Affymetrix Inc. AFFX posted impressive second-quarter 2015 financial results with both the top and the bottom line surpassing the Zacks Consensus Estimate.
Second-quarter adjusted earnings per share ("EPS") of 12 cents outpaced the Zacks Consensus Estimate by a nickel. Adjusted EPS also surged an impressive 71.4% on a year-over-year basis riding on robust sales and higher EBITDA.
Quarter Details
Second-quarter revenues increased 4.1% on a year-over-year basis to $89 million, beating the Zacks Consensus Estimate of $87 million. On a constant currency (cc) basis, revenues increased 8% from the year-ago quarter.
Product revenues increased 5.3% year over year to $79.9 million while services and other revenues declined 5.1 % to $9.1 million.
Revenues from the Genetic Analysis business increased 7% on a year-over-year basis to $36.8 million, on the back of growth in revenues from AgBio (up 24%) and Affymetrix’s clinical portfolio (up 20%).
However, Genotyping revenues declined 3% to $17.2 million, hurt by sluggish sales in Europe.
Revenues from the Cytogenetics business increased nearly 12% on a year-over-year basis. Affymetrix is getting better market traction for its clinical business in Europe, where the company converted two major reference labs to CytoScan during the second quarter. Additionally, the company holds significant growth opportunities in China.
Revenues from the eBioscience business increased 2.5% to $23.9 million, on the back of growth in the core Flow cytometry and Immunoassay businesses. In this regard, Affymetrix generated double-digit growth in North America in the reported quarter and is currently striving to gain better market traction in China.
Revenues at the Gene Expression business reached $16.2 million in the second quarter, down about 5% from the comparable year-ago period. Revenues from the company’s Life Science Reagents business increased nearly 4% in the reported quarter.
Adjusted gross margin expanded 400 basis points (bps) year over year to 65%, driven by higher utilization rates in the company’s manufacturing plants and a favorable product mix.
Research and development expenses increased marginally 0.2% on a year-over-year basis to $12.9 million while selling, general and administrative (SG&A) expenses declined 1.7% to $35.6 million. The year-over-year decrease in SG&A expenses can be attributed to lower litigation costs and reduced amortization and depreciation.
Adjusted EBITDA margin expanded 300 bps on a year-over-year basis.
Other Developments
On Jul 7, 2015, Affymetrix, BioRealm LLC, and RUCDR Infinite Biologics announced a strategic alliance, under which BioRealm's SmokeScreen platform will be used to genotype the National Institute on Drug Abuse (NIDA) biorepository of more than 50,000 samples.
In May 2015, Affymetrix acquired assets of Hercules, CA-based Eureka Genomics – a developer of cost-effective, low- to mid-plex, high throughput genotyping assays. Notably, the acquisition will extend the company’s product offerings enabling it to support more applications for its current as well as new customers.
Liquidity
As of June 30, 2015, cash and cash equivalents amounted to $119.6 million, higher than $104 million as of Mar 31, 2015.
Guidance
For 2015, management reiterated its revenue growth guidance in mid-single digits, on a constant currency basis.
Meanwhile, management has raised its adjusted EBITDA guidance from a range of 16–18% to 17–19%.
Our Take
The second quarter of 2015 represented the eighth consecutive quarter of year-over-year revenue growth at Affymetrix. We are impressed by the top-line beat despite the presence of foreign exchange headwinds.
The genetic analysis business continues to be the primary growth driver for the company. The Biobank collaborations with EverGene and Toshiba Corp. will help the company gain significant market traction, going forward. Notably, Affymetrix is already witnessing improved performance in Japan due to the collaborations.
We are also upbeat about the expansion in margins. In addition, we do feel that management’s decision to raise EBITDA guidance will bode well with investors.
However, lower Genotyping revenue in Europe is a concern. Genotyping revenues are usually driven by projects, hence unfavorable timing of projects causes sluggishness in revenue growth. Additionally, management expects Genotyping revenues to be lower in the third quarter as a result of the completion of the UK Biobank project. New projects are expected to bring Genotyping revenues back on track in the fourth quarter of 2015.
A strong U.S. dollar continues to be a major concern, although we believe that management’s hedging program will continue to battle the harmful impact on the company’s top line. In the third quarter of 2015, unfavorable foreign exchange is expected to hurt the top-line to the tune of 4–5% at current exchange rate.
Zacks Rank
Currently, Affymetrix has a Zacks Rank #3 (Hold).
Better-ranked stocks in the broader medical sector include LeMaitre Vascular LMAT, Synergetics USA SURG and Abaxis ABAX. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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