Shares of Fluidigm (NASDAQ: FLDM) dropped over 14% today after the company reported first-quarter 2019 operating results. The business turned in a relatively strong quarter, meeting the top end of its revenue guidance and reporting 110% year-over-year sales growth for its most important business segment .
But it also reported higher-than-expected operating expenses after a surge in selling, general, and administrative costs. That's not a great development for a company scratching and clawing its way to profitability.
That said, the primary reason for the stock's double-digit decline today appears to be the market's reaction to the extinguishing of $150 million in convertible debt. It's called "convertible debt" because the notes are usually exchanged for shares of common stock at maturity, which means existing shareholders just got a decent amount of dilution thrown at them. The effect is blunted somewhat thanks to the stock's rise in recent months.
As of 1:35 p.m. EDT, the stock had settled to a 9.4% loss.
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While the dilution from the convertible debt transaction stings, Fluidigm gained a significant amount of financial flexibility. It exited March with $75 million in cash, cash equivalents, and investments. Furthermore, the 75% reduction in debt balances should save close to $4 million in annual interest expense. Every little bit helps.
A 110% year-over-year increase in mass cytometry segment sales helped to drive gross margin to 56.4% in Q1 2019, up from 53.2% in the prior-year period, and led to a 19% increase in total revenue. Surprisingly, most of the overall revenue gains came from instrument sales, which grew 71% from the year-ago period. Revenue from consumables (the chemical reagents needed to operate the company's instruments) declined 7% in that span, while service revenue jumped 11%. Of course, higher instrument sales today mean the installed base of machines is increasing , which should lead to higher consumables sales tomorrow.
Management expects the momentum to continue in the second quarter. Guidance calls for revenue of about $30.5 million and operating expenses of about $30 million -- both identical to Q1 2019 guidance. Fluidigm expects total cash outflows in the neighborhood of $5 million in Q2 2019, which would mark a sharp improvement from the nearly $30 million decrease in cash and cash equivalents from the prior three months.
The business is on a promising trajectory thanks to successfully pouncing on the market opportunities in mass cytometry. With the high-margin segment contributing a greater share of total revenue, Fluidigm will move closer to profitable operations over the coming years.
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