Greetings, and welcome to the NeoGenomics' Third Quarter 2015 Financial Results. 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, Mr. VanOort, you may begin.

Thank you, Zelda. Good morning, everyone. I would like to welcome you to NeoGenomics' third quarter 2015 conference call and introduce you to the NeoGenomics team that is here with us today. Joining me in our Fort Myers headquarters, we have Steve Jones, our Executive Vice President for Finance, George Cardoza, our Chief Financial Officer, Rob Shovlin, our Chief Operating Officer, Fred Weidig, our Controller and Principal Accounting Officer and Jessica King, who recently joined NeoGenomics as our Manager of SEC Reporting. 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 are statements of the 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. In addition, NeoGenomics will be soliciting the required approval of its stockholders in connection with the planned acquisition of Clarient by means of a proxy statement, which stockholders should review when it becomes available as it will contain important information that NeoGenomics stockholders should consider, as well as information about the participants in the solicitation. NeoGenomics stockholders will also be able to obtain the proxy statement as well as other NeoGenomics filings without charge at the SEC's website or from NeoGenomics at its website or by writing NeoGenomics' Corporate Secretary.

Thank you, Steve. I will focus my remarks this morning on the key underlying dynamics in our business in quarter three and then briefly discuss our plans for the next several months as we prepare to close the Clarient acquisition, begin integration activities and set our objectives for 2016. Steve will then review our quarter three financial results and lead us through a question-and-answer period. Let us begin by reviewing the key underlying trends and dynamics driving the Company's performance in quarter three. The key message here is that our core business is strong. Underling key dynamics and trends are very positive and we believe the Company is well positioned for the future. When judging the overall health of our Company, we look at volume, quality and service levels, cost per test, incremental profitability and innovation progress. Let us review each of those in turn. Volume growth in the core business was very strong and increased over 25% compared with quarter three last year. Volume growth actually accelerated from quarter two's strong 21% growth rate. Excluding the in-sourcing of FISH testing by our largest client, the third quarter growth was actually 30%. We saw volume growth in every one of our product offerings, with molecular and flow cytometry growing in excess of 35% year-over-year. Obviously, those rates of growth indicate that we continue to make market share and we gained a number of new clients. So far this year, the greatest volume gains have come from the Western and Central geographic regions, but the Eastern region also grew steadily. We continue to feel good about the healthy pipeline of near-term growth opportunities. Even with their strong rate of volume growth, our operations and service levels continued to be very solid. Turnaround times measured for the quarter remained excellent and actually…

Thanks, Doug. Before we open it up for questions, I would like to briefly touch on a few financial highlights from the third quarter. We are pleased to report $25.1 million of revenue, an 8% increase over quarter three 2014, despite the 11.6% decrease in average revenue per test in base NEO's operations, which exclude PathLogic, which I will also refer to as our core business in this presentation. Approximately $23.1 million of this revenue was derived from our core business and $2 million from PathLogic. I am happy to report that PathLogic actually posted a small sequential increase to revenue from Q2, so we believe we are finally starting to turn the corner. However, we have yet to unlock any meaningful revenue synergies. We have talked at length about the FISH reimbursement cuts this year, so I will not rehash this topic any further. We have stated previously that we expect the FISH reductions to have a negative $8 million to $9 million impact on revenue in 2015. This guidance remains unchanged. Incidentally, we have not heard anything that would lead us to believe that the rates proposed in the 2016 preliminary rule will not go through as drafted. As Doug mentioned, if the preliminary rule is finalized as drafted, we expect a positive impact 2016 revenue of [ph] to $6 million after netting out the proposed reductions to flow cytometry. Our consolidated gross margin, including PathLogic, actually expanded modestly from the levels reported in Q3 2014, despite the sharp reduction in average revenue per test in our core business. This increase in gross margin was a result of the 12.5% reduction in average cost per test, which was more than enough to offset these price declines. For context, investors should know that over the last six years, we…

Thank you. [Operator Instructions]. Our first question is from Amanda Murphy with William Blair. Please proceed with your question.

Hey, good morning, guys.

Good morning.

I have got just a couple of follow-up question for you. In terms of the cost per test reductions, obviously, that has been quite a success story for you guys and you have guided to that longer term, but can you just maybe give us a little more detail about what your kind of next few year targets are in terms of driving that metric down? I am assuming that there is probably some low-hanging fruit and I think you have had some new instrumentation installed and what not, but I am just trying to get a sense of what is kind of the next driver of that metric over the longer term here.

Yes. Thanks, Amanda, for the question. As you know, one of the tenets of quality management is continuous improvement, so we have a robust quality program and each of our teams is working to continuously improve each of the processes and that continuous improve and includes a number of things. One is, the laboratory information system and automation is a key component. We have invested in our IT platform and our IT teams and we continue to automate more and more of our processes. The second thing is, instrumentation. We are working with our suppliers to develop new techniques, new instruments, new ways to perform our testing and that relates to everything from FISH to flow cytometry, to cytogenetics and so forth, so it is a combination of just hard work, automation, supplier arrangements and collaborations and volume actually helps to reduce the cost per test as well.

Just one quick follow-up, the 5% to 7% number, is that the legacy business guidance or is that sort of in aggregate the total Company?

Yes, that's the legacy number guidance. Until we get into Clarient and see what they have done, it is hard to give any guidance related to Clarient, nor would it be appropriate to do so. I will say that in our due diligence General Electric Corporation did a lot of lean initiatives, so we think that the operation is pretty well run from the get-go.

Yes. I guess I meant relative to PathLogic versus the legacy business.

I am sorry. Yes. The 5% to 7% is in our base NEO operations. PathLogic has sort of its - own entity out there that does not lend itself as well to the scale activities that we have been doing here.

Got it. Okay. Then, in terms of the PathLogic and Clarient transactions, I am just curious as to - you talked a lot about cross-selling opportunities at Clarient. Obviously, that was something you laid out with PathLogic, as well maybe that has not gone quite as well as you had hoped initially, so I am just trying to think about your confidence in cross-selling with Clarient vis-à-vis and how that has gone with PathLogic, given I think they are at least sort of similar in terms of their focus at least on solid tumor versus somatic pathology?

Yes. Thanks, Amanda for that. The differences are, first of all, pretty profound because the differences in the two companies are fundamental. PathLogic has different product lines than NeoGenomics, so at PathLogic we are introducing to our clients a completely different product line. These are women's health-type products, renal pathology products and other things. In Clarient's case, as we have stated, Clarient and NeoGenomics offer almost exactly the same product lines, so it is a very different cross-selling opportunity. We also did talk a lot in our last investor call, last week, about the cross-selling opportunity for molecular testing and that is something both companies offer, but we think the broad menu that NeoGenomics offers will be quite helpful in that regard.

Got it. Okay. That makes sense. Then just last one for me, on the in-sourcing side. You have obviously had the large customer in-source over the past couple of years and I think that after that there was not much exposure or that was not sort of a key risk for you going forward. Does that change at all with the Clarient addition? I am just trying to get a sense of what exposure you might have to any larger clients there.

Yes. It is difficult for us to comment on Clarient's business, because we do not know exactly what their customer makeup is yet. Relative to in-sourcing and out-sourcing, I think we can make the broad statement that first of all, the in-sourcing that has affected us so dramatically is our largest client. This is a unique client, they are very large, they have the ability to in-source some of this testing and it makes economic sense for them. What we are seeing in the marketplace, frankly, is cases in which hospitals are actually outsourcing. They are closing down some of their laboratory areas, because it is not economical for them any more given the reimbursement reductions, so we are beginning to benefit somewhat from outsourcing activities, where clients will have performed the testing in-house and it no longer makes sense.

Got it. Thank you very much.

You are welcome.

The next question is from Debjit Chattopadhyay with ROTH Capital Partners. Please go ahead.

Thanks for taking my question. Just a follow-up on the prostate cancer, you had indicated around 1,000 patient samples have been tested so far. I am just wondering is that the cap or do you need to test more and in terms of any timing for when we should expect the launch next year.

Yes. Let me try to answer your question, Debjit, and then I may pass it to Dr. Albitar or Rob to provide some more background. At the present time, we have actually tested almost 1,500 patient samples. We have increased the number and we may let that float up to as many as 2,000 patient samples, but what we are trying to do is, we are gathering the clinical information along with the test result information as we complete this trial. We would like to have at least 1,000 full cases, including clinical information, in our trial, as we summarize the results and give good data in terms of papers and publications and so forth. Dr. Albitar, anything to add?

Yes. We are likely to collect as many samples as possible within a certain time, but I should really add that we allowed at recruitment of different indications. For example, now we are recruiting samples from patients in their active surveillance as well as patients with prostate cancer that it is already documented to increase or have a new indication for our - test active surveillance as well as predicting metastasis in patients with prostate cancer. If you consider that, we might go even beyond the 2,000.

Great. Then beyond both, the acquisition of Clarient, and Clarient's focus on companion diagnostics, I recall Clarient had tried to develop a similar test to Oncotype DX as a prognostic for using chemo in breast cancer. Is there kind of any update on when that test is and what the strategy is going forward for the joint entity now and how do you think about the FDA and the reimbursement situation in these proprietary tests?

Debjit, I believe you are referring to what Clarient used to call the Mammostrat test. We cannot really comment on what Clarient has done or is doing currently, but we understand that they notified their client base sometime in the last 12 months that they are actually not continuing to offer that test, so, I believe after the acquisition closes, we will be able to give you a little bit more color on that. In terms of what we are doing, we continue to pursue a laboratory-developed primary strategy, which we believe is a very important aspect of our strategy and Doug, you want to add anything on that?

Yes. Thanks, Steve. I would just add that Clarient, as a part of their clinical trials business, has cooperated and worked on a variety of trials and has moved pretty forward in the companion diagnostic area, so they have a lot of experience with the FDA in this companion diagnostic area and we are looking to marry their capability and experience with our own and we think it is an opportunity for the Company.

Great. Thank you and I will hop back.

The next question is from Bill Bonello with Craig-Hallum. Please go ahead.

Good morning, guys. A couple of follow-up questions, first of all on the FISH cut that you have seen. Earlier in the year, you had been optimistic about some large commercial payors that looked like they were maybe reversing out the cut, opting to follow suit from Medicare. I am just curious what you have seen happen on the commercial side with FISH rates over the course of the year and then what you kind of expect commercial payors to do if the proposed changes go through as proposed? Then finally, just I assume that you are not factoring in commercial rate increases to your 2016 guidance, but what to confirm that.

Bill, let us ask George Cardoza to handle that. He has been working this for the last several months.

Yes. Again, you have to realize that the FISH CPT codes were new codes, so the insurance companies sort of had to set up the new codes, Obviously, in that vacuum, they looked at Medicare and what the Medicare rates were set at in 2015. We certainly did a press, and we talked to several of them. We were able to move a couple, but several of them also. They had seen the Medicare proposal and I think a few of them said, well, wait and see. Matter of fact, one of them actually agreed to give us an increase, but they said it was through December 31, 2015, because, again, they wanted to reset and readjust based on what CMS did for 2016. What we saw this year was by and large most of the commercials followed Medicare. Certainly, I think if Medicare does go through and put through the increase, we are certainly going to go out there, we are certainly going to be knocking on doors and making phone calls. Estimate would two-thirds follow? I think, that is probably a reasonable possibility. Some of them do, do the work and built up their own fees, but generally obviously if CMS takes it up, we think it will be a very positive thing and we will be definitely making the rounds on the commercial insurance side, trying to get them to move as well.

In terms of the guidance, that $4 million that is in the EBITDA guidance, that is just the Medicare impact though?

That is our conservative estimate of all payors after netting out assumptions on flow cytometry as well.

Okay. I would have thought it would have been a lot higher than that. Okay. Sorry. A couple other things.

That $4 million, I believe, you are referring to the number we presented last Wednesday on the combined Company call.

Yes.

That has embedded within it a proxy for Clarient, and until we get into Clarient and understand that a little better, we have chosen to be pretty conservative on that. Keep in mind, Clarient does do a lot of digital pathology, which does have some reductions for next year and we need to understand that a little bit better. We are hopeful that Clarient's business will have a modest positive next year, but, again, we really do not have the data yet to support going out with anything more than a conservative estimate.

Sure. Okay. That makes sense. Then, there seem to be a little bit of confusion in calls I was getting this morning related to the Covance announcement. Can you just give us some sense, my sense has been that the revenue from Covance has been more or less non-material, but can you maybe quantify that at all for us?

Sure. Let me try, Bill. As we have mentioned in previous call, in fact I think in quarter two we mentioned in our investor call that the momentum of awards with Covance was slowing, and that we continue to have discussion with Covance about the impact of their acquisition by LabCorp, so we talked a little bit about this. We talked about the general level of awards that we have been bidding and have been awarded with Covance. I think one of the things that is important to understand is that the Covance relationship was really terrific for us. We learned a lot about the clinical trials business, we learned a lot about customers, about their requirements, as a result of the partnership and we also received a number of awards, so we are going to continue to work with Covance collaboratively over the next two or three years as these awards wind down and continue to be executed and we are also going to be a preferred provider of Covance as they look forward. However, I think, we each need to recognize the reality of the situation and to prepare to each execute our own strategies. Our strategy has been to build a very strong clinical trials business and we said we are going to do that with or without Covance, and I think now we are going to be able to contract directly with the biopharmaceutical customers. We can contract with other CROs, with other central laboratories, and we are also looking forward, very much, to adding the Clarient sizable clinical trials business to our own, as we go forward.

Okay. In terms of magnitude though, I mean, is a meaningful amount of - as Covance rolls off, I mean, what kind of a hole do you have to fill there?

Well, we really do not have a hole to fill. I mean, what we have been doing is, we have been gaining a lot of awards. These awards are being recognized as revenue as they are being conducted. We are gaining awards all the time through our own direct sales initiatives. Clarient has a clinical trials business. I think, as you know, Bill, that is in excess of $20 million of revenue and this announcement we made with Covance should not slow our clinical trials growth whatsoever.

Okay. Then, finally, just a couple of questions on the Clarient proxy, I know you cannot comment on the Clarient business, but I think you can comment on your own due diligence to some extent. Just on the receivables side, the only thing that made us nervous at all in the proxy was what we see with the receivables and on the call last week you had talked about the fact that they have a high DSO, so we are kind of aware of that, but it looks like something like 25% of the gross receivables were greater than 360 days and that is up meaningfully from where it was in 2013. Can you just give us some sense of how well reserved you believe those older receivables are? I am just trying to assess the risk of any type of A/R write-down.

Well, keep in mind a couple of things. First, one of the key things we do is sort of purchase accounting, One of the things we are going to do, obviously, is go through. Our policy is all receivables are 100% reserved at 365 days. That has always been our policy at NeoGenomics, and that will be our policy going forward, we will have the opportunity, obviously, to reset the receivables to what we expect to collect. Part of our due diligence activity and actually part of the firm that we engaged to do this was also looking at their cash collections waterfall, what we call in terms of looking at a particular month and then how that cash collections came in and we did believe that the cash collections, while certainly slower a longer time than we take here at NeoGenomics, the cash collections did support the revenue that was recorded, so we did get comfortable around that, but realize we are going to convert them to our policies. We also said last week that they record bad debt net on the top-line. We are also going to convert to our policy there as well, which will have a little bit of a bump to income and then obviously a corresponding bump to bad debt in the G&A expense line, so we are going to move them to our policies and the way we record things, which we believe is fairly conservative.

Let me just build on that for a minute, Bill, by saying that George addressed the accounting side, but I will make a comment about the operating side of billing. Our operations in billing are, I think, pretty good, and we have a lot of experience in how to run a billing operation in the lab business. George and Kim, Grace [ph] and Fred and others have a lot of experience here. We have DSOs that are, for the quarter, about 79 days and there is a big difference between how we operate billing and how Clarient operated billing and we think we can move them to our kind of metrics.

Excellent. Great. Thank you guys very much for putting up with all those questions.

Thanks for the questions, Bill.

[Operator Instructions]. Our next question is from Drew Jones with Stephens Inc. Please proceed with your question.

Thanks. Good morning, guys.

Good morning.

I wanted to dig a little bit more into the costs improvements. It was such a big acceleration there. I know you guys have talked a little bit about scale and instrumentation benefits. Is there anything else that is going on that might have driven that so much higher than we have seen in the past or I guess, so much lower than we have seen in the past couple of quarters?

Well, Drew, we did have very good results. Part of that was volume and there were a couple of other things I guess I would point to. One is, we have been working for about a year on a way to automate our hematologic FISH process. I think we even said on these conference calls that we were having a heck of a time getting this new robotic automation process to work well. We got it to work, so that is giving us some benefit. We are continuing to load more product in that manufacturing laboratory process and that is helping. We also have an organizational change, which I think is really helping. Organizationally, what we are doing, I mentioned in the script, was we have sort of lucrative incentive plans for people. What did, organizationally, was we constructed a process where each department in our Company has its own goals that have been established and when these departments achieve those goals, they can receive a pretty nice payout as an incentive payment at the end of this year. We have gone through that process. These are self-defined, department-defined goals. We have a lot of engagement around this and I must say that as we work around the lab, people are more engaged, I think, at NeoGenomics, partly because of this than they ever have been before. We are getting a lot of good energy here and I think that is helping to drive us to achieve our goals as well.

Okay. Then I think it was about two years ago that Steve kind of targeted volume growth of 20% plus in 2014, 2015. Obviously, you guys have hit that. What is the volume growth assumption organic for 2016 at this point and is there any reason you see that Clarient could not keep pace?

Drew, we have not actually given any detailed guidance for 2016 yet and are going to defer answering that question with any specificity until we can get into fully integrating or getting our full integration plans with Clarient done. We will come out with detailed guidance for 2016 next February as part of our year-end call. The numbers we put out last week were intended to get you guys into the right zip code with our preliminary thoughts on things.

Thanks, guys.

Our next question is a follow-up from Debjit with ROTH Capital Partners. Please proceed with your follow-up.

As you think about phasing out from the Covance relationship, could you put the Premier hospital partnership or the Premier Group partnership in terms that have a context in relationship to Covance, in terms of the magnitude of impact to your top-line, say, in 2017?

Well, let me broaden that a little bit, Debjit, and try to address your question. First of all, we thought that the Covance relationship would yield, I do not think we talked about it. I guess we said double-digit kind of millions of dollars of revenue over time. To be honest, I mean, I think we are going to achieve that anyways without Covance, so, I want to put that out there and make sure everyone realizes, so when we say we are going to build a good clinical trials business with or without Covance, we mean it. Relative to Premier, let me broaden it to say that we have been working very hard with all large buyers. These are GPOs, big hospital systems, big managed care organizations and we have made a lot of progress, I think, with a lot of them and these can drive a lot of volume growth, so I would not point individually to any one of these, but there are a lot of systems out there that we are increasingly contacting with and we think that these can continue. In fact, they may help to accelerate what would be a normal volume growth in our business.

Doug and Steve, so your guidance for the preliminary ballpark guidance for next year, the $118 million number that you put out, excluding any positive impact from the CMS reimbursement. How much of Premier is kind of baked in there or even for the third quarter that you just reported, 56,000-plus tests, in terms of the number of tests that is coming from Covance, could you break that down, because you did break down Clarient's $23 million or expectation of $23 million from the bio pharma segment, so are you planning to break that down going forward for the combined entity?

Just to clarify a few points, the combined pro forma revenue bridge that we announced last week had $118 million of Neo revenue and $4 million of combined CMS positive impact. Again, as I mentioned in answer to Bill's question that is a conservative estimate of the combined CMS impact. Assuming the rates go through as proposed, and until we have more color on where Clarient falls out in their precise test mix and everything else, it would be inappropriate to go beyond that. In terms of breaking out Covance's impact, we do a lot of direct clinical trial work ourselves, outside of Covance. We have not broken it out yet, because it is not yet material to our operations. After we perform the Clarient integration, we got to get our hands on exactly what it is and we will certainly consider breaking it out next year, so that analysts can track it a little more carefully, but until we have seen what we are going to get in the process, it would be inappropriate to make any commitments about that.

Just to clarify one more thing, back to the Premier relationship, how fast do you expect that to scale to be materially meaningful to report that separately?

Debjit, let me try to answer that in the context of another question that came in about productivity of our sales reps. Our representatives have goals every year, and those goals are about $700,000 of net new business per representative. Now, when we are able to solidify a new managed care contract or a new GPO, these are tools that allow our representatives to enter into arrangements with potential clients, so we would expect that $700,000 per year is a good target. Some of our representatives do twice that or more than twice that in a year. Sometimes we fall a little short in some areas. Premier and other kinds of GPO arrangements would be tools to help our sales people achieve their productivity targets. We have had very strong productivity by our sales team. Overall, on a volume basis, we are actually exceeding our goals for our sales reps in 2015 and we did in 2014, as well. We think we have a very productive sales team, we have got about 25 sales representatives, including our regional managers and we are very proud of that team, and we are looking forward to rationalizing that as we add the Clarient team after the transaction closes.

Yes, I might just add, we reported earlier in the year that last year we had more than two-thirds of our sales force at or above quota for the full year, which is just astronomical performance in terms of the lab industry. It was the highest aggregate average we had ever had before, so, we have a really, really good sales team that is really, really productive by any measure in the laboratory industry.

Thank you for the added color and good luck going forward.

Thank you, Debjit.

There are no further questions at this time.

Okay. I have gotten a few by email here I would like to just clean up. How much are next generation sequencing tests contributing, how do you see that changing? We do not actually break down next generation sequencing as a specific category, but I can report that our molecular profile panels, many of which are run using next generation sequencing, were up 90% year-over-year, continue to be the strongest, fastest-growing segment of our business. We have a question here on productivity in the sales force. I think we have already discussed that. The last question is, can you remind us of what the purpose is of the prostate test? It seems really broad, how much follow-up do you need to have with the patient for this to be meaningful? I would like to ask Dr. Albitar to talk about this.

The prostate test initially was developed to predict whether a patient having prostate cancer and whether this prostate cancer is aggressive or not without performing prostate biopsies. For all practical purpose is to reduce the need for prostate biopsies. Of course, when our test says that a patient has high-grade prostate cancer that needs to be confirmed by biopsy. Now we are taking the indication a little bit farther, so, we can now - there are a lot of patients who have low-grade prostate cancer and these patients sometimes, dependent on the clinical situation are recommended to go under active surveillance. We are expanding the indication of our test to cover these patients and monitor them while they are going through their active surveillance. These are the two indications that we are focusing on with our prostate cancer.

Just to remind everybody, this is a test that is done using urine and blood plasma, not any tissue, so the ease of getting the sample is significantly higher.

Okay. Let us see, I think that is it for the email questions.

Okay, very good. As we end the call, we would like to recognize all 471 NeoGenomics teams' members around the country for their dedication and commitment to building a world-class cancer genetics testing program. On behalf of all of our NeoGenomics team, I want to thank you for your time in joining us this morning for our quarter three 2015 earnings call and let you know that our fourth quarter and year-end 2015 earnings call will be held on or around February 25, 2016. The exact date of that will be driven by when we are finishing the audit and able to conclude the 2015 audit results of Clarient. For those of you who are listening, who are investors, or are considering an investment in NeoGenomics, we thank you for your interest in our Company. Goodbye.

This concludes today's teleconference. You may now disconnect your lines and thank you for your participation.

Thank you, Zelda.

Thank you, sir. Have a wonderful next quarter.