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Fluidigm Delivers Growth Where It Matters Most in Q1 2019

Maxx Chatsko, The Motley Fool

There were definitely some bumps in the road, and shares got whacked after analysts realized the company exercised its right to convert $150 million in convertible debt to common stock, but Fluidigm (NASDAQ: FLDM) had a relatively solid performance in Q1 2019.

The laboratory equipment manufacturer achieved a 110% year-over-year revenue increase for its most important and highest-margin segment thanks to a surge in instrument sales. The inflow of new orders and machine placements will increase the installed base, which will increase the pull through of consumables (read: the chemical reagents needed to operate the machines) revenue in future periods. That will be an important driving force for the long-term trajectory of the business.

Here are the major takeaways from the company's Q1 2019 operating results.

A potted plant with leaves in the shape of an arrow.

Image source: Getty Images.

By the numbers

Fluidigm primarily generates revenue from selling instruments and the consumables needed to power them, and to a lesser extent from services. While it doesn't have formal business segments, the company reports two categories of revenue: mass cytometry and microfluidics. The latter term essentially means "everything besides mass cytometry" -- and a look at the quarterly financial results shows why management makes that distinction.

Metric

Q1 2019

Q1 2018

Year-over-Year Change

Mass cytometry revenue

$18.8 milion

$9.0 million

110%

All other revenue

$11.4 million

$16.3 million

(30%)

Total revenue

$30.1 million

$25.3 million

19%

Gross profit

$17.0 million

$13.4 million

26%

Gross profit margin

56.4%

53.2%

6% (relative)

Operating expenses

$31.2 million

$26.1 million

20%

Operating income

($14.2 million)

($12.6 million)

N/A

Net income

($25.5 million)

($13.2 million)

N/A

Data source: Press release.

The triple-digit growth rate in mass cytometry revenue was driven by equipment sales, which is significant considering each machine is expected to generate an average of $75,500 in consumables revenue over the next 12 months. Fluidigm reported that instrument revenue increased 71% year-over-year across all machines to reach 43% of total revenue during Q1 2019. Meanwhile, customers pulled back on consumables purchases across the portfolio, which declined 7% year-over-year. On the first-quarter 2019 earnings conference call, management explained that was likely due to increased orders in late 2018 in a bid by customers to stock inventory ahead of a price increase that went into effect this year.

Consumables revenue is expected to pick up in Q2 2019. Management issued nearly identical guidance as the most recent quarter, calling for about $30.5 million in revenue and operating expenses of about $30 million. The business exceeded the top end of Q1 2019 operating expense guidance of $30.5 million following a modest increase in selling, general, and administrative costs. The large increase in net loss was primarily driven by a $9 million loss on the extinguishment of debt.

While the decision to issue stock and retire a $150 million chunk of convertible debt diluted existing shareholders quite a bit, it also provides significant financial flexibility. The transaction reduced debt balances by 75% and left the company with $75 million in cash, cash equivalents, and investments at the end of March. That's sufficient to continue nurturing growth in mass cytometry products while enduring continued operating losses for the foreseeable future.

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Image source: Getty Images.

Despite the ample liquidity, investors will want to keep an eye on operating expenses for the remainder of the year. Increases will be necessary to support ramped-up sales, marketing, and customer service as the business expands, but ideally gross profit balances would grow faster than expenses. That didn't happen in Q1 2019.

On solid footing for a potentially great year

Fluidigm turned a corner in 2018 on the back of its mass cytometry portfolio, and that trend continued in the first quarter of 2019. While there's still a long way to go before the business can achieve profitable operations, investors with a long-term mindset can look onward with more optimism than before. 

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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.