On January 30, 2018 Illumina, Inc. (NASDAQ:ILMN) reported its financial results for the fourth quarter and fiscal year 2017 (Press release, Illumina, JAN 30, 2018, View Source [SID1234523633]).
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Fourth quarter 2017 results:
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Revenue of $778 million, a 26% increase compared to $619 million in the fourth quarter of 2016
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GAAP net income attributable to Illumina stockholders for the quarter of $68 million, or $0.46 per diluted share, compared to $124 million, or $0.84 per diluted share, for the fourth quarter of 2016; GAAP provision for income taxes for the fourth quarter of 2017 includes our provisional estimate of the one-time transition tax as a result of U.S. tax reform
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Non-GAAP net income attributable to Illumina stockholders for the quarter of $212 million, or $1.44 per diluted share, compared to $126 million, or $0.85 per diluted share, for the fourth quarter of 2016 (see the table entitled "Itemized Reconciliation Between GAAP and Non-GAAP Net Income Attributable to Illumina Stockholders" for a reconciliation of GAAP and non-GAAP financial measures)
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Cash flow from operations of $294 million compared to $262 million in the fourth quarter of 2016
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Free cash flow (cash flow from operations less capital expenditures) of $218 million for the quarter, compared to $180 million in the fourth quarter of 2016
Gross margin in the fourth quarter of 2017 was 69.7% compared to 67.7% in the prior year period. Excluding amortization of acquired intangible assets, non-GAAP gross margin was 70.9% for the fourth quarter of 2017 compared to 69.5% in the prior year period.
Research and development (R&D) expenses for the fourth quarter of 2017 were $137 million compared to $130 million in the prior year period. Excluding restructuring charges, non-GAAP R&D expenses as a percentage of revenue were 17.4%, including 0.7% attributable to Helix. This compares to 21.0% in the prior year period, including 2.6% attributable to GRAIL and Helix.
Selling, general and administrative (SG&A) expenses for the fourth quarter of 2017 were $175 million compared to $146 million in the prior year period. Excluding amortization of acquired intangible assets and restructuring
charges, SG&A expenses as a percentage of revenue were 22.1%, including 1.2% attributable to Helix. This compares to 23.4% in the prior year period, including 1.7% attributable to GRAIL and Helix.
Depreciation and amortization expenses were $40 million and capital expenditures for free cash flow purposes were $76 million during the fourth quarter of 2017. At the close of the quarter, the company held $2.1 billion in cash, cash equivalents and short-term investments, compared to $1.6 billion as of January 1, 2017.
Fiscal 2017 results:
Revenue of $2,752 million, a 15% increase compared to $2,398 million in fiscal 2016
GAAP net income attributable to Illumina stockholders of $726 million, or $4.92 per diluted share, compared to $463 million, or $3.07 per diluted share, in fiscal 2016; GAAP provision for income taxes for fiscal 2017 includes the provisional estimate of the one-time transition tax referenced previously
Non-GAAP net income attributable to Illumina stockholders of $591 million, or $4.00 per diluted share, compared to $503 million, or $3.33 per diluted share, in fiscal 2016 (see the table entitled "Itemized Reconciliation Between GAAP and Non-GAAP Net Income Attributable to Illumina Stockholders" for a reconciliation of these GAAP and non-GAAP financial measures)
Cash flow from operations of $875 million compared to $779 million in fiscal 2016
Free cash flow (cash flow from operations less capital expenditures) of $565 million, compared to $519 million in fiscal 2016
Gross margin for fiscal 2017 was 66.4% compared to 69.5% in the prior year. Excluding amortization and impairment of acquired intangible assets, non-GAAP gross margin was 68.4% for fiscal 2017 compared to 71.3% in the prior year period.
Research and development (R&D) expenses for fiscal 2017 were $546 million compared to $504 million in the prior year. Excluding restructuring charges and an impairment of in-process research and development, non-GAAP R&D expenses as a percentage of revenue were 19.6%, including 1.0% attributable to GRAIL and Helix. This compares to 21.0% in the prior year period, including 1.9% attributable to GRAIL and Helix.
Selling, general and administrative (SG&A) expenses for fiscal 2017 were $674 million compared to $584 million in the prior year period. Excluding amortization of acquired intangible assets, restructuring charges, performance-based compensation related to GRAIL Series B financing, and acquisition related gain, SG&A expenses as a percentage of revenue were 23.9%, including 1.7% attributable to GRAIL and Helix. This compares to 24.0% in the prior year period, including 1.2% attributable to GRAIL and Helix.
"With 26% revenue growth in the fourth quarter, and 15% for the full year, our 2017 results demonstrate customers’ growing demand across both our sequencing and array portfolios," said Francis deSouza, President and
CEO. "From our NovaSeq and the recently launched iSeq, to our clinical portfolio that includes the VeriSeq NIPT Solution, NextSeqDx and MiSeqDx, Illumina is well-positioned to continue to drive sequencing innovation and unlock the power of the genome."
Updates since our last earnings release:
Launched the iSeqTM 100 Sequencing System, a flexible benchtop sequencer priced at $19,900 designed to provide a fast and easy-to-use system with unmatched accuracy
Announced availability of AmpliSeq for Illumina, developed in partnership with Thermo Fisher Scientific
Introduced the NextSeqTM 550Dx instrument, Illumina’s second FDA regulated CE-IVD market platform, to deliver the power of high-throughput next-generation sequencing (NGS) to the clinical laboratory
Partnered with KingMed Diagnostics to develop novel oncology and hereditary disease testing applications utilizing Illumina’s NGS technology in China
Appointed Gary S. Guthart to the company’s Board of Directors
Appointed Aimee Hoyt to the position of Senior Vice President and Chief People Officer
Repurchased $75 million of common stock in the fourth quarter under the previously announced share repurchase program
Financial outlook and guidance
The non-GAAP financial guidance discussed below reflects certain pro forma adjustments to assist in analyzing and assessing our core operational performance. Please see our Reconciliation of Non-GAAP Financial Guidance included in this release for a reconciliation of the GAAP and non-GAAP financial measures.
For fiscal 2018, the company is projecting 13% to 14% revenue growth, GAAP earnings per diluted share attributable to Illumina stockholders of $4.14 to $4.24 and non-GAAP earnings per diluted share attributable to Illumina stockholders of $4.50 to $4.60.
Quarterly conference call information
The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Tuesday, January 30, 2018. Interested parties may access the live teleconference through the Investor Relations section of Illumina’s web site under the "company" tab at www.illumina.com. Alternatively, individuals can access the call by dialing 888-771-4371, or 1-847-585-4405 outside North America, both with passcode 46251622.
A replay of the conference call will be available from 4:30 pm Pacific Time (7:30 pm Eastern Time) on January 30, 2018 through February 6, 2018 by dialing 888-843-7419, or 1-630-652-3042 outside North America, both with passcode 46251622.
Statement regarding use of non-GAAP financial measures
The company reports non-GAAP results for diluted net income per share, net income, gross margins, operating expenses, operating margins, other income, and free cash flow in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The company’s financial measures under GAAP include substantial charges such as amortization of acquired intangible assets, non-cash interest expense associated with the company’s convertible debt instruments that may be settled in cash, and others that are listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release. Management has excluded the effects of these items in non-GAAP measures to assist investors in analyzing and assessing past and future operating performance. Additionally, non-GAAP net income attributable to Illumina stockholders and diluted earnings per share attributable to Illumina stockholders are key components of the financial metrics utilized by the company’s board of directors to measure, in part, management’s performance and determine significant elements of management’s compensation.
The company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand its business. Reconciliations between GAAP and non-GAAP results are presented in the tables of this release.
Use of forward-looking statements
This release contains forward-looking statements that involve risks and uncertainties, such as our financial outlook and guidance for fiscal 2018 and expectations regarding the launch of new products. Among the important factors that could cause actual results to differ materially from those in any forward-looking statements are: (i) challenges inherent in developing, manufacturing, and launching new products and services, including expanding manufacturing operations and reliance on third-party suppliers for critical components; (ii) the timing and mix of customer orders among our products and services; (iii) the impact of recently launched or pre-announced products and services on existing products and services; (iv) our ability to further develop and commercialize our instruments and consumables and to deploy new products, services, and applications, and expand the markets, for our technology platforms; (v) our ability to manufacture robust instrumentation and consumables; (vi) the success of products and services competitive with our own; (vii) our ability to successfully identify and integrate acquired technologies, products, or businesses; (viii) our expectations and beliefs regarding future conduct and growth of the business and the markets in which we operate; and (ix) the application of generally accepted accounting principles, which are highly complex and involve many subjective assumptions, estimates, and judgments, together with other factors detailed in our filings with the Securities and Exchange Commission, including our most recent filings on Forms 10-K and 10-Q, or in information disclosed in public conference calls, the date and time of which are released beforehand. We undertake no obligation, and do not intend, to update these forward-looking statements, to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of the current quarter.