On October 29, 2020 Illumina, Inc. (NASDAQ: ILMN) reported its financial results for the third quarter of fiscal year 2020 (Press release, Illumina, OCT 29, 2020, View Source [SID1234569367]).
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Third quarter 2020 results reflect strong sequential growth:
•Revenue of $794 million, an increase of 26% compared to the second quarter of 2020 and a 12% decrease compared to $907 million in the prior year period
•GAAP net income attributable to Illumina stockholders for the quarter of $179 million, or $1.21 per diluted share, compared to $234 million, or $1.58 per diluted share, for the prior year period
•Non-GAAP net income attributable to Illumina stockholders for the quarter of $150 million, or $1.02 per diluted share, compared to $286 million, or $1.93 per diluted share, for the prior year period. Non-GAAP net income excludes net gains from mark-to-market adjustments on our strategic investments, primarily from our marketable equity securities (see the "Reconciliation Between GAAP and Non-GAAP Net Income Attributable to Illumina Stockholders" table for a reconciliation of these GAAP and non-GAAP financial measures)
•Cash flow from operations of $153 million compared to $267 million in the prior year period
•Free cash flow (cash flow from operations less capital expenditures) of $105 million for the quarter compared to $218 million in the prior year period
"Our business accelerated in the third quarter with sequencing consumable revenue growing 29% from the second quarter," said Francis deSouza, Chief Executive Officer. "We’re also making progress incorporating genomics into the standard of care in non-invasive pre-natal testing, oncology therapy selection, and genetic disease diagnosis. Looking forward, we believe our planned acquisition of GRAIL will catalyze a new era of early cancer detection, transforming cancer survivability and opening up the largest clinical application of genomics we’ve seen."
Gross margin in the third quarter of 2020 was 66.2% compared to 71.5% in the prior year period. Excluding amortization of acquired intangible assets and the net impact from expenses and payroll credits related to COVID-19, non-GAAP gross margin was 67.4% for the third quarter of 2020 compared to 72.5% in the prior year period.
Research and development (R&D) expenses for the third quarter of 2020 were $172 million compared to $151 million in the prior year period. Excluding expenses related to COVID-19, non-GAAP R&D expenses as a percentage of revenue were 21.2% compared to 16.4% in the prior year period.
Selling, general and administrative (SG&A) expenses for the third quarter of 2020 were $192 million compared to $189 million in the prior year period. Excluding amortization of acquired intangible assets, gain on litigation, acquisition-related expenses, and expenses related to COVID-19, non-GAAP SG&A expenses as a percentage of revenue were 24.8% compared to 20.0% in the prior year period.
Depreciation and amortization expenses were $46 million and capital expenditures for free cash flow purposes were $48 million during the third quarter of 2020. At the close of the quarter, the company held $3.3 billion in cash, cash equivalents and short-term investments, compared to $3.4 billion as of December 29, 2019.
Updates since our last earnings release:
•Announced a definitive agreement to acquire GRAIL to accelerate commercialization and adoption of transformative multi-cancer screening genetic tests
•Released the NovaSeqTM 6000 v1.5 reagents to unlock deeper genomic discoveries by making a $600 genome more broadly available and catalyzing the next wave of adoption in smaller core labs
•Updated guidelines from the American College of Obstetricians and Gynecologists (ACOG) recommended Non-Invasive Prenatal Testing (NIPT) be made available to all pregnant women, regardless of maternal age or baseline risk
•Repurchased approximately $125 million of common stock in the third quarter with $295 million remaining for repurchase under our current plan
•Appointed Kathryne Reeves as Chief Marketing Officer
Financial outlook and guidance
As previously announced, Illumina has withdrawn its fiscal 2020 full year revenue and earnings per share guidance due to the uncertainties around the severity and duration of the COVID-19 pandemic.
Quarterly conference call information
The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Thursday, October 29, 2020. Interested parties may access the live teleconference through the Investor Info section of Illumina’s website under the "Company" tab at www.illumina.com. Alternatively, individuals can access the call by dialing 1 (866) 211-4597 or 1 (647) 689-6853 outside North America, both with conference ID 9488740.
A replay of the conference call will be posted on Illumina’s website after the event and will be available for at least 30 days following.
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.