FINANCIAL Report:
Zacks Equity Research, On Thursday October 28, 2010, 3:35 pm EDT
California-based genetic products maker Affymetrix Inc. (NasdaqGS: AFFX - News) reported third-quarter fiscal 2010 adjusted net loss per share of 4 cents, lower than the Zacks Consensus Estimate of a loss of 6 cents. The adjusted loss excludes one-time items including a $4.1 million gain on repurchase of convertible notes.
Affymetrix posted a net income (on a reported basis) of $1 million (or 1 cent a share) as against a net loss of $8.8 million (or 13 cents a share) in the year-ago quarter. Besides the above-mentioned gain, the turnaround is attributable to the company’s cost management initiatives, which offset lower sales.
Revenue Analysis
Revenueswereclipped 5.4% year-over-year to $74 million, yet modestly beating the Zacks Consensus Estimate of $73 million. Sales were affected by lower revenues from the company’s scientific services.
Product revenues rose 1.7% year-over-year to $67.3 million. Instrument revenues climbed 28.6% year-over-year to of $5.4 million. DNA and RNA products sales declined 1% and 6%, respectively. Service revenues slid 50% to $4.9 million, affected by the completion of several large genotyping projects.
A still-soft operating backdrop in Europe is affecting Affymetrix, although, to a lesser extent compared to the previous quarter. The company’s European business has been hurt by lower spending by academic research organizations, impacted by government actions (such as budget cuts) to address surging debt levels and weak currencies.
Margins
Gross margin rose to 55% from 54% a year-ago, helped by effective cost-cutting efforts. Product gross margin increased to 56% from 54% driven by higher margins for the company’s array products. Consolidated costs and expenses fell roughly 11% year-over-year to $76 million.
Financial Condition
Affymetrix exited the quarter with cash and cash equivalents of $40.1 million, down 36% year-over-year. The company de-leveraged its balance sheet in the quarter having bought back roughly $71.9 million of its 3.5% convertible notes, which trimmed the outstanding convertible debt balance to $148.6 million from $220.5 million in the previous quarter.
Outlook
Affymetrix has not divulged any updated outlook for the remainder of 2010. However, the company expects to be cash flow positive through 2010.
Affymetrix is a leading provider of microarray-based products and services to the global research community. It is one of the two major providers - along with Illumina Inc. (NasdaqGS: ILMN - News) - of microarray technologies. The company is broadening its customer base through new product introductions and strategic alliances. However, itis increasingly being challenged by competitive product offerings that leverage advanced technologies.
Affymetrix continues to enjoy steady end-user demand for its arrays as evidenced by sustained volume growth over the past few quarters. The company’s Axiom array platform (launched in October 2009) has been a key driver for its DNA business.
To broaden its Axiom platform, Affymetrix launched the Axiom Custom Genotyping Arrays in July 2010. This new solution enables the company to address the latest trends in genetic research.
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