Q1 2010 Earnings Call Transcript
April 21, 2010 5:00 pm ET
Doug Farrell – VP, IR
Kevin King – President and CEO
Tim Barabe – EVP and CFO
Bill Quirk – Piper Jaffray
Marshall Urist – Morgan Stanley
Brigham Hyde – Cowen & Company
Ross Muken – Deutsche Bank
Peter Lawson – Thomas Weisel
Sanjay Chawla – JP Morgan
Jon Groberg – Macquarie Capital
Isaac Ro – Leerink Swann
Derik De Bruin – UBS
Quintin Lai – Robert W. Baird
Previous Statements by AFFX
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(Starts Abruptly) Net loss for the quarter was $9.6 million or $0.14 per diluted share, which included an impairment charge of about $4.9 million or $0.07 per diluted share related to a non-marketable investment.
This compares to a net loss of $25.2 million, or $0.37 per diluted share in the first quarter of 2009, which included pre-tax restructuring charges of $2 million, or $0.03 per diluted share. Fully diluted shares for the first quarter of 2010 were 67.9 million shares, compared to 68.6 million in the first quarter of 2009.
Turning to gross margin, in the first quarter total gross margin expanded to 58.8%, representing an increase of 12 percentage points over the prior year quarter. Product gross margin for the quarter was 61.3%, as compared to 46.9% in the first quarter of 2009. This improvement was driven large by the completion of our manufacturing consolidation, stable pricing and the introduction of new products.
Total operating expenses for the first quarter were $49.9 million, which compares to $55.3 million for the same period last year, excluding restructuring expenses of $2.0 million. Our continued discipline on reducing operating expenses helped to sharply reduce our net loss relative to the prior year.
First quarter 2010 R&D expenses were $18.5 million, compared to $21.3 million for last year, down 13%. SG&A expenses in the first quarter were $31.4 million, compared to $34.0 million for last year, down more than 7%.
The company recorded net interest and other expense of approximately $6 million in the first quarter, 2010, compared to a net expense of $4 million in the prior year quarter, primarily due to the previously mentioned $4.9 million impairment charge on the non-marketable security, as well as lower interest rates on our marketable securities offset by effective hedging on foreign currency and some gains in our marketable securities portfolio.
In terms of income taxes in the first quarter, we recognized income tax expense of approximately 900,000, our expense for 2010 -- first quarter 2010 is principally driven by foreign income taxes and foreign withholding taxes.
To facilitate the analysis of the company's core operating results, I would like to summarize non-core adjustments to our net loss for the quarter and their impact on pre-tax earnings per share.
In aggregate, these adjustments amounted to $7.1 million, or $0.10 per share and include within gross margin $600,000 or $0.01 per share, in the amortization of acquisition-related intangibles.
In operating expenses $1.6 million or $0.02 per share including $1.0 million related to acquisition of -- amortization of acquisition-related intangibles, $350,000 for asset impairments and about $200,000 for a true materials contingent consideration. Again, in non-operating income loss there was $4.9 million or $0.07 per share related to the impairment.
Let me take a moment to summarize our balance sheet. We ended the first quarter of 2010 with total cash and available for sale securities of approximately $347.6 million, compared to $346.6 million at the end of the fourth quarter of 2009. In the first quarter the company generated $5.7 million in positive cash flow from operations.
First quarter DSOs were flat at 65 versus the prior quarter. Capital expenditures were about $3.2 million and depreciation and amortization was approximately $8.7 million, including the amortization of acquired intangible assets.
Operating expenses for the first quarter included $2.3 million of stock compensation expense, compared to $1.7 million in the first quarter of 2009.
Net inventory for the first quarter of 2010 was $56.2 million, compared to $54.5 million in the fourth quarter of 2009, primarily driven by increased instrument inventories to support recent launches.
Turning to guidance, we believe the 2010 is shaping up to be a good year for Affymetrix. We entered the year with a number of recently introduced products that are helping us to grow the business and return to profitability. We expect total revenue for the second quarter to be in the range of $80 to $82 million.
This revenue target includes continued strong product growth similar to the first quarter, offset by an expected continued decline in scientific services revenue of around $7 to $8 million.
Gross margins for the second quarter are expected to be about 58% in line with the first quarter. For the full year, we expect to achieve an average gross margin of approximately 60%. Of course actual gross margin will vary as a function of total revenue and mix, but longer term we believe that an overall gross margin in the low to mid 60% range is a good and achievable target.
On our last call we told you that we expect to see operating expenses decline in both -- in terms of absolute spending and as a percentage of revenue. We made great progress in the first quarter and we expect to realize continued leverage as the year advances. For the second quarter we expect operating expenses to be in the $50 to $51 million range.