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Gen-Probe Reports Financial Results for the Second Quarter of 2011

- Company Posts Non-GAAP EPS of $0.51 and GAAP EPS of $0.45 -
- Total Revenues of $135.9 Million Driven by Record Sales of APTIMA Women's Health Products -

SAN DIEGO, July 28, 2011 /PRNewswire via COMTEX/ --

Gen-Probe Incorporated (NASDAQ: GPRO) today reported financial results for the second quarter of 2011, with total revenues of $135.9 million and non-GAAP earnings per share (EPS) of $0.51.

"Gen-Probe posted record sales of APTIMA women's health products in the second quarter of 2011, while supply chain fluctuations caused blood screening revenue to decline compared to strong sales a year ago," said Carl Hull, the Company's president and chief executive officer. "In addition, we are off to a good start with the first of several new product launches in the United States, and with our PANTHER® introduction in Europe."

Key financial results for the second quarter of 2011 were ($ in millions, except EPS):



Non-GAAP


GAAP


2011

2010

Change


2011

2010

Change

Product sales

$132.9

$132.7

--


$132.9

$132.7

--

Total revenues

$135.9

$138.6

-2%


$135.9

$138.6

-2%

Operating profit

$34.1

$37.2

-8%


$29.8

$34.2

-13%

Net income

$25.3

$26.0

-3%


$22.3

$28.1

-21%

EPS

$0.51

$0.52

-2%


$0.45

$0.57

-21%


Revenue Detail

In the second quarter of 2011, clinical diagnostics product sales grew by 18% compared to the prior year period. This increase was driven primarily by domestic and international growth of the APTIMA Combo 2® assay for detecting Chlamydia and gonorrhea, and by the inclusion of GTI product sales, which were not part of Gen-Probe in the prior year period. Foreign currency fluctuations increased clinical diagnostics sales by an estimated $1.3 million compared to the prior year period.

In blood screening, sales declined compared to the second quarter of 2010, as expected, due to lower shipments of assays and instruments to Novartis, the Company's blood screening partner. Although total blood screening assay revenue for the joint business increased compared to the prior year period, Gen-Probe's assay shipments to Novartis decreased by nearly $6 million, instrument shipments declined by nearly $5 million, and additional supply chain fluctuations reduced sales by approximately $3 million.

"We believe the decrease in blood screening sales resulted mainly from reductions in our partner's inventory levels and lower instrument revenues," said Hull. "The underlying fundamentals of our blood screening business remain healthy, evidenced by the solid donation volumes, market share and profitability we experienced in the second quarter."

The percentage decline in blood screening sales in the second quarter of 2011 was magnified when compared to strong sales in the prior year period, which were more than $5 million higher than in any other quarter last year. Finally, foreign currency fluctuations increased blood screening sales by an estimated $1.1 million compared to the prior year period.

Sales of research products and services in the second quarter of 2011 were $2.3 million, down 28% compared to the prior year period due to continued market weakness affecting contract research organizations. Foreign currency fluctuations increased sales of research products and services by an estimated $0.2 million compared to the prior year period.

Second quarter product sales were ($ in millions):



Three Months Ended June 30,


Change


2011

2010


As Reported

Constant Currency

Clinical Diagnostics

$87.5

$73.9


+18%

+17%

Blood Screening

$43.2

$55.7


-22%

-24%

Research Products and Services

$2.3

$3.2


-28%

-34%

Total Product Sales

$132.9

$132.7


--

-2%


Collaborative research revenues in the second quarter of 2011 were $1.6 million, compared to $4.1 million in the prior year period, a decrease of 61% that resulted primarily from an expected decrease in funding from Novartis associated with the development of the fully automated PANTHER instrument for the blood screening market.

Royalty and license revenues in the second quarter of 2011 were $1.4 million, compared to $1.8 million in the prior year period.

GAAP Income Statement Details

Gross margin on product sales was 70.3% in the second quarter of 2011, compared to 66.6% in the prior year period. This increase resulted mainly from a favorable product sales mix, namely higher sales of APTIMA products and lower sales of instrumentation to Novartis.

Acquisition-related amortization expenses were $2.7 million in the second quarter of 2011, compared to $2.2 million in the prior year period, an increase of 23% that resulted mainly from the acquisition of GTI in December of 2010.

Research and development (R&D) expenses were $27.7 million in the second quarter of 2011, compared to $27.1 million in the prior year period, an increase of 2% that resulted primarily from the addition of GTI's R&D programs.

Marketing and sales expenses were $17.5 million in the second quarter of 2011, compared to $15.8 million in the prior year period, an increase of 11% that resulted primarily from the addition of GTI's cost structure, and ongoing European commercial expansion.

General and administrative (G&A) expenses were $18.7 million in the second quarter of 2011, compared to $15.0 million in the prior year period, an increase of 25% that resulted from the addition of GTI's cost structure, increased legal expenses, and higher stock-based compensation.

Total other income, net, was $3.8 million in the second quarter of 2011, compared to $6.9 million in the prior year period, a decrease of 45% that resulted primarily from a non-cash gain in the prior year period related to a change in the fair value of contingent consideration in connection with the acquisition of PRODESSE.

Income tax expense was $11.2 million in the second quarter of 2011, leading to a tax rate of 33%.

Non-GAAP Income Statement Details

Excluding $0.1 million of acquisition-related depreciation expense, gross margin on product sales was 70.4% in the second quarter of 2011, compared to 66.7% in the prior year period.

Excluding transaction-related and restructuring costs, G&A expenses were $17.3 million in the second quarter of 2011, compared to $14.3 million in the prior year period.

Income tax expense was $12.5 million in the second quarter of 2011, leading to a tax rate of 33%.

Cash Flows and Balance Sheet

In the second quarter of 2011, Gen-Probe generated net cash of $45.4 million from operating activities, more than double GAAP net income of $22.3 million. The Company spent $12.5 million on property, plant and equipment in the quarter, leading to free cash flow of $32.9 million.

Gen-Probe continues to have a strong balance sheet. As of June 30, 2011, the Company had $529.4 million of cash, cash equivalents and marketable securities, and $248 million of short-term debt. The Company pays interest on this debt at a rate 0.6% above the one-month London Interbank Offered Rate (LIBOR), which was recently below 0.2%.

Updated 2011 Financial Guidance

"We are tightening our 2011 revenue guidance based on our first-half performance," said Herm Rosenman, the Company's senior vice president, finance, and chief financial officer. "We also are adjusting our EPS guidance based on the higher share count and stock compensation expense resulting from the recent increase in our share price, the effects of which are partially offset by higher gross margins." Gen-Probe's updated 2011 financial guidance is provided below:



Current

Guidance

(non-GAAP)

Previous

Guidance

(non-GAAP)

Current

Guidance

(GAAP)

Previous

Guidance

(GAAP)

Total revenues

$575 to $590 million

$570 to $595 million

$575 to $590 million

$570 to $595 million

Product gross margins

69% to 70%

68% to 69.5%

69% to 70%

68% to 69.5%

Acquisition-related amortization and other transaction expense

N/A

N/A

$15 million

$13 to $14 million

Operating margin

27% to 29%

27% to 29%

24.5% to 26.5%

25% to 27%

Tax rate

32% to 33%

32% to 33%

32% to 33%

32% to 33%

Diluted shares

49 million

48 to 49 million

49 million

48 to 49 million

EPS

$2.28 to $2.37

$2.28 to $2.40

$2.06 to $2.15

$2.06 to $2.20




Notes on Presentation

In this news release, all per share amounts are calculated on a fully diluted basis. Some totals may not foot due to rounding. Certain prior year amounts have been reclassified to conform to the current year presentation. Estimates of "constant currency" results exclude currency fluctuations associated with revenue from GTI, which was not part of Gen-Probe in the second quarter of 2010.

About Non-GAAP Financial Measures

Gen-Probe's management believes that non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance by excluding certain expenses that may not be indicative of core business results. To supplement the Company's financial results for the second quarter of 2011 and its updated 2011 financial guidance, in each case presented in accordance with GAAP, Gen-Probe uses the following financial measures defined as non-GAAP by the SEC: non-GAAP net income, non-GAAP gross margin, non-GAAP marketing and sales expenses, non-GAAP G&A expenses, non-GAAP operating profit, non-GAAP income tax rate, and non-GAAP EPS. Gen-Probe'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. Gen-Probe believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing Gen-Probe's performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Gen-Probe's historical performance and our competitors' operating results. Gen-Probe 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 in the format of consolidated statements of income 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.

Webcast Conference Call

A live webcast of Gen-Probe's second quarter 2011 conference call for investors can be accessed at http://www.gen-probe.com beginning at 4:30 p.m. Eastern Time today. The webcast will be archived for at least 90 days. A telephone replay of the call also will be available for approximately 24 hours. Call 866-415-2341 (domestic) or 203-369-0686 (international).

About Gen-Probe

Gen-Probe is a global leader in the development, manufacture and marketing of rapid, accurate and cost-effective molecular diagnostic products and services that are used primarily to diagnose human diseases, screen donated human blood, and ensure transplant compatibility. Gen-Probe is headquartered in San Diego and employs approximately 1,400 people. For more information, go to http://www.gen-probe.com/.

Trademarks

APTIMA, APTIMA COMBO 2, PANTHER and PRODESSE are trademarks of Gen-Probe. All other trademarks are the property of their owners.

Caution Regarding Forward-Looking Statements

Any statements in this news release about our expectations, beliefs, plans, objectives, assumptions or future events or performance, including those under the heading "Updated 2011 Financial Guidance," are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as believe, will, expect, anticipate, estimate, intend, plan and would. For example, statements concerning Gen-Probe's financial condition, possible or expected results of operations, the development and commercialization of new products, regulatory approvals, future milestones, growth opportunities, market trends, and plans of management are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from those expressed or implied. Some of these risks, uncertainties and assumptions include but are not limited to: (i) the risk that we may not achieve our expected 2011 financial targets, (ii) the risk that we may not integrate acquisitions, such as Tepnel, PRODESSE and GTI, successfully, (iii) the possibility that the market for the sale of our new products, such as our PANTHER instrument system and PROGENSA PCA3, APTIMA HPV and APTIMA trichomonas assays, may not develop as expected, (iv) the enhancement of existing products and the development of new products may not proceed as planned, (v) the risk that investigational products, including those now in US clinical trials, may not be approved by regulatory authorities or become commercially available in the time frame we anticipate, or at all, (vi) the risk that we may not be able to compete effectively, (vii) the risk that we may not be able to maintain our current corporate collaborations and enter into new corporate collaborations or customer contracts, (viii) our dependence on Novartis and other third parties for the distribution of some of our products, (ix) our dependence on a small number of customers, contract manufacturers and single source suppliers of raw materials, (x) changes in third-party reimbursement policies regarding our products could adversely affect sales, (xi) changes in government regulation or tax policy affecting our diagnostic products could harm our sales, increase our development costs or increase our taxes, (xii) the risk that our intellectual property may be infringed by third parties or invalidated, and (xiii) our involvement in patent and other intellectual property and commercial litigation could be expensive and could divert management's attention. This list includes some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements. For additional information about risks and uncertainties we face and a discussion of our financial statements and footnotes, see documents we file with the SEC, including our most recent annual report on Form 10-K and all subsequent periodic reports. We assume no obligation and expressly disclaim any duty to update forward-looking statements to reflect events or circumstances after the date of this news release or to reflect the occurrence of subsequent events.

Contact:Michael Watts Vice president, investor relations and corporate communications 858-410-8673

Gen-Probe Incorporated

Consolidated Balance Sheets - GAAP

(In thousands, except share and per share data)



June 30,


December 31,


2011


2010


(Unaudited)



Assets




Current assets:




Cash and cash equivalents

$ 176,719


$ 59,690

Marketable securities

212,499


170,648

Trade accounts receivable, net of allowance for doubtful accounts of $414 and $355 at June 30, 2011 and December 31, 2010, respectively

52,742


54,739





Accounts receivable -- other

3,569


5,493

Inventories

70,666


66,416

Deferred income tax

13,169


13,634

Prepaid income tax

293


2,993

Prepaid expenses

15,936


11,672

Other current assets

5,124


5,148

Total current assets

550,717


390,433

Marketable securities, net of current portion

140,227


259,317

Property, plant and equipment, net

169,262


160,863

Capitalized software, net

15,020


13,981

Patents, net

12,115


12,450

Goodwill

150,830


150,308

Purchased intangibles, net

116,006


120,270

License, manufacturing access fees and other assets, net

65,563


60,175

Total assets

$ 1,219,740


$1,167,797





Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$ 11,358


$ 14,614

Accrued salaries and employee benefits

22,947


26,825

Other accrued expenses

13,939


13,935

Income tax payable

5,470


634

Short-term borrowings

248,000


240,000

Deferred income tax

97


-

Deferred revenue

1,387


1,166

Total current liabilities

303,198


297,174

Non-current income tax payable

9,041


8,315

Deferred income tax

27,955


29,775

Deferred revenue, net of current portion

2,269


2,500

Other long-term liabilities

7,460


6,654

Commitments and contingencies




Stockholders' equity:




Preferred stock, $0.0001 par value per share; 20,000,000 shares authorized, none issued and outstanding

--


--





Common stock, $0.0001 par value per share; 200,000,000 shares authorized, 48,170,514 and 47,966,156 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively

5


5









Additional paid-in capital

204,786


195,820

Accumulated other comprehensive (loss) income

(7,471)


678

Retained earnings

672,497


626,876

Total stockholders' equity

869,817


823,379

Total liabilities and stockholders' equity

$ 1,219,740


$ 1,167,797


Gen-Probe Incorporated

Consolidated Statements of Income - GAAP

(In thousands, except per share data)

(Unaudited)



Three Months Ended


Six Months Ended


June 30,


June 30,


2011


2010


2011


2010

Revenues:








Product sales

$132,921


$132,734


$271,033


$ 263,303

Collaborative research revenue

1,617


4,141


5,185


7,405

Royalty and license revenue

1,360


1,774


2,718


3,360

Total revenues

135,898


138,649


278,936


274,068

Operating expenses:








Cost of product sales (excluding acquisition-related intangible amortization)

39,431


44,311


81,374


86,972









Acquisition-related intangible amortization

2,729


2,199


5,534


4,415

Research and development

27,713


27,104


56,676


56,785

Marketing and sales

17,510


15,824


34,032


30,605

General and administrative

18,703


15,018


36,856


29,697

Total operating expenses

106,086


104,456


214,472


208,474

Income from operations

29,812


34,193


64,464


65,594

Other income (expense):








Investment and interest income

2,937


3,269


3,672


7,167

Interest expense

(497)


(549)


(1,000)


(1,095)

Gain on contingent consideration

--


4,337


--


6,082

Other income (expense), net

1,315


(190)


1,492


(349)

Total other income, net

3,755


6,867


4,164


11,805

Income before income tax

33,567


41,060


68,628


77,399

Income tax expense

11,223


12,950


23,007


25,096

Net income

$ 22,344


$ 28,110


$ 45,621


$ 52,303

Net income per share:








Basic

$ 0.47


$ 0.57


$ 0.95


$ 1.06

Diluted

$ 0.45


$ 0.57


$ 0.93


$ 1.05

Weighted average shares outstanding:








Basic

47,884


48,902


47,873


49,066

Diluted

49,338


49,366


49,196


49,549


Gen-Probe Incorporated

Consolidated Statements of Income - Non-GAAP Reconciliations

(In thousands, except per share data)

(Unaudited)



Three Months Ended


Three Months Ended


June 30, 2011


June 30, 2010


Non--GAAP

Adjustments

GAAP


Non--GAAP

Adjustments

GAAP

Revenues:








Product sales

$132,921

$ --

$132,921


$132,734

$ --

$132,734

Collaborative research revenue

1,617

--

1,617


4,141

--

4,141

Royalty and license revenue

1,360

--

1,360


1,774

--

1,774

Total revenues

135,898

--

135,898


138,649

--

138,649

Operating expenses:








Cost of product sales (excluding acquisition-related intangible amortization)

39,329

102

39,431


44,221

90

44,311









Acquisition-related intangible amortization

--

2,729

2,729


--

2,199

2,199

Research and development

27,696

17

27,713


27,104

--

27,104

Marketing and sales

17,504

6

17,510


15,824

--

15,824

General and administrative

17,308

1,395

18,703


14,349

669

15,018

Total operating expenses

101,837

4,249

106,086


101,498

2,958

104,456

Income from operations

34,061

(4,249)

29,812


37,151

(2,958)

34,193

Other income (expense):








Investment and interest income

2,937

--

2,937


3,269

--

3,269

Interest expense

(497)

--

(497)


(549)

--

(549)

Gain on contingent consideration

--

--

--


--

4,337

4,337

Other income (expense), net

1,315

--

1,315


(190)

--

(190)

Total other income, net

3,755

--

3,755


2,530

4,337

6,867

Income before income tax

37,816

(4,249)

33,567


39,681

1,379

41,060

Income tax expense

12,521

(1,298)

11,223


13,720

(770)

12,950

Net income

$ 25,295

$(2,951)

$ 22,344


$ 25,961

$2,149

$ 28,110

Net income per share:








Basic

$ 0.53

$ (0.06)

$ 0.47


$ 0.53

$ 0.04

$ 0.57

Diluted

$ 0.51

$ (0.06)

$ 0.45


$ 0.52

$ 0.05

$ 0.57

Weighted average shares outstanding:








Basic

47,884

--

47,884


48,902

--

48,902

Diluted

49,338

--

49,338


49,366

--

49,366


Gen-Probe Incorporated

Consolidated Statements of Income - Non-GAAP Reconciliations

(In thousands, except per share data)

(Unaudited)



Six Months Ended


Six Months Ended


June 30, 2011


June 30, 2010


Non-GAAP

Adjustments

GAAP


Non-GAAP

Adjustments

GAAP

Revenues:








Product sales

$271,033

$ --

$271,033


$263,303

$ --

$263,303

Collaborative research revenue

5,185

--

5,185


7,405

--

7,405

Royalty and license revenue

2,718

--

2,718


3,360

--

3,360

Total revenues

278,936

--

278,936


274,068

--

274,068









Operating expenses:








Cost of product sales (excluding acquisition-related intangible amortization)

81,181

193

81,374


86,791

181

86,972









Acquisition-related intangible amortization

--

5,534

5,534


--

4,415

4,415

Research and development

56,659

17

56,676


56,785

--

56,785

Marketing and sales

34,026

6

34,032


30,605

--

30,605

General and administrative

34,108

2,748

36,856


29,001

696

29,697

Total operating expenses

205,974

8,498

214,472


203,182

5,292

208,474

Income from operations

72,962

(8,498)

64,464


70,886

(5,292)

65,594

Other income (expense):








Investment and interest income

3,672

--

3,672


7,167

--

7,167

Interest expense

(1,000)

--

(1,000)


(1,095)

--

(1,095)

Gain on contingent consideration

--

--

--


--

6,082

6,082

Other income (expense), net

1,492

--

1,492


(349)

--

(349)

Total other income, net

4,164

--

4,164


5,723

6,082

11,805

Income before income tax

77,126

(8,498)

68,628


76,609

790

77,399









Income tax expense

25,277

(2,270)

23,007


26,677

(1,581)

25,096

Net income

$51,849

$(6,228)

$ 45,621


$ 49,932

$2,371

$ 52,303









Net income per share:








Basic

$ 1.08

$ (0.13)

$ 0.95


$ 1.01

$ 0.05

$ 1.06

Diluted

$ 1.05

$ (0.12)

$ 0.93


$ 1.00

$ 0.05

$ 1.05









Weighted average shares outstanding:








Basic

47,873

--

47,873


49,066

--

49,066

Diluted

49,196

--

49,196


49,549

--

49,549


Gen-Probe Incorporated

Consolidated Statements of Cash Flows - GAAP

(In thousands)

(Unaudited)






Six Months Ended


June 30,


2011


2010

Operating activities:




Net income

$ 45,621


$ 52,303

Adjustments to reconcile net income to net cash provided by
operating activities:








Depreciation and amortization

22,886


22,628

Amortization of premiums on investments, net of
accretion of discounts

5,209


4,523

Stock-based compensation

12,859


12,338

Excess tax benefit from employee stock-based compensation

(3,916)


(919)

Deferred revenue

12


(1,241)

Deferred income tax

(1,632)


(1,930)

Gain on contingent consideration

--


(6,082)

Loss on disposal of property and equipment

207


143

Changes in assets and liabilities:




Trade and other accounts receivable

4,290


(1,494)

Inventories

(540)


2,998

Prepaid expenses

(4,205)


1,907

Other current assets

44


918

Other long-term assets

(453)


390

Accounts payable

(3,417)


(7,082)

Accrued salaries and employee benefits

(3,999)


(4,336)

Other accrued expenses

342


(1,086)

Income tax payable

11,437


8,530

Other long-term liabilities

769


(684)

Net cash provided by operating activities

85,514


81,824









Investing activities:




Proceeds from sales and maturities of marketable securities

223,439


281,958

Purchases of marketable securities

(162,258)


(168,395)

Purchases of property, plant and equipment

(23,245)


(14,567)

Purchases of capitalized software

(2,547)


(1,457)

Purchases of intangible assets, including licenses and manufacturing access fees

(4,424)


(1,865)

Cash paid for investment in Pacific Biosciences

--


(50,000)

Cash paid for investment in Roka Bioscience

(3,980)


--

Other

(348)


(1,967)

Net cash provided by investing activities

26,637


43,707





Financing activities:




Repurchase and retirement of common stock

(47,972)


(52,299)

Proceeds from issuance of common stock and employee stock purchase plan

40,727


20,062

Repurchase and retirement of restricted stock for payment of taxes

(363)


(43)

Excess tax benefit from employee stock-based compensation

3,916


919

Borrowings, net

8,000


--

Net cash provided by (used in) financing activities

4,308


(31,361)

Effect of exchange rate changes on cash and cash equivalents

570


(1,864)

Net increase in cash and cash equivalents

117,029


92,306

Cash and cash equivalents at the beginning of period

59,690


82,616

Cash and cash equivalents at the end of period

$ 176,719


$ 174,922


SOURCE Gen-Probe Incorporated

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Gen-Probe Inc's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.