Illumina (ILMN) reported an EPS of 16 cents in the first quarter of 2011 in line with the year-ago period EPS. However, after adjusting for certain one-time items, the EPS was 35 cents, beating the Zacks Consensus Estimate of 31 cents and 66.6% higher than the first quarter of 2010.
Revenues were $282.5 million, surpassing the Zacks Consensus Estimate of $263 million and 47% higher than the year-ago quarter driven by a strong 53.5% growth in product revenues, partially offset by 14.4% decline in service revenue. The company derives 94.4% of its total revenues from products and the remaining comes from services.
Illumina derives product revenues from the sale of Microarrays and DNA Sequencing products. Product revenues consist of Consumables and Instruments, both of which generated sales of $148 million (annualized growth of 29.8%) and $114 million (up 100%), respectively.
While significant growth in sequencing products and expanded info base of sequencers were responsible for the robust growth in consumables, the growth in instrument revenues is attributable to the success of HiSeq 2000 instrument after its commercial launch in 2010.
Illumina is in a continuous process to scale up its capacity in the quarter in order to meet the growing demand for HiSeq. As a result, the instrument backlog got reduced to a desirable level leading to shipment of HiSeq systems within commercially reasonable lead times. In addition, strong demand for the company’s HiScan and HiScanSQ systems during the quarter, helped boost the instrument revenue.
Services and other revenues, consisting of genotyping and sequencing services as well as instrument maintenance contracts, were $16 million, down 11.1% year over year. The higher revenue in the prior year quarter resulted from delivery of a multimillion dollar service contract in that period.
Gross margin of 71.6% during the quarter expanded 200 basis points (bps) from the year-ago period. Gross margin improvement primarily resulted from an increased mix of sequencing consumables revenue with the growing installed base of HiSeq. The company’s selling general and administrative (SG&A) expenses and research and development expenses increased 50.9% (to $65.9 million) and 14.9% (to $50.2 million), respectively. However operating margin of 25.4% expanded 560 bps from the first quarter of 2010.
Illumina exited the quarter with cash and cash equivalents of $410.3 million, up from $248.9 million at the end of January 2, 2011. The company generated $89 million in cash flow from operations, of which $12 million was for capital expenditures resulted in $76 million in free cash flow. This is 59% higher than free cash flows of $48 million in the year ago period. Strong collections during the reported quarter not only improved free cash flows but also improved days sales outstanding (DSO) to 59 days from 74 days in the first quarter of prior year. DSO in the fourth quarter of 2010 was 58 days.
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