Affymetrix Inc. (AFFX) posted adjusted earnings of 8 cents per share in the third quarter of 2014, surpassing the Zacks Consensus Estimate of 4 cents. Earnings also grew 60% on a year-over-year basis, driven by strong top-line growth, cost control and margin improvement.
Following the earnings release, shares of Affymetrix climbed 2.3% to close at $8.30 in the last session.
Quarter Details
Third-quarter revenues spiked 8.4% to $87.1 million and edged past the Zacks Consensus Estimate of $84 million. The upside was driven by strength in the company’s product portfolio as well as increased focus on high-growth markets.
Product revenues improved 4.4% on a year-over-year basis to $78.1 million, while Service and other revenues surged 61.7% to $9 million.
Product revenues included consumable revenues of $73.7 million, up 2.4%, while instrument revenues of $4.4 million were up 57.1% from the prior-year quarter.
Adjusted gross margin remained flat at 61% on a year-over-year basis.
Adjusted operating expenses increased 5.2% year over year to $44.1 million, primarily owing to higher variable compensation and legal costs associated with litigation matters.
Adjusted EBITDA margin expanded 40 basis points to 15% in the quarter under review.
During the third quarter, Affymetrix entered a multi-year supply agreement with Ariosa Diagnostics for its arrays and instruments, which are to be utilized as part of the latter’s Harmony Non-Invasive Prenatal Test. The partnership is expected to help Ariosa develop a Harmony test kit which will enable other laboratories around the globe to implement this test.
Affymetrix exited the quarter with cash and cash equivalents of $68.3 million, as compared with $51.5 million at the end of the previous quarter. Long-term debt (including current portion) stood at $33.4 million at the end of the quarter.
Guidance
Buoyed by a strong year-to-date performance, Affymetrix upgraded its previously announced revenue and EBITDA guidance for 2014.
The company expects to generate annual revenues of $345 million as compared with the earlier projection of $340 million. The Zacks Consensus Estimate for the same currently stands at $341 million.
Adjusted EBITDA is projected to be approximately 17% of annual revenues.
Our Take
Affymetrix’s strength in maintaining its earnings momentum after a period of continued losses is impressive. The company’s restructuring plan to diversify its revenues by focusing on high growth markets is finally paying off as demonstrated by its bottom line growth.
We are encouraged by the company’s third-quarter adjusted earnings and revenue beat as well as the raised revenue and EBITDA guidance for 2014.
Currently, Affymetrix carries a Zacks Rank #2 (Buy). Other well-performing stocks in the biomedical/gene industry include AMAG Pharmaceuticals, Inc. (AMAG), Biogen Idec Inc. (BIIB) and Illumina Inc. (ILMN). All these stocks sport a Zacks Rank #1 (Strong Buy).
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