01—Abstract
Summary
Summary of the 10-K filed February 18, 2014. Cited figures are marked; the original filing is the authoritative source.
Illumina, Inc. reported fiscal 2013 total revenue of $1.42 billiona, up from $1.15 billion in 2012, an increase the filing describes as 24%.
Growth came mainly from sequencing consumables and instruments, with consumables making up 62% of total revenue and instruments 26%. Profitability declined sharply. Income from operations fell to $134.1 millionb from $200.8 million, and net income dropped to $125.3 million from $151.3 million, or $0.90 per diluted share versus $1.13.
The decline reflects a $115.4 millionc legal contingency charge in operating expenses tied primarily to the Syntrix patent litigation, which resulted in a $115.1 million judgment that the company is appealing. Gross margin also fell to 64.2% from 67.4%, partly due to the Syntrix charge and the discontinuation of the Eco and NuPCR product lines. The balance sheet and cash flow remained solid.
Cash, cash equivalents and short-term investments totaled $1.17 billiond at year-end, and net cash provided by operating activities was $386.4 million, compared with $291.9 million in 2012. Illumina spent $523.5 million on acquisitions in 2013, including Verinata Health, which carried an aggregate purchase price of $396.3 million, and it retired $125.0 million of warrants. The company has $920.0 million of 0.25% convertible notes due 2016 outstanding, and on January 30, 2014 its board authorized an additional $250.0 million in share repurchases.
Management highlighted the expansion of the installed base for HiSeq and MiSeq systems and new products announced in January 2014, including the HiSeq X Ten and NextSeq 500. Backlog rose to approximately $330 million from $260 million. The filing also notes that about 45% of 2013 revenue came from customers not directly reliant on government funding, and that 50% of revenue came from shipments outside the United States.
02—Key points
Key Highlights
- Total revenue rose 24% to $1,421,178 thousand in 2013, with consumables at 62% and instruments at 26% of total revenue.
- Income from operations fell to $134.1 million from $200.8 million, mainly because of a $115.4 million legal contingency charge tied to the Syntrix patent litigation.
- Net income was $125.3 million, or $0.90 per diluted share, compared with $151.3 million, or $1.13, in 2012.
- Gross margin declined to 64.2% from 67.4%, reflecting impairments from discontinued Eco and NuPCR product lines, higher intangible amortization, and legal contingencies.
- A court judgment of $115.1 million in favor of Syntrix Biosystems stands after post-trial motions were denied; Illumina has appealed to the Federal Circuit and accrued $132.9 million as a legal contingency.
- Cash, cash equivalents and short-term investments totaled $1.17 billion, and operating cash flow was $386.4 million.
- Backlog rose to approximately $330 million from $260 million, and the board authorized an additional $250.0 million in share repurchases on January 30, 2014.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Illumina kept $0.09.
- Revenue$1.42B100.0%
- Cost of revenue−$509.3M35.8%
- Gross profit$911.9M64.2%
- Operating costs−$777.8M54.7%
- Operating income$134.1M9.4%
- Interest, other & tax−$8.8M0.6%
- Net income$125.3M8.8%
Where FY2013 revenue went
$1.42B- Cost of revenue: $509.3M, 36% of revenue
- SG&A: $381.0M, 27% of revenue
- R&D: $276.7M, 19% of revenue
- Net income: $125.3M, 8.8% of revenue
- Other operating costs: $120.0M, 8.4% of revenue
- Interest, other & tax: $8.8M, 0.6% of revenue
Kept 8.8% as net incomeInterest, other & tax $8.8M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 18, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $1.42B$1.15B | +23.7% |
| Cost of Revenue | $509.29M$374.99M | +35.8% |
| Gross Profit | $911.89M$773.53M | +17.9% |
| R&D Expenses | $276.74M$231.03M | +19.8% |
| SG&A Expenses | $381.04M$285.99M | +33.2% |
| Operating Expenses | $777.78M$572.78M | +35.8% |
| Operating Income | $134.11M$200.75M | −33.2% |
| Interest Expense | $39.69M$37.78M | +5.1% |
| Net Income | $125.31M$151.25M | −17.2% |
| EPS (Basic) | $1.00$1.23 | −18.7% |
| EPS (Diluted) | $0.90$1.13 | −20.4% |
| Shares Outstanding (Basic) | 125.08M123.00M | +1.7% |
| Shares Outstanding (Diluted) | 139.94M133.69M | +4.7% |
05—Questions
Frequently Asked Questions
Why did Illumina's profit decline in 2013 even though revenue grew 24%?
Operating expenses rose sharply. The company recorded $115.4 million in legal contingency expense in operating expenses, primarily for the Syntrix patent litigation, and selling, general and administrative expense increased $95.0 million, or 33%. Gross margin also fell to 64.2% from 67.4%. Income from operations decreased $66.6 million, and the effective tax rate was 21.3%, down from 32.1%.
What is the Syntrix litigation and what is its financial exposure?
Syntrix Biosystems alleged that Illumina's BeadChip kits infringe U.S. Patent No. 6,951,682 and misappropriated trade secrets. A jury found infringement in March 2013, and the court entered a Final Amended Judgment of $115.1 million, plus an ongoing 8% royalty on accused sales until the patent expires on September 16, 2019. Illumina recorded a $132.9 million legal contingency accrual, filed a notice of appeal in December 2013, and deposited $12.0 million of accrued royalties with the court.
How much liquidity does Illumina have and what debt does it carry?
At December 29, 2013, cash, cash equivalents and short-term investments totaled $1.17 billion, including $711.6 million of cash and cash equivalents. The company had $920.0 million principal amount of 0.25% convertible senior notes due 2016 and $29.6 million of 0.625% convertible notes due February 15, 2014. Management stated that current resources, together with operating cash flow, are expected to fund near-term needs for at least the next 12 months.
What drove revenue growth and what is the outlook?
Revenue growth was driven by sequencing consumables, which rose 21% to $880.3 million, and instrument revenue, which rose 18% to $371.5 million, mainly from higher HiSeq shipments. Management expects research and development expense to increase in 2014, and backlog was approximately $330 million at year-end. The company also announced the HiSeq X Ten and NextSeq 500 in January 2014.
06—Continue