Abaxis misses Q1 estimates on increased research and marketing spend

California-based diagnostics maker Abaxis ($ABAX), which derives most of its revenues from veterinary sales, is trying to capitalize on the growing demand for machines that can help veterinarians to quickly spot health issues in dogs and cats. But it’s operating in a highly competitive market, and the pressure is forcing the company to re-think its product mix and marketing strategy, CEO Clint Severson admitted during Abaxis’s fiscal first-quarter earnings report.
For the quarter, Abaxis reported that revenues grew 9% year-over-year to $57.7 million. The company’s veterinary revenues were up 10% to $47.7 million, it said in a press release. But net income was flat at $6.9 million (30 cents per share). Analysts had expected earnings of 33 cents on $59.2 million in sales, according to Zacks Investment Research.
“We significantly increased our investment in research and development and international sales and marketing expenses during the quarter, as planned, which resulted in flat operating income in the quarter,” Severson said in the release. “However, these investments are intended to drive long-term revenues and income growth for the company.”
After Abaxis’s year-end report in April, Severson told investors one of his priorities was to boost distribution of the company’s products in Italy, Germany, Spain and other countries.
But Abaxis has also been working hard to close what Chief Operating Officer Don Wood referred to during the earnings call as a “significant competitive gap” in the veterinary diagnostics market. Until now, he explained, Abaxis has not been able to offer a comprehensive software package to allow veterinarians to access diagnostic data from the company’s instruments through their practice-management systems.
Abaxis is in the final stages of testing a new software product it calls FUSE, Wood said, which is a web-based package that enables two-way data sharing between its instruments and vet practice-management systems. FUSE will also make it possible for vets to present diagnostic data to pet owners in an easy-to-understand format, Wood explained. The product is now in beta testing and will be launched in September.
During the Q&A session, one analyst asked why Abaxis has suffered a deceleration in the growth of its veterinary consumables. Severson admitted the lack of a software option had caused the company to lose accounts. “We did lose some business out there, and I think the main reason that we’ve lost some accounts is because our competitors were selling software, and we’re selling chemistry efficiency cost effectiveness,” he said. “And so I think with the launch of the FUSE, you are going to see a big change in that.“
Abaxis’s biggest competitor in the veterinary market is Maine-based IDEXX Laboratories, ($IDXX) which has enjoyed increasing demand for its diagnostic equipment. One of its most popular products is Catalyst One, a machine can screen samples from dogs and cats for up to 30 diseases in 8 minutes. IDEXX’s strong growth and $1.49 billion in veterinary revenues last year landed it at No. 7 on FierceAnimalHealth’s list of the top 10 companies of 2015. IDEXX will announce its latest quarterly results on Aug. 2.
– here’s Abaxis’s earnings release
– access a transcript of the earnings call at Seeking Alpha