Illumina (ILMN - Analyst Report) reported third quarter 2012 adjusted earnings per share (EPS) of 38 cents (excluding the impact of amortization of intangible assets), missing the Zacks Consensus Estimate by a penny but way-above the year-ago adjusted EPS of 20 cents. However, the GAAP EPS came in at 22 cents, up considerably from the year-ago level of 15 cents.
Revenues increased a robust 21% year over year to $235 million during the quarter on the back of strong sequencing business with solid HiSeq sales and an increase in delivery of whole-genome service contracts. Reported revenues were ahead of the Zacks Consensus Estimate of $284 million. This also included revenues of $1 million from the BlueGnome acquisition that was announced on September 19, 2012.
During the quarter, there was 19.1% increase in product revenues to $262.4 million, and a 54.6% rise in service revenues. The company derives 91.8% of its total revenue from products, while the remaining comes from services.
Product revenues are primarily attributed to the sale of Microarrays and DNA Sequencing products. Product revenues consist of sales proceeds from the Consumables and Instruments segment. Services and other revenues comprise genotyping and sequencing services as well as instrument maintenance contracts.
Consumable revenue (consisting 62% of the company’s total revenue) was $177 million, up 22% year over year, resulting from a larger installed base of both HiSeq and MiSeq. Instruments revenues were up 15% year over year to $82 million in the third quarter, primarily due to the impact of MiSeq shipment which began in the year-ago quarter.
During the third quarter, Illumina completed the acquisition of BlueGnome, a leading provider of cytogenetics and in vitro fertilization (IVF) screening products. The company also introduced an advanced Individual Genome Sequencing Services (IGS), powered by HiSeq 2500.
The company also formed a strategic association with Partners HealthCare, a healthcare system developed by Brigham and Women’s Hospital and Massachusetts General Hospital to introduce next-generation sequencing (NGS) clinical interpretation and reporting tools. Further, the company launched Infinium HumanCore Arrays for economical large-scale genetic studies. In the same quarter, FDA selected Illumina’s MiSeq system for use in an extensive program to identify foodborne pathogens.
The company’s adjusted gross margin (Excluding the effect of non-cash charges associated with stock based compensation and amortization of intangibles assets) stood at 70.5% in the reported quarter, up 160 basis points (bps) year over year.
Selling, general and administrative (SG&A) expenses were down 5.7% to $69.8 million, while research and development expenses increased 7.3% to $54.1 million. Adjusted operating margin during the quarter was 26.4% compared to 18.6% in the year-ago quarter.
Illumina exited the quarter with cash and cash equivalents and short-term investment of $1.23 billion compared with $1.19 billion at the end of fiscal 2011. The company generated $51 million in cash flow from operations in the third quarter versus $91 million in the prior-year period.
Based on its solid cash balance, Illumina repurchased shares of $25 million under its earlier announced share repurchase program.
Illumina tightened its fiscal 2012 revenue guidance to $1.134–$1.144 billion (previous guidance was $1.10 – $1.175 billion). The company also narrowed its adjusted EPS guidance to $1.54–$1.59 ($1.50–$1.60). The Zacks Consensus Estimates for 2012 revenues and EPS are $1.14 billion and $1.58, respectively, which are within the guidance range.
Based in California, Illumina develops, manufactures, and markets life science tools and integrated systems for the analysis of genetic variation and function at a broader scale. The company derives product revenues from the sale of microarrays and DNA sequencing products.
As a life sciences tools company, Illumina has a track record of innovation and operational excellence. The company primarily competes with Life Technologies Corporation in the sequencing market.
Currently, Illumina retains a short-term Zacks #2 Rank (Buy rating).