Mar 18, 2008
Executives
Robert P. Gasparini, M.S., President and Chief Science Officer, Director Steven C.
Jones, Acting Principal Financial Officer, Director Jerome J. Dvonch, Director of Finance Fred Lydig-Controller Bill Tilton-GM of Laboratory Operations
Analysts
Bill Biswanger-Private Investor Julie Hoggatt-Noble Financial Group Leonard [Sumolze] -Private Investor Sheila Donahue-Marlin Capital
Operator
Greetings ladies and gentlemen and welcome to the NeoGenomics Q4 2007 and Full Year 2007 Earnings Conference Call. At this time all participants are in a listen only mode.
A 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 Mr. Bob Gasparini, President and Chief Scientific Officer for NeoGenomics.
Thank you Mr. Gasparini, you may begin.
Robert Gasparini
Thank you, Claudia. Good morning.
I’d like to welcome to the NeoGenomics 2007 Fourth Quarter and Full Year Conference Call and introduce you to the NeoGenomics team that is here with me today. Joining me this morning on this call and our conference room is Mr.
Steven Jones, our acting CFO and Director, Mr. Jerry Dvonch, our Director of Finance and Principle Accounting Officer, Mr.
Fred Lydig, our Controller and Mr. Bill Tilton our GM of Laboratory Operations,.
Before we begin our prepared remarks, I’ve asked Bill to read the standard language about forward-looking statements. Bill.
Bill Tilton
Good morning everyone. 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 underling assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements. Any forward-looking statement speaks only as of today and we undertake no obligation to update any such statements to reflect events or circumstances after today.
Robert Gasparini
Thanks Bill and good morning again to family, friends, investors colleagues and others who have joined us this morning. Q4 of this year of last year continued our trend of double digit sequential growth quarter after quarter and triple digit sequential growth year over year.
By all parameters we have completed the build out of our three facilities and have positioned ourselves for a break out 2008. Indeed, it is our hope that what we share with you over the next 30 to 40 minutes will convince you that the time money and energy invested in infrastructure and sales during 2007 has not only set us up for a great 2008, but has allowed us to become cash flow from operations positive here in Q1.
Over the next few minutes and before I turn the podium over to Steve and Jerry to review the quarterly and yearly financials, I’d like to touch on some of the highlights of this past quarter and past calendar year. However before I do so, I would like to lead with some late breaking news, specifically that we have reached a preliminary agreement to settle the lawsuit between NeoGenomics, it’s various officers and employees and US Labs LabCorp as highlighted in our press release this morning.
Quote “ under the terms of this agreement, NeoGenomics on behalf of all defendants will make a $250,000.00 payment to US Labs within 130 days and pay another $250,000 over the remaining nine months of this year”. We expect that approximately 50% of these payments will be covered by our insurance policies.
As a result, our fourth quarter financials, including a $250,000.00 charge to cover the company’s expected portion of this settlement and an additional $125,000.00 charge to cover the company’s portion of the estimated legal fees incurred in Q1 up to the date of the settlement. In summary, we are pleased to finally put this litigation behind us and we are excited to begin reporting financial results that will be unburdened by litigation expenses in 2008.
Moving on, our fourth quarter 2007 highlights included the following: Our highest record revenue quarter to date of 3.8 million, an increase of 115% year over year from Q4 06; an increase in our average revenue per requisition of 12.5% from Q4 06. A 22% sequential quarter over quarter increase in revenues Q4 07 versus Q3 07; expansion of our sales team and the hiring of an addition seven sale reps toward the end of Q4; the launch after beta testing or our NeoFLOW product; the increase from 9000 square feet to 26,000 square feet at our corporate headquarters her in Fort Meyers; the build out of additional laboratory and office space and a total of almost 41,000 square feet across our three laboratory facilities in the Neo system.
Our full year 2007 highlights include top line revenue of $11.5 million, an increase of approximately 78% from the $6.5 million we generated in FY 06. Average revenue per test increased approximately 8.6% in FY 07 versus FY 06.
On the regulatory and compliance front we received CAP College of American Pathologist accreditation for all specialties in all laboratory locations including Florida, Tennessee and California. And finally, the continued rapid expansion of NeoFISH at tech-only FISH service and a significant rise in the number of NeoFISH customers despite the fact competitors are now coming to market with me too products similar to our industry first NeoFISH.
The information I just shared with you should give you some idea on what we are doing here and how we are executing our business model. Please allow me to zoom up a bit and tell you how we are positioning ourselves in the laboratory testing industry.
Our philosophy continues to be to partner with the pathology community. Today most community and hospital pathologists are under siege and the NeoFISH and the NeoFlow tech only product lines were designed to allow us to work side by side with the community and hospital pathologists.
In what most describe as a win/win relationship, the tech only relationship replaces the typical master slave or customer/vendor relationship with a true partnership approach. We believe this partnership approach allows for better patient care and is a much more forgiving relationship than the typical master slave were the metaphor “one strike and you’re out” is so prevalent.
Inside Neo, the morale and culture is good and growing. We are all working hard, accomplishing things together and sharing in those accomplishments.
Indeed one of our culture norms is just that and has become “work hard play hard”. The development of this culture is not something we really thought about in the first three years as we had all our heads down working away on the trees and not stopping much to see the forest.
The expansion of our sales force to a team of 16 professionals, including business territory managers, regional managers and sales management has allowed us to move into new territories across the United Sates, giving us more visibility, breadth and reach on the ground. Currently, NeoGenomics received specimens from 31 states, all from last quarter and a goal by the end of this year is to increase that number to 40 or more states.
With growth comes new challenges and as we experienced, in my previous position and as the size of the company doubles and doubles and doubles again that leadership and infrastructure also need to grow. Since the addition of four key hires in late 2007 in laboratory ops, finance, customer care and sales, we have held the line on hires throughout Q1 to date.
In fact, we do not anticipate hiring more than one to two new team members through April of this year. Many of you when you call or write ask about the CRO, Power 3 and any other scientific opportunities we have invested in over the last 12 to 24 months.
I am thrilled to be able to tell you that under the capable leadership of Dr. Matt Moore and Mr.
Howe Mann, the Contract Research Organization or CRO has turned the corner in late 2007 and started to produce revenue for NeoGenomics. Three contract proposals were accepted by Big Pharma companies in the later half of 2007 and it appears that at least one of these three projects we are currently working on, which in itself is worth approximately $200,000.00, will morph into a full blown Phase 3 clinical trial.
Although we do not know what the revenue or specimen volume will be at this time, there is a significant probability that it will be 20 to 50X what the Phase 2 study volumes we are working on now. The CRO continues to submit proposals to Big Pharma and I am pleased to report that we have forecasted just fewer than seven figures of revenue for the CRO in 2008.
With regards to Power 3, both Steve and I recently visited Power 3 and spent the day drilling down on what they have, where they are now and where they are headed in the short and long term. During these joint discussions it became apparent that Power 3 is further ahead and closer to a marketable clinic test on the neurodegenerative side rather than on the breast cancer side.
In order to allow them to drive this as hard as possible, we have scaled back our agreement with them and are in the process of replacing the original agreement with one that is more focused on developing a truly joint venture CRO. The take home net this year, NeoGenomics is not going to spend $4 million to buy 20% of Power 3, but we are working side by side with them on developing a joint venture CRO to help drive proteomic testing from the R&D side to the clinical side of the industry.
And we remain quite excited about their technology platform. As many of you know, anatomic pathology or AP as it is known in the science is closely related to genetics in the fight against cancer.
As I’ve allude to before, NeoGenomics has entered into strategic discussions with a local AP IHC laboratory to bring Immuno and other AP capabilities under our roof. We currently offer these capabilities through one or more sister labs around the United States, however requests for AP testing, particularly immunohisto chemistry or IHC testing continue to grow.
With the expanded sales teams we now have in place across the United States, we believe we can turn this opportunity into a high volume and profitable line. We are close to announcing the launch of this new product line today and indeed have completed build out of our facility to accommodate this technology platform.
Thank you for your attention this morning and I will now turn the call over to the finance team, led by Mr. Steve Jones, to review our financials for the quarter.
Steve.
Steven Jones
Thanks Bob. I’ll start by reviewing some of our financial and operating metrics and then I want to go into some recent developments that are worth getting into in a little more detail.
We reported total revenue of approximately 3.8 million in Q4 which is an increase of 115% from the comparable period in Q4 06 and a 22% sequential increase from Q3 07. These increases were largely the result of a greater number of tests being performed for our customers and an increase in the average revenue per test realized.
Indeed the average revenue per test in Q4 was approximately $569.00 or a 9.1% increase from the comparable period in Q4 06 and a 3.1% increase sequentially from Q3 07. We actually attribute this increase in average revenue per test to the reduction in reference lab business that we’ve been experiencing through out 2007 as we go into more of the retail like customers.
Average revenue per requisition or case if you will in Q4 was approximately $721.00 which was a robust increase of 12.5% from the comparable period in Q4 06 and a 5.6% increase sequentially from Q3 07. Again, this increase is also attributable to a better mix of higher revenue tests in Q4.
The average number of tests per requisition in Q4 was 1.27, a 3% increase from the comparable period in Q4 06 and a 2.4% increase sequentially from Q3 07. Although that increase doesn’t sound like much, it’s important in that we have now reached the bottom of that and we are starting to build back up again.
As many of you know, who have been following us closely, the volume of tech only FISH business that we received in 2007 was depressing, that average number of tests per requisition figure, because the tech only FISH product is by its very nature a one test per case product. So what this effectively means is we’re starting to grow the rest of our business now and build back up on that.
And this metric, as I’ve discussed before, is very important because it sort of implies operating leverage in our business. Gross profit increased by approximately 85% to 1.9 million in Q4 07 from 1.1 million in Q4 06 and gross margin for the fourth quarter was approximately 50% compared to 58% in the comparable period in ’06.
For the last three quarters we have suffered some compression on our gross margin as a result of staffing up additional doctors and technologists prior to test volumes arriving, as well as the increased cost of operating a third laboratory facility this year versus in 2006 when we were only operating two. In addition, as we discussed on the last call, we have a higher percentage of lower margin tech- only past vision products in our revenue mix this year.
Although we have taken steps to reduce the commissions for this product and we are seeing that get more right-sided in Q4 it will take awhile to get that work down as well. But perhaps the biggest driver of our Q4 margin compression was the fact that we only operated at 75% of capacity during the quarter.
Moving forward, as we better utilize our existing capacity, we’ll start to see the benefits of operating leverage and we believe we can get our gross margins back into the 53 to 57% range. Selling, general and administrative expenses increased in the fourth quarter increased by approximately 1.9 million or 131% to 3.3 million in Q4 07 from the 1.4 million in Q4 06.
There is no way to sugar coat it, our SG&A was a debacle in Q4; having said that, there are several non-recurring and sort of one time or extraordinary charges. As we mentioned in our press release, approximately 422,000 of litigation related expenses were charged in Q4 and another 104,000 of registration penalties were included in the quarter.
On the good news front however, we believe we have now adequately reserved for all the remaining US labs litigation related expenses in Q4 and thus are hopeful that there will not be any spill-over affects into our financial statements for FY 2008. The bulk of increases in SG&A were due to headcount increases.
Total headcount grew from 47 FTE at December 31, 2006 to 93 or almost double at December 31, 2007. In addition, we grew from FTEs at September 30 to the 93 at December 31.
Q4 SG&A also included approximately 250,000 of additional accrual items to true up our accounts prior to our audit. Every year we do a thorough scrub of all our accounts receivable and typically will take more bad debts if we deem it necessary to do so and we’ll true up our inventory accounts or what not.
This is sort of an event that happens in most companies in the fourth quarter where you catch up with anything that you weren’t on top of during the year. Net interest expense for the quarter was essentially flat on a year-over-year basis, although we not longer have the $1.7 million of bank debt that we had before, that we took out in the June time frame.
We do have about $1 million of higher interest rate capital lease financing in our structure. Our net loss for Q4 was expanded to $1.4 million or $0.05 a share on a year-over-year basis from a net loss of about 429,000 or $0.02 a share in Q4 06.
After balancing out the non-recurring litigation and penalty expenses, we would have had a net loss of approximately 900,000 or $0.03 a share. However the real story in NeoGenomics is not what happened in the fourth quarter, it’s what’s happening now in the first quarter.
In no specific order, our billing and collections department has had a lot of great success recently. As we discussed on the last call, we replaced the entire billing and collections team late in the third quarter and we discovered, much to our chagrin, that there were several things that had not been addressed adequately in our AR balance.
Our AR, our day sales outstanding dropped from approximately 81 to 78 by December 31 and it’s dropped further to 71 on a rolling three month basis by the end of January. As a result of this, we were cash flow from ops positive in January and generated just shy of $300,000.00 in cash.
This is significant, because historically we have funded all of our capital expenditures with capital leases, so when we get that all important cash flow from ops guideline, we’re pretty much at the point where we can be self sustaining except for some capital leases. Collections continue to be strong throughout the balance of the quarter and as we mentioned in the press release, we expect to be cash flow from ops positive in the quarter.
Perhaps the most important however, is we’re having a very strong March and we’re on track to turn net income profitable for the month of March. We reached another important milestone in early January in that we ceased doing business with the final reference lab customer we had.
Although we will miss approximately 250,000 of quarterly revenue we derived from this customer, we believe that ultimately this is a very healthy thing for NeoGenomics. All of our customers are now what we would call retail customers and we are no longer actively pursuing reference labs.
As many of you guys know, through June of 2005 reference lab business represented about 68% of our total revenue and we’ve now worked that down to 0% of our total revenue. So we’re going to have a slight impact in our first quarter revenue as a result of losing this 250,000, but the rest of our business is going strong.
Currently we expect to have revenue increases for the first quarter on the order of 6 to 10% and that’s looking pretty good here halfway through March. Some of you may have also noticed that we entered into a new credit facility with Capital Source Finance in early February.
This is a traditional accounts receivable facility, which all of our bonds are secured by our accounts receivable. The credit facility size is for a total of $3 million however, we’re only able to access this up to amounts specified in our borrowing base.
Currently we’re able to borrow 85% of eligible accounts receivable under 150 days old. When you work through the math and apply some of the other covenants to it, we currently have available about $1 million on this credit facility.
Currently there is $350,000.00 outstanding on the credit facility and we have about $350,000.00 of cash in the bank as of this morning. So net now we have $1 million of liquidity.
I’ve been recently getting a lot of calls about “where are we on a liquidity basis and what are our thoughts with respect to that”. We’re not overly concerned about liquidity at this juncture, given the ability of our business to run cash flow positive or cash flow from ops positive however., should we need additional liquidity, our board of directors has approved borrowing up to $1 million of subordinate indebtedness through friends and family of the firm and through some of the directors of the company.
We do not have any plans in the near to access any kind of equity type financing and it is our belief that we need to continue to demonstrate that we can grow and scale our top line and deliver some bottom-line results and get us back moving before we would even consider any equity financing. At this point, I will turn it back over to the operator for questions.
However, I would like to remind everybody that the extent you would like to email in your questions, if you’re on the web cast and can’t get access to the call-in system, please feel free to email me at ir@neogenomics@org and we will take your questions after we’ve addressed all the questions from the queue. Thank you operator.
Operator
Thank you. Ladies and gentlemen, we will now be conducting a question and answer session.
(Operator Instructions) Our first question is coming from Bill Biswanger, a private investor. Please state your question.
Bill Biswanger-Private Investor
Gentlemen, my curiosity is on the volume of the stock that has changed on a daily basis. The average volume is supposed to be roughly 19,800 shares, but I’ve been seeing it be much less than that and you’ve had a few days where the volume has been 150, 200,000 which has brought this number up significantly.
My curiosity is, why has the volume actually been rather passé, very, very low in comparison to what the outlook for NeoGenomics is?
Steven Jones
That’s a great question and it’s actually something that I watch very closely. I was recently reminded that our average trading volume in the fourth quarter of 2006 was about 165,000 shares a day.
I believe there are really two answers to this. Primarily our lack of volume is attributable to the fact that we don’t have much institutional buying per quarter at this point in time.
I am aware of one institutional investor moving into the stock in the early February time frame that created those few high volume days, but effectively I believe that we have, the institutional community has been waiting for us to prove that we can turn the quarter with our business before they jump back in. Bob and I had many, many things to take care of here in Q1 and we didn’t do any road shows or any investor conferences in Q1 and we expect to get back out on the road during Q2 and begin to tell our story again, so we’re hopeful that we can get that back up.
In addition to that, I will say if you just look at the microcap segment in general, the volume has dropped off markedly in the microcap segment. As the turmoil in the broader equity markets continues there is effectively a flight quality, if you will, and that has a tendency to dampen any enthusiasm for buying less liquid stocks like microcap stocks.
Bill Biswanger-Private Investor
Thank you.
Operator
Our next question is coming from Julie Hoggatt with Noble Financial.
Julie Hoggatt-Noble Financial Group
Okay, my question is on the Power 3 update that you gave. I think it’s good that you’re continuing to do the CRO, but can you just give us some detail and just so I make sure.
You had mentioned you’re excited about the technology platform, this creating the CRO does this definitely give you access to their tests, in terms of like NeoGenomics access for your retail client to your Power 3 tests?
Steven Jones
Hi, Julie, it’s Steve. We are still quite excited about their technology.
As Bob mentioned, they’re more focused on the neurodegenerative right now and we’re a cancer genetics company; having said that, they still are progressing on their breast cancer developments. They have a clinical trial ongoing and it just keeps getting bigger and bigger as they get more and more samples for that.
I will let Power 3 discuss any results with respect to that. The nature of our agreement is still being worked out, but currently it’s contemplated that we will form a term ventures CRO to help commercialize non-FDA approved cancer diagnostic tests.
So, we will have the rights to their technology to help them commercialize anything that would be a non-FDA approved test. As you know, most of what we do today does not fall under the [value weight] of an FDA approved test.
And in order to get an FDA approval for a test you’ve typically got to spend anywhere from 5 to $10, so that’s not something we’d be interested in anyway. So, we believe it is a promising technology and we’re going to stay very close to it.
I don’t believe there will be a lot of near-term revenue ramp up in the US for this test. I think they’re working to work out the kinks of the test in some overseas markets right now, but you know, we’re still quite optimistic about it.
Robert Gasparini
Julie, this is Bob. I would like to supplement what Steve said from our perspective.
As I mentioned, Steve and I were there not more than two weeks ago, it’s probably closer to 10 days ago. We had a chance to spend the day there.
Steve worked the business side and myself and then I drove down to hard on with some of the scientists that were there. The data continues to be excellent.
Again, we won’t spoil anything that Power 3 may be saying in their upcoming earnings release, but it’s excellent. We have also myself and some of our other scientists here at Neo have interacted with some of the clinicians in Texas that they have utilized, individuals that have published papers.
My sense here as a scientist is that this technology is very close to prime, prime. There has been over the last three to six months an up tick of noise, if you will, discussion, papers, momentum in the proteomic area.
We are getting very close to a clinical proteomic test and Power 3 remains on the cutting edge of that move from R&D technology to the clinical side of things. As Steve said, we’re not interested in spending millions and waiting years and years for an FDA approved test because, although they will come, the first market is always , the first to market is always a non-FDA approved test or at least when technology first moves over.
So the ability to develop a joint CRO with ownership rights to be determined in terms of percentages is really where we’re focused now and where we’re going to spend the NeoGenomics dollars.
Julie Hoggatt-Noble Financial Group
Okay, so you’re not sure whether NeoGenomics and their retail customers would have access to this test. Did I read that right?
Robert Gasparini
Yes we would because it’s not ---
Julie Hoggatt-Noble Financial Group
So you would.
Robert Gasparini
Yes because I’m going to make an assumption here and I don’t want to speak for or misspeak, but the assumption is that at some point Power 3 is going to take the data and take what they have to the FDA for approval, but as Steve mentioned it’s a very expensive and a very lengthy process and in the meantime we’re talking about years of being able to offer a test that the industry knows, or calls an ASR type test on proteomics. And we’re starting to see companies pop up here and there that are flirting with and talking about this proteomics arena, so we’re getting very close.
We are, I wasn’t sure that I could have said this a year and a half ago, that we were within a year and a half to two years, but at this point I’m willing to commit that we’re that close to a prime time test.
Julie Hoggatt-Noble Financial Group
So this would be a home brew test, it wouldn’t be a test that needs to be FDA approved right?
Robert Gasparini
This is correct, it would be home brew or ASR until such FDA approval was obtained.
Julie Hoggatt-Noble Financial Group
Okay and then along the same line of question with the CRO, did you have any revenue in the fourth quarter? I know you said you had gotten some contracts.
Robert Gasparini
Revenue in the fourth quarter, yes, yes we did.
Julie Hoggatt-Noble Financial Group
Okay, how much was it?
Robert Gasparini
We didn’t publish it. It was not a material amount, but it was something.
Steven Jones
Yes, it was in the six figure range.
Julie Hoggatt-Noble Financial Group
Okay and can you give us the cash level that you had at the end of the quarter?
Robert Gasparini
We had $210,000.00 of cash on December 31.
Julie Hoggatt-Noble Financial Group
And credit lines?
Robert Gasparini
Credit line wasn’t in place until February 1st.
Julie Hoggatt-Noble Financial Group
Okay and what is that now?
Robert Gasparini
The credit line is a $3 million line and there’s about a million available under the line and there’s 350,000 drawn on it currently, but as of this morning we had about $350,000 in cash, so $0.5 million in liquidity right now.
Julie Hoggatt-Noble Financial Group
Okay, okay, alright thanks so much.
Robert Gasparini
Thank you, Julie.
Operator
Our next question is coming from Leonard [Sumolze] a private investor. Please state your question.
Leonard [Sumolze]-Private Investor
Hi, I have two. One is the settlements, the June purchases on the private placement, that was well timed, that was done at $1.50, but what additional settlements did you have to do for them that you charged off in the ----registration.
Robert Gasparini
In the registration? The registration rights agreement there is a penalty provision that is 0.5% per month that we’re unable to go effective on the registration statement.
And it’s quite a technical issue that we’re involved with with the FCC, we’re actually about 95% of the way through it now. After we filed the registration statement, but before we heard back from the registration statement division that they had no comment, the accounting division of the SEC came back with a few comments on our 2006 10-K, one of which had to do with the way that we were valuing options; they didn’t like, specifically, the way we used volatility calculations.
They have some guidance out that says you should use historical volatilities equal to the length of time in the past that is approximately equal to your expected life of future options. Since we had a change of control in 2003 we couldn’t go back that far and so we developed a proxy.
Anyway, to make a long story short, they didn’t like it and we went to the extreme position of going and revaluing every single one of our options back from the beginning of time using the Trinomial Latus instead of the Black-Scholes model, we actually have now gotten back all of the final corrections and valuations for that and are in the process of working through the SEC to clear the final comments on that registration statement. We’re hopeful and you know, every time I try to predict this I get it wrong, but we’re hopeful that within the next 30 to 45 days we will be through the SEC on this.
In the meantime, these penalties keep accruing at a rate of 0.5% a month, which is payable in cash and stock.
Operator
Thank you. Our next question is coming from Sheila Donahue with Marlin Capital.
Please state your question.
Sheila Donahue-Marlin Capital
Good morning. Thanks for taking my call.
I was wondering what turn around times were for the quarter.
Steven Jones
Turn around times, you mean with our laboratory tests?
Sheila Donahue-Marlin Capital
Yes.
Robert Gasparini
Good question, Sheila, thank you for asking. Let’s take them with the [indiscernible] analysis that I have the exact number.
We published these metrics inside the building on a bulletin board that we have, as well as through the Q&A committee that goes out in an email distribution list. I’m looking right now for October, November, December of Q4 2007 and for cyber genetics we averaged 5.0 days.
That’s up just a little bit from our average in Q3. With regards to our FISH turn around times, FISH turn around times for October, November, December of ’07 averaged about 4.5 days.
For flow our average turn around time for October, November, December of Q4 averaged about 0.7 days, maybe 0.6 days. What that means is that for the most part we’re getting all of the flow specimens that we get, out within 12 hours of acceptance.
And then we have a GPS or a genetic pathologist solution that ties together for our hem on customers cyto, FISH, flow and morphology and of course that contingent on the one that takes the longest, which is typically cytogenetics, as I said in the five day range, for October, November and December for GPS we averaged 6.2 days for GPS and that is pulling a report together for the hem ons that had cyto, FISH, flow and morphology on it.
Sheila Donahue-Marlin Capital
And how did that compare to the Q3, the GPS?
Robert Gasparini
The GPS compared to Q3 was actually up just a little bit. If I look at Q3 July, August and September, we averaged about 5.4 days and that difference or delta from 5.4 to 6.2 ish or so were driven primarily by the site uptake, by about one day in cytogenetics.
Sheila Donahue-Marlin Capital
Okay, somewhat surprise to me would be, I guess not operating at full capacity in adding there that the numbers would pick up. Is this just training or what would you account it to?
Robert Gasparini
I think it’s a combination of things. I think it’s a combination of, you know the people that we hired, we have started to bring on board a number of the interns and students that have gone through our laboratory from the various educational programs where they spend anywhere from two to six months here and so there is a learning curve.
I think it is the teams getting use to high volume, high through put testing as our numbers continue to go up and even though we’re not at capacity, there’s still systems that break and need to be fixed. I think it’s---
Sheila Donahue-Marlin Capital
Would you say that the 2008 turn around times, the goal for it is higher or lower than these?
Robert Gasparini
Our 2008 goals are lower and I actually have January’s data in front of me and literally across the board, we averaged four days for GPS in January, just to give you a comparison, we averaged 0.3 days for flow, I don’t know what that 0.3 days is six hours I guess for the average flow .And by the way, our January volumes for flow were the highest ever. We’re averaged percentage for FISH 3.9 days and for January for cytogenetics 4.4.
So the answer to your question is an unequivocal yes, we have dropped that down below where we put the upper end of acceptability for the last three months now. We just don’t have the numbers in front of me for February, but they should be just about done, it’s usually around the middle of the following month.
And so, if you ask that same question at the end of Q1, it should be significantly lower. One last thing, let me superimpose on what I said.
I mentioned that we had four key hires at the end of 2007 that really helped us streamline and drive operations and I mentioned that one of those key hires was laboratory operations. Well that was the individual who I introduced earlier today, Mr.
Bill Tilton, who is our general manager of lab ops or laboratory ops and having someone like Bill, who has been building and driving laboratories has been a real bonus for NeoGenomics. I no longer have to be, you know the laboratory directors or the laboratory managers.
Bill is driving ops in all three of the laboratories now we’re poured up through him, including our operations director here as well as Tennessee and California and Bill is mobile enough where he splits his time between the three sites. So that’s really primary I think.
Getting a team trained and then getting leadership on the ground in place has really started to pay off in January, February and March of 2008.
Sheila Donahue-Marlin Capital
Okay excellent and then with regards to, it sounds like seven sales people were hired for a total of 16, that makes me think some were let go and I’m just wondering about your, the experience with the sale people, the philosophy, how you hire, how you fire et cetera.
Robert Gasparini
Sure, I can absolutely speak to that. As you’re aware and many others on the line are aware, we have operated for the last year or so almost with one hand tied behind our backs.
We have been subject to a barrage of litigation and motions from the opposing side and really all revolving around hiring some of their teams that had left back in 2006. With those constraints in place we’ve actually had to let go, based on lack of performance or poor performance, for lack of a less subjective word, probably three or four of the sales reps in 2007 from, I think we lost the first one in July and probably two or maybe even three more through the end of the year.
Where the legal constraints the only reason? Perhaps not, but they were a significant and subtenant reasons, so yes we have been hiring additional sales reps, but our threshold for performance is short because we’ve been in a position of, you know we had a wonderful Q3 where we had 33% sequential growth, we’ve followed that now with 22% sequential growth in Q4 of ’07 and so there is a lot of pressure by the sales teams themselves, put on themselves, to drive hard.
And those that are not driving hard literally, from the moment they hit the ground with perhaps, you know, a one to two month ramp-up period have not survived.
Sheila Donahue-Marlin Capital
Okay and the space expansion relative to capacity utilization, do you think you’re expecting big things for 2008 to fill up the space or can you elaborate on that?
Robert Gasparini
Yes, do you want to handle guidance or lack there of Steve?
Steven Jones
Well, we got so badly burned by giving out guidance last year that we’re not giving out full year revenue guidance this year. But I will tell you that we are quite optimistic that we have everything in place to begin the final scale revenue without it impacting the quality of service or costing a lot of incremental money into our cost structure.
We do have in the budget at least eight more hires for sales personnel through the end of the year and we’ll start hiring those here beginning in Q2, in fact I believe people are already identified. For the first time in our corporate existence we actually have everything we need in place to scale without playing catch up and the addition of Bill Tilton, as Bob mentioned, has allowed Bob to free up half of his time to go out and get back in front of customers again.
Bob is the actual best sales person we have in the company and he’s got a killer close rate and so we’re going to be putting him on the road here much more often than we have in the last two quarters. So, we’re getting these things behind us now that were hanging us up in the growth phase and we’re hopeful that we can start scaling like a larger company.
Sheila Donahue-Marlin Capital
Okay, my final question and thank you for your time. The penalty that you are accruing for the registration not going effective and you say it, again not knowing, 30 to 45 days.
Is this because the SEC, you think, has everything they need, it’s a matter of waiting on them?
Steven Jones
They have the ability to take 30 days to respond to every single letter we send them. We are getting ready to send them another letter, which we think will clear all of the final comments, probably by the end of this week, we just have to get our auditors to sign off on a few more numbers, but everything is done, we just have to get the letter back up to the SEC.
Sheila Donahue-Marlin Capital
And then 30 to 40, 30 days they have from that time.
Steven Jones
Right and I don’t believe they will have any remaining issues, but you know I can’t predict what the SEC does.
Sheila Donahue-Marlin Capital
But you do believe you can get that letter out within the week?
Steven Jones
Oh yes, absolutely.
Sheila Donahue-Marlin Capital
Okay thank you for your time.
Steven Jones
Thank you.
Operator
There are no further questions at this time. I’d like to turn the floor back over to management for any closing comments.
Robert Gasparini
Thank you, this is Bob. Before we sign off I’d like to take a moment to recognize all the NeoGenomics team members for their dedication and commitment to building this world class cancer testing program.
Although some may be listening to this call, they are all most likely hard at work at their respective jobs. One of the more gratifying aspects of the position I have is to be able to work and interact with professionals here at NeoGenomics whose mantra for our cancer patients truly is “when time matters and patient results count’.
On behalf of all of us here at NeoGenomics laboratories, I would like to thank you for your time in joining us this morning on this 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 drive shareholder value in 2008.
We are all looking forward to talking with you at our Q1 08 earnings release which should be some time around mid May. Good bye.
Operator
Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and we thank you for your participation.