Press Release

Gen-Probe Reports Financial Results for the Fourth Quarter of 2011

- Total Revenues Establish New Quarterly Record of $158.2 Million, Up 16% -
- Non-GAAP Earnings Per Share Set New High of $0.72, Up 18%, While GAAP Earnings Per Share Total $0.42 -

SAN DIEGO, Feb. 13, 2012 /PRNewswire/ -- Gen-Probe Incorporated (NASDAQ: GPRO) today reported financial results for the fourth quarter of 2011.  Total revenues in the quarter grew 16%, to a new record of $158.2 million, while non-GAAP earnings per share (EPS) increased 18%, to a new high of $0.72.

"Gen-Probe finished 2011 strong, as blood screening sales rebounded in the fourth quarter while clinical diagnostics revenues continued their solid growth," said Carl Hull, the Company's chairman and chief executive officer.  "We enter 2012 with excellent momentum based on several new product launches that are off to good starts."

Key financial results for the fourth quarter of 2011 were ($ in millions, except EPS):

Non-GAAP
GAAP

2011 2010 Change
2011 2010 Change
Total revenues $158.2 $136.7 +16%
$158.2 $136.7 +16%
Product sales $155.2 $131.1 +18%
$155.2 $131.1 +18%
Operating profit $45.8 $40.1 +14%
$29.4 $36.8 -20%
Net income $33.7 $29.4 +15%
$19.9 $27.2 -27%
EPS $0.72 $0.61 +18%
$0.42 $0.56 -25%



Gen-Probe's GAAP results for the fourth quarter of 2011 were negatively affected by impairment charges of $12.7 million related to acquired goodwill and intangible assets.  

Revenue Detail

In the fourth quarter of 2011, clinical diagnostics product sales grew by 13% compared to the prior year period.  This increase was driven primarily by domestic and international growth of the APTIMA Combo 2® assay for detecting Chlamydia and gonorrhea, and by the inclusion of sales from the former GTI Diagnostics (GTI), which the Company acquired in December of 2010.  Foreign currency fluctuations reduced clinical diagnostics sales by an estimated $0.1 million compared to the prior year period.

In blood screening, fourth-quarter sales increased by 30% compared to the prior year period, as expected, mainly due to greater shipments of assays and TIGRIS® instruments to Novartis, the Company's blood screening collaboration partner.  Foreign currency fluctuations increased blood screening sales by an estimated $0.2 million compared to the prior year period.  

Sales of research products and services in the fourth quarter of 2011 were $2.4 million, down 29% compared to the prior year period.  Foreign currency fluctuations had an immaterial effect on sales of research products and services compared to the prior year period.

Fourth quarter product sales were ($ in millions):

Three Months Ended Dec. 31,
Change

2011 2010
As Constant
Clinical Diagnostics $90.6 $80.1
+13% +13%
Blood Screening $62.1 $47.6
+30% +30%
Research Productsand Services $2.4 $3.4
-29% -29%
Total Product Sales $155.2 $131.1
+18% +18%



Collaborative research revenues in the fourth quarter of 2011 were $1.4 million, compared to $3.7 million in the prior year period, a decrease of 62% that resulted primarily from an expected decrease in funding from Novartis associated with the development of the fully automated PANTHER® instrument for the blood screening market.  The PANTHER system remains on track to be launched into international blood screening markets this year.

Royalty and license revenues in the fourth quarter of 2011 were $1.6 million, compared to $1.9 million in the prior year period, a decrease of 16%.  

GAAP Income Statement Details

Gross margin on product sales was 66.7% in the fourth quarter of 2011, compared to 69.4% in the prior year period.  This decrease resulted mainly from higher sales of low-margin instrumentation to Novartis, which are generally a precursor to future assay sales.

Acquisition-related amortization expenses were $2.8 million in the fourth quarter of 2011, compared to $2.2 million in the prior year period, an increase of 27% that resulted mainly from the acquisition of GTI.

Research and development (R&D) expenses were $28.2 million in the fourth quarter of 2011, compared to $26.9 million in the prior year period, an increase of 5% that resulted primarily from the addition of GTI's R&D programs.  

Marketing and sales expenses were $17.1 million in the fourth quarter of 2011, compared to $15.0 million in the prior year period, an increase of 14% that resulted primarily from the addition of GTI's cost structure and ongoing European commercial expansion.  

General and administrative (G&A) expenses were $16.2 million in the fourth quarter of 2011, compared to $15.6 million in the prior year period, an increase of 4% that resulted mainly from the addition of GTI's cost structure.    

Goodwill and asset impairment charges totaled $12.7 million in the fourth quarter of 2011.  Of this charge, $8.7 million related to goodwill associated with the Company's research products and services business, which was acquired as part of the Tepnel acquisition in April of 2009, and $4.0 million related to in-process research and development intangible assets of GTI.

Total other income, net, was $0.4 million in the fourth quarter of 2011, compared to total other income, net, of $1.2 million in the prior year period, a decrease of 67%.  This decrease resulted primarily from a non-cash gain in the prior year period and unfavorable exchange rate effects.

Income tax expense was $10.0 million in the fourth quarter of 2011, corresponding to an effective tax rate of 33%.

Non-GAAP Income Statement Details

In the fourth quarter of 2011, non-GAAP gross margin on product sales, R&D expenses, marketing and sales expenses, and total other income, net, were similar to the corresponding GAAP results.

Excluding transaction-related expenses and restructuring costs, non-GAAP G&A expenses were $15.6 million in the fourth quarter of 2011, compared to $14.7 million in the prior year period, an increase of 6%.

Non-GAAP income tax expense was $12.4 million in the fourth quarter of 2011, corresponding to an effective tax rate of 27%.  Income tax expense was less than expected in the fourth quarter due to the utilization of foreign losses and higher ex-US sales.

Cash Flows and Balance Sheet

In the fourth quarter of 2011, Gen-Probe generated net cash of $53.4 million from operating activities, and spent $7.2 million on property, plant and equipment, leading to free cash flow of $46.2 million, a new quarterly record.  

Gen-Probe continues to maintain a strong balance sheet.  As of December 31, 2011, the Company had $368.0 million of cash, cash equivalents and marketable securities, and $248.0 million of short-term debt.  The Company pays interest on this debt at a rate 0.6% above the one-month London Interbank Offered Rate (LIBOR), which was recently below 0.3%.  

During the fourth quarter of 2011, Gen-Probe repurchased 1.7 million shares of Company stock for $100 million, corresponding to an average purchase price of $58.83 per share.  This completed the $100 million repurchase plan that was announced in November of 2011.

2012 Financial Guidance

"We anticipate returning to low double-digit organic revenue growth in 2012 based on multiple new product launches that are still in their early stages," said Herm Rosenman, Gen-Probe's senior vice president, finance, and chief financial officer.  "We forecast a similar rate of bottom-line growth in 2012 as we invest in these launches and in a series of R&D projects that extend our lead in assay and instrument performance.  We believe that these investments position us well for solid, sustainable growth over the next several years."

Gen-Probe's 2012 financial guidance is provided below:

Non-GAAP GAAP
Total revenues $630 to $655 million $630 to $655 million
Product gross margins 68% to 69.5% 68% to 69.5%
Acquisition-related amortization, N/A ~ $15 million
Operating margin 26.5% to 28% 24.5% to 26%
Tax rate 30.5% to 32.5% 30.5% to 32.5%
Diluted shares ~ 47 million ~ 47 million
EPS $2.50 to $2.68 $2.30 to $2.48



About Non-GAAP Financial Measures

Gen-Probe's management believes that non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance by excluding certain expenses and other items that may not be indicative of core business results.  To supplement the Company's financial results for the fourth quarter of 2011 and its 2012 financial guidance, in each case presented in accordance with GAAP, Gen-Probe uses the following financial measures defined as non-GAAP by the SEC: non-GAAP net income, non-GAAP gross margin, non-GAAP R&D expenses, non-GAAP marketing and sales expenses, non-GAAP G&A expenses, non-GAAP operating profit, non-GAAP income tax rate, and non-GAAP EPS.  Gen-Probe's management does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared and presented in accordance with GAAP.  Gen-Probe believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing Gen-Probe's performance and when planning, forecasting and analyzing future periods.  These non-GAAP financial measures also facilitate management's internal comparisons to Gen-Probe's historical performance and our competitors' operating results.  Gen-Probe believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making.  Further, our reconciliations of non-GAAP to GAAP operating results, which are included on the attached tables, are presented in the format of consolidated statements of income solely to assist a reader in understanding the impact of the various adjustments to our GAAP operating results, individually and in the aggregate, and are not intended to place any undue prominence on our non-GAAP operating results.

Notes on Presentation

In this news release, all per share amounts are calculated on a diluted basis.  Some totals may not foot due to rounding.  Certain prior year amounts have been reclassified to conform to the current year presentation.  

Webcast Conference Call

A live webcast of Gen-Probe's fourth quarter 2011 conference call for investors can be accessed at http://www.gen-probe.com/ beginning at 4:30 p.m. Eastern Time today.  The webcast will be archived for at least 90 days. A telephone replay of the call also will be available for approximately 24 hours.  Call 866-501-7043 (domestic) or 203-369-1846 (international).  

About Gen-Probe

Gen-Probe is a global leader in the development, manufacture and marketing of rapid, accurate and cost-effective molecular diagnostic products and services that are used primarily to diagnose human diseases, screen donated human blood, and ensure transplant compatibility.  Gen-Probe is headquartered in San Diego and employs approximately 1,400 people. For more information, go to http://www.gen-probe.com/.

Trademarks

APTIMA, APTIMA COMBO 2, PANTHER and TIGRIS are trademarks of Gen-Probe.  All other trademarks are the property of their owners.

Caution Regarding Forward-Looking Statements

Any statements in this news release about our expectations, beliefs, plans, objectives, assumptions or future events or performance, including those under the heading "2012 Financial Guidance," are not historical facts and are forward-looking statements.  These statements are often, but not always, made through the use of words or phrases such as believe, will, expect, anticipate, estimate, intend, plan and would.  For example, statements concerning Gen-Probe's financial condition, possible or expected results of operations, the development and commercialization of new products, regulatory approvals, future milestones, growth opportunities, market trends, and management plans are forward-looking statements.  Forward-looking statements are not guarantees of performance.  They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from those expressed or implied.  Some of these risks, uncertainties and assumptions include but are not limited to: (i) the risk that we may not achieve our expected 2012 financial targets, (ii) the risk that we may not integrate acquisitions, such as Tepnel, Prodesse and GTI, successfully, (iii) the possibility that the market for the sale of our new products, such as our PANTHER system and PROGENSA PCA3, APTIMA HPV and APTIMA trichomonas assays, may not develop as expected, (iv) the enhancement of existing products and the development of new products may not proceed as planned, (v) the risk that investigational products, including those now in US clinical trials, may not be approved by regulatory authorities or become commercially available in the time frame we anticipate, or at all, (vi) the risk that we may not be able to compete effectively, (vii) the risk that we may not be able to maintain our current corporate collaborations or enter into new ones, (viii) our dependence on Novartis and other third parties for the distribution of some of our products, (ix) our dependence on a small number of customers, contract manufacturers and single source suppliers of raw materials, (x) changes in third-party reimbursement policies regarding our products could adversely affect sales, (xi) changes in government regulation or tax policy affecting our diagnostic products could harm our sales, increase our development costs or increase our taxes, (xii) the risk that our intellectual property may be infringed or invalidated, and (xiii) our involvement in patent and other intellectual property and commercial litigation could be expensive and could divert management's attention.  This list includes some, but not all, of the factors that could affect our ability to achieve results described in forward-looking statements.  For additional information about risks and uncertainties we face and a discussion of our financial statements and footnotes, see documents we file with the SEC, including our most recent annual report on Form 10-K and all subsequent periodic reports.  We assume no obligation and expressly disclaim any duty to update forward-looking statements to reflect events or circumstances after the date of this news release or to reflect the occurrence of subsequent events.

Contact:

Michael Watts
Vice president, investor relations and
corporate communications
858-410-8673

Gen-Probe IncorporatedConsolidated Balance Sheets - GAAP(In thousands, except share and per share data)

December 31,
December 31,

2011
2010
Assets (Unaudited)

Current assets:


Cash and cash equivalents, including restricted cash of $38 and $16 at December 31, 2011 and December 31, 2010, respectively $  87,021
$  59,690
Marketable securities 218,789
170,648
Trade accounts receivable, net of allowance for doubtful accounts of $320 and $355 at December 31, 2011 and December 31, 2010, respectively 57,767
54,739
Accounts receivable - other 3,446
5,493
Inventories 77,886
66,416
Deferred income tax 8,188
13,634
Prepaid expenses 11,555
14,665
Other current assets 4,967
5,148
Total current assets 469,619
390,433
Marketable securities, net of current portion 62,237
259,317
Property, plant and equipment, net 176,081
160,863
Capitalized software, net 16,992
13,981
Patents, net 11,758
12,450
Goodwill 140,404
150,308
Purchased intangibles, net 106,619
120,270
License, manufacturing access fees and other assets, net 61,738
60,175
Total assets $1,045,448
$1,167,797




Liabilities and stockholders' equity


Current liabilities:


Accounts payable $  12,000
$  14,614
Accrued salaries and employee benefits 28,795
26,825
Other accrued expenses 12,846
13,935
Income tax payable 1,857
634
Short-term borrowings 248,000
240,000
Deferred revenue 1,238
1,166
Total current liabilities 304,736
297,174
Non-current income tax payable 10,019
8,315
Deferred income tax 19,283
29,775
Deferred revenue, net of current portion 3,237
2,500
Other long-term liabilities 7,831
6,654
Commitments and contingencies


Stockholders' equity:


Preferred stock, $0.0001 par value per share; 20,000,000 shares authorized, none issued and outstanding -
-
Common stock, $0.0001 par value per share; 200,000,000 shares authorized, 45,008,879 and 47,966,156 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively 5
5
Additional paid-in capital 23,650
195,820
Accumulated other comprehensive income (loss) (313)
678
Retained earnings 677,000
626,876
Total stockholders' equity 700,342
823,379
Total liabilities and stockholders' equity $1,045,448
$1,167,797



Gen-Probe IncorporatedConsolidated Statements of Income - GAAP(In thousands, except per share data)(Unaudited)

Three Months Ended
Twelve Months Ended

December 31,
December 31,

2011
2010
2011
2010
Revenues:






Product sales $155,162
$131,093
$562,588
$522,709
Collaborative research revenue 1,369
3,708
7,682
14,518
Royalty and license revenue 1,644
1,893
5,964
6,100
Total revenues 158,175
136,694
576,234
543,327








Operating expenses:






Cost of product sales (excluding acquisition-related intangible amortization) 51,742
40,104
173,645
169,222
Acquisition-related intangible amortization 2,760
2,231
11,061
8,847
Research and development 28,202
26,885
112,742
111,103
Marketing and sales 17,056
15,016
68,396
59,492
General and administrative 16,240
15,610
71,394
56,818
Goodwill and asset impairment charges 12,746
-
12,746
-
Total operating expenses 128,746
99,846
449,984
405,482
Income from operations 29,429
36,848
126,250
137,845
Other income (expense):






Investment and interest income 1,317
1,401
8,695
11,765
Interest expense (546)
(535)
(2,070)
(2,216)
Gain on contingent consideration -
399
-
7,994
Other-than-temporary impairment loss on equity investment -
-
(39,482)
-
Other income (expense), net (364)
(95)
(236)
(177)
Total other income (expense), net 407
1,170
(33,093)
17,366








Income before income tax 29,836
38,018
93,157
155,211
Income tax expense 9,977
10,780
43,033
48,274
Net income $  19,859
$  27,238
$  50,124
$106,937








Net income per share:






Basic $  0.43
$  0.57
$  1.06
$  2.20
Diluted $  0.42
$  0.56
$  1.04
$  2.18








Weighted average shares outstanding:






Basic 46,117
47,827
47,254
48,560
Diluted 46,944
48,455
48,387
49,033



Gen-Probe IncorporatedConsolidated Statements of Income - Non-GAAP Reconciliations(In thousands, except per share data)(Unaudited)

Three Months Ended
Three Months Ended

December 31, 2011
December 31, 2010

Non-GAAP Adjustments GAAP
Non-GAAP Adjustments GAAP
Revenues:






Product sales $155,162 $  - $155,162
$131,093 $  - $131,093
Collaborative research revenue 1,369 - 1,369
3,708 - 3,708
Royalty and license revenue 1,644 - 1,644
1,893 - 1,893
Total revenues 158,175 - 158,175
136,694 - 136,694








Operating expenses:






Cost of product sales (excluding acquisition-related intangible amortization) 51,626 116 51,742
40,013 91 40,104
Acquisition-related intangible amortization - 2,760 2,760
- 2,231 2,231
Research and development 28,160 42 28,202
26,885 - 26,885
Marketing and sales 17,042 14 17,056
15,016 - 15,016
General and administrative 15,570 670 16,240
14,670 940 15,610
Goodwill and asset impairment charges - 12,746 12,746
- - -
Total operating expenses 112,398 16,348 128,746
96,584 3,262 99,846
Income from operations 45,777 (16,348) 29,429
40,110 (3,262) 36,848
Other income (expense):






Investment and interest income 1,317 - 1,317
1,401 - 1,401
Interest expense (546) - (546)
(535) - (535)
Gain on contingent consideration - - -
- 399 399
Other income (expense), net (364) - (364)
(95) - (95)
Total other income, net 407 - 407
771 399 1,170









Income before income tax		 46,184 (16,348) 29,836
40,881 (2,863) 38,018
Income tax expense 12,441 (2,464) 9,977
11,437 (657) 10,780
Net income $  33,743 $(13,884) $  19,859
$  29,444 $  (2,206) $  27,238








Net income per share:






Basic $  0.73 $  (0.30) $  0.43
$  0.61 $  (0.04) $  0.57
Diluted $  0.72 $  (0.30) $  0.42
$  0.61 $  (0.05) $  0.56








Weighted average shares  outstanding:






Basic 46,117
46,117
47,827
47,827
Diluted 46,944
46,944
48,455
48,455



Gen-Probe IncorporatedConsolidated Statements of Income - Non-GAAP Reconciliations(In thousands, except per share data)(Unaudited)

Twelve Months Ended
Twelve Months Ended

December 31, 2011
December 31, 2010

Non-GAAP Adjustments GAAP
Non-GAAP Adjustments GAAP
Revenues:






Product sales $562,588 $  - $562,588
$522,709 $  - $522,709
Collaborative research revenue 7,682 - 7,682
14,518 - 14,518
Royalty and license revenue 5,964 - 5,964
6,100 - 6,100
Total revenues 576,234 - 576,234
543,327 - 543,327








Operating expenses:






Cost of product sales (excluding acquisition-related intangible amortization) 173,216 429 173,645
168,860 362 169,222
Acquisition-related intangible amortization - 11,061 11,061
- 8,847 8,847
Research and development 112,633 109 112,742
111,103 - 111,103
Marketing and sales 68,359 37 68,396
59,492 - 59,492
General and administrative 66,170 5,224 71,394
54,491 2,327 56,818
Goodwill and asset impairment charges - 12,746 12,746
- - -
Total operating expenses 420,378 29,606 449,984
393,946 11,536 405,482
Income from operations 155,856 (29,606) 126,250
149,381 (11,536) 137,845
Other income (expense):






Investment and interest income 8,695 - 8,695
11,765 - 11,765
Interest expense (2,070) - (2,070)
(2,216) - (2,216)
Gain on contingent consideration - - -
- 7,994 7,994
Other-than-temporary impairment loss on equity investment - (39,482) (39,482)
- - -
Other income (expense), net (236) - (236)
(177) - (177)
Total other income (expense), net 6,389 (39,482) (33,093)
9,372 7,994 17,366








Income before income tax 162,245 (69,088) 93,157
158,753 (3,542) 155,211
Income tax expense 49,226 (6,193) 43,033
51,303 (3,029) 48,274
Net income $113,019 $  (62,895) $  50,124
$107,450 $  (513) $106,937








Net income per share:






Basic $  2.39 $  (1.33) $  1.06
$  2.21 $  (0.01) $  2.20
Diluted $  2.34 $  (1.30) $  1.04
$  2.19 $  (0.01) $  2.18








Weighted average shares outstanding:






Basic 47,254
47,254
48,560
48,560
Diluted 48,387
48,387
49,033
49,033



Gen-Probe IncorporatedConsolidated Statements of Cash Flows - GAAP(In thousands)(Unaudited)

Twelve Months Ended

December 31,

2011
2010
Operating activities:


Net income $  50,124
$  106,937
Adjustments to reconcile net income to net cash provided by operating activities:


Depreciation and amortization 46,569
44,529
Amortization of premiums on investments, net of accretion of discounts 9,592
9,573
Stock-based compensation 24,741
24,075
Excess tax benefit from employee stock-based compensation (5,080)
(3,692)
Deferred revenue 850
(1,808)
Deferred income tax (4,220)
(3,745)
Other-than-temporary impairment loss on equity investment 39,482
-
Goodwill and asset impairment charges 12,746
-
Gain on contingent consideration -
(7,994)
Loss on disposal of property and equipment 364
1,065
Changes in assets and liabilities:


Trade and other accounts receivable (1,112)
2,649
Inventories (11,168)
(1,154)
Prepaid expenses 408
3,055
Other current assets 384
(360)
Other long-term assets 7,164
(559)
Accounts payable (2,698)
(6,265)
Accrued salaries and employee benefits 2,981
(133)
Other accrued expenses (1,398)
(4,417)
Income tax payable 10,313
7,688
Other long-term liabilities 1,211
122
Net cash provided by operating activities 181,253
169,566




Investing activities:


Proceeds from sales and maturities of marketable securities 489,241
427,821
Purchases of marketable securities (395,190)
(401,434)
Purchases of property, plant and equipment (41,664)
(30,716)
Purchase of capitalized software (6,053)
(3,891)
Purchases of intangible assets, including licenses and manufacturing access fees (5,259)
(2,513)
Net cash paid for business combinations -
(53,000)
Cash paid for investment in Roka Bioscience (3,980)
-
Cash paid for investment in Pacific Biosciences -
(50,000)
Other (209)
(738)
Net cash provided by (used in) investing activities 36,886
(114,471)




Financing activities:


Repurchase and retirement of common stock (250,000)
(99,935)
Proceeds from issuance of common stock and employee stock purchase plan 49,932
31,830
Payment of contingent consideration -
(10,000)
Repurchase and retirement of restricted stock for payment of taxes (1,615)
(1,257)
Excess tax benefit from employee stock-based compensation 5,080
3,692
Borrowings, net 8,000
(228)
Net cash used in financing activities (188,603)
(75,898)
Effect of exchange rate changes on cash and cash equivalents (2,205)
(2,123)
Net increase (decrease) in cash and cash equivalents 27,331
(22,926)
Cash and cash equivalents at the beginning of period 59,690
82,616
Cash and cash equivalents at the end of period $  87,021
$  59,690



SOURCE Gen-Probe Incorporated