U.S. Markets open in 2 hrs 47 mins

Here's Why Fluidigm Shares Fell as Much as 14.4% Today

Maxx Chatsko, The Motley Fool

What happened

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.

A chalkboard showing a chart with a sudden decline.

Image source: Getty Images.

So what

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.

Now what

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.

More From The Motley Fool

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.