Illumina (ILMN) reported an EPS of 22 cents in the second quarter of 2011, surpassing the year-ago period EPS by a penny. However, after adjusting for certain one-time items, the EPS was 38 cents, beating the Zacks Consensus Estimate of 36 cents and 11.8% higher than the second quarter of 2010.
Revenues were $287.5 million, 36% higher than the year-ago quarter driven by a strong 35.9% growth in product revenues and 30.8% increase in service revenue. The company derives 93.8% 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 $159 million (annualized growth of 26.2%) and $107 million (up 53%), 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 HiSeqs, HiScan and HiScanSQ systems instrument.
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 $18 million, up 38.4% year over year driven by the increase in maintenance contracts for the company’s install base of sequencing systems.
Gross margin of 67.2% during the quarter contracted 170 basis points (bps) from the year-ago period primarily due to 41.7% increase in cost of product. The company’s selling general and administrative (SG&A) expenses and research and development expenses increased 30.3% (to $69.2 million) and 16.5% (to $50.8 million), respectively. As a result operating margin was down by 220 bps to 44.3%.
Illumina exited the quarter with cash and cash equivalents of $261.1 million, up from $248.9 million at the end of January 2, 2011. The company generated $71.2 million in cash flow from operations compared to $77.2 million in the prior year period.
Outlook
For 2011, Illumina expects 24%-26% sales growth from fiscal 2010 revenue of $902.7 million. Moreover, for the full year, EPS is expected to grow 33% – 36% from 2010 EPS of $1.06.
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