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 March 31, 2005.
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
(Former 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 35,683,075 as of April 14, 2005.
INDEX
| PAGE | ||||||
| PART I. FINANCIAL INFORMATION | ||||||
| Item 1. | Financial Statements (Unaudited) | |||||
| Condensed Consolidated Balance Sheets March 31, 2005 and December 31, 2004 | 3 | |||||
| Condensed Consolidated Statements of Operations Three Months Ended March 31, 2005 and 2004 | 4 | |||||
| Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2005 and 2004 | 5 | |||||
| Notes to Condensed Consolidated Financial Statements | 6 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 19 | ||||
| Item 4. | Controls and Procedures | 20 | ||||
| PART II. OTHER INFORMATION | ||||||
| Item 1. | Legal Proceedings | 21 | ||||
| Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities | 23 | ||||
| Item 6. | Exhibits | 24 | ||||
| Signature | 25 | |||||
| Exhibits | 26 | |||||
2
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
| March 31, 2005 |
December 31, 2004 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 42,811 | $ | 33,354 | ||||
| Short-term investments |
20,192 | 20,149 | ||||||
| Trade accounts receivable, net |
32,367 | 33,292 | ||||||
| Inventories, net |
11,243 | 10,877 | ||||||
| Deferred tax assets |
6,562 | 6,544 | ||||||
| Prepaids and other current assets |
2,833 | 2,188 | ||||||
| Total current assets |
116,008 | 106,404 | ||||||
| Property and equipment, net |
49,277 | 47,679 | ||||||
| Deferred tax assets, net of current portion |
14,641 | 11,329 | ||||||
| Goodwill |
2,804 | 2,804 | ||||||
| Intangible assets, net |
7,163 | 7,097 | ||||||
| Capitalized software development costs, net |
2,311 | 2,249 | ||||||
| Other assets |
2,029 | 2,586 | ||||||
| Total assets |
$ | 194,233 | $ | 180,148 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 11,353 | $ | 10,418 | ||||
| Other current liabilities |
25,273 | 25,849 | ||||||
| Total current liabilities |
36,626 | 36,267 | ||||||
| Long term debt |
2,047 | 2,182 | ||||||
| Other long-term liabilities |
550 | 549 | ||||||
| Commitments and Contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock - $.001 par value; 50,000 shares authorized; 35,660 and 35,100 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively |
35 | 35 | ||||||
| Additional paid-in capital |
186,413 | 176,211 | ||||||
| Accumulated deficit |
(9,244 | ) | (13,860 | ) | ||||
| Accumulated other comprehensive income (loss) |
(580 | ) | 40 | |||||
| Treasury stock - 1,199 shares and 1,189 shares at cost at March 31, 2005 and December 31, 2004, respectively |
(21,614 | ) | (21,276 | ) | ||||
| Total stockholders’ equity |
155,010 | 141,150 | ||||||
| Total liabilities and stockholders’ equity |
$ | 194,233 | $ | 180,148 | ||||
3
Condensed Consolidated Statements of Operations
(in thousands except per share data)
(Unaudited)
| Three Months Ended March 31, | ||||||
| 2005 |
2004 | |||||
| Sales: |
||||||
| Reagents and other |
$ | 38,909 | $ | 31,036 | ||
| Instruments |
6,113 | 5,474 | ||||
| Total net sales |
45,022 | 36,510 | ||||
| Cost of goods sold |
11,600 | 9,692 | ||||
| Gross profit |
33,422 | 26,818 | ||||
| Operating expenses: |
||||||
| Research and development |
6,135 | 5,150 | ||||
| Selling, general and administrative |
19,800 | 18,253 | ||||
| Amortization of intangible assets |
476 | 289 | ||||
| Income from operations |
7,011 | 3,126 | ||||
| Interest and other income |
101 | 50 | ||||
| Income before taxes |
7,112 | 3,176 | ||||
| Provision for income taxes |
2,496 | 573 | ||||
| Net income |
$ | 4,616 | $ | 2,603 | ||
| Net income per common share: |
||||||
| —Basic |
$ | 0.13 | $ | 0.08 | ||
| —Diluted |
$ | 0.13 | $ | 0.07 | ||
| Shares used in computing net income per common share: |
||||||
| —Basic |
34,193 | 33,572 | ||||
| —Diluted |
36,805 | 35,724 | ||||
4
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Operating activities: |
||||||||
| Net income |
$ | 4,616 | $ | 2,603 | ||||
| Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
| Depreciation and amortization |
2,234 | 2,006 | ||||||
| Deferred income tax benefit |
(3,312 | ) | — | |||||
| Tax benefit from exercise of stock options |
4,381 | — | ||||||
| Accounts receivable |
925 | 2,684 | ||||||
| Inventory |
(366 | ) | (341 | ) | ||||
| Other assets |
329 | (625 | ) | |||||
| Accounts payable |
358 | 3,141 | ||||||
| Other liabilities |
(574 | ) | (2,159 | ) | ||||
| Net cash provided by operating activities |
8,591 | 7,309 | ||||||
| Investing activities: |
||||||||
| Purchase of property and equipment |
(3,365 | ) | (2,996 | ) | ||||
| Purchase of intangible assets |
(533 | ) | (244 | ) | ||||
| Purchases of short-term investments |
(1,549 | ) | (11,522 | ) | ||||
| Proceeds from sale of short-term investments |
1,549 | 6,464 | ||||||
| Net cash used in investing activities |
(3,898 | ) | (8,298 | ) | ||||
| Financing activities: |
||||||||
| Issuance of common stock |
5,482 | 2,775 | ||||||
| Repayments of debt |
(56 | ) | (114 | ) | ||||
| Purchases of common stock for treasury |
— | (9,228 | ) | |||||
| Net cash provided by (used in) financing activities |
5,426 | (6,567 | ) | |||||
| Effect of exchange rate change on cash and cash equivalents |
(662 | ) | (364 | ) | ||||
| Net increase (decrease) in cash and cash equivalents |
9,457 | (7,920 | ) | |||||
| Cash and cash equivalents, beginning of period |
33,354 | 19,711 | ||||||
| Cash and cash equivalents, end of period |
$ | 42,811 | $ | 11,791 | ||||
| Supplemental cash flow information: |
||||||||
| Income taxes paid |
$ | 195 | $ | 5 | ||||
| Interest paid |
$ | 38 | $ | 19 | ||||
| Non-cash investing and financing activities: |
||||||||
| Tendered common stock for stock option exercises |
$ | 338 | $ | — | ||||
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 Pty. Ltd. All significant inter-company 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 months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ended December 31, 2005. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.
Recently Issued Accounting Pronouncements: On April 14, 2005, the Securities and Exchange Commission (“SEC”) adopted a new rule that amends the compliance dates for Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”). Under the new rule, the Company is required to adopt SFAS No. 123R in the first quarter of fiscal 2006, beginning January 1, 2006. The Company has not yet determined the method of adoption or the effect of adopting SFAS No. 123R, and it has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS No. 123.
Stock-Based Employee Compensation: At March 31, 2005, the Company has four active 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 March 31 |
||||||||
| 2005 |
2004 |
|||||||
| Net income, as reported |
$ | 4,616 | $ | 2,603 | ||||
| Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects |
(1,186 | ) | (3,520 | ) | ||||
| Pro-forma net income (loss) |
$ | 3,430 | $ | (917 | ) | |||
| Net income (loss): |
||||||||
| Basic - as reported |
$ | 0.13 | $ | 0.08 | ||||
| Basic - pro forma |
$ | 0.10 | $ | (0.03 | ) | |||
| Diluted - as reported |
$ | 0.13 | $ | 0.07 | ||||
| Diluted - pro forma |
$ | 0.09 | $ | (0.03 | ) | |||
As required, the pro forma disclosures above include options granted since January 1, 1995. Consequently, the effects of applying SFAS No. 123 for providing pro forma disclosures may not be representative of the effects on reported net income for future years until all options outstanding are included in the pro forma disclosures. For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period.
Reclassification: Certain prior year amounts have been reclassified to conform to the current period presentation.
2. Inventories
Inventories consist of the following:
| March 31, 2005 |
December 31, 2004 | |||||
| Raw material and work-in-process |
$ | 4,978 | $ | 4,067 | ||
| Finished goods |
6,265 | 6,810 | ||||
| $ | 11,243 | $ | 10,877 | |||
7
Ventana Medical Systems, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(in thousands, except per share data)
(Unaudited)
3. Comprehensive Income (Loss)
The components of comprehensive income (loss), net of tax, for the three months ending March 31, 2005 and 2004 are as follows:
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Net income |
$ | 4,616 | $ | 2,603 | ||||
| Net unrealized (losses) gains on available for sale securities |
(38 | ) | 27 | |||||
| Net change in cumulative translation adjustment |
(582 | ) | (363 | ) | ||||
| $ | 3,996 | $ | 2,267 | |||||