AFFX

Affymetrix, Inc. (AFFX)

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Affymetrix (AFFX)

Q3 2013 Earnings Call

October 30, 2013 5:00 pm ET

Executives

Doug Farrell - Vice President of Investor Relations and Treasury

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

Gavin Wood - Chief Financial Officer and Executive Vice President

Analysts

Brian Turner

Joel Kaufman - Goldman Sachs Group Inc., Research Division

Reginald Miller - UBS Investment Bank, Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division

Bryan Brokmeier - Maxim Group LLC, Research Division

Shaun Rodriguez - Cowen and Company, LLC, Research Division

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

David Lin

Michael Clerico - Morgan Stanley, Research Division

David Moskowitz

Presentation

Operator

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

Doug Farrell

Thank you, operator, and good afternoon, everyone. Welcome to Affymetrix' conference call for the third quarter of 2013. At the close of the market today, we released our operating results. If you have not a chance to review the press release yet, you can get one on our website at affymetrix.com.

Joining me on the call today are our President and CEO, Frank Witney; as well as our Chief Financial Officer, Gavin Wood.

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 our actual results to differ from those in forward-looking statements are detailed in our filings with the Securities and Exchange Commission. It is 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 documents carefully as forward-looking statements are made as of today's date and we make no obligation to update this information.

Additionally, we'll be discussing GAAP and non-GAAP measures. A full reconciliation of the non-GAAP measures to GAAP can be found on today's press release or on our website.

As a reminder, today's call is being recorded. The; audio from the call is being webcast over the Internet on our homepage at affymetrix.com. With that, let me turn the call over to Frank.

Franklin R. Witney

Good afternoon, and thank you for joining us. Before I review our commercial and operational performance for the third quarter, I'd like to reiterate our goals for the second phase of our strategic plan which spans 2013 and 2014. Our primary goal is to return the company to growth. Our second goal is to achieve sustained profitability. Our third goal is to strengthen our balance sheet and increase our strategic flexibility.

Overall, we believe that our efforts are beginning to pay off. We continue to execute on our strategy of expanding our reach into the translational science, molecular diagnostics and applied markets. By doing so, we expect to achieve our goals and exit Phase 2 of our turnaround plan in 2014 with a sharpened business focus, revenue growth, strengthened balance sheet and sustained profitability.

Let's look at some of the key metrics that we used to track our progress on these objectives. With regard to growth, our third quarter revenue of $80.4 million represents a modest year-over-year growth. That said, we believe our growth momentum will continue with new product offerings, such as OncoScan, our Human Transcriptome Array, QG FlowRNA and by building on the strength of our CytoScan and Axiom franchises.

As for profit, our EBITDA for the third quarter of 2013 was $13.7 million or 17% of sales, and year-to-date our EBITDA was $38 million or 16% of sales. We remain committed to achieve an EBITDA margin of approximately 15% of sales for the full year of 2013.

In addition, we made significant progress and strengthened our balance sheet since our last quarterly report. Earlier this month, we announced that we sold our Anatrace business and significantly reduced our outstanding debt. We also refinanced our senior debt to reduce our ongoing interest experience. Gavin will provide more details on both initiatives later in the call.

Our operating results have improved over the last couple of quarters despite the ongoing uncertainty around academic spending in North America. For example, our consumable revenue increased by 6% over the prior year. As a reminder, consumables now represent more than 90% of our total revenue. From a geographic perspective our business strengthened in both Europe and North America, while Japan remained challenging.

Now I'd like to give you a little more color in each business unit, beginning with our fastest growing segment, Genetic Analysis. For the third quarter, our cytogenetic product revenue increased by approximately's 36% over the prior year and currently represents 12% of our revenue. The growth in this product line is driven by increased business in existing accounts, reflecting the reliability and performance of our product, as well as expanding our geographic footprint and our application base deeper into the translational medicine and molecular diagnostics market. For example, we are seeing increased usage of our research-use-only CytoScan in oncology applications.

Our FDA filing is still proceeding well, and we maintain our view that the review process will take about a year from the time of our filing.

We had another strong quarter of growth in genotyping, where Axiom revenue was up about 80% over the prior year. This was driven by expanding our menu of standard products, continuing success of our custom array programs and our strengthening competitive position in winning new opportunities in Biobanking and Ag-Bio. We are in active discussions on potential collaborations in consumer genetics and expect this market will provide another leg of growth in our genotyping business. I look forward to sharing the details once they're finalized over the next couple of quarters.

Read the rest of this transcript for free on seekingalpha.com