Cepheid Reports 2012 Third Quarter Results

SUNNYVALE, Calif., Oct. 18, 2012 /PRNewswire/ -- Cepheid (Nasdaq: CPHD) today reported revenues for the third quarter of 2012 of $80.5 million, representing growth of 15% from $70.2 million for the third quarter of 2011.  Net loss was $21.3 million, or $(0.32) per share, which compares to net income of $1.9 million, or $0.03 per share, in the third quarter of 2011.  As anticipated, the third quarter net loss reflected a charge of $15.1 million, or $0.23 per share, associated with a litigation settlement.  

Excluding the litigation settlement, employee stock-based compensation and amortization of purchased intangible assets, non-GAAP net income for the third quarter was $0.9 million, or $0.01 per share.  This compares to non-GAAP net income of $7.6 million, or $0.11 per share, in the third quarter of 2011.

"Our third quarter revenues were consistent with our preliminary announcement, although the backorder level for clinical reagents was higher than expected at almost $7 million, reflecting increasing test demand," said John L. Bishop, Cepheid's Chief Executive Officer.  "As previously disclosed, the backorders resulted from intermittent interruption in availability of certain plastic parts used in the production of our Xpert® cartridges, which prevented the fulfillment of all test cartridge orders in the quarter and negatively impacted our financial results."

Continued Bishop, "In the first few weeks of October, we have already shipped substantially more than the $6.7 million in backorders from the third quarter.  We believe that we have a firm handle on the situation and expect it may take us through the first few weeks of November before all products are no longer on allocation, and we can fulfill customer demand with immediate shipments.  In the meantime, we are diligently working to minimize any potential customer disruption."

Operational Overview

  • Total product sales of $78.1 million in the third quarter of 2012 compared to $67.3 million in the third quarter of 2011.  By business, product sales were, in millions:

Three Months Ended September 30,


2012


2011


Change







Clinical Systems

$  13.0


$  14.0


-6%

Clinical Reagents

54.5


45.6


19%

    Total Clinical 

67.5


59.6


13%







Non-Clinical

10.6


7.7


38%

Total Product Sales

$  78.1


$  67.3


16%







 
  • By geography, product sales were, in millions:

Three Months Ended September 30,


2012


2011


Change

North America






     Clinical

$  42.7


$  43.1


-1%

     Non-Clinical

9.2


6.2


48%

Total North America

51.9


49.3


5%







International






     Clinical

24.8


16.5


50%

     Non-Clinical

1.4


1.5


-7%

Total International

26.2


18.0


46%







Total Product Sales

$  78.1


$  67.3


16%







  • During the quarter, Cepheid installed a total of 115 GeneXpert® systems in its commercial Clinical business.  Additionally, the Company placed a total of 149 GeneXpert systems as part of its High Burden Developing Country (HBDC) program.  Including the HBDC systems, a cumulative total of 3,614 GeneXpert systems have been placed worldwide as of September 30, 2012.
  • Impacted by the manufacturing challenges during the third quarter, GAAP gross margin on product sales was 49%, which compares to 56% in the third quarter of 2011, and non-GAAP gross margin on product sales was 51%, which compares to 57% in the third quarter of 2011. 
  • Cash and cash equivalents were $103.5 million as of September 30, 2012.
  • DSO was 35 days.

Business Outlook

For the fiscal year ending December 31, 2012, the Company expects:

  • Total revenue to be approximately $333 million;
  • Net loss per share in the range of $(0.42) to $(0.40), which includes a charge of approximately $15 million associated with a litigation settlement; and
  • Non-GAAP net income per share in the range of $0.21 to $0.23. 

Expected non-GAAP net income per share excludes the effect of approximately $26 million related to stock-based compensation expense, approximately $15 million related to a litigation settlement, approximately $2.8 million related to the amortization of acquired intangibles, and a $1.8 million tax benefit related to an intercompany intellectual property transaction.  The share count for the year is expected to be approximately 66 million on a GAAP basis, and approximately 70 million on a non-GAAP basis.

The following table reconciles net income per share to the non-GAAP net income per share range:



Guidance Range for Year



Ending December 31, 2012



Low 


High

Net Loss Per Share


$ (0.42)


$   (0.40)

   Litigation Settlement Expense


0.23


0.23

   Stock Compensation Expense


0.39


0.39

   Tax Benefit Related to Intercompany IP Transaction


(0.03)


(0.03)

   Amortization of Purchased Intangible Assets


0.04


0.04

Non-GAAP Measure of Net Income Per Share


$   0.21


$   0.23






Accessing Cepheid's Third Quarter Results' Conference Call

The Company will host a management presentation at 2:00 p.m. Pacific Time on Thursday, October 18, 2012 to discuss the results.  To access the live webcast, please visit Cepheid's website at http://ir.cepheid.com at least 15 minutes before the scheduled start time to download any necessary audio or plug-in software.  A replay of the webcast will be available shortly following the call and will remain available for at least 90 days.

About Cepheid

Based in Sunnyvale, Calif., Cepheid (Nasdaq: CPHD) is a leading molecular diagnostics company that is dedicated to improving healthcare by developing, manufacturing, and marketing accurate yet easy-to-use molecular systems and tests.  By automating highly complex and time-consuming manual procedures, the company's solutions deliver a better way for institutions of any size to perform sophisticated genetic testing for organisms and genetic-based diseases.  Through its strong molecular biology capabilities, the company is focusing on those applications where accurate, rapid, and actionable test results are needed most, such as managing infectious diseases and cancer. For more information, visit http://www.cepheid.com.

Use of Non-GAAP Measures

The Company has supplemented its reported GAAP financial information with non-GAAP measures that do not include litigation settlement expenses, stock-based compensation expense, amortization of acquired intangible assets and a tax benefit related to an intercompany intellectual property transaction.  The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP.   The Company's management uses the non-GAAP information internally to evaluate its ongoing business, continuing operational performance and cash requirements, and believes these non-GAAP measures are useful to investors as they provide a basis for evaluating the Company's cash requirements and additional insight into the underlying operating results and the Company's ongoing performance in the ordinary course of its operations.

These non-GAAP measures may be different from non-GAAP measures used by other companies.  In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles.  The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with its results of operations as determined in accordance with U.S. GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures.

As described above, the Company excludes the following items from one or more of its non-GAAP measures when applicable:

Litigation Settlement Expenses. These expenses consist primarily of expenses related to the settlement of our previously outstanding litigation with Abaxis.  This allocation was determined in accordance with ASC 450, Accounting for Contingencies (formerly SFAS No. 5), and ASC 605-25 (formerly EITF 00-21) using the concepts of fair value based on the past and estimated future revenue streams related to the products covered by the patents previously under dispute.  Specifically, the amount recorded in the income statement as Litigation settlement in the three months ended September 30, 2012 represents the fair value of the royalty paid on past revenue streams and the residual amount after allocating value to the future revenue streams.  The Company excluded this item as it believes it is non-recurring in nature, and does not have a direct impact on the operation of the Company's core business. 

Employee Stock-based Compensation Expense. These expenses consist primarily of expenses for employee stock options and employee restricted stock under ASC 718 (formerly SFAS 123(R)).  The Company excludes employee stock-based compensation expenses from its non-GAAP measures primarily because they are non-cash expenses that the Company does not believe are reflective of ongoing operating results in the period incurred.  Further, as the Company applies ASC 718, it believes that it is useful to investors to understand the impact of the application of ASC 718 on its results of operations.

Amortization of Purchased Intangible Assets.  The Company incurs amortization of purchased intangible assets in connection with acquisitions.  The Company excludes these items because these expenses are not reflective of ongoing operating results in the period incurred.  These amounts arise from the Company's prior acquisitions and have no direct correlation to the operation of the Company's business.

Tax Benefit Related to Intercompany Intellectual Property (IP) Transaction.  The Company excluded a tax benefit related to an intercompany IP transaction from its results for non-GAAP net loss for the first quarter ended March 31, 2012 and for the nine months ended September 30, 2012.  The Company excluded this item as it believes it is non-recurring in nature, and does not have a direct impact on the operation of the Company's core business. 

Forward-Looking Statements

This press release contains forward-looking statements that are not purely historical regarding Cepheid's or its management's intentions, beliefs, expectations and strategies for the future, including those relating to projected future revenues, future net income per share and  future non-GAAP net income per share, product sales under the High Burden Developing Country (HBDC) program, commercial test and commercial system sales, resolution of manufacturing scale-up issues and backorder level for clinical reagents, and availability of parts supply.  Because such statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the Company's current expectations. Factors that could cause actual results to differ materially include risks and uncertainties such as those relating to: our ability to secure sufficient cartridge parts and increase manufacturing throughput of our cartridge production; long sales cycles and variability in systems placements and reagent pull-through in the Company's HBDC program; our success in increasing commercial and HBDC sales and the effectiveness of our sales personnel; the performance and market acceptance of new products; sufficient customer demand and available capital budgets for our customers; our ability to develop new products and complete clinical trials successfully in a timely manner for new products; uncertainties related to the FDA regulatory and European regulatory processes; the level of testing at clinical customer sites, including for Healthcare Associated Infections (HAIs); the Company's ability to successfully introduce and sell products in clinical markets other than HAIs; the rate of environmental biothreat testing conducted by the USPS, which will affect the amount of consumable products sold to the USPS; other unforeseen supply, development and manufacturing problems; the potential need for additional intellectual property licenses for tests and other products and the terms of such licenses; lengthy sales cycles in certain markets; the Company's reliance on distributors in some regions to market, sell and support its products; the occurrence of unforeseen expenditures, acquisitions or other transactions; costs associated with litigation, including settlement costs; the impact of competitive products and pricing; the Company's ability to manage geographically-dispersed operations; and underlying market conditions worldwide.  Readers should also refer to the section entitled "Risk Factors" in Cepheid's Annual Report on Form 10-K, its most recent Quarterly Report on Form 10-Q, and its other reports filed with the Securities and Exchange Commission.

All forward-looking statements and reasons why results might differ included in this release are made as of the date of this press release, based on information currently available to Cepheid, and Cepheid assumes no obligation to update any such forward-looking statement or reasons why results might differ.

For Media Inquiries:

Jared Tipton

Cepheid Corporate Communications

Tel: (408) 400 8377

communications@cepheid.com

For Investor Inquiries:

Jacquie Ross, CFA

Cepheid Investor Relations

Tel: (408) 400 8329

investor.relations@cepheid.com





 





FINANCIAL TABLES FOLLOW

 

CEPHEID

 

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS

(in thousands, except per share data)






Three Months Ended

September 30,


Nine months Ended

September 30, 


2012


2011


2012


2011









Revenues:








System sales

$      13,576


$    14,748


$      41,346


$    41,577

Reagent and disposable sales

64,567


52,600


190,544


147,000

Total product sales

78,143


67,348


231,890


188,577

Other revenues

2,329


2,865


6,889


8,884

Total revenues 

80,472


70,213


238,779


197,461

Costs and operating expenses:








Cost of product sales 

39,789


29,644


110,469


84,208

Collaboration profit sharing 

2,438


1,096


5,767


3,281

Research and development

16,154


15,223


54,374


42,712

Sales and marketing

15,993


12,875


45,613


36,201

General and administrative

11,766


9,316


33,828


25,851

Litigation settlement

15,110


-


15,110


-

Total costs and operating expenses 

101,250


68,154


265,161


192,253

Income (loss) from operations 

(20,778)


2,059


(26,382)


5,208

Other expense, net

89


(38)


(245)


(637)

Income (loss) before income taxes

(20,689)


2,021


(26,627)


4,571

Benefit from (provision for) income taxes

(607)


(99)


940


(295)

Net income (loss)

$     (21,296)


$     1,922


$    (25,687)


$      4,276









Basic net income (loss) per share 

$        (0.32)


$        0.03


$       (0.39)


$        0.07









Diluted net income (loss) per share 

$        (0.32)


$        0.03


$       (0.39)


$        0.06









Shares used in computing basic net income (loss) per share 

66,145


63,507


65,624


62,271









Shares used in computing diluted net income (loss) per share 

66,145


67,417


65,624


66,361





















CEPHEID

 

CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS

(in thousands)






September

30, 2012


December

31, 2011





ASSETS




Current assets:




Cash and cash equivalents

$     103,520


$     115,008

Accounts receivable, net

31,140


35,375

Inventory

68,844


62,239

Prepaid expenses and other current assets 

10,504


5,245

Total current assets

214,008


217,867

Property and equipment, net

47,966


35,833

Other non-current assets

776


730

Intangible assets, net

20,200


13,795

Goodwill

26,914


18,445

Total assets

$     309,864


$     286,670





LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




Accounts payable 

$       34,541


$       32,167

Accrued compensation 

15,884


17,928

Accrued royalties 

7,525


8,357

Accrued and other liabilities 

4,516


3,086

Current portion of deferred revenue

9,600


8,176

Current portion of notes payable

178


-

Total current liabilities 

72,244


69,714

Long-term portion of deferred revenue

1,685


2,003

Notes payable, less current portion

1,722


-

Other liabilities

4,357


3,120

Total liabilities

80,008


74,837

Shareholders' equity:




Common stock

350,615


324,211

Additional paid-in capital 

110,880


93,144

Accumulated other comprehensive income

(397)


33

Accumulated deficit 

(231,242)


(205,555)

Total shareholders' equity 

229,856


211,833

Total liabilities and shareholders' equity 

$     309,864


$     286,670









 



CEPHEID

 

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS

(in thousands)




Nine Months Ended

September 30,


2012


2011

Cash flows from operating activities:




Net income (loss)

$   (25,687)


$      4,276

Adjustments to reconcile net income (loss) to net cash used in operating activities:




Depreciation and amortization of property and equipment

9,867


7,715

Amortization of intangible assets 

3,745


5,183

Stock-based compensation related to employees and consulting services rendered

17,932


14,519

Changes in operating assets and liabilities:




Accounts receivable 

6,447


(3,513)

Inventory 

(4,014)


(15,255)

Prepaid expenses and other current assets 

(5,259)


(4,492)

Other non-current assets

(46)


24

Accounts payable and other current liabilities 

(2,278)


2,350

Accrued compensation 

(2,044)


3,696

Deferred revenue 

1,105


(207)

Net cash provided by (used in) operating activities 

(232)


14,296





Cash flows from investing activities:




Capital expenditures 

(17,079)


(10,821)

Cash paid for intangible asset

(2,140)


(1,000)

Cost of acquisitions, net

(17,462)


(296)

Net cash used in investing activities 

(36,681)


(12,117)





Cash flows from financing activities:




Net proceeds from the issuance of common shares and exercise of stock options

26,404


34,777

Proceeds from notes payable

156


-

Principal payment of notes payable

(39)


(5,605)

Net cash provided by financing activities 

26,521


29,172





Effect of exchange rate change on cash

(1,096)


(80)

Net increase (decrease) in cash and cash equivalents 

(11,488)


31,271

Cash and cash equivalents at beginning of period 

115,008


79,538

Cash and cash equivalents at end of period

$  103,520


$  110,809





 





CEPHEID

 

RECONCILIATION OF GAAP TO NON-GAAP MEASURES (UNAUDITED)

(in thousands, except per share data) 






Three Months Ended
September 30,


Nine Months Ended
September 30,


2012


2011


2012


2011

Cost of product sales

$     39,789


$   29,644


$   110,469


$     84,208

  Stock compensation expense

(894)


(307)


(2,229)


(1,241)

  Amortization of purchased intangible assets

(332)


(347)


(998)


(1,036)

Non-GAAP measure of cost of product sales

$     38,563


$   28,990


$   107,242


$     81,931









Gross margin on product sales per GAAP

49%


56%


52%


55%

Gross margin on product sales per Non-GAAP

51%


57%


54%


57%









Operating expenses

$     43,913


$   37,414


$   133,815


$   104,764

  Stock compensation expense

(5,450)


(4,869)


(15,659)


(13,278)

  Amortization of purchased intangible assets

(379)


(107)


(1,076)


(322)

Non-GAAP measure of operating expenses

$     38,084


$   32,438


$   117,080


$     91,164









Income (loss) from operations

$     (20,778)


$     2,059


$    (26,382)


$       5,208

  Stock compensation expense

6,344


5,176


17,888


14,519

  Amortization of purchased intangible assets

711


454


2,074


1,358

  Litigation settlement

15,110


-


15,110


-

Non-GAAP measure of income from operations

$       1,387


$     7,689


$       8,690


$     21,085









Net income (loss)

$     (21,296)


$     1,922


$    (25,687)


$       4,276

  Stock compensation expense

6,344


5,176


17,888


14,519

  Tax benefit related to intercompany IP transaction

-


-


(1,815)


-

  Amortization of purchased intangible assets

711


454


2,074


1,358

  Litigation settlement

15,110


-


15,110


-

Non-GAAP measure of net income

$          869


$     7,552


$       7,570


$     20,153









Basic net income (loss) per share

$        (0.32)


$       0.03


$        (0.39)


$         0.07

  Stock compensation expense

0.09


0.08


0.28


0.23

  Tax benefit related to intercompany IP transaction

-


-


(0.03)


-

  Amortization of purchased intangible assets

0.01


0.01


0.03


0.02

  Litigation settlement

0.23


-


0.23


-

Non-GAAP measure of net income per share

$         0.01


$       0.12


$         0.12


$         0.32









Diluted net income (loss) per share

$        (0.32)


$       0.03


$        (0.39)


$         0.06

  Stock compensation expense

0.09


0.07


0.27


0.22

  Tax benefit related to intercompany IP transaction

-


-


(0.03)


-

  Amortization of purchased intangible assets

0.01


0.01


0.03


0.02

  Litigation settlement

0.23


-


0.23


-

Non-GAAP measure of net income per share

$         0.01


$       0.11


$         0.11


$         0.30









Shares used in computing basic net income (loss) per share

66,145


63,507


65,624


62,271









Shares used in computing diluted net income (loss) per share

66,145


67,417


65,624


66,361

  Impact of dilutive securities in periods of GAAP net loss and Non-GAAP net income

3,818


949


4,297


933

Shares used in computing Non-GAAP diluted net income per share

69,963


68,366


69,921


67,294









SOURCE Cepheid

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