UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended June 30, 2004.
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to .
Commission File Number: 000-20931
Ventana Medical Systems, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 94-2976937 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) | |
| 1910 Innovation Park Drive Tucson, AZ |
85737 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (520) 887-2155
Not Applicable
(Formal name, former address and former fiscal year, if changed from last report)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of shares outstanding of the registrant’s common stock, $0.001 par value was 17,344,055 as of July 16, 2004.
Ventana Medical Systems, Inc.
| PAGE | ||||||
| PART I. |
FINANCIAL INFORMATION |
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| Item 1. |
Financial Statements (Unaudited) |
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| Condensed Consolidated Balance Sheets June 30, 2004 and December 31, 2003 |
3 | |||||
| Condensed Consolidated Statements of Operations Three and Six Months Ended June 30, 2004 and 2003 |
4 | |||||
| Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 2004 and 2003 |
5 | |||||
| 6 | ||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 | ||||
| Item 3. |
20 | |||||
| Item 4. |
21 | |||||
| PART II. |
OTHER INFORMATION |
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| Item 1. |
22 | |||||
| Item 4. |
25 | |||||
| Item 6. |
26 | |||||
| 27 | ||||||
| 28 | ||||||
2
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(Unaudited)
| June 30, 2004 |
December 31, 2003 |
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| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 18,409 | $ | 19,711 | ||||
| Short-term investments |
19,980 | 19,974 | ||||||
| Trade accounts receivable, net |
28,702 | 27,398 | ||||||
| Inventories, net |
10,665 | 10,483 | ||||||
| Prepaid expenses |
932 | 594 | ||||||
| Deferred tax assets |
3,243 | 3,200 | ||||||
| Other current assets |
1,145 | 967 | ||||||
| Total current assets |
83,076 | 82,327 | ||||||
| Property and equipment, net |
46,348 | 42,516 | ||||||
| Goodwill |
2,804 | 2,804 | ||||||
| Intangible assets, net |
4,320 | 3,982 | ||||||
| Deferred tax assets, net of current portion |
5,602 | 5,602 | ||||||
| Other assets |
5,198 | 3,983 | ||||||
| Total assets |
$ | 147,348 | $ | 141,214 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| Current liabilities: |
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| Accounts payable |
$ | 11,332 | $ | 10,081 | ||||
| Other current liabilities |
18,362 | 16,304 | ||||||
| Total current liabilities |
29,694 | 26,385 | ||||||
| Long-term debt |
2,291 | 2,453 | ||||||
| Commitments and Contingencies |
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| Stockholders’ equity: |
||||||||
| Common stock - $.001 par value; 50,000 shares authorized; 17,287 and 16,709 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively |
17 | 17 | ||||||
| Additional paid-in capital |
160,848 | 154,395 | ||||||
| Accumulated deficit |
(26,553 | ) | (35,149 | ) | ||||
| Accumulated other comprehensive loss |
(692 | ) | (171 | ) | ||||
| Treasury stock - 532 shares and 250 shares at cost at June 30, 2004 and December 31, 2003, respectively |
(18,257 | ) | (6,716 | ) | ||||
| Total stockholders’ equity |
115,363 | 112,376 | ||||||
| Total liabilities and stockholders’ equity |
$ | 147,348 | $ | 141,214 | ||||
See accompanying notes to condensed consolidated financial statements
3
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2004 |
2003 |
2004 |
2003 |
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| Sales: |
||||||||||||||||
| Reagents and other |
$ | 33,855 | $ | 25,726 | $ | 64,891 | $ | 48,902 | ||||||||
| Instruments |
8,461 | 7,725 | 13,935 | 13,809 | ||||||||||||
| Total net sales |
42,316 | 33,451 | 78,826 | 62,711 | ||||||||||||
| Cost of goods sold |
11,022 | 9,357 | 20,714 | 17,854 | ||||||||||||
| Gross profit |
31,294 | 24,094 | 58,112 | 44,857 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
5,170 | 4,872 | 10,320 | 9,167 | ||||||||||||
| Selling, general and administrative |
18,297 | 15,615 | 36,550 | 30,308 | ||||||||||||
| Amortization of intangible assets |
328 | 462 | 617 | 919 | ||||||||||||
| Income from operations |
7,499 | 3,145 | 10,625 | 4,463 | ||||||||||||
| Interest and other income |
35 | 215 | 85 | 383 | ||||||||||||
| Income before taxes |
7,534 | 3,360 | 10,710 | 4,846 | ||||||||||||
| Provision for income taxes |
(1,541 | ) | (62 | ) | (2,114 | ) | (129 | ) | ||||||||
| Net income |
$ | 5,993 | $ | 3,298 | $ | 8,596 | $ | 4,717 | ||||||||
| Earnings per common share: |
||||||||||||||||
| —Basic |
$ | 0.36 | $ | 0.20 | $ | 0.51 | $ | 0.29 | ||||||||
| —Diluted |
$ | 0.34 | $ | 0.20 | $ | 0.48 | $ | 0.28 | ||||||||
| Shares used in computing earnings per common share: |
||||||||||||||||
| —Basic |
16,723 | 16,354 | 16,755 | 16,358 | ||||||||||||
| —Diluted |
17,870 | 16,878 | 17,866 | 16,766 | ||||||||||||
See accompanying notes to condensed consolidated financial statements
4
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Six Months Ended June 30, |
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| 2004 |
2003 |
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| Operating activities: |
||||||||
| Net income |
$ | 8,596 | $ | 4,717 | ||||
| Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
| Depreciation and amortization |
4,078 | 4,635 | ||||||
| Changes in operating assets and liabilities |
92 | 3,591 | ||||||
| Net cash provided by operating activities |
12,766 | 12,943 | ||||||
| Investing activities: |
||||||||
| Purchase of property and equipment |
(7,293 | ) | (3,792 | ) | ||||
| Purchase of intangible assets |
(955 | ) | (193 | ) | ||||
| Purchases of short-term investments |
(14,120 | ) | — | |||||
| Proceeds from sale of short-term investments |
13,995 | — | ||||||
| Net cash used in investing activities |
(8,373 | ) | (3,985 | ) | ||||
| Financing activities: |
||||||||
| Issuance of common stock |
6,453 | 1,789 | ||||||
| Repayments of debt |
(162 | ) | (26 | ) | ||||
| Purchases of common stock for treasury |
(11,541 | ) | (1,650 | ) | ||||
| Net cash (used in) provided by financing activities |
(5,250 | ) | 113 | |||||
| Effect of exchange rate change on cash and cash equivalents |
(445 | ) | 13 | |||||
| Net (decrease) increase in cash and cash equivalents |
(1,302 | ) | 9,084 | |||||
| Cash and cash equivalents, beginning of period |
19,711 | 18,708 | ||||||
| Cash and cash equivalents, end of period |
$ | 18,409 | $ | 27,792 | ||||
See accompanying notes to condensed consolidated financial statements
5
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
1. Organization and Significant Accounting Policies
Organization: Ventana Medical Systems, Inc. (“Ventana” or the “Company”) develops, manufactures and markets proprietary instruments and reagents that automate diagnostic procedures used for molecular analysis of cells. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Ventana Medical Systems, S.A., Ventana Medical Systems GmbH, Ventana Medical Systems Japan K.K., and Ventana Medical Systems Australia Pty. Ltd. All significant intercompany balances and transactions have been eliminated. We do not have any subsidiaries in which we do not own 100% of the outstanding stock.
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
Stock-Based Employee Compensation: At June 30, 2004, the Company has six stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.
6
Ventana Medical Systems, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(in thousands, except per share data)
(Unaudited)
1. Organization and Significant Accounting Policies (continued)
The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation, to stock-based employee compensation:
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net income, as reported |
$ | 5,993 | $ | 3,298 | $ | 8,596 | $ | 4,717 | ||||||||
| Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, no tax benefit available in 2004 and 2003 |
(2,211 | ) | (1,963 | ) | (8,077 | ) | (4,598 | ) | ||||||||