Cepheid Reports Second Quarter 2016 Results

SUNNYVALE, Calif., July 28, 2016 /PRNewswire/ -- Cepheid (Nasdaq: CPHD) today reported revenue for the second quarter of 2016 of $146.0 million, representing growth of 10%, or 12% on a constant currency basis, from $132.5 million for the second quarter of 2015.  Net loss was $(10.2) million, or $(0.14) per share, which compares to net loss of $(16.7) million, or $(0.23) per share, in the second quarter of 2015. 

Excluding stock-based compensation expense, amortization of debt discount and transaction costs, and amortization of purchased intangible assets, non-GAAP net income for the second quarter of 2016 was $3.5 million, or $0.05 per share.  This compares to non-GAAP net loss of $(4.5) million, or $(0.06) per share, in the second quarter of 2015, which excluded stock-based compensation expense, amortization of debt discount and transaction costs, and amortization of purchased intangible assets.

"Solid second quarter performance was driven by building momentum across our commercial organization that sets us up well for strong growth in the second half of 2016," said John Bishop, Cepheid's Chairman and Chief Executive Officer.  "We also continued to move our virology and oncology products closer to market in the United States and Internationally, respectively, and made excellent progress on our next-generation platforms, the Honeycomb and Omni Systems.  Taken together, we continue to build an attractive portfolio of products that builds on our leadership in innovation and leverages our substantial worldwide installed base."

Operational Overview

Total revenue was, in millions:

By geography, total revenue was, in millions:

• GAAP gross margin was 50% and non-GAAP gross margin was 51% for the second quarter of 2016, which compares to 48% and 49%, respectively, in the second quarter of 2015.
• Cash, cash equivalents and investments were $378.7 million as of June 30, 2016.
• DSO was 39 days.

Business Outlook

For the fiscal year ending December 31, 2016, the Company now expects:

• Total revenue to be in the range of $618 to $635 million;
• Net loss in the range of $(0.47) to $(0.44) per share;  and
• Non-GAAP net income in the range of $0.31 to $0.34 per share. 

Expected non-GAAP net income excludes approximately $42 million related to stock-based compensation expense, approximately $11 million related to the amortization of debt discount and transaction costs, and approximately $5 million related to the amortization of purchased intangible assets.  The fully diluted share count for the year is expected to be approximately 73 million shares for net loss per share, and approximately 75 million shares for non-GAAP net income per share.

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

Accessing Cepheid's 2016 Second Quarter Results Conference Call

The Company will host a management presentation at 2 p.m. Pacific Time on Thursday, July 28, 2016 to discuss the results.  To access the live webcast, please visit Cepheid's website at http://ir.cepheid.com.  A replay of the webcast will be available shortly following the call and will remain available for at least 90 days.

Summary of Management Presentation

In conjunction with today's press release, the Company is making a summary of the management presentation immediately available at http://ir.cepheid.com. 

About Cepheid

Based in Sunnyvale, California, 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, including (1) non-GAAP net income and non-GAAP gross margin that do not include stock-based compensation expense, amortization of debt discount and transaction costs and amortization of purchased intangible assets and (2) revenue metrics presented on a constant currency basis.  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.

Non-GAAP Net Income and Non-GAAP Gross Margin

As described above, the Company excludes the following items from one or more of its non-GAAP net income and non-GAAP gross margin when applicable:

Stock-based Compensation Expense. This consists primarily of expenses for stock options and restricted stock under ASC 718 (formerly SFAS 123(R)).  The Company excludes stock-based compensation expense from its non-GAAP measures primarily because it is a non-cash expense that the Company does not believe is 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 Debt Discount and Transaction Costs.  The Company incurs amortization of debt discount and transaction costs in connection with the Convertible Senior Notes issued in February 2014.  The Company excludes these amounts because these expenses are not reflective of ongoing operating results in the period incurred.  These amounts arise from the Company's issuance of debt and have no direct correlation to the operation of the Company's business.

Amortization of Purchased Intangible Assets.  The Company incurs amortization of purchased intangible assets in connection with acquisitions.  The Company excludes these amounts 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.

Constant Currency

The Company presents certain revenue information in this release on a constant currency basis that excludes the effect of foreign currency rate fluctuations and hedging transactions. The Company calculates constant currency revenue growth by (i) translating current quarter or year-to-date revenues to constant currency revenues using the applicable prior period exchange rates and (ii) excluding any gain or loss from foreign currency hedge contracts that are reported in revenue. The Company believes constant currency revenue growth provides useful supplemental information to investors about the financial performance of the Company's business and enables a more accurate comparison of financial results between periods, by excluding the impact of currency rate fluctuations and hedging transactions. Investors should be cautioned that the effect of changing foreign currency exchange rates has an actual effect on operating results.

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 growth, future revenues, future net loss/income and profitability and future number of fully-diluted shares, including on a non-GAAP basis, strategic investments, market penetration and expansion, development and timing of new products, effectiveness of product development and commercialization efforts and the breadth and speed of test menu expansion, geographic expansion, customer segment expansion and market expansion.  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: the Company's success in increasing commercial and HBDC sales and the effectiveness of its sales personnel; the efficacy of the Company's on-going cost-reduction and gross margin improvement efforts; the relative mix of commercial and HBDC sales, and relative mix of instrument and test sales; manufacturing costs associated with the ramp-up of new products; the speed and extent of test menu expansion and utilization; the performance and market acceptance of new products, including the Honeycomb module and Omni System and new products related to oncology and genetics; the Company's ability to sell directly to the smaller hospital market and independent reference laboratory market; the on-going expansion of the Company's United States sales organization; sales organization productivity and the productivity and effectiveness of the Company's distributors; the Company's reliance on distributors in some regions to market, sell and support its products; sufficient customer demand, customer confidence in product availability and available customer budgets for the Company's products; the Company's ability to develop new products, complete clinical trials successfully and obtain regulatory clearances in a timely manner for new products; uncertainties related to the FDA regulatory and international regulatory processes; the potential impact of guidelines or recommendations and studies published by various organizations; 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; long sales cycles and variability in systems placements and reagent pull-through in the Company's HBDC program; the rate of environmental biothreat testing conducted by the USPS, which will affect the amount of consumable products sold to the USPS; unforeseen supply, development and manufacturing problems; the Company's ability to manage its inventory levels; the Company's ability to successfully complete and bring on additional manufacturing lines; the potential need for additional intellectual property licenses for tests and other products and the terms of such licenses; the occurrence of unforeseen expenditures, acquisitions or other transactions; costs associated with litigation; the impact of competitive products and pricing; the impact of foreign currency exchange; the Company's ability to manage geographically-dispersed operations; the Company's ability to penetrate new geographic markets and manage the operational risks associated with such new markets; and underlying market conditions worldwide. 

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