Greetings, and welcome to NeoGenomics' Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Doug VanOort, Chairman and CEO. Please go ahead, Mr. VanOort.

Thank you, Rob, and good morning. I'd like to welcome everyone to NeoGenomics second quarter 2018 conference call. Joining me from our Fort Myers headquarters is Sharon Virag, our Chief Financial Officer; Rob Shovlin, President of our Clinical Services Division; George Cardoza, President of our Pharma Services Division; and Bill Bonello, Vice President of Strategy, Corporate Development, and Investor Relations. Before we begin our prepared remarks, Bill Bonello will read the standard language about forward-looking statements.

This conference call may contain forward-looking statements, which represents 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 facts 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 statement speaks only as of today, and we undertake no obligation to update any such statements to reflect events or circumstances after today. Before turning it back to Doug, I want to let everyone know that we will be making a copy of our transcript for this morning's call available on the Investor Relations section of our website shortly after the call is completed. We also want to let everyone know that we are going to limit the number of questions to two per person in order to give more people a chance to ask questions within the one hour that has been allotted for this call.

Thank you, Bill. For today's call, I will briefly review some quarter two highlights and then turn the call over to Sharon for a more detailed review of the financial results. After that financial review, I will provide some additional commentary on our 2018 growth initiatives and some of the investments that we're making to drive both near term and long-term growth. Let's begin with the quarter two highlights. We're pleased with the quarter two results. Our fundamentals are strong and our growth prospects are very encouraging. In the Clinical Services division, our volume growth rate was once again in the mid-teens, with solid growth across all test types. Revenue per test stabilized and was consistent with quarter one. We continue to gain market share and expand our managed care coverage and our sales pipeline is strong. Our Pharma Services division revenues grew over 20% compared with last year and we signed a record $27 million worth of new contracts for future work. At the end of our quarter two, our Pharma Services division backlog was up 95% year-over-year and currently stands at more than $90 million. Profitability also improved, as we gained leverage, with gross margin up 120 basis points versus last year. We continue to drive cost per tests lower compared with last year and productivity increased again to record high levels of performance. Importantly, service levels continued to be outstanding and we achieved record high levels of customer satisfaction. Adjusted EBITDA was in line with our expectations for the quarter. During quarter two, we invested more in our sales and marketing programs and continued to pursue FDA approval for our large multi-gene next-generation sequencing panel. We remain confident in our full-year guidance for adjusted EBITDA. Cash collections also remained strong during the quarter. For the first half…

Thanks, Doug. Before I begin, I'd like to remind everyone that we adopted ASC 606 effective January 1st of 2018. As part of that adoption, we have restated 2017 results hence the year-over-year comparisons that we discuss will include the adoption of ASC 606 for both periods. Our second quarter revenues were $67.7 million, a 9% increase from last year. After adjusting for the sale of PathLogic, total revenue grew by nearly 12% year-over-year. Clinical genetic testing revenue increased 10% to $59.5 million and Pharma services revenue increased 22% to $8.2 million. Clinical genetic testing volume increased 14% year-over-year. Importantly this growth was balanced across modalities with double-digit growth in flow cytometry, FISH, and IHV, and more than 20% growth in molecular testing. Excluding high levels of PD-L1 test volume which has now flattened out, test volume growth rates accelerated in quarter two. Average revenue per clinical genetic test was $318 a 3.6% reduction from the prior year but stable with the first quarter of this year. The year-over-year decline resulted primarily from changes to Medicare reimbursement and regulation. Gross profit increased by $3.2 million to $30.5 million, up 12% from the prior year. This increase represents a 58% contribution on the $5.5 million of revenue growth. Gross margin improved by 120 basis points year-over-year to 45.1%. This improvement was driven by the divestiture of PathLogic and a 4.5% decrease in clinical cost per test, as a result of increased automation and the benefit of increased economies of scale. Gross margin was reduced by the significant additions to Pharma lab capacity in Europe and in Houston. G&A expenses increased by $2.5 million or 16% year-over-year to $21 million. Approximately $1.8 million of this increase is related to onetime non-recurring cost associated with the relocation of our Houston facility. These moving…

Thank you, Sharon. Before we begin the question-and-answer segment of the call, I would like to highlight five important drivers for near-term and long-term growth and profitability. First our strong Pharma Services backlog is an important driver of revenue growth. We have more than $90 million of signed contracts in our backlog and we expect about 70% of this backlog to convert to revenue over the next three years, including about 50% over the next 18 months. Our Pharma Services sales team is performing at a very high level and we are just beginning to add to our sales capabilities outside the U.S. Second, we expect that our new partnership with PPD will help drive growth and we are extremely pleased to have established this global strategic alliance. PPD is one of the largest contract research organizations in the world with a significant expertise in oncology trials and an outstanding reputation. Our shared objective is to provide a seamless and fully integrated global pathology and molecular testing solution to PPDs pharmaceutical and biotech clients. As part of the agreement, we will be opening NeoGenomics Laboratories in both Singapore and Shanghai. These labs will be located in PPD facilities but independently operated and managed by NeoGenomics. We are delighted to partner with PPD and expect this important strategic alliance to accelerate already strong growth prospects in our Pharma Services business. We're hoping to generate run rate revenue of at least $10 million from this alliance by the end of 2019 and believe that the longer-term potential is greater than that. Third, we are excited about our newly signed contract to be a national participating in-network provider with Cigna. Up until now, we have not been included in the Cigna network. This out of network status has negatively impacted volume, growth, and…

At this point, we would like to 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 e-mail us at bill.bonello@neogenomics.com during the Q&A session and we will address your questions at the end, if the subject matter hasn't already been addressed by our call-in listeners. As mentioned at the beginning of this call, we would like to ask each person to limit their questions to two, so that we may hear from every one and still keep within the hour allotted for this call. Operator, you may now open the call for questions.

Thank you. [Operator Instructions]. Thank you. The first question today comes from the line of Amanda Murphy with William Blair. Please proceed with your question.

Hi, thanks and good morning. Doug, I just had a quick couple of follow-ups on some of the last points you made in terms of the growth initiatives. I suppose, first, in terms of the reimbursement per test initiatives, I know it’s maybe hard but I was wondering if you can maybe put some context around what that might mean for you in terms of improvements from a quantitative perspective and then I was also curious in terms of the Physician Fee Schedule commentary, it looks like IHC actually saw some pretty meaningful increases and I think that's how PD-L1 is built. So curious if you could even potentially see a benefit, I hate to even say that word in Medicare but is it possible that over the next several years you might see a positive impact from the Physician Fee Schedule?

Well, thanks Amanda. Yes, we were pleased with the Physician Fee Schedule that was just announced. I think for us we, you know we're seeing today a much more stable reimbursement environment than we've seen in the past. Now some of that is what's happening outside, some of that is what we’re doing internally. I would say that our understanding of our own pricing dynamics has improved a lot. We’re all on one system now, we have better data analytics and we're a fairly price disciplined player. So we do make trade-offs in terms of price versus volume and we think those are smart trade-offs to make. They're smart also because as you know we're a low cost provider we believe. So we're maintaining our price discipline. I think that for us a benefit is no reduction in price per test. We don't really think of increases in price per test today but you've seen that in some of the other companies that we compete with and certainly that would be our goal going forward. In terms of the Physician Fee Schedule changes, we expect that that's going to be a slight positive for us in 2019.

Okay. Fair enough. And then just on the FDA not sure if you're going to have any answer for this yet but have you had any interaction with them, I'm just trying to get a sense of if there is any more clarity around what they are looking for obviously there is the clearance the nebulous clearance process that doesn't seem to exist yet and kind of thinking about labeling and maybe it's a bit early to ask the question but do you think you may be able to secure some more labels to furnish medicine in terms of broad pan-cancer coverage?

Well that would certainly be our goal to some extent. Our assay is going to be little bit different than foundations. We have engaged in some correspondence with the FDA. We have a meeting coming up with them; face-to-face meeting in August and we'll gain more intelligence as our interactions with the FDA increases. But we're pretty hopeful about this process, it is new to us and it’s requiring us to do a lot of work frankly but we think it's worth it. And we're looking forward to going through this approval process over the next 12 months or so.

The next question comes from the line of Drew Jones with Stephens. Please proceed with your question.

Sharon, you walked through some of the volume growth for IHC Flow FISH and molecular. Then you called out PD-L1. Is that still growing, is it receding in terms of volumes or how should we think about that in terms of its impact on overall volume growth right now?

Yes, it's really flattened out and so we're pretty excited to see growth still accelerating even with PD-L1 flattening out. You want to add anything, Rob?

Yes, we've seen each of our testing methodologies grow basically in double-digit numbers, so we're excited to see the testing across all methodologies today.

Perfect. And then Doug, can you maybe walk us through the process that got Cigna over the finish line here?

Yes. I would say Drew that first of all we have a terrific managed care organization and I think you've noticed for a long time that we've pursued broader coverage with the National Managed Care players for many years and we're really happy about Cigna. We've been talking with Cigna for a number of years, I think what was attractive to Cigna about NeoGenomics was our broad comprehensive menu including a lot of tests which may not be found with other players. So what we're really encouraged about here is that we would probably have more test that hadn't been covered in the past that we think will be covered and going back to Amanda's question the Cigna coverage will we think help to aid reimbursement overall in terms of revenue per test. So we're excited about it.

Thank you. [Operator Instructions]. Our next question comes from the line of Kevin Ellich with Craig-Hallum. Please proceed with your question.

Good morning and thanks for taking the questions and nice quarter Doug and team. I guess could you give us a little bit more color on the strategic partnership with PPD, I appreciate the color you gave us already on your expected run rate but when we think long-term, where do you think this could go and what the timeline, when you expect to see any contribution to maybe later this year?

Let's turn it over to George for a little commentary on that.

Yes, obviously we announced this partnership -- announced this alliance on June 1st. So we’re still in the fairly early stages, obviously there was quite a bit of work ahead of the announcement but we're really now in the execution phase, we have made joint sales calls, we've made joint proposals already now realize the sales cycle in Pharma services is a lot longer than seven weeks. So those results aren't showing up yet but we're very optimistic about it. We had stated before that NeoGenomics had planned to open in Asia-Pac laboratories. So this story came along at a very opportune time for us, to actually be able to sort of co-locate in their Singapore facility and have sort of their assistance as we try to open the operation. So it's still very early in the process, so it's hard to put an exact number on it. So but obviously we're very optimistic about this over the next several years. We think this can grow, we think this gives us the opportunity to win deals that we probably would not be able to win alone and the same time with PPD, our oncology and pathology expertise gives them the ability to participate and bid that they probably would not have won on their own as well. So we think it's a fantastic alliance and we're very optimistic about it.

Appreciate the color, George. And then I guess more a question for Sharon and the finance team, now I guess what's your -- now that you've gotten the redemption of the convertible preferred out of the way, I guess what's your comfort with the financial leverage and where you want to operate the company and what's your appetite for M&A?

Well thanks for the question. I think we are very excited to have closed out the redemption of the preferred shares and gotten out behind us. It did take our leverage a little bit high and we're looking to bring that down as quickly as we can. So we're up at about 3.9, 3.9 times adjusted EBITDA and we're looking to bring that down by the end of the year to more sustainable level. But I don't think that we view it as blocking us from being able to consider M&A and we continue to look at things and continue to think about growing the company.

Thank you. At this time gentlemen, we have no additional phone questions. Were there any electronic questions?

There are not.

Thank you. I turn the floor back to you for closing comments.

Okay, Rob, thank you very much. Before we end the call, I would like to recognize the approximately 1,000 NeoGenomics team members around the U.S. for their dedication and commitment to building a world class cancer testing company and on behalf of our NeoGenomics team, I want to thank you for your time joining us this morning. For those of you listening that are not our investors or considering an investment in NeoGenomics, we thank you for your interest in our company. Goodbye.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.