AGNT: update of BIO CEO and earnings CCs, with more color on the Jones Chromatography munch.
Having done cost cutting to the tune of 13% of its work force in the prior quarter, but still with a lot of cash, AGNT went hunting for a munch that would create a complete menu for chemists. AGNT found Jones, a private Irish company that is a slow, steady grower (low teens); since they've had no access to public capital markets that strategy has been required. Cash flow positive, it has a sales presence in Europe that should speed AGNT's entry into that market. Of the 118 employees, 11 are in the US, half of them sales reps. Yet the US accounted for 1/3 of Jones' revenue. They have roughly 10 folks doing direct sales in the UK, but use distributors on the continent. The munch is accretive to earnings, and the up front cash is only 30% of the total deal, with the other 60% to be paid over the next two years, and the remaining 10% in stock.
The munch drastically changes the mix at AGNT. Consumables will go from 20% to 35% to 41% ('00 to '01 to '02) of revenue. The mostly cash deal finesses goodwill issues that seem to be plaguing companies that munched with stock these days. However, there is goodwill write down coming from the Camille munch, from about 5 to 7 million, to be disclosed in the 10-K as a one time charge (no longer amortized per FASB 121).
In the quarter, consumables were 23% and instruments 67%, with the remaining 10% in service revenue.
The Surveyor/Endeavor line accounted for 21%, the Quest for 22%, the Trident for 14%, while other instruments made up the remaining 10%. Geographically, the US accounted for 70% of sales, Europe 20%, and Japan 10%.
Earnings were ahead of Q3 guidance by a few hundred thousand. Gross Margins were 41% for the quarter, impacted by the cost cutting. Also adding to expenses were a period of paying dual rent while moving, as well as R&D consulting for process control enhancements to some of the instruments (this last doesn't sound like a one-time item to me, though).
AGNT says they are in fact working on four projects with Pfizer, so more could come out of that collaboration than originally anticipated. A new revenue line, "contract research" will reflect revenue from Pfizer under that deal. The first product launch from that deal will be before year end. Jones was munched for near term diversification and extended sales reach, but in the long term (12 - 18 months), there will be some systems integration of the two companies' products.
Guidance: My notes from last year said breakeven about now. Given the life science CapEx blahs, the goodwill write down (versus amortization no longer allowed by FASB), and cost cutting charges(800K in charges: 320K of that related to work force reduction, the rest inventory write offs), that has now been pushed out over a year to the second half of '03. Ouch, I guess that's why it's trading where it is!
Jones GMs are 49%, AGNT expects '02 margins for the company as a whole to be 46%. CapEx to be ~$22 million. Assuming Jones is munched by the end of February (recent PR says it was done by the 20th), revenue including Jones for the month of March and on is expected to be $30 to $32 million. The mix is expected to be 47% instruments, over 40% consumables, 6% service, and 6% contract research from Pfizer. Net loss expected to be $8 to $9 million. For Q102 revenue $4.5 to $4.8 million and a loss of $2.7 to $3 million. Having munched Jones quickly, AGNT now has about 250 employees.
AGNT is trading for less than cash. Subtract roughly $5 million for the initial munch from the $57.6 million given in the table, and and bump the shares up to about 20 million for the 10% in stock for the munch and option exercises, etc. You still get about $2.50/share. If one assumes that biotechs and pharmas will one day -- maybe even soon -- buy equipment, this seems very cheap to me -- not to mention the theory that consumables keep selling even during capex slowdowns. I bought a little AGNT a few days ago at $2.35.
Next up: tomorrow or next week, DPII, BDAL, and IVGN (assuming IVGN doesn't charge long distance to hear their conference call, particularly annoying since they're based in my town!)
Cheers, Tuck |
