For Pacific Biosciences of California, a First Quarter Hurt by Shipment Delays

There wasn't much good news when Pacific Biosciences of California (NASDAQ: PACB) reported its 2017 fourth-quarter results in February. Both top and bottom lines for the gene-sequencing company deteriorated. However, a big sale in January provided some hope that the first quarter would be better.

PacBio announced its first-quarter results after the market closed on Wednesday. Those hopes of a better performance weren't realized, though. Here are the highlights from the company's first-quarter update:

DNA double helix

Image source: Getty Images.

Pacific Biosciences of California results: The raw numbers

Metric	Q1 2018	Q1 2017	Year-Over-Year Change
Sales	$19.4 million	$24.9 million	(22.3%)
Net income from continuing operations	($24.2 million)	($23.9 million)	N/A
Earnings (loss) per share (EPS)	($0.20)	($0.26)	N/A

Data Source: Pacific Biosciences of California.

What happened with Pacific Biosciences of California this quarter?

Nearly everything went downhill for PacBio again in the first quarter. Product revenue declined 23.5% year over year to $16.3 million. Service and other revenue fell 14.9% from the prior-year period to $3.1 million.

The question is: What happened with that sale of 10 additional Sequel next-generation sequencing systems to BGI Genomics that PacBio announced in January and another order for 10 units from another Chinese genomic customer, Annoroad? PacBio CEO Mike Hunkapiller said that the company wasn't able to ship most of those systems in the first quarter because the customer facilities weren't ready yet.

There was another factor behind the negative year-over-year sales comparison. In the first quarter of 2017, PacBio experienced a spike in Sequel systems shipments over the prior-year period due to limited supplies of SMRT cells that caused a backlog to build up in 2016.

PacBio did have a little good news, though, buried in its product revenue figure. Consumable revenue increased nearly 6% year over year to $9.1 million. However, consumable revenue declined even more than expected from the fourth quarter of 2017, with a significant number of PacBio's customers in Asia halting gene-sequencing during the celebration of the Lunar New Year in February.

The company kept spending under control in the first quarter, reporting operating expenses of $31.2 million -- down 3.1% from the prior-year period. However, the even steeper revenue decline caused PacBio's bottom line to worsen from the first quarter of 2017.

PacBio's net loss per share looked better than the loss in the prior-year period -- at least at first glance. The reason, though, was that the company has issued additional shares over the last 12 months.

The company ended the first quarter with cash, cash equivalents, and investments, excluding restricted cash, totaling $79.3 million. At the end of 2017, PacBio reported a cash stockpile of $62.9 million. The additional cash stemmed from a stock offering conducted in the first quarter.

What management had to say

Hunkapiller said:

We are excited about the prospects for our business as our customers are gaining momentum with the use of their Sequel Systems. Our Q1 financial results were somewhat mixed, but the fundamentals to the business are healthy and robust, as evidenced by growing system utilization and the multiple large instrument orders we received during the quarter. We have a great team of people in place who are committed to delivering successful results this year and beyond.

Looking forward

There are reasons to expect better results from PacBio in future quarters. The company enjoyed the strongest quarter for new orders of its gene-sequencing systems since 2015 with the BGI Genomics and Annoroad deals. Consumables revenue should continue to pick up as more systems are implemented. Increasing sales should also enable PacBio to reduce its cash burn. However, the company's quarterly results are likely to continue to be somewhat lumpy.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Pacific Biosciences of California. The Motley Fool has a disclosure policy.