Neogenomics Inc (NEO) 2012 Q2 法說會逐字稿

Greetings, and welcome to the NeoGenomics second-quarter 2012 financial results 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, Doug VanOort, Chairman and Chief Executive Officer for NeoGenomics. Thank you, sir. You may begin.

Thank you and good morning. I would like to welcome everyone to NeoGenomics' second-quarter 2012 conference call and introduce you to the team that is here with me today. Joining me this morning are Steven Jones, our Executive Vice President for Finance; George Cardoza, our Chief Financial Officer; Fred Weidig, our Director of Finance and Principal Accounting Officer; Jerry Dvonch, our Director of External Reporting; and Rob Horel, our Vice President of Sales and Marketing. In addition, Dr. Maher Albitar, our Chief Medical Officer, is joining us from Irvine, California by phone. Bob Gasparini, our Chief Scientific Officer, is traveling on business today and unable to join us.

Before we begin our prepared remarks, Steve will read the standard language about forward-looking statements.

This conference call may contain forward-looking statements which represent our current expectations and beliefs about our operations, performance, financial condition and growth opportunities. Any statements made on this call that are not statements of historical fact are forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control.

Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements. Any forward-looking statements speak only as of today, and we undertake no obligation to update any such statements to reflect events or circumstances after today.

Thank you, Steve. I will begin our call today with some brief remarks about our results for the second quarter and then comment on a variety of ongoing and upcoming initiatives that support our strategies of volume growth and operating productivity. I will then turn the meeting back over to Steve to discuss our financial results in more detail.

NeoGenomics performed very well in the second quarter. Revenue continued to show strong year-over-year gains. Service levels remained outstanding. Productivity improvements were very strong. And we generated solid incremental earnings despite making significant investments in future growth initiatives.

Revenue for the second quarter was a record $15.6 million, an increase of $5.1 million or 49% compared with last year's second quarter. Test volume grew 57% compared with last year's second quarter, driven by strong growth in our core business and by significant expansion of molecular and immunohistochemistry testing.

As you know, our test volumes grew rather dramatically from quarter one of last year through quarter one of this year, averaging a sequential growth rate of almost 17% over each of those four quarters. We expected sequential growth to slow in the second quarter of this year as a result of redirecting our sales force to prepare for the TC Grandfather issue and to normal seasonal patterns. Overall, we are pleased with our 9% sequential growth versus quarter one.

Our operations generated significantly more EBITDA than ever, with adjusted EBITDA of $1.9 million in the second quarter compared with $500,000 in quarter two of last year. Bottom line, we earned $0.01 a share as productivity improvements drove solid incremental earnings despite the significant growth investments we made.

I would like to comment now on results from some of our growth initiatives. Volumes grew over last year in all types of testing we perform. Expansions into molecular and immunohistochemistry are paying off, as volumes of both tests doubled over last year, driven by strong demand, the introduction of 20 new molecular tests and over 60 new IHC antibodies added over the last several months.

The expansion of our service offerings, many at the request of customers, has also driven the growth of our long-time offerings like cytogenetics and FISH, allowing both to grow more than 50% year-over-year. Our expanded test offerings are helping us to attract new customers and allowing us to offer more to our existing customers.

Molecular testing has been an area of focused investment for us. In recent months, we have added many talented scientists and technologists and refocused our efforts under the able direction of Dr. Maher Albitar, our Chief Medical Officer. As a result of these investments, we are rapidly developing one of the most advanced molecular labs in America.

We announced yesterday that we expect to launch yet another 15 to 20 molecular assays by year end, and we are just starting to roll out our new NeoTYPE cancer profile panels. We believe there is an urgent need for these types of panels to more fully inform which therapeutics may be most effective for patients. These panels will use a combination of testing modalities and are expected to be reimbursed at a relatively high level, as they provide even greater value to our health care system.

We also continue to invest heavily in immunohistochemistry. In addition to adding more than 60 new IHC antibodies over the last several months, we recently launched a new advanced digital image analysis product that we offer on both a global and technical-only service basis.

Our drive for excellence in each of our laboratories also included investments in flow cytometry, where we have been transitioning to a more advanced 10-color instrumentation. In June, we began offering 10-color Flow as a global service, and we are now beginning to introduce 10-color Flow Cytometry also on a technical-only basis. As one of the first labs in the United States to offer 10-color Flow Cytometry, we expect this more advanced platform to be well received by our clients.

We are also leveraging the powerful support vector machines technology we licensed from Health Discovery Corp. to increase the performance characteristics of existing tests, develop new tests and increase the internal productivity of our testing. We remain very excited about these development efforts and initiatives and expect to begin launching the first products using this new technology later this year.

These variety of investments and growth initiatives are designed to expand our service offerings and keep us at the leading edge of technology. We also believe they will serve to increase the stickiness of our client relationships even further and enable NeoGenomics to become a comprehensive one-stop shop for all our clients' cancer-testing needs, and help us continue to drive revenue growth in the second half of 2012 and into 2013.

I have a few brief remarks to make regarding our operations. Our service levels continued to be excellent in quarter two. In fact, based on our process measurements, we experienced the best operational performance ever in the second quarter.

And we continue to focus on improving our processes. We have best practice teams working to improve our core processes and reduce our laboratory testing costs. And while investments in laboratory technology, information technology and operational excellence have affected costs in the short-term, we fully expect these investments will allow us to continue to increase productivity and reduce costs in coming quarters.

In fact, our laboratory productivity has never been higher. With volume up about 25% since the beginning of the year, our total employee count is up only about 12%. During the first half of this year, the number of tests processed per lab employee has increased by over 15% compared with the end of last year, and the average cost per test has decreased by 9%. Those gains helped us to improve our gross margins from 44.5% to 47.2% in the quarter, and productivity gains helped us to translate almost 30% of our incremental revenue growth to incremental adjusted EBITDA.

We expect to gain additional productivity and operating efficiency as the year progresses. For example, we are now just implementing bar-coding and scanning technology in our lab operations. This initiative will allow us to streamline processes by identifying and correcting operational bottlenecks and will accelerate our efforts to become a lean laboratory.

The combination of volume growth and process improvements is already having an impact. As we announced this morning, both our molecular and IHC labs turned profitable in the second quarter. In the future, we expect these laboratories will start to contribute to our gross margin and overall profitability.

I would like to give you a brief update now on the TC Grandfather situation. During our last conference call, I commented extensively on the TC Grandfather Clause expiration and the impact it might have on our Company and industry. Since then, we have worked hard to take a leadership role in Washington, with our hospital clients and within our industry to educate, prepare for and potentially extend this legislation on a permanent basis.

Although this has been a time-consuming effort for our management and sales teams, I believe we have done a very good job helping our clients understand and prepare for the impacts. As a positive consequence of this situation, we are now better positioned to execute a more disciplined pricing strategy and more productive client relationships. It has been truly gratifying to see and hear how loyal and thankful our hospital clients have been for our help in this process.

We are still expecting a 5% to 8% decrease in our overall average unit price test -- per test beginning in the third quarter, and we still believe we can absorb this price reduction over the next few quarters as we continue to drive increases in productivity and operating efficiency.

As we look ahead, we believe that this industry remains an exciting place to be. Industry dynamics are changing at a rapid pace, and we are positioning ourselves to take advantage of these changes. As hospitals, pathology groups and competitors reposition themselves in this changing marketplace, NeoGenomics' strategies and goals are clear and consistent. We want to be the leader in cancer genetic testing. Right now, we believe our key laboratory disciplines in cytogenetics, FISH, flow cytometry and molecular testing are among the very best in America. And we continue to invest to make them even better.

I'll summarize my remarks in the following way. All in all, we were pleased with the Company's performance in quarter two. We are making excellent progress in building and developing our Company through investments in a variety of initiatives that will drive further growth and productivity. We remain very pleased and proud of our Company's quality and service levels and of our people. And as a team, we continue to be excited about our Company, our prospects, and we are intensely focused on continuing the growth momentum in the coming quarters.

Now I will turn it over to Steve to comment more fully on our financial results.

Thanks, Doug. I will start by reviewing some of our financial and operating metrics and then we want to open it up for questions. Since Doug has already reviewed our revenue metrics, I will start with our operating metrics.

The total number of tests reported in the second quarter increased by 57% over Q2 last year. Average revenue per test was $541, a 5.1% or $29 decline from the $570 recorded in Q2 last year. This decrease was almost entirely due to a continuation of the shift in our revenue mix that we discussed in Q1. Lower-priced molecular and histology tests now make up a greater percentage of our total revenue, and higher-priced flow cytometry tests have decreased as a percentage of revenue over the last year. Molecular and traditional pathology testing are now the fastest-growing components of our revenue mix.

Gross margin improved by approximately 270 basis points in the second quarter to 47.2% from 44.5% in Q2 last year. This improvement came despite the reduction in unit prices I just mentioned and is directly attributable to the improved lab productivity compared with the second quarter of last year.

Our average cost of goods sold per test decreased by $31 or 9.7% in the quarter compared to Q2 of last year. Thus, when netted against the average revenue per test decrease, we still had an increase in average gross margin per test. The biggest single component of this margin increase came from increases in productivity per lab employee. As Doug mentioned, we had a 15.4% year-over-year improvement in the number of tests completed per lab FTE from Q2 2011. We also saw nice reductions in our contract labor, lab sendouts and logistics costs in the quarter.

Turning now to SG&A, total sales and marketing expenses increased just $250,000 or 15% from Q2 last year, despite the $5.1 million increase in revenue. Put differently, this increase in sales and marketing expense was just 4.8% of the incremental year-over-year revenue growth.

R&D expenses in the second quarter increased by $356,000 from Q2 2011. This increase was directly related to the significant increase in our molecular test expansion activities and the new product development initiatives associated with our licensing agreement with Health Discovery Corp. As we discussed in the press release, we expect to bring up another 15 to 20 new molecular assays this year. Thus, we expect our R&D spending to continue on a similar pace for the balance of the year.

The remaining general and administrative expenses increased by $1.15 million or 40% from Q2 last year, primarily as a result of increases in payroll, depreciation expense and incremental bad debt expense on the revenue increases versus last year. Total SG&A expense increased by $1.8 million or 37% on a year-over-year basis. Total SG&A expense as a percentage of revenue decreased to 41.8% from 45.6% in Q2 last year.

Net interest expense in the quarter increased $109,000 or 62% from last year as increased borrowing under our bank facility and additional capital leases to fund our capital equipment purchases.

Net income for the quarter was $551,000 or $0.01 a share compared to a net loss of $293,000 or $0.01 a share last year. This equates to an $844,000 increase in profitability on the incremental $5.1 million of revenue year-over-year.

Depreciation and amortization was $910,000 in the second quarter and EBITDA was $1.75 million. Adjusting for the $192,000 of non-cash charges related to stock-based compensation and warrant amortization, our adjusted EBITDA, quote, unquote, for the quarter was $1.9 million, which is a $1.5 million increase over the $500,000 reported in Q2 last year.

We finished the quarter with 261 full-time equivalent employees and contract doctors as compared to 246 at March 31 and 238 at December 31.

Our accounts receivable balance, net of allowance for doubtful accounts, was $11.3 million at June 30, up approximately $3.4 million from the balance at December 31. Our AR balance expressed in terms of days sales outstanding was 65 days as of June 30, unchanged from the level we quoted at March 31.

For those of you that follow such things, our DSO is a little higher than usual right now because there has been a lot of confusion associated with the new AMA molecular billing codes that went into effect on January 1. Only some payors have adopted these new codes, whereas other payors still want us to use the older stack codes. Some carriers have even asked us for both. This has increased our rebill rate for molecular testing significantly in 2012, which in turn has impacted our DSO.

Incidentally, we expect our DSO to remain high in Q3 as the impact of the TC Grandfather expiration is absorbed into our AR mix.

In terms of overall liquidity, as of 6/30/2012, we had $2.9 million of cash and restricted cash on hand and $1.6 million available to us under our credit facility, as compared to $3.1 million of cash and $1.1 million of availability at December 31. Our availability under our credit line actually increases as our AR balance increases, which allows us to absorb changes in our collection patterns without too much incremental stress.

Our cash flow from operations in Q2 was positive $1.1 million as compared to a use of $1.1 million in Q1. Thus, on a year-to-date basis, cash flow from operations is essentially breakeven.

In Q2, we purchased $1.7 million of property, plant and equipment. However, we were able to lease finance $967,000 of this amount. Thus, the net use of cash was $736,000 in investing activities.

We are in the process of building out our new California lab facility, and most of the expenses cannot be lease financed. We estimate that we will incur approximately $600,000 more of cash expenses for this purpose in Q3, and then we should get back to our normal trend of being able to lease finance approximately 85% and 90% of our CapEx.

Turning now to the guidance we issued for this morning for the third quarter of 2012, as a result of the expiration of the TC Grandfather Clause, we are expecting a contraction in our base revenue of approximately 5% to 8%, or $750,000 to $1.25 million. In addition, the third quarter is normally our seasonally weakest, as many of our practitioners go on vacation.

In addition, our sales force has been very focused on helping clients through the issues surrounding the expiration of the TC Grandfather, so there has not been much focus on new sales activities this past quarter, which means we probably won't see much growth this coming quarter.

Net-net, we are not expecting much growth in our core revenue with which to offset the impacts of the TC Grandfather expiration. Therefore, we are expecting $14 million to $14.8 million of total revenue and earnings of around breakeven to negative $0.02 per share in the third quarter.

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 SJones@NeoGenomics.com during the Q&A session and we will address your questions at the end, if the subject matter hasn't already been addressed by our call-in listeners.

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

(Operator Instructions) Keith Markey, Griffin Securities.

Good morning. A couple of questions, if I could. I was wondering -- do you expect productivity to increase much more in the second half of this year and in 2013?

Good morning, Keith. Yes, we do. We have a variety of initiatives to improve productivity. I mentioned the best practice teams we have working in all our major laboratory disciplines. We are implementing the bar-coding and scanning technology. We are doing a whole lot of things to allow us to improve our process.

The way we are reducing costs is all about process management and continuous improvement, and we are very focused on that. So we believe we will get results.

I would also add here, just the fact that our IHC and molecular labs are now profitable gives us an enormous amount of operating leverage that we didn't have before. They used to be a drag on gross margins, and now they will be contributions.

When the lines to start to cross, when you are bringing up a new lab division like that, once you get to a certain critical mass, then you start to get a lot more profitable on each incremental test. And we are pretty much at that place for both of those tests.

Great. Do you have a sense as to what a reasonable -- I don't know how -- maybe number of tests per employee might sort of give a sense of where -- a goal for you to reach or where you think you might reach in 2013?

I would tell you that we don't typically give out that level of detail in the data because it can be construed a lot of different ways and be misunderstood. We have seen substantial increases in the number of lab tests completed per laboratory FTE. And I would envision that we will be -- with the advent of bar-coding and the other process improvements, we will be able to get similar types of productivity increases over the next year.

Great. And how much of the growth in the recent quarter could you attribute to new clients?

When we look at our growth figures, the question of what is a client is something we look at really carefully. We don't call a client a client until they have sent three consecutive -- three tests per month for three consecutive months. So we have a number of clients that are active accounts that are not quote, unquote, clients yet.

So we measure it a lot of different ways. I would tell you that most of the growth in Q2 year-over-year was from new clients that have achieved that three by three status. We do usually get some what we call same-store sales year over year. We are getting a little bit more same-store sales than we used to now because the molecular activity is growing nicely. But it is mostly going to be from new client activity.

Okay. And then I just had a couple of questions related to the new molecular tests. I was just wondering, the nature of the readout from those tests, is it qualitative and quantitative in the sense of, yes, this gene is being overexpressed? Or do you give out a quantitative measure in some sense of just to what extent it is being overexpressed?

And in the case where you may have a couple of genes that are being expressed that signal a problem, does that readout also provide some sort of guidance for the physician in terms of drug therapy that would be appropriate, based upon either historical evidence or guidelines in place already for the industry?

I would like to ask Dr. Albitar to field this question.

Thank you for the question. The testing is mainly to detect the mutations, so it is qualitative whether the sample or the cancer has specific mutation or not in this specific gene or not. It is not expression (inaudible); it is a mutation detection.

We -- in our interpretation, we will try as much as we can to give some guidance to the (inaudible) implication of these mutations that we detect. Yes, we will.

Okay, great. And what is the nature of the competition in this assay market? Are you up against a large number of embedded competitors, or is -- it is clearly an evolving field, but how do you stand in that term -- in those terms?

I'm going to ask Dr. Albitar to field that one, as well.

I think the way we are offering this testing is unique. As far as I know, there is no other lab that offers this kind of testing as extensive as it is, using standard gold standard technologies as a sequencing guide. I think there are multiple assays or multiple laboratories offering kind of comprehensive profiling of cancer, but usually the results you get are not as comprehensive as we are offering it (inaudible).

Very good.

The thing -- sort of in layman's terms -- to think about is lots of labs are doing point mutation specific molecular analysis. We are sequencing -- we are using bidirectional sequencing. So rather than picking up one allele specific mutation along a gene, which might have 1 million to 2 million base pairs of DNA on it, we are actually starting on either end of the gene and sequencing in and picking up all of the mutations along the gene. So it is quite a comprehensive approach that Dr. Albitar has put in, and we are not aware of a lot of labs doing that.

Yes, that's great. And then just one last question. Do you have any sort of a test at this point, or perhaps in the near future do you anticipate having one that would help to identify circulating cancer cells in the blood, for instance, as a monitor for a person's disease or perhaps even for screening patients that might be at high risk?

I'm going to ask Dr. Albitar to talk about that as well, but we've got to get to some other questions, so we are going to keep our answer brief.

Yes, yes, fair.

Indeed, we are extremely interested in this. We are working on it. Just stay tuned.

Good. So I think we are ready for a next question, operator.

[Thomas Spicer, RC Research].

Congratulations on another good quarter. I just had a question here about the TC Grandfather Clause. Has that changed your guys' investment strategy at all, or maybe what type of tests you are looking to invest in further?

No, we pretty well are staying the course on our strategy. We have, for years, planned to have one of the most advanced molecular labs in the United States, and have been investing in it for years. With Dr. Albitar joining the team, we were able to accelerate those plans quite substantially.

And we are at the place now where what we think we are going to be investing in hasn't really changed in the last couple of years. We are opportunistically exploring new things. We are looking at using the Health Discovery Corporation technology we license at some of our existing platforms to make it more efficient. But we will be tweaking what we are doing already and staying the course on what our general strategy has been.

All right. Thanks. I guess just one more question for me here and I'll hop back into the queue. You guys, I think in your release, said you are planning on opening a new laboratory facility in California by the end of the third quarter. Could you just give some color on maybe how that could improve productivity going forward?

I'll take a crack at that. Right now, we're totally outgrown the existing facility we are in. And it is not set up to be a lean laboratory. It is pretty cut up. There are a number of different buildings and so forth.

So the new laboratory is going to be set up to help us to drive toward lean manufacturing, if you will, in our laboratory operations. We are building a state-of-the-art molecular facility out there. We are building an IHC facility out there. And we'll have a lot more space, and the layout will be much more conducive to productivity gains.

All right. Great. Thanks for the color on that, and that is all for me today. Congratulations on the good quarter again, guys.

Mike Petusky, Noble Financial.

Great quarter. Could I just ask, in terms of the technical component issue, does this affect client relationships -- in other words, the ongoing nature, hopefully, of client relationships? Or is this purely just a reimbursement pricing type issue?

No, it actually does impact client relationships, and in our case, usually for the better. We have used this as an opportunity to re-examine all of our client relationships, not just those that have been impacted by the Grandfather Clause. And one of the things we've found is that some of these hospitals are significantly more price-sensitive than they perhaps would have been when we were billing third-party payors.

And so we've taken the opportunity with our largest and best clients to go in and say, we would be delighted to give you great pricing, but we would like to have a semi-exclusive relationship with you and do all of your flow cytometry, FISH, molecular testing and cytogenetics. And much to our pleasure, a lot of our largest clients have accepted our proposal on that.

And so we are locking up client relationships, written contractual format that we think will help us to stay focused on continually asking -- helping them get better and better in their own process and deliver more value, instead of worrying about some lab coming in and dropping some cut-rate, low-ball, non-apples-to-apples comparison test on things.

One of the things we've heard over and over again from our clients is how much further out in front we are on this issue than all the other labs out there. We've gone to extensive lengths to educate the community about the impact. We held conference calls with all of our clients. On the first conference call like that, we had over 200 clients on the phone. We even had three or four of our competitors' sales force members on these calls, because they weren't getting the information from their own companies.

So we've really kind of carved out a niche as being the lab that is most proactive. We went in front of all our client relationships and -- the larger ones, at least -- and gave them pro forma analysis of what the impact would be, did a lot of modeling and stuff. We helped them get ready for this months before the thing went into effect. And as a result of that now, we are just sort of cleaning up some loose ends, but we are largely through the process of this.

So it sounds like you are expecting to retain the bulk, and perhaps the very, very large bulk of your client relationships and all the key relationships going forward. Is that the takeaway here?

I am only aware of one client that we lost on price, and to be brutally frank, that was a client we probably wanted to lose on price, because it wasn't a good revenue mix for us. And we've actually got some opportunities to increase the business, where -- when you offer exclusive pricing for getting it all, it gives people something to think about. So we are going to pick up some business. I am hopeful that we will pick up more than we will lose, but it is just too early in the quarter to say for sure that that will happen.

Just another question, Steve. As you guys think about this -- we will just call it approximately $1 million of the operating line that will -- essentially you'll have to find ways to mitigate that loss, is it mostly going to be found in just kind of continued growth, or are you guys going to do a little bit -- try to do a little bit more on the SG&A? It seems that you kind of alluded to trying to do some things with processes. But just if we're looking at the million dollars, essentially -- and the attempt to mitigate that impact, I guess how much of that would come from just Company growth and how much of that would come from more processes and managing on the SG&A line?

Well, we have opportunities in both. And I think as we pro forma it out, we think it is about half and half.

We are still growing as we redirect our sales force back toward growth initiatives. We think we've got plenty of growth out there in the pipeline over the next several quarters. And in addition, we've got a whole host of initiatives on the process cost control front. So I think it is about half and half.

All right. Very good, guys. Thank

Operator, we are ready for the next question.

Zarak Khurshid, Wedbush Securities.

This is Zarak Khurshid at Wedbush Securities. Thanks for taking the questions, guys. Just curious -- how should we be thinking about the CapEx spend and further menu buildout over the next few quarters and years, perhaps? Thanks.

We are generally on about a $5 million to $6 million per year CapEx run rate right now. That will dip a little bit in the fourth quarter because we are just coming through a big portion of it now. But I would expect it to at this point then to be somewhat similar next year. We will be a bigger company, there is a lot of growth CapEx and replacement CapEx necessary every year.

Mature labs generally will settle out at around 4% or 5% of their revenue each year will be in CapEx. I think we are at about 7%. We will continue coming down, but the numbers are going to, on an aggregate basis, go up. Again, we lease finance about 85% of that in a typical quarter.

Okay, thank you.

Kevin Degeeter, Ladenburg Thalmann.

Maybe one or two just quick operational questions here. You talk about growth rate from molecular and IHC. If we sort of back out new products, sort out what was sort of the baseline year over year portfolio or growth rate?

The answer to that question is actually not as straightforward as you think. There is three general kinds of molecular tests. There is something called PCR, polymerase chain reaction, and that would incorporate real-time PCR. There is something called fragment length analysis, and then there is something called sequencing.

This year, we have relaunched most of the tests that we could relaunch with a sequencing platform. So when we talk about year over year for the new tests versus the old tests, we have relaunched the platform; we no longer do PCR-based tests in a number of cases, when instead we are doing bidirectional sequencing now. So we have a much more comprehensive approach to our testing.

And so our revenue growth in the molecular area was 185% year-over-year. So you can get a feel for how much faster-growing that is than the rest of our overall tests.

Now, molecular is still only up to 6.1% of our revenue. But we would envision that molecular will continue to zoom up as time goes on. And across the board, our molecular average revenue per test is still only $235. So we have an opportunity to really move the average revenue per test in the molecular side up considerably, because we are able to get an up-charge for the sequencing-based tests.

I would just build on that very quickly by saying that many of the tests that Steve referred to weren't even introduced until later in the quarter. So we believe as our sales force becomes more familiar with the nature of these tests that there is some uptake there in the demand.

The other thing is that in some cases, we are sending these tests out to other labs, and so there is a natural cost reduction for us as we bring these in-house.

Fair enough. And could you just give us a sense here about how to think about revenue per test, which is one of the metrics the Company has traditionally focused on, given the shift in mix here tied to molecular that have different revenue characteristics? Should we think about if [shift moves] for the next couple quarters being 1% to 2% reductions, typically, in price per test, just on a pure shift issue? Or is it more like the 5% in this quarter? Any just qualitative sense would be helpful there.

So you have several factors working at odds with one another there. The new panels we introduced yesterday, which actually are going to be commercially available for ordering this coming Monday, we are still finalizing all the list prices on those panels. But we are expecting somewhere on the order of $1500 to $2000 unit price per panel for those new panels. Obviously, that will do wonders for bringing up our overall average if we can make those panels a significant mix.

On the other hand, the IHC testing that we do is typically much lower revenue per test, unless it is combined with other traditional molecular pathology -- I mean (inaudible) pathology testing.

So we've got IHC will probably drag it down. We've got some of the new molecular tests that will probably drag it up. HemeFISH continues to be growing faster than the overall average of the Company, and HemeFISH is one of our highest revenue per test.

What has stagnated for us, and it's sort of interesting, is our flow cytometry volumes are not growing anywhere near as fast as the overall corporate average. They are still growing. But part of that is a reflection of the power of our business model. More and more, we are working with partnering with our pathology customers in our hospital path labs, where they already do the flow cytometry in-house.

And so we like to be able to be a wrap-around laboratory and fill in whatever holes our customers need. So it is not altogether unexpected that our flow cytometry wouldn't grow as fast as some of our other tests.

So I guess the short answer is, stay tuned. I'm not prepared to give a number on what to expect for average revenue per test. I would say over the next couple quarters. the bias would be a slight downward trend instead of an upward trend, until we can get some of these more higher-priced molecular tests out into the system.

And just finally, maybe one more housekeeping question. What portion of revenue currently is or was in the second quarter flow cytometry?

Flow cytometry was around 20%.

Okay, great. Thanks. Congratulations on the good quarter, guys.

(Operator Instructions) Mark Zinski, 21st Century Equity Advisors Corporation.

Good morning and congratulations on the quarter. Just a few questions. I guess number one, transitioning to offering solid tumor tests, are there any unique challenges, given that your operating history has been more focused on the blood cancers? Do you expect any unique challenges, or is this transition going to be relatively smooth?

I think the transition will be relatively smooth. Our clients have been asking us to bring up these tests for quite some time. And as we mentioned I think a couple of quarters ago, we've built out our medical team to include now a surgical pathologist and people that have surgical pathology experience. And so we are positioned now -- we've built out our menu, we've built out our team, we've added, as I mentioned, this digital image analysis product line. So we are going to have the capability to do this. We essentially have the capability now. And many of our clients, because they've asked us for this, are beta testing our products and we think the transition will be relatively smooth.

Okay. And in terms of the tech-only business model, can you comment on how the industry is perceiving this lately? Is there more interest in doing the interpretation aspect themselves as a revenue generator, so hence your model is increasingly attractive?

Yes, there is a lot of demand for our tech-only product lines. In the FISH area, it has been one of the drivers of our growth. But we offer a very comprehensive (technical difficulty) menu. And that has been a key driver of growth, particularly in the pathology space, where we've spent a lot of time. And in this era where everyone is focused on participating more in the care cycle diagnostic process and trying to (technical difficulty) economics for the work they've done, this is a very important and powerful product line.

So if anything, it is picking up momentum as we get out there in the marketplace.

Okay. And then just lastly, any opinion on how current healthcare reform may ultimately impact your industry, just in terms of demand for tests and the reimbursement prognosis.

I think there is some uncertainty out there, but generally speaking, we think the demand for our products is going to increase -- for a lot of reasons. One is if the current healthcare law proceeds, more people will be covered by insurance. Demographics is obviously in our favor relative to the cancer testing we do. So there is going to be continued demand, no question, for our product line.

I think everyone in this industry has got to be mindful that we have an obligation to offer our services at the lowest cost and offer the most medically-necessary products to continue to help drive the cost of healthcare down overall. And in that respect, what we do we think is very powerful. We have a very powerful value-added product line. Because the laboratory testing that we do influences a great deal of the medical decisions. It is very cost-effective. Particularly in this era (technical difficulty) personalized medicine is important. Prescribing the right therapies depends on the right diagnostic, and that depends on the work that we do.

So we've got to be mindful of costs in this new environment, but we think we should be in pretty good shape as the landscape changes.

Okay, great. That's it for me. Thanks.

There appears to no further questions at this time. I would now like to turn the floor back to management for closing comments.

Thank you, Dan. As we end the call here, I would like to recognize all 260 of the NeoGenomics team members around the United States for their dedication and commitment to building a world-class cancer genetics testing program.

On behalf of our NeoGenomics team, I want to thank you for your time in joining us this morning for our second-quarter 2012 earnings call, and let you know that our quarter three 2012 earnings call will be held on or around Thursday, October 25 of this year.

For those of you listening that are investors or thinking about investing in NeoGenomics, we thank you for your interest in our Company. Goodbye.

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