Affymetrix, Inc., (Nasdaq:AFFX) today reported its operating
results for the second quarter of 2006. On a GAAP basis the Company
reported net loss of approximately $10.1 million or $0.15 per
diluted share in the second quarter of 2006, as compared to net
income of $7.8 million or $0.12 per diluted share in the second
quarter of 2005. On January 1, 2006, the Company adopted FAS 123R
and is reporting employee stock-based compensation expense in its
GAAP results. Excluding the impact of FAS 123R, the Company
reported non-GAAP net loss of approximately $6.2 million or $0.09
per diluted share in the second quarter of 2006 which includes $5.5
million in taxes or $0.08 per share. Total revenue for the quarter
was $80.1 million, of which $2.2 million was related to the sale of
products to Perlegen Sciences, Inc., as compared to total revenue
of $84.1 million in the second quarter of 2005, of which $1.9
million was related to the sale of products to Perlegen. Product
and product related revenue was $75.5 million for the second
quarter of 2006, compared to $80.1 million in the same period in
2005. Second quarter sales included GeneChip(R) consumable revenue
of $56.6 million, consisting of array revenue of $40.2 million,
reagent revenue of $9.6 million, genotyping services revenue of
$4.6 million and $2.2 million of Perlegen revenue. Additionally,
the Company reported instrument revenue of $11.2 million.
Affymetrix shipped 39 GeneChip Systems in the quarter, increasing
the cumulative systems shipped to approximately 1445. Royalties and
other revenue were $2.4 million for the second quarter of 2006
compared to $2.0 million in the second quarter of 2005. Total
operating costs and expenses were $89.2 million for the second
quarter of 2006 compared to $75.5 million in the second quarter of
2005. Cost of product and product related revenue was $27.1 million
in the second quarter of 2006 compared to $20.4 million in the same
period of 2005. Product and product related gross margin was 64.1
percent in the second quarter of 2006 compared to 74.5 percent in
the second quarter of 2005. Research and development expenses were
$21.6 million during the second quarter of 2006 compared to $20.8
million in the second quarter of 2005. Excluding the impact of FAS
123R, on a non-GAAP basis research and development expenses were
$20.6 million during the second quarter of 2006 compared to $20.8
million in the second quarter of 2005. Selling, general and
administrative expenses were $39.5 million for the second quarter
of 2006 compared to $32.5 million in the second quarter of 2005.
Excluding the impact of FAS 123R, on a non-GAAP basis selling,
general and administrative expenses were $35.8 million for the
second quarter of 2006 compared to $32.5 million in the second
quarter of 2005. Recent Highlights RNA analysis -- Using the
Affymetrix U133 Plus 2.0 array, a team of researchers led by the
National Cancer Institute (NCI) discovered the first gene
expression signature to distinguish Burkitt's lymphomas from large
B cell lymphomas. Published in the June 8, 2006 issue of the New
England Journal of Medicine, the discovery of this Burkitt's
lymphoma signature may enable the design of more highly specific
chemotherapy treatments. DNA analysis -- Affymetrix announced that
it will introduce a 1 million-SNP product in the first quarter of
2007. Additionally, the 500K set will be offered as a single array
by the end of the year, increasing throughput and enabling
scientists to devote more resources toward performing larger
experiments. Molecular Diagnostics -- The Company has partnered
with Epigenomics AG (Frankfurt, Prime Standard: ECX), a molecular
diagnostics company developing tests based on DNA methylation.
Epigenomics has been granted non-exclusive access to Affymetrix
microarray technology to develop and market microarray-based
in-vitro diagnostic (IVD) tests for oncology and other indications.
-- Affymetrix currently has 18 cancer signatures under development
with our Powered by Affymetrix(TM) partners. Licensing --
Invitrogen Corporation obtained a non-exclusive, worldwide license
to a number of Affymetrix patents that will allow it to manufacture
and sell spotted nucleic acid microarrays in the research field.
The Company has been engaged in an internal review, performed under
the direction of the audit committee of the board of directors, of
its historical stock option grant practices from January 1, 1997
through May 31, 2006. This internal review has revealed certain
documentation lapses in the period 1997 to 1999, including one
instance where the Company has determined that the option grant
date should have been recorded differently. The review does not
indicate that there was any pattern or practice of inappropriately
identifying grant dates with hindsight in order to provide
"discounted" or "in-the-money" grants. Based on the Company's
review to date and given the dates of the grants in question, the
Company does not anticipate any material adjustment to the
financial results of operations included in this press release.
Affymetrix' management team will host a conference call on July 31,
2006 at 2:00 p.m. PT to review its operating results for the second
quarter of 2006. A live webcast can be accessed by visiting the
Investor Relations section of the Company's website at
www.affymetrix.com. In addition, investors and other interested
parties can listen by dialing domestic: (866) 500-AFFX,
international: (706) 643-2771. A replay of this call will be
available from 5:00 p.m. PT on July 31, 2006 until 8:00 p.m. PT on
August 7, 2006 at the following numbers: domestic: (800) 642-1687,
international: (706) 645-9291. The passcode for both replays is
2926144. An archived webcast of the conference call will be
available under the Investor Relations section of the Company's
website at www.affymetrix.com. About Affymetrix Affymetrix
scientists invented the world's first high-density microarray in
1989 and began selling the first commercial microarray in 1994.
Since then, Affymetrix GeneChip(R) technology has become the
industry standard in molecular biology research. Affymetrix
technology is used by the world's top pharmaceutical, diagnostic
and biotechnology companies as well as leading academic, government
and not-for-profit research institutes. More than 1,400 systems
have been installed around the world and nearly 4,000 peer-reviewed
papers have been published using the technology. Affymetrix'
patented photolithographic manufacturing process provides the most
information capacity available today on an array, enabling
researchers to use a whole-genome approach to analyzing the
relationship between genetics and health. Affymetrix is
headquartered in Santa Clara, Calif., with manufacturing facilities
in Sacramento, Calif., and Bedford, Mass. The company maintains
important sales and marketing operations in Europe and Asia and has
about 1,100 employees worldwide. For more information about
Affymetrix, please visit the company's website at
www.affymetrix.com. Use of Non-GAAP Financial Measures In addition
to disclosing financial results calculated in accordance with GAAP,
the Company's earnings release contains non-GAAP financial measures
that exclude the effects of non-cash equity-based stock
compensation expense as a result of the Company's adoption of FAS
123R on January 1, 2006. The Company believes that the presentation
of results excluding non-cash equity-based stock compensation
expense provides meaningful supplemental information to both
management and investors that is indicative of the Company's core
operating results. The Company used the Modified Prospective Method
to adopt FAS 123R and did not restate prior year results for the
impact of employee stock option expensing. Therefore, the Company
believes these non-GAAP financial measures facilitate comparison of
operating results across reporting periods. A reconciliation
between the Company's results of operations on a GAAP and non-GAAP
basis for the periods reported is included as part of the condensed
consolidated statements of operations at the end of the Company's
earnings release. The Company uses these non-GAAP financial
measures when evaluating its financial results as well as for
internal planning and forecasting purposes. The non-GAAP financial
measures disclosed by the Company should not be considered a
substitute for or superior to financial measures calculated in
accordance with GAAP, and the financial results calculated in
accordance with GAAP and reconciliations to those financial
statements should be carefully evaluated. The non-GAAP financial
measures used by the Company may be calculated differently from,
and therefore may not be comparable to, similarly titled measures
used by other companies. All statements in this press release that
are not historical are "forward-looking statements" under the
federal securities laws. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially,
including but not limited to: risks related to the Company's
ability to achieve and sustain higher levels of revenue and
improved gross margins and operating income and reduced operating
expenses; uncertainties relating to technological approaches,
manufacturing (including risks related to achieving hoped-for
manufacturing yields and resolving manufacturing problems) and
product development; uncertainties relating to changes in senior
management personnel and structure; uncertainties related to cost
and pricing of Affymetrix products; risks relating to dependence on
collaborative partners; uncertainties relating to sole source
suppliers; uncertainties relating to FDA and other regulatory
approvals; competition; risks relating to intellectual property of
others and the uncertainties of patent protection and litigation;
and risks and uncertainties associated with the outcome of the
Company's internal review of its historical stock option grant
practices discussed in this press release. These and other risk
factors are discussed in Affymetrix' Form 10-K for the year ended
December 31, 2005 and other SEC reports, including its Form 10-Q
reports for subsequent periods. Affymetrix expressly disclaims any
obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to
reflect any change in Affymetrix' expectations or any change in
events, conditions, or circumstances on which any such statements
are based. Please Note: Affymetrix, the Affymetrix logo and
GeneChip are trademarks owned or used by Affymetrix, Inc. -0- *T -
Financial Charts to Follow - AFFYMETRIX, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED) June 30,
December 31, 2006 2005 --------- --------- (Note 1) ASSETS Current
assets: Cash and cash equivalents $ 76,031 $100,236
Available-for-sale securities - short-term 184,572 184,696 Accounts
receivable 65,049 93,028 Accounts receivable from Perlegen Sciences
2,688 4,082 Inventories 45,091 35,980 Deferred tax assets --
current portion 22,277 22,117 Prepaid expenses and other current
assets 7,594 12,622 --------- --------- Total current assets
403,302 452,761 Available-for-sale securities -- long-term 8,626 --
Property and equipment, net 122,108 85,560 Acquired technology
rights, net 59,286 61,426 Goodwill 124,063 124,498 Deferred tax
assets -- long-term portion 13,436 13,436 Notes receivable from
employees 1,853 1,824 Other assets 26,949 27,318 ---------
--------- $759,623 $766,823 ========= ========= LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and
accrued liabilities $ 62,111 $ 71,551 Deferred revenue -- current
portion 38,980 35,644 --------- --------- Total current liabilities
101,091 107,195 Deferred revenue -- long-term portion 8,505 15,606
Other long-term liabilities 4,763 4,184 Convertible notes 120,000
120,000 Stockholders' equity: Common stock 676 672 Additional
paid-in capital 627,749 624,727 Deferred stock compensation --
(10,799) Accumulated other comprehensive loss (1,397) (1,227)
Accumulated deficit (101,764) (93,535) --------- --------- Total
stockholders' equity 525,264 519,838 --------- --------- $759,623
$766,823 ========= ========= ------------------------------ Note 1:
The condensed consolidated balance sheet at December 31, 2005 has
been derived from the audited consolidated financial statements at
that date included in the Company's Form 10-K for the fiscal year
ended December 31, 2005. AFFYMETRIX, INC. CONDENSED CONSOLIDATED
STATEMENTS OF (LOSS) INCOME (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS) (UNAUDITED) Three Months Ended Six Months Ended June 30,
June 30, -------------------- --------------------- 2006 2005 2006
2005 --------- -------- --------- --------- Revenue Product sales $
61,043 $69,213 $127,015 $142,764 Product related revenue 14,407
10,934 27,650 22,251 --------- -------- --------- --------- Total
product and product related revenue 75,450 80,147 154,665 165,015
Royalties and other revenue 2,419 1,993 4,294 3,553 Revenue from
Perlegen Sciences 2,197 1,911 7,498 4,098 --------- --------
--------- --------- Total revenue 80,066 84,051 166,457 172,666
--------- -------- --------- --------- Costs and expenses: Cost of
product sales 19,646 17,952 38,720 37,231 Cost of product related
revenue 7,412 2,459 13,853 4,964 Cost of revenue from Perlegen
Sciences 1,074 1,750 2,658 2,992 Research and development 21,597
20,799 45,098 37,889 Selling, general and administrative 39,476
32,540 78,242 62,137 Stock-based compensation -- 33 -- 116
--------- -------- --------- --------- Total costs and expenses
89,205 75,533 178,571 145,329 --------- -------- ---------
--------- (Loss) income from operations (9,139) 8,518 (12,114)
27,337 Interest income and other, net 3,720 953 8,007 1,667
Interest expense (400) (289) (824) (716) --------- --------
--------- --------- (Loss) income before income taxes (5,819) 9,182
(4,931) 28,288 Income tax provision (4,235) (1,371) (3,298) (4,259)
--------- -------- --------- --------- Net (loss) income $(10,054)
$ 7,811 $ (8,229) $ 24,029 ========= ======== ========= =========
Basic net (loss) income per common share $(0.15) $ 0.12 $ (0.12) $
0.38 ========= ======== ========= ========= Diluted net (loss)
income per common share $(0.15) $ 0.12 $ (0.12) $ 0.36 =========
======== ========= ========= Shares used in computing basic net
(loss) income per share 67,313 63,214 67,275 62,785 =========
======== ========= ========= Shares used in computing diluted net
(loss) income per share 67,313 70,227 67,275 69,703 =========
======== ========= ========= AFFYMETRIX, INC. RECONCILIATION OF
GAAP TO NON-GAAP RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS) (UNAUDITED) Three Months Ended June 30, 2006
------------------------------ GAAP Adjustments Non-GAAP ---------
----------- -------- Revenue Product sales $ 61,043 $ -- $61,043
Product related revenue 14,407 -- 14,407 --------- -----------
-------- Total product and product related revenue 75,450 -- 75,450
Royalties and other revenue 2,419 -- 2,419 Revenue from Perlegen
Sciences 2,197 -- 2,197 --------- ----------- -------- Total
revenue 80,066 -- 80,066 --------- ----------- -------- Costs and
expenses: Cost of product sales(1) 19,646 (377) 19,269 Cost of
product related revenue 7,412 -- 7,412 Cost of revenue from
Perlegen Sciences 1,074 -- 1,074 Research and development(1) 21,597
(1,042) 20,555 Selling, general and administrative(1) 39,476
(3,700) 35,776 Stock-based compensation(2) -- -- -- ---------
----------- -------- Total costs and expenses 89,205 (5,119) 84,086
--------- ----------- -------- (Loss) income from operations
(9,139) 5,119 (4,020) Interest income and other, net 3,720 -- 3,720
Interest expense (400) -- (400) --------- ----------- --------
(Loss) income before income taxes (5,819) 5,119 (700) Income tax
provision(3) (4,235) (1,257) (5,492) --------- ----------- --------
Net (loss) income $(10,054) $ 3,862 $(6,192) ========= ===========
======== Basic net (loss) income per common share $ (0.15) $ (0.09)
========= ======== Diluted net (loss) income per common share $
(0.15) $ (0.09) ========= ======== Shares used in computing basic
net (loss) income per share 67,313 67,313 ========= ======== Shares
used in computing diluted net (loss) income per share(4) 67,313
67,313 ========= ======== Three Months Ended June 30, 2005
------------------------------ GAAP Adjustments Non-GAAP --------
----------- -------- Revenue Product sales $69,213 $ -- $69,213
Product related revenue 10,934 -- 10,934 -------- -----------
-------- Total product and product related revenue 80,147 -- 80,147
Royalties and other revenue 1,993 -- 1,993 Revenue from Perlegen
Sciences 1,911 -- 1,911 -------- ----------- -------- Total revenue
84,051 -- 84,051 -------- ----------- -------- Costs and expenses:
Cost of product sales(1) 17,952 -- 17,952 Cost of product related
revenue 2,459 -- 2,459 Cost of revenue from Perlegen Sciences 1,750
-- 1,750 Research and development(1) 20,799 -- 20,799 Selling,
general and administrative(1) 32,540 -- 32,540 Stock-based
compensation(2) 33 (33) -- -------- ----------- -------- Total
costs and expenses 75,533 (33) 75,500 -------- ----------- --------
(Loss) income from operations 8,518 33 8,551 Interest income and
other, net 953 -- 953 Interest expense (289) -- (289) --------
----------- -------- (Loss) income before income taxes 9,182 33
9,215 Income tax provision(3) (1,371) (5) (1,376) --------
----------- -------- Net (loss) income $ 7,811 $ 28 $ 7,839
======== =========== ======== Basic net (loss) income per common
share $ 0.12 $ 0.12 ======== ======== Diluted net (loss) income per
common share $ 0.12 $ 0.12 ======== ======== Shares used in
computing basic net (loss) income per share 63,214 63,214 ========
======== Shares used in computing diluted net (loss) income per
share(4) 70,227 70,227 ======== ======== Explanations for Non-GAAP
adjustments included in table above: (1) For the three months ended
June 30, 2006, the Company has added back stock-based compensation
expense recorded under FAS 123R to compute its non-GAAP operating
results. (2) For the three months ended June 30, 2005, the Company
has added back stock-based compensation expense recorded under
prior accounting standards related to restricted stock granted to
certain employees to compute its non-GAAP operating results and
facilitate comparison of operating results across reporting
periods. (3) Amount reflects the estimated tax impact on the above
noted non-GAAP adjustments. (4) For the three months ended June 30,
2006, the Company did not adjust the shares used in computing
non-GAAP diluted net income per share to conform to what the
diluted shares would had been had it applied prior accounting
standards as the Company was in a loss position. AFFYMETRIX, INC.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS OF OPERATIONS (IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Six Months Ended
June 30, 2006 --------------------------------- GAAP Adjustments
Non-GAAP --------- ----------- --------- Revenue Product sales
$127,015 $ -- $127,015 Product related revenue 27,650 -- 27,650
--------- ----------- --------- Total product and product related
revenue 154,665 -- 154,665 Royalties and other revenue 4,294 --
4,294 Revenue from Perlegen Sciences 7,498 -- 7,498 ---------
----------- --------- Total revenue 166,457 -- 166,457 ---------
----------- --------- Costs and expenses: Cost of product sales(1)
38,720 (718) 38,002 Cost of product related revenue 13,853 --
13,853 Cost of revenue from Perlegen Sciences 2,658 -- 2,658
Research and development(1) 45,098 (2,104) 42,994 Selling, general
and administrative(1) 78,242 (6,060) 72,182 Stock-based
compensation(2) -- -- -- --------- ----------- --------- Total
costs and expenses 178,571 (8,882) 169,689 --------- -----------
--------- (Loss) income from operations (12,114) 8,882 (3,232)
Interest income and other, net 8,007 -- 8,007 Interest expense
(824) -- (824) --------- ----------- --------- (Loss) income before
income taxes (4,931) 8,882 3,951 Income tax provision(3) (3,298)
(2,615) (5,913) --------- ----------- --------- Net (loss) income $
(8,229) $ 6,267 $ (1,962) ========= =========== ========= Basic net
(loss) income per common share $ (0.12) $ (0.03) =========
========= Diluted net (loss) income per common share $ (0.12) $
(0.03) ========= ========= Shares used in computing basic net
(loss) income per share 67,275 67,275 ========= ========= Shares
used in computing diluted net (loss) income per share(4) 67,275
67,275 ========= ========= Six Months Ended June 30, 2005
---------------------------------- GAAP Adjustments Non-GAAP
--------- ----------- --------- Revenue Product sales $142,764 $ --
$142,764 Product related revenue 22,251 -- 22,251 ---------
----------- --------- Total product and product related revenue
165,015 -- 165,015 Royalties and other revenue 3,553 -- 3,553
Revenue from Perlegen Sciences 4,098 -- 4,098 --------- -----------
--------- Total revenue 172,666 -- 172,666 --------- -----------
--------- Costs and expenses: Cost of product sales(1) 37,231 --
37,231 Cost of product related revenue 4,964 -- 4,964 Cost of
revenue from Perlegen Sciences 2,992 -- 2,992 Research and
development(1) 37,889 -- 37,889 Selling, general and
administrative(1) 62,137 -- 62,137 Stock-based compensation(2) 116
(116) -- --------- ----------- --------- Total costs and expenses
145,329 (116) 145,213 --------- ----------- --------- (Loss) income
from operations 27,337 116 27,453 Interest income and other, net
1,667 -- 1,667 Interest expense (716) -- (716) ---------
----------- --------- (Loss) income before income taxes 28,288 116
28,404 Income tax provision(3) (4,259) (17) (4,276) ---------
----------- --------- Net (loss) income $ 24,029 $ 99 $ 24,128
========= =========== ========= Basic net (loss) income per common
share $ 0.38 $ 0.38 ========= ========= Diluted net (loss) income
per common share $ 0.36 $ 0.36 ========= ========= Shares used in
computing basic net (loss) income per share 62,785 62,785 =========
========= Shares used in computing diluted net (loss) income per
share(4) 69,703 69,703 ========= ========= Explanations for
Non-GAAP adjustments included in table above: (1) For the six
months ended June 30, 2006, the Company has added back stock-based
compensation expense recorded under FAS 123R to compute its
non-GAAP operating results. (2) For the six months ended June 30,
2005, the Company has added back stock-based compensation expense
recorded under prior accounting standards related to restricted
stock granted to certain employees and a fully vested restricted
stock grant to a non-employee to compute its non-GAAP operating
results and facilitate comparison of operating results across
reporting periods. (3) Amount reflects the estimated tax impact on
the above noted non- GAAP adjustments. (4) For the six months ended
June 30, 2006, the Company did not adjust the shares used in
computing non-GAAP diluted net income per share to conform to what
the diluted shares would had been had it applied prior accounting
standards as the Company was in a loss position. *T
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