Affymetrix Inc. AFFX posted impressive first-quarter 2015 earnings results with both the top and the bottom line surpassing the Zacks Consensus Estimate. Following the earnings announcement, shares of Affymetrix rallied nearly 2.6% or 32 cents in afterhours trading to close at $12.50.
First-quarter adjusted earnings per share (EPS) of 10 cents zoomed past the Zacks Consensus Estimates of 4 cents by 150%. Earnings also surged an impressive 233.3% on a year-over-year basis riding on robust sales growth and expanding margins.
Quarter Details
First-quarter revenues increased 6.9% year over year to $88.7 million, marginally beating the Zacks Consensus Estimate of $87 million. On a constant currency (cc) basis, revenues increased 9.1% from the year-ago quarter, driven by strong performance across the genotyping and reproductive health businesses.
Product revenues increased 7.7% year over year to $79.4 million while services and other revenues improved a marginal 0.8% to $9.4 million.
Adjusted gross margin expanded 200 basis points (bps) year over year to 63.2%, driven by higher utilization rates in Singapore and Ohio manufacturing plants as well as favorable product mix.
Research and development expenses increased 4.2% on a year-over-year basis to $12.1 million while selling, general and administrative expenses declined 8.1% to $35.4 million.
Total operating expenses declined 4% to $45.3 million in the quarter mainly owing to lower amortization and depreciation, lower legal costs and the favorable currency impact of the company’s European operations.
Adjusted operating margin expanded 780 bps on a year-over-year basis, primarily on the back of higher gross margin base and lower operating expenses.
Financial Position
As of Mar 31, 2015 cash and cash equivalents amounted to $104 million, higher than $79.9 million as of Dec 31, 2014. Term loan (inclusive of current portion) stood at $29.4 million as of Mar 31, 2015, compared with $30.8 million as of Dec 31, 2014.
Guidance
For 2015, management reiterated its guidance at mid-single digit growth on a cc basis.
Management expects the genetic analysis business unit to grow in mid teens while the eBioscience business is estimated to grow in the range of 6%–8%. On the other hand, expression business revenues are anticipated to decline around 10%. Also, Affymetrix projects a low single-digit revenue decline in the life sciences reagents business unit.
Management expects adjusted EBITDA in the range of 16% to 18% for full-year 2015. Non-GAAP gross margin is projected at around 60%.
Our Take
We believe that the company’s strategy of diversifying revenues and focusing on new market opportunities is paying off as reflected by the consistent year-over-year growth in revenues.
The genetic analysis business continues to be the primary growth driver for the company. Moreover, we feel that the recent Biobank collaboration with Toshiba Corp will open up new opportunities for Affymetrix and help the company gain significant market traction, going forward.
In addition, the rollout of new products like PrimeFlow RNA Assay and Concurrent Molecular Analysis Profiling (CoMAP) capability will help drive top-line growth and better the long-term prospects of Affymetrix.
However, recent foreign exchange movements may negatively impact top-line growth in the near term.
Stocks to Consider
Currently, Affymetrix carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the broader medical sector include RTI Surgical RTIX, Inogen INGN and Abiomed ABMD. While RTI Surgical sports a Zacks Rank #1 (Strong Buy), both Inogen and Abiomed carry a Zacks Rank #2 (Buy).
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