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,…

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…

[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.