NeoGenomics' revenue increases 18% to $24.3 million in second quarter 2015

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

Second Quarter 2015 Highlights:

  • 18% increase in consolidated revenue
  • 9% growth in base revenue despite $2.1 million reduction in FISH reimbursement
  • 21% growth in base test volume despite FISH insourcing by one large client
  • Record low $215 Avg Cost per Test in base business
  • 300 basis point expansion in gross margin from 41.4% in Q1, to 44.4% in Q2
  • Adjusted EBITDA increase of 16% to $2.4 million, and EPS of ($.00) per share

Revenue for the second quarter was $24.3 million, an increase of 18% over last year. The PathLogic acquisition accounted for $1.9 million or half of the revenue growth, and organic growth in the base business accounted for the rest. Test volume in the base business grew by 21% and average revenue per test decreased by 11%, primarily as a result of significant decreases in reimbursement for Fluorescence in-situ Hybridization ("FISH") testing as a result of new FISH billing codes introduced in 2015.

Consolidated gross margin, including PathLogic, was 44.4% for the quarter, representing an increase of 300 basis points from levels reported in Quarter 1 and a reduction of 510 basis points from last year's second quarter. The sequential increase was largely driven by a 9% reduction in average cost-of-goods-sold per test ("Cost per Test") in the base business from Quarter 1. The year-over-year decrease was the result of the inclusion of Path Logic's results in the second quarter of this year and the FISH reimbursement declines.

Consolidated selling, general and administrative expenses ("SG&A") increased by 12%, or $1.1 million, from the second quarter of last year. All of this increase was due to the inclusion of PathLogic's SG&A expenses into consolidated results.

Second quarter net loss was ($176,000), or $(0.00) per share versus net income of $274,000 or $0.01 per share in Quarter 2 of last year and net loss of ($761,000), or $(0.01) in the first quarter of 2015. Consolidated Adjusted EBITDA for the quarter, after adding back non-cash, stock-based compensation charges, was $2.4 million, an increase of 16% versus last year. Adjusted EBITDA for NeoGenomics' base business was $3.1 million and Adjusted EBITDA for PathLogic was ($709,000) in the second quarter.

Douglas M. VanOort, the Company's Chairman and CEO commented, "Our base business had very strong results in the second quarter, which were partially masked by exceptionally large decreases in FISH reimbursement and the continued insourcing of certain FISH tests by our largest client. Excluding the impacts of this insourcing, test volume growth in the base business would have been above 28%. Our Sales team continues to perform at a very high level and we exited the quarter with a robust pipeline of large client opportunities."

"Our laboratory teams are also performing exceptionally well. Service levels were extremely strong during the quarter, even with the record volumes, as our quality and process initiatives continued to bear fruit. Our teams reduced Costs per Test in our base business by 9% compared with last quarter to their lowest levels in our corporate history by dramatically increasing Lab Productivity and reducing supplies cost per test. We now believe that we can achieve a 6-8% reduction in Costs per Test in our base business for the full year 2015."

Mr. VanOort continued, "We are also particularly pleased that there was no increase in SG&A expenses in our base business, despite the fact that we performed almost 10,000 more tests than in Quarter 2 of last year. Our ability to reduce Costs per Test and control SG&A expenses resulted in the third highest quarterly Adjusted EBITDA in corporate history despite $2.1 million less FISH reimbursement, continued insourcing by one large client, and continued losses caused from the acquisition of PathLogic."

"While 2015 results continue to be significantly impacted by the draconian reductions to FISH reimbursement, it appears that CMS is seeking to correct the 2015 reimbursement levels based on the recently released proposed 2016 rule for the Physician Fee Schedule. If the proposed reimbursement levels are maintained in the final 2016 rule, flow cytometry reimbursement rates will see significant declines but they will be more than offset by increases for FISH and other test types. If the rule is implemented as drafted, we estimate that approximately $6 - 8 million of the $12 million 2-year reduction in FISH reimbursement would be reversed assuming most commercial insurances will follow Medicare's lead. After factoring in the reductions to flow cytometry and other proposed changes in reimbursement, we estimate that there would be an overall positive impact to revenue of approximately $4-6 million in 2016. After five years of annual price declines, this would be a welcome respite."

Mr. VanOort concluded, "Although PathLogic is still operating well below capacity, our base business continues to perform extremely well. We are attracting many new customers and are well positioned to maintain strong growth far into the future. We remain enthusiastic about the future of NeoGenomics and believe we are well on the way to achieving our vision of becoming America's premier cancer testing laboratory."

Full-Year 2015 Financial Outlook:

As a result of larger overall reductions to FISH reimbursement in 2015 than originally expected and continued softness in the revenue of PathLogic, the Company also announced that it was lowering its previously issued revenue guidance for the full year 2015 to $100 - 103 million, versus the previous guidance of $103 – 108 million. However, the Company reiterated its expectation of a return to profitability in the second half of 2015. The Company reserves the right to adjust this guidance at any time based on the ongoing execution of its business plan. 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.

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