Ventana Reports Third Quarter Results
TUCSON, AZ -- 10/21/2005 -- Ventana Medical Systems, Inc. (NASDAQ: VMSI)
today reported sales of $50.7 million for the quarter ending September 30,
2005, a 29% increase over third quarter 2004. Generally Accepted Accounting
Principles ("GAAP") net income for the third quarter was $3.6 million, or
$0.10 per diluted share compared with GAAP net income of $4.1 million and
$0.11 per diluted share for the same period last year. Non-GAAP net income
for the third quarter was $6.8 million, or $0.19 per diluted share compared
with non-GAAP net income of $5.5 million and $0.15 per diluted share in the
third quarter of 2004. The non-GAAP numbers for this quarter exclude the
previously announced $5.0 million pre-tax ($3.2 million tax-effected, or
$0.09 per diluted share) non-cash charge to record a potential liability
associated with recent developments in the on-going litigation with
Cytologix. The non-GAAP numbers for the third quarter 2004 exclude the $1.8
million pre-tax ($1.4 million tax-effected, or $0.04 per diluted share)
non-cash charge to write-off the value of certain imaging technology
related intangibles and other assets in connection with the TriPath Imaging
supply agreement.
"Our core business continues to record solid growth," commented Christopher
Gleeson, Ventana's President and Chief Executive Officer. "Reagent and
other revenues grew 25% versus last year's third quarter and we're
particularly pleased with the 57% growth in our instrument revenues driven
by strong demand for our BenchMark® XT and LT systems."
Gross margin was 75.5% in the quarter versus 76.5% in the third quarter of
2004 primarily due to strong instrument revenues. R&D investment was $6.5
million in the quarter, up 20% versus third quarter 2004. This increase
was driven primarily by our new platform development activities, reagent
chemistry application initiatives and workflow management programs for the
histology market.
The Company had a net decrease in cash and short term investments in the
quarter of $20.3 million and $5.8 million year-to-date driven by share
repurchases of 677 thousand shares for approximately $25.8 million and 797
thousand shares for approximately $30.5 million in the quarter and
year-to-date respectively.
YEAR-TO-DATE 2005
Net sales for the nine months ended September 30, 2005 were $144.9 million,
a 23% increase over the same period in 2004. Reagents and other revenues
grew by 26% year-over-year while gross margins improved 50 basis points and
R&D spending increased by 23%. GAAP net income was $14.9 million
year-to-date, or $0.40 per diluted share compared with GAAP net income of
$12.7 million and $0.35 per diluted share for the same period last year.
Excluding the abovementioned non-cash charges in both 2005 and 2004, the
Company reported a 57% increase in year-to-date non-GAAP income before
taxes. Non-GAAP net income for the nine months ended September 30, 2005 was
$18.2 million, or $0.49 per diluted share, compared with non-GAAP net
income of $14.1 million and $0.39 per diluted share in the third quarter of
2004.
CALENDAR YEAR 2005 AND 2006 OUTLOOK
The Company has maintained its guidance for 2005 advising that it expects
full year sales to be within a range of approximately $196.0 million to
$198.0 million. Full year GAAP and non-GAAP earnings (which excludes the
aforementioned third-quarter non-cash charge) will be approximately $0.66
and $0.75 per diluted share, respectively.
The Company also provided general guidance for 2006, advising that it
anticipates revenue growth of approximately 20% and EPS consistent with the
currently published range before considering any changes in stock-based
compensation rules.
USE OF NON-GAAP FINANCIAL MEASURES
Ventana's management believes that non-GAAP measures provide meaningful
supplemental information regarding our performance and liquidity by
excluding certain expenses that may not be indicative of our core business
operating results. Ventana believes that both management and investors
benefit from referring to these non-GAAP financial measures in assessing
Ventana's performance and when planning, forecasting and analyzing future
periods. These non-GAAP financial measures also facilitate management's
internal comparisons to historical performance. We include these non-GAAP
financial measures because we believe they are useful to investors in
allowing for greater transparency with respect to supplemental information
used by management in its financial and operational decision making. These
non-GAAP measures should be considered in addition to results prepared in
accordance with GAAP, but should not be considered a substitute for, or
superior to GAAP results. The non-GAAP information excludes items such as
special charges, which may have a material effect on our net income (loss)
and net income (loss) per share calculated in accordance with GAAP. We
exclude these charges and the related tax benefit from the charges when
analyzing our financial results as the items are distinguishable events and
have no impact to our ongoing results of operations. We believe that by
viewing our results of operations excluding these charges, investors are
given an indication of the ongoing results of our operations.
CONFERENCE CALL
Ventana will hold a conference call to discuss third-quarter 2005 results
and the outlook for the full year at 10:00 a.m. EST on Friday, October 21,
2005. The call can be accessed live and will be available for replay over
the Internet via www.viavid.net.
Ventana develops, manufactures, and markets instrument/reagent systems that
automate slide preparation and staining in clinical histology and drug
discovery laboratories worldwide. Ventana's clinical systems are important
tools used in the diagnosis and treatment of cancer and infectious
diseases. Ventana's drug discovery systems are used to accelerate the
discovery of new drug targets and evaluate the safety of new drug
compounds.
SAFE HARBOR STATEMENT
This press release contains forward-looking statements within the meaning
of the Federal Securities laws. These forward-looking statements include
our current financial outlook for the fourth-quarter of 2005 and expected
revenue growth and profitability for 2006. These forward-looking
statements are subject to numerous risks and uncertainties, and actual
results may vary materially. We may not achieve anticipated future
operating results, and product development activities may not be as
successful as we expect in terms of the timing of product availability to
the market or customer rates of adoption. Other risks and uncertainties
include risks associated with the development, manufacturing, marketing,
and sale of medical products, competitive factors, general economic
conditions, legal disputes, and government actions, and those other risks
and uncertainties contained in our most recent Annual Report filed with the
Securities and Exchange Commission (SEC) on Form 10-K, and all subsequent
SEC filings. Copies of filings made with the SEC are available through the
SEC's electronic data gathering analysis retrieval system (EDGAR) at
www.sec.gov. We undertake no obligation following the date of this release
to update or revise our forward-looking statements or to update the reasons
actual results could differ materially from those anticipated in
forward-looking statements. We caution you not to place undue reliance
upon any such forward-looking statements, which speak only as of the date
such statements are made. Past performance is not indicative of future
results. We cannot guarantee any future operating results, activity,
performance, or achievement.
Visit the Ventana Medical Systems, Inc., website at www.ventanamed.com.
VENTANA MEDICAL SYSTEMS, INC.
RECONCILIATION OF GAAP INFORMATION TO NON-GAAP INFORMATION
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2005 2004 2005 2004
-------- -------- -------- --------
GAAP net income $ 3,551 $ 4,064 $ 14,905 $ 12,660
Special charges, net of tax
(1) Cytologix litigation
accrual 3,275 1,409 3,275 1,409
-------- -------- -------- --------
(2) TriPath intangible
write-off
Non-GAAP net income $ 6,826 $ 5,473 $ 18,180 $ 14,069
-------- -------- -------- --------
Diluted GAAP net income per
share $ 0.10 $ 0.11 $ 0.40 $ 0.35
-------- -------- -------- --------
Diluted non-GAAP net income
per share $ 0.19 $ 0.15 $ 0.49 $ 0.39
-------- -------- -------- --------
Diluted shares used in
calculation 36,879 35,835 36,891 35,739
======== ======== ======== ========
(1) On September 22, 2005 the Company announced that it expected to record
a pre-tax charge of approximately $5.0 million, or $0.09 per share
in the third-quarter of 2005 for potential damage liabilities
associated with the Court of Appeal for the Federal Circuit's decision
to uphold a lower court's 2003 finding of infringement by Ventana's
previous generation BenchMark® and Discovery® systems of certain
of the claims of Cytologix' U.S. Patent Nos. 6,180,061 and 6,183,693.
The case is expected to return to District Court for scheduling of
further proceedings on the issues of patent damages and anti-trust
related claims. At the present time, Cytologix' U.S. Patent Nos.
6,180,061 and 6,183,693 are under re-examination by the U.S.
Patent & Trademark Office.
(2) On September 16, 2004 the Company announced that it had signed
a five-year global supply agreement with TriPath Imaging Inc.
(NASDAQ: TPTH). Under the agreement, Ventana obtained exclusive
rights to sell and distribute worldwide a Ventana-branded version
of TriPath Imaging's interactive histology imaging system that will
be optimized for both Ventana and TriPath Imaging assays. Ventana
recorded a special charge of approximately $1.8 million, or $0.04
per share in the third quarter relating to the impairment of certain
intangible and fixed assets associated with the Company's previous
transaction with Molecular Diagnostics, Inc.
Ventana Medical Systems, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
September 30, December 31,
ASSETS 2005 2004
---------- ----------
Current assets:
Cash and cash equivalents $ 8,603 $ 33,354
Short-term investments 39,070 20,149
Trade accounts receivable, net 33,651 33,292
Inventories, net 14,489 10,877
Deferred tax assets 6,921 6,544
Prepaids and other
current assets 3,306 2,188
---------- ----------
Total current assets 106,040 106,404
Property and equipment, net 53,174 47,679
Deferred tax assets, net
of current portion 10,187 11,329
Goodwill 2,804 2,804
Intangible assets, net 8,794 7,097
Capitalized software
development costs, net 2,569 2,249
Other assets 1,964 2,586
---------- ----------
Total assets $ 185,532 $ 180,148
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,748 $ 10,418
Other current liabilities 30,589 25,849
---------- ----------
Total current liabilities 42,337 36,267
Long-term debt 1,802 2,182
Other long-term liabilities 564 549
Commitments and Contingencies
Stockholders' equity:
Common stock - $.001 par value;
100,000 shares authorized;
36,099 and 35,100 shares issued
and outstanding at September 30,
2005 and December 31, 2004,
respectively 36 35
Additional paid-in capital 192,842 176,211
Deferred stock-based compensation (404) -
Accumulated earnings (deficit) 1,045 (13,860)
Accumulated other comprehensive
(loss) income (629) 40
Treasury stock - 1,978 shares and
1,189 shares at cost at September
30, 2005 and December 31, 2004,
respectively (52,061) (21,276)
---------- ----------
Total stockholders' equity 140,829 141,150
---------- ----------
Total liabilities and
stockholders' equity $ 185,532 $ 180,148
========== ==========
Ventana Medical Systems, Inc.
Condensed Consolidated Statements of Operations
(in thousands except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---------- ---------- ---------- ----------
Sales:
Reagents and other $ 42,917 $ 34,308 $ 124,623 $ 99,199
Instruments 7,820 4,994 20,255 18,929
---------- ---------- ---------- ----------
Total net sales 50,737 39,302 144,878 118,128
Cost of goods sold 12,438 9,236 36,025 29,950
---------- ---------- ---------- ----------
Gross profit 38,299 30,066 108,853 88,178
Operating expenses:
Research and
development 6,487 5,421 19,312 15,741
Selling, general and
administrative 21,200 17,638 60,893 54,188
Special charges 5,000 1,758 5,000 1,758
Amortization of
intangible assets 576 307 1,531 924
---------- ---------- ---------- ----------
Income from operations 5,036 4,942 22,117 15,567
Interest and other income 263 126 660 211
---------- ---------- ---------- ----------
Income before taxes 5,299 5,068 22,777 15,778
Provision for income
taxes 1,748 1,004 7,872 3,118
---------- ---------- ---------- ----------
Net income $ 3,551 $ 4,064 $ 14,905 $ 12,660
========== ========== ========== ==========
Net income per common
share:
-Basic $ 0.10 $ 0.12 $ 0.43 $ 0.38
========== ========== ========== ==========
-Diluted $ 0.10 $ 0.11 $ 0.40 $ 0.35
========== ========== ========== ==========
Shares used in computing
net income per
common share:
-Basic 34,489 33,611 34,447 33,512
========== ========== ========== ==========
-Diluted 36,879 35,835 36,891 35,739
========== ========== ========== ==========
Ventana Medical Systems, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
2005 2004
--------- ---------
Operating activities:
Net income $ 14,905 $ 12,660
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,983 6,105
Non-cash litigation charge 5,000 -
Non-cash intangibles and property and
equipment charges - 1,758
Deferred income tax benefit 785 -
Tax benefit from exercise of stock options 4,381 -
Amortization of deferred compensation 37 -
Accounts receivable (359) 40
Inventories (3,612) (2,619)
Other assets (1,395) (1,742)
Accounts payable 336 1,128
Other liabilities (245) 5,118
--------- ---------
Net cash provided by operating activities 27,816 22,448
Investing activities:
Purchase of property and equipment (11,956) (11,948)
Purchase of intangible assets (2,301) (3,605)
Purchases of short-term investments (46,700) (15,348)
Proceeds from sale of short-term investments 28,300 15,135
--------- ---------
Net cash used in investing activities (32,657) (15,766)
Financing activities:
Issuance of common stock 11,622 8,199
Repayments of debt (162) (219)
Purchases of common stock for treasury (30,521) (13,886)
--------- ---------
Net cash used in financing activities (19,061) (5,906)
Effect of exchange rate changes on cash
and cash equivalents (849) 36
--------- ---------
Net (decrease) increase in cash and
cash equivalents (24,751) 812
Cash and cash equivalents, beginning of period 33,354 19,711
--------- ---------
Cash and cash equivalents, end of period $ 8,603 $ 20,523
========= =========
Supplemental cash flow information:
Income taxes paid $ 428 $ 414
Interest paid $ 53 $ 55
Non-cash investing and financing activities:
Tendered common stock for
stock option exercises $ 338 $ -