10-Q 1 neo-20220331.htm 10-Q neo-20220331
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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 March 31, 2022
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.)
   
9490 NeoGenomics Way,Fort Myers, 
Florida 33912
(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 classTrading SymbolName of each exchange on which registered
Common stock ($0.001 par value)NEOThe 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
S
Accelerated filer
Non-accelerated filerSmaller 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 May 6, 2022, the registrant had 124,758,179 shares of Common Stock, par value $0.001 per share outstanding.




TABLE OF CONTENTS




FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements generally can be identified by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intends,” “may,” “plan,” “potential,” “project,” “will,” “would” and similar expressions, although not all forward-looking statements contain these identifying words. These forward-looking statements address various matters, including the Company’s 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. 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 25, 2022, and in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q.

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 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 “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 $345.0 million, respectively, and our ability to make debt service payments under the 2025 Convertible Notes or 2028 Convertible Notes if such notes are not converted;
Our ability to have sufficient cash to pay our obligations under the 2025 Convertible Notes or the 2028 Convertible Notes;
The dilutive impact of the conversion of the 2025 Convertible Notes or the 2028 Convertible Notes;
Our ability to protect our intellectual property from infringement;
Our ability to integrate acquisitions and costs related to such acquisitions;
3


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; and
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.
The forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this report, 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


4


PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOGENOMICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, 2022
(unaudited)
December 31, 2021
ASSETS
Current assets
Cash and cash equivalents$305,896 $316,827 
Marketable securities, at fair value175,534 198,563 
Accounts receivable, net110,796 112,130 
Inventories23,840 23,395 
Prepaid assets14,341 12,354 
Assets held for sale 10,050 
Other current assets20,693 8,189 
Total current assets651,100 681,508 
Property and equipment (net of accumulated depreciation of $116,254 and $109,952, respectively)
108,942 109,465 
Operating lease right-of-use assets101,955 102,197 
Intangible assets, net433,835 442,325 
Goodwill527,115 527,115 
Other assets6,600 7,168 
Total non-current assets1,178,447 1,188,270 
Total assets$1,829,547 $1,869,778 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$20,481 $17,921 
Accrued compensation32,320 38,304 
Accrued expenses and other liabilities16,571 17,796 
Current portion of equipment financing obligations621 1,135 
Current portion of operating lease liabilities5,958 6,884 
Pharma contract liabilities6,119 5,192 
Total current liabilities82,070 87,232 
Long-term liabilities
Convertible senior notes, net533,189 532,483 
Operating lease liabilities73,434 72,289 
Deferred income tax liabilities, net51,709 55,475 
Other long-term liabilities14,141 14,022 
Total long-term liabilities672,473 674,269 
     Total liabilities$754,543 $761,501 
Commitments and contingencies (Note 11)
Stockholders’ equity
Common stock, $0.001 par value, (250,000,000 shares authorized; 124,722,215 and 124,107,500 shares issued and outstanding, respectively)
$125 $124 
Additional paid-in capital1,142,133 1,123,628 
Accumulated other comprehensive loss(3,009)(638)
Accumulated deficit(64,245)(14,837)
     Total stockholders’ equity$1,075,004 $1,108,277 
     Total liabilities and stockholders’ equity$1,829,547 $1,869,778 

See the accompanying notes to the unaudited Consolidated Financial Statements.
5


NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 Three Months Ended March 31,
 20222021
NET REVENUE  
Clinical Services$98,791 $96,487 
Pharma Services18,378 19,046 
Total net revenue117,169 115,533 
COST OF REVENUE78,937 73,959 
GROSS PROFIT38,232 41,574 
Operating expenses:
General and administrative66,248 40,476 
Research and development7,713 2,456 
Sales and marketing16,299 13,749 
Total operating expenses90,260 56,681 
LOSS FROM OPERATIONS(52,028)(15,107)
Interest (income) expense, net1,301 1,177 
Other (income) expenses, net(168)4,854 
Loss before taxes(53,161)(21,138)
Income tax (benefit) expense(3,753)976 
NET LOSS$(49,408)$(22,114)
NET LOSS PER SHARE
Basic$(0.40)$(0.19)
Diluted$(0.40)$(0.19)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic123,630 116,199 
Diluted123,630 116,199 


See the accompanying notes to the unaudited Consolidated Financial Statements.
6


NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three Months Ended March 31,
20222021
NET LOSS$(49,408)$(22,114)
OTHER COMPREHENSIVE LOSS:
Net unrealized loss on marketable securities, net of tax(2,371)(160)
   Total other comprehensive loss, net of tax(2,371)(160)
COMPREHENSIVE LOSS$(51,779)$(22,274)

See the accompanying notes to the unaudited Consolidated Financial Statements.


7


NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands, except share data)
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive (Loss) Income(Accumulated Deficit) Retained EarningsTotal
Shares Amount
Balance, December 31, 2021124,107,500 $124 $1,123,628 $(638)$(14,837)$1,108,277 
Common stock issuance ESPP Plan47,853 — 971 — — 971 
Issuance of restricted stock, net of forfeitures100,253 — (1,049)— — (1,049)
Issuance of common stock for stock options466,609 1 6,479 — — 6,480 
ESPP expense— — 249 — — 249 
Stock-based compensation expense - options and restricted stock— — 11,855 — — 11,855 
Net unrealized loss on marketable securities, net of tax— — — (2,371)— (2,371)
Net loss— — — — (49,408)(49,408)
Balance, March 31, 2022124,722,215 $125 $1,142,133 $(3,009)$(64,245)$1,075,004 

Balance, December 31, 2020112,075,474 $112 $701,357 $10 $(7,185)$694,294 
Cumulative-effect adjustment from change in accounting principle— — (23,271)— 696 (22,575)
Premiums paid for capped call confirmations— — (29,291)— — (29,291)
Common stock issuance ESPP Plan23,917 — 1,024 — — 1,024 
Issuance of restricted stock, net of forfeitures83,220 — (614)— — (614)
Issuance of common stock for stock options260,167 — 2,239 — — 2,239 
Issuance of common stock - public offering, net of underwriting discounts4,693,876 5 218,495 — — 218,500 
Stock issuance fees and expenses— — (242)— — (242)
ESPP expense— — 241 — — 241 
Stock-based compensation expense - options and restricted stock— — 2,412 — — 2,412 
Net unrealized loss on marketable securities, net of tax— — — (160)— (160)
Net loss— — — — (22,114)(22,114)
Balance, March 31, 2021117,136,654 $117 $872,350 $(150)$(28,603)$843,714 
See the accompanying notes to the unaudited Consolidated Financial Statements.

8


NEOGENOMICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) 
(unaudited) 
 Three Months Ended March 31,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss$(49,408)$(22,114)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation8,395 6,680 
Amortization of intangibles8,490 2,458 
Non-cash stock-based compensation12,103 2,653 
Non-cash operating lease expense2,653 1,862 
Amortization of convertible debt discount661 593 
Amortization of debt issue costs45 43 
Unrealized loss on investment in non-consolidated affiliate 5,024 
Interest receivable on loan receivable from non-consolidated affiliate (209)
Gain on sale of assets held for sale(2,048) 
Write-off of COVID-19 PCR testing inventory and equipment 6,061 
Other adjustments1,126 548 
Changes in assets and liabilities, net
Accounts receivable, net1,334 3,921 
Inventories(445)2,845 
Prepaid lease asset (823)
Prepaid and other assets(2,044)(794)
Accounts payable, operating lease liabilities, deferred taxes, accrued and other liabilities(9,902)(6,538)
Net cash (used in) provided by operating activities(29,040)2,210 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities(16,167)(137,776)
Proceeds from sales and maturities of marketable securities36,438 13,919 
Purchases of property and equipment(8,219)(15,831)
Loan receivable from non-consolidated affiliate (15,000)
Net cash provided by (used in) investing activities12,052 (154,688)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of equipment financing obligations(346)(1,091)
Issuance of common stock, net6,403 2,617 
Proceeds from issuance of convertible debt, net of issuance costs 334,410 
Premiums paid for capped call confirmations (29,291)
Proceeds from equity offering, net of issuance costs 218,290 
Net cash provided by financing activities6,057 524,935 
Net change in cash, cash equivalents and restricted cash(10,931)372,457 
Cash, cash equivalents and restricted cash, beginning of period316,827 250,632 
Cash, cash equivalents and restricted cash, end of period$305,896 $623,089 

9


Three Months Ended March 31,
20222021
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets:
Cash and cash equivalents$305,896 $611,970 
Restricted cash, non-current 11,119 
Total cash, cash equivalents and restricted cash$305,896 $623,089 
Supplemental disclosure of cash flow information:
Interest paid$442 $41 
Income taxes (refunded) paid, net$ $(49)
Supplemental disclosure of non-cash investing and financing information:
Increase in other current assets for the sale of assets held for sale
$12,098 $ 
Purchases of property and equipment included in accounts payable$1,061 $2,081 

See the accompanying notes to the unaudited Consolidated Financial Statements.
10

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1. Nature of the Business
Nature of the Business
NeoGenomics, Inc., a Nevada corporation (the “Company,” or “NeoGenomics”), and its subsidiaries, operate as a certified, high complexity clinical laboratory in accordance with the federal government’s CLIA, as amended, 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.
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 (“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 U.S. economy and financial markets. The impact from the COVID-19 pandemic, including recent COVID-19 variants, and the related disruptions had a significant adverse impact on the Company’s results of operations, volume growth rates and test volumes in 2020, 2021, and the first quarter of 2022. 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 may continue to be materially adversely affected, particularly if the pandemic continues to persist for a significant amount of time.
The Company anticipates that the cash on hand, marketable securities, and expected 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 three months ended March 31, 2021. There were no such amounts recorded for the three months ended March 31, 2022.
Coronavirus Aid, Relief and Economic Security Act
The Federal government passed legislation that 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”). The CARES Act permits the deferral of payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020. Fifty percent of the deferred amount was due on December 31, 2021 and the remaining 50% is due on December 31, 2022. As of March 31, 2022 and December 31, 2021 the total accrued deferred social security taxes related to the CARES Act was $3.0 million. This amount was recorded in accrued expenses and other liabilities on the Consolidated Balance Sheets.
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, 2021, except for new accounting standards discussed under Recent Accounting Pronouncements.
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 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, 2021.
11

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
Assets Held for Sale
Assets to be disposed of by sale are reclassified as held for sale if their carrying amounts are expected to be recovered through a sale transaction rather than through continuing use and when the Company commits to a plan to sell the assets. Assets classified as held for sale are measured at the lower of their carrying value or fair value less selling costs. Such assets are classified within current assets if there is reasonable certainty that the sale and collection of consideration will take place within one year. Upon reclassification as held for sale, long-lived assets are no longer depreciated or amortized and a measurement for impairment is performed to determine if there is an excess of carrying value over fair value less costs to sell. Any remeasurement is reported as an adjustment to the carrying value of the assets. Subsequent changes to estimated fair value less the selling costs will impact the measurement of assets held for sale if the fair value is determined to be less than the carrying value of the assets.
The Company owned 43,560 square feet of its Carlsbad, California facility. During the third quarter of 2021, the Company committed to selling this property and the associated land and concluded that these assets met the held for sale criteria. As of December 31, 2021, $10.1 million was recorded as assets held for sale within current assets on the Consolidated Balance Sheets for this property and associated land and reflected its carrying value which was lower than its fair value less costs to sell. The Company sold this property and associated land for proceeds of $12.1 million, net of closing costs, on March 31, 2022 and recorded a receivable for this amount in other current assets on the Consolidated Balance Sheets at March 31, 2022. The Company recognized a net gain on the sale of this property and associated land of $2.0 million in general and administrative expenses on the Consolidated Statements of Operations.
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 in the Clinical Services segment. Advertising costs are expensed at the time they are incurred and are deemed immaterial for the three months ended March 31, 2022 and 2021.
Recent Accounting Pronouncements
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance (“ASU 2021-10”). This update requires business entities to disclose information annually about certain government assistance they receive. Such annual disclosure requirements include the nature of the transactions and the related accounting policy used, the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item and significant terms and conditions of the transactions. ASU 2021-10 is effective for annual periods beginning after December 15, 2021, with early adoption permitted. ASU 2021-10 should be applied either (1) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or (2) retrospectively to those transactions. The Company will adopt this new accounting standard in its Annual Report on Form 10-K for the year ended December 31, 2022 and does not expect the adoption of this standard to have a material impact on its Consolidated Financial Statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08”). This update amends guidance to require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606). At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. ASU 2021-08 is effective for fiscal years beginning
12

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendments is permitted including adoption in an interim period. If the Company early adopts in an interim period, the Company is required to apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The amendments in ASU 2021-08 should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company is currently evaluating its adoption date of this standard and the impact of the standard on its Consolidated Financial Statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial 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 transition from the London Inter-bank Offered Rate (LIBOR) or other reference rates to alternative reference rates. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848) (ASU 2021-01) to clarify that certain optional expedients and exceptions apply to modifications of derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 was effective beginning on March 12, 2020 and may be applied prospectively to such transactions through December 31, 2022 and ASU 2021-01 was effective beginning on January 7, 2021 and may be applied retrospectively or prospectively to such transactions through December 31, 2022. The Company will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. As of March 31, 2022, there was no impact to the Company’s Consolidated Financial Statements related to ASU 2020-04 or ASU 2021-01.

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 were based upon management’s best estimates and assumptions and are considered final as of March 31, 2022. The following table summarizes the purchase consideration recorded for the acquisition of Trapelo, the fair value of the net assets acquired and liabilities assumed, and the calculation of goodwill based on the excess of the consideration transferred over the fair value of the net assets acquired and liabilities assumed at the Trapelo Acquisition Date (in thousands, except per share data):
13

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Amount
Purchase consideration:
Shares of common stock issued as consideration597,712 
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 closing35,591 
Total purchase consideration$64,765 
Allocation of the purchase consideration:
Cash$713 
Other current assets282 
Identifiable intangible asset - marketing assets549 
Identifiable intangible asset - developed technology19,040 
Other long-term assets268 
Total identifiable assets acquired20,852 
Current liabilities(751)
Net identifiable assets acquired20,101 
Goodwill44,664 
Total purchase consideration$64,765 
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 was 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. None of the goodwill resulting from the acquisition of Trapelo is expected to be deductible for income tax purposes.
The results of operations of Trapelo are included in the Company’s unaudited Consolidated Financial Statements beginning on the Trapelo Acquisition Date. 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 loss on a pro forma basis.
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 $25.0 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 $390.0 million (the “Purchase Option”). The Company and Inivata also entered into a line of credit agreement in the amount of $15.0 million (the “Line of Credit”) in May 2020. In the first quarter of 2021, prior to the Inivata Acquisition Date, an observable transaction of an identical investment in Inivata Preference Shares occurred which resulted in a remeasurement of the Preference Shares to the value of this observable transaction. The Company recorded a net unrealized loss of $5.0 million on investment in non-consolidated affiliate for this remeasurement for the three months ended March 31, 2021 in other expense (income), net on the Consolidated Statements of Operations.
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
14

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
$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.
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 were 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 $64.9 million in Preference Shares and a $74.3 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 $15.0 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 $109.3 million for the year ended December 31, 2021 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.
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 and includes measurement period adjustments recorded during 2021 (in thousands):
15

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 18, 2021
(as initially reported)
Measurement Period AdjustmentsJune 18, 2021
(as adjusted)
Fair value of business combination:
Cash paid at closing$398,594 $— $398,594 
Fair value of Line of Credit15,000 — 15,000 
Fair value of consideration transferred$413,594 $— $413,594 
Fair value of previously-held equity interest(1)
62,919 1,987 64,906 
Fair value of Purchase Option(1)
58,537 15,763 74,300 
Total fair value of business combination$535,050 $17,750 $552,800 
Allocation of the fair value business combination:
Cash$14,068 $— $14,068 
Other current assets(2)
5,366 345 5,711 
Property and equipment1,753 — 1,753 
Identifiable intangible assets - developed technology(1)
302,982 (11,796)291,186 
Identifiable intangible assets - trademarks(1)
31,700 (226)31,474 
Identifiable intangible asset - trade name(1)
2,322 253 2,575 
Other long-term assets6,240 — 6,240 
Total identifiable assets acquired364,431 (11,424)353,007 
Current liabilities(4,241)(1,650)(5,891)
Deferred income tax liabilities(3)
(64,680)3,686 (60,994)
Other long-term liabilities(4,690)— (4,690)
Net identifiable assets acquired 290,820 (9,388)281,432 
Goodwill244,230 27,138 271,368 
Total fair value of business combination$535,050 $17,750 $552,800 

(1) Measurement period adjustment primarily relates to a change in estimated taxes based on jurisdictions in which forecasted profits are expected to be generated.
(2) Measurement period adjustment relates to the recognition of a credit which Inivata is entitled to claim for certain research and development expenditures
(3) Measurement period adjustment relates to a change in estimated deferred income tax liabilities as a result of the reduction in the amounts for intangibles assets and related future amortization.
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.
The identified developed technology intangible assets and the trademark intangible assets are both being amortized over fifteen years, and the trade name intangible asset is being amortized over five years, based on their estimated useful lives. The
16

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 $238.4 million and $33.0 million was 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 $61.0 million. None of the goodwill resulting from the acquisition of Inivata is expected to be deductible for income tax purposes.
The following unaudited pro forma information and 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 (in thousands):

Three Months Ended March 31, 2021
(unaudited)
Net revenue$115,452 
Net loss$(27,895)

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. These unaudited pro forma consolidated historical results exclude $5.0 million of unrealized loss on investment in non-consolidated affiliate recorded in other expense (income), net on the Consolidated Statements of Operations for the three months ended March 31, 2021.
Note 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.
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.
17

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following tables set forth the amortized cost, gross unrealized gains, gross unrealized losses and fair values of the Company’s marketable securities accounted for as available-for-sale securities as of March 31, 2022 and December 31, 2021.
March 31, 2022
(in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Financial Assets:
Short-term marketable securities:
     U.S. Treasury securities$51,190 $ $(610)$50,580 
     Yankee bonds8,031  (76)7,955 
     Agency bonds7,020  (49)6,971 
     Municipal bonds12,403  (711)11,692 
     Commercial paper9,185   9,185 
     Asset-backed securities28,364  (311)28,053 
     Corporate bonds62,615 1 (1,518)61,098 
Total$178,808 $1 $(3,275)$175,534 
December 31, 2021
(in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Financial Assets:
Short-term marketable securities:
     U.S. Treasury securities$52,791 $11 $(138)$52,664 
     Yankee bonds6,175 1 (16)6,160 
     Agency bonds17,546  (16)17,530 
     Municipal bonds12,440  (211)12,229 
     Commercial paper17,694  (4)17,690 
     Asset-backed securities27,620 1 (86)27,535 
     Corporate bonds65,198 9 (452)64,755 
Total$199,464 $22 $(923)$198,563 

The Company had $0.4 million and $0.6 million of accrued interest receivable at March 31, 2022 and December 31, 2021, respectively, included in other current assets on its Consolidated Balance Sheets related to its marketable securities. There were no realized gains or losses on marketable securities for the three months ended March 31, 2022. Realized gains or losses on marketable securities for the three months ended March 31, 2021 were immaterial.
18

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following tables set forth the fair value of available-for-sale marketable securities by contractual maturity at March 31, 2022 and December 31, 2021.
March 31, 2022
(in thousands)One Year or LessOver One Year Through Five YearsOver Five YearsTotal
Financial Assets:
Marketable Securities:
     U.S. Treasury securities$38,899 $11,681 $ $50,580 
     Yankee bonds6,103 1,852  7,955 
     Agency bonds6,971   6,971 
     Municipal bonds 11,692  11,692 
     Commercial paper9,185   9,185 
     Asset-backed securities23,250 4,803  28,053 
     Corporate bonds23,984 37,114  61,098 
Total$108,392 $67,142 $ $175,534 
December 31, 2021
(in thousands)One Year or LessOver One Year Through Five YearsOver Five YearsTotal
Financial Assets:
Marketable Securities:
     U.S. Treasury securities$22,550 $30,114 $ $52,664 
     Yankee bonds4,150 2,010  6,160 
     Agency bonds14,041 3,489  17,530 
     Municipal bonds 12,229  12,229 
     Commercial paper17,690   17,690 
     Asset-backed securities20,868 6,667  27,535 
     Corporate bonds25,412 39,343  64,755 
Total$104,711 $93,852 $ $198,563 

The following tables set forth the 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 March 31, 2022 and December 31, 2021.
19

NEOGENOMICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 2022
(in thousands)Level 1Level 2Level 3Total
Financial Assets:
  Cash equivalents:
     Money market funds$246,906 $ $ $246,906 
     Commercial paper 27,664  27,664 
Marketable securities:
     U.S. Treasury securities50,580   50,580 
     Yankee bonds7,955   7,955 
     Agency bonds6,971   6,971 
     Municipal bonds11,692   11,692 
     Commercial paper 9,185  9,185 
     Asset-backed securities 28,053  28,053 
     Corporate bonds 61,098  61,098 
Total$324,104 $126,000 $ $450,104 
December 31, 2021
(in thousands)Level 1Level 2Level 3Total
Financial Assets:
  Cash equivalents:
     Money market funds$254,157