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Illumina Inc. Keeps Up Its Winning Ways Thanks to NovaSeq Sales Growth

There was plenty to like when Illumina (NASDAQ: ILMN) reported its second-quarter results in August. Pretty much everything that could go right has gone right for the gene-sequencing leader. Illumina's stock performance so far in 2017 has reflected the good news for the company.

The streak of good news was at risk, however, when Illumina provided an update on its third-quarter performance after the market closed on Tuesday. Any concerns that investors had were alleviated, though: Illumina yet again delivered a strong quarter. Here are the highlights.

Image source: Getty Images.

Illumina results: The raw numbers

Metric 

Q3 2017 

Q3 2016 

Year-Over-Year Change

Sales

 $714 million $607 million

17.6%

Net income from continuing operations

 $163 million $129 million 

26.4%

Adjusted EPS

 $1.11  $0.97

14.4%

Data Source: Illumina. 

What happened with Illumina this quarter?

Illumina continues to see strong demand for its new NovaSeq sequencing system. Its year-over-year revenue growth in the third quarter significantly improved from the second quarter of 2017. This isn't unexpected. Illumina increased its manufacturing capacity. Also, the company had anticipated some uptick in sales as academic customers worked through the process of applying for grants.

But robust top-line growth wasn't the only good news for Illumina in the third quarter. The company had expected higher expenses in the second half of 2017 due to the launch of Helix, its consumer genomics spin-off, and other investments. Expenses were indeed higher than in the second quarter, but not by a lot. Illumina's third-quarter operating expense totaled $301 million, up 13.6% year over year and up only 3.4% over the previous quarter.

One thing investors really like to see is solid cash flow growth. Illumina certainly delivered in the third quarter. The company reported cash flow from operations of $235 million, compared to $176 million in the prior-year period. Illumina generated free cash flow of $153 million, up nicely from the $119 million posted in the same quarter of 2016.

There were also several notable developments since Illumina's second-quarter update, including:

  • Release of the NovaSeq S4 flow cell for the NovaSeq 6000 system
  • Launch of the Nextera DNA Flex library preparation kit
  • Establishment of Verogen, Inc., a new independent company focused on the forensic genomics market
  • Repurchase of $75 million of stock under the previously announced share buyback program

What management had to say

Illumina CEO Francis deSouza said:

We delivered strong financial results in the third quarter with revenue growth across both our sequencing and microarray portfolios. NovaSeq momentum continued to grow in the third quarter, with close to 200 NovaSeq systems now in customers' hands. Further innovations, including the recently launched S4 flow cell, Xp workflow and Nextera DNA Flex library preparation kit, are expected to fuel incremental NovaSeq demand.

Looking forward

Based on its continued solid performance so far this year, Illumina boosted its full-year 2017 guidance. The company now expects 13% year-over-year revenue growth instead of 12% as previously estimated. Illumina projects GAAP earnings per share of $5.56 to $5.61, up from its previous guidance of $5.36 to $5.46. It also now expects non-GAAP earnings per share between $3.73 and $3.78, higher than the range of $3.60 to $3.70 provided earlier in the year.

NovaSeq is accomplishing exactly what the company wanted it to do -- generating excitement among existing customers and winning over new customers. Helix isn't a big factor for Illumina yet, but that could change in 2018. While the potential exists for bumps along the way, Illumina appears to be in great shape to keep the good times rolling. 

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Illumina. The Motley Fool has a disclosure policy.