NeoGenomics, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. NeoGenomics provides cancer-focused clinical laboratory testing and pharmaceutical research services.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $115.5 million | $106.0 million | Up 9.0% |
| Clinical Services revenue | $96.5 million | $93.0 million | Up 3.8% |
| Pharma Services revenue | $19.0 million | $13.0 million | Up 46.0% |
| Gross profit / margin | $41.6 million / 36.0% | $46.4 million / 43.7% | Margin down 7.7 percentage points |
| Operating loss | $15.1 million | $5.3 million | Loss increased |
| Net loss / diluted loss per share | $22.1 million / $0.19 | $7.0 million / $0.07 | Loss increased |
| Adjusted EBITDA (non-GAAP) | $4.2 million | $7.1 million | Down $2.9 million |
| Operating cash flow | $2.2 million | $(6.9) million | Improved |
Clinical test volume excluding COVID-19 PCR testing increased 4.2%; clinical testing revenue on that basis rose 2.1%. Average revenue per test fell 1.9%, while average cost per test rose 5.6%. Pharma Services signed-contract backlog increased to $217.6 million from $208.9 million at year-end; management expects it to contribute to higher revenue in future quarters.
At March 31, cash and cash equivalents were $612.0 million and marketable securities were $190.7 million. Working capital was $875.0 million. The company reported $650.7 million of total liabilities, including $530.4 million of convertible notes, net, and $2.8 million of equipment financing obligations. Convertible notes had aggregate principal of $546.3 million; the 2025 notes carry 1.25% interest and the 2028 notes 0.25%. Management said available cash, marketable securities and expected collections should fund near-term capital and operating needs for at least 12 months.
Material changes and unusual items
- Revenue increased, led by Pharma Services, but gross margin contracted amid pandemic-related volume pressure, February adverse weather, higher payroll and supply costs, and a $5.3 million write-off of COVID-19 PCR inventory.
- The company exited COVID-19 PCR testing as demand declined following broad vaccine rollout. It also wrote off $0.8 million of related laboratory equipment. Together, these items totaled $6.1 million.
- Other expense, net was $4.9 million, including a $5.0 million unrealized loss on the Inivata investment. G&A also included $0.8 million of acquisition costs and $0.5 million of CEO transition costs.
- Financing substantially increased liquidity: the company raised approximately $218.3 million net from a common-stock offering and $334.4 million net from its 2028 convertible notes offering, and paid $29.3 million for capped-call transactions. Shares outstanding rose to 117.1 million from 112.1 million at year-end.
- Adoption of ASU 2020-06 changed convertible-debt accounting and reduced opening additional paid-in capital by approximately $23.3 million; it did not affect earnings per share.
Outlook, risks and contingencies
- Management forecast 2021 capital expenditures of $45 million to $55 million; approximately $15.8 million was spent in Q1. It expects R&D spending to increase as the company invests in test development, including NGS and FDA initiatives.
- COVID-19 continues to pose uncertain risks to testing volumes, operations and financial results. Management cited reimbursement levels, payer denials, regulatory requirements, competition, capacity and execution of growth plans among other risks.
- The 2025 convertible notes were eligible for conversion in Q2 2021 under their stock-price terms; no conversion notices had been received as of March 31. Conversion, repayment and dilution exposure remain relevant to investors.
- Subsequent events: the company acquired Trapelo Health on April 7 for $65 million, consisting of $35 million cash and $30 million stock. On May 4 it agreed to acquire Inivata for $390 million, subject to specified cash and debt adjustments, with consideration in cash and potentially stock. It also agreed to a private placement expected to raise approximately $200 million, subject to closing conditions and the Inivata acquisition.
- The filing reported no legal proceedings for the quarter and no material changes to the risk factors in the 2020 Form 10-K. Management stated disclosure controls were effective at a reasonable assurance level.
Key facts for investors to verify
- Whether clinical volumes and margins recover after the COVID-19 testing exit, and whether higher cost per test persists.
- Conversion terms and potential dilution or cash obligations under the 2025 and 2028 notes, including the capped-call coverage and limits.
- Final consideration, financing, closing conditions and integration costs for the Inivata acquisition and Trapelo purchase; confirm whether the proposed private placement closed.
- Backlog conversion into Pharma Services revenue, and the actual timing and amount of 2021 capital spending and facility commitments.
- Non-GAAP Adjusted EBITDA excludes significant items; assess it alongside GAAP results and cash flow.