Illumina (ILMN 2.40%) shareholders have basked in the success of the company's NovaSeq system. The company enjoyed a tremendous year in 2017 thanks largely to a better-than-expected rollout of the gene-sequencing system. Heading into the first quarter of 2018, there was every reason to anticipate that the momentum would continue.
And that's exactly what happened. Illumina reported its first-quarter results after the market closed on Tuesday. The genomic-sequencing pioneer yet again delivered a solid performance. Here are the highlights.
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Illumina results: The raw numbers
| Metric |
Q1 2018 |
Q1 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Sales |
$782 million | $598 million |
30.8% |
|
Net income from continuing operations |
$208 million | $367 million |
(43.3%) |
|
Adjusted earnings per share (EPS) |
$1.45 | $0.64 |
126.6% |
Data source: Illumina.
What happened with Illumina this quarter?
Illumina's sales in the first quarter grew more year over year than they did in the fourth quarter of 2017. Most of the growth stemmed from product revenue, which increased from $491 million in the prior-year period to $628 million in the first quarter of 2018. It's not hard to figure out from where much of that growth is coming -- NovaSeq.
The company has made no secret that it expects most of the current users of its high-throughput HiSeq systems to transition to NovaSeq. In addition, the new system attracted many customers who were either new to Illumina or had previously only used its lower-throughput systems.
But what about that glaring drop in net income? No worries. The decline stemmed from the one-time impact in the first quarter of 2017 of spinoff GRAIL repurchasing its stock from Illumina. The company's adjusted earnings per share factors out this one-time benefit as well as a few other smaller financial items. And on that adjusted measure, Illumina really shined.
Illumina also cranked up its cash flow in the first quarter. The company generated operating cash flow of $255 million, up 52% from the prior-year period. Illumina reported free cash flow of $165 million, nearly double the amount generated in the first quarter of 2017.
Since its last quarterly update on Jan. 31, Illumina racked up several major achievements, including:
- Released the new S1 flow cell reagent kit for the NovaSeq 6000 gene-sequencing system
- Announced a collaboration with Bristol-Myers Squibb where the big drugmaker will use Illumina's technology to develop in-vitro diagnostic (IVD) assays for its cancer drugs
- Announced a partnership with Loxo Oncology to develop and market a multi-gene panel for tumor profiling
What management had to say
According to Illumina President and CEO Francis deSouza, "Our strong first quarter, with momentum across both our sequencing and microarray businesses, was driven by the growing adoption of applications spanning oncology, clinical and non-clinical research, population genomics and personal genomics." He added, "Genomic information is more valuable and actionable than ever before, and we believe that we are in the earliest stages of a genomics revolution."
Looking forward
Thanks to the strong first-quarter results, Illumina upped its full-year 2018 guidance. The company had previously expected revenue growth in 2018 between 13% and 14%. Illumina now projects that 2018 revenue will increase by 15% to 16%.
The company also now expects full-year GAAP earnings per diluted share of $4.45 to $4.55. That's over 7% higher at the midpoint than Illumina's prior forecast. Non-GAAP adjusted earnings per diluted share for 2018 are now projected to be between $4.75 and $4.85 -- up 5.5% at the midpoint above the company's previous estimate.
What lies ahead? NovaSeq should continue to be the gift that keeps on giving. Illumina could see a nice contribution from its new, low-cost iSeq gene-sequencing system. Revenue from consumer genomics customers, including Ancestry, 23andme, and Illumina's spinoff, Helix, should keep growing.
There's always a possibility that contractions in spending by governments could negatively impact Illumina. The migration of HiSeq customers to NovaSeq could be "lumpy." However, Illumina's future prospects over the long run appear to be just as bright as ever.
