Business News
Orchid Cellmark Reports Second Quarter 2008 Financial Results
Friday 01. August 2008 - - U.S. Business Shows 9% Increase In Revenues - - Florida Upholds Contract Award To Orchid Cellmark For Multi-Year Paternity Testing - - Regional Tender Work Underway In U.K
Orchid Cellmark Inc. (NASDAQ:ORCH), a leading worldwide provider of identity DNA testing services, today reported its financial results for the second quarter of 2008.
Total revenues were $15.2 million for the second quarter of 2008 compared to $15.7 million for the second quarter of 2007 and $14.5 million for the first quarter of 2008. The decrease in total revenues for the second quarter of 2008 compared to the second quarter of 2007 was largely due to lower revenues in the U.K.
Orchid Cellmark recorded increases in its U.S. business that generates DNA profiles for the federal CODIS (Combined DNA Index System) and state DNA databases and in its U.S. paternity testing business, partially offset by lower revenues from its U.S. forensic casework business. Overall, U.S. revenues increased by 9% over the comparable quarter in 2007, largely as a result of the ReliaGene acquisition. The decrease in U.K.-based revenues in the second quarter of 2008, compared to the comparable period in 2007, was due to lower volumes of animal DNA testing for scrapie susceptibility and immigration identity testing, as well as reduced forensic revenue. The decrease was partially offset by increased revenues in the paternity testing business. Lower revenue for the U.K. forensics business was primarily due to the loss of revenue from the company’s previous arrangement with LGC, which essentially ended in April 2008, as previously reported.
Excluding cost of service revenue, operating expenses for the quarter were $6.6 million compared to $6.2 million for the second quarter of 2007. The operating expense increase was primarily due to general and administrative expenses, which were impacted by professional fees, including non-recurring legal fees related to the successful upholding of Orchid’s contract to provide state-wide paternity testing for the State of Florida, which was unsuccessfully protested by a competitor.
Operating loss for the second quarter of 2008 was $1.6 million compared to a $701 thousand loss for the second quarter of 2007. The operating loss increase was principally due to increased general and administrative expenses and a decrease in gross margin. Gross margin for the U.S. business increased for the second quarter of 2008 compared to the second quarter of 2007 largely as a result of a 9% increase in U.S. revenues and improvement in the company’s U.S. operations. The company’s overall gross margin was negatively impacted by the decrease in gross margin associated with the U.K. operations. U.K. gross margin during the quarter was adversely impacted by lower DNA testing volumes related to the loss of former LGC business and the buildup of capacity in the U.K. to service the significant business the company won under the North West/South West and Wales regional forensics services tender.
Orchid Cellmark reported a net loss of $1.2 million, or $(0.04) per share, for the second quarter of 2008 compared to a net loss of $745 thousand, or $(0.03) per share, for the second quarter of 2007. Net loss for the second quarter of 2008 and 2007 includes charges of $1.2 million and $1.1 million, respectively, for depreciation and amortization.
At June 30, 2008, cash and cash equivalents were $17.3 million.
Thomas Bologna, president and chief executive officer of Orchid Cellmark commented, “The second quarter of this year was quite significant for our company and the results reflect the transition we are undergoing and the core strengths of our business.”
“While we were absorbing the substantial impact of the loss of revenue in the U.K. from our previous arrangement with LGC, we ramped up DNA testing and other forensics services work for a number of U.K. police forces under the new North West/South West and Wales regional forensic tender,” Mr. Bologna explained. “Due to these new sources of revenue, even though the LGC-related business decreased by approximately $2.6 million, total U.K. revenue in this quarter only decreased by approximately $1.2 million. As expected, the work from the North West/South West and Wales regional forensics tender has started to flow significantly into our U.K. facility. Also, we anticipate forensics work through the National Procurement Plan will begin to be tendered and awarded in the fourth quarter of 2008 with work beginning in the first quarter of 2009. This is ahead of our earlier estimates.”
Mr. Bologna continued, “During the second quarter, we believe we made significant progress on a broad array of operational matters in the U.S. We substantially completed the integration of the ReliaGene acquisition in the U.S. and eliminated duplicate costs associated with capacity from that acquisition. We fully expect the ReliaGene acquisition to be accretive in the second half of this year. In addition, we saw significant increases in our government paternity and CODIS businesses in the U.S., and we again ended the quarter with a large influx of new casework into our Dallas facility. We also prevailed in litigation in Florida against Laboratory Corporation of America (LabCorp) in connection with a contract awarded to Orchid Cellmark to conduct all of the publicly-funded paternity testing for the State of Florida. The costs of this lawsuit increased our operating expenses in the second quarter of 2008. Were it not for the legal costs incurred relative to this bid dispute, our net loss in the second quarter of 2008 would have been $(0.03) per share as opposed to the reported net loss of $(0.04) per share. We believe this contract has a potential revenue value of approximately $1.2 million annually.”
Mr. Bologna concluded, “We believe the company is poised for growth due to the ramp up of the regional tender business in the U.K., our win over LabCorp in Florida on the statewide paternity contract, the accretive growth from our ReliaGene acquisition and a continued inflow of U.S. casework. We also believe that we have a firm hand on those business factors under our control and that, with our strong balance sheet and our continued focus on operating efficiencies, the company is on the right path to achieve growth and profitability.”