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Illumina Annual Report, Year Ended Dec 31, 2017

Filing Date
Filed February 13, 2018
Period End
December 31, 2017
Security
ILMN
In the record · 2016–202610-K1110-Q338-K167

ILMN filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 167 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Feb ’17Feb ’17
  2. Material agreement8-K · Sep ’20Sep ’20
  3. Leadership change8-K · Sep ’22Sep ’22
  4. Material agreement8-K · Oct ’26Oct ’26

01—Abstract

Summary

Summary of the 10-K filed February 13, 2018. Cited figures are marked; the original filing is the authoritative source.

Illumina, Inc. (ILMN) reported total revenue of $2,752 milliona for fiscal 2017, up 15% from $2,398 million in 2016, driven by growth in sequencing consumables and genotyping services and the launch of the NovaSeq platform, partially offset by lower HiSeq instrument shipments.

Gross margin declined to 66.4% from 69.5%, reflecting an $18 millionb impairment of an acquired intangible asset, a higher mix of lower-margin array services, inventory reserves tied to product transitions, and lower instrument margin from the NovaSeq introduction. Income from operations was $606 million, or 22.0% of revenue, versus $587 million in 2016, while consolidated net income rose to $678 million from $428 million, largely because of a $453 million pretax gain on the deconsolidation of GRAIL in February 2017. The bottom line is that reported net income was inflated by a one-time gain, and underlying operating profitability declined as a percentage of revenue.

Income tax expense rose to $365 millionc, an effective tax rate of 35.0%, which includes a $150 million provisional charge under U.S. Tax Reform. Diluted EPS was $4.92, compared with $3.07 in 2016. Research and development expense rose to $546 million and selling, general and administrative expense to $674 million, and management expects both to continue growing.

The company ended the year with $2,145 milliond in cash, cash equivalents and short-term investments, and $1,182 million of long-term debt, including convertible senior notes due 2019 and 2021. The company expects revenue to keep increasing in 2018, and about two-thirds of its $935 million backlog at December 31, 2017 is expected to ship within fiscal 2018.

Management also cited risks including single-source suppliers, FDA and LDT regulatory uncertainty, reimbursement pressure, and intense competition. The company repurchased $251 million of common stock during 2017 and had $100 million of authorization remaining.

02—Key points

Key Highlights

  1. Total revenue rose 15% to $2,752 million in 2017, driven by sequencing consumables, genotyping services and the NovaSeq launch.
  2. Gross margin fell to 66.4% from 69.5%, including an $18 million impairment of an acquired intangible asset and lower NovaSeq instrument margin.
  3. Consolidated net income was $678 million, boosted by a $453 million pretax gain on the deconsolidation of GRAIL.
  4. Effective tax rate rose to 35.0% from 23.7%, including a $150 million provisional U.S. Tax Reform charge.
  5. Diluted EPS was $4.92 versus $3.07 in 2016.
  6. Backlog was approximately $935 million at December 31, 2017, up from $650 million, with about two-thirds expected to ship in fiscal 2018.
  7. Cash, cash equivalents and short-term investments totaled $2,145 million, against $1,182 million of long-term debt.

03—Questions

Frequently Asked Questions

  1. Why did net income rise so sharply in 2017?

    Consolidated net income increased to $678 million from $428 million, primarily because of a $453 million pretax gain recorded on the February 28, 2017 deconsolidation of GRAIL. Income from operations rose only modestly, to $606 million from $587 million.

  2. Why did gross margin decline?

    Gross margin decreased to 66.4% from 69.5%. The filing attributes this to an $18 million impairment of an acquired intangible asset, a higher mix of lower-margin array services, inventory reserves related to product transitions, and lower instrument margin from the NovaSeq introduction.

  3. What is the outlook for revenue and expenses?

    The company states that it expects revenue to continue to increase in 2018. It also expects research and development and selling, general and administrative expenses to continue to grow, and it expects R&D expense to increase during 2018.

  4. How much backlog does the company have, and when will it ship?

    Backlog was approximately $935 million at December 31, 2017, compared with $650 million a year earlier. The company expects approximately two-thirds of the December 31, 2017 backlog to ship within fiscal 2018.

  5. What are the main risks flagged in the filing?

    Key risks include dependence on new product launches and third-party suppliers, some of which are single-source, intense competition, FDA and laboratory-developed test regulation, third-party reimbursement limits, and possible declines in government and academic research funding.

04—Continue

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