# NEOGENOMICS INC (NEO) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from NEOGENOMICS INC's 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/1077183/000107718325000028/neo-20241231.htm Accession: 0001077183-25-000028 Filing date: 2025-02-18 Report date: 2024-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/NEO/ All MD&A years: /company/NEO/mda/ Previous year: /company/NEO/mda/fy2023/ (FY 2023) Next year: /company/NEO/mda/fy2025/ (FY 2025) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in this Annual Report on Form 10-K. The information contained below includes statements of management’s beliefs, expectations, goals and plans that, if not historical, are forward-looking statements subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. For a discussion on forward-looking statements, see the information set forth in the introductory note to this Annual Report under the caption “Forward Looking Statements,” which information is incorporated herein by reference. For discussion and analysis pertaining to 2023 overview and highlights as compared to 2022, please refer to the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 20, 2024. Our Company NeoGenomics, Inc., a Nevada corporation (the “Company,” or “NeoGenomics”), and its subsidiaries provide a wide range of oncology diagnostic testing and consultative services which includes technical laboratory services and professional interpretation of laboratory test results by licensed physicians who specialize in pathology and oncology. The Company operates a network of cancer-focused testing laboratories in the United States and the United Kingdom. 43 [[GREPCENT_TABLE]] [["Table of Contents","NEOGENOMICS, INC."]] [[/GREPCENT_TABLE]] 2024 Overview and Highlights •We increased revenue by 11.6% compared to 2023; •Net cash used in operations improved $9.0 million compared to 2023; •We increased Adjusted EBITDA $36.1 million to positive $39.6 million compared to 2023; and •We improved gross margin by 259 basis points while also improving turnaround time. Company Outlook Advances in science and technology are driving a proliferation of oncology therapies and associated diagnostic tests. These diagnostic tools and therapies are increasing survival and enhancing quality of life for cancer patients. As a leading global oncology diagnostics company serving biopharmaceutical companies as well as practicing oncologists and pathologists, NeoGenomics facilitates the adoption of these advanced oncology diagnostic tools beyond the academic environment into the community setting. We are continuously enhancing and expanding our test menu to ensure that providers and patients have access to leading edge solutions such as advanced molecular testing and state-of-the art digital pathology. Moreover, our team of MDs and PhDs, along with our highly-trained oncology-focused sales team, provides ongoing education to our clients to ensure that they remain abreast of cutting-edge developments in oncology. We are a leading provider of oncology-diagnostic services to biopharma companies. We will continue to work with these clients across the drug development continuum—from research and development through clinical trials testing—to commercialization of companion diagnostic tests. We expect to continue to grow our business through (i) expansion of our test offerings (including leading edge NGS tools such as WES, WGS, and others), and (ii) our unique capabilities for developing and commercializing companion diagnostic tests. We are continuing to develop and broaden our oncology data solutions to leverage our strategic market position and oncology expertise to help our stakeholders solve real-world problems such as identifying patients for clinical trials or providing clinical decision support tools for physicians and providers. We are committed to connecting patients with life-altering therapies and trials. In carrying out these commitments, NeoGenomics aims to provide transparency and choice to patients regarding the handling and use of their data through our Notice of Privacy Practices, and has invested in leading technologies to help ensure the data we maintain is secured at all times. We believe lower cost and increased value of testing is extremely important to the healthcare industry and creates a competitive advantage. We will invest in information technology, automation and best practices to continually improve our processes and drive down the cost of testing. We will continue to expand our test menu and expect to remain at the forefront of the ongoing revolution in cancer related genetic and molecular testing to achieve our vision of becoming one of the world’s leading cancer testing and information companies. We continue to develop our company-wide focus, which includes the following four critical success factors for 2025: Profitably Grow Our Core Business •Accelerate volume growth; both through the traditional clinical and NGS modalities; •Accelerate growth with oncologists in the community; and •Execute pharmaceutical client strategy and deliver profitable revenue growth. Accelerate Innovation •Deliver 3-year product roadmaps; •Execute successful timely-planned product launch(es); and •Drive productization and sales excellence for Data Solutions. Drive Value Creation •Improve operational efficiency and gross margin; •Transform Neo’s digital ecosystem; and •Achieve positive cash flow from operations. Enhance Our People and Culture •Enhance our Neo Culture; and •Expand scientific, medical and product capabilities. 44 [[GREPCENT_TABLE]] [["Table of Contents","NEOGENOMICS, INC."]] [[/GREPCENT_TABLE]] These critical success factors have been communicated throughout our Company. We have structured departmental goals around these factors and have created employee incentive plans in which every employee will have a meaningful incentive for our success. Regulatory Environment The FDA is currently considering changes that may include increased regulation of LDTs by the FDA. In October 2014 the FDA announced its proposed framework and timetable and indicated it would move toward greater oversight of LDTs. The FDA has not finalized the framework they announced in 2014. In 2017 the FDA shifted its approach to oversight of LDTs, indicating that they would work with Congress and stakeholders on a new legislative framework and pathway for all diagnostic testing. In 2018 the FDA began limited enforcement activities on a subset of LDTs known as pharmacogenetic testing (“PGx”). NeoGenomics is a member of the American Clinical Laboratory Association (“ACLA”), which has been in active discussions with the FDA and Congress regarding the FDA oversight of LDT’s. However, recent agency announcements made in the context of the COVID-19 public health emergency have produced a shifting policy landscape and further uncertainty regarding the FDA’s role in regulating LDTs: in August 2020, HHS announced that the FDA would not require premarket review of LDTs absent notice-and-comment rulemaking, but in November 2021, HHS issued a statement withdrawing that prior announcement, indicating a return to FDA’s longstanding approach to the regulation and enforcement discretion toward LDTs. The most recent such proposal, the VALID Act, was introduced in both the House and Senate on June 24, 2021. The VALID Act was expected to be included in the Omnibus bill signed at the end of 2022, but ultimately was not included and that, as such, it remains unclear whether the VALID Act will be passed 2023 or whether FDA will proceed through rulemaking. On April 29, 2024, the FDA announced a final rule on the regulation of Laboratory Developed Tests (“LDTs”) which amends the FDA's regulations to make explicit that LDT's are devices under the Federal Food, Drug, and Cosmetic Act (“FD&C Act”). The FDA issued a policy to phase out, over the course of four years, its general enforcement discretion approach to LDTs and also issued targeted enforcement discretion policies for certain categories of LDTs. The FDA is allowing currently marketed tests offered as LDTs (that were first marketed before May 6, 2024) to stay on the market without requiring pre-market review and approval by the FDA. Similarly, the FDA will not require pre-market review and approval by the FDA for tests approved by the New York State Department of Health Clinical Laboratory Evaluation Program. We closely monitor changes in legislation and take specific actions to identify and estimate the impact of changes in legislation whenever possible as regulatory changes can affect reimbursement for clinical laboratory services. We do not anticipate significant changes to our revenue in 2025 resulting from known changes in legislation or rulemaking. Reportable Segments In 2024, we simplified our operational approach, bringing Clinical Services and Advanced Diagnostics under a single segment. This decision was driven by an analysis of our reporting structure, the information available to our Chief Operating Decision Maker (“CODM”), and the strategic decisions being made to manage the business. This decision aims to streamline our operations and enhance our service offerings to our diverse client base, which includes community-based pathology and oncology practices, hospital pathology labs, reference labs, academic centers, and pharmaceutical companies. Revenue Streams Our single operating segment now encompasses a comprehensive range of services previously categorized under Clinical Services and Advanced Diagnostics. The revenue streams include: •Clinical cancer testing; •Interpretation and consultative services; •Molecular and NGS testing; •Comprehensive technical and professional services offering; •Clinical trials and research; •Validation laboratory services; and •Oncology data solutions. Service Offerings Our clinical cancer testing services are designed to complement the work of community-based pathologists and oncologists, allowing them to expand their testing capabilities without significant investment in new technology or personnel. We offer 45 [[GREPCENT_TABLE]] [["Table of Contents","NEOGENOMICS, INC."]] [[/GREPCENT_TABLE]] both technical component (“TC” or “tech-only”) and professional component (“PC”) services, enabling our clients to participate in the diagnostic process. These services are designed to be a natural extension of, and complementary to, the services that clients perform within their own practices. We believe our relationship as a non-competitive partner to community-based pathology practices, hospital pathology labs, reference labs, and academic centers empowers them to expand their breadth of testing. We believe this enables them to provide a menu of services that could match or exceed the level of service found in any center of excellence around the world. Community-based pathology practices and hospital pathology labs may order certain testing services on a TC basis, allowing them to participate in the diagnostic process by performing the PC interpretation services without having to hire laboratory technologists or purchase sophisticated equipment needed for the TC tests. We also support our pathology clients with interpretation and consultative services using our own specialized team of pathologists for difficult or complex cases, as well as provide overflow interpretation services when requested. For oncology, dermatology, and other clinician practices that prefer a direct relationship with a laboratory for cancer-related genetic testing services, we typically offer a comprehensive service where we perform both the TC and PC components of tests. Larger clinician practices internalizing pathology interpretation services can benefit from our tech-only service offering, allowing them to participate in this diagnostic process while we handle the more complex molecular testing services. We are a leading provider of Heme oncology diagnostic testing, which includes molecular and NGS testing, and one of the key providers of solid tumor NGS testing solutions. These tests are interpreted by our team of molecular experts and are often ordered in conjunction with other testing modalities. NGS panels, one of our fastest-growing testing areas, enable clients to receive significant biomarker information from limited samples. These comprehensive panels can allow for faster treatment decisions for patients as compared to a series of single-gene molecular tests being ordered sequentially. Our broad molecular testing menu includes NeoTYPE and Neo Comprehensive panels which target genes relevant to a particular cancer type. Additionally, we have molecular-only and comprehensive NGS-targeted panels which combine DNA and RNA into a single workflow. This approach captures a full spectrum of genomic alterations, including mutations, fusions, copy number variations, and splicing mutations, as well as tumor mutation burden (TMB) and microsatellite instability (MSI) for solid tumors. These tests are complemented by IHC and FISH tests when necessary. This comprehensive molecular test menu allows our clients to obtain most of their molecular oncology testing needs satisfied by our laboratory. This is attractive to our clients as patient samples do not need to be split and then managed across several laboratories. The acquisition of Inivata in June 2021 enhanced our capabilities with oncology liquid biopsy technology including RaDaR® which is designed to detect residual disease and recurrence in plasma samples from patients with solid tumor malignancies. These molecular laboratory and NGS capabilities are expected to drive growth in the coming years. Our specialized pharmaceutical development services support pharmaceutical firms (“sponsors”) in their drug development programs, from biomarker discovery to commercialization. This includes supporting clinical trials, research, and the development of companion diagnostics. Our team works closely with sponsors to design studies, perform required testing, and provide key analysis and insights. Each trial is supported with rapid turnaround time, dedicated project management, and quality assurance oversight. We also assist with FDA submissions for companion diagnostics and offer Day 1 readiness programs to speed drug commercialization. These services provide comprehensive support in oncology programs, including biomarker discovery, study design, clinical trial testing, and companion diagnostic development. We aim to help clients discover the right content, refine biomarker strategies, and develop effective pathways for clinical trial testing. Our oncology data solutions, which involve the licensing of de-identified data to pharmaceutical and biotech customers in the form of either retrospective records or prospective deliveries of data, are designed to leverage our unique market position to solve real-world problems, such as identifying patients for clinical trials or providing clinical decision support tools for physicians and providers. This integration aligns with our broader service offerings to provide seamless, comprehensive support for both clinical and pharmaceutical clients. Strategic Focus By streamlining our segments, we aim to provide a seamless and integrated service offering to our clients. This approach allows us to leverage our expertise in oncology and molecular diagnostics to support both clinical and pharmaceutical clients more effectively. Our commitment to connecting patients with life-altering therapies and trials remains a core focus. We have invested in leading technologies to secure data and maintain transparency and choice for patients through our Notice of Privacy Practices. 46 [[GREPCENT_TABLE]] [["Table of Contents","NEOGENOMICS, INC."]] [[/GREPCENT_TABLE]] Financial Impact In 2024, the combined segment accounted for 100% of our consolidated revenue, with Clinical Services previously contributing 84% and Advanced Diagnostics contributing 16% in 2023. For further financial information, please refer to Note 16. Segment Information, in our Consolidated Financial Statements included in this Annual Report. This decision is expected to drive growth and operational efficiencies, positioning us as a leading provider of comprehensive oncology diagnostic services and supporting the development of new therapies in the pharmaceutical industry. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. Please refer to Note 2. Summary of Significant Accounting Policies, to our Consolidated Financial Statements for a complete description of our significant accounting policies. Our critical accounting policies are those where we have made difficult, subjective, or complex judgments in making estimates and/or where these estimates can significantly impact our financial results under different assumptions and conditions. Our critical accounting policies are: •Goodwill; •Contingencies; and •Revenue Recognition and Accounts Receivable. Goodwill We evaluate goodwill on an annual basis in the fourth quarter, or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management performs a quantitative goodwill impairment test. The quantitative analysis is performed by comparing the fair value of the reporting unit to its carrying value. If the carrying value is greater than the estimate of fair value, an impairment loss will be recognized for the amount in which the carrying amount exceeds the reporting unit’s fair value. We estimate the fair values of our reporting units using a combination of the income, or discounted cash flows approach and the market approach, which utilizes comparable companies’ data. On October 1, 2024, we performed a qualitative assessment to determine whether it was more likely than not that the fair values of our reporting units were less than their carrying values. As a result of the qualitative assessment, we determined that it is not more likely than not that the fair value of our reporting units is less than their carrying amounts. Contingencies We accrue contingent losses when estimated impacts of various conditions, situations or circumstances involve uncertain outcomes. Contingent losses are recorded based on management judgment along with internal and external advice from legal counsel and/or technical consultants. Estimated losses from contingencies are recorded when both of the following conditions are met: (i) information available before the financial statements are issued (or available to be issued) indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and (ii) the amount of loss can be reasonably estimated. If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, that amount shall be accrued. When no amount within the range is a better estimate than any other amount, however, the minimum amount in the range shall be accrued. Revenue Recognition and Accounts Receivable Our specialized clinical services are performed based on an online test order or a written test requisition form. The performance obligation is satisfied and revenues are recognized once the clinical services have been performed and the results have been delivered to the ordering physician. Additionally, we enter into contracts to provide pharmaceutical development services and oncology data solutions. Revenue is recorded on a unit-of-service basis based on the number of units completed towards the satisfaction of a performance obligation. 47 [[GREPCENT_TABLE]] [["Table of Contents","NEOGENOMICS, INC."]] [[/GREPCENT_TABLE]] Services are billed to various payers, including client direct billing, commercial insurance, Medicare and other government payers, and patients. Revenue is recorded for all payers based on the amount expected to be collected, which considers implicit price concessions. Accounts receivable related to clinical services are reported for all payers based on the amount expected to be collected, which also considers implicit price concessions. Implicit price concessions represent differences between amounts billed and the estimated consideration we expect to receive based on negotiated discounts, historical collection experience, assumptions in payer mix, and other anticipated adjustments, including anticipated payer denials. Collection of consideration we expect to receive typically occurs within 90 to 120 days of billing for commercial insurance, Medicare and other governmental and self-pay patients and within 60 to 90 days of billing for client payers. The following table reflects our estimate of the breakdown of net revenue by type of payer for the years ended December 31, 2024, 2023 and 2022: [[GREPCENT_TABLE]] [["","2024","","2023","","2022"],["Client direct billing","72","%","","72","%","","73","%"],["Commercial insurance","15","%","","15","%","","14","%"],["Medicare and other government","13","%","","13","%","","13","%"],["Self-pay","\u2014","%","","\u2014","%","","\u2014","%"],["Total","100","%","","100","%","","100","%"]] [[/GREPCENT_TABLE]] Results of Operations for the year ended December 31, 2024 as compared with the year ended December 31, 2023 Revenue The Company has historically reported its activities in two reportable segments, (1) Clinical Services and (2) Advanced Diagnostics. In 2024, we simplified our operational approach, bringing Clinical Services and Advanced Diagnostics under a single segment. The consolidated revenue for the years ended December 31, 2024 and 2023, are as follows (dollars in thousands): [[GREPCENT_TABLE]] [["","2024","","2023","","% Change"],["Net revenue","$","660,566","","","$","591,643","","","11.6","%"]] [[/GREPCENT_TABLE]] Revenue in 2024 increased $68.9 million, or 11.6%, as compared to 2023. Increases in revenue reflect an increase in test volume, a more favorable test mix, and an increase in average unit price due to strategic reimbursement initiatives partially offset by lower RaDaR® revenue. Cost of Revenue and Gross Profit Cost of revenue includes compensation and benefit costs for performing tests, maintenance and/or depreciation of laboratory equipment, rent for laboratory facilities, laboratory reagents, probes and supplies, delivery and courier costs relating to the transportation of specimens to be tested, amortization for acquired intangible assets, and stock-based compensation. The consolidated cost of revenue and gross profit metrics for the years ended December 31, 2024 and 2023 are as follows (dollars in thousands): [[GREPCENT_TABLE]] [["","2024","","2023","","% Change"],["Cost of revenue:"],["Cost of revenue(1)","$","370,466","","","$","347,039","","6.8","%"],["Cost of revenue as a percentage of revenue","56.1","%","","58.7","%"],["Gross Profit:"],["Gross profit","$","290,100","","","$","244,604","","","18.6","%"],["Gross profit margin","43.9","%","","41.3","%"]] [[/GREPCENT_TABLE]] _________________ (1) Cost of revenue for the twelve months ended December 31, 2024 includes $19.6 million of amortization of acquired intangible assets and $1.4 million of stock-based compensation. Cost of revenue for the twelve months ended December 31, 2023 includes $19.6 million of amortization of acquired intangible assets. There were no stock-based compensation amounts recorded for the year ended December 31, 2023. 48 [[GREPCENT_TABLE]] [["Table of Contents","NEOGENOMICS, INC."]] [[/GREPCENT_TABLE]] Consolidated cost of revenue increased $23.4 million for the year ended December 31, 2024 when compared to the same period in 2023 primarily due to $15.5 million in higher compensation and benefit costs, an increase in supplies expense of $6.9 million, and an increase in professional fees of $0.9 million, partially offset by a decrease in technology and equipment fees of $0.6 million. Gross profit margin for 2024 was 43.9% compared to 41.3% in 2023. This 2.6% increase is primarily related to increases in revenue partially offset by higher compensation and benefits costs and supplies expense. General and Administrative Expenses General and administrative expenses consist of compensation and benefit costs for our executive, billing, finance, human resources, information technology, and other administrative personnel, as well as stock-based compensation. We also allocate professional services, facilities expense, IT infrastructure costs, depreciation, amortization, and other administrative-related costs to general and administrative expenses. Consolidated general and administrative expenses for the years ended December 31, 2024 and 2023 are as follows (dollars in thousands): [[GREPCENT_TABLE]] [["","2024","","2023","","$ Change","","% Change"],["General and administrative","$","259,737","","","$","243,101","","","$","16,636","","","6.8","%"],["General and administrative as a percentage of revenue","39.3","%","","41.1","%"]] [[/GREPCENT_TABLE]] General and administrative expenses increased $16.6 million in 2024 compared to 2023. This increase was partially due to an increase in legal and other professional fees of $8.3 million, an increase in compensation and benefit costs of $7.2 million, and an increase in depreciation of $1.6 million. These increases in general and administrative expenses for the year ended December 31, 2024 were partially offset by a decrease in amortization of $1.7 million, and a decrease in credit card fees of $1.0 million. Research and Development Expenses Research and development expenses relate to costs of developing new proprietary and non-proprietary genetic tests, including compensation and benefit costs, maintenance of laboratory equipment, laboratory supplies (reagents), and outside consultants and experts assisting our research and development team, as well as stock-based compensation. Research and development expenses are presented net of research and development tax and expenditure credits from the UK government, which are recognized over the period necessary to match the reimbursement with the related costs when it is probable that the Company has complied with any conditions attached and will receive the reimbursement. Consolidated research and development expense for the years ended December 31, 2024 and 2023 are as follows (dollars in thousands): [[GREPCENT_TABLE]] [["","2024","","2023","","$ Change","","% Change"],["Research and development","$","31,159","","","$","27,309","","","$","3,850","","","14.1","%"],["Research and development as a percentage of revenue","4.7","%","","4.6","%"]] [[/GREPCENT_TABLE]] Research and development expenses increased $3.9 million in 2024 compared to 2023. This increase is primarily due to increases in professional fees, a decrease in research and development tax credits from the UK government and an increase in compensation and benefits costs. We anticipate research and development expenditures will increase in the future as we continue to invest in development activities for innovation projects and bringing new tests to market. Sales and Marketing Expenses Sales and marketing expenses are primarily attributable to employee-related costs including sales management, sales representatives, sales and marketing consultants, marketing and client service personnel, and stock-based compensation. Consolidated sales and marketing expenses for the years ended December 31, 2024 and 2023, are as follows (dollars in thousands): [[GREPCENT_TABLE]] [["","2024","","2023","","$ Change","","% Change"],["Sales and marketing","$","84,652","","","$","70,842","","","$","13,810","","","19.5","%"],["Sales and marketing as a percentage of revenue","12.8","%","","12.0","%"]] [[/GREPCENT_TABLE]] 49 [[GREPCENT_TABLE]] [["Table of Contents","NEOGENOMICS, INC."]] [[/GREPCENT_TABLE]] Sales and marketing expenses increased $13.8 million in 2024 compared to 2023. The increase primarily reflects increases in compensation and benefit costs due to increased headcount, an increase in sales commissions, and an increase in travel. We expect higher commissions expense in the coming quarters as we expand our sales representative force and our sales representatives generate new business. We expect our sales and marketing expenses over the long term to align with changes in revenue and we continue to evaluate the effectiveness of our incentive compensation plans. Restructuring charges Consolidated restructuring charges for the years ended December 31, 2024 and 2023 are as follows (dollars in thousands): [[GREPCENT_TABLE]] [["","2024","","2023","","$ Change","","% Change"],["Restructuring charges","$","6,658","","","$","11,088","","","$","(4,430)","","","(40.0)","%"],["Restructuring charges as a percentage of revenue","1.0","%","","2.0","%"]] [[/GREPCENT_TABLE]] Restructuring charges relate to a restructuring program to improve execution and drive efficiency across the organization. Restructuring charges consist of severance and other employee costs, costs for optimizing the Company’s geographic presence, and consulting and other costs. Restructuring charges decreased $4.4 million in 2024 compared to 2023. Restructuring charges in 2024 consist of $1.5 million in severance and other employee costs, $4.1 million in Facility Footprint Optimization costs, and $1.0 million of consulting and other costs. Interest Income Interest income for the years ended December 31, 2024 and 2023 is as follows (dollars in thousands): [[GREPCENT_TABLE]] [["","2024","","2023","","$ Change","","% Change"],["Interest income","$","(18,427)","","","$","(16,902)","","","$","(1,525)","","","9.0","%"]] [[/GREPCENT_TABLE]] Interest income increased $1.5 million in 2024 compared to 2023. Interest income includes interest earned on funds held in our cash equivalent and marketable securities accounts. The increase in interest income in 2024 was due to the higher interest rate environment experienced when compared to the same period in 2023. For further details regarding our investments in marketable securities, please refer to Note 3. Fair Value Measurements in the accompanying notes to the Consolidated Financial Statements. Interest Expense Interest expense for the years ended December 31, 2024 and 2023 is as follows (dollars in thousands): [[GREPCENT_TABLE]] [["","2024","","2023","","$ Change","","% Change"],["Interest expense","$","6,617","","","$","6,907","","","$","(290)","","","(4.2)","%"]] [[/GREPCENT_TABLE]] Interest expense decreased $0.3 million in 2024 compared to 2023. Interest expense for the years ended December 31, 2024 and 2023 primarily reflects the effective interest rate on the 2028 Convertible Notes and the 2025 Convertible Notes which is 0.70% and 1.96%, respectively. Interest on the 2028 Convertible Notes and 2025 Convertible Notes began accruing upon issuance and is payable semi-annually. For further details regarding the convertible notes please refer to Note 7. Debt in the accompanying notes to the Consolidated Financial Statements. 50 [[GREPCENT_TABLE]] [["Table of Contents","NEOGENOMICS, INC."]] [[/GREPCENT_TABLE]] Net Loss The following table provides the net loss for the years ended December 31, 2024 and 2023, along with the computation of basic and diluted net loss per share (in thousands, except per share amounts): [[GREPCENT_TABLE]] [["","2024","","2023"],["Net loss","$","(78,726)","","","$","(87,968)"],["Basic weighted average shares outstanding","126,658","","","125,502"],["Diluted weighted average shares outstanding","126,658","","","125,502"],["Basic net loss per share","$","(0.62)","","","$","(0.70)"],["Diluted net loss per share","$","(0.62)","","","$","(0.70)"]] [[/GREPCENT_TABLE]] Non-GAAP Measures  Use of Non-GAAP Financial Measures In order to provide greater transparency regarding our operating performance, the financial results and financial guidance include the use of certain non-GAAP financial measures that involve adjustments to GAAP results. Non-GAAP financial measures exclude certain income and/or expense items that management believes are not directly attributable to our core operating results and/or certain items that are inconsistent in amounts and frequency, making it difficult to perform a meaningful evaluation of our current or past operating performance. Management believes that the presentation of operating results using non-GAAP financial measures provides useful supplemental information to investors by facilitating the analysis of our core test-level operating results across reporting periods and when comparing those same results to those published by our peers. These non-GAAP financial measures may also assist investors in evaluating future prospects. Management also uses non-GAAP financial measures for financial and operational decision making, planning and forecasting purposes and to manage the business. These non-GAAP financial measures do not replace the presentation of financial information in accordance with U.S. GAAP financial results, should not be considered measures of liquidity, and are unlikely to be comparable to non-GAAP financial measures used by other companies.  Definitions of Non-GAAP Measures Non-GAAP Adjusted EBITDA “Adjusted EBITDA” is defined by NeoGenomics as net (loss) income from continuing operations before: (i) interest income, (ii) interest expense, (iii) tax (benefit) or expense, (iv) depreciation and amortization expense, (v) stock-based compensation expense, and, if applicable in a reporting period, (vi) restructuring charges, (vii) intellectual property (“IP”) litigation costs, and (viii) other significant or non-operating (income) or expenses, net. The following is a reconciliation of GAAP net loss to Non-GAAP EBITDA and Adjusted EBITDA for the years ended December 31, 2024 and 2023 (dollars in thousands): [[GREPCENT_TABLE]] [["","2024","","2023"],["NET LOSS (GAAP)","$","(78,726)","","","$","(87,968)"],["Adjustments to net loss:"],["Interest income","(18,427)","","","(16,902)"],["Interest expense","6,617","","","6,907"],["Income tax benefit","(1,949)","","","(9,129)"],["Depreciation","39,101","","","37,450"],["Amortization of intangibles","33,446","","","35,133"],["EBITDA (non-GAAP)","(19,938)","","","(34,509)"],["Further Adjustments to EBITDA:"],["Non-cash stock-based compensation","33,413","","","24,633"],["Restructuring charges","6,658","","","11,088"],["IP litigation costs(1)","13,753","","","1,111"],["Other significant expenses (income), net(2)","5,722","","","1,163"],["ADJUSTED EBITDA (non-GAAP)","$","39,608","","","$","3,486"]] [[/GREPCENT_TABLE]] 51 [[GREPCENT_TABLE]] [["Table of Contents","NEOGENOMICS, INC."]] [[/GREPCENT_TABLE]] _________________ (1) For the year ended December 31, 2024, IP litigation costs include legal fees and a settlement payment. For the year ended December 31, 2023, IP litigation costs include legal fees. (2) For the year ended December 31, 2024, other significant (income) expenses, net, includes CEO transition costs, site closure costs, severance costs, and fees related to non-recurring legal matters. For the year ended December 31, 2023, other significant (income) expenses, net, fees related to a regulatory matter, CEO transition costs and other non-recurring items. Liquidity and Capital Resources To date, we have financed our operations primarily through cash generated from operations, public and private sales of debt and equity securities, and bank debt borrowings. The following table presents a summary of our consolidated cash flows for operating, investing, and financing activities for the years ended December 31, 2024 and 2023, as well as the period ending cash and cash equivalents and working capital (in thousands): [[GREPCENT_TABLE]] [["","2024","","2023"],["Net cash (used in) provided by:"],["Operating activities","$","7,023","","","$","(1,953)"],["Investing activities","12,855","","","76,707"],["Financing activities","4,646","","","4,554"],["Net change in cash and cash equivalents","24,524","","","79,308"],["Cash, cash equivalents and restricted cash, beginning of year","342,488","","","263,180"],["Cash and cash equivalents, end of year","$","367,012","","","$","342,488"],["Working Capital,(1) end of period","$","294,778","","","$","500,508"]] [[/GREPCENT_TABLE]] _________________ (1) Defined as current assets less current liabilities. Cash Flows from Operating Activities Cash provided by in operating activities during the year ended December 31, 2024, was $7.0 million compared to cash used of $2.0 million in the same period in 2023. This $9.0 million increase was primarily driven by our operating results (net loss adjusted for depreciation, amortization of intangibles, and other non-cash charges) which resulted in $16.1 million of lower cash used by operating activities year-over-year, as well as a $7.1 million decrease in cash used resulting from net changes in operating assets and liabilities. The increase in cash provided by operating activities for the year ended December 31, 2024 compared to the same period in 2023 was primarily driven by an improvement in gross profit of $45.5 million. Cash Flows from Investing Activities During the year ended December 31, 2024, cash provided by investing activities was $12.9 million, compared to $76.7 million for the same period in 2023. This change was due to a $6.8 million decrease in purchases of marketable securities and a $58.3 million decrease in the sales and maturities of marketable securities year-over-year. These decreases were partially offset by a $12.3 million increase in purchases of property and equipment year-over-year. Cash Flows from Financing Activities During the year ended December 31, 2024, cash provided by financing activities was $4.6 million compared to $4.6 million for the same period in 2023. The cash provided by financing activities during the year ended December 31, 2024 consisted of $4.6 million for the issuance of common stock net of issuance costs. Liquidity Outlook As of December 31, 2024, we had $367.0 million in cash and cash equivalents in addition to $19.8 million of marketable securities available to support current operational liquidity needs. We anticipate that the cash on hand, marketable securities, and cash collections are sufficient to fund our near-term capital and operating needs for at least the next 12 months. Operating needs include, but are not limited to, the planned costs to operate our business, including amounts required to fund working capital including the convertible senior notes due 2025, capital expenditures, continued research and development efforts, and potential strategic acquisitions and investments. 52 [[GREPCENT_TABLE]] [["Table of Contents","NEOGENOMICS, INC."]] [[/GREPCENT_TABLE]] Related Party Transactions Please refer to Note 15. Related Party Transactions, to our Consolidated Financial Statements for a description of our related party transactions. Capital Expenditures We forecast capital expenditures in order to execute on our business plan and maintain growth; however, the actual amount and timing of such capital expenditures will ultimately be determined by the volume of business. We currently anticipate that our capital expenditures for the year ended December 31, 2025, will be in the range of $30 million to $35 million. During the year ended December 31, 2024, we purchased, with cash, approximately $41.1 million of capital equipment, software, and leasehold improvements. We have funded and plan to continue funding these capital expenditures with cash and financing. Recently Adopted Accounting Guidance Please refer to Note 2. Summary of Significant Accounting Policies, to our Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements and accounting pronouncements pending adoption. Effects of Inflation During the years ended December 31, 2024, 2023 and 2022, inflation did not have a material effect on our business. Widely reported inflation has occurred, however, and may be ongoing for the foreseeable future. Depending on the severity and persistence of these inflationary pressures, we could experience, in the future, a negative impact on our financial results. While we anticipate an increasingly uncertain macroeconomic environment in fiscal year 2025, we will continue to mitigate through targeted pricing and various sourcing strategies. We remain optimistic about our growth opportunities in our key markets in fiscal year 2025.