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NEO Neogenomics

Participants
Doug VanOort Chairman & CEO
Sharon Virag CFO
Rob Shovlin President, Clinical Services Division
George Cardoza President, Pharma Services Division
Bill Bonello VP, Strategy, Corporate Development & IR
Amanda Murphy William Blair
Drew Jones Stephens
Kevin Ellich Craig-Hallum
Call transcript
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Operator

Greetings, and welcome to NeoGenomics' Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded. pleasure VanOort, the Chairman my your over now Doug host, and is to conference turn to It CEO. Please go ahead, Mr. VanOort.

Doug VanOort

and second call. Thank everyone Rob, good like I'd you, to to NeoGenomics quarter conference XXXX morning. welcome

our Investor Joining me Myers Cardoza, Clinical Officer; President Fort Bill from President our Strategy, Relations. of Shovlin, of Development, Division; Services of Chief Division; Bonello, Sharon President and headquarters Rob Services Financial is our Virag, and George our Corporate Pharma Vice

remarks, Bill about prepared will read Before language our we Bonello the standard forward-looking begin statements.

Bill Bonello

Should and and statements. substantial today, from which are This any that about circumstances conference These statements one the Any to and these forward-looking condition statements contain performance, undertake prove should risks call statements of Any nature certain of and uncertainties, forward-looking forward-looking of call the speaks assumptions this not incorrect, beyond operations, forward-looking by obligation may their to or no statements or which could we represents such made statements, our growth are on opportunities. of current expectations historical involve our our or reflect financial materialize statements. are beliefs control. statement results after only risks uncertainties or events indicated in more as actual and today. differ outcomes underlying update those materially facts

for of Relations transcript want completed. website everyone Investor that know our after our be morning's on let a Doug, to call turning shortly it back copy I is of to Before we will call section making the the this available

two more questions that a the the to that know order chance to call. allotted to We hour number give let we people also everyone in to of one been this to questions person going for limit per has within ask are want

Doug VanOort

Bill. you, Thank

Sharon I investments we're near provide growth. After briefly the commentary will some financial two review, on drive our detailed a call turn then making the initiatives I highlights will and over term that call, of that financial the to quarter some results. of long-term and XXXX for growth review to and more today's For review additional some both

two Let's with quarter We're highlights. the begin two with results. quarter the pleased

Our fundamentals was our Services was very solid one. the consistent volume growth mid-teens, quarter Clinical growth division, once our In are strong encouraging. the and again with rate test prospects types. per test across growth and stabilized in are with Revenue all

pipeline We continue market to and is coverage expand gain managed sales and our share care our strong.

for $XX XX% as Pharma gross margin million Services currently Profitability Pharma over versus at year we with division last new up backlog of revenues contracts two, points improved, Services At the our year. we was more stands end gained than our of leverage, million. and basis up worth grew compared XX% future last with record a and division work. year-over-year XXX $XX Our signed quarter also

We continue levels productivity year and increased with again to high cost drive per record performance. last tests of compared to lower

Importantly, with Adjusted service we levels for in outstanding achieved line satisfaction. high be of customer expectations the quarter. and continued EBITDA record our levels to was

large sales the for EBITDA. adjusted guidance sequencing our continued collections programs in and approval During to remained Cash more quarter two, marketing strong also pursue full-year for multi-gene remain we We FDA our our in invested during and confident panel. next-generation quarter.

for will and the the For days oncology again other a around times strategic important our had PPD four number world. cash at testing level outstanding be preferred first with U.S. the In in June, of We last once dropping end the than developments from the with receivable activities early year, lab during higher the quarter. quarter partnership global we NeoGenomics announced two year. a PPD. the and of was improved half reported operating of by sales balance provided the XX% accounts year last

our During facility by into in we in Texas. Houston, a state-of-the-art new the services laboratory significantly capacity much quarter, increased larger moving pharma

In Clinical have the stock less of since a accelerate of A deal we the conjunction completing Clarient of expect capacity X.X internally XXX% our than help facility all acquisition, division just growth from XX would million and redemption announced for in the that borrowing in with using $XX.X preferred stock we the redeemed We cash preferred cost state million Series new have June remaining $XXX General million redeemable of this shares generated approximately million. $XXX months at redeemed issued also flow. total our Electric XXth, Texas. we On

a agreement of this announce point, we Cigna second become our Financial effective entered Virag, financial detailed to that turn Insurance this I'd a Corporation quarter call Cigna Health a provider Finally, more have participating of At in-network all to Products to like national Chief over review August we to the with year. Sharon for Officer, pleased results. Xst into are for

Sharon Virag

Thanks, Doug.

January Xst of Before remind ASC adopted I like we begin, I'd XXXX. effective everyone to XXX that

hence restated of results year-over-year discuss XXX will we of the the periods. we part that XXXX that adoption, As both include have ASC adoption comparisons for

increased from year-over-year. a nearly adjusting revenues Clinical genetic Clinical million to year-over-year. $XX.X second grew increased X% $XX.X increased XX% and Our were $X.X for testing last total the million. XX% by After quarter to revenue XX% sale year. genetic Pharma volume services increase XX% million, of testing PathLogic, revenue revenue

in than flow Importantly more was and growth double-digit in and growth cytometry, with XX% IHV, FISH, growth across this molecular balanced modalities testing.

quarter in margin EPS. associated our levels resulted year. volume two. income, points improvement of $XXX the sales additional decrease moving X.X% increased our divestiture million, $X.X test a to accelerated Houston Gross economies net of million million a out, year cost non-recurring and was significant This by increased this reimbursement per Medicare from and the the EBITDA, the as cost Average marketing of year-over-year force Sales $XX.X clinical up $X.X expenses Gross to test, regulation. $X.X Houston. Gross primarily calculation test reduced clinical increase volume million by to revenue counted has growth. million improved reduction expansion XX.X%. XX% XXX profit year. was margin prior to or test on was with growth and automation by PathLogic X.X% and are driven to and this increase from to the relocation in by genetic result a basis G&A facility. onetime non-GAAP decline Europe the flattened represents in year-over-year of scale. contribution due $X.X in $XX changes cost of and to adjusted stable XX% from lab prior Approximately This and of Excluding which million. the million expenses now increased with quarter of related XX% of a rates as first PD-LX by of $X.X of $X.X our The in per the revenue but adjustments the Pharma million initiative. benefit increased capacity of year-over-year by additions increased adjusted adjusted marketing These is to high

share Second on offset in compare operations primarily $X.XX prior the year. quarter income was the increase that these GAAP per have a to $X.X on basis is increase earnings diluted the periods, X% of certain basis stock, adjusted share We net a a related with of and believe was calculated to adjust common expenses. earnings by loss $X.X attributable million million, second this to income moving The partially of a of Adjusted redemption how preferred as common loss EBITDA or gain exclude order to are one-time measure to of net versus the was per applicable our shareholders more the the the income net in compared consistent We per available year-over-year Houston quarter loss and cost. income company release. to appropriate items in and share shareholders income million year-over-year. we $XX.X a net in on across refer its of net adjusted $X.XX attributable table to a it's to XXXX GAAP to and true non-cash diluted an included one-time

Doug as consistent timing typical investments a of in net to as $X.XX quarter. to $X.X substantially growth was services income expect diluted than In than revenues see share EPS lower XXXX. revenue pharma well million would growth our lower is but As caused adjusted second attributable as temporary versus internal compared growth EBITDA mentioned, million year. the forecast, two we the with in quarter in was lower the part $X.X per in to normal our short-term per quarter, offline The was quarter. more of $X.XX by was the slightly lab the disruption during growth Adjusted Houston a share project prior in

capital leases. and As cash collections day ended million Doug of nine We decreased the total days $XXX.X to year-over-year days. quarter. of DSO strong XX the $X.X cash quite our one were and including million debt quarter with sequentially in mentioned,

effect take shares simplify drew During a our X%. of significantly It million a $XX.X senior stock our future had allowed accounting. facility redemption Electric million. redeemable us and our of the prepayment credit reducing for $XX Series quarter, on from paid-in discount shares June, diluted preferred we dividend of X,XXX,XXX to of revolver. approximately dilutive the advantage completed end General At expansion million A adjusted of capital we $XX This approximately our redeemed avoid and also outstanding to the by

equivalent borrowing time doctors million now redemption hand funded increase revolver. second as the We of as term June debt redeemed contract million The our from the XXXX. finished XX, shares. of quarter XXX% our in have and on employees, versus of $XX the with XXXX, approximately by X,XXX March X,XXX full of We $XX and preferred was and and XXX XX, temps cash

adjusted We are revenue and guidance full-year maintaining EBITDA. our for

be to revenue We of to $XXX million. $XXX expect continue in to range the million

the to million be million. in $XX $XX expect EBITDA adjusted continue of to We to range

and shares detailed from our for reflect the our and debt interest the in we are income and adjusted guidance press refinancing. redemption net of adjusting preferred release, GAAP to EPS expense our As arising

to Doug over additional comprehensive morning our turn initiatives. more EPS this includes release ranges a GAAP. press a to EPS some growth and XXXX of provide reconciliation and measures on back commentary including will now Our guidance the adjusted of to our non-GAAP call I summary XXXX

Doug VanOort

Thank you, Sharon.

would the the drivers I call, begin for profitability. near-term five Before we of long-term highlight and question-and-answer important to and like growth segment

is strong revenue First Pharma Services an backlog our driver of growth. important

XX% We over we of XX% years, convert including than our backlog signed the backlog months. next three of have expect next about the about in million and over revenue XX to more this contracts to $XX

Services level sales to sales Our capabilities at U.S. a to beginning performing the and team outside Pharma just high we very are add our is

will expect Second, and PPD our an one contract help new have is outstanding significant to PPD organizations trials in global with established of that are largest alliance. drive expertise strategic reputation. with we the and world a we research growth partnership the oncology pleased this in extremely

pharmaceutical and is global Our clients. pathology to shared molecular objective solution and PPDs biotech seamless integrated fully provide to and testing a

we and part agreement, both Shanghai. As labs by Laboratories facilities NeoGenomics. but will These operated managed be Singapore in opening of PPD the NeoGenomics will and independently in be located

with and million from alliance We're already We and prospects of Pharma accelerate run are of to greater the longer-term strategic least than Services alliance generate to to expect $XX partner this believe in important delighted at potential is business. revenue strong our end that rate that. XXXX PPD growth this by hoping the

improve a and relative to Third, be participating and today fourth of now, our will have to growth, we more the reimbursed. better new complexity, we serve Cigna been be test actually customers, our paid included are impacted excited of what additional Up per we initiative. until Cigna. are testing status revenue provider relates us customers, out has area growth existing to volume, about and covered allow This per not as This our network. our of in-network billing to expect with contract network FDA test. important newly in contract signed revenue negatively national to add we An reduce

to approval As differentiating We believe working are is for and have meet multi-gene approved our will panel. calls, reimbursement we with understand offering in FDA oncology large this benefit further labs, of meeting test driving Earlier we the approval FDA requirements process hard Services new us attractiveness and year, and on from improved and for and us by a that the test next-generation our other test we're multi-panel our both the have an for Pharma Clinical sequencing laboratory August. increasing divisions Testing clinical of companion filed discussed for involving our reimbursement address our revenue bend next-generation agency pre-submission previous the diagnostics. fifth measures the to for taking of is sequencing a growth companies per we by Pharma test. in a to curve seeking initiative area Seeking proactive A documents to we pre-submission FDA. FDA revenue trials for

now tests, identify of to being size securing working plan a activities more where we we to denials, are when implement experience, significantly underpaid, non-covered improvement. or billing for We These our better they the our areas improving and the have and are denials tools analyze include and where do sophistication coverage avoid may effectively process occur. reimbursement

schedules priced. evaluating identify to tests that not We are our fee also appropriately are

that XX% nearly are and believe the past Medicare of compared our today many of XX% softening seven we believe somewhat. mix only about years represents years also reimbursement significant CMS's most We with are the fee ago seven headwinds Structurally, of reductions physician behind us. payer

in opportunities the a In about we and in that Fee time us. first for the overall Physician to released of XXXX Schedule near-term NeoGenomics expected we're pleased XXXX. were result an growth while by draft reimbursement available to As CMS long-term excited the an example, summary, in level recently for is reduced long not

are of continued testing call through over saving of to and for employees, an patients, treatment segment customers, and rate and system Bill at Bonello the As and Bill? of now cancer lives us healthcare pleased creating the services rates our increase, demographics vital investors. our to are We're believe I'll is incidence a cancer to this role is hand in the to value that advancing for lead a changing play important Q&A. our rapid patients. and increasingly

Bill Bonello

bill.bonello@neogenomics.com like session questions. At conference it please addressed our and listening up the Q&A questions and question, this are like point, during if to we to via at submit if by this hasn't will matter at feel subject open you the listeners. we the webcast only would e-mail a your us to address for already free end, would call to been call-in Incidentally,

that the at within allotted questions ask now every keep limit we mentioned questions. may so call, hear from to open one we call call. the still to each beginning the two, person may As of their you would for this this and like for Operator, hour to

Operator

Thank Instructions]. you. Thank you. [Operator

The William from question. your question proceed Amanda with comes today with first line the Murphy of Please Blair.

Amanda Murphy

first, I reimbursement Hi, couple you that's improvements can I if perspective last mean IHC Doug, of I the thanks Physician follow-ups quantitative some the in test it’s context made the I terms in increases initiatives. in hard what looks maybe commentary, for terms was initiatives, was suppose, meaningful terms and PD-LX and around in good might curious growth but also had morning. is quick know built. points put on you maybe terms Fee Schedule of the of you a a actually pretty per some of that it I of from how and I just wondering then think of like saw some

from it you in potentially So benefit, say the a curious if is impact to see you I word over that even hate several positive even Medicare but see years a next Fee possible Schedule? the could that Physician might

Doug VanOort

announced. just Schedule Well, was that we the were Yes, with pleased thanks Fee Physician Amanda.

seeing us I in environment reimbursement much than think stable we've the we, today past. for you more seen know a we're

that own we’re I that outside, understanding would of Now of lot. what of dynamics a has our say doing some pricing what's improved happening internally. is our some that is

we We’re one all data fairly we're price system on disciplined and better have analytics player. a now,

a So low are believe. we also we're because trade-offs know and volume we in those make. cost price smart to terms as do you trade-offs we of versus They're provider smart make think

we're So our price discipline. maintaining

some be us with is that price other companies our We of certainly that per a benefit that seen test in really think we I but of forward. compete think you've don't and that would going test. goal today the per for price reduction in increases no in

we that's XXXX. us changes, slight for of that expect a in terms Fee to be positive the going In Physician Schedule

Amanda Murphy

the any then obviously do and around the Okay. coverage? but are what just Fair in FDA some there you're you bit for question that of of is a I'm yet to doesn't had broad to yet but if thinking interaction of pan-cancer furnish have enough. to And they process think early not a and the you maybe with to trying more labeling for this more clarity on just exist seem be the any any able answer to get kind if labels clearance may nebulous them, looking it's secure ask sure going medicine to sense is there have about clearance terms you

Doug VanOort

Well that to our some would certainly be goal extent.

Our assay bit little is going be than to different foundations.

have in FDA. the engaged We some correspondence with

worth interactions in and to but requiring intelligence more so. looking it’s FDA But We it XX as the process August have increases. forward our frankly and is approval we with months up a meeting work through face-to-face over do this And lot we're a this going it's hopeful with think next us of gain it. meeting pretty new we're to them; about coming the us to process, we'll or

Operator

proceed from next line Drew the Jones The question comes Please with of question. with Stephens. your

Drew Jones

of through Sharon, should it Then terms its Is in you how in still of and overall FISH called of for impact is PD-LX. some on we volume molecular. that volumes receding that IHC walked growing, volume you right Flow out about growth the growth terms now? think or

Sharon Virag

Yes, PD-LX accelerating to so it's pretty out. really see out still flattened excited even we're with flattening and growth

anything, add You want to Rob?

Rob Shovlin

seen methodologies numbers, in methodologies we've so see each basically excited testing we're of to the Yes, today. grow across double-digit testing all our

Drew Jones

walk Perfect. here? line process us through got Cigna And the then Doug, maybe can you the over finish that

Doug VanOort

first have Care players. broader to attractive including was time broad Cigna. players not Managed of about other menu about think I which Cigna number comprehensive would I talking found our the a been tests be we you've a a was may say pursued lot for National many we've with what of Yes. I for think Cigna that we're noticed We've years, care a for happy and managed with really long terrific of that and all NeoGenomics Drew years organization with coverage

So in to we think hadn't in we past back would really covered that think that terms here revenue have to the that what we're will Cigna overall is the help will and probably covered coverage encouraged test we going about per reimbursement been Amanda's more aid question be of test.

So it. we're about excited

Operator

Instructions]. you. Thank [Operator

comes your proceed with of Kevin question. Our Ellich next the with question Please Craig-Hallum. from line

Kevin Ellich

thanks us bit gave appreciate rate and could I little expect PPD, what a go you long-term, strategic when Good morning on questions color and to the and I quarter when guess nice team. see for you partnership us give year? you color we where Doug could the already more with think the and do your timeline, think on this expected later run the contribution but this any to you maybe taking

Doug VanOort

for turn little Let's to that. a commentary it George on over

George Cardoza

Yes, -- we partnership this this announced on obviously alliance announced Xst. June

still obviously we're announcement made made there joint really in cycle work the the we’re of ahead sales Pharma is weeks. the of in sales already the seven lot realize now we've now bit early fairly in longer phase, stages, proposals a quite we than but execution So have calls, services joint was a

aren't optimistic laboratories. Asia-Pac very had before yet planned but open results it. in those had to showing about we're We up stated NeoGenomics that So

we the So be in came along their this as time co-locate have of and facility story actually at their a assistance sort us, to try of to opportune sort open for operation. to able Singapore very

process, early So put so it's to hard an exact number in on the it. still it's very

not that next would expertise as gives bid this win with years. participate not the to So we can and several probably PPD, and them be win would probably over the and we about pathology very our to this grow, on the this optimistic able the think they us but We ability think own to obviously have alone well. their deals we're opportunity same that won oncology time gives

very about a we we're optimistic fantastic it's So and it. alliance think

Kevin Ellich

out with Sharon where company guess you've guess that And for the Appreciate guess and I the then a appetite and financial what's your way, for redemption the you M&A? -- leverage what's what's more finance the the preferred and the of to color, I convertible George. your question team, comfort your now I operate now want gotten the of

Sharon Virag

for Well thanks question. the

gotten closed the take out have quickly little we can. bring are our preferred behind bit It of as looking we're out high to leverage excited to the as redemption us. very we think shares I that did and and down a

end at think from about sustainable the company. blocking So bring adjusted to we're and that view we're about the being M&A we that to by times we us things growing X.X continue X.X, more looking level. up to consider continue of look as the down at don't to able it think and But year EBITDA to and I

Operator

you. no any we this questions. have there time Were Thank questions? additional electronic At gentlemen, phone

Rob Shovlin

There are not.

Operator

to floor I for you comments. you. back the closing Thank turn

Doug VanOort

Okay, much. Rob, thank very you

the U.S. on end to cancer we the would behalf members time to and commitment for call, NeoGenomics testing NeoGenomics team this your a team, to Before company I the world joining I dedication around for you our recognize like X,XXX want thank us their and of approximately building class morning.

not company. you of NeoGenomics, we our listening your that or our for those For in interest you in investors thank investment Goodbye. are considering an

Operator

Thank you. today's This will conclude conference.

You disconnect your for participation. Thank at you this lines your time. may