) reported net loss of $21.3 million or 32 cents per share in the
third quarter of 2012, a disappointment from net income of $1.9
million or 3 cents per share in the year-ago quarter. After
adjusting for amortization expense and litigation settlement with
), the company reported loss per share of 8 cents, better than
the Zacks Consensus Estimate of loss of 5 cents per share. The
company reported earnings of 4 cents per share in the
corresponding quarter last year.
Revenues during the quarter increased 15% year over year to
$80.5 million. As per the preliminary results reported last
month, the company expected revenues to be in the range of
$79−$81 million, lower than the then Zacks Consensus Estimate of
$84 million. Currency had an adverse impact of 300 basis points
on revenue growth.
Cepheid was adversely affected due to delay in the supply of
certain Xpert cartridge parts thereby preventing it from
fulfilling its orders. The order backlog, however, was higher
than expected at $6.7 million ($5 million as per preliminary
result) including $1.9 million in HBDC reagents and $4.8 million
in commercial clinical reagents (primarily MRSA surveillance and
C. difficile tests). Since the beginning of October, the company
has shipped more than $6.7 million of order backlogs and expects
to clear the rest by mid-to-late November.
Among the segments, the Clinical segment consisting of
Clinical Systems (down 6% year over year to $13 million) and
Clinical Reagents (up 19% to $54.5 million) contributed about 84%
of the total sales during the quarter. Cepheid's Non-Clinical
business increased 38% year over year to $10.6 million. Product
sales from North America and the international market recorded a
respective year-over-year increase of 5% (to $51.9 million) and
46% (to $26.2 million).
Placements of GeneXpert systems were lower during the reported
quarter with 115 systems (122 in the year-ago quarter) while
placements as part of the High Burden Developing Country ('HBDC')
program were higher at 149 (141). Including the HBDC systems, a
cumulative 3,614 systems have been placed worldwide as of
September 30, 2012.
Due to the manufacturing challenges, gross margin on product
sales was 49% in the reported quarter, down from 56% in the
year-ago period. Operating expenses amounted to $43.9 million, up
17.4% year over year, driven by higher research and development
(6.1% annually to $16.2 million), sales and marketing (24.2% to
$15.9 million), and general and administrative (26.3% to $11.8
million) expenses. The company reported $5.7 million as loss from
operations (after taking into account litigation settlement)
compared with income of $2.1 million in the year-ago period.
Cepheid revised its outlook for 2012 and now expects revenue
of $333 million, at the lower end of the previous range of
$333-$347 million. The company now expects to report adjusted net
loss per share in the range of 18−16 cents, a huge disappointment
from the previous earnings outlook of 1-5 cents per share. The
current Zacks Consensus Estimate stands at $333 million of
revenues and 5 cents as net loss per share for 2012.
Cepheid has been struggling with the issue of supply
disruption that adversely affected the reported quarter. This
will not only shift revenues from the third to fourth quarter but
also have an adverse impact on new business development. As the
US sales team was focusing on supporting customers through this
situation, new revenue generation was hampered. Adding to its
woes, capital spending environment also remains challenging. We
were also disappointed with the lowering of outlook for 2012.
However, with a broad portfolio of tests, Cepheid is one of
the leading players in the healthcare associated infection
("HAI") market. The company is adopting several strategies
including portfolio expansion to revive its top line.
We have a Neutral recommendation for Cepheid over the long
term. The stock carries a Zacks #3 Rank (Hold) in the short
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