Affymetrix (NASDAQ:AFFX)
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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.
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- 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.
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