Acquisition

9 Months Ended

Sep. 30, 2019

On December 10, 2018 (the “Acquisition Date”), the Company acquired all of the issued and outstanding shares of common stock of Genesis Acquisition Holding Corp (“Genesis”), and its wholly owned subsidiary, Genoptix, Inc. (“Genoptix”, and collectively with its subsidiaries and Genesis, referred to herein as “Genoptix”), for a purchase price consisting of (i) cash consideration of approximately $127.0 million, which included approximately $2.0 million in estimated working capital adjustments and adjustments for estimated cash on hand of Genoptix on the Closing Date and (ii) 1.0 million shares of NeoGenomics’ common stock pursuant to an Agreement and Plan of Merger dated October 23, 2018 (the “Merger Agreement”).

Cartesian Medical Group, Inc. (“Cartesian”) is a California professional corporation that provided hematopathology and other pathology services to Genoptix as an independent contractor. Cartesian was consolidated into Genoptix as a variable interest entity. Subsequent to December 31, 2018, the professional services agreement between Genoptix and Cartesian was terminated and the Company entered into separate medical services agreements with the entities owned by the physicians who were previously employees of Cartesian. The termination of the agreement with Cartesian did not have any impact on the Company’s consolidated financial statements.

The Company issued approximately 1.0 million shares of common stock as consideration for the acquisition of Genoptix. This common stock was issued as unregistered shares, which carries a minimum six-month holding period before they may be sold to the public. The fair value of the common stock consideration was estimated using inputs not observable in the market and thus represents a Level 3 measurement. The key assumption in the fair value determination was a 5 percent discount due to lack of marketability of the common stock as a result of the restrictions imposed on the holder. The acquisition date fair value of common stock transferred is calculated below (in thousands, except share and per share amounts):


Common Stock Valuation	Amount
Shares of common stock issued as consideration	1,000,000
Stock price per share on closing date	$	13.94
Value of common stock issued as consideration	$	13,940
Issue discount due to lack of marketability	$	(697)
Fair value of common stock at December 10, 2018	$	13,243

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Acquisition Date and measurement period and other adjustments recorded during 2019. Included in the measurement period and other adjustments is a $2.4 million working capital adjustment to the original cash consideration, as defined within the Merger Agreement, of which $0.4 million was received in cash with the remainder received as a return of common stock. The Company is in the process of completing its valuation of certain assets and liabilities, primarily related to accounts receivable and accounts payable assumed; thus, the provisional measurements of current assets and current liabilities are subject to change.


	December 10, 2018 (As Initially Reported)		Measurement Period and Other Adjustments		December 10, 2018 (As Adjusted)
Current assets	$	22,172	$	2,257	$	24,429
Property and equipment	21,029		(428)		20,601
Identifiable intangible assets	71,792		(3,463)		68,329
Goodwill	50,873		679		51,552
Long-term assets	170		—		170
Total assets acquired	$	166,036	$	(955)	$	165,081
Current liabilities	(10,769)		(892)		(11,661)
Long-term liabilities (1)	(15,265)		282		(14,983)
Net assets acquired	$	140,002	$	(1,565)	$	138,437

⁽¹⁾ Includes $14.7 million and $12.9 million as initially reported and as adjusted, respectively, in deferred tax liabilities associated with tangible and intangible assets acquired.

Of the $68.3 million of acquired intangible assets, $54.2 million was provisionally assigned to customer relationships which are amortized over fifteen years, $0.7 million was provisionally assigned to the Genoptix trade name which is being amortized over one year, and $13.4 million was provisionally assigned to trade marks which are assigned as indefinite-lived assets.

The goodwill arising from the acquisition of Genoptix includes revenue synergies as a result of our existing customers and Genoptix' customers having access to each other’s testing menus and capabilities and also from the new product lines, which Genoptix adds to the Company’s product portfolio, including the use of COMPASS and CHART trade names. None of the goodwill is expected to be deductible for income tax purposes. The provisional fair value of accounts receivable acquired is approximately $16.6 million, net of a $1.5 million fair value adjustment.

The following unaudited pro forma information (in thousands) have been provided for illustrative purposes only and are not necessarily indicative of results that would have occurred had the acquisition of Genoptix occurred on January 1, 2018, nor are they necessarily indicative of future results.


	Nine Months Ended September 30, 2018
Revenue	$	274,609
Net loss	$	(1,164)
Net income available to common shareholders	$	2,284

The unaudited pro forma consolidated results have been prepared by adjusting our historical results to include the acquisition of Genoptix as if it occurred on January 1, 2018. These unaudited pro forma consolidated historical results were then adjusted for

certain items, primarily related to a net increase in amortization expense during the nine months ended September 30, 2019 due to higher intangible assets recorded related to the acquisition of Genoptix and a reduction in interest expense during the nine months ended September 30, 2018, as the Company did not acquire the existing debt.