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Illumina Inc. (ILMN - Free Report) reported adjusted earnings per share (EPS) of 33 cents in the third quarter of 2023, beating the Zacks Consensus Estimate of 13 cents by a staggering margin. However, the bottom line declined 3% from the year-ago quarter’s figure.
The adjustments exclude the impact of GRAIL pre-acquisition net operating losses on GILTI, the utilization of U.S. foreign tax credits and incremental non-GAAP tax expenses, among others. Including one-time items, the company’s GAAP loss per share was $4.8 compared with the year-ago quarter’s loss of $24.3.
Revenues
In the quarter under review, Illumina’s revenues were $1.12 billion, up 0.4% year over year (up 1% at CER). The top line missed the Zacks Consensus Estimate by 1%.
Segment Details
Post the acquisition of GRAIL on Aug 18, 2021, Illumina has two reportable segments, Core Illumina and GRAIL.
Core Illumina sequencing service and other revenues were $142 million (up 15% year over year). This was driven primarily by higher instrument service contract revenues on a growing installed base, as well as an increase in lab services revenues.
Sequencing Instrument revenues for Core Illumina of $179 million grew 10% year over year. The increase was primarily led by strength in NovaSeq X shipments, which more than offset the decline in NovaSeq 6000 shipments.
Core Illumina sequencing service and other revenues were $142 million (up 15% year over year). This was driven primarily by higher instrument service contract revenue on a growing installed base, as well as an increase in lab services revenue.
GRAIL contributed $21 million to revenues during the reported quarter compared with $10 million in the year-ago period.
Margins
The adjusted gross margin (excluding amortization of acquired intangible assets) was 65.3% in the reported quarter, highlighting a contraction of 310 basis points (bps) year over year. The decline is attributed to product mix and less fixed cost leverage on lower manufacturing volumes, as well as lower instrument margins and higher field service and installation costs due to the NovaSeq X launch.
Research and development expenses decreased 3.1% year over year to $315 million, whereas SG&A expenses came in at $303 million compared with $146 million in the year-ago quarter. Adjusted operating costs increased 31.2% to $618 million. The adjusted operating profit in the quarter was $113 million, down 61.3% year over year.
Financial Update
Illumina exited the third quarter of 2023 with cash and cash equivalents plus short-term investments of $933 million compared with $1.56 billion at the end of the second quarter of 2023. The company did not repurchase any common stock in the quarter.
Cumulative net cash provided by operating activities at the end of the third quarter of 2023 was $254 million compared with $245 million in the last year’s comparable period.
2023 Guidance
Illumina updated its 2023 outlook. The company expects 2023 consolidated revenues to decrease 2-3% (the earlier guidance was nearly 1% growth) compared with the previous year. The Zacks Consensus Estimate for the same is currently pegged at $4.60 billion.
Adjusted EPS for 2023 is expected in the range of 60 cents to 70 cents (the previous guidance was 75 cents to 90 cents). The Zacks Consensus Estimate for the same is currently pegged at 78 cents.
Core Illumina revenues are now expected to decrease 3-4% year over year (earlier projection was flat revenue growth). GRAIL revenues are anticipated to be at the low end of the $90 million to $110 million range (earlier projection, between $90 million-$110 million).
Key Announcements
Throughout the third quarter, Illumina headlined on many occasions. Notably, the company launched TruSight Oncology 500 (TSO 500) ctDNA Version 2, a liquid biopsy assay that enables comprehensive genomic profiling of circulating tumor DNA. Major improvements include a faster turnaround time of less than four days, higher sensitivity with lower input requirements and a more streamlined workflow.
The company also announced the opening of a new office and state-of-the-art Illumina Solutions Center in Bengaluru, India, to grow the genomics market in the most populous country in the world. The expansion will help unlock opportunities for advancing healthcare and combat the effects of climate change in South Asia.
Our Take
Illumina delivered better-than-expected third-quarter 2023 earnings, while revenues were a miss. Core Illumina’s performance across all regions was affected by tighter funding and budget pressures impacting customers’ purchasing power, as well as the high-throughput customers transitioning to NovaSeq X. Contraction in margins, as well as a reduced full-year outlook, is also discouraging.
On a positive note, Illumina has been executing well in its plan to reduce the analyzed run rate expenses, having reduced by approximately $175 million, which is ahead of the original projection of more than $100 million. This appears promising.
Zacks Rank & Key Picks
Illumina currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are DexCom (DXCM - Free Report) , Medpace (MEDP - Free Report) and The Ensign Group (ENSG - Free Report) .
DexCom, carrying a Zacks Rank of 2 (Buy), reported a third-quarter 2023 adjusted EPS of 50 cents, beating the Zacks Consensus Estimate by 47.1%. Revenues of $975 million outpaced the consensus mark by 4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DexCom has a long-term estimated growth rate of 33.6%. DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.4%.
Medpace reported a third-quarter 2023 adjusted EPS of $2.22, beating the Zacks Consensus Estimate by 8.8%. Revenues of $492.5 million surpassed the Zacks Consensus Estimate by 3.4%. It currently carries a Zacks Rank #2.
Medpace has an estimated earnings growth rate of 16.2% for the next year. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 14.6%.
The Ensign Group reported a third-quarter 2023 adjusted EPS of $1.20, beating the Zacks Consensus Estimate by 1.7%. Revenues of $940.8 million surpassed the Zacks Consensus Estimate by 0.2%. It currently carries a Zacks Rank #2.
The Ensign Group has a long-term estimated growth rate of 15%. ENSG’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 1.5%.
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Illumina (ILMN) Q3 Earnings Surpass Estimates, '23 View Cut
Illumina Inc. (ILMN - Free Report) reported adjusted earnings per share (EPS) of 33 cents in the third quarter of 2023, beating the Zacks Consensus Estimate of 13 cents by a staggering margin. However, the bottom line declined 3% from the year-ago quarter’s figure.
The adjustments exclude the impact of GRAIL pre-acquisition net operating losses on GILTI, the utilization of U.S. foreign tax credits and incremental non-GAAP tax expenses, among others. Including one-time items, the company’s GAAP loss per share was $4.8 compared with the year-ago quarter’s loss of $24.3.
Revenues
In the quarter under review, Illumina’s revenues were $1.12 billion, up 0.4% year over year (up 1% at CER). The top line missed the Zacks Consensus Estimate by 1%.
Segment Details
Post the acquisition of GRAIL on Aug 18, 2021, Illumina has two reportable segments, Core Illumina and GRAIL.
Core Illumina sequencing service and other revenues were $142 million (up 15% year over year). This was driven primarily by higher instrument service contract revenues on a growing installed base, as well as an increase in lab services revenues.
Illumina, Inc. Price, Consensus and EPS Surprise
Illumina, Inc. price-consensus-eps-surprise-chart | Illumina, Inc. Quote
Sequencing Instrument revenues for Core Illumina of $179 million grew 10% year over year. The increase was primarily led by strength in NovaSeq X shipments, which more than offset the decline in NovaSeq 6000 shipments.
Core Illumina sequencing service and other revenues were $142 million (up 15% year over year). This was driven primarily by higher instrument service contract revenue on a growing installed base, as well as an increase in lab services revenue.
GRAIL contributed $21 million to revenues during the reported quarter compared with $10 million in the year-ago period.
Margins
The adjusted gross margin (excluding amortization of acquired intangible assets) was 65.3% in the reported quarter, highlighting a contraction of 310 basis points (bps) year over year. The decline is attributed to product mix and less fixed cost leverage on lower manufacturing volumes, as well as lower instrument margins and higher field service and installation costs due to the NovaSeq X launch.
Research and development expenses decreased 3.1% year over year to $315 million, whereas SG&A expenses came in at $303 million compared with $146 million in the year-ago quarter. Adjusted operating costs increased 31.2% to $618 million. The adjusted operating profit in the quarter was $113 million, down 61.3% year over year.
Financial Update
Illumina exited the third quarter of 2023 with cash and cash equivalents plus short-term investments of $933 million compared with $1.56 billion at the end of the second quarter of 2023. The company did not repurchase any common stock in the quarter.
Cumulative net cash provided by operating activities at the end of the third quarter of 2023 was $254 million compared with $245 million in the last year’s comparable period.
2023 Guidance
Illumina updated its 2023 outlook. The company expects 2023 consolidated revenues to decrease 2-3% (the earlier guidance was nearly 1% growth) compared with the previous year. The Zacks Consensus Estimate for the same is currently pegged at $4.60 billion.
Adjusted EPS for 2023 is expected in the range of 60 cents to 70 cents (the previous guidance was 75 cents to 90 cents). The Zacks Consensus Estimate for the same is currently pegged at 78 cents.
Core Illumina revenues are now expected to decrease 3-4% year over year (earlier projection was flat revenue growth). GRAIL revenues are anticipated to be at the low end of the $90 million to $110 million range (earlier projection, between $90 million-$110 million).
Key Announcements
Throughout the third quarter, Illumina headlined on many occasions. Notably, the company launched TruSight Oncology 500 (TSO 500) ctDNA Version 2, a liquid biopsy assay that enables comprehensive genomic profiling of circulating tumor DNA. Major improvements include a faster turnaround time of less than four days, higher sensitivity with lower input requirements and a more streamlined workflow.
The company also announced the opening of a new office and state-of-the-art Illumina Solutions Center in Bengaluru, India, to grow the genomics market in the most populous country in the world. The expansion will help unlock opportunities for advancing healthcare and combat the effects of climate change in South Asia.
Our Take
Illumina delivered better-than-expected third-quarter 2023 earnings, while revenues were a miss. Core Illumina’s performance across all regions was affected by tighter funding and budget pressures impacting customers’ purchasing power, as well as the high-throughput customers transitioning to NovaSeq X. Contraction in margins, as well as a reduced full-year outlook, is also discouraging.
On a positive note, Illumina has been executing well in its plan to reduce the analyzed run rate expenses, having reduced by approximately $175 million, which is ahead of the original projection of more than $100 million. This appears promising.
Zacks Rank & Key Picks
Illumina currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are DexCom (DXCM - Free Report) , Medpace (MEDP - Free Report) and The Ensign Group (ENSG - Free Report) .
DexCom, carrying a Zacks Rank of 2 (Buy), reported a third-quarter 2023 adjusted EPS of 50 cents, beating the Zacks Consensus Estimate by 47.1%. Revenues of $975 million outpaced the consensus mark by 4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DexCom has a long-term estimated growth rate of 33.6%. DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.4%.
Medpace reported a third-quarter 2023 adjusted EPS of $2.22, beating the Zacks Consensus Estimate by 8.8%. Revenues of $492.5 million surpassed the Zacks Consensus Estimate by 3.4%. It currently carries a Zacks Rank #2.
Medpace has an estimated earnings growth rate of 16.2% for the next year. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 14.6%.
The Ensign Group reported a third-quarter 2023 adjusted EPS of $1.20, beating the Zacks Consensus Estimate by 1.7%. Revenues of $940.8 million surpassed the Zacks Consensus Estimate by 0.2%. It currently carries a Zacks Rank #2.
The Ensign Group has a long-term estimated growth rate of 15%. ENSG’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 1.5%.