NeoGenomics, Inc. (NEO) Q3 2018 Earnings Report, Transcript and Summary

Greetings, and welcome to NeoGenomics' Third Quarter 2018 Financial Results 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 introduce your host, Doug VanOort, Chairman and CEO. Thank you. You may begin.

Thank you, Michelle, good morning everyone. I'd like to welcome everyone to NeoGenomics' third 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, Chief Strategy and Corporate Development Officer, and Director of 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 allocated for this call. Doug?

Thank you, Bill. For today's call, I will briefly review some key quarter three 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 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 three highlights. Our quarter three results were very good, we reported record revenue and adjusted EBITDA with 17% top line growth, 53% adjusted EBITDA growth, and 39% adjusted EBITDA contribution on revenue growth. In the Clinical Services division, we drove 14% volume growth and 3% increase in average revenue per test and a 6% decrease in average cost per test. Those results reflected a continued gain in market share generating double-digit volume growth across all test modalities. Our Pharma Services division revenues grew 21% compared with last year and restarting to $21 million of new contracts for future work. At the end of quarter three, our Pharma Services division backlog was up 75% year-over-year, and currently stands at $97 million. Profitability also improved as we gained leverage and continued to drive down costs per test. Our adjusted EBITDA margin of 16.3% was an all-time high even as we continued to make significant investments for future growth. Importantly, service levels continue to be excellent and customer retention levels remain outstanding. We also achieved positive results from our strategic and corporate development initiatives. During the quarter we completed a $135 million equity offering, and just last week we announced that we signed a definitive agreement to acquire Genoptix, a leading provider of oncology focused laboratory testing for $125 million in cash and one million shares of common stock. We're excited by the Genoptix acquisition opportunities, this combination sets NeoGenomics' apart from the rest of the industry with unprecedented reach to all customer segments including hospitals, pathologists, and immunity oncology practices. Importantly, the acquisition expands our reach into immunity oncology practices which has been a strategic priority given change in ordering paradigms by oncologists. We believe the combination will make NeoGenomics' more competitive by leveraging the best offerings from each company and will create an innovative value proposition for oncologists, pathologists, hospitals, payers and patients. At this point, I'd like to turn the call over to our Chief Financial Officer, Sharon Virag for a more detailed review of third quarter financial results.

Thanks, Doug. Before I begin, I'd like to remind everyone that we adopted ASC606 effective January 1, 2018. As part of that adoption we restated 2017 results so that the year-over-year comparisons that we discussed include the adoption of ASC606 for both periods. Our third quarter revenues were up $69.1 million; actually they weren't up $69.1 million, they were $69.1 million, a 17% increase from last year. Clinical genetic testing revenues increased 17% to $59.5 million and pharma services revenue increased 21% to $9.6 million which is an all-time high for quarterly pharma services revenue. Clinical genetic testing volume increased 14% year-over-year, importantly, this growth was balanced across all modalities with double-digit growth in every test category. Average revenue per genetic test was $320 which was up modestly, both year-over-year and sequentially. As we discussed last quarter, we are optimistic that we are beginning to see less downward pressure on price per test than we have experienced over the past several years. Gross profit increased by $7.4 million to $32.3 million, up 30% from the prior year; this increase represents a 75% contribution on a $9.9 million of revenue growth. Gross margin improved by 468 basis points year-over-year to 46.8%. This improvement was driven by productivity gains, cost efficiencies and the negative impact of Hurricane Harvey and Irma on 2017 results. As Doug mentioned, average cost of goods sold per clinical genetic test are standard cost per test metric decreased by 6%. G&A expenses increased by $2.8 million or 15% year-over-year to $21 million. Approximately $700,000 of this increase is related to one-time non-recurring costs associated with the relocation of our Houston facility. These moving expenses are counted as non-GAAP adjustments in our calculation of adjusted EBITDA, adjusted net income and adjusted EPS. The balance of the increase is primarily attributable to an increased number of employees to handle our increasing growth, as well as increases in professional fees. Sales and marketing costs increased by 8% year-over-year to $6.9 million, primarily due to commission's expense on increased revenue and additional investment and marketing related activities. Third quarter GAAP net income attributable to common shareholders was $2 million compared to a net loss of $6.9 million in the third quarter of 2017, and diluted income per share with $0.02 versus a loss of $0.09 in the prior year. We believe that in order to compare the net income related to the true operations of the company on a more consistent basis across periods it is appropriate to adjust GAAP net income or loss available to common shareholders to exclude certain non-cash items and if applicable, one-time costs. We refer to this measure as adjusted net income, and on a per share basis adjusted diluted earnings per share, and we have included a table with how these are calculated in our earnings release. Adjusted EBITDA was $11.3 million, an increase of 53% year-over-year. As Doug mentioned, the marginal adjusted EBITDA contribution on revenue growth was 39% which is above our long-term guidance of 25% to 35%. As we have mentioned in the past, the 25% to 35% guidance is a range that we expect to fall into on average with some quarters about and some quarters below that range. In the third quarter, adjusted net income with $4.6 million compared to a loss of approximately $600,000 in the prior year. Adjusted diluted EPS was $0.05 versus the loss of $0.01 in quarter three 2017. Cash collections were strong in the quarter although DSOs this quarter increased two day sequentially to 84 days, this still represent a 14 day decrease compared with last year. Cash flow from operations of $29.3 million was up significantly in the first nine months of the year compared with $12.3 million in the comparable period last year. We ended the quarter with $118 million in cash and $110 million of total debt including capital leases. As Doug mentioned during the quarter, we completed $135 million equity financing. We finished the third quarter with 1,078 full-time equivalent employees, contract doctors and temps versus 1,063 as of June 30, 2018 and 942 as of September 30, 2017. We are updating and narrowing our full year revenue and earnings guidance, we now expect consolidated revenue to be in the range of $270 million to $272 million which compares to prior guidance of $260 million to $272 million. We expect adjusted EBITDA to be in the range of $40 million to $42 million which compares to prior guidance of $39 million to $43 million. Net income available to common stockholders is now expected to be $4 million to $5 million compared to prior guidance of $1.2 million to $5.2 million. This new range includes the impact of $2.6 million of one-time transaction costs related to the proposed Genoptix acquisition. GAAP diluted EPS is expected to be $0.04 to $0.05 per share versus prior guidance of $0.01 to $0.06 per share, and adjusted diluted EPS is expected to be $0.17 to $0.19 per share versus prior guidance of $0.12 to $0.17 per share. I will now turn the call back over to Doug to provide some additional commentary on our 2018 growth initiatives.

Thank you, Sharon. Before we begin the question-and-answer segment of the call, I'd like to highlight some important drivers of near-term and long-term growth and profitability. First, our acquisition of Genoptix will significantly it accelerate our revenue and growth trajectory. Genoptix will add approximately $85 million of revenue resulting in a pro forma combined company revenue run rate of approximately $350 million. The acquisition will also improve our level of profitability overtime as we have identified $25 million of cost synergies which we expect to realize by the end of 2021. Second, our strong pharma services backlog is an important driver of revenue growth. We have $97 million of signed contracts in our backlog, and we expect approximately 70% of this backlog to convert to revenue over the next three years, including approximately 50% over the next 18 months. Our pharma sales team continues to perform at a very high level and we are beginning to add to our sales capabilities outside the United States. Third, 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. We have a handful of early wins and a number of bids outstanding with pharma and biotech customers today. Perhaps, more importantly, the PPD and NeoGenomics commercial organizations recently met for a 2-day sales strategy meeting and our business development teams are working collaboratively to pursue new opportunities. We're hoping to generate run rate revenue of at least $10 million from this alliance by the end of 2019, and begin and believe that the longer term potential is greater than that. Fourth, we continue to add new managed care and group purchasing contracts as a result of our scale and strong ability to serve providers and payers on a national basis. On the second quarter conference call, we discussed our agreement to be a national participating in network provider with Cigna which was effective August 1. In September, we announced that we had been awarded a group purchasing agreement with Premier effective October 1. Premier is one of the largest group purchasing organizations in the U.S. representing approximately 4,000 U.S. hospitals. This agreement opens the door for us to negotiate contracts with these member hospitals. In addition to Cigna and Premier, we added several other important new contracts during the quarter which will also expand our access to both, hospital customers and patients. Fifth, we continue to make progress with our FDA initiative. As we discussed on previous calls, we're in the process of seeking FDA approval for a large multi-gene next-generation sequencing panel. Earlier this year, we filed our pre-submission documents and we had a very helpful pre-submission meeting with the agency in August. We believe that an FDA approved next-generation sequencing test offering will benefit both, our pharma services and clinical testing divisions by further differentiating us from other oncology labs driving reimbursement for our multi-panel test and increasing our attractiveness to pharma companies for clinical trials involving companion diagnostics. We're also working with a major pharma sponsor on getting FDA approval for companion diagnostics in conjunction with their drug application. NeoGenomics is uniquely positioned to be able to work with pharma sponsors in their drug development process and take the test through the FDA all the way to commercialization with our clinical team. Finally, we're beginning to make progress with our proactive measures to address revenue per test. We have enhanced our analysis of existing reimbursement trends, identified areas where we are being significantly underpaid and implemented a plan for improvement. These activities include securing coverage for non-coverage test, improving our billing process to avoid denials, and working those denials more effectively when they do occur. We're also evaluating our fee schedules to identify tests that are not appropriately priced. Our quarter three results suggest that we are seeing some initial benefits from these efforts. In summary, we're excited about the strength of our business, our position in the market, and our near-term and long-term growth opportunities. Sophisticated laboratory testing plays an increasingly critical role in identifying appropriate care protocols for cancer patients, ultimately improving quality of care and saving lives. We're pleased to play an important role in this vital segment of our healthcare system, and believe that our services are creating value for patients, employees, customers, and for our investors. I'll now turn the call over to Bill Bonello to lead us through question-and-answer period.

Thanks, Doug. At this point, we'd like to open the call 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 everyone and still keep within the hour allotted for this call. Operator, you may now open up the call for questions.

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

Good morning, thanks for taking the question guys, and congrats on the good quarter. Doug, just wanted to go back to your comments on improving revenue per test and kind of what you guys are doing to identify where you're being underpaid, 3% growth on average revenue per test was great, first time we've seen that in a long while. I guess, what else are you guys uncovering and where do you think pricing can ultimately go over the next 12 to 24 months?

This is Sharon, I'll take that one. I think we have been doing a great deal of work on our reimbursement and improving that revenue per test. And you know, it's -- I'd love to say it's sophisticated stuff, I think on the analytic side we are getting a lot better. We've moved the organization from looking at everything on a claim-by-claim basis, and really trying to get to data driven answers on where we're seeing reimbursement, not where we think it should be and then going after those with a project plan. So for example; if we see Medicaid not paying in one state, protested it pays in another, why is that, people go down to the root cause and then we put together an action plan for what are we going to do about Medicaid in that state. And that's one of unfortunately a thousand example, so there is a ton of work to be done because we keep uncovering these little nuggets. But we're really encouraged too, we're just at the beginning to be honest and so -- where do we think it could go? I mean we could definitely see an improvement, there will always be headwinds in reimbursement in the healthcare, I mean that's just a fact of life. I think what we -- where we have always been able to use the cost per test to offset that, we're really excited to see that we might be able to just offset it with these efforts and we think there is a long way to go, I don't know that we're ready to quantify anything but we're just at the beginning.

And then just going back to the Genoptix acquisition; it's nice that you guys laid out the cost synergy opportunities. Doug, I was wondering if you could talk maybe about any potential revenue synergies such as cost selling. And also -- I guess, holistically looking at your growth strategy and the investments that you guys continue to make wondering I guess where you'd like to drive business over the next 3 to 5 years and what investments are needed for that?

We believe that there are revenue synergies for sure. As a result of the Genoptix acquisition, we have not quantified those and we have not baked those into any commitments in terms of our growth but I think the revenue synergies would include, for example, our FDA approved tests; we've got a broader channel with our colleges as a result of this acquisition and certainly that provides an opportunity to use this new FDA approved assay for that channel. But there are lot of other opportunities that we believe we have on the revenue synergies side and you can count on us to be working those very hard, we're just starting the integration process. We do have a lot of growth opportunities and in fact, you can in our guidance that we are investing still in a lot of those, and those investments show up in cost of goods sold, as well as in SG&A. Some of those investments, for example, in pharma services -- we're investing outside the U.S., we're putting up a lab in Singapore, we're still significantly under capacity in Geneva, we're working very hard to increase our commercial organization outside the U.S. and these things take time but they are important investments for us. In the U.S. here we're investing a lot in the clinical business; we're investing in our quality management processes in order to meet the standards -- the stricter standards for documentation and other things by the FDA. So there is a lot of growth investments in our projections in our numbers.

Our next question comes from the line of Drew Jones with Stephens Inc.

Thinking about that same topic of mispriced tests, I know what I see PD01, that's obviously an area that could be focused on. So I'm curious, what's your reception when you walk-talk to your hospital customers, specifically? And maybe what's the timeline to enact change with those contracts versus maybe commercial payers?

I think on the IHC example, in particular, we've had an effort to raise or increase prices on PD01 specifically because of the demand for that test and higher cost of goods for that test, and I think we've been pretty successful across the board at increasing pricing on that and I think clients understand that and get the explanation behind it. In addition, we have a lot of discipline around our price approvals process internally with our controls and we continue to be focused on price discipline as we move forward with our growth initiatives.

And then maybe shifting to pharma services; Doug, you mentioned companion diagnostic, that seemed new to me. Can you give us any more color on that? Is that a new drug or is it already an approved drug, maybe with an expanded indication that you're looking after? Any color there would be appreciated.

This is a test actually that was on our menu [ph], it's a laboratory-developed test, one of the sponsors had used that in their -- right now using that in their Phase 3 clinical trial and it will be a companion diagnostic ultimately for their drug ultimately, hopefully when it's approved in 2019. And again, we're very uniquely positioned in the pharma -- you know, NeoGenomics of the Pharma Services Division, we can work with the sponsors upfront. And then, what makes us attractive to them is we can also offer a Day 1 on our commercial menu and have it available for ordering. So that's really a value proposition that's very attractive to the pharma.

That was George Cardoza by the way, Drew.

And so just to be clear George, it sounds like that FDA approval could maybe come in front of the large panel?

Possibly yes because of the nature that, yes, it probably will.

Our next question comes from the line of Puneet Souda with Leerink Partners.

So let me touch briefly on a cost per test; just I wanted to get a view from you now with Genoptix having a wider geographic base here; maybe just give us your view on how cost per test can evolve further and decline further with your existing base of fixed costs that you already have in place? And also give us a view on the turnaround time if that can improve here for the oncologists and pathologists?

We were pleased with 6.6% decline in cost per test in the quarter. As you know, we've had a history of successfully reducing our cost per test and really it's a lot of things, it's not one thing. First, it's scaled and volume does come in at variable cost for the most part, so that helps drive down costs per test. But importantly, we're spending a lot of money in IT and a number of automation initiatives. I've mentioned the QMS, Quality Management System process; ultimately the QMS process we believe higher quality results in lower cost because you're taking waste out of the system. But we're working hard on automation process enhancement initiatives, all of those kinds of things just to continually drive down the cost per test. I think that with the Genoptix acquisition, we have an opportunity to continue that trend. Particularly, on the volume side of the equation, adding volume to existing facilities; and that gets into your last question about turnaround time. I mean ultimately what we want to do is to -- we want to use and leverage the infrastructure that we have here such that East Coast United States clients are being predominately served from our East Coast facilities, and West Coast clients are predominantly being served by our West Coast facilities; right now we're sending samples across the country and that has limitations on the progress that you can make in turnaround time. So I think that overtime we expect to have improvements in our quality service turnaround time and cost per test as a result of our strategies.

And then on multi-gene panel, I just wanted to get -- what should we be expecting next and the type of update we should think through into 2019? And also just -- if you could just on a high level give us some thoughts on the oral liquid biopsy as a multi-gene panel; we recently saw that one of the test received and LCD there -- and there was a public company that came -- I mean, a company that came to public market. So just wanted to get a view on the liquid biopsy as a modality despite tissue being a very much of a standard among the oncologists from multi-gene today?

Let me just say, well, relative to the question liquid biopsy is an exciting area for us and it's an exciting area really for cancer patients and for oncology generally. It's becoming -- I mean, most people on the phone might recognize that liquid biopsy is becoming increasingly important because of advances in next-generation sequencing technology and we have had and continue to offer a liquid biopsy test for heme cancers. And that test has been on our menu for some time and is continuing to gain traction but there is a lot of investor interest today in liquid biopsy for solid tumor testing, there are more solid tumor cancers than there are heme cancers in the U.S. And there has been a lot of interest recently because of the IPO that you mentioned, and certainly that company has done a nice job advancing the science. So liquid biopsies for solid tumors today are used really for advanced cancer patients. And I would say that it's a very important technology because cancer patients, particularly in the future as cancer becomes more of a chronic disease, there will be more monitoring of cancer and the cancer progression, and it's much easier for cancer patients to have that monitoring performed through blood drawn as opposed to a biopsy. So this is an important technology, NeoGenomics has a limited offering today for solid tumor liquid biopsies but you can be sure that this is on our radar screen, we are looking at it, we can approach this in a number of different ways including investing in the technology or cells which we are doing, working with IVD companies, and there are number of them working on liquid biopsy tests and offerings or we could partner with other labs or we could do a combination of all three of those things. And I would say the last point is, with Genoptix now in our scale, we do have unparalleled access through the channel to be able to offer liquid biopsy testing whether it's heme or solid tumor and we think we're in a unique position to do that.

Our next question comes from Joe Mundo [ph] with First Analysis.

First off, I'd like to drilldown a little bit on Genoptix, as we're building out our models going out to 2019, in some cases 2020, can we get some sort of color as far as price per test and gross margin profile that Genoptix has? It would be very helpful.

So we will give you additional color on that overtime. I think as we noted on the Genoptix call last week, one of the issues is that the test count at Genoptix and the test count at NeoGenomics is not exactly apples-to-apples, and we're very renascent to give you data prematurely that might confuse things rather than clarify things. So once we have that sorted out a little bit better then we will provide that information; obviously after the deal closes, we'll be providing historical results for Genoptix and you'll see a lot more of that information as well. So if you would just bear with us for now on that front, it would be a great help.

Sure. I mean, I guess then we could expect something maybe when the deal closes; some sort of direction if that's the case?

Yes.

And then my follow-up here; you guys gave us some great commentary on the backlog; you're talking about the synergies with the PPD. I was just wondering two things; if you could give us [indiscernible] or the contribution to the backlog from PPD as well as -- Doug, you talked about the FDA and the encouraging meeting that you guys had. I guess can you walk us through what the next steps would be going forward?

We'll ask George to take the backlog question and then I'll try to address your question around the FDA.

Relative to PPD again, we announced the alliance on June 1. In July, we kind of got the operational teams and the IT teams together to try to work together, so that we had smooth hand-offs and we actually could present an integrated offering [ph]. We discussed too that the two teams have literally just come together on the commercial side and really begun planning. We have done several joint bids, we've got a couple of small wins to-date but at this point so far as expected I think it's had a minor impact in our numbers now but we still remain very optimistic about the long-term future for the alliance.

Yes, we're just getting started on that one Joe. And then the question that you snuck-in around FDA; let me say first of all that we're happy with the progress that we're making on this. We did -- as I mentioned, we have our pre-submission document, we met with the FDA, we found them to be very engaged in our process. I would say we're making progress on two fronts, first is establishing sort of an FDA compliant process in our laboratories and that's to meet the FDA's more rigorous documentation standards as opposed to CLIA. So we're making progress in that front. The second area we're making a lot of progress on is on executing the assay development and the validation process itself that we're in the beginning phases of that but we're making good progress. And I would say it's hard to give you an exact date when we will finalize or submission because this is a new process for us, and frankly, it's a new process for the industry but I would say that we're on-track for submission probably sometime in the fall.

Our next question comes from the line of Paul Knight with Janney Montgomery Scott.

Could you talk about Pharma Services; how is the relationship with Covance? Could you talk about your level of backlog and just how is the Swiss facility; is it capacity now? Could you give us a round up on that part of the business?

Let me take a crack at it, and then we'll ask George to fill in the blanks here. So we're very excited about our pharma business and we've been investing in it, we've been investing in the infrastructure, George has taken over leadership of this probably six or seven months ago, he is doing a terrific job building out the team. The backlog as you saw and we reported today is up some 75%, so that's all very promising for the future. The relationship that we have with a CRO is with PPD, it's I think a relationship as George described which is just beginning, we really like those folks, their culture is terrific, they are working very collaboratively together but we're at the beginning stages of building our backlog as a result of that relationship. The other thing I would say is the Swiss facility is very good facility, we're up and running, the instruments have number validated, we're running samples through that facility but it's still way under capacity, we have a lot of room for growth there. We've just begun to build our sales team outside the U.S. and it takes time to get traction in the new marketplace but we're encouraged about the activity there and we're encouraged also about having a facility in Singapore because having worldwide presence in this business really helps the U.S. business, as well as business in those geographic areas.

In Singapore Open [ph], you know, the first employees are starting in the first week of December and we hope to be operational in early Q1.

Our next question comes from the line of Brian Weinstein with William Blair.

Good morning, this is actually Andrew [ph] on for Brian this morning. So I appreciate the commentary on the double-digit growth across the different categories as you noted. Could you maybe be a little bit more granular on what you think is driving that? Thanks.

Let me take a crack and then maybe we'll turn it over to Rob for some -- the real facts. I would say that the growth -- we've been driving growth in our clinical business for quite some time as I think you know, and we just have a terrific sales team, our service is good, our customer service is great, we have a lot of word of mouth as a result of high customer satisfaction scores, we're continuing to have access to more hospitals as a result of our group purchasing these big hospital GPO agreements that Rob and his team continue to drive. So there are a lot of things that are adding to growth, and we think that's going to continue. Rob?

Yes, I would just add that -- I think our Clarient acquisition from three years ago gave us that real national scale and footprint to credibly deliver on these national agreements, and so we've had a lot of success; as Doug mentioned, not only with the GPOs or managed care plans but large hospital systems. Now that may have 50, 60, 70, 100 hospitals across the country and those contracts have helped fuel the growth pipelines for our individual sales territories as the reps focus on implementing those contracts. And then also this year we invested in some growth in the oncology practice segment and have had some beginnings of success there leading upto now this Genoptix acquisition.

I think in the past you've talked about the flattish PD01 volumes; maybe you could talk about the trends in that category as well? Thanks.

So we've seen PD01 spike in the early part of last year and it's really flattened out overtime; so we see pretty consistent PD01 volumes each quarter for the last several quarters.

I'll just add that; I think what PD01 did for NeoGenomics in addition to being able to provide good testing for patients for this whole new class of immunotherapies, it's allowed us to be a leader in immuno oncology generally, so we've developed an offering whether it's tumor mutation burden or MSI or whatever, I think we look to as people that know the testing protocol and have the capabilities in immuno oncology generally.

Our next question comes from the line of John Hugh [ph] with Raymond James.

If we could start off with guidance, I just wanted to kind of take your temperature on your confidence in a mid-teens volume growth. I think you have a relatively difficult comp in the 4Q. And then similarly on pharma services; 3Q was obviously a nice record level of revenue, so how should we think about the trajectory as we look into 4Q?

Our mid-teens volume growth again is a trend overtime; some quarters it will be above that, some quarters it will be below that, we never give specific volume guidance for an individual quarter. And I would say the same thing with the pharma revenue, our 20% plus long-term growth guidance for revenue is a trend overtime, remember that the pharma services revenue is still small enough that it can be variable from quarter-to-quarter; this quarter we have a record quarter but 21% growth because we had a great quarter in Q3 of last year. So that's going to fluctuate a little bit as well. So we probably can't give much more specificity in terms of Q4 specifically than that.

And then quickly on Genoptix; what are some of the integration activities that can be done before the deal is closed? And specifically, how are you thinking about customer attrition and what efforts can you do to keep that low, and you obviously did a nice job with Clarient, so any learning's there on the customer attrition side? Thank you.

We're working already on the integration frankly; we have a number of weeks here before the deal closes. We've organized or we are organizing as we speak teams across a number of key areas, we have a student committee organized and these teams are comprised of people from both companies; from Genoptix, as well as from NeoGenomics. The process is pretty rigorous, we've got -- each team has a charter and objectives and there are Day 1 activities laid out, there are things that we can do pre-closing and after-closing. Obviously, there is a lot of information that we can't get from Genoptix, pre-closing because of regulatory rules but there are some things that we can do and we can certainly get to know each other and start to plan out all of those integration activities. And our objective is at closing, we will -- everyone will know exactly what needs to be done either to gather more information or to develop plans very quickly; and we'll hit the ground running. Last thing I'd say is, you know, we did some things very well with the Clarient acquisition, we did some things that we would change next time; and so we're putting all of those learning's together as we approach this one. One of the goals that we have -- we have a number of goals; one goal is not to lose one single client [ph] and we're very pleased with the Clarient acquisition that -- that was the case, we -- other than very, very minor clients as a result of other things, we really didn't lose any clients as a result of the integration and that would be our objective this time as well.

Maybe I could add one more thing John, if you wouldn't mind to that. I think when you -- maybe this is even going back to Kevin's question, our first question earlier on Genoptix; when you think about some of the integration and some of the synergy opportunities on the revenue side, I think there are a lot of positives we can do for revenue synergies but there is very strategic piece here which is how do we make sure that as we move into that second channel we do it in a really thoughtful way that focuses on our customers and our existing customer base and pathologists, and we're going to be super careful. And I think you'll see that Rob and his team are already being very thoughtful with the folks on the Genoptix side to figure that out. So before anybody gets too excited about additional revenue synergies, you should know that we're working very hard to put together a strategic approach that is thoughtful for that client base and that there might be some additional compression that comes against that revenue synergy, and -- so make sure that you're keeping expectations at a reasonable level so that we give the room for those commercial groups to work together, form those partnerships with the pathologists and the communities. And I think the integration work has already started for them to think through how do you best manage any channel conflict, but let's make sure we keep our expectations for revenue in Genoptix at the range that we've already given you of $85 million because I think we need to give them the space to be really thoughtful in the integration.

Our next question comes from the line of Bruce Jackson with The Benchmark Company.

Most of my questions have been answered but I just want to ask a housekeeping question about the share count; so you put out an annual share count target, what's the share count range for the fourth quarter that we should be looking at on a basic and fully diluted basis?

I think we're at -- again, this is our weighted average to $93 million for Q4's expectation, and then that average for the year at $94.5 million.

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. VanOort for any closing remarks.

Okay, thank you Michelle. Before we end the call, I want to take a moment to recognize the approximately 1,078 NeoGenomics team members around the world for their dedication and commitment to building a world-class cancer genetics testing company. And on behalf of our whole NeoGenomics team, I want to thank you for your time joining us this morning, for those of you listening that are investors or are considering an investment in NeoGenomics, we thank you for your interest in our company. Good bye.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.