NeoGenomics(NEO) - 2021 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Presents the unaudited financial statements and management's discussion for the quarter ended March 31, 2021 Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for NeoGenomics, Inc., including the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, significant accounting policies, fair value measurements, leases, goodwill, intangible assets, investments, debt, equity transactions, stock-based compensation, revenue recognition, net loss per share, related party transactions, and segment information for the period ended March 31, 2021 Consolidated Balance Sheets Details the company's financial position, including assets, liabilities, and equity, as of March 31, 2021, and December 31, 2020 Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2021 | December 31, 2020 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | ASSETS | | | | | | Cash and cash equivalents | $611,970 | $228,713 | $383,257 | 167.5% | | Marketable securities, at fair value | $190,710 | $67,546 | $123,164 | 182.3% | | Total current assets | $942,732 | $448,730 | $494,002 | 110.1% | | Total assets | $1,494,413 | $988,331 | $506,082 | 51.2% | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | Convertible senior notes, net | $530,378 | $168,120 | $362,258 | 215.5% | | Total liabilities | $650,699 | $294,037 | $356,662 | 121.3% | | Total stockholders' equity | $843,714 | $694,294 | $149,420 | 21.5% | | Total liabilities and stockholders' equity | $1,494,413 | $988,331 | $506,082 | 51.2% | Consolidated Statements of Operations Reports the company's revenues, expenses, and net loss for the three months ended March 31, 2021 and 2020 Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Clinical Services Revenue | $96,487 | $92,982 | $3,505 | 3.8% | | Pharma Services Revenue | $19,046 | $13,048 | $5,998 | 46.0% | | Total revenue | $115,533 | $106,030 | $9,503 | 9.0% | | Cost of revenue | $73,959 | $59,661 | $14,298 | 24.0% | | Gross profit | $41,574 | $46,369 | $(4,795) | (10.3)% | | Loss from operations | $(15,107) | $(5,293) | $(9,814) | (185.4)% | | Net loss | $(22,114) | $(6,978) | $(15,136) | (216.9)% | | Basic Net Loss Per Share | $(0.19) | $(0.07) | $(0.12) | (171.4)% | | Diluted Net Loss Per Share | $(0.19) | $(0.07) | $(0.12) | (171.4)% | Consolidated Statements of Comprehensive Loss Presents the net loss and other comprehensive loss components for the three months ended March 31, 2021 and 2020 Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | NET LOSS | $(22,114) | $(6,978) | | Total other comprehensive loss, net of tax | $(160) | $(1,038) | | COMPREHENSIVE LOSS | $(22,274) | $(8,016) | Consolidated Statements of Stockholders' Equity Outlines changes in the company's equity accounts, including common stock and accumulated deficit, for the period Stockholders' Equity Changes (in thousands, except share amounts) | Metric | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :---------------- | | Common stock, $0.001 par value (shares issued and outstanding) | 117,136,654 | 112,075,474 | | Common stock (amount) | $117 | $112 | | Additional paid-in capital | $872,350 | $701,357 | | Accumulated other comprehensive (loss) income | $(150) | $10 | | Accumulated deficit | $(28,603) | $(7,185) | | Total stockholders' equity | $843,714 | $694,294 | - The company recorded a cumulative-effect adjustment from a change in accounting principle (ASU 2020-06) which decreased additional paid-in capital by $23.271 million and increased accumulated deficit by $0.696 million, resulting in a net decrease of $22.575 million in total equity[19][56] - Premiums paid for capped call confirmations also decreased additional paid-in capital by $29.291 million[19][56] - A public offering of common stock generated $218.500 million in proceeds, increasing common stock and additional paid-in capital[19][56] Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2021 and 2020 Consolidated Statements of Cash Flows (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $2,210 | $(6,933) | | Net cash used in investing activities | $(154,688) | $(41,708) | | Net cash provided by financing activities | $524,935 | $617 | | Net change in cash, cash equivalents and restricted cash | $372,457 | $(48,024) | | Cash, cash equivalents and restricted cash, end of period | $623,089 | $124,992 | - Operating activities generated $2.2 million in cash in Q1 2021, a significant improvement from a $6.9 million use of cash in Q1 2020, primarily due to adjustments for non-cash items like COVID-19 PCR testing inventory and equipment write-offs ($6.1 million)[22][232] - Investing activities used $154.7 million, an increase of $113.0 million year-over-year, driven by increased investments in marketable securities ($123.9 million) and a $15 million loan to a non-consolidated affiliate[22][235] - Financing activities provided $524.9 million, largely from $334.4 million in convertible debt proceeds and $218.3 million from an equity offering, partially offset by $29.3 million for capped call confirmations[22][236] Note 1. Nature of the Business Describes NeoGenomics' core operations as a clinical laboratory and its response to the COVID-19 pandemic - NeoGenomics operates as a certified, high complexity clinical laboratory providing diagnostic services to pathologists, oncologists, urologists, hospitals, and other laboratories, as well as clinical trial services to pharmaceutical firms[26] - The COVID-19 pandemic has materially adversely affected the Company's operations, but cash on hand and marketable securities are anticipated to be sufficient for near-term capital and operating needs for at least the next 12 months[27][28] - At the end of Q1 2021, the Company exited COVID-19 PCR testing due to declining demand, recording a $6.1 million expense ($5.3 million for inventory write-off to cost of revenue and $0.8 million for equipment write-off to G&A)[29] - The Company recognized $0.4 million under the Employee Retention Tax Credit (ERTC) for the three months ended March 31, 2021, as extended by the American Rescue Plan Act[32] Note 2. Summary of Significant Accounting Policies Details the key accounting principles and recent changes applied in preparing the interim financial statements - The interim Consolidated Financial Statements are unaudited and prepared in accordance with GAAP, with certain information condensed or omitted compared to annual reports[34][36] - Effective January 1, 2021, the Company adopted ASU 2020-06 (Accounting For Convertible Instruments and Contracts in an Entity's Own Equity) using the modified retrospective approach, which increased convertible senior notes by $27.2 million, decreased deferred income tax liabilities by $6.6 million, established a $2 million valuation allowance against deferred tax assets, and decreased additional paid-in capital by $23.3 million[55][56] - The Company changed its stock option valuation model from a trinomial lattice model to the Black-Scholes option valuation model on a prospective basis for new awards starting January 1, 2021[40] - As of March 31, 2021, the Company's U.S. operations were in a three-year cumulative loss position, leading to the establishment of a $9.3 million valuation allowance against U.S. deferred income tax assets and a $3 million valuation allowance against deferred tax assets in Switzerland, Singapore, and China[49][50] Note 3. Fair Value Measurements Explains the valuation methods and classifications for financial assets measured at fair value on a recurring basis - The Company measures certain financial assets, including marketable securities and cash equivalents, at fair value on a recurring basis, classifying them as available-for-sale securities[64] Marketable Securities Fair Value (in thousands) | Type | March 31, 2021 Fair Value | December 31, 2020 Fair Value | | :---------------------- | :-------------------------- | :-------------------------- | | U.S. Treasury securities | $51,703 | $21,340 | | Commercial paper | $22,187 | $14,543 | | Asset-backed securities | $21,597 | $14,538 | | Corporate bonds | $95,223 | $17,125 | | Total | $190,710 | $67,546 | Cash Equivalents and Marketable Securities by Fair Value Hierarchy (in thousands) | Type | Level 1 (March 31, 2021) | Level 2 (March 31, 2021) | Level 3 (March 31, 2021) | Total (March 31, 2021) | | :---------------------- | :----------------------- | :----------------------- | :----------------------- | :--------------------- | | Money market funds | $570,782 | — | — | $570,782 | | Commercial paper (CE) | — | $17,795 | — | $17,795 | | U.S. Treasury securities | $51,703 | — | — | $51,703 | | Commercial paper (MS) | — | $22,187 | — | $22,187 | | Asset-backed securities | — | $21,597 | — | $21,597 | | Corporate bonds | — | $95,223 | — | $95,223 | | Total | $622,485 | $156,802 | — | $779,287 | Note 4. Leases Provides details on the company's operating lease liabilities, terms, and related costs Operating Lease Liabilities (in thousands) | Metric | Amount | | :-------------------------------- | :----- | | Total operating lease liabilities (March 31, 2021) | $51,548 | | Current portion | $(5,111) | | Long-term operating lease liabilities | $46,437 | | Weighted-average remaining lease term (years) | 10.95 | | Weighted-average discount rate | 4.2% | | Operating lease costs (Q1 2021) | $2,305 | | Cash paid for operating leases (Q1 2021) | $2,678 | - The Company has $33.8 million in contractually binding minimum lease payments for leases executed but not yet commenced, primarily for a new laboratory and headquarters facility in Fort Myers, Florida, expected to commence in 2021[78] - Additionally, $25 million for construction and $17 million for leasehold improvements are related to this facility[78] Note 5. Goodwill and Intangible Assets Reports the carrying amounts of goodwill and intangible assets, along with amortization expenses - Goodwill remained constant at $211.1 million as of March 31, 2021, and December 31, 2020[79] Intangible Assets (in thousands) | Type | March 31, 2021 Net | December 31, 2020 Net | | :---------------------- | :----------------- | :-------------------- | | Customer Relationships | $104,748 | $107,206 | | Trade Name - Indefinite lived | $13,447 | $13,447 | | Total | $118,195 | $120,653 | - Amortization expense for intangible assets was approximately $2.5 million for both Q1 2021 and Q1 2020, recorded within general and administrative expense[81] Note 6. Investment in Non-Consolidated Affiliate Describes the company's strategic investment and loan to Inivata Limited - The Company formed a strategic alliance with Inivata Limited in May 2020, acquiring Series C1 Preference Shares for $25 million and an option to purchase Inivata (Purchase Option)[84][85] - The initial investment was allocated as $19.6 million for Preference Shares and $6 million for the Purchase Option[88] - In January 2021, Inivata drew on a $15 million Line of Credit from the Company, recorded as a loan receivable[90] - An imputed interest rate discount of $5 million was applied, increasing the investment in Inivata Preference Shares to $30 million and resulting in a $10 million present value for the loan receivable[90] - In Q1 2021, an observable transaction for Inivata Preference Shares led to a remeasurement, resulting in a net unrealized loss of $5 million[91] - As of March 31, 2021, the investment in non-consolidated affiliate was $29.6 million ($25 million Preference Shares, $4.6 million Purchase Option)[93] Note 7. Debt Details the company's long-term debt, including convertible senior notes and equipment financing obligations Long-Term Debt, Net (in thousands) | Debt Type | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :---------------- | | 0.25% Convertible Senior Notes due 2028 | $334,718 | — | | 1.25% Convertible Senior Notes due 2025 | $195,660 | $168,120 | | Equipment financing obligations | $2,772 | $3,808 | | Total debt | $533,150 | $171,928 | | Less: Current portion of financing obligations | $(2,089) | $(2,841) | | Total long-term debt, net | $531,061 | $169,087 | - On January 11, 2021, the Company completed the sale of $345 million of 0.25% Convertible Senior Notes due January 15, 2028, generating net proceeds of approximately $334.4 million[98][100] - The initial conversion rate is 15.1172 shares per $1,000 principal amount[100] - In connection with the 2028 Convertible Notes offering, the Company entered into Capped Call Transactions at a cost of approximately $29.3 million to reduce potential dilution to common stock[107] - The 1.25% Convertible Senior Notes due May 1, 2025, with a principal amount of $201.3 million, had an initial conversion rate of 27.5198 shares per $1,000 principal amount[111][113] - Holders could convert in Q1 2021 and Q2 2021, but no conversion notices were received as of March 31, 2021[114] Maturities of Long-Term Debt as of March 31, 2021 (in thousands) | Year | 0.25% Convertible Senior Notes | 1.25% Convertible Senior Notes | Equipment Financing Obligations | Total Debt | | :---------------- | :----------------------------- | :----------------------------- | :------------------------------ | :--------- | | Remainder of 2021 | — | — | $1,761 | $1,761 | | 2022 | — | — | $984 | $984 | | 2023 | — | — | $27 | $27 | | 2024 | — | — | — | — | | 2025 | — | $201,250 | — | $201,250 | | Thereafter | $345,000 | — | — | $345,000 | | Total Debt | $345,000 | $201,250 | $2,772 | $549,022 | Note 8. Equity Transactions Summarizes recent public offerings of common stock and their net proceeds - In January 2021, the Company completed a public offering of 4,081,632 shares of common stock at $49.00 per share, plus an additional 612,244 shares from an over-allotment option, generating approximately $218.3 million in net proceeds[123][124] - In April 2020, the Company completed a public offering of 4,400,000 shares of common stock at $28.50 per share, plus an additional 351,500 shares from a partial over-allotment option exercise, generating approximately $127.3 million in net proceeds[125][126] Note 9. Stock-Based Compensation Reports the stock-based compensation expense and activity for stock options and restricted stock Stock-Based Compensation Expense (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Stock-based compensation expense | $2,700 | $2,200 | Stock Option Activity (Three Months Ended March 31, 2021) | Metric | Number of Shares | Weighted Average Exercise Price | | :-------------------------------- | :--------------- | :------------------------------ | | Options outstanding at December 31, 2020 | 3,785,941 | $15.21 | | Options granted | 251,771 | $53.16 | | Options exercised | (260,167) | $8.60 | | Options forfeited | (54,296) | $19.53 | | Options outstanding at March 31, 2021 | 3,723,249 | $18.17 | | Exercisable at March 31, 2021 | 2,141,203 | $11.20 | - As of March 31, 2021, there was approximately $9 million of unrecognized stock-based compensation expense related to stock options, to be recognized over a weighted-average period of 2.20 years[129] - For restricted stock, unrecognized expense was $7.5 million, to be recognized over 1.68 years[130] Note 10. Revenue Recognition Explains the company's revenue recognition policies across its Clinical and Pharma Services segments - The Company has two operating segments: Clinical Services (diagnostic testing for pathologists, oncologists, hospitals) and Pharma Services (clinical trial services and data analytics for pharmaceutical firms)[133] - Clinical Services revenue is recognized upon delivery of diagnostic results, with billing to various payers[134][135] - Pharma Services revenue is generally recognized on a unit-of-service basis for research and clinical trial services, or at a point in time for validation studies and informatics[136] Disaggregation of Revenue (in thousands) | Segment/Payer | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Clinical Services: | | | | Client direct billing | $60,709 | $54,292 | | Commercial Insurance | $18,574 | $21,993 | | Medicare and Medicaid | $17,150 | $16,483 | | Self-Pay | $54 | $214 | | Total Clinical Services | $96,487 | $92,982 | | Pharma Services: | $19,046 | $13,048 | | Total Revenue | $115,533 | $106,030 | - Revenue recognized from Pharma contract liability balances outstanding at the beginning of the period was $2.7 million for Q1 2021, up from $1.2 million in Q1 2020[140] Note 11. Net Loss Per Share Presents the basic and diluted net loss per share calculations and anti-dilutive items Net Loss Per Share (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(22,114) | $(6,978) | | Basic weighted average shares outstanding | 116,199 | 104,484 | | Diluted weighted average shares outstanding | 116,199 | 104,484 | | Basic net loss per share | $(0.19) | $(0.07) | | Diluted net loss per share | $(0.19) | $(0.07) | - Potential dilutive shares, including stock options (2.4 million), restricted stock awards (0.2 million), 2025 Convertible Notes (5.5 million), and 2028 Convertible Notes (4.9 million), were excluded from diluted net loss per share calculation for Q1 2021 because their effect would be anti-dilutive[147] Note 12. Related Party Transactions Details transactions with related parties, specifically Inivata Limited - In Q1 2021, Inivata Limited provided $0.4 million of testing services to the Company, recorded in cost of revenue, as part of a strategic alliance formed in May 2020[151] - In January 2021, Inivata drew on a $15 million Line of Credit from the Company, which matures on December 1, 2025, with the principal payable on January 1, 2026, and bears 0% interest[152] Note 13. Segment Information Provides financial performance data disaggregated by the Clinical Services and Pharma Services segments Segment Performance (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Net revenues: | | | | Clinical Services | $96,487 | $92,982 | | Pharma Services | $19,046 | $13,048 | | Total revenue | $115,533 | $106,030 | | Cost of revenue: | | | | Clinical Services | $61,565 | $48,923 | | Pharma Services | $12,394 | $10,738 | | Total cost of revenue | $73,959 | $59,661 | | Gross Profit: | | | | Clinical Services | $34,922 | $44,059 | | Pharma Services | $6,652 | $2,310 | | Total gross profit | $41,574 | $46,369 | | Net loss | $(22,114) | $(6,978) | - Clinical Services cost of revenue for Q1 2021 includes a $5.3 million write-off for COVID-19 PCR testing inventory[157] Note 14. Subsequent Events Discloses significant events occurring after the balance sheet date, including acquisitions and equity offerings - On April 7, 2021, the Company acquired Intervention Insights, Inc. d/b/a Trapelo Health, a precision oncology IT company, for $65 million ($35 million cash, $30 million common stock)[159] - On May 4, 2021, the Company entered into a Share Purchase Agreement to acquire Inivata for an aggregate of $390 million, to be satisfied in cash and/or common stock, making Inivata a wholly-owned subsidiary[160] - On May 4, 2021, the Company agreed to sell 4,444,445 shares of common stock in a private placement for approximately $200 million gross proceeds, anticipated to close in June 2021, subject to the Inivata acquisition closing[161] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2021, compared to the same period in 2020. It covers the impact of the COVID-19 pandemic, an overview of the business segments, strategic focus areas for 2021, competitive strengths, and a detailed analysis of revenue, costs, expenses, and liquidity, including non-GAAP measures Introduction Provides context for the management discussion and analysis, including forward-looking statements - The discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and notes, and includes forward-looking statements subject to risks and uncertainties[163] COVID-19 Pandemic Discusses the adverse impact of the pandemic on operations and the company's mitigation strategies - The COVID-19 pandemic has materially adversely affected the Company's employees, patients, communities, business operations, and financial markets, impacting results of operations, volume growth rates, and test volumes in 2020 and Q1 2021[164][165] - The Company has implemented significant actions to protect employees and maintain critical oncology testing, including de-densifying labs, adjusting shifts, restricting visitors, and managing supply chains, ensuring uninterrupted high-quality testing services[166] Overview Describes NeoGenomics' business, mission, vision, and range of cancer testing services - NeoGenomics operates a network of cancer-focused testing laboratories in the United States, Europe, and Asia, with a mission to improve patient care through exceptional cancer-focused testing services and a vision to become the world's leading cancer testing and information company[168] - The Company offers a range of testing services including Cytogenetics, Fluorescence In-Situ Hybridization (FISH), Flow cytometry, Immunohistochemistry (IHC) and Digital Imaging, Molecular testing (including liquid biopsy and NGS), and Morphologic analysis[169][173] Clinical Services Segment Focuses on the services provided to pathology practices, hospitals, and academic centers - The Clinical Services segment provides cancer testing to community-based pathology practices, hospitals, reference labs, and academic centers, acting as a non-competitive partner to expand their testing capabilities[172] - NeoGenomics is a leading provider of Molecular and next-generation sequencing (NGS) testing, with NGS panels being one of the fastest-growing areas, offering comprehensive biomarker information from limited samples[173][175] Pharma Services Segment Highlights support for pharmaceutical firms in drug development and clinical trials - The Pharma Services segment supports pharmaceutical firms in drug development, offering clinical trials and research, validation laboratory services, and informatics, from biomarker discovery to commercialization[177][178][182] - The Company aims to develop companion diagnostic (CDx) tests that can be offered immediately after FDA approval through its 'Day 1 readiness program,' leveraging its broad distribution channel in the Clinical Services segment[180] 2021 Focus Areas Outlines strategic priorities for the year, including culture, quality, innovation, and growth - Key focus areas for 2021 include strengthening world-class culture through employee development and well-being, continuing to provide uncompromising quality and exceptional service by improving efficiency and turnaround times, and pursuing innovation and growth through new assays (liquid biopsy, MRD), market share gains, and strategic M&A[182][185][188][189][190][191][192] Competitive Strengths Identifies key advantages such as turnaround times, scientific expertise, and innovative offerings - Competitive strengths include industry-leading turnaround times for test results in both Clinical and Pharma Services, a world-class medical and scientific team of approximately 120 M.D.s and Ph.Ds., innovative service offerings such as extensive tech-only FISH, flow cytometry, IHC, and a broad Molecular and NGS test menu, and a national direct sales force trained in cancer genetic testing[194][196][197][198][200][201] Seasonality Explains how seasonal factors and external conditions affect testing volumes and revenue - Clinical testing volume modestly declines during summer vacation, year-end holidays, and due to extreme adverse weather conditions[202][203] - Pharma Services volume varies based on contract terms and patient enrollment rates for trials, which can also be impacted by seasonality[204] Results of Operations for the Three Months Ended March 31, 2021 as Compared to the Three Months Ended March 31, 2020 Analyzes the company's financial performance, including revenue, costs, and expenses Consolidated Statements of Operations as a Percentage of Revenue | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net revenue | 100.0% | 100.0% | | Cost of revenue | 64.0% | 56.3% | | Gross Profit | 36.0% | 43.7% | | Total operating expenses | 49.1% | 48.7% | | Loss from operations | (13.1)% | (5.0)% | | Net loss | (19.1)% | (6.6)% | - Consolidated revenues increased 9% year-over-year to $115.5 million[205] - Clinical Services revenue increased 3.8% to $96.5 million, with testing volume up 4.2%[206] - Pharma Services revenue surged 46.0% to $19.0 million, and backlog grew from $208.9 million to $217.6 million[207] - Consolidated cost of revenue increased 24.0% to $74.0 million, and as a percentage of revenue, it increased from 56.3% to 64.0%[212] - This was largely due to a $5.3 million write-off of COVID-19 PCR testing inventory and fixed laboratory costs amid volume reduction[212] - Gross profit margin decreased from 43.7% to 36.0% due to lower testing volume from COVID-19 and adverse weather, increased payroll costs, and the $5.3 million inventory write-off[214] - General and administrative expenses increased 11.4% to $40.5 million, driven by higher payroll, $0.8 million in acquisition costs, a $0.8 million write-off of COVID-19 PCR testing equipment, and $0.5 million for CEO transition costs[216][217] - Research and development expenses increased 19.2% to $2.5 million, primarily due to investments in new test development, particularly in next-generation sequencing and FDA initiatives[219][220] - Sales and marketing expenses increased 3.7% to $13.7 million, reflecting higher commissions from increased revenues, expansion of the sales team, and continued marketing investment[221][223] - Net interest expense increased $0.4 million, reflecting the effective interest rates on the newly issued 2028 Convertible Notes (0.70%) and the 2025 Convertible Notes (1.96%)[224] Non-GAAP Measures Defines and reconciles non-GAAP financial measures like Adjusted EBITDA - Adjusted EBITDA is a non-GAAP measure defined as net loss from continuing operations before interest, tax, depreciation, amortization, non-cash stock-based compensation, acquisition/integration expenses, CEO transition costs, COVID-19 PCR testing write-offs, and other significant non-recurring items[227] Non-GAAP Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss (GAAP) | $(22,114) | $(6,978) | | EBITDA (non-GAAP) | $(10,823) | $3,622 | | Acquisition and integration related expenses | $814 | $1,296 | | Write-off of COVID-19 PCR testing inventory and equipment | $6,061 | — | | CEO transition costs | $460 | — | | Non-cash stock-based compensation expense | $2,653 | $2,186 | | Other significant non-recurring expenses (income), net | $5,021 | $(30) | | Adjusted EBITDA (non-GAAP) | $4,186 | $7,074 | Liquidity and Capital Resources Discusses the company's cash position, funding sources, and future capital needs - The Company's operations have been financed through cash from operations, public/private sales of debt and equity securities, and bank debt borrowings[231] Summary of Consolidated Cash Flows (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $2,210 | $(6,933) | | Net cash used in investing activities | $(154,688) | $(41,708) | | Net cash provided by financing activities | $524,935 | $617 | | Net change in cash, cash equivalents and restricted cash | $372,457 | $(48,024) | | Cash, cash equivalents and restricted cash, end of period | $623,089 | $124,992 | | Working Capital, end of period | $874,982 | $147,793 | - As of March 31, 2021, the Company had $612 million in unrestricted cash and cash equivalents and $190.7 million in marketable securities, which are anticipated to be sufficient to fund near-term capital and operating needs for at least the next 12 months[237][241] - Capital expenditures for the year ending December 31, 2021, are forecasted to be in the range of $45 million to $55 million[242] - In Q1 2021, $15.8 million was spent on capital equipment, software, and leasehold improvements[242] Critical Accounting Policies Refers to the significant accounting policies requiring management judgment and estimates - The preparation of financial statements requires management to make estimates and assumptions affecting reported amounts, with actual results potentially differing[243] - Critical accounting policies are detailed in the Annual Report on Form 10-K for December 31, 2020, and Note 2 of the Consolidated Financial Statements[245] Off-balance Sheet Arrangements Confirms the absence of material off-balance sheet financing arrangements - As of March 31, 2021, the Company does not have any special purpose entities or other off-balance sheet financing techniques that are believed to have a current or future material effect on its financial condition, revenues, expenses, results of operations, liquidity, or capital resources[246] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, specifically interest rate risk and foreign currency exchange risk, and management's assessment of their potential impact on financial performance - The Company is exposed to interest rate risk on short-term investments, primarily investing in highly liquid, high-quality U.S. government and credit-rated debt securities with short maturities to preserve principal and maximize yields[248] - A 1% change in interest rates would not have a material effect on the fair value of the investment portfolio[249] - Operations in Switzerland, Singapore, and China expose the Company to foreign currency exchange risk from revenues and expenses denominated in Swiss Francs, Singapore Dollars, and Chinese Renminbi[250] - The Company does not hedge these risks and currently believes they are not significant[250] Item 4. Controls and Procedures This section details the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting during the quarter - Management, including the principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2021, and concluded they were effective at a reasonable assurance level[251][252] - There were no changes in internal control over financial reporting during the three months ended March 31, 2021, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[253] PART II OTHER INFORMATION Contains additional disclosures not included in the financial statements, such as legal and equity matters Item 1. Legal Proceedings This section reports on legal proceedings affecting the Company - There were no legal proceedings for the quarterly period ended March 31, 2021[256] Item 1A. Risk Factors This section refers to the Company's risk factors - There have been no material changes in risk factors from those set forth in Part I, Item 1A, 'Risk Factors' in the Annual Report on Form 10-K for the year ended December 31, 2020[257] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides information on unregistered sales of equity securities and issuer purchases of equity securities - There were no unregistered sales of equity securities for the quarterly period ended March 31, 2021[258] Issuer Purchases of Equity Securities (Q1 2021) | Period of Repurchase | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------------- | :------------------------------- | :--------------------------- | | January 1, 2021 - January 31, 2021 | 182 | $52.57 | | February 1, 2021 - February 28, 2021 | 8 | $54.43 | | March 1, 2021 - March 31, 2021 | 11,963 | $50.46 | | Total | 12,153 | $50.49 | - The shares purchased were acquired from participants in the Company's Equity Incentive Plan to satisfy tax withholding obligations related to the vesting of restricted stock, not as part of a publicly announced repurchase plan[259] Item 3. Defaults Upon Senior Securities This section addresses any defaults upon senior securities - This item is not applicable for the reporting period[260] Item 4. Mine Safety Disclosures This section addresses mine safety disclosures - This item is not applicable for the reporting period[261] Item 5. Other Information This section includes any other information not covered elsewhere - There is no other information to report for the period[262] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q - Key exhibits include underwriting agreements for common stock and convertible notes, the indenture for the 2028 Convertible Notes, the form of the 2028 Senior Convertible Notes, an employment agreement for Mark Mallon, and certifications by the Principal Executive and Financial Officers[265] SIGNATURES This section contains the required signatures for the Quarterly Report on Form 10-Q - The report was signed on May 6, 2021, by Mark W. Mallon, Chief Executive Officer, and Kathryn B. McKenzie, Chief Financial Officer[268]