Affymetrix Management Discusses Q2 2012 Results - Earnings Call Transcript

Affymetrix (AFFX)

Q2 2012 Earnings Call

July 31, 2012 5:00 pm ET

Executives

Doug Farrell - Vice President of Investor Relations

Franklin R. Witney - Chief Executive Officer, President and Director

Timothy C. Barabe - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Matthew M. Notarianni - Robert W. Baird & Co. Incorporated, Research Division

David C. Clair - Piper Jaffray Companies, Research Division

Aaron Gorin - Morgan Stanley, Research Division

Joel Kaufman - Goldman Sachs Group Inc., Research Division

Eric Criscuolo - Mizuho Securities USA Inc., Research Division

Rafael Tejada

Zarak Khurshid - Wedbush Securities Inc., Research Division

Shaun Rodriguez - Cowen and Company, LLC, Research Division

Presentation

Operator

Greetings, and welcome to the Affymetrix Second Quarter 2012 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Doug Farrell, Vice President of Investor Relations for Affymetrix. Thank you, Mr. Farrell. You may begin.

Doug Farrell

Thank you, operator. Good afternoon, everyone. Welcome to Affymetrix's Second Quarter 2012 Conference Call. At the close of the market today, we released our operating results for the second quarter. If you haven't had a chance to review the second quarter press release yet, you can obtain one from our website at affymetrix.com.

Joining me on the call today are Frank Witney, our CEO and President; as well as Tim Barabe, our Chief Financial Officer. I'd like to remind callers that our discussion may include forward-looking statements about the company's future expectations, plans and prospects. We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. Important factors, which could cause actual results to differ from those in our forward-looking statements, are detailed in our filings with the

Securities and Exchange Commission. It's our intent that these forward-looking statements be protected

under Safe Harbor created by the Private Securities Litigation Reform Act of 1995. We encourage you to review these documents carefully as forward-looking statements are made as of today's date, and we make no obligation to update this information.

Additionally, we'll be discussing GAAP and non-GAAP measures. A full reconciliation of the non-GAAP measures to GAAP can be found in today's press release. As a reminder, today's call is also being recorded, and the audio from the call is being broadcast over the Internet on our web page at affymetrix.com.

So with that, let me turn the call over to Frank.

Franklin R. Witney

Thanks, Doug, and good afternoon, everyone. It was only 12 months ago when I joined Affymetrix as CEO and began to lay out my vision for returning the company to growth and sustained profitability. The first phase of this plan involve refocusing the company on a specific set of business objectives and strengthening the management team. This phase is essentially complete at this point. we have reinvigorated the team by recruiting a number of proven industry veterans in our commercial organization, including new global leadership for marketing and sales, as well as new geographic leaders in Europe, Japan and most recently, in North America.

We refocused our R&D and realigned our resources with the market opportunities where we see the most robust growth opportunities and sustainable competitive advantage. Some examples of these include cytogenetics and our QuantiGene product line, where we are generating double-digit revenue growth.

We recently diversified the business and entered significant new markets through the acquisition of eBioscience, a leading supplier of flow cytometry and immunoassays reagents. As most of you know, we closed our acquisition of eBio on Monday, June 25. So our second quarter results include 4 days of sales, or approximately $1.4 million in revenue from eBio.

The integration was on track and progressing smoothly. As a reminder, we intend to run eBio as our fourth business unit out of San Diego, and the teams are working hard to create additional operating leverage going forward. I look forward to updating you on specifics over the next several quarters.

We've put comprehensive retention plans into place, and the eBio team knows that it is an important part of our future growth opportunities. Now that the eBio team is part of a public company, we're able to offer equity incentives to help create long-term value that directly aligns with our employee interest -- directly aligns our employees' interests with those of our shareholders.

Before I move into a discussion of our progress by business unit, I'd like to make a few general observations. Now that we've closed eBio, we'd expect the mix of our business in the second half of the year to be roughly 36% gene expression, 24% genetic analysis and clinical, 22% eBio, 10% life science reagents and 8% general corporate that includes licensing and royalties and field services.

During the second quarter, we generated consistent performance across all of our major geographic regions, and importantly, began to see improvement in North America, which has been our most challenged market. During the second quarter, North America was up about 1%, and Europe and Asia were down 1% and 2%, respectively, on a reported basis. While the trends in Europe and Asia are similar for the first half of the year, North America improved significantly from being down 8% for the first half to being slightly up in the second quarter.

From a customer mix perspective, academic revenue was down by 8%, against the backdrop of more challenging macro conditions, while industrial revenue was up by 8%, relative to the prior year.

Turning now to gene expression. Tim will review some specifics later in the call, but qualitatively, we're pleased with the performance of our expression business unit for the quarter. Expression was down 8% for the quarter versus 14% year-to-date, indicating we continue to make progress stabilizing the business.

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