057) |
| Interest expense | 1,642 | 1,685 | 4,993 | 5,226 |
| Other (income) expense, net | (317) | 96 | (52) | (520) |
| Loss before taxes | (17,849) | (21,451) | (64,547) | (81,811) |
| Income tax benefit | (150) | (2,935) | (1,145) | (8,169) |
| NET LOSS | $(17,699) | $(18,516) | $(63,402) | $(73,642) |
| NET LOSS PER SHARE | ||||
| Basic | $(0.14) | $(0.15) | $(0.50) | $(0.59) |
| Diluted | $(0.14) | $(0.15) | $(0.50) | $(0.59) |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||
| Basic | 126,953 | 125,687 | 126,491 | 125,358 |
| Diluted | 126,953 | 125,687 | 126,491 | 125,358 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| NET LOSS | $(17,699) | $(18,516) | $(63,402) | $(73,642) |
| OTHER COMPREHENSIVE INCOME: | ||||
| Net unrealized gain on marketable securities, net of tax | 379 | 726 | 1,031 | 2,053 |
| Total other comprehensive income, net of tax | 379 | 726 | 1,031 | 2,053 |
| COMPREHENSIVE LOSS | $(17,320) | $(17,790) | $(62,371) | $(71,589) |
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, 2023 | 127,369,142 | $127 | $1,190,139 | $(1,674) | $(247,055) | $941,537 |
| Issuance of common stock for ESPP | 70,278 | — | 917 | — | — | 917 |
| Issuance of restricted stock, net of forfeitures | (17,398) | — | (199) | — | — | (199) |
| Issuance of common stock for stock options | 12,764 | — | 102 | — | — | 102 |
| Stock issuance fees and expenses | — | — | (4) | — | — | (4) |
| Stock-based compensation expense | — | — | 7,774 | — | — | 7,774 |
| Net unrealized gain on marketable securities, net of tax | — | — | — | 344 | — | 344 |
| Net loss | — | — | — | — | (27,061) | (27,061) |
| Balance, March 31, 2024 | 127,434,786 | $127 | $1,198,729 | $(1,330) | $(274,116) | $923,410 |
| Issuance of common stock for ESPP | 102,112 | — | 1,280 | — | — | 1,280 |
| Issuance of restricted stock, net of forfeitures | 32,607 | — | (1,631) | — | — | (1,631) |
| Issuance of common stock for stock options | 281,608 | 1 | 2,320 | — | — | 2,321 |
| Stock issuance fees and expenses | — | — | (3) | — | — | (3) |
| Stock-based compensation expense | — | — | 8,841 | — | — | 8,841 |
| Net unrealized gain on marketable securities, net of tax | — | — | — | 308 | — | 308 |
| Net loss | — | — | — | — | (18,642) | (18,642) |
| Balance, June 30, 2024 | 127,851,113 | $128 | $1,209,536 | $(1,022) | $(292,758) | $915,884 |
| Issuance of common stock for ESPP | 75,238 | — | 897 | — | — | 897 |
| Issuance of restricted stock, net of forfeitures | 56,443 | — | (603) | — | — | (603) |
| Issuance of common stock for stock options | 79,150 | — | 886 | — | — | 886 |
| Stock issuance fees and expenses | — | — | (4) | — | — | (4) |
| Stock-based compensation expense | — | — | 8,470 | — | — | 8,470 |
| Net unrealized gain on marketable securities, net of tax | — | — | — | 379 | — | 379 |
| Net loss | — | — | — | — | (17,699) | (17,699) |
| Balance, September 30, 2024 | 128,061,944 | $128 | $1,219,182 | $(643) | $(310,457) | $908,210 |
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, 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 | — | — | 4,758 | — | — | 4,758 |
| 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 of 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 | — | — | 5,705 | — | — | 5,705 |
| 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 of 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 | — | — | 7,179 | — | — | 7,179 |
| 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 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Nine Months Ended September 30, | ||
|---|---|---|
| 2024 | 2023 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | ||
| Net loss | $(63,402) | $(73,642) |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||
| Depreciation | 29,274 | 27,872 |
| Amortization of intangibles | 25,085 | 26,350 |
| Stock-based compensation | 25,085 | 17,643 |
| Non-cash operating lease expense | 7,022 | 6,860 |
| Amortization of convertible debt discount | 2,041 | 2,015 |
| Amortization of debt issue costs | 141 | 139 |
| Loss on disposal of assets, net | 63 | 334 |
| Impairment of assets | 333 | 1,703 |
| Other adjustments | 141 | 122 |
| Changes in assets and liabilities, net | ||
| Accounts receivable, net | (20,201) | (12,928) |
| Inventories | (408) | (252) |
| Prepaid and other assets | (1,206) | (5,165) |
| Operating lease liabilities | (4,287) | (5,871) |
| Deferred income tax liabilities, net | (1,514) | (9,380) |
| Accrued compensation | (996) | 7,453 |
| Accounts payable and other liabilities | 52 | (2,990) |
| Net cash used in operating activities | (2,777) | (19,737) |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Purchases of marketable securities | — | (6,756) |
| Proceeds from maturities of marketable securities | 47,784 | 87,963 |
| Purchases of property and equipment | (29,462) | (21,695) |
| Net cash provided by investing activities | 18,322 | 59,512 |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Repayment of equipment financing obligations | — | (66) |
| Issuance of common stock, net | 3,959 | 3,350 |
| Net cash provided by financing activities | 3,959 | 3,284 |
| Net change in cash and cash equivalents | 19,504 | 43,059 |
| Cash and cash equivalents, beginning of period | 342,488 | 263,180 |
| Cash and cash equivalents, end of period | $361,992 | $306,239 |
| Supplemental disclosure of cash flow information: | ||
|---|---|---|
| Interest paid | $2,139 | $2,121 |
| Income taxes paid, net | $319 | $175 |
| Supplemental disclosure of non-cash investing and financing information: | ||
| Purchases of property and equipment included in accounts payable | $1,688 | $636 |
Note 1. Nature of the Business
NeoGenomics, Inc., a Nevada corporation (the “Company,” or “NeoGenomics”), and its subsidiaries provide a wide range of oncology diagnostic testing and consultative services which includes technical laboratory services and professional interpretation of laboratory test results by licensed physicians who specialize in pathology and oncology. The Company operates a network of cancer-focused testing laboratories in the United States and the United Kingdom.
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, 2023, 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 the 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, 2023.
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.
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, 2024 and 2023.
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.
Accounting Pronouncements Pending Adoption
In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income (Topic 220): Expense Disaggregation Disclosures. This update requires entities to disaggregate operating expenses into specific categories, such as salaries and wages, depreciation, and amortization, to provide enhanced transparency into the nature and function of expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. ASU
2024-03 may be applied retrospectively or prospectively. The Company is currently evaluating the impact of this standard on its financial statement presentation and disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This update requires entities to consistently categorize and provide greater disaggregation of information in the rate reconciliation and to further disaggregate income taxes paid by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 may be applied retrospectively or prospectively. The Company is currently evaluating the impact of this standard on its annual disclosures.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This update requires entities to disclose significant segment expenses by reportable segment if they are regularly provided to the Chief Operating Decision Maker (CODM) and included in each reported measure of segment profit or loss and requires disclosure of other segment items by reportable segment and a description of its composition. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of this standard on its annual disclosures.
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, 2024 and December 31, 2023.
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
|---|---|---|---|---|
| Financial Assets: | ||||
| Short-term marketable securities: | ||||
| Agency bonds | $2,491 | $— | $(11) | $2,480 |
| Municipal bonds | 9,597 | — | (228) | 9,369 |
| Corporate bonds | 14,190 | — | (218) | 13,972 |
| Total | $26,278 | $— | $(457) | $25,821 |
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
|---|---|---|---|---|
| Financial Assets: | ||||
| Short-term marketable securities: | ||||
| U.S. Treasury securities | $15,437 | $— | $(64) | $15,373 |
| Yankee bonds | 2,601 | — | (13) | 2,588 |
| Agency bonds | 6,056 | — | (56) | 6,000 |
| Municipal bonds | 12,694 | — | (597) | 12,097 |
| Asset-backed securities | 4,971 | — | (37) | 4,934 |
| Corporate bonds | 32,442 | — | (719) | 31,723 |
| Total | $74,201 | $— | $(1,486) | $72,715 |
The Company had $1.4 million and $1.7 million of accrued interest receivable at September 30, 2024 and December 31, 2023, respectively, included in other current assets on its Consolidated Balance Sheets related to its marketable securities. There wereno realized gains or losses on marketable securities for the three and nine months ended September 30, 2024 and September 30, 2023.
The following tables set forth the fair value of available-for-sale marketable securities by contractual maturity at September 30, 2024 and December 31, 2023.
| (in thousands) | One Year or Less | Over One Year Through Five Years | Over Five Years | Total |
|---|---|---|---|---|
| Financial Assets: | ||||
| Marketable Securities: | ||||
| Agency bonds | $2,480 | $— | $— | $2,480 |
| Municipal bonds | 9,369 | — | — | 9,369 |
| Corporate bonds | 13,972 | — | — | 13,972 |
| Total | $25,821 | $— | $— | $25,821 |
| (in thousands) | One Year or Less | Over One Year Through Five Years | Over Five Years | Total |
|---|---|---|---|---|
| Financial Assets: | ||||
| Marketable Securities: | ||||
| U.S. Treasury securities | $15,373 | $— | $— | $15,373 |
| Yankee bonds | 2,588 | — | — | 2,588 |
| Agency bonds | 6,000 | — | — | 6,000 |
| Municipal bonds | 3,528 | 8,569 | — | 12,097 |
| Asset-backed securities | 4,934 | — | — | 4,934 |
| Corporate bonds | 23,062 | 8,661 | — | 31,723 |
| Total | $55,485 | $17,230 | $— | $72,715 |
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, 2024 and December 31, 2023.
| (in thousands) | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Financial Assets: | ||||
| Cash equivalents: | ||||
| Money market funds | $351,980 | $— | $— | $351,980 |
| Marketable securities: | ||||
| Agency bonds | 2,480 | — | — | 2,480 |
| Municipal bonds | 9,369 | — | — | 9,369 |
| Corporate bonds | — | 13,972 | — | 13,972 |
| Total | $363,829 | $13,972 | $— | $377,801 |
| (in thousands) | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Financial Assets: | ||||
| Cash equivalents: | ||||
| Money market funds | $334,762 | $— | $— | $334,762 |
| Marketable securities: | ||||
| U.S. Treasury securities | 15,373 | — | — | 15,373 |
| Yankee bonds | 2,588 | — | — | 2,588 |
| Agency bonds | 6,000 | — | — | 6,000 |
| Municipal bonds | 12,097 | — | — | 12,097 |
| Asset-backed securities | — | 4,934 | — | 4,934 |
| Corporate bonds | — | 31,723 | — | 31,723 |
| Total | $370,820 | $36,657 | $— | $407,477 |
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, 2024 and September 30, 2023.
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, 2024 and December 31, 2023 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, 2024 and December 31, 2023 (in thousands):
| September 30, 2024 | December 31, 2023 | |
|---|---|---|
| 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):
| AmortizationPeriod (years) | Cost | AccumulatedAmortization | Net | |
|---|---|---|---|---|
| Customer Relationships | 7 - 15 | $143,101 | $72,951 | $70,150 |
| Developed Technology | 10 - 15 | 310,226 | 70,428 | 239,798 |
| Marketing Assets | 4 | 549 | 480 | 69 |
| Trademarks | 15 | 31,473 | 6,895 | 24,578 |
| Trade Name | 2.5 | 2,584 | 2,584 | — |
| Trademark - Indefinite lived | — | 13,447 | — | 13,447 |
| Total | $501,380 | $153,338 | $348,042 |
| AmortizationPeriod (years) | Cost | AccumulatedAmortization | Net | |
|---|---|---|---|---|
| Customer Relationships | 7 - 15 | $143,101 | $65,534 | $77,567 |
| Developed Technology | 10 - 15 | 310,226 | 54,438 | 255,788 |
| Marketing Assets | 4 | 549 | 376 | 173 |
| Trademarks | 15 | 31,473 | 5,321 | 26,152 |
| Trade Name | 2.5 | 2,584 | 2,583 | 1 |
| Trademark - Indefinite lived | — | 13,447 | — | 13,447 |
| Total | $501,380 | $128,252 | $373,128 |
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, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Amortization of intangibles included in cost of revenue | $4,910 | $4,853 | $14,729 | $14,560 |
| Amortization of intangibles included in general and administrative expenses | 3,452 | 3,931 | 10,356 | 11,790 |
| Total amortization of intangibles | $8,362 | $8,784 | $25,085 | $26,350 |
The estimated amortization expense related to amortizable intangible assets for each of the following periods as of September 30, 2024 is as follows (in thousands):
| Remainder of 2024 | $8,362 |
| 2025 | 33,343 |
| 2026 | 33,308 |
| 2027 | 32,758 |
| 2028 | 32,758 |
| Thereafter | 194,066 |
| Total | $334,595 |
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, 2024. 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 2024. 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, 2024. 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 2024. The value of the 2028 Convertible Notes, if-converted, does not exceed the principal amount based on a closing stock price of $14.75 on September 30, 2024.
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, 2024. 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, 2024. 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 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, 2024, the estimated fair value (Level 2) of the 0.25% Convertible Senior Notes due 2028 was $285.9 million. At December 31, 2023, the estimated fair value (Level 2) of the 0.25% Convertible Senior Notes due 2028 was $262.4 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. As of June 30, 2024, the 2025 Convertible Notes were classified as current liabilities on the Consolidated Balance Sheets.
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, 2024. 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 2024. 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, 2024. 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 2024. The value of the 2025 Convertible Notes, if-converted, does not exceed the principal amount based on a closing stock price of $14.75 on September 30, 2024.
The interest expense recognized on the 2025 Convertible Notes includes $0.6 million, $0.3 million and $38,700 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, 2024. 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, 2024. 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 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, 2024, the estimated fair value (Level 2) of the 1.25% Convertible Senior Notes due 2025 was $196.2 million. At December 31, 2023, the estimated fair value (Level 2) of the 1.25% Convertible Senior Notes due 2025 was $197.3 million.
Note 6. Stock-Based Compensation
The Company recorded stock-based compensation on the Consolidated Statement of Operations for the three and nine months ended September 30, 2024 and 2023 as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Cost of revenue | $353 | $— | $1,106 | $— |
| General and administrative | 7,081 | 7,180 | 21,237 | 17,643 |
| Research and development | 233 | — | 641 | — |
| Sales and marketing | 803 | — | 2,101 | — |
| Total stock-based compensation | $8,470 | $7,180 | $25,085 | $17,643 |
Stock Options
A summary of the stock option activity under the Company’s plans for the nine months ended September 30, 2024 is as follows:
| Number ofShares | Weighted Average Exercise Price | |
|---|---|---|
| Outstanding at December 31, 2023 | 4,381,099 | $15.87 |
| Granted | 1,602,783 | $14.99 |
| Exercised | (373,522) | $8.86 |
| Forfeited | (392,401) | $16.01 |
| Outstanding at September 30, 2024 | 5,217,959 | $19.29 |
| Exercisable at September 30, 2024 | 1,797,255 | $19.29 |
The fair value of each stock option award granted during the nine months ended September 30, 2024 was estimated as of the grant date using a Black-Scholes model with the following assumptions:
| Nine Months EndedSeptember 30, 2024 | |
|---|---|
| Expected term (in years) | 5.5 - 6.5 |
| Risk-free interest rate (%) | 3.7% - 4.6% |
| Expected volatility (%) | 54.9% - 64.6% |
| Dividend yield (%) | — |
| Weighted average grant date fair value per share | $8.90 |
As of September 30, 2024, there was approximately $14.5 million of unrecognized stock-based compensation expense related to stock options that will be recognized over a weighted-average period of approximately 1.5 years.
Restricted Stock
A summary of the restricted stock activity under the Company’s plans for the nine months ended September 30, 2024 is as follows:
| Number of RestrictedShares | Weighted Average Grant Date Fair Value | |
|---|---|---|
| Nonvested at December 31, 2023 | 1,961,919 | $13.83 |
| Granted | 1,010,690 | $15.02 |
| Vested | (592,414) | $14.39 |
| Forfeited | (177,425) | $14.24 |
| Nonvested at September 30, 2024 | 2,202,770 | $14.19 |
As of September 30, 2024, there was approximately $16.5 million of unrecognized stock-based compensation expense related to restricted stock that will be recognized over a weighted-average period of approximately 1.6 years.
Performance-Based Restricted Stock Units
In the nine months ended September 30, 2024, the Company granted 194,257 PSUs subject to a performance condition and 194,256 PSUs subject to a market condition with an aggregated grant date fair value of approximately $3.1 million and $3.6 million, respectively. If the performance targets are achieved, the awards will vest at the end of thethree-year requisite service period so long as the employee remains employed with the Company through the applicable vesting date. For PSUs subject to a performance condition, compensation cost is recognized straight-line over the requisite service period if the achievement of the performance condition is probable. As of September 30, 2024, the Company has determined it is probable that the performance condition will be met. For PSUs subject to a market condition, compensation cost is recognized straight-line over the requisite service period, regardless of when, if ever, the market condition is satisfied.
A summary of the PSU activity under the Company’s plans for the nine months ended September 30, 2024 is as follows:
| Number of Stock Units | Weighted Average Grant Date Fair Value | |
|---|---|---|
| Nonvested at December 31, 2023 | 305,105 | $21.83 |
| Granted | 388,513 | $17.43 |
| Vested | — | $— |
| Forfeited | (46,534) | $19.56 |
| Nonvested at September 30, 2024 | 647,084 | $19.35 |
The fair value of each PSU granted subject to a market condition during the nine months ended September 30, 2024 was estimated as of the grant date using a Monte Carlo with the following assumptions:
| Nine Months EndedSeptember 30, 2024 | |
|---|---|
| Expected term (in years) | 3.0 |
| Risk-free interest rate (%) | 4.5% - 4.7% |
| Expected volatility (%) | 71.3% - 72.2% |
| Dividend yield (%) | — |
| Weighted average grant date fair value per share | $17.43 |
As of September 30, 2024, there was approximately $8.4 million of unrecognized stock-based compensation expense related to nonvested PSUs that will be recognized over a weighted-average period of approximately 2.1 years.
Modification of Stock Option and Restricted Stock
In the three months ended June 30, 2024, upon the departure of an executive and in accordance with the terms of their employment agreement, in addition to the retirement of a director of the Company and with approval from the Culture and Compensation Committee of the Company’s Board of Directors, the vesting of 69,049 shares of previously granted time-based vesting stock options and 41,693 shares of previously granted time-based vesting restricted stock was accelerated. The Company accounted for the effects of the accelerated vesting of these stock awards as modifications and recognized $0.6 million of stock-based compensation which consisted of $0.3 million and $0.3 million for the acceleration of stock options and restricted stock, respectively, within general and administrative expenses on the Consolidated Statements of Operations for the nine months ended September 30, 2024. There wereno such amounts for the three months ended September 30, 2024.
In the three months ended June 30, 2023, upon the departure of certain executives from the Company and in accordance with the terms of each of their respective employment agreements, the vesting of 101,937 shares of previously granted time-based vesting stock options and 61,746 shares of previously granted time-based vesting restricted stock accelerated. The Company accounted for the effects of the accelerated vesting of these stock awards as modifications and recognized $0.9 million of stock-based compensation which consisted of $0.3 million and $0.6 million for the acceleration of stock options and restricted stock, respectively, within general and administrative expenses on the Consolidated Statements of Operations for the nine months ended September 30, 2023. There wereno such amounts for the three months ended September 30, 2023.
Note 7. Revenue Recognition
The Company’stwo reportable segments for which it recognizes revenue are (1) Clinical Services and (2) Advanced Diagnostics. 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 Advanced Diagnostics 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.
Advanced Diagnostics Revenue
The Company’s Advanced Diagnostics segment generally enters into contracts with pharmaceutical and biotech customers as well as other 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 Advanced Diagnostics 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. 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, Advanced Diagnostics 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):
| September 30, 2024 | December 31, 2023 | |
|---|---|---|
| Current contract assets (1) | $— | $37 |
| Total contract assets | $— | $37 |
| Current capitalized commissions (1) | $413 | $935 |
| Long-term capitalized commissions (2) | 34 | 53 |
| Total capitalized commissions | $447 | $988 |
| Current contract liabilities | $589 | $2,130 |
| Long-term contract liabilities (3) | 396 | — |
| Total contract liabilities | $985 | $2,130 |
(1) Recorded within other current assets on the Consolidated Balance Sheets.
(2) Recorded within other assets on the Consolidated Balance Sheets.
(3) Recorded within other long-term liabilities on the Consolidated Balance Sheets.
Revenue recognized for the three and nine months ended September 30, 2024 related to contract liability balances outstanding at the beginning of the period was $0.1 million and $1.5 million, respectively. Revenue recognized for the three and nine months ended September 30, 2023 related to contract liability balances outstanding at the beginning of the period was $1.4 million and $4.9 million, respectively. Amortization of capitalized commissions for the three and nine months ended September 30, 2024 was $0.3 million and $0.8 million, respectively. Amortization of capitalized commissions for the three and nine months ended September 30, 2023 was $0.2 million and $0.7 million, respectively.
Disaggregation of Revenue
The Company considered various factors for both its Clinical Services and Advanced Diagnostics segments in determining appropriate levels of homogeneous data for its disaggregation of revenue, including the nature, amount, timing, and uncertainty of revenue and cash flows. Clinical Services categories align with the types of customers due to similarities of billing method, level of reimbursement, and timing of cash receipts. Unbilled amounts are accrued and allocated to payer categories based on historical experience. In future periods actual billings by payer category may differ from accrued amounts. Advanced Diagnostics relate to contracts with large pharmaceutical and biotech customers as well as other CROs. Because the nature, timing, and uncertainty of revenue and cash flows are similar and primarily driven by individual contract terms, Advanced Diagnostics revenue is not further disaggregated.
The following table details the disaggregation of revenue for both the Clinical Services and Advanced Diagnostics Segments (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Clinical Services | ||||
| Client direct billing | $99,607 | $86,160 | $285,281 | $246,159 |
| Commercial insurance | 24,667 | 21,722 | 73,114 | 64,772 |
| Medicare and Medicaid | 21,291 | 19,624 | 62,857 | 54,407 |
| Self-Pay | 218 | 47 | 454 | 240 |
| Total Clinical Services | $145,783 | $127,553 | $421,706 | $365,578 |
| Advanced Diagnostics | 22,041 | 24,401 | 66,860 | 70,513 |
| Total Revenue | $167,824 | $151,954 | $488,566 | $436,091 |
Note 8. Restructuring
In 2022, the Company embarked on a restructuring program to improve execution and drive efficiency across the organization. This program is a framework for identifying, prioritizing and executing operational improvements. Restructuring charges incurred consist of severance and other employee costs, costs for optimizing the Company’s geographic presence (“Facility Footprint Optimization”), and consulting and other costs.
The following table summarizes the changes in the Company’s accrued restructuring balance (in thousands):
| Severance and Other Employee Costs | Facility Footprint Optimization | Consulting and Other Costs | Total | |
|---|---|---|---|---|
| Balance as of December 31, 2023 | $687 | $1,389 | $537 | $2,613 |
| Restructuring charges incurred | 697 | 964 | 747 | 2,408 |
| Impairment/(gain on sale) of facility related assets | — | (10) | — | (10) |
| Cash payments and other adjustments(1) | $(771) | $(1,796) | $(1,125) | $(3,692) |
| Balance as of March 31, 2024 | $613 | $547 | $159 | $1,319 |
| Restructuring charges incurred | 703 | 650 | 111 | 1,464 |
| Impairment/(gain on sale) of facility related assets | — | 80 | — | 80 |
| Cash payments and other adjustments(1) | $(575) | $(957) | $(116) | $(1,648) |
| Balance as of June 30, 2024 | $741 | $320 | $154 | $1,215 |
| Restructuring charges incurred | 85 | 953 | (20) | 1,018 |
| Impairment/(gain on sale) of facility related assets | — | (9) | — | (9) |
| Cash payments and other adjustments(1) | (729) | (762) | (63) | (1,554) |
| Balance as of September 30, 2024 | $97 | $502 | $71 | $670 |
| Current liabilities | $670 | |||
| Long-term liabilities | — | |||
| $670 | ||||
(1) Other adjustments include non-cash asset charges related to Facility Footprint Optimization costs.
The Company continued this restructuring program in 2024 and expects to incur additional restructuring charges of approximately $0.6 million. The Company estimates these additional restructuring charges to be comprised of approximately $0.5 million of Facility Footprint Optimization costs, and $0.1 million of consulting and other costs. The estimated additional restructuring charges for severance and other employee costs areimmaterial. Our restructuring activities are expected to be complete by December 31, 2024.
Note 9. Income Taxes
At the end of each interim period, management estimates the annual effective tax rate based on forecasted pre-tax results of the Company’s global operations and applies such rate to its ordinary quarterly earnings to calculate income tax expense related to ordinary income. The tax effects of items significant, unusual and infrequent in nature are discretely calculated and recognized in the period during which they occur. These discrete items often relate to changes in tax laws, excess tax benefits/deficiencies related to share-based compensation or adjustments to previously reported tax expense/benefits.
Management assesses the recoverability of its deferred tax assets as of the end of each quarter, weighing available positive and negative evidence, and is required to establish and maintain a valuation allowance for these assets if it is more likely than not that some or all of the deferred income tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed. A cumulative loss in recent years, commonly defined as a three-year cumulative loss position, is a significant piece of negative evidence that is difficult to overcome.
As of September 30, 2024, the Company’s U.S. operations are in a three-year cumulative loss position. Management determined that sufficient objectively verifiable positive evidence does not exist to overcome the negative evidence of the Company’s U.S. cumulative loss position. Accordingly, the Company’s estimated annual effective tax rate applied to the Company’s pre-tax loss for the three and nine months ended September 30, 2024, includes the unfavorable impact of a partial valuation allowance against the majority of the Company’s forecasted U.S. net operating loss and tax credit carryforwards.
As of September 30, 2024, the Company’s U.K. operations are in a three-year cumulative loss position. The reversal of U.K. deferred tax liabilities will provide a source of realization to support a portion of the U.K. deferred tax assets, and therefore a partial valuation has been established for those deferred tax assets. Accordingly, the Company’s estimated annual effective tax rate applied to the Company’s pre-tax loss for the three and nine months ended September 30, 2024, includes the favorable impact of recognizing a component of the U.K. benefit.
Full valuation allowances have been established for loss jurisdictions (Switzerland, Singapore, and China), which are not included in the computation of the estimated annual effective tax rate for 2024.
Note 10. Net Loss Per Share
The Company presents both basic earnings per share (“EPS”) and diluted EPS. Basic EPS excludes potential dilution and is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options were exercised, stock awards vested and if the 2028 Convertible Notes and 2025 Convertible Notes were converted. The potential dilution from stock awards is accounted for using the treasury stock method based on the average market value of the Company’s common stock. The potential dilution from conversion of the 2028 Convertible Notes and 2025 Convertible Notes is accounted for using the if-converted method, which requires that all of the shares of the Company’s common stock issuable upon conversion of the 2028 Convertible Notes and the 2025 Convertible Notes will be included in the calculation of diluted EPS assuming conversion of the 2028 Convertible Notes and the 2025 Convertible Notes at the beginning of the reporting period (or at time of issuance, if later).
The following table shows the calculations (in thousands, except net loss per share amounts):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| NET LOSS | $(17,699) | $(18,516) | $(63,402) | $(73,642) |
| Basic weighted average shares outstanding | 126,953 | 125,687 | 126,491 | 125,358 |
| Diluted weighted average shares outstanding | 126,953 | 125,687 | 126,491 | 125,358 |
| Basic net loss per share | $(0.14) | $(0.15) | $(0.50) | $(0.59) |
| Diluted net loss per share | $(0.14) | $(0.15) | $(0.50) | $(0.59) |
The following potential dilutive shares were excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Stock options | 514 | 451 | 487 | 444 |
| Restricted stock awards | 1,121 | 769 | 1,028 | 877 |
| 2025 Convertible Notes | 5,538 | 5,538 | 5,538 | 5,538 |
| 2028 Convertible Notes | 5,215 | 5,215 | 5,215 | 5,215 |
In addition,647,084 shares of PSU awards are excluded from the computation of diluted EPS for the three and nine months ended September 30, 2024 as the contingency had not been satisfied.
In connection with the 2028 Convertible Notes offering, on January 11, 2021, the Company entered into separate, privately negotiated convertible note hedge transactions (collectively, the “Capped Call Transactions”) with option counterparties pursuant to capped call confirmations at a cost of approximately $29.3 million. The potential effect of the Capped Call Transactions was excluded from the calculation of diluted net loss per share in the three and nine months ended September 30, 2024 as the Company’s common stock closing price of $14.75 on September 30, 2024 did not exceed the conversion price of $85.75 per share. The Capped Call Transactions are not reflected in diluted net loss per share as they are anti-dilutive.
Note 11. Commitments and Contingencies
Legal Proceedings
On January 20, 2021, Natera, Inc. filed a patent infringement complaint against the Company’s subsidiary Inivata Limited and its subsidiary Inivata, Inc. in U.S. District Court for the district of Delaware, alleging Inivata’s InVisionFirst®-Lung cancer diagnostic test of infringingtwo patents. Natera then filed a second patent infringement complaint on December 20, 2022 against Inivata Limited and Inivata, Inc. alleging that RaDaR® minimal residual disease test infringesone patent. The case is in discovery and the jury trial has been scheduled for October 6, 2025. On March 6, 2024, the parties stipulated to stay both
Delaware cases until the North Carolina litigation is resolved. On March 7, 2024, the district court judge in Delaware ordered the cases stayed.
On July 29, 2023, Natera filed a complaint in the Middle District of North Carolina alleging NeoGenomics' RaDaR® test infringes ontwo patents, U.S. Patent No. 11,530,454 (“the ‘454 Patent”), and U.S. Patent No. 11,519,035 (“the ‘035 Patent”). On July 31, 2023, Natera moved for a preliminary injunction. On December 27, 2023, the district court issued a preliminary injunction prohibiting the Company from making, using, selling or offering the RaDaR®1.0 assay on the basis of a likelihood of infringement of the ‘035 Patent. Natera posted a $10 million bond with the court on January 12, 2024 and the preliminary injunction went into effect. The injunction specifically allows patients already using RaDaR® 1.0 to continue their use. In addition, the order explicitly allows research projects and studies that are in progress, as well as clinical trials that are in progress or have been approved, to continue. On December 28, 2023, NeoGenomics appealed the preliminary injunction to the Federal Circuit. On July 12, 2024, the Federal Circuit affirmed the injunction. On September 23, 2024, the Federal Circuit issued a Stipulated Permanent Injunction, consented to by both the Company and Natera and based on the partial settlement agreement entered into by the Company and Natera, on the same terms as the preliminary injunction. The litigation related to the ‘454 Patent is in discovery and the trial is expected for October 2025. The Company recorded the settlement entered into by the Company and Natera within general and administrative expense on the Consolidated Statement of Operations, the impact of which was immaterial. The Company believes that it has good and substantial defenses to the claims alleged in these suits, but there is no guarantee that the Company will prevail. At the time of filing the outcome of these matters is not estimable or probable.
On December 16, 2022, a purported shareholder class action captioned Daniel Goldenberg v. NeoGenomics, Inc., Douglas VanOort, Mark Mallon, Kathryn McKenzie, and William Bonello was filed in the United States District Court for the Southern District of New York, naming the Company and certain of the Company’s current and former officers as defendants (“the Goldenberg Matter”). This lawsuit was filed by a stockholder who claims to be suing on behalf of anyone who purchased or otherwise acquired the Company’s securities between February 27, 2020 and April 26, 2022. The lawsuit alleges that material misrepresentations and/or omissions of material fact were made in the Company’s public disclosures in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The alleged improper disclosures relate to statements regarding the Company’s menu of tests, business operations and compliance with health care laws and regulations. The Company filed a motion to dismiss the Goldenberg Matter on February 5, 2024 and the plaintiff filed its opposition to the motion on March 21, 2024. The parties are awaiting the court's ruling on the motion to dismiss. The plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including attorney’s fees and expert fees. On April 27, 2023, a shareholder of the Company filed a shareholder derivative action on behalf of the Company captioned Puskarich v. VanOort, et al. in Clark County Nevada, naming certain of the Company’s current and former officers and directors as defendants. The allegations are substantially similar to the allegations asserted in the Goldenberg Matter. Substantially similar shareholder derivative actions were subsequently filed in Lee County, Florida and in the United States District Court for the Southern District of New York, captioned Wong v. VanOort, et al. and Mellema v. VanOort, et al., respectively. The court in each of these cases stayed the proceedings pending the outcome of the Goldenberg Matter. The Company believes that it has valid defenses to the claims alleged in the lawsuits, but there is no guarantee that the Company will prevail. At the time of filing the outcome of these matters is not estimable or probable.
Regulatory Matter
With the assistance of outside counsel, the Company voluntarily conducted an internal investigation that focused on the compliance of certain consulting and service agreements with federal healthcare laws and regulations, including those relating to fraud, waste and abuse. Based on this internal investigation, the Company voluntarily notified the Office of Inspector General of the U.S. Department of Health and Human Services (“OIG”) of the Company’s internal investigation in November 2021. The Company’s interactions with regulatory authorities and the Company’s related review of this matter are ongoing. The Company has a reserve of $11.2 million in other long-term liabilities as of September 30, 2024 and December 31, 2023 on the Consolidated Balance Sheets for potential damages and liabilities primarily associated with the federal healthcare program revenue received by the Company in connection with the agreements at issue that were identified during the course of this internal investigation. This reserve reflects management’s best estimate of the minimum probable loss associated with this matter. As a result of the internal investigation and ongoing interactions with regulatory authorities, the Company may accrue additional reserves for any related potential damages and liabilities arising out of this matter. The Company was notified on June 30, 2022, that the Department of Justice (“DOJ”) will be participating in the investigation of this matter. At this time, the Company is unable to predict the duration, scope, result or related costs associated with any further investigation, including by the OIG, DOJ, or any other governmental authority, or what penalties or remedial actions they may seek. Accordingly, at this time, the Company is unable to estimate a range of possible loss in excess of the amount reserved. Any determination that the Company’s operations or activities are not in compliance with existing laws or regulations, however, could result in the imposition of civil or criminal fines, penalties, disgorgement, restitution, equitable relief, exclusion from participation in federal healthcare programs or other losses or conduct restrictions, which could be material to the Company’s financial results or business operations.
Note 12. Related Party Transactions
The Company has Advanced Diagnostics contracts with HOOKIPA Pharma, Inc., an entity with whom a director of the Company, Michael A. Kelly, was a director until April 2023. In connection with these contracts, the Company recognized $0.1 million and $0.3 million of revenue in the Consolidated Statements of Operations for the three and nine months ended September 30, 2023, respectively.
Note 13. Segment Information
The Company recognizes revenue undertwo reportable segments, (1) Clinical Services and (2) Advanced Diagnostics. The Clinical Services segment provides various clinical testing services to community-based pathology and oncology practices, hospital pathology labs, and academic centers with reimbursement from various payers including client direct billing, commercial insurance, Medicare and other government payers, and self-pay patients. The Advanced Diagnostics segment supports pharmaceutical firms’ drug development programs by assisting with various clinical trials and research as well as providing informatics related services often supporting pharmaceutical commercialization efforts.
The financial information reviewed by the Chief Operating Decision Maker (“CODM”) includes revenues, cost of revenue, and gross profit for both reportable segments. Assets are not presented at the segment level as that information is not used by the CODM.
The following table summarizes segment information for thethree and nine months ended September 30, 2024, and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Net revenues: | ||||
| Clinical Services | $145,783 | $127,553 | $421,706 | $365,578 |
| Advanced Diagnostics | 22,041 | 24,401 | 66,860 | 70,513 |
| Total revenue | 167,824 | 151,954 | 488,566 | 436,091 |
| Cost of revenue: | ||||
| Clinical Services(1) | 80,058 | 73,994 | 234,996 | 213,032 |
| Advanced Diagnostics(2) | 12,886 | 15,649 | 40,727 | 46,043 |
| Total cost of revenue | 92,944 | 89,643 | 275,723 | 259,075 |
| Gross Profit: | ||||
| Clinical Services | 65,725 | 53,559 | 186,710 | 152,546 |
| Advanced Diagnostics | 9,155 | 8,752 | 26,133 | 24,470 |
| Total gross profit | $74,880 | $62,311 | $212,843 | $177,016 |
(1) Clinical Services cost of revenue adjustments for the three months ended September 30, 2024 includes $4.3 million of amortization of acquired intangible assets and $0.2 million of stock-based compensation. Clinical Services cost of revenue adjustments for the three months ended September 30, 2023 includes $4.3 million of amortization of acquired intangible assets. Clinical Services cost of revenue adjustments for the nine months ended September 30, 2024 includes $13.0 million of amortization of acquired intangible assets and $0.7 million of stock-based compensation. Clinical Services cost of revenue adjustments for the nine months ended September 30, 2023 includes $12.8 million of amortization of acquired intangible assets. There wereno stock-based compensation amounts recorded for the three and nine months ended September 30, 2023.
(2)Advanced Diagnostics cost of revenue adjustments for the three months ended September 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 September 30, 2023 includes $0.6 million of amortization of acquired intangible assets. Advanced Diagnostics cost of revenue adjustments for the nine months ended September 30, 2024 includes $1.8 million of amortization of acquired intangible assets and $0.3 million of stock-based compensation. Advanced Diagnostics cost of revenue adjustments for the nine months ended September 30, 2023 includes $1.8 million of amortization of acquired intangible assets. There wereno stock-based compensation amounts recorded for the three and nine months ended September 30, 2023.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.