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Cepheid (CPHD) Q1 Loss Narrower than Expected, Sales Top

Cepheid CPHD posted first-quarter 2016 adjusted loss (considering stock-based compensation expense as a regular spending) per share of 4 cents, reflecting a year-over-year improvement of 33.3%. This adjusted loss figure also compared favorably with the Zacks Consensus Estimate of a loss of 17 cents.

 

 

Stronger-than-expected revenue growth primarily drove the bottom line in the reported quarter.

 

Including one-time items, the company’s reported net loss in the first quarter was $6.6 million or 9 cents per share, compared with the year-ago quarter’s net income of $0.9 million or a penny per share.

Revenues in Detail

Cepheid witnessed a 9% year-over-year growth (up 13% at constant exchange rate or CER) in revenues of $144.8 million in the first quarter. The revenue figure also managed to beat the Zacks Consensus Estimate of $139 million.

The top-line improvement was driven by solid overall performance, with both of its segments reporting strong year-over-year growth.

Geographically, Cepheid witnessed no change in its first-quarter North American revenues of $82.4 million as a substantial decline in non-clinical revenue neutralized growth in Cepheid’s Clinical business. On the other hand, Cepheid’s international revenues improved 24% to $62.4 million, driven by growth in both HBDC and commercial businesses.

From the first quarter of 2016, Cepheid’s operating segments include Systems and Other and Reagents and Disposable.

Revenues at the Systems and Other segment grew 30% year over year (33% at CER) to $24.3 million, contributing 16.8% to total revenue in the first quarter. Notably, the first quarter marked the highest revenue for systems in any first quarter in the company's history. Growth in this segment was primarily backed by strong placements of the GeneXpert system.

Revenues at the Reagents and Disposable segment improved 6% year over year (10% at CER) to $120.5 million, contributing 83.2% to total revenue. This segment benefited from a severe flu season, which in turn boosted revenues.

During the reported quarter, Cepheid delivered the milestone 10,000th GeneXpert System and substantially expanded its reach in the U.S. market with new agreements with three of the most significant, non-acute distributors.

Operational Update

Cepheid's adjusted gross margin contracted 420 basis points (bps) year over year to 50.4%, on account of a 19.3% hike in cost of sales.

In the reported quarter, adjusted operating expenses spiked 12.6% to $73.4 million. Accordingly, adjusted operating loss incurred was $0.4 million, as against the prior-year quarter's adjusted operating income of $7.3 million.

Financial Position

Cepheid exited the quarter with cash and cash equivalents and short-term investments of $292.3 million compared with $322.7 million as of Dec 31, 2015. As of Mar 31, 2016, Cepheid witnessed $9.1 million of cash outflow from operating activities compared with the year-ago cash inflow of $0.7 million. Capital expenditure increased 127.7% year over year to $22.7 million.

Outlook

Cepheid reiterated its financial guidance for 2016. The company continues to expect adjusted loss per share in the range of 29–35 cents on revenues of $618–$635 million (representing growth of 15%–18% over 2015 or 18%–21% on a constant currency basis, based on recent currency exchange rates). The current Zacks Consensus Estimate for revenues is $624 million while that for the loss figure is 49 cents per share.

Our Take

Cepheid started 2016 on a compelling note with its first-quarter results exceeding the Zacks Consensus Estimate on both the top and bottom-line front. The year-over-year performance on both the fronts was also pretty decent. However, Cepheid’s declining margin raises concern.

Nevertheless, the record placements of the company’s legacy GeneXpert system buoyed optimism. Moreover, the company made solid progress in terms of its test menu expansion as well as potential pipeline development. However, despite depicting a shiny outcome in the first quarter, Cepheid’s unchanged 2016 guidance keeps us on the sidelines.

On the flip side, management expects to witness a lower adjusted gross margin figure in the second half of 2016, compared to the first half; since a higher mix of HBDC sales, including another 200 GeneXpert system sales to India is expected to impact margin.

Zacks Rank & Key Picks

Currently, GNC Holdings carries a Zacks Rank #3 (Hold). Better-ranked medical stocks are Baxter International Inc. BAX,Orthofix International N.V. OFIX and Boston Scientific Corporation BSX. While Baxter and Orthofix sport a Zacks Rank #1 (Strong Buy), Boston Scientific carries a Zacks Rank #2 (Buy).

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