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Summary

  • NeoGenomics posted record revenue of $20.7 million, up 32% from last year's Q2.
  • The company expects to further reduce cost per test by another 8%-10%.
  • We are raising our price target to $8.00 per share and revenue estimates to $83.9 million for 2014.

Another Record Quarter for NeoGenomics

NeoGenomics (NASDAQ:NEO), a leading commercial stage oncology diagnostic company, reported second quarter 2014 financial results with record revenue of $20.7 million. This is an increase of 32% over the previous year's Q2 due to a 40% increase in test volume. The mean revenue per test decreased; however, the cost-of-goods-sold per test improved by 11% resulting in a margin increase from 45.9 percent for the same period last year to 49.5% for this quarter. The company expects a further reduction in the average cost per test by 8-10% through 2015.

Operational expenses increased to $9.7 million from $6.7 million from the same period last year due to an expanded sales force, debt expense management and continued investments in infrastructure, research and development. Adjusted EBITDA increased 15.8% to $2.8 million from last year. Not including the NCCI FISH situation, the company estimates that the adjusted EBITDA would have been $3.1 million with a net income of approximately 1.1 million (0.02/share)

Mr. VanOort, Chairman and CEO stated, "We are especially pleased with the 12% reduction in average cost of goods sold per test in the quarter. The redesign of our Fort Myers, FL lab and our other lean initiatives are yielding results, and we continue to believe that average cost per test can be reduced by 8-10% in both 2014 and in 2015 on a full year basis."

The company provided further guidance (Table 1) for the 3rd Quarter and full year 2014 as a standalone model and taking into account their recent acquisition of Path Logic. Mr. VanOort concluded, "Given the opportunities for further market share gains, we made a conscious decision to invest heavily in our sales and IT teams, and in new product development. Although incremental profit was not as high as in previous periods, we believe these investments will help further position our company for sustained growth well into the future."

Table 1: Quarterly and Full Year 2014 Guidance

Quarter 3

Full Year (2014)

Revenue - Standalone

$20.0 - 21.0 MM

$78.5 - 80.5 MM

Revenue - Path Logic (2)

2.0 - 2.5

4.5 - 5.5

Consolidated

22.0 - 23.5

83.0 - 86.0

Recurring EPS - Standalone

$0.00 - 0.01

$0.02 - 0.004

Recurring EPS - Path Logic (2)

(0.01) - 0.00

(0.02) - (0.01)

Consolidated

(0.01) - 0.01

0.00 - 0.03

We Predict Increased Revenue and Raise Our Price Target

Even with the ongoing pressure on reimbursement throughout the industry, NEO's management has been able to substantially increase revenue and earnings over the past several years (Table 2). We expect revenue for 3Q14 to top $22 million versus last year's Q3 of $19.1 million. For the fourth quarter we expect $23 million over Q413 of $19.3 million ending the year with record total revenue of approximately $83.9 million. Moving forward, we predict record revenue estimates of $96, $120 and $150 million for 2015, 2016 and 2017, respectively. This is achieved by new accounts, products, testing services and geographical expansion. These estimates also include revenue from Path Logic as well as any negative impacts from the NCCI situation.

The company reported a strong balance sheet consisting of $5.0 million in cash, a $5.7 million credit line and $100 million shelf filing with no debt. Without any short-term cash constraints, the company can focus on a long-term growth strategy.

NEO is currently trading at about $5.00 per share with a market cap of $250 million. Due to strong fundamentals and record revenue, we have raised our price target to $8.00 per share from $7.00. This prediction is calculated by using a 35X P/E multiple coupled with an EPS of $0.35 in 2017 discounted at 20% for 2 years. This valuation reflects a market cap of approximately $400 million, which is 4 times our 2015 revenue estimate of $96 million. We still believe this is a conservative estimate given the company's substantial growth. In addition, we believe that NEO is an attractive candidate for an acquisition from major companies such as Quest Diagnostics, Lab Corp and Qiagen, which have recently been active in acquiring smaller companies. Thus, we believe that NEO presents a low risk and potentially high reward investment that may be a viable acquisition target.

Table 2: Summary of Quarterly Performance

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

Total Revenue ($, 000's)

$14,202

$14.89

$15,657.00

$15,603

$16,884

$18,323

$18,182

$20,670

% Growth

25.50%

15.50%

3.30%

-0.10%

18.90%

23.00%

16.10%

32.50%

Gross Margin

41.50%

42.30%

46.30%

45.90%

48.40%

50.00%

47.90%

49.50%

SG&A as a % of Revenue

40.60%

38.90%

39.00%

38.70%

39.50%

39.90%

42.30%

43.70%

Net Income (Loss) ($, 000's)

($975.00)

($113.00)

$3.00

$273.00

$929.00

$963.00

$102.00

$274.00

Diluted EPS

($0.02)

$0.00

$0.00

$0.01

$0.02

$0.02

$0.00

$0.01

Adjusted EBITDA ($, 000's)

$842.00

$1,439.00

$1,794.00

$1,825

$2,163.00

$2,733.00

$1,685.00

$2,116.00

% Growth

21.50%

36.40%

1.10%

-6.10%

156.90%

89.90%

-6.10%

15.90%

Test Volume (000's)

28,315

30,513

32,088

32,519

33,723

38,987

38,734

45,475

% Growth

41.70%

35.30%

19.10%

12.70%

19.10%

27.80%

20.70%

39.80%

Average Price/Test

$501.58

$488.90

$488.00

$480.00

$501.00

$469.99

$469.00

$455.00

% Growth

-11.50%

-14.60%

-13.30%

-11.30%

-0.10%

-3.70%

-3.90%

-5.20%

Average Cost/Test

$277.25

$262.00

$260.00

$234.96

$245.00

$229.00

% Growth

-15.30%

-6.50%

-11.90%

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: NeoGenomics Posts Record Revenue And Continues Substantial Growth Into 2014

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