Affymetrix's 4Q EPS In Line

Zacks

Global genetic devices maker, Affymetrix Inc.’s (AFFX) fourth-quarter 2012 adjusted loss of 2 cents per share was in line the Zacks Consensus Estimate. The adjusted loss excludes one-time items such as acquisition, integration and amortization-related expenses along with impairment charges.

Reported net loss in the quarter was $12.3 million (or 17 cents per share) versus a loss of $14.7 million (or a loss of 21 cents per share) in the year-ago quarter. This reflects improved operating efficiency together with moderate revenue growth, despite a difficult macroeconomic environment.
 
For 2012, the company reported a loss of 10 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 14 cents. Reported net loss was $10.7 million (or 15 cents per share) versus a loss of $28.2 million (or a loss of 40 cents per share) in the year-ago quarter.
 
Revenues
 
Revenues increased 2% (excluding the eBioscience acquisition) year over year to $84.4 million. The results beat the Zacks Consensus Estimate of $84 million marginally.
 
Revenues from products were up 30.2% year over year to $76.4 million in the quarter, which included consumable sales of $53.1 million (excluding eBioscience), down 3.3%. However, instrument sales grew 36.8% to $5.2 million. Revenues included roughly $18.1 million from the eBioscience acquisition (up 5%). Services and other revenues jumped 25% to $8.0 million.
 
For the full year, sales dipped 3% (excluding eBioscience) year over year to $295.6 million, but marginally surpassed the Zacks Consensus Estimate of $295 million.
 
Margins
 
Gross margin for the fourth quarter edged up to 54% from 53% in the year-ago period. Adjusted gross margin was 61% versus 54% in the prior-year quarter. 
 
Operating expenses were $54.4 million in the quarter compared with $45.5 million, a year-ago, mostly due to expenses related to the eBioscience acquisition. Adjusted operating expenses were $48.5 million versus $41.5 million in 2011.
 
Selling, General and Administrative (SG&A) expenses were higher at 45.2% of sales versus 44.2% in the year-ago quarter, Research and Development (R&D) expenses, as a percentage of sales, fell to 17.2% from 25.7% in the year-ago period, due to reduced headcount-related expenses, partially offset by higher spending on clinical trials.
 
Balance Sheet
 
Affymetrix ended the fourth quarter of 2012 with cash and cash equivalents of $25.7 million, down 87.3% year over year. Cash flow from operations was $2 million. 
 
The company prepaid $9.6 million (the entire principal amount due in 2013) of its senior-secured debt in Dec 2012, partly funded by the sale of its Sacramento manufacturing facility. At the end of 2012, the senior debt was $73 million and cash-on-hand stood at roughly $35 million.
 
Recent Developments
 
Affymetrix also announced a restructuring initiative to boost its bottom-line growth. The company will disembark 100 employees, representing 8% of its workforce. The company will incur most of the additional cost associated with the restructuring in the first quarter of 2013, which is expected to be roughly $7 million. 
 
Post restructuring, Affymetrix will be able to save roughly $25 million annually based on its 2013 outlook, of which $5 million is in cost of goods sold. Management believes that the restructuring effort will improve the company’s free cash flow position in 2013 and quicken repayment of its senior debt.
 
Our Take
 
Affymetrix is a leading provider of microarray-based products and services to the global research community. Along with Illumina Inc. (ILMN), it is one of the two major providers of microarray technologies, primarily used in the field of genetic research. Affymetrix holds a leading position in the gene expression products and services market.
 
Affymetrix is expanding its customer base through new product launches and strategic alliances. Moreover, the company is pursuing a number of strategies (including acquisitions and expansion into new markets) aimed at expanding its top line.
 
However, research and development spending by Affymetrix’s customers have fallen considerably due to a weak macroeconomic environment coupled with stringent government actions including budget cuts. 
 
We currently have a Zacks Rank #3 (Hold) on the stock. Companies like Alkermes plc. (ALKS) and Medivation, Inc. (MDVN), both carrying a Zacks Rank #1 (Strong Buy), are expected to do well in the Medical-Biomed/Gene industry.
Read the Full Research Report on AFFX

Read the Full Research Report on ILMN

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