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Illumina Reports Financial Results For Third Quarter Of Fiscal Year 2012

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 investments 889,977 886,590
Accounts receivable, net 218,145 173,886
Inventory, net 147,684 128,781
Deferred tax assets, current portion 27,229 23,188
Prepaid expenses and other current assets 20,112   29,196
Total current assets 1,646,236 1,544,619
Property and equipment, net 154,869 143,483
Goodwill 370,189 321,853
Intangible assets, net 134,829 106,475
Deferred tax assets, long-term portion 54,410 19,675
Other assets 77,450   59,735
Total assets $ 2,437,983   $ 2,195,840
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 74,971 $ 49,806
Accrued liabilities 191,821 177,115
Long-term debt, current portion 36,307  
Total current liabilities 303,099 226,921
Long-term debt 797,162 807,369
Other long-term liabilities 111,690 80,613
Conversion option subject to cash settlement 3,818 5,722
Stockholders’ equity 1,222,214   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 Ended Nine 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 revenue 23,456   15,203   62,358   48,580  
Total revenue 285,874   235,499   839,251   805,464  
Cost of Revenue:
Cost of product revenue (a) 75,873 68,764 230,935 238,719
Cost of service and other revenue (a) 10,540 6,585 28,761 19,178
Amortization of acquired intangible assets 3,588   3,035   9,674   9,055  
Total cost of revenue 90,001   78,384   269,370   266,952  
Gross profit 195,873   157,115   569,881   538,512  
Operating Expenses:
Research and development (a) 54,056 50,399 174,118 151,400
Selling, general and administrative (a) 69,791 66,031 206,276 200,925
Unsolicited tender offer related expense 3,956 18,742
Restructuring charges 138 3,434
Headquarter relocation expense 19,475 6,519 23,445 11,583
Acquisition related (gain) expense, net (357 ) (2,598 ) 2,460   2,442  
Total operating expenses 147,059   120,351   428,475   366,350  
Income from operations 48,814 36,764 141,406 172,162
Other expense, net (5,169 ) (8,973 ) (22,701 ) (59,339 )
Income before income taxes 43,645 27,791 118,705 112,823
Provision for income taxes 13,897   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 share 122,930   122,079   122,929   124,017  
Shares used in calculating diluted net income per share 132,507   135,966   133,126   143,620  
                       
(a) Includes total stock-based compensation expense for stock based awards:
 
Three Months Ended Nine 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 revenue 142 194 327 536
Research and development 7,764 8,621 22,878 24,810
Selling, general and administrative 13,238   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 equivalents 619     (551 )   450   (70 )
Net increase (decrease) in cash and cash equivalents 26,677 (31,238 ) 40,111 (19,101 )
Cash and cash equivalents, beginning of period 316,412     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     $ 67,859     $ 161,317   $ 199,154  

 

(a) Free cash flow, which is a non-GAAP financial measure, is calculated as net cash provided by operating activities reduced by purchases of property and equipment. Free cash flow is useful to management as it is one of the metrics used to evaluate our performance and to compare us with other companies in our industry. However, our calculation of free cash flow may not be comparable to similar measures used by other companies.

Illumina, Inc.
Results of Operations - Non-GAAP
(In thousands, except per share amounts)
(unaudited)
   
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME PER SHARE:
 
Three Months Ended Nine Months Ended
September 30, 2012 October 2, 2011 September 30, 2012 October 2, 2011
GAAP net income per share - diluted $ 0.22 $ 0.15 $ 0.60 $ 0.52
Pro forma impact of weighted average shares (a) 0.02
Adjustments to net income:
Headquarter relocation expense (b) 0.15 0.05 0.18 0.08
Non-cash interest expense (c) 0.07 0.07 0.20 0.17
Unsolicited tender offer related charges 0.03 0.14
Amortization of acquired intangible assets 0.03 0.02 0.08 0.07
Contingent compensation expense (d) 0.01 0.04 0.04
Restructuring charges 0.03
Acquisition related (gain) expense, net (e) (0.02 ) 0.02 0.02
Legal contingencies 0.02
Impairment of in-process research and development 0.16
Loss on extinguishment of debt 0.01 0.27
Incremental non-GAAP tax expense (f) (0.10 ) (0.06 ) (0.31 ) (0.24 )
Non-GAAP net income per share - diluted (g) $ 0.41   $ 0.22   $ 1.16   $ 0.95  
Shares used in calculating non-GAAP diluted net income per share 131,601   134,674   132,185   138,735  
 
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:
GAAP net income $ 29,748 $ 20,151 $ 79,351 $ 74,908
Headquarter relocation expense (b) 19,475 6,519 23,445 11,583
Non-cash interest expense (c) 8,846 9,200 26,230 23,953
Unsolicited tender offer related charges 3,956 18,742
Amortization of acquired intangible assets 3,740 3,188 10,130 9,501
Contingent compensation expense (d) 1,496 496 4,804 5,326
Restructuring charges 138 3,434
Acquisition related (gain) expense, net (e) (357 ) (2,598 ) 2,460 2,442
Legal contingencies 3,021
Impairment of in-process research and development 21,438
Loss on extinguishment of debt 755 37,611
Incremental non-GAAP tax expense (f) (13,539 ) (7,983 ) (39,427 ) (32,839 )
Non-GAAP net income (g) $ 53,503   $ 29,728   $ 153,628   $ 132,485  
 
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES:
Weighted average shares used in calculation of GAAP diluted net income per share 132,507 135,966 133,126 143,620
Weighted average dilutive potential common shares issuable of redeemable convertible senior notes (a) (906 ) (1,292 ) (941 ) (4,885 )
Weighted average shares used in calculation of Non-GAAP diluted net income per share 131,601   134,674   132,185   138,735  

 

(a) Pro forma impact of weighted average shares represents the impact of double dilution associated with the accounting treatment of the company's outstanding convertible debt and the corresponding call option overlay.

(b) Headquarter relocation expense in Q3 2012 and first three quarters of 2012 consists primarily of cease-use loss recorded upon vacating our prior headquarters, double rent expense during the transition to our new headquarter facility, accretion of interest expense on lease exit liability recorded upon vacating certain buildings of our prior headquarters, and moving costs. Headquarter relocation expense recorded in Q3 2011 and first three quarters of 2011 consisted of accelerated depreciation expense and double rent expense during the transition to the new facility.

(c) Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

(d) Contingent compensation expense relates to contingent payments for post-combination services associated with acquisitions.

(e) Acquisition related (gain) expense, net during the first three quarters of 2012 year includes changes in fair value of contingent consideration of $1.7 million, $1.1 million, and $(1.1) million recorded in Q1, Q2, and Q3, respectively, and transaction costs related to acquisition of BlueGnome Ltd. of $0.7 million recorded in Q3. Acquisition related (gain) expense, net in Q3 2011 consists of change in fair value of contingent consideration of $2.6 million. Acquisition related (gain) expense, net in the first three quarters of 2011 consists of an acquired in-process research and development charge of $5.4 million in Q2 2011 related to a milestone payment for a prior acquisition, offset by changes in fair value of contingent consideration of $3.0 million.

(f) Incremental non-GAAP tax expense reflects the increase to GAAP tax expense related to the non-GAAP adjustments listed above.

(g) Non-GAAP net income per share and net income exclude the effect of the pro forma adjustments as detailed above. Non-GAAP diluted net income per share and net income are key drivers of our core operating performance and major factors in management's bonus compensation each year. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing our past and future core operating performance.

Illumina, Inc.
Results of Operations - Non-GAAP (continued)
(Dollars in thousands)
(unaudited)
 
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF OPERATIONS AS A PERCENT OF REVENUE:
Three Months Ended Nine Months Ended
September 30, 2012   October 2, 2011 September 30, 2012   October 2, 2011
GAAP gross profit $ 195,873   68.5 % $ 157,115   66.7 % $ 569,881   67.9 % $ 538,512   66.9 %
Stock-based compensation expense 2,070 0.7 % 2,149 0.9 % 5,911 0.7 % 5,803 0.7 %
Amortization of acquired intangible assets 3,588 1.3 % 3,035 1.3 % 9,674 1.1 % 9,055 1.1 %
Legal contingencies         3,021   0.4 %    
Non-GAAP gross profit $ 201,531   70.5 % $ 162,299   68.9 % $ 588,487   70.1 % $ 553,370   68.7 %
 
Research and development expense $ 54,056 18.9 % $ 50,399 21.4 % $ 174,118 20.7 % $ 151,400 18.8 %
Stock-based compensation expense (7,764 ) (2.7 )% (8,621 ) (3.7 )% (22,878 ) (2.7 )% (24,810 ) (3.1 )%
Contingent compensation expense (a) (754 ) (0.3 )% (775 ) (0.3 )% (2,218 ) (0.2 )% (4,067 ) (0.5 )%
Impairment of in-process research and development         (21,438 ) (2.6 )%    
Non-GAAP research and development expense $ 45,538   15.9 % $ 41,003   17.4 % $ 127,584   15.2 % $ 122,523   15.2 %
 
Selling, general and administrative expense $ 69,791 24.4 % $ 66,031 28.0 % $ 206,276 24.6 % $ 200,925 24.9 %
Stock-based compensation expense (13,238 ) (4.5 )% (13,801 ) (5.8 )% (41,359 ) (4.9 )% (39,663 ) (4.8 )%
Contingent compensation (expense) gain (a) (742 ) (0.3 )% 279 0.1 % (2,586 ) (0.3 )% (1,259 ) (0.2 )%
Amortization of acquired intangible assets (152 ) (0.1 )% (152 ) (0.1 )% (456 ) (0.1 )% (446 ) (0.1 )%
Non-GAAP selling, general and administrative expense $ 55,659   19.5 % $ 52,357   22.2 % $ 161,875   19.3 % $ 159,557   19.8 %
 
GAAP operating profit $ 48,814 17.1 % $ 36,764 15.6 % $ 141,406 16.8 % $ 172,162 21.4 %
Stock-based compensation expense 23,072 8.1 % 24,571 10.4 % 70,148 8.4 % 70,276 8.7 %
Headquarter relocation expense (b) 19,475 6.8 % 6,519 2.8 % 23,445 2.7 % 11,583 1.4 %
Unsolicited tender offer related charges 3,956 1.4 % 18,742 2.2 %
Amortization of acquired intangible assets 3,740 1.3 % 3,187 1.4 % 10,130 1.2 % 9,501 1.2 %
Contingent compensation gain (expense) (a) 1,496 0.5 % 496 0.2 % 4,804 0.6 % 5,326 0.7 %
Restructuring charges 138 3,434 0.4 %
Acquisition related (gain) expense, net (c) (357 ) (0.1 )% (2,598 ) (1.1 )% 2,460 0.3 % 2,442 0.3 %
Impairment of in-process research and development 21,438 2.6 %
Legal contingencies         3,021   0.4 %    
Non-GAAP operating profit (d) $ 100,334   35.1 % $ 68,939   29.3 % $ 299,028   35.6 % $ 271,290   33.7 %
 
GAAP other expense, net $ (5,169 ) (1.8 )% $ (8,973 ) (3.8 )% $ (22,701 ) (2.7 )% $ (59,339 ) (7.4 )%
Non-cash interest expense (e) 8,846 3.1 % 9,200 3.9 % 26,230 3.1 % 23,953 3.0 %
Loss on extinguishment of debt     755   0.3 %     37,611   4.7 %
Non-GAAP other income, net (d) $ 3,677   1.3 % $ 982   0.4 % $ 3,529   0.4 % $ 2,225   0.3 %

 

(a) Contingent compensation expense relates to contingent payments for post-combination services associated with acquisitions.

(b) Headquarter relocation expense in Q3 2012 and first three quarters of 2012 consists primarily of cease-use loss recorded upon vacating our prior headquarters, double rent expense during the transition to our new headquarter facility, accretion of interest expense on lease exit liability recorded upon vacating certain buildings of our prior headquarters, and moving costs. Headquarter relocation expense recorded in Q3 2011 and first three quarters of 2011 consisted of accelerated depreciation expense and double rent expense during the transition to the new facility.

(c) Acquisition related (gain) expense, net during the first three quarters of 2012 year includes changes in fair value of contingent consideration of $1.7 million, $1.1 million, and $(1.1) million recorded in Q1, Q2, and Q3, respectively, and transaction costs related to acquisition of BlueGnome Ltd. of $0.7 million recorded in Q3. Acquisition related (gain) expense, net in Q3 2011 consists of change in fair value of contingent consideration of $2.6 million. Acquisition related (gain) expense, net in the first three quarters of 2011 consists of an acquired in-process research and development charge of $5.4 million in Q2 2011 related to a milestone payment for a prior acquisition, offset by changes in fair value of contingent consideration of $3.0 million.

(d) Non-GAAP operating profit, and non-GAAP other income, net, exclude the effects of the pro forma adjustments as detailed above. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing our past and future core operating performance. Non-GAAP gross profit, included within the non-GAAP operating profit, is a key measure of the effectiveness and efficiency of our manufacturing processes, product mix and the average selling prices of our products and services.

(e) Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

Illumina, Inc.

Reconciliation of Non-GAAP Financial Guidance

 

The company's future performance and financial results are subject to risks and uncertainties, and actual results could differ materially from the guidance set forth below. More information on potential factors that could affect the company's financial results is included from time to time in the company's public reports filed with the SEC, including the company's Form 10-K for the fiscal year ended January 1, 2012. The company assumes no obligation to update any forward-looking statements or information.

 
Fiscal Year 2012
Gross Margin
Non-GAAP gross margin 70%
Stock-based compensation expense (1)%
Amortization of acquired intangible assets (1)%
GAAP gross margin 68%
 
Diluted net income per share
Non-GAAP diluted net income per share $1.54 - $1.59
Non-cash interest expense (a) (0.17)
Unsolicited tender offer charges (0.12)
Headquarter relocation expense (b) (0.11)
Impairment of in-process research and development (0.11)
Amortization of acquired intangible assets (0.08)
Contingent compensation expense (c) (0.04)
Restructuring charges (0.02)
Legal contingencies (0.02)
Acquisition related expense, net (d) (0.01)
Pro forma impact of weighted average shares (e) (0.01)
GAAP diluted net income per share $0.85 - $0.90

 

(a) Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

(b) We expect to incur additional headquarter relocation expenses, the majority of which are non-cash in nature. These expenses include items such as additional cease-use loss upon vacating our former headquarter facilities, accretion of interest expense on such cease-use liabilities, and double rent expense during the transition to the new facility.

(c) Contingent compensation expense represents contingent consideration for post-combination services associated with acquisitions.

(d) Acquisition related expense primarily represents changes in fair value of contingent consideration.

(e) Pro forma impact of weighted average shares represents the estimated impact of double dilution associated with the accounting treatment of the company's outstanding convertible debt and the corresponding call option overlay.

Copyright Business Wire 2010
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