Greetings, and welcome to the NeoGenomics' Third Quarter 2014 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Doug VanOort, Chairman and CEO of NeoGenomics. Please go ahead.

Good morning. I'd like to welcome everyone to NeoGenomics' third quarter 2014 conference call and introduce you to the NeoGenomics team that's here with us today. Joining me in our Fort Myers headquarters, we have George Cardoza, our Chief Financial Officer; Rob Shovlin, our new Chief Operating Officer; Steve Ross, our Chief Information Officer; and Jerry Dvonch, our Director of External Reporting. Steven Jones, our Executive Vice President for Finance is joining us remotely from North Carolina; and Dr. Maher Albitar, our Chief Medical Officer and Director of R&D, is joining us from our Irvine, California lab. Before we begin our prepared remarks, Steve Jones will read the standard language about forward-looking statements.

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.

Okay. Thank you, Steve. We'll begin our call today with some brief remarks about overall performance in the third quarter, provide an update on some key initiatives, and then discuss some recent changes in our organization. Steve Jones will then conclude our formal remarks by reviewing our financial results in more detail. Quarter three was another great quarter for NeoGenomics with many significant accomplishments. We acquired PathLogic on July 8th, as the company's first acquisition. We successfully raised $34.5 million in the largest equity financing in the company's history. We recorded a record level of revenue. We grew volume in the base business by 33%. We collected a significant amount of cash, and dropped our DSOs sharply. We continued our fast pace of innovation with several new and novel test launches, and we invested in future growth and cost reduction initiatives. In fact, we can say, without qualification the company is stronger than ever before. I'll start by briefly reviewing the new consolidated company, which includes PathLogic's financials from the date of acquisition. Then, in order to understand the business more fully, I'll separately discuss NeoGenomics' base business, excluding PathLogic and standalone PathLogic in more detail. For the new consolidated company, we reported results that were at the top end of our previously issued guidance range for both revenue and earnings per share. Revenue was $23.2 million compared with guidance of 22 million to 23.5 million. And excluding one-time deal cost and cost-related to the exiting of our bank credit facility, earnings per share was at the top end of the range at one penny per share. So overall, the company's results were on track with our expectations. Now, let's focus on the performance of NeoGenomics' base business, which excludes the impact of PathLogic. NeoGenomics' base business performed very well…

Thanks, Doug. I'll start by reviewing some of our financial and operating metrics with the third quarter, and then we want to open it up for questions. Since Doug has already reviewed a lot of the financial information in detail, I want to just go on a few blanks here. Our average revenue per test for base NEO was approximately $463, a 7.5% reduction from Q3, 2013, but a 1.9% increase from the $455 we reported for Q2. However, investors should be aware that our cash collections were so strong in the quarter that our prior period revenue adjustments were much higher than normal. Prior period revenues adjustments will raise when we collect more cash than we originally booked for a test. In quarter three, we had $1.2 million of prior period revenue adjustments, which is an all-time record for us. This amount was about 620,000 higher than levels reported in the second quarter, and resulted in approximately $14 more in average revenue per test in the quarter than in quarter two. A more accurate representation of our average revenue per test for base Neo would be closer to $450. In order to be conservative, analysts should model base Neo average revenue per test no higher than this $450 per test level, which is same guidance we gave in Q2. We believe the NCCI FISH matter cost us approximately 580 basis points on our base NeoGenomics gross margin. We're pleased that our 3.9% year-over-year improvement and average cost of goods sold per test was able to make up for a good deal of this impact. While we're disciplined only to report a 46.4% gross margin for the base NEO in the quarter, we can report that we begin to see a nice rebound in base NEO gross margins, as some…

Thank you. (Operator Instructions) Our first question comes from Amanda Murphy from William Blair & Company.

Hey, good morning.

Good morning.

Just a question on the cash collection; so obviously, quite interesting, just given I think some other labs who talk about having challenges there. So, could you just -- I mean, maybe give a little more color on what exactly allows you to -- or what was the driver there? Is it a specific test or -- obviously, your billing team is working quite hard, but just trying to get a sense of how much more of a tailwind that could be for you going forward?

Well, our billing team did a lot of hard work and we've had a lot of focused meeting, we've had a kaizen event. They have redesigned a lot of their processes. We've actually even had outside consultants come in. But the entire billing team just deserves credit for what really has been an amazing accomplishment by the group. So at 72.5 days in terms of how much lower can we take it, their goal is to make that first number at six, and I wouldn't put it past them right now, given how well they're doing, but obviously there's limit to how good they can get, but really just a lot of hard work, a lot of focus by everybody here, and really a terrific accomplishment by the team.

Yes, we also implemented a new billing system at the end of last year, and we've transitioned most of our customers to that, and we expect to get I think even some more benefits as a result of operating that.

Got it, okay. And then on the next-gen side, so obviously, that's I guess new paths to the next-gen specifically are becoming more important for you. So, in the context of the billing discussion, what are your thoughts on some of the new next-gen codes that are coming next year from CMS? Is that potentially a risk, just given that -- at least of the new passcodes that were introduced a couple of years ago, people have had some issues getting paid for those. So do those codes -- are those codes potentially at risk? And then also maybe talk about those new products in context of the new FDA regulations as well -- or draft, I should say.

I'll take first one of those. Doug, you can take the second. Amanda, as we've talked before, every time the government does anything, there's risk. Until we see what the actual levels of reimbursement are on the new next-generation sequencing codes, we really just can't comment with any amount of certainty. I think we should put it into the category of we're cautiously optimistic that CMS is going to realize the full value of this very powerful technology, and we believe that the private payers will not be far behind on this, but we've got to see what the reimbursement levels are before we can really form a full opinion.

Got it, okay. And then just last one, I guess keeping on the reimbursement theme for a minute. Obviously, FISH -- we talked about that a lot in terms of the NCCI edits. But what are you guys thinking for the final FISH rates here? Is there any noise around whether you think you'll keep the increase that CMS has proposed for 2015?

Again, I'd put that in to the category we're expecting to get a lot more clarity around the reimbursement levels for 2015, when the CMS posts the draft position fee schedule. They normally do it in November. They did it in late November last year, but there was a government shutdown that delayed them by about 16 or 17 days. It could be as early as this coming week or we just don't know. I think we're very cautiously optimistic. The AMA has reported some new multiplex FISH codes that realize the value of this very powerful technology that would be an improvement over the NCCI FISH edits that we're putting place last year. And as we've discussed on the last call, the relative value units were increased by about 30% on the CPT codes 88367 and 88368, which are going to be the first probe staining procedure under the new AMA's guidelines. And so, we think that we're going to have some relief on the first probe staining procedure, and we think that we'll probably get an increase for the multiplex stains as well. But until we see the reimbursement levels have come out, it's just hard to comment, specifically.

Okay, got it. Thanks very much.

Thanks Amanda.

Thank you. Your next question comes from Debjit Chattopadhyay from ROTH Capital Partners.

Hey, good morning gentlemen and thank you for taking the questions. Could you guys, for our own edification, could you comment on the trends from the biopharma business segment? I mean what kind of tests do they order, I mean, pricing and impact to the bottom line, say, versus your core business?

Yes, I can take a crack at that, and then maybe Dr. Albitar has some comments as well. As you know that Debjit, as we mentioned we're just getting started in the clinical trials business here relative to building our business both with Covance and through our own direct efforts. Generally, what we see is that the pricing is higher than in our regular clinical business, and there are a number of special things that we need to do obviously for pharmaceutical companies. I mean we've had to build our infrastructure in IT. We've had to build a variety of other infrastructure for reporting and so forth. So, our cost can be a little bit higher as well, but we think the margins overall will be better in that business than in our clinical business. We've gotten a lot of interest in the next-generation sequencing platforms and tests that Dr. Albitar has launched. We continue to have a lot of interest in that as well as in FISH-based testing. And as I said, we're starting to get some traction in building the book of business, but it's pretty early.

And specifically on the Covance alliance, the facility expansion at Fort Myers and you mentioned Shanghai. What kind of volume growth was baked into those facility expansions?

Well, they're little different. So the facility expansion here in are -- you're talking about the lab-within-a-lab in Fort Myers, Debjit, or the facility expansion in Irvine?

So, the lab-within-a-lab in Fort Myers, which I guess was most specific to Covance.

Yes, so we built a little lab-within-a lab for Covance here. It's about 700 or 800 square feet. They can do some basic histology and little immunohistochemistry testing. It has a fair amount of capacity in conjunction with our lab. So the idea is that samples would be accessioned in Covance's lab-within-a-lab here, there would be some basic work done and then the FISH cytogenetic flow and other testing would be moved out into the NeoGenomics' lab. So we have a lot of capacity, as you know we've just revised and renovated our whole Fort Myers facility.

Great. (Multiple speakers) Sorry …

And in Shanghai, we have created some capability for Shanghai to do similar kinds of testing that we've done, understanding that the pathology reads and interpretation for any work done in China and even some of the technologists' work can be done in the U.S. because we can't take samples out of China. We've got to do some of the basic wet lab work and other work with the samples there, and then the other work will be done through our facilities as we move the images around.

Awesome. And one last question. On next-gen sequencing, so how does your panel currently compare with foundation? One. And in terms of reception of the previously released hotspot mutation testing or advanced mutation testing, how does that uptick from biopharma clients and clinicians thus far? And thank you so much for the questions.

Okay, Dr. Albitar, would you like to answer that?

Yes, our next-generation sequencing is the most recent panel which we just released, test for mutation in Exxon in 315 genes which are exactly the same panel as foundation medicine. However, we believe our panel is better because for translocation, large deletion, large amplifications, we are using -- and instead of using the next-gen sequencing, which is not the standard today for confirming these abnormalities, we're using the FISH. So, for point mutation or indels, more deletions, more exertions, next-gen sequencing is becoming the standard, and we feel very comfortable with that. But for the HER2, for example, or the ALK, for all practical purpose, this FISH is the standard and more importantly, all clinical trials that's used for validating therapy for these formalities are based on FISH testing. There is no evidence as of today that if you detect these abnormalities by next-gen, they'll respond the same way as if they're detected by FISH. So that answers your first question. The second question in term of our moral use at specific panels, we're getting a lot of really interest in that at all levels from physicians, practicing physicians, as well as from insurance companies as well or health organizations. We still continue to recommend disease-specific panels, but at the same times I think for they're all allowed to fit academic centers as well as some practicing physicians they're interested in larger panels. So that option is available for them if they want that.

Thank you so much.

Thank you, Debjit.

.:

Thanks for taking my call. Two questions; first, what have you seen in terms of early response to your digital pathology product?

We've been working on the digital pathology project for a long time, frankly. And it was difficult for us to really engineer this thing, because what we're doing is little different than what a lot of other companies are doing, because we're allowing physicians working remotely to sign out these images in this work. So, we got to go through and make sure that the speed of the image changes and so forth are appropriate. We have successfully overcome the challenges there. We think we got a very, very competitive product right now. We've been out there in the last couple of months talking with prospective clients as well as existing clients that didn't send us to digital pathology work and the feedback is very good. We're continuing to work on this to make sure that we have the best product in the market. We have little bit more work to do but right now, the product is really competitive and we're starting to get some traction there. That the biggest benefit for us, Bill is not only in getting the digital image analysis work but also in getting all of the other work as we try to be a one-stop shop for our clients.

Great. And then just maybe a little bit more color or sense of what you're seeing or thinking in terms of additional acquisition opportunities. And in particular, I would be kind of curious what you've learned thus far from the PathLogic acquisition? And if that makes you think differently at all about what you are or are not interested in acquiring?

Yes, good question, Bill. Thanks for that. We did learn a lot from the PathLogic acquisition, and we've learned a lot from some due diligence activities. I think that we're in a pretty good position as a company to be able to review, analyze and execute transactions at this point. So that was a good exercise for us. We have been actively engaged in talking with people in the industry and we continued to do that. What we have learned is that we're going to be very selective in two areas. One is strategically the acquisition is got to make sense for us. We're more interested in sort of high growth and high technology sorts of companies very much like we are. And the second thing we've learned is that the economics have got to work. I think we promised investors when we raised money in this recent financing that we would both be deliberate but we would move quickly for the right opportunity. We're sort of in that process. Right now, we're talking with people but you can count on us to make sure that the strategy and the economics makes sense.

Okay. That is very helpful. That was all I had this morning, thanks.

Good, Bill. Thank you.

Thank you.

Thank you. Our next question comes from Drew Jones from Stephens. Drew Jones – Stephens: Thanks, guys. Can we just get an update on SES FISH volumes, kind of where we stand there?

Yes, so sure, Drew. So, Florida cancer specialist has been performing and beginning to perform their own FISH testing in their own laboratories. And they've been taking their FISH testing, increasing that volume for the last five months -- four months or so. And so our volume was affected in quarter 3 by some reduction in FISH testing because FCS is in source. They are continuing to do that. We know that. We're forecasting that. And we're growing our business through it. Drew Jones – Stephens: And then I guess just taking all things into account, given the strength in molecular, are you guys still comfortable with the 20% volume growth you've talked about for 2015?

Yes, Drew, I don't think. I'm going to answer that. And maybe Steve can answer it too but we've not given any guidance yet for 2015, generally and but I'd say we're comfortable with whatever we said before. Like we set 20% everything we said, we try to reduce our cost with a goal of 8% to 10% cost per test. I think those things are still very much in the picture.

That's exactly right. We're maintaining the 20% volume growth that we first put out there in the February call; surely we'll exceed that this year. And we see no reason why we wouldn't meet or exceed that next year as well. And we're also committed to being a low cost provider. We think that's a really important part of any of the lab's strategy that sort of changing landscape. With respect to financial guidance for 2015, we will come out like we've done in previous years in the February call with full set of expectations around what we think. We just have to digest what the reimbursement levels are going to be before we can do that. Drew Jones – Stephens: Thanks, guys.

Thank you.

Thank you. Our next question comes from Amanda Murphy from William Blair &company.

Hey, guys. So I just had a couple quick follow-ups. On the margin side, I guess two there. You talked about PathLogic, obviously, the opportunity to expand margins there. Can you give us a perspective on where, ultimately, you think those margins can go? Is that -- do you think it could go up to your level? Or just kind of given the more solid tumor nature of the business, is it going to be ultimately lower?

We think that the base PathLogic business before you add in all of the NeoGenomics' molecular and other kinds of testing is very much capable of getting into the lower to mid 30's gross margin. When you start adding in revenue synergies by selling our FISH tests and cytogenetic and other things like that into their business, egg starts to get scrambled, but the cooler anatomic pathology business that we purchase from them is certainly very much low to mid 30's business. And we help even higher I wouldn't model more than that for now, until we get a look at more experience with it. However, we think that lot of the revenue synergies are indeed going to come from higher margin FISH test and other tests like that. So it will be less and less of a drag on the overall corporate gross margin or consolidated gross margin, as time progresses.

And then just another quick one on the margins. So, the prior period adjustments, is the right way to think about that then to back that out of the margins, so you kind of get -- because that goes straight to profit, right? So you can get some more of an underlying growth margin?

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Got it. And just last one, and I'll let you guys go. But earlier, I asked about the FDA regulation, I don't know if you got to that. Just curious on your perspective there, and obviously, the industry is taking a pretty strong stance. So curious what your thoughts are, especially given some of the newer tests that you're moving to launch.

This is a difficult one. I don't know if everyone is up to speed but the FDA has proposed some guidance to establish a whole regulatory frame work around laboratory developed tests. And the bulk of our tests are laboratory developed tests. This is a proposal. The draft is subject to comment. I think the comment period ends in either end of January or beginning of February. The guidance is expected sometime probably in the summer of next year. But I'd say that this drafted guidance took four years to deliver. So, we're not really sure when the final rule will be promulgated. We're strongly opposed to this. Under this frame work, the FDA is proposing that laboratory tests are devices as opposed to procedures. And we're already regulated by under CLIA and by all kinds of -- all the States and so forth. It's another regulatory frame work for us. The problem is here that the -- there are about --- that we heard as many as 100, 000 laboratory developed tests in this country. It would be very difficult for the lab industry and also be very difficult for the agency to handle the sheer magnitude of the reporting that would potentially be required by this new regulation because the FDA would require that all of these laboratory developed tests be somehow reported to the agency. There are a lot of questions about this. There is not a lot of clarity right now. Questions like what counts as a laboratory developed test? What of that test would require pre-market review? What test might be grandfathered? All of that sorts of stuff. We'd also say that right now, there's a lot of controversy. There is controversy both from a policy perspective and a legal perspective in terms of whether FDA has the authority to regulate the laboratory developed tests. The American Clinical Laboratory Association, which we're a member, the American Medical Association, the American Hospital Association, the host of other organizations, are all opposed to this. Obviously, we're playing a role in our industries response keeping a close watch on this. The only thing we can say is I'll keep you posted on the status of the guidance as we learn more. It's scientifically and medically it's very harmful and Dr. Albitar, you may have a point here on this from a scientific or medical perspective.

Yes, for medical perspective, we in the lab, we practice medicine. We do not manufacture devices. It is art. It is constantly improving, constantly it's changing. It is more different than physicians when the patients comes and meet with physicians. To me when the FDA comes and say, "You know you have to have followed these. You have to freeze what you do in the lab and accepting things according to what you're submitted to us." If it is really freezing medicine it is freezing advances and our experience in or with at IVD kind of products for testing really speak volumes how efficient that approach is. No question in my mind. I think there are some who are abusing the LVT but it is the same thing there are some abuses and there is no guarantee that with FDA regulation, that abuse will not really have -- would be there or would not have a different color. And it does make sense that the industry with your late outcome which mean the value of test at how you use a test, the same way these will looking and regulating chemos outcome of patient care. There are a lot of details we don't know and it depends on how FDA go with this and we'll see how this evolve. But if my opinion was any lab is prepared for this, it would be us because we do very rigorous validation and very rigorous investigations and research into everything we developed and offer. So, the devil is in the detail, but we are prepared.

Got it. Thanks very much.

Thank you. We have time for one last question and question comes from Jack Wallace from Sidoti & Company.

Thanks, guys. Quickly here, do we expect there to be any acquisitions by year-end? And are you looking at a pipeline of targets, or maybe one or two larger ones?

Yes, Jack. So, I can say that we're talking with a number of different players. I'd say that there's nothing in the pipeline that is sufficiently far in the pipeline that we would expect to close something in the next couple of months. We're working on it. These things as you will know have their own sort of course and you can count on us to be working on it but we can't forecast when or if these things will close.

Okay, thanks. And then sorry if I missed it from earlier, is there any update on the NEO score -- or the formerly NEO score test, the prostate test center that's in development?

Yes, we continued to make a lot of progress on our additional validation of this test. At this point we have signed up a number of urology groups. We're in dialogue with a number of others. As you know, we are continued to target about 800 to a 1000 patients to put through this additional validation. We've, I think probably have 90 or so samples already completed and we're working very hard on it. I'd add also that in addition to Dr. Albitar's fabulous work on this, we now have Rob Shovlin on our team. Rob has extensive experience in this whole area from variety of companies and which he is led or worked with. So, he and Dr. Albitar are teaming together and we will I think move smartly on this going forward.

Okay, great. Thanks. That will be all from me.

Okay.

Thank you. I'll now turn the call back over to Doug VanOort for closing comments.

Hey, Doug before we close up here I do have one question that's come in via email that hasn't been covered before. Can you give us a rough breakdown of the rest of the payer mix and if you see anything encouraging/concerning for payer beside from the lack of quick clarity from the CMS or NCCI? Our payer mix is running about 48% client bill right now, about 30% private payer and about 20% Medicare. Remaining 2% is accrued revenue for the most part. So there is a very, very small percentage of what we'd call patient pay, but that typically runs like less than half of 1%. In terms of what we're seeing, we're encouraged that the private payers have started to formally recognize the new moldy Xcodes; that created a little bit of consternation late last year and earlier this year. That continues to work itself on and we continue to get more and more regional contracts that put us on contract with an even greater proportion of our private payer claims. That's the last of the email questions that's come in. Doug, can you wrap this up?