Good day ladies and gentleman and welcome to NeoGenomics Inc. Fourth Quarter and Full-year 2018 Financial Results Conference Call. As a reminder today’s meeting is being recorded. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. [Operator Instructions] And now at this time for opening remarks and introduction, I’m pleased to turn the floor over to Mr. Doug VanOort. Please go ahead sir.

Thank you, Jim and good morning everyone. I would like to welcome everyone to NeoGenomics' fourth 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 prepared remarks 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 one hour that has been allocated for this call. Doug.

Thank you, Bill. For today's call, I will briefly review some key quarter four highlights and then turn the call over to Sharon for a more detailed review of the financial results. After that financial review, I will comment on several of our growth initiatives and investments that we are making to drive both, near-term and long-term growth. We will then have time for questions and answers. Let’s begin with quarter four highlights. We were very pleased with our quarter four financial performance. We reported record revenue and adjusted EBITDA with 25% top-line growth and 30% adjusted EBITDA growth. Those results included 20 days of Genoptix results and when excluding the impact of Genoptix, organic revenue growth was 17% and adjusted EBITDA was up 27%. In the clinical services division, we continue to achieve good results from our efforts to improve both revenue and cost per test. Excluding the impact of Genoptix, we actually increased average revenue per test by 6% year-over-year, and we lowered cost per test by 3%. Obviously the resulting impact was an expansion of our margins. Clinical tests volume growth was a little bit lower than normal, as we were up against an exceptionally strong prior year comparison. Clinical test volume increased 13% year-over-year with Genoptix and 9% year-over-year excluding Genoptix. Volume growth was unusually low in November, but has returned to historical levels in both December and year-to-date in 2019. Pharma services revenue grew 33% year-over-year to a record $10.6 million. We signed $15 million of new contracts during the quarter and our backlog was up 44% year-over-year to 99 million. The quarter's record levels of profitability were achieved even as we continued to make significant investments for future growth. And adjusted EBITDA margin reached an all-time high of 17%. Importantly, service levels were excellent…

Thank you Doug, our fourth quarter revenues were $76.5 million a 25% increase from last year. Clinical services revenue increased 23% to $65.9 million and pharma services revenue increased 32.6% to $10.6 million. Clinical volumes increased 13% to 198,000 tests and average revenue per test increased 9% to $333. Excluding the impact of Genoptix revenue, increased 17% to $71.8 million, volume grew 9% and average revenue per test increased 5.5% to $323. As we discussed last quarter, we are optimistic that we are beginning to see less downward pressure on prices per test then we have experienced over the past several years. Also, impacting revenue per test are improvement in our cash collections. Gross profit increased by $10.3 million to $37.1 million up 39% from the prior year, this increase represents a 69% contribution on the $15.1 million of revenue growth. Gross margin improved by 495 basis points year-over-year to 48.5%. This improvement was driven by productivity gains, cost efficiency and improved revenue per test. Genoptix had a modestly positive impact on gross margin during the quarter. G&A expenses increased by $9.1 million or 55% year-over-year to $25.7 million, approximately $2.3 million of this increase is related to one-time non-recurring acquisition related transaction cost. These expenses accounted at non-GAAP adjustment in our calculation of adjusted EBITDA, adjusted net income and adjusted EPS. The balance of the increase is primarily attributable to the addition of Genoptix, higher professional fees and increases in payroll and payroll related costs. Excluding one-time cost and the impact of Genoptix, G&A expenses were 24% higher than last year's this increase reflects key investment made in the Company’s G&A infrastructure to support our continued growth. Sales and marketing cost increased by 37% year-over-year to $8 million primarily due to the Genoptix acquisition. Excluding the impact of Genoptix…

Thank you, Sharon. I would like to begin with an update on Genoptix and our integration activities. We are very excited about this opportunity to combine the best of Genoptix with the best of the NeoGenomics. Virtually everything we have seen and heard since closing the acquisition on December 10th reaffirms our conviction that this combination makes a lot of sense for patients, providers, payers, employees and shareholders. As a privately held company for many years Genoptix is focused on building its business with community-based oncologists. The company developed outstanding products and services for this market segment and developed an excellent reputation for quality of testing and reporting that a remains a Gold Standard in our industry. I'm happy to report that we are moving forward at a rapid pace with integration activities and are very much on schedule. Rob Shovlin is leading the commercial and operational integration and Sharon Virag is leading the financial aspects of the integration process. Most of our NeoGenomics’ teams now have experience with complex integrations we are applying our learning’s to this integration. We are moving as deliberately and quickly as possible, we are making very good progress, our estimates of synergy have been verified and we feel that our plans are on-track. Several Genoptix leaders have assumed key leadership positions in our commercial operations and finance teams and we are working to fill a number of new growth physicians with highly qualified people from Genoptix. Since finding great people is a constraint to growth this is a welcome relief. Shortly after closing the deal a number of us met with each member of the Genoptix sales team. Then, after significant review and analysis, we developed and rolled out a complete integrated sales organization and new territory alignment all within six weeks after closing.…

At this point, we would like 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 everyone and still keep within the hour allocated for this call. Operator, you may now open up the call for questions.

Thank you. [Operator Instructions] We will take our first question today from Drew Jones with Stephens Inc. Please go ahead.

Thanks good morning guys. Just wanted to start quickly on the volume growth and Doug could you maybe tell us what was it in November that maybe slowed things and then just given the commentary around the improved trajectory year-to-date how that factored into the decision to be able to more conservative with the guidance on volume growth for 2019.

Sure. The volume growth was surprisingly pricing low in November and we don't really have a great explanation for it to be honest. We didn’t lose any clients, we had a slight reduction in ordering from a lot of different clients, but it bounced back really completely in December and has been strong year-to-date. We believe that the volume projections and pipelines are pretty strong for us as we look forward, but we are cautious, we are going through integration here and we thought that our guidance volume growth was responsible and related to that.

Okay, maybe moving on to something pretty, it looks positive, can the momentum of price per test and improvement that you showed there, how much runway left in some of these initiatives that you guys have been enacting, maybe these are way to quantify the opportunity with non-covered tests on existing volume to kind of support the outlook there?

Let me try to make a few comments and then I will turn it over to Sharon. I would say the improvements that we are making, and reimbursement per test is not because we are raising prices necessarily, it’s just that we are being more efficient about getting paid for the work that we already do. We have put a lot of tools in place to try to get reimbursement, you know that we have worked with a number of managed care plans and we continue to add to our list of managed care plans and that certainly helps, but were also implementing tools in our billing process generally, which I think will continue to help us to offset the natural kind of decline that we are seeing in the marketplace. Sharon do you have anything to add.

Yes, I would do that. As all of the opportunity that we have had on these GPO contracts and everything, they come with volume, which means that we might be willing to be flexible on price and what all of these efforts that we are doing basically we are trying to full serve against that and so people shouldn’t expect to see us be able to hold back forever in light of the way in which our contracting is moving. If we can flat, I would be happy for this year. We did project just a little bit of a decrease in it, in the numbers and the guidance that we have given you, but I would be happy if we stayed flat.

Thank you guys.

Thank you Drew.

[Operator Instructions] We will go now to Kevin Ellich with Craig-Hallum. Please go ahead.

Good morning. Thanks for taking the questions. Lot of discussion Doug on the Genoptix acquisition and integration just a couple questions there, the $80 million to $85 million that you guys called out in your guidance review. Just wondering it seems like that is a slight decrease relative to what you guys had expected, but when you first announced that deal, I’m just wondering if there is any seasonality, early the findings you can give us on how that deal is going.

Alright. So, on the revenue compression in particular, we went back once we had full visibility as you know in revenue third parties, because we were competitors during diligence, we went back after we had full access and everything that fought was confirm, which is great. And I think there is the revenue compression that we thought the contracts do line up the way they do where they are out of network, we are in network and so there is going to be a change for that and we reflect that in that range. We also discontinued a small piece of their business where the margins weren’t what we would want to have here in psychology, so that is gone and so that is why you see that range come off of 85 and a little bit lower, because of that discontinued piece. And we feel really comfortable that with time we are going to be able to see some revenue synergies, but that is not going to happen immediately, so we wanted to make sure that the range was something that was very realistic in a pricing year. Doug.

Yes. I would just add one thing and that is that so far the Genoptix volume has pretty well stabilized and it was declining last year, it was declining when we completed the acquisition, but its stabilized and we feel pretty good about what we are seeing so far.

That is helpful. And then Doug just quickly on the PPD partnership or collaboration, you talked about early wins in your prepared remarks and existing bids. Just wondering if you can give any more color on the size of those wins and are you still on-track for that $10 million of run rate revenue by year end or is there potentially some upside there. Thanks.

Kevin, I’m going to turn that over to George Cardoza who is here with us.

Yes. For competitive reasons we really can’t give out revenue of particular customers, but we are happy with the alliance, we have had some early wins, we presented at the international sales meeting few weeks ago to their entire team and we are actually travelling next week over to Asia with them. So things continue to be on-track, we have a lot of joint bids out there and we remain very excited about the alliance.

Thank you.

Thanks Kevin.

Our next question will come from Puneet Souda with SBB Leerink. Please go ahead.

Hi Doug, thanks for the question. So, first, just briefly again touching on volume, I just wanted to make sure I’m understanding it correctly, but you know your guide is implying you obviously have overall sales rep and commercial organizations that is larger Genoptix is moving in network, solid tumor volume are coming internally and you have good visibility here. So I just want to make sure that the volume guidance decline is due to the discontinued pieces overall or is there something else that is just making you a little more conservative, here I just wanted to understand that correctly thank you and I have few more follow ups.

Hey Puneet. Its Bill, I will take that one. Again we are modeling - talking about 10% volume growth on the legacy NeoGenomics business, which is a little bit lower than our historical mid teens long-term guidance. And the entire reason for that being a little bit lower than our long-term guidance is the fact that we are integrating Genoptix and we know that our sales force is going to be focused on customer retention above all else. And our number one objective is to not lose a single customer and that is more important than going out and winning a new customer. Ideally, you will be able to do both, but that is it and so we are just being prudent, we are very excited by the average entities that are in front of us, as you pointed out, but we know the reality of what can happen during a big integration projects. So it makes sense from a guidance standpoint to project conservatively - not conservatively, but prudently.

Okay, I appreciate that. And then if I could touch a little bit on the client or the customer. You know haven’t had conversations with them so far, what is your feedback or from the oncologists and pathologists about integration, usually customers are either pleased or have comments on one or two aspects of the business maybe they are excited about as a result of integration. Could you give us some color there and then just any sense of using the gold standard COMPASs reports, how are you going to integrate those across NEO now and the investment that you have do it in IT for some of that integration. Thanks.

Puneet, so far the customers that we talk with and we are out there a lot are quite pleased about what we are going through in the combination of NeoGenomics and Genoptix. I think the Genoptix customers are pleased about the opportunity to access a broader menu, particularly on the solid tumor side. We are already seeing some early wins in terms of tests that were previously sent out by Genoptix are now being performed internally at turnaround times that are superior to what they were offering before. And on the NeoGenomics customers side, I think there is not a lot of change frankly, I think over time, we had no negative reaction from the pathologists that we have talked with in fact I think they are also feeling good about our expanded service and offerings. In terms of COMPASs, we into to offer the COMPASs product which as you know is a gold standard for oncologist broadly to oncologists across the NEO network. And that is one of the things that we are programming in our systems right now and we will offer as a result of the completion of the integration efforts.

Yes. Great, thank you, I will jump back in the queue.

[Operator Instructions] We will next to Brian Weinstein with William Blair.

Hey guys, thanks for taking the questions and good morning. A couple of things, I just want to go back on this notion of the integration here. Obviously you guys are focused on this, but I'm just trying to understand what is the kind of legacy NeoGenomics rep doing differently in 2019 versus 2018 that gives kind of any concern about losing revenue. I mean given that - a bit of a different customers base, just trying to understand why you think that there is some risk there? Doug, I think you just said that there is not a lot of change in these customers and that these customers feel good about the offering. So just kind of help me understand that a little bit.

I will just turn it over to Rob Shovlin to address that if you don’t mind Brian.

Yes, hi, this is Rob. So we pretty quickly integrated our commercial organization within six weeks of the close. So we now have NeoGenomics reps and legacy Genoptix reps that are one sales organization, and when we have redrawn the territory boundaries, so each of these sales reps are now introducing themselves to new clients, the legacy Genoptix for the legacy NEO client. So they need to spend time getting acclimated with their new clients and their newly structured territory and then as we move forward with integration items, we will need to educate our clients on any changes based on the integration. So there are some of those what we would call distractions where they are not aggressively selling new clients, but managing the existing base in their territories.

I would probably add to that. If you think about it, we are moving for example, we are bringing the systems together and they are going to have to becoming on that one system, including for example billing. So just moving these customers from one billing system that they are with Genoptix over to our billing system for example there is education that has to happen, there is resetting up those connection that has to happen and those can also be distraction, we want to make sure the sales folks are participating in those with their customers.

I will just correct, it’s kind of one thing you said Brian, you talked about losing customers. Our retention rate of customers is in the very high 90 and we don’t expect to lose customers as a result of this.

No, totally understand that. Thanks for the clarification. Thinking about some of the investments that you have made, I think you talked about G&A and sales and marketing were up somewhere it think 24% in the quarter, can you give me a little bit more specific on some of the investments that you have made, do you have a future growth and should we expect those types of investments to continue. Thanks.

You should expect our investments to continue, but not at that pace I would say of year-over-year increase. The investment that we are making included investments in the FDA Assay process example, we have added a number of people to comply with the FDA submission process. We added facilities globally. You know that we have added people and facilities in Europe, in Singapore, we are exploring facilities in China, we are investing in our technology in IT, in science. Generally there is a lot of great things happening technologically and so we intend to make sure that our test menu is the most up-to-date scientifically advanced menu out there and so that has been area of investment as well. I would say that we are investing for growth. All of these activities are growth related and some of these are being made because we have some visibility to growth that we expect to see in 2019. So I think we feel pretty good about the investments that we have made even though the number looks like it's a little bit higher than it normally would be.

Okay. And last question for me, if I could sneak one more in here. Just on pacing, given that we haven’t heard or we don’t really know kind of this - all the details. I just want to make sure any comps that might be difficult for Genoptix as we think of quarterly pacing going forward, things that you would kind of call out either about that side of the business or on the legacy side, just as to think about the quarters here. Thanks.

Yes. I don’t think there is anything usual Brian about the quarterly pacing at Genoptix. The revenue seasonality would mirror that of the legacy NeoGenomics. What we are seeing so far is a stabilization of the volume in the past, if you look at the SEC filings, you can see that Genoptix volume had declined in 2018 and previously - now that is stabilized. So there are no unusual trends that I would alert you to.

Yes, I think you know one thing just to think about is synergies will come overtime right, so we have a great plan and we are really excited about it, those will unfold overtime, so there will be a little bit of a trend related to those that is towards the backend. Revenue compression, the bad news on this deal was that we expect to start really quickly and we are already seeing our contracted payers interested in moving them to Genoptix business over that happens immediately versus when the synergies will kick in. So you will see a little bit of trending for those two that are on the different tracks, so we hope that they meet as early as possible, but compression will start earlier than synergies.

Great. Very helpful. Thank you guys so much.

Thank you Brian.

Our next question comes from the line of John Hsu with Raymond James. Please go ahead sir.

Good morning. Just a couple for me. On Genoptix, if I missed this do you have a specific cost synergy targets for 2019, you are obviously very helpful sharing and providing some of the details around that there will be pacing of synergies throughout the year, but just how do we think about maybe the run rate exiting 2018 and then maybe along with that - since you have now closed the deal and had made progress on sales force integration, any changes to your expectations for timelines for the integration process, do you expect that the integration could be largely complete in 2019 or moving into 2020 just help us think about the cost synergy targets for this year as well as timelines. Thank you.

Yes. So over the three year period we are still looking at $25 million, some of that is a little bit back loaded, because some big things have to happen including and mostly system rationalization have to happen that takes time. So there is some portion of that in this year. We are not giving out the exact amount, but it’s not exactly straight lined over the three years, but it’s not off that far. If you think about the revenue compression it was about $15 million originally calculated with about half of that covered by their existing EBITDA. So our first talks this year to get to flat EBITDA is to recognize enough synergies to offset that and then it gets us back to zero EBITDA on the Genoptix business. So you could think of that as our target for the year and we are working towards that goal.

The bottom line John is we haven’t seen anything, which changes our original synergy estimates that we discussed before and we are feeling like everything is on-track.

Yes and I think the timing as we expected as well right, to get your timing question.

Okay great. And just one more from me. Just on M&A, can you just speak to your appetite for M&A at this point, you obviously talked about wanting to continue to grow the pharma services side of the business. So maybe you could just give us your updated thoughts and any color on the pipeline.

We remain very interested in growing our pharma business both organically and through M&A, and we are out there looking at deals. We are not currently looking to acquire in the clinical business. We have got our hands full right now with Genoptix integration, but we are looking at pharma deals and we intend to continue to build that business through acquisitions as well as organically.

Great. That is all from me. Thank you so much.

[Operator Instructions] We will go next to Joe Munda with First Analysis.

Good morning. So real quick. Two quick questions here, first in terms of 2019 with the integration of Genoptix and the volume growth expectations that you are putting out there. I was wondering if you could give us some color or some granularity on what your thoughts would - test mix would look like in 2019? And then a follow-up in regards to the pharma services business can you give us color on what the mix looks like in terms of stage trial or is fund services the backlog there heavily weighted towards one phase of the trial or another? Thanks.

Sure Joe. I will start by addressing the test mix question and then it over to George to talk about the pharma services backlog. In terms of test mix, because of Genoptix we are seeing more of a mix in 2019 - testing as oppose a solid tumor. We are also seeing as we have in the past more growth in molecular testing, particularly the next-generation sequencing panels. Other than that and I think what we are seeing is similar kinds of trends in terms of test mix as we have had before. In terms of pharma George.

Yes. We have really gone across, we do quite a bit of research and discovery or zero if you would and up to Phase I, II and III, what we did see in 2018 is sort of a shift to more longer trials the Phase II and III and that is really one of our objectives is to be large enough and have the scale to be able to handle a clinical trial all the way through the discovery of the molecule, all the way through the FDA approval process. Now just looks side of that having those Phase II and III trial that can be a little bit longer in terms of the revenue recognition in our backlog, but we are happy that obviously we are able to take these trials all the way through now.

Okay. Thank you.

Next we will go to Paul Knight with Janney Montgomery.

Hi Doug, two things one is the pricing environment for the core business excluding Genoptix seems to be better and better what are your thoughts this year that would be my first question for you.

Yes. Paul I would say the pricing environment is not necessarily better. It’s always, very competitive in our part of the market. I would say that [TAMA] (Ph) which is impacting the industry at large is not as significant an impact on NeoGenomics and we are seeing some stabilization on the physician fee schedule. But as we engage in larger and larger GPOs and these kinds of prime tracks, there is some very modest price decline that we sometimes see as we gain volume by entering into these agreement. So I think the guidance that we have generally laid out there of 1% to 3% kind of decline still seems appropriate to us. But the days of having the significant declines that we have experienced years ago, we think for now are behind us.

And then the other Doug would be regarding the PPD collaboration, are you seeing that backlog build due to PDD or is it separate from that, could we get an update on that JV.

Yes. We really can’t out specific clients in a backlog, but again we are pleased with the alliance, we continue to make progress, we are both very committed to it, both sides have worked together and we have actually made some significant bids together and we have also had a few wins across the finish line. So we are pleased with the alliance, but we really can’t call out specific numbers on it.

Thanks.

Thank you Paul.

Next we will go to Bruce Jackson with Benchmark Company. Please go ahead. Your line is now open.

Good morning, nice quarter. I have got a two part question on the quoted Genoptix revenue number, did that include any solid tumor revenue and then can you just talk a little bit more about the synergy opportunity from the community oncology market and do you think you can increase your solid tumor business there?

Yes. Bruce the Genoptix numbers do include some solid tumor, but most of that business coming from Genoptix is on the hem side, but we do expect that there will be some revenue synergies, which we did not include in our original deal model. As a result of being able to provide solid tumor testing to the Genoptix customer base. As we met with all of the representatives at Genoptix, we learned that Genoptix was not actively pursuing solid tumor testing. As you know we have a very strong solid tumor business at NeoGenomics and we are able to provide that kind of testing to those customers. So we think that is revenue synergy.

Alright. Thank you.

You are welcome.

[Operator Instructions] And it appears we have no signal from the group. Mr. VanOort, I will turn it back to the group for any additional or closing remarks or perhaps if we received any web questions.

We have received no web questions. Thank you.

Okay, thanks Phil and thank you Jim. Before we end the call, I would like to recognize the approximately 1,475 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 NeoGenomics team, I want to thank everyone for their time joining us this morning, for those of you listening who are investors or are considering an investment in NeoGenomics, we thank you for your interest in our Company. Good bye.

Ladies and gentleman this does conclude today's teleconference. And we do thank you all for your participation. You may now disconnect your lines and enjoy the rest of your day. Thank you.