AFFX

Affymetrix, Inc. (AFFX)

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Affymetrix (AFFX)

Q4 2012 Earnings Call

January 31, 2013 5:00 pm ET

Executives

Doug Farrell - Vice President of Investor Relations

Franklin R. Witney - Chief Executive Officer, President and Director

Timothy C. Barabe - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

William R. Quirk - Piper Jaffray Companies, Research Division

Daniel Brennan - Morgan Stanley, Research Division

Bryan Brokmeier - Maxim Group LLC, Research Division

Travis Steed - Macquarie Research

Rafael Tejada

Joel Kaufman - Goldman Sachs Group Inc., Research Division

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Shaun Rodriguez - Cowen and Company, LLC, Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division

Justin Bowers - Leerink Swann LLC, Research Division

Presentation

Operator

Greetings, and welcome to the Affymetrix Fourth Quarter and Fiscal 2012 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Doug Farrell, VP for Investor Relations for Affymetrix. Thank you. You may begin.

Doug Farrell

Thank you, operator, and good afternoon, everyone. Welcome to the Affymetrix Fourth Quarter and Fiscal 2012 Conference Call. At the close of the market today, we released our operating results for the fourth quarter, as well as the full year. If you haven't had a chance to review the press release yet, you can obtain a copy at our website at affymetrix.com. Joining me on the call today is our President and CEO, Frank Witney; as well as our Chief Financial Officer, Tim Barabe.

I would like to remind callers that our discussion may include forward-looking statements about future expectations, plans and prospects for the company. We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. Important factors which could cause actual results to differ can be found in our forward-looking statements and are detailed in our SEC filings. It's our intent that these forward-looking statements be protected under the Safe Harbor created by the Private Securities Litigation Reform Act of 1995. We encourage you to review these statements carefully, as forward-looking statements are made as of today's date, and we make no obligation to update this information. Additionally, we will be discussing GAAP and non-GAAP measures. A full reconciliation of non-GAAP measures can be found in today's press release or on our website. And as a reminder, this call is being recorded and the audio is being webcast over the Internet from our homepage at affymetrix.com.

So with that, let me turn the call over to Frank.

Franklin R. Witney

Thank you, Doug. Good afternoon, and thanks for joining us today. It's been about 18 months since I became the CEO at Affymetrix. When I joined the company, we were experiencing several years of declining financial performance and we needed a plan to stabilize the core business and revitalize the company for growth. We are now executing on a plan that has 3 phases: Phase 1 is stabilization of the core business and realignment of our portfolio, which is now essentially complete; Phase 2, which we see spanning this over 2 years, is to drive the sustainable and profitable growth and strengthen our balance sheet; Phase 3 will be the period after 2014, and our goal is to have transformed the company into a leader in translational medicine, molecular diagnostics and applied sciences.

I believe we've made real progress in stabilizing the business last year. We did this through aggressive investment in our Genetic Analysis business, a reinvigorated go-to-market strategy in Gene Expression and the acquisition of eBioscience. All these actions resulted in a realigned portfolio, which has diversified our revenue streams and opened up new avenues of growth.

In addition, we've made investments in our commercial organization in Asia Pacific, particularly in Japan and China, as well as in Brazil. We finished 2012 on a positive note, growing our revenue by 2% year-over-year in Q4, despite a challenging environment for academic spending. In constant currency, our revenues, excluding eBioscience, were down about 2% for the full year compared to 2011. We experienced a decline of 14% in 2011 compared to 2010.

We're now moving into phase 2 of our strategic plan, which is designed to drive sustainable and profitable growth through a focus on serving the growing needs of translational science and clinical diagnostic customers, as well as applied markets combined with the reduction in our operating expenses. We are committed to growing the business and being profitable in 2013, and we are targeting a non-GAAP EBITDA margin in the mid-teen range, which is based on our guidance for total revenue of $330 million or greater. This guidance assumes that legislators are able to reach budgetary agreement that would avoid sequestration and major cuts in funding to the national institute of health, which represents roughly 25% of our customer base.

In the meantime, we continue to monitor our U.S. customers closely and maintain a tight control of our costs which will enable us to better weather through a period of reduced academic funding. While we are focused on returning to sustainable topline growth, it was also clear that we had to improve our cost structure. In order to improve our profitability in 2013, we implemented a corporate restructuring that will significantly reduce our total operating expenses in 2013. We expect that this action will reduce our expenses by about $25 million on an annualized basis, including a $5 million reduction in our cost of goods sold. While these decisions are never easy, the company is evolving and so are the skill sets and infrastructures that we'll need to succeed.

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