FORM 10-Q
(Mark One)
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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Nevada | 74-2897368 | |||||||||||||
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incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
12701 Commonwealth Drive, | Suite 9, | Fort Myers, | ||||||||||||
Florida | 33913 | |||||||||||||
(Address of principal executive offices) | (Zip Code) | |||||||||||||
| 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 | ||||||||||||
| Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer | ☐ |
| Smaller Reporting Company | ☐ | ||||||||||
Emerging Growth Company | ☐ | |||||||||||||
•The risk of liability in conducting clinical trials and providing research services and the sufficiency of our insurance to cover such claims; •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 •Our ability to meet our future capital requirements; •Our ability to manage the quality of our investment portfolio; •The •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; •The accuracy of our estimates regarding reimbursement, expenses, future revenues and capital ASSETS September 30, 2017 December 31, 2016 Current assets Cash and cash equivalents $ 12,211 $ 12,525 Accounts receivable (net of allowance for doubtful accounts of $10,937 and $13,699, respectively) 62,723 55,512 Inventories 6,088 6,253 Other current assets 4,725 4,535 Total current assets 85,747 78,825 Property and equipment (net of accumulated depreciation of $37,496 and $27,102, respectively) 34,549 34,036 Intangible assets, net 76,330 77,064 Goodwill 147,019 147,019 Other assets 250 174 Total assets $ 343,895 $ 337,118 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 14,823 $ 16,782 Accrued compensation 11,805 8,351 Accrued expenses and other liabilities 5,000 4,247 Short-term portion of capital leases 4,687 4,891 Short-term portion of loans 3,799 3,842 Total current liabilities 40,114 38,113 Long-term liabilities Long-term portion of capital leases 4,583 5,378 Long-term portion of loans, net 67,531 70,259 Revolving credit facility, net 24,461 21,799 Deferred income tax liability, net 7,548 14,973 Total long-term liabilities 104,123 112,409 Total liabilities 144,237 150,522 Commitments and contingencies - see Note I Redeemable convertible preferred stock Series A Redeemable Convertible Preferred Stock, $0.001 par value, (50,000,000 shares authorized; 6,600,000 shares issued and outstanding) 30,125 22,873 Stockholders' equity Common stock, $0.001 par value, (250,000,000 shares authorized; 80,346,946 and 78,571,158 shares issued and outstanding, respectively) 80 79 Additional paid-in capital 229,006 216,104 Accumulated deficit (59,553 ) (52,460 ) Total stockholders’ equity 169,533 163,723 Total liabilities, redeemable convertible preferred stock and stockholders' equity $ 343,895 $ 337,118 For the Three Months Ended September 30, For the Nine Months Ended September 30, 2017 2016 2017 2016 NET REVENUE Clinical testing $ 56,186 $ 55,739 $ 172,668 $ 166,674 Pharma Services 6,866 5,022 18,150 16,919 Total Revenue 63,052 60,761 190,818 183,593 COST OF REVENUE 34,242 33,416 103,634 100,471 GROSS PROFIT 28,810 27,345 87,184 83,122 Operating expenses: General and administrative 23,267 19,025 66,743 55,810 Research and development 1,270 967 3,080 3,719 Sales and marketing 6,577 5,958 18,466 18,084 Loss on sale of Path Logic 1,058 — 1,058 — Total operating expenses 32,172 25,950 89,347 77,613 INCOME (LOSS) FROM OPERATIONS (3,362 ) 1,395 (2,163 ) 5,509 Interest expense, net 1,398 1,468 4,173 4,509 Income (loss) before taxes (4,760 ) (73 ) (6,336 ) 1,000 Income tax (benefit) expense 340 (6 ) (539 ) 500 NET INCOME (LOSS) (5,100 ) (67 ) (5,797 ) 500 Deemed dividends on preferred stock 912 1,840 2,734 5,520 Amortization of preferred stock beneficial conversion feature 1,739 3,727 5,122 11,180 NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (7,751 ) $ (5,634 ) $ (13,653 ) $ (16,200 ) NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS Basic $ (0.10 ) $ (0.07 ) $ (0.17 ) $ (0.21 ) Diluted $ (0.10 ) $ (0.07 ) $ (0.17 ) $ (0.21 ) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 79,617 78,145 79,208 77,224 Diluted 79,617 78,145 79,208 77,224 For the Nine Months Ended September 30, CASH FLOWS FROM OPERATING ACTIVITIES 2017 2016 Net income (loss) $ (5,797 ) $ 500 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 11,739 11,550 Amortization of intangibles 5,201 5,454 Amortization of debt issue costs 330 532 Loss on sale of Path Logic 1,058 - Stock based compensation – options, restricted stock and warrants 5,812 4,024 Provision for bad debts 13,026 8,183 Changes in assets and liabilities, net: (Increase) in accounts receivable, net of write-offs (20,916 ) (9,424 ) (Increase) in inventories (37 ) (844 ) (Increase) in prepaid expenses (406 ) (1,482 ) (Increase) in other current assets (98 ) (46 ) Increase in accounts payable and other liabilities 2,366 3,271 Net cash provided by operating activities 12,278 21,718 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (10,167 ) (5,328 ) Net cash used in investing activities (10,167 ) (5,328 ) CASH FLOWS FROM FINANCING ACTIVITIES Advances from revolving credit facility, net 2,496 — Repayment to revolving credit facility — (10,044 ) Repayment of capital lease obligations/loans (4,126 ) (3,874 ) Repayment on term loan, net (2,816 ) (413 ) Proceeds from the exercise of options, warrants and ESPP shares, net of transaction expenses 2,218 3,456 Payments of equity issue costs (197 ) — Net cash (used in) financing activities (2,425 ) (10,875 ) Net change in cash and cash equivalents (314 ) 5,515 Cash and cash equivalent, beginning of period 12,525 23,420 Cash and cash equivalents, end of period $ 12,211 $ 28,935 Supplemental disclosure of cash flow information: Interest paid $ 3,879 $ 3,993 Income taxes paid $ 272 $ 228 Supplemental disclosure of non-cash investing and financing information: Equipment acquired under capital lease/loan obligations $ 3,240 $ 4,907 Deemed dividends on preferred stock $ 2,734 $ 5,520 Amortization of preferred stock beneficial conversion feature $ 5,122 $ 11,180 Purchase of customer list through issuance of restricted stock $ 4,466 $ - the Business business operations, as well as the U.S. economy and financial markets. The Consolidated Financial Statements. 2020. In August accounting purposes. the three months ended March 31, 2021. September 30, 2017 Amortization Period Cost Accumulated Amortization Net Trade Name 24 months $ 3,000 $ 2,633 $ 367 Customer Relationships 156 - 180 months 85,437 9,502 75,935 Non-Compete Agreement 24 months 29 1 28 Total $ 88,466 $ 12,136 $ 76,330 December 31, 2016 Amortization Period Cost Accumulated Amortization Net Trade Name 24 months $ 3,000 $ 1,508 $ 1,492 Customer Relationships 156 - 180 months $ 81,000 $ 5,428 $ 75,572 Total $ 84,000 $ 6,936 $ 77,064 Remainder of 2017 $ 1,796 2018 5,710 2019 5,706 2020 5,696 2021 5,695 2022 5,695 Thereafter 46,032 Total $ 76,330 September 30, 2017 December 31, 2016 Term Loan Facility $ 72,188 $ 75,000 Revolving Credit Facility 25,399 22,900 Auto Loans 82 202 Capital leases 9,270 10,269 Total Debt 106,939 108,371 Less: Debt issuance costs (1,878 ) (2,202 ) Less: Current portion of long-term debt (8,486 ) (8,733 ) Total Long-Term Debt, net $ 96,575 $ 97,436 2025 Convertible Notes then outstanding will immediately become due and payable. If any other default event occurs and is continuing, then noteholders of at least 25% of the aggregate principal amount of the 2025 Convertible Notes then outstanding, by notice to the Company, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2025 Convertible Notes then outstanding to become due and payable immediately. If the Company undergoes a “fundamental change” as defined in the Indenture, then noteholders may require the Company to repurchase their 2025 Convertible Notes at a cash repurchase price equal to the principal amount of the 2025 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. November 1, 2020. 2020. Term Loan and Revolving Credit Facility Capital Lease Obligations Auto Loans Total Long-Term Debt Remainder of 2017 $ 938 $ 1,397 $ 12 $ 2,347 2018 3,750 4,677 49 8,476 2019 5,625 3,112 21 8,758 2020 5,625 617 - 6,242 2021 81,649 - - 81,649 97,587 9,803 82 107,472 Less: Interest on capital leases - (533 ) - (533 ) 97,587 9,270 82 106,939 Less: Current portion of long-term debt (3,750 ) (4,687 ) (49 ) (8,486 ) Less: Debt issuance costs (1,878 ) - - (1,878 ) Long-term debt, net $ 91,959 $ 4,583 $ 33 $ 96,575 follows: Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Gross service revenues $ 85,429 $ 114,902 $ 263,229 $ 376,857 Total contractual adjustments and discounts (22,377 ) (54,141 ) (72,411 ) (193,264 ) Net revenues $ 63,052 $ 60,761 $ 190,818 $ 183,593 Number of Weighted average shares exercise price Options outstanding at December 31, 2016 5,136,110 $ 5.76 Options granted 2,070,498 7.56 Less: Options exercised 503,320 3.73 Options canceled or expired 210,347 5.80 Options outstanding at September 30, 2017 6,492,941 6.47 Exercisable at September 30, 2017 2,137,259 5.47 Nine Months Ended September 30, 2017 Expected term (in years) 3.0 - 4.5 Risk-free interest rate (%) 1.5% Expected volatility (%) 43.5% - 53.0% Dividend yield (%) 0.0% Weighted average fair value/share at grant date $ 2.24 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Research and development expense $ 531 $ 187 $ 858 $ 550 General and administrative expense 2,229 1,499 4,954 3,484 Total stock based compensation expense $ 2,760 $ 1,686 $ 5,812 $ 4,034 Number of Weighted average shares exercise price Warrants outstanding at December 31, 2016 450,000 $ 1.49 Warrants granted — — Less: Warrants exercised 450,000 1.49 Warrants canceled or expired — — Warrants outstanding at September 30, 2017 — — Exercisable at September 30, 2017 — — NEOGENOMICS, INC. Segment Community-based pathology practices and hospital pathology labs may order certain testing services on a technical component only (“TC” or “tech-only”) basis, which allows them to participate in the diagnostic process by performing the professional component (“PC”) interpretation services without having to hire laboratory technologists or purchase the sophisticated equipment needed to perform the technical component of the tests. We also support our pathology clients with interpretation and consultative services using our own specialized team of pathologists for difficult or complex cases and provide overflow interpretation services when requested by clients. Segment consistently grow our business. We their respective function. We pharmaceutical companies. Additionally, we will focus on continued reimbursement effectiveness through improving coverage, streamlining processes and providing clients more efficient, automated ordering methods, which we believe will continue to fuel our growth and market share. time frame. We are its competitors. Pharma Services segment. Our tech-only services are designed to give pathologists the option to choose, on a case by case basis, whether they want to order just the technical information and images relating to a specific test so they can perform the professional interpretation, or order “global” services and receive a comprehensive test report which includes a NeoGenomics whole genome sequencing. Our needs. Three Months Ended September 30 Nine Months Ended September 30 2017 2016 2017 2016 Net revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenue 54.3 % 55.0 % 54.3 % 54.7 % Gross Profit 45.7 % 45.0 % 45.7 % 45.3 % Operating expenses: General and administrative 36.9 % 31.3 % 35.0 % 30.4 % Research and development 2.0 % 1.6 % 1.6 % 2.0 % Sales and marketing 10.4 % 9.8 % 9.7 % 9.9 % Loss on sale of Path Logic 1.7 % — 0.6 % — Total operating expenses 51.0 % 42.7 % 46.9 % 42.3 % Income (loss) from operations (5.3 )% 2.3 % (1.2 )% 3.0 % Interest expense, net 2.2 % 2.4 % 2.2 % 2.5 % Net income (loss) before income taxes (7.5 )% (0.1 )% (3.4 )% 0.5 % Income tax (benefit) expense 0.5 % 0.0 % (0.3 )% 0.3 % Net income (loss) (8.0 )% (0.1 )% (3.1 )% 0.2 % Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 $ Change % Change 2017 2016 $ Change % Change Clinical testing $ 56,186 $ 55,739 $ 447 1 % $ 172,668 $ 166,674 $ 5,994 4 % Pharma Services 6,866 5,022 1,844 37 % 18,150 16,919 1,231 7 % Total Revenue $ 63,052 $ 60,761 $ 2,291 4 % $ 190,818 $ 183,593 $ 7,225 4 % contract. Our volumes are often based on how quickly sponsors can get patient enrollees for their trials and seasonality can impact how quickly they can get patients enrolled. Many of our long-term contracts contain specific performance obligations where the testing is performed on a specific schedule. This results in revenue that is not consistent among periods. In addition, this results in backlog that can be significant. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 % Change 2017 2016 % Change Requisitions received (cases) 98,031 90,297 8.6 % 291,806 269,916 8.1 % Number of tests performed 163,289 140,089 16.6 % 482,476 415,815 16.0 % Average number of tests/requisition 1.67 1.55 7.4 % 1.65 1.54 7.3 % Total clinical genetic testing revenue $ 55,772 $ 53,887 3.5 % $ 168,999 $ 160,886 5.0 % Average revenue/requisition $ 568 $ 597 (4.7 %) $ 579 $ 596 (2.8 %) Average revenue/test $ 342 $ 385 (11.2 %) $ 350 $ 387 (9.5 %) Cost of revenue $ 29,652 $ 28,578 3.8 % $ 87,889 $ 85,499 2.8 % Average cost/requisition $ 302 $ 316 (4.4 %) $ 301 $ 317 (4.9 %) Average cost/test $ 181 $ 204 (11.0 %) $ 182 $ 206 (11.4 %) Three Months Ended September 30, Nine Months Ended September 30, Consolidated 2017 2016 $ Change 2017 2016 $ Change Cost of revenue $ 34,242 $ 33,416 $ 826 $ 103,634 $ 100,471 $ 3,163 Cost of revenue as a % of revenue 54.3 % 55.0 % 54.3 % 54.7 % Gross Profit $ 28,810 $ 27,345 $ 1,465 $ 87,184 $ 83,122 $ 4,062 Gross Profit Margin 45.7 % 45.0 % 45.7 % 45.3 % 2021. 2021. Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2017 2016 $ Change 2017 2016 $ Change General and administrative $ 23,267 $ 19,025 $ 4,242 $ 66,743 $ 55,810 $ 10,933 As a % of revenue 36.9 % 31.3 % 35.0 % 30.4 % CEO transition costs. Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2017 2016 $ Change 2017 2016 $ Change Research and development $ 1,270 $ 967 $ 303 $ 3,080 $ 3,719 $ (639 ) As a % of revenue 2.0 % 1.6 % 1.6 % 2.0 % Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2017 2016 $ Change 2017 2016 $ Change Sales and marketing $ 6,577 $ 5,958 $ 619 $ 18,466 $ 18,084 $ 382 As a % of revenue 10.4 % 9.8 % 9.7 % 9.9 % align with changes in revenue. unaudited Consolidated Financial Statements. Three Months Ended September 30 , Nine Months Ended September 30 , (in thousands, except per share amounts) 2017 2016 2017 2016 Net loss available to common shareholders $ (7,751 ) $ (5,634 ) $ (13,653 ) $ (16,200 ) Basic weighted average shares outstanding 79,617 78,145 79,208 77,224 Effect of potentially dilutive securities — — — — Diluted weighted average shares outstanding 79,617 78,145 79,208 77,224 Basic net loss per share $ (0.10 ) $ (0.07 ) $ (0.17 ) $ (0.21 ) Diluted net loss per share $ (0.10 ) $ (0.07 ) $ (0.17 ) $ (0.21 ) NEOGENOMICS, INC. For the Three Months Ended September 30, For the Nine Months Ended September 30, (in thousands) 2017 2016 2017 2016 Net income (loss) (GAAP) $ (5,100 ) $ (67 ) $ (5,797 ) $ 500 Adjustments to net income (loss): Interest expense, net 1,398 1,468 4,173 4,509 Income tax expense (benefit) 340 (6 ) (539 ) 500 Amortization of intangibles 1,751 1,818 5,201 5,454 Depreciation 3,833 4,222 11,739 11,550 EBITDA 2,222 7,435 14,777 22,513 Further Adjustments to EBITDA: Non-cash stock based compensation 2,760 1,686 5,812 4,024 Loss on sale of business 1,058 - 1,058 - Facility moving expenses 5 - 620 - Adjusted EBITDA (non-GAAP), as originally reported 6,045 9,121 22,267 26,537 Impact of accounting error 2,430 - 551 - Adjusted EBITDA (non-GAAP), as corrected $ 8,475 $ 9,121 $ 22,818 $ 26,537 Payer Group 0-30 % 31-60 % 61-90 % 91-120 % >120 % Total % Client AR - Pharma $ 5,708 8% $ 1,367 2% $ 217 0% $ 249 0% $ 373 1% $ 7,914 11% Client AR - Clinical 12,850 17% 8,797 12% 3,146 4% 2,268 3% 4,105 6% 31,166 42% Total Client AR 18,558 10,164 3,363 2,517 4,478 39,080 Commercial Insurance 1,045 1% 1,815 3% 1,410 2% 1,493 2% 10,359 14% 16,122 22% Medicaid 113 0% 289 1% 212 0% 278 0% 961 1% 1,853 2% Medicare 898 1% 1,354 2% 900 1% 971 1% 5,615 8% 9,738 13% Private Pay - 0% - 0% - 0% - 0% - 0% - 0% Unbilled Revenue 6,110 9% 248 0% 34 0% 28 0% 447 1% 6,867 9% Total $ 26,724 36% $ 13,870 20% $ 5,919 7% $ 5,287 6% $ 21,860 31% $ 73,660 100% Payer Group 0-30 % 31-60 % 61-90 % 91-120 % >120 % Total % Client AR - Pharma $ 2,752 4% $ 629 1% $ 305 0% $ 1,191 2% $ 421 1% $ 5,298 8% Client AR - Clinical 10,023 15% 5,891 8% 3,226 5% 1,678 2% 4,808 7% 25,626 37% Total Client AR $ 12,775 $ 6,520 $ 3,531 $ 2,869 $ 5,229 $ 30,924 Commercial Insurance 913 1% 1,947 3% 2,045 3% 1,824 3% 11,325 16% 18,054 26% Medicaid 88 0% 203 0% 198 0% 180 0% 301 1% 970 1% Medicare 840 1% 1,300 2% 779 1% 601 1% 3,167 5% 6,687 10% Private Pay 16 0% 7 0% 10 0% 10 0% (4 ) 0% 39 0% Unbilled Revenue 10,066 15% 1,250 2% 654 1% 225 0% 342 0% 12,537 18% Total $ 24,698 36% $ 11,227 16% $ 7,217 10% $ 5,709 8% $ 20,360 30% $ 69,211 100% September 30, 2017 December 31, 2016 $ Change Allowance for doubtful accounts $ 10,937 $ 13,699 $ (2,762 ) Allowance as a % of gross accounts receivable 14.8 % 19.8 % Days Sales Outstanding 91 84 Liquidity and Capital Resources bank debt borrowings. Nine Months Ended September 30, 2017 2016 Net cash provided by (used in): Operating activities $ 12,278 $ 21,718 Investing activities (10,167 ) (5,328 ) Financing activities (2,425 ) (10,875 ) Net change in cash and cash equivalents (314 ) 5,515 Cash and cash equivalents, beginning of period $ 12,525 $ 23,420 Cash and cash equivalents, end of period $ 12,211 $ 28,935 Working Capital (1), end of period $ 45,633 $ 57,167 timing of cash receipts. in the amounts of $29.3 million for premiums paid for capped call confirmations and $1.1 million for the net repayment of equipment financing obligations. fund working capital and capital expenditures, continued research and development efforts, and potential strategic acquisitions and investments. financing. Changes in Internal Control over Financial Reporting DESCRIPTION 31.2 32.1 101 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended Mark W. Mallon By: /s/ Name: Title: Chief Financial Officer41734 343636363636363738(theor the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, (theor the “Exchange Act”) relating to NeoGenomics, Inc., a Nevada corporation and its subsidiaries, NeoGenomics Laboratories, Inc., a Florida corporation (“NEO”, “NeoGenomics Laboratories”), NeoGenomics Bioinformatics Inc., a Florida corporation, and Clarient, Inc., a Delaware corporation and its wholly owned subsidiary, Clarient Diagnostic Services, Inc. (together “Clarient”) (collectively referred to as “we”, “us”, “our”, “NeoGenomics”, or the “Company”), which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our 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. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. 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 under “Risk Factors” and in Part I, Item 1A, “Risk Factors” contained in our Annual Report on Form 10-K as filed with the SECSecurities and Exchange Commission (the “SEC”) on March 14, 2017. Forward lookingFebruary 25, 2021.capabilities;impacteffects of internalization of testing by customers;requirements.FINANCIALFINANCIAL INFORMATIONand per share amounts)(unaudited)March 31, 2021 (unaudited) December 31, 2020 ASSETS Current assets Cash and cash equivalents $ 611,970 $ 228,713 Marketable securities, at fair value Marketable securities, at fair value 190,710 67,546 Accounts receivable, net Accounts receivable, net 102,922 106,843 Inventories 21,382 29,526 Prepaid assets Prepaid assets 11,073 11,547 Other current assets 4,675 4,555 Total current assets 942,732 448,730 Property and equipment (net of accumulated depreciation of $98,746 and $92,895, respectively) Property and equipment (net of accumulated depreciation of $98,746 and $92,895, respectively) 94,315 85,873 Operating lease right-of-use assets Operating lease right-of-use assets 50,904 45,786 Intangible assets, net 118,195 120,653 Goodwill 211,083 211,083 Restricted cash Restricted cash 11,119 21,919 Investment in non-consolidated affiliate Investment in non-consolidated affiliate 29,555 29,555 Loan receivable from non-consolidated affiliate Loan receivable from non-consolidated affiliate 10,185 0 Prepaid lease asset Prepaid lease asset 21,052 20,229 Other assets 5,273 4,503 Total non-current assets Total non-current assets $ 551,681 $ 539,601 Total assets $ 1,494,413 $ 988,331 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 18,919 $ 24,965 Accrued compensation 23,621 24,727 Accrued expenses and other liabilities 14,018 11,654 Current portion of equipment financing obligations Current portion of equipment financing obligations 2,089 2,841 Current portion of operating lease liabilities Current portion of operating lease liabilities 5,111 4,967 Pharma contract liabilities Pharma contract liabilities 3,992 4,029 Total current liabilities 67,750 73,183 Long-term liabilities Convertible senior notes, net Convertible senior notes, net 530,378 168,120 Equipment financing obligations Equipment financing obligations 683 967 Operating lease liabilities Operating lease liabilities 46,437 42,296 Deferred income tax liabilities, net Deferred income tax liabilities, net 1,744 5,415 Other long-term liabilities Other long-term liabilities 3,707 4,056 Total long-term liabilities 582,949 220,854 Total liabilities 650,699 294,037 Stockholders’ equity Stockholders’ equity Common stock, $0.001 par value, (250,000,000 shares authorized; 117,136,654 and 112,075,474 shares issued and outstanding, respectively) Common stock, $0.001 par value, (250,000,000 shares authorized; 117,136,654 and 112,075,474 shares issued and outstanding, respectively) 117 112 Additional paid-in capital 872,350 701,357 Accumulated other comprehensive (loss) income Accumulated other comprehensive (loss) income (150) 10 Accumulated deficit (28,603) (7,185) Total stockholders’ equity 843,714 694,294 Total liabilities and stockholders' equity Total liabilities and stockholders' equity $ 1,494,413 $ 988,331 consolidated financial statementsConsolidated Financial Statements. Three Months Ended March 31, 2021 2020 NET REVENUE: Clinical Services $ 96,487 $ 92,982 Pharma Services 19,046 13,048 Total revenue 115,533 106,030 COST OF REVENUE 73,959 59,661 GROSS PROFIT 41,574 46,369 Operating expenses: General and administrative 40,476 36,344 Research and development 2,456 2,060 Sales and marketing 13,749 13,258 Total operating expenses 56,681 51,662 LOSS FROM OPERATIONS (15,107) (5,293) Interest expense, net 1,177 819 Other expense (income), net 4,854 (223) Loss before taxes (21,138) (5,889) Income tax expense 976 1,089 NET LOSS $ (22,114) $ (6,978) NET LOSS PER SHARE Basic $ (0.19) $ (0.07) Diluted $ (0.19) $ (0.07) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 116,199 104,484 Diluted 116,199 104,484 consolidated financial statements.Consolidated Financial Statements.Three Months Ended March 31, 2021 2020 NET LOSS $ (22,114) $ (6,978) OTHER COMPREHENSIVE LOSS: Net unrealized loss on marketable securities, net of tax (160) 0 Unrealized loss on effective cash flow hedge, net of tax 0 (1,038) Total other comprehensive loss, net of tax (160) (1,038) COMPREHENSIVE LOSS $ (22,274) $ (8,016) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Shares Amount Balance, December 31, 2019 104,781,236 $ 105 $ 520,278 $ (1,618) $ (11,357) $ 507,408 Common stock issuance ESPP Plan 34,330 — 796 — — 796 Issuance of restricted stock, net of forfeitures 76,618 — (212) — — (212) Issuance of common stock for stock options 503,873 — 2,897 — — 2,897 Stock issuance fees and expenses — — (15) — — (15) ESPP expense — — 194 — — 194 Stock-based compensation expense - options and restricted stock — — 1,991 — — 1,991 Unrealized loss on effective cash flow hedge, net of tax — — — (1,038) — (1,038) Net loss — — — — (6,978) (6,978) Balance, March 31, 2020 105,396,057 $ 105 $ 525,929 $ (2,656) $ (18,335) $ 505,043 Balance, December 31, 2020 112,075,474 $ 112 $ 701,357 $ 10 $ (7,185) $ 694,294 Cumulative-effect adjustment from change in accounting principle — — (23,271) — 696 (22,575) Premiums paid for capped call confirmations — — (29,291) — — (29,291) Common stock issuance ESPP Plan 23,917 — 1,024 — — 1,024 Issuance of restricted stock, net of forfeitures 83,220 — (614) — — (614) Issuance of common stock for stock options 260,167 — 2,239 — — 2,239 Issuance of common stock - public offering, net of underwriting discounts 4,693,876 5 218,495 — — 218,500 Stock issuance fees and expenses — — (242) — — (242) ESPP expense — — 241 — — 241 Stock-based compensation expense - options and restricted stock — — 2,412 — — 2,412 Net unrealized loss on marketable securities, net of tax — — — (160) — (160) Net loss — — — — (22,114) (22,114) Balance, March 31, 2021 117,136,654 $ 117 $ 872,350 $ (150) $ (28,603) $ 843,714 Three Months Ended March 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (22,114) $ (6,978) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,680 6,240 Amortization of intangibles 2,458 2,452 Non-cash stock-based compensation 2,653 2,186 Non-cash operating lease expense 1,862 2,021 Amortization of convertible debt discount 593 0 Amortization of debt issue costs 43 70 Unrealized loss on investment in non-consolidated affiliate 5,024 0 Interest receivable on loan receivable from non-consolidated affiliate (209) 0 Write-off of COVID-19 PCR testing inventory and equipment 6,061 0 Other non-cash items 548 17 Changes in assets and liabilities, net Accounts receivable, net 3,921 (5,722) Inventories 2,845 (5,348) Prepaid lease asset (823) (3,316) Prepaid and other assets (794) 254 Accounts payable, accrued and other liabilities (6,538) 1,191 Net cash provided by (used in) operating activities 2,210 (6,933) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of marketable securities (137,776) 0 Proceeds from sales and maturities of marketable securities 13,919 0 Purchases of property and equipment (15,831) (4,708) Business acquisition 0 (37,000) Loan receivable from non-consolidated affiliate (15,000) 0 Net cash used in investing activities (154,688) (41,708) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of equipment financing obligations (1,091) (1,598) Repayment of term loan 0 (1,250) Issuance of common stock, net 2,617 3,465 Proceeds from issuance of convertible debt, net of issuance costs 334,410 0 Premiums paid for capped call confirmations (29,291) 0 Proceeds from equity offering, net of issuance costs 218,290 0 Net cash provided by financing activities 524,935 617 Net change in cash, cash equivalents and restricted cash 372,457 (48,024) Cash, cash equivalents and restricted cash, beginning of period 250,632 173,016 Cash, cash equivalents and restricted cash, end of period $ 623,089 $ 124,992 consolidated financial statements.6Three Months Ended March 31, 2021 2020 Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets: Cash and cash equivalents $ 611,970 $ 86,254 Restricted cash, non-current 11,119 38,738 Total cash, cash equivalents and restricted cash $ 623,089 $ 124,992 Supplemental disclosure of cash flow information: Interest paid $ 41 $ 1,136 Income taxes (refunded) paid, net $ (49) $ 2 Supplemental disclosure of non-cash investing and financing information: Property and equipment included in accounts payable $ 2,081 $ 1,844 A –1. Nature of the Business and BasisPresentation(the “Parent”), and its subsidiaries NeoGenomics Laboratories, Inc.(the “Parent”, a Florida corporation (“NEO” or, “NeoGenomics Laboratories”), NeoGenomics Bioinformatics Inc., a Florida corporation, Path Labs LLC., a Delaware limited liability company (“PathLogic”) and Clarient Inc., a Delaware corporation, and its wholly owned subsidiary Clarient Diagnostic Services, Inc. (together, “Clarient”), (collectively referred to as “we”, “us”, “our”, “NeoGenomics”“Company”, or the “Company”“NeoGenomics”), operates as a certified, “high complexity”high complexity clinical laboratory in accordance with the federal government’s Clinical Laboratory Improvement Act, as amended (“CLIA”),CLIA, and is dedicated to the delivery of clinical diagnostic services to pathologists, oncologists, urologists, hospitals, and other laboratories throughoutas well as providing clinical trial services to pharmaceutical firms.Europe. accompanying interim consolidatedfull extent to which the COVID-19 outbreak will impact the Company’s business, results of operations, financial statementscondition and cash flows will depend on future developments that are unauditedhighly uncertain and have been preparedcannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets. As the COVID-19 pandemic continues, the Company’s results of operations, financial condition and cash flows are likely to continue to be materially adversely affected, particularly if the pandemic continues to persist for a significant amount of time. These accompanying interim consolidated financial statements include the accounts of the Parent and its subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying interim consolidated financial statements.consolidated financial statementsConsolidated Financial Statements and accompanying notes have been condensed or omitted in these accompanying interim consolidated financial statements.statements and footnotes. Accordingly, the accompanying interim consolidated financial statementsConsolidated Financial Statements included herein should be read in conjunction with the audited consolidated financial statementsConsolidated Financial Statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 14, 2017. consolidated financial statementsConsolidated 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.Weone reportable operating segmentbeen allowed for or accrued for financial statement purposes but are not currently deductible for income tax purposes.delivers testing servicesis more likely than not to hospitals, pathologists, oncologists, other clinicians,be realized.researchers,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 represents 100%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.consolidateddeferred income tax liabilities provided objectively verifiable positive evidence to support the recoverability of its deferred tax assets. However, on January 1, 2021, the Company adopted ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) using the modified retrospective approach, which resulted in a decrease of approximately $6.6 million in the Company’s deferred income tax liabilities. In addition, approximately $2 million of valuation allowance against the Company’s deferred income tax assets net revenueswas established upon adoption of ASU 2020-06, resulting from the decrease in deferred income tax liabilities available to support the recoverability of deferred tax assets. The valuation allowance represents the portion of the Company’s U.S. deferred income tax assets that are not more likely than not to be realized in future periods, primarily related to Federal and net income (loss)California research and development tax credit carryforwards.and nine months ended September 30, 2017 and 2016. We have evaluated our segments based on how the Chief Operating Decision Maker (“CODM”), our Chief Executive Officer, reviews performance and makes decisions in managing the Company. At September 30, 2017, we provided services within the United States and Europe and had assets located within the United States and Europe.We have two primary types of customers, clinical and pharma. Our clinical customers include community based pathology practices, oncology groups, hospitals and academic centers. Our pharma customers include pharmaceutical companies to whom we provide testing and other services to support their studies and clinical trials. As we grow, we continue to assess the information available to the CODM. Currently, discrete financial information is not available to the CODM about the separate financial performance of our clinical and our pharma customers. As we continue to grow and focus separately on the two customer types we will routinely assess the information available and reviewed by the CODM and determine if we meet the criteria for having separate segments.Correction of Immaterial Accounting ErrorThe Company performed an internal analysis in the third quarter of 2017 which identified an immaterial error in the revenue reported in our Form 10-K for the year ended December 31, 2016, Form 10-Q for the quarter ended March 31, 20172021 included the unfavorable impact of valuation allowance expected to be established against the Company’s deferred income tax assets expected to be created in 2021 for additional the U.S. net operating loss and Form 10-Qtax credit carryforwards.three and six months ended June 30, 2017. We have concludedweight of available evidence indicates that it is more likely than not that the error identified was not materialposition will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement.any prior annual or interim periods. We assessed the extent of this error and it was correctedunrecognized tax benefits in the third quarter of 2017, resultingprovision for income taxes in the accompanying Consolidated Balance Sheets. At March 31, 2021 and December 31, 2020 the Company had an uncertain tax position related to Federal and State R&D tax credit carryforwards, including a reduction of revenue,provision for interest and thus a corresponding reductionpenalties related to such position. No interest and penalties have been accrued, as the income tax credits are carried forward to offset income tax liabilities in accounts receivable of $2.4 million and $0.6 million for the three and nine months ended September 30, 2017, respectively. See Item 4. Controls and Procedures for additional details regarding this error.Note B – future years.January 2017,October 2020, the FASB issued ASU No. 2017-01, Business Combinations. This standard clarifies2020-10, Codification Improvements, which updates various codification topics by clarifying disclosure requirements to align with the definition of a business and provides guidance on when transactions should be accounted for as acquisitions of assets and when they should be accounted for as acquisitions of businesses.SEC’'s regulations. The Company early adopted this pronouncement on January 1, 2021 and the impact of the provisions of this standard on July 1, 2017 and applied this guidance to the customer list7Unauditedthat was acquired on August 1, 2017. The customer list acquired was not determined to meet the definition of a business under this standard and was therefore determined to be an asset acquisition. In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard update required excess tax benefits and tax deficiencies to be recorded directly through earnings as a component of income tax expense. Under previous GAAP, these differences were generally recorded in additional paid-in capital and thus had no impact on net income. The change impacted the computation of diluted earnings per share, and the cash flows associated with those items are now classified as operating activities on the condensed statements of consolidated cash flows. Entities were permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures could be estimated, as required under previous GAAP, or recognized when they occur. The Company adopted this ASU on January 1, 2017 using the transition method prescribed for each applicable provision:Based on the implementation guidance, previously unrecognized excess tax benefits should be on a modified retrospective basis beginning in the period the guidance is adopted. Accordingly, the Company recorded an increase in deferred tax assets and an offsetting cumulative-effect adjustment to retained earnings of $6.6 million as of January 1, 2017 for excess tax benefits not previously recognized.Based on the implementation guidance, all excess tax benefits and tax deficiencies related to share based compensation will be reported in net income (loss) on a prospective basis. For the nine months ended September 30, 2017, no income (loss) was reported. The Company has elected to retrospectively adopt the requirement to present cash flows related to excess tax benefits as cash flows from operating activities. This adoption had no effect on cash flows for the nine months ended September 30, 2017.The Company has elected to recognize forfeitures in compensation cost as they occur.Issued2017 the FASB issued ASU 2017-12, Derivatives and Hedging. This standard refines hedge accounting to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. This update is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-12 to have a material effect on its consolidated financial statements.In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation. This standard provides guidance related to the scope of stock option modification accounting, to reduce diversity in practice and reduce cost and complexity regarding existing guidance. This update is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-09 to have a material effect on its consolidated financial statements.In January 20172020, the FASB issued ASU No. 2017-04, Intangibles – Goodwill2020-06, Debt - Debt with Conversion and Other: SimplifyingOther Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) which simplifies the Testaccounting for Goodwill Impairment. This standard eliminates Step 2certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 simplifies the accounting for convertible instruments by removing the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such convertible debt instruments. Similarly, the debt discount, that is equal to the carrying value of the goodwill impairment test.embedded conversion feature upon issuance, will no longer be amortized into income as interest expense over the life of the instrument. Instead, an entity should perform its annualentities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or interim goodwill impairment test by comparing(2) a convertible instrument was issued at a substantial premium. In addition, ASU 2020-06 requires the fair valueapplication of a reporting unit with its carrying amount. An entity should recognize an impairment chargethe if-converted method for calculating the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amountimpact of goodwill allocated to that reporting unit. This updateconvertible instruments on diluted earnings per share. ASU 2020-06 is effective for annual and interim periods beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material effect on its consolidated financial statements. In August 2016, the FASB issued “ASU” 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. This standard clarifies how specific cash receipts and cash payments are classified and presented in the statement of cash flows. This update is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. Early2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. ASU 2020-06 can be adopted on either a fully retrospective or modified retrospective basis.does not expectadopted this pronouncement on January 1, 2021 and the adoptionimpact of ASU 2016-15 to have a material effectthe provisions of this standard on its consolidated financial statements. February 2016,March 2020, the FASB issued ASU No. 2016-02, Leases. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) which provides for temporary optional expedients and exceptions to the current guidance on certain contract modifications and hedging relationships to ease the burdens related to the expected market transition from the London Inter-bank Offered Rate (“LIBOR”) or other reference rates to alternative reference rates. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”) to clarify that certain optional expedients and exceptions apply to modifications of derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 is effective beginning on March 12, 2020 and may be applied prospectively to such transactions through December 31, 2022 and ASU 2021-01 is effective beginning on January 7, 2021 and may be applied retrospectively or prospectively to such transactions through December 31, 2022. The updaterequires organizationsCompany will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to recognize lease assets and lease liabilitiesapply the optional guidance on an ongoing basis. As of March 31, 2021, there was no impact to the balance sheet for those leases classified as operating leases under previous GAAP.Company’s Consolidated Financial Statements related to ASU 2016-02 requires that a8Unauditedlessee should recognizeto make lease payments (the lease liability) and a right-of-use asset representing its right to use(an exit price) in the underlying assetprincipal or most advantageous market for the lease termasset or liability in an orderly transaction between market participants on the balance sheet. ASU 2016-02measurement 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.effectivelittle or no market activity for periods beginning after December 15, 2018 and interim periods within those periods. The adoptionthe asset or liability. These inputs reflect the reporting entity’s own assumptions of this ASU will resultthe data that market participants would use in an increasepricing the asset or liability, based on the best information available in the circumstances.sheetsheets as they are available to support current operational liquidity needs. The money market accounts are valued based on quoted market prices in active markets. 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.March 31, 2021 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Financial Assets: Short-term marketable securities: U.S. Treasury securities $ 51,745 $ 1 $ (43) $ 51,703 Commercial paper 22,187 0 0 22,187 Asset-backed securities 21,612 0 (15) 21,597 Corporate bonds 95,371 0 (148) 95,223 Total $ 190,915 $ 1 $ (206) $ 190,710 December 31, 2020 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Financial Assets: Short-term marketable securities: U.S. Treasury securities $ 21,357 $ 1 $ (18) $ 21,340 Commercial paper 14,543 0 0 14,543 Asset-backed securities 14,546 0 (8) 14,538 Corporate bonds 17,144 0 (19) 17,125 Total $ 67,590 $ 1 $ (45) $ 67,546 March 31, 2021 (in thousands) One Year or Less Over One Year Through Five Years Over Five Years Total Financial Assets: Marketable Securities: U.S. Treasury securities $ 9,113 $ 42,590 $ 0 $ 51,703 Commercial paper 22,187 0 0 22,187 Asset-backed securities 451 21,146 0 21,597 Corporate bonds 23,282 71,941 0 95,223 Total $ 55,033 $ 135,677 $ 0 $ 190,710 December 31, 2020 (in thousands) One Year or Less Over One Year Through Five Years Over Five Years Total Financial Assets: Marketable Securities: U.S. Treasury securities $ 6,075 $ 15,265 $ 0 $ 21,340 Commercial paper 14,543 0 0 14,543 Asset-backed securities 560 13,978 0 14,538 Corporate bonds 5,863 11,262 0 17,125 Total $ 27,041 $ 40,505 $ 0 $ 67,546 March 31, 2021 (in thousands) Level 1 Level 2 Level 3 Total Financial Assets: Cash equivalents: Money market funds $ 570,782 $ 0 $ 0 $ 570,782 Commercial paper 0 17,795 0 17,795 Marketable securities: U.S. Treasury securities 51,703 0 0 51,703 Commercial paper 0 22,187 0 22,187 Asset-backed securities 0 21,597 0 21,597 Corporate bonds 0 95,223 0 95,223 Total $ 622,485 $ 156,802 $ 0 $ 779,287 December 31, 2020 (in thousands) Level 1 Level 2 Level 3 Total Financial Assets: Cash equivalents: Money market funds $ 209,141 $ 0 $ 0 $ 209,141 U.S. Treasury securities 1,000 0 0 1,000 Commercial paper 0 3,999 0 3,999 Marketable securities: U.S. Treasury securities 21,340 0 0 21,340 Commercial paper 0 14,543 0 14,543 Asset-backed securities 0 14,538 0 14,538 Corporate bonds 0 — 17,125 0 17,125 Total $ 231,481 $ 50,205 $ 0 $ 281,686 right-of-use assets. a reconciliation to the present value of lease liabilities were as follows (in thousands):Remaining Lease Payments Remainder of 2021 $ 5,480 2022 7,150 2023 7,071 2024 7,179 2025 4,381 Thereafter 34,230 Total remaining lease payments 65,491 Less: imputed interest (13,943) Total operating lease liabilities 51,548 Less: current portion (5,111) Long-term operating lease liabilities $ 46,437 Weighted-average remaining lease term (in years) 10.95 Weighted-average discount rate 4.2 % Three Months Ended March 31, 2021 2020 Operating lease costs $ 2,305 $ 2,105 Three Months Ended March 31, 2021 2020 Right-of-use assets obtained in exchange for operating lease liabilities $ 6,580 $ 24,071 Cash paid for operating leases $ 2,678 $ 1,553 currently evaluatingexpected to commence in 2021. In addition to the quantitative impact that adopting ASU 2016-02minimum lease payments, the Company will havepay approximately $25 million relating to the construction of the underlying assets and approximately $17 million in leasehold improvements. These amounts were placed into separate construction disbursement escrow accounts and as of March 31, 2021, $11.1 million was unpaid and remaining in restricted cash on its consolidated financial statements.In May 2014, the FASB issued ASU 2014-09, RevenuesConsolidated Balance Sheets. Disbursements to the landlord take place from Contracts with Customers. This standard update callstime to time to pay for the costs of the landlord’s work. The disbursements are classified as a number of revisionsprepaid lease asset or leasehold improvements, as appropriate, until the lease commences. Upon lease commencement, the prepaid lease asset will be included in the revenue recognition rules. In August 2015,calculation of the FASB deferredright-of-use asset and the effective dateleasehold improvements will be placed in service. Construction of the infrastructure of this ASU to the first quarter of 2018, with optional early adoption beginningfacility commenced in the first quarter of 2017. The ASU can be applied using a full retrospective method or a modified retrospective method of adoption. 2020. The Company expectsis not expected to adopt this ASU incontrol the first quarterunderlying assets during the construction period and therefore is not considered the owner of 2018 using a full retrospective method of adoption. We anticipate the adoption of this standard to impact our Pharma Services revenue, specifically the timing of revenue recognitionunderlying assets for our long term research and clinical trials contracts. Many of these contracts have distinct terms which need to be evaluated separately, therefore, we are still in the process of contract review in order to determine the quantitative impact this standard will have on our Pharma Services revenue. We also expect this standard to impact our Clinical testing revenue. Under the new standard, substantially all of our bad debt expense which has historically been presented as part of selling, general and administrative expenses will be considered an implicit price concession and will be reported as a reduction in revenue. We also anticipate enhanced financial statement disclosures surrounding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company continues to assess the full impact the adoption of this standard will have on our financial statements.C –5. Goodwill and Intangible AssetsSeptember 30, 2017March 31, 2021 and December 31, 20162020 was $147.0$211.1 million. There werewas no changeschange in the carrying amount of goodwill during these periods. as of September 30, 2017 and December 31, 2016 consisted of the following as of (in thousands):On August 31, 2017, the March 31, 2021 Amortization
PeriodCost Accumulated
AmortizationNet Customer Relationships 84-180 months $ 143,101 $ 38,353 $ 104,748 Trade Name - Indefinite lived — 13,447 — 13,447 Total $ 156,548 $ 38,353 $ 118,195 December 31, 2020 Amortization
PeriodCost Accumulated
AmortizationNet Customer Relationships 84 - 180 months $ 143,101 $ 35,895 $ 107,206 Trade Name - Indefinite lived — 13,447 — 13,447 Total $ 156,548 $ 35,895 $ 120,653 acquired a customer list from Ascend Genomics in exchange for 450,000 shares of restricted stock, see Note H – Equity. This customer relationship was recorded at fair value and is being amortized over 15 years. As part of the transaction, Ascend Genomics signed a non-compete agreement which was also recorded as an intangible asset and is being amortized over 2 years. We recorded approximately $1.7 and $1.8$2.5 million in straight-line amortization expense of intangible assets for each of the three month periodmonths ended September 30, 2017March 31, 2021 and 2016, respectively. We recorded approximately $5.2 million and $5.5 million in straight-line2020. The Company records amortization expense of intangible assets for the nine month period ended September 30, 2017 and 2016, respectively. The Company recorded amortization expense from customer relationships and trade names as awithin general and administrative expense. 9NEOGENOMICS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSUnauditedfivefour succeeding fiscal years and thereafter as of September 30, 2017March 31, 2021 is as follows (in thousands):Remainder of 2021 $ 7,373 2022 9,832 2023 9,832 2024 9,832 2025 9,832 Thereafter 58,047 Total $ 104,748 D –6. Investment in Non-Consolidated Affiliatelong termlong-term debt, net at September 30, 2017March 31, 2021 and December 31, 20162020 (in thousands): March 31, 2021 December 31, 2020 0.25% Convertible Senior Notes due 2028 Principal $ 345,000 $ 0 Unamortized debt discount (10,049) 0 Unamortized debt issuance costs (233) 0 Total 0.25% Convertible Senior Notes due 2028 $ 334,718 $ 0 1.25% Convertible Senior Notes due 2025 Principal $ 201,250 $ 201,250 Unamortized debt discount (4,974) (32,592) Unamortized debt issuance costs (616) (538) Total 1.25% Convertible Senior Notes due 2025 $ 195,660 $ 168,120 Equipment financing obligations 2,772 3,808 Total debt $ 533,150 $ 171,928 Less: Current portion of financing obligations (2,089) (2,841) Total long-term debt, net $ 531,061 $ 169,087 Thelong-term capital leaseequipment financing obligations and term debt approximates itsapproximated fair value based on the current market conditions for similar instruments.Term LoanDecember 22, 2016,January 11, 2021, the Company completed the sale of $345 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 2028 Convertible Notes were issued at a discounted price of 97% of their principal amount. The total net proceeds from the issuance of the 2028 Convertible Notes and exercise of the Over-allotment Option was approximately $334.4 million, which includes approximately $10.6 million of discounts, commissions and offering expenses paid by the Company. On January 11, 2021 the Company entered into an Indenture (the “Indenture”), with U.S. Bank National Association, as trustee (the “Trustee”), governing the 2028 Convertible Notes. The Company used a Credit Agreementportion of the net proceeds from the Offerings to enter into capped call transactions (as described below under the heading “Capped Call Transactions”).Regions Banksuch a corporate event in certain circumstances. The value of the 2028 Convertible Notes, if-converted, does not exceed the principal amount based on a closing stock price of $48.23 on March 31, 2021. For the three months ended March 31, 2021 the Company excluded 4,867,738 shares in diluted weighted average common shares outstanding for the if-converted impact of the 2028 Convertible Notes from the diluted net loss per share calculation as administrative agentthe shares would have an anti-dilutive effect. For further details on the impact of the 2028 Convertible Notes on net loss per share please refer to Note 11. Net Loss Per Share.collateral agent. The Credit Agreementincluding, the trading day immediately preceding the date of notice by the Company of redemption at a redemption price equal to 100% of the principal amount of the 2028 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for a $75.0 million term loan facility (the “Term Loan Facility”). The Credit Agreement also provides incremental facility capacity of $50 million, subjectthe 2028 Convertible Notes. certain conditions. On September 30, 2017 and December 31, 2016, the Company had currentoccurs, then the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding borrowings underwill immediately become due and payable. If any other default event occurs and is continuing, then noteholders of at least 25% of the Term Loanaggregate principal amount of approximately $3.8the 2028 Convertible Notes then outstanding, by notice to the Company, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding to become due and payable immediately. If the Company undergoes a “fundamental change” as defined in the Indenture, then noteholders may require the Company to repurchase their 2028 Convertible Notes at a cash repurchase price equal to the principal amount of the 2028 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.long-term outstanding borrowings$6,700 for the contractual coupon interest, the amortization of approximately $67.5 millionthe debt discount and $70.1 million, netthe amortization of unamortizedthe debt issuance costs, respectively, for the three months ended March 31, 2021. There were no such amounts for the three months ended March 31, 2020. The effective interest rate on the 2028 Convertible Notes is 0.70%, which includes the interest on the 2028 Convertible Notes and amortization of $939,000the debt discount and $1.1 million, respectively. The debt issuance costscosts. 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.carryingaccompanying Consolidated Financial Statements. The Capped Call Transactions are not part of the terms of the 2028 Convertible Notes and will not affect any holders’ rights under the 2028 Convertible Notes. The Capped Call Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the 2028 Convertible Notes. The number of shares underlying the Capped Call Transactions is 5.2 million.related liability2025 Convertible Notes to be redeemed, plus accrued and are being amortized overunpaid interest to, but excluding, the liferedemption date. No sinking fund is provided for the 2025 Convertible Notes.loan.Term Loan Facility bears2025 Convertible Notes are the Company’s senior, unsecured obligations and will be equal in right of payment with its existing and future senior, unsecured indebtedness, senior in right of payment to its existing and future indebtedness that is expressly subordinated to the 2025 Convertible Notes and effectively junior to its existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. The 2025 Convertible Notes will be structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, of its subsidiaries.equal to an applicable margin plus, at NeoGenomics Laboratories’ option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greatest of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus 0.5% per annumpayable semi-annually in arrears on May 1 and (c) the one month LIBOR rate plus 1% per annum, or (3) a combination of (1) and (2). The applicable margin will range from 2.25% to 3.50% for LIBOR loans and 1.25% to 2.50% for base rate loans, in each case based on NeoGenomics Laboratories’ consolidated leverage ratio (as defined in the Credit Agreement). Interest on borrowings under the Revolving Credit Facility is payable on the last dayNovember 1 of each month, in the case of each base rate loan, andyear, which began on the last day of each interest period (but no less frequently than every three months), in the case of Adjusted LIBOR loans. The Company entered into an interest rate swap agreement to hedge against changes in the variable rate of a portion of this debt. See Note E-Derivative Instruments and Hedging Activities for more information on this instrument.The Term Loan Facility and amounts borrowed under the Revolving Credit Facility are secured on a first priority basis by a security interest in substantially all of the tangible and intangible assets of NeoGenomics Laboratories and the Guarantors. The Term Loan Facility contains various affirmative and negative covenants including ability to incur liens and encumbrances; make certain restricted payments, including paying dividends on its equity securities or payments to redeem, repurchase or retire its equity securities; enter10NEOGENOMICS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSUnauditedinto certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into sale and leaseback transactions; engage in transactions with its affiliates, and materially alter the business it conducts. In addition, the Company must meet certain maximum leverage ratios and fixed charge coverage ratios as of the end of each fiscal quarter commencing with the quarter ending March 31, 2017. The Company was in compliance with all required covenants as of September 30, 2017.The Term Loan Facility has a maturity date of December 21, 2021. The Credit Agreement requires NeoGenomics Laboratories to mandatorily prepay the Term Loan Facility and amounts borrowed under the Revolving Credit Facility with (i) 100% of net cash proceeds from certain sales and dispositions, subject to certain reinvestment rights, (ii) 100% of net cash proceeds from certain issuances or incurrences of additional debt, (iii) beginning with the fiscal year ending December 31, 2017, 50% of excess cash flow (as defined), subject to a step down to 0% of excess cash flow if NeoGenomics Laboratories’ consolidated leverage ratio is no greater than 2.75:1.0 and (iv) 100% of net cash proceeds from issuances of permitted equity securities by NeoGenomics Laboratories made in order to cure a failure to comply with the financial covenants. NeoGenomics Laboratories is permitted to voluntarily prepay the Term Loan Facility and amounts borrowed under the Revolving Credit Facility at any time without penalty.Auto LoansThe Company has auto loans with various financial institutions. The auto loan terms range from 36-60 months and carry interest rates from 0.0% to 5.2%.Capital Leasescapital leasesloans with various banks to finance the purchase of laboratory equipment, office equipment and office equipment.leasehold improvements. These leases expireloans mature at various dates through 20202023 and the weighted average interest rate under such leasesloans was approximately 4.81% at September 30, 2017. Most5.07% as of these leases contain bargain purchase options that allow us to purchase the leased property for a minimal amount upon the expirationMarch 31, 2021 and 4.91% as of the lease term. The remaining leases have purchase options at fair market value. Property and equipment acquired under capital lease agreements are pledged as collateral to secure the performance of the future minimum lease payments.Revolving Credit FacilityOn December 22, 2016, the Company entered into a Credit Agreement with Regions Bank as administrative agent and collateral agent. The Credit Agreement provided for a $75.0 million revolving credit facility (the “Revolving Facility”). On September 30, 2017, and December 31, 2016, the Company had outstanding borrowings of approximately $24.5 million and $21.8 million, net of unamortized debt issuance costs of $939,000 and $1.1 million, respectively.The Revolving Credit Facility includes a $10 million swingline sublimit, with swingline loans bearing interest at the alternate base rate plus the applicable margin. Any principal outstanding under the Revolving Credit Facility is due and payable on December 21, 2021 or such earlier date as the obligations under the Credit Agreement become due and payable pursuant to the terms of the Credit Agreement. The Revolving Facility bears interest at a rate per annum equal to an applicable margin plus, at NeoGenomics Laboratories’ option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greatest of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus 0.5% per annum and (c) the one month LIBOR rate plus 1% per annum, or (3) a combination of (1) and (2). The applicable margin will range from 2.25% to 3.50% for Adjusted LIBOR loans and 1.25% to 2.50% for base rate loans, in each case based on NeoGenomics Laboratories’ consolidated leverage ratio. Interest on the outstanding principal of the Term Loan Facility will be payable on the last day of each month, in the case of each base rate loan, and on the last day of each interest period (but no less frequently than every three months), in the case of LIBOR loans.The Credit Agreement requires NeoGenomics Laboratories to mandatorily prepay the Term Loan Facility and amounts borrowed under the Revolving Credit Facility with (i) 100% of net cash proceeds from certain sales and dispositions, subject to certain reinvestment rights, (ii) 100% of net cash proceeds from certain issuances or incurrences of additional debt, (iii) beginning with the fiscal year ending December 31, 2017, 50% of excess cash flow (minus certain specified other payments), subject to a step down to 0% of excess cash flow if NeoGenomics Laboratories’ consolidated leverage ratio is no greater than 2.75:1.0 and (iv) 100% of net11NEOGENOMICS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSUnauditedcash proceeds from issuances of permitted equity securities by NeoGenomics Laboratories made in order to cure a failure to comply with the financial covenants. NeoGenomics Laboratories is permitted to voluntarily prepay the Term Loan Facility and amounts borrowed under the Revolving Credit Facility at any time without penalty, subject to customary “breakage” costs with respect to prepayments of Adjusted LIBOR rate loans made on a day other than the last day of any applicable interest period.at September 30, 2017as of March 31, 2021 are summarized as follows (in thousands): 0.25% Convertible Senior Notes 1.25% Convertible Senior Notes Equipment
Financing ObligationsTotal Debt Remainder of 2021 $ 0 $ 0 $ 1,761 $ 1,761 2022 0 0 984 984 2023 0 0 27 27 2024 0 0 0 0 2025 0 201,250 0 201,250 Thereafter 345,000 0 0 345,000 Total Debt $ 345,000 $ 201,250 $ 2,772 $ 549,022 Less: Current portion of long-term debt 0 0 (2,089) (2,089) Less: Unamortized debt discount (10,049) (4,974) 0 (15,023) Less: Unamortized debt issuance costs (233) (616) 0 (849) Long-term debt, net $ 334,718 $ 195,660 $ 683 $ 531,061 E – Derivative Instruments and Hedging ActivitiesCash Flow HedgesIn December of 2016,8. Equity Transactionsinterest rate swapunderwriting agreement relating to reduce our exposure to interest rate fluctuations on our variable rate debt obligations. This derivative financial instrument is accounted for at fair value as a cash flow hedge which effectively modifies our exposure to interest rate risk by converting a portionthe issuance and sale of our floating rate debt to a fixed rate obligation, thus reducing the impact of interest rate changes on future interest expense.We account for derivatives in accordance with FASB ASC Topic 815, see Note B-Summary of Significant Accounting Policies in Annual Report on Form 10-K for more information on our accounting policy related to derivative instruments and hedging activities. Under this agreement, we receive a variable rate of interest based on LIBOR, and we pay a fixed rate of interest at 1.59%. The interest rate swap agreement was effective as of December 30, 2016 and a termination date of December 31, 2019. As of September 30, 2017 and December 31, 2016, the total notional amount4,081,632 shares of the Company’s interest rate swapscommon stock, $0.001 par value per share (the “2021 Common Stock Offering”). The price to the public in this offering was $49.00 per share. The net proceeds to the Company from the 2021 Common Stock Offering were $50approximately $189.9 million, after deducting underwriting discounts, commissions and other offering expenses of approximately $10.1 million.The fair valueinterest rate swap will be included inunderwriting agreement, the Company also granted the Underwriters a 30-day option to purchase up to 612,244 additional shares of Common Stock at the public offering price, less underwriting discounts and commissions. On January 6, 2021, the Underwriters exercised their option and purchased all 612,244 shares. The net proceeds related to the option exercise were approximately $28.4 million, after deducting underwriting discounts, commissions and other long term assets or liabilities, when applicable. Asoffering expenses of September 30, 2017approximately $1.6 million.December 31, 2016, the fair valuesale of 4,400,000 shares of the interest rate swap was not considered to be significant dueCompany’s common stock, $0.001 par value per share (the “2020 Common Stock Offering”). The price to the changepublic in LIBOR over that time period outstanding, therefore, no amount is included onthis offering was $28.50 per share. The net proceeds to the balance sheet for this instrument. AsCompany from the specific2020 Common Stock Offering were approximately $117.9 million, after deducting underwriting discounts, commissions and other offering expenses of approximately $7.5 million. and notional amounts of the derivative financial instrument match thoseunderwriting agreement, the Company also granted the Underwriters a 30-day option to purchase up to 660,000 additional shares of Common Stock at the fixed-rate debt being hedged,public offering price, less underwriting discounts and commissions. On May 29, 2020, the derivative instruments are assumed to be perfectly effective hedgesUnderwriters partially exercised their option and accordingly, there is no impacton June 3, 2020, purchased an additional 351,500 shares. The net proceeds related to the Company's consolidated statementsoption exercise were approximately $9.4 million, after deducting underwriting discounts, commissions and other offering expenses of operations. Gains and losses on this interest rate swap agreement will be recorded in accumulated other comprehensive income and will be reclassified to interest expense in the period during which the hedged transaction affects earnings. At September 30, 2017 and December 31, 2016, there was no impact to accumulated other comprehensive income (AOCI) as it was determined that there was not a significant change to record. The fair value of this instrument will be evaluated on a quarterly basis and adjusted as necessary. 12F – Class A Redeemable Convertible Preferred StockOn December 30, 2015, NeoGenomics issued 14,666,667 shares of its Series A Preferred stock as part of the consideration for the acquisition of Clarient. 9. Stock-Based CompensationSeries A Preferred Stock has a face value of $7.50 per share for a total liquidation value of $110 million. During the first year, the Series A Preferred Stock had a liquidation value of $100 million if the shares were redeemed prior to December 29, 2016. On December 22, 2016, the Company redeemed 8,066,667 shares of the Series A Preferred Stock for $55.0 million in cash. The redemption amount per share equaled $6.8181825 ($7.50 minus the liquidation discount of 9.0909%). At September 30, 2017, 6,600,000 shares of Series A Preferred Stock were outstanding. The carrying amount of the Series A Preferred Stock at September 30, 2017 was $30.1 million as compared to the carrying amount at December 31, 2016 of $22.9 million. The increase in the carrying amount is due to the accrual of deemed dividends ofrecorded approximately $2.7 million and $2.2 million in stock-based compensation expense for the accretionthree months ended March 31, 2021 and 2020, respectively.beneficial conversion feature of approximately $5.1 million duringstock option activity under the nineCompany’s plans for the three months ending September 30, 2017 and the additional BCF discounts for payment-in-kind shares accrued during the nine months ending September 30, 2017 of $0.6 million. Both the deemed dividends and the accretion of the beneficial conversion feature are recordedended March 31, 2021 is as distributions to the holders of the Series A Preferred Stock on the income statement with the corresponding entry recorded as an increase to the carrying value of the Series A Preferred Stock.Issue DiscountThe Company recorded the Series A Preferred Stock at a fair value of approximately $73.2 million or $4.99 per share on the date of issuance. The difference between the fair value of $73.2 million and the liquidation value of $110 million represents a discount of $36.8 million from the initial face value as a result of assessing the impact the rights and features of the instrument and their effect on the value to the Company. After the partial redemption, the Series A Preferred stock has a fair value of approximately $32.9 million or $4.99 per share. The difference between the fair value of $32.9 million and the liquidation value of $49.5 million represents a discount of approximately $16.6 million. Beneficial Conversion FeaturesNumber of
SharesWeighted Average Exercise Price Options outstanding at December 31, 2020 3,785,941 $ 15.21 Options granted 251,771 $ 53.16 Less: Options exercised 260,167 $ 8.60 Options forfeited 54,296 $ 19.53 Options outstanding at March 31, 2021 3,723,249 $ 18.17 Exercisable at March 31, 2021 2,141,203 $ 11.20 Three Months Ended
March 31, 2021Expected term (in years) 4.0 - 5.5 Risk-free interest rate (%) 0.6% Expected volatility (%) 38.7% - 46.6% Dividend yield (%) 0 Weighted average fair value/share at grant date $19.42 Number of Restricted
SharesWeighted Average Grant Date Fair Value Nonvested at December 31, 2020 291,891 $ 23.82 Granted 100,847 $ 53.17 Vested (55,282) $ 22.91 Forfeited (5,474) $ 24.14 Nonvested at March 31, 2021 331,982 $ 32.89 into whichat a discount of 15% of the Series A Preferred Stock is convertible exceeded the allocated purchase price fair market value of the Series A Preferred Stock at the date of issuance and after redemption by approximately $44.7 and $20.1 million, respectively, resulting in a beneficial conversion feature. The Company will recognize the beneficial conversion feature as non-cash, deemed dividend to the holder of Series A Preferred Stock over the first three years the Series A Preferred Stock is outstanding, as the date the stock first becomes convertible is three years from the issue date. The amount recognized forCompany’s common stock. and nine months ended September 30, 2017 was approximately $1.7 million and $5.1 million, respectively. In addition to the beneficial conversion feature (“BCF”) recorded at the original issue date, we recorded additional BCF discounts for payment-in-kind shares accrued for quarters ended March 31, 2017, June 30, 20172021 and September 30, 2017, as dividends. After2020, employees purchased 23,917 and 34,330 shares, respectively, under the early redemption, the face value of the remaining Series A Preferred Stock is $49.5 million. We will issue 264,000 additional shares ($49.5 million * 4.0%) / $7.50) of Series A Preferred Stock as payment-in-kind dividends for the year ending December 31, 2017, the first year dividends are payable.ESPP. The additional 264,000 shares will be discounted and amortized to the income statement over the remaining period up to the earliest conversion date, which is three years from the original issue date. The additional BCF discountexpense recorded for the three and nine months ended September 30, 2017these periods was approximately $201,240$0.2 million and $603,720$0.2 million, respectively.13UnauditedEach share of Series A Preferred Stock issuedoutstanding asPharma Services. The Clinical Services segment provides various clinical testing services to community-based pathology practices, oncology practices, hospital pathology labs, reference labs, and academic centers with reimbursement from various payers including client direct billing, commercial insurance, Medicare and other government payers, and patients. Due to the broad roll-out of the tenth anniversaryCOVID-19 vaccine and a sharp decline in COVID-19 PCR testing demand, the Company made the decision at the end of the original issue date will automatically convert into fully paidfirst quarter 2021 to exit from COVID-19 PCR testing which was part of Clinical Services segment revenues. The Pharma Services segment supports pharmaceutical firms in their drug development programs by providing testing services and non-assessable shares of common stock.Classification The Company classified the Series A Preferred Stock as temporary equity on the consolidated balance sheets due to certain change in control events that are outside the Company’s control, including deemed liquidation events described in the Series A Certificate of Designation.Note G –data analytics for clinical trials and research. Recognition and Contractual AdjustmentsThe Company recognizes revenues when (a) the price is fixed or determinable, (b) persuasive evidence of an arrangement exists, (c) the service is performed and (d) collectability of the resulting receivable is reasonably assured. equivalent,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 Medicare,client direct billing, commercial insurance, companies,Medicare and other directly billed healthcare institutions such as hospitalsgovernment payers, and clinics, and individuals. The Company reports revenues from contractedpatients. Revenue is recorded for all payers including Medicare, certain insurance companies and certain healthcare institutions, based on the contractual rate, or in the case of Medicare, published fee schedules. The Company reports revenues from non-contracted payers, including certain insurance companies and individuals, based on the amount expected to be collected. The differencecollected, which considers implicit price concessions. Implicit price concessions represent differences between the amountamounts billed and the amount estimated consideration the Company expects to be collectedreceive based on negotiated discounts, historical collection experience and other anticipated adjustments, including anticipated payer denials. Collection of consideration the Company expects to receive typically occurs within 30 to 60 days of billing for commercial insurance, Medicare and other governmental and self-pay payers and within 60 to 90 days of billing for client payers.non-contracted payersone month to several years. The Company records revenue on a unit-of-service basis based on number of units completed and the total expected contract value. The total expected contract value is recordedestimated based on historical experience of total contracted units compared to realized units as an allowance to arrive atwell as known factors on a specific contract-by-contract basis. Certain contracts include upfront fees, final settlement amounts or billing milestones that may not align with the reported net revenues.completion of performance obligations. The expected revenues from non-contracted payers arevalue of these upfront fees or final settlement amounts is usually recognized over time based on the historical collection experiencenumber of each payer or payer group, as appropriate. units completed, which aligns with the progress of the Company towards fulfilling its obligations under the contract.revenues from patient pay tests netor prospective deliveries of data. Informatics revenue is recognized upon delivery of retrospective data or over time for prospective data feeds. Any contracts that contain multiple performance obligations and include both units-of-service and point in time deliverables are accounted for as separate performance obligations and revenue is recognized as previously disclosed. The Company negotiates billing schedules and payment terms on a large discountcontract-by-contract basis. While the contract terms generally provide for payments based on a unit-of-service arrangement, the billing schedules, payment terms and related cash payments may not align with the performance of services and, as such, may not correspond to revenue recognized in any given period.result recognizes minimal revenue on those tests. corresponding receivable is recorded. Additionally, certain costs to obtain contracts, primarily for sales commissions, are capitalized when incurred and are amortized over the term of the contract. Amounts capitalized for contracts with an initial contract term of twelve months or less are classified as current assets. All others are classified as non-current assets.Company regularly reviews its historical collection experience for non-contracted payersfollowing table summarizes the values of contract assets, capitalized commissions and adjusts its expected revenues for current and subsequent periods accordingly. On January 1, 2017, we had a significant reduction in our patient fee schedule that primarily impacts the amount billed to uninsured patients.The table below shows the adjustments made to gross service revenues to arrive at net revenuescontract liabilities (in thousands):March 31, 2021 December 31, 2020 $ 2,014 $ 1,643 355 290 Total pharma contract assets $ 2,369 $ 1,933 $ 182 $ 185 1,020 970 Total pharma capitalized commissions $ 1,202 $ 1,155 Current pharma contract liabilities $ 3,992 $ 4,029 705 712 Total pharma contract liabilities $ 4,697 $ 4,741 amount reported on our statements of operations.Note H – EquityA summary of the stock option activity under the Company’s planssame period. Revenue recognized for the three months ended September 30, 2017March 31, 2021 and March 31, 2020 related to Pharma contract liability balances outstanding at the beginning of the period was $2.7 million and $1.2 million, respectively. Amortization of capitalized commissions for the three-months ended March 31, 2021 and March 31, 2020, was $0.2 million and $0.2 million, respectively.as follows:similar and primarily driven by individual contract terms.14Three Months Ended March 31, 2021 2020 Clinical Services: Client direct billing $ 60,709 $ 54,292 Commercial Insurance 18,574 21,993 Medicare and Medicaid 17,150 16,483 Self-Pay 54 214 Total Clinical Services $ 96,487 $ 92,982 Pharma Services: 19,046 13,048 Total Revenue $ 115,533 $ 106,030 6,492,941weighted-average number of common shares outstanding options at September 30, 2017, 1,240,834for the period. Diluted EPS reflects the potential dilution that could occur if stock awards were variable accountedexercised and if the 2028 Convertible Notes and 2025 Convertible Notes were converted. The potential dilution from stock options issued to non-employees of the Company of which 445,833 options were vested and 795,001 options were unvested as of September 30, 2017.The fair value of each stock option award granted during the nine months ended September 30, 2017 was estimated as of the grant date using a trinomial lattice model with the following weighted average assumptions:As of September 30, 2017, there was approximately $6.5 million of unrecognized share based compensation expense related to stock options that will be recognized over a weighted-average period of approximately 1.3 years. This includes approximately $1.9 million in unrecognized expense related to the 795,001 shares of unvested variableawards is accounted for using the treasury stock options subject to fair value adjustment at the end of each reporting periodmethod based on changes in the Company’s stock price.Stock based compensation expense recognized for stock options and restricted stock and included in the consolidated statements of operations was allocated as follows (in thousands): Stock based compensation recorded in research and development relates to unvested options granted to a non-employee. Common Stock WarrantsA summary of the warrant activity for the six months ended September 30, 2017 is as follows:During both the three months ended September 30, 2017 and 2016, we recorded $0 of warrant compensation expense. During the nine months ended September 30, 2017, we recorded $0 of warrant compensation expense and during the nine months ended September 30, 2016 we recorded a warrant compensation gain of approximately $10,000, respectively. Warrant expense (gain) for the periods presented is recorded in research and development as the expense is related to unvested performance based warrants that were granted to a non-employee. As of September 30, 2017, there were no outstanding warrants. 15NEOGENOMICS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSUnauditedOn August 31, 2017, we issued 450,000 shares of restricted common stock to Ascend Genomics as purchase consideration for the customer list acquired. The customer list was recorded as an intangible asset, see Note C – Goodwill and Intangible Assets. As a condition of the purchase, Ascend is prohibited from trading the shares for a period of six months from the closing date. Employee Stock Purchase PlanWe offer an employee stock purchase plan (“ESPP”) through which eligible employees may purchase shares of our common stock at a discount. On May 25, 2017, the Company amended the ESPP, increasing the discount from 5% to 15% of the fairaverage market value of the Company’s common stock. As a resultThe potential dilution from conversion of this change, we have recordedthe 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 based compensation expense related toissuable upon conversion of the ESPP for2028 Convertible Notes and the quarter ended September 30, 2017. During2025 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).Three Months Ended March 31, 2021 2020 Net loss $ (22,114) $ (6,978) Basic weighted average shares outstanding 116,199 104,484 Diluted weighted average shares outstanding 116,199 104,484 Basic net loss per share $ (0.19) $ (0.07) Diluted net loss per share $ (0.19) $ (0.07) Three Months Ended March 31, 2021 2020 Stock options 2,417,804 3,153,959 Restricted stock awards 216,407 322,559 2025 Convertible Notes 5,538,360 0 2028 Convertible Notes 4,867,738 0 September March 31, 2021 as the Company’s closing price on March 31, 2021 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. 20172016, employees purchased 23,664Wales (“Inivata”), and 26,092 shares, respectively underentered into a Strategic Alliance Agreement and Laboratory Services Agreement whereas Inivata will render and perform certain laboratory testing which the ESPP. The expenseCompany will make available to customers. In connection with this agreement, Inivata provided $0.4 million of testing services to the Company recorded in cost of revenue in the Consolidated Statements of Operations for these periods was $41,907 and $0, respectively. During the ninethree months ended September 30, 2017 and 2016, employees purchased 74,756 and 75,623 shares, respectively under the ESPP. The expense recordedMarch 31, 2021. NaN such services were provided for these periods was $41,907 and $0.Note I – CommitmentsDuring the three and nine months ended September 30, 2017,March 31, 2020.Three Months Ended March 31, 2021 2020 Net revenues: Clinical Services $ 96,487 $ 92,982 Pharma Services 19,046 13,048 Total revenue 115,533 106,030 Cost of revenue: 61,565 48,923 Pharma Services 12,394 10,738 Total cost of revenue 73,959 59,661 Gross Profit: Clinical Services 34,922 44,059 Pharma Services 6,652 2,310 Total gross profit 41,574 46,369 Operating expenses: General and administrative 40,476 36,344 Research and development 2,456 2,060 Sales and marketing 13,749 13,258 Total operating expenses 56,681 51,662 Loss from operations (15,107) (5,293) Interest expense, net 1,177 819 Other expense (income), net 4,854 (223) Loss before taxes (21,138) (5,889) Income tax expense 976 1,089 Net loss $ (22,114) $ (6,978) leases of approximately $683,000 and $3.2 million in laboratory and computer equipment, respectively. These leases have 36 month terms, a $1.00 buyout option at the endShare Purchase Agreement to acquire Inivata. The Company exercised its Purchase Option which was part of the Investment Agreement with Inivata as described in Note 6. Investment in Non-Consolidated Affiliate. Pursuant to the Share Purchase Agreement, the Company will pay Inivata's other shareholders consideration in an aggregate amount of $390 million, adjusted to reflect certain cash and debt items at closing, which will result in Inivata becoming a wholly-owned subsidiary of the Company. The consideration will be satisfied in cash and, to the extent any shareholder elects in accordance with the terms and interest rates ranging from 0.0% to 19.5%. The Company accounted for these lease agreements as capital leases.Duringof the nine monthsShare Purchase Agreement, shares of the Company's common stock, the price of which is based upon 95% of the average of the volume-weighted average prices of the common stock over the ten trading day period ended September 30, 2017,May 4, 2021.construction contract for the expansion of our laboratory in Houston, Texas. The contract is for approximately $5.0 million,Securities Purchase Agreement with certain purchasers (the “Purchasers”), pursuant to which the Company intendsagreed to finance throughsell and issue to the Purchasers, in a capital lease with a 36 month term and a $1.00 buyout option. The interest rate under this lease will vary based on the timingprivate placement (the “Private Placement”), shares of the construction payments. We anticipate this project to be complete in the first quarter of 2018. Note J – Other Related Party TransactionDuring each of the three and nine month periods ended September 30, 2017 and 2016, Steven C. Jones was an officer, director and shareholdercommon stock of the Company. In connection with his duties as Executive Vice President, Mr. Jones earned approximately $46,000 and $66,000 for the three months ended September 30, 2017 and 2016, respectively. In addition, as compensation for his services on the Board, Mr. Jones earned approximately $13,000 and $0 for the three months ended September 30, 2017 and 2016, respectively. During the nine months ended September 30, 2017 and 2016, Mr. Jones earned approximately $164,000 and $197,000, respectively in connection with his duties as Executive Vice President. Mr. Jones also received approximately $85,000 and $79,000 during the nine months ended September 30, 2017 and 2016, respectively, as payment of his annual bonus compensation for the previous fiscal years. In addition, as compensation for his services on the Board, Mr. Jones earned $25,500 and $0 for the nine months ended September 30, 2017 and 2016, respectively.During eachThe closing of the threePrivate Placement is anticipated to occur in June 2021, subject to the satisfaction of customary closing conditions and nine month periods ending September 30, 2017 and 2016, Kevin Johnson was a director and shareholderthe closing of the Company. In MayCompany’s acquisition of 2017,Inivata. The Company agreed to sell and issue 4,444,445 shares of common stock at a purchase price of $45.00 per share for aggregate gross proceeds to the Company engaged Mr. Johnsonof approximately $200 million, before deducting fees to provide services as a consultant. This engagement ended in June of 2017. In connection with his role as a consultant, Mr. Johnson earned approximately $0the placement agents and $0 forother estimated offering expenses payable by the three months ended September 30, 2017 and 2016, respectively. In addition, as compensation for his services on the Board, Mr. Johnson earned approximately $14,000 and $15,000, for the three months ended September 30, 2017 and 2016, respectively and approximately $44,000 and $45,000 for the nine months ended September 30, 2017 and 2016, respectively.On May 25, 2017, the Company granted stock options and restricted stock to each of its board members as part of its annual board compensation process. Mr. Jones and Mr. Johnson were each granted 10,000 stock options and 8,667 shares of restricted stock for their Board services. The options were granted at a price of $7.27 per share and had a weighted average fair market value of $2.38 per option. The options vest ratably over the next three years. The restricted stock has a weighted average fair value of $7.27 per share and vests ratably on the last day of each calendar quarter up to March 31, 2018.END OF FINANCIAL STATEMENTS1610-K)10-Q) is the registrant for SEC reporting purposes. Our common stock is listed on the NASDAQ CapitalNasdaq Stock Market LLC (“NASDAQ”) under the symbol “NEO”.consolidated financial statements,Consolidated Financial Statements and the notes thereto included herein. The information contained below includes statements of the Company’s or management’s beliefs, expectations, hopes, goals and plans that, if not historical, are forward-looking statements subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. For a discussion on forward-looking statements, see the information set forth in the introductory note to this quarterly report on Form 10-Q under the caption “Forward-Looking Statements”, which information is incorporated herein by reference.genetic testing laboratories in the United States.States, Europe and Asia. Our mission is to improve patient care through exceptional genetic and molecularcancer-focused testing services. Our vision is to become the World’sworld’s leading cancer testing and information company by delivering uncompromising quality, exceptional service and innovative solutions.September 30, 2017,March 31, 2021, the Company hadhas laboratory locations in Fort Myers and Tampa, Florida; Aliso Viejo, Carlsbad, and Fresno, CA; TampaSan Diego, California; Houston, Texas; Atlanta, Georgia; Nashville, Tennessee; Rolle, Switzerland; and Fort Myers, FL; Houston, TX and Nashville, TN. The CompanySingapore. We currently offersoffer the following types of genetictesting services:molecular testing services:
abnormal chromosomes and their relationship to disease. Cytogenetics involves analyzing the chromosome structure to identify changes from patterns seen in normal chromosomes. Cytogenetic studies are often performed to provide diagnostic, prognostic and occasionally predictive information for patients with hematological malignancies.a)Cytogenetics - the study of normal and abnormal chromosomes and their relationship to disease. It involves looking at the chromosome structure to identify changes from patterns seen in normal chromosomes. Cytogenetic studies are often utilized to answer diagnostic, prognostic and predictive questions in the treatment of hematological malignancies.b)Fluorescence In-Situ Hybridization (“FISH”) - a branch of cancer genetics that focuses on detecting and locating the presence or absence of specific DNA sequences and genes on chromosomes. FISH helps bridge abnormality detection between the chromosomal and DNA sequence levels. The technique uses fluorescent probes that bind to only those parts of the chromosome with which they show a high degree of sequence similarity. Fluorescence microscopy is used to visualize the fluorescent probes bound to the chromosomes. FISH can be used to help identify a number of gene alternations, such as amplification, deletions, and translocations.c)Flow cytometry - a rapid way to measure the characteristics of cell populations. Cells from peripheral blood, bone marrow aspirate, lymph nodes, and other areas are labeled with selective fluorescent antibodies and analyzed as they flow in a fluid stream through a beam of light. The properties measured in these antibodies include the relative size, relative granularity or internal complexity, and relative fluorescence intensity. These fluorescent antibodies bind to specific cell surface antigens and are used to identify malignant cell populations. Flow cytometry is typically performed in diagnosing a wide variety of leukemia and lymphoma neoplasms. Flow cytometry is also used to monitor patients through therapy to determine whether the disease burden is increasing or decreasing, otherwise known as minimal residual disease monitoring.d)Immunohistochemistry (“IHC”) and Digital Imaging – Refers to the process of localizing proteins in cells of a tissue section and relies on the principle of antibodies binding specifically to antigens in biological tissues. IHC is widely used in the diagnosis of abnormal cells such as those found in cancerous tumors. Specific surface cytoplasmic or nuclear markers are characteristic of cellular events such as proliferation or cell death (apoptosis). IHC is also widely used to understand the distribution and localization of differentially expressed proteins. Digital imaging allows clients to see and utilize scanned slides and perform quantitative analysis for certain stains. Scanned slides are received online in real time and can be previewed often a full day before the glass slides can be shipped back to clients.e)Molecular testing - a rapidly growing cancer testing methodology that focuses on the analysis of DNA and RNA, as well as the structure and function of genes at the molecular level. Molecular testing employs multiple technologies including DNA fragment length analysis, real-time polymerase chain reaction (“RT-PCR”) RNA analysis, bi-directional Sanger sequencing analysis, and Next-Generation Sequencing (“NGS”).f)Pathology consultation - services provided to clients whereby our pathologists review surgical samples on a consultative basis. NeoGenomics pathologists are some of the foremost experts on pathology in the country, and are used as experts on difficult and challenging cases.17Cancer Testing Servicesand Clinical Trialsdivisionrevenue consists of three revenue streams:trials.trials and research. This portion of our business often involves working with the pharmaceutical firms (sponsors) on study design as well as performing the required testing. Our medical team often advises the sponsor and works closely with them as specimens are received from the enrolled sites. We also work on developing tests that will be used as part of a companion diagnostic to determine patients’ response to a particular drug. As studies unfold, our clinical trials team reports the data and often provideprovides key analysis and insights back to the sponsors.and Clinical Trials groupsegment provides comprehensive testing services in support of our pharmaceutical clients’ oncology programs from discovery to commercialization. In biomarker discovery, our aim is to help our customers discover the right content. We help our customers develop a biomarker hypothesis by recommending an optimal platform for molecular screening and backing our discovery tools with the informatics to capture meaningful data. In other prepre-clinical and non-clinical work, we can use our platforms to characterize markers of interest. Moving from discovery to development, we help our customers refine their biomarker strategy and, if applicable, develop a companion diagnostic pathway using the optimal technology for large-scale clinical trial testing. and Clinical Trials team provides significant technical expertise, working closely with our customers to support each stage of clinical trial development. Each trial we support comes with rapid turnaround time, dedicated project management and quality assurance oversight. We have experience in supporting submissions to the Federal Drug Administration (“FDA”) for companion diagnostics. Our Pharma Services strategy is focused on helping bring more effective oncology treatments to market through providing world classworld-class laboratory services in oncology to key pharmaceutical companies in the industry.2017 Focus Areas: Develop High Performance Culture, Inspire & “Own” Quality, Accelerate GrowthAdvance Our StrategyOver the past several years, NeoGenomics has experienced rapid growth including organic growth from offering new tests to existing customers, growth from gaining market share from our competitors, and growth from acquisitions. We expect to continue to grow our business in 2017 and are focused on several initiatives to continue to build our Company to be the World’s leading cancer testing and information company.Develop our High Performance Culture We are building our high performance culture by empowering our employees and investing in their growth. We are providing skill based training, education, and mentoring our supervisors and managers to allow them to grow within the Company. We communicated career opportunities and performance objectives and hold each employee accountable for their own development. Teamwork is highly encouraged through the usedevelopment phase as compounds come out of team performance incentive planstranslational research departments as well as other meaningful recognitionwork with clients from Phase 1 clinical trials through Phases II and rewards. To cultivate teamwork weIII as the sponsors work to prove the efficacy of their drugs. The laboratory biomarker tests that are developed during this process may become companion diagnostic, or CDx tests, that will be used on patients to determine if they could respond to a certain therapy. NeoGenomics is able to offer these CDx tests to the market immediately after FDA approval as part of our Day 1 readiness program. This ability helps to speed the commercialization of their drug and enables Pharma sponsors to reach patients through NeoGenomics broad distribution channel in the Clinical Services segment.improving communication by providing better tools for today’s connected society. Our organization uses weekly employee surveysconnecting patients with life altering therapies and takes actions based ontrials. In carrying out these commitments, we aim to provide transparency and choice to patients regarding the feedback from those surveys. We believe that a culturehandling and use of engaged employees provides superior service totheir data through our clientsNotice of Privacy Practices, and their patients battling cancer. We have employee retention targets that are set each year, and we believe our employee retention rate is above average for the laboratory industry. Recruiting and retaining talented employees is criticalinvested in the fast moving field of cancer diagnostics. Inspire and “Own” QualitySince the acquisition of Clarient, Inc. and its wholly owned subsidiary Clarient Diagnostic Services, Inc. (together “Clarient”) we’ve focused on combining the very best of both NeoGenomics and Clarient testing menus and services. We’ve had functional teams work through every part of the businessleading technologies to ensure thatthe data we were ablemaintain is secured at all times.maintainsustainable growth while being an innovative leader in our high level of qualityindustry. Our focus for 2021 includes initiatives to drive consistent and create best practices18throughoutorganization. culture to closely align with the values of our Company is a key priority. We will invest in the development of our people by creating mentoring, coaching and training opportunities to enhance and capitalize on the talent within our Company. We believe these initiatives will foster a culture of accountability and empowerment and are imperative to providing a meaningful work experience for our employees.is enablinglevels has enabled us to retain existing clients while adding new ones. have a variety of initiatives designedare continuously looking for ways to further enhance our company-wide quality program, provide training on the importance of quality, reinforce our quality principals, and recognize individuals and teams for providing quality service. By promoting and reinforcing quality principles, we believe we can strengthen our core processes. Our focus on continuous improvement, first timeimprove quality and the work of our best-practice teamsimplement best practices to streamline processes. We are focused on increasing automation with solutions that will enable us to continue reducing our cost per test as we have steadily over the past several years.In 2016, we began work on our next generation Laboratory Information System (“LIS”) and our information technology team is working to complete the LIS for certain key areas of our Pharma Services divisionmaintain quality while improving efficiency in 2017. operations. believe the new LIS will help to drive improvements in several laboratory areas and will allow for further automation and operational efficiencies. The new LIS will also meet the stringent requirements of our Pharma Services clients and will enable these clients the ability to track each step through the laboratory process. On June 30, 2017, we began using this new system in certain areas of our Pharma Services business and we will continue to roll it out. Once allgrow a culture of the Pharma Services testing is on the new LIS, we intendquality through our leadership, coaching and employee training initiatives. We aim to begin using itempower our employees to deliver high-quality results in our Clinical Testing division.have renovated our Aliso Viejo, CA laboratorywill implement initiatives to measure and are currently working on the expansionimprove turnaround times while maintaining a culture of our Houston, TX facilityquality, which we expect will continue to complete by the end of the first quarter of 2018. We completed the consolidation ofmeet or exceed our Irvine Lab facility into the Aliso Viejo Lab facility,customers' expectations.we fully vacated the Irvine facility on April 30, 2017. We have also completed the sale of PathLogic on August 1, 2017 and therefore no longer have a laboratory in West Sacramento, CA. We expect these changes in our business to result in additional capacity, economies of scale and operating efficiencies.Accelerate Profitable Growth20172021 include many initiatives to continue our strong organicto drive sustainable growth by gaining market share, introducing new tests, and expanding our Pharma business. Through the acquisition of Clarient we have significantly expanded our Pharma Services business, and plan to develop it further by creating an international presence and incorporating new technologies. Also, as a result of the Clarient acquisition, we have expanded our sales team and now offer our services in geographic areas where we did not previously have sales representation. We believe our highly trained sales team has been successful in competing against other laboratories because of our exceptional service levels, and because we have one of the broadest and most comprehensive test menus in our industry. Our broad menu of molecular and immunohistochemistry testing has helped make us a “one stop shop” for many clients who like the fact that all of their testing can be sent to one laboratory.We currently perform comprehensive analyses for hematopoietic cancers such as leukemia and lymphoma (blood and lymphoid tumors) as well as solid tumors such as breast, lung, colon, and bladder cancers. Our sales team is experienced with the scientific complexity and medical necessity of our testing services, and understands the needs of our client pathologists and oncologists.innovation. We will continue to pursue market share gains by providing high complexity, cancer-related laboratory testing services to hospitals, community-based pathology and oncology practices, academic centers, clinicians, and clinicians throughout the United States. growth has also been aided by stronglaboratory and informatics teams will continue focus on new assays and product offerings, including liquid biopsy, MRD and other high-quality tests. We expect this to enhance our strategic position while enabling us to maintain our high levels of client retention. We believe our client retention success is due to our strong service levels, our tech-only service offerings,a culture of customer focus in which our engaged employees seek to deliver highest customer satisfaction possible. Our strong service levels are reinforced by a disciplined management process with a system of detailed measures and metrics to ensure committed turnaround times and customer service. Our broadinnovative test menu of molecular, including NGS, immunohistochemistry, and immunohistochemistryother testing has helped make us a “one stop“one-stop shop” for many clients who like the factvalue that all of their testing can be sent to one laboratory.In early 2017, we re-branded and created a new logo. We intendwill continue to implement strategic marketing plans to further develop our brand and build brand awareness. We have re-designed our trade show booth incorporating our new logo and plan to improve new test launches by using social media to improve brand awareness. We believe by executing and developing our brand we will achieve growth in new and existing markets.We also look for growth opportunities to grow our business through mergers and/or acquisitions. Weacquisitions and are focused on strategic opportunities that would be complementary to our menu of services and would increase our earnings and cash flow in the short to medium timeframe. In late 2015 we acquired Clarient which specialized in advanced oncology diagnostic services, this acquisition has enabled NeoGenomics to19NEOGENOMICS, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSbroaden its offering of innovative cancer diagnostic tests to hospitals and physicians across the country, and to accelerate its growth in the fast-growing worldwide market for pharmaceutical clinical trials and research. Complementary product offerings and expanded geographical reach of the combined Company will provide customers with substantial benefits and create a significantly larger and more diversified provider of precision oncology diagnostics. The Clarient transaction is a good example of the type of acquisition opportunity we will consider in the future.Advance Our Strategycommittedalso focused on investing in business development and informatics capabilities to being an innovative leaderpartner with our key stakeholders, including patients, providers, payers and believe this has been and will be a key factor in our growth. We plan to accomplish this goal through strategic actions designed to: 1) advance the technology we use in our laboratories, 2) evaluate, develop and deploy new products and services, and 3) evaluate and experiment with value-based payment models in collaboration with oncology groups and other health care providers.Our broad and innovative testing menu allows us to serve community-based pathologists and clinicians as well as pharmaceutical customers and nationally recognized academic centers. Over the past year, we have developed approximately 50 new molecular oncology tests and disease-specific panels, and we believe we have one of the most comprehensive oncology test menus of any laboratory in the world. By launching new medically significant and necessary tests at a steady rate, we are ablecompanies to provide cutting-edge developments in molecular genetics with clientssolutions to current or near-term problems that they face.their patientsinstrumentation, laboratory information system, client education programs and are developing our reputation as a leader in the field of molecular oncology. In many cases, customers who begin using us because of our new innovative test offeringsbroad domestic and growing international presence also begin to refer portions of their other testing. Our comprehensive test offering allows us to be a one-stop shop for all of the oncology testing needs of our clients. Pharmaceutical firms are also attracted to our laboratory based on extensive test menu, and based on our knowledgeable research and development team as well as our ability to offer tests at the forefront of medical developments. We continue to pursue opportunities to offer “liquid biopsy” testing, particularly for hematological diseases. We have launched twelve NEOLABTM liquid biopsy tests for hematological disease using next generation sequencing and other advanced molecular technologies. Liquid Biopsy testing uses cell-free circulating DNA and RNA found in blood plasma to identify molecular abnormalities in the bone marrow without the need for a bone marrow biopsy. The technology is based on the concept that hematologic cells release their DNA, RNA, and protein into circulation as the cells are immersed in blood. The cell-free circulating DNA, RNA and protein are referred to as exosomes, microvesicles, apoptotic bodies or simply DNA- or RNA-protein complexes. Our new tests use proprietary methods to extract these circulating nucleic acids and analyze them using next generation sequencing and advanced methods in order to evaluate molecular abnormalities present in hematological cancers. We also continue to develop new testing approaches by combining the capabilities of a variety of testing technologies. Our NeoTYPETM multimodality testing is somewhat unique in the industry and combines immunohistochemistry testing, molecular testing, and FISH testing into disease-specific panels that are very effective and efficient for improving patient care. We introduced a number of NeoTYPETM molecular panels that combine multiple molecular tests into multi-gene panels targeting specific types of cancer to help pathologists and oncologists determine cancer subtypes on difficult cases. Managed care payers have expressed interest in the more targeted panels as a more cost effective alternative to ordering large whole genome panels that include genes that have never been tied to a particular type of cancer.Our NeoLAB (Liquid Biopsy) Prostate cancer test which is performed on blood plasma and urine rather than on prostate tissue biopsies is currently available as a Laboratory Developed Test and we have received clinical orders for it. There are two goals for this test: 1) to diagnose the presence of cancer in patients and 2) to distinguish high-gradedifferentiates NeoGenomics from low-grade cancer in patients with prostate cancer. We are working to gain reimbursement for this test which we believe could significantly increase the acceptance and the number of test orders we receive for this important test.Competitive Strengthsnationwide.nationwide, both in the Clinical Services and Pharma Services segments. By providing information to our clients in a rapid manner, physicians can begin treating their patients as soon as possible. We believe our average 4-5 day turnaround20NEOGENOMICS, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONStime for our cytogenetics testing services, our average 3-4 day turnaround time for FISH testing services, our 5-7 day turnaround time for molecular testing and our average 1 day turnaround time for flow cytometry and pathology testing services are industry-leading benchmarks for national laboratories. Our consistent timeliness of results by our Clinical Services segment is a competitive strength and a driver of additional testing requests by our referring physicians. Rapid turnaround times allow for the performance of other adjunctive tests within an acceptable diagnosis window in order to augment or confirm results and more fully inform treatmentWeAdditionally, we believe that our fastrapid turnaround timestime on testing and our project milestones are a key differentiator versus other national laboratories, andin our clients often cite them as a key factor in their relationship with us.September 30, 2017,March 31, 2021, we employed or are contracted with approximately 28 full-time120 M.D.s and Ph.Ds. The addition of Clarient’s pathology team has added increased depthWe have many nationally and world-renowned pathologists on staff, which is a key differentiator from many smaller laboratories. Our clinical customers look to our staff and their expertise and they often call our medical team on challenging cases. For our Pharma Services segment, many sponsors work with our medical team on their study design and has enhanced our abilityon the interpretation of results from the studies. Our medical team is a key differentiator as we have a depth of medical expertise that many other laboratories cannot offer to service a wider range of specialties. Extensive Tech-OnlyPharmaceutical companies.Our FISH, flow cytometry and other tech-only service offerings allow properly trained and credentialed community-based pathologists to extend their own practices by performing professional interpretations services, which allows them to better service the needs of their local clientele without the need to invest in the lab equipment and personnel required to perform the technical component of genetic and molecular testing.Pathologist’spathologist’s interpretation of the test results. Our clients appreciate the flexibility to access NeoGenomics’ medical staff for difficult or complex cases or when they are otherwise unavailable to perform professional interpretations. We believe this innovative approach to serving the needs of pathology clients’ results in longer term, more committed client relationships that are, in effect, strategic partnerships. Our extensive tech-only service offerings have differentiated us and allowed us to compete more effectively against larger, more entrenched competitors in our niche of the industry.Global Service Offeringsthetheir testing results for them.results. In our global service offerings, our lab performs the technical component of the tests and our M.D.s and Ph.Ds. provide the service of interpreting the results of those tests. Our professional staff is also available for post-test consultative services. Clients using our global service offering rely on the expertise of our medical team to give them the answers they need in a timely manner to help inform their diagnoses and treatment decisions. Many of our tech-only clients also rely on our medical team for difficult or challenging cases by ordering our global testing services on a case-by-case basis or our medical team can serve as a backup to support our clients who need help to satisfy the continued and demanding requirements of their practice. Our reporting capabilities allow for all relevant case data from our global services to be captured in one summary report. When providing global services, NeoGenomics bills for both the technical and professional component of the test, which results in a higher reimbursement level.Client Education Programsmost extensive client education programsbroadest Molecular and Next Generation Sequencing test menus in the geneticworld. Clients have the ability to order single gene molecular tests, targeted NeoTYPE panels that include the relevant actionable genes for a particular cancer type as well as large NGS panels. Our Pharma Services Division offers a full range of sequencing testing including whole exome and molecular testing industry. We train pathologists how to use and interpret genetic testing services so that they can better interpret technical data and render their diagnosis.educational programs include an extensive library of on-demand training modules, online courses, webinars and custom tailored on-site training programs that are designed to prepare clients to utilize our tech-only services. We offer training and information on new cancer tests and the latest developments in the field of molecular genetic testing. Each year, we also regularly sponsor seminars and webinars on emerging topics of interest in our field. Our medical staff is involved in many aspects of our training programs.21NEOGENOMICS, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSuperior Testing Technologies and InstrumentationWe use some of the most advanced testing technologies and instrumentation in the laboratory industry. The use of next generation sequencing in our molecular testing allowsmenu enables us to detect multiple mutations and our proprietary techniques allow us to achieve high sensitivity in our next generation sequencing testing. In addition, we use high sensitivity Sanger sequencing, RNA and DNA quantification, SNP/Cytogenetic arrays, Fragment Length analysis, and other molecular testing technologies. Our automated FISH and Cytogenetics tools allow us to deliver the highest quality testing tobe a true “one-stop shop” for our clients and our flow cytometry laboratory uses 10-color flow cytometry analysis technology on a technical-only basis. NeoGenomics is continuallyas we can meet all of their oncology testing new laboratory equipment in order to remain at the forefront of new developments in the testing field.Laboratory Information SystemWe believe we have a state-of-the-art LIS that interconnects our locations and provides flexible reporting solutions to clients. This system allows us to standardize testing and deliver uniform test results and images throughout our network, regardless of the location that any specific portion of a test is performed within our network. This allows us to move specimens and image analysis work between locations to better balance our workload. Our LIS also allows us to offer highly specialized and customizable reporting solutions to our tech-only clients. For instance, our tech-only FISH and flow cytometry applications allow our community-based pathologist clients to tailor individual reports to their specifications and incorporate only the images they select and then issue and sign-out such reports using our system. Our customized reporting solution also allows our clients to incorporate test results performed on ancillary tests not performed at NeoGenomics into summary report templates. This FlexREPORT feature has been well-received by clients.fivenine regions (Northeast,- Northeast, Southeast, North Central, South Central, Great Lakes, Midwest, Southwest, Mid-Atlantic, Florida, and West), and we have a separate sales team for ourCapital. Our Pharma Services division.segment has a dedicated team of business development specialists who are experienced in working with pharma sponsors and helping them with the testing needs of their research and development projects as well as Phase I, II and III studies. These sales representatives utilize our custom Customer Relationship Management System (“CRM”) to manage their territories, and we have integrated all of the important customer care functionality within our LISLaboratory Information Services (“LIS”) into the CRM so that our sales representatives can stay informed of emerging issues and opportunities within their regions. Our in-house customer care team is aligned with our field sales team to serve the needs of our clients by utilizing the same LIS and CRM. Our field teams can see in real-time when a client calls the laboratory, the reason for the call, the resolution, and if face-to-face interaction is needed for follow-up.Geographic LocationsMany high complexity laboratories within the cancer testing niche have frequently operated a core facility Our sales force educates clients on either the West Coast or the East Coast of the United States to service the needs ofnew test offerings and their customers around the country. We believeproper utilization and our clients and prospects desire to do business with a laboratory with national breadth and a local presence. We have six facilities including three large laboratory locations in Fort Myers, Florida, Aliso Viejo, California and Houston Texas. We also have three smaller laboratory locations in Fresno, California, Nashville, Tennessee and Tampa, Florida. Our objective is to “operate one lab with multiple locations” in order to deliver standardized, high quality, test results. We have completed renovations inrepresentatives are often seen as trusted advisors by our Aliso Viejo facility and have successfully transitioned all Irvine employees and tests into the much larger Aliso Viejo laboratory during late March 2017. We are also working to expand our Houston, Texas facility in order to increase capacity and plan to complete this expansion by the end of the first quarter of 2018. In addition, our new lab in Geneva, Switzerland is fully operational with a grand opening planned for early November of 2017. We intend to continue to develop and open new laboratories and/or expand our current facilities as market situations dictate and business opportunities arise.Scientific PipelineIn the past few years our field has experienced a rapid increase in tests that are tied to specific genomic pathways. These predictive tests are typically individualized for a small sub-set of patients with a specific subtype of cancer. The therapeutic target in the genomic pathway is typically a small molecule found at the level of the cell surface, within the cytoplasm and/or within the nucleus. These genomic pathways, known as the “Hallmarks of Cancer”, contain a target-rich environment for small-molecule anti-therapies. These anti-therapies target specific mutations in the major cancer pathways such as the Proliferation Pathway, the Apoptotic Pathway, the Angiogenic Pathway, the Metastasis Pathway, and the Signaling Pathways and Anti-Signaling Pathways.22NEOGENOMICS, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONStornadostornadoes in certain regions, consequently reducing revenues and cash flows in any affected period. Duringthird quartervolume of 2017, Hurricane Harvey forcedthis testing is not as directly affected by seasonality as described above, the closure of our Houston laboratory for three days and Hurricane Irma forced the closure of our Fort Myers facility for five days. Therefore, comparison of the results of successive periods may not accurately reflect trends for future periods.Please see the section captioned Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2016; as filed with the SEC on March 14, 2017 for a detailed description of our business.Results of Operations for the Three and Nine Months Ended September 30, 2017 as Compared to the Three and Nine Months Ended September 30, 2016The following table presents the consolidated statements of operations as a percentage of revenue:The following table presents consolidated net revenue by type for the periods indicated ($ in thousands):RevenueClinical testing revenue increased for both the three and nine month periods ending September 30, 2017 as compared to the same periods in 2016. Testing volumes also increased in our clinical genetic testing business by approximately 16.6% and 16.0% for the three and nine month periods ended September 30, 2017, respectively. The increases in revenue and volume were due to strong growth in molecular and histology testing as well as growth in immuno-histochemistry tests due to demand for the PD-L1 test as a result of the FDA approving Pembrolizumab (Keytruda) in October 2016 as first-line treatment for PD-L1 positive non-small cell lung cancer. We have also seen accelerating growth in flow cytometry and FISH. While revenues and volumes increased quarter over quarter and year over year, we believe the impact of hurricanes Harvey and Irma depressed our revenues by approximately $1.0 million and volumes by approximately 1.5% during the third quarter of 2017. Our sales team has largely finished integration related23activities, which was a distraction from their efforts to sell new business. We believeteam can now be re-focused on growth and selling the benefitsterms of the combined company. Three Months Ended March 31, 2021 2020 Net revenue 100.0 % 100.0 % Cost of revenue 64.0 % 56.3 % Gross Profit 36.0 % 43.7 % Operating expenses: General and administrative 35.1 % 34.3 % Research and development 2.1 % 1.9 % Sales and marketing 11.9 % 12.5 % Total operating expenses 49.1 % 48.7 % Loss from operations (13.1) % (5.0) % Interest expense, net 1.0 % 0.8 % Other (income) expense, net 4.2 % (0.2) % Loss before taxes (18.3) % (5.6) % Income tax expense 0.8 % 1.0 % Net loss (19.1) % (6.6) % Three Months Ended March 31, 2021 2020 $ Change % Change Net revenues: Clinical Services $ 96,487 $ 92,982 $ 3,505 3.8 % Pharma Services 19,046 13,048 5,998 46.0 % Total revenue $ 115,533 $ 106,030 $ 9,503 9.0 % approximately 37% and 7%$9.5 million, or 9%, year-over-year. Clinical Services revenue for the three and nine month periodsmonths ended September 30, 2017 asMarch 31, 2021 increased $3.5 million when compared to the same periodsperiod in 2016.2020. Clinical testing volume(1) increased by approximately 4.2% for the three months ended March 31, 2021, compared to the same period in 2020.$46.5$208.9 million as of June 30, 2017December 31, 2020 to $58.0$217.6 million as of September 30, 2017.March 31, 2021. We expect this backlog to result in higher revenues in future quarters. We also expect to see growth in our Pharma Services division due to our international expansion into Geneva, Switzerland. This facility will be operational in the fourth quarter of 2017 and already has a backlog of approximately $1.5 million. Revenue was also impacted due to an error that we identified during an internal analysis in the third quarter of 2017. The error impacted revenue reported in our Form 10-K for the year ended December 31, 2016, Form 10-Q for the quarter ended March 31, 2017 and Form 10-Q for the quarter ended June 30, 2017. Specifically, we determined that certain unbillable tests were inadvertently included in the revenue accrual recorded for these periods. The Company assessed the extent of this error and it was corrected in the third quarter of 2017, resulting in an understatement of revenue of $2.4 million and $0.6 million for the three and nine months ended September 30, 2017, respectively. See Item 4. Controls and Procedures for additional details regarding this error.clinical genetic testingClinical revenue, cost of revenue, requisitions received and tests performed for the three and nine months ended September 30, 2017March 31, 2021 and 2016. This data excludes2020 excluding requisitions, tests, performedrevenue and costs of revenue for Pharma customersServices and tests performed by Path Logic, which was sold on August 1, 2017.COVID-19 PCR tests. Testing revenue and cost of revenue are presented in thousands below:We continue to realize growth in our clinical testing revenue which we believe is the direct result of our efforts to innovate by developing and maintaining one of the most comprehensive cancer testing menus in the industry. Our broad test menu enables our sales teams to identify opportunities for increasing revenues from existing clients and allows us to gain market share from competitors. New immuno-histochemistry tests such as Micro Satellite Instability, DNA Mismatch Repair, PD1 and PD-L1 have continued to show solid growth and have increased our volume and revenue growth in the third quarter. We believe the field of immuno-therapy will continue to show substantial growth in coming years and our ability to offer multi-modality testing in one lab will allow us to capitalize on this increased demand. Average revenue per test decreased for both the three and nine month periods ended September 30, 2017 as compared to the corresponding periods in the previous year. These decreases are primarily due to the change in test mix, specifically the increase in PD-L1 testing which has a lower average unit price (“AUP”) than our overall Company AUP. The 19% Medicare cut in Flow Cytometry reimbursement as a result of the 2017 Medicare Physician Fee Schedule also contributed to the lower revenue per test.These decreases to our average revenue per test were offset by our higher volumes and reductions in cost per test. The cost per test reductions were partially a result of the change in test mix, specifically the higher mix of lower cost histology tests. In addition, we continue to have success in reducing costs in the laboratory as synergies are being realized from the consolidation of our Irvine and Aliso Viejo, California laboratories. We have also seen a reduction in send-out costs, as our extensive menu makes it rare for us to need to send a test to another laboratory. 24Three Months Ended March 31, 2021 2020 % Change Requisitions (cases) received 151,145 144,319 4.7 % Number of tests performed 260,941 250,376 4.2 % Average number of tests/requisitions 1.73 1.73 — % $ 94,930 $ 92,982 2.1 % Average revenue/requisition $ 628 $ 644 (2.5) % Average revenue/test $ 364 $ 371 (1.9) % $ 53,632 $ 48,923 9.6 % Average cost/requisition $ 355 $ 339 4.7 % Average cost/test $ 206 $ 195 5.6 % follows ($ in thousands):follows: Three Months Ended March 31, ($ in thousands) 2021 2020 % Change Cost of revenue: $ 61,565 $ 48,923 25.8 % Pharma Services 12,394 10,738 15.4 % Total cost of revenue $ 73,959 $ 59,661 24.0 % Cost of revenue as a % of revenue 64.0 % 56.3 % Gross profit: Clinical Services $ 34,922 $ 44,059 (20.7) % Pharma Services 6,652 2,310 188.0 % Total gross profit $ 41,574 $ 46,369 (10.3) % Gross profit margin 36.0 % 43.7 % and nine months ended September 30, 2017March 31, 2021 when compared to the same periodsperiod in 2016 while2020. Consolidated cost of revenue as a percentage of revenue decreased slightlyalso increased year-over-year. These increasesThe increase in cost of revenue areis largely due to thean increase in oursupplies expense and payroll related costs. In addition, at the end of the first quarter 2021, due to the broad roll-out of the COVID-19 vaccine and a sharp decline in COVID-19 PCR testing volumesdemand, we made the decision to exit COVID-19 PCR testing and additional costs incurred withrecorded a write-off of $5.3 million for all remaining COVID-19 PCR testing inventory to cost of revenue in the consolidationfirst quarter of our two largest testing facilities in southern California, specifically increased overtime and associated costs. increased slightlydecreased for both the three and nine months ended September 30, 2017, asMarch 31, 2021, compared to the same period last year. These increases were achieved despite the reduction in our revenue per test over these time periods. We were able to increase gross profit margin due to our laboratories processing the increased test volumes more efficiently. We had only limited staffing increases in the laboratory to handle the increased volumes, and our laboratory teams have been extremely focused on reducing their cost per test across all departments. As2020. This decrease was a result of the correctioncombined effect of lower testing volume due to the impact of the aforementioned errorCOVID-19 pandemic, adverse weather in February, payroll and payroll-related costs, as well as a $5.3 million inventory write-off due to the exit from COVID-19 PCR testing recorded to cost of revenue in the thirdfirst quarter of 2017, gross profit was understated by $2.4 million and $0.6 million for the three and nine months ended September 30, 2017, respectively.employee-relatedpayroll and payroll related costs (salaries, fringe benefits, and stock based compensation expense) for our billing, finance, human resources, information technology and other administrative personnel.personnel as well as stock-based compensation. We also allocate professional services, facilities expense, IT infrastructure costs, bad debt expense, depreciation, amortization and other administrative-related costs to general and administrative expenses.for the periods presented are as follows: Three Months Ended March 31, ($ in thousands) 2021 2020 $ Change % Change General and administrative $ 40,476 $ 36,344 $ 4,132 11.4 % As a % of revenue 35.1 % 34.3 % The increase in our generalfor the three and nine months ended September 30, 2017 compared to the same periods in 2016 was largely due to increased expenses in the following areas: bad debt, professional fees and personnel fees (including stock based compensation). Bad debt expense$4.1 million for the three months ended September 30, 2017 increased by approximately $2.3 millionMarch 31, 2021 when compared to the same period in 2016. Bad debt as a percentage of revenue was 7.9%, which was2020. The increase includes higher than last year’s rate of 4.5%. Bad debt expense for the nine months ended September 30, 2017 increased by approximately $4.8 million when comparedpayroll and payroll-related costs due to the same period in 2016. Bad debt as a percentage of revenue was 6.8%, which was higher than last year’s rate of 4.5%. The increases in bad debt for both periods are primarily relatedpersonnel to changessupport our near and long-term growth, $0.8 million in payer dynamics including pre authorization denials as well as increased denials for next generation sequencing tests and disease specific multi-gene panels. In addition, there was an impact from the integrationacquisition costs, a write-off of Clarient into our billing system, which began in July of 2016. Clarient had higher bad debt rates than did NeoGenomics’ legacy business. Billings of the legacy Clarient billing system have now been either fully collected or written off. The performance of our billing team was also impacted by the integration which ultimately contributed to certain receivables not being collected and increased bad debt expense.25NEOGENOMICS, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSProfessional fees increased by approximately $616,000 for the three months ended September 30, 2017 and $1.4$0.8 million for the nine months ended September 30, 2017 when compared to the same periods in 2016, primarily due to fees in 2017 related to the Pharma Services facility in Geneva, Switzerland opening in November of 2017all remaining COVID-19 PCR testing laboratory equipment, and an increase in legal reserves for the three months ended September 30, 2017 related to a lawsuit brought against Clarient.Payroll expenses increased for the three and nine months ended September 30, 2017 when compared to the same periods in 2016. This increase is partially due to additional staff hired for certain functions such as billing, IT and accounts payable that were performed by outside vendors or by General Electric in early 2016 under the Clarient “Transition Services Agreement”. We have also seen an increase in stock based compensation which has increased from $3.5$0.5 million for the nine months ended September 30, 2016, to $5.0 million for the nine months ended September 30, 2017. This increase is due to the increase in NeoGenomics stock price as well as increase in stock option grants and restricted stock awards.personnelemployee and equity-related compensation expenses, increase our billing and collections activities; incur additional expenses associated with the expansion of our facilities, and backup systems; incur additional bad debt expense as sales increase and as we continue to expand our physical and technological infrastructure to support our anticipated growth. A significant portion of our stock based compensation is for non-employee options which are subject to variable accounting, and our expenses will fluctuate based on the performance of our common stock. A rise in the price of our stock will increase our stock compensation expense, and a decline in our stock price will reduce this expense. However, we anticipate that general and administrative expenses as a percentage of consolidated revenue will drop over the coming years as we continue to grow. costcosts of developing new proprietary and non-proprietary genetic tests, including payroll and payroll related costs, maintenance and depreciation of laboratory equipment, laboratory supplies (reagents), and outside consultants and experts assisting our research and development team. Three Months Ended March 31, ($ in thousands) 2021 2020 $ Change % Change Research and development $ 2,456 $ 2,060 $ 396 19.2 % As a % of revenue 2.1 % 1.9 % expenseexpenses increased $0.4 million for the three months ended September 30, 2017 asMarch 31, 2021 when compared to the same period in 2016.2020. This increase is attributable to non-employee stock options which are subject to variable accounting and the increasewas driven by investments in new test development, particularly in our stock price during the third quarter of 2017. Excluding stock based compensation expense of approximately $531,000next-generation sequencing and $187,000 for the three months ended September 30, 2017 and 2016, research and development expense was approximately $739,000 and $780,000. This decrease is largely due to a decrease in amortization expense for the Health Discovery Corporation license agreements which were being amortized as intangible assets, but were fully impaired in the fourth quarter of 2016.Research and development expense decreased for the nine months ended September 30, 2017 as compared to the same period in 2016. This decrease is partially attributable to the reduction in the balance of unvested options outstanding in 2017 as compared to 2016 in addition to the decrease in amortization expense for the Health Discovery Corporation license agreements. Excluding stock based compensation expense of approximately $858,000 and $550,000 for the nine months ended September 30, 2017 and 2016, research and development expense was approximately $2.2 million and $3.2 million. The increase in stock based compensation recorded in G&A expense is attributable to non-employee stock options which are subject to variable accounting and the increase in our stock price during the third quarter of 2017.We expect our research and development expenses to fluctuate in future quarters because of increases or decreases in our stock price and the corresponding stock based compensation expense for non-employee stock options. Increases in our stock price result in additional expense and decreases in our stock price can result in recovery of previously recorded expense. FDA initiatives.over timein future quarters as we continue to invest in innovation projects and bringing new tests to market.26NEOGENOMICS, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended March 31, ($ in thousands) 2021 2020 $ Change % Change Sales and marketing $13,749 $ 13,258 $ 491 3.7 % As a % of revenue 11.9 % 12.5 % both the three and nine months ended September 30, 2017 asMarch 31, 2021 when compared to the same period in 2016.2020. This increase is primarily attributable toreflects higher commissions due to our increase in revenues.revenues, the expansion of our sales team and continued investment in marketing. We expect higher commissions expense in the coming quarters as theour sales representatives’ focus onrepresentatives continue generating new business and increasing revenue. In addition, we have increased our investment in marketing related activities in 2017 including trade shows and on-line marketing.with a focus on oncology office sales. We expect our sales and marketing expenses over the long term to increase as our test volumes increase, but to remain stable as a percentage of our overall sales. Interestnet is comprised of interest incurred on our term debt, revolving credit facility and our capital lease obligations offset by the interest income we earn on cash deposits. Interest expense, net decreased in bothfor the three and nine month periods ending September 30, 2017months ended March 31, 2021 increased $0.4 million compared to the same periodsperiod in 2016. The decreases in2020. Interest expense reflects the effective interest expense, net of $70,000 forrate on the three month period2028 Convertible Notes and $336,000 for the nine month period reflect2025 Convertible Notes which is 0.70% and 1.96%, respectively. Interest on the significantly lower borrowing rate2028 Convertible Notes and 2025 Convertible Notes began accruing upon issuance and is payable semi-annually. For further details regarding the convertible notes, please refer to Note 7. Debt, in the Loan Agreement entered into in December of 2016. Dueaccompanying notes to these lower interest rates, while total borrowings have been higher in 2017 compared to 2016, interest expense has been lower. In addition, we have entered into a swap agreement to hedge a significant portion of the interest on our term loan, however part of that loan is not hedged and will continue to fluctuate as the LIBOR rates change. Net Income available to common stockholders for each period along with the computation of basic and diluted net loss per share for the three and nine months ended September 30, 2017:March 31, 2021 and 2020 (in thousands, except per share amounts): Three Months Ended March 31, 2021 2020 Net loss Net loss $ (22,114) $ (6,978) Basic weighted average shares outstanding 116,199 104,484 Diluted weighted average shares outstanding 116,199 104,484 Basic net loss per share $ (0.19) $ (0.07) Diluted net loss per share $ (0.19) $ (0.07) non-GAAPNon-GAAP Financial Measures Company’s financial results and financial guidance are provided in accordance with accounting principles generally accepted in the United States of America (GAAP)GAAP and using certain non-GAAP financial measures. Management believes that the presentation of operating results using non-GAAP financial measures provides useful supplemental information to investors and facilitates the analysis of the Company’score operating results and comparison of core operating results across reporting periods and between entities.periods. Management also uses non-GAAP financial measures for financial and operational decision making, planning and forecasting purposes and to manage the Company’s business. Management believes that Adjusted EBITDA is a key metric for our business because it is used by our lenders in the calculation of our debt covenants. Management also believes that these non-GAAP financial measures enable investors to evaluate ourthe operating results and future prospects in the same manner as management. The non-GAAP financial measures do not replace the presentation of GAAP financial results and should only be used as a supplement to, and not as a substitute for, the Company’s financial results presented in accordance with GAAP. There are limitations inherent in non-GAAP financial measures because they exclude charges and credits that are required to be included in a GAAP presentation, and do not therefore present the full measure of the Company’s recorded costs against its net revenue. In addition, the Company’s definition of the non-GAAP financial measures below may differ from non-GAAP measures used by other companies.27NEOGENOMICS, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSnon-GAAP measuresNon – GAAPNon-GAAP MeasuresWe define “EBITDA”income from continuing operations before: (i) interest expense, (ii) tax expense, (iii) depreciation and amortization expense.Non – GAAP Adjusted EBITDAWe define “Adjusted EBITDA” as net incomeloss from continuing operations before: (i) interest expense, (ii) tax expense, (iii) depreciation and amortization expense, (iv) non-cash stock-based compensation expense, and, if applicable in a reporting period, (v) acquisition-related transactionacquisition and integration related expenses, (vi) CEO transition costs, (vii) write-off of COVID-19 PCR testing inventory and equipment, (viii) and other significant non-recurring or non-operating (income) or expenses.Basisexpenses, net.Non-GAAP AdjustmentsOur basis for excluding certain expenses from GAAP financial measures, are outlined below:Interest expense – The capital structure of companies significantly affects the amount of interest expense incurred. This expense can vary significantly between periods and between companies. In order to compare performance between periods and companies that have different capital structures and thus different levels of interest obligations, NeoGenomics excludes this expense.Income tax expense (benefit) –The tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and the provision for income taxes can vary considerably among companies. In order to compare performance between companies, NeoGenomics excludes this expense (benefit).Depreciation expense – Companies utilize assets with different useful lives and use different methods of both acquiring and depreciating these assets. These differences can result in considerable variability in the costs of productive assets and the depreciation and amortization expense among companies. In order to compare performance between companies, NeoGenomics excludes this expense.Amortization expense – The intangible assets that give rise to this amortization expense relate to acquisitions, and the amounts allocated to such intangible assets and the terms of amortization vary by acquisition and type of asset. NeoGenomics excludes these items to provide a consistent basis for comparing operating results across reporting periods, pre and post-acquisition. Stock-based compensation expenses – Although stock-based compensation is an important aspect of the compensation paid to NeoGenomics employees and consultants, the related expense is substantially driven by changes in the Company’s stock price in any given quarter, which can fluctuate significantly from quarter to quarter and result in large positive or negative impacts to total operating expenses. The variable accounting treatment causing expense to be driven by changes in quarterly stock price is required because many of the Company’s full-time physicians reside in California and are classified as consultants rather than employees due to state regulations. GAAP provides that variable stock based compensation treatment be applied for consultants but not for employees. Without adjusting for these non-cash expenses, the Company believes it would be difficult to compare financial results from operations across reporting periods on a consistent basis. Loss on sale of business - The impact of disposals of assets or businesses have been excluded as these losses represent infrequent transactions that impact the comparability between operating periods. We believe the adjustment of these losses supplements the GAAP information by providing a measure that may be used to assess the sustainability of our operating performance.28two facilities in March of 2017. Equipment had to be moved and re-validated in the new location. There was also significant overtime and investment of resources to coordinate the move project. Our Irvine, California lease terminated on April 30, 2017 and we also incurred costs in cleaning out and restoring that facility to its original state. We are adjusting for these costs in Adjusted EBITDA as the move was the direct result of the Clarient acquisition and will not be an annually recurring item. Without adjusting for these expenses, the Company believes it would be difficult to compare financial results from operations across reporting periods on a consistent basis. We believe that EBITDAThree Months Ended March 31, (in thousands) 2021 2020 Net loss (GAAP) $ (22,114) $ (6,978) Adjustments to net loss: Interest expense, net 1,177 819 Income tax expense 976 1,089 Amortization of intangibles 2,458 2,452 Depreciation 6,680 6,240 EBITDA (non-GAAP) $ (10,823) $ 3,622 Further adjustments to EBITDA: Acquisition and integration related expenses 814 1,296 Write-off of COVID-19 PCR testing inventory and equipment 6,061 — CEO transition costs 460 — Non-cash stock-based compensation expense 2,653 2,186 5,021 (30) Adjusted EBITDA (non-GAAP) $ 4,186 $ 7,074 Adjusted EBITDA provide more consistent measures of operating performance between entities and across reporting periods by excluding cash and non-cash items of expense that can vary significantly between companies. In addition, adjusted EBITDA is a metric that is used by our lenders in the calculation of our debt covenants. Adjusted EBITDA also assists investors in performing analyses that are consistent with financial models developed by independent research analysts.EBITDA and Adjusted EBITDA (as defined by us) are not measurements under GAAP and may differ from non-GAAP measures used by other companies. We believe there are limitations inherent in non-GAAP financial measures such as EBITDA and Adjusted EBITDA because they exclude a variety of charges and credits that are required to be included in a GAAP presentation, and do not therefore present the full measure of NeoGenomics recorded costs against its net revenue. Accordingly, we encourage investors to consider both non-GAAP results together with GAAP results in analyzing our financial performance.The following is a reconciliation of GAAP net income (loss) to Non-GAAP EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2017:As discussed above and in Item 4, revenue recognized from the fourth quarter of 2016 through the second quarter of 2017 was impacted due to an error relating to revenue accrued for unbilled tests. We assessed the extent of this error and it was corrected in the third quarter of 2017, resulting in a reduction of revenue, and thus a corresponding reduction in Adjusted EBITDA of $2.4 million and $0.6 million for the three and nine months ended September 30, 2017, respectively. See Item 4. Controls and Procedures for additional details regarding this error.Trade Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable are reported net of an allowance for doubtful accounts, which is estimated based on the aging of accounts receivable with each payer category and the historical data on bad debts in these aging categories. In addition, the allowance is adjusted periodically for other relevant factors, including regularly assessing the state of our billing operations in order to identify issues which may impact the collectability of receivables or allowance estimates. Revisions to the allowance are recorded as an adjustment to bad debt expense within general and administrative expenses. After appropriate collection efforts have been exhausted, specific receivables deemed to be uncollectible are charged against the allowance in the period they are deemed uncollectible. Recoveries of receivables previously written-off are recorded as credits to the allowance.29NEOGENOMICS, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following tables present the Company’s gross outstanding accounts receivable ($ in thousands) by payer group at September 30, 2017 and December 31, 2016:AGING OF RECEIVABLES BY PAYER GROUPSeptember 30, 2017AGING OF RECEIVABLES BY PAYER GROUPDecember 31, 2016The following table represents the balance in allowance for doubtful accounts (in thousands) and that allowance as a percentage of gross accounts receivable at September 30, 2017 and December 31, 2016: The allowance for doubtful accounts as well as the allowance as a percentage of gross accounts receivable has decreased for the period ended September 30, 2017 as compared to the period ended December 31, 2016. In December of 2016, due to the Clarient acquisition and integrated related activities; NeoGenomics did not perform a year-end write off of uncollectible receivables as had been done in previous years which resulted in a higher balance in accounts receivable and the allowance as of December 2016. The decreases are also due to changes in the timing of when items are written off and decisions to accelerate certain write-offs in 2017. In 2017, our mix of client billed accounts receivable has increased substantially which tends to lower our allowance as a percentage of gross receivables since client billed accounts receivable have historically had a lower percentage of bad debt than commercial insurance. Days Sales Outstanding (“DSO”) has increased from 84 days at December 31, 2016 to 91 days as of September 30, 2017. The increase in DSO was partially attributable to an increase in client billed accounts receivable during the third quarter of 2017. Additionally Pharma Services DSO’s were 93 days on December 31, 2016 compared to 104 days on September 30, 2017. 30NEOGENOMICS, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSthoroughfrom operations, public and private sales of debt and equity securities, borrowings against our accounts receivables balances and private debt.ninethree months ended September 30, 2017March 31, 2021 and 20162020 as well as the period endedbalances of cash and cash equivalents and working capital (in thousands).capital: Three Months Ended March 31, (in thousands) 2021 2020 Net cash provided by (used in): Operating activities $ 2,210 $ (6,933) Investing activities (154,688) (41,708) Financing activities 524,935 617 Net change in cash, cash equivalents and restricted cash 372,457 (48,024) Cash, cash equivalents and restricted cash, beginning of period $ 250,632 $ 173,016 Cash, cash equivalents and restricted cash, end of period $ 623,089 $ 124,992 $ 874,982 $ 147,793 ninethree months ended September 30, 2017,March 31, 2021, cash flows fromprovided by operating activities was $12.3$2.2 million, a $9.4consisting of net loss of $22.1 million decrease comparedplus adjustments to the same periodnet loss of $25.7 million. Included in 2016.the adjustments to the net loss was $6.1 million of write-offs of COVID-19 PCR testing inventory and equipment related to the exit from COVID-19 PCR testing. The decrease was primarily due to an $11.5 million increase in our accounts receivableadjustments were partially offset by increasesthe cash flow impact of net changes in accrued expenses. Our receivables have increased over this periodoperating assets and liabilities of $1.4 million. The change in operating assets was primarily driven by a decrease in accounts payable due to growth as well as our higher DSO. We have experienced reimbursement delaystiming of payments, partially offset by a decrease in accounts receivable due to changes in payer dynamics for Medicare and insurance companies, specifically the increase in these payers requiring pre-authorization and the additional time it may take to get the required authorizations. We have enhanced procedures in our labs to identify requisitions that require pre-authorizations and also educate our clients in order to secure pre-authorizations before the samples arrive in our lab.During the nine months ended September 30, 2017, cash used in investing activities increased by approximately $4.8 million compared to the same period in 2016. This increase was due to equipment purchases and building improvements, which were necessary to support our continued growth and efficiency. Specifically, we have remodeled and upgraded our laboratory facilities in Aliso Viejo, California, expanded our Houston, Texas facility, invested in additional laboratory equipment to accommodate our growth and update existing equipment that was acquired with the purchase of Clarient. Our Geneva laboratory was substantially finished at the end of the third quarter of 2017 and we have made significant investments in this laboratory facility. We have also invested in a new trade show booth as well as upgrades to our IT security environment and our next generation Laboratory Information System (LIS). Cash Flows from Financing ActivitiesDuring the nine months ended September 30, 2017, cash flows from financing activities decreased by approximately $8.5 million compared to the same period in 2016, primarily due to a $10.0 million repayment on our 2016 revolving credit facility in the first quarter of 2016. The decrease also reflects $5.0 million in advances on our revolving credit facility during the first quarter of 2017, partially offset by a $2.5 million repayment on our revolving credit facility during the third quarter of 2017. The 2016 revolving credit facility was originally used to finance the acquisition of Clarient.Cash flows from financing activities also include cash received for the issuance of our common stock upon exercise of stock options as well as cash received to purchase shares of our common stock through the Employee Stock Purchase Plan. These sources of cash were offset in 2017 as we made three quarterly repayments of $0.9 million each on our Term Loan as well as payments for various capital lease obligations in both 2016 and 2017. We will continue to have quarterly term loan repayments of $0.9 million in the fourth quarter of 2017 and throughout 2018. 31Decemberthe three months ended March 31, 2021, cash used in investing activities was $154.7 million, an increase of 2016, we entered intoapproximately $113.0 million compared to the same period in 2020. This was primarily due to an increase of net investments in marketable securities of $123.9 million, $15.8 million of cash used for capital expenditures and the disbursement of a new senior secured credit facility in order$15 million loan receivable from non-consolidated affiliate.reduce our exposure to interest rate fluctuations on this floating rate$0.6 million in the same period in 2020. Cash provided by financing activities during the three months ended March 31, 2021 consisted of convertible debt obligation, we also entered into an interest rate swap agreement. For more information on this hedging instrument, see Note E to Consolidated Financial Statements herein. The interest rate swap agreement effectively converts a portionproceeds of our floating rate debt to a fixed obligation, thus reducing$334.4 million, net of issuance costs, $218.3 million of net proceeds from the impactequity offering and $2.6 million for the net issuance of interest rate changes on future interest expense. We believe this strategy will enhance our ability to managecommon stock. This activity was primarily offset by the use of cash flow within our Company.approximately $12.2$612 million in unrestricted cash and cash equivalents as of September 30, 2017. InMarch 31, 2021 in addition we have a revolving credit facility which provides for up to $75$190.7 million in borrowing capacity of which at September 30, 2017, based on our level of adjusted EBITDA, approximately $9.3 million was available.marketable securities available to support current operational liquidity needs. We believeanticipate that the cash on hand, available credit linesmarketable securities and positive cash flows generated from operations will provide adequate resourcescollections are sufficient to meetfund our near-term capital and operating commitments and interest paymentsneeds for at least the next 12 monthsmonths. 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.these financial statements. Our Series A Preferred Stock has certain restrictions that will resultthe 2028 Convertible Notes and the total exercise of the 2028 Over-allotment Option was approximately $334.4 million, which includes approximately $10.6 million of discounts, commissions and offering expenses paid by the Company. For further details regarding the 2028 Convertible Notes, please refer to Note 7. Debt in the Company havingaccompanying notes to dedicate fifty percentthe Consolidated Financial Statements.any future equity raise,the offerings to redeeming shares ofenter into capped call transactions. We intend to use the Series A Preferred Stock until such time as all ofremaining net proceeds from the shares of Series A Preferred Stock have been redeemed. In addition,offerings for general corporate purposes and/or to acquire or invest in complementary businesses and technologies.Credit Agreement contains certain provisions beginning withnear-term capital and operating needs for at least the Annual Compliance Certificate fornext 12 months. Operating needs include, but are not limited to, the fiscal year ended December 31, 2017 (to be filed no later than March 31, 2018), that would require a portion of the excess cash flow (as defined)planned costs to be repaidoperate our business, including amounts required to our lenders. The debt repayment would be required five business days after the filing of our Annual Compliance Certificate. currently forecast capital expenditures in order to execute on our business plan and keep up with the growth in our testing volumes, althoughmaintain growth; however, the actual amount and timing of such capital expenditures will ultimately be determined by the volume of our business. We currently anticipate that our capital expenditures for the year endedending December 31, 20172021 will be in the range of $16.0$45 million to $18.5$55 million. During the ninethree months ended September 30, 2017,March 31, 2021, we purchased, with cash, approximately $10.2$15.8 million of capital equipment, software and leasehold improvements and an additional $3.2 million was acquired through capital lease obligations.improvements. We have in the past funded and plan to continue funding these capital expenditures with capital lease financing arrangements, cash and through bank loan facilities if necessary.generally accepted in the United States(“GAAP”) requires usmanagement to make estimates and assumptions and select accounting policies that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well asand the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.While many operational aspects Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. Please refer to our business are subject to complex federal, state and local regulations, the accounting for our business is generally straightforward with net revenues primarily recognized upon completion of the testing process. Our revenues are primarily comprised of laboratory tests, and approximately one-half of total operating costs and expenses consist of employee compensation and benefits. Due to the nature of our business, several of ourcritical accounting policies involve significant estimates and judgments. These accounting policies have been describedas disclosed in2016.32NEOGENOMICS, INC.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSConsulting AgreementsDuring each2020 and Note 2. Summary of the three and nine month periods ended September 30, 2017 and 2016, Steven C. Jones was an officer, director and shareholderSignificant Accounting Policies, to our Consolidated Financial Statements for a complete description of the Company. In connection with his duties as Executive Vice President, Mr. Jones earned approximately $46,000 and $66,000 for the three months ended September 30, 2017 and 2016, respectively. In addition, as compensation for his services on the Board, Mr. Jones earned approximately $13,000 and $0 for the three months ended September 30, 2017 and 2016, respectively. During the nine months ended September 30, 2017 and 2016, Mr. Jones earned approximately $164,000 and $197,000, respectively in connection with his duties as Executive Vice President. Mr. Jones also received approximately $85,000 and $79,000 during the nine months ended September 30, 2017 and 2016, respectively, as paymentour significant accounting policies. his annual bonus compensation for the previous fiscal years. In addition, as compensation for his services on the Board, Mr. Jones earned $25,000 and $0 for the nine months ended September 30, 2017 and 2016, respectively.During each of the three and nine month periods ending September 30, 2017 and 2016, Kevin Johnson was a director and shareholder of the Company. In May of 2017, the Company engaged Mr. Johnson to provide services as a consultant, this engagement ended in June of 2017. In connection with his role as a consultant, Mr. Johnson earned approximately $0 and $0 for the three months ended September 30, 2017 and 2016, respectively. In addition, as compensation for his services on the Board, Mr. Johnson earned approximately $14,000 and $15,000, for the three months ended September 30, 2017 and 2016, respectively and approximately $44,000 and $45,000 for the nine months ended September 30, 2017 and 2016, respectively.On May 25, 2017, the Company granted stock options and restricted stock to each of its board members as part of its annual board compensation process. Mr. Jones and Mr. Johnson were each granted 10,000 stock options and 8,667 shares of restricted stock for their Board services. The options were granted at a price of $7.27 per share and had a weighted average fair market value of $2.38 per option. The options vest ratably over the next three years. The restricted stock has a weighted average fair value of $7.27 per share and vests ratably on the last day of each calendar quarter up to March 31, 2018.Off-balance Sheet ArrangementsWe2021, we do not use or have special purpose entities or other off-balance sheet financing techniques that we believe have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital resources.33risk associated withrisks, including changes in the LIBOR interest raterates and foreign currency exchange rates.regularly evaluateare exposed to interest rate risk on our short-term investments. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high-quality U.S. government and other highly credit rated debt securities. To minimize our exposure due to such changesadverse shifts in interest rates, we invest in short-term securities with short maturities. If a 1% change in interest rates were to have occurred on March 31, 2021, this change would not have had a material effect on the fair value of our investment portfolio as of that date. Due to the short holding period of our investments, we have concluded that we do not have a material financial market risk exposure.may electSuzhou, China. Our international revenues and expenses denominated in foreign currencies (primarily Swiss Francs, Singapore Dollars and Chinese Renminbi), expose us to minimize thisthe risk throughof fluctuations in foreign currency exchange rates against the use of interest rate swap agreements. For further details regarding our significant accounting policies relating to derivative instruments and hedging activities, see Note B to our Consolidated Financial Statements included in our Annual Report on Form 10-K.U.S. dollar. We do not have any material foreign operations or foreign sales and thus have limited exposure tohedge foreign currency exchange rate risk.risks and do not currently believe that these risks are significant.thisthat evaluation, weour principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as a result of a control deficiency that has been identified as a material weakness in our internal control over financial reporting. This material weakness in our internal control over financial reporting and our remediation activities are described below.Material Weakness in Internal Control over Financial ReportingDuring an internal analysis conducted in the third quarter of 2017, we identified an error in the revenue reported in our Form 10-K for the year ended December 31, 2016, Form 10-Q for the quarter ended March 31, 2017 and Form 10-Q for the quarter ended June 30, 2017. Specifically, we determined that certain unbillable tests were inadvertently included in the revenue accrual recorded for the periods beginning in the fourth quarter of 2016 through the second quarter of 2017. These unbillable tests were worked through our laboratory, however we were unable to produce a final result on the sample. The tests were reported back to the ordering physician as Quantity Not Sufficient (“QNS”) or Test Not Performed (“TNP”). Although we incur costs attempting to test these QNS and TNP samples, and often attempt to get a result more than once, we cannot bill payors for any tests in which a full result is not reported. As a result of the inclusion of these unbillable tests in the monthly revenue accrual, revenue was overstated. This error was corrected in the third quarter of 2017.We have a policy of writing off any unbilled tests greater than six months old and many of these tests were written off via this process. We assessed the extent of the error on each reported period. As a result of the error, the net impact to revenue reported in the 10-K for the year ended December 31, 2016 has been determined to be immaterial. The net impact of the error in the first quarter of 2017, resulted in an overstatement of revenue by approximately $1.7 million. The net impact of the error in the second quarter of 2017, resulted in an overstatement of revenue by approximately $0.2 million. As a result of the cumulative misstatement through the second quarter of 2017, we recorded a correcting entry in the amount of $1.3 million at the end of the third quarter of 2017. This correction, in addition to approximately $1.1 million in revenues that were reversed earlier in the quarter through the automatic six month write off process, resulted in a reduction of revenueperiod covered by $2.4 million for the third quarter of 2017. The management review control that should have detected this error was determined to be ineffective. Management has concluded that this deficiency constitutes a material weakness in our internal control over financial reporting. Nonetheless, we have concluded that this material weakness does not require a restatement or change in our consolidated financial statements for any prior annual or interim period. We have taken certain remediation steps to address the material weakness referenced above, and to improve our internal control over financial reporting as described below.We have filled the open position of Vice President and Principal Accounting Officer and we are providing additional resources to our finance team by actively recruiting for a Corporate Controller.34NEOGENOMICS, INC.
report.•We are re-designing and implementing effective review and approval controls over the accurate recording, presentation, and disclosure of revenueWe have reviewed, identified and corrected errors in the recognition of revenueWe have established steps in our monthly closing process to improve our internal control over financial reporting. These steps include:a.monthly review of revenue reports by the Director of Billing to ensure that all unbilled tests outstanding for 60 days or greater are appropriate for accrual and will ultimately be billed outb.monthly review of revenue reports by the Assistant Controller to ensure that revenue is not being accrued for tests that based on laboratory results are determined to be unbillableSeptember 30, 2017March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.However, as noted above, we will be implementing changes to our internal control over financial reporting to address the material weakness described above.35From time to timeCompany is engaged in legal proceedings in the ordinary course of business. We do not believe any current legal proceedings are material to our business. No material proceedings were terminated during the quarterquarterly period ended September 30, 2017.March 31, 2021.2017;2020, as filed with the SEC on March 14, 2017. February 25, 2021.Period of Repurchase Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs January 1, 2021 - January 31, 2021 182 $ 52.57 — — February 1, 2021 - February 28, 2021 8 $ 54.43 — — March 1, 2021 - March 31, 2021 11,963 $ 50.46 — — Total 12,153 $ 50.49 — — applicableapplicable.applicableapplicable.None36EXHIBITNO.DESCRIPTION31.1
NO.10.1 10.2 10.3 10.4 10.5* 31.1 September 30, 2017March 31, 2021, formatted in Inline Extensible Business Reporting Language (XBRL)(iXBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Comprehensive Loss and (iv)(v) related notes104 The cover page of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in iXBRL (included within Exhibit 101 attachments) * Denotes a management contract or compensatory plan or arrangement. 37NEOGENOMICS, INC.Date: November 13, 2017NEOGENOMICS, INC.Date: May 6, 2021 NEOGENOMICS, INC. By:/s/ Douglas M. VanOortName:Douglas M. VanOortTitle:Title: Chief Executive Officer George CardozaGeorge Cardoza38