Revenue for the first quarter of 2004 was $6.4 million compared to $6.5 million in the first quarter of 2003. The net income in the first quarter of 2004 increased 25% to $418,000, compared to net income of $335,000 in the prior year quarter.
Food safety revenues in the first quarter of 2004 increased 30% to $2.2 million from $1.7 million in the first quarter of 2003. The Company introduced a new test to detect genetically modified (GM) traits in the Brazilian soy testing market during the quarter, which helped increase sales in the agricultural testing product line by 28% versus the prior year. Approximately 8 million acres of GM soy planted in Brazil in 2003 are now being harvested. It is believed that much of this crop was planted with black market seed acquired illegally from Argentina. The Monsanto Value Capture Program, utilizing SDI tests, is designed to alert grain elevator operators of trucks entering their facilities with GM soybean containing Monsanto’s Roundup Ready® trait. This program is designed to allow Monsanto to collect royalties from Brazilian farmers that have planted its genetically modified seed without paying technology rights.
Water quality revenues in the first quarter of 2004 decreased 13% to $1.5 million from $1.7 million in the first quarter of 2003. Decline in US-based sales for the Company’s remediation and pesticide test kits was a contributor to this performance. Remediation kit sales have historically have had a high churn rate associated with the nature of the engineering projects they support. These projects typically have a timeline of 6 to 24 months. A new project must replace a discontinued project to provide the Company with sustained revenue. The Company has seen a decrease in the number of new remediation project starts. The decline in government projects and the exhaustion of superfund monies are both expected to be long-term contributors to poor performance of our water quality business in the US markets.
Antibody revenues in the first quarter of 2004 decreased 10% to $2.7 million from $3.0 million in the first quarter of 2003. The Company reported a slowdown in sales beginning in the third quarter of last year. The business has continued to add new customers and has not seen a loss of customers. However, purchases from existing customers have slowed over the last three quarters, particularly in the polyclonal antibody services area. The Company believes that there are several contributing factors to this slowdown in customer orders, including customer order pattern, new test platforms which require less reagent per test produced, and cyclical decreases in new antibody development work. Included in the antibody revenues in the first quarter of 2004 is $156,000 of revenue associated with the Company’s sale of certain “catalog” inventories that were written-off in the fourth quarter of 2003.
The Company did not generate any contract and other revenue in the first quarter of 2004 compared to $115,000 in the same period in the prior year, as the Company continued to place greater emphasis on devoting its research and development resources on internal projects, particularly in the food safety category.
Gross profits (total revenues less manufacturing costs) increased $203,000, or 6%, to $3.8 million in the first quarter of 2004 compared to $3.6 million in the prior year quarter, and gross margins increased to 60% in 2004 from 56% in 2003. The increase in gross profits was primarily driven by a decrease in manufacturing expenses of $333,000 to $2.5 million in the first quarter of 2004 compared to $2.8 million in same quarter in the prior year, reflecting the Company’s ongoing efforts on process improvement in supply chain management and manufacturing areas. Also contributing to the increase in gross profits for the first quarter of 2004 was the $156,000 in revenue associated with the Company’s sale of certain “catalog” inventories that were written-off in the fourth quarter of 2003, which was partially offset by the lack of contract and other revenue in this period.
Research and development spending was $689,000 or 11% of net revenues, in the first quarter of 2004, compared to $716,000 in the prior year first quarter.
Selling, general and administrative expenses were $2.5 million in the first quarter of 2004, compared to $2.4 million in the same quarter in the prior year. Included in selling, general and administrative expense in the first quarter of 2004 is $100,000 associated with the termination of a distribution reseller agreement for an instrument, or reader, for the electronic interpretation of strip test lines. The Company continues to see an opportunity and market for electronic readers in the future, but has determined that the specific technology underlying this instrument was not going to be marketable in its current format.
Pre-tax income totaled $617,000 in the first quarter of 2004 compared to $512,000 in the prior year first quarter, primarily driven by the improvements in gross margin.
Commenting on the first quarter 2004 results Matthew H. Knight, the Company’s President and CEO, stated, “First quarter results reflect a mix of business where the improvement in one market offset a poor business environment in other areas. Clearly, we have yet to see the “breakout” demand and sales performance expected for several of our products and programs. We have thoroughly reviewed our development efforts and have aggressively undertaken a rework of our offerings where necessary. In early March, we announced that Rick Foster joined the Company as our new Vice President of Sales. Rick brings a strong process focus to the sales organization and is already having an impact on our efforts to build a team of sales professionals and develop the appropriate channels to market. We are building a process-centered Company, with a hard working team of people with higher expectations for performance and productivity in all of our business functions.”
In other news, the Company reported that it held its Annual Meeting of Stockholders on Tuesday, May 4, 2004 and Messrs. Defieux, Lotman, Ramey and Waechter were elected as Class II directors and the proposal to amend the Company’s 2000 Stock Incentive Plan to increase the number of shares for issuance under the plan from 3,200,000 to 4,000,000 was approved.
Conference Call
A conference call to review first quarter results is scheduled for 11:00 a.m. EDT today. The dial-in number for the live conference call will be 877-407-8031 (201-689-8031 outside the U.S.). A live webcast of the conference call will be available on the Company’s Web site, www.sdix.com, as well as www.vcall.com. For those who cannot listen to the live broadcast, an audio replay of the call will be available on each of these websites for 90 days. Telephone replays of the call will be available from 2:00 p.m. EDT on May 6 through 11:59 p.m. on May 7. To listen to the telephone replay, dial 877-660-6853 (201-612-7415 outside the U.S.) and enter account number 1628 and conference ID 102832.
About Strategic Diagnostics Inc.
SDI is a leading provider of biotechnology-based diagnostic tests for a broad range of agricultural, industrial, and water treatment applications. Through its antibody business, Strategic BioSolutions, Strategic Diagnostics also provides antibody and immunoreagent research and development services. SDI’s test kits are produced in a variety of formats suitable for field and laboratory use, offering advantages of accuracy, cost-effectiveness, portability, and rapid response. FeedChek™, Trait Chek™, GMO QuickChek™, and GMO Chek™ are pending trademarks for SDI.
This news release contains forward-looking statements reflecting SDI's current expectations. When used in this press release, the words “anticipate”, “could”, “enable”, “estimate”, “intend”, “expect”, “believe”, “potential”, “will”, “should”, “project” “plan” and similar expressions as they relate to SDI are intended to identify said forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by SDI at this time. Such risks and uncertainties include, without limitation, changes in demand for products, delays in product development, delays in market acceptance of new products, ability to deliver new products on time and within budget, retention of customers and employees, adequate supply of raw materials, inability to obtain or delays in obtaining third party or required government approvals, the ability to meet increased market demand, competition, protection of intellectual property, non-infringement of intellectual property, seasonality, and other factors more fully described in SDI's public filings with the U.S. Securities and Exchange Commission.
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
| | | | | | March 31, | | | December 31, | |
|
| | | | | | 2004 | | | 2003 | |
|
| ASSETS | | | | | | |
| Current Assets : | | | | | | |
| | | | Cash and cash equivalents | $ | 5,950 | | $ | 5,158 | |
| | | | Receivables, net | | 4,195 | | | 3,795 | |
| | | | Inventories | | 3,198 | | | 3,230 | |
| | | | Deferred tax asset | | 1,137 | | | 1,336 | |
| | | | Other current assets | | 743 | | | 502 | |
|
| | | | | | Total current assets | | 15,223 | | | 14,021 | |
|
| | | | | | | | | | | | | |
| Property and equipment, net | | 3,834 | | | 3,947 | |
| Other assets | | 3 | | | 3 | |
| Deferred tax asset | | 8,347 | | | 8,347 | |
| Intangible assets, net | | 6,918 | | | 6,957 | |
|
| | | | | | Total assets | $ | 34,325 | | $ | 33,275 | |
|
| | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | |
| Current Liabilities : | | | | | | |
| | | | Accounts payable | $ | 632 | | $ | 788 | |
| | | | Accrued expenses | | 1,684 | | | 1,342 | |
| | | | Current portion of long term debt | | 652 | | | 211 | |
|
| | | | | | Total current liabilities | | 2,968 | | | 2,341 | |
|
| | | | | | | |
| Long-term debt | | 931 | | | 983 | |
|
| | | | | | | |
| Stockholders' Equity | | | | | | |
| | | | Preferred stock, $.01 par value, 20,920,648 shares authorized, | | | | | | |
| | | | | | | no shares issued or outstanding | | — | | | — | |
| | | | Common stock, $.01 par value, 35,000,000 shares authorized, | | | | | | |
| | | | | | | 19,235,546 and 19,200,488 issued and outstanding | | | | | | |
| | | | | | | at March 31, 2004 and December 31, 2003, respectively | | 192 | | | 192 | |
| | | | Additional paid-in capital | | 36,165 | | | 36,140 | |
| | | | Accumulated deficit | | (5,844 | ) | | (6,262 | ) |
| | | | Deferred compensation | | (184 | ) | | (192 | ) |
| | | | Cumulative translation adjustments | | 97 | | | 73 | |
|
| | | | | | Total stockholders' equity | | 30,426 | | | 29,951 | |
|
| | | | | | Total liabilities and stockholders' equity | $ | 34,325 | | $ | 33,275 | |
|
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | Three Months
Ended March 31, | |
|
|
|
|
| | | | | | | | | 2004 | | | | 2003 | |
|
|
|
| NET REVENUES: | | | | | | | | |
| | |
|
| | | | Product related | | $ | 6,350 | | | $ | 6,365 | |
| | | | Contract and other | | | — | | | | 115 | |
| | |
|
| | | | | | Total net revenues | | | 6,350 | | | | 6,480 | |
| | |
|
| OPERATING EXPENSES: | | | | | | | | |
| | | | Manufacturing | | | 2,520 | | | | 2,853 | |
| | | | Research and development | | | 689 | | | | 716 | |
| | | | Selling, general and administrative | | | 2,528 | | | | 2,387 | |
| | |
|
| | | | | | Total operating expenses | | | 5,737 | | | | 5,956 | |
| | |
|
| | | | | | | | | | | | | | | |
| | | | | | | Operating income | | | 613 | | | | 524 | |
| | | | | | | | | | | | | | | |
| Interest income (expense), net | | | 4 | | | | (12 | ) |
| | |
|
| | | | | | | | | |
| Income before taxes | | | 617 | | | | 512 | |
| | | | | | | | | | | | | | | |
| | | | | | | Income tax expense | | | 199 | | | | 177 | |
| | | | | | | | | | | | | | |
| | |
|
| | | | | | | | | |
| Net income | | | 418 | | | | 335 | |
| | |
|
| | | | | | | | | | | | | | | |
| Basic net income per share | | $ | 0.02 | | | $ | 0.02 | |
| | |
|
| | | | | | | | | | | | | | | |
| Shares used in computing basic net income | | | | | | | | |
| | | net income per share | | | 19,211,000 | | | | 18,939,000 | |
| | |
|
| | | | | | | | | | | | | | | |
| Diluted net income per share | | $ | 0.02 | | | $ | 0.02 | |
| | |
|
| | | | | | | | | | | | | | | |
| Shares used in computing diluted net income | | | | | | | | |
| | | net income per share | | | 19,742,000 | | | | 19,495,000 | |
| | |
|
