Celera Corporation Teleconference May 6, 2009
Management Remarks for First Quarter 2009 Earnings Call
ALAMEDA, CA - May 06, 2009
Good afternoon everyone and thank you for joining Celera management to discuss the first quarter 2009 financial results that we issued earlier this afternoon. Present today are Kathy Ordoñez, our Chief Executive Officer, and Ugo DeBlasi , our Chief Financial Officer, as well as other executives from Celera and Berkeley HeartLab.
During this call, we will be making forward-looking statements about Celera's business. Forward-looking guidance, financial or otherwise, is only provided on conference calls or in our press releases. Any statements in this conference call about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words and phrases such as believe, will, expect, anticipate, estimate, think, intend, plan, foresee, could, should and would. For example, statements concerning 2009 financial guidance, financial condition, product launches, regulatory approvals and timelines, possible or assumed future results of operations, growth opportunities, industry rankings, plans and objectives of management and future economic conditions are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Factors that might cause such differences include, but are not limited to, those discussed in our SEC Filings. Copies are available on our website, as well as the SEC's website at www.sec.gov, and on request from our Investor Relations department.
We also will be discussing historical and forward-looking non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, or an alternative for, GAAP and may be different from non-GAAP financial measures used by other companies. A reconciliation of GAAP and non-GAAP financials can be found in today's press release and on the Financial Reports page of the Investor Relations section of our website at www.celera.com.
Please note that after this call, the text of these prepared remarks will be posted on the Investor Relations section of the Celera web site.
First, Kathy Ordoñez and Ugo DeBlasi will comment on the performance of Celera during the quarter, and then we'll open the call up to questions.
Thank you, David, and good afternoon everyone.
We had a solid first quarter of 2009, as revenues grew more than 15% over the prior year quarter, with a 69% gross margin for the business translating into earnings growth on a non-GAAP basis. We're addressing our collections issues and we're delighted with the appointment of Ugo DeBlasi as our Chief Financial Officer. Many of you already know Ugo. With his knowledge of our business from having worked with us closely for many years as part of Applera, he has had an immediate impact at Celera. We believe that his experience as well as his financial and leadership skills will serve us well going forward.
The first quarter was also a very productive period for us relative to several important scientific and business developments, all of which further our commitment to be a leading provider of genetic tests used routinely in personalizing disease management. Achievement of this goal requires that we offer a comprehensive range of genetic tests that predict individual predisposition to disease and also drive treatment decisions. We believe we've made good progress in expanding our pipeline with exciting proprietary discoveries of our own, such as variants in the KIF6 and LPA genes, with additional data published to support their commercialization. Also, this quarter, we presented new results regarding an immunoassay for detection of lung cancer from blood samples.
We expect to continue to complement our internal discoveries with externally-derived findings, such as those we licensed recently from deCODE and Perlegen, to further enhance our focus on cardiovascular disease, and expand our menu into diabetes and metabolic syndrome, as well as cancer. We believe these types of genetic and protein-based tests could produce highly differentiated, proprietary, and compelling products and services to personalize the management of a number of diseases. We aim to be at the forefront of this emerging field.
Our focus now is on development and commercialization of these discoveries through BHL and our Products business. We are also pursuing collaborations that we believe could allow us to penetrate broader markets beyond our current commercial reach. We believe that the right relationships could help drive testing based on our pipeline into mainstream clinical practice, while accelerating the acceptance of these new tests and increasing the scale of our business.
Our Lab Services segment, or BHL, recorded revenues of $28.5 million during the first quarter of 2009, a 28% increase over the prior year quarter - driven in large part by an increase in the number of samples processed in the lab and the addition of KIF6 to the menu of tests offered at BHL. We saw sustained adoption of the blood-based KIF6 testing service offered by Berkeley HeartLab, with more than 100,000 tests ordered to date . During the recent quarter, we continued to add resources in the field at BHL, and we expanded our presence and focus on selected market areas including Central Florida, Oklahoma and Kansas , Central and Northern California, and Washington state.
An important current objective at BHL is to implement an additional commercial channel for our genetic tests. BHL is now actively marketing StatinCheck, a cheek swab testing service for KIF6, in a pilot market with physicians in Nevada and Arizona . During this quarter we initiated activities to raise awareness for StatinCheck in these trial markets, and we're pleased with the initial response from physicians as they learn more about the test and its implications. BHL is augmenting this effort through its sales force in other selected territories and we have recently begun to receive buccal swab specimens in the lab. We are also considering how partnerships could contribute to this effort. We're very excited about this program and we expect KIF6 testing - both as a blood-based and cheek swab test - to grow and become one of our top revenue generators.
Another of our highest priorities is to reduce our allowance for doubtful accounts and DSO by improving our collections and moving more of our current payors under contract. Ugo will provide more color on our collections efforts in a few minutes, but I'd like to emphasize this is a key focus for the Company, as we've increased our internal efforts around improving collections, retained an experienced third-party vendor to assist us, and hired key people with experience in healthcare reimbursement and collections.
In the first quarter of 2009, we entered into a Preferred Medical Laboratory Service Agreement with Blue Cross and Blue Shield of Alabama for BHL's test services. The agreement establishes coverage across Blue Cross and Blue Shield's commercial health plans in the State of Alabama . With this new agreement, we estimate that approximately 55% of BHL's sample volume is either derived from Medicare or contracted private payor patients. As we've indicated previously, while we expect new contracts to result in price reductions and impact our revenue growth rate on a short-term basis, we believe that this is the best path forward for us as this is expected to improve both the predictability of the business as well as collections and profitability over the medium- to long-term.
Turning to our Products business, revenues grew by 12% in this last quarter to $10.4 million from $9.3 million in the prior year quarter, primarily due to increased sales of Celera-manufactured products and royalties from Abbott on sales of RealTi m e™ assays used on the m 2000™ system. Abbott also recently presented data confirming the real-time PCR HIV viral load test as “state of the art” for measuring variant strains of the virus – an important consideration for instrumentation to be used in clinical trials of new antiviral drugs.
An important part of our strategy for growth within the Products business is to register new proprietary tests, like KIF6 , with regulatory organizations around the world and we expect to receive a CE mark for the KIF6 test during the first half of 2010.
We are also moving forward with the development of m 2000 versions of our breast cancer gene expression tests, which are expected to be registered worldwide. These tests are now being commercialized under license by LabCorp. Lastly, we are transferring the work done in Rockville on the blood-based immunoassay test that detects lung cancer to Alameda , where we expect to finalize the prototype assay and move it into IVD product development.
Revenue from the Corporate segment in the first quarter of 2009 was $6.8 million compared to $7.9 million in the prior year quarter. The reduction in revenue in the first quarter of 2009 was due to the completion of payments by a licensee in addition to reduced royalty revenue received from another licensee, both of which were partially offset by $2.3 million from two new real-time licenses. In January, Life Technologies granted real-time technology licenses to two companies. Revenue from these licenses is shared with Celera based on a prior agreement with Applied Biosystems. We recorded $2.3 million of revenue in the first quarter of 2009 and expect to record a further $6.0 million in fees related to these licenses over the four quarters ending April 3, 2010.
Despite challenging economic conditions, we're committed to delivering on our strategy for growth for the business with the expansion of our menu with high value and higher margin tests. We believe our diverse product and service portfolio and strong financial position will serve us well as we implement these strategies for growth and building long-term value for Celera. With approximately $321 million in cash and short-term investments at the end the first quarter of 2009, and no debt, we believe we are well-positioned to fund our business operations while managing risk. Our balance sheet also allows us to consider M&A activities in addition to potential collaborations that hold promise of a good return on investment.
With the achievement of a profitable quarter on a non-GAAP basis in the first quarter of 2009, and measures we are taking to improve the financial profile of the company, we believe we've started the year on strong footing. Now, Ugo DeBlasi will make a few comments regarding the financial results for the quarter and the outlook for 2009.
Revenues for the first quarter of 2009 were $45.7 million, compared to $39.5 million for the first quarter of 2008. For the first quarter of 2009, Celera reported a net loss of $1.4 million, or $0.02 per share, compared to a net loss of $7.4 million, or $0.09 per share, in the prior year quarter.
Results for both periods included items that affected the comparability of results. A breakdown of these items is listed in the reconciliation table in today's release and posted on our website. These items increased the net loss for the first quarter of 2009 by $2.0 million. Net income on a non-GAAP basis, excluding the items listed in the reconciliation table, was $0.6 million, or $0.01 per share, for the first quarter of 2009 compared to a net loss of $0.9 million, or $0.01 per share, for the prior year quarter.
SG&A expenses for the first quarter of 2009 were $25.3 million, or 55.4% of revenues, compared to $21.3 million, or 53.9% of revenues, in the prior year quarter. The increase in SG&A was due to a $2.3 million increase in the allowance for doubtful accounts and a $1.7 million increase primarily associated with the expansion of sales efforts. Excluding the allowance for doubtful accounts, SG&A expenses for the first quarter of 2009 were $20.2 million, or 44.2% of revenues, compared to $18.5 million, or 46.8% of revenues in the prior year quarter.
The allowance for doubtful accounts in the first quarter of 2009 was $5.1 million, or 11.2% of revenues, and days sales outstanding were 98. This compares with the fourth quarter of 2008 where the allowance for doubtful accounts was $5.9 million, or 12.5% of revenues, and DSO were 92. The fourth quarter of 2008 included a $1.0 million charge for a billing dispute with a contractual payor.
We have identified factors contributing to the increased DSO and are aggressively implementing measures to address these issues as we monitor their effectiveness over the coming months. The anticipated move to contract with additional out-of-network payors is expected to positively improve efficiencies in this area. We also plan to replace or improve legacy systems and processes that support the billing and collections function.
R&D expenses for the first quarter of 2009 were $7.7 million, compared to $10.2 million in the prior year quarter, as a result of the completion of certain discovery research and development projects, a reduction in employee-related costs, and the termination of the strategic alliance with Abbott. As the business has evolved over the past few years, we have transitioned what we believe are the most promising of our large research programs into product feasibility and development projects.
Celera ended the recent quarter with cash and short-term investments of approximately $321 million, compared to approximately $316 million at December 27, 2008.
Celera anticipates that its 2009 financial performance could be affected by various factors, including uncertainty in the global economy and its potential impact on the healthcare system. Subject to the inherent risks and uncertainties that may affect Celera's financial performance, which are detailed in the Forward-Looking Statements section of today's release, and since Celera's full 2009 outlook is contained in today's press release, I will only touch on key performance variables here:
We believe this outlook could be affected by a number of factors and other risks and uncertainties outlined in today's press release and in our filings with the SEC.
These comments reflect management's current outlook. Celera does not have any current intention to update this outlook and plans to revisit the outlook for its businesses only once each quarter when financial results are announced.
We will now take your questions regarding Celera.
Thank you all for participating in the call today. As a reminder that management's remarks will be posted within the hour on our web site, and the audio replay will be available later today using the phone numbers listed in today's press release. Thanks.
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