01—Abstract
Summary
Summary of the 10-K filed February 11, 2020. Cited figures are marked; the original filing is the authoritative source.
Illumina, Inc. reported fiscal 2019 (52 weeks ended December 29, 2019) total revenue of $3.54 billiona, up from $3.33 billion in 2018, driven mainly by sequencing consumables and revenue from development and licensing agreements, partly offset by weakness in the direct-to-consumer (DTC) microarray market.
Gross margin rose to 69.6% from 69.0%, and income from operations was $985 millionb, or 27.8% of revenue, compared with 26.5% in 2018. Consolidated net income was $990 million, and net income attributable to Illumina stockholders was $1.00 billion, or $6.74 per diluted share. Sequencing accounted for 87% of 2019 total revenue, and consumables were 68% of revenue.
The balance sheet remained strong, with cash, cash equivalents and short-term investments of $3.41 billionc at year-end and long-term debt of $1.14 billion, consisting of convertible senior notes due 2021 and 2023. Operating cash flow was $1.05 billion. Illumina repurchased $324 million of stock in 2019, and in February 2020 its board authorized a new $750 million repurchase program.
The company terminated its merger agreement with Pacific Biosciences on January 2, 2020, and paid a $98 milliond reverse termination fee along with other Continuation Advances totaling $34 million. Management expects revenue to continue to grow in 2020, while noting ongoing DTC weakness and monitoring the effects of the coronavirus outbreak.
Risk considerations highlighted in the filing include dependence on new product launches, reliance on single-source suppliers, reimbursement and FDA regulation of diagnostic products, intense competition, and exposure to international operations, where 48% of 2019 revenue came from shipments outside the United States. The company also disclosed that the Helix deconsolidation on April 25, 2019 produced a $39 million gain, and that a possible discrete tax expense of up to $30 million could arise from a Ninth Circuit ruling.
02—Key points
Key Highlights
- Total revenue rose 6% to $3.54 billion in 2019 from $3.33 billion in 2018, led by sequencing consumables and development and licensing revenue.
- Gross margin improved to 69.6% from 69.0%, and income from operations increased to $985 million, or 27.8% of revenue, from 26.5% in 2018.
- Diluted EPS was $6.74 for 2019, compared with $5.56 in 2018; net income attributable to Illumina stockholders was $1.00 billion.
- Cash, cash equivalents and short-term investments totaled $3.41 billion at year-end, against $1.14 billion of long-term debt.
- The Pacific Biosciences merger was terminated on January 2, 2020, with a $98 million reverse termination fee paid and up to $52 million of Continuation Advances potentially repayable.
- A new $750 million share repurchase program was authorized on February 5, 2020, superseding prior authorizations.
- Direct-to-consumer microarray weakness persisted, and management expects ongoing DTC softness in 2020 while monitoring coronavirus effects.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Illumina kept $0.28.
- Revenue$3.54B100.0%
- Cost of revenue−$1.08B30.4%
- Gross profit$2.47B69.6%
- Operating costs−$1.48B41.8%
- Operating income$985.0M27.8%
- Interest, other & tax$17.0M0.5%
- Net income$1.00B28.3%
Where FY2019 revenue went
$3.54B- Cost of revenue: $1.08B, 30% of revenue
- Operating income: $985.0M, 28% of revenue
- SG&A: $835.0M, 24% of revenue
- R&D: $647.0M, 18% of revenue
Kept 28% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 11, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $3.54B$3.33B | +6.3% |
| Cost of Revenue | $1.08B$1.03B | +4.2% |
| Gross Profit | $2.47B$2.30B | +7.3% |
| R&D Expenses | $647.00M$623.00M | +3.9% |
| SG&A Expenses | $835.00M$794.00M | +5.2% |
| Operating Expenses | $1.48B$1.42B | +4.6% |
| Operating Income | $985.00M$883.00M | +11.6% |
| Interest Expense | $52.00M$57.00M | −8.8% |
| Net Income | $1.00B$826.00M | +21.3% |
| EPS (Basic) | $6.81$5.63 | +21.0% |
| EPS (Diluted) | $6.74$5.56 | +21.2% |
| Shares Outstanding (Basic) | 147.00M147.00M | 0.0% |
| Shares Outstanding (Diluted) | 149.00M149.00M | 0.0% |
05—Questions
Frequently Asked Questions
How did Illumina's revenue and profitability change in 2019?
Total revenue increased 6% to $3.54 billion from $3.33 billion. Consumables revenue rose to $2.39 billion from $2.18 billion, while instrument revenue fell to $537 million from $572 million. Income from operations was $985 million, up from $883 million, and consolidated net income was $990 million, up from $782 million.
What drove the strong 2019 results?
The filing attributes revenue growth primarily to increased sequencing consumables revenue, which grew $251 million, and to higher development and licensing agreement revenue. Gross margin benefited from more consumables as a share of revenue and from development and licensing revenue, partly offset by lower average selling prices and lower service volumes.
What happened with the Pacific Biosciences acquisition?
Illumina entered into a termination agreement with Pacific Biosciences on January 2, 2020. Illumina paid a $98 million Reverse Termination Fee, and total Continuation Advances, including payments made in 2019 and early 2020, amount to $34 million, with a further $6 million due by March 2, 2020. Up to $98 million of the fee and up to $52 million of the advances may be repayable under certain change-of-control or financing conditions.
How strong is Illumina's balance sheet and how is it returning capital?
At December 29, 2019, Illumina had $2.04 billion in cash and cash equivalents and $1.37 billion in short-term investments. Long-term debt was $1.14 billion, consisting of the 2021 and 2023 convertible notes. The company repurchased $324 million of stock in 2019 and has never paid cash dividends.
What are the main risks flagged in the filing?
Key risks include the need to continuously launch new products, reliance on limited or single-source suppliers, FDA and reimbursement uncertainty for diagnostic products, intense competition from better-resourced rivals, and international exposure, with 48% of 2019 revenue from shipments outside the United States. The filing also notes that the Ninth Circuit decision on stock compensation in cost sharing could cause a discrete tax expense of up to $30 million.
06—Continue