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NantHealth Reports 16% Increase in 2017 First Quarter Total Net Revenue; SaaS Revenue Rose 11% and GPS Adoption Continues to Climb

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NantHealth, Inc. (NASDAQ-GS: NH), a next-generation, evidence-based,
personalized healthcare company, today reported financial results for
its first quarter ended March 31, 2017.

GPS Cancer – Highlights

  • GPS Cancer Test to Be Complementary Diagnostic for FDA Authorized
    Nant Cancer Vaccine Clinical Trials.
    The NANT Cancer Vaccine is
    the first combination immunotherapy protocol to orchestrate the
    delivery of metronomic low-dose radiation and chemotherapy with
    molecularly-informed, tumor-associated antigen vaccines and natural
    killer cells, to activate the innate and adaptive immune system and to
    induce immunogenic cell death. By inducing immunogenic cell death and
    protecting as well as enhancing the innate and adaptive immune system,
    the NANT Cancer Vaccine seeks to attain long-term sustainable
    remission of multiple tumor types with lower toxicity and higher
    efficacy than current standards of care.
  • Number of covered cancer lives: at March 31, 2017, the
    estimated number of patients with cancer covered by a payer for GPS
    testing was approximately 327,000 including lives anticipated upon
    completion of a pilot project with Horizon Blue Cross Blue Shield.
  • Number of GPS Cancer payers: at March 31, 2017, the number of
    payers covering GPS Cancer was 10.
  • Local Coverage Determination (LCD) & National Coverage by CMS:
    Discussions are underway for both local and national coverage with CMS
    and FDA regarding GPS Cancer coverage by Medicare. The company is
    encouraged following multiple detailed meetings with CMS in which the
    accuracy and comprehensiveness of the GPS Cancer test, as well as its
    clinical utility, were presented.
  • Number of GPS Cancer Tests: 365 commercial tests ordered and
    266 delivered in Q1.
  • Expanded adoption of GPS Cancer with addition of new
    international payer/reseller for a total of four.
  • Expanded field sales and clinical team: doubled field sales
    team that call on oncologists, expanding our footprint; and increased
    clinical support for oncologists engaged with our GPS Cancer team,
    ensuring full clinical utility is recognized and reorder is supported.

"We continue to focus on extending coverage for our GPS Cancer Test in
the commercial health insurance and self-employed payer markets," said
Patrick Soon-Shiong, M.D., Chief Executive Officer and Chairman of
NantHealth. "During the recently completed quarter, we successfully
completed and executed two payer agreements and added one new
international reseller. In addition, we have recently introduced pilot
programs to accelerate adoption. As part of these programs, commercial
insurance payers agree to pay for a certain number of GPS profiles as
part of the pilot project. We have also developed a GPS Cancer benefit
option that can be purchased as a supplement to existing benefits
through aggregators. Our first group is expected to come on board in
late Q3. Last, we are ramping up our efforts to educate the oncology
community and CMS about the benefits and value of GPS Cancer. We have
made significant additional investments in experienced sales and account
management staff. Dr. Bobby Reddy, former chief medical officer at
Caris, has joined NantHealth as chief medical officer to lead the
clinical GPS Cancer initiatives. In addition, Ron Louks, former
president of devices and emerging solutions at Blackberry, former chief
strategy officer of HTC and former chief technology officer at Sony
Ericsson, has joined in the capacity of chief operating officer."

Value Based Care Software and Services – Highlights

During the first quarter, the company:

  • Completed 28 go-live projects across NantOS (Provider and Patient
    Engagement), Device Connects (Connected Care) and NaviNet (Payer
    Engagement)
  • Increased, renewed or expanded 59 contractual commitments
  • Eviti (Clinical Decision Support) covered lives increased to
    approximately 22.5 million at the end of Q1 from 19.2 million at the
    end of Q4
  • Expanded license sale to strategic international customer

Ron Louks, Chief Operating Officer of NantHealth, stated, "Growth from
our SaaS business was the key driver to our first quarter total net
revenue increase. We continued to add Device Connect licenses, client
sites and Eviti covered lives. In the month of April, we recorded
significant new customer wins in Europe and the US."

Financial Highlights

For the 2017 first quarter, total net revenue increased 16% to $22.5
million from $19.5 million in 2016 first quarter. Gross profit was $3.5
million compared with $6.4 million. Selling, general and administrative
(SG&A) expenses declined 24% to $20.9 million from $27.4 million for the
prior year first quarter. Research and development (R&D) expenses
increased to $13.4 million from $10.7 million. For the first quarter of
2017, the company recorded loss from related party equity method
investment of $4.5 million, which compares to $2.9 million in last
year's first quarter. Net loss was $41.1 million, or $0.34 per share,
compared with $33.1 million, or $0.36 per share, for 2016 first quarter.

Financial results for the 2017 first quarter included approximately $4.5
million loss from related party equity method investment, $0.8 million
of net non-cash expense related to convertible notes and $5.2 million of
intangible amortization, equal to $0.09 per share in total. On a
non-GAAP basis, adjusted net loss was $29.2 million, or $0.24 per share,
for the 2017 first quarter, compared with $20.4 million, or $0.18 per
share, in the prior year first quarter.

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 first quarter
ended March 31, 2017. 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 20821504. 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 such topics as, but not limited to, the company's
financial status and performance, regulatory and operational
developments, and any 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 tissues 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, which includes its unique
software, middleware and hardware systems infrastructure that collects,
indexes, analyzes and interprets billions of molecular, clinical,
operational and financial data points derived from novel and traditional
sources, continuously improves decision-making and further optimizes our
clinical pathways and decision algorithms over time. For more
information please visit www.nanthealth.com.

About GPS Cancer™

GPS Cancer™ is a unique, comprehensive test available through
NantHealth. GPS Cancer integrates whole genome (DNA) sequencing, whole
transcriptome (RNA) sequencing, and quantitative proteomics through mass
spectrometry, 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, and is a key enabler for Cancer
Breakthroughs 2020, the world's most comprehensive cancer collaborative
initiative seeking to accelerate the potential of combination
immunotherapy as the next generation standard of care in cancer
patients. For more information, visit www.gpscancer.com and
www.cancerbreakthroughs2020.org.

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 payors' 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, NantOS and NantOS apps;
successfully enhancing our Systems Infrastructure, NantOS or NantOS apps
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; and unexpected adverse events. 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)

       
March 31, December 31,
2017 2016
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 124,894 $ 160,353
Accounts receivable, net 8,924 13,728
Inventories 2,175 2,217
Deferred implementation costs 3,469 3,336
Related party receivables, net 910 899
Prepaid expenses and other current assets   5,760     5,046  
Total current assets 146,132 185,579
Property, plant, and equipment, net 33,072 29,139
Deferred implementation costs, net of current 8,470 7,910
Goodwill 131,068 131,068
Intangible assets, net 113,906 119,126
Investment in related party 202,671 207,197
Related party receivable, net of current 1,964 1,971
Other assets   2,259     2,317  
Total assets $ 639,542   $ 684,307  
 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 3,729 $ 6,720
Accrued and other current liabilities 21,277 25,231
Deferred revenue 16,537 17,216
Related party payables, net   9,451     8,082  
Total current liabilities 50,994 57,249
Deferred revenue, net of current 18,279 17,238
Related party liabilities 7,048 5,612
Related party promissory note 112,666 112,666
Related party convertible note, net 7,655 7,564
Convertible notes, net 71,770 70,810
Other liabilities   1,611     1,574  
Total liabilities   270,023     272,713  
 
Stockholders' equity
Common stock, $0.0001 par value per share, 750,000,000 shares
authorized; 121,626,567 and 121,250,437 shares issued and
outstanding at March 31, 2017 and December 31, 2016, respectively
(Including 6,976 shares of restricted stock)
12 12
Additional paid-in capital 885,355 886,334
Accumulated deficit (516,388 ) (475,273 )
Accumulated other comprehensive income   540     521  
Total stockholders' equity   369,519     411,594  
Total liabilities and stockholders' equity $ 639,542   $ 684,307  
 
NantHealth, Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
     
Three Months Ended
March 31,
2017 2016
 
Total Net Revenue $ 22,509 $ 19,451
 
Total Cost of Revenue   19,029     13,038  
Gross profit   3,480     6,413  
 
Operating Expenses:
Selling, general and administrative 20,878 27,373
Research and development 13,399 10,694
Amortization of software license and acquisition-related assets   1,814     1,815  
Total operating expenses   36,091     39,882  
Loss from operations (32,611 ) (33,469 )
Interest expense, net (3,969 ) (1,498 )
Other income, net 273 338
Loss from related party equity method investment   (4,526 )   (2,914 )
Loss before income taxes (40,833 ) (37,543 )
Provision for (benefit from) income taxes   282     (4,398 )
Net loss $ (41,115 ) $ (33,145 )
 
Net income (loss) per share (1):
Basic and diluted - common stock $ (0.34 ) $ (0.36 )
Basic and diluted - redeemable common stock   N/A   $ 0.25  
 
Weighted average shares outstanding (1):
Basic and diluted - common stock   121,618,039     99,651,444  
Basic and diluted - redeemable common stock   N/A     10,714,285  
   

Footnote:

1) The net income (loss) per share and weighted average shares
outstanding for the three months ended March 31, 2016, have been
computed to give effect to the LLC Conversion that occurred on June
1, 2016, prior to the Company's initial public offering ("IPO"). In
conjunction with the LLC Conversion, (a) all of the Company's
outstanding units automatically converted into shares of common
stock, based on the relative rights of the Company's pre-IPO
equityholders as set forth in the Company's limited liability
company agreement and (b) the Company adopted and filed a
certificate of incorporation with the Secretary of State of the
state of Delaware and adopted bylaws. The Company adopted and filed
an amendment to its certificate of incorporation with the Secretary
of State of the state of Delaware to effect a 1-for-5.5 reverse
stock split of its common stock on June 1, 2016.
 
The net loss per share for the common stock for the three months
ended March 31, 2016 reflects $2,625 in accretion value allocated to
the redeemable common stock. The redeemable common stock contained a
put right, which expired unexercised on June 20, 2016. As a result
of and as of that date, the shares were no longer redeemable and
were included in common stock.
 
NantHealth, Inc.
Supplemental Revenue Schedule
(Dollars in thousands)
(Unaudited)
   
Three Months Ended
March 31,
2017 2016
 
Revenue:
Software and hardware $ 645 $ 674
Software-as-a-service   15,231   13,701
Total software-related revenue 15,876 14,375
Maintenance 3,162 3,138
Sequencing and molecular analysis 510 -
Other services   2,961   1,938
Total net revenue $ 22,509 $ 19,451
 
Cost of Revenue:
Software and hardware $ 312 $ 239
Software-as-a-service   7,233   4,423
Total software-related cost of revenue 7,545 4,662
Maintenance 862 530
Sequencing and molecular analysis 1,538 -
Other services 5,678 3,565
Amortization of developed technologies   3,406   4,281
Total cost of revenue $ 19,029 $ 13,038
 
NantHealth, Inc.
Non-GAAP Net Loss and Non-GAAP Net Loss Per Share
(Dollars in thousands, except per share amounts)
(Unaudited)
     
Three Months Ended
March 31,
2017 2016
 
Net loss $ (41,115 ) $ (33,145 )
Adjustments to GAAP net loss:
Loss from related party equity method investment 4,526 2,914
Stock-based compensation expense 250 98
Corporate restructuring 220 1,966
Acquisition related compensation expense - 4,814
Acquisition related sales incentive 662 1,420
Change in fair value of derivatives liability (215 ) -
Non-cash interest expense related to convertible notes 1,051 -
Intangible amortization 5,220 6,096
Impact of intangibles amortization on provision for (benefit from)
income taxes
  233     (4,528 )
Total adjustments to GAAP net loss   11,947     12,780  
Net loss - Non-GAAP $ (29,168 ) $ (20,365 )
 
Weighted average shares outstanding (1) 121,618,039 99,651,444
Weighted average Series F/redeemable common stock (1)(2)   -     10,714,285  
Shares outstanding - Non-GAAP (1)   121,618,039     110,365,729  
 
Net loss per share - Non-GAAP (1) $ (0.24 ) $ (0.18 )
 
Reconciliation of Net Loss per Common Share to Non-GAAP Net Loss
per Common Share:
Net loss per common share - GAAP $ (0.34 ) $ (0.36 )
Adjustments to GAAP net loss per common share
Loss from related party equity method investment 0.04 0.03
Stock-based compensation expense - -
Corporate restructuring - 0.02
Acquisition related compensation expense - 0.05
Acquisition related sales incentive 0.01 0.01
Change in fair value of derivatives liability - -
Non-cash interest expense related to convertible notes 0.01 -
Intangible amortization 0.04 0.07
Impact of intangibles amortization on provision for (benefit from)
income taxes
- (0.05 )
Accretion to redemption value of Series F/redeemable common stock - 0.03
Dilution from Series F/redeemable common stock   -     0.02  
Total adjustments to GAAP net loss per common share   0.10     0.18  
 
Net loss per share - Non-GAAP (1) $ (0.24 ) $ (0.18 )
1)   The net loss per share - non-GAAP, weighted average shares
outstanding, weighted average Series F units/redeemable stock and
shares outstanding - non-GAAP have been computed to give effect to
the LLC conversion that occurred June 1, 2016 prior to our IPO. In
conjunction with the LLC Conversion, (a) all of our outstanding
units automatically converted into shares of common stock, based on
the relative rights of our pre-IPO equityholders as set forth in the
limited liability company agreement and (b) we adopted and filed a
certificate of incorporation with the Secretary of State of the
state of Delaware and adopted bylaws. We filed an amended
certificate of incorporation to effect a 1-for-5.5 reverse stock
split of our common stock on June 1, 2016.
 
2) The weighted average shares outstanding have been further adjusted
to account for the redeemable Series F units (converted to common
stock in conjunction with the LLC conversion), whose Put Right
expired on June 20, 2016. Prior to June 20, 2016, these units/shares
of common stock were classified as redeemable members'/stockholders'
equity in the balance sheet, and as such, were not included in the
weighted-average shares outstanding prior to June 20, 2016. The Put
Right expired June 20, 2016, and the shares were no longer
redeemable and are included in stockholders' equity following that
day. The weighted-average shares are adjusted to include the
redeemable common stock in the weighted average shares outstanding
for the entire period.

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