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Here's Why NeoGenomics Is Tumbling Today

By Maxx Chatsko - Apr 30, 2020 at 12:07PM

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The company decided to pull the trigger on a combined offering of stock and debt to pad its balance sheet during uncertain times.

What happened

Shares of NeoGenomics (NEO -6.43%) fell as much as 10.6% today after the company announced two fundraising transactions. The one dragging down the stock price today is the public offering of common stock. The oncology reference lab intends to offer up to approximately 5 million shares at $28.50 apiece. If all shares are gobbled up by investors, then the company would realize gross proceeds of up to $144 million.

Whereas the public offering of common stock will dilute shareholders immediately, the other fundraising transaction, an offering of convertible debt, is a more distant concern. NeoGenomics will sell $175 million in 1.25% convertible debt that comes due in 2025. The debt is called "convertible" because it can be cashed in for shares of common stock but likely not until the maturity date in the middle of the decade. It basically represents the potential for future dilution, although the company can also purchase the debt with cash.

The two fundraising transactions could provide the business with up to $319 million in gross proceeds. Investors tuned into management's strategy don't have to be too imaginative to guess what the proceeds will be used for. As of 11:22 a.m. EDT, the growth stock had settled to a 9.2% loss.

Declining arrows drawn on a chalkboard.

Image source: Getty Images.

So what

NeoGenomics has been feeling the pinch from movement restrictions put in place by governments trying to slow the coronavirus pandemic. On the first-quarter 2020 earnings conference call, management said test volumes had fallen by 25% to 30% in April compared to the year-ago period.

Despite the impact on the company's growth trajectory and bottom line, NeoGenomics said it will not lay off or furlough employees. Instead, the business has committed to keeping employees engaged so they're ready for an expected surge in test volumes when movement restrictions are lifted.

But weathering short-term uncertainty isn't the most likely use of the latest fundraising. NeoGenomics said it has no plans to depart from its growth and expansion strategy, which relies heavily on acquisitions in the highly fragmented genetic testing space. Therefore, investors might expect the company to be on the prowl to bail out smaller peers that fall on hard times during the unfolding economic uncertainty.

Now what

NeoGenomics exited March with $86 million in cash. The latest fundraising transactions will lift that to more than $350 million once fees are deducted. In other words, the oncology reference lab will soon have one of the highest cash balances in recent memory. Considering the coronavirus pandemic is only expected to result in a temporary slowdown, and the underlying business is the strongest it's ever been, investors with a long-term mindset might be intrigued about what happens next.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NeoGenomics, Inc. The Motley Fool has a disclosure policy.

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