Illumina (NASDAQ:ILMN) shareholders already knew there was much to like about the company's performance in 2017. The stock soared nearly 71% last year, riding a wave of momentum generated by the launch of its powerful new gene-sequencing system, NovaSeq.

Investors expected Illumina to report yet another strong performance when the company announced its fourth-quarter and full-year 2017 results after the market closed on Tuesday. They weren't disappointed. Illumina again delivered solid growth on nearly every front. Here are the highlights from the company's fourth-quarter update. 

Dart shattering DNA strand to hit target

Image source: Getty Images.

Illumina results: The raw numbers

Metric 

Q4 2017 

Q4 2016 

Year-Over-Year Change

Sales

$778 million $619 million

25.7%

Net income from continuing operations

$68 million $124 million

(45.2%)

Adjusted earnings per share (EPS)

$1.44 $0.85

69.4%

Data source: Illumina.

What happened with Illumina this quarter?

Francis deSouza gave a sneak peek of Illumina's fourth-quarter results when he spoke at the J.P. Morgan Healthcare Conference in early January. The company's actual performance matched up closely to the preliminary numbers that he gave then -- and were even a little better.

Based on deSouza's comments at the conference, investors were expecting Illumina to post fourth-quarter revenue of $775 million. The final revenue total came in higher, boosted by sustained momentum for Illumina's new NovaSeq gene-sequencing system. The launch of this new system continued to exceed expectations.

This top-line improvement carried over to impressive adjusted EPS growth. Illumina's adjusted EPS was helped by a higher gross margin of 69.7%, compared with 67.7% in the fourth quarter of 2016. The company also spent less on research and development as a percentage of total revenue than it did in the prior-year period. It was a similar story for selling, general, and administrative spending. The combination of these factors fueled a surge in adjusted EPS.

You might be wondering why Illumina's net income plunged so much in light of the positive news for revenue and adjusted EPS. There's no need for concern. Illumina took a one-time hit of $166 million related to a transition tax resulting from U.S. tax reform. The good news is that Illumina's effective tax rate should be significantly lower in 2018 thanks to the tax reform legislation.

Illumina also highlighted several key developments that have occurred since it last reported quarterly results. These included:

  • The launch of the new iSeq sequencing system, priced at $19,900.
  • The launch of AmpliSeq for Illumina, a best-in-class amplicon technology for capturing DNA and RNA from minute amounts of samples developed in partnership with Thermo Fisher Scientific.
  • The introduction of the NextSeq 550Dx instrument, which was designed to deliver the power of high-throughput next-generation sequencing (NGS) to the clinical laboratory.
  • A partnership with KingMed Diagnostics to develop oncology and hereditary disease testing applications for the Chinese market using Illumina's NGS technology 

What management had to say

Illumina President and CEO Francis deSouza said, "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." He added, "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."

Looking forward

At the J.P. Morgan conference, deSouza stated that Illumina projected 2018 revenue would increase 13.5% from last year. The company confirmed this outlook with its fourth-quarter update, providing guidance of revenue growth in 2018 between 13% and 14%. Illumina also forecast GAAP earnings per diluted share of $4.14 to $4.24 and non-GAAP earnings per diluted share between $4.50 and $4.60. The midpoint of the non-GAAP EPS range reflects year-over-year growth of nearly 14%.

Can Illumina achieve this solid growth in the months ahead? Probably so. There's still a large block of customers who are likely to transition to NovaSeq. Illumina's new low-cost iSeq system also has significant potential. While a downturn in the overall market could keep Illumina from enjoying another tremendous year as it did in 2017, the future appears to still be bright for this gene-sequencing pioneer.

 

Keith Speights owns shares of JPMorgan Chase. The Motley Fool owns shares of and recommends Illumina. The Motley Fool has a disclosure policy.