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Cepheid Reports Third Quarter Revenue of $44.9 Million
Date:10/28/2008

GeneXpert(R) System Momentum Drives 71% Year-Over-Year Growth in Core

Clinical Business

SUNNYVALE, Calif., Oct. 28 /PRNewswire-FirstCall/ -- Cepheid (Nasdaq: CPHD) today reported revenue for the third quarter of 2008 of $44.9 million, an increase of 24% over the third quarter of fiscal 2007. Net loss was $6.5 million, or $(0.11) per share, which compares to revenue of $36.3 million and a net loss of $4.7 million, or $(0.09) per share, in the third quarter of fiscal 2007.

Excluding amortization of purchased intangible assets and stock compensation expenses, non-GAAP net loss for the third quarter was $2.3 million, or $(0.04) per share. This compares to a non-GAAP net loss of $1.5 million, or $(0.03) per share, in the third quarter of fiscal 2007.

"With very strong North American system placements and record MRSA test revenue, our third quarter results highlight the continued momentum of Cepheid's industry-leading GeneXpert System," said John Bishop, Cepheid's Chief Executive Officer. "Approximately 74% of North American system placements in the third quarter were various configurations of our GX-16 which should help to position accounts to take full advantage of our rapidly-developing test menu. With the two additional Xpert(TM) tests cleared by the FDA within the last month, and an aggressive development pipeline that expands beyond Healthcare Associated Infections into women's health, critical infectious disease and oncology, our GeneXpert System is rapidly earning its reputation as the molecular platform of choice for on-demand testing."

Operational Overview

-- Total product sales increased 25% to $42.4 million, from $34.0 million

in the third quarter of fiscal 2007. By industry, product sales were,

in millions:

Three Months Ended September 30

2008 2007 Change

Core Clinical $28.0 $16.4 71%

Clinical Partner 1.6 4.3 -64%

Total Clinical 29.6 20.7 43%

Industrial 4.2 4.4 -4%

Biothreat 8.6 8.9 -3%

Total Product Sales $42.4 $34.0 25%

-- By geography, product sales were, in millions:

Three Months Ended September 30

2008 2007 Change

North America $35.8 $27.6 30%

International 6.6 6.4 2%

Total Product Sales 42.4 34.0 25%

-- During the quarter, Cepheid installed a total of 115 GeneXpert systems

and 879 modules. As of September 30, 2008, a cumulative total of

848 GeneXpert systems and 4,509 modules have been placed worldwide.

-- GAAP gross margin on product sales was 44% and non-GAAP gross margin on

product sales was 46%, which compares to 41% and 43% in the third

quarter of fiscal 2007.

-- Cash, cash equivalents and investments were $45.4 million as of

September 30, 2008, including $21.0 million of auction rate securities.

-- DSO improved to 36 days.

Business Outlook

For the fiscal year ending December 31, 2008, the Company expects:

-- Total revenue to be in the range of $174 to $176 million, of which

product sales are expected to be in the range of $164 to $166 million.

o Xpert MRSA test sales are expected to be in the range of $49 to

$51 million.

-- Net loss for 2008 is expected to be in the range of $22.5 to

$23.5 million, or $(0.39) to $(0.41) per share.

-- On a non-GAAP basis, net loss is expected to be in the range of $6.5 to

$7.5 million, or $(0.11) to $(0.13) per share.

-- Non-GAAP net loss excludes approximately $15 million related to stock

compensation expense and $1 million related to the amortization of

acquired intangibles.

Accessing Cepheid's Q308 Results Conference Call

The company will host a management presentation at 2:00 p.m. Pacific Time on Tuesday, October 28, 2008 to discuss the results. To access the live webcast, please visit Cepheid's website at http://www.cepheid.com/investors 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.

Interested participants and investors may also listen to the live teleconference call by dialing 866-271-5140 (domestic) or 617-213-8893 (international), and entering participant code 47767586. A replay will be available for seven days beginning at about 4 p.m. Pacific Time. Access numbers for this replay are 888-286-8010 (domestic) and 617-801-6888 (international), with participant code 68801630.

About Cepheid

Cepheid (Nasdaq: CPHD), based in Sunnyvale, Calif., is an on-demand molecular diagnostics company that develops, manufactures, and markets fully-integrated systems and tests for genetic analysis in the clinical, industrial and biothreat markets. The Company's systems enable rapid, sophisticated genetic testing for organisms and genetic-based diseases by automating otherwise complex manual laboratory procedures. Cepheid's easy-to-use systems integrate a number of complicated and time-intensive steps, including sample preparation, DNA amplification and detection, which enable the analysis of complex biological samples in its proprietary test cartridges. Through its strong molecular biology capabilities, the Company is focusing on those applications where rapid molecular testing is particularly important, such as identifying infectious disease and cancer in the clinical market; food, agricultural, and environmental testing in the industrial market; and identifying bio-terrorism agents in the biothreat market.

Use of Non-GAAP Measures

The Company has supplemented its reported GAAP financial information with non-GAAP measures that do not include employee share-based compensation expense and amortization of purchased intangible assets. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with 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 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:

Employee share-based compensation expense. These expenses consist primarily of expenses for employee stock options and employee restricted stock under SFAS 123(R). The Company excludes employee share-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. Further, as the Company applies SFAS 123(R), it believes that it is useful to investors to understand the impact of the application of SFAS 123(R) to 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.

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 potential growth in clinical product sales, product pipeline, future revenues and gross margin and demand for certain products, future net income and other future operating results. 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 success in increasing direct sales and the effectiveness of new sales personnel; the performance and market acceptance of new products; sufficient customer demand; our ability to develop 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; changes in the protocols or levels of testing for MRSA and other Healthcare Associated Infections (HAIs); the Company's ability to successfully introduce and sell products in clinical markets other than HAIs; the mix of products sold, which can affect gross margins; the rate of environmental biothreat testing conducted by the USPS, which will affect the amount of consumable products sold to the USPS; unforeseen 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 ability to continue to realize manufacturing efficiencies, which are an important factor in improving gross margins; 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; the impact of acquisitions; 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 for 2007 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.

CONTACTS:

For Media Inquiries: For Investor Inquiries:

Jared Tipton Jacquie Ross

Cepheid Corporate Communications Cepheid Investor Relations

Tel: (408) 400 8377 Tel: (408) 400 8329

jared.tipton@cepheid.com jacquie.ross@cepheid.com

FINANCIAL TABLES FOLLOW

CEPHEID

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2008 2007 2008 2007

Revenues:

System sales $13,961 $15,911 $40,708 $32,142

Reagent and disposable sales 28,432 18,105 82,558 47,525

Total product sales 42,393 34,016 123,266 79,667

Other revenues 2,522 2,313 8,532 9,379

Total revenues 44,915 36,329 131,798 89,046

Costs and operating expenses:

Cost of product sales 23,623 19,966 69,479 47,722

Collaboration profit sharing 2,460 2,729 8,970 8,957

Research and development 11,611 8,371 32,473 22,732

Sales and marketing 7,871 6,411 22,246 15,971

General and administrative 5,517 4,445 15,782 12,418

Total costs and operating

expenses 51,082 41,922 148,950 107,800

Loss from operations (6,167) (5,593) (17,152) (18,754)

Other income (expense), net (906) 852 567 2,619

Net loss before income tax benefit (7,073) (4,741) (16,585) (16,135)

Income tax benefit 614 - 750 -

Net loss $(6,459) $(4,741) $(15,835) $(16,135)

Basic and diluted net loss per share $(0.11) $(0.09) $(0.28) $(0.29)

Shares used in computing basic and

diluted net loss per share 57,538 55,356 56,917 55,174

CEPHEID

CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS

(in thousands)

September 30, December 31,

2008 2007

ASSETS

Current assets:

Cash and cash equivalents $24,389 $16,476

Marketable securities - 27,550

Accounts receivable, net 17,883 21,263

Inventory 29,870 23,821

Prepaid expenses and other current assets 3,751 2,565

Total current assets 75,893 91,675

Property and equipment, net 23,412 17,174

Investments 21,023 -

Other non-current assets 422 923

Intangible assets 37,163 40,629

Goodwill 17,514 14,844

Total assets $175,427 $165,245

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable $14,079 $10,587

Accrued compensation 6,519 8,573

Accrued royalties 7,442 6,913

Accrued collaboration profit sharing 1,070 522

Accrued and other liabilities 7,563 4,742

Income tax payable - 213

Deferred revenue 3,146 4,016

Total current liabilities 39,819 35,566

Deferred revenue 1,798 2,054

Other liabilities 3,663 690

Total liabilities 45,280 38,310

Shareholders' equity:

Common stock 266,784 254,807

Additional paid-in capital 37,891 26,697

Accumulated other comprehensive

income (loss) (3,784) 340

Accumulated deficit (170,744) (154,909)

Total shareholders' equity 130,147 126,935

Total liabilities and shareholders' equity $175,427 $165,245

CEPHEID

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended

September 30,

2008 2007

Cash flows from operating activities:

Net loss $(15,835) $(16,135)

Adjustments to reconcile net loss to

net cash used in operating activities:

Depreciation and amortization 4,569 4,023

Amortization of intangible assets 3,465 3,141

Amortization of prepaid compensation expense 189 247

Stock-based compensation related to

employees and consulting services rendered 10,837 7,299

Deferred rent 304 76

Changes in operating assets and liabilities:

Accounts receivable 3,380 (9,336)

Inventory (5,692) (9,540)

Prepaid expenses and other current assets (1,567) (709)

Other non-current assets (178) 210

Accounts payable and other current

liabilities 7,391 3,219

Income taxes payable (213) -

Accrued compensation (2,052) 914

Accrued expense for patent-related matter - (3,350)

Deferred revenue (1,119) 759

Net cash provided by (used in)

operating activities 3,479 (19,182)

Cash flows from investing activities:

Capital expenditures (12,778) (4,666)

Acquisition of leasehold improvements 327 -

Payments for technology licenses - (4,737)

Cost of Sangtec acquisition, net of

cash acquired - (27,454)

Proceeds from maturities of

marketable securities 2,550 46,500

Proceeds from the sale of 1,723 24

property and equipment

Purchases of marketable securities

and investments - (1,800)

Transfer to unrestricted cash 517 -

Net cash provided by (used in)

investing activities (7,661) 7,867

Cash flows from financing activities:

Net proceeds from the issuance of

common shares and exercise of stock

options and awards 11,977 2,656

Principal payments under equipment financing - (316)

Payment of note payable (4) (46)

Net cash provided by financing

activities 11,973 2,294

Effect of exchange rate change on cash 122 104

Net increase (decrease) in cash and

cash equivalents 7,913 (8,917)

Cash and cash equivalents at

beginning of period 16,476 17,186

Cash and cash equivalents at end of period $24,389 $8,269

CEPHEID

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(in thousands, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2008 2007 2008 2007

Cost of product sales $23,623 $19,966 $69,479 $47,722

Stock compensation expense (419) (229) (1,016) (531)

Amortization of acquired

inventory step-up in basis - - - (170)

Amortization of purchased

intangible assets (241) (199) (723) (496)

Non-GAAP measure of cost of

product sales $22,963 $19,538 $67,740 $46,525

Gross margin on product sales per

GAAP 44% 41% 44% 40%

Gross margin on product sales per

Non-GAAP 46% 43% 45% 42%

Research and development $11,611 $8,371 $32,473 $22,732

Amortization of purchased

intangible assets (23) (24) (71) (72)

Stock compensation expense (1,485) (1,319) (4,162) (3,110)

Non-GAAP measure of cost of

research and development $10,103 $7,028 $28,240 $19,550

Sales and marketing $7,871 $6,411 $22,246 $15,971

Amortization of purchased

intangible assets (21) (14) (63) (37)

Stock compensation expense (868) (703) (2,622) (1,498)

Non-GAAP measure of cost of sales

and marketing $6,982 $5,694 $19,561 $14,436

General and administrative $5,517 $4,445 $15,782 $12,418

Stock compensation expense (1,097) (750) (3,037) (2,161)

Non-GAAP measure of cost of

general and administrative $4,420 $3,695 $12,745 $10,257

Income (Loss) from Operations $(6,167) $(5,593) $(17,152) $(18,754)

Stock compensation expense 3,869 3,001 10,837 7,300

Amortization of acquired

inventory step-up in basis - - - 170

Amortization of purchased

intangible assets 285 237 857 605

Non-GAAP measure of Income (Loss)

from Operations $(2,013) $(2,355) $(5,458) $(10,679)

Net Income (Loss) $(6,459) $(4,741) $(15,835) $(16,135)

Stock compensation expense 3,869 3,001 10,837 7,300

Amortization of acquired

inventory step-up in basis - - - 170

Amortization of purchased

intangible assets 285 237 857 605

Non-GAAP measure of Net Income

(Loss) $(2,305) $(1,503) $(4,141) $(8,060)

Basic and Diluted net income

(loss) per share $(0.11) $(0.09) $(0.28) $(0.29)

Stock compensation expense $0.07 $0.06 $0.19 $0.13

Amortization of acquired

inventory step-up in basis $- $- $- $-

Amortization of purchased

intangible assets $- $- $0.02 $0.01

Non-GAAP measure of Net Income

(Loss) $(0.04) $(0.03) $(0.07) $(0.15)

Shares used in computing basic

and diluted net income (loss)

per share 57,538 55,356 56,917 55,174


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