On November 6, 2017 CombiMatrix Corporation (NASDAQ:CBMX), a family health molecular diagnostics company specializing in DNA-based reproductive health and pediatric testing services, reported financial and operating results for the three and nine months ended September 30, 2017 (Press release, CombiMatrix, NOV 6, 2017, View Source [SID1234521572]).
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Three Months Ended September 30, 2017 and 2016
CombiMatrix reported total revenues for the third quarter of 2017 of $4.0 million, a 23.5% increase from $3.2 million for the third quarter of 2016. The increase in the third quarter of 2017 was driven by higher test volumes in the reproductive health segment and improved reimbursement with higher average revenue per test across nearly all segments. Reproductive health diagnostic test revenues for the third quarter of 2017, which include prenatal, miscarriage analysis and preimplantation genetic screening (PGS) testing, increased 30.2% to $3.0 million with testing volumes increasing 18.9% to 1,764. Also, total billable customers increased to 277 during the third quarter of 2017 compared to 257 during the third quarter of 2016.
Total operating expenses were $4.6 million for the third quarter of 2017 compared with $4.1 million for the prior-year comparable period. The increase was due primarily to increased general and administrative expenses, which included $391,000 of merger-related expenses not incurred during the comparable 2016 period. Operating expenses also increased from higher cost of services associated with increased testing volumes, and were partially offset by lower sales and marketing expenses related to optimized headcount in the field. Excluding merger-related expenses, non-GAAP general and administrative expenses for the third quarter of 2017 were $1.5 million. A reconciliation of GAAP to non-GAAP measures is provided below. Gross margin improved to 59.4% for the third quarter of 2017 from 54.0% for the third quarter of 2016, driven primarily by improved average reimbursement per test reflected above as well as from cost containment strategies undertaken in recent periods.
Net loss for the third quarter of 2017 was $610,000, or $0.21 per share, and non-GAAP net loss for the third quarter of 2017 was $219,000, or $0.08 per share. Net loss for the third quarter of 2016 was $856,000, or $0.38 per share. The improvement in net loss was due primarily to the 23.5% increase in total revenues described above, coupled with improved gross margins. See below for a reconciliation of GAAP to non-GAAP measures.
Nine Months Ended September 30, 2017 and 2016
CombiMatrix reported total revenues for the first nine months of 2017 of $12.0 million, a 29.1% increase from $9.3 million for the first nine months of 2016. The increase in total revenues for the first nine months of 2017 was driven by increased volumes for reproductive health and pediatric segments as well as improved reimbursement resulting in higher revenue per test across nearly all segments.
Operating expenses for the first nine months of 2017 were $13.5 million compared with $12.9 million from the prior-year comparable period, with the increase due primarily to increased general and administrative expenses, which included $601,000 of merger-related expenses not incurred during the comparable 2016 period. Operating expenses also increased from higher cost of services associated with increased testing volumes, and were partially offset by lower sales and marketing expenses related to optimized headcount in the field. Excluding merger-related expenses, non-GAAP general and administrative expenses for the first nine months of 2017 were $4.8 million. General and administrative expenses for the first nine months of 2016 were $4.6 million. Gross margin improved to 60.2% for the first nine months of 2017 from 52.9% for the first nine months of 2016. See below for a reconciliation of GAAP to non-GAAP measures.
Net loss attributable to common stockholders for the first nine months of 2017 was $1.5 million, or $0.52 per share and non-GAAP net loss for the first nine months of 2017 was $897,000, or $0.31 per share. Net loss attributable to common stockholders for the first nine months of 2016 was $5.2 million, or $3.48 per share. The higher net loss in the 2016 period reflected one-time, non-cash charges of $1.9 million related to deemed dividends from the issuance of Series F convertible preferred stock and warrants in the $8.0 million public offering that closed on March 24, 2016. This increase was partially offset by the reversal of the $890,000 Series E deemed dividend recognized in 2015 from the repurchase of those securities upon closing of the public offering, partially reduced by $656,000 of deemed dividends paid to the Series E investors in February of 2016. See below for a reconciliation of GAAP to non-GAAP measures.
The Company reported $2.4 million in cash, cash equivalents and short-term investments as of September 30, 2017, compared with $3.7 million as of December 31, 2016. The Company used $389,000 and $995,000 in cash to fund operating activities during the quarter and nine months ended September 30, 2017, respectively. On a non-GAAP basis excluding merger-related expenditures, the Company used $53,000 and $591,000 in cash to fund operating activities during the quarter and nine months ended September 30, 2017, respectively. The Company used $817,000 and $3.4 million in cash to fund operating activities during the quarter and nine months ended September 30, 2016, respectively. The significant decrease in cash used to fund operating activities in the 2017 periods resulted primarily from improved cash reimbursement of $3.7 million and $10.9 million for the quarter and nine months ended September 30, 2017, respectively, compared with $3.1 million and $8.5 million for the quarter and nine months ended September 30, 2016, respectively. Improved gross margins and lower sales and marketing expenditures also contributed to the overall improvement in cash used to fund operating activities for all periods presented. See below for a reconciliation of GAAP to non-GAAP measures.
Non-GAAP Financial Measures
Consolidated financial information has been presented in accordance with GAAP as well as on a non-GAAP basis. On a non-GAAP basis, financial measures excluded the effect of merger-related expenses in calculating the non-GAAP operating expenses, net loss measures and cash used in operations. CombiMatrix has incurred significant expenses in connection with its proposed merger with Invitae Corporation, which it generally would not have otherwise incurred in the periods presented as part of its continuing operations. Merger-related expenses incurred to-date consist primarily of legal and accounting costs incurred associated with execution of the merger and related agreements and filing of various merger-related proxy materials. CombiMatrix management believes it is useful to understand the effects of these items on the total operating expenses, net loss measures and cash used in operations.
CombiMatrix management uses these non-GAAP financial measures to monitor and evaluate its operating results and trends on an ongoing basis, and internally for operating, budgeting and financial planning purposes. CombiMatrix management believes the non-GAAP information is useful for investors by offering them the ability to identify trends in what management considers to be CombiMatrix’s core operating results and to better understand how management evaluates the business. These non-GAAP measures have limitations, however, because they do not include all items of expense that affect CombiMatrix. These non-GAAP financial measures are not prepared in accordance with, and should not be considered in isolation of, or as an alternative to, measurements required by GAAP, and therefore these non-GAAP results should only be used for evaluation in conjunction with the corresponding GAAP measures. A description of the non-GAAP calculations and reconciliation to comparable GAAP financial measures is provided in the accompanying table entitled “Reconciliation of GAAP to Non-GAAP Financial Measures.”