01—Abstract
Summary
Summary of the 10-K filed February 15, 2013. Cited figures are marked; the original filing is the authoritative source.
Illumina, Inc. reported total revenue of $1,148,516 thousanda ($1.15 billion) for fiscal 2012 (52 weeks ended December 30, 2012), up from $1,055,535 thousand in 2011, with product revenue of $1,055,826 thousand and service and other revenue of $92,690 thousand.
Income from operations was $200,752 thousandb, essentially flat versus $199,461 thousand in 2011, as higher gross profit from increased sales was largely offset by higher operating expenses, including a $26.3 million headquarter relocation expense, $23.1 million of expenses related to Roche's unsolicited tender offer, and a $21.4 million IPR&D impairment within research and development. Net income rose to $151,254 thousand from $86,628 thousand, helped by a $48.6 million gain on the sale of the company's deCODE Genetics stake and an effective tax rate of 32.1%. Diluted net income per share was $1.13, compared with $0.62 in 2011.
Gross margin improved to 67.4% from 67.2%, reflecting a shift in sales mix from instruments to consumables. The company ended 2012 with cash, cash equivalents and short-term investments totaling $1.35 billionc and total stockholders' equity of $1,318,581 thousand. Convertible senior notes outstanding were $920.0 million due 2016 and $40.1 million due 2014.
The company repurchased $82.5 milliond of stock in 2012 and had $167.5 million remaining under its repurchase authorization. Management stated that the funding environment for research remains uncertain, with approximately one-third of revenue estimated to derive directly or indirectly from NIH funding, while about 30% of 2012 revenue came from commercial customers not reliant on government funding. Looking ahead, the company signed a definitive agreement on January 6, 2013 to acquire Verinata Health, Inc. for $350 million in cash plus up to $100 million in milestone payments through 2015, and it submitted a 510(k) application for its MiSeqDx system to the FDA in December 2012.
Management expects revenue to continue growing in 2013 and anticipates research and development expense to increase. The company also disclosed the Syntrix Biosystems patent and trade secret lawsuit, with a trial scheduled to begin February 26, 2013, and stated it cannot estimate a possible loss.
02—Key points
Key Highlights
- Total revenue rose 9% to $1,148,516 thousand in 2012, with consumables sales up 22% to $729.3 million and instrument revenue down 16% to $314.3 million.
- Income from operations was $200,752 thousand, nearly flat versus $199,461 thousand in 2011, as operating expenses rose to $572,776 thousand.
- Net income increased to $151,254 thousand ($1.13 diluted EPS) from $86,628 thousand, aided by a $48.6 million gain on the sale of the deCODE Genetics investment.
- Gross margin improved to 67.4% from 67.2%, driven by a shift in sales mix toward higher-margin consumables.
- Cash, cash equivalents and short-term investments totaled $1.35 billion at December 30, 2012, against $920.0 million of 2016 convertible notes and $40.1 million of 2014 notes outstanding.
- Agreed in January 2013 to acquire Verinata Health for $350 million in cash plus up to $100 million in milestone payments, expanding the company's reproductive health diagnostics offering.
- Approximately one-third of total revenue is estimated to derive directly or indirectly from NIH funding, and management cited uncertainty in government and academic research funding for 2013.
03—Questions
Frequently Asked Questions
How did Illumina's revenue and profitability trend in 2012?
Total revenue increased 9% to $1,148,516 thousand from $1,055,535 thousand, and net income rose to $151,254 thousand from $86,628 thousand. Income from operations was roughly flat at $200,752 thousand, as higher gross profit was largely offset by higher operating expenses, including headquarter relocation, tender offer and restructuring-related costs and an IPR&D impairment. Net income benefited from a $48.6 million gain on the sale of an investment in deCODE Genetics.
What one-time items affected 2012 results?
The company recorded $26.3 million of headquarter relocation expense, $23.1 million of expenses related to Roche's unsolicited tender offer, a $21.4 million impairment of in-process research and development, and a $3.0 million legal contingency loss in cost of product revenue. It also recognized a $48.6 million gain on the sale of its deCODE Genetics minority interest and a $6.0 million recovery of a previously impaired note receivable.
How much cash does Illumina have and what debt does it carry?
At December 30, 2012, cash, cash equivalents and short-term investments totaled $1.35 billion. Convertible senior notes consisted of $920.0 million principal due 2016 (0.25% coupon) and $40.1 million principal due 2014 (0.625% coupon). The filing states that cash and existing resources are expected to be sufficient for at least the next 12 months, including the pending Verinata acquisition.
What is the Verinata acquisition and what does it cost?
On January 6, 2013, Illumina entered into a definitive agreement to acquire Verinata Health, Inc., a provider of non-invasive tests for the early identification of fetal chromosomal abnormalities, for $350 million in cash plus up to $100 million in milestone payments through 2015. The company also agreed to provide up to $45 million of bridge financing to Verinata through subordinated convertible notes.
What risks did the company highlight for investors?
Key risks included reduced or delayed research and development budgets and government funding, particularly NIH funding that may be affected by sequestration provisions from March 2013; intense competition; dependence on third-party suppliers, some of them single-source; manufacturing capacity expansion; and patent and infringement litigation. The company also noted the pending Syntrix Biosystems lawsuit, with a trial scheduled to begin February 26, 2013, for which it cannot estimate a possible loss.
04—Continue