Stratagene Corporation (Nasdaq:STGN), a developer, manufacturer and
marketer of specialized life science research and diagnostic
products, today released financial results for the first quarter of
2006 ended March 31, 2006. For the first quarter of 2006, revenue
was $24.3 million, compared with revenue of $24.6 million in the
first quarter of 2005. Excluding the impact of foreign currency
exchange movements, which negatively affected revenue in the first
quarter of 2006, revenue for the first quarter of 2006 increased
1.6% compared with the first quarter of 2005. "We have continued to
execute our long-term strategy focused on bringing innovative new
products to the market that meet the emerging needs of our
customers," said Joseph A. Sorge, M.D., President and CEO of
Stratagene. "In the first quarter we launched three new software
solutions, which are gaining traction and have the ability to
become the standard for pathway and microarray analysis. In
addition, we enhanced our line-up of high-fidelity PCR enzymes and
extended our market leadership in phosphatase enzymes with a number
of new product introductions. Despite these successes, and as
expected, our first quarter year-over-year sales comparison was
negatively impacted by a decline in older products associated with
gene discovery and cloning systems and by the effects of the
strengthening dollar on our foreign sales. While we expected a
decline in our older, legacy product sales, the impact to the first
quarter results was greater than expected. The year-over-year
decline in first quarter 2006 product sales was also negatively
impacted by an increase in product backlog. If this increase in
backlog were eliminated from the comparison and after considering
the foreign currency exchange movement, revenues would have
increased by 3.0% in the first quarter of 2006. "Looking ahead, we
expect to devote a predominance of our product development
resources to growth opportunities in the areas of molecular
detection solutions for the molecular diagnostics market,"
continued Dr. Sorge. "To date, we have already developed a number
of innovative products and as a result, we expect sales related to
gene analysis products in the areas of quantitative PCR ("QPCR")
instruments and reagents to increase throughout 2006." In March
2006, Stratagene announced that Bayer Healthcare, Diagnostics
Division, a member of the Bayer Group (NYSE: BAY), will purchase
customized Mx3005P(TM) QPCR instrument systems for use by Bayer in
the worldwide molecular diagnostics marketplace. "Currently, we are
customizing our Mx3005P instrument systems for the new platform
that Bayer is developing for performing molecular diagnostics
tests. During the development stage of the contract, Stratagene
will recognize contract revenues upon completion of milestone
activities," said Dr. Sorge. "Stratagene recognized $355,000 of
revenues related to this development program in the first quarter
of 2006. Based upon current development timelines, we expect to
complete the development activities in 2006 and regulatory
submission activities for the customized instrument will continue
in 2007. This strategic relationship with Bayer for a custom QPCR
instrument and our strategic relationship with Focus Diagnostics
for the development of molecular diagnostics products demonstrate
our progress toward executing our molecular diagnostics strategy."
"Within our clinical diagnostics business, our allergy product line
grew 12.9% in the first quarter of 2006 compared with the first
quarter of 2005. This part of our core business remains profitable
and contributes to our financial flexibility," concluded Dr. Sorge.
For the first quarter of 2006, Stratagene generated net income of
$1.1 million, or $0.05 per diluted share, compared with $2.9
million, or $0.13 per diluted share, in the comparable quarter of
2005. Earnings in the first quarter of 2006 were negatively
impacted by approximately $1.1 million or $0.03 per diluted share
after income taxes for legal expenses associated with patent
litigation matters when compared with the same period of the prior
year. Earnings in the first quarter of last year also included
$530,000 or $0.02 per diluted share in other income from a
litigation settlement payment received by Stratagene and recorded
in that period which was not repeated in the first quarter of 2006.
As of March 31, 2006, total cash and cash equivalents were
approximately $30.6 million and total assets were $115.5 million.
The total cash figure includes approximately $21 million set aside
in January 2006 in a restricted account as collateral for an appeal
bond while the Company appeals the district court judgment and
damages award in the matter of Third Wave Technologies, Inc. vs.
Stratagene Corporation. The bond will remain in place until the
patent infringement matter is concluded and Stratagene and the
surety holder are released from liability by the court or the
amount of the final judgment, if any, is paid. Stratagene currently
has approximately $9.2 million in unrestricted cash which is not
impacted by the bond arrangements and Stratagene remains cash flow
positive. The total amount of outstanding long-term debt is
approximately $4.0 million and final payments on such long-term
debt are due in 2022. Stratagene also has a $9.0 million revolving
line of credit in place which has a zero balance currently
outstanding. Gross margin decreased to 64.6% of revenues for the
first quarter of 2006 compared with 65.5% of revenues for the same
quarter of 2005. The gross margin in 2006 was affected by lower
pricing on instruments and certain legacy research product sales
and by the affect of a relatively high level of fixed manufacturing
costs that were spread over lower product sales in the first
quarter of 2006 compared with the first quarter of 2005. The gross
margin percentage does not consider the contract revenues
recognized in the first quarter of 2006. Research and development
expenses increased 17.3% to $3.4 million in the first quarter of
2006 compared with $2.9 million in the first quarter of 2005
primarily related to higher Mx(TM) instrument development costs
associated with the Bayer agreement and additional costs incurred
in developing the recently released biology-focused pathway
analysis software. Selling and marketing expenses increased 11.6%
to $5.6 million in the first quarter of 2006 compared with $5.0
million in the first quarter of last year, primarily related to
increased personnel costs and additional marketing expenditures
associated with new life science product releases in late 2005 and
early 2006. General and administrative expenses increased 21.9% in
the first quarter to $5.0 million compared with $4.1 million in the
first quarter of 2005. General and administrative expenses in the
first quarter of 2006 were impacted by the aforementioned higher
legal expenses of $1.1 million. Earnings in the first quarter of
2006 include approximately $170,000, or approximately $0.01 per
diluted share after income taxes of non-cash share-based
compensation expense associated with the implementation on January
1, 2006 of FAS 123R "Share-Based Payments" under the modified
prospective method. The charges relate to outstanding stock options
granted by the Company and shares purchased through the Employee
Stock Purchase Plan. The first quarter of 2005 was not impacted by
this accounting charge. "Based upon our first quarter results and
our current outlook for the remainder of 2006, we now believe that
the faster-than-expected decline in some of our legacy life science
product sales will have a meaningful impact on revenue and earnings
this year," said Steve Martin, Vice President and CFO of
Stratagene. "As a result, we are reducing our revenue guidance by
$2 million and after adjusting planned expenditures we expect a net
impact to earnings per share of approximately $0.07 to $0.08 for
2006. Despite the slowdown in revenue growth, we will continue to
invest in research and development focused on furthering our
innovative molecular diagnostics strategy and bringing other
innovative products to the market. This commitment is expected to
consequently increase our research and development expenses as a
percent of revenues to between 13% and 15%," concluded Mr. Martin.
Updated Outlook for the Full Year 2006 -- Revenue expected to be
between $98 and $102 million. -- Gross margin expected to range
from 63% to 65% of revenues. -- Research and development expenses
expected to range from 13% to 15% of revenues. -- GAAP earnings per
share expected to range from $0.30 to $0.33 per share. This
includes the expected $1.1 million pre-tax affect ($0.03 per
diluted share) from the implementation of FAS 123R in 2006 --
Expected effective tax rate of 33% -- Expected fully diluted share
count of 22.7 million. Conference Call Today Stratagene will host a
conference call and webcast today, Thursday, May 4, 2006, at 4:30
p.m. Eastern Time to discuss the Company's first quarter 2006
results, outlook for 2006, and current corporate developments. The
dial-in number for the conference call is 800-366-7417 for domestic
participants and 303-262-2191 for international participants. A
taped replay of the conference call will also be available
beginning approximately one hour after the call's conclusion and
will remain available for seven days. It can be accessed by dialing
800-405-2236 for domestic callers and 303-590-3000 for
international callers, using the passcode 11058663#. To access the
live webcast of the call, go to Stratagene's website at
http://www.stratagene.com and click on the Investors icon. An
archived webcast will also be available at
http://www.stratagene.com. About Stratagene Corporation Stratagene
is a developer, marketer and manufacturer of specialized life
science research and diagnostic products. The Company's life
science research unit supports advances in science by inventing,
manufacturing and distributing products that simplify, accelerate
and improve research. These products are used throughout the
academic, industrial and government research sectors in fields
spanning molecular biology, genomics, proteomics, drug discovery
and toxicology. The Company's diagnostic unit develops and
manufactures products for urinalysis, and high quality automated
instrument and reagent systems that use blood samples to test for
more than 1,000 different allergies and autoimmune disorders. In
addition, by combining its expertise in diagnostics and molecular
biology, as well as its experience with FDA regulatory procedures,
the Company is pursuing opportunities to expand its product
portfolio to include molecular diagnostic kits and instrumentation.
More information is available at www.stratagene.com. Safe Harbor
Statement Certain statements in this news release that are not
historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Stockholders and other readers are cautioned not to place undue
reliance on these forward-looking statements. Stratagene generally
identifies forward-looking statements by using words like
"believe," "intend," "target," "expect," "estimate," "may,"
"should," "plan," "project," "contemplate," "anticipate," "predict"
or similar expressions. You can also identify forward-looking
statements by discussions of strategies, plans or intentions. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the actual results
of Stratagene to be materially different from historical results or
from any results expressed or implied by such forward-looking
statements. Among the important factors that could cause actual
results to differ materially from those contained in or implied by
the forward-looking statements are risks associated with the
company's inability to sufficiently anticipate market needs and
develop products and product enhancements that achieve market
acceptance, the company's ability to compete effectively in the
diagnostics and life science research markets, variability of the
company's quarterly revenues and operating results, the failure of
the company to retain key employees, the company's ability to
obtain additional debt or equity financing, the possibility of
declining sales due in part to a reduction in research and
development budgets or government funding, the company's ongoing
ability to protect its own intellectual property rights and to
avoid violating the intellectual property rights of third parties,
extended manufacturing difficulties and currency fluctuations. For
more information about these and other factors that could cause
actual results to differ materially from those contained in or
implied by the forward-looking statements please see Item "1A. Risk
Factors" included in Stratagene's Annual Report on Form 10-K for
the year ended December 31, 2005 and in other reports filed by
Stratagene from time to time with the Securities and Exchange
Commission, including Quarterly Reports on Form 10-Q. -0- *T
STRATAGENE CORPORATION AND SUBSIDIARIES (unaudited) (in thousands,
except earnings per share) CONDENSED CONSOLIDATED INCOME STATEMENTS
--------------------------------------------------------------------
Three Months Ended March 31, ------------------- 2006 2005
--------- --------- Revenues $24,256 $24,600 Costs and expenses:
Cost of product sales 8,464 8,466 Research and development 3,389
2,889 Selling and marketing 5,570 4,993 General and administrative
5,004 4,106 Other operating costs 171 20 --------- --------- Total
operating costs and expenses 22,598 20,474 --------- ---------
Income from operations 1,658 4,126 Other income and expenses: Loss
on foreign currency transactions (24) (114) Other income, net 48
533 Interest expense (313) (99) Interest income 288 5 ---------
--------- Total other income (expense) (1) 325 --------- ---------
Income before income taxes 1,657 4,451 Income tax expense 554 1,516
--------- --------- Net income $1,103 $2,935 ========= =========
Earnings per share: Basic $0.05 $0.13 Diluted $0.05 $0.13 Weighted
average shares: Basic 22,325 22,031 Diluted 22,715 22,131 CONDENSED
CONSOLIDATED BALANCE SHEETS
------------------------------------------------- Mar 31, Dec. 31,
2006 2005 --------- --------- Cash and cash equivalents,
unrestricted $9,205 $40,508 Cash, restricted 21,428 192 Other
current assets 39,600 38,440 Property and equipment, net 11,116
11,267 Goodwill 27,234 27,234 Other assets, net 6,883 7,041
--------- --------- Total assets $115,466 $124,682 =========
========= Current portion of long-term debt $249 $5,740 Dividend
payable - 5,571 Other current liabilities 48,940 48,887 Long-term
debt, less current portion 3,775 3,775 Other long-term liabilities
2,273 2,219 Stockholders' equity 60,229 58,490 --------- ---------
Total liabilities and stockholders' equity $115,466 $124,682
========= ========= CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------
Three Months Ended March 31, ---------------- 2006 2005 --------
------- Cash flows from operating activities: Net income $1,103
$2,935 Depreciation and amortization 890 956 Stock-based
compensation 252 179 Other items, net (1,029) (623) --------
------- Net cash provided by operating activities 1,216 3,447
-------- ------- Cash flows from investing activities: Purchases of
property and equipment (427) (392) Additions to intangible assets
(141) (321) Changes in restricted cash (21,236) (163) Other items,
net - 131 -------- ------- Net cash used in investing activities
(21,804) (745) -------- ------- Cash flows from financing
activities: Principal payments on debt, net (5,500) (3,750)
Dividend to shareholders (5,571) - Other items, net 266 96 --------
------- Net cash used in financing activities (10,805) (3,654)
Effects of foreign currency exchange rates on cash 90 (17) ========
======= Net decrease in cash and cash equivalents (31,303) (969)
Cash and cash equivalents at beginning of period 40,508 4,890
-------- ------- Cash and cash equivalents at end of period $9,205
$3,921 ======== ======= *T
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