Neogenomics Inc (NEO) 2009 Q1 法說會逐字稿

Greetings and welcome to the NeoGenomics Incorporated first-quarter 2009 earnings conference call.

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, Bob Gasparini, President and Chief Science Officer for NeoGenomics Incorporated. Thank you, Mr. Bob Gasparini, you may begin.

Thank you, Rob. Good morning. I would like to welcome everyone to the NeoGenomics first-quarter 2009 conference call and introduce you to the NeoGenomics team that is here with me today. Joining me this morning on the call are Mr. Douglas VanOort, our new Executive Chairman and Interim CEO; Mr. Steve Jones, our CFO; and Mr. Jerry Dvonch, our Director of Finance and Principal Accounting Officer.

Before we begin our prepared remarks, I've asked Steve to read the standard language about forward-looking statements and then turn it over to Doug. Steve?

Good morning. This conference call may contain forward-looking statements which represent our current expectations and beliefs about our operations, performance, financial condition, and growth opportunities. Any statements made on this call that are not statements of historical fact are forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements. Any forward-looking statements speak only as of today, and we undertake no obligation to update any such statements to reflect events or circumstances after today.

Good morning. This is Doug VanOort. I'm going to make a few brief comments before turning the meeting back over to Bob Gasparini to discuss the Quarter One performance.

I've been here at NeoGenomics for five weeks now, and for the most part, I've been listening and learning, spending time with our employees, with clients, and with some shareholders. It has been a good transition for me, and I remember better what I once knew -- that the lab business is a great business. It allows us to pursue a noble mission while at the same time being challenging and it is certainly filled with opportunity.

As you may know, I spent over 30 years now in business early on at Corning Incorporated, where we built two New York Stock Exchange-traded healthcare companies now known as Covance and Quest Diagnostics. Then at Quest Diagnostics, where we successfully managed a big turnaround and transformed the company into a leader in the clinical lab space and then recently in the private equity business, either with Summer Street Capital, or I'm an operating partner or with my venture firm, or on my own, where we've had great success founding and/or growing companies much the same size as NeoGenomics is today.

Now, as you might imagine, I did my own due diligence before I accepted this role. After five weeks on the inside now, I've had no surprises.

As I said to our senior leaders last week, we have an opportunity, individually and collectively, to be part of something really special here at NeoGenomics. I believe that even more now that I've been a part of the Company.

When people ask me why I joined NeoGenomics, I have sort of a simple answer. I believe in and am deeply motivated by the Company's mission, and that's to improve the lives of patients by delivering exceptional cancer genetic diagnostic services.

Now, hopefully I also have some skills and experience which can help as the Company pursues its mission. I also confess that the markets, the Company's market leadership and our ability to create enormous value also influenced my decision to join.

During the past few weeks, our senior leadership team has done some good work together to develop a roadmap for success as we enter this next phase of our development as a company. We've developed and refined a mission, a vision, core values, critical success factors and objectives for the remainder of this year. We are going to further refine this work over the next few weeks with specific goals and accountabilities, and we are going to communicate that roadmap for success throughout our organization and use it to align our activities and, frankly, to hold ourselves accountable as we execute our plans and our strategies.

So in this next phase of growth, we aim simply to do three things. The first is to maintain and solidify our foundation. The second is to add to our capabilities. Third is to grow profitably.

Now within those, there are six key areas of focus for us, each of those with a set of specific objectives and goals. The first is to promote and ensure compliance. As you all know, this is a competitive necessity in the laboratory business. Second is to develop our people and our organization; that's even more critical as we grow. Third is to establish a culture of continuous improvement, and that would be driven by process management. The fourth is to integrate and build our IT capabilities. The fifth is to grow. Sixth is to drive performance.

So over the next few months, we will make important strides in each of these areas. The bottom line is I am happy to be here and excited about the Company and its prospects. It's also good to come into the Company with some good momentum, and we did have solid Quarter One performance. To discuss that, I am going to turn it over to Bob Gasparini, our President and Chief Scientific Officer.

Thanks, Doug. Welcome again to NeoGenomics Laboratories. It's great to have you on our team.

Good morning again with a special hello to family, friends, investors, colleagues and others who have joined us this morning. Q1 of this year continued our trend of double-digit sequential quarterly growth, similar to Q4 '08 sequential growth over Q3 '08.

As highlighted in this morning's press release, our revenue for Q1 '09 was approximately $6.9 million, and on a year-over-year quarterly basis, we grew approximately 66% from the same time period in 2008. Once again, we ended the quarter in March with a record revenue month.

Q1 also saw our SG&A expenses as a percentage of revenue drop. This reduction of our SG&A expenses as a percent of revenue continues to be the biggest driver in increasing our operating leverage.

As I mentioned in this morning's press release, we continue to realize significant economies of scale on the investments we have made in personnel and infrastructure over the past year. We continue to spend our hard-earned dollars very carefully on additional sales, marketing, and infrastructure needs to strengthen the foundation for this year. The decrease in SG&A expenses and the increase in gross margin from Q1 over Q4 '08 are but two examples of the operating leverage we are finally realizing here at NeoGenomics Labs.

In the few moments I have with you this morning, I'd like to talk with you about our growth plans for 2009 and how we see the year unfolding. You've heard from Doug how we as a senior management team have refocused on our mission, our vision, and the critical success factors all of us believe will drive both Neo's growth and shareholder value.

We recognize that our future success will be measured in our ability to balance sales growth with infrastructure, our ability to continue to expand on our innovative and market-leading product offerings, and our ability to maintain our industry-leading turnaround times starting in 2009 our ability to grow profitably based on the solid foundation we've built, the economies of scale we are realizing, and the operating leverage we are achieving.

Here at Neo, you can expect us to continue investing in growth initiatives that we believe will add both short-term and long-term shareholder value. As we have discussed in each and every earnings call, we remain focused on expanding our sales and marketing efforts and choreographing the infrastructure to keep pace.

It's no secret we finished 2007 with seven sales reps or business territory managers. We finished 2008 with 14 business territory managers. Under Grant Carlson's very capable leadership, we are currently at 20 business territory managers, not counting our regional managers who, besides local, bringing local leadership to our sales team, also have their own sales accounts. Our goal continues to be to hire 3 to 5 new sales team members at the beginning of each quarter in '09, and to finish the year at approximately 27 to 30 business territory managers.

We are starting to realize the Neo vision of becoming America's premier cancer testing laboratory by delivering uncompromising quality, exceptional service, and innovative products and solutions. We've been very conservative getting to the end of Phase I of our development, and as we enter the next phase of the Company's development, all of us here are focused on both our vision, as described, and our mission, which quite simply is to improve patient care through exceptional cancer and genetic diagnostic services.

For those who have been with us for the last four years as we grew steadily and deliberately, I thank you for your patience and support and being with us as we completed the first phase of Neo's growth.

Well, it's national laboratory professionals week across the United States, and today is a special day for our company. I want to thank you for your attention thus far this morning and will turn the call over to Mr. Steve Jones to review our financials in detail for Q1 '09. Steve?

Thanks, Bob. I will start by reviewing some of our financial and operating metrics.

During the first quarter, we reported total revenue of approximately $6.9 million, a 66% increase from Q1. On a sequential basis, revenues increased by $1 million or 16.8% from Q4, which is the largest dollar sequential increase in revenue in our history. The total number of cases processed in Q1 '09 increased by approximately 42% to approximately 7700 from 5400 in Q1 '08. Average revenue per requisition grew by 16%, 16.9% on a year-over-year basis to $900 in Q1 '09. This was driven mostly by the increase in flow cytometry testing as a percent of our overall revenue.

In Q1 '08, flow cytometry was approximately 16% of our revenue, whereas in Q1 '09 flow and increased to approximately 27% of our revenue. As we've discussed before, flow cytometry has the highest average revenue reimbursement of any of the tests we perform, so when it increases, all of our averages go up.

The total number of tests processed in Q1 '09 increased by 55% from Q1 '08 to approximately 10,500 tests. Average revenue per test increased by 7.3%, to $661 in Q1 '09 from $616 in Q1 '08. On a sequential basis, average revenue per test increased by approximately 6% from Q4 '08.

As mentioned in the press release, during the quarter, we saw the benefit of the 2009 Medicare price increases. Based on our mix of test types and our blend between technical component-only and global testing services, we saw an approximate 8% to 10% increase in our average Medicare reimbursement per test.

The Medicare increases for 2009 include some nice increases in the technical component of FISH testing and flow cytometry testing, which are two of our key sweet spots. But because these tests are such a large part of our overall mix, we probably benefit more than other labs in terms of the overall impact to our business. We estimate that about 85% of the overall increase in average revenue per test in Q1 from Q4 was due to these Medicare price increases, and the rest was from changes in our mix.

During the quarter, we performed 1.36 tests for case on average, which is an 8.8% increase over the 1.25 tests per case we performed in Q1 '08. As we have discussed before, this all-important number allows us to get more operating leverage in our business as it increases, since we have lots of costs such as transportation and accession that are relatively fixed for each case. Thus if you can do more tests per case, we get better lab efficiency.

As discussed in the press release, our gross profit margin increased to 55.3% in Q1 '09 from 53.1% in Q4 '08. This resulted in a 21.6% sequential increase in gross profit despite the fact that revenues only grew by 16.8% sequentially. On a year-over-year basis, our gross profit margin was essentially unchanged from where it was in Q1 '08.

SG&A expenses for the quarter were approximately $3.7 million for Q1 '09, a 4.3% decrease from the $3.8 million recorded in Q4 '08. However, as discussed in the press release, if you were to normalize the Q4 '08 SG&A with the approximately $518,000 of write-offs of previously capitalized items, our SG&A expenses increased by approximately $354,000 or 10.7% relative to Q4. Approximately 90% of these SG&A increases were for further investments in our sales and marketing activity. Indeed, Bob mentioned we are now at 20 sales reps, whereas we finished the year last year at just 14. So you can see the investments we are making there.

As a percentage of our revenue, our SG&A expenses fell to 53.2% in Q1 '09 from 56.1% in Q4, after adjusting for the write-offs. The reduction of our SG&A expenses as a percent of revenue continues to be the biggest driver in the increase in operating leverage in our business.

As we have discussed previously, you need to get to about $2 million to $2.5 million in monthly revenue in our niche of the business to drive any real operating leverage. Now that we are at this level, we can continue to invest a lot more into sales and marketing activities without materially impacting our bottom line. Indeed, with a 55% gross margin, we should be able to reinvest $0.30 to $0.35 of each incremental revenue dollar into sales and marketing initiatives and still drop some profit to the bottom line.

Net interest expense in the first quarter increased to approximately $115,000 from $55,000 in Q1 '08. This was primarily due to interest associated with the increased balance on our working capital facility with Capital Source and to a lesser extent on increases in the amount of capital leases we have outstanding.

Net income for the quarter increased by approximately $298,000 to a net profit of $33,000 or $0.00 per share from a loss of $265,000 or $0.01 a share in Q1 '07.

Depreciation and amortization for the first quarter was $237,000 and EBITDA was $385,000. However, if you were to further adjust our EBITDA for the $78,000 of non-cash charges related to stock-based compensation and warrant amortization, our adjusted EBITDA for the quarter would have been approximately $463,000. Moving forward, we expect our stock-based compensation to continue to go up this year as we have made several key hires and issued a substantial number of warrants and options.

We finished Q1 with 137 full-time equivalent employees and contract doctors, up from 119 at 12-31-08. Our Accounts Receivable balance expressed in terms of Days Sales Outstanding increased to 51 days at March 31 from 45 days at December 31. However, if you were to adjust this number for the approximately $500,000 we have held up in the Medicare appeals process, our DSO would have been approximately 45 days or unchanged from the number at December 31, 2008.

I have received a few calls this morning asking for more clarity about the Medicare appeals process ongoing. The first thing you need to understand is that this is something that is happening nationally; it's not just something that happened to NeoGenomics. There is something known as "medically unlikely edits" that Medicare has the right to do where they can cap certain numbers of procedures that are done. They basically put in a bunch of medically unlikely edits across the board on a number of different tests, not just the ones we focus on. We got hung up in a certain amount of these in the January and February timeframe. We've actually changed around our billing procedures and other things so that we are no longer getting hung up in it now.

The most important thing you need to understand here is that everything we do at NeoGenomics is medically necessary. We get that from the doctors, all of the tests we perform as deemed to be medically necessary. So the centers for Medicaid and Medicare Services has actually been in conversation with huge industry groups, like the College of American Pathologists and the American Clinical Laboratory Association, and there is recent developments that they have now suspended these medically unlikely edit procedures they've done while we work through this. But everybody has been affected. We believe and we've been told that we should expect to receive full reimbursements as we go through the appeal process, certainly because we have medical necessity already demonstrated in these tests. So this is really not an issue other than a timing issue for us.

We did book the revenue as expected revenue the way we would normally. As a result of that, it did hit our Accounts Receivable. But because we didn't collect on the Accounts Receivable, our working capital was -- affects our cash flow from operations.

So we think this will begin to work itself out here in Q2. It may spill over into Q3. From what I understand, they have 120 days to initially respond to each appeal. We've started to hear on some of those already a little bit early, but this is just going to be an ongoing process. So, we are not overly concerned about it and we hope everybody will have the right context for it when they are thinking about this.

Moving on to our liquidity, in terms of our overall liquidity, as of March 31 '09, we had $857,000 of cash on hand, about $1.587 million available to us under our credit facility, approximately $600,000 available to us on our CapEx lease line, and $8 million available to us under our stock purchase arrangement with Fusion Capital which allows us for future stock purchases.

Our immediate liquidity, which we think of as the sum of our cash on hand plus our growing capacity under the credit facility, increased by approximately $1.00005 in Q1 to $2.437 million. So we are not really in the mode where we are looking for any equity capital or anything like that. I get calls every week from a number of institutional buyers looking to place equity with us, and it is a great thing and people are offering us money now that we don't need it, but I guess that's the way it works in this industry.

At this point, I would like to close down our formal remarks and open it up for questions. Incidentally, if you are listening to this conference call via webcast only and would like to submit a question, please feel free to e-mail us at IR@NeoGenomics.org -- again, IR@NeoGenomics.org -- during the Q&A session. We will address your questions at the end if the subject matter hasn't already been addressed by our other call-in listeners.

Operator, you may now open up the call for questions.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Boris Peaker, Rodman.

Good morning, guys, and congratulations on a great quarter.

I have just a couple of questions. I'd like to understand, from the Days Sales Outstanding, if we put this $500,000 aside for a second, and you said you are around 45 days, so are there ways to improve that with a billing system upgrade or some kind of efficiencies in the processing paperwork?, or do you think that 45 days is about as good as it can get?

Boris, thank you. It's great to hear from you again. You know, I want to be careful in the way we answer this. 45 days is currently the best in the industry, including some of the bigger labs, and so I don't think it's going to get much better from here.

I did say, on the last call, that we should -- investors should expect that it will probably normalize out into the 50 to 55-day range. So you know, I think, as long as we can keep it under 55 days, we are going to be fairly pleased with that. It's a huge plus to have it under 50 days because it dramatically reduces the amount of cash we need.

So our billing team continues to do a great job, and I love them to death, but I don't think I could ever stress them out again by asking for even more improvements based on what they are currently performing.

Okay, that sounds great. My other question is how long does it typically take for a new salesperson to ramp up to some kind of a plateau? Like, what is the ramp in terms of sales?

Boris, this is Bob. Typically, when we hire a new sales rep, of course we are hiring with as much industry experience as we can find. What we've seen start to happen across the United States is that more and more companies are locking down their sales reps with non-competes, so as we move into sort of the related areas, the pharmaceutical area or something, we don't expect immediate performance.

The way that we forecast their contribution is that, for the first two months, we anticipate no additional revenues from them. In the third month, we anticipate 50% of their target goal, and by month four, we expect them to be at 100% capacity. So four months is probably the short answer to your question, but there is a ramp-up getting to that four months that we anticipate.

What is the target for -- generally?

We have various goals for each of the sales reps based on their level of experience. We've actually divided the sales team categorically into the junior reps, the intermediate reps, and then the senior reps. Their goals range from a low of $10,000 of new business a month to a high of $15,000 of new business a month.

Okay. All right, well, thank you very much.

Raymond Myers, Emerging Growth Equities.

Thank you. Good quarter. First, what drove the increase in the first-quarter number of tests per case to 1.36?

Ray, since opening the California hem initiative last year, we've had a modest, actually a decent increase in the leukemias and lymphomas cases as a percent of the overall total. As you probably remember, leukemias and lymphomas we can get up to four tests per case. So we are seeing -- and that's part of why our flow cytometry is increasing so nicely on a year-over-year basis, because we've just got more hematology/oncology cases coming in the door as opposed to, for instance, the bladder cancer cases which are, by their very nature, just one test per case arrangement. So a lot of that just has to do with the fact that we spent a lot of money on the California hem Path initiative and we've been bringing on more reps, and the reps are much more focused on not just selling to pathology accounts but also selling directly to hematology/oncology accounts.

Great, well, it's a good trend.

Ray, I might qualify that or add to that also, and that, is as we see the number of hematologic specimens come in, we are also not as focused as much on the urology area. So the leukemia and the lymphoma samples are growing faster than the urology samples. So the urology is really the drag on that because it is always one test by the nature of the disease and by the nature of the technology that is available to us. So it is a significant part of our mix, so we include all the urologies, but it would be a very different number if we didn't include the one-shot test like bladder cancer testing.

Right. Good. I assume you would expect that to continue, the ratio to increase?

Yes.

So the increase, the faster growth in the lymphoma/leukemia?

That is 100% correct.

Great. I wanted to review your expectations for case volume growth in 2009.

Sure. Steve, do you want to --?

Yes. Well, as you know, Ray, we don't really give out guidance on either revenue or operating metrics like that. You know, we would tell you that we expect it to continue to grow nicely, because we are hiring a lot of sales representatives, but at some point in time, the size of the company that we are will just by, through our nature, cause the growth rate to go down a little bit.

You know, at this point in time, we haven't given any real specifics around guidance on case counts or test counts or revenue. There are a number of analysts in addition to yourself that cover us. Everybody seems to be in the $30 million to $32 million of revenue. If we felt that we needed to go out and publicly correct expectations with respect to that, we probably would.

Okay, great. Then the question kind of flows into seasonality. Can you describe the seasonality? I know that the third quarter tends to be the weakest quarter, but how does the summer seasonality affect the tail end of Q2?

We do begin to see some seasonality in Q2. I would say most of the Florida snowbirds that are going to leave have left by the end of April, so we start to see it in May and June. In Q1, for instance, I believe Florida was about 43% of our revenue. I'm doing this from memory but in Q3 last year, Florida was about 34% of our revenue. So you can see how it trends from the high quarter to the low quarter.

I will tell you that, last year in Q3, our Florida-based business decreased by 15.9% sequentially from Q2 and our non-Florida-based business increased by 17%. So, when you look at it in that context, we only had 3% sequential growth from Q2 to Q3 last year, but when you look at it through the lens of separating out Florida from non-Florida, you begin to get a better picture on things.

The good news is, as we hire more sales reps, most of those are going in states outside of Florida. That seasonality will continue to get less and less each year as the rest of the business grows.

Right. I would like to dovetail on that, Ray, and that is just what Steve just said. Last year, we had basically two business territory managers in the state of Florida. We had just hired a third new business territory manager that had started in June of last year. This year, we have three. So we have increased our Florida sales focus, however disproportionate to the increase in sales focus around the rest of the country. So we absolutely expect that the decreases because of the population decreases in Florida will be moderated by the increases that we have in terms of feet on the ground around the rest of the United States.

Right. But how should we think about the trend? It would seem to me that the growth trend would moderate in Q2 and then moderate more dramatically in Q3. Is that kind of the right way to think of it? Only for Florida?

Yes, that is, for the Florida-based business, that is correct. We will see some seasonality in Q3 of this year.

In terms of Q2, we really haven't given any guidance, but based on the way things have happened in previous years, it is unlikely that we will grow as fast as we did on a sequential basis in Q1.

Right. But you would still expect to grow?

Oh, absolutely, yes.

Great, great. Is the 55% gross margin that you had here in the first quarter -- it was a great number -- is that due to any unusual factors, and is it truly sustainable?

It is not due to any unusual factors. We are going to be hiring more doctors. I will tell you that the lab, there was less complaining in the first quarter of this year than I've seen in a few quarters. We've done a good job in hiring to meet the demand, but this is the kind of thing that is a pretty finely tuned choreography that you've got to go into, and you really can't ask your people to perform overtime on a sustained basis. As we get bigger and bigger, it becomes a lot easier to add expensive doctors into our mix without it having a bigger impact in the gross margin.

I would tell you we are pretty comfortable around the 55% margin area, but in quarters like the third quarter where we have to continue to increase staffing and revenue growth slows, you might see some impacts. But that 55% margin number is a number we think is a pretty good overall goal, understanding there may be some blips up and blips down in various quarters.

Okay, that sounds good. Then could you review your fully diluted shares outstanding? I saw that it declined from the last quarter that you were profitable; I believe it was Q2 last year. You had 38.2 million fully diluted shares. I presume that is because your share price is lower.

Exactly. If you remember, under GAAP, the way you calculate fully diluted shares outstanding is to use something called the treasury stock method, which effectively says you take the aggregate exercise prices for all of the options and warrants that are in the money and you purchase shares back at the average price over the period being measured. And so because our average share price during Q1 was probably somewhere in the $0.90 range, it was going to result in less money to purchase shares back and is going to result in less options and warrants being in the money whereas, in Q2 last year, if I remember correctly, you were probably in the $1.35 area and we just got caught up in the market meltdown.

I'm glad you did bring up the fully diluted shares outstanding. I get calls and questions about this all of the time.

In terms of where we are as of March 31, our shares outstanding was about 33 million, just 33.056 million. We have options outstanding of about 4.86 million. We have warrants outstanding of 6.5 million, for a total of 44.4 million fully fully diluted shares, not taking into consideration the treasury stock method.

So, with your stock price being similar to -- currently similar to where it was in the second quarter last year, would you have -- it looks like it would be up a couple of million, so around 40 million.

You know, it is such a hard number to predict, but I would tell you 40 million may be conservative. I am thinking more like 39 million, but it depends on where -- if our stock price went up to $2 during the second quarter, it could very well get to 40 million.

Well, that's a good note to leave it off then.

(Operator Instructions). Nancy Hull, Ladenburg Thalmann.

Really nice quarter. A couple of things I wanted to -- one point of clarification on your comments with regard to the Medicare issue. So you stated that these edits now have been suspended, so I can assume then that going forward, barring that they are I guess reinstated, that this shouldn't be an issue in future quarters once you clean up the current denials. Is that correct?

Yes. My understanding is that there is guidance on the CAP website that they have been suspended, but it depends state by state in the regulating agencies for each state, whether they have been actually suspended. So I think the words we use is some of these edits have now been suspended or something like that.

We have modified the way we are billing things so that we won't get hung up in this. So it's not going to be an issue for us any further. We believe that we've really got it focused in on the stuff that got denied in kind of the January and February time frame. I think we made our final modifications in early March. We are starting to get paid on the submissions we made after modifying our procedures.

So, while I don't believe we will be hung up in it further, Medicare is a hugely important customer of ours and we can't predict what they're going to do any more than anyone else. We are doing our best to work through it diligently and quickly, but rest assured we're not going to do anything that would ever jeopardize our relationship with Medicare. You know, if they need us to do something differently, we are going to do it.

Okay, all right. But it sounds like you've addressed this issue with modifying your procedures, so it doesn't sound like it should be something that we should be overly concerned about resurfacing in (multiple speakers).

I think that's right, but again, you know, I just can't be certain in terms of sort of the underlying question that Medicare is trying to get at, and they did it in a very gross and crude way, which is reducing the number of, for instance, flow antibodies you could build for. You know, they sort of make an assumption that anything more than XYZ number is medically unlikely. In all of our tests, we always have medical necessity established with our customers, and that's an important aspect of this thing.

Okay, thank you. So you have some really nice improvements in revenue per requisition and revenue per test, quite a bit higher than I had modeled, actually. So, how should we think about those two items directionally going forward? Is specifically the I guess revenue per requisition sustainable as the IHC test ramp?

Here's the way I think about it, and I will tell you this is a hard thing to project because it all depends on our mix. Hematology/oncology accounts and tests are an incredibly important piece of our business, and we're going to continue to focus on those. So that will generally cause that average revenue per requisition and average revenue per test to go up. However, offsetting that is we did bring up immunohistochemistry and molecular testing last year in-house, and those are generally lower price per test and lower price per requisition. So you're going to have two offsetting factors here.

I believe that, as our IHC test continues to grow in volume and we get a good number of those -- those are growing pretty rapidly at this point -- that will begin to be a moderating influence on some of the other things.

So I'm not sure that, if I was modeling us, I would put in a lot more increases in those numbers for this year. Indeed, we may even see them start to stabilize and trend backwards a little bit.

Okay, good to know. That was in line with my thoughts.

One question on the cash flow statement -- what was the source of the $726,000 provided by financing activities? It just doesn't sound like you drew anything down from your Capital Source credit facility.

Great question. Well, we are very fortunate that our new Chairman and Interim CEO, Doug VanOort, wrote a $500,000 check on the way into work on his first day of work at NeoGenomics, which is --

Doug, it usually works the other way! (Laughter)

Yes, a pretty good indication of his views about the value proposition in NeoGenomics. Then we issued 300,000 shares of stock to finish the purchase of some assets which we had all but finished last year. We had just had never signed the final paperwork. We bought the assets of two small pathology labs, and that was the way in which we brought up immunohistochemistry. We just were waiting on some audit numbers and some other numbers from the other side and we finally got all of that and were able to close that. So we closed that transaction and issued those shares. At the time we issued that stock, I don't even remember what the stock was trading, like $0.65 or something, so you valued the stock at whatever the value was when it was issued.

Then we have a small number of shares, anywhere from 5,000 to 10,000 shares, that goes out each month in our employee stock purchase program. That's really it. I don't think anybody exercised any options in Q1.

Okay. One last question -- any change on your thoughts on potentially opening a fourth lab sometime in '09?

You know, the way we think about that is we sort of like being profitable. We like having our SG&A being able to leverage.

Opening a lab is part of our plans, and it is something that we think will be important to NeoGenomics. But it hasn't held back our growth yet. We are able to service all of our Northeast-based business pretty well the way we are currently doing things.

We look at this a lot of different ways, as I mentioned on the last call. We came close to buying a company last year to kind of get at that. But we want to do this in a way that doesn't result in a huge hit to our SG&A and make us go unprofitable again. We want to do this deliberately and at the right time.

So it's not the type of thing that it's a goal that we have to do because there is a critical, urgent need not being met right now. But it is the type of thing that we're going to do because it is going to opportunistically allow us to address the needs of our Northeast-based customers better.

But you know, a lot of things are going into that and we haven't really talked much about any of that. But if we don't do it in 2009, it shouldn't be viewed as anything negative. It should just be viewed at as we weren't at the place where we were ready to balance all of the things I just discussed and make a move on that.

I think, if we have not done it by the end of 2010, then you might start to ask a lot of questions. But we're not going to do it just for the sake of doing it. We're going to do it deliberately and with a lot of thinking that goes into (inaudible).

Doug or Bob, do you want to add anything to that?

Nancy, this is Bob. I think that the short answer to your question is no, our philosophical approach to having a fourth laboratory has not changed but as Steve said, with an eye on the bottom line and with an eye on profitability and consistent with our mission of being able to deliver exceptional service. When it gets to a point that we cannot -- that we can better serve our customers in a geographic area than we do now, that would be the time to be able to pull the trigger on setting up an operation in that area.

Okay, understood. Thank you.

Gentlemen, there are no further questions by the phone at this time. Do you have any further comments?

We have a few questions that have come in by e-mail. The first one is where do you see things going on the personalized medicine front and how your clinical trials group is doing? Are there any developments there worth mentioning/updating us on? Bob, do you want to handle that?

Well, sure. I mean, that is a huge question. We could spend a half-hour talking about personalized medicine, but we won't.

If I can -- Reader's Digest, in answer to that question, I mean the concept of personalized medicine is here to say. We are seeing it in the lay literature and we are seeing it in the scientific literature, where we are focused more on predictive medicine. That is the ability to give a clinician an answer to his or her question that is beyond just what is the diagnosis of this particular disease and how good or how bad is this particular cancer?

The predictive question that we answer in the era of personalized medicine is what therapy or combinations of therapy will my patient respond to?

Now, consistent with operationalizing that, or applying that, we certainly have our battery of genetic tests that we do, many of which are predictive in nature. It's gotten to a point now where the ability to diagnose and prognosis is expected and picked up along the way, and the ability to predict patient response to therapy is really where we are at now. As you see, not only with NeoGenomics laboratories but with any other laboratory new test that comes about in the United States, it most definitely should be or needs to be or will be predictive in nature, or there's really not that much room for it.

Consistent with that, the contract research organization has really started to grow and expand. Although we don't give guidance for any of our divisions or even for our company as a whole, we can say that it has grown significantly since the same time last year.

Our focus remains being able to offer our state-of-the-art genetic test that we offer to biopharm or to the contract research organizations that are established in large that don't have genetic testing services available to them, at least internally.

What has really come about is that we've seen an increased need for what I call exotic technologies or exotic tests. That is the customers that are coming to us are not necessarily looking for the meat and potatoes-type laboratory technologies and tests that we offer -- as sophisticated as genetic tests might be -- because they want designer tests. They want designer tests or what I call "exotics" for their particular therapeutic that they have in clinical trials or in their pipeline. The contract research organization was built with one of that, with that goal or with that foci as one of its goals. So we have the ability to develop and to design new tests to meet the needs of the customers or the clients that come to us.

Consistent with that, should some of these pan out, NeoGenomics laboratories would be in a position, contractual-wise, to be able to capitalize on the relationship that we have with biopharma and be first, if you will, to market with that type of a test.

So, sorry if I stayed but again, consistent with not necessarily giving guidance on our division or our company, the contract research organization is here to stay, and it is a contributing member in the revenue family here at Neo.

Okay, I've got another question here that doesn't appear to have been addressed. What are the Company's plans for a full listing with one of the accepted markets? What steps will be necessary to gain a full listing? By that, I assume the questioner is referring to the exchanges.

As most people may know, the general course of action -- there's two courses of action that people that are on the bulletin board use to go up to a nationally recognized exchange. They use the American Stock Exchange or the NASDAQ small-cap market. They each have different listing requirements. I think our view is that we are not going to do any gymnastics to get there, like reverse-splitting our stock in order to get to a minimum share price requirement. The last time I looked at this, the NASDAQ small-cap market had a requirement of a $4 share price and a $75 million unaffiliated float. So we've got a ways to go before we go up to that market. Having said that, it is definitely something we would like to do. It is something that will help give the Company more visibility in the institutional investment community. You know, it is something that we will do at the appropriate time, but it is not something we're going to do a lot of gymnastics on just for the sake of doing. It does increase our cost of compliance substantially when we go up. We're going to have to start doing things like proxy reports and all kinds of things that we don't currently have to do today.

So, at the end of the day, we are fine where we are and we will do it as soon as we can, but it's nothing we're going to really try to do right now quickly.

Then I've got one more question that just came in while we were talking. Can you speak to the expectations of additional distribution, shipping, etc., and potential growth through additional labs in new regions not currently representative, therefore targeting a larger footprint?

Well, we sort of have gotten at that already with the talk about the Northeast. I guess I would just say that all of our geographic footprint expansion decisions are colored through lots of different variables. Where are their concentrations of customers? Are there key doctors that we would like to move in there? Can we get technologists into that place? Are there academic centers there that we can partner with to do interesting new work on? Lots of things.

We are pragmatic. We designed our business model to be flexible and to be able to react quickly to opportunities as they come up. We have terrific IT systems.

The good news is we are not kind of stuck in that big, large, mega-home laboratory mindset that a lot of the other laboratories operate with. We can put a lab up wherever we need to within six months. It is just getting a license is a real issue.

So at that, Bob, I will turn it back to you. I think we are done with the Q&A.

Okay, this is Bob. Before we sign off, I would like to take a moment to once again recognize all of the NeoGenomics team members here in Florida, around the United States, for their dedication and commitment to building a world-class, cancer genetics testing program. This recognition is particularly important during today and this week, which is National Medical Laboratory Sciences Week.

At the end of Q1, we were 137 team members strong, up from the 5 of us here when I got here in late 2004.

One of the more gratifying aspects of the position I have here is to be able to work with and interact with professionals at NeoGenomics whose philosophy for our cancer patients truly is "when time matters and results count".

On the behalf of all of us here at NeoGenomics Laboratories, I'd like to thank you for your time in joining us this morning on this Q1 2009 earnings call. For those of you listening in that are investors or thinking about investing in Neo, I'd like to thank you for your confidence in us as we continue to drive shareholder value in 2009.

We will look forward to talking with you at our Q2 2009 earnings release, which should be around the end of July or early August. Good-bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.