Illumina (ILMN - Analyst Report) reported fourth quarter 2012 adjusted earnings per share ("EPS") of 42 cents, beating the Zacks Consensus Estimate by a penny and 2 cents above the year-ago adjusted EPS. Fiscal 2012 adjusted EPS remained at $1.59, surpassing the Zacks Consensus Estimate of $1.57 and up 22.3% year-over-year. The fiscal EPS reached the upper level of company-provided guidance range of $1.54–$1.59.
Revenues increased a robust 24% year over year to reach a record height of $309 million during the quarter beating the Zacks Comsensus Estimate of $306 million. For the full year, total revenues were $1.15 billion, ahead of the Zacks Consensus Estimate of $1.14 billion and up 9% year over year. The year’s result also outpaced the company’s revenue guidance of $1.134–$1.144 billion.
The quarter’s impressive result was primarily on the back of strong MiSeq instrument sales combined with increasing demand for sequencing consumables of whole-genome services. The quarter’s revenues also included revenues of $7 million from the BlueGnome acquisition (in Sep 2012).
During the quarter, there was a 21.1% increase in product revenues to $278.9 million, and a 54.2% rise in service revenues to $30.3 million. The company derives 90.2% 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 (63.4% of the company’s total revenue) was $196 million, up 36% year over year, resulting from higher demand of sequencing consumables and the impact of BlueGnome acquisition. Instruments revenues were flat year over year to $80 million in the fourth quarter, as strong demand for MiSeq benchtop instrumentswas offset by disappointing HiSeq shipments (down year-over-year) and low demand for microarray instruments.
Earlier this month, Illumina entered into a definitive agreement to acquire Verinata Health, Inc., a privately held company dedicated to non-invasive tests for the early identification of fetal chromosomal abnormalities. Under the terms of the agreement, Illumina will purchase the latter for $350 million along with an additional $100 million in milestone payments through 2015. Illumina expects to finance the transaction primarily with its cash in hand. The company also acquired of Moleculo Inc. which will enable the introduction of an innovative library prep method and analysis algorithm to produce synthetic read lengths up to 10 Kb.
The company’s adjusted gross margin (excluding the effect of non-cash charges associated with stock based compensation and amortization of intangible assets) stood at 68.5% in the reported quarter, down 170 basis points (bps) year over year. Adjusted operating margin during the quarter was 33.1% compared to 35.1% in the year-ago quarter, down 200 bps due to lower gross margins as well as higher SG&A expense.
Illumina exited the quarter with cash and cash equivalents and short-term investment of $1.35 billion compared with $1.19 billion at the end of fiscal 2011. The company generated $79 million in cash flow from operations in the fourth quarter versus $108 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 provided its fiscal 2013 outlook. The company projected a 15% annualized revenue growth with EPS to remain in the band of $1.55−$1.62 (considering the pending Verinata acquisition). The Zacks Consensus Estimates for 2012 revenues and EPS are $1.26 billion and $1.74, respectively. While the revenues estimate remains within the guidance range, EPS estimate exceeds the projected band.
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 (LIFE - Snapshot Report) in the sequencing market.
Currently, Illumina retains a short-term Zacks #3 Rank (Hold rating).
Other Stocks to Consider
While we prefer to remain on the sidelines on Illumina, other medical device stocks worth a look are Cyberonics Inc. and Haemonetics Corporation (HAE - Analyst Report) . Both the stocks carry a Zacks Rank #1 (Strong Buy).