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CBMX: Results Remain Very Strong, Despite Record Revenue Streak Ending

11/10/2017
By Brian Marckx, CFA

NASDAQ:CBMX

Q3 2017:  Results Remain Very Strong, Despite Record Revenue Streak Ending…

CombiMatrix (NASDAQ:CBMX) reported financial results for Q3.  While financial results remained very strong, the streak of setting a new record on revenue ended with Q2 2017, which marked the seventh consecutive period.  Gross margin was also slightly lower in Q3 than it was in Q2 of this year.  But, there were several positives in the quarter including;

- record volumes of the company’s bread-and-butter reproductive health segment 
- record volumes and revenue of CombiPGS tests – volume was ahead of the prior best by almost 13%  
- record volumes of miscarriage analysis tests
- 2nd highest volume of all tests combined
- record average reimbursement of prenatal microarray tests
- record average reimbursement of pediatric microarray tests
- while total revenue fell sequentially, it was the second highest on record
- excluding merger-related expenses, operating loss was also the second best on record
- cash collections, second highest on record
- cash collections as percentage of revenue set new record
- record low operating expenses as percentage of revenue

And while miscarriage analysis revenue, which accounts for more than 50% of total testing revenue, did not set a new record, it was the second highest in history.  The big sequential jump in CombiPGS volumes is particularly noteworthy given that CBMX had recently put a renewed focus on growing this product.  PGS has been a tremendous success – Q3 2015 was the first full period for the product on the market and in just two years’ time, it is generating an annual revenue run rate of $2M (~13% of total revenue).  Clearly the miscarriage and reproductive health testing portfolio as a whole continues to perform extraordinarily well.  Reimbursement across all of the products was also relatively strong in Q3.    



Despite not setting a new record high in every product category or on every operational or financial metric, growth remains fairly broad-based – particularly as compared to the prior year.  Miscarriage and PGS volumes increased double digit percentages in Q3 as compared to 2016.  And while prenatal and non-microarray volumes fell yoy by 14% and 18%, respectively, relatively strong average pricing of both resulted in prenatal revenue growing by 8% and non-microarray eking out 1% growth.  

Q3 Totals…

- Billable tests: 
o Volume: 2,952 total billable tests. Second highest in history and up 4% yoy, down 4% sequentially   
o Diagnostic Revenue: $4,214k. Second highest in history and up 24% yoy but down 6% sequentially

- Reproductive Health: this is CBMX’s major area of focus.  
o Volume: Q3 set a new record at 1,764 - up 19% yoy and 1% sequentially 
o Revenue: $3,015k. Second highest in history and up 30% yoy but down 4% sequentially




Revenue was the second highest on record while gross margin was the third highest (behind only Q1 and Q2 2017).  The widening of gross margin has been a major impetus for the consistent improvement in operating loss.  An increase in test pricing – particularly in the reproductive health segment, coupled with lab efficiencies, favorable changes in insurers’ coverage policy and CBMX's direct efforts in facilitating the customer billing and reimbursement process have all contributed.  We think further growth in average reimbursement would likely continue to benefit margins and we do have GM continuing to widen in the out-years in our model.  

Excluding $391k of merger related expenses (captured in G&A), operating loss was $223k, which is significantly improved from every other historical quarter (including Q1 2017 of -$518k), save Q2 of this year – which, excluding $210k in merger related expenses, saw an operating loss of just $162k.  Operating expenses as a percentage of revenue (ex-merger related expenses) were 64.7% in Q3, an all-time low and just edging out Q2 (64.8%).  As the merger is expected to close in Q4, our modeled operating expense includes additional allocation of merger expenses in that period.  

In terms of cash, cash collections were $3.7M in Q3, slightly lower than the $3.8M generated in Q2 but better than every other prior period.  Also noteworthy is that cash collections as a percentage of revenue, at 92.2%, were an all-time high.  Through the first nine months of 2017 cash collections were $10.9M, also a record.   

Excluding merger related expenses CBMX used $53k and $591k of cash for operations in the three and nine months ending 9/30/2017.  Again, this looks to be the second lowest ever for the three-month period (only bested by Q2 of this year) and a record low for any consecutive nine-month period.  Cash balance at Q3 quarter-end was $2.4M.  While the company had been guiding to reach a point of cash-flow break-even by the close of 2017, a disclosure in the Q3 10-Q implies that they now expect that milestone (excluding merger related expenses) to be achieved in Q1 2018.

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