NeoGenomics, Inc. (NEO) Q4 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the NeoGenomics' Fourth Quarter 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Douglas VanOort, NeoGenomics' Chief Executive Officer. Thank you. Mr. VanOort, you may begin.

Thank you, Bob, and good morning. I'd like to welcome everyone to NeoGenomics' Fourth Quarter 2013 Conference Call and introduce you to the NeoGenomics team that's with us here today. Dr. Maher Albitar, our Chief Medical Officer and Director of R&D, is joining me here in our Irvine, California lab. In our Fort Myers headquarters, we have Steve Jones, our Executive Vice President for Finance; George Cardoza, our Chief Financial Officer; Bob Gasparini, our Chief Scientific Officer; Steve Ross, our Chief Information Officer; Fred Weidig, our Controller and Principal Accounting Officer; and Jerry Dvonch, our Director of External Reporting. Before we begin our prepared remarks, Steve Jones will read the standard language about forward-looking statements.

Thanks, Doug. This conference call may contain forward-looking statements which represent our current expectations and beliefs about our operations, performance, financial condition and growth opportunities. Any statements made on this call that are not statements of historical fact are forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements. Any forward-looking statements speak only as of today, and we undertake no obligation to update any such statements to reflect events or circumstances after today.

Thanks, Steve. We'll begin our call today with some comments about fourth quarter performance, and then we'll discuss progress in some important areas and comment on key objectives for 2014. I'll then turn the meeting back over to Steve to discuss our financial results in more detail. NeoGenomics performed very well in the final quarter of 2013. Growth accelerated nicely. Gross margins rose to 50% of sales and profit increased by almost $1 million compared with last year. We continued to invest resources in a variety of exciting growth initiatives and believe we've made significant progress. Overall, our teams executed well and we were pleased with the company's financial and operational results. Revenue increased by 23% compared with last year's fourth quarter, driven by a strong 28% growth in test volume. In fact, test volume was up almost 16% sequentially from quarter 3. At $18.3 million, revenue was above the top end of our guidance. The revenue and test volume growth was, once again, driven by a combination of revenue from new product offerings and new customer accounts. Revenue from new products launched in the last 2 years represented about 60% of our growth in the quarter. Revenue growth was also fueled by the acquisition of new customers as our sales team continued to win new accounts. Those factors more than offset the reduction in revenue caused by more cautious ordering by hospitals and pathologists and a 3.7% reduction in average revenue per test. Fourth quarter revenue growth was strong across all regions of the country, with particularly strong growth in the Western region where revenue more than doubled from the prior year. As you know, we expanded our sales team in the second half of 2013 and are pleased with the productivity of our new representatives. Including regional managers, we ended the year with a high-quality group of 25 field professionals on our sales team. Once again, we were especially pleased that incremental profit was strong. Our gross margins improved to 50% as we drove 80%, or $2.7 million, of the incremental $3.4 million of revenue on a year-over-year basis to the gross profit line. Productivity and process improvement initiatives continued to help us improve efficiency. As an indicator of productivity, the number of test processed per lab employee increased by almost 15% in the fourth quarter compared with last year. Operating expenses also remained in good control despite continued investment in information technology and innovation and an increase in the size of our billing team. Adjusted EBITDA grew by 90% compared with last year to $2.7 million in the quarter. Our adjusted EBITDA has improved each and every quarter for the past 6 quarters and rose to 14.9% of revenue. We reported $858,000 of net income compared with a small loss last year. One not so bright spot was in billing, where we had a large increase in receivables. Cash collections were slow as a result of a conversion to a new billing system and increased complexities by payers. Denials for molecular testing have risen as many commercial insurance payers do not seem to recognize the full value of the tests we perform. We've hired additional people to provide increasingly demanding documentation requirements and to appeal new and unjustified denials, just to get paid for the testing that we've been requested to perform. As a consequence, days sales outstanding increased back to 94 days from the 86 days we reported at September 30. We have put a lot of extra attention on our billing processes lately and we expect to make progress in this area over coming quarters. Given the challenging environment in which we operate, all in all, we were very pleased with the company's fourth quarter financial performance. Now every company has a particular style of managing their business. And at NeoGenomics, we have implemented a management process to identify specific critical success factors and key objectives and to get all of our people aligned to achieve our goals. We work hard to develop a culture to support and execute this management process. So there are 4 key areas of focus for us: build our team, get lean, grow and diversify. And I'll briefly describe some of our activities, progress and plans. We believe that engaged employees are essential in order for us to create satisfied customers and that having satisfied customers will generate strong shareholder value. Therefore, one of our critical success factors is to build our team. We've worked hard to improve hiring practices, pay and benefit programs, education and training and communication tools and techniques. Ultimately, we're working to establish an outstanding culture based on living up to a strong set of values. I think these initiatives are paying off and our employees are fully engaged. For example, our annual company-wide employee satisfaction surveys' results have consistently improved in each of the 4 years that we've been conducting the survey. Overall employee satisfaction with the company increased by 10% over the past year, and that has translated to employee retention rates which have climbed each and every year. This is quite important for a number of reasons: first, longer-term employees are more productive and do a better job satisfying client requirements; second, it's critical that we continue to attract the very best people to join our team as we grow. At the end of the year, we had 320 full-time employees, an increase of about 50 people from year end 2012. Because of improved retention levels, we've been able to be more strategic about hiring. Most of the additions have been investments made to reduce overall cost and to add to our sales and marketing capabilities. Our objectives for 2014 are focused on continuing to drive employee satisfaction and retention levels through better ways to communicate, more formalized career development and improving the way our labs and departments work with one another. Our people have a common purpose. They know that their work saves lives and this galvanizes all of our employees. In 2014, we're working to further build our team and make our company an outstanding place to work. Our second key area of focus for 2014 is to get lean. We've been working hard to improve our cost structure to be a low-cost provider in each of our core testing disciplines. Through quality and process improvements, automation, best practice initiatives and better information systems, we've been able to drive our cost per test down consistently over the past few years. For example, in quarter 4 of 2013, we drove a 15% reduction in our average cost of goods sold per test compared with quarter 4 of 2012. Since 2010, we've reduced our cost per test by 22%, which has more than offset the 19% reduction in average revenue per test during this period. For 2014, an important area of focus is to increase the use of information systems and technology to move NeoGenomics further along the path of being a digital lab. To us, this means using online ordering, barcoding, specimen tracking and other tools to create a streamlined, seamless and efficient lab. We have a long way to go, but we're investing in the information technology, people and processes to make this happen. As we reported to you last time, we are now reengineering our largest laboratory in Fort Myers, Florida. This will allow us to make significant changes in workflow and automation to lower cost and expand capacity at the same time. We expect to be fully operational with these changes by the beginning of the second quarter of 2014. After another expansion in Irvine, we now have 75,000 square feet of laboratory and administrative space in our company. Getting lean also includes a lot of blocking and tackling. As a result, our people continue to work on best practice teams, execute lean initiatives, implement automation and constantly develop better ways to improve quality while reducing cost. Over the course of this year, we expect these initiatives to result in further process improvements and reductions in our cost of testing, and we've targeted another 8% to 10% reduction in cost per test for 2014. One way to reduce cost per test and increase earnings is to drive more testing volume through the same basic infrastructure. And so our third critical area of focus simply is to grow. We've been fortunate to have developed a very good and stable sales and marketing team over the past few years and 28% volume growth is evidence of their productivity. It's important to note that growth was achieved despite more cautious ordering by clients, which we estimate may have dampened the quarter's growth by a few percentage points. Our sales team was able to overcome this by achieving strong market share gains. We've decided to further expand our sales team in 2014. As part of that effort, we were fortunate recently to have hired a terrific national director of sales named Tim Christiansen.[ph] Tim has strong sales leadership experience in our industry and is well-respected by our team and by our key customers around the country. Together with Tim, our sales leaders will focus on productivity and will fill some important geographic areas that are now underrepresented. Compared with year-end levels, we expect to add 4 to 6 additional sales representatives to our company by the end of 2014. Growth objectives for 2014 also include delivering better information to our clients, payers and patients, and an objective that we can all embrace called "Get paid for our work." Because it's not just about growing revenue, it's about growing cash. To be frank, in our current health care environment, it's often easier to perform and deliver complex genetic testing results for critically ill cancer patients than it is to get paid. In many cases, either Medicare or insurance companies just refused to pay, citing new and seemingly arbitrary reasons. It's frustrating because we perform medically necessary testing that's ordered at the request of physicians who, like us, are trying their best to save the lives of cancer patients. After we spent the time and delivered the test results, we have little recourse to initial denials for reimbursement other than to invest ever increasing resources in billing and collection. In 2014, we're going to be more proactive about developing 2-way dialogues with payers. At NeoGenomics, we often offer new leading-edge tests that have not yet been reviewed for coverage by Medicare or commercial insurances. And given our comprehensive menu of state-of-the-art tests, it's important for us to have more tests covered and reimbursed properly, and we're working on this. As we work to create a strong company that can prosper even in difficult reimbursement environments, we know we need to diversify. During the fourth quarter, we announced an exclusive alliance with -- between NeoGenomics and Covance Central Laboratories to provide comprehensive anatomic pathology, histology and specialty lab testing for worldwide clinical trials. This is a very important initiative. It allows NeoGenomics to participate in the exciting and growing market for clinical trials by doing what we do best and by leveraging the capabilities of Covance's market-leading central laboratory for clinical trials. I'll discuss our 2014 plans for this initiative in just a minute. We've also been working to diversify our product lines. We've invested to quickly develop new tests during the past couple of years and have introduced 68 new molecular tests and disease profiles during that time. The efforts are paying off. In the fourth quarter, we realized $2 million of new testing revenue from new products introduced during the past 2 years. And for 2013 as a whole, $5.2 million of revenue was derived from these new products. For 2014, we plan to continue to develop and launch additional new and important tests. One example of our efficiency in this area is our recently launched new molecular test for calreticulin, or CALR. An original article was published about this in the December 19, New England Journal of Medicine. Less than 3 weeks later, on January 7, NeoGenomics announced the launch of a fully validated test for CALR mutations. Since that time, we've received about 250 orders for the test from existing clients, other labs and academic centers. Also just recently, we announced the introduction of 22 new cancer genomic test designed for actionable profiling of a wide variety of hematologic and solid tumor cancers. Each targeted test type is offered as either a concise profile, designed to include fewer genes to be responsive to the needs of more cost-sensitive patients and providers; and a comprehensive profile, designed to include additional genes and be useful for more complex cases. These NeoTYPE profiles allow flexibility to meet the needs of the scientific community and of our clients. Our NeoTYPE molecular testing profiles will soon be augmented by our introduction of Next Generation Sequencing. We are now completing final aspects of our Next Generation Sequencing product offering and expect to formally launch this new service in March. The initial test offered will include a 48-gene Solid Tumor Profile and a 16-gene MDS Profile. We will be rolling out other tests using Next Gen as the year progresses, including using Next Gen testing for certain single-gene tests that we currently perform using bidirectional Sanger sequencing. In fact, given the volume of molecular tests we currently process each month, we believe Next Gen testing may actually help us reduce costs as it will allow us to more efficiently batch test together. We've previously disclosed a very exciting proprietary test development initiative for prostate cancer. This NeoSCORE Prostate Cancer Test is unique as it's performed on blood plasma and urine rather than on prostate tissue biopsies. As we've described, the goals for this test are to diagnose the presence of cancer in patients with BPH and to distinguish high-grade from low-grade cancer in patients with prostate cancer. The results of our first trial, which was completed last June, will be published in the March print edition of the Genetic Testing and Molecular Biomarkers Journal, and the article is currently available online. In addition, we recently completed a follow-up study with additional patient samples. Although we won't disclose the details of this second trial until results are published, to be in compliance with the Journal publication protocol, we can report that they largely confirm the published preliminary data. An abstract describing the second trial was recently submitted for an upcoming national oncology meeting and Dr. Albitar is working to have another paper published with the new data. The next phase of development of this test will include testing patient samples from outside the United States. While further work needs to be completed, we continue to be excited about the potential for this test. We're planning a limited launch of our NeoSCORE test in the second quarter and a full launch later this year. The speed and efficiency of new test development and launch, the clinical utility of our disease profiles and the upcoming launch of Next Generation Sequencing and an innovative prostate cancer test are all examples of the work of Dr. Albitar and his R&D team, and we're all very proud of them. Growing in clinical trials is also an important 2014 objective. Our strategic collaboration with Covance is off to a very good start. We're developing our joint laboratory capabilities in this first quarter and looking forward to expanding these capabilities globally at Covance locations in Shanghai, China and Geneva, Switzerland later this year. We've hired a terrific new Director of BioPharma Services, designed the marketing materials, created a website and worked with the Covance Central Laboratory sales team to plan and to prepare. Pharmaceutical firms are showing interest in our molecular testing menu and new NeoTYPE panels. Just in the last 2 months, we've already responded to more requests for proposals than we have in the entire history of our company. Although it's still early, we expect our initiatives with Covance and, generally, in clinical trials to begin to show results in the second half of 2014 and to ramp up continually over the foreseeable future. We believe that our efforts to diversify NeoGenomics by expanding our clinical trials business and through new test development will strengthen the company further over 2014 and into future years. And diversification should also reduce the percentage of our business reliant on Medicare. Perhaps the best way to explain our desire to reduce exposure to Medicare is to explain yet another Medicare reimbursement issue we're dealing with. As you know, last year's proposal to cap reimbursement for tests covered by the physician fee schedule at levels that Medicare pays to hospitals under the payment structures referred to as the Hospital Outpatient Prospective Payment System, or HOPPS, and in the Ambulatory Payment Classification System, or APS, was not enacted. We were very pleased by CMS' response to the overwhelming opposition to their proposal. In fact, we had planned for a relatively stable reimbursement environment in 2014, with only a small percentage decline in average price per test. However, just recently, we discovered a new guideline concerning FISH reimbursement issued by the National Correct Coding Initiative, or NCCI, without warning or opportunity to comment from the lab industry. The guideline is very confusing and technically misguided. The new FISH guideline appears to follow a construct recently imposed for immunohistochemistry testing. However, IHC and FISH testing are performed using very different processes with vastly different costs. Also, the new language inserted in the NCCI policy manual in December directly conflicts with existing language in the same manual. The new language is also indirect conflict with AMA guidelines, CPT coding rules and certain FDA regulations. We've checked with the Medicare carriers, FISH probe suppliers, reimbursement experts and competitors in the lab industry and there seems to be universal confusion. Here is an example to help with your understanding. Under our interpretation of the new NCCI guideline, reimbursement for HER2 FISH testing for breast cancer cases would include reimbursement for only 1 of the 2 FISH probes used. Under this interpretation, Medicare's reimbursement for the Technical Component of HER2 FISH would be about $200, which is below the total cost to perform the test. If labs lose money for every HER2 test performed for Medicare patients, there's a good chance that fewer labs will offer the test. That's unfortunate because the test is essential to determine what cancer patients will respond to $75,000 and more Herceptin therapy. To us, the policy doesn't make any sense at any level. We apologize to our investors for yet another uncertainty caused by Medicare. We've written to NCCI and to CMS and are working with the ACLA and others to resolve the uncertainty. A copy of this correspondence can be found on our website and we filed an 8-K this morning with a more detailed discussion of the issue. Unfortunately, we don't have any clarification on this issue as of this time. In order to be completely transparent, we're providing guidance for the full year and the first quarter and a preliminary estimate of the potential impacts of a negative resolution of this NCCI-added issue with the guidance. For now, that's the best we can do. We'll issue another 8-K as soon as we have clarity or any response from CMS. Notwithstanding the CMS uncertainty, I'd like to summarize my comments by making a few key points. We're very pleased with the company's performance in quarter 4. Growth has reaccelerated, cost remained in good control and profitability improved significantly. Our growth prospects are excellent and we have a portfolio of growth initiatives being executed by skilled and dedicated people. We're continuing to execute a variety of process improvements designed to continuously improve quality and lower our cost of cancer genetic testing services. In fact, we believe we can lower our cost continuously for the foreseeable future. The bottom line is NeoGenomics ends 2013 a stronger company than ever before. Our teams are genuinely excited about our prospects and we are focused on continuing our growth momentum in the coming quarters. I'll now turn it over to Steve to comment more fully on our financial results.

Thanks, Doug. I'll start by reviewing some of our financial and operating metrics for the fourth quarter and then we will want to open it up for questions. Fourth quarter revenue was $18.3 million, a 23% increase from Q4 last year. Test volume increased by 28% and average revenue per test declined by 3.7% to $470. During the quarter, we recorded $287,000 less revenue than we otherwise would have as a result of changes in our revenue recognition policies relating to certain molecular and FISH testing services. These changes result from significant new documentation requirements imposed by payers, especially on molecular tests, that are now required to justify the utility of certain comprehensive cancer tests. This makes the collection for such tests much more difficult as we typically are required to go through a lengthy appeals process in order to get paid. We adopted these more conservative revenue recognition policies to compensate for the likelihood that we will not be paid on all of such tests. Gross profit was $9.2 million in Q4, a 42% increase over last year. As discussed in the press release, we improved our average cost of goods sold per test by 15.3% year-over-year by increasing lab productivity, realizing leverage from higher volumes and from a variety of cost containment initiatives. This drove our gross margin up by almost 700 basis points to 50% from 43.2% in Q4 2012. Clearly, we have been able to unlock a lot of operating leverage in the last few quarters. We believe we can continue to make further improvements in average cost of goods sold per test in 2014 with further reductions of 8% to 10% for the year. Providing there are no material changes in reimbursement, such as the negative resolution of the NCCI-added issue, there should translate into further gains in gross margin in 2014. However, even if there is a negative resolution of the NCCI-added issue, we still believe we can keep gross margins in the same general area as our full year 2013 gross margin of 47.7%. Turning now to SG&A. Total sales and marketing expenses increased by $800,000, or 47%, versus quarter 4 last year as a result of increasing personnel costs and incremental commissions on the increase in revenue. As of December 31, we had 3 regional managers and 22 sales representatives. We expect to add another 4 to 6 professionals in 2014, so investors should expect our sales and marketing expenses to continue to rise. General and administrative expenses increased by $726,000, or 17.7%, versus Q4 2012. And R&D expenses increased by $201,000, or 45%. This increase in R&D was primarily the result of a large increase in non-cash stock-based compensation expense in the quarter. As we have discussed before, we are required to use variable accounting to account for certain warrants awarded to our R&D team. And when our stock price rises or falls by a significant amount, it has a disproportionately large impact on the stock-based compensation charges in any given quarter and our stock was up nearly 21% in the fourth quarter. Total SG&A and R&D expenses were up about $1.7 million, or 28%, year-over-year. Net income for the quarter was $858,000, or $0.02 a share, compared to a net loss of $113,000, or $0.00 per share, in quarter 4 of last year. This $970,000-increase in profitability is due primarily to the excellent cost controls and productivity increases over the last year. Adjusted EBITDA was $2.7 million in the fourth quarter, a 90% increase from last year. We finished the fourth quarter with 320 full-time equivalent employees and contract doctors as compared to 308 at September 30, and 268 at December 31 of last year. Our accounts receivable balance net of allowance for doubtful accounts was $18.7 million at December 31, up approximately $3 million from the balance of September 30. Our AR balance expressed in terms of DSOs was 94 days as of December 31 versus 86 days as of September 30. As Doug mentioned, we have been putting in a new billing system over the last few months and this has diverted significant attention away from the normal billing duties. The good news is that we know exactly where the issues are and we are focused on getting them fixed. We had $4.8 million of cash on December 31 and $5.7 million of availability under our working capital line of credit, for a total liquidity of $10.5 million as compared to $12.2 million of total liquidity at September 30. We also recently filed and have already had declared effective a $100-million S-3 shelf offering that we can take advantage of market conditions on an opportunistic basis if the opportunities arise. Our cash flow from operations in Q4 was negative $505,000. However, we had to fund payroll of $915,000 on the last day of the year which obviously impacted this number. We purchased $2.1 million of PP&E in the quarter. However, we were able to lease finance approximately $1.6 million of this amount, thus the net use of cash from investing activities was $525,000. Before discussing the guidance we issued this morning, I want to briefly touch on the significance of our full year results. We were very pleased to have achieved a $2 million increase in net income and a 42% growth in adjusted EBITDA on revenue growth of just 11%. As a result of our focus on increasing productivity and reducing cost, we were able to increase gross margin by 300 basis points from 44.8% in 2012 to 47.8% in 2013, despite the fact that average revenue per test decreased by 7.3% over the year. Turning now to the guidance we issued this morning for the first quarter of 2014 and for the full year. For the full year, excluding the impact of the NCCI-added issue, we expect revenue of $73 million to $77 million with earnings of $0.05 to $0.07 per share. We're also providing a preliminary estimate of the impact that a negative resolution of the NCCI issue would have on this full-year guidance. At this time, we preliminarily estimate that the negative resolution would reduce revenue by approximately $3 million and net income by approximately $0.04 per share. We believe these impacts would be more concentrated in the first half of the year as we would likely be able to mitigate some of the impacts by redesigning our work processes to comply with the new billing requirements as the year unfolds. Excluding the impact of the NCCI-added issue which remains unresolved, in quarter 1, we are expecting $18.8 million to $19.3 million and $0.01 to $0.02 per share of net income. We preliminarily estimate that a negative resolution of the NCCI issue would have the effect of reducing revenue by approximately $1 million of net income by $0.02 per share in quarter 1. At this point, I'd like to close down our formal remarks and open it up for questions. Incidentally, if you are listening to this conference call via webcast only, and would like to submit a question please feel free to email us at sjones@neogenomics.com during the Q&A session. We will address your questions at the end if the subject matter hasn't already been addressed by call-in listeners. Operator, you may now open up the call for questions.

[Operator Instructions] Our first question comes from the line of Trey Cobb with Stephens.

I know the NCCI guidelines came out less field for you. Have you had any additional conversations with CMS regarding the change? And given this is fairly unprecedented, what are you expecting in terms of timelines for a potential resolution?

Well, we have sent correspondents to CMS as well as to NCCI. We have not heard back yet. We've talked with the American Clinical Laboratory Association. There are a number of people that are trying to understand and get clarification from CMS. At this point, we don't know when we might receive that clarification, frankly. We're doing everything we can. We would like to resolve this, obviously, as soon as we can, and we'll issue an 8-K as we have clarification.

Okay. And then maybe if you could walk us through what conversations you've had, if any, with private payers regarding the change? Assuming the change remains, could we be looking at a case similar to myriads where private payers don't necessarily follow CMS' lead because they see the incremental value in the test?

Yes. Steve, do you want to handle that?

Sure. So Trey, we don't believe any of the private payers are going to handle them. We haven't heard anything from any of them. This is bad policy in our opinion because it will preclude people from getting the testing they need, which informs really expensive therapy. Doug provided the example with Herceptin in his remarks, but there's a dozen more examples where that came from that are $75,000, $100,000 treatments that are informed by a $400 to $600 maybe $800 FISH test. And I think it generally our experience has been the commercial payers get that economics, and they have embraced this kind of testing as part of the overall life cycle -- health economic life cycles. So right now, we haven't had any discussions with anybody, and nobody has mentioned anything to us. Nobody has reached out to us and said they're going to impose similar guidelines. I think when you look at the specific language in the policy manual, just before they get to the FISH language, they talk about IHC using similar kind of language where they're trying to limit things to one staining procedure. And then they appear to mimic the same language for FISH, but there's not even really a staining procedure for FISH. And so from our perspective, it just appears like somebody was trying to put the construct they are developing for IHC into FISH, and that's an apples-and-oranges kind of question. So we're hopeful we can get it resolved. We just haven't heard anything back yet.

Our next question comes from the line of Amanda Murphy with William Blair & Company. Amanda Murphy - William Blair & Company L.L.C., Research Division: Okay. So just a follow-up to that question previously. So in terms of the private payer impact, have you seen any effects previously? So if you think about IHC and some of the other cuts that you faced, have those flown through to the private side in the past?

Not really. I mean, we don't do a lot of IHC currently, but we have not seen any real impact from private payers along the lines of what Medicare has done. I assume you mean with respect to the NCCI edits or the new codes? Amanda Murphy - William Blair & Company L.L.C., Research Division: I was just saying in general, because I think that's a big question that people have in these days. And so obviously, the FISH test is relatively new, so I was just curious about kind of prior experience, have you seen cuts that you faced historically flow through to the private side, whether it'd be 12 months out or whatever, but at some point?

Let me ask George to handle that one.

Yes. This is a little unique because in this case, Medicare is really varying from the AMA CPT code guidelines, that's why IHC, they put this G-codes structure on place, and they're really building a similar where they're kind of diverging from the standard AMA CPT code practice. So most of the commercial is going to line up with the AMA, which is kind of the standard in the health care industry. And when Medicare goes down a different path, that's -- it's not necessarily that the commercials are going to line up behind them. I think if anything, the commercials are going to stay with the AMA code guidelines. Amanda Murphy - William Blair & Company L.L.C., Research Division: Got it. And then it seemed to me that one of the -- obviously, FISH was kind of one of the last potential issues from a reimbursement perspective, just given that it was under review this year. So does this -- I mean, this, in some way, mitigates that, right? I mean, it's obviously not the code-specific changes, but at least from a potential change that they may or may not have in terms of number of probes you can build. So is that the right way to think about it? If I think about FISH for next year, for example, you're kind of taking some of it now?

I guess, Amanda, the proper way to answer that is to tell you that, if we knew what Medicare was going to do, we would be very, very happy. We believe it may mitigate what Medicare does next year, but we just don't have any -- other than just informed speculation, we don't have any basis to make any statements about that. I think from our perspective, we have one good thing that's come out of this as we have a much more active and open dialogue with Medicare as a laboratory industry in total. And so I think, we're much more able to initiate the kinds of dialogues that need to be held quickly and respond to things.

Yes, Amanda, I just might add that we're -- we've been working very hard to diversify our company, and we'll continue to do that. And I try to make some comments about all of the various ways that we're diversifying through product line extension, clinical trials and so forth. And so we are trying to reduce risk of any concentration with a client or a particular type of test. Amanda Murphy - William Blair & Company L.L.C., Research Division: Got it. Okay, and then just last one. You had mentioned something about cautious ordering from hospitals and pathologists. I was just curious if you could provide a little more color on exactly what may be driving that? How long that may impact you?

Well, what we've seen, and some of this is anecdotal, we've tried to put a number on it for you and said that we think it's dampened our volume growth by 2% or 3%. But anecdotally, a lot of hospitals and community-based pathologists are asking questions about what is the most cost-effective way to test and treat patients. And that's a function of the health care environment that we're in. We're trying to be responsive to that by offering tests that we think are concise. We gave the example of our concise molecular disease panels, that's an example of that. But clearly, the pathology community, the hospital community and most providers are trying to be cost-effective, and there's not as much -- there was always a comment about -- is there are over utilization of testing -- and we're seeing that come into more control.

Our next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

A couple of different questions. First, Covidien (sic) [Covance]. How should we be thinking about that revenue stream ramping in 2014? I would assume it's negligible at the moment, but how will that layer on as the year progresses?

Yes, Matt. I think you mean Covance.

I'm sorry, yes.

Yes. So thanks for the question. Yes. So we're very happy about how that's starting. The process going to take a little while because what we first had to do is we have to get our laboratories aligned, we have to train the sales force and then we have to initiate conversations with pharmaceutical companies, and then RFPs are issued and so forth. So this process takes months to get started. We are very pleased with the initial response we've had from pharmaceutical companies and we're working very well with the Covance team. We would expect to begin to execute some projects with pharmaceutical companies in partnership with Covance beginning in the third quarter. Now some might start before that, we're starting to get inquiries by pharmaceutical companies directly to us as well, and we expect that some of those will start even before the end of the first half. I might mention that we just got an order from one pharmaceutical company just in the last week for next-generation sequencing. So -- which we have up and running, by the way, for that purpose. So it's starting.

Great. That's great. Secondly, in a little bit different focus, you had mentioned last year that one of your large oncology practices had moved to terminate the contract. Maybe an update on that, but more importantly, you are going to -- and I think this kind of falls into your diversification comments, but you are going to focus on additional opportunities in that large oncology practice market. Could you maybe provide an update on how that's progressing?

Yes. Sure, Matt. So we continued to have a partnership with the one large oncology practice, and I can't really comment further on how that's going to turn out. We provide, I think, pretty good service for them and we have a good relationship. Relative to other like kinds of arrangements, we have had recent success with that same model, where we will help a large oncology practice to perform certain kind of testing that they might want to perform, and it's economical for them. And then we, in partnership with them, would perform the other kinds of testing that they wouldn't be able to do because of the sophistication of the testing or so forth. So we have had some success there. Now that there has been some clarification, as we mentioned, of the HOPPS reimbursement issue that appeared last year, there is more receptivity out there in the marketplace to engaging in dialogue about these kinds of partnerships and we are continuing to do that.

Okay, great. And then maybe one last one for me. What -- and I realized, this is that you're learning as much as you can and as quickly as you can, but regarding this new reimbursement change, what will that mean from an M&A perspective? Will that create additional or more near-term opportunities for you on the M&A front?

Well, Matt, I would say that we've been entertaining a number of potential M&A opportunities. I think that the industry is ready for more consolidation. As you know and as we've mentioned to all of our investors, we intend to be a consolidator. We do have, as Steve mentioned, a shelf registration statement ready with $100 million ready to go. And so we expect that the others are going to be even more opportunities as we look forward.

Our next question comes from the line of Paul Nouri with Noble Equity Fund.

Looking at first quarter guidance, I was a bit surprised how strong it is given the bad weather. Does that not affect you guys as much because your labs are in Florida and California?

No, it affects us. We're whining about it.

So you're having that pretty good growth despite the weather?

Yes. There is some seasonality to our business, and Steve and George may comment on that. But quarter 1 is typically pretty strong for us, and we're trying to sort out the weather impacts. But we think it's continuing to be pretty strong, and that's reflected in our guidance.

Paul, I might just add. Florida is still about 30% of our total revenue stream, and all the snowbirds come to Florida in the first quarter time frame. And so we tend to have a much more robust first quarter certainly in the Florida market, which aren't affected by the snow, and I think that's probably offsetting some of the -- we have seen some impacts. Certainly, there have been days where people couldn't even get to the doctor's office up north, and that has impacted some of our Northeast sales.

And turning to M&A opportunities, are you looking for more new technology to fold into your current distribution, or are you also looking for distribution in new region?

Yes, Paul. So in M&A, we're looking at a variety of opportunities. So one would be a classic case where we would acquire a company and that we would have some redundancy and some cost synergies, and maybe some additional market penetration moving our molecular testing menu into a client base that maybe they weren't allowing or it didn't have molecular testing for. Those kinds of synergies. We would also look at diversification efforts where there also were some synergies. We would also look for new testing technologies. But in that case, we're being a little bit more cautious because we are sensitive to the effective -- to the dilutive effect if we were to issue shares or pay a lot of money for something that didn't have a lot of accretion opportunity for us. So we're going to be diligent about looking for acquisitions and also, you can expect us to be responsible in integrating.

And does the $100 million shelf kind of indicate that that's the upper limit of the acquisitions you're looking at?

No, we thought that was responsible first step.

Okay. And then turning to the sequencing that you're going to get into a bit this year, are you targeting tests that already have reimbursable codes?

Steve, do you want to get that one?

Sure. So you have to separate out Medicare from the commercial payers to answer this question appropriately. Medicare requires Z-codes for all their molecular testings. We currently have active Z-codes that have been filed and assigned using "sequencing analysis" in the Z-code application for several of those codes. There are also several codes that we don't get paid for from Medicare. But -- so for those that we have an active Z-code with sequencing analysis, it is our belief that we can submit for reimbursement using the same codes we do for bi-directional Sanger sequencing, and that's what we intend to do. Now until somebody comes out and tells us otherwise, we think that that's totally along the lines of what Medicare intended. They've actually gone out on record and say that the testing should be reimbursed independent of the platform that's being tested on. With respect to the commercial payers we submit using the CPT codes that were created last year, and I would say in this instance for molecular, the commercial payers are actually behind the Medicare a little bit, reimbursing on that, and that is what's impacting some of our molecular collections. We're having a lot of trouble with certain commercial payers getting them to pay for tests that even Medicare is paying for. This will all work itself out over time. I think there was so many upheavals and changes in molecular testing last year. It's just we've got to get the word out to everybody.

Okay. And then final question. In the fourth quarter this year, I guess, you're reconfiguring the Florida lab for the Covance joint venture, as well as better reconfiguring it to increase workflow. Was that at all a drag on margins this quarter? And as we go into the back half of '14, are we going to see that kind of turn around?

Well, I would say that it did not help us get productivity improvements in cost reductions that we may, otherwise, have gotten, and that's going to be the case in quarter 1 as well. We're moving departments around and moving instrumentation around, and we've got a lot of people engaged in this activity. So we will not get -- we don't expect to get a lot of productivity improvements in our Fort Myers facility in the first quarter, but we should be able to realize those as that reconfiguration is completed.

Our next question comes from the line of Jack Wallace with Sidoti & Company. Jack Wallace - Sidoti & Company, LLC: Quick question with the average cost per test coming down, the estimate will be about 8% to 10% for the next year. Is that off the fourth quarter figure, or is that the year end '13 figure?

Yes, that would be off the fourth quarter figure. Very good point. Jack Wallace - Sidoti & Company, LLC: And then so to kind of piggyback on the previous question there, is the idea there that you're going to see a good impact in the second, third quarter there with the Florida lab becoming more fully operational. And with the fourth quarter, the sequential drop in average cost per test, how much of that was volume-related and how much of that was other cost initiatives?

It probably will be more back-end loaded this year because of the issues Doug described. George, do you have a feel for volume versus...

Yes, I mean, the main thing we do with the Florida lab is the ability to handle increased volumes. So we think as the volume increased, that that's going to give us a lot of leverage with our new Florida facility. So we do think we are going to, as we grow, be able to continue to process greater and greater volumes more efficiently. So it is very tied in with our growth, but we do expect the lean initiatives to drive a lot of cost savings.

Just to give you a flavor for this, Jack, there is -- we figured out that it took about 600 steps to do an average flow cytometry test. By reconfiguring our Florida lab, we think we can get that down to 100 to 150 steps. I'm talking about physical steps that a technologist has to walk. And all those kinds of things pileup with a lot of cost savings when you add them up together. Jack Wallace - Sidoti & Company, LLC: Okay, that's helpful. And then is NeoSCORE in the guidance for full year '13?

We do expect some revenue from NeoSCORE this year. We don't expect a lot of revenue from it. We're being conversative. It would be inappropriate for us to comment on how much of that guidance was in part with NeoSCORE, but not much.

Our next question comes from the line of Grant Zeng with Zacks Investment Research.

Very quick question for the Covance conversion. So what's the pricing strategy for the Covance to come here compared to the -- for individual pricing?

We have a price list that we negotiated with Covance for all of the clinical trials. We will be acting as a subcontractor to Covance, so we'll basically jointly bid on projects together. If Covance is awarded, then we would sub to Covance on the piece of the proposal that we help prepare, that applies to us. And we will build Covance, and Covance, in turn, will build the end customer. The price list that we have is generally a little bit higher than the average clinical price list because there's substantially more data handling requirements for these clinical trials. And so we actually believe that we'll be able to get equal or better margins on the clinical trial work than what we're currently getting.

We have a follow-up question coming from the line of Paul Nouri.

Turning back to M&A for a second. Are you finding that the deals you are looking at are difficult to close because of a valuation gap, or is that not the case?

Well, they're all different. I mean, obviously, we wouldn't want to overpay, so there's always a negotiation there. Not so far, no. I think the issues that we're dealing with right now are trying to understand better the impact to our company and how we might integrate. And there are also some issues with the companies that we're talking with. They've got some things to get resolved. So we're a little bit in a watchful waiting period, I guess. We think we can do some meaningful M&A this year. We're working very hard at it. We're engaged now in a number of different discussions. And I don't think valuation is going to be a big issue. I think people's valuation expectations have come more in line given the environment that we're operating in.

And you mentioned before that you're winning business, you're taking accounts. Is it kind of broad-based, or is it from the big 2 or more the niche labs?

No, it's fairly broad-based, I would say. We -- this is a very competitive environment. We have very good competitors and we're just trying to do our job every day and deliver really high quality service and have a very good menu. We've been able to get client's attention in many cases because we walk in with new products. And we say, "Hey, have you heard about this that we just released?" And that gets people's attention. And so we've been able to get our foot in the door more places than we ever had before. And I think our reputation for service and quality and being an innovative lab is helping us.

[Operator Instructions] Our next question comes from the line of Debjit Chattopadhyay with Emerging Growth Equities.

Just a couple of questions on the prostate cancer test here. Knowing that 15% of prostate cancer patients have PSA of less than 4 nanograms per mill, can the new score be modified? Or what was the cutoff for the PSA that was selected in the panel in your score?

Dr. Albitar, you want...

We broke that off, so our test does use the information coming from the PSA. But it is one of the multiple bio mill curves in the test. There's no cutoff for our test for PSA.

No -- but the patient samples that was in the 120 samples that you had or you analyzed, what was the cutoff for that? Was that a 3-nanogram or a 4-nanogram cutoff?

There is no cutoff at all in our selection of our patients. So any patient that clinically are considered or cautioned for versatile positive [ph] cancer was included in the clinical trials.

And did you break down the number of patients with -- that are missed? And off the ones that were missed, how many of those were high-grade prostate cancer patients?

That's very difficult to answer because it depends on whether we are talking about high-grade missed or low-grade missed. In general, our test is very good and does not miss a significant number of cases that are at high grade. I cannot give you the exact number because the exact number is really based on the additional data we just finalized. We need to publish the data before I give you the exact number.

Okay. And one last question on the launch of the NGS. How should we look at pricing of the test? I mean, clearly, it's not whole genome sequencing, so it's probably not going to be around the $3,700 mark as you see from foundation medicine. So do you think it's going to be more in terms of what they are collecting? What foundation is collecting? And is this primarily meant for the clinical trial market? Or would you have active interest from physicians as well?

Steve?

We expect to have a lot of interest from our clinicians. In fact, we're already getting a lot of inquiries about that. We will probably use a different strategy than foundation medicine. I think the last time I checked, they had 237 genes in their foundation, 1 solid tumor panel and over 700 genes in their heme panel. Our first 2 tests, as Doug mentioned, will be a 48-gene solid tumor profile panel. Many of the genes in there are the ones that are already reimbursed. And then, we will also be offering a 16-gene MDS panel. For those of you that have followed us for a while, you might recall, we launched a 13-gene bi-directional Sanger sequencing MDS panel last July, which has been a very successful product for us, so we'll be extending it. Actually, there'd be 2 separate products that get at 2 separate kinds of questions on that. Overall, we're very excited about what NGS can do for us, not just in terms of increasing revenue and penetration into the molecular market, but what it can do for us to rationalize the cost structure providing molecular tests. The one benefit of NGS testing is it allows you to batch samples much more effectively than you can in bi-directional Sanger sequencing, which tend to be more one-off-based.

Dr. Albitar, do you want to add anything to that?

Mixed gene sequencing, as we've indicated previously, we believe it is a technology that is very useful. And again, we would like to emphasize that it can be used either to test many genes in one shot, or it can be used to test many patients for one gene in one shot. So we are using the technology along these lines to involve efficiency in general. And it's a great technology and we are moving very fast on utilizing this technology to increase efficiencies. So there are multiple ways by the end of the year, as you're going to hear way more innovative way of utilizing gene sequencing in our company.

I've got a few e-mail questions here that we just want to clean up, and then we're going to cut this off as we've been going on a long-time here. First question is, can you give us an idea of what you're expecting average revenue per test to be in 2014? Of course, the answer to this question will depend on how the NCCI added issue gets resolved. If it's resolved favorably, we expect average revenue per test to settle out around $455 to $460 on us [ph] full year. That's about a 5% to 6% reduction from full year 2013 numbers. A large part of this reduction comes from the mix shift that will happen after mid-May where a large customer will begin to insource their FISH testing. If the NCCI added does not get resolved favorably, we'll be -- we believe there'll be another approximately $18 to $24 decrease in our average revenue per test this year. That's probably as far as we can go right now. Next question we got, deals with IR. What IR activities are you planning on? We're going to be at the BTIG Conference in Salt Lake City, March 18 to 19; we'll be at the Deutsche Bank Conference in Boston, May 7 and 8; and we'll be at the Craig-Hallum Conference in Minneapolis on May 28. Let me see. I also have a question here about international expansion. Some molecular diagnostic companies are expanding aggressively in the Latin America and Central America. Is such expansion possible for NEO? And what are the regulatory hurdles? We've looked at international expansion a number of times. I think reimbursement is always the key question there. We believe our first international expansion will be with Covance, helping them support their international client -- clinical trials. Recall that we will be doing all of the pathology reads for the anatomic pathology testing, associated with their trials globally. In fact, we intend to help them in Shanghai and Geneva starting maybe even as early as later this year. Doug, do you want to add anything to that?

No. I think you got it, Steve.

Okay. That's the last question I have by e-mail, and we're kind of 10 minutes beyond the appointed hour here. So we're going to go ahead and wrap things up. Doug?

Okay. Thank you, everyone. So as we end this call, I'd like to recognize all 320 NeoGenomics team members around the country for their dedication and commitment to building a world-class cancer genetics testing program. And on behalf of our entire NeoGenomics team, I want to thank you for your time joining us this morning for our quarter 4 2013 earnings call. And let you know that our first quarter 2014 earnings call will be on or around April 25 of 2014. So for those of you listening that are investors or thinking about investing in NeoGenomics, we thank you for your interest in our company. Goodbye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.