What to Watch When Fluidigm Reports Q1 Earnings

After beginning 2019 in relative obscurity, shares of Fluidigm (FLDM -5.47%) have jumped 47% year to date. The quickly appreciating stock price has been driven by a solid year of operations in 2018 and an appearance on the "Lightning Round" of Mad Money. That mix of tangible and intangible factors probably explains why the stock has been a little volatile lately, as investors are wrestling with a key question: whether or not the business can sustain its $880 million market cap.

That question might soon have an answer. Fluidigm reports first-quarter 2019 earnings after the market closes on May 2. Analysts and individual investors will be watching for signs the business hasn't lost the momentum from last year and that it remains on the path to profitability. Here's where to focus your attention when the numbers are reported.

Image source: Getty Images.

Fresh off an important year

Fluidigm sells specialized laboratory equipment (and the chemical reagents, or consumables, needed to operate it) that allows academic and commercial researchers to leverage the power of single-cell analysis. The instruments generate a wealth of detailed data on the function of biological systems, such as how cells communicate, defend themselves, and react to drugs. Since data is king in the competitive landscapes of immunotherapy and immuno-oncology, single-cell analysis is increasingly used to develop new therapies.

It certainly showed in full-year 2018 operating results. Fluidigm reported an 11% year-over-year increase in revenue, an 18% jump in gross profit, and a $10 million improvement in operating loss. A closer look at the numbers revealed that one type of instrument drove the sweeping operational gains last year.

The business sells three main types of instruments: machines for preparing genomic experiments, machines for analyzing genomic experiments, and machines for an emerging analytical technique called mass cytometry. Fluidigm reported that revenue generated from mass cytometry applications (including machines and chemical reagents) jumped 27% compared to 2017. All other sources of revenue declined 3%.

That makes it pretty clear that investors will want to keep a close eye on the performance of the mass cytometry business in the first quarter of 2019, but there's more to it than that.

Image source: Getty Images.

Investors should watch these three things

First off, investors should watch for mass cytometry powered by Fluidigm's business in 2018. That's not too surprising considering it remains the highest-margin growth opportunity, as a look at the installed base and annual operating consumables clearly demonstrates: 

Data source: Press releases.

Continuing to grow, the installed base of mass cytometry machines will be key to continued success in 2019. However, there are two components to Fluidigm's growth opportunity in mass cytometry: standard mass cytometry (branded as Helios) and imaging mass cytometry (branded as Hyperion).

The latter is newer and potentially more valuable to both the company and customers than traditional mass cytometry, as imaging mass cytometry doesn't destroy the tissue sample being investigated. Instead, Hyperion systems rely on image processing techniques (Fluidigm calls it "digital pathology") to generate data from a sample. A recent co-marketing agreement with Indica Labs could spur instrument sales and upgrades -- any Helios system can become a Hyperion -- which means investors have two areas in mass cytometry to watch when Q1 2019 results are reported.  

Similar to imaging mass cytometry, the third thing to keep an eye on isn't immediately evident when looking at the table above -- analytical genomics instruments. While they have experienced a declining installed base since 2016, that doesn't tell the whole story.

Fluidigm's instruments in this category are well-positioned to capitalize on the growing trend of digital PCR, which is a new technique used to rapidly deliver high-quality genomic data from a sample. It's only just emerging as a relevant research tool, but if the business can take advantage in the early goings, then it could reverse the decline in the installed base -- and potentially generate more consumables revenue from each existing instrument.

Image source: Getty Images.

As always, keep a long-term mind-set

In mid-February, Fluidigm issued Q1 2019 guidance that called for roughly $30.5 million in revenue and operating expenses of $30 million. That suggests the company is poised for continued growth and improving operating losses in 2019, but investors should also keep in mind that businesses relying on hardware sales are prone to fall victim to choppy quarters. The company is somewhat insulated from that thanks to its budding consumables segment, which provides a steady stream of recurring revenue.

It's important for investors to keep a long-term mind-set and not overreact to a surprisingly good (or bad) quarter. Fluidigm shares are a little expensive right now, which suggests the business will need to grow into its valuation and deliver operating profits sooner than later. If the business seizes opportunities in mass cytometry and genomic analysis, then it should be well on its way.