UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2020~~

2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35756

NEOGENOMICS, INC.

(Exact name of registrant as specified in its charter)

Nevada

74-2897368

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

12701 Commonwealth Drive,

Suite 9,

Fort Myers,

Florida

33913

(Address of principal executive offices)

(Zip Code)

(239) 768-0600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock ($0.001 par value)

NEO

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes S No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No S

As of ~~October 27, 2020,~~August 5, 2021, the registrant had ~~111,029,644~~122,816,314 shares of Common Stock, par value $0.001 per share outstanding.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q contains “forward-looking statements” and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the “Securities Act”, and Section 21E of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, changing reimbursement levels from government payers and private insurers, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties that could cause our actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the risks set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on February ~~28, 2020.~~25, 2021.

Forward-looking statements include, but are not limited to, statements about:

•Our ability to respond to rapid scientific change;

•The risk of liability in conducting clinical trials and providing research services and the sufficiency of our insurance to cover such claims;

•Our ability to implement our business strategy;

•The potential impact to our business operations, customer demand and supply chain due to the ongoing global COVID-19 coronavirus pandemic and its related variants;

•The expected reimbursement levels from governmental payers and private insurers and proposed changes to those levels;

•The application, to our business and the services we provide, of existing laws, rules and regulations, including without limitation, Medicare laws, anti-kickback laws, Health Insurance Portability and Accountability Act of 1996 regulations, state medical privacy laws, international privacy laws, federal and state false claims laws and corporate practice of medicine laws;

•Regulatory developments in the United States including downward pressure on health care reimbursement;

•Our ability to maintain our license under the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”);

•Food and Drug Administration, or FDA regulation of Laboratory Developed Tests (“LDTs”);

•Failure to timely or accurately bill for our services;

•Our ability to expand our operations and increase our market share;

•Our ability to expand our service offerings by adding new testing ~~capabilities;~~capabilities and overcome capacity constraints;

•Our ability to develop or acquire licenses for new or improved testing technologies;

•Our ability to meet our future capital requirements;

•Our ability to manage our indebtedness;

•Our ability to manage the quality of our investment portfolio;

•Our expectations regarding the conversion of our outstanding 1.25% Convertible Senior Notes due May 2025 (the ~~“Convertible~~“2025 Convertible Notes”) or our outstanding 0.25% Convertible Senior Notes due January 2028 (the “2028 Convertible Notes”) in the aggregate principal amount of $201.3 million and $345 million, respectively, and our ability to make debt service payments under the 2025 Convertible Notes or 2028 Convertible Notes if such ~~Convertible Notes~~notes are not converted;

•Our ability to protect our intellectual property from infringement;

•~~The anticipated impact to our business operations, customer demand and supply chain due to the recent global pandemic of a novel strain of the coronavirus (“COVID-19”);~~

•Our ability to integrate ~~future~~ acquisitions and costs related to such acquisitions;

•The effects of seasonality on our business;

•Our ability to maintain service levels and compete with other diagnostic laboratories;

•Our ability to hire and retain sufficient managerial, sales, clinical and other personnel to meet our needs;

•Our ability to successfully scale our business, including expanding our facilities, our backup systems and infrastructure;

•Our handling, storage and disposal of biological and hazardous materials;

•The accuracy of our estimates regarding reimbursement, expenses, future revenues and capital requirements;

•Our ability to manage expenses and risks associated with international operations, including anti-corruption and trade sanction laws and other regulations, and economic, political, legal and other operational risks associated with foreign jurisdictions;

•Our ability to have sufficient cash to pay our obligations under ~~our 1.25%~~the 2025 Convertible ~~Senior~~ Notes ~~due May 2025;~~or the 2028 Convertible Notes; and

•The dilutive impact of the conversion of ~~our 1.25%~~the 2025 Convertible ~~Senior~~ Notes ~~due May 2025.~~or the 2028 Convertible Notes.

Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NEOGENOMICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share ~~amounts)~~data)


	June 30, 2021 (unaudited)		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	368,796	$	228,713

Marketable securities, at fair value	202,950		67,546
Accounts receivable, net	106,284		106,843
Inventories	21,384		29,526
Prepaid assets	13,959		11,547
Other current assets	8,422		4,555
Total current assets	721,795		448,730
Property and equipment (net of accumulated depreciation of $105,194 and $92,895, respectively)	112,208		85,873
Operating lease right-of-use assets	54,558		45,786

Intangible assets, net	471,038		120,653
Goodwill	499,977		211,083
Restricted cash	4,103		21,919
Investment in non-consolidated affiliate	0		29,555

Prepaid lease asset	24,958		20,229
Other assets	7,674		4,503
Total non-current assets	$	1,174,516	$	539,601
Total assets	$	1,896,311	$	988,331
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	23,056	$	24,965
Accrued compensation	38,719		24,727
Accrued expenses and other liabilities	25,304		11,654
Current portion of equipment financing obligations	1,913		2,841
Current portion of operating lease liabilities	5,642		4,967


Pharma contract liabilities	4,497		4,029
Total current liabilities	99,131		73,183
Long-term liabilities
Convertible senior notes, net	531,077		168,120
Equipment financing obligations	448		967
Operating lease liabilities	49,624		42,296


Deferred income tax liabilities, net	63,877		5,415
Other long-term liabilities	3,796		4,056
Total long-term liabilities	648,822		220,854
Total liabilities	747,953		294,037
Stockholders’ equity
Common stock, $0.001 par value, (250,000,000 shares authorized; 122,711,352 and 112,075,474 shares issued and outstanding, respectively)	123		112
Additional paid-in capital	1,101,298		701,357
Accumulated other comprehensive (loss) income	(333)		10
Retained earnings (accumulated deficit)	47,270		(7,185)
Total stockholders’ equity	1,148,358		694,294
Total liabilities and stockholders’ equity	$	1,896,311	$	988,331

September 30, 2020 (unaudited) December 31, 2019
ASSETS
Current assets
Cash and cash equivalents $ 233,233 $ 173,016
Marketable securities, at fair value 50,375 0
Accounts receivable, net 103,697 94,242
Inventories 20,643 14,405
Prepaid assets 10,459 6,327
Other current assets 3,968 2,748
Total current assets 422,375 290,738
Property and equipment (net of accumulated depreciation of $85,987 and $68,809, respectively) 85,449 64,188
Operating lease right-of-use assets 45,856 26,492
Intangible assets, net 123,353 126,640
Goodwill 210,833 198,601
Restricted cash, non-current 32,003 0
Prepaid lease asset 10,142 0
Investment in non-consolidated affiliate 25,600 0
Other assets 3,817 2,847
Total assets $ 959,428 $ 709,506
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 17,735 $ 19,568
Accrued compensation 26,083 21,365
Accrued expenses and other liabilities 8,677 7,548
Short-term portion of financing obligations 3,700 5,432
Short-term portion of operating leases 4,701 3,381
Short-term portion of term loan 0 5,000
Pharma contract liability 3,716 1,610
Total current liabilities 64,612 63,904
Long-term liabilities
Convertible senior notes, net 166,440 0
Long-term portion of financing obligations 1,399 3,199
Long-term portion of operating leases 43,123 24,034
Long-term portion of term loan, net 0 91,829
Other long-term liabilities 3,937 3,566
Deferred income tax liability, net 13,554 15,566
Total long-term liabilities 228,453 138,194
     Total liabilities 293,065 202,098
Stockholders' equity
Common stock, $0.001 par value, (250,000,000 shares authorized; 111,010,418 and 104,781,236 shares issued and outstanding, respectively) 111 105
Additional paid-in capital 688,832 520,278
Accumulated other comprehensive loss 22 (1,618)
Accumulated deficit (22,602) (11,357)
     Total stockholders’ equity 666,363 507,408
     Total liabilities and stockholders' equity $ 959,428 $ 709,506

See the accompanying notes to the unaudited ~~consolidated financial statements.~~Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share ~~amounts)~~data)

(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
NET REVENUE:
Clinical Services $ 108,733 $ 92,565 $ 275,599 $ 267,757
Pharma Services 16,711 12,107 42,852 34,205
Total revenue 125,444 104,672 318,451 301,962
COST OF REVENUE 71,379 53,840 190,011 155,049
GROSS PROFIT 54,065 50,832 128,440 146,913
Operating expenses:
General and administrative 36,128 33,054 107,085 94,773
Research and development 1,964 2,611 6,129 6,407
Sales and marketing 11,304 11,508 34,757 35,048
Total operating expenses 49,396 47,173 147,971 136,228
INCOME (LOSS) FROM OPERATIONS 4,669 3,659 (19,531) 10,685
Interest expense, net 2,458 203 4,825 3,333
Other (income) expense, net (11) (35) (7,639) 5,124
Loss on extinguishment of debt 0 0 1,400 1,018
Loss on termination of cash flow hedge 0 0 3,506 0
Income (loss) before taxes 2,222 3,491 (21,623) 1,210
Income tax (benefit) expense (335) 1,348 (10,378) (500)
NET INCOME (LOSS) $ 2,557 $ 2,143 $ (11,245) $ 1,710
Adjustment to the numerator for convertible notes in diluted EPS (1)
NET INCOME (LOSS) $ 2,557 $ 2,143 $ (11,245) $ 1,710
Convertible note accretion, amortization, and interest, net of tax 1,975 0 0 0
NET INCOME (LOSS) USED IN DILUTED EPS $ 4,532 $ 2,143 $ (11,245) $ 1,710
NET INCOME (LOSS) PER SHARE
Basic $ 0.02 $ 0.02 $ (0.10) $ 0.02
Diluted $ 0.04 $ 0.02 $ (0.10) $ 0.02
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 110,461 103,899 107,605 99,149
Diluted 119,191 107,880 107,605 102,766


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
NET REVENUE:
Clinical Services	$	101,405	$	73,884	$	197,892	$	166,866
Pharma Services	20,319		13,093		39,365		26,141
Total revenue	121,724		86,977		237,257		193,007

COST OF REVENUE	68,734		58,971		142,693		118,632

GROSS PROFIT	52,990		28,006		94,564		74,375
Operating expenses:
General and administrative	54,638		34,613		95,114		70,957
Research and development	3,495		2,105		5,951		4,165
Sales and marketing	17,224		10,195		30,973		23,453
Total operating expenses	75,357		46,913		132,038		98,575
LOSS FROM OPERATIONS	(22,367)		(18,907)		(37,474)		(24,200)
Interest expense, net	902		1,548		2,079		2,367
Other income, net	(171)		(7,405)		(341)		(7,628)
Gain on investment in and loan receivable from non-consolidated affiliate, net	(96,534)		0		(91,510)		0
Loss on extinguishment of debt	0		1,400		0		1,400
Loss on termination of cash flow hedge	0		3,506		0		3,506
Income (loss) before taxes	73,436		(17,956)		52,298		(23,845)
Income tax benefit	(2,437)		(11,132)		(1,461)		(10,043)
NET INCOME (LOSS)	$	75,873	$	(6,824)	$	53,759	$	(13,802)

Adjustment to net income (loss) for convertible notes in diluted EPS (1)
NET INCOME (LOSS)	$	75,873	$	(6,824)	$	53,759	$	(13,802)
Convertible note accretion, amortization, and interest, net of tax	1,552		0		2,997		0
NET INCOME (LOSS) USED IN DILUTED EPS	$	77,425	$	(6,824)	$	56,756	$	(13,802)

NET INCOME (LOSS) PER SHARE
Basic	$	0.64	$	(0.06)	$	0.46	$	(0.13)
Diluted	$	0.59	$	(0.06)	$	0.44	$	(0.13)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic	118,287		107,887		117,249		106,209
Diluted	131,237		107,887		130,247		106,209

(1)This adjustment compensates for the effects of the if-converted impact of convertible notes in adjusted net income. Since an entity using the if-converted method assumes that a convertible debt instrument was converted into common shares at the beginning of the reporting period, ~~the numerator~~net income (loss) is adjusted to reverse any recognized interest expense (including any amortization of discounts).

See the accompanying notes to the unaudited ~~consolidated financial statements.~~Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
NET INCOME (LOSS)	NET INCOME (LOSS)	$	2,557	$	2,143	$	(11,245)	$	1,710	NET INCOME (LOSS)	$	75,873	$	(6,824)	$	53,759	$	(13,802)

OTHER COMPREHENSIVE (LOSS) INCOME:
OTHER COMPREHENSIVE INCOME (LOSS):										OTHER COMPREHENSIVE INCOME (LOSS):

Unrealized loss on marketable securities, net		(21)		0		(21)		0
Loss on effective cash flow hedges		0		(217)		(1,000)		(1,801)
Net unrealized loss on marketable securities, net of tax										Net unrealized loss on marketable securities, net of tax	(183)		0		(343)		0
Unrealized gain (loss) on effective cash flow hedge, net of tax										Unrealized gain (loss) on effective cash flow hedge, net of tax	0		38		0		(1,000)
Cash flow hedge termination reclassified to earnings	Cash flow hedge termination reclassified to earnings	0		0		2,661		0		Cash flow hedge termination reclassified to earnings	0		2,661		0		2,661
Total other comprehensive (loss) income, net of tax	Total other comprehensive (loss) income, net of tax	(21)		(217)		1,640		(1,801)		Total other comprehensive (loss) income, net of tax	(183)		2,699		(343)		1,661
COMPREHENSIVE INCOME (LOSS)	COMPREHENSIVE INCOME (LOSS)	$	2,536	$	1,926	$	(9,605)	$	(91)	COMPREHENSIVE INCOME (LOSS)	$	75,690	$	(4,125)	$	53,416	$	(12,141)

See the accompanying notes to the unaudited ~~consolidated financial statements.~~Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS'~~STOCKHOLDERS’ EQUITY

(unaudited, in thousands, except share ~~amounts)~~data)


		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit				Total							Common Stock		Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)			(Accumulated Deficit) Retained Earnings		Total
			Shares			Amount															Amount				Total
Balance, December 31, 2019			104,781,236	$	105		$	520,278			$	(1,618)			$	(11,357)		$	507,408
Balance, December 31, 2020																	Balance, December 31, 2020					112,075,474				$	112			$	701,357			$	10			$	(7,185)	$	694,294
Cumulative-effect adjustment from change in accounting principle																	Cumulative-effect adjustment from change in accounting principle					—	—			(23,271)		—				696				(22,575)
Premiums paid for capped call confirmations																	Premiums paid for capped call confirmations					—	—			(29,291)		—				—				(29,291)
Common stock issuance ESPP Plan	Common stock issuance ESPP Plan		34,330	—			796		—				—		796		Common stock issuance ESPP Plan					23,917	—			1,024		—				—				1,024
Issuance of restricted stock, net of forfeitures																	Issuance of restricted stock, net of forfeitures					83,220	—			(614)		—				—				(614)
Issuance of common stock for stock options																	Issuance of common stock for stock options					260,167	—			2,239		—				—				2,239
Issuance of common stock - public offering, net of underwriting discounts																	Issuance of common stock - public offering, net of underwriting discounts					4,693,876	5			218,495		—				—				218,500
Stock issuance fees and expenses	Stock issuance fees and expenses		—	—			(15)		—				—		(15)		Stock issuance fees and expenses					—	—			(242)		—				—				(242)

Loss on effective cash flow hedge			—	—			—		(1,038)				—		(1,038)
Issuance of restricted stock, net of forfeitures			76,618	—			(212)		—				—		(212)

Issuance of common stock for stock options			503,873	—			2,897		—				—		2,897
ESPP expense	ESPP expense		—	—			194		—				—		194		ESPP expense					—	—			241		—				—				241
Stock-based compensation expense - options and restricted stock	Stock-based compensation expense - options and restricted stock		—	—			1,991		—				—		1,991		Stock-based compensation expense - options and restricted stock					—	—			2,412		—				—				2,412
Net unrealized loss on marketable securities, net of tax																	Net unrealized loss on marketable securities, net of tax					—	—			—		(160)				—				(160)
Net loss	Net loss		—	—			—		—				(6,978)		(6,978)		Net loss					—	—			—		—				(22,114)				(22,114)
Balance, March 31, 2020			105,396,057	$	105		$	525,929	$	(2,656)			$	(18,335)	$	505,043
Balance, March 31, 2021																	Balance, March 31, 2021					117,136,654	$	117		$	872,350	$	(150)			$	(28,603)			$	843,714
Common stock issuance ESPP Plan	Common stock issuance ESPP Plan		41,058	—			928		—				—		928		Common stock issuance ESPP Plan					31,839	—			1,245		—				—				1,245
Issuance of restricted stock, net of forfeitures																	Issuance of restricted stock, net of forfeitures					146,392	—			(163)		—				—				(163)
Issuance of common stock for stock options																	Issuance of common stock for stock options					354,310	1			4,429		—				—				4,430
Issuance of common stock - private placement, net of private placement fees																	Issuance of common stock - private placement, net of private placement fees					4,444,445	4			189,859		—				—				189,863
Issuance of common stock for acquisition																	Issuance of common stock for acquisition					597,712	1			29,174		—				—				29,175
Stock issuance fees and expenses	Stock issuance fees and expenses		—	—			(209)		—				—		(209)		Stock issuance fees and expenses					—	—			(102)		—				—				(102)

Gain on effective cash flow hedge			—	—			—		38				—		38
Cash flow hedge termination reclassified to earnings			—	—			—		2,661				—		2,661
Issuance of restricted stock, net of forfeitures			24,786	—			(824)		—				—		(824)

Issuance of common stock - public offering, net of underwriting discounts			4,751,500	5			127,288		—				—		127,293
Issuance of common stock for stock options			183,443	—			2,014		—				—		2,014
ESPP expense	ESPP expense		—	—			211		—				—		211		ESPP expense					—	—			298		—				—				298
Stock-based compensation expense - options and restricted stock	Stock-based compensation expense - options and restricted stock		—	—			2,424		—				—		2,424		Stock-based compensation expense - options and restricted stock					—	—			4,208		—				—				4,208
Equity component of convertible note issuance			—	—			30,912		—				—		30,912
Tax liability related to convertible note issuance			—	—			(9,330)		—				—		(9,330)
Convertible note debt issuance costs			—	—			(108)		—				—		(108)
Net loss			—	—			—		—				(6,824)		(6,824)
Balance, June 30, 2020			110,396,844	$	110		$	679,235	$	43			$	(25,159)	$	654,229
Common stock issuance ESPP Plan			29,853	—			808		—				—		808
Stock issuance fees and expenses			—	—			(29)		—				—		(29)

Unrealized loss on securities, net			—	—			—		(21)				—		(21)
Issuance of restricted stock, net of forfeitures			(1,124)	—			(237)		—				—		(237)
Issuance of common stock for stock options			584,845	1			4,845		—				—		4,846
ESPP expense			—	—			222		—				—		222
Stock-based compensation expense - options and restricted stock			—	—			2,494		—				—		2,494
Adjustment to tax liability related to convertible note issuance			—	—			1,524		—				—		1,524
Convertible note debt issuance costs			—	—			(30)		—				—		(30)
Net unrealized loss on marketable securities, net of tax																	Net unrealized loss on marketable securities, net of tax					—	—			—		(183)				—				(183)
Net income	Net income		—	—			—		—				2,557		2,557		Net income					—	—			—		—				75,873				75,873
Balance, September 30, 2020			111,010,418	$	111		$	688,832	$	22			$	(22,602)	$	666,363
Balance, June 30, 2021																	Balance, June 30, 2021					122,711,352	$	123		$	1,101,298	$	(333)			$	47,270			$	1,148,358

See the accompanying notes to the unaudited ~~consolidated financial statements.~~Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS'~~STOCKHOLDERS’ EQUITY

(unaudited, in thousands, except share ~~amounts)~~data)

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total
Shares Amount
Balance, December 31, 2018 94,465,440 $ 94 $ 340,291 $ (579) $ (19,363) $ 320,443
Common stock issuance ESPP Plan 36,032 — 419 — — 419
Stock issuance fees and expenses — — (66) — — (66)
Loss on effective cash flow hedge — — — (557) — (557)
Issuance of restricted stock, net of forfeitures 182,502 — — — — —
Issuance of common stock for stock options 619,536 1 3,893 — — 3,894
ESPP expense — — 119 — — 119
Stock based compensation expense - options and restricted stock — — 2,020 — — 2,020
Net loss — — — — (2,424) (2,424)
Balance, March 31, 2019 95,303,510 $ 95 $ 346,676 $ (1,136) $ (21,787) $ 323,848
Common stock issuance ESPP Plan 37,255 — 653 — — 653
Stock issuance fees and expenses — — (211) — — (211)
Loss on effective cash flow hedge — — — (1,027) — (1,027)
Issuance of restricted stock, net of forfeitures (633) — — — — —
Working capital adjustment related to acquisition (99,524) — (1,977) — — (1,977)
Issuance of common stock - public offering 8,050,000 8 160,766 — — 160,774
Issuance of common stock for stock options 543,604 1 3,369 — — 3,370
ESPP expense — — 162 — — 162
Stock based compensation expense - options and restricted stock — — 2,151 — — 2,151
Net income — — — — 1,991 1,991
Balance, June 30, 2019 103,834,212 $ 104 $ 511,589 $ (2,163) $ (19,796) $ 489,734
Common stock issuance ESPP Plan 28,672 — 564 — — 564
Stock issuance fees and expenses — — 23 — — 23
Loss on effective cash flow hedge — — — (217) — (217)
Issuance of restricted stock, net of forfeitures (6,070) — (688) — — (688)
Issuance of common stock for stock options 289,081 — 2,173 — — 2,173
ESPP expense — — 144 — — 144
Stock based compensation expense - options and restricted stock — — 3,131 — — 3,131
Net income — — — — 2,143 2,143
Balance, September 30, 2019 104,145,895 $ 104 $ 516,936 $ (2,380) $ (17,653) $ 497,007


	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total
		Shares			Amount
Balance, December 31, 2019		104,781,236	$	105		$	520,278	$	(1,618)	$	(11,357)	$	507,408
Common stock issuance ESPP Plan		34,330	—			796		—		—		796
Issuance of restricted stock, net of forfeitures		76,618	—			(212)		—		—		(212)
Issuance of common stock for stock options		503,873	—			2,897		—		—		2,897
Stock issuance fees and expenses		—	—			(15)		—		—		(15)
ESPP expense		—	—			194		—		—		194
Stock based compensation expense - options and restricted stock		—	—			1,991		—		—		1,991
Loss on effective cash flow hedge		—	—			—		(1,038)		—		(1,038)
Net loss		—	—			—		—		(6,978)		(6,978)
Balance, March 31, 2020		105,396,057	$	105		$	525,929	$	(2,656)	$	(18,335)	$	505,043
Common stock issuance ESPP Plan		41,058	—			928		—		—		928
Issuance of restricted stock, net of forfeitures		24,786	—			(824)		—		—		(824)
Issuance of common stock for stock options		183,443	—			2,014		—		—		2,014
Issuance of common stock - public offering, net of underwriting discounts		4,751,500	5			127,288		—		—		127,293
Stock issuance fees and expenses		—	—			(317)		—		—		(317)
ESPP expense		—	—			211		—		—		211
Stock based compensation expense - options and restricted stock		—	—			2,424		—		—		2,424
Equity component of convertible note issuance		—	—			30,912		—		—		30,912
Tax liability related to convertible note issuance		—	—			(9,330)		—		—		(9,330)
Gain on effective cash flow hedge		—	—			—		38		—		38
Cash flow hedge termination reclassified to earnings		—	—			—		2,661		—		2,661
Net loss		—	—			—		—		(6,824)		(6,824)
Balance, June 30, 2020		110,396,844	$	110		$	679,235	$	43	$	(25,159)	$	654,229

See the accompanying notes to the unaudited ~~consolidated financial statements.~~Consolidated Financial Statements.

NEOGENOMICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	53,759	$	(13,802)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	13,629		12,177
Amortization of intangibles	6,209		4,919
Non-cash stock-based compensation	7,159		4,821
Non-cash operating lease expense	3,750		4,113
Amortization of convertible debt discount	1,247		864
Amortization of debt issue costs	88		112
Loss on debt extinguishment	0		1,400
Loss on termination of cash flow hedge	0		3,506

Gain on investment in and loan receivable from non-consolidated affiliate, net	(91,510)		0
Interest receivable on loan receivable from non-consolidated affiliate	(391)		0

Write-off of COVID-19 PCR testing inventory and equipment	6,061		0
Other non-cash items	790		263
Changes in assets and liabilities, net
Accounts receivable, net	1,155		6,498
Inventories	3,645		(6,688)
Prepaid lease asset	(4,730)		(6,084)
Prepaid and other assets	(4,681)		(5,975)

Accounts payable, accrued and other liabilities	4,640		(11,175)
Net cash provided by (used in) operating activities	820		(5,051)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities	(162,769)		0
Proceeds from sales and maturities of marketable securities	26,253		0
Purchases of property and equipment	(37,178)		(9,734)
Business acquisitions, net of cash acquired	(419,404)		(37,000)
Loan receivable from non-consolidated affiliate	(15,000)		0
Investment in non-consolidated affiliate	0		(13,137)

Net cash used in investing activities	(608,098)		(59,871)
CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of equipment financing obligations	(1,892)		(3,059)

Repayment of term loan	0		(97,540)
Cash flow hedge termination	0		(3,317)

Issuance of common stock, net	8,045		5,469

Proceeds from issuance of convertible debt, net of issuance costs	334,410		194,376

Premiums paid for capped call confirmations	(29,291)		0
Proceeds from equity offerings, net of issuance costs	418,273		127,288
Net cash provided by financing activities	729,545		223,217

Net change in cash, cash equivalents and restricted cash	122,267		158,295
Cash, cash equivalents and restricted cash, beginning of period	250,632		173,016
Cash, cash equivalents and restricted cash, end of period	$	372,899	$	331,311

Nine Months Ended September 30,
2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (11,245) $ 1,710
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 18,705 15,200
Loss on disposal of assets 371 451
Loss on debt extinguishment 1,400 1,018
Loss on termination of cash flow hedge 3,506 0
Amortization of intangibles 7,387 7,482
Amortization of debt issue costs 138 323
Amortization of convertible debt discount 2,705 0
Non-cash stock-based compensation 7,536 7,727
Non-cash operating lease expense 6,365 3,224
Changes in assets and liabilities, net
Accounts receivable, net (9,455) (14,219)
Inventories (5,704) (3,982)
Prepaid and other assets (4,189) (1,013)
Prepaid lease asset (10,142) 0
Other current assets (2,568) (381)
Accounts payable, accrued and other liabilities (9,335) 2,470
Net cash (used in) provided by operating activities (4,525) 20,010
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities (53,396) 0
Proceeds from sale of marketable securities 3,000 0
Purchases of property and equipment (17,591) (13,953)
Business acquisition (37,000) 0
Investment in non-consolidated affiliate (25,600) 0
Acquisition working capital adjustment 0 399
Net cash used in investing activities (130,587) (13,554)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of revolving credit facility 0 (5,000)
Repayment of equipment financing obligations (4,331) (5,481)
Proceeds from term loan 0 100,000
Repayment of term loan (97,540) (96,750)
Cash flow hedge termination (3,317) 0
Payments of debt issuance costs 0 (1,051)
Issuance of common stock, net 10,761 10,132
Proceeds from issuance of convertible debt, net of issuance costs 194,466 0
Proceeds from equity offering, net of issuance costs 127,293 160,774
Net cash provided by financing activities 227,332 162,624
Net change in cash, cash equivalents and restricted cash 92,220 169,080
Cash, cash equivalents and restricted cash, beginning of period 173,016 9,811
Cash, cash equivalents and restricted cash, end of period $ 265,236 $ 178,891


	Six Months Ended June 30,
	2021		2020
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents	$	368,796	$	295,281

Restricted cash, non-current	4,103		36,030
Total cash, cash equivalents and restricted cash	$	372,899	$	331,311

Supplemental disclosure of cash flow information:
Interest paid	$	1,329	$	1,562
Income taxes paid, net	$	114	$	89
Supplemental disclosure of non-cash investing and financing information:
Fair value of common stock issued to fund business acquisition	$	29,174	$	0

Equity offering issuance costs included in accrued expenses	$	10,137	$	0
Equipment acquired under financing obligations	$	0	$	428
Property and equipment included in accounts payable	$	3,822	$	2,487

See the accompanying notes to the unaudited ~~consolidated financial statements.~~

Nine Months Ended September 30,
2020 2019
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents $ 233,233 $ 178,891
Restricted cash, non-current 32,003 0
Total cash, cash equivalents and restricted cash $ 265,236 $ 178,891
Supplemental disclosure of cash flow information:
Interest paid $ 1,638 $ 4,295
Income taxes paid, net $ 209 $ 316
Supplemental disclosure of non-cash investing and financing information:
Working capital adjustment related to acquisition $ 0 $ 1,977
Equipment acquired under financing obligations $ 428 $ 3,665
Property and equipment included in accounts payable $ 3,521 $ 810

~~See the accompanying notes to the unaudited consolidated financial statements.~~Consolidated Financial Statements.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Nature of the Business ~~Basis of Presentation and Significant Accounting Policies~~

Nature of the Business

NeoGenomics, Inc., a Nevada corporation, and its subsidiaries (the “Parent”, “Company”, or “NeoGenomics”), operates as a certified, high complexity clinical laboratory in accordance with the federal government’s ~~Clinical Laboratory Improvement Act, as amended (“CLIA”),~~CLIA, and is dedicated to the delivery of clinical diagnostic services to pathologists, oncologists, urologists, hospitals, and other laboratories as well as providing clinical trial services to pharmaceutical firms.

~~Basis of Presentation~~

The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. All intercompany transactions and balances have been eliminated in the accompanying consolidated financial statements.

~~Unaudited Interim Financial Information~~

Certain information and footnote disclosures normally included in the Company’s annual audited consolidated financial statements and accompanying notes have been condensed or omitted in these accompanying interim consolidated financial statements and footnotes. Accordingly, the accompanying interim consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2019.

The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited consolidated financial statements include all adjustments and accruals, consisting only of normal, recurring adjustments that are necessary for a fair statement of the results of all interim periods reported herein.

~~Principles of Consolidation~~

The Company reports its activities in 2 operating segments; the Clinical Services Segment and the Pharma Services Segment. These reportable segments deliver testing services to hospitals, pathologists, oncologists, clinicians, pharmaceutical firms and researchers and represents 100% of the Company’s consolidated assets, net revenues and net income for each period presented. For further financial information about these segments see Note 15. Segment Information, in the accompanying notes to the consolidated financial statements.

The Company determines whether investments in affiliates are a Variable Interest Entity (“VIE”) at the start of each new venture and when a reconsideration event has occurred. A reporting entity must consolidate a VIE if that reporting entity has a variable interest (or combination of variable interests) and is determined to be the primary beneficiary. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company accounts for its equity investments that are under 20% of the total equity outstanding and for which the Company does not have significant influence by applying the cost method. Investments that are under 20% of the total equity outstanding and for which the entity does have significant influence are accounted for using the equity method unless a scope exception is applicable. Investments in which the Company holds a non-controlling interest and are between 20-50% equity are accounted for using the equity method. For any equity investments in which the Company holds over 50% of the outstanding stock, or for investments in which the Company controls the investee, the Company consolidates those entities into their consolidated financial statements.

~~Marketable Securities~~

The Company classifies all securities as available-for-sale, including those with maturity dates beyond 12 months, and therefore these securities are classified within current assets on the consolidated balance sheets as they are available to support current operational liquidity needs

Marketable securities are carried at fair value, with the unrealized holding gains and losses, net of income taxes, reflected in accumulated other comprehensive income until realized. We evaluate our marketable securities for other-than-temporary impairment on a quarterly basis. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other-than-temporary. We review several factors to determine whether a loss is other-than-temporary, such as the length and extent of the fair value decline, the financial condition and near-term prospects of the issuer and whether we have the intent to sell or will more likely than not be required to sell before the securities' anticipated recovery. Regardless of our intent to sell a security, we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~creditworthiness of the security. Credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security.~~

~~For the purposes of computing realized and unrealized gains and losses, cost and fair value are determined on a specific identification basis.~~

~~Income Taxes~~

We compute income taxes in accordance with FASB ASC Topic 740, Income Taxes, under which deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. During the quarter the Company performed an analysis of its historical research and development expenses and determined that federal and state research and development tax credits for the tax years 2016 – 2019 are available. The Company recorded a tax benefit of $1.9 million as a tax benefit in the reporting period for the expected realizable amount of such credits.

COVID-19 Pandemic Update

In December 2019, a novel strain of coronavirus (“COVID-19”) was identified and the disease has since spread across the world, including the United ~~States.~~States (“U.S.”). In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The outbreak of the pandemic is materially adversely affecting the Company’s employees, patients, communities and business operations, as well as the ~~United States (“~~U.S.”) economy and financial markets. The full extent to which the COVID-19 outbreak will impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets. As the COVID-19 pandemic continues, the Company’s results of operations, financial condition and cash flows ~~are likely to~~may continue to be materially adversely affected, particularly if the pandemic ~~persists~~continues to persist for a significant amount of time.

The Company anticipates that the cash on hand, marketable securities and cash collections are sufficient to fund near-term capital and operating needs for at least the next 12 months.

At the end of the first quarter 2021, due to the broad roll-out of the COVID-19 vaccine and a sharp decline in COVID-19 polymerase chain reaction (“PCR”) testing demand, the Company made the decision to exit COVID-19 PCR testing and the Company recorded a $6.1 million expense related to the exit from COVID-19 PCR testing. This amount consisted of write-offs of $5.3 million for all remaining COVID-19 PCR testing inventory recorded to cost of revenue and $0.8 million for all remaining COVID-19 PCR testing laboratory equipment recorded to general and administrative expenses on the Consolidated Statements of Operations for the six months ended June 30, 2021. There were 0 such amounts for the three months ended June 30, 2021.

Coronavirus Aid, Relief and Economic Security Act

The Federal government passed legislation and the President of the United States signed into law on March 27, 2020, known as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On April 10, 2020, the ~~U.S~~U.S. Department of Health & Human Services ~~(“HHS”)~~ announced that Medicare-enrolled providers would receive a portion of a direct deposit disbursement totaling $50 billion. The $50 billion is part of a $100 billion Public Health and Social Service Emergency Fund created by the CARES Act. Payments made under the CARES Act are intended to reimburse healthcare providers for health care related expenses or lost revenues attributable to COVID-19 and are not required to be repaid provided that recipients attest to and comply with certain terms and conditions, including limitations on balance billing for COVID-19 patients. In the absence of specific guidance to account for government grants ~~under GAAP,~~in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company accounts for such grants in accordance with international accounting standards for government grants. Such amounts are recognized when there is reasonable assurance that the Company will (1) comply with the conditions associated with the grant and (2) receive the grant.

~~During~~ There was no grant income recognized for the ~~nine~~three and six months ended ~~September~~June 30, 2021. For the three and six months ended June 30, 2020, the Company recognized $7.9 million in grant income related to the CARES Act. ~~This amount was recorded during the second quarter of 2020. NaN such amounts were recorded in the third quarter of 2020.~~ CARES Act grant income is classified in ~~“Other~~other (income) expense, ~~net”,~~net, on the Consolidated Statements of Operations. ~~There was 0 grant income recognized for the three and nine month periods ended September 30, 2019.~~

The CARES Act ~~also~~ permits the deferral of payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due on December 31, 2021 and the remaining 50% due on December 31, 2022. As of ~~September~~June 30, 2021 and December 31, 2020 the total accrued deferred social security taxes, related to the CARES Act ~~were $2.9~~was $5.9 million. ~~This~~At both June 30, 2021 and December 31, 2020 this amount was recorded ~~in “Other~~evenly between accrued expenses and other liabilities and other long-term ~~liabilities”~~liabilities on the Consolidated Balance Sheets. ~~There were 0 such amounts recorded on the Consolidated Balance Sheets as of December 31, 2019.~~

Additionally, the CARES Act included an Employee Retention Tax Credit (“ERTC”) provision designed to encourage employers to keep employees on their payroll. The ERTC is a refundable tax credit against certain payroll taxes paid by employers for eligible wages paid between March 13, 2020 and December 31, 2020 that meet the requirements of the ERTC provision. ~~During~~On March 11, 2021, the ~~nine~~American Rescue Plan Act was enacted extending the deadline of the ERTC to December 31, 2021 and expanded who is eligible to claim the credit. For the three and six months ended ~~September~~June 30, ~~2020,~~2021, the Company

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

recognized ~~$1.1~~$0.3 million and $0.7 million, respectively, under the ~~ERTC. This amount~~ERTC which was included in loss from operations on the Consolidated Statements of Operations. There were no such amounts recorded ~~during~~for the ~~third quarter of~~six months ended June 30, 2020.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim Consolidated Financial Statements are unaudited and have been prepared in accordance with GAAP for interim financial information. All intercompany transactions and balances have been eliminated in the accompanying Consolidated Financial Statements.

The accounting policies of the Company are the same as those set forth in Note 2. Summary of Significant Accounting Policies, to the audited Consolidated Financial Statements contained in the Company’s annual report on Form 10-K for the year ended December 31, 2020, except for Business Combinations, Stock-Based Compensation, Income Taxes and the impact of the adoption of new accounting standards discussed under Recently Adopted Accounting Guidance.

Unaudited Interim Financial Information

Certain information and ~~Issued~~footnote disclosures normally included in the Company’s annual audited Consolidated Financial Statements and accompanying notes have been condensed or omitted in these accompanying interim consolidated financial statements and footnotes. Accordingly, the accompanying interim unaudited Consolidated Financial Statements included herein should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2020.

The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited Consolidated Financial Statements include all adjustments and accruals, consisting only of normal, recurring adjustments that are necessary for a fair statement of the results of all interim periods reported herein.

Use of Estimates

The Company prepares its Consolidated Financial Statements in conformity with GAAP. These principles require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the Consolidated Financial Statements. Actual results and outcomes may differ from management’s estimates, judgments and assumptions. Significant estimates, judgments and assumptions used in these Consolidated Financial Statements include, but are not limited to those related to revenues, accounts receivable and related allowances, contingencies, useful lives and recovery of long-term assets and intangible assets, income taxes and valuation allowances, stock-based compensation, business combinations, and impairment analysis of goodwill. These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected on the Consolidated Financial Statements prospectively from the date of the change in estimate.

Business Combinations

The Company accounts for acquisitions of entities that include inputs and processes and have the ability to create outputs as business combinations. The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. The Company bases the estimated fair value of identifiable intangible assets acquired in a business combination on independent third-party valuations that use information and assumptions provided by its management, which consider estimates of inputs and assumptions that a market participant would use. Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, estimated cost savings, cash flows, discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with acquisitions are expensed as incurred in general and administrative expenses. Results of operations and cash flows of acquired companies are included in the Company’s operating results from the date of acquisition.

Stock-Based Compensation

The Company measures compensation expense for stock-based awards to employees, non-employee contracted physicians, and directors based upon the awards’ initial grant-date fair value. The estimated grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method.

Prior to 2021, the Company estimated the fair value of stock options using a trinomial lattice model. On January 1, 2021, the Company began applying the Black-Scholes option valuation model (“Black-Scholes”) on a prospective basis to new awards. The Company expects the use of Black-Scholes to provide a more ubiquitous estimate of fair value. Like the prior trinomial lattice model, Black-Scholes is affected by the stock price on the date of the grant as well as assumptions regarding a number of

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

highly complex and subjective variables. These variables include the expected term of the option, expected risk-free interest rate, the expected volatility of common stock, and expected dividend yield, each of which is more fully described below. The assumptions for expected term and expected volatility are the two assumptions that significantly affect the grant date fair value.

Expected Term: The expected term of an option is the period of time that the option is expected to be outstanding. The average expected term is determined using the Black-Scholes model.

Risk-free Interest Rate: The risk-free interest rate used in the Black-Scholes model is based on the implied yield at the grant date of the U.S. Treasury zero-coupon issue with an equivalent term to the stock-based award being valued. Where the expected term of a stock-based award does not correspond with the term for which a zero coupon interest rate is quoted, the Company uses the nearest interest rate from the available maturities.

Expected Stock Price Volatility: The Company uses its own historical weekly volatility because that is more reflective of market conditions.

Dividend Yield: Because the Company has never paid a dividend and does not expect to begin doing so in the foreseeable future, the Company assumed no dividend yield in valuing the stock-based awards.

Income Taxes

Deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Also, the effect on deferred taxes of a change in tax rates is recognized in income in the period that included the enactment date. Temporary differences between financial and tax reporting arise primarily from the use of different depreciation and amortization methods and lives for property and equipment and recently acquired intangible assets, recognition of accounts receivable, compensation related expenses, and various other expenses that have been allowed for or accrued for financial statement purposes but are not currently deductible for income tax purposes.

The provision for income taxes, including the effective tax rate and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and any estimated valuation allowances deemed necessary to recognize deferred tax assets at an amount that is more likely than not to be realized.

Management assesses the recoverability of its deferred tax assets as of the end of each quarter, weighing available positive and negative evidence, and is required to establish and maintain a valuation allowance for these assets if it is more likely than not that some or all of the deferred income tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed.

As of December 31, 2020, expected future reversals of the Company’s deferred income tax liabilities provided objectively verifiable positive evidence to support the recoverability of its deferred tax assets. However, on January 1, 2021, the Company adopted ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting ~~Guidance~~For Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) using the modified retrospective approach, which resulted in a decrease of approximately $6.6 million in the Company’s deferred income tax liabilities. In addition, approximately $2 million of valuation allowance against the Company’s deferred income tax assets was established upon adoption of ASU 2020-06, resulting from the decrease in deferred income tax liabilities available to support the recoverability of deferred tax assets. The valuation allowance represents the portion of the Company’s U.S. deferred income tax assets that are not more likely than not to be realized in future periods, primarily related to Federal and California research and development tax credit carryforwards.

A cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome. Cumulative loss in recent years is commonly defined as a three-year cumulative loss position. As of June 30, 2021, the Company’s U.S. ongoing operations were in a three-year cumulative loss position. Management determined that sufficient objectively verifiable positive evidence did not exist to overcome the negative evidence of the Company’s U.S. cumulative loss position. Accordingly, the Company’s estimated annual effective tax rate applied to the Company’s pre-tax loss for the three and six months ended June 30, 2021 included the unfavorable impact of valuation allowance expected to be established against the Company’s deferred income tax assets expected to be created in 2021 for additional U.S. net operating loss and tax credit carryforwards.

As of June 30, 2021, the Company’s total valuation allowance against U.S. deferred income tax assets is forecasted to be approximately $15.5 million including deferred income tax assets from the acquisitions of Intervention Insights, Inc., d/b/a Trapelo Health, and the U.S. subsidiary of Inivata Limited, a private limited company incorporated in England and Wales. For further details regarding the acquisitions of Trapelo Health and Inivata Limited, please refer to Note 3. Acquisitions. The Company also continued to maintain a full valuation allowance against deferred tax assets in Switzerland, Singapore and China,

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

which increased from $2.6 million as of December 31, 2020 to $3.4 million as of June 30, 2021. No valuation allowance was determined to be required for deferred income tax assets from the acquisition of Inivata Limited, the British entity.

The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records a liability for uncertain tax positions, if deemed necessary. The Company follows a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying Consolidated Balance Sheets. At June 30, 2021 and December 31, 2020 the Company had an uncertain tax position related to Federal and State R&D tax credit carryforwards. No interest and penalties have been accrued, as the income tax credits are carried forward to offset income tax liabilities in future years.

Recently Adopted Accounting Guidance

In ~~August 2018,~~October 2020, the FASB issued ASU No. ~~2018-15,~~2020-10, ~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~Codification Improvements, which ~~changes the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The update aligns the~~updates various codification topics by clarifying disclosure requirements ~~for capitalizing implementation costs incurred in a hosting arrangement~~to align with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The implementation costs should be presented accordingly as other assets, current and non-current on the balance sheet and expensed over the term of the hosting arrangement.SEC’s regulations. The Company adopted this pronouncement on January 1, ~~2020~~2021 and the impact ~~was not material to~~of the ~~Company's~~provisions of this standard on its Consolidated Financial ~~Statements.~~

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement~~, which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies are required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. The Company adopted this pronouncement on January 1, 2020 and the impactStatements was ~~not material to the Company's Consolidated Financial Statements.~~immaterial.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (~~“~~Topic 230~~”~~): Restricted Cash~~. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statement of cash flows include cash, cash equivalents and restricted cash. ASU 2016-08 was effective for fiscal years beginning after December 15, 2017, including interim periods within those periods, using a retrospective transition method to each period presented. As a result, restricted cash of approximately $32 million as of September 30, 2020 is included in cash and cash equivalents when reconciling the beginning and ending balances in the Consolidated Statements of Cash Flows. Please refer to Note 4. Leases, for additional information regarding the use of restricted cash. There were no restricted cash balances in any reportable period prior to January 2020.

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments – Credit Losses (“Topic 326”)~~: ~~Measurement of Credit Losses on Financial Instruments,~~ as modified by subsequently issued ASUs 2018-19 (issued November 2018), 2019-04 (issued April 2019), 2019-05 (issued May 2019), 2019-11 (issued November 2019), 2020-02 (issued February 2020) and 2020-03 (issued March 2020). Topic 326 modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The standard was effective January 1, 2020 and requires the use of forward-looking expected credit loss models based on historical experience, current economic conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new standard. It also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The standard required a modified retrospective approach with a cumulative effect adjustment to retained earnings. The Company adopted and applied the standard as of January 1, 2020. Based on management’s analysis, Topic 326 is applicable to the Company’s trade receivables as well as contract assets recognized within the Pharma Services segment. An assessment was performed on historical trends, current economic conditions, supportable forecasts, and customer and credit risks. The adoption of Topic 326 did not result in a material impact on the Company's Consolidated Financial Statements.

~~Accounting Pronouncements Pending Adoption~~

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity. (“ASU 2020-06”) which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 simplifies the accounting for convertible instruments by removing the liability and equity separation ~~models~~model for ~~(1)~~ convertible ~~debt~~instruments with a cash conversion feature, and ~~(2)~~as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such convertible ~~instruments with a beneficial~~debt instruments. Similarly, the debt discount, that is equal to the carrying value of the embedded conversion ~~feature. As a result,~~feature upon issuance, will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument ~~will be accounted for~~wholly as ~~a single liability measured at its amortized cost. These changes will reduce reported interest expense and increase reported net income for entities that have issued~~debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible instrument was ~~bifurcated according to previously existing rules.~~ issued at a substantial premium. In addition, ASU 2020-06 requires the application of the if-converted method for calculating the impact of convertible instruments on diluted earnings per ~~share and the treasury stock method will be no longer available. The new guidance~~share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. ASU 2020-06 can be adopted on either a fully retrospective or modified retrospective basis.

The Company ~~is currently evaluating when it will adopt this pronouncement~~adopted ASU 2020-06 on January 1, 2021 using the modified retrospective approach, and accordingly the Company recorded an adjustment that reflects the 1.25% Convertible Senior Notes due 2025 as if the embedded conversion feature had not been separated. The impact ~~that this new guidance will have~~upon adoption on ~~its~~the Consolidated ~~Financial Statements.~~Balance Sheets included an increase of approximately $27.2 million in convertible senior notes, net, a write-off of approximately $6.6 million in deferred income tax liabilities, establishment of approximately $2 million of valuation allowance against deferred income tax assets, and a decrease of approximately $23.3 million in additional paid-in capital. In addition, upon adoption, there was an adjustment to increase the beginning balance of retained earnings on the Consolidated Balance Sheets for previously recognized interest expense, net of tax effects, of approximately $2.7 million for amortization of debt discount related to the carrying value of the embedded conversion feature upon issuance, as well as a decrease to the beginning balance of retained earnings of approximately $2 million for the establishment of valuation allowance against the Company’s deferred income tax assets. There was no impact to the Company’s earnings per share calculation. For further information regarding the 1.25% Convertible Senior Notes due 2025, please refer to Note 8. Debt.

Accounting Pronouncements Pending Adoption

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (“~~Topic 848~~”)(Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ~~Reporting.~~ Reporting (“ASU 2020-04”) which provides for temporary optional expedients and exceptions to the current guidance on certain contract modifications and hedging relationships to ease the burdens related to the expected market

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

transition from the London Inter-bank Offered Rate (“LIBOR”) or other reference rates to alternative reference rates. ~~The guidance is effective upon issuance and can be applied through December 31, 2022.~~ ~~The Company does not expect the adoption of this standard to have a material impact on its Consolidated Financial Statements.~~

In January ~~2020,~~2021, the FASB issued ASU No. ~~2020-01,~~ 2021-01~~Investments-Equity Securities (“Topic 321”)~~, ~~Investments-Equity Method~~Reference Rate Reform (Topic 848) (“ASU 2021-01”) to clarify that certain optional expedients and ~~Joint Ventures (“Topic 323”) and Derivatives and Hedging (“Topic 815”)~~ ~~(ASU 2020-01). ASU 2020-01 clarifies the interaction~~exceptions apply to modifications of ~~the accounting for equity securities under Topic 321, the accounting for the equity method investments in Topic 323 and the accounting for certain forward~~derivative contracts and ~~purchased options~~certain hedging relationships affected by changes in ~~Topic 815.~~the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU ~~2020-01~~2020-04 is effective ~~for fiscal years~~ beginning ~~after~~on March 12, 2020 and may be applied prospectively to such transactions through December ~~15, 2020 on a prospective basis~~31, 2022 and ~~early adoption is permitted. The Company is currently evaluating the impact of the provisions of this standard on its Consolidated Financial Statements.~~

~~In December 2019, the FASB issued~~ ASU ~~No. 2019-12,~~ ~~Income Taxes: Simplifying the Accounting for Income Taxes (“Topic 740”)~~, which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740 and clarifies certain other aspects of the current guidance to promote consistency among reporting entities. The new standard2021-01 is effective ~~for fiscal years~~ beginning ~~after~~on January 7, 2021 and may be applied retrospectively or prospectively to such transactions through December ~~15, 2020 on a prospective basis and early adoption is permitted.~~31, 2022. The Company will ~~adopt this pronouncement~~evaluate

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on ~~January 1,~~an ongoing basis. As of June 30, 2021, ~~and is currently evaluating~~there was no impact to the ~~impact of the provisions of this standard on its~~Company’s Consolidated Financial ~~Statements.~~Statements related to ASU 2020-04 or ASU 2021-01.

1517

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3. Acquisitions

Trapelo Health

On April 7, 2021 (the “Trapelo Acquisition Date”), the Company completed the acquisition of a 100% ownership interest in Intervention Insights, Inc. d/b/a Trapelo Health (“Trapelo”), an information technology company focused on precision oncology. The purchase price consisted of (i) cash consideration of $35.6 million, which included a net adjustment of $0.6 million for estimated cash on hand of Trapelo and estimated working capital adjustments on the Trapelo Acquisition Date, and (ii) equity consideration of $29.2 million, consisting of 597,712 shares of the Company’s common stock, par value $0.001 per share, valued at $48.81 per share. The Company acquired control of Trapelo on the Trapelo Acquisition Date; therefore, the fair value of the common stock issued as part of consideration was determined on the basis of the closing market price of the Company’s common stock immediately prior to the Trapelo Acquisition Date. The Trapelo acquisition enhances the Company’s ability to provide customers clinical decision support to help answer complex questions related to precision oncology biomarker testing and treatment options as part of the Company’s comprehensive oncology offerings.

The acquisition of Trapelo was determined to be a business combination and has been accounted for using the acquisition method. The purchase price and purchase price allocation are preliminary, are based upon management’s best estimates and assumptions, and are subject to future revision. The following table summarizes the estimated purchase consideration recorded for the acquisition of Trapelo, the estimated fair value of the net assets acquired and liabilities assumed, and the preliminary calculation of goodwill based on the excess of the estimated consideration transferred over the estimated fair value of the net assets acquired and liabilities assumed at the Trapelo Acquisition Date (in thousands, except per share data):


	Amount
Purchase consideration:
Shares of common stock issued as consideration	597,712
Per share value of common stock issued as consideration	$	48.81
Fair value of common stock at Trapelo Acquisition Date	$	29,174
Plus: Cash paid at closing	35,591
Total purchase consideration	$	64,765

Allocation of the purchase consideration:
Cash	$	713
Other current assets	282
Identifiable intangible asset - marketing assets	549
Identifiable intangible asset - developed technology	19,040
Other long-term assets	268
Total identifiable assets acquired	20,852
Current liabilities	(751)
Net identifiable assets acquired	20,101
Goodwill	44,664
Total purchase consideration	$	64,765

Due to the timing of the acquisition, the following are considered preliminary and are subject to change:

•amounts for intangible assets, other long-term assets, other current assets, current liabilities and other working capital adjustments pending finalization of the valuation;

•amounts for income tax assets and liabilities, pending finalization of estimates and assumptions in respect of certain tax aspects of the transaction; and

•amount of goodwill pending the completion of the valuation of the assets acquired and liabilities assumed.

The Company will finalize these amounts no later than one year from the acquisition date once it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in adjustments to the preliminary amounts disclosed above which may impact the reported results in the period those adjustments are identified.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The identified developed technology and marketing intangible assets are being amortized over ten years and four years, respectively, based on their estimated useful lives. The weighted-average amortization period in total for all classes of intangible assets from the Trapelo acquisition is 9.8 years. The developed technology was valued using the income approach, specifically, the multi-period excess earnings method, which measures the after-tax cash flows attributable to the developed technology. The marketing intangible assets were valued using the income approach, specifically, the relief from royalty method, which measures the cash flow streams attributable to the marketing intangible assets in the form of the avoided royalty payment that would be paid to the owner in return for the rights to use the marketing intangible assets had the intangible assets not been acquired. The values of the identifiable intangible assets represent Level 3 measurements as they were based on unobservable inputs reflecting the Company’s assumptions used in pricing the assets at fair value. These inputs required significant judgments and estimates at the time of the valuation.

The goodwill recognized, all of which is assigned to the Clinical Services segment, was primarily attributable to expected synergies of the combined businesses and the acquisition of an assembled workforce knowledgeable of the healthcare and information technology industries. NaNne of the goodwill resulting from the acquisition of Trapelo is expected to be deductible for income tax purposes.

Acquisition and integration costs related to Trapelo were approximately $1.3 million and $1.5 million for the three and six months ended June 30, 2021, respectively, and are reported as general and administrative expenses in the Company’s Consolidated Statements of Operations. There were no such amounts for the three and six months ended June 30, 2020.

The results of operations of Trapelo are included in the Company’s unaudited Consolidated Financial Statements beginning on the Trapelo Acquisition Date. Revenue and net income (loss) of Trapelo included in the Consolidated Statements of Operations was not material for the three and six months ended June 30, 2021. No pro forma information has been included relating to the Trapelo acquisition, as this acquisition was not deemed to be material to the Company’s revenue or net income (loss) on a pro forma basis for the three and six months ended June 30, 2021 and 2020.

Inivata Limited

On June 18, 2021 (the “Inivata Acquisition Date”), the Company completed the acquisition of the remaining equity interests in Inivata Limited, a private limited company incorporated in England and Wales (“Inivata”). Inivata is a global, commercial stage, liquid biopsy platform company. The acquisition follows a $25 million minority equity investment by the Company in Series C1 Preference Shares (the “Preference Shares” or “previously-held equity interest”) in Inivata in May 2020, at which time the Company also acquired a fixed price option to purchase the remainder of equity interests in Inivata for $390 million (the “Purchase Option”). The Company and Inivata also entered into a line of credit agreement in the amount of $15 million (the “Line of Credit”). For further details regarding the previously-held equity investment in Inivata, the Purchase Option and the Line of Credit, please refer to Note 7. Investment in Non-Consolidated Affiliate. The Inivata acquisition adds liquid biopsy platform technology, including minimal residual disease testing capabilities, to the Company’s comprehensive portfolio of oncology testing solutions.

The purchase price consisted of cash consideration of $398.6 million, which included a net adjustment of $8.6 million for estimated cash on hand of Inivata and other adjustments on the Inivata Acquisition Date, and was funded through cash on hand and a private placement of equity. For further information regarding the private placement of equity, please refer to Note 9. Equity Transactions.

Prior to the acquisition of the remaining equity interests in Inivata, the Company accounted for its previously-held equity interest and the Purchase Option in Inivata as equity securities without a readily determinable fair value. The equity interests were recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Therefore, the Company’s acquisition of control of Inivata on the Inivata Acquisition Date was accounted for as a business combination achieved in stages under the acquisition method. Accordingly, the Company used a discounted cash flow to derive a business enterprise value of Inivata in order to determine the acquisition-date fair value of the Company’s previously-held equity interest and Purchase Option in Inivata. To determine the fair value of the previously-held equity interest, the fair value of Inivata’s total equity was allocated to its various classes of equity based on the respective rights and privileges of each class of stock in liquidation. The business enterprise value and a Black-Scholes model was then used to determine the fair value of the remaining equity acquired through the exercise of the Purchase Option. The Purchase Option was recorded at the fair value at the Inivata Acquisition Date based on its settlement value. This resulted in fair values of $62.9 million in Preference Shares and a $58.5 million Purchase Option, immediately prior to the acquisition. On the Inivata Acquisition date, the $10.3 million outstanding under the Line of Credit extended by the Company to Inivata was effectively settled as part of the acquisition of Inivata at the $15 million principal amount and was recorded as part of the consideration transferred in the acquisition. The Company recorded a gain on investment in and loan receivable from non-consolidated affiliate, net, within the Company’s Consolidated Statements of Operations of $96.5 million and $91.5 million in the three and six months ended June 30, 2021, respectively, for the excess of the acquisition-date fair value of the Company’s previously-held equity interest, Purchase Option, and Line of Credit over their carrying values. For further

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

details regarding the previously-held equity investment and purchase option in Inivata, please refer to Note 7. Investment in Non-Consolidated Affiliate.

The fair value and allocation of the business combination are preliminary, are based upon management’s best estimates and assumptions, and are subject to future revision. The following table summarizes the preliminary calculation of goodwill based on the excess of the estimated fair value of the consideration transferred including the fair value of the Line of Credit, and the estimated fair value of the previously-held equity interest and Purchase Option, over the estimated fair value of the net assets acquired and liabilities assumed at the Inivata Acquisition Date (in thousands):


	Amount
Fair value of business combination:
Cash paid at closing	$	398,594
Fair value of Line of Credit	15,000
Fair value of consideration transferred	$	413,594
Fair value of previously-held equity interest	62,919
Fair value of Purchase Option	58,537
Total fair value of business combination	$	535,050

Allocation of the fair value business combination:
Cash	$	14,068
Other current assets	5,366
Property and equipment	1,753
Identifiable intangible assets - developed technology	302,982
Identifiable intangible assets - trademarks	31,700
Identifiable intangible asset - trade name	2,322
Other long-term assets	6,240
Total identifiable assets acquired	364,431
Current liabilities	(4,241)
Deferred income tax liabilities	(64,680)
Other long-term liabilities	(4,690)
Net identifiable assets acquired	290,820
Goodwill	244,230
Total fair value of business combination	$	535,050

Due to the timing of the acquisition, the following are considered preliminary and are subject to change:

•amounts for intangible assets, property and equipment, other current assets, current liabilities, and other long-term liabilities pending finalization of the valuation;

•amounts for income tax liabilities, pending finalization of estimates and assumptions in respect of certain tax aspects of the transaction;

•amount of goodwill pending the completion of the valuation of the assets acquired and liabilities assumed and the reporting unit allocation of the goodwill; and

•the acquisition-date fair value of the Company’s previously-held equity interest, Purchase Option, and the Line of Credit, and the gain on investment in and loan receivable from non-consolidated affiliate.

The Company will finalize these amounts no later than one year from the acquisition date, once it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the acquisition date may result in adjustments to the preliminary amounts disclosed above which may impact the reported results in the period those adjustments are identified.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The identified developed technology intangible assets and the trademark intangible assets are both being amortized over 15 years, and the trade name intangible asset is being amortized over five years, based on their estimated useful lives. The weighted-average amortization period in total for all classes of intangible assets from the Inivata acquisition is 14.9 years. The developed technology was valued using the income approach, specifically, the multi-period excess earnings method, which measures the after-tax cash flows attributable to the developed technology. The trademarks and trade name assets were valued using the income approach, specifically, the relief from royalty method, which measures the cash flow streams attributable to the trademarks and trade name assets in the form of the avoided royalty payment that would be paid to the owner in return for the rights to use the trademarks and trade name assets had the assets not been acquired. The values of the identifiable intangible assets represent Level 3 measurements as they were based on unobservable inputs reflecting the Company’s assumptions used in pricing the assets at fair value. These inputs required significant judgments and estimates at the time of the valuation.

The goodwill recognized, of which $214.5 million and $29.7 million is assigned to the Clinical Services and Pharma Services segments, respectively, was primarily attributable to expected synergies of the combined businesses and the acquisition of an assembled workforce knowledgeable of liquid biopsy technology for oncology testing. The recording of amortizable intangibles has given rise to a deferred tax liability upon the acquisition of Inivata which increased goodwill by $64.7 million. NaNne of the goodwill resulting from the acquisition of Inivata is expected to be deductible for income tax purposes.

Acquisition and integration costs related to Inivata were approximately $9.7 million and $10.3 million for the three and six months ended June 30, 2021, respectively, and are reported as general and administrative expenses in the Company’s Consolidated Statements of Operations. There were no such amounts for the three and six months ended June 30, 2020.

The results of operations of Inivata are included in the Company’s unaudited Consolidated Financial Statements beginning on the Inivata Acquisition Date. Revenue and net income (loss) of Inivata included in the Consolidated Statements of Operations was not material for the three and six months ended June 30, 2021.

The following unaudited pro forma information (in thousands) has been provided for illustrative purposes only and is not necessarily indicative of results that would have occurred had the acquisition of Inivata occurred on January 1, 2020, nor are they necessarily indicative of future results:


	Three Months Ended June 30,				Six Months Ended June 30,
	(unaudited)				(unaudited)
	2021		2020		2021		2020
Net revenue	$	121,707	$	87,114	$	237,159	$	193,318
Net loss	$	(23,222)	$	(17,842)	$	(51,313)	$	(54,702)

These unaudited pro forma results represent the combined results of operations of the Company and Inivata, on an unaudited pro forma basis, for the period in which the acquisition of Inivata occurred and the prior reporting period as though the companies had been combined as of the beginning of the earliest period presented. Therefore, the unaudited pro forma consolidated results have been prepared by adjusting the Company’s historical results to include the acquisition of Inivata as if it occurred on January 1, 2020. Acquisition-related transaction costs incurred by the Company of $10.3 million and incurred by Inivata of $11 million are included in net loss as if incurred on January 1, 2020. These unaudited pro forma consolidated historical results exclude, for all periods presented, the gain on investment in and loan receivable from non-consolidated affiliate, net, of $96.5 million and $91.5 million recorded in the three and six months ended June 30, 2021, respectively.

Note 3.4. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy has been established based on three levels of inputs, of which the first two are considered observable and the last unobservable.

Level 1: Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

Level 2: Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments.

Level 3: Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The Company measures certain financial assets at fair value on a recurring basis, including its marketable securities and certain cash equivalents. The Company considers all securities available-for-sale, including those with maturity dates beyond 12 months, and therefore these securities are classified within current assets on the consolidated balance sheets as they are available to support current operational liquidity needs. The money market accounts are valued based on quoted market prices in active markets. The marketable securities are generally valued based on other observable inputs for those securities (including market corroborated pricing or other models that utilize observable inputs such as interest rates and yield curves) based on information provided by independent third-party pricing entities, except for U.S. Treasury securities which are valued based on quoted market prices in active markets.

The following ~~table sets~~tables set forth the amortized cost, gross unrealized gains, gross unrealized losses and fair values of the ~~Company's~~Company’s marketable securities accounted for as available-for-sale securities as of ~~September~~June 30, ~~2020. There were 0 such amounts as of~~2021 and December 31, ~~2019.~~2020.


	June 30, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Financial Assets:
Short-term marketable securities:
U.S. Treasury securities	$	51,637	$	1	$	(78)	$	51,560

Yankee bonds	3,075		0		(6)		3,069
Agency bonds	17,641		0		(6)		17,635
Municipal bonds	12,515		0		(43)		12,472
Commercial paper	22,658		0		0		22,658
Asset-backed securities	26,493		1		(27)		26,467
Corporate bonds	69,315		0		(226)		69,089
Total	$	203,334	$	2	$	(386)	$	202,950


		September 30, 2020									December 31, 2020
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Financial Assets:	Financial Assets:									Financial Assets:

Short-term marketable securities:										Short-term marketable securities:
U.S. Treasury securities	U.S. Treasury securities	$	18,412	$	1	$	(7)	$	18,406	U.S. Treasury securities	$	21,357	$	1	$	(18)	$	21,340

Commercial paper	Commercial paper	13,734		0		0		13,734		Commercial paper	14,543		0		0		14,543
Asset-backed securities	Asset-backed securities	9,927		1		(7)		9,921		Asset-backed securities	14,546		0		(8)		14,538
Corporate bonds	Corporate bonds	8,323		2		(11)		8,314		Corporate bonds	17,144		0		(19)		17,125
Total	Total	$	50,396	$	4	$	(25)	$	50,375	Total	$	67,590	$	1	$	(45)	$	67,546

The Company had ~~$0.1~~$0.7 million and $0.2 million of accrued interest receivable at ~~September~~June 30, 2021 and December 31, 2020, respectively, included in other current assets on its Consolidated Balance Sheets related to its marketable securities. Realized gains or losses on marketable securities for the three months and six months ended June 30, 2021 were immaterial. There were no0 realized gains or losses on marketable securities for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020 and 2019.~~

2020.

1622

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following ~~table sets~~tables set forth the fair value of available-for-sale marketable securities by contractual maturity at ~~September~~June 30, ~~2020. There were no such amounts at~~2021 and December 31, ~~2019.~~2020.


	June 30, 2021
(in thousands)	One Year or Less		Over One Year Through Five Years		Over Five Years		Total
Financial Assets:
Marketable Securities:
U.S. Treasury securities	$	13,593	$	37,967	$	0	$	51,560

Yankee bonds	0		3,069		0		3,069
Agency bonds	10,587		7,048		0		17,635
Municipal bonds	0		12,472		0		12,472
Commercial paper	22,658		0		0		22,658
Asset-backed securities	0		26,467		0		26,467
Corporate bonds	24,066		45,023		0		69,089
Total	$	70,904	$	132,046	$	0	$	202,950


		September 30, 2020									December 31, 2020
(in thousands)	(in thousands)	One Year or Less		Over One Year Through Five Years		Over Five Years		Total		(in thousands)	One Year or Less		Over One Year Through Five Years		Over Five Years		Total
Financial Assets:	Financial Assets:									Financial Assets:
Marketable Securities:	Marketable Securities:									Marketable Securities:
U.S. Treasury securities	U.S. Treasury securities	$	3,033	$	15,373	$	0	$	18,406	U.S. Treasury securities	$	6,075	$	15,265	$	0	$	21,340

Commercial paper	Commercial paper	13,734		0		0		13,734		Commercial paper	14,543		0		0		14,543
Asset-backed securities	Asset-backed securities	0		9,921		0		9,921		Asset-backed securities	560		13,978		0		14,538
Corporate bonds	Corporate bonds	2,657		5,657		0		8,314		Corporate bonds	5,863		11,262		0		17,125
Total	Total	$	19,424	$	30,951	$	0	$	50,375	Total	$	27,041	$	40,505	$	0	$	67,546

The following ~~table sets~~tables set forth the ~~Company's~~Company’s cash equivalents and marketable securities accounted for as available-for-sale securities that were measured at fair value on a recurring basis based on the fair value hierarchy as of ~~September~~June 30, ~~2020. As of~~2021 and December 31, ~~2019, the Company had only money market fund cash equivalents (Level 1) in the amount of $163.8 million.~~2020.


	June 30, 2021
(in thousands)	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents:
Money market funds	$	263,880	$	0	$	0	$	263,880

Commercial paper	0		17,546		0		17,546
Marketable securities:
U.S. Treasury securities	51,560		0		0		51,560

Yankee bonds	3,069		0		0		3,069
Agency bonds	17,635		0		0		17,635
Municipal bonds	12,472		0		0		12,472
Commercial paper	0		22,658		0		22,658
Asset-backed securities	0		26,467		0		26,467
Corporate bonds	0		69,089		0		69,089
Total	$	348,616	$	135,760	$	0	$	484,376

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


		September 30, 2020									December 31, 2020
(in thousands)	(in thousands)	Level 1		Level 2		Level 3		Total		(in thousands)	Level 1			Level 2		Level 3		Total
Financial Assets:	Financial Assets:									Financial Assets:
Cash equivalents:	Cash equivalents:									Cash equivalents:
Money market funds	Money market funds	$	213,624	$	0	$	0	$	213,624	Money market funds	$	209,141		$	0	$	0	$	209,141
U.S. Treasury securities										U.S. Treasury securities	1,000			0		0		1,000
Commercial paper	Commercial paper	$	0	$	4,749	$	0	$	4,749	Commercial paper	0			3,999		0		3,999
Marketable securities:	Marketable securities:									Marketable securities:
U.S. Treasury securities	U.S. Treasury securities	$	18,406	$	0	$	0	$	18,406	U.S. Treasury securities	21,340			0		0		21,340

Commercial paper	Commercial paper	$	0	$	13,734	$	0	$	13,734	Commercial paper	0			14,543		0		14,543
Asset-backed securities	Asset-backed securities	$	0	$	9,921	$	0	$	9,921	Asset-backed securities	0			14,538		0		14,538
Corporate bonds	Corporate bonds	$	0	$	8,314	$	0	$	8,314	Corporate bonds	0		—	17,125		0		17,125
Total	Total	$	232,030	$	36,718	$	0	$	268,748	Total	$	231,481		$	50,205	$	0	$	281,686

There were no transfers of financial assets or liabilities into or out of Level 1, Level 2, or Level 3 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~June 30, 2020.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

The carrying value of cash and cash equivalents, accounts receivable, net, accounts payable, accrued expenses and other liabilities, and other current assets and liabilities, ~~including our prior revolving credit facility~~ are considered reasonable estimates of their respective fair values at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 due to their short-term nature.

WeThe Company also ~~measure~~measures certain non-financial assets at fair value on a nonrecurring basis, primarily intangible assets, goodwill, and long-lived assets in connection with periodic evaluations for potential impairment. ~~We estimate~~The Company estimates the fair value of these assets using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements.

1724

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 4.5. Leases

~~The Company leases corporate offices and laboratory space throughout~~As of June 30, 2021, the world, all of which are classified as operating leases expiring at various dates and generally have terms ranging from 1 to 15 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

~~Some~~maturities of the Company’s real estate lease agreements include options to either renew or early terminate the lease. Leases with renewal options allow the Company to extend the lease term typically between 1 and 5 years. When it is reasonably certain that the Company will exercise an option to renew or terminate a lease, these options are considered in determining the classification and measurement of the lease.

Lease liabilities are recorded based on the present value of the future lease payments over the lease term and assessed as of the commencement date. Incentives received from landlords, such as reimbursements for tenant improvements and rent abatement periods, effectively reduce the total lease payments owed for leases.

Certain real estate leases also include executory costs such as common area maintenance (non-lease component), as well as property insurance and property taxes (non-components). Lease payments, which may include lease components, non-lease components and non-components, are included in the measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts based on a rate or index (fixed in substance) as stipulated in the lease contract. Any actual costs in excess of such amounts are expensed as incurred as variable lease cost.

The Company utilizes its incremental borrowing rate by lease term in order to calculate the present value of its future lease payments. The discount rate represents a risk-adjusted rate on a secured basis, and is the rate at which the Company would borrow funds to satisfy the scheduled lease liability payment streams commensurate with the lease term. The discount rate is determined using the incremental borrowing rate at lease commencement and based on the lease term.

~~Operating Leases~~

Operating lease costs include an immaterial amount of variable lease cost, and are recorded in cost of revenue and general and administrative expenses, depending on the nature of the leased asset. Aside from variable lease costs, operating lease costs represent fixed lease payments recognized on a straight-line basis over the lease term.

~~As of September 30, 2020, the maturities of our~~ operating lease liabilities and a reconciliation to the present value of lease liabilities were as follows (in thousands):


		Remaining Lease Payments				Remaining Lease Payments
Remainder of 2020		$	1,129
2021		7,662
Remainder of 2021					Remainder of 2021	$	3,671
2022	2022	5,414			2022	8,043
2023	2023	5,289			2023	7,638
2024	2024	5,349			2024	7,885

2025					2025	5,087
Thereafter	Thereafter	37,570			Thereafter	37,142
Total remaining lease payments	Total remaining lease payments	62,413			Total remaining lease payments	69,466
Less: imputed interest	Less: imputed interest	(14,589)			Less: imputed interest	(14,200)
Total operating lease liabilities	Total operating lease liabilities	47,824			Total operating lease liabilities	55,266
Less: current portion	Less: current portion	(4,701)			Less: current portion	(5,642)
Long-term operating lease liabilities	Long-term operating lease liabilities	$	43,123		Long-term operating lease liabilities	$	49,624
Weighted-average remaining lease term (in years)	Weighted-average remaining lease term (in years)	12.0			Weighted-average remaining lease term (in years)	10.67
Weighted-average discount rate	Weighted-average discount rate	4.4		%	Weighted-average discount rate	4.1		%

The following summarizes additional supplemental data related to ~~our~~ operating leases (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Operating lease costs	$	2,372	$	2,172	$	4,677	$	4,277

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Operating lease costs $ 1,747 $ 1,271 $ 6,024 $ 4,365


	Six Months Ended June 30,
	2021		2020
Right-of-use assets obtained in exchange for operating lease liabilities	$	12,125	$	24,071
Cash paid for operating leases	$	5,042	$	3,354

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Nine Months Ended September 30,
2020 2019
Right-of-use assets obtained in exchange for operating lease liabilities $ 23,766 $ 19,341
Cash paid for operating leases $ 5,101 $ 2,878

Lease contracts that have been executed but have not yet commenced are excluded from the tables above. As of ~~September~~June 30, ~~2020~~2021 the Company has entered into ~~$34.6~~$33.8 million of contractually binding minimum lease payments for leases executed but not yet commenced. This amount primarily relates to the lease of the laboratory and headquarters facility in Fort Myers, Florida that is expected to commence in the third quarter of 2021. In addition to the minimum lease payments, the Company will pay approximately $25 million relating to the construction of the underlying assets and approximately $17 million in leasehold improvements. These amounts were placed into separate construction disbursement escrow accounts and ~~are classified~~ as ~~“Restricted~~of June 30, 2021, $4.1 million was unpaid and remaining in restricted cash ~~non-current”,~~ on the Consolidated Balance Sheets. Disbursements to the landlord ~~will~~ take place from time to time to pay for the costs of the landlord’s work. ~~These~~The disbursements ~~will be~~are classified as a prepaid lease asset or leasehold improvements, as appropriate, until the lease commences. Upon lease commencement, the prepaid lease asset will be included in the calculation of the right-of-use asset and the leasehold improvements will be placed in service. Construction of the infrastructure of this facility commenced in the first quarter of 2020. The Company is not expected to control the underlying assets during the construction period and therefore is not considered the owner of the underlying assets for accounting purposes.

~~Note 5. Revenue Recognition and Contractual Adjustments~~

The Company has 2 operating segments for which it recognizes revenue; Clinical Services and Pharma Services. The Clinical Services segment provides various clinical testing services to community-based pathology practices, oncology practices, hospital pathology labs, reference labs, and academic centers with reimbursement from various payers including client direct billing, commercial insurance, Medicare and other government payers, and patients. The Pharma Services segment supports pharmaceutical firms in their drug development programs by providing testing services and data analytics for clinical trials and research.

~~Clinical Services Revenue~~

The Company’s specialized diagnostic services are performed based on a written test requisition form or electronic equivalent. The performance obligation is satisfied and revenues are recognized once the diagnostic services have been performed and the results have been delivered to the ordering physician. These diagnostic services are billed to various payers, including client direct billing, commercial insurance, Medicare and other government payers, and patients. Revenue is recorded for all payers based on the amount expected to be collected, which considers implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to receive based on negotiated discounts, historical collection experience and other anticipated adjustments, including anticipated payer denials. Collection of consideration the Company expects to receive typically occurs within 30 to 60 days of billing for commercial insurance, Medicare and other governmental and self-pay payers and within 60 to 90 days of billing for client payers.

~~Pharma Services Revenue~~

The Company’s Pharma Services segment generally enters into contracts with pharmaceutical customers as well as other Contract Research Organizations (“CROs”) to provide research and clinical trial services ranging in duration from one month to several years. The Company records revenue on a unit-of-service basis based on number of units completed and the total expected contract value. The total expected contract value is estimated based on historical experience of total contracted units compared to realized units as well as known factors on a specific contract-by-contract basis. Certain contracts include upfront fees, final settlement amounts or billing milestones that may not align with the completion of performance obligations. The value of these upfront fees or final settlement amounts is usually recognized over time based on the number of units completed, which aligns with the progress of the Company towards fulfilling its obligations under the contract.

The Company also enters into other contracts, such as validation studies, for which the sole deliverable is a final report that is sent to sponsors at the completion of contracted activities. For these contracts, revenue is recognized at a point in time upon delivery of the final report to the sponsor. Any contracts that contain multiple performance obligations and include both units-of-service and point-in-time deliverables are accounted for as separate performance obligations and revenue is recognized as previously disclosed. The Company negotiates billing schedules and payment terms on a contract-by-contract basis. While the contract terms generally provide for payments based on a unit-of-service arrangement, the billing schedules, payment terms and related cash payments may not align with the performance of services and, as such, may not correspond to revenue recognized in any given period.

Amounts collected in advance of services being provided are deferred as contract liabilities on the Consolidated Balance Sheets. The associated revenue is recognized and the contract liability is reduced as the contracted services are subsequently performed. Contract assets are established for revenue that has been recognized but not yet billed. These contract assets are reduced once

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

the customer is invoiced and a corresponding receivable is recorded. Additionally, certain costs to obtain contracts, primarily for sales commissions, are capitalized when incurred and are amortized over the term of the contract. Amounts capitalized for contracts with an initial contract term of twelve months or less are classified as current assets. All others are classified as non-current assets.

Most contracts are terminable by the customer, either immediately or according to advance notice terms specified within the contracts. All contracts require payment of fees to the Company for services rendered through the date of termination and may require payment for subsequent services necessary to conclude the study or close out the contract.

~~The following table summarizes the values of contract assets, capitalized commissions and contract liabilities as of September 30, 2020 and December 31, 2019 (in thousands):~~

September 30, 2020 December 31, 2019
Current pharma contract assets (1)
$ 1,533 $ 1,000
Long-term pharma contract assets (2)
271 153
Total pharma contract assets $ 1,804 $ 1,153
Current pharma capitalized commissions (1)
$ 160 $ 133
Long-term pharma capitalized commissions (2)
809 798
Total pharma capitalized commissions $ 969 $ 931
Current pharma contract liabilities $ 3,716 $ 1,610
Long-term pharma contract liabilities (3)
657 1,171
Total pharma contract liabilities $ 4,373 $ 2,781

~~(1)~~ ~~Current pharma contract assets and Current pharma capitalized commissions are classified as “Other current assets” on the Consolidated Balance Sheets.~~

~~(2)~~ ~~Long-term pharma contract assets and Long-term pharma capitalized commissions are classified as “Other assets” on the Consolidated Balance Sheets.~~

~~(3)~~ ~~Long-term pharma contract liabilities are classified as “Other long-term liabilities” on the Consolidated Balance Sheets.~~

Pharma contract assets increased $0.7 million, or 56%, from December 31, 2019 to September 30, 2020. Pharma contract liabilities increased $1.6 million, or 57%, during the same period, while there was a slight increase in capitalized commissions. Revenue recognized for the three and nine months ended September 30, 2020 related to Pharma contract liability balances outstanding at the beginning of the period was $0.5 million and $2.1 million, respectively. Amortization of capitalized commissions for both three and nine months ended September 30, 2020 was $0.3 million and $0.6 million, respectively.

~~Disaggregation of Revenue~~

The Company considered various factors for both its Clinical Services and Pharma Services segments in determining appropriate levels of homogeneous data for its disaggregation of revenue, including the nature, amount, timing and uncertainty of revenue and cash flows. For Clinical Services, the categories identified align with our type of customer due to similarities of billing method, level of reimbursement and timing of cash receipts. Unbilled amounts are accrued and allocated to payor categories based on historical experience. In future periods, actual billings by payor category may differ from accrued amounts. Pharma Services revenue was not further disaggregated as substantially all of our revenue relates to contracts with large pharmaceutical and biotech customers as well as other CROs for which the nature, timing and uncertainty of revenue and cash flows is similar and primarily driven by individual contract terms.

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~The following table details the disaggregation of revenue for both the Clinical and Pharma Services Segments (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Clinical Services:
    Client direct billing $ 72,896 $ 53,555 $ 172,431 $ 155,999
    Commercial Insurance 19,218 20,956 56,360 63,052
    Medicare and Medicaid 16,460 17,818 46,484 47,961
    Self-Pay 159 236 324 745
Total Clinical Services $ 108,733 $ 92,565 $ 275,599 $ 267,757
Pharma Services: 16,711 12,107 42,852 34,205
Total Revenue $ 125,444 $ 104,672 $ 318,451 $ 301,962

~~Note 6. Acquisition~~

~~Human Longevity, Inc.~~

On January 10, 2020 (the “Acquisition Date”), the Company acquired the Oncology Division assets of Human Longevity, Inc. (“HLI - Oncology”) for a purchase price of $37 million in cash. Acquisition and integration costs related to HLI - Oncology were approximately $0.4 million and $1.9 million for the three and nine months ended September 30, 2020, respectively, and are reported as general and administrative expenses in the Company's Consolidated Statements of Operations.

HLI - Oncology performs Next-Generation Sequencing for pharmaceutical customers. The acquisition of HLI - Oncology adds whole exome and whole genome sequencing capabilities to the Company's current Pharma Services offerings. Revenue related to HLI - Oncology is reported in the Pharma Services segment. The acquisition included assets, primarily consisting of lab equipment, inventory, maintenance agreements for acquired equipment, backlog contracts with HLI - Oncology's customers, as well as HLI - Oncology’s molecular workforce that is experienced with Next-Generation Sequencing.

~~The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Acquisition Date (in thousands):~~


	~~January 10, 2020~~
~~Inventory~~	$	~~534~~
~~Prepaid assets~~	~~185~~
~~Property and equipment~~	~~16,839~~
~~Internally developed software~~	~~3,110~~
~~Customer relationships~~ ~~(1)~~	~~4,100~~
~~Long-term assets~~	~~346~~
~~Goodwill~~ ~~(2)~~	~~12,232~~
~~Total assets acquired~~	$	~~37,346~~
~~Long-term liabilities~~	~~(346)~~
~~Net assets acquired~~	$	~~37,000~~

~~(1)~~ ~~Acquired intangible assets consisted of customer relationships which are amortized over seven years.~~

~~(2)~~ The goodwill arising from the acquisition of HLI - Oncology is the amount the Company paid in excess of the fair value of the net assets acquired and was primarily for (i) the expected future cash flows derived from the existing business capabilities and infrastructure, (ii) expanding the Company's scientific expertise as a leading provider of Pharma Services and Next-Generation Sequencing and (iii) an enhanced Pharma Services menu including germline, whole exome and whole genome sequencing. All of the goodwill resulting from the acquisition of HLI - Oncology is expected to be deductible for income tax purposes.

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

The above purchase price and purchase price allocation are preliminary and subject to future revision as the acquired assets and liabilities assumed are dependent upon the finalization of the related valuations. The fair values assigned to assets acquired and liabilities assumed for HLI - Oncology are based upon management's best estimates and assumptions as of the reporting date, and are considered preliminary.

Note 7.6. Goodwill and Intangible Assets

~~Goodwill as~~As a result of ~~September 30, 2020 and December 31, 2019~~the acquisition of Trapelo in April 2021, the Company recorded $44.7 million in goodwill, all of which was ~~$210.8~~recorded in the Clinical Services segment. As a result of the acquisition of Inivata in June 2021, the Company recorded $244.2 million in goodwill, of which $214.5 million and ~~$198.6~~$29.7 million ~~respectively.~~is assigned to the Clinical Services and Pharma Services segments, respectively. For further information regarding the Trapelo and Inivata acquisitions, please refer to Note 3. Acquisitions.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table summarizes the changes in the carrying amount of goodwill by segment for the six months ended June 30, 2021 (in thousands):


	Clinical Services		Pharma Services		Total
Balance as of December 31, 2020	$	179,534	$	31,549	$	211,083
Trapelo acquisition	44,664		0		44,664
Inivata acquisition	214,563		29,667		244,230
Balance as of June 30, 2021	$	438,761	$	61,216	$	499,977

Intangible assets consisted of the following ~~as of~~ (in thousands):


		June 30, 2021
	Amortization Period	Cost		Accumulated Amortization		Net


Customer Relationships	7 - 15 years	$	143,101	$	40,811	$	102,290
Developed Technology	10 - 15 years	322,022		1,167		320,855
Marketing Assets	4 years	549		32		517
Trademarks	15 years	31,700		76		31,624
Trade Name	5 years	2,322		17		2,305
Trademark - Indefinite lived	—	13,447		—		13,447
Total		$	513,141	$	42,103	$	471,038

September 30, 2020
Amortization
Period Cost Accumulated
Amortization Net
Customer Relationships 84-180 months 143,371 33,465 109,906
Trade Name - Indefinite-lived — 13,447 — 13,447
Total $ 156,818 $ 33,465 $ 123,353


		December 31, 2020
	Amortization Period	Cost		Accumulated Amortization		Net
Customer Relationships	7 - 15 years	$	143,101	$	35,895	$	107,206
Trademark - Indefinite lived	—	13,447		—		13,447
Total		$	156,548	$	35,895	$	120,653

December 31, 2019
Amortization
Period Cost Accumulated
Amortization Net
Trade Name 12-24 months $ 3,679 $ 3,679 $ 0
Non-Compete Agreement 24 months 27 27 0
Customer Relationships 180 months 139,271 26,078 113,193
Trade Name - Indefinite-lived — 13,447 — 13,447
Total $ 156,424 $ 29,784 $ 126,640

The Company recorded approximately $2.5 million and $2.4 million in straight-line amortization expense of intangible assets for the three months ended September 30, 2020 and 2019, respectively, and approximately $7.4 million and $7.5 million for the nine months ended September 30, 2020 and 2019, respectively. The Company records amortization expense ~~as a~~within cost of revenue and general and administrative ~~expense.~~expense on the Consolidated Statement of Operations. The following table summarized the amortization expense for the three and six months ended June 30, 2021 and 2020 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Amortization of intangibles included in cost of revenue	$	729	$	0	$	729	$	0
Amortization of intangibles included in general and administrative expenses	3,022		2,467		5,480		4,919
Total amortization of intangibles	$	3,751	$	2,467	$	6,209	$	4,919

The estimated amortization expense related to amortizable intangible assets for each of the ~~four succeeding fiscal years and thereafter~~following periods as of ~~September~~June 30, ~~2020~~2021 is as follows (in thousands):

Remainder of 2020 $ 2,468
2021 9,870
2022 9,870
2023 9,870
2024 9,870
Thereafter 67,958
Total $ 109,906


Remainder of 2021	$	17,326
2022	34,650
2023	34,650
2024	34,650
2025	34,549

Thereafter	301,766
Total	$	457,591

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 7. Investment in Non-Consolidated Affiliate

On May 22, 2020, the Company formed a strategic alliance with Inivata, and entered into a Strategic Alliance Agreement and Laboratory Services Agreement with Inivata’s laboratory subsidiary in the U.S., Inivata, Inc., whereas Inivata’s laboratory rendered and performed certain laboratory testing which the Company made available to customers. The terms and conditions of the Laboratory Services Agreement were consistent with those that would be negotiated between willing parties on an arm’s length basis. For additional details on amounts paid related to the Laboratory Services Agreement, please refer to Note 15. Related Party Transactions.

In addition to the Laboratory Services Agreement, the Company also entered into an Investment Agreement with Inivata (the “Investment Agreement”), pursuant to which the Company acquired the Preference Shares for $25 million in cash resulting in a minority interest in Inivata’s outstanding equity and an Option Deed which provided the Company with a Purchase Option to purchase Inivata. The Investment Agreement also granted the Company one seat on Inivata’s Board of Directors. On June 18, 2021, the Company completed the acquisition of the remaining equity interests in Inivata. For further details regarding the acquisition of Inivata, please refer to Note 3. Acquisitions.

Prior to the Inivata Acquisition Date, Inivata was determined to be a variable interest entity (“VIE”) and the Company’s investment was under 20% of the total equity outstanding. The Company considered qualitative factors in assessing the primary beneficiary of the VIE which included understanding the purpose and design of the VIE, associated risks that the VIE created, activities that could be directed by the Company, and the expected relative impact of those activities on the economic performance of the VIE. Based on an evaluation of these factors, the Company concluded that it was not the primary beneficiary of Inivata prior to the Inivata Acquisition Date.

Prior to the Inivata Acquisition Date, the power to control the activities that most significantly impacted Inivata’s economic performance was the sole responsibility of Inivata’s management and Board of Directors; however, the Company did have significant influence over Inivata. As the Preference Shares were determined to not be in-substance common stock, and because the Preference Shares and the Purchase Option did not have readily determinable fair values, prior to the Inivata Acquisition Date, the Company elected to measure the Preference Shares and the Purchase Option at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

On May 22, 2020, the initial $25 million cost and $0.6 million of associated transaction costs was allocated between the Preference Shares and the Purchase Option based on the relative fair value of each and was recorded as investment in non-consolidated affiliate on the Consolidated Balance Sheets. The initial relative fair value of the investment in non-consolidated affiliate was comprised of $19.6 million in Preference Shares and a $6 million Purchase Option. The Preference Shares were valued by determining the equity value of Inivata using the Backsolve Method and allocating the value of the Preference Shares using the Option-Pricing Method and the inputs used included the equity value based on the Series C1 capital raised by Inivata, a volatility rate of 84%, a risk-free interest rate of 0.17% and 0% dividend yield. The Purchase Option was valued using the Black-Scholes model with a volatility rate of 84%, a risk-free interest rate of 0.17% and 0% dividend yield.

During the fourth quarter of 2020, an observable transaction of an identical investment in the Preference Shares occurred. This resulted in a remeasurement of the Preference Shares to the value of this observable transaction. The Purchase Option was also remeasured at fair value as a result of this observable transaction. As a result of these remeasurements, at December 31, 2020, the carrying value of the investment in non-consolidated affiliate was $29.6 million, comprised of $25 million in Preference Shares and a $4.6 million Purchase Option. The Company recorded a net unrealized gain of $4 million for these remeasurements for the year ended December 31, 2020 in other expense (income), net on the Consolidated Statements of Operations. At December 31, 2020, the Purchase Option was valued using the Black-Scholes model with a volatility rate of 84%, a risk-free interest rate of 0.17% and 0% dividend yield.

On May 22, 2020, the Company and Inivata also entered into the Line of Credit in the amount of $15 million. In January 2021, the Line of Credit, in its entirety, was drawn by Inivata and recorded as a loan receivable from non-consolidated affiliate on the Consolidated Balance Sheets. Prior to the Inivata Acquisition Date, the Line of Credit contractually matured on December 1, 2025 and the unpaid principal balance was payable on January 1, 2026 and bore interest at 0% per annum. In January 2021, upon the draw of the Line of Credit by Inivata, the Company used an imputed interest rate of 8.33% to present value the Line of Credit. The Company recorded an imputed interest rate discount of $5 million on the loan receivable from non-consolidated affiliate and an additional investment in non-consolidated affiliate of $5 million, resulting in a $10 million present value of the loan receivable from non-consolidated affiliate and increasing the value of the Preference Shares to $30 million. For the three and six months ended June 30, 2021 through the Inivata Acquisition Date, $0.2 million and $0.4 million of interest income was amortized to the loan receivable from non-consolidated affiliate, respectively. The interest income amortization is recorded in interest expense, net, on the Consolidated Statements of Operations.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In the first quarter of 2021, subsequent to Inivata’s draw on the Line of Credit, an observable transaction of an identical investment in Inivata Preference Shares occurred. This resulted in a remeasurement of the Preference Shares to the value of this observable transaction. The Company recorded a net unrealized loss of $5 million for this remeasurement for the three months ended March 31, 2021 in other expense (income), net on the Consolidated Statements of Operations. As of March 31, 2021, the carrying value of the investment in non-consolidated affiliate was $29.6 million, comprised of $25 million in Preference Shares and a $4.6 million Purchase Option.

On the Inivata Acquisition Date, the Company acquired all of the remaining equity interests of Inivata through the exercise of its Purchase Option. The Company’s carrying value of the investment in non-consolidated affiliate was $29.6 million, comprised of $25 million in Preference Shares and a $4.6 million Purchase Option immediately prior to obtaining the remaining ownership of Inivata. The Company’s acquisition of control of Inivata on the Inivata Acquisition Date was accounted for as a business combination achieved in stages under the acquisition method. Accordingly, the Company remeasured its Preference Shares and Purchase Option to their acquisition-date fair values. The Company used a discounted cash flow to derive a business enterprise value of Inivata in order to determine the acquisition-date fair value of the Company’s Preference Shares and the Purchase Option. To determine the fair value of the Preference Shares, the fair value of equity was allocated to the various classes based on the respective rights and privileges of each class of stock in liquidation. The business enterprise value and a Black-Scholes model was then used to determine the fair value of the remaining equity acquired through the exercise of the Purchase Option. The Purchase Option was recorded at fair value at the Inivata Acquisition Date based on its settlement value. This resulted in fair values of $62.9 million in Preference Shares and a $58.5 million Purchase Option, immediately prior to the acquisition, resulting in a gain of $91.8 million in the three and six months ended June 30, 2021. On the Inivata Acquisition Date, the $10.3 million outstanding under the Line of Credit extended by the Company to Inivata was effectively settled as part of the acquisition of Inivata at the $15 million principal amount and was recorded as part of the consideration transferred in the acquisition resulting in a gain of $4.7 million in the three and six months ended June 30, 2021. The Company recorded a total gain on investment in and loan receivable from non-consolidated affiliate, net, within the Company’s Consolidated Statements of Operations of $96.5 million and $91.5 million in the three and six months ended June 30, 2021, respectively, for the excess of the acquisition-date fair value of the Company’s Preference Shares, Purchase Option, and Line of Credit over their carrying values. For further details regarding the acquisition of Inivata, please refer to Note 3. Acquisitions.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 8. Debt

The following table summarizes the long-term debt, net at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 (in thousands):

September 30, 2020 December 31, 2019
1.25% Senior Convertible Notes due 2025
Principal $ 201,250 $ 0
Unamortized debt discount (34,245) 0
Unamortized debt issuance costs (565) 0
Total 1.25% Senior Convertible Notes due 2025 166,440 0
Term loan
Principal $ 0 $ 97,500
Unamortized debt issuance costs 0 (671)
Total term loan 0 96,829
Financing obligations 5,099 8,631
Total debt $ 171,539 $ 105,460
Less: Current portion of long-term debt 0 (5,000)
Less: Current portion of financing obligations (3,700) (5,432)
Total long-term debt, net $ 167,839 $ 95,028


	June 30, 2021		December 31, 2020
0.25% Convertible Senior Notes due 2028
Principal	$	345,000	$	0
Unamortized debt discount	(9,688)		0
Unamortized debt issuance costs	(224)		0
Total 0.25% Convertible Senior Notes due 2028	$	335,088	$	0

1.25% Convertible Senior Notes due 2025
Principal	$	201,250	$	201,250
Unamortized debt discount	(4,682)		(32,592)
Unamortized debt issuance costs	(579)		(538)
Total 1.25% Convertible Senior Notes due 2025	$	195,989	$	168,120

Equipment financing obligations	2,361		3,808

Total debt	$	533,438	$	171,928

Less: Current portion of equipment financing obligations	(1,913)		(2,841)
Total long-term debt, net	$	531,525	$	169,087

At ~~September~~June 30, 2021, the estimated fair values (Level 2) of the 0.25% Convertible Senior Notes due 2028 and the 1.25% Convertible Senior Notes due 2025 were $327.5 million and $286.3 million, respectively. There was no such estimated fair value as of December 31, 2020 related to the 0.25% Convertible Senior Notes due 2028. At December 31, 2020, the estimated fair value (Level 2) of the 1.25% Convertible Senior Notes due 2025 was $320.9 million. At June 30, 2021 and December 31, ~~2019,~~2020, the carrying value of the Company’s equipment financing obligations approximated fair value based on the current market conditions for similar instruments. ~~At December 31, 2019,~~

2028 Convertible Senior Notes

On January 11, 2021, the ~~carrying~~Company completed the sale of $345 million of Convertible Senior Notes with a stated interest rate of 0.25% and a maturity date of January 15, 2028 (the “2028 Convertible Notes”), unless earlier converted, redeemed, or repurchased. The 2028 Convertible Notes were issued at a discounted price of 97% of their principal amount. The total net proceeds from the issuance of the 2028 Convertible Notes and exercise of the Over-allotment Option was approximately $334.4 million, which includes approximately $10.6 million of discounts, commissions and offering expenses paid by the Company. On January 11, 2021 the Company entered into an Indenture (the “Indenture”), with U.S. Bank National Association, as trustee (the “Trustee”), governing the 2028 Convertible Notes. The Company used a portion of the net proceeds from the Offerings to enter into capped call transactions (as described below under the heading “Capped Call Transactions”).

Prior to September 15, 2027, noteholders may convert their 2028 Convertible Notes at their option, only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the 5 business day period after any 5 consecutive trading day period in which the trading price per $1,000 principal amount of 2028 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after September 15, 2027 until the close of business on the second business day immediately preceding the maturity date, noteholders may convert their 2028 Convertible Notes at any time, regardless of the foregoing circumstances.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

make-whole premium by increasing the conversion rate for a holder who elects to convert its 2028 Convertible Notes in connection with such a corporate event in certain circumstances. The value of the ~~Company’s term loan approximated fair value~~2028 Convertible Notes, if-converted, does not exceed the principal amount based on a closing stock price of $45.17 on June 30, 2021. For the ~~current market conditions~~three and six months ended June 30, 2021 the Company included 5,215,434 and 5,042,547 shares, respectively, in diluted weighted average common shares outstanding for ~~similar instruments.~~ the if-converted impact of the 2028 Convertible Notes in the diluted net income (loss) per share calculation as the shares would have a dilutive effect. For further details on the impact of the 2028 Convertible Notes on net income (loss) per share please refer to Note 12. Net Income (Loss) Per Share.

~~1.25%~~The Company may not redeem the 2028 Convertible Notes prior to January 20, 2025. The Company may redeem for cash all or any portion of the 2028 Convertible Notes, at its option, on or after January 20, 2025 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date of notice by the Company of redemption at a redemption price equal to 100% of the principal amount of the 2028 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2028 Convertible Notes.

If an event involving bankruptcy, insolvency or reorganization events with respect to the Company occurs, then the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding will immediately become due and payable. If any other default event occurs and is continuing, then noteholders of at least 25% of the aggregate principal amount of the 2028 Convertible Notes then outstanding, by notice to the Company, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2028 Convertible Notes then outstanding to become due and payable immediately. If the Company undergoes a “fundamental change” as defined in the Indenture, then noteholders may require the Company to repurchase their 2028 Convertible Notes at a cash repurchase price equal to the principal amount of the 2028 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The 2028 Convertible Notes are the Company’s senior, unsecured obligations and will be equal in right of payment with its existing and future senior, unsecured indebtedness, senior in right of payment to its existing and future indebtedness that is expressly subordinated to the 2028 Convertible Notes and effectively junior to its existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. The 2028 Convertible Notes will be structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, of its subsidiaries.

The interest expense recognized on the 2028 Convertible Notes includes $0.2 million, $0.3 million and $8,400 for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the three months ended June 30, 2021. The interest expense recognized on the 2028 Convertible Notes includes $0.4 million, $0.7 million and $15,100 for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the six months ended June 30, 2021. There were no such amounts for the three or six months ended June 30, 2020. The effective interest rate on the 2028 Convertible Notes is 0.70%, which includes the interest on the 2028 Convertible Notes and amortization of the debt discount and debt issuance costs. The 2028 Convertible Notes bear interest at a rate of 0.25% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2021.

Capped Call Transactions

In connection with the 2028 Convertible Notes offering, on January 11, 2021, the Company entered into separate, privately negotiated convertible note hedge transactions (collectively, the “Capped Call Transactions”) with option counterparties pursuant to capped call confirmations at a cost of approximately $29.3 million. As the Capped Call Transactions meet certain accounting criteria, the Capped Call Transactions were classified as equity, are not accounted for as derivatives and were recorded as a reduction of the Company’s additional paid-in capital in the accompanying unaudited Consolidated Financial Statements. The Capped Call Transactions are not part of the terms of the 2028 Convertible Notes and will not affect any holders’ rights under the 2028 Convertible Notes. The Capped Call Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the 2028 Convertible Notes. The number of shares underlying the Capped Call Transactions is 5.2 million.

The cap price of the Capped Call Transactions is initially $85.75 per share of the Company’s common stock, which represents a premium of 75% over the public offering price of the common stock in the 2021 Common Stock Offering, which was $49.00 per share, and is subject to certain adjustments under the terms of the Capped Call Transactions.

By entering into the Capped Call Transactions, the Company expects to reduce the potential dilution to its common stock (or, in the event a conversion of the 2028 Convertible Notes is settled in cash, to reduce its cash payment obligation) in the event that, at the time of conversion of the 2028 Convertible Notes, its common stock price exceeds the conversion price of the 2028 Convertible Notes.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

2025 Convertible Senior Notes

On May 4, 2020, ~~(the “Closing Date”),~~ the Company completed the sale of $201.3 million of Convertible Senior Notes with a stated interest rate of 1.25% and a maturity date of May 1, 2025 (the ~~“Convertible~~“2025 Convertible Notes”), unless earlier converted, redeemed, or repurchased. The 2025 Convertible Notes were issued at a discounted price of 97% of their principal amount. The total net proceeds from the issuance of the 2025 Convertible Notes and exercise of the Over-allotment Option was approximately ~~$194.4~~$194.5 million, which includes approximately $6.9 million of discounts, commissions and offering expenses paid by the Company. On May 4, 2020, the Company entered into an Indenture (the “Indenture”), with U.S. Bank National Association, as trustee (the “Trustee”), governing the 2025 Convertible Notes.

Prior to February 1, 2025, noteholders may convert their 2025 Convertible Notes at their option, only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the 5 business day period after any 5 consecutive trading day period in which the trading price per $1,000 principal amount of 2025 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after February 1, 2025 until the close of business on the business day immediately preceding the maturity date, noteholders may convert their 2025 Convertible Notes at any time, regardless of the foregoing circumstances.

The last reported sales price of the Company’s common stock was not greater than or equal to 130% of the conversion price of the 2025 Convertible Notes on at least 20 of the last 30 consecutive trading days of the quarter ended June 30, 2021. The last reported sales price of the Company’s common stock was greater than or equal to 130% of the conversion price of the 2025 Convertible Notes on at least 20 of the last 30 consecutive trading days of the quarter ended December 31, 2020. Based on the terms of the 2025 Convertible Notes, the holders could have converted all or a portion of their 2025 Convertible Notes in the first quarter of 2021. When a conversion notice is received, the Company has the option to pay or deliver cash, shares of the Company’s common stock, or a combination thereof. As the Company is not required to settle the 2025 Convertible Notes in cash, the 2025 Convertible Notes are classified as long-term debt as of June 30, 2021 and December 31, 2020. As of June 30, 2021 the Company had not received any conversion notices.

Upon conversion, the Company will pay or deliver, as applicable, cash, shares of common stock or a combination of cash and shares of common stock, at its election. The initial conversion rate for the 2025 Convertible Notes is 27.5198 shares of common stock per $1,000 in principal amounts of 2025 Convertible ~~Note,~~Notes, equivalent to an initial conversion price of approximately $36.34 per share of common stock. The conversion rate is subject to adjustment as described in the Indenture. In addition, following certain corporate events that occur prior to the maturity date as described in the Indenture, the Company will pay a make-whole premium by increasing the conversion rate for a holder who elects to convert its 2025 Convertible Notes in connection with such a corporate event in certain circumstances. The value of the 2025 Convertible Notes, if-converted, exceeds ~~it's~~the principal amount by ~~$3.1~~$48.9 million based on a closing stock price of ~~$36.89~~$45.17 on ~~September~~June 30, ~~2020.~~2021. For the three and six months ended ~~September~~June 30, ~~2020~~2021 the Company included 5,538,360 shares in diluted weighted average common shares outstanding for the if-converted impact of

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

the 2025 Convertible ~~Notes.~~Notes in the diluted net income (loss) per share calculation as the shares would have a dilutive effect. For the ~~nine~~three and six months ended ~~September~~June 30, 2020 the Company isexcluded 3,773,388 and 1,886,694 shares, respectively, in ~~a net loss position, therefore,~~diluted weighted average common shares outstanding for the ~~shares that would be issued upon conversion~~if-converted impact of the 2025 Convertible Notes ~~are excluded from~~in the diluted net ~~loss~~income (loss) per share calculation as itthe shares would have an ~~antidilutive~~anti-dilutive effect. For further details on the impact of the 2025 Convertible Notes on net income (loss) ~~income~~ per share please refer to Note 12. Net Income (Loss) Per Share.

The Company may not redeem the 2025 Convertible Notes prior to May 6, 2023. The Company may redeem for cash all or any portion of the 2025 Convertible Notes, at its option, on or after May 6, 2023 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date of notice by the Company of redemption at a redemption price equal to 100% of the principal amount of the 2025 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2025 Convertible Notes.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

accrued and unpaid interest on, all of the 2025 Convertible Notes then outstanding to become due and payable immediately. If the Company undergoes a “fundamental change” as defined in the Indenture, then noteholders may require the Company to repurchase their 2025 Convertible Notes at a cash repurchase price equal to the principal amount of the 2025 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The 2025 Convertible Notes are the Company’s senior, unsecured obligations and will be equal in right of payment with its existing and future senior, unsecured indebtedness, senior in right of payment to its existing and future indebtedness that is expressly subordinated to the 2025 Convertible Notes and effectively junior to its existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. The 2025 Convertible Notes will be structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, of its subsidiaries.

The interest expense recognized on the 2025 Convertible Notes includes $0.7 million, $0.3 million and $0.03 million for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the three months ended June 30, 2021. The interest expense recognized on the 2025 Convertible Notes includes $1.3 million, $0.6 million ~~$1.8~~and $0.07 million for the contractual coupon interest, the amortization of the debt discount and the amortization of the debt issuance costs, respectively, for the six months ended June 30, 2021. The interest expense recognized on the 2025 Convertible Notes included $0.4 million, $0.9 million and ~~$25,600~~$19,100 for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs, respectively, for both the three and six months ended ~~September~~June 30, 2020. For the nine months ended September 30, 2020, the interest expense recognized on the Convertible Notes for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs includes $1.0 million, $2.7 million and $44,700, respectively. The effective interest rate on the 2025 Convertible Notes is ~~5.5%~~1.96%, which includes the interest on the 2025 Convertible Notes and amortization of the debt discount and debt issuance costs. ~~Interest on the~~The 2025 Convertible Notes ~~began accruing upon issuance and is payable semi-annually.~~

The Convertible Notes are accounted for as separate liability and equity components. The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt. The equity component of the Convertible Notes was recognized as a debt discount and represents the difference between the proceeds from the issuance of the Convertible Notes and the fair value of the liability of the Convertible Notes on the date of issuance. At the Closing Date, the equity component representing the conversion option was determined to be $21.6 million, net of tax, and was initially recorded by deducting the carrying value of the liability component from the initial proceeds from the Convertible Notes. During the three months ended September 30, 2020 the Company adjusted the equity component representing the conversion option. At September 30, 2020 the equity component of the conversion option was $23.1 million, net of tax. The excess of the principal amount of the Convertible Notes over the carrying amount of the liability component represents a debt discount that is amortized to interest expense over the term of the Convertible Notes under the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification.

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Prior Senior Secured Credit Agreement~~

On May 4, 2020, the Company terminated its Senior Secured Credit Agreement (the “Prior Senior Secured Credit Agreement”) and used $96.3 million of the net proceeds from the Convertible Notes to repay all outstanding amounts owed thereunder.

On June 27, 2019 (the “Prior Closing Date”), the Company entered into the Prior Senior Secured Credit Agreement with PNC Bank National Association (“PNC”), as administrative agent, and the lenders party thereto. The Prior Senior Secured Credit Agreement provided for a $100.0 million revolving credit facility (the “Prior Revolving Credit Facility”), a $100.0 million term loan facility (the “Prior Term Loan Facility”), and a $50.0 million delayed draw term loan (the “Prior Delayed Draw Term Loan”).

~~Borrowings under the Prior Senior Secured Credit Agreement bore~~bear interest at a rate of 1.25% per annum, equal to an applicable margin plus, at the Company’s option, either (1) the Adjusted LIBOR rate for the relevant interest period, as defined within the agreement (2) an alternate base rate determined by reference to the greatest of (a) the federal funds rate for the relevant interest period plus 0.5% per annum, (b) the prime lending rate of PNCpayable semi-annually in arrears on May 1 and (c) the daily LIBOR rate plus 1% per annum, or (3) a combination of (1) and (2). The applicable margin ranged from 1.25% to 2.25% for LIBOR loans and 0.25% to 1.25% for base rate loans, in each case based on NeoGenomics’ Consolidated Leverage Ratio (as defined in the New Credit Agreement). Interest on borrowings under the New Credit Agreement was payable on the last dayNovember 1 of each ~~month, in the case of each base rate loan, and~~year, which began on the last day of each interest period (but no less frequently than every three months), in the case of LIBOR loans. The Company had previously entered into an interest rate swap agreements to hedge against changes in the variable rate for a portion of our long term debt. See Note 9. Derivative Instruments and Hedging Activities, for more information on these instruments.November 1, 2020.

The Prior Revolving Credit Facility included a $10.0 million swing loan sublimit, with swing loans that bore interest at the alternate base rate plus the applicable margin. Any principal outstanding under the Prior Revolving Credit Facility was due and payable on June 27, 2024 or such earlier date as the obligations under the Prior Senior Secured Credit Agreement became due and payable pursuant to the terms of the Prior Senior Secured Credit Agreement. No amounts were outstanding under the Prior Revolving Credit Facility as of December 31, 2019.

Principal payments on the Prior Term Loan Facility were due on the last day of each fiscal quarter with an annual principal amortization of 5% in the first year, 5% in the second year, 7.5% in the third year, 7.5% in the fourth year, and 10% in each year thereafter, with the remainder due upon maturity on June 27, 2024 or such earlier date as the obligations under the Prior Senior Secured Credit Agreement become due and payable pursuant to the terms of the Prior Senior Secured Credit Agreement.

On December 31, 2019, the Company had current outstanding borrowings under the Prior Term Loan Facility of approximately $5.0 million, and long-term outstanding borrowings of approximately $91.8 million, net of unamortized debt issuance costs of $0.7 million. In association with the early termination of the debt, the Company incurred a loss on the extinguishment of debt of $1.4 million.

In addition to paying interest on outstanding principal under the Prior Senior Secured Credit Agreement, the Company was required to pay a commitment fee in respect of the unutilized portion of the commitments under the Prior Revolving Credit Facility and the Prior Delayed Draw Term Loan. The commitment fee rate ranged from 0.15% to 0.35% depending on NeoGenomics’ Consolidated Leverage Ratio. The Company also paid customary letter of credit and agency fees.

The Prior Term Loan Facility contained various covenants including entering into certain indebtedness; ability to incur liens and encumbrances; make certain restricted payments, including paying dividends on its equity securities or payments to redeem, repurchase or retire its equity securities; enter into certain burdensome agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into certain sale and leaseback transactions; engage in transactions with its affiliates, and materially alter the business it conducts. In addition, the Company was required to meet certain maximum leverage ratios and fixed charge coverage ratios as of the end of each fiscal quarter.

The Prior Term Loan Facility required the Company to mandatorily prepay the Prior Term Loan Facility and amounts borrowed under the Prior Revolving Credit Facility with (i) 100% of net cash proceeds from certain sales and dispositions, subject to certain reinvestment rights, and (ii) 100% of net cash proceeds from certain issuances or incurrences of additional debt.

Equipment Financing Obligations

The Company has entered into loans with various banks to finance the purchase of laboratory equipment, office equipment and leasehold improvements. These loans mature at various dates through ~~2022~~2023 and the weighted average interest rate under such loans was approximately ~~4.91%~~5.07% as of ~~September~~June 30, ~~2020~~2021 and ~~4.64%~~4.91% as of December 31, ~~2019.~~

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

2020.

Maturities of Long-Term Debt

Maturities of long-term debt as of ~~September~~June 30, ~~2020~~2021 are summarized as follows (in thousands):

1.25% Convertible Senior Notes Financing Obligations Total Debt
Remainder of 2020 $ 0 $ 1,252 $ 1,252
2021 0 2,880 2,880
2022 0 916 916
2023 0 51 51
2024 0 0 0
2025 167,005 0 167,005
Total Debt 167,005 5,099 172,104
Less: Current portion of long-term debt 0 (3,700) (3,700)
Less: Debt issuance costs (565) — (565)
Long-term debt, net $ 166,440 $ 1,399 $ 167,839


	0.25% Convertible Senior Notes		1.25% Convertible Senior Notes		Equipment Financing Obligations		Total Debt
Remainder of 2021	$	0	$	0	$	1,086	$	1,086
2022	0		0		1,196		1,196
2023	0		0		77		77
2024	0		0		2		2
2025	0		201,250		0		201,250
2026	0		0		0		0

Thereafter	345,000		0		0		345,000
Total Debt	$	345,000	$	201,250	$	2,361	$	548,611
Less: Current portion of long-term debt	0		0		(1,913)		(1,913)
Less: Unamortized debt discount	(9,688)		(4,682)		0		(14,370)
Less: Unamortized debt issuance costs	(224)		(579)		0		(803)
Long-term debt, net	$	335,088	$	195,989	$	448	$	531,525

2632

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 9. ~~Derivative Instruments and Hedging Activities~~Equity Transactions

~~As of~~ ~~September 30, 2020~~,Private Placement Transaction

On June 18, 2021, the Company ~~did not have any outstanding interest rate swap agreements. In June~~completed a private placement (“Private Placement”) to certain accredited investors of ~~2018,~~an aggregate of 4,444,445 shares of the Company’s common stock at a price of $45.00 per share. The net proceeds to the Company from the Private Placement were approximately $189.9 million, after deducting fees to the placement agents and other offering expenses of approximately $10.1 million.

Common Stock Issued for Acquisition

As discussed in Note 3. Acquisitions, the Company issued 597,712 shares of common stock as consideration for the acquisition of Trapelo in April 2021.

Underwritten Public Equity Offerings

On January 6, 2021, the Company entered into an ~~interest rate swap~~underwriting agreement relating to ~~reduce~~ the ~~Company~~’~~s exposure to interest rate fluctuations on the Company~~’~~s variable rate debt obligations. This derivative financial instrument was accounted for at fair value as a cash flow hedge to~~ ~~effectively modify~~issuance and sale of 4,081,632 shares of the Company’s ~~exposure~~common stock, $0.001 par value per share (the “2021 Common Stock Offering”). The price to ~~interest rate risk by converting a portion~~the public in this offering was $49.00 per share. The net proceeds to the Company from the 2021 Common Stock Offering were approximately $189.9 million, after deducting underwriting discounts, commissions and other offering expenses of ~~its prior floating rate debt to a fixed rate obligation, thus reducing the impact of interest rate changes on interest expense.~~approximately $10.1 million.

Under the ~~swap~~terms of the underwriting agreement, the Company ~~received~~also granted the Underwriters a ~~variable rate~~30-day option to purchase up to 612,244 additional shares of ~~interest based on LIBOR~~Common Stock at the public offering price, less underwriting discounts and ~~paid a fixed rate of interest.~~commissions. On January 6, 2021, the Underwriters exercised their option and purchased all 612,244 shares. The ~~following table summarizes the previous interest rate swap agreement.~~


	~~June 2018 Hedge~~
~~Notional Amount~~	$	70	~~million~~
~~Effective Date~~	~~June 29, 2018~~
~~Index~~	~~One month LIBOR~~
~~Maturity~~	~~December 31, 2021~~
~~Fixed Rate~~	~~2.98~~		%

~~As discussed in Note 8. Debt, concurrently with the closing of the Convertible Notes, the~~net proceeds from this transaction were used to pay off all amounts outstanding under our Prior Senior Secured Credit Agreement, after which the Company had no outstanding debt with variable rate interest. On May 1, 2020, the remaining obligation to make any further payments under the swap agreement was terminated. As a result of the termination, the company paid a termination fee of $3.3 million, which is included within Loss on Termination of Cash Flow Hedge in the Consolidated Statements of Operations.

As of December 31, 2019, the fair value of the derivative financial instruments included in other long-term liabilities was approximately $2.0 million. Fair value adjustments were historically recorded as an adjustment to Accumulated Other Comprehensive Income (“AOCI”), except that any gains and losses on ineffectiveness of the interest rate swap were recorded as an adjustment to “Other (income) expense, net”. In the second quarter of 2020, upon termination of the interest rate swap, the accumulated losses of $2.7 million, net of tax, related to the ~~interest rate swap~~option exercise were ~~reclassified from AOCI to Loss on Termination~~approximately $28.4 million, after deducting underwriting discounts, commissions and other offering expenses of ~~Cash Flow Hedge in the Consolidated Statements of Operations.~~

~~Note 10. Equity~~

~~Underwritten Public Equity Offering~~approximately $1.6 million.

On April 29, 2020, the Company entered into an underwriting agreement relating to the issuance and sale of 4,400,000 shares of the Company’s common stock, $0.001 par value per share (the ~~“Common~~“2020 Common Stock Offering”). The price to the public in this offering was $28.50 per share. The net proceeds to the Company from the 2020 Common Stock Offering were approximately $117.9 million, after deducting underwriting discounts, commissions and ~~commissions~~other offering expenses of approximately $7.5 million.

Under the terms of the underwriting agreement, the Company also granted the Underwriters a 30-day option to purchase up to 660,000 additional shares of Common Stock at the public offering price, less underwriting discounts and commissions. On May 29, 2020, the Underwriters partially exercised their option and on June 3, 2020, purchased an additional 351,500 shares. The net proceeds related to the option exercise were approximately $9.4 million, after deducting underwriting discounts, commissions and other offering expenses of approximately $0.6 million.

2733

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~Note 11. Stock-Based Compensation~~

The Company recorded approximately $2.7 million and $3.3 million in stock-based compensation expense for the three months ended September 30, 2020 and 2019, respectively, and approximately $7.5 million and $7.7 million in stock-based compensation expense for the nine month periods ended September 30, 2020 and 2019, respectively.

~~A summary of the stock option activity under the Company’s plans for the nine months ended September 30, 2020 is as follows:~~

Number of
Shares Weighted Average Exercise Price
Options outstanding at December 31, 2019 5,318,759 $ 9.97
Options granted 845,120 $ 28.33
Less:
Options exercised 1,276,144 $ 7.75
Options forfeited 63,169 $ 15.82
Options outstanding at September 30, 2020 4,824,566 $ 13.72
Exercisable at September 30, 2020 2,552,710 $ 8.86

The fair value of each stock option award granted during the nine months ended September 30, 2020 was estimated as of the grant date using a trinomial lattice model with the following weighted average assumptions:


			Nine Months Ended September 30, 2020
~~Expected term (in years)~~			~~4.0 - 5.5~~
~~Risk-free interest rate (%)~~			~~0.7%~~
~~Expected volatility (%)~~			~~39.9% - 44.6%~~
~~Dividend yield (%)~~			0
~~Weighted average fair value/share at grant date~~			~~$8.88~~

As of September 30, 2020, there was approximately $7.3 million of unrecognized stock-based compensation expense related to stock options that will be recognized over a weighted-average period of approximately 1.93 years.

~~A summary of the restricted stock activity under the Company’s plans for the nine months ended September 30, 2020 is as follows:~~

Number of Restricted
Shares Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019 335,298 $ 15.75
Granted 149,012 $ 28.44
Vested (183,532) $ 12.88
Forfeited (5,540) $ 21.10
Nonvested at September 30, 2020 295,238 $ 23.78

As of September 30, 2020, there was approximately $4.2 million of unrecognized stock-based compensation expense related to restricted stock that will be recognized over a weighted-average period of approximately 1.90 years.

~~Employee Stock Purchase Plan (“ESPP”)~~

~~The Company offers an ESPP through which eligible employees may purchase shares of the Company's common stock at a discount of 15% of the fair market value of the Company’s common stock.~~

During the three months ended September 30, 2020 and 2019, employees purchased 29,853 and 28,672 shares, respectively, under the ESPP. The expense recorded for these periods was approximately $0.2 million and $0.1 million, respectively. During the nine months ended September 30, 2020 and 2019, employees purchased 105,241 and 101,959 shares, respectively, under the ESPP. The expense recorded for these periods was approximately $0.6 million and $0.4 million, respectively.

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Note 12. Net Income (Loss) Per Share~~

We present both basic earnings per share (“EPS”) and diluted EPS. Basic EPS excludes potential dilution and is computed by dividing “Net income (loss)” by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock awards were exercised and if our Convertible Notes were converted. The potential dilution from stock awards is accounted for using the treasury stock method based on the average market value of the Company's common stock. The potential dilution from conversion of the Convertible Notes is accounted for using the if-converted method, which requires that all of the shares of the Company's common stock issuable upon conversion of the Convertible Notes will be included in the calculation of diluted EPS assuming conversion of the Convertible Notes at the beginning of the reporting period (or at time of issuance, if later).

~~The following table shows the calculations for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share amounts).~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Numerator - basic
Net income (loss) $ 2,557 $ 2,143 $ (11,245) $ 1,710
Numerator - diluted
Net income (loss) $ 2,557 $ 2,143 $ (11,245) $ 1,710
Convertible note accretion, amortization, and interest, net of tax 1,975 0 0 0
Net income (loss) used in diluted EPS $ 4,532 $ 2,143 $ (11,245) $ 1,710
Denominator
Basic weighted average shares outstanding 110,461 103,899 107,605 99,149
Dilutive effect of stock options 3,017 3,650 0 3,349
Dilutive effect of restricted stock awards 175 331 0 268
Dilutive effect of Convertible Notes 5,538 0 0 0
Diluted weighted average shares outstanding 119,191 107,880 107,605 102,766
Basic net income (loss) per share $ 0.02 $ 0.02 $ (0.10) $ 0.02
Diluted net income (loss) per share $ 0.04 $ 0.02 $ (0.10) $ 0.02

The following potential dilutive shares were excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Stock options 0 0 3,069,286 0
Restricted stock awards 0 0 201,579 0
Convertible Notes 0 0 3,112,801 0

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Note ~~13. Related Party Transactions~~10. Stock-Based Compensation

~~On May 22,~~The Company recorded approximately $4.5 million and $2.6 million in stock-based compensation expense for the three months ended June 30, 2021 and 2020, respectively, and approximately $7.2 million and $4.8 million in stock-based compensation expense for the six months ended June 30, 2021 and 2020, respectively. A summary of the stock option activity under the Company’s plans for the six months ended June 30, 2021 is as follows:


	Number of Shares	Weighted Average Exercise Price
Options outstanding at December 31, 2020	3,785,941	$	15.21
Options granted	757,197	$	49.04
Less:
Options exercised	612,307	$	10.89
Options forfeited	200,148	$	30.86
Options outstanding at June 30, 2021	3,730,683	$	21.94
Exercisable at June 30, 2021	2,054,032	$	11.75

The fair value of each stock option award granted during the six months ended June 30, 2021 was estimated as of the grant date using a Black-Scholes model with the following weighted average assumptions:


			Six Months Ended June 30, 2021
Expected term (in years)			4.0 - 5.5
Risk-free interest rate (%)			0.7%
Expected volatility (%)			39% - 49%
Dividend yield (%)			0
Weighted average fair value/share at grant date			$18.53

As of June 30, 2021, there was approximately $15 million of unrecognized stock-based compensation expense related to stock options that will be recognized over a weighted-average period of approximately 2.2 years.

A summary of the restricted stock activity under the Company’s plans for the six months ended June 30, 2021 is as follows:


	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2020	291,891	$	23.82
Granted	273,327	$	49.33
Vested	(93,934)	$	24.69
Forfeited	(28,318)	$	34.55
Nonvested at June 30, 2021	442,966	$	38.69

As of June 30, 2021, there was approximately $12.1 million of unrecognized stock-based compensation expense related to restricted stock that will be recognized over a weighted-average period of approximately 1.9 years.

Employee Stock Purchase Plan (“ESPP”)

The Company ~~formed~~offers an ESPP through which eligible employees may purchase shares of the Company’s common stock at a ~~strategic alliance with Inivata Limited, a company incorporated in England~~discount of 15% of the fair market value of the Company’s common stock.

During the three months ended June 30, 2021 and ~~Wales (“Inivata”),~~2020, employees purchased 31,839 and ~~entered into a Strategic Alliance Agreement~~41,058 shares, respectively, under the ESPP. The expense recorded for these periods was approximately $0.3 million and ~~Laboratory Services Agreement whereas Inivata will render~~$0.2 million, respectively. During the six months ended June 30, 2021 and ~~perform certain laboratory testing which~~2020, employees purchased 55,756 and 75,388 shares, respectively, under the ~~Company will make available to customers.~~

~~For further details on the investment made in Inivata, please refer to Note 14. Investment in Non-Consolidated Affiliate.~~ESPP. The expense recorded for these periods was approximately $0.5 million and $0.4 million, respectively.

3034

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note ~~14. Investment~~11. Revenue Recognition

The Company has 2 operating segments for which it recognizes revenue; Clinical Services and Pharma Services. The Clinical Services segment provides various clinical testing services to community-based pathology practices, oncology practices, hospital pathology labs, reference labs, and academic centers with reimbursement from various payers including client direct billing, commercial insurance, Medicare and other government payers, and patients. Due to the broad roll-out of the COVID-19 vaccine and a sharp decline in ~~Non-Consolidated Affiliate~~

~~On May 22, 2020,~~COVID-19 PCR testing demand, the Company formed a strategic alliance with Inivata Limited, a company incorporated in England and Wales (“Inivata”), and entered into a Strategic Alliance Agreement and Laboratory Services Agreement whereas Inivata will render and perform certain laboratorymade the decision at the end of the first quarter of 2021 to exit from COVID-19 PCR testing which was part of Clinical Services segment revenues. The Pharma Services segment supports pharmaceutical firms in their drug development programs by providing testing services and data analytics for clinical trials and research.

Clinical Services Revenue

The Company’s specialized diagnostic services are performed based on a written test requisition form or electronic equivalent. The performance obligation is satisfied and revenues are recognized once the ~~Company will make available to customers. The terms~~diagnostic services have been performed and ~~conditions of~~ the Laboratory Services Agreement are consistent with those that would be negotiated between willing parties on an arm's length basis. Related party amounts related to Inivata for the third quarter were immaterial.

~~In addition~~results have been delivered to the ~~Laboratory Services Agreement, the Company also entered into an Investment Agreement with Inivata (the “Investment Agreement”), pursuant~~ordering physician. These diagnostic services are billed to ~~which the Company acquired Series C1 Preference Shares (the “Preference Shares”)~~various payers, including client direct billing, commercial insurance, Medicare and other government payers, and patients. Revenue is recorded for $25 million in cash (the “Investment”) resulting in a minority interest in Inivata’s outstanding equity and an Option Deed which provides the Company with an option to purchase Inivata (the “Purchase Option”). The Investment was made in 2 equal installments, with the initial installment made in May 2020 and the second installment in August 2020.

Inivata is a VIE and the Company's investment is under 20% of the total equity outstanding. The Company considers qualitative factors in assessing the primary beneficiary of the VIE which include understanding the purpose and design of the VIE, associated risks that the VIE creates, activities that could be directed by the Company, and the expected relative impact of those activities on the economic performance of the VIE. Based on an evaluation of these factors, the Company concluded that it is not the primary beneficiary of Inivata.

The power to control the activities that most significantly impact Inivata’s economic performance are the sole responsibility of Inivata's management, however the Company does have significant influence over Inivata. As the Preference Shares were determined to not be in-substance common stock, and because the Preference Shares and the Purchase Option do not have readily determinable fair values, the Company has elected to measure the Preference Shares and the Purchase Option at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. There were no such events and the Company determined no adjustments to the carrying amounts of the Preference Shares and the Purchase Option were necessary at September 30, 2020.

~~Upon acquisition, the Investment was allocated between the Preference Shares and the Purchase Option~~all payers based on the ~~relative fair~~amount expected to be collected, which considers implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to receive based on negotiated discounts, historical collection experience and other anticipated adjustments, including anticipated payer denials. Collection of consideration the Company expects to receive typically occurs within 30 to 90 days of billing for commercial insurance, Medicare and other governmental and self-pay payers and within 60 to 90 days of billing for client payers.

Pharma Services Revenue

The Company’s Pharma Services segment generally enters into contracts with pharmaceutical customers as well as other CROs to provide research and clinical trial services ranging in duration from one month to several years. The Company records revenue on a unit-of-service basis based on number of units completed and the total expected contract value. The total expected contract value is estimated based on historical experience of total contracted units compared to realized units as well as known factors on a specific contract-by-contract basis. Certain contracts include upfront fees, final settlement amounts or billing milestones that may not align with the completion of performance obligations. The value of ~~each~~these upfront fees or final settlement amounts is usually recognized over time based on the number of units completed, which aligns with the progress of the Company towards fulfilling its obligations under the contract.

The Company also enters into other contracts, such as validation studies and informatics. Revenue for validation studies for which the sole deliverable may be a final report that is ~~recorded, along~~sent to sponsors at the completion of contracted activities, is recognized at a point in time upon delivery of the final report to the sponsor. Informatics is the sale of de-identified data for which deliverables typically consist of retrospective records, prospective deliveries of data or clinical decision support. Informatics revenue is recognized upon delivery of retrospective data, over time for prospective data feeds and clinical decision support. Any contracts that contain multiple performance obligations and include both units-of-service and point in time deliverables are accounted for as separate performance obligations and revenue is recognized as previously disclosed. The Company negotiates billing schedules and payment terms on a contract-by-contract basis. While the contract terms generally provide for payments based on a unit-of-service arrangement, the billing schedules, payment terms and related cash payments may not align with ~~associated transaction costs,~~the performance of services and, as ~~“Investment~~such, may not correspond to revenue recognized in ~~non-consolidated affiliate”~~any given period.

Amounts collected in advance of services being provided are deferred as contract liabilities on the Consolidated Balance Sheets. AsThe associated revenue is recognized and the contract liability is reduced as the contracted services are subsequently performed. Contract assets are established for revenue that has been recognized but not yet billed. These contract assets are reduced once the customer is invoiced and a corresponding receivable is recorded. Additionally, certain costs to obtain contracts, primarily for sales commissions, are capitalized when incurred and are amortized over the term of ~~September 30, 2020,~~ the ~~investment is~~contract. Amounts capitalized for contracts with an initial contract term of twelve months or less are classified as ~~Level 3 in~~current assets. All others are classified as non-current assets.

Most contracts are terminable by the ~~fair value hierarchy~~customer, either immediately or according to advance notice terms specified within the contracts. All contracts require payment of fees to the Company for services rendered through the date of termination and may require payment for subsequent services necessary to conclude the study or close out the contract.

The following table summarizes the values of contract assets, capitalized commissions and contract liabilities (in thousands):

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	June 30, 2021		December 31, 2020
Current pharma contract assets (1)	$	1,842	$	1,643
Long-term pharma contract assets (2)	325		290
Total pharma contract assets	$	2,167	$	1,933


Current pharma capitalized commissions (1)	$	128	$	185
Long-term pharma capitalized commissions (2)	940		970
Total pharma capitalized commissions	$	1,068	$	1,155


Current pharma contract liabilities	$	4,497	$	4,029
Long-term pharma contract liabilities (3)	794		712
Total pharma contract liabilities	$	5,291	$	4,741

(1) Current pharma contract assets and Current pharma capitalized commissions are classified as ~~its equity is not traded~~other current assets on ~~a public exchange. At September~~the Consolidated Balance Sheets.

(2) Long-term pharma contract assets and Long-term pharma capitalized commissions are classified as other assets on the Consolidated Balance Sheets.

(3) Long-term pharma contract liabilities are classified as other long-term liabilities on the Consolidated Balance Sheets.

Pharma contract assets increased $0.2 million, or 12%, from December 31, 2020 to June 30, ~~2020, the carrying amount of the investment in non-consolidated affiliate is $25.6 million. The value is comprised of $19.2 million in Preference Shares, a $5.8 million Purchase Option and~~2021. Pharma contract liabilities increased $0.6 million, ~~of associated transaction costs.~~

~~The Company and Inivata also entered into a line of credit agreement~~or 12%, during the same period, while there was an 8% decrease in the amount of $15 million (the “Line of Credit”). The Line of Credit will be available to be drawn by Inivata beginning on January 1, 2021 and has a maturity date of December 1, 2025. The Line of Credit bears interest at 0% per annum and the unpaid principal balance is payable on January 1, 2026. The Line of Credit is subject to evaluation for current expected credit losses. The impact of such losses were determined to be immaterialcapitalized commissions. Revenue recognized for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~

~~At September~~2021 related to Pharma contract liability balances outstanding at the beginning of the period was $1.1 million and $3.8 million, respectively. Revenue recognized for the three and six months ended June 30, 2020 related to Pharma contract liability balances outstanding at the ~~maximum exposure to losses does not exceed the carrying amount~~beginning of the ~~investment combined~~period was $0.4 million and $1.6 million, respectively. Amortization of capitalized commissions for the three and six months ended June 30, 2021 was $0.5 million and $0.7 million, respectively. Amortization of capitalized commissions for the three and six months ended June 30, 2020 was $0.1 million and $0.3 million, respectively.

Disaggregation of Revenue

The Company considered various factors for both its Clinical Services and Pharma Services segments in determining appropriate levels of homogeneous data for its disaggregation of revenue, including the nature, amount, timing and uncertainty of revenue and cash flows. For Clinical Services, the categories identified align with the ~~contractual obligation~~type of customer due to ~~fund~~similarities of billing method, level of reimbursement and timing of cash receipts. Unbilled amounts are accrued and allocated to ~~Line~~payer categories based on historical experience. In future periods, actual billings by payer category may differ from accrued amounts. Pharma Services revenue was not further disaggregated as substantially all of ~~Credit.~~the revenue relates to contracts with large pharmaceutical and biotech customers as well as other CROs for which the nature, timing and uncertainty of revenue and cash flows is similar and primarily driven by individual contract terms.

The following table details the disaggregation of revenue for both the Clinical and Pharma Services Segments (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Clinical Services:
Client direct billing	$	63,137	$	45,244	$	123,846	$	99,535
Commercial Insurance	20,528		15,148		39,102		37,142
Medicare and Medicaid	17,484		13,541		34,634		30,024
Self-Pay	256		(49)		310		165
Total Clinical Services	$	101,405	$	73,884	$	197,892	$	166,866
Pharma Services:	20,319		13,093		39,365		26,141
Total Revenue	$	121,724	$	86,977	$	237,257	$	193,007

3136

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 12. Net Income (Loss) Per Share

The Company presents both basic earnings per share (“EPS”) and diluted EPS. Basic EPS excludes potential dilution and is computed by dividing “Net income (loss)” by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock awards were exercised and if the 2028 Convertible Notes and 2025 Convertible Notes were converted. The potential dilution from stock awards is accounted for using the treasury stock method based on the average market value of the Company’s common stock. The potential dilution from conversion of the 2028 Convertible Notes and 2025 Convertible Notes is accounted for using the if-converted method, which requires that all of the shares of the Company’s common stock issuable upon conversion of the 2028 Convertible Notes and the 2025 Convertible Notes will be included in the calculation of diluted EPS assuming conversion of the 2028 Convertible Notes and the 2025 Convertible Notes at the beginning of the reporting period (or at time of issuance, if later).

The following table shows the calculations (in thousands, except net income (loss) per share amounts):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Adjustment to net income (loss) for convertible notes in diluted EPS (1)
NET INCOME (LOSS)	$	75,873	$	(6,824)	$	53,759	$	(13,802)
Convertible note accretion, amortization, and interest, net of tax	1,552		0		2,997		0
NET INCOME (LOSS) USED IN DILUTED EPS	77,425		(6,824)		56,756		(13,802)


Basic weighted average shares outstanding	118,287		107,887		117,249		106,209
Dilutive effect of stock options	2,027		0		2,221		0
Dilutive effect of restricted stock awards	170		0		196		0
Dilutive effect of Convertible Notes due 2025	5,538		0		5,538		0
Dilutive effect of Convertible Notes due 2028	5,215		0		5,043		0
Diluted weighted average shares outstanding	131,237		107,887		130,247		106,209

Basic net income (loss) per share	$	0.64	$	(0.06)	$	0.46	$	(0.13)
Diluted net income (loss) per share	$	0.59	$	(0.06)	$	0.44	$	(0.13)

(1) This adjustment compensates for the effects of the if-converted impact of convertible notes in adjusted net income. Since an entity using the if-converted method assumes that a convertible debt instrument was converted into common shares at the beginning of the reporting period, net income (loss) is adjusted to reverse any recognized interest expense (including any amortization of discounts).

The following potential dilutive shares were excluded from the calculation of diluted net income (loss) per share because their effect would be anti-dilutive (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Stock options	0	2,871	0	2,944
Restricted stock awards	0	281	0	237
2025 Convertible Notes	0	3,773	0	1,887
2028 Convertible Notes	0	0	0	0

The potential effect of the Capped Call Transactions entered into concurrently with the 2028 Convertible Notes were excluded from the calculation of diluted net income (loss) per share in the three and six ended June 30, 2021 as the Company’s closing price on June 30, 2021 did not exceed the conversion price of $85.75 per share. The Capped Call Transactions are not reflected in diluted net income (loss) per share as they are anti-dilutive.

For further details on the Capped Call Transactions, please refer to Note 8. Debt.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 13. Defined Contribution Plans

The Company maintains a defined-contribution 401(k) retirement plan covering substantially all U.S. based employees (as defined). The Company's employees may make voluntary contributions to the plan, subject to limitations based on IRS regulations and compensation. Effective January 1, 2017 the Company matches 100% of every dollar contributed up to 3% of the respective employee’s compensation and an additional 50% of every dollar contributed on the next 2% of compensation (4% maximum Company match). Matching contributions were approximately $1.5 million and $3.1 million for the three and six months ended June 30, 2021, respectively, and $1.2 million and $2.6 million for the corresponding periods ended June 30, 2020, respectively, and are recorded in cost of revenue and operating expenses.

As of the Inivata Acquisition Date, the Company operates a number of country-specific defined contribution pension plans for its employees and pays matching contributions into a separate entity through Inivata Limited, a wholly-owned subsidiary of the Company. Employer contributions are made in accordance with the terms and conditions of the respective country benefit plan. Employees may contribute additionally in accordance with the prevailing statutory limitations. Once the contributions have been paid, the Company has no further payment obligations. The assets of the plan are held separately from the Company and Inivata Limited in independently administered funds. The contributions are recognized as an expense in the Consolidated Statements of Operations when they are due. Amounts not paid are accrued as a short term liability in the Consolidated Balance Sheets. Such amounts for the period beginning on the Inivata Acquisition date through June 30, 2021 were immaterial.

Note 14. Commitments and Contingencies

On January 20, 2021, Natera, Inc. filed a patent infringement complaint against the Company’s newly-acquired subsidiary Inivata Limited and its subsidiary Inivata, Inc. in United States District Court for the district of Delaware, alleging Inivata’s InVisionFirst-Lung cancer diagnostic test of infringing 2 patents. The litigation is presently in the pleadings stage. The Company intends to defend this matter vigorously, and believes that the Company has good and substantial defenses to the claims alleged in the suit, but there is no guarantee that the Company will prevail. At the time of filing, the outcome of this matter is not estimable or probable.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 15. Related Party Transactions

On May 22, 2020, the Company formed a strategic alliance with Inivata and entered into a Strategic Alliance Agreement and Laboratory Services Agreement whereas Inivata, prior to the Inivata Acquisition Date, would render and perform certain laboratory testing which the Company made available to customers. In connection with this agreement, Inivata provided $0.4 million and $0.8 million of testing services to the Company recorded in cost of revenue in the Consolidated Statements of Operations for the three and six months ended June 30, 2021, respectively, through the Inivata Acquisition Date. Such services provided for the three and six months ended June 30, 2020 were immaterial.

On May 22, 2020, the Company and Inivata also entered into a Line of Credit in the amount of $15 million. The Company and Inivata settled the Line of Credit after the Inivata Acquisition Date and no amounts were outstanding as of June 30, 2021. For further details on the Line of Credit, please refer to Note 7. Investment in Non-Consolidated Affiliate.

On June 18, 2021, the Company completed its acquisition of all remaining equity interest in Inivata by exercising its Purchase Option. Beginning June 18, 2021, Inivata is a wholly-owned consolidated subsidiary of the Company. As of the Inivata Acquisition Date, Inivata’s financial statement activity is being consolidated within the Company’s unaudited Consolidated Financial Statements. For further details on the acquisition of Inivata, please refer to Note 3. Acquisitions.

NEOGENOMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note ~~15.~~16. Segment Information

The Company has 2 operating segments for which it recognizes revenue; Clinical Services and Pharma Services. ~~Our~~The Company’s Clinical Services segment provides various clinical testing services to community-based pathology and oncology practices, hospital pathology labs and academic centers with reimbursement from various payers including client direct billing, commercial insurance, Medicare and other government payers, and patients. ~~Our~~The Company’s Pharma Services segment supports pharmaceutical firms in their drug development programs by supporting various clinical trials and research as well as providing informatics related services often supporting Pharma commercialization efforts.

The financial information reviewed by the Chief Operating Decision Maker (“CODM”) includes revenues, cost of revenue and gross ~~margin~~profit for each of the Company’s operating segments. Assets are not presented at the segment level as that information is not used by the CODM.

The following table summarizes the segment information (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net revenues:	Net revenues:									Net revenues:
Clinical Services	Clinical Services	$	108,733	$	92,565	$	275,599	$	267,757	Clinical Services	$	101,405	$	73,884	$	197,892	$	166,866
Pharma Services	Pharma Services	16,711		12,107		42,852		34,205		Pharma Services	20,319		13,093		39,365		26,141
Total revenue	Total revenue	125,444		104,672		318,451		301,962		Total revenue	121,724		86,977		237,257		193,007

Cost of revenue:	Cost of revenue:									Cost of revenue:
Clinical Services(1)	Clinical Services(1)	60,607		47,526		158,287		136,557		Clinical Services(1)	57,233		48,757		118,798		97,680
Pharma Services	Pharma Services	10,772		6,314		31,724		18,492		Pharma Services	11,501		10,214		23,895		20,952
Total cost of revenue	Total cost of revenue	71,379		53,840		190,011		155,049		Total cost of revenue	68,734		58,971		142,693		118,632

Gross Profit:	Gross Profit:									Gross Profit:
Clinical Services	Clinical Services	48,126		45,039		117,312		131,200		Clinical Services	44,172		25,127		79,094		69,186
Pharma Services	Pharma Services	5,939		5,793		11,128		15,713		Pharma Services	8,818		2,879		15,470		5,189
Total gross profit	Total gross profit	54,065		50,832		128,440		146,913		Total gross profit	52,990		28,006		94,564		74,375

Operating expenses:	Operating expenses:									Operating expenses:
General and administrative	General and administrative	36,128		33,054		107,085		94,773		General and administrative	54,638		34,613		95,114		70,957
Research and development	Research and development	1,964		2,611		6,129		6,407		Research and development	3,495		2,105		5,951		4,165
Sales and marketing	Sales and marketing	11,304		11,508		34,757		35,048		Sales and marketing	17,224		10,195		30,973		23,453
Total operating expenses	Total operating expenses	49,396		47,173		147,971		136,228		Total operating expenses	75,357		46,913		132,038		98,575
Income (loss) from operations		4,669		3,659		(19,531)		10,685
Loss from operations										Loss from operations	(22,367)		(18,907)		(37,474)		(24,200)
Interest expense, net	Interest expense, net	2,458		203		4,825		3,333		Interest expense, net	902		1,548		2,079		2,367
Other (income) expense, net		(11)		(35)		(7,639)		5,124
Other income, net										Other income, net	(171)		(7,405)		(341)		(7,628)
Gain on investment in and loan receivable from non-consolidated affiliate, net										Gain on investment in and loan receivable from non-consolidated affiliate, net	(96,534)		0		(91,510)		0
Loss on extinguishment of debt	Loss on extinguishment of debt	0		0		1,400		1,018		Loss on extinguishment of debt	0		1,400		0		1,400
Loss on termination of cash flow hedge	Loss on termination of cash flow hedge	0		0		3,506		0		Loss on termination of cash flow hedge	0		3,506		0		3,506
Income (loss) before taxes	Income (loss) before taxes	2,222		3,491		(21,623)		1,210		Income (loss) before taxes	73,436		(17,956)		52,298		(23,845)
Income tax (benefit) expense		(335)		1,348		(10,378)		(500)
Income tax benefit										Income tax benefit	(2,437)		(11,132)		(1,461)		(10,043)
Net income (loss)	Net income (loss)	$	2,557	$	2,143	$	(11,245)	$	1,710	Net income (loss)	$	75,873	$	(6,824)	$	53,759	$	(13,802)

~~NEOGENOMICS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

(1)

~~Note 16. Subsequent Event~~

~~On October 22, 2020, HHS issued an updated Post-Payment Notice~~ Clinical cost of Reporting Requirements and a Reporting Requirements Policy Update (together, the “October 22, 2020 Notice”) which, among other changes, effectively reinstates the definition of lost revenues that was the basisrevenue for the ~~$7.9 million of grant income received and recognized during the nine~~three months ended ~~September~~June 30, ~~2020. For further details on~~2021 includes $0.7 million amortization of acquired intangible assets. Clinical cost of revenue for the ~~grant income received~~six months ended June 30, 2021 includes $0.7 million amortization of acquired intangible assets and ~~recognized please refer to Note 1. Nature~~write-offs of ~~the Business, Basis of Presentation and Significant Accounting Policies. The Company’s evaluation of the October 22, 2020 Notice is ongoing and the amount by which the $7.9~~$5.3 million ~~of grant income may be utilized as a result of the October 22, 2020 Notice is not yet known.~~for COVID-19 PCR testing inventory.

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NeoGenomics, Inc., a Nevada corporation, (referred to collectively with its subsidiaries as “NeoGenomics”, “we”, “us”, “our” or the “Company” in this Form 10-Q) is the registrant for SEC reporting purposes. Our common stock is listed on the Nasdaq Stock Market LLC (“NASDAQ”) under the symbol “NEO”.

Introduction

The following discussion and analysis should be read in conjunction with the unaudited ~~consolidated financial statements~~Consolidated Financial Statements and the notes thereto included herein. The information contained below includes statements of the Company’s or management’s beliefs, expectations, hopes, goals and plans that, if not historical, are forward-looking statements subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. For a discussion on forward-looking statements, see the information set forth in the introductory note to this quarterly report on Form 10-Q under the caption “Forward-Looking Statements”, which information is incorporated herein by reference.

COVID-19 Pandemic

In December 2019, a novel strain of coronavirus (“COVID-19”) was identified and the disease has since spread across the world, including the United States. In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The outbreak of the pandemic is materially adversely affecting the Company’s employees, patients, communities and business operations, as well as the United States (“U.S.”) economy and financial markets. The full extent to which the COVID-19 outbreak will impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, including related variants, and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets. As the COVID-19 pandemic continues, the Company’s results of operations, financial condition and cash flows ~~are likely to~~may continue to be materially adversely affected, particularly if the pandemic persists for a significant amount of time.

The impact from the COVID-19 pandemic and the related disruptions have had a material adverse impact on our results of operations, volume growth rates and ~~clinical~~ test volumes in ~~2020.~~2020 and the first half of 2021. Demand may fluctuate ~~to historically low levels~~ depending on the duration and severity of the COVID-19 pandemic, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties. Such events may result in business disruption, reduced revenues and number of tests, any of which could materially affect our business, financial condition, and results of operations.

We have ~~implemented~~taken significant actions to protect our employees and maintain a safe environment while ~~maintaining a~~ensuring continuity of critical oncology testing for cancer patients. Among other actions, we have de-densified our laboratories and facilities, adjusted laboratory shifts, restricted visitors to facilities, restricted employee travel, implemented an ~~Emergency Paid Time Off~~emergency paid time off policy, provided remote work-environment training and support, and managed ~~its~~our supply chains. Importantly, all main laboratory facilities have remained open and there has been an uninterrupted continuity of high-quality testing services for clients. The ~~Company's~~Company’s top priority remains the health and safety of employees and continued quality and service for all clients with a focus on patient care. We believe that we are positioned to recover from the effects of the COVID-19 pandemic. ~~The addition of COVID-19 PCR testing capabilities and our broad test menu enables our sales teams to identify opportunities for increasing revenues.~~

For additional information on risk factors related to the pandemic or other risks that could impact our results, please refer to the Company’s Form 10-K under Item 1A, “Risk Factors” ~~in Part II, Item 1A of this Form 10-Q, and in our Annual Report on Form 10-K~~ for the ~~fiscal~~ year ended December 31, ~~2019 and our Quarterly Reports~~2020, as filed with the SEC on ~~Form 10-Q for the fiscal quarters ended March 31, 2020 and June 30, 2020.~~February 25, 2021.

Overview

We operate a network of cancer-focused testing laboratories in the United States, Europe and Asia. Our mission is to improve patient care through exceptional cancer-focused testing services. Our vision is to ~~become~~be the ~~World’s~~world’s leading cancer testing and information company by delivering uncompromising quality, exceptional service and innovative solutions.

As of ~~September~~June 30, ~~2020,~~2021, the Company ~~had~~has laboratory locations in Fort Myers and Tampa, Florida; Aliso Viejo, Carlsbad, and San Diego, California; Research Triangle Park, North Carolina; Houston, Texas; Atlanta, Georgia; Nashville, Tennessee; Cambridge, United Kingdom; Rolle, ~~Switzerland~~Switzerland; and Singapore. ~~The Company~~We currently ~~offers~~offer the following types of testing services:

a.Cytogenetics (“karyotype analysis”) –- the study of normal and abnormal chromosomes and their relationship to disease. Cytogenetics involves analyzing the chromosome structure to identify changes from patterns seen

~~NEOGENOMICS, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

in normal chromosomes. Cytogenetic studies are often performed to provide diagnostic, prognostic and occasionally predictive information for patients with hematological malignancies.

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b.Fluorescence In-Situ Hybridization (“FISH”) –- a molecular cytogenetic technique that focuses on detecting and localizing the presence or absence of specific DNA sequences and genes on chromosomes. The technique uses fluorescent probes that bind to only those parts of the chromosome with which they show a high degree of sequence similarity. Fluorescence microscopy is used to visualize the fluorescent probes bound to the chromosomes. FISH can be used to help identify numerous types of gene alterations, including amplifications, deletions, and translocations.

c.Flow cytometry –- a technique utilized to measure the characteristics of cell populations. Typically performed on liquid samples such as peripheral blood and bone marrow aspirate, it may also be performed on solid tissue samples such as lymph nodes following additional processing steps. Cells are labeled with selective fluorescent antibodies and analyzed as they flow in a fluid stream through a beam of light. The properties measured in these antibodies include the relative size, relative granularity or internal complexity, and relative fluorescence intensity. These fluorescent antibodies bind to specific cellular antigens and are used to identify abnormal and/or malignant cell populations. Flow cytometry is typically utilized in diagnosing a wide variety of hematopoietic and lymphoid neoplasms. Flow cytometry is also used to monitor patients during the course of therapy to identify extremely low levels of residual malignant cells, known as minimal residual disease ~~(MRD)~~(“MRD”) monitoring.

d.Immunohistochemistry ~~(IHC)~~(“IHC”) and Digital Imaging – the process of localizing cellular proteins in tissue sections and relies on the principle of antigen-antibody binding. IHC is widely used in the diagnosis of abnormal cells such as those found in cancer. Specific surface membrane, cytoplasmic, or nuclear markers may be identified. IHC is also widely used to understand the distribution and localization of differentially expressed proteins. Digital imaging allows clients to visualize scanned slides, and also perform quantitative analysis for certain stains. Scanned slides are received online in real time and can be previewed often a full day before the glass slides can be shipped back to clients.

e.Molecular testing – a rapidly growing field which includes a broad range of laboratory techniques utilized in cancer testing. Most molecular techniques rely on the analysis of DNA and/or RNA, as well as the structure and function of genes at the molecular level. Molecular testing technologies include: liquid biopsy tests for advanced non-small cell lung cancer, all solid tumor types (pan-cancer), and certain breast cancer cases; DNA fragment length analysis; polymerase chain reaction ~~(PCR)~~(“PCR”) analysis; reverse transcriptase polymerase chain reaction ~~(RT-PCR)~~(“RT-PCR”) analysis, real-time (or quantitative) polymerase chain reaction ~~(qPCR)~~(“qPCR”) analysis; bi-directional Sanger sequencing analysis; and next-generation sequencing ~~(NGS)~~(“NGS”) analysis.

f.Morphologic analysis – the process of analyzing cells under the microscope by a pathologist, usually for the purpose of diagnosis. Morphologic analysis may be performed on a wide variety of samples, such as peripheral blood, bone marrow, lymph node, and from other sites such as lung, breast, etc. The services provided at NeoGenomics may include primary diagnosis, in which a sample is received for processing and our pathologists provide the initial diagnosis; or may include secondary consultations, in which slides and/or tissue blocks are received from an outside institution for second opinion. In the latter setting, the expert pathologists at NeoGenomics assist our client pathologists on their most difficult and complex cases.

Clinical Services Segment

The clinical cancer testing services we offer to community-based pathologists are designed to be a natural extension of, and complementary to, the services that they perform within their own practices. We believe our relationship as a non-competitive partner to community-based pathology practices, hospital pathology labs, reference labs, and academic centers empowers them to expand their breadth of testing and provide a menu of services that matches or exceeds the level of service found in any center of excellence around the world. Community-based pathology practices and hospital pathology labs may order certain testing services on a technical component only (“TC” or “tech-only”) basis, which allows them to participate in the diagnostic process by performing the professional component (“PC”) interpretation services without having to hire laboratory technologists or purchase the sophisticated equipment needed to perform the technical component of the tests. We also support our pathology clients with interpretation and consultative services using our own specialized team of pathologists for difficult or complex cases and provide overflow interpretation services when requested by clients.

NeoGenomics is a leading provider of Molecular and next-generation sequencing (“NGS”) testing. These tests are interpreted by NeoGenomics’ team of Molecular experts and are often ordered in conjunction with other testing modalities. NGS panels are one of our fastest growing testing areas and clients can often receive a significant amount of biomarker information from very

~~NEOGENOMICS, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

limited samples. These comprehensive panels can allow for faster treatment decisions for patients as compared to a series of single-gene molecular tests being ordered sequentially. NeoGenomics has one of the broadest Molecular menus in the industry and our targeted NeoTYPE panels include genes relevant to a particular cancer type, as well as other complementary tests such

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

as immunohistochemistry and FISH. This comprehensive menu means that NeoGenomics can be a “one-stop shop” for our clients who can get all of their oncology testing needs satisfied by our laboratory. This is attractive to our clients as patient samples do not need to be split and then managed across several laboratories. NeoGenomics expects our Molecular laboratory and NGS capabilities to be a key growth driver in the coming years.

In addition, we directly serve oncology, dermatology and other clinician practices that prefer to have a direct relationship with a laboratory for cancer-related genetic testing services. We typically service these types of clients with a comprehensive service offering where we perform both the technical and professional components of the tests ordered. In certain instances, larger clinician practices have begun to internalize pathology interpretation services, and our tech-only service offering allows these larger clinician practices to also participate in the diagnostic process by performing the PC interpretation services on TC testing performed by NeoGenomics. In these instances, NeoGenomics will typically provide all of the more complex, molecular testing services.

Pharma Services Segment

Our Pharma Services revenue consists of three revenue streams:

•Clinical trials and research;

•Validation laboratory services; and

•Informatics

Our Pharma Services segment supports pharmaceutical firms in their drug development programs by supporting various clinical trials and research. This portion of our business often involves working with the pharmaceutical firms (sponsors) on study design as well as performing the required testing. Our medical team often advises the sponsor and works closely with them as specimens are received from the enrolled sites. We also work on developing tests that will be used as part of a companion diagnostic to determine patients’ response to a particular drug. As studies unfold, our clinical trials team reports the data and often provides key analysis and insights back to the sponsors.

Our Pharma Services segment provides comprehensive testing services in support of our pharmaceutical clients’ oncology programs from discovery to commercialization. In biomarker discovery, our aim is to help our customers discover the right content. We help our customers develop a biomarker hypothesis by recommending an optimal platform for molecular screening and backing our discovery tools with the informatics to capture meaningful data. In other ~~pre~~pre-clinical and non-clinical work, we can use our platforms to characterize markers of interest. Moving from discovery to development, we help our customers refine their biomarker strategy and, if applicable, develop a companion diagnostic pathway using the optimal technology for large-scale clinical trial testing.

Whether serving as the single contract research organization or partnering with one, our Pharma Services team provides significant technical expertise, working closely with our customers to support each stage of clinical trial development. Each trial we support comes with rapid turnaround time, dedicated project management and quality assurance oversight. We have experience in supporting submissions to the Federal Drug Administration (“FDA”) for companion diagnostics. Our Pharma Services strategy is focused on helping bring more effective oncology treatments to market through providing world-class laboratory services in oncology to key pharmaceutical companies in the industry.

We believe that NeoGenomics is uniquely positioned to service Pharma sponsors across the full continuum of the drug development process. Our Pharma Services team can work with them during the basic research and development phase as compounds come out of translational research departments as well as work with clients from Phase 1 clinical trials through Phases II and III as the sponsors work to prove the efficacy of their drugs. The laboratory biomarker tests that are developed during this process may become companion diagnostic, or CDx tests, that will be used on patients to determine if they could respond to a certain therapy. NeoGenomics is able to offer these CDx tests to the market immediately after FDA approval as part of our Day 1 readiness program. This ability helps to speed the commercialization of their drug and enables Pharma sponsors to reach patients through NeoGenomics broad distribution channel in the Clinical Services segment.

We are ~~building~~continuing to develop and broaden our informatics and data-related tools to leverage our unique market position and oncology expertise to help our stakeholders solve real-world problems such as identifying patients for clinical trials or providing clinical decision support tools for physicians and providers. We are committed to connecting patients with life altering therapies and trials. In carrying out these commitments, we aim to provide transparency and choice to patients regarding the handling and use of their data through our Notice of Privacy Practices, and have invested in leading technologies to ensure the data we maintain is secured at all times.

~~2020~~2021 Focus Areas:

We are committed to ~~improving patient care~~sustainable growth while being an innovative leader in our industry. ~~Over the past two years we have grown our business organically as well as through the acquisition of Genesis Acquisition Holding Corp (“Genesis”),~~Our focus for 2021 includes initiatives to drive consistent and ~~its~~profitable growth while pursuing innovation and maintaining exceptional service levels. We

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wholly owned subsidiary, Genoptix, Inc. (“Genoptix”, and collectively with its subsidiaries and Genesis, referred to herein as “Genoptix”) in December of 2018, as well as the acquisition of the Oncology Division assets of Human Longevity, Inc. (“HLI - Oncology”) in January of 2020. Our focus for 2020 includes initiatives to drive profitable growth while pursuing innovation and maintaining exceptional service levels. We expect these initiatives to allow the Company to continue ~~becoming one of~~on its path to become the world’s leading cancer testing and information company.

Strengthen Our World-Class Culture

~~Enhancing~~Fortifying our culture to closely align with the values of our Company is a key priority. We will invest in the development of our people by creating mentoring, coaching and training opportunities to enhance and capitalize on the talent within our Company. We believe these initiatives will foster a culture of accountability and ~~empowerment.~~ empowerment and are imperative to providing a meaningful work experience for our employees.

We ~~also believe these initiatives are necessary to ensure~~value the ~~success~~health of our ~~Company.~~

employees and want them to perform at their best, personally and professionally. We actively promote the health and well-being of our ~~employees. We~~employees and recognize that overall health goes beyond greater health benefits and preventative care and includes a variety of areas such as physical, emotional and financial health. We provide a variety of programs to promote the ~~quality~~improvement of our employees’ health in these and other areas.

Building a resilient, sustainable organization is central to the success of our Company. Our focus is on expanding our purpose to extend beyond the organization to include all stakeholders. This includes the communities we serve and our society as a whole. We build our talent through coaching and mentoring programs to meet the demands of our critical work of the ~~physical work environment~~future and ~~programs that encourage social responsibility and community engagement.~~

~~Additionally, inclusive communication is a key element in~~ our ~~high performance culture. Effective communication facilitates collaboration and enhances our employees’ understanding of their contributions to the Company’s overall objectives.~~leadership needs. We will ~~foster employee engagement through collaborative forums, frequent team dialogue~~partner within our communities to remove barriers and ~~recognition programs~~sponsor educational opportunities needed to ~~reward teams for exceptional performance. Our employee retention rate is above average for~~meet our ~~industry and continuing to strengthen our culture will enable us to recruit and retain world-class talent.~~highly-skilled workforce demands.

Continue to Provide Uncompromising Quality and Exceptional Service

Maintaining the highest quality laboratory operations and service levels has enabled us to consistently grow our business. We are continuously looking for ways to improve quality and implement best practices to streamline processes. We are focused on increasing automation with solutions that will maintain quality while improving efficiency in operations.

We will continue to grow a culture of quality through our leadership, coaching and employee training initiatives. We aim to empower our employees to deliver high-quality results in their respective function. We will implement initiatives to measure and improve turnaround times while maintaining a culture of quality, which we expect will continue to meet or exceed our ~~customers'~~customers’ expectations.

Pursue Innovation and Growth

Our plans for ~~2020~~2021 include initiatives to continue to drive ~~profitable~~sustainable growth and ~~innovate.~~innovation. We will continue to pursue market share gains by providing high complexity, cancer-related laboratory testing services to hospitals, community-based pathology and oncology practices, academic centers, clinicians, and pharmaceutical companies. Additionally, we will focus on continued reimbursement effectiveness through improving coverage, streamlining processes and providing clients more efficient, automated ordering methods, which we believe will continue to fuel our growth and market share.

Our laboratory and informatics teams will continue focus on new assays and product offerings, including ~~continued progress towards~~ liquid biopsy, ~~minimal residual disease (“MRD”)~~MRD and other high-quality tests. We expect this to ~~result in increased market share as well as~~enhance our strategic position while enabling us to maintain our high levels of client retention.

Our broad and innovative test menu of molecular, including NGS, immunohistochemistry, and other testing has helped make us a “one-stop shop” for many clients who value that all of their testing can be sent to one laboratory. We will continue to look for growth opportunities through mergers and/or acquisitions and are focused on strategic opportunities that would be complementary to our menu of services and would increase our earnings and cash flow in the short to medium time frame. We are also focused on investing in business development and informatics capabilities to partner with our key stakeholders, including patients, providers, payers and pharmaceutical companies to provide solutions to current or near-term problems that they face.

Competitive Strengths

In addition to the competitive strengths discussed below, the Company believes that its superior testing technologies and instrumentation, laboratory information system, client education programs and broad domestic and growing international presence also differentiates NeoGenomics from its competitors.

Turnaround Times

We strive to provide industry leading turnaround times for test results to our clients nationwide, both in the Clinical Services and Pharma Services segments. By providing information to our clients in a rapid manner, physicians can begin treating their patients as soon as possible. Our consistent timeliness of results by our Clinical Services segment is a competitive strength and

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

a driver of additional testing requests by referring physicians. Rapid turnaround times allow for the performance of other adjunctive tests within an acceptable diagnosis window in order to augment or confirm results and more fully inform treatment

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

options. Additionally, we believe that our rapid turnaround time on testing and our project milestones are a key differentiator in our Pharma Services segment.

World-class Medical and Scientific Team

Our team of medical professionals and Ph.Ds. are specialists in the field of genetics, oncology and pathology. As of ~~September~~June 30, ~~2020,~~2021, we employed or contracted with ~~over~~approximately 120 M.D.s and Ph.Ds. We have many nationally and world-renowned pathologists on staff, which is a key differentiator from many smaller laboratories. Our clinical customers look to our staff and their expertise and they often call our medical team on challenging cases. For our Pharma Services segment, many sponsors work with our medical team on their study design and on the interpretation of results from the studies. Our medical team is a key differentiator as we have a depth of medical expertise that many other laboratories cannot offer to Pharmaceutical companies.

Innovative Service Offerings

We believe we currently have the most extensive menu of tech-only FISH services in the country as well as extensive and advanced tech-only flow cytometry and IHC testing services. These types of testing services allow the professional interpretation component of a test to be performed and billed separately by our physician clients. Our tech-only services are designed to give pathologists the option to choose, on a case by case basis, whether they want to order just the technical information and images relating to a specific test so they can perform the professional interpretation, or order “global” services and receive a comprehensive test report which includes a NeoGenomics pathologist’s interpretation of the test results. Our clients appreciate the flexibility to access NeoGenomics’ medical staff for difficult or complex cases or when they are otherwise unavailable to perform professional interpretations.

We offer a comprehensive suite of technical and interpretation services, to meet the needs of those clients who are not credentialed and trained in interpreting genetic tests and who require pathology specialists to interpret their testing results. In our global service offerings, our lab performs the technical component of the tests and our M.D.s and Ph.Ds. provide the service of interpreting the results of those tests. Our professional staff is also available for post-test consultative services. Clients using our global service offering rely on the expertise of our medical team to give them the answers they need in a timely manner to help inform their diagnoses and treatment decisions.

We believe we have one of the broadest Molecular and ~~Next-Generation~~Next Generation Sequencing test menus in the world. Clients have the ability to order single gene molecular tests, targeted NeoTYPE panels that include the relevant actionable genes for a particular cancer type as well as large NGS panels. Our Pharma Services Division offers a full range of sequencing testing including whole exome and whole genome sequencing. Our menu enables us to be a true “one-stop shop” for our clients as we can meet all of their oncology testing needs.

National Direct Sales Force

Our direct sales force has been trained extensively in cancer genetic testing and consultative selling skills to service the needs of clients. Our sales team for the clinical cancer testing services is organized into ~~five~~nine regions - Northeast, Southeast, ~~North Central,~~ South Central, Great Lakes, Midwest, Southwest, Mid-Atlantic, Florida, and ~~West.~~Capital. Our Pharma Services segment has a dedicated team of business development specialists who are experienced in working with pharma sponsors and helping them with the testing needs of their research and development projects as well as Phase I, II and III studies. These sales representatives utilize our custom Customer Relationship Management System (“CRM”) to manage their territories, and we have integrated all of the important customer care functionality within our Laboratory Information Services (“LIS”) into the CRM so that our sales representatives can stay informed of emerging issues and opportunities within their regions. Our in-house customer care team is aligned with our field sales team to serve the needs of our clients by utilizing the same LIS and CRM. Our field teams can see in real-time when a client calls the laboratory, the reason for the call, the resolution, and if face-to-face interaction is needed for follow-up. Our sales force educates clients on new test offerings and their proper utilization and our representatives are often seen as trusted advisors by our clients.

Seasonality

The majority of our clinical testing volume is dependent on patients being treated by hematology/oncology professionals and other healthcare providers. The volume of our testing services generally declines modestly during the summer vacation season, year-end holiday periods and other major holidays, particularly when those holidays fall during the middle of the week. In addition, the volume of our testing tends to decline due to extreme adverse weather conditions, such as excessively hot or cold spells, heavy snow, hurricanes or tornadoes in certain regions, consequently reducing revenues and cash flows in any affected period.

~~NEOGENOMICS, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

In our Pharma Services segment, we enter into both short-term and long-term contracts, ranging from one month to several years. While the volume of this testing is not as directly affected by seasonality as described above, the testing volume does

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vary based on the terms of the contract. Our volumes are often based on how quickly sponsors can get patient enrollees for their trials and seasonality can impact how quickly they can get patients enrolled. Many of our ~~long term~~long-term contracts contain specific performance obligations where the testing is performed on a specific schedule. This results in revenue that is not consistent among periods. In addition, this results in backlog that can be significant.

Results of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 as Compared to the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020

The following table presents the Consolidated Statements of Operations as a percentage of net revenue:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue 56.9 % 51.4 % 59.7 % 51.3 %
Gross Profit 43.1 % 48.6 % 40.3 % 48.7 %
Operating expenses:
General and administrative 28.8 % 31.6 % 33.6 % 31.4 %
Research and development 1.6 % 2.5 % 1.9 % 2.1 %
Sales and marketing 9.0 % 11.0 % 10.9 % 11.6 %
Total operating expenses 39.4 % 45.1 % 46.4 % 45.1 %
Income (loss) from operations 3.7 % 3.5 % (6.1) % 3.6 %
Interest expense, net 2.0 % 0.2 % 1.5 % 1.1 %
Other (income) expense — % — % (2.4) % 1.7 %
Loss on extinguishment of debt — % — % 0.4 % 0.3 %
Loss on termination of cash flow hedge — % — % 1.1 % — %
Income (loss) before taxes 1.7 % 3.3 % (6.7) % 0.5 %
Income tax (benefit) expense (0.3) % 1.3 % (3.3) % (0.2) %
Net income (loss) 2.0 % 2.0 % (3.4) % 0.7 %


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue	56.5	%	67.8	%	60.1	%	61.5	%
Gross Profit	43.5	%	32.2	%	39.9	%	38.5	%
Operating expenses:
General and administrative	44.9	%	39.8	%	40.1	%	36.7	%
Research and development	2.9	%	2.4	%	2.5	%	2.2	%
Sales and marketing	14.2	%	11.7	%	13.1	%	12.2	%
Total operating expenses	62.0	%	53.9	%	55.7	%	51.1	%
Loss from operations	(18.5)	%	(21.7)	%	(15.8)	%	(12.6)	%
Interest expense, net	0.7	%	1.8	%	0.9	%	1.2	%
Other income, net	(0.1)	%	(8.5)	%	(0.1)	%	(4.0)	%
Gain on investment in and loan receivable from non-consolidated affiliate, net	(79.3)	%	—	%	(38.6)	%	—	%
Loss on extinguishment of debt	—	%	1.6	%	—	%	0.7	%
Loss on termination of cash flow hedge	—	%	4.0	%	—	%	1.8	%
Income (loss) before taxes	60.2	%	(20.6)	%	22.0	%	(12.3)	%
Income tax benefit	(2.0)	%	(12.8)	%	(0.6)	%	(5.2)	%
Net income (loss)	62.2	%	(7.8)	%	22.6	%	(7.1)	%

Clinical and Pharma Services ~~revenue~~net revenues for the periods presented are as follows ($ in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 $ Change % Change 2020 2019 $ Change % Change
Net revenues:
Clinical Services $ 108,733 $ 92,565 $ 16,168 17.5 % $ 275,599 $ 267,757 $ 7,842 2.9 %
Pharma Services 16,711 12,107 4,604 38.0 % 42,852 34,205 8,647 25.3 %
Total Revenue $ 125,444 $ 104,672 $ 20,772 19.8 % $ 318,451 $ 301,962 $ 16,489 5.5 %


	Three Months Ended June 30,								Six Months Ended June 30,
	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Net revenue:
Clinical Services	$	101,405	$	73,884	$	27,521	37.2	%	$	197,892	$	166,866	$	31,026	18.6	%
Pharma Services	20,319		13,093		7,226		55.2	%	39,365		26,141		13,224		50.6	%
Total revenue	$	121,724	$	86,977	$	34,747	39.9	%	$	237,257	$	193,007	$	44,250	22.9	%

Revenue

Consolidated revenues increased $34.7 million, or 39.9%, year-over-year. Clinical Services revenue for the three and ~~nine month periods ending September~~six months ended June 30, ~~2020~~2021 increased ~~$16.2~~$27.5 million and ~~$7.8~~$31 million, respectively, when compared to the same periods in ~~2019. These increases in revenue were primarily driven by COVID-19 PCR testing revenue of $17.0 million in the three month period ended September 30,~~ 2020. Clinical testing volume(1) increased by approximately ~~2.0%~~37.3% and ~~decreased by approximately 3.3%~~19.1% for the three and ~~nine month periods ending September~~six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019.~~2020. These increases in revenue and testing volume were primarily driven by increased patient access to testing as recovery from the COVID-19 pandemic continued.

Due to the broad roll-out of the COVID-19 vaccine and a sharp decline in the demand for COVID-19 PCR testing, we made the decision at the end of the first quarter 2021 to exit from COVID-19 PCR testing which was included in Clinical Services segment revenue. The Clinical division’s continued focus is its broad and innovative testing menu as well as any future new product offerings.

Pharma Services revenue for the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2020~~2021 increased ~~$4.6~~$7.2 million and ~~$8.6~~$13.2 million, respectively, compared to the same periods in 2019, primarily due to the impact of an increase in revenues related to clinical trials and the acquisition of HLI - Oncology. This growth was partially offset by an overall decrease in revenue due to the COVID-19 pandemic.2020. In addition, our backlog of signed contracts has continued to grow from ~~$130.3 million as of December 31, 2019 to $185.4 million as of September 30, 2020. We expect this backlog to result in higher revenues in future quarters.~~

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$208.9 million as of December 31, 2020 to $238.1 million as of June 30, 2021. We expect this backlog to result in higher revenues in future quarters.

The following table shows Clinical revenue, cost of revenue, requisitions received and tests performed for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020, excluding requisitions, tests, revenue and costs of revenue for Pharma Services and COVID-19 PCR tests. Testing revenue and cost of revenue are presented in thousands below:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
		2020		2019		% Change		2020		2019		% Change			2021		2020		% Change		2021		2020		% Change
Clinical(1):	Clinical(1):													Clinical(1):
Requisitions (cases) received	Requisitions (cases) received	147,518		145,312		1.5	%	406,250		427,406		(4.9)	%	Requisitions (cases) received	163,128		114,413		42.6	%	314,273		258,732		21.5	%
Number of tests performed	Number of tests performed	255,458		250,518		2.0	%	710,678		735,165		(3.3)	%	Number of tests performed	281,335		204,844		37.3	%	542,276		455,220		19.1	%
Average number of tests/requisitions	Average number of tests/requisitions	1.73		1.72		0.6	%	1.75		1.72		1.7	%	Average number of tests/requisitions	1.72		1.79		(3.9)	%	1.73		1.76		(1.7)	%

Clinical testing revenue~~(1)~~	Clinical testing revenue~~(1)~~	$	91,777	$	92,565	(0.9)	%	$	256,680	$	267,757	(4.1)	%	Clinical testing revenue~~(1)~~	$	101,405	$	71,921	41.0	%	$	196,335	$	164,903	19.1	%
Average revenue/requisition	Average revenue/requisition	$	622	$	637	(2.4)	%	$	632	$	626	1.0	%	Average revenue/requisition	$	622	$	629	(1.1)	%	$	625	$	637	(1.9)	%
Average revenue/test	Average revenue/test	$	359	$	369	(2.7)	%	$	361	$	364	(0.8)	%	Average revenue/test	$	360	$	351	2.6	%	$	362	$	362	—	%

Cost of revenue~~(1)~~	Cost of revenue~~(1)~~	$	50,401	$	47,526	6.0	%	$	146,645	$	136,557	7.4	%	Cost of revenue~~(1)~~	$	56,504	$	47,320	19.4	%	$	110,135	$	96,244	14.4	%
Average cost/requisition	Average cost/requisition	$	342	$	327	4.6	%	$	361	$	320	12.8	%	Average cost/requisition	$	346	$	414	(16.4)	%	$	350	$	372	(5.9)	%
Average cost/test	Average cost/test	$	197	$	190	3.7	%	$	206	$	186	10.8	%	Average cost/test	$	201	$	231	(13.0)	%	$	203	$	211	(3.8)	%

(1) Clinical tests exclude requisitions, tests, revenue and costs of revenue for Pharma Services, ~~and~~ COVID-19 PCR tests. Cost of revenue excludes the amortization for acquired intangible assets.

Average revenue per test increased 2.6% for the three months ended June 30, 2021 and was ~~approximately~~ flat for the ~~three and nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the corresponding periods in ~~2019.~~2020.

Cost of Revenue and Gross Profit

Average cost per clinical test increased 3.7% and 10.8% for the three and nine month periods ended September 30, 2020, compared to the corresponding periods in 2019, reflecting a volume reduction due to the COVID-19 pandemic and the fixed nature of many of our laboratory costs. In addition, the Company did not reduce its workforce due to temporary declines in volume related to the COVID-19 pandemic.

Cost of revenue includes payroll and payroll related costs for performing tests, maintenance and depreciation of laboratory equipment, rent for laboratory facilities, laboratory reagents, probes and supplies, and delivery and courier costs relating to the transportation of specimens to be tested.

Average cost per clinical test decreased 13.0% and 3.8% for the three and six months ended June 30, 2021, respectively, compared to the corresponding periods in 2020, reflecting an increase in volume due to the overall recovery from the COVID-19 pandemic and the fixed nature of many of our laboratory costs. In 2020, we did not reduce our workforce due to temporary declines in volume related to the COVID-19 pandemic.

The consolidated cost of revenue and gross profit metrics are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2021		2020		% Change		2021		2020		% Change
Cost of revenue:
Clinical Services(2)	$	57,233	$	48,757	17.4	%	$	118,798	$	97,680	21.6	%
Pharma Services	11,501		10,214		12.6	%	23,895		20,952		14.0	%
Total cost of revenue	$	68,734	$	58,971	16.6	%	$	142,693	$	118,632	20.3	%
Cost of revenue as a % of revenue	56.5%		67.8%				60.1%		61.5%

Gross profit:
Clinical Services	$	44,172	$	25,127	75.8	%	$	79,094	$	69,186	14.3	%
Pharma Services	8,818		2,879		206.3	%	15,470		5,189		198.1	%
Total gross profit	$	52,990	$	28,006	89.2	%	$	94,564	$	74,375	27.1	%
Gross profit margin	43.5%		32.2%				39.9%		38.5%

Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2020 2019 % Change 2020 2019 % Change
Cost of revenue:
Clinical Services $ 60,607 $ 47,526 27.5 % $ 158,287 $ 136,557 15.9 %
Pharma Services 10,772 6,314 70.6 % 31,724 18,492 71.6 %
Total cost of revenue $ 71,379 $ 53,840 32.6 % $ 190,011 $ 155,049 22.5 %
Cost of revenue as a % of revenue 56.9 % 51.4 % 59.7 % 51.3 %
Gross profit:
Clinical Services $ 48,126 $ 45,039 6.9 % $ 117,312 $ 131,200 (10.6) %
Pharma Services 5,939 5,793 2.5 % 11,128 15,713 (29.2) %
Total gross profit $ 54,065 $ 50,832 6.4 % $ 128,440 $ 146,913 (12.6) %
Gross profit margin 43.1 % 48.6 % 40.3 % 48.7 %

~~Consolidated~~(2) Clinical cost of revenue ~~in dollars increased~~ for the three ~~and nine~~ months ended ~~September~~June 30, ~~2020 when compared to the same periods in 2019. Cost~~2021 includes $0.7 million amortization of ~~revenue as a percentage of revenue also increased year-over-year. These increases in~~acquired intangible assets. Clinical cost of revenue ~~are largely due to an increase in payroll related costs.~~for the six months ended June 30, 2021 includes $0.7 million amortization of acquired

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~~Gross profit margin decreased~~intangible assets and write-offs of $5.3 million for COVID-19 PCR testing inventory.

Consolidated cost of revenue increased for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021 when compared to the same periods in ~~2019, primarily~~2020 due to ~~the timing of Pharma Services revenue, higher costs~~increases in supplies expense due to higher volume, write-offs related to our exit from COVID-19 PCR testing, and payroll related costs. Gross profit margin improvement for the ~~integration of Genoptix~~three and ~~HLI - Oncology and additional testing capacity which was unused due~~six months ended June 30, 2021, compared to the ~~impact~~same periods in 2020 were the result of the combined effect of higher testing volume and recovery from the COVID-19 ~~pandemic.~~pandemic in both segments.

General and Administrative Expenses

General and administrative expenses consist of payroll and payroll related costs for our executive, billing, finance, human resources, information technology and other administrative personnel as well as stock-based compensation. We also allocate professional services, facilities expense, IT infrastructure costs, depreciation, amortization and other administrative-related costs to general and administrative expenses.

Consolidated general and administrative expenses are as follows:


		Three Months Ended September 30,										Nine Months Ended September 30,											Three Months Ended June 30,										Six Months Ended June 30,
($ in thousands)	($ in thousands)	2020			2019			$ Change		% Change		2020			2019			$ Change		% Change		($ in thousands)	2021			2020			$ Change		% Change		2021			2020			$ Change		% Change
General and administrative	General and administrative	$	36,128		$	33,054		$	3,074	9.3	%	$	107,085		$	94,773		$	12,312	13.0	%	General and administrative	$	54,638		$	34,613		$	20,025	57.9	%	$	95,114		$	70,957		$	24,157	34.0	%
As a % of revenue	As a % of revenue	28.8		%	31.6		%					33.6		%	31.4		%					As a % of revenue	44.9		%	39.8		%					40.1		%	36.7		%

General and administrative expenses increased ~~$3.1~~$20 million and ~~$12.3~~$24.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, when compared to the same ~~period~~periods in ~~2019.~~2020. These increases reflect acquisition and integration costs of approximately $11 million and ~~incremental expenses~~$11.8 million for the three and six months ended June 30, 2021, respectively, related to the ~~acquisition~~acquisitions of ~~HLI - Oncology~~Inivata and Trapelo, as well as higher payroll and payroll related costs due to increases in personnel to support our near and long-term growth. ~~Acquisition and integration costs related to HLI - Oncology were approximately $0.4 million and $1.9 million for the three and nine months ended September 30, 2020.~~

We expect our general and administrative expenses to increase in total but decrease as a percentage of revenue over time as we add employee and compensation expenses, incur additional expenses associated with the expansion of our facilities, and continue to expand our physical and technological infrastructure to support our anticipated growth.

Research and Development Expenses

Research and development expenses relate to costs of developing new proprietary and non-proprietary genetic tests, including payroll and payroll related costs, maintenance of laboratory equipment, laboratory supplies (reagents), and outside consultants and experts assisting our research and development team.

Consolidated research and development expenses for the periods presented are as follows:


		Three Months Ended September 30,										Nine Months Ended September 30,											Three Months Ended June 30,										Six Months Ended June 30,
($ in thousands)	($ in thousands)	2020			2019			$ Change		% Change		2020			2019			$ Change		% Change		($ in thousands)	2021			2020			$ Change		% Change		2021			2020			$ Change		% Change
Research and development	Research and development	$	1,964		$	2,611		$	(647)	(24.8)	%	$	6,129		$	6,407		$	(278)	(4.3)	%	Research and development	$	3,495		$	2,105		$	1,390	66.0	%	$	5,951		$	4,165		$	1,786	42.9	%
As a % of revenue	As a % of revenue	1.6		%	2.5		%					1.9		%	2.1		%					As a % of revenue	2.9		%	2.4		%					2.5		%	2.2		%

Research and development expenses ~~decreased $0.6~~increased $1.4 million and ~~$0.3~~$1.8 million for the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2020~~2021 when compared to the same periods in ~~2019.~~2020. These ~~decreases are due to the timing of project expenses offset~~increases were driven by investments in new test development, particularly in ~~COVID-19 PCR test development,~~ our ~~Next-Generation Sequencing~~next-generation sequencing and FDA initiatives.

We anticipate research and development expenditures will significantly increase in future quarters as we continue to invest in development costs for innovation projects and bringing new tests to market.

Sales and Marketing Expenses

Sales and marketing expenses are primarily attributable to employee-related costs including sales management, sales representatives, sales and marketing consultants and marketing and customer service personnel.

~~Consolidated sales and marketing expenses for the periods presented are as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2020 2019 $ Change % Change 2020 2019 $ Change % Change
Sales and marketing $11,304 $ 11,508 $ (204) (1.8) % $ 34,757 $ 35,048 $ (291) (0.8) %
As a % of revenue 9.0 % 11.0 % 10.9 % 11.6 %

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Consolidated sales and marketing expenses for the periods presented are as follows:


	Three Months Ended June 30,									Six Months Ended June 30,
($ in thousands)	2021		2020			$ Change		% Change		2021			2020			$ Change		% Change
Sales and marketing	$17,224		$	10,195		$	7,029	68.9	%	$	30,973		$	23,453		$	7,520	32.1	%
As a % of revenue	14.2	%	11.7		%					13.1		%	12.2		%

Sales and marketing expenses ~~decreased $0.2~~increased $7 million and ~~$0.3~~$7.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021 when compared to the same periods in ~~2019. These decreases~~2020. This increase primarily ~~reflect lower~~reflects higher commissions ~~paid in addition to a decrease in travel. Tradeshows switched to virtual formats beginning in March 2020~~ due to ~~COVID-19~~our increase in revenues, the expansion of our sales team and ~~that contributed to sharply reduced travel costs.~~continued investment in marketing. We expect higher commissions expense in the coming ~~years~~quarters as ~~the~~our sales representatives continue generating new business ~~with a focus on oncology office sales.~~in both of our business segments. We expect our sales and marketing expenses over the long term to align with changes in revenue.

Interest Expense, net

Net interest expense ~~is comprised of interest incurred on our term loan, revolving credit facility~~decreased $0.6 million and ~~our other financing obligations offset by the interest income we earn on cash balances. Net interest expense~~$0.3 million for the three and ~~nine~~six months ~~ending September~~ended June 30, ~~2020 increased $2.3 million and $1.5 million, respectively,~~2021 compared to the same ~~period~~periods in ~~2019. These increases reflect~~2020. Interest expense reflects the effective interest rate on the 2028 Convertible Notes and the 2025 Convertible Notes which is ~~5.5%.~~0.70% and 1.96%, respectively. Interest on the 2028 Convertible Notes and 2025 Convertible Notes began accruing upon issuance and is payable semi-annually. For further details regarding the ~~Convertible Notes,~~convertible notes, please refer to Note 8. Debt, in the accompanying notes to the ~~consolidated financial statements.~~

~~Other (income) expense, net~~

For the three and nine months ended September 30, 2020, other (income) expense, net, was income of $0.01 million and $7.7 million, respectively. The income for the nine months ended September 30, 2020 primarily relates to the recognition of $7.9 million in grant income related to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) Public Health and Emergency Fund. The Public Health and Emergency Fund created by the CARES Act and payments made are intended to reimburse healthcare providers for health care related expenses or lost revenues attributable to COVID-19 and are not required to be repaid provided that recipients attest to and comply with certain terms and conditions, including limitations on balance billing for COVID-19 patients. The stimulus payments were issued to partially offset losses in consolidated revenue due to the impact of the COVID-19 pandemic. For the nine months ended September 30, 2019, the Company reported expense of $5.1 million primarily related to a litigation settlement.unaudited Consolidated Financial Statements.

Income (Loss) Per Share

The following table provides consolidated net income (loss) for each period along with the computation of basic and diluted net income (loss) per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands, except net income (loss) per share ~~amounts)~~data):

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net income (loss) $ 2,557 $ 2,143 $ (11,245) $ 1,710
Adjustment to the numerator for convertible notes in diluted EPS
Net income (loss) $ 2,557 $ 2,143 $ (11,245) $ 1,710
Convertible note accretion, amortization, and interest, net of tax 1,975 — — —
Net income (loss) used in diluted EPS $ 4,532 $ 2,143 $ (11,245) $ 1,710
Basic weighted average shares outstanding 110,461 103,899 107,605 99,149
Diluted weighted average shares outstanding 119,191 107,880 107,605 102,766
Basic net income (loss) per share $ 0.02 $ 0.02 $ (0.10) $ 0.02
Diluted net income (loss) per share $ 0.04 $ 0.02 $ (0.10) $ 0.02


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020


Adjustment to net income (loss) for convertible notes in diluted EPS(3)
Net income (loss)	$	75,873	$	(6,824)	$	53,759	$	(13,802)
Convertible note accretion, amortization, and interest, net of tax	1,552		—		2,997		—
Net income (loss) used in diluted EPS	$	77,425	$	(6,824)	$	56,756	$	(13,802)

Basic weighted average shares outstanding	118,287		107,887		117,249		106,209
Diluted weighted average shares outstanding	131,237		107,887		130,247		106,209

Basic net income (loss) per share	$	0.64	$	(0.06)	$	0.46	$	(0.13)
Diluted net income (loss) per share	$	0.59	$	(0.06)	$	0.44	$	(0.13)

(3) This adjustment compensates for the effects of the if-converted impact of convertible notes in adjusted net income. Since an entity using the if-converted method assumes that a convertible debt instrument was converted into common shares at the beginning of the reporting period, net income (loss) is adjusted to reverse any recognized interest expense (including any amortization of discounts).

Non-GAAP Measures

Use of Non-GAAP Financial Measures

The ~~Company’s~~ financial results and financial guidance are provided in accordance with GAAP and using certain non-GAAP financial measures. Management believes that the presentation of operating results using non-GAAP financial measures provides useful supplemental information to investors and facilitates the analysis of the ~~Company’s~~ core operating results and comparison of core operating results across reporting periods. Management also uses non-GAAP financial measures for financial and operational decision making, planning and forecasting purposes and to manage the ~~Company’s~~ business.

~~NEOGENOMICS, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Management believes that these non-GAAP financial measures enable investors to evaluate the ~~Company’s~~ operating results and future prospects in the same manner as management. The non-GAAP financial measures do not replace the presentation of GAAP financial results and should only be used as a supplement to, and not as a substitute for, the ~~Company’s~~ financial results presented in accordance with GAAP. There are limitations inherent in ~~non-GAAP~~non-

NEOGENOMICS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GAAP financial measures because they exclude charges and credits that are required to be included in a GAAP presentation, and do not present the full measure of the ~~Company’s~~ recorded costs against its net revenue. In addition, the ~~Company’s~~ definition of the non-GAAP financial measures below may differ from non-GAAP measures used by other companies.

Definitions of Non-GAAP Measures

Non-GAAP Adjusted EBITDA

“Adjusted EBITDA” is defined by NeoGenomics as net income (loss) from continuing operations before: (i) interest expense, net, (ii) tax ~~expense,~~benefit, (iii) depreciation and amortization expense, (iv) non-cash stock-based compensation expense, and, if applicable in a reporting period, (v) acquisition and integration related expenses, (vi) ~~non-cash impairments~~write-off of ~~intangible assets,~~COVID-19 PCR testing inventory and equipment, (vii) new headquarters moving expenses, (viii) gain on investment in and loan receivable from non-consolidated affiliate, net, and (ix) other significant non-recurring or non-operating ~~(income) or~~ expenses ~~including any debt financing costs.~~(income), net.

The following is a reconciliation of GAAP net income (loss) to Non-GAAP EBITDA and Adjusted EBITDA for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2020 2019 2020 2019
Net income (loss) (GAAP) $ 2,557 $ 2,143 $ (11,245) $ 1,710
Adjustments to net income (loss):
Interest expense, net 2,458 203 4,825 3,333
Income tax (benefit) expense (335) 1,348 (10,378) (500)
Amortization of intangibles 2,468 2,380 7,387 7,482
Depreciation 6,528 4,848 18,705 15,200
EBITDA (non-GAAP) $ 13,676 $ 10,922 $ 9,294 $ 27,225
Further adjustments to EBITDA:
Acquisition and integration related expenses 446 334 1,852 2,143
Other significant non-recurring income and expenses (1)
(105) 364 (2,100) 6,527
Non-cash stock-based compensation expense 2,715 3,275 7,536 7,727
Adjusted EBITDA (non-GAAP) $ 16,732 $ 14,895 $ 16,582 $ 43,622
2021:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Net income (loss) (GAAP)	$	75,873	$	(6,824)	$	53,759	$	(13,802)
Adjustments to net income (loss):
Interest expense, net	902		1,548		2,079		2,367
Income tax benefit	(2,437)		(11,132)		(1,461)		(10,043)
Amortization of intangibles	3,751		2,467		6,209		4,919
Depreciation	6,949		5,937		13,629		12,177
EBITDA (non-GAAP)	$	85,038	$	(8,004)	$	74,215	$	(4,382)
Further adjustments to EBITDA:
Acquisition and integration related expenses	10,998		110		11,812		1,406
Write-off of COVID-19 PCR testing inventory and equipment	—		—		6,061		—

New headquarters moving expenses	368		—		368		—
Non-cash stock-based compensation expense	4,506		2,635		7,159		4,821
Gain on investment in and loan receivable from non-consolidated affiliate, net	(96,534)		—		(91,510)		—
Other significant non-recurring expenses (income), net (1)	174		(1,965)		631		(1,996)
Adjusted EBITDA (non-GAAP)	$	4,550	$	(7,224)	$	8,736	$	(151)

(1) Other significant non-recurring ~~income and~~ expenses (income), net, includes ~~grant income~~CEO transition costs, reimbursements received related to the CARES Act, cash flow hedge termination fees, debt retirement fees, and other non-recurring items.

Liquidity and Capital Resources

To date, we have financed our operations primarily through cash generated from operations, public and private sales of debt and equity securities, and bank debt borrowings.

The following table presents a summary of our consolidated cash flows for operating, investing and financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 as well balances of cash and cash equivalents and working capital:

4350

NEOGENOMICS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


		Nine Months Ended September 30,					Six Months Ended June 30,
(in thousands)	(in thousands)	2020		2019		(in thousands)	2021		2020
Net cash (used in) provided by:
Net cash provided by (used in):						Net cash provided by (used in):
Operating activities	Operating activities	$	(4,525)	$	20,010	Operating activities	$	820	$	(5,051)
Investing activities	Investing activities	(130,587)		(13,554)		Investing activities	(608,098)		(59,871)
Financing activities	Financing activities	227,332		162,624		Financing activities	729,545		223,217

Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	92,220		169,080		Net change in cash, cash equivalents and restricted cash	122,267		158,295
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	$	173,016	$	9,811	Cash, cash equivalents and restricted cash, beginning of period	$	250,632	$	173,016
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	265,236	$	178,891	Cash, cash equivalents and restricted cash, end of period	$	372,899	$	331,311
Working Capital (1), end of period	Working Capital (1), end of period	$	357,763	$	223,094	Working Capital (1), end of period	$	622,664	$	357,300

(1) Defined as current assets less current liabilities.

Cash Flows from Operating Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2020, we used $4.5 million in cash for operating activities compared to $20.0 million~~2021, cash provided by operating activities ~~for~~was $0.8 million, consisting of net income of $53.8 million less adjustments to the ~~same period in 2019. Cash used in operating activities in the nine months ended September 30, 2020 consisted~~net income of a net loss of $11.2 million , a decrease in net operating assets of $32.1 million, and a decrease in net operating liabilities of $9.3 million. The increase in cash used in operating activities was partially offset by net working capital adjustments of $48.1$53.0 million. Included in net income was $11.8 million of acquisition and integration costs. Included in the adjustments to the net ~~loss~~income was $91.5 million of ~~$11.2~~realized net gain on investment in and loan receivable from non-consolidated affiliate and $6.1 million ~~was grant income~~ of ~~$7.9 million~~write-offs of COVID-19 PCR testing inventory and equipment related to the ~~CARES Act.~~exit from COVID-19 PCR testing. The cash flow impact of net changes in operating assets and liabilities did not impact income from operations. The change in operating assets and liabilities was primarily driven by an increase in ~~accounts receivable~~amounts funded for the development of our new headquarters and other prepaid assets offset by a decrease in inventory due to ~~an increases~~COVID-19 PCR testing inventory write-offs in ~~revenue,~~the first quarter of 2021, an increase in ~~funds distributed for the construction of the new headquarters facility,~~accrued payroll liabilities due to increases in personnel, and an increase in ~~inventory~~accounts receivable, net, due to ~~higher spend on materials to mitigate the risk~~timing of ~~potential supply chain disruptions resulting from the COVID-19 pandemic, as well as inventory purchased to perform COVID-19 testing.~~cash receipts.

Cash Flows from Investing Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, cash used in investing activities was ~~$130.6~~$608.1 million, an increase of approximately ~~$117.0~~$548.2 million compared to the same period in ~~2019.~~2020. This was ~~primarily~~ due to a$419.4 million of net ~~investment~~cash used for the acquisitions of ~~$50.3 million~~Inivata and Trapelo as well as an increase of net investments in marketable securities ~~$37.0~~of $136.5 million, ~~for the acquisition of the HLI - Oncology, the $25.0 million investment made in Inivata and $3.2~~$37.2 million of cash used for capital ~~expenditures.~~expenditures and the disbursement of a $15 million loan receivable from non-consolidated affiliate.

Cash Flows from Financing Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, cash provided by financing activities was ~~$227.3~~$729.5 million compared to ~~$162.6~~$223.2 million in the same period in ~~2019.~~2020. Cash provided by financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 consisted of $418.3 million of net proceeds from equity offerings, convertible debt proceeds of ~~$194.5~~$334.4 million, net of ~~deferred finance charges, proceeds from the equity offering of $127.3 million~~issuance costs and ~~$10.8~~$8.0 million for the net issuance of common stock. This activity was ~~primarily~~ offset by the use of cash in the amounts of ~~$101.9~~$29.3 million for premiums paid for capped call confirmations and $1.9 million for the net repayment of ~~the term loan and other~~equipment financing ~~obligations and $3.3 million in cash flow hedge terminations fees.~~obligations.

Liquidity Outlook

~~On May 4, 2020, the Company completed the sale~~We had $368.8 million in unrestricted cash and cash equivalents as of ~~$175.0~~June 30, 2021 in addition to $203 million of ~~1.25% Convertible Senior Notes due May 2025 (the “Convertible Notes”). And~~marketable securities available to support current operational liquidity needs. We anticipate that the cash on ~~May 19, 2020,~~hand, marketable securities and cash collections are sufficient to fund our near-term capital and operating needs for at least the Underwriters of the Convertible Notes exercised their option to purchase an additional $26.3 million aggregate principal amount of the Convertible Notes (the “Over-allotment Option”) on the same terms and conditions, solely to cover over-allotments with respectnext 12 months. Operating needs include, but are not limited to, the ~~Convertible Notes offering. The total net proceeds from the issuance of the Convertible Notes~~planned costs to operate our business, including amounts required to fund working capital and ~~the total exercise of the Over-allotment Option was approximately $194.4 million, which includes approximately $6.9 million of discounts, commissions~~capital expenditures, continued research and ~~offering expenses paid by the Company. For further details regarding the Convertible Notes, please refer to Note 8. Debt, in the accompanying notes to the consolidated financial statements.~~development efforts, and potential strategic acquisitions and investments.

~~In addition, in April 2020, the Company~~On January 6, 2021, we entered into an underwriting agreement relating to the issuance and sale of ~~4,400,000~~4,081,632 shares of ~~the Company’s~~our common stock (“(the “2021 Common Stock Offering”), $0.001 par value per share. The price to the public in this offering was ~~$28.50~~$49.00 per share and ~~the Company~~we agreed to sell the shares to the Underwriters at the public offering price, less underwriting discounts and commission of ~~$1.71~~$2.45 per share. Under the terms of the underwriting agreement, ~~the Company~~we also granted the Underwriters a 30-day option to purchase up to ~~660,000~~612,244 additional shares of ~~Common Stock~~common stock at the public offering price, less underwriting discounts and commissions. ~~In June 2020, closing took place on a partial exercise of~~On January 6, 2021, the ~~Underwriters’~~Underwriters exercised their option and ~~the Company issued the Underwriters an additional 351,500~~purchased all 612,244 shares. The net proceeds from the 2021 Common Stock Offering and full exercise of the Underwriters’ option were approximately $218.3 million, net of underwriting commissions of approximately $11.7 million.

4451

NEOGENOMICS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Offering and partial~~On January 11, 2021, we completed the sale of $345 million of 0.25% Convertible Senior Notes due January 2028 (the “2028 Convertible Notes”), including the full exercise of the ~~Underwriters’~~underwriters’ option ~~were~~to purchase an additional $45 million aggregate principal amount of the 2028 Convertible Notes (the “2028 Over-allotment Option”) on the same terms and conditions, solely to cover over-allotments with respect to the 2028 Convertible Notes offering. The total net proceeds from the issuance of the 2028 Convertible Notes and the total exercise of the 2028 Over-allotment Option was approximately ~~$127.3~~$334.4 million, ~~net~~which includes approximately $10.6 million of ~~underwriting~~discounts, commissions ~~of approximately $8.1 million.~~and offering expenses paid by the Company. For further details regarding the 2028 Convertible Notes, please refer to Note 8. Debt, in the accompanying notes to the unaudited Consolidated Financial Statements.

~~The Company~~We used ~~$96.3~~$29.3 million of the net proceeds from the ~~offering of the Convertible Notes and the Common Stock Offering~~offerings to ~~repay all outstanding amounts, including principal, accrued interest and fees, under its Prior Senior Secured Credit Agreement with PNC Bank National Association and intends~~enter into capped call transactions. We intend to use the ~~remainder~~remaining net proceeds from the offerings for general corporate purposes ~~and may use a portion of the net proceeds~~and/or to acquire or invest in complementary businesses and technologies.

On June 18, 2021, we completed a private placement (“Private Placement”) to certain accredited investors of an aggregate of 4,444,445 shares of our common stock at a price of $45.00 per share. The net proceeds from the Private Placement were approximately $189.9 million, after deducting fees to the placement agents and other offering expenses of approximately $10.1 million. We ~~had $233.2 million in unrestricted cash and cash equivalents as~~used the net proceeds from the Private Placement for the acquisition of September 30, 2020. The Company had $50.4 million of marketable securities and considers all securities available-for-sale, including those with maturity dates beyond 12 months as they are available to support current operational liquidity needs. Inivata.

We ~~believe~~anticipate that the cash on hand, marketable securities and cash collections ~~will provide adequate resources~~are sufficient to ~~meet~~fund our near-term capital and operating ~~commitments and interest payments~~needs for at least the next 12 ~~months from~~months. Operating needs include, but are not limited to, the ~~issuance of these financial statements.~~planned costs to operate our business, including amounts required to fund working capital and capital expenditures, continued research and development efforts, and potential strategic acquisitions and investments.

Capital Expenditures

We ~~currently~~ forecast capital expenditures in order to execute on our business plan and maintain growth; however, the actual amount and timing of such capital expenditures will ultimately be determined by the volume of business. We currently anticipate that our ~~cash payments for~~ capital expenditures for the year ending December 31, ~~2020~~2021 will be in the range of ~~$25~~$55 million to ~~$30 million.~~$70 million, including capital expenditures related to Trapelo and Inivata. During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we purchased, with cash, approximately ~~$17.6~~$37.2 million of capital equipment, software and leasehold improvements. We have ~~historically~~ funded and plan to continue funding these capital expenditures with ~~financing obligations,~~ cash and ~~through bank loan facilities, if necessary.~~financing.

Critical Accounting Policies

The preparation of financial statements in conformity with United States generally accepted accounting principles ~~generally accepted in the United States~~(“GAAP”) requires usmanagement to make estimates and assumptions ~~and select accounting policies~~ that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements ~~as well as~~and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. Please refer to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019 and Note 1. Nature of the Business, Basis of Presentation and Significant Accounting Policies~~2020 and Note 2. ~~Recently Adopted and Issued~~Summary of Significant Accounting ~~Guidance,~~Policies, in the accompanying notes to the ~~consolidated financial statements,~~unaudited Consolidated Financial Statements for ~~additional information and changes to~~a complete description of our ~~critical~~significant accounting policies.

Off-balance Sheet Arrangements

On May 22, 2020, in conjunction with the Investment Agreement, the Company and Inivata entered into a five-year, line of credit agreement in the amount of $15.0 million. The amounts borrowed under the line of credit are contractually limited to the working capital purposes of Inivata, but not towards acquisitions of companies, businesses or undertakings. This line of credit has an availability period beginning on January 1, 2021 and ends one month prior to the final repayment date of January 1, 2026. The line of credit bears interest at 0% per annum and interest and unpaid principal balance is payable on the final repayment date. As of ~~September~~June 30, ~~2020, the Company believes it has sufficient funds~~2021, we do not use or have special purpose entities or other off-balance sheet financing techniques that we believe have, or are reasonably likely to ~~support the line of credit. Please refer to Note 14. Investment in Non-Consolidated Affiliate, in the accompanying notes to the consolidated financial statements, for additional information~~have, a current or future material effect on our ~~non-consolidated affiliate.~~financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital resources.

4552

NEOGENOMICS, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates, interest rates and other relevant market rate or price changes. We ~~regularly evaluate~~are exposed to market risks, including changes in interest rates and foreign currency exchange rates.

Interest Rate Risk

We are exposed to interest rate risk on our short-term investments. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high-quality U.S. government and other highly credit rated debt securities. To minimize our exposure due to ~~such changes~~adverse shifts in interest rates, we invest in short-term securities with short maturities. If a 1% change in interest rates were to have occurred on June 30, 2021, this change would not have had a material effect on the fair value of our investment portfolio as of that date. Due to the short holding period of our investments, we have concluded that we do not have a material financial market risk exposure.

Foreign Currency Exchange Risk

We have operations in Cambridge, United Kingdom; Rolle, Switzerland; Suzhou, China; and ~~may elect~~Singapore. Our international revenues and expenses denominated in foreign currencies (primarily British Pounds, Swiss Francs, Chinese Renminbi and Singapore Dollars), expose us to ~~minimize this~~the risk ~~through~~of fluctuations in foreign currency exchange rates against the use of interest rate swap agreements. For further details regarding our significant accounting policies relating to derivative instruments and hedging activities, see Note B to our Consolidated Financial Statements included in our Annual Report on Form 10-K.U.S. dollar. We do not ~~have any material foreign operations or foreign sales and thus have limited exposure to~~hedge foreign currency exchange ~~rate risk.~~risks and do not currently believe that these risks are significant.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As required by SEC Rule 15d-15, our management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On July 1, 2021, we shifted from our existing Great Plains Dynamics enterprise resource planning (“ERP”) system to a hosted, cloud-based Oracle ERP system (“Oracle”). In connection with the Oracle implementation, we performed pre-implementation planning, design and testing of internal controls that became effective in the third quarter of 2021. We continue to conduct post-implementation monitoring and process modifications in order to maintain effective internal control over financial reporting.

4653

NEOGENOMICS, INC.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~None~~From time to time the Company is engaged in legal proceedings in the ordinary course of business. For further information on legal proceedings, please refer to Note 14. Commitments and Contingencies, in the notes to the unaudited Consolidated Financial Statements.

On January 20, 2021, Natera, Inc. filed a patent infringement complaint against the Company’s newly-acquired subsidiaries, Inivata, Inc. and Inivata, in United States District Court for the ~~quarterly period ended September 30, 2020.~~district of Delaware, alleging Inivata’s InVisionFirst-Lung cancer diagnostic test of infringing two patents. The litigation is presently in the pleadings stage. The Company intends to defend the matter vigorously, and believes that the Company has good and substantial defenses to the claims alleged in the suit, but there is no guarantee that the Company will prevail.

ITEM 1A. RISK FACTORS

The following risk factors are in addition to the risks described in ~~the Company’s Form 10-K under~~Part I, Item 1A, “Risk Factors” contained in our Annual Report on Form 10-K for the ~~for the~~ year ended December 31, ~~2019,~~2020, as filed with the SEC on February 28, 2020, and as supplemented by the risks described in Part II, Item 1A. included in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 as filed with the SEC on April 29, 2020 and July 31, 2020.25, 2021. The effects of the events and circumstances described in the following risk factors may heighten the risks contained in the Company’s Form 10-K.

We may be unable to make, on a timely basis, necessary changes to our internal control structure resulting from the acquisitions of Trapelo and Inivata.

~~Our investments~~Trapelo and Inivata are now included in ~~marketable securities~~our reporting under the Securities Exchange Act of 1934. Under the Sarbanes-Oxley Act of 2002, we must maintain effective disclosure controls and procedures and internal control over financial reporting. We are ~~subject~~in the process of migrating Trapelo’s and Inivata’s operations to ~~certain risks which~~our system of internal controls. Therefore, we may face difficulties or experience delays in developing changes or potentially necessary improvements to their internal controls and accounting systems in order to ensure compliance with the requirements of the Sarbanes-Oxley Act. We may need to commit substantial resources, including substantial time from existing accounting personnel and from external consultants, to implement additional procedures and improved controls. This in turn could ~~affect~~have an adverse effect on our ~~overall financial condition,~~business, results of operations, or ~~cash flows~~financial condition, harm our reputation, or otherwise cause a decline in investor confidence and our stock price.

~~We invest a portion~~Trapelo and Inivata may have liabilities that are not known, probable or estimable at this time.

Trapelo and Inivata are now wholly-owned subsidiaries of ~~our available cash~~ours and ~~cash equivalent balances in money market funds~~there could be unasserted claims or by purchasing marketable securities with maturities in excess of three months in a managed portfolio in a variety of debt securities, including U.S. Treasury securities and corporate debt securities. The primary objective of our investment activity isassessments that we failed or were unable to ~~maintain the safety of principal, provide for future liquidity requirements while maximizing yields without significantly increasing risk. Should any of our investments~~discover or ~~marketable securities lose value or have their liquidity impaired, it could affect our overall financial condition. Additionally, should we choose or are required to sell these securities~~identify in the ~~future at a loss, our consolidated operating results or cash flows~~course of performing due diligence investigations of these entities. In addition, there may be ~~affected.~~liabilities that are neither probable nor estimable at this time which may become probable and estimable in the future. We may learn additional information about Trapelo and Inivata that adversely affects us, such as unknown, unasserted or contingent liabilities and issues relating to compliance with applicable laws, including federal healthcare laws. Any of the foregoing, individually or in the aggregate, if not covered by the indemnification obligations of the Trapelo or Inivata sellers or our representation and warranty insurance, could have a material adverse effect on our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

None for the quarterly period ended ~~September~~June 30, ~~2020.~~2021 that have not previously been included in a Current Report on Form 8-K.

Issuer Purchases of Equity Securities

The following table sets forth information concerning our purchases of common stock for the periods indicated:


Period of Repurchase	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2021 - April 30, 2021	—	$	—	—	—
May 1, 2021 - May 31, 2021	3,212	48.92		—	—
June 1, 2021 - June 30, 2021	143	42.19		—	—
Total	3,355	48.64		—	—

Period of Repurchase
Total Number of Shares Purchased(1)
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2020 - July 31, 2020 21 $ 33.08 — —
August 1, 2020 - August 31, 2020 6,010 38.24 — —
September 1, 2020 - September 30, 2020 196 35.79 — —
Total 6,227 $ 38.14 — —

(1) The Company’s Equity Incentive Plan, as amended on May ~~25, 2017,~~27, 2021, allows participants to surrender already-owned shares having a fair market value equal to the required withholding tax related to the vesting of restricted stock. Pursuant to a share withholding election made by participants in connection with the vesting of such awards, all of which were outside of a publicly-announced repurchase plan, we acquired from such participants the shares noted in the table above to satisfy tax withholding obligations related to the vesting of their restricted stock. The average prices listed in the above table are averages of the fair market prices at which we valued shares withheld for purposes of calculating the number of shares to be withheld.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

4855

NEOGENOMICS, INC.

ITEM 6. EXHIBITS


EXHIBIT NO.						DESCRIPTION

10.1						~~Board~~Securities Purchase Agreement, dated as of ~~Directo~~rs ~~Appointment Letter~~ A ~~greementbetween~~ ~~Rachel A. Stahler~~ ~~and~~ May 4, 2021, among NeoGenomics, Inc.~~datedAugust~~ 24 ~~, 2020~~ and each purchaser party thereto. (Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on May 5, 2021.)

10.2						~~Board~~Registration Rights Agreement, dated as of ~~Directors Appointment Letter AgreementbetweenMichael A. Kelly~~ ~~and~~May 4, 2021, among NeoGenomics, Inc. and each party thereto. (Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on May 5, 2021.)

10.3						Share Purchase Agreement, dated May 4, 2021. (Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on May 5, 2021.)

10.4*#						Services Agreement between Inivata Limited and Clive Morris dated June 18, 2021.

10.5*						~~August 11, 2020~~Employment Agreement between NeoGenomics, Inc. and George Cardoza dated July 5, 2021.

10.6*						Employment Agreement between NeoGenomics, Inc. and Gina Wallar dated July 5, 2021.

31.1						Certification by Principal Executive Officer pursuant to Rule 13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification by Principal Financial Officer pursuant to Rule 13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1						Certification by Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101						The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2020,~~2021, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Comprehensive Income (Loss) and (v) related notes

104						The cover page of the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2020,~~2021, formatted in iXBRL (included within Exhibit 101 attachments)

*						Denotes a management contract or compensatory plan or arrangement.

#						Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv). The omitted information is not material and is the type of information that the Company treats as private.

4956

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: ~~October 29, 2020~~August 9, 2021

NEOGENOMICS, INC.

By:

/s/ ~~Douglas M. VanOort~~Mark W. Mallon

Name:

~~Douglas M. VanOort~~Mark W. Mallon

Title:

~~Chairman~~Director and Chief Executive Officer

By:

/s/ Kathryn B. McKenzie

Name:

Kathryn B. McKenzie

Title:

Chief Financial Officer

5057


PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)						5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						3441
Item 3. Quantitative and Qualitative Disclosures About Market Risk						4653
Item 4. Controls and Procedures						4653

PART II OTHER INFORMATION
Item 1. Legal Proceedings						4754
Item 1A. Risk Factors						4754
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						4754
Item 3. Defaults Upon Senior Securities						4755
Item 4. Mine Safety Disclosures						4755
Item 5. Other Information						4855
Item 6. Exhibits						4956
SIGNATURES						5057


	September 30, 2020 (unaudited)		December 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	233,233	$	173,016

Marketable securities, at fair value	50,375		0
Accounts receivable, net	103,697		94,242
Inventories	20,643		14,405
Prepaid assets	10,459		6,327
Other current assets	3,968		2,748
Total current assets	422,375		290,738
Property and equipment (net of accumulated depreciation of $85,987 and $68,809, respectively)	85,449		64,188
Operating lease right-of-use assets	45,856		26,492

Intangible assets, net	123,353		126,640
Goodwill	210,833		198,601
Restricted cash, non-current	32,003		0
Prepaid lease asset	10,142		0
Investment in non-consolidated affiliate	25,600		0
Other assets	3,817		2,847
Total assets	$	959,428	$	709,506
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	17,735	$	19,568
Accrued compensation	26,083		21,365
Accrued expenses and other liabilities	8,677		7,548
Short-term portion of financing obligations	3,700		5,432
Short-term portion of operating leases	4,701		3,381

Short-term portion of term loan	0		5,000
Pharma contract liability	3,716		1,610
Total current liabilities	64,612		63,904
Long-term liabilities
Convertible senior notes, net	166,440		0
Long-term portion of financing obligations	1,399		3,199
Long-term portion of operating leases	43,123		24,034

Long-term portion of term loan, net	0		91,829
Other long-term liabilities	3,937		3,566
Deferred income tax liability, net	13,554		15,566
Total long-term liabilities	228,453		138,194
Total liabilities	293,065		202,098
Stockholders' equity
Common stock, $0.001 par value, (250,000,000 shares authorized; 111,010,418 and 104,781,236 shares issued and outstanding, respectively)	111		105
Additional paid-in capital	688,832		520,278
Accumulated other comprehensive loss	22		(1,618)
Accumulated deficit	(22,602)		(11,357)
Total stockholders’ equity	666,363		507,408
Total liabilities and stockholders' equity	$	959,428	$	709,506


Remainder of 2020	$	2,468
2021	9,870
2022	9,870
2023	9,870
2024	9,870
Thereafter	67,958
Total	$	109,906


	September 30, 2020		December 31, 2019
1.25% Senior Convertible Notes due 2025
Principal	$	201,250	$	0
Unamortized debt discount	(34,245)		0
Unamortized debt issuance costs	(565)		0
Total 1.25% Senior Convertible Notes due 2025	166,440		0

Term loan
Principal	$	0	$	97,500
Unamortized debt issuance costs	0		(671)
Total term loan	0		96,829

Financing obligations	5,099		8,631

Total debt	$	171,539	$	105,460
Less: Current portion of long-term debt	0		(5,000)
Less: Current portion of financing obligations	(3,700)		(5,432)
Total long-term debt, net	$	167,839	$	95,028


	Number of Shares	Weighted Average Exercise Price
Options outstanding at December 31, 2019	5,318,759	$	9.97
Options granted	845,120	$	28.33
Less:
Options exercised	1,276,144	$	7.75
Options forfeited	63,169	$	15.82
Options outstanding at September 30, 2020	4,824,566	$	13.72
Exercisable at September 30, 2020	2,552,710	$	8.86


	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019	335,298	$	15.75
Granted	149,012	$	28.44
Vested	(183,532)	$	12.88
Forfeited	(5,540)	$	21.10
Nonvested at September 30, 2020	295,238	$	23.78