GenMark Diagnostics Reports Fourth Quarter and Year End 2013 Results

  GenMark Diagnostics Reports Fourth Quarter and Year End 2013 Results

 Base Business Grows by 58% in Quarter and 120% for the Year, Installed Base
                         Grows by 38 to 413 Analyzers

Business Wire

CARLSBAD, Calif. -- March 11, 2014

GenMark Diagnostics, Inc. (Nasdaq:GNMK), a leading provider of automated,
multiplex molecular diagnostic testing systems, today reported financial
results for the fourth quarter and year ended December31, 2013.

Revenues for the quarter ended December31, 2013 were $6.5 million compared
with $9.4 million during the fourth quarter of 2012. The 32% decrease in total
fourth quarter revenue was attributable to a decrease in purchases from
Natural Molecular Testing Corporation (NMTC) during the current period, which
was offset by significant growth in both reagent and instrument revenue from
other customers. NMTC accounted for 57% of total revenues in the quarter ended
December31, 2012 and did not account for any revenues in the fourth quarter
of 2013. Revenue during the current quarter from the Company’s “Base
Business,” which excludes revenues attributable to NMTC, increased by 58% over
the prior year period. Reagent revenues for the fourth quarter declined 36% to
$5.9 million compared with $9.1 million in the quarter ended December31,
2012. Fourth quarter reagent revenue from the Company’s Base Business
increased year-over-year by 56%. Instrument and other revenues increased by
100% to $0.6 million from $0.3 million in the prior year period, due mainly to
sales of XT-8 instruments. The Company placed a total of 38 net new analyzers
during the current quarter to bring its total installed base to 413, all in
end-user laboratories within the U.S. market.

“2013 was another year of exceptional execution and performance for our
Company, both in terms of the growth of our Base Business, as well as the
progress we made toward the development of our NexGen system,” stated
GenMark’s President & CEO, Hany Massarany.

Gross profit for the quarter ended December31, 2013 was $2.9 million, or 45%
of revenue, compared with a gross profit of $4.7 million, or 50% of revenue
for the same period in 2012.

Operating expenses increased $3.9 million to $13.2 million during the fourth
quarter of 2013 compared with the fourth quarter of 2012. Research and
Development expenses increased $2.2 million due to the Company’s NexGen
platform and assay development activities. Sales and Marketing expenses
increased $0.9 million mainly due to continued expansion of the Company’s U.S.
sales force ahead of the launch of its NexGen system. General and
Administrative expenses increased $0.8 million primarily due to a
non-recurring charge of $1.6 million to record the impairment of a long-lived
intangible asset related to a license which the Company terminated in 2013. On
a non-GAAP basis, which excludes the effect of this impairment charge,
operating expenses for the fourth quarter of 2013 were $11.6 million.

Loss per share was $0.26 for the fourth quarter of 2013, compared with a loss
per share of $0.15 in the fourth quarter of 2012. On a non-GAAP basis, the
Company’s loss per share for the fourth quarter of 2013 was $0.21.

The Company ended the year of 2013 with $106.3 million in cash and
investments. The Company intends to continue utilizing its cash balances to
invest in the development of its NexGen platform and related test menu, and
for infrastructure improvements and general corporate purposes.

FISCAL YEAR 2013 RESULTS

Revenue for the year ended December31, 2013 was $27.4 million, compared to
$20.5 million for the prior year, an increase of 34%. Reagent revenue for the
current year was $25.3 million, compared to $19.6 million for the prior year,
and instrument sales for the current year were $1.7 million compared to $0.5
million for the prior year. The Company’s Base Business grew by 120% for the
year ended December31, 2013 over the previous year.

Gross profit for the year ended December31, 2013 was $11.5 million, or 42% of
revenue, compared with a gross profit of $8.8 million, or 43% of revenue for
the prior year. During the current year, 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,
which excludes the effect of these NMTC adjustments, gross profit for the year
ended December31, 2013 was $13.0 million, or 47% of revenue.

Operating expenses increased $15.7 million to $46.4 million during the current
year compared with the prior year. Research and Development expenses increased
$8.5 million in the current year due to the Company’s NexGen platform and
assay development activities. Sales and Marketing expenses increased $6.4
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. General and Administrative expenses increased $0.7
million year-over-year due to an impairment charge of $1.6 million related to
a license agreement which the Company terminated in late 2013. On a non-GAAP
basis, which excludes NMTC-related adjustments and this non-recurring
intangible asset impairment charge, operating expenses for the year ended
December31, 2013 were $42.0 million.

Net loss for the year ended December31, 2013 was $33.6 million, or a $0.95
loss per share, compared to net loss of $22.1 million, or an $0.84 loss per
share, for the prior year. On a non-GAAP basis, the loss per share for the
year ended December31, 2013 was $0.82.

INVESTOR CONFERENCE CALL

GenMark will hold a conference call to discuss fourth quarter and year end
2013 results and the outlook for 2014 at 4:30 PM EDT 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 6963720
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 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, our ability to
successfully develop and commercialize our NexGen system and its related test
menu, constraints or inefficiencies caused by unanticipated acceleration and
deceleration of customer demand, our ability to successfully expand sales of
our product offerings outside the United States, and third-party payor
reimbursement to our customers, 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 fourth
quarter and year ended December 31, 2013 presented in accordance with GAAP,
GenMark uses the following financial measures defined as non-GAAP by the SEC:
non-GAAP cost of revenues, non-GAAP sales and marketing expenses, non-GAAP
operating expenses, non-GAAP other income (expense), 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.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

                                               As of December 31,
                                                 2013           2012
Current assets                                   (Unaudited)
Cash and cash equivalents                        $ 35,723         $ 51,250
Investments                                        69,866           —
Restricted cash                                    —                1,343
Accounts receivable - net of allowances of         2,859            3,190
$2,736 and $30
Inventories                                        2,102            1,993
Prepaid expenses and other current assets         552            226      
Total current assets                               111,102          58,002
Property and equipment, net                        8,591            7,074
Intangible assets, net                             1,197            1,832
Restricted cash                                    758              —
Other long-term assets                            106            1,108    
Total assets                                     $ 121,754       $ 68,016   
Current liabilities
Accounts payable                                   3,863            2,445
Accrued compensation                               3,375            3,076
Loan payable                                       37               638
Other current liabilities                         2,962          3,015    
Total current liabilities                          10,237           9,174
Long-term liabilities
Deferred rent                                      1,601            1,725
Loan payable, net of current portion               —                63
Other noncurrent liabilities                      748            604      
Total liabilities                                 12,586         11,566   
Stockholders’ equity
Preferred stock, $0.0001 par value; 5,000          —                —
authorized, none issued
Common stock, $0.0001 par value; 100,000
authorized; 41,520 and 32,753 shares issued        4                3
and outstanding as of December 31, 2013 and
December 31, 2012, respectively
Additional paid-in capital                         333,363          247,449
Accumulated deficit                                (224,209 )       (190,566 )
Accumulated other comprehensive loss              10             (436     )
Total stockholders’ equity                        109,168        56,450   
Total liabilities and stockholders’ equity       $ 121,754       $ 68,016   
                                                                  


GENMARK DIAGNOSTICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, except per share data)

                     Three Months Ended             Twelve Month Ended
                       December 31                       December 31,
                       2013          2012              2013          2012
Revenue                (Unaudited)     (Unaudited)       (Unaudited)
Product revenue        $ 6,577         $  9,335          $ 27,204        $ 20,211
License and other       (125    )       108            200           258     
revenue
Total revenue            6,452            9,443            27,404          20,469
Cost of revenues        3,521          4,762          15,894        11,640  
Gross profit            2,931          4,681          11,510        8,829   
Operating expenses
Sales and                2,988            2,114            12,818          6,378
marketing
General and              3,940            3,063            11,512          10,806
administrative
Research and            6,274          4,099          22,060        13,536  
development
Total operating         13,202         9,276          46,390        30,720  
expenses
Loss from               (10,271 )       (4,595 )        (34,880 )      (21,891 )
operations
Other income
(expense)
Interest income          304              25               717             42
Interest expense         (2      )        (17    )         (19     )       (90     )
Other income            (649    )       (1     )        583           (16     )
(expense)
Total other income      (347    )       7              1,281         (64     )
(expense)
Loss before income       (10,618 )        (4,588 )         (33,599 )       (21,955 )
taxes
(Provision) for         (14     )       (105   )        (44     )      (148    )
income taxes
Net loss               $ (10,632 )     $  (4,693 )       $ (33,643 )     $ (22,103 )
Net loss per
share, basic and       $ (0.26   )     $  (0.15  )       $ (0.95   )     $ (0.84   )
diluted
Weighted average
number of shares        40,957         31,775         35,253        26,215  
outstanding, basic
and diluted
Other
comprehensive loss
Net loss               $ (10,632 )     $  (4,693 )       $ (33,643 )     $ (22,103 )
Net unrealized
gains on
available-for-sale      (16     )       —              (4      )      —       
investments, net
of tax
Comprehensive loss     $ (10,648 )     $  (4,693 )       $ (33,647 )     $ (22,103 )



GENMARK DIAGNOSTICS, INC.
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)

                 Three Months Ended            Twelve Month Ended
                   December 31                      December 31,
Adjusted
Financial          2013          2012             2013          2012
Data:
Cost of            $ 3,521         $ 4,761          $ 15,894        $ 11,640
revenues
Inventory            —               —                (1,183  )       —
reserve^(1)
Impairment of
production          —             —              (302    )      —       
equipment^(2)
Non-GAAP cost      $ 3,521        $ 4,761         $ 14,409       $ 11,640  
of revenues
                                                                    
Gross profit       $ 2,930         $ 4,681          $ 11,510        $ 8,829
Inventory            —               —                1,183           —
reserve^(1)
Impairment of
production          —             —              302           —       
equipment^(2)
Non-GAAP gross     $ 2,930        $ 4,681         $ 12,995       $ 8,829   
profit
                                                                    
Non-GAAP gross       45      %       50     %         47      %       43      %
margin %
                                                                    
Total
operating            13,202          9,276            46,390          30,720
expenses
Inventory            —               —                (19     )       —
reserve^(1)
Allowance of
doubtful             —               —                (2,702  )       —
accounts^(3)
Impairment of
intangible          (1,624  )      —              (1,624  )      —       
asset^(4)
Non-GAAP
operating          $ 11,578       $ 9,276         $ 42,045       $ 30,720  
expenses
                                                                    
Total other
income             $ (347    )     $ 7              $ 1,281         $ (64     )
(expense)
Preferred            (9      )       —                (1,392  )       —
stock sale^(5)
Elimination of
foreign
currency
translation
adjustments         450           —              450           —       
upon
liquidation of
foreign
subsidiary^(6)
Non-GAAP other
income             $ 94           $ 7             $ 339          $ (64     )
(expense)
                                                                    
Net loss           $ (10,632 )     $ (4,695 )       $ (33,643 )     $ (22,103 )
Inventory            —               —                1,202           —
reserve^(1)
Impairment of
production           —               —                302             —
equipment^(2)
Allowance of
doubtful             —               —                2,702           —
accounts^(3)
Impairment of
intangible           1,624           —                1,624           —
asset^(4)
Preferred            (9      )       —                (1,392  )       —
stock sale^(5)
Elimination of
foreign
currency
translation
adjustments         450           —              450           —       
upon
liquidation of
foreign
subsidiary^(6)
Non-GAAP net       $ (8,567  )     $ (4,695 )       $ (28,755 )     $ (22,103 )
loss
                                                                    
Net loss per
share, basic       $ (0.26   )     $ (0.15  )       $ (0.95   )     $ (0.84   )
and diluted
Inventory            —               —                0.04            —
reserve^(1)
Impairment of
production           —               —                0.01            —
equipment^(2)
Allowance of
doubtful             —               —                0.08            —
accounts^(3)
Impairment of
intangible           0.04            —                0.03            —
asset^(4)
Preferred            —               —                (0.04   )       —
stock sale^(5)
Elimination of
foreign
currency
translation
adjustments         0.01          —              0.01          —       
upon
liquidation of
foreign
subsidiary^(6)
Non-GAAP net
loss per           $ (0.21   )     $ (0.15  )       $ (0.82   )     $ (0.84   )
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 impairment charge related to the termination of a
license agreement

^(5)Reflects a nonrecurring realized gain on sale of Advanced Liquid Logic,
Inc. preferred stock to Illumina. Inc.

^(6) Reflects a nonrecurring accumulated other comprehensive loss realized
upon liquidation of foreign subsidiary

The Company makes reference in this release to “non-GAAP” results, which
exclude the impact of adjustments associated with NMTC’s bankruptcy, the
impairment of an intangible asset, the realization of an accumulated
comprehensive loss, 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.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

                                 Year ended December 31,
                                   2013          2012          2011
Operating activities:              (Unaudited)
Net loss                           $ (33,643 )     $ (22,103 )     $ (23,970 )
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization        2,530           1,198           1,326
Amortization of premiums on          314             —               —
investments
Stock-based compensation             3,893           2,352           1,872
Provision for bad debt               2,721           (24     )       —
Non-cash inventory adjustments       1,779           (482    )       517
Gain on sales of investment in       (1,392  )       —               —
preferred stock
Elimination of cumulative
foreign currency translation         450             —               —
adjustments upon liquidation
of foreign subsidiary
Impairment of intangible asset       1,624           —               —
Changes in operating assets
and liabilities:
Accounts receivable                  (2,390  )       (2,068  )       (420    )
Inventories                          (1,313  )       880             (1,742  )
Prepaid expenses and other           (119    )       68              1,846
current liabilities
Accounts payable                     1,343           728             378
Accrued compensation                 951             1,811           979
Other liabilities                   (544    )      1,397         —       
Net cash used in operating          (23,796 )      (16,243 )      (19,214 )
activities
Investing activities
Change in restricted cash            585             (1,343  )       —
Purchase of available-for-sale       (76,190 )       (1,000  )       —
securities
Payments for intellectual            (882    )       (1,327  )       (734    )
property licenses
Purchases of property and            (4,270  )       (3,476  )       (1,376  )
equipment
Proceeds from sales of
marketable securities and            6,643           —               —
preferred stock
Maturities (purchases) of           1,550         5,000         (5,000  )
short-term investments
Net cash used in investing          (72,564 )      (2,146  )      (7,110  )
activities
Financing activities
Proceeds from issuance of            86,547          48,300          34,533
common stock
Cost incurred in conjunction         (5,510  )       (3,211  )       (2,854  )
with public offering
Proceeds from borrowings             166             991             2,000
Principal repayment of               (766    )       (1,984  )       (417    )
borrowings
Proceeds from stock exercises       396           223           —       
Net cash provided by financing      80,833        44,319        33,262  
activities
Effects of foreign exchange         —             —             53      
rate changes
Net (decrease) increase in           (15,527 )       25,930          6,991
cash and cash equivalents
Cash and cash equivalents at        51,250        25,320        18,329  
beginning of period
Cash and cash equivalents at       $ 35,723       $ 51,250       $ 25,320  
end of period
Non-cash investing and
financing activities:
Property and equipment             $ —             $ 109           $ —
purchased with capital lease
Transfer of systems from
property and equipment into        $ 575           $ 223           $ 46
inventory
Property and equipment costs
incurred but not paid included     $ 603           $ 592           $ 76
in accounts payable
Leasehold improvements related     $ —             $ 1,359         $ —
to lease incentives
Intellectual property
acquisition included in other      $ 450           $ —             $ —
noncurrent liabilities
Offering costs incurred but
not paid included in other           65              —               —
liabilities
Supplemental cash flow
disclosures:
Cash paid for interest             $ 19            $ 90            $ 95
Cash received for interest         $ 717           $ 42            $ 21
Cash received for income           $ 2             $ —             $ 3
taxes, net
Cash paid for income taxes         $ 21            $ 91            $ —


Contact:

GenMark Diagnostics, Inc.
Hany Massarany, 760-448-4358
President/Chief Executive Officer
 
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