Illumina Reports Financial Results for Second Quarter of Fiscal Year 2013

Illumina Reports Financial Results for Second Quarter of Fiscal Year 2013

Raises Fiscal Year 2013 Guidance

SAN DIEGO--(BUSINESS WIRE)-- Illumina, Inc. (NAS: ILMN) today announced its financial results for the second quarter of 2013.


Second quarter 2013 results:

  • Revenue of $346 million, a 23% increase compared to $281 million in the second quarter of 2012
  • GAAP net income for the quarter of $36 million, or $0.26 per diluted share, compared to $23 million, or $0.18 per diluted share, for the second quarter of 2012
  • Non-GAAP net income for the quarter of $60 million, or $0.43 per diluted share, compared to $53 million, or $0.40 per diluted share, for the second quarter of 2012 (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 $89 million and free cash flow of $77 million for the quarter

Gross margin in the second quarter of 2013 was 64.6% compared to 68.8% in the prior year period. Excluding the effect of non-cash charges associated with stock compensation, amortization of acquired intangible assets, and legal contingencies, non-GAAP gross margin was 69.5% for the second quarter of 2013 compared to 70.9% in the prior year period.

Research and development (R&D) expenses for the second quarter of 2013 were $67.6 million compared to $71.2 million in the second quarter of 2012. R&D expenses included $9.0 million and $7.7 million of non-cash stock compensation expense in the second quarters of 2013 and 2012, respectively. Excluding these charges, contingent compensation, and impairment of in-process R&D, R&D expenses as a percentage of revenue were 17.0% compared to 14.7% in the prior year period.

Selling, general and administrative (SG&A) expenses for the second quarter of 2013 were $88.7 million compared to $68.5 million for the second quarter of 2012. SG&A expenses included $13.9 million and $14.3 million of non-cash stock compensation expense in the second quarters of 2013 and 2012, respectively. Excluding these charges, contingent compensation, and amortization of acquired intangible assets, SG&A expenses as a percentage of revenue were 20.3% compared to 19.4% in the prior year period.

Depreciation and amortization expenses were $23.3 million and capital expenditures were $11.5 million during the second quarter of 2013. The Company ended the second quarter of 2013 with $1.13 billion in cash, cash equivalents and short-term investments, compared to $1.35 billion as of December 30, 2012.

"We are very pleased with our operational execution for the first half of 2013 and the resulting record financial performance," said Illumina's President and Chief Executive Officer Jay Flatley. "Our business demonstrated strong trends globally and our 2013 strategic initiatives for robust long-term growth are progressing as planned. As a result we are raising our expectations for 2013 financial performance."

Updates since our last earnings release:

  • Launched the full commercial availability of BaseSpace® Apps, which includes an e-commerce system that allows customers to quickly and easily purchase Illumina and third-party bioinformatics applications
  • Applied the CE mark to the MiSeqDx™ Cystic Fibrosis System
  • Published clinical laboratory performance data for the verifi® prenatal test
  • Announced an agreement with Teva Pharmaceutical Industries and the MOR Institute for Medical Data to commercialize the verifi® prenatal test in Israel
  • Launched Phasing Analysis Service for Human Whole-Genome Sequencing empowering gene mapping studies which provide a more comprehensive view of genomic variation
  • Announced that HistoGenetics, a leader in high-resolution sequencing-based human leukocyte antigen (HLA) testing services, selected the MiSeq system for use in its CLIA laboratory
  • Acquired Advanced Liquid Logic, a leading provider of liquid handling solutions
  • Announced collaborations with leading providers of liquid handling robotic platforms to develop automation methods for TruSeq® and Nextera® Sample Preparation kits
  • Repurchased $25 million of common stock under our previously announced share repurchase program
  • Retired 3 million warrants for $125 million on July 18, 2013

Financial outlook and guidance

The non-GAAP financial guidance discussed below reflects certain pro forma adjustments to assist in analyzing and assessing our core operational performance. Please see our Reconciliation of Non-GAAP Financial Guidance included in this release for a reconciliation of the GAAP and Non-GAAP financial measures.

For fiscal 2013 the Company is projecting approximately 20% revenue growth and non-GAAP earnings per fully diluted share of $1.68 to $1.72, including the impact of the Verinata and Advanced Liquid Logic acquisitions. These projections assume full year non-GAAP gross margin of approximately 69.5%, a pro forma tax rate of approximately 30% and stock compensation expense of approximately $105 million. Full-year weighted average diluted shares outstanding, for the measurement of pro forma amounts, is expected to be approximately 138 million shares assuming the current stock price.

Quarterly conference call information

The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Tuesday, July 23, 2013. Interested parties may listen to the call by dialing 888.680.0879 (passcode: 22024538), or if outside North America by dialing 1.617.213.4856 (passcode: 22024538). 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 July 23, 2013 through July 30, 2013 by dialing 888.286.8010 (passcode: 66585327), or if outside North America by dialing 1.617.801.6888 (passcode: 66585327).

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, legal contingencies, amortization expense related to acquired intangible assets, non-cash interest expense associated with the company's convertible debt instruments that may be settled in cash, costs related to the unsolicited tender offer for the company's stock, acquisition related expense, and others that are listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release. 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; and (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)
   
June 30,

2013

December 30,

2012

ASSETS(unaudited)
Current assets:
Cash and cash equivalents$783,611$433,981
Short-term investments345,852916,223
Accounts receivable, net207,413214,975
Inventory168,070158,718
Deferred tax assets, current portion84,88730,451
Prepaid expenses and other current assets 56,558 32,700
Total current assets1,646,3911,787,048
Property and equipment, net187,362166,167
Goodwill596,588369,327
Intangible assets, net304,469130,196
Deferred tax assets, long-term portion9,71540,183
Other assets 78,677 73,164
Total assets$2,823,202$2,566,085
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$67,648$65,727
Accrued liabilities198,788201,877
Accrued legal contingencies122,713-
Long-term debt, current portion 29,731 36,967
Total current liabilities418,880304,571
Long-term debt822,169805,406
Other long-term liabilities192,167134,369
Conversion option subject to cash settlement1,3943,158
Stockholders' equity 1,388,592 1,318,581
Total liabilities and stockholders' equity$2,823,202$2,566,085
 
 Illumina, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(unaudited)
      
Three Months EndedSix Months Ended
June 30,

2013

July 1,

2012

June 30,

2013

July 1,

2012

Revenue:
Product revenue$313,497$258,839$609,667$514,475
Service and other revenue 32,597  21,768  67,385  38,902 
Total revenue346,094280,607677,052553,377
Cost of Revenue:
Cost of product revenue (a)98,15074,911188,128155,062
Cost of service and other revenue (a)15,9519,65631,08918,221
Amortization of acquired intangible assets 8,584  3,043  15,134  6,086 
Total cost of revenue 122,685  87,610  234,351  179,369 
Gross profit 223,409  192,997  442,701  374,008 
Operating Expenses:
Research and development (a)67,60871,223129,058120,062
Selling, general and administrative (a)88,70068,516173,774136,485
Legal contingencies9,516-115,369-
Acquisition related (gain) expense, net(5,725)1,080(1,904)2,817
Unsolicited tender offer related expense4,8116,69412,29514,786
Headquarter relocation(1,507)1,830(750)3,970
Restructuring -  674  -  3,296 
Total operating expenses 163,403  150,017  427,842  281,416 
Income from operations60,00642,98014,85992,592
Other expense, net (10,646) (8,193) (13,061) (17,532)
Income before income taxes49,36034,7871,79875,060
Provision for (benefit from) for income taxes 13,483  11,386  (11,492) 25,457 
Net income$35,877 $23,401 $13,290 $49,603 
Net income per basic share$0.29 $0.19 $0.11 $0.40 
Net income per diluted share$0.26 $0.18 $0.10 $0.37 
Shares used in calculating basic net income per share 124,362  123,214  124,065  122,928 
Shares used in calculating diluted net income per share 139,377  133,011  137,645  133,435 
            
(a) Includes total stock-based compensation expense for share-based awards:
Three Months EndedSix Months Ended
June 30,

2013

July 1,

2012

June 30,

2013

July 1,

2012

Cost of product revenue$1,444$1,844$2,886$3,656
Cost of service and other revenue157168311185
Research and development8,9547,68716,96015,114
Selling, general and administrative 13,897  14,348  28,514  28,121 
Stock-based compensation expense before taxes$24,452 $24,047 $48,671 $47,076 
 
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Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
    
Three Months EndedSix Months Ended
June 30,

2013

July 1,

2012

June 30,

2013

July 1,

2012

Net cash provided by operating activities$88,606$96,329$176,446$161,769
Net cash provided by (used in) investing activities247,477(9,648)182,456(151,518)
Net cash provided by (used in) financing activities5,784(30,264)(7,222)3,352
Effect of exchange rate changes on cash and cash equivalents (1,338) (199) (2,050) (169)
Net increase in cash and cash equivalents340,52956,218349,63013,434