News Releases

Cepheid Reports 2015 Third Quarter Results

Commercial Clinical Growth of 22% for First Nine Months of 2015

SUNNYVALE, Calif., Oct. 20, 2015 /PRNewswire/ -- Cepheid (Nasdaq: CPHD) today reported revenue for the third quarter of 2015 of $126.5 million, representing growth of 10% from $115.2 million for the third quarter of 2014. Net loss was $(22.9) million, or $(0.32) per share, which compares to net loss of $(7.2) million, or $(0.10) per share, in the third quarter of 2014.

Excluding stock-based compensation expense, amortization of debt discount and transaction costs, and amortization of purchased intangible assets, non-GAAP net loss for the third quarter of 2015 was $(9.1) million, or $(0.13) per share. This compares to non-GAAP net income of $4.7 million, or $0.06 per share, in the third quarter of 2014.

"Our Commercial Clinical business has grown 22% year-to-date and we currently expect to deliver approximately 20% growth for the full year," said John Bishop, Cepheid's Chairman and Chief Executive Officer. "Worldwide, we now have more than 9,200 GeneXpert Systems installed, and a menu of up to 23 tests spanning healthcare associated infections, critical infectious disease, sexual health and virology. Our objective is to improve lab efficiency and reduce costs through system consolidation and workflow efficiencies while at the same time allowing an ever increasing number of patients to benefit from our accurate, fast, and easy-to-use tests."

Operational Overview

Total revenue was, in millions:

	Three Months Ended September 30,
	2015	2014	Change

Clinical Systems	$ 17.9	$ 17.0	5%
Clinical Reagents	102.3	90.1	14%
Total Clinical	120.2	107.1	12%

Non-Clinical & Other	6.3	8.1	-22%
Total Revenue	$ 126.5	$ 115.2	10%

By geography, total revenue was, in millions:

	Three Months Ended September 30,
	2015	2014	Change
North America
Clinical	$ 67.4	$ 61.0	11%
Non-Clinical & Other	6.2	6.9	-10%
Total North America	73.6	67.9	8%

International
Clinical	52.8	46.1	14%
Non-Clinical & Other	0.1	1.2	-93%
Total International	52.9	47.3	12%

Total Revenue	$ 126.5	$ 115.2	10%

Commercial Clinical sales were $97.8 million and sales to High Burden Developing Countries (HBDC) were $22.4 million.
During the quarter, Cepheid installed a total of 204 GeneXpert systems in its Commercial Clinical business. Additionally, the Company placed a total of 172 GeneXpert systems as part of its HBDC program. Including HBDC sales, a cumulative total of 9,279 GeneXpert systems have been placed worldwide as of September 30, 2015.
GAAP gross margin on sales was 46% and non-GAAP gross margin on sales was 48%, which compares to 51% and 52%, respectively, in the third quarter of 2014.
Cash, cash equivalents and investments were $386.4 million as of September 30, 2015.
DSO was 43 days.

Business Outlook

For the fiscal year ending December 31, 2015, the Company now expects:

Total revenue to be in the range of $537 to $541 million;
- Net loss in the range of $(0.73) to $(0.71) per share; and
Non-GAAP earnings in the range of a loss of $(0.01) to income of $0.01 per share.

Expected non-GAAP net income excludes approximately $37 million related to stock-based compensation expense, approximately $10 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 72 million in the case of a net loss, and approximately 75 million shares in the case of net income.

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

	Guidance Range for Year
	Ending December 31, 2015
	Low	High
Net Loss Per Share	$ (0.73)	$ (0.71)
Stock-Based Compensation Expense	0.51	0.51
Amortization of Debt Discount and Transaction Costs	0.14	0.14
Amortization of Purchased Intangible Assets	0.07	0.07
Non-GAAP Measure of Net Income Per Share	$ (0.01)	$ 0.01

Accessing Cepheid's 2015 Third Quarter Results Conference Call

The Company will host a management presentation at 2 p.m. Pacific Time on Tuesday, October 20, 2015, 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.

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 with non-GAAP measures that do not include stock-based compensation expense, amortization of debt discount and transaction costs, 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 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:

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.

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, platform features, the breadth and speed of test menu expansion, geographic expansion and market segment 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: our success in increasing commercial and HBDC sales and the effectiveness of our sales personnel; 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 performance and market acceptance of new products; sufficient customer demand, customer confidence in product availability and available customer budgets for our customers; our 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 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; our ability to manage our inventory levels; our 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 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; the impact of competitive products and pricing; the impact of foreign currency exchange; 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.

FINANCIAL TABLES FOLLOW

CEPHEID

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
	Three Months Ended September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014
Revenue	$ 126,465	$ 115,209	$ 391,577	$ 338,619
Costs and operating expenses:
Cost of sales	67,681	56,791	198,259	169,442
Collaboration profit sharing	1,286	1,291	3,879	3,231
Research and development	32,909	23,541	84,987	69,279
Sales and marketing	28,664	23,913	82,678	70,873
General and administrative	15,401	13,069	47,395	41,076
Total costs and operating expenses	145,941	118,605	417,198	353,901

Loss from operations	(19,476)	(3,396)	(25,621)	(15,282)
Other income (expense):
Interest income	494	325	1,283	784
Interest expense	(3,687)	(3,640)	(10,937)	(9,003)
Foreign currency exchange loss and other, net	(408)	(258)	(2,848)	(1,015)
Other expense, net	(3,601)	(3,573)	(12,502)	(9,234)

Loss before income taxes	(23,077)	(6,969)	(38,123)	(24,516)
Benefit from (provision for) income taxes	176	(266)	(602)	(1,865)
Net loss	$ (22,901)	$ (7,235)	$ (38,725)	$ (26,381)
Basic net loss per share	$ (0.32)	$ (0.10)	$ (0.54)	$ (0.38)
Diluted net loss per share	$ (0.32)	$ (0.10)	$ (0.54)	$ (0.38)
Shares used in computing basic net loss per share	72,199	70,326	71,777	69,859
Shares used in computing diluted net loss per share	72,199	70,326	71,777	69,859

CEPHEID

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

	September 30,	December 31,
	2015	2014
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$ 136,487	$ 96,663
Short-term investments	189,697	196,729
Accounts receivable, net	60,383	68,809
Inventory, net	144,808	132,635
Prepaid expenses and other current assets	30,990	24,274
Total current assets	562,365	519,110
Property and equipment, net	124,366	115,765
Investments	60,168	79,731
Other non-current assets	8,215	7,847
Intangible assets, net	26,700	31,440
Goodwill	39,681	39,681
Total assets	$ 821,495	$ 793,574

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 65,789	$ 50,435
Accrued compensation	33,248	33,760
Accrued royalties	4,862	5,443
Accrued and other liabilities	28,769	34,761
Current portion of deferred revenue	12,102	13,447
Total current liabilities	144,770	137,846
Long-term portion of deferred revenue	5,081	4,532
Convertible senior notes, net	285,406	278,213
Other liabilities	19,421	18,768
Total liabilities	454,678	439,359

Shareholders' equity:
Common stock	448,525	422,151
Additional paid-in capital	251,772	225,529
Accumulated other comprehensive income (loss), net of taxes	(1,043)	247
Accumulated deficit	(332,437)	(293,712)
Total shareholders' equity	366,817	354,215
Total liabilities and shareholders' equity	$ 821,495	$ 793,574

CEPHEID

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Nine Months Ended September 30,
	2015	2014
Cash flows from operating activities:
Net loss	$ (38,725)	$ (26,381)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property and equipment	20,170	15,877
Amortization of intangible assets	4,814	2,775
Unrealized foreign exchange differences	2,242	1,107
Amortization of debt discount and transaction costs	7,627	6,147
Impairment of acquired intangible assets, licenses, property and equipment	224	—
Stock-based compensation expense	25,752	24,655
Excess tax benefits from stock-based compensation expense	(53)	—
Loss on the disposal of property, equipment and intangible assets	56	—
Other non-cash items	198	—
Changes in operating assets and liabilities:
Accounts receivable	8,426	(3,568)
Inventory, net	(11,733)	(25,223)
Prepaid expenses and other current assets	(9,691)	(5,544)
Other non-current assets	(801)	(22)
Accounts payable and other current and non-current liabilities	12,297	6,070
Accrued compensation	(511)	5,940
Deferred revenue	(795)	3,010

Net cash provided by operating activities	19,497	4,843
Cash flows from investing activities:
Capital expenditures	(29,087)	(37,323)
Cost of acquisitions, net	(3,000)	—
Proceeds from sale of equipment and an intangible asset	834	—
Proceeds from sales of marketable securities and investments	49,173	77,038
Proceeds from maturities of marketable securities and investments	175,272	66,148
Purchases of marketable securities and investments	(198,701)	(381,632)
Transfer from restricted cash	1,792	—

Net cash used in investing activities	(3,717)	(275,769)
Cash flows from financing activities:
Net proceeds from the issuance of common shares and exercise of stock options	26,444	30,137
Excess tax benefits from stock-based compensation expense	53	—
Proceeds from borrowings of convertible senior notes, net of issuance costs	—	335,789
Purchase of convertible note capped call hedge	—	(25,082)
Principal payment of notes payable	(121)	(139)

Net cash provided by financing activities	26,376	340,705
Effect of foreign exchange rate change on cash and cash equivalents	(2,332)	(1,175)

Net increase in cash and cash equivalents	39,824	68,604
Cash and cash equivalents at beginning of period	96,663	66,072
Cash and cash equivalents at end of period	$ 136,487	$ 134,676

CEPHEID

RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(in thousands, except per share data)
(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Cost of sales	$	67,681	$	56,791	$	198,259	$	169,442
Stock-based compensation expense	(1,129)		(1,437)		(3,177)		(3,291)
Amortization of purchased intangible assets	(829)		(223)		(2,877)		(669)
Non-GAAP measure of cost of sales	$	65,723	$	55,131	$	192,205	$	165,482

Gross margin on revenue per GAAP	46%		51%		49%		50%
Gross margin on revenue per Non-GAAP	48%		52%		51%		51%

Operating expenses	$	76,974	$	60,523	$	215,060	$	181,228
Stock-based compensation expense	(8,846)		(7,288)		(22,625)		(21,364)
Amortization of purchased intangible assets	(383)		(435)		(1,149)		(1,296)
Non-GAAP measure of operating expenses	$	67,745	$	52,800	$	191,286	$	158,568

Loss from operations	$	(19,476)	$	(3,396)	$	(25,621)	$	(15,282)
Stock-based compensation expense	9,975		8,725		25,802		24,655
Amortization of purchased intangible assets	1,212		658		4,026		1,965
Non-GAAP measure of loss from operations	$	(8,289)	$	5,987	$	4,207	$	11,338

Net loss	$	(22,901)	$	(7,235)	$	(38,725)	$	(26,381)
Stock-based compensation expense	9,975		8,725		25,802		24,655
Amortization of debt discount and transaction cost	2,583		2,505		7,627		6,147
Amortization of purchased intangible assets	1,212		658		4,026		1,965
Non-GAAP measure of net loss	$	(9,131)	$	4,653	$	(1,270)	$	6,386

Basic net loss per share	$	(0.32)	$	(0.10)	$	(0.54)	$	(0.38)
Stock-based compensation expense	0.14		0.12		0.36		0.35
Amortization of debt discount and transaction cost	0.03		0.04		0.10		0.09
Amortization of purchased intangible assets	0.02		0.01		0.06		0.03

Non-GAAP measure of net income (loss) per share	$	(0.13)	$	0.07	$	(0.02)	$	0.09

Diluted net loss per share	$	(0.32)	$	(0.10)	$	(0.54)	$	(0.38)
Stock-based compensation expense	0.14		0.12		0.36		0.35
Amortization of debt discount and transaction cost	0.03		0.03		0.10		0.09
Amortization of purchased intangible assets	0.02		0.01		0.06		0.03

Non-GAAP measure of net income (loss) per share	$	(0.13)	$	0.06	$	(0.02)	$	0.09

Shares used in computing basic net income (loss) per share	72,199		70,326		71,777		69,859

Shares used in computing diluted net income (loss) per share	72,199		72,672		71,777		72,689

For Media & Investor Inquiries:

Jacquie Ross, CFA
Tel: (408) 400 8329
corporate.communications@cepheid.com

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SOURCE Cepheid