Global genetic devices maker,
) reported earnings for the first time since the first quarter of
2011. The company posted adjusted earnings per share of 4 cents
in the second quarter of 2013 versus the Zacks Consensus Estimate
of a loss of a penny and the year-ago adjusted loss of 13 cents.
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AFFX's strategic restructuring plans are finally paying off as
demonstrated by the bottom-line growth. Moreover, the acquisition
of eBioscience has opened new avenues for Affymetrix and turned
its focus away from the beleaguered Gene Expression business.
Reported net loss in the quarter was $6.1 million (or 9 cents per
share) versus a net income of $23.6 million (or 33 cents) in the
Revenues increased 19.7% year over year to $79.5 million
(including the eBioscience acquisition). eBioscience, which AFFX
acquired in Jun 2012, contributed $18.8 million to total revenue
in the second quarter. Revenues were almost in line with the
Zacks Consensus Estimate.
On a combined pro forma basis (including eBioscience), revenues
from products were down 1.7% year over year to $74.2 million in
the quarter. Product revenues included consumable sales of $51.2
million, down 3.9%, and instrument sales of $4.2 million, up
10.5% from the prior-year quarter.
Revenues from the acquired eBioscience unit increased
significantly to $18.8 million in the quarter compared to $1.4
million in the year-ago period. However, Services and other
revenues plunged 32.9% to $5.3 million in the quarter.
Gross margin for the second quarter declined 500 basis points
(bps) to 53% from 58% in the second quarter of 2012. However, on
an adjusted basis, gross margin increased 100 bps to 60%.
Selling, general and administrative (SG&A) expenses decreased
17.3% to $33.5 million, mainly due to the company's restructuring
plans, headcount reduction and lower IT spending. Research and
Development (R&D) expenses fell 11.8% to about $12 million,
due to reduced headcount and variable compensation expenses along
with lower spending on supplies and consulting.
Operating expenses were $45.1 million in the quarter, down 16.6%
from the year-ago level of $54.1 million. Adjusted operating
expenses were down 12.8% to $42.1 million, driven by
restructuring and headcount reduction. Reported loss from
operations was roughly $3 million, significantly down from a loss
of $15.4 million in the prior-year quarter.
Affymetrix ended the second quarter of 2013 with cash and cash
equivalents of $43.7 million versus $25.7 million at the end of
2012. On an encouraging note, the company generated roughly $10.3
million in cash flow from operations in the quarter due to higher
revenues and reduced senior-secured debt by 25% year over year.
In the quarter, Affymetrix launched a new product, Axiom 384HT
Genotyping Format, a high-throughput platform capable of
genotyping 384 samples simultaneously and run on the GeneTitan
Instrument. The company also made changes in its top management
with the appointment of Gavin Wood as the Executive Vice
President and Chief Financial Officer.
We are impressed with Affymetrix's strong second-quarter results,
following a dismal first quarter. Following the announcement of
the results, the company's share price surged 16.3% to close at
$4.42 on Friday, Aug 2.
We believe that Affymetrix is ready for a turnaround and the
worst days are over for the company. In the face of declining
demand for Affymetrix' flagship GeneChip Expression products,
management's strategy to transform AFFX into a company with a
broad reach in the high-growth markets for translational
medicine, molecular diagnostics and applied markets is
Despite a tight U.S. academic funding environment, new products
and strategic agreements should propel growth, going forward.
Additionally, the company's restructuring and debt reduction
efforts should boost margins and profitability.
Currently, AFFX has a Zacks Rank #1 (Strong Buy). Other companies
), all carrying a Zacks Rank #1 (Strong Buy), are also expected
to do well in the Medical-Biomed/Gene industry.