GenMark Diagnostics Reports Third Quarter 2013 Results Base business grows by 159%, Installed base increases by 41 new analyzers, 2013 Guidance revised to approximately $27M Business Wire CARLSBAD, Calif. -- November 12, 2013 GenMark Diagnostics, Inc. (Nasdaq:GNMK), a leading provider of automated, multiplex molecular diagnostic testing systems, today reported financial results for the quarter ended September30, 2013. Revenues for the quarter ended September30, 2013 were $4.6 million compared with $5.3 million during the third quarter of 2012. The 12% year-over-year decrease in total revenue was attributable to a lack of purchases from Natural Molecular Testing Corporation (NMTC) during the current quarter, offset by significant growth from other customers. NMTC accounted for 66% of total revenues in the quarter ended September 30, 2012 and 26% of total revenues in the quarter ended June 30, 2013. NMTC did not make any purchases in the third quarter of 2013. Reagent revenues for the third quarter declined 22% year-over-year to $4.0 million from $5.1 million. Instrument and other revenues increased by 314% year-over-year to $651,000 from $158,000, due mainly to sales of XT-8 instruments. The Company placed 41 new analyzers during the current quarter to support its base business and removed 50 analyzers from NMTC, the majority of which were placed in 2012, bringing its total installed base to 375, all in end-user laboratories within the U.S. market. “Our base business, which excludes NMTC, demonstrated impressive revenue growth on both a year-over-year and sequential basis, growing by 159% in the third quarter of 2013 compared with the third quarter of 2012, and growing approximately 21% quarter-over-quarter ahead of the flu season. We believe the significant growth of our base business confirms the increasing implementation of our eSensor technology across a growing customer base and validates its unique value proposition in advance of releasing our sample-to-answer NexGen system,” stated GenMark’s President & CEO Hany Massarany. “On October 2^nd, we filed a law suit against NMTC seeking the collection of past due amounts from earlier product sales and for damages resulting from unsatisfied contract purchase commitments. On October 21^st, NMTC filed a voluntary petition in the United States Bankruptcy Court seeking relief under Chapter 11. As a result, this quarter we have made appropriate adjustments to our financial statements to account for NMTC’s bankruptcy filing.” Gross profit for the quarter ended September30, 2013 was $0.5 million, or 11% of revenue, compared with a gross profit of $2.2 million, or 42% of revenue for the same period in 2012. During the current quarter, the Company reserved $0.9 million of inventory made for NMTC and impaired $0.3 million of manufacturing equipment procured to support NMTC’s previous purchasing volumes. On a non-GAAP basis, which excludes the effect of NMTC related adjustments during the current quarter, gross profit for the quarter ended September30, 2013 was $1.7 million, or 36% of revenue. Operating expenses increased $4.3 million to $12.8 million during the third quarter of 2013 compared with the third quarter of 2012. Sales and Marketing expenses increased $3.4 million year-over-year mainly due to a one-time increase in the Company's allowance for doubtful accounts reserve of $2.5 million related to NMTC and continued expansion of our U.S. sales force ahead of the launch of our NexGen system. Research and Development expenses increased $0.9 million due to Company's NexGen platform and assay development activities. On a non-GAAP basis, operating expenses for the third quarter of 2013 were $10.3 million. Loss per share was $0.30 for the third quarter of 2013, compared with a loss per share of $0.20 in the third quarter of 2012. The loss per share in the current quarter included a one-time realized gain of $1.4 million from the sale of preferred stock in a private company that was acquired by a third party in July 2013, as well as $3.6 million in reserves and one-time write-offs due to NMTC. On a non-GAAP as adjusted basis, which excludes the effects of this one-time gain and NMTC related adjustments during the current quarter, the Company’s loss per share for the third quarter of 2013 was $0.24. The Company ended the third quarter of 2013 with $112.5 million in cash and investments. The Company intends to continue utilizing its cash balances to invest in new product and menu development, mainly the development of its NexGen platform and related test menu, and for infrastructure improvements and general corporate purposes. "Based on prolonged reimbursement challenges and the recently published CMS rates for the new pharmacogenomics (PGX) test codes, we expect the emerging PGX sector to experience additional downward pressure in the near term. Consequently, we are adjusting our 2013 revenue guidance to approximately $27 million and now expect more modest PGX purchasing patterns in 2014. Despite these short term headwinds, we remain very optimistic about our future,” added Massarany. “Our NexGen development efforts remain on schedule and we continue to be confident that we will bring to market the most competitively differentiated sample-to-answer system. We’re on track to complete its development in the second quarter of 2014, and as a result of the excellent progress made by our R&D organization, last week our Board of Directors approved the funding for two additional assay development teams to accelerate our NexGen menu expansion beyond our initial five panels. This week in Phoenix, we will show an advanced prototype of our NexGen system at the Association of Molecular Pathology meeting. This will be the first time future NexGen customers will have an opportunity to review the system and, based on early indications, we expect an excellent response." YEAR-TO-DATE 2013 Revenue for the first nine months of 2013 was $21.0 million, compared to $11.0 million for the prior year period, an increase of 90%. Reagent revenue for the first nine months of 2013 was $20.0 million, compared to $10.4 million for the prior year period, and instrument and other revenue for the first nine months of 2013 was $1.5 million compared to $0.5 million for the prior year period. Our base business grew by 173% for the nine months ended September30, 2013 over the previous year. Gross profit for the nine months ended September30, 2013 was $8.6 million, or 41% of revenue, compared with a gross profit of $4.1 million, or 38% of revenue for the same period in 2012. During the current period, the Company reserved $1.2 million of inventory made for NMTC and impaired $0.3 million of manufacturing equipment procured to support NMTC’s previous purchasing volumes. On a non-GAAP basis, gross profit for the nine months ended September30, 2013 was $10.1 million, or 48% of revenue. Operating expenses increased $11.7 million to $33.2 million during the first nine months of 2013 compared with the first nine months of 2012. Sales and Marketing expenses increased $5.6 million year-over-year mainly due to an increase in the Company’s allowance for doubtful accounts reserve of $2.7 million related to NMTC, and additional sales personnel costs. Research and Development expenses increased $6.3 million due to the Company’s NexGen platform and assay development activities. On a non-GAAP basis, operating expenses for the nine months ended September30, 2013 were $30.5 million. Net loss for the first nine months of 2013 was $23.0 million, or $0.69 loss per share, compared to net loss of $17.4 million, or $0.71 loss per share, for the prior year period. The loss per share included a one-time realized gain of $1.4 million from the sale of preferred stock in a private company that was acquired by a third party in July 2013, as well as $4.2 million in reserves and one-time write-offs due to NMTC. On a non-GAAP as adjusted basis, the loss per share for the nine months ended September30, 2013 was $0.60. INVESTOR CONFERENCE CALL GenMark will hold a conference call to discuss third quarter 2013 results and the outlook for 2013 at 4:30PM EST today. The conference call and webcast can be accessed live through the Company’s website under the Investor Relations section and will be archived for future reference. To listen to the conference call, please dial (877)312-5847 (US/Canada) or (253)237-1154 (International) and use the conference ID number 94463692 approximately five minutes prior to the start time. ABOUT GENMARK DIAGNOSTICS GenMark Diagnostics is a leading provider of automated, multiplex molecular diagnostic testing systems that detect and measure DNA and RNA targets to diagnose disease and optimize patient treatment. Utilizing GenMark’s proprietary eSensor^® detection technology, GenMark’s eSensor^® XT-8 system is designed to support a broad range of molecular diagnostic tests with a compact, easy-to-use workstation and self-contained, disposable test cartridges. GenMark currently markets four tests that are FDA cleared for IVD use: Cystic Fibrosis Genotyping Test, Respiratory Viral Panel, Thrombophilia Risk Test, and Warfarin Sensitivity Test. A number of other tests, including HCV Genotyping, 2C19 Genotyping, and 3A4/3A5 Genotyping are available for research use only. For more information, visit www.genmarkdx.com. SAFE HARBOR STATEMENT This press release includes forward-looking statements regarding events, trends and business prospects, which may affect our future operating results and financial position. Such statements, including, but not limited to, those regarding our expected 2013 financial performance and the timely completion of our NexGen system and related assay development projects, are all subject to risks and uncertainties that could cause our actual results and financial position to differ materially. Some of these risks and uncertainties include, but are not limited to, third-party payor reimbursement to our customers, the loss of a significant customer, risks related to our history of operating losses, the need for further financing and our ability to access the necessary additional capital for our business, as well as other risks and uncertainties described under the “Risk Factors” in our public filings with the Securities and Exchange Commission. We assume no responsibility to update or revise any forward-looking statements to reflect events, trends or circumstances after the date they are made. ABOUT NON-GAAP FINANCIAL MEASURES GenMark's management believes that non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance by excluding certain expenses and other items that may not be indicative of core business results. To supplement the Company's financial results for the third quarter of 2013 presented in accordance with GAAP, GenMark uses the following financial measures defined as non-GAAP by the SEC: non-GAAP cost of sales, non-GAAP sales and marketing expenses, non-GAAP operating expenses, non-GAAP gross profit, non-GAAP net loss, and non-GAAP loss per share. GenMark’s management does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared and presented in accordance with GAAP. GenMark believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing GenMark’s performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to GenMark’s historical performance and our competitors' operating results. GenMark believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. Further, our reconciliations of non-GAAP to GAAP operating results, which are included on the attached tables, are presented solely to assist a reader in understanding the impact of the various adjustments to our GAAP operating results, individually and in the aggregate, and are not intended to place any undue prominence on our non-GAAP operating results. GENMARK DIAGNOSTICS, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) As of As of September 30, December 31, 2013 2012 Current assets Cash and cash equivalents $ 63,274 $ 51,250 Investments 48,478 — Restricted cash 758 1,343 Accounts receivable - net of allowances of 2,355 3,190 $2,733 and $53 Inventories 1,965 1,993 Other current assets 682 226 Total current assets 117,512 58,002 Property and equipment, net 7,948 7,074 Intangible assets, net 3,048 1,832 Other long-term assets 106 1,108 Total assets $ 128,614 $ 68,016 Current liabilities Accounts payable 3,029 2,445 Accrued compensation 2,453 3,076 Current portion of loan payable 111 638 Other current liabilities 2,790 3,015 Total current liabilities 8,383 9,174 Long-term liabilities Loan payable, net of current portion 49 63 Other noncurrent liabilities 2,280 2,329 Total liabilities 10,712 11,566 Stockholders’ equity Common stock, $0.0001 par value; 100,000 authorized; 41,492 and 32,753 shares issued 4 3 and outstanding as of September 30, 2013 and December 31, 2012, respectively Preferred stock, $0.0001 par value; 5,000 — — authorized, none issued Additional paid-in capital 331,899 247,449 Accumulated deficit (213,577 ) (190,566 ) Accumulated other comprehensive loss (424 ) (436 ) Total stockholders’ equity 117,902 56,450 Total liabilities and stockholders’ equity $ 128,614 $ 68,016 GENMARK DIAGNOSTICS, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2013 2012 2013 2012 Revenue Product revenue $ 4,521 $ 5,194 $ 20,627 $ 10,876 License and other 116 62 325 150 revenue Total revenue 4,637 5,256 20,952 11,026 Cost of sales 4,138 3,027 12,373 6,878 Gross profit 499 2,229 8,579 4,148 Operating expenses Sales and 4,916 1,485 9,830 4,264 marketing General and 2,476 2,510 7,572 7,743 administrative Research and 5,398 4,467 15,786 9,437 development Total operating 12,790 8,462 33,188 21,444 expenses Loss from (12,291 ) (6,233 ) (24,609 ) (17,296 ) operations Other income (expense) Interest income 203 5 413 17 Interest expense (3 ) (21 ) (17 ) (73 ) Other income 1,297 (2 ) 1,232 (15 ) (expense) Total other income 1,497 (18 ) 1,628 (71 ) (expense) Loss before income (10,794 ) (6,251 ) (22,981 ) (17,367 ) taxes Provision for (23 ) (1 ) (30 ) (43 ) income taxes Net loss $ (10,817 ) $ (6,252 ) $ (23,011 ) $ (17,410 ) Net loss per share, basic and $ (0.30 ) $ (0.20 ) $ (0.69 ) $ (0.71 ) diluted Weighted average number of shares 35,987 31,751 33,331 24,370 outstanding, basic and diluted Other comprehensive loss Net loss $ (10,817 ) $ (6,252 ) $ (23,011 ) $ (17,410 ) Net unrealized gains on 21 — 12 — available-for-sale investments Comprehensive loss $ (10,796 ) $ (6,252 ) $ (22,999 ) $ (17,410 ) GENMARK DIAGNOSTICS, INC. UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, Adjusted Financial 2013 2012 2013 2012 Data: Cost of sales $ 4,138 $ 3,027 $ 12,373 $ 6,878 Inventory (852 ) — (1,182 ) — reserve^(1) Impairment of production (302 ) — (302 ) — equipment^(2) Non-GAAP cost $ 2,984 $ 3,027 $ 10,889 $ 6,878 of sales Gross profit $ 499 $ 2,229 $ 8,579 $ 4,148 Inventory 852 — 1,182 — reserve^(1) Impairment of production 302 — 302 — equipment^(2) Non-GAAP gross $ 1,653 $ 2,229 $ 10,063 $ 4,148 profit Non-GAAP gross 36 % 42 % 48 % 38 % margin % Total operating $ 12,790 $ 8,462 $ 33,188 $ 21,444 expenses Inventory (19 ) — (19 ) — reserve^(1) Allowance of doubtful (2,472 ) — (2,702 ) — accounts^(3) Non-GAAP operating $ 10,299 $ 8,462 $ 30,467 $ 21,444 expenses Total other income $ 1,497 $ (18 ) $ 1,628 $ (71 ) (expense) Preferred (1,383 ) — (1,383 ) — stock sale^(4) Non-GAAP other income $ 114 $ (18 ) $ 245 $ (71 ) (expense) Net loss $ (10,817 ) $ (6,252 ) $ (23,011 ) $ (17,410 ) Inventory 871 — 1,201 — reserve^(1) Impairment of production 302 — 302 — equipment^(2) Allowance of doubtful 2,472 — 2,702 — accounts^(3) Preferred (1,383 ) — (1,383 ) — stock sale^(4) Non-GAAP net $ (8,555 ) $ (6,252 ) $ (20,189 ) $ (17,410 ) loss Net loss per share, basic $ (0.30 ) $ (0.20 ) $ (0.69 ) $ (0.71 ) and diluted Inventory 0.02 — 0.04 — reserve^(1) Impairment of production 0.01 — 0.01 — equipment^(2) Allowance of doubtful 0.07 — 0.08 — accounts^(3) Preferred (0.04 ) — (0.04 ) — stock sale^(4) Non-GAAP net loss per $ (0.24 ) $ (0.20 ) $ (0.60 ) $ (0.71 ) share, basic and diluted ^(1) Reflects nonrecurring charges related to inventory specifically made for NMTC ^(2) Reflects nonrecurring charges related to the Company's procurement of additional manufacturing equipment to support NMTC's prior purchasing patterns ^(3) Reflects nonrecurring charges related to outstanding amounts owed by NMTC ^(4) Reflects a nonrecurring realized gain on sale of Advanced Liquid Logic, Inc. preferred stock to Illumina. Inc. The Company makes reference in this release to “non-GAAP” results, which exclude the impact of adjustments associated with NMTC’s bankruptcy, and “non-GAAP as adjusted” results, which exclude NMTC related adjustments and the one-time gain realized upon the sale of the Company’s investment in a private company. The Company believes that excluding these items and their related effects from its financial results reflects operating results that are more indicative of the Company’s ongoing operating performance while improving comparability to prior periods, and, as such, may provide investors with an enhanced understanding of the Company’s past financial performance and prospects for the future. This information is not intended to be considered in isolation from, or as a substitute for, statement of comprehensive loss, net loss, net loss per share or expense information prepared in accordance with GAAP. GENMARK DIAGNOSTICS, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Nine Months Ended September 30, 2013 2012 Operating activities: Net loss $ (23,011 ) $ (17,410 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,912 918 Amortization of premiums on investments 133 — Stock-based compensation 2,697 1,509 Provision for bad debt 2,720 (45 ) Non-cash inventory adjustments 675 563 Changes in operating assets and liabilities: Accounts receivable (1,885 ) (9 ) Inventories (216 ) (402 ) Other current assets (263 ) 92 Accounts payable 570 907 Accrued compensation 29 871 Other liabilities (861 ) 523 Net cash used in operating activities (17,500 ) (12,483 ) Investing activities Change in restricted cash 585 (3,594 ) Purchase of available-for-sale securities (52,841 ) (1,000 ) Payments for intellectual property licenses (888 ) (1,306 ) Purchases of property and equipment (3,273 ) (2,919 ) Proceeds from sales of marketable securities 4,250 — Maturities of short-term investments 800 5,000 Net cash used in investing activities (51,367 ) (3,819 ) Financing activities Proceeds from issuance of common stock 86,247 48,300 Costs incurred in conjunction with public (5,180 ) (3,226 ) offering Principal repayment of borrowings (706 ) (1,608 ) Proceeds from borrowings 166 835 Proceeds from stock option exercises 364 52 Net cash provided by financing activities 80,891 44,353 Net (decrease) increase in cash and cash 12,024 28,051 equivalents Cash and cash equivalents at beginning of 51,250 25,320 period Cash and cash equivalents at end of period $ 63,274 $ 53,371 Non-cash investing and financing activities: Property and equipment purchased with $ — $ 109 capital lease Transfer of systems from property and $ 431 $ 124 equipment into inventory Property and equipment costs incurred but $ 308 $ 249 not paid included in accounts payable Intellectual property acquisition included $ 556 $ — in other noncurrent liabilities Offering costs incurred but not paid $ 330 $ — included in other liabilities Supplemental cash flow disclosures: Cash paid for income taxes, net $ 8 $ 4 Cash paid for interest $ 17 $ 73 Contact: GenMark Diagnostics, Inc. Hany Massarany President/Chief Executive Officer 760-448-4358
GenMark Diagnostics Reports Third Quarter 2013 Results
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