8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

Current Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

July 16, 2013

Date of Report (Date of earliest event reported)

CEPHEID

(Exact name of Registrant as specified in its charter)

California	000-30755	77-0441625
(State or other jurisdiction of incorporation)	(Commission file number)	(I.R.S. Employer Identification No.)
904 Caribbean Drive, Sunnyvale, CA		94089
(Address of principal executive offices)		(Zip Code)

(408) 541-4191

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions (see General Instruction A.2 below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

The information in this report and the exhibit attached hereto are being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall they be deemed incorporated by reference in any filing with the Securities and Exchange Commission under the Securities Act of 1934 or the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing.

On July 18, 2013, Cepheid issued a press release announcing its financial results for the quarter ended June 30, 2013 and certain other information. The press release is attached to this report as Exhibit 99.01.

In the press release and during a conference call and webcast regarding Cepheid’s quarterly results, Cepheid supplemented its reported GAAP financial information with non-GAAP measures that do not include employee stock-based compensation expense, amortization of purchased intangible assets and a tax benefit related to an intercompany intellectual property transaction. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Cepheid’s management uses the non-GAAP information internally to evaluate its ongoing business, continuing operational performance and cash requirements, and believes these non-GAAP measures are useful to investors as they provide a basis for evaluating Cepheid’s cash requirements and additional insight into the underlying operating results and Cepheid’s ongoing performance in the ordinary course of its operations.

These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cepheid believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with its results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cepheid’s results of operations in conjunction with the corresponding GAAP measures.

As described above, Cepheid excludes the following items from one or more of its non-GAAP measures when applicable:

Employee Stock-based Compensation Expense. These expenses consist primarily of expenses for employee stock options and employee restricted stock under ASC 718 (formerly SFAS 123(R)). Cepheid excludes employee stock-based compensation expenses from its non-GAAP measures primarily because they are non-cash expenses that Cepheid does not believe are reflective of ongoing operating results in the period incurred. Further, as Cepheid applies ASC 718, it believes that it is useful to investors to understand the impact of the application of ASC 718 on its results of operations.

Amortization of Purchased Intangible Assets. Cepheid incurs amortization of purchased intangible assets in connection with acquisitions. Cepheid excludes these items because these expenses are not reflective of ongoing operating results in the period incurred. These amounts arise from Cepheid’s prior acquisitions and have no direct correlation to the operation of Cepheid’s business.

Tax Benefit Related to Intercompany Intellectual Property (IP) Transaction. Cepheid excluded a tax benefit related to an intercompany IP transaction from its results for non-GAAP net loss for the first quarter of 2012 and the six months ended June 30, 2012. Cepheid excluded this item as it believes it is non-recurring in nature, and does not have a direct impact on the operation of Cepheid’s core business.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(e)

On July 16, 2013, Cepheid and Humberto Reyes, Cepheid’s Executive Vice President, Chief Operating Officer, entered into an agreement regarding the terms of Mr. Reyes’ separation from Cepheid (the “Separation Agreement”). The Separation Agreement provides that Cepheid will provide Mr. Reyes with the following benefits, conditioned upon Mr. Reyes’ execution of a customary release of claims:

• separation payment in the amount of $400,000, which equals one year of Mr. Reyes’ annual base salary;

• payment of the employer portion of the COBRA premium to continue Mr. Reyes’ existing health benefits under COBRA for 12 months following July 16, 2013; and

• accelerated vesting of equity awards granted to Mr. Reyes in 2010 and 2011 that are unvested on July 16, 2013 and extension of the period for Mr. Reyes to exercise his outstanding vested options (including those that are accelerated) to July 16, 2014.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Exhibit Title
99.01	Press release dated July 18, 2013

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		CEPHEID
Date: July 18, 2013	By:	/s/ Andrew D. Miller
		Name:	Andrew D. Miller
		Title:	Executive Vice President, Chief Financial Officer

Exhibit List

Exhibit No.	Exhibit Title
99.01	Press release dated July 18, 2013

EX-99.01

Exhibit 99.01

	CONTACTS:
	For Media Inquiries:	For Investor Inquiries:
	Jared Tipton Cepheid Corporate Communications Tel: (408) 400 8377 communications@cepheid.com	Jacquie Ross Cepheid Investor Relations Tel: (408) 400 8329 investor.relations@cepheid.com
Cepheid 904 Caribbean Drive Sunnyvale, CA 94089 Telephone: 408.541.4191 Fax: 408.541.4192

CEPHEID REPORTS 2013 SECOND QUARTER RESULTS

Record Revenue Driven by $18 Million Year-Over-Year Growth in Clinical

SUNNYVALE, California, July 18, 2013 – Cepheid (Nasdaq: CPHD) today reported revenues for the second quarter of 2013 of $96.0 million, representing growth of 19% from $81.0 million for the second quarter of 2012. Net loss in the second quarter of 2013 was $6.6 million, or $(0.10) per share, which compares to net income of $1.1 million, or $0.02 per share, in the second quarter of 2012.

Excluding employee stock-based compensation and amortization of purchased intangible assets, non-GAAP net income for the second quarter of 2013 was $1.2 million, or $0.02 per share. This compares to non-GAAP net income of $7.9 million, or $0.11 per share, in the second quarter of 2012.

As discussed in Cepheid’s press release dated July 11, 2013, second quarter results reflect an unanticipated inventory reserve of approximately $3.0 million, which impacted earnings per share by approximately $0.04.

“With a record 435 systems placed in the second quarter, it is clear that the GeneXpert^® system is gaining momentum in both commercial and HBDC markets as the molecular platform of choice,” said John Bishop, Cepheid’s Chairman and Chief Executive Officer. “With backorders of Xpert^® test cartridges now behind us, and with new leadership and a new organizational structure in manufacturing operations, we are investing aggressively and driving across-the-board improvements to ensure that Cepheid is well prepared to effectively manage the growing demand for our rapidly expanding Xpert test menu.”

Operational Overview

• By business, total sales were, in millions:

	Three Months Ended June 30,
	2013		2012		Change
Clinical Systems	$	16.7	$	13.9		20	%
Clinical Reagents		70.8		55.8		27	%
Total Clinical		87.5		69.7		26	%
Non-Clinical & Other		8.5		11.3		-25	%
Total Sales	$	96.0	$	81.0		19	%

• By geography, total sales were, in millions:

	Three Months Ended June 30,
	2013		2012		Change
North America
Clinical	$	49.9	$	47.5		5	%
Non-Clinical & Other		7.5		9.5		-21	%
Total North America		57.4		57.0		1	%
International
Clinical		37.6		22.2		69	%
Non-Clinical & Other		1.0		1.8		-41	%
Total International		38.6		24.0		61	%
Total Sales	$	96.0	$	81.0		19	%

• During the quarter, Cepheid installed a total of 156 GeneXpert systems in its commercial Clinical business. Additionally, the Company placed a total of 279 GeneXpert systems as part of its High Burden Developing Country (HBDC) program. Including the HBDC systems, a cumulative total of 4,552 GeneXpert systems have been placed worldwide as of June 30, 2013.

• GAAP gross margin on sales was 45% and non-GAAP gross margin on sales was 47%, which compares to 57% and 58%, respectively, in the second quarter of 2012. Excluding the impact of the unanticipated inventory reserve of approximately $3.0 million, GAAP gross margin on sales was 48% and non-GAAP gross margin on sales was 50%.

• Cash and cash equivalents were $85.0 million as of June 30, 2013.

• DSO was 45 days.

Business Outlook

For the fiscal year ending December 31, 2013, the Company’s full year guidance has been revised to reflect additional investment in manufacturing operations to fully prepare the Company to effectively manage growing demand and expected revenue mix between Commercial Clinical and HBDC. With these points in mind, the Company now expects:

• Total revenue in the range of $380 to $385 million;

• Net loss in a range from $(0.30) to $(0.27) per share; and

• Non-GAAP net income in the range of $0.18 to $0.21 per share.

Expected non-GAAP net income excludes approximately $29 million related to stock compensation expense and approximately $4 million related to the amortization of acquired intangibles. The fully diluted share count for the year is expected to be approximately 67 million, except in the event we have non-GAAP net income, in which case the share count would be approximately 72 million shares.

The following table reconciles net loss per share to the non-GAAP net income per share range:

	Guidance Range for Year Ending December 31, 2013
	Low			High
Net Loss Per Share	$	(0.30	)	$	(0.27	)
Stock Compensation Expense		0.42			0.42
Amortization of Purchased Intangible Assets		0.06			0.06
Non-GAAP Measure of Net Income Per Share	$	0.18		$	0.21

Accessing Cepheid’s 2013 Second Quarter Results Conference Call

The Company will host a management presentation at 2 p.m. Pacific Time on Thursday, July 18, 2013, to discuss the results. To access the live webcast, please visit Cepheid’s website at http://ir.cepheid.com at least 15 minutes before the scheduled start time to download any necessary audio or plug-in software. A replay of the webcast will be available shortly following the call and will remain available for at least 90 days.

About Cepheid

Based in Sunnyvale, Calif., Cepheid (Nasdaq: CPHD) 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. By automating highly complex and time-consuming manual procedures, the Company’s solutions deliver a better way for institutions of any size to perform sophisticated genetic testing for organisms and genetic-based diseases. Through its strong molecular biology capabilities, the Company is focusing on those applications where accurate, rapid, and actionable test results are needed most, such as managing infectious diseases and cancer. For more information, visit http://www.cepheid.com.

Use of Non-GAAP Measures

The Company has supplemented its reported GAAP financial information with non-GAAP measures that do not include employee stock-based compensation expense, amortization of purchased intangible assets and a tax benefit related to an intercompany intellectual property transaction. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. The Company’s management uses the non-GAAP information internally to evaluate its ongoing business, continuing operational performance and cash requirements, and believes these non-GAAP measures are useful to investors as they provide a basis for evaluating the Company’s cash requirements and additional insight into the underlying operating results and the Company’s ongoing performance in the ordinary course of its operations.

These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with its results of operations as determined in accordance with U.S. GAAP and that these measures should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures.

As described above, the Company excludes the following items from one or more of its non-GAAP measures when applicable:

Employee Stock-based Compensation Expense. These expenses consist primarily of expenses for employee stock options and employee restricted stock under ASC 718 (formerly SFAS 123(R)). The Company excludes employee stock-based compensation expenses from its non-GAAP measures primarily because they are non-cash expenses that the Company does not believe are reflective of ongoing operating results in the period incurred. Further, as the Company applies ASC 718, it believes that it is useful to investors to understand the impact of the application of ASC 718 on its results of operations.

Amortization of Purchased Intangible Assets. The Company incurs amortization of purchased intangible assets in connection with acquisitions. The Company excludes these items because these expenses are not reflective of ongoing operating results in the period incurred. These amounts arise from the Company’s prior acquisitions and have no direct correlation to the operation of the Company’s business.

Tax Benefit Related to Intercompany Intellectual Property (IP) Transaction. The Company excluded a tax benefit related to an intercompany IP transaction from its results for non-GAAP net loss for the first quarter ended March 31, 2012. The Company excluded this item as it believes it is non-recurring in nature, and does not have a direct impact on the operation of the Company’s core business.

Forward-Looking Statements

This press release contains forward-looking statements that are not purely historical regarding Cepheid’s or its management’s intentions, beliefs, expectations and strategies for the future, including those relating to potential growth, future revenues and future net loss/income and profitability, including on a non-GAAP basis, test menu expansion and utilization, consistency of product availability and delivery, sales organization productivity, improving gross margins, execution of manufacturing operations, product sales under the High Burden Developing Country (HBDC) program, commercial test and commercial system sales and resolution of manufacturing scale-up issues. Because such statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the Company’s current expectations. Factors that could cause actual results to differ materially include risks and uncertainties such as those relating to: our ability to successfully complete and bring on line additional manufacturing lines; our ability to manage our inventory levels; long sales cycles and variability in systems placements and reagent pull-through in the Company’s HBDC program; our success in increasing commercial and HBDC sales and the effectiveness of our sales personnel; the performance and market acceptance of new products; sufficient customer demand, customer confidence in product availability and available customer budgets for our customers; our ability to develop new products and complete clinical trials successfully in a timely manner for new products; uncertainties related to the FDA regulatory and European regulatory processes; the level of testing at clinical customer sites, including for Healthcare Associated Infections (HAIs); the Company’s ability to successfully introduce and sell products in clinical markets other than HAIs; the rate of environmental biothreat testing conducted by the USPS, which will affect the amount of consumable products sold to the USPS; other unforeseen supply, development and manufacturing problems; the potential need for additional intellectual property licenses for tests and other products and the terms of such licenses; lengthy sales cycles in certain markets; the Company’s reliance on distributors in some regions to market, sell and support its products; the occurrence of unforeseen expenditures, acquisitions or other transactions; costs associated with litigation; the impact of competitive products and pricing; the Company’s ability to manage geographically-dispersed operations; and underlying market conditions worldwide. Readers should also refer to the section entitled “Risk Factors” in Cepheid’s Annual Report on Form 10-K, its most recent Quarterly Report on Form 10-Q, and its other reports filed with the Securities and Exchange Commission.

All forward-looking statements and reasons why results might differ included in this release are made as of the date of this press release, based on information currently available to Cepheid, and Cepheid assumes no obligation to update any such forward-looking statement or reasons why results might differ.

FINANCIAL TABLES FOLLOW

CEPHEID

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Sales:
System and other sales	$	18,796		$	17,100		$	34,806		$	32,330
Reagent and disposable sales		77,216			63,915			153,144			125,977
Total sales		96,012			81,015			187,950			158,307
Costs and operating expenses:
Cost of sales		52,889			35,072			95,781			70,680
Collaboration profit sharing		1,425			1,645			3,535			3,329
Research and development		18,572			16,118			36,299			38,220
Sales and marketing		19,105			15,108			38,231			29,620
General and administrative		9,612			11,011			19,375			22,062
Total costs and operating expenses		101,603			78,954			193,221			163,911
Income (loss) from operations		(5,591	)		2,061			(5,271	)		(5,604	)
Other expense, net		(717	)		(572	)		(343	)		(334	)
Income (loss) before income taxes		(6,308	)		1,489			(5,614	)		(5,938	)
Benefit from (provision for) income taxes		(272	)		(354	)		(653	)		1,547
Net income (loss)	$	(6,580	)	$	1,135		$	(6,267	)	$	(4,391	)
Basic net income (loss) per share	$	(0.10	)	$	0.02		$	(0.09	)	$	(0.07	)
Diluted net income (loss) per share	$	(0.10	)	$	0.02		$	(0.09	)	$	(0.07	)
Shares used in computing basic net income (loss) per share		67,295			65,695			67,061			65,361
Shares used in computing diluted net income (loss) per share		67,295			68,869			67,061			65,361

CEPHEID

CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS

(in thousands)

	June 30, 2013			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	85,030		$	95,779
Accounts receivable, net		47,828			43,999
Inventory		85,010			70,114
Prepaid expenses and other current assets		15,263			9,448
Total current assets		233,131			219,340
Property and equipment, net		66,232			54,830
Other non-current assets		1,078			913
Intangible assets, net		18,516			18,767
Goodwill		39,681			37,694
Total assets	$	358,638		$	331,544
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	40,436		$	33,701
Accrued compensation		19,204			16,540
Accrued royalties		7,330			7,992
Accrued and other liabilities		4,040			4,235
Current portion of deferred revenue		11,300			9,599
Current portion of notes payable		183			183
Total current liabilities		82,493			72,250
Long-term portion of deferred revenue		877			1,156
Notes payable, less current portion		1,541			1,685
Other liabilities		9,750			8,911
Total liabilities		94,661			84,002
Shareholders’ equity:
Common stock		365,317			355,867
Additional paid-in capital		130,429			117,217
Accumulated other comprehensive income		96			56
Accumulated deficit		(231,865	)		(225,598	)
Total shareholders’ equity		263,977			247,542
Total liabilities and shareholders’ equity	$	358,638		$	331,544

CEPHEID

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:
Net income (loss)	$	(6,267	)	$	(4,391	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
Depreciation and amortization of property and equipment		8,361			6,308
Amortization of intangible assets		3,146			2,633
Unrealized exchange differences		575			—
Stock-based compensation related to employees and consulting services rendered		12,806			11,567
Changes in operating assets and liabilities:
Accounts receivable		(2,586	)		761
Inventory		(14,491	)		(5,950	)
Prepaid expenses and other current assets		(6,454	)		(7,475	)
Other non-current assets		30			(105	)
Accounts payable and other current liabilities		5,669			(12,233	)
Accrued compensation		2,616			(1,312	)
Deferred revenue		1,422			438
Net cash provided by (used in) operating activities		4,827			(9,759	)
Cash flows from investing activities:
Capital expenditures		(18,974	)		(11,168	)
Payments for technology licenses		(1,125	)		—
Cost of acquisitions, net		(3,571	)		(17,462	)
Net cash used in investing activities		(23,670	)		(28,630	)
Cash flows from financing activities:
Net proceeds from the issuance of common shares and exercise of stock options		9,450			21,091
Principal payment of notes payable		(781	)		—
Net cash provided by financing activities		8,669			21,091
Effect of exchange rate change on cash		(575	)		(443	)
Net decrease in cash and cash equivalents		(10,749	)		(17,741	)
Cash and cash equivalents at beginning of period		95,779			115,008
Cash and cash equivalents at end of period	$	85,030		$	97,267

CEPHEID

RECONCILIATION OF GAAP TO NON-GAAP MEASURES (UNAUDITED)

(in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Cost of sales	$	52,889		$	35,072		$	95,781		$	70,680
Stock compensation expense		(840	)		(700	)		(1,382	)		(1,335	)
Amortization of purchased intangible assets		(805	)		(333	)		(1,659	)		(666	)
Non-GAAP measure of cost of sales	$	51,244		$	34,039		$	92,740		$	68,679
Gross margin on sales per GAAP		45	%		57	%		49	%		55	%
Gross margin on sales per Non-GAAP		47	%		58	%		51	%		57	%
Operating expenses	$	47,289		$	42,237		$	93,905		$	89,902
Stock compensation expense		(5,689	)		(5,346	)		(11,424	)		(10,209	)
Amortization of purchased intangible assets		(441	)		(381	)		(815	)		(697	)
Non-GAAP measure of operating expenses	$	41,159		$	36,510		$	81,666		$	78,996
Income (loss) from operations	$	(5,591	)	$	2,061		$	(5,271	)	$	(5,604	)
Stock compensation expense		6,529			6,046			12,806			11,544
Amortization of purchased intangible assets		1,246			714			2,474			1,363
Non-GAAP measure of income from operations	$	2,184		$	8,821		$	10,009		$	7,303
Net income (loss)	$	(6,580	)	$	1,135		$	(6,267	)	$	(4,391	)
Stock compensation expense		6,529			6,046			12,806			11,544
Amortization of purchased intangible assets		1,246			714			2,474			1,363
Tax benefit related to intercompany IP transaction		—			—			—			(1,815	)
Non-GAAP measure of net income	$	1,195		$	7,895		$	9,013		$	6,701
Basic net income (loss) per share	$	(0.10	)	$	0.02		$	(0.10	)	$	(0.07	)
Stock compensation expense		0.10			0.09			0.19			0.18
Amortization of purchased intangible assets		0.02			0.01			0.04			0.02
Tax benefit related to intercompany IP transaction		—			—			—			(0.03	)
Non-GAAP measure of net income per share	$	0.02		$	0.12		$	0.13		$	0.10
Diluted net income (loss) per share	$	(0.10	)	$	0.02		$	(0.10	)	$	(0.07	)
Stock compensation expense		0.10			0.08			0.19			0.18
Amortization of purchased intangible assets		0.02			0.01			0.04			0.02
Tax benefit related to intercompany IP transaction		—			—			—			(0.03	)
Non-GAAP measure of net income per share	$	0.02		$	0.11		$	0.13		$	0.10
Shares used in computing basic net income (loss) per share		67,295			65,695			67,061			65,361
Shares used in computing diluted net income (loss) per share		69,666			68,869			69,554			68,535