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Cepheid Narrows Q3 Loss, Guides High

Zacks Equity Research

Cepheid (CPHD) reported third quarter adjusted loss per share of 2 cents, surpassing the Zacks Consensus Estimates of loss of 11 cents. It recorded a loss of 32 cents per share in the prior year quarter.

Adjusting for amortization expenses, Cepheid reported net income of $6.6 million or 9 cents per share in the third quarter, from net income of $0.9 million or 1 cent per share in the prior-year quarter.

Revenue in Detail

Revenues improved 24% year over year to $100.1 million in the third quarter, edging past the Zacks Consensus Estimate of $94 million. It generated revenues of $80.5 million in the prior-year quarter.

This increase came on the back of strong market adoption of GeneXpert Systems and broadening reach of the Xpert test portfolio. Growth was also driven by higher-than-expected revenues from High Burden Developing Countries (:HBDC) and improved performance in commercial clinical business.

Segment Details

Among the segments, the Clinical segment (up 36% year over year to $91.9 million) consisting of Clinical Systems (up 34% to $17.5 million) and Clinical Reagents (up 36% to $74.4 million) contributed about 91.8% to the total revenues in the reported quarter. On the other hand, Cepheid’s Non-Clinical & Other business revenues dropped 36% year over year to $8.2 million.

On a geographic basis, product sales from the mainstay North American market grew 8% year over year to $58.8 million whereas the overseas market recorded a 57% year-over-year surge to $ 41.3 million.

Cepheid’s Clinical business successfully placed 133 GeneXpert systems of the company Placements as part of the HBDC program were a total of 441. Including the HBDC systems, a cumulative total of 5,126 systems have been placed worldwide as of Sep 30, 2013.

Highlights of the Release

Adjusted gross margin was 49% in the reported quarter, down 300 basis points (bps) from the year-ago period. The margin contraction was on account of unfavorable mix toward the lower margin HBDC business.

Operating expenses amounted to $47.83 million, up 9% year over year, on account of higher research and development expenses (up 15% year over year to $18.5 million) and higher sales and marketing expenses (up 23.7% to $19.7 million). The expense growth was partially offset by lower general and administrative expenditure (down 19.3 % to $9.4 million). Adjusted operating loss was $1.4 million in the quarter.

Cepheid exited the quarter with cash and cash equivalents of about $68.7 million compared with $95.8 million at the end of 2012.


Cepheid updated its guidance for 2013 to reflect much stronger than expected HBDC revenues and higher efficiency in manufacturing operations. It expects revenues in the range of $389–$391 million compared with the prior outlook of $375–$385 million. The current Zacks Consensus Estimate is pegged at $384 million.

The company expects 2013 adjusted net loss per share (considering the stock- based compensation as a regular expense) in the range of 26–24 cents. Net income is expected to be in the range of 22-24 cents per share.

Other Upcoming Releases

MAKO Surgical Corp. (MAKO) expects to release its third quarter results on Nov 4, 2013. The Zacks Consensus Estimate for the quarter stands at a loss of 12 cents per share.

Mindray Medical International Ltd (MR) expects to release third quarter results on Nov 4, 2013. The Zacks Consensus Estimate for the quarter is 43 cents per share.

Echo Therapeutics, Inc. (ECTE) expects to release third quarter results. The Zacks Consensus Estimate for the quarter is at a loss of 53 cents.

Our Take

Cepheid 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.
The slower than expected recovery in the North American market was another downside in the quarter. Margin pressure as the HDBC business picks up is another area of concern. Furthermore, management expects the robust growth opportunities in the fourth quarter on the back continued growth in emerging markets and the new pipeline of products to be introduced by the company in the coming quarter.

Currently CPHD carries a Zacks Rank #2 (Buy).

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