Cepheid Reports 2011 First Quarter Results

Record Revenue Reflects 28% Growth in Clinical Business

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Apr 20, 2011, 04:05 ET

SUNNYVALE, Calif., April 20, 2011 /PRNewswire/ -- Cepheid (Nasdaq: CPHD) today reported revenue for the first quarter of 2011 of $60.2 million. Net income was $0.5 million, or $0.01 per share, which compares to revenue of $48.0 million and a net loss of $4.3 million, or $(0.07) per share, in the first quarter of 2010.

Excluding amortization of purchased intangible assets and employee stock-based compensation expense, non-GAAP net income for the first quarter was $5.4 million, or $0.08 per share. This compares to a non-GAAP net loss of $0.2 million, or $(0.00) per share, in the first quarter of 2010.

"Growth in our Clinical business continued in the first quarter as our GeneXpert^® system continues to gain recognition as the most technologically advanced and innovative molecular platform available," said John Bishop, Cepheid's Chief Executive Officer. "With more than 2,000 placements globally, the GeneXpert system is proving itself to be a key workhorse in both developed and developing country markets. The system's unique combination of accuracy, ease-of-use, speed and flexibility is unmatched in the marketplace today."

Operational Overview

Total product sales of $57.6 million in the first quarter of 2011 compared to $47.2 million in the first quarter of 2010. By business, product sales were, in millions:

	Three Months Ended March 31,
	2011	2010	Change

Clinical Systems	$ 11.6	$ 9.7	20%
Clinical Reagents	38.6	29.6	31%
Total Clinical	50.2	39.3	28%

Non-Clinical	7.4	7.9	-6%
Total Product Sales	$ 57.6	$ 47.2	22%

By geography, product sales were, in millions:

	Three Months Ended March 31,
	2011	2010	Change
North America
Clinical	$ 36.3	$ 31.0	17%
Non-Clinical	5.9	6.1	-4%
Total North America	42.2	37.1	14%

International
Clinical	13.9	8.3	68%
Non-Clinical	1.5	1.8	-15%
Total International	15.4	10.1	53%

Total Product Sales	$ 57.6	$ 47.2	22%

During the quarter, Cepheid installed a total of 120 GeneXpert systems in its commercial Clinical business. Additionally, the company placed a total of 58 GeneXpert systems as part of its High Burden Developing Country (HBDC) program. Including the HBDC systems, a cumulative total of 2,038 GeneXpert systems have been placed worldwide as of March 31, 2011.
GAAP gross margin on product sales was 56% and non-GAAP gross margin on product sales was 58%, which compares to 45% and 46%, respectively, in the first quarter of 2010.
Cash and cash equivalents were $80.5 million as of March 31, 2011.
DSO was 43 days.

Business Outlook

For the fiscal year ending December 31, 2011, the company expects:

Total revenue to be in the range of $245 to $255 million;
Net income ranging from a net loss of $(0.01) to net income of $0.04 per share;
Non-GAAP net income in the range of $0.31 to $0.36 per share.

Expected non-GAAP net income excludes approximately $19.5 million related to stock compensation expense and approximately $2 million related to the amortization of acquired intangibles. The fully diluted share count for the year is expected to be approximately 67 million and basic share count is expected to be approximately 62 million.

Accessing Cepheid's First Quarter Results' Conference Call

The company will host a management presentation at 2:00 p.m. Pacific Time on Wednesday, April 20, 2011 to discuss the results. To access the live webcast, please visit Cepheid's website at 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 may also listen to the live teleconference call by dialing (800) 659-2056 or (617) 614-2714, and entering participant code 15644634. A replay will be available for seven days beginning at 4 p.m. Pacific Time. Access numbers for this replay are (888) 286-8010 or (617) 801-6888, with passcode 25153977.

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 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 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. 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.

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, future revenues and future net income/loss, including on a non-GAAP basis. 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 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; 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 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 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.

CONTACTS:
For Media Inquiries:	For Investor Inquiries:
Jared Tipton Cepheid Corporate Communications Tel: (408) 400 8377 [email protected]	Jacquie Ross Cepheid Investor Relations Tel: (408) 400 8329 [email protected]

FINANCIAL TABLES FOLLOW CEPHEID CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS (in thousands, except per share data)
	Three Months Ended March 31,
	2011	2010

Revenues:
System sales	$ 12,691	$ 10,917
Reagent and disposable sales	44,946	36,265
Total product sales	57,637	47,182
Other revenues	2,582	863
Total revenues	60,219	48,045
Costs and operating expenses:
Cost of product sales	25,310	26,071
Collaboration profit sharing	1,092	1,655
Research and development	13,574	9,701
Sales and marketing	11,447	8,985
General and administrative	7,630	5,715
Total costs and operating expenses	59,053	52,127
Income (loss) from operations	1,166	(4,082)
Other expense, net	(199)	(276)
Income (loss) before income taxes	967	(4,358)
Benefit from (provision for) income taxes	(440)	19
Net income (loss)	$ 527	$ (4,339)

Basic net income (loss) per share	$ 0.01	$ (0.07)
Diluted net income (loss) per share	$ 0.01	$ (0.07)
Shares used in computing basic net income (loss) per share	61,161	58,936
Shares used in computing diluted net income (loss) per share	65,028	58,936

CEPHEID CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS (in thousands)
	March 31, 2011	December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$ 80,460	$ 79,538
Accounts receivable, net	28,385	28,010
Inventory	43,376	37,598
Prepaid expenses and other current assets	6,184	4,138
Total current assets	158,405	149,284
Property and equipment, net	29,094	27,438
Other non-current assets	630	607
Intangible assets	23,740	24,688
Goodwill	17,689	18,594
Total assets	$ 229,558	$ 220,611

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$ 20,425	$ 21,957
Accrued compensation	10,419	12,594
Accrued royalties	7,627	7,994
Accrued other liabilities	1,318	1,288
Current portion of deferred revenue	8,223	8,207
Current portion of note payable	1,693	1,679
Total current liabilities	49,705	53,719
Long-term portion of deferred revenue	4,718	4,057
Note payable, less current portion	4,632	4,991
Other liabilities	3,402	4,182
Total liabilities	62,457	66,949
Shareholders’ equity:
Common stock	297,098	288,387
Additional paid-in capital	76,980	72,731
Accumulated other comprehensive income	678	726
Accumulated deficit	(207,655)	(208,182)
Total shareholders’ equity	167,101	153,662
Total liabilities and shareholders’ equity	$ 229,558	$ 220,611

CEPHEID CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
	Three Months Ended March 31,
	2011	2010
Cash flows from operating activities:
Net income (loss)	$ 527	$ (4,339)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	2,469	2,325
Amortization of intangible assets	1,726	1,696
Stock-based compensation related to employees and consulting services rendered	4,400	3,746
Unrealized gain on auction rate securities	-	(1,425)
Unrealized loss on put option	-	1,571
Deferred rent	36	25
Changes in operating assets and liabilities:
Accounts receivable	(840)	(5,051)
Inventory	(5,882)	1,500
Prepaid expenses and other current assets	(1,232)	(997)
Other non-current assets	(23)	36
Accounts payable and other current liabilities	(2,498)	(2,254)
Accrued compensation	(2,175)	(1,994)
Deferred revenue	677	180
Net cash used in operating activities	(2,815)	(4,981)

Cash flows from investing activities:
Capital expenditures	(3,543)	(3,998)
Payments for technology licenses	(1,000)	(1,000)
Cost of acquisitions, net	(296)	(574)
Proceeds from the sales of short-term investments	-	4,125
Proceeds from the sale of fixed assets	20	78
Net cash used in investing activities	(4,819)	(1,369)

Cash flows from financing activities:
Net proceeds from the issuance of common shares and exercise of stock options	8,711	3,461
Principal payment of bank borrowing	-	(4,020)
Principal payment of notes payable	(345)	(82)
Net cash provided by (used in) financing activities	8,366	(641)

Effect of exchange rate change on cash	190	337
Net increase (decrease) in cash and cash equivalents	922	(6,654)
Cash and cash equivalents at beginning of period	79,538	35,786
Cash and cash equivalents at end of period	$ 80,460	$ 29,132

CEPHEID RECONCILIATION OF GAAP TO NON-GAAP MEASURES (UNAUDITED) (in thousands, except per share data)
	Three Months Ended
	March 31,
	2011	2010
Cost of product sales	$ 25,310	$ 26,071
Stock compensation expense	(499)	(470)
Amortization of purchased intangible assets	(344)	(328)
Non-GAAP measure of cost of product sales	$ 24,467	$ 25,273

Gross margin on product sales per GAAP	56%	45%
Gross margin on product sales per Non-GAAP	58%	46%

Operating expenses	$ 32,651	$ 24,401
Stock compensation expense	(3,901)	(3,276)
Amortization of purchased intangible assets	(108)	(81)
Non-GAAP measure of operating expenses	$ 28,642	$ 21,044

Income (loss) from operations	$ 1,166	$ (4,082)
Stock compensation expense	4,400	3,746
Amortization of purchased intangible assets	452	409
Non-GAAP measure of income (loss) from operations	$ 6,018	$ 73

Net income (loss)	$ 527	$ (4,339)
Stock compensation expense	4,400	3,746
Amortization of purchased intangible assets	452	409
Non-GAAP measure of net income (loss)	$ 5,379	$ (184)

Basic net income (loss) per share	$ 0.01	$ (0.07)
Stock compensation expense	0.07	0.06
Amortization of purchased intangible assets	0.01	0.01
Non-GAAP measure of net income (loss) per share	$ 0.09	$ (0.00)

Diluted net income (loss) per share	$ 0.01	$ (0.07)
Stock compensation expense	0.06	0.06
Amortization of purchased intangible assets	0.01	0.01
Non-GAAP measure of net income (loss) per share	$ 0.08	$ (0.00)

Shares used in computing diluted net income (loss) per share	65,028	58,936
Incremental shares from the assumed conversion of dilutive stock options	922	-
Shares used in computing Non-GAAP diluted net income (loss) per share	65,950	58,936