AFFX Affymetrix, Inc.

Affymetrix, Inc., (NASDAQ:AFFX) today reported its operating results for the second quarter of 2012. Total revenue for the quarter was $66.4 million, including approximately $1.4 million in revenue from eBioscience following the close of Affymetrix’s acquisition of the company on June 25. This compares to total revenue of $64.7 million for the same period of 2011.

The Company reported net income of approximately $30.9 million, or $0.43 per diluted share, in the second quarter of 2012 compared to a net loss of $3.7 million, or $0.05 per diluted share, in the same period of 2011. The second quarter of 2012 included the following one-time items: (1) an income tax benefit related to the eBioscience acquisition of $44.7 million, (2) acquisition-related non-recurring costs of $4.7 million, (3) a stock compensation charge of $8.3 million related to the acceleration of stock options held under eBioscience equity incentive plans, and (4) the recovery of a $2.2 million note that had been provided for in full. Excluding these one-time items and recurring amortization of acquired intangible assets and release of step-up in inventory fair value, the Company would have reported a net loss of $1.2 million, or $0.02 per diluted share. This compares to a net loss of $2.1 million, or $0.03 per diluted share, in the same period of 2011 excluding recurring amortization of acquired intangible assets.

Total revenue for the second quarter of 2012 was $66.4 million, comprised of product revenue of $58.5 million and service and other revenue of $7.9 million. Product revenue included consumable revenue of $53.3 million, instrument revenue of $3.8 million, and revenue from eBioscience of $1.4 million. This compares to total revenue of $64.7 million in the second quarter of 2011, comprised of product revenue of $58.1 million and service and other revenue of $6.6 million. Product revenue included consumable revenue of $54.3 million and instrument revenue of $3.8 million.

For the second quarter of 2012, cost of product sales, including eBioscience, was $24.4 million, as compared to $22.4 million in the same period of 2011. Product gross margin was 58%, as compared to 62% in the same period of 2011. Cost of services and other was $3.3 million compared to $3.4 million in the same period of 2011.

For the second quarter of 2012, operating expenses were $54.1 million, including acquisition-related non-recurring costs of $4.7 million and a stock compensation charge of $8.3 million related to the acceleration of stock options held under eBioscience equity incentive plans. This compared to operating expenses of $42.0 million in the same period of 2011.

“During the second quarter we completed the acquisition of eBioscience which allows us to access significant new markets to drive future growth and profitability,” said Frank Witney, president and chief executive officer. “In addition, we generated double-digit growth in a number of our key business areas as we continue on our path to return to overall growth. We exited the quarter with gross cash-on-hand of about $38 million and we expect to generate cash in the second half of the year after interest and principal payments.”

Second quarter highlights:

• On June 25th, the Company announced that it had completed the acquisition of eBioscience, a privately-held company with an industry-leading position in flow cytometry and immunoassay reagents for immunology and oncology research and diagnostics. The acquisition enhances Affymetrix’s product portfolio and expands its addressable markets by more than $2.5 billion per year. Through the acquisition of eBioscience, the Company can now offer a blue-chip portfolio of cell-based assays that diversifies the business and opens up important new avenues for growth. With eBioscience’s portfolio of profitable and growing reagents, the combined Company intends to introduce novel molecular solutions to enter sizable new markets.
• Signed a worldwide distribution agreement for ScreenCell’s isolation devices and dilution buffers, designed for the collection of Circulating Tumor Cells (CTCs) in peripheral blood. The Company expects this platform will help to improve disease detection, enabling researchers in translational sciences to further examine the impact on treatment, management and outcome in cancer.
• Announced a world-wide collaboration with Leica Microsystems that automates Affymetrix’s QuantiGene ViewRNA ISH Tissue Assay on the Leica BOND RX staining platform for research applications. This partnership provides researchers with a powerful automated everyday solution for drug-discovery, translational research, and the development of new companion diagnostic tests for personalized medicine by significantly reducing assay time for single-copy RNA in situ hybridization (ISH) analysis. The highly-sensitive QuantiGene® ViewRNA ISH Tissue Assay assists drug discovery and translation research by enabling researchers to measure RNA expression directly in a tissue section at single-copy sensitivity. Over 1,000 standard probes are already available and it only takes a few days to produce a customized probe for a new gene target. The Leica BOND RX system automates the staining process bringing all the benefits of consistency, reduced labor, and speed. This means researchers can now have access to same-day assay completion and, with a standardized staining protocol, rapid set-up for any probe.
• Announced a research collaboration and licensing agreement with Massachusetts General Hospital to co-develop new cancer biomarker tests using Affymetrix’s QuantiGene® ViewRNA Assay platform, an in situ hybridization assay capable of single transcript in single-cell detection. As part of this agreement, Affymetrix has the rights to commercialize the new biomarker tests as an outcome of this collaboration.

Affymetrix's management team will host a conference call on July 31, 2012 at 2:00 p.m. PT to review its operating results for the second quarter of 2012. 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: (877) 407-8291, international: (201) 689-8345.

A replay of this call will be available from 5:00 p.m. PT on July 31, 2012 until 8:00 p.m. PT on August 8, 2012 at the following numbers: domestic: (877) 660-6853, international: (201) 612-7415. Please enter account #376 and conference passcode 397718 to access the replay. An archived webcast of the conference call will be available under the Investor Relations section of the Company's website.

About Affymetrix

Affymetrix technology is used by the world's top pharmaceutical, diagnostic, and biotechnology companies, as well as leading academic, government, and nonprofit research institutes. More than 2,200 systems have been shipped around the world and more than 25,000 peer-reviewed papers have been published using the technology. Affymetrix is headquartered in Santa Clara, California, and has manufacturing facilities in Cleveland, Ohio, and Singapore. eBioscience is headquartered in San Diego, California and has manufacturing facilities in San Diego and Vienna, Austria. Including eBioscience, the Company has about 1,200 employees worldwide and maintains sales and distribution operations across Europe, Asia and Latin America.

All statements in this press release that are not historical are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act as amended, including statements regarding Affymetrix's "expectations," "beliefs," "hopes," "intentions," "strategies" or the like. Such statements are subject to risks and uncertainties that could cause actual results to differ materially for Affymetrix from those projected, including, but not limited to: Affymetrix's ability to timely and successfully integrate and realize the anticipated strategic benefits and costs savings or other synergies of the acquisition of eBioscience in a cost-effective manner while minimizing the disruption to its business; risks that eBioscience’s future performance may not be consistent with its historical performance; risks relating to Affymetrix's ability to make scheduled payments of the principal of, to pay interest on or to refinance its indebtedness; risks relating to Affymetrix's ability to successfully develop and commercialize new products, including its ability to successfully develop and commercialize novel molecular solutions based on eBioscience’s portfolio of reagents; risks relating to past and future acquisitions, including the ability of Affymetrix to successfully integrate such acquisitions into its existing business; risks of Affymetrix's ability to achieve and sustain higher levels of revenue, higher gross margins and reduced operating expenses; risks relating to Affymetrix’s ability to generate cash in the second half of 2012 after interest and principal payments; uncertainties relating to technological approaches; risks associated with manufacturing and product development; personnel retention; uncertainties relating to cost and pricing of Affymetrix products; 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. These and other risk factors are discussed in Affymetrix's Annual Report on Form 10-K for the year ended December 31, 2011, and other SEC reports. 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's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.

In addition to providing financial measures based on generally accepted accounting principles in the United States (GAAP), Affymetrix has disclosed in this press release its net loss and net loss per share for the second quarter of 2012 excluding specified one-time items related to its acquisition of eBioscience, recurring amortization of acquired intangible assets and release of step-up in the inventory fair value, as well as its net loss and loss per share for the second quarter of 2011 excluding amortization of acquired intangible assets. Affymetrix has determined to disclose this financial information to investors because it believes it will be useful, as a supplement to GAAP measures, in comparing Affymetrix’ operating performance in the second quarter of 2012 to the prior-year period. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Affymetrix has provided a reconciliation of these financial measures to net income (loss).

PLEASE NOTE:

Affymetrix, the Affymetrix logo, GeneChip, and all other trademarks are the property of Affymetrix, Inc.

AFFYMETRIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

    June 30, December 31,   2012     2011   (Unaudited) (See Note 1) ASSETS: Current assets: Cash and cash equivalents $ 26,732 $ 201,937 Restricted cash 682 692 Available-for-sale securities—short-term portion 2,239 7,937 Accounts receivable, net 53,360 44,021 Inventories 91,966 42,851 Deferred tax assets—short-term portion 342 364 Property and equipment, net—held for sale 9,000 9,000 Prepaid expenses and other current assets   14,522     7,785   Total current assets 198,843 314,587 Available-for-sale securities—long-term portion 7,912 54,501 Property and equipment, net 34,142 30,583 Goodwill 140,325 - Intangible assets, net 184,857 29,525 Deferred tax assets—long-term portion 5,806 450 Other long-term assets   17,044     8,369   Total assets $ 588,929   $ 438,015     LIABILITIES AND STOCKHOLDERS’ EQUITY: Current liabilities: Accounts payable and accrued liabilities $ 54,658 $ 44,774 Term loan—short-term portion 6,375 - Deferred revenue—short-term portion   10,806     9,852   Total current liabilities 71,839 54,626 Deferred revenue—long-term portion 3,727 3,959 Convertible notes 105,000 95,469 Term loan—long-term portion 78,625 - Other long-term liabilities 23,703 9,127 Stockholders’ equity: Common stock 706 704 Additional paid-in capital 755,000 750,332 Accumulated other comprehensive income 2,349 2,492 Accumulated deficit   (452,020 )   (478,694 ) Total stockholders’ equity   306,035     274,834   Total liabilities and stockholders’ equity $ 588,929   $ 438,015    

Note 1: The condensed consolidated balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

 

AFFYMETRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

        Three Months Ended Six Months Ended June 30, June 30,   2012     2011     2012     2011   REVENUE: Product sales $ 58,505 $ 58,144 $ 116,996 $ 125,607 Services and other   7,898     6,515     14,654     12,776   Total revenue   66,403     64,659     131,650     138,383   COSTS AND EXPENSES: Cost of product sales 24,363 22,367 47,928 46,266 Cost of services and other 3,319 3,426 7,098 6,626 Research and development 13,588 15,298 26,919 31,566 Selling, general and administrative   40,526     26,675     68,450     53,887   Total costs and expenses   81,796     67,766     150,395     138,345   (Loss) income from operations (15,393 ) (3,107 ) (18,745 ) 38 Interest income and other, net 2,276 499 2,302 (1,395 ) Interest expense   218     937     1,198     1,875   Loss before income taxes (13,335 ) (3,545 ) (17,641 ) (3,232 ) Income tax (benefit) provision   (44,226 )   127     (44,315 )   401   Net income (loss) $ 30,891   $ (3,672 ) $ 26,674   $ (3,633 )   Basic net income (loss) per common share $ 0.44   $ (0.05 ) $ 0.38   $ (0.05 ) Diluted net income (loss) per common share $ 0.43   $ (0.05 ) $ 0.38   $ (0.05 )  

Shares used in computing basic net income (loss) per common share

 

70,161

   

69,504

   

70,069

   

70,700

 

Shares used in computing diluted net income (loss) per common share

 

71,918

   

69,504

   

72,263

   

70,700

   

AFFYMETRIX, INC.

ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME (LOSS)

(IN THOUSANDS)

(UNAUDITED)

    Three Months Ended Six Months Ended June 30, June 30,   2012       2011     2012       2011   GAAP net income (loss) - diluted $ 30,891 $ (3,672 ) $ 26,674 $ (3,633 ) Amortization of inventory fair value adjustment 319 - 319 - Amortization of acquired intangible assets 1,543 1,544 2,903 3,088 Acquisition-related transaction costs 4,710 - 5,767 - Share-based compensation charge related to acquisition 8,265 - 8,265 - Recovery of notes receivable previously reserved for (2,215 ) - (2,215 ) - Impairment of non-marketable investments - - - 1,157 Income tax benefit related to acquisition   (44,704 )   -     (44,704 )   -   Non-GAAP net income (loss) - diluted   (1,191 )   (2,128 )   (2,991 )   612