Illumina Reports Financial Results for Third Quarter of Fiscal Year 2012

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Illumina Reports Financial Results for Third Quarter of Fiscal Year 2012

SAN DIEGO--(BUSINESS WIRE)-- Illumina, Inc. (NAS: ILMN) today announced financial results for the third quarter of 2012.

Third quarter 2012 results:

  • Revenue of $286 million, a 21% increase compared to $235 million in the third quarter of 2011.
  • GAAP net income for the quarter of $30 million, or $0.22 per diluted share, compared to net income of $20 million, or $0.15 per diluted share, for the third quarter of 2011.
  • Non-GAAP net income for the quarter of $54 million, or $0.41 per diluted share, compared to $30 million, or $0.22 per diluted share, for the third quarter of 2011 (see the table entitled "Itemized Reconciliation Between GAAP and Non-GAAP Net Income" for a reconciliation of these GAAP and non-GAAP financial measures).
  • Cash flow from operations of $51 million compared to cash flow from operations of $90 million for the third quarter of 2011 primarily due to changes in working capital associated with the timing of shipments.

Gross margin in the third quarter of 2012 was 68.5% compared to 66.7% in the prior year period. Excluding the effect of non-cash charges associated with stock compensation and amortization of acquired intangibles, non-GAAP gross margin was 70.5% for the third quarter of 2012 compared to 68.9% in the prior year period.

Research and development (R&D) expenses for the third quarter of 2012 were $54.1 million compared to $50.4 million in the third quarter of 2011. R&D expenses included $7.8 million and $8.6 million of non-cash stock compensation expense in the third quarters of 2012 and 2011, respectively. Excluding these charges and contingent compensation, R&D expenses as a percentage of revenue were 15.9% compared to 17.4% in the prior year period.

Selling, general and administrative (SG&A) expenses for the third quarter of 2012 were $69.8 million compared to $66.0 million for the third quarter of 2011. SG&A expenses included $13.2 million and $13.8 million of non-cash stock compensation expense in the third quarters of 2012 and 2011, respectively. Excluding these charges, contingent compensation, and acquired intangible asset amortization, SG&A expenses as a percentage of revenue were 19.5% compared to 22.2% in the prior year period.

Depreciation and amortization expenses were $15.8 million and capital expenditures were $17.7 million during the third quarter of 2012. The company ended the quarter with $1.2 billion in cash, cash equivalents and short-term investments which is essentially unchanged from January 1, 2012.

Highlights since our last earnings release

  • Completed the acquisition of BlueGnome, a leading provider of cytogenetics and in vitro fertilization (IVF) screening products
  • Announced expedited Individual Genome Sequencing Services (IGS), powered by HiSeq® 2500 to enable breakthrough turnaround time, available via Illumina's CLIA-certified laboratory
  • Announced an alliance with Partners HealthCare to introduce next-generation sequencing (NGS) clinical interpretation and reporting tools
  • Announced TruSight™ targeted sequencing content sets, enabling labs to offer cost-effective, streamlined, targeted sequencing solutions for genetic diseases
  • Held our inaugural 'Understand Your Genome' event
  • Launched Infinium ® HumanCore Arrays for economical large-scale genetic studies
  • Announced that the FDA selected the MiSeq® system for use in an extensive program to identify foodborne pathogens
  • Launched TruSeq® Stranded mRNA and Total RNA Sequencing Sample Preparation solutions, delivering superior data quality for challenging samples and unprecedented views of the transcriptome
  • Further strengthened Illumina's management team by appointing Paul Bianchi to Senior Vice President of Human Resources
  • Announced a favorable outcome in patent litigation against Helicos BioSciences Corporation
  • Repurchased $25 million of common stock under our previously announced share repurchase program

Financial outlook and guidance

"We are very pleased with our operational execution so far in 2012," said Jay Flatley, Illumina's President and Chief Executive Officer. "As a result of our performance and the recent announcement regarding NIH funding under the continuing resolution, we are tightening our 2012 revenue and EPS guidance ranges. However, we remain cautious given the uncertainty of the U.S. fiscal cliff as well as the outcome of the Presidential election. Accordingly, we now expect 2012 revenue to be between $1.134 billion and $1.144 billion, (previous guidance was $1.1 billion to $1.175 billion), and non-GAAP earnings per fully diluted share to be between $1.54 and $1.59 (previous guidance was $1.50 to $1.60)."

Quarterly conference call information

The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Tuesday, October 23, 2012. Interested parties may listen to the call by dialing 888-679-8038 (passcode: 10421979), or, if outside North America, by dialing +1-617-213-4850 (passcode: 10421979). Individuals may access the live teleconference in the Investor Relations section of Illumina's web site under the "Company" tab at www.illumina.com.

A replay of the conference call will be available from 4:00 pm Pacific Time (7:00 pm Eastern Time) on October 23, 2012 through October 30, 2012 by dialing 888-286-8010 (passcode: 78765276), or if outside North America by dialing +1-617-801-6888 (passcode: 78765276).

Statement regarding use of non-GAAP financial measures

The company reports non-GAAP results for diluted net income per share, net income, gross margins, operating expenses, operating margins, other income, and free cash flow in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

The company's financial measures under GAAP include substantial charges related to stock compensation expense, non-cash interest expense associated with the company's convertible debt instruments that may be settled in cash, headquarter relocation expense, costs related to unsolicited tender offer for the company's stock, amortization expense related to acquired intangible assets, contingent compensation expense, restructuring charges, legal contingencies, acquisition related expense, impairment of in-process research and development, and loss on extinguishment of debt. Per share amounts also include the double dilution associated with the accounting treatment of the company's 0.625% convertible senior notes outstanding and the corresponding call option overlay. Management believes that presentation of operating results that excludes these items and per share double dilution provides useful supplemental information to investors and facilitates the analysis of the company's core operating results and comparison of operating results across reporting periods. Management also believes that this supplemental non-GAAP information is therefore useful to investors in analyzing and assessing the company's past and future operating performance.

The company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand its business. Reconciliations between GAAP and non-GAAP results are presented in the tables of this release.

Use of forward-looking statements

This release contains projections, information about our financial outlook, earnings guidance, and other forward-looking statements that involve risks and uncertainties. These forward-looking statements are based on our expectations as of the date of this release and may differ materially from actual future events or results. Among the important factors that could cause actual results to differ materially from those in any forward-looking statements are (i) our ability to develop and commercialize further our sequencing, array, PCR, and consumables technologies and to deploy new products and applications, and expand the markets, for our technology platforms; (ii) our ability to manufacture robust instrumentation and consumables; (iii) our expectations and beliefs regarding future conduct and growth of the business and the markets in which we operate; (iv) challenges inherent in developing, manufacturing, and launching new products and services; (v) our ability to maintain our revenue and profitability during periods of research funding reduction or uncertainty and adverse economic and business conditions, including as a result of slowing economic growth in the United States or worldwide, together with other factors detailed in our filings with the Securities and Exchange Commission, including our most recent filings on Forms 10-K and 10-Q, or in information disclosed in public conference calls, the date and time of which are released beforehand. We undertake no obligation, and do not intend, to update these forward-looking statements, to review or confirm analysts' expectations, or to provide interim reports or updates on the progress of the current financial quarter.

About Illumina

Illumina (www.illumina.com) is a leading developer, manufacturer, and marketer of life science tools and integrated systems for the analysis of genetic variation and function. We provide innovative sequencing and array-based solutions for genotyping, copy number variation analysis, methylation studies, gene expression profiling, and low-multiplex analysis of DNA, RNA, and protein. We also provide tools and services that are fueling advances in consumer genomics and diagnostics. Our technology and products accelerate genetic analysis research and its applications, paving the way for molecular medicine and ultimately transforming healthcare.

Illumina, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
 
September 30,
2012
January 1,
2012
ASSETS(unaudited)
Current assets:
Cash and cash equivalents$343,089$302,978
Short-term investments889,977886,590
Accounts receivable, net218,145173,886
Inventory, net147,684128,781
Deferred tax assets, current portion27,22923,188
Prepaid expenses and other current assets20,112 29,196
Total current assets1,646,2361,544,619
Property and equipment, net154,869143,483
Goodwill370,189321,853
Intangible assets, net134,829106,475
Deferred tax assets, long-term portion54,41019,675
Other assets77,450 59,735
Total assets$2,437,983 $2,195,840
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$74,971$49,806
Accrued liabilities191,821177,115
Long-term debt, current portion36,307 
Total current liabilities303,099226,921
Long-term debt797,162807,369
Other long-term liabilities111,69080,613
Conversion option subject to cash settlement3,8185,722
Stockholders' equity1,222,214 1,075,215
Total liabilities and stockholders' equity$2,437,983 $2,195,840
 
Illumina, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(unaudited)
       
Three Months EndedNine Months Ended
September 30,
2012
October 2,
2011
September 30,
2012
October 2,
2011
Revenue:
Product revenue$262,418$220,296$776,893$756,884
Service and other revenue23,456 15,203 62,358 48,580 
Total revenue285,874 235,499 839,251 805,464 
Cost of Revenue:
Cost of product revenue (a)75,87368,764230,935238,719
Cost of service and other revenue (a)10,5406,58528,76119,178
Amortization of acquired intangible assets3,588 3,035 9,674 9,055 
Total cost of revenue90,001 78,384 269,370 266,952 
Gross profit195,873 157,115 569,881 538,512 
Operating Expenses:
Research and development (a)54,05650,399174,118151,400
Selling, general and administrative (a)69,79166,031206,276200,925
Unsolicited tender offer related expense3,95618,742
Restructuring charges1383,434
Headquarter relocation expense19,4756,51923,44511,583
Acquisition related (gain) expense, net(357)(2,598)2,460 2,442 
Total operating expenses147,059 120,351 428,475 366,350 
Income from operations48,81436,764141,406172,162
Other expense, net(5,169)(8,973)(22,701)(59,339)
Income before income taxes43,64527,791118,705112,823
Provision for income taxes13,897 7,640 39,354 37,915 
Net income$29,748 $20,151 $79,351 $74,908 
Net income per basic share$0.24 $0.17 $0.65 $0.60 
Net income per diluted share$0.22 $0.15 $0.60 $0.52 
Shares used in calculating basic net income per share122,930 122,079 122,929 124,017 
Shares used in calculating diluted net income per share132,507 135,966 133,126 143,620 
            
(a) Includes total stock-based compensation expense for stock based awards:
 
Three Months EndedNine Months Ended
September 30,
2012
October 2,
2011
September 30,
2012
October 2,
2011
Cost of product revenue$1,928$1,955$5,584$5,267
Cost of service and other revenue142194327536
Research and development7,7648,62122,87824,810
Selling, general and administrative13,238 13,801 41,359 39,663 
Stock-based compensation expense before taxes$23,072 $24,571 $70,148 $70,276 
 
Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
   
Three Months Ended Nine Months Ended
September 30,
2012
 October 2,
2011
 September 30,
2012
October 2,
2011
Net cash provided by operating activities$51,228$90,042$212,997$249,840
Net cash (used in) provided by investing activities(17,105)67,101(168,623)(358,039)
Net cash (used in) provided by financing activities(8,065)(187,830)(4,713)89,168
Effect of exchange rate changes on cash and cash equivalents619  (551) 450 (70)
Net increase (decrease) in cash and cash equivalents26,677(31,238)40,111(19,101)
Cash and cash equivalents, beginning of period316,412  261,084  302,978 248,947 
Cash and cash equivalents, end of period$343,089  $229,846  $343,089 $229,846 
 
Calculation of free cash flow (a):
Net cash provided by operating activities$51,228$90,042$212,997$249,840
Purchases of property and equipment(17,650) (22,183) (51,680)(50,686)
Free cash flow$33,578 
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