NeoGenomics, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 25, 2021. This is an annual report, not a standalone fourth-quarter report. NeoGenomics provides cancer-focused clinical laboratory testing and pharmaceutical research and clinical-trial services.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $444.4 million | $408.8 million |
| Gross profit / margin | $185.9 million / 41.8% | $196.8 million / 48.1% |
| Operating income (loss) | $(14.0) million | $13.0 million |
| Net income | $4.2 million | $8.0 million |
| Diluted earnings per share | $0.04 | $0.08 |
| Adjusted EBITDA (non-GAAP) | $34.8 million | $57.2 million |
| Cash from operating activities | $1.5 million | $23.4 million |
Revenue grew 8.7%: Clinical Services rose 5.9% to $382.3 million, and Pharma Services rose 30.3% to $62.1 million. Clinical revenue included $27.8 million of COVID-19 PCR testing; excluding that testing, clinical volumes were pressured by the pandemic. Clinical requisitions fell 2.4% and tests performed fell 1.2% year over year.
Profitability weakened despite revenue growth. Cost of revenue rose 22.0% to $258.6 million, outpacing revenue, and gross margin declined 6.3 percentage points. Management cited pandemic-related underutilized capacity and fixed costs, higher payroll costs, acquisition integration, and the timing of Pharma Services revenue. Net income included an $18.2 million income-tax benefit despite a $14.1 million pretax loss; it also benefited from $7.9 million of CARES Act grant income and a $4.0 million unrealized gain on the Inivata investment. Adjusted EBITDA is a non-GAAP measure and fell 39% year over year.
Liquidity, cash flow and debt
At year-end, cash and cash equivalents were $228.7 million, marketable securities were $67.5 million, and working capital was $375.5 million. Cash from operations fell to $1.5 million, primarily reflecting cash use from changes in operating assets and liabilities, including higher inventory and receivables and $20.2 million in funds distributed for the new headquarters construction. Investing activities used $159.4 million, including the HLI Oncology acquisition, Inivata investment, capital expenditures and purchases of marketable securities.
Year-end debt included $201.3 million principal of 1.25% convertible notes due 2025, reported net of discount and issuance costs at $168.1 million, plus $3.8 million of equipment financing obligations. The company repaid its prior term loan in 2020. In January 2021, it completed common-stock and 0.25% convertible-note offerings with combined net proceeds of approximately $552.8 million; it used approximately $29.3 million for capped-call transactions. Management stated that available liquidity and expected collections were sufficient for near-term needs for at least 12 months. The company forecast 2021 capital expenditures of $45 million to $55 million.
Outlook, risks and notable items
- Management’s 2021 priorities are to improve culture, quality and service, and pursue growth through new assays, informatics, companion diagnostics, automation, reimbursement effectiveness and potential acquisitions. No specific revenue or earnings guidance is provided.
- Pharma Services backlog increased from $130.3 million to $208.9 million. Management expects it to support higher future revenue, but substantially all signed contracts include cancellation provisions.
- COVID-19 materially affected 2020 volumes and results; future demand and COVID-testing revenue remained uncertain. The company reported that its main laboratories stayed open and testing continued without interruption.
- Key risks include reimbursement and payer-policy changes, complex billing and collection estimates, possible FDA oversight of laboratory-developed tests, competition and pricing pressure, capacity and staffing constraints, and reliance on third-party suppliers and a major shipping carrier.
- Other material risks include cybersecurity and patient-data privacy, clinical-testing liability, regulatory compliance, and the cash, conversion and dilution obligations associated with convertible notes. The company’s $15 million, zero-interest line of credit to Inivata was fully drawn in January 2021.
- The auditor issued an unqualified opinion on the financial statements and internal controls. Critical audit matters included estimates of clinical-service implicit price concessions and accounting for the Inivata investment.
- The filing disclosed ordinary-course legal proceedings; management did not expect resulting liability to materially affect financial position, results or cash flows. The CEO announced a planned transition to executive chairman in April 2021, with Mark Mallon to become CEO.
Investor verification points
- Assess underlying clinical growth and margins excluding COVID-19 testing, and whether volumes recovered after pandemic-related disruption.
- Review the assumptions and subsequent collections behind clinical revenue and implicit price-concession estimates, a critical audit matter.
- Track Pharma backlog conversion, cancellations, revenue timing and segment profitability.
- Reconcile GAAP net income with the tax benefit, CARES Act grant, Inivata gain and other unusual items; evaluate the decline in operating cash flow and Adjusted EBITDA.
- Review post-year-end financing, dilution and capped-call terms alongside the 2025 and 2028 note obligations and planned capital spending.