NH NantHealth Inc

• Total Revenue in Q3 was $22.3 Million
  • SaaS revenue of $15.9 million in Q3, up 5% from $15.2 million in prior year Q3
  • Enhanced efficiencies continued to drive reduced operating expenses and improved adjusted bottom line results
• Sequencing and Molecular Analysis, 930 total tests ordered in Q3, including 461 GPS Cancer® and 469 Liquid GPS® Tests; continued sequential quarterly growth in total tests ordered
• Appointed new executives to lead the company’s strategy and business development, as well as global sales
• SaaS business hit all time high with approximately 80 million covered lives across Eviti and NaviNet

NantHealth, Inc. (NASDAQ-GS: NH), a next-generation, evidence-based, personalized healthcare company, today reported financial results for its third quarter ended September 30, 2018.

Sequencing and Molecular Analysis – Highlights

• In September 2018, at the IASLC 19th World Conference on Lung Cancer, the company and NantOmics presented two posters and a mini-oral presentation titled “Blood Based Biomarkers: RNA, KRAS and PD-L1 Strongly Matching with Tissue and Showing Correlation with Clinical Responses In NSCLC Patients,” with investigational data showing (i) association between clinical response and changes in plasma cfRNA levels and (ii) that plasma levels of PD-L1 expression, while on immunotherapy, could be used to monitor clinical responses.
• In October 2018, at ESMO, the world’s second largest cancer symposium, the company, along with NantOmics, conducted one oral presentation and presented four papers, including papers demonstrating the promise of Liquid GPS, the company’s blood-based molecular test that provides oncologists with a powerful tool for non-invasive tumor profiling and quantitative monitoring of treatment response.
• Expanded Sequencing and Molecular Analysis Reimbursement Arrangements: In Q3, the company expanded its GPS reimbursement contract with a large, national employer in the healthcare industry to include reimbursement for its Liquid GPS test and, in Q4, the company expanded GPS Cancer and Liquid GPS coverage for firefighters through the execution of an additional reimbursement contract benefiting members of a city-wide firefighter union.

“We recently made two oral presentations at major medical congresses, highlighting the unique aspects of our liquid biopsy platform that are different from ctDNA platforms offered by Guardant Health, Foundation Medicine and other laboratories,” said Sandeep (Bobby) Reddy, M.D., Chief Medical Officer of NantHealth. “Only Liquid GPS can produce this type of data on chemotherapy selection and immunotherapy selection. Moreover, the review committees of two different organizations felt that this data was sufficiently important to warrant oral presentation. This further validates our belief that circulating RNA expression, not DNA alone, is the liquid biopsy technology that will transform medical practice.”

Software and Services Highlights:

• Payer Engagement (NaviNet):
  • In Q3, executed a large-scale implementation of NaviNet Open Authorizations with a key customer, adding more than 40,000 end users, bringing total active number of users to 862,000
• Clinical Decision Support (Eviti):
  • Released new functionality with drug specific justifications, enabling the capture of key data to ensure quicker pre-authorization and clinical integrity.
  • Completed a new statewide implementation with a large existing payer in Kentucky, adding 250,000 covered lives. This implementation followed a similar success in Florida in Q2 for the same national payer.
• Connected Care:
  • In Q4, collaborated with B. Braun Australia, GE Healthcare and iProcedures to demonstrate the exchange of data between patient devices and medical records at the HIMSS Interoperability Showcase™ as part of the Healthcare Information and Management Systems Society (HIMSS) Asia Pacific Conference.

“We are pleased to report that total net revenue for the 2018 third quarter increased to $22.3 million, up from the comparable prior year period, as well as on a sequential quarterly basis,” said Bob Petrou, Interim Chief Financial Officer of NantHealth. “Looking ahead, the recent addition of two new executives to lead our strategy and business development, and global sales efforts will help us expand our business in both the U.S. and international markets.”

Business and Financial Highlights

The company adopted a new revenue recognition standard on January 1, 2018. Please note that the financial results presented below include both amounts “as presented,” which reflect implementation of the new revenue recognition standard, as well as amounts prior to the impact of the new revenue recognition standard to allow for comparability against historical results. Starting in fiscal year 2019, the company will no longer present its GAAP and Non-GAAP financial results under the previous revenue recognition standard. For additional information and reconciliations of our financial results between the new and previous revenue recognition standard, see the additional tables included in this press release and in the company’s Form 10-Q to be filed with the Securities and Exchange Commission.

For the 2018 third quarter, total net revenue as presented was $22.3 million. Total 2018 third quarter net revenue prior to the impact of the new revenue recognition standard increased to $22.0 million from $21.8 million in 2017 third quarter. Gross profit as presented was $11.1 million, or 50% of total net revenue. Gross profit prior to the impact of the new revenue recognition standard was $10.8 million, or 49% of total net revenue, compared with $10.3 million, or 47% of total net revenue, for the prior-year third quarter. Selling, general and administrative (SG&A) expenses as presented were $17.0 million. SG&A prior to the impact of the new revenue recognition standard was $16.9 million compared with $17.5 million in 2017 third quarter. Research and development (R&D) expenses as presented decreased to $4.8 million from $7.7 million; the new revenue recognition standard did not impact R&D expenses.

Financial results for the third quarter of 2018 included a non-cash charge for loss from related party equity method investment, including impairment, of $83.3 million. Net loss from continuing operations, net of tax, as presented was $97.4 million, or $0.89 per share. Net loss from continuing operations, net of tax, prior to the impact of the new revenue recognition standard was $97.5 million, or $0.89 per share, from $23.0 million, or $0.20 per share for the 2017 third quarter. Loss from discontinued operations, net of tax, as presented was $32,000, or $0.00 per share, compared with $19.4 million, or $0.17 per share; the new revenue recognition standard did not impact loss from discontinued operations. Net loss as presented was $97.5 million, or $0.89 per share. Net loss prior to the impact of the new revenue recognition standard was $97.5 million, or $0.89 per share, compared with $42.4 million, or $0.37 per share, for 2017 third quarter.

For the 2018 third quarter, on a non-GAAP basis, adjusted net loss from continuing operations as presented was $10.8 million, or $0.10 per share. On a non-GAAP basis, adjusted net loss from continuing operations prior to the impact of the new revenue recognition standard was $10.9 million, or $0.10 per share, compared with $14.9 million, or $0.13 per share, for the 2017 third quarter.

In August 2017, NantHealth sold its provider/patient engagement assets to Allscripts to focus on core competencies and accelerate the plan to achieve profitability. As a result, the company has classified the current and prior period operating results of its provider/patient engagement business as discontinued operations. All results presented above represent the company’s continuing operations.

Conference Call Information and Forward-Looking Statements

Later today, the company will host a conference call at 1:30 p.m. PT (4:30 p.m. ET) to review its results of operations for the third quarter ended September 30, 2018. The conference call will be available to interested parties by dialing 844-309-3709 from the U.S. or Canada, or 281-962-4864 from international locations, passcode 9992769. The call will be broadcast via the Internet at www.nanthealth.com. Listeners are encouraged to visit the website at least 10 minutes prior to the start of the scheduled presentation to register, download and install any necessary audio software. A playback of the call will be archived and accessible on the same website for at least three months.

Discussion during the conference call may include forward-looking statements regarding topics such as the company’s financial status and performance, regulatory and operational developments, and other comments the company may make about its future plans or prospects in response to questions from participants on the conference call.

Use of Non-GAAP Financial Measures

This news release contains references to Non-GAAP financial measures, including adjusted net loss and adjusted net loss per share, which are financial measures that are not prepared in conformity with United States generally accepted accounting principles (U.S. GAAP). The Company’s management believes that the presentation of Non-GAAP financial measures provides useful supplementary information regarding operational performance, because it enhances an investor’s overall understanding of the financial results for the Company’s core business. Additionally, it provides a basis for the comparison of the financial results for the Company’s core business between current, past and future periods. Other companies may define these measures in different ways. Non-GAAP financial measures should be considered only as a supplement to, and not as a substitute for or as a superior measure to, financial measures prepared in accordance with U.S. GAAP. Non-GAAP per share numbers are calculated based on one class of common stock and do not incorporate the effects, if any, of using the two-class method.

About NantHealth, Inc.

NantHealth, Inc., a member of the NantWorks ecosystem of companies, is a next-generation, evidence-based, personalized healthcare company enabling improved patient outcomes and more effective treatment decisions for critical illnesses. NantHealth's unique systems-based approach to personalized healthcare applies novel diagnostics tailored to the specific molecular profiles of patient tissue and integrates this molecular data in a clinical setting with large-scale, real-time biometric signal and phenotypic data to track patient outcomes and deliver precision medicine. For nearly a decade, NantHealth has developed an adaptive learning system that integrates our unique molecular profiling solution, software and hardware. Our system infrastructure collects, indexes, analyzes and interprets billions of molecular, clinical, operational and financial data points derived from novel and traditional sources to continuously improve decision-making and optimize our clinical pathways and decision algorithms over time. For more information please visit https://www.nanthealth.com/.

About GPS Cancer®

GPS Cancer® is a unique, comprehensive test available through NantHealth. GPS Cancer integrates tumor/normal DNA and RNA sequencing, with enhanced expression analysis and bioinformatics of complex biologic pathway systems, providing oncologists with a comprehensive molecular profile of a patient’s cancer to inform personalized treatment strategies. GPS Cancer testing is conducted in CLIA-certified and CAP-accredited laboratories. For more information, visit https://www.nanthealth.com/gps-cancer/.

About Liquid GPS®

Liquid GPS is a blood-based molecular test that provides oncologists with a powerful tool for noninvasive tumor profiling and quantitative monitoring of treatment response. Liquid GPS looks beyond cfDNA to cfRNA, which allows profiling and trending of actionable biomarkers that cannot be assessed through cfDNA alone. In addition to providing molecular insight into key guidelines-based biomarkers (e.g., EGFR, ALK, ROS1, KRAS), this powerful RNA-based approach enables a variety of capabilities and applications not typically available from a liquid biopsy test. For more information, visit https://www.nanthealth.com/liquid-gps/.

This news release contains certain statements of a forward-looking nature relating to future events or future business performance. Forward-looking statements can be identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates,” “plans,” “will,” “outlook” and similar expressions. Forward-looking statements are based on management’s current plans, estimates, assumptions and projections, and speak only as of the date they are made. Risks and uncertainties include, but are not limited to: our ability to successfully integrate a complex learning system to address a wide range of healthcare issues; our ability to successfully amass the requisite data to achieve maximum network effects; appropriately allocating financial and human resources across a broad array of product and service offerings; raising additional capital as necessary to fund our operations; achieving significant commercial market acceptance for our sequencing and molecular analysis solutions; establish relationships with, key thought leaders or payers’ key decision makers in order to establish GPS Cancer as a standard of care for patients with cancer; our ability to grow the market for our Systems Infrastructure, and applications; successfully enhancing our Systems Infrastructure and applications to achieve market acceptance and keep pace with technological developments; customer concentration; competition; security breaches; bandwidth limitations; our ability to continue our relationship with NantOmics; our ability to obtain regulatory approvals; dependence upon senior management; the need to comply with and meet applicable laws and regulations; unexpected adverse events; clinical adoption and market acceptance of GPS Cancer; and anticipated cost savings. We undertake no obligation to update any forward-looking statement in light of new information or future events, except as otherwise required by law. Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and are generally beyond our control. Actual results or outcomes may differ materially from those implied by the forward-looking statements as a result of the impact of a number of factors, many of which are discussed in more detail in our reports filed with the Securities and Exchange Commission.

  NantHealth, Inc. Condensed Consolidated Balance Sheets (Dollars in thousands, except per share amounts)     September 30,

2018

December 31,

2017

(Unaudited) Assets Current assets Cash and cash equivalents $ 22,841 $ 61,660 Accounts receivable, net 17,202 11,491 Inventories 654 839 Deferred implementation costs 11 1,960 Related party receivables, net 1,293 585 Prepaid expenses and other current assets   5,188     5,358   Total current assets 47,189 81,893 Property, plant, and equipment, net 24,942 18,517 Deferred implementation costs, net of current 3 3,951 Goodwill 115,930 114,625 Intangible assets, net 66,990 69,424 Investment in related party 59,000 156,863 Related party receivable, net of current 1,611 1,727 Other assets   1,848     2,195   Total assets $ 317,513   $ 449,195     Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 2,222 $ 3,164 Accrued and other current liabilities 15,562 18,134 Deferred revenue 14,866 10,057 Related party payables, net   5,283     4,504   Total current liabilities 37,933 35,859 Deferred revenue, net of current 8,061 7,126 Related party liabilities 16,138 11,500 Related party promissory note 112,666 112,666 Related party convertible note, net 8,265 7,947 Convertible notes, net 78,230 74,845 Other liabilities   5,025     5,950   Total liabilities   266,318     255,893     Stockholders' equity Common stock, $0.0001 par value per share, 750,000,000 shares authorized; 109,491,277 and 108,383,602 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively (including 3,490 shares of restricted stock at both dates) 11 10 Additional paid-in capital 886,363 886,669 Accumulated deficit (834,999 ) (693,233 ) Accumulated other comprehensive loss   (180 )   (144 ) Total stockholders' equity   51,195     193,302   Total liabilities and stockholders' equity $ 317,513   $ 449,195       NantHealth, Inc. Condensed Consolidated Statements of Operations (Dollars in thousands, except per share amounts) (Unaudited)     Three Months Ended

September 30,

Nine Months Ended

September 30,

  2018     2017     2018     2017     Total net revenue $ 22,292 $ 21,760 $ 66,603 $ 64,378 Total cost of revenue   11,226     11,472     32,878     32,643   Gross Profit   11,066     10,288     33,725     31,735     Operating Expenses: Selling, general and administrative 17,001 17,521 56,123 54,181 Research and development 4,835 7,749 15,875 25,051 Amortization of acquisition-related assets   1,054     1,054     3,163     3,163   Total operating expenses   22,890     26,324     75,161     82,395     Loss from operations (11,824 ) (16,036 ) (41,436 ) (50,660 ) Interest expense, net (4,306 ) (4,067 ) (12,766 ) (12,049 ) Other income (expense), net 226 60 (928 ) 308 Loss from related party equity method investment, including impairment   (83,306 )   (2,942 )   (89,512 )   (46,353 ) Loss from continuing operations before income taxes (99,210 ) (22,985 ) (144,642 ) (108,754 ) (Benefit from) provision for income taxes   (1,778 )   30     (3,429 )   85   Net loss from continuing operations (97,432 ) (23,015 ) (141,213 ) (108,839 ) Loss from discontinued operations, net of tax   (32 )   (19,383 )   (1,817 )   (44,738 ) Net loss $ (97,464 ) $ (42,398 ) $ (143,030 ) $ (153,577 )   Net loss per share: Continuing operations Basic and diluted - common stock $ (0.89 ) $ (0.20 ) $ (1.29 ) $ (0.91 )   Discontinued operations Basic and diluted - common stock $ —   $ (0.17 ) $ (0.02 ) $ (0.37 )   Total net income (loss) per share Basic and diluted - common stock $ (0.89 ) $ (0.37 ) $ (1.31 ) $ (1.28 )   Weighted average shares outstanding: Basic and diluted - common stock   109,471,712     115,924,122     109,060,408     119,745,231       NantHealth, Inc. Condensed Consolidated Statements of Operations Reconciliation of results under ASC 606 and ASC 605 (Dollars in thousands, except per share amounts) (Unaudited)                       Three Months Ended

September 30

Nine Months Ended

September 30

As Reported   Adjustments due to ASC 606   Without new Revenue Standard As Reported   Adjustments due to ASC 606   Without new Revenue Standard   2018       2018     2018       2018     Total net revenue 22,292 (258 ) 22,034 66,603 (1,615 ) 64,988 Total cost of revenue   11,226     (29 )   11,197     32,878     (111 )   32,767   Gross Profit   11,066     (229 )   10,837     33,725     (1,504 )   32,221     Operating Expenses: Selling, general and administrative 17,001 (59 ) 16,942 56,123 425 56,548 Research and development 4,835 — 4,835 15,875 — 15,875 Amortization of acquisition-related assets   1,054     —     1,054     3,163     —     3,163   Total operating expenses   22,890     (59 )   22,831     75,161     425     75,586     Loss from operations (11,824 ) (170 ) (11,994 ) (41,436 ) (1,929 ) (43,365 ) Interest expense, net (4,306 ) — (4,306 ) (12,766 ) — (12,766 ) Other income (expense), net 226 — 226 (928 ) — (928 ) Loss from related party equity method investment, including impairment   (83,306 )   —     (83,306 )   (89,512 )   —     (89,512 ) Loss from continuing operations before income taxes (99,210 ) (170 ) (99,380 ) (144,642 ) (1,929 ) (146,571 ) Benefit from income taxes   (1,778 )   (110 )   (1,888 )   (3,429 )   (349 )   (3,778 ) Net loss from continuing operations (97,432 ) (60 ) (97,492 ) (141,213 ) (1,580 ) (142,793 ) Loss from discontinued operations, net of tax   (32 )   —     (32 )   (1,817 )   —     (1,817 ) Net loss $ (97,464 )   (60 )   (97,524 ) $ (143,030 ) $ (1,580 )   (144,610 )   Net loss per share: Basic and diluted - common stock $ (0.89 ) $ —   $ (0.89 ) $ (1.31 ) $ (0.02 ) $ (1.33 )   Weighted average shares outstanding: Basic and diluted - common stock   109,471,712     —     109,471,712     109,060,408     —     109,060,408           NantHealth, Inc. Supplemental Revenue Schedule (Dollars in thousands) (Unaudited)   Three Months Ended

September 30,

Nine Months Ended

September 30,

  2018   2017   2018   2017   Revenue: Software-as-a-service related $ 15,937 $ 15,205 $ 48,323 $ 44,948 Software and hardware related 1,450 1,523 3,790 5,400 Maintenance   2,522   2,696   7,357   8,183 Total software-related revenue 19,909 19,424 59,470 58,531 Sequencing and molecular analysis 742 1,025 2,506 1,985 Home health care services   1,641   1,311   4,627   3,862 Total net revenue $ 22,292 $ 21,760 $ 66,603 $ 64,378   Cost of Revenue: Software-as-a-service related $ 5,863 $ 5,859 $ 18,205 $ 17,287 Software and hardware related 737 1,757 2,412 3,785 Maintenance 234 274 683 564 Amortization of developed technologies   1,233   1,143   3,700   4,029 Total software-related cost of revenue 8,067 9,033 25,000 25,665 Sequencing and molecular analysis 2,323 1,757 5,443 4,862 Home health care services   836   682   2,435   2,116 Total cost of revenue $ 11,226 $ 11,472 $ 32,878 $ 32,643     NantHealth, Inc. Non-GAAP Net Loss from Continuing Operations and

Non-GAAP Net Loss Per Share from Continuing Operations

(Dollars in thousands, except per share amounts) (Unaudited)     Three Months Ended

September 30,

Nine Months Ended

September 30,

  2018     2017     2018     2017     Net loss from continuing operations $ (97,432 ) $ (23,015 ) $ (141,213 ) $ (108,839 ) Adjustments to GAAP net loss: Loss from related party equity method investment including impairment loss 83,306 2,942 89,512 46,353 Stock-based compensation expense from continuing operations 373 (170 ) 4,805 (485 ) Corporate restructuring from continuing operations — 807 — 2,396 Acquisition related sales incentive 425 727 995 2,061 Change in fair value of derivatives liability (5 ) (6 ) (7 ) (245 ) Noncash interest expense related to convertible notes 1,273 1,121 3,702 3,260 Intangible amortization from continuing operations 2,287 2,197 6,863 7,192 Securities litigation costs 887 500 1,709 685 Impairment of equity securities — — 1,750 — Tax benefit resulting from certain noncash tax items   (1,943 )   —     (3,649 )   —   Total adjustments to GAAP net loss from continuing operations   86,603     8,118     105,680     61,217   Net loss - Non-GAAP from continuing operations $ (10,829 ) $ (14,897 ) $ (35,533 ) $ (47,622 )   Weighted average shares outstanding   109,471,712     115,924,122     109,060,408     119,745,231     Net loss per share from continuing operations - Non-GAAP $ (0.10 ) $ (0.13 ) $ (0.33 ) $ (0.40 )   Reconciliation of Net Loss from Continuing Operations per Common Share

to Net Loss per Common Share from Continuing Operations - Non-GAAP (Unaudited):

  Three Months Ended

September 30,

Nine Months Ended

September 30,

  2018     2017     2018     2017   Net loss per common share from continuing operations $ (0.89 ) $ (0.20 ) $ (1.29 ) $ (0.91 ) Adjustments to GAAP net loss per common share from continuing operations: Loss from related party equity method investment including impairment loss 0.77 0.03 0.82 0.39 Stock-based compensation expense from continuing operations — — 0.04 — Corporate restructuring from continuing operations — 0.01 — 0.02 Acquisition related sales incentive — 0.01 0.01 0.02 Change in fair value of derivatives liability — — — — Noncash interest expense related to convertible notes 0.01 0.01 0.03 0.03 Intangible amortization from continuing operations 0.02 0.01 0.05 0.04 Securities litigation costs 0.01 — 0.02 0.01 Impairment of equity securities — — 0.02 — Tax benefit resulting from certain noncash tax items   (0.02 )   —     (0.03 )   —   Total adjustments to GAAP net loss per common share from continuing operations   0.79     0.07     0.96     0.51   Net loss per common share from continuing operations - Non-GAAP $ (0.10 ) $ (0.13 ) $ (0.33 ) $ (0.40 )  

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Investor Contact:Robert Jafferjaffe@rjaffeco.com424.288.4098