NeoGenomics' revenue increases 27% to $23.0 million in first quarter 2015

NeoGenomics, Inc. (NASDAQ: NEO), a leading provider of cancer-focused genetic testing services today reported its results for the first quarter of 2015.

First Quarter 2015 Highlights:

• Consolidated revenue growth of 27%
• Base test volume growth of 28%
• Improvement in base average cost per test of 3.5%
• Adjusted EBITDA of $1.5 million

Revenue for the first quarter was $23.0 million, a 27% increase over first quarter 2014 revenue. The PathLogic acquisition accounted for $2.3 million of revenue or 13% of this revenue growth, and organic revenue growth in the base business, excluding PathLogic, was 14%. Base testing volume growth was 28% and average revenue per test decreased by 11%, primarily as a result of significant decreases in reimbursement for Fluorescence in-situ Hybridization ("FISH") testing.

Consolidated gross margin was 41.5% compared to 47.9% in last year's first quarter. Base business gross margin declined to 43.7% from 47.9% in last year's first quarter, primarily as a result of the decreases in reimbursement for FISH testing. Gross margin at PathLogic was 22.0% for the quarter. Consolidated operating expenses increased by $1.8 million or 22% from Quarter 1 of last year. About half of this increase was the result of the PathLogic acquisition. The remainder was due to increased sales and marketing personnel and increases in Information Technology and facilities expense to accommodate recent and near-term growth prospects.

Net loss was $761,000 or ($0.01)/share versus net income of $102,000 or $0.00/share in Quarter 1 of last year. Consolidated Adjusted EBITDA for the quarter was $1.5 million, a 9.8% decrease from last year, due primarily to decreases in reimbursement and the incorporation of PathLogic's results. Adjusted EBITDA from the base business and PathLogic were $1.8 million and ($246,000), respectively.

Douglas M. VanOort, the Company's Chairman and CEO, commented, "NeoGenomics base business test volume, service levels, and new account activities were very strong in the first quarter. We continue to make excellent market-share gains in our base business where test volumes grew by 28% compared to last year's first quarter. Unusually harsh winter in the northern part of the country also impacted growth somewhat in January and February."

"We are particularly pleased with the excellent progress we are making on our many growth initiatives. Our volume of molecular testing, fueled by Next Generation Sequencing, increased by about 52% over last year and now is our largest testing category by volume. Our approach to molecular testing of using targeted profiles by disease category is becoming more widely accepted as a cost effective way to identify the key genetic drivers of cancer. Momentum was also strong in clinical trials testing. In fact, we were awarded more studies in the first quarter than in all of last year."

Mr. VanOort continued, "We are disappointed, however, by the extraordinary reduction in reimbursement rates for FISH testing by Medicare and commercial insurers. FISH testing is critically important for proper diagnosis and treatment for cancer patients. Unfortunately, we believe that Medicare reimbursement rates for the new 2015 FISH CPT Codes were not properly established and commercial insurance payers used these as benchmarks for their own reimbursement policies. We estimate that declines in FISH reimbursement reduced our revenue by approximately $2.1 million in Quarter 1, and most of that amount similarly reduced profit. Fortunately, some large commercial insurers have analyzed the rates and are now in the process of revising their FISH reimbursement upward. We are working hard to explain to all payers that adequate reimbursement for FISH testing is of critical importance to ensure that cancer patients are properly diagnosed and treated."

Mr. VanOort concluded, "Our genetic and molecular testing business is strong, and we continue to attract new customers with our comprehensive testing menu and service levels. We believe that volume growth and process and productivity improvements will allow for a return to profitability in the second half of this year. We remain committed to invest in growth through innovation as we continue to develop and commercialize new and innovative tests. In this environment, we believe that acquisition opportunities are available and we remain active and disciplined in our approach to evaluating them. Overall, we are excited about the many prospects for our company."

Full-Year 2015 Financial Outlook:

The Company reiterated its previously issued revenue guidance for the full year 2015 of $103 - $108 million. Current and prospective investors are encouraged to perform their own due diligence before buying or selling any of the Company's securities, and are reminded that the foregoing estimates should not be construed as a guarantee of future performance.

(1) PathLogic was acquired by NeoGenomics on July 8, 2014. To facilitate year-over-year comparisons, base NeoGenomics figures exclude the impact from the consolidation of PathLogic.

(2) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, and non-cash stock-based compensation expenses. See table for a reconciliation to net income.