Strong Demand Boosts Illumina Inc. in Q1

Source: Illumina.

Investors were expecting good news from Illumina Inc. . They weren't disappointed.

The genomic-sequencing technology company announced its first-quarter results on Tuesday after the market closed. Shares closed the day up more than 3%, and Illumina's earnings announcement provided more of a spark, with the stock gaining another 3% in early after-hours trading. Here are the highlights.

By the numbersIllumina's revenue increased 28% to $539 million from the $421 million reported in the first quarter of 2014. Analysts expected revenue of $524.45 million. The company's first-quarter revenue would have looked even better were it not for currency fluctuations. On a constant currency basis, revenue was up 33% year over year.

First-quarter GAAP earnings came in at $137 million, or $0.92 per diluted share. Non-GAAP earnings were $135 million, or $0.91 per diluted share-- a nearly 72% year-over-year jump. That blew away the consensus analysts' estimate of $0.72 per share.

Gross margin rose during the first quarter of 2015 to 69.6%, from 66.1%in the same quarter of the prior year. That was a notable accomplishment, considering that expenses grew considerably. Illumina reported research and development expenses of $91.8million, compared with $77.0million in the prior year period.Selling, general, and administrative expenses for the first quarter were $116.3million, compared with $109.6million during the same quarter of 2014.

Behind the numbers It's easy to spot the reason for Illumina's first-quarter success: Customers clearly like and want the company's products. Illumina CEO Jay Flatley noted last quarter that the company's "order funnel remains healthy" and expected the trend to continue into fiscal 2015.The first-quarter results confirmed that outlook. Flatley said the strong earnings growth stemmed from "strong demand for products across our sequencing portfolio."

One major source of that strong demand is the HiSeq 2500 sequencing system. Illumina reported a surge in orders at the end of 2014. But the HiSeq 2500 has more power than some customers require. That's where the NextSeq 500 desktop sequencer fills the gap, particularly in the oncology market.

Illumina also claims another growth engine with itsmassive-power HiSeq X Ten genomic sequencing system. The system allows an entire genome to be sequenced for around $1,000. As Jay Flatley remarked in his fourth-quarter comments, customers view the HiSeq platform as the next-generation sequencing "gold standard."

Looking aheadThis is shaping up to be another solid year for Illumina. The company reaffirmed its projection of around 20% revenue growth. It also raised 2015 non-GAAP earnings projections to a range of $3.36-$3.42 per diluted share, from the$3.12-$3.18 range it provided previously.

That optimism is probably based on expectations of continued strong demand for existing products combined with high hopes for new products. Illumina rolls out its HiSeq X Five system in the second quarter of this year. It has also recently launchedTruSight HLA, a solution that focuses on typing the HLA gene region, and theNeoPrep Library Prep System, which simplifies library preparation for genetic sequencing.

Illumina still commands a hefty price tag, with a trailing-12-month earnings multiple of 84 and a forward multiple of nearly 51. However, with solid results like the company posted in the first quarter of 2015, the market appears to have no problems in continuing to reward Illumina with a premium valuation.

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Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Illumina. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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