NeoGenomics, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The company provides cancer-focused clinical diagnostic testing and pharmaceutical clinical-trial and research services. Financial figures below are in U.S. dollars; millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $117.2 million | $115.5 million; up 1.4% |
| Clinical Services revenue | $98.8 million | $96.5 million; up 2.4% |
| Pharma Services revenue | $18.4 million | $19.0 million; down 3.5% |
| Gross profit and margin | $38.2 million; 32.6% | $41.6 million; 36.0% |
| Operating loss | $52.0 million | $15.1 million |
| Net loss and diluted loss per share | $49.4 million; $0.40 | $22.1 million; $0.19 |
| Adjusted EBITDA (non-GAAP) | Loss of $19.0 million | Income of $4.2 million |
| Operating cash flow | Use of $29.0 million | Provided $2.2 million |
At March 31, cash and cash equivalents were $305.9 million and marketable securities were $175.5 million. Working capital was $569.0 million. Convertible notes had $546.3 million aggregate principal outstanding: $201.3 million due 2025 at 1.25% and $345.0 million due 2028 at 0.25%; their combined net carrying value was $533.2 million. The company reported no revolver or other bank borrowings in the supplied filing text.
Material changes and notable items
- Revenue rose modestly, with Clinical Services growth partly offset by lower Pharma Services revenue. Signed-contract backlog increased to $282 million from $267 million at year-end 2021.
- Gross margin declined 3.4 percentage points. Management cited $4.9 million of amortization of acquired Inivata technology and the fixed nature of laboratory costs; higher payroll costs also contributed to increased cost of revenue.
- Operating expenses increased substantially: general and administrative expense rose 63.7% to $66.2 million, research and development rose to $7.7 million, and sales and marketing rose 18.5% to $16.3 million. G&A included $5.9 million of incremental stock compensation from accelerated vesting following the CEO’s departure and $1.6 million of related severance costs.
- Q1 2022 included a $2.0 million gain on the sale of the Carlsbad property. Q1 2021 included $6.1 million of COVID-19 PCR exit write-offs and a $5.0 million unrealized loss on an Inivata investment; these items affect year-over-year comparability.
- Cash used in operations increased, which management attributed to operating results, funding operating assets, acquired subsidiaries, higher payroll costs, and professional fees. Cash declined by $10.9 million during the quarter.
Outlook, risks, and contingencies
Management said cash, marketable securities, and expected collections should fund near-term operating and capital needs for at least 12 months. It projected 2022 capital expenditures of $25 million to $35 million; $8.2 million was spent in Q1. The filing provides no specific full-year revenue or earnings guidance. Management said research and development spending is expected to increase in coming quarters and anticipated higher sales commissions as new business is generated.
- COVID-19 disruptions and variants could continue to adversely affect test volumes, operations, results, and cash flows; the extent and duration were described as uncertain.
- The company reserved $11.2 million for potential liabilities related to an ongoing voluntary internal investigation of certain consulting and service agreements and its notification to the HHS Office of Inspector General. It could not estimate possible losses above the reserve; additional reserves, penalties, or operating restrictions may result.
- Inivata faces a patent-infringement lawsuit brought by Natera concerning its InVisionFirst-Lung test. The company said it has defenses, but the outcome was not estimable or probable at filing.
- The company reported a U.S. three-year cumulative loss position and a valuation allowance against deferred tax assets expected to arise from additional U.S. tax-loss and credit carryforwards.
- Other cited uncertainties include reimbursement and regulatory changes, CLIA and potential FDA oversight of laboratory-developed tests, billing and collections, acquisition integration, hiring and capacity, and international currency exposure. The company said risk factors were not materially changed from its 2021 Form 10-K.
Investor verification points
- Track whether revenue growth and the $282 million backlog convert into recognized revenue, particularly given the decline in Pharma Services revenue.
- Assess the drivers of margin compression and whether acquired-technology amortization, payroll, and other operating costs continue to pressure profitability and cash flow.
- Review cash burn against the stated 12-month liquidity assessment, planned $25–$35 million capital spending, and $546.3 million of convertible-note principal.
- Monitor the OIG-related investigation, the adequacy of the $11.2 million reserve, and developments in the Natera litigation.
- Consider the CEO transition and elevated stock-based compensation, including the effect of equity awards and share-count growth on per-share results.