01—Abstract
Summary
Summary of the 10-K filed February 18, 2015. Cited figures are marked; the original filing is the authoritative source.
Illumina, Inc. reported total revenue of $1.86 billiona for the fiscal year ended December 28, 2014, up from $1.42 billion in 2013, with product revenue of $1.62 billion and service and other revenue of $241.8 million.
Net income rose to $353.4 millionb ($2.37 per diluted share) from $125.3 million in 2013. Gross margin improved to 69.7% from 64.2%, helped by a $10.4 million cost-of-sales reversal tied to the Syntrix litigation settlement. Income from operations increased to $514.7 million, aided by an $82.1 million Syntrix legal contingency gain, partly offset by a $48.8 million research and development charge from the Sequenom patent pooling settlement.
The balance sheet shows cash, cash equivalents and short-term investments of $1.34 billionc at year-end, against $1.46 billion of total stockholders' equity and $1.29 billion of net carrying amount of convertible notes. In June 2014 the company issued $1.15 billion of convertible notes due 2019 and 2021 and used $1.24 billion in cash and proceeds to repurchase $600.0 million of its 2016 notes, leaving $320.0 million of 2016 notes outstanding, which became convertible and are classified as current. The company repurchased $237.2 million of stock during 2014, with $130.4 million remaining under authorized programs.
Management expects revenue to continue increasing in 2015 and expects research and development and selling, general and administrative expenses to grow. Key risks the filing highlights include intense competition, dependence on research funding from governments and academic institutions, reliance on single-source suppliers, the evolving FDA regulatory treatment of molecular diagnostic and laboratory developed tests, and potential losses from conversion of its convertible notes. The company also notes that backlog was approximately $540 milliond at December 28, 2014, of which about $130 million relates to the Genomics England sequencing services project.
02—Key points
Key Highlights
- Total revenue of $1,861.4 million in 2014, up 31% from $1,421.2 million in 2013.
- Net income of $353.4 million ($2.37 per diluted share), compared with $125.3 million in 2013.
- Gross margin of 69.7% in 2014, up from 64.2% in 2013, with a $10.4 million Syntrix-related cost of sales reversal.
- Income from operations of $514.7 million, including an $82.1 million Syntrix legal contingency gain and a $48.8 million R&D charge tied to the Sequenom settlement.
- Instrument revenue rose 51% to $562.2 million, and consumable revenue rose 18% to $1,041.0 million, driven by HiSeq X Ten and NextSeq platforms.
- Cash, cash equivalents and short-term investments totaled $1.3 billion at year-end; $1.15 billion of 2019 and 2021 convertible notes were issued in June 2014.
- Backlog of approximately $540 million at December 28, 2014, versus $330 million a year earlier, including about $130 million tied to the Genomics England project.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Illumina kept $0.19.
- Revenue$1.86B100.0%
- Cost of revenue−$563.6M30.3%
- Gross profit$1.30B69.7%
- Operating costs−$783.0M42.1%
- Operating income$514.7M27.7%
- Interest, other & tax−$161.4M8.7%
- Net income$353.4M19.0%
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 18, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $1.86B$1.42B | +31.0% |
| Cost of Revenue | $563.65M$509.29M | +10.7% |
| Gross Profit | $1.30B$911.89M | +42.3% |
| R&D Expenses | $388.06M$276.74M | +40.2% |
| SG&A Expenses | $466.28M$381.04M | +22.4% |
| Operating Expenses | $783.00M$777.78M | +0.7% |
| Operating Income | $514.71M$134.11M | +283.8% |
| Interest Expense | $41.73M$39.69M | +5.1% |
| Net Income | $353.35M$125.31M | +182.0% |
| EPS (Basic) | $2.61$1.00 | +161.0% |
| EPS (Diluted) | $2.37$0.90 | +163.3% |
| Shares Outstanding (Basic) | 135.55M125.08M | +8.4% |
| Shares Outstanding (Diluted) | 148.98M139.94M | +6.5% |
05—Questions
Frequently Asked Questions
How did Illumina's revenue and profitability change in 2014?
Total revenue increased 31% to $1,861.4 million, and net income rose to $353.4 million from $125.3 million in 2013. Gross margin improved to 69.7% from 64.2%. Income from operations was $514.7 million, compared with $134.1 million in 2013, helped by a net legal contingency gain and higher gross profit.
What drove the one-time items in 2014 results?
The Syntrix patent litigation was settled in November 2014 for a $70.0 million payment, producing a $109.4 million total gain, of which $82.1 million was recorded as a legal contingency gain in operating expenses and $27.3 million as a cost-of-sales reversal. A $48.8 million R&D charge was recorded for samples and patent rights received in the Sequenom settlement.
How is the company's debt structure changing?
In June 2014 Illumina issued $632.5 million of 0% convertible notes due 2019 and $517.5 million of 0.5% notes due 2021. It used the proceeds and cash on hand to repurchase $600.0 million of its 0.25% notes due 2016. As of December 28, 2014, $320.0 million of the 2016 notes remained outstanding and were classified as current liabilities because they were convertible through March 31, 2015.
What does the filing say about 2015 expectations and capital allocation?
The company expects revenue to continue increasing in 2015 and expects research and development and selling, general and administrative expenses to grow. Cash, cash equivalents and short-term investments are described as sufficient to fund near-term needs for at least 12 months. Illumina repurchased $237.2 million of stock in 2014, with $130.4 million remaining under authorized programs, and has never paid cash dividends.
What are the main risks investors should monitor?
The filing highlights intense competition from companies with greater resources, dependence on government and academic research funding, reliance on single-source suppliers, and uncertain FDA regulation of molecular diagnostic products and laboratory developed tests following October 2014 draft guidance. It also flags potential losses on conversion of convertible notes and the possibility that acquisitions may not achieve expected benefits.
06—Continue