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Illumina Reports Record Financial Results For Fourth Quarter And 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; 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)
     
December 30,

2012

January 1,

2012

ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 433,981 $ 302,978
Short-term investments 916,223 886,590
Accounts receivable, net 214,975 173,886
Inventory, net 158,718 128,781
Deferred tax assets, current portion 30,451 23,188
Prepaid expenses and other current assets   32,700   29,196
Total current assets 1,787,048 1,544,619
Property and equipment, net 166,167 143,483
Goodwill 369,327 321,853
Intangible assets, net 130,196 106,475
Deferred tax assets, long-term portion 40,183 19,675
Other assets   73,164   59,735
Total assets $ 2,566,085 $ 2,195,840
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 65,727 $ 49,806
Accrued liabilities 201,877 177,115
Long-term debt, current portion   36,967  
Total current liabilities 304,571 226,921
Long-term debt 805,406 807,369
Other long-term liabilities 134,369 80,613
Conversion option subject to cash settlement 3,158 5,722
Stockholders’ equity   1,318,581   1,075,215
Total liabilities and stockholders’ equity $ 2,566,085 $ 2,195,840
 
 

Illumina, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(unaudited)
             
Three Months Ended Year Ended
December 30,

2012

January 1,

2012

December 30,

2012

January 1,

2012

Revenue:
Product revenue $ 278,933 $ 230,396 $ 1,055,826 $ 987,280
Service and other revenue   30,332   19,675     92,690   68,255  
Total revenue 309,265 250,071 1,148,516 1,055,535
Cost of Revenue:
Cost of product revenue (a) 86,348 69,509 317,283 308,228
Cost of service and other revenue (a) 14,791 6,940 43,552 26,118
Amortization of acquired intangible assets   4,479   3,036     14,153   12,091  
Total cost of revenue   105,618   79,485     374,988   346,437  
Gross profit   203,647   170,586     773,528   709,098  
Operating Expenses:
Research and development (a) 56,907 45,513 231,025 196,913
Selling, general and administrative (a) 79,715 60,918 285,991 261,843
Unsolicited tender offer related expense 4,394 23,136
Headquarter relocation expense 2,883 30,243 26,328 41,826
Restructuring charges 88 8,136 3,522 8,136
Acquisition related expense (gain), net   314   (1,523 )   2,774   919  
Total operating expenses   144,301   143,287     572,776   509,637  
Income from operations 59,346 27,299 200,752 199,461
Other income (expense), net   44,557   (7,077 )   21,856   (66,416 )
Income before income taxes 103,903 20,222 222,608 133,045
Provision for income taxes   32,000   8,502     71,354   46,417  
Net income $ 71,903 $ 11,720   $ 151,254 $ 86,628  
Net income per basic share $ 0.58 $ 0.10   $ 1.23 $ 0.70  
Net income per diluted share $ 0.53 $ 0.09   $ 1.13 $ 0.62  
Shares used in calculating basic net income per share   123,211   121,541     122,999   123,399  
Shares used in calculating diluted net income per share   135,393   124,888     133,693   138,937  
                       

(a) Includes total stock-based compensation expense for stock-based awards:

 
Three Months Ended Year Ended
December 30,

2012

January 1,

2012

December 30,

2012

January 1,

2012

Cost of product revenue $ 1,991 $ 1,684 $ 7,575 $ 6,951
Cost of service and other revenue 134 159 461 695
Research and development 8,001 7,295 30,879 32,105
Selling, general and administrative   14,050   12,678     55,409   52,341  
Stock-based compensation expense before taxes $ 24,176 $ 21,816   $ 94,324 $ 92,092  
 
 

Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
       
Three Months Ended Year Ended
December 30,

2012

January 1,

2012

December 30,

2012

January 1,

2012

Net cash provided by operating activities $ 78,876 $ 108,300 $ 291,873 $ 358,140
Net cash provided by (used in) investing activities 18,611 (42,960 ) (150,012 ) (400,999 )
Net cash (used in) provided by financing activities (6,042 ) 7,848 (10,755 ) 97,016
Effect of exchange rate changes on cash and cash equivalents   (553 )   (56 )   (103 )   (126 )
Net increase in cash and cash equivalents 90,892 73,132 131,003 54,031
Cash and cash equivalents, beginning of period   343,089     229,846     302,978     248,947  
Cash and cash equivalents, end of period $ 433,981   $ 302,978   $ 433,981   $ 302,978  
 
Calculation of free cash flow (a):
Net cash provided by operating activities $ 78,876 $ 108,300 $ 291,873 $ 358,140
Purchases of property and equipment   (17,101 )   (27,114 )   (68,781 )   (77,800 )
Free cash flow $ 61,775   $ 81,186   $ 223,092   $ 280,340  
 
                                 
 

(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 Year Ended
December 30,

2012

January 1,

2012

December 30,

2012

January 1,

2012

GAAP net income per share - diluted $ 0.53 $ 0.09 $ 1.13 $ 0.62
Pro forma impact of weighted average shares (a) 0.02 0.03
Adjustments to net income:
Cost-method investment related gains, net (b) (0.34 ) (0.35 )
Non-cash interest expense (c) 0.07 0.07 0.27 0.24
Recovery of previously impaired note receivable (0.04 ) (0.05 )
Amortization of acquired intangible assets 0.04 0.02 0.12 0.09
Unsolicited tender offer related expense 0.03 0.17
Contingent compensation expense (d) 0.03 0.01 0.07 0.04
Headquarter relocation expense (e) 0.02 0.24 0.20 0.31
Amortization of inventory revaluation costs (f) 0.01 0.01
Acquisition related expense (gain), net (g) (0.01 ) 0.03 0.01
Restructuring charges 0.07 0.02 0.06
Impairment of in-process research and development 0.02
Legal contingencies (0.02 ) 0.16 (0.02 )
Loss on extinguishment of debt 0.28
Incremental non-GAAP tax expense (h)   0.07     (0.12 )   (0.23 )   (0.36 )
Non-GAAP net income per share - diluted (i) $ 0.42   $ 0.35   $ 1.59   $ 1.30  
Shares used in calculating non-GAAP diluted net income per share   134,348     124,409     132,725     135,154  
 
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:
 
GAAP net income $ 71,903 $ 11,720 $ 151,254 $ 86,628
Cost-method investment related gains, net (b) (45,911 ) (45,911 )
Non-cash interest expense (c) 8,950 8,542 35,180 32,495
Recovery of previously impaired note receivable (6,000 ) (6,000 )
Amortization of acquired intangible assets 5,411 3,188 15,541 12,689
Unsolicited tender offer related expense 4,394 23,136
Contingent compensation expense (d) 4,347 732 9,151 6,057
Headquarter relocation expense (e) 2,883 30,243 26,328 41,826
Amortization of inventory revaluation costs (f) 1,458 1,458
Acquisition related (gain) expense, net (g) 314 (1,523 ) 2,774 919
Restructuring charges 88 8,136 3,522 8,136
Impairment of in-process research and development 21,438
Legal contingencies (2,300 ) 3,021 (2,300 )
Loss on extinguishment of debt 37,611
Incremental non-GAAP tax expense (h)   8,963     (15,215 )   (30,464 )   (48,053 )
Non-GAAP net income (i) $ 56,800   $ 43,523   $ 210,428   $ 176,008  
 
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES:
 
Weighted average shares used in calculation of GAAP diluted net income per share 135,393 124,888 133,693 138,937
Weighted average dilutive potential common shares issuable of redeemable convertible senior notes (a)   (1,045 )   (479 )   (968 )   (3,783 )
Weighted average shares used in calculation of Non-GAAP diluted net income per share   134,348     124,409     132,725     135,154  
 
                                 
 

(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)  Cost-method investment related gain, net, consists of $48.6 million in gains from sale of minority interest in deCODE Genetics offset by $2.7 million in impairment of another cost-method investment.

 

(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)  Headquarter relocation expense in Q4 2012 consists primarily of additional cease-use loss recorded due to a delay in the sublease of our prior headquarters and accretion of interest expense on lease exit liability recorded upon vacating our prior headquarters. Headquarter relocation expense in fiscal year 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, and moving costs.  Headquarter relocation expense recorded in Q4 2011 and fiscal year 2011 consisted of cease-use loss, accelerated depreciation expense and double rent expense during the transition to the new facility.

 

(f)  The Company recorded $1.5 million in inventory revaluation costs in conjunction with the acquisition of BlueGnome, Ltd., which was amortized into cost of goods sold during Q4 2012.

 

(g) Acquisition related expense (gain), net during fiscal year 2012 includes changes in fair value of contingent consideration of $2.0 million, of which $0.3 million was recorded in Q4, and transaction costs of $0.8 million related to the acquisition of BlueGnome Ltd. Acquisition related (gain) expense, net in the fiscal year 2011 consists of an acquired in-process research and development charge of $5.4 million related to a milestone payment for a prior acquisition, offset by changes in fair value of contingent consideration of $4.5 million, of which $1.5 million was recorded in Q4.

 

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

 

(i)  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   Year Ended
December 30,

2012

  January 1,

2012

December 30,

2012

  January 1,

2012

GAAP gross profit $ 203,647   65.8 % $ 170,586   68.2 % $ 773,528   67.4 % $ 709,098   67.2 %
Stock-based compensation expense 2,125 0.7 % 1,843 0.7 % 8,036 0.7 % 7,646 0.7 %
Amortization of acquired intangible assets 4,479 1.5 % 3,036 1.3 % 14,153 1.2 % 12,091 1.1 %
Amortization of inventory revaluation costs (a) 1,458 0.5 % 1,458 0.1 %
Legal contingencies               3,021   0.3 %      
Non-GAAP gross profit $ 211,709   68.5 % $ 175,465   70.2 % $ 800,196   69.7 % $ 728,835   69.0 %
 
Research and development expense $ 56,907 18.4 % $ 45,513 18.2 % $ 231,025 20.1 % $ 196,913 18.7 %
Stock-based compensation expense (8,001 ) (2.6 )% (7,295 ) (2.9 )% (30,879 ) (2.7 )% (32,105 ) (3.0 )%
Contingent compensation expense (b) (1,201 ) (0.4 )% (732 ) (0.3 )% (3,419 ) (0.2 )% (4,799 ) (0.5 )%
Impairment of in-process research and development               (21,438 ) (1.9 )%      
Non-GAAP research and development expense $ 47,705   15.4 % $ 37,486   15.0 % $ 175,289   15.3 % $ 160,009   15.2 %
 
Selling, general and administrative expense $ 79,715 25.8 % $ 60,918 24.4 % $ 285,991 24.9 % $ 261,843 24.8 %
Stock-based compensation expense (14,050 ) (4.6 )% (12,678 ) (5.1 )% (55,409 ) (4.8 )% (52,341 ) (4.9 )%
Contingent compensation expense (b) (3,146 ) (1.0 )% (5,732 ) (0.5 )% (1,258 ) (0.1 )%
Amortization of acquired intangible assets (932 ) (0.3 )% (152 ) (0.1 )% (1,388 ) (0.1 )% (598 ) (0.1 )%
Legal contingencies         2,300   0.9 %         2,300   0.2 %
Non-GAAP selling, general and administrative expense   61,587   19.9 %   50,388   20.1 %   223,462   19.5 %   209,946   19.9 %
 
GAAP operating profit $ 59,346 19.2 % $ 27,299 10.9 % $ 200,752 17.5 % $ 199,461 18.9 %
Stock-based compensation expense 24,176 7.8 % 21,816 8.7 % 94,324 8.2 % 92,092 8.6 %
Amortization of acquired intangible assets 5,411 1.7 % 3,188 1.2 % 15,541 1.4 % 12,689 1.2 %
Unsolicited tender offer related expense 4,394 1.4 % 23,136 2.0 %
Contingent compensation expense (b) 4,347 1.4 % 732 0.3 % 9,151 0.8 % 6,057 0.6 %
Headquarter relocation expense (c) 2,883 1.0 % 30,243 12.1 % 26,328 2.3 % 41,826 4.0 %
Amortization of inventory revaluation costs (a) 1,458 0.5 % 1,458 0.1 %
Acquisition related expense (gain), net (d) 314 0.1 % (1,523 ) (0.6 )% 2,774 0.2 % 919 0.1 %
Restructuring charges 88 8,136 3.3 % 3,522 0.3 % 8,136 0.8 %
Impairment of in-process research and development 21,438 1.9 %
Legal contingencies         (2,300 ) (0.9 )%   3,021   0.3 %   (2,300 ) (0.2 )%
Non-GAAP operating profit (e) $ 102,417   33.1 % $ 87,591   35.0 % $ 401,445   35.0 % $ 358,880   34.0 %
 
GAAP other income (expense), net $ 44,557 14.4 % $ (7,077 ) (2.8 )% $ 21,856 1.9 % $ (66,416 ) (6.3 )%
Cost-method investment related gains, net (f) (45,911 ) (14.8 )% (45,911 ) (4.1 )%
Non-cash interest expense (g) 8,950 2.8 % 8,542 3.4 % 35,180 3.1 % 32,495 3.0 %
Recovery of previously impaired note receivable (6,000 ) (1.9 )% (6,000 ) (0.5 )%
Loss on extinguishment of debt                     37,611   3.6 %
Non-GAAP other income, net (e) $ 1,596   0.5 % $ 1,465   0.6 % $ 5,125   0.4 % $ 3,690   0.3 %
 
                                                         
 

(a)  The Company recorded $1.5 million in inventory revaluation costs in conjunction with the acquisition of BlueGnome, Ltd., which was amortized into cost of goods sold during Q4 2012.

 

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

 

(c)  Headquarter relocation expense in Q4 2012 consists primarily of additional cease-use loss recorded due to a delay in the sublease of our prior headquarters and accretion of interest expense on lease exit liability recorded upon vacating our prior headquarters. Headquarter relocation expense in fiscal year 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, and moving costs.  Headquarter relocation expense recorded in Q4 2011 and fiscal year 2011 consisted of cease-use loss, accelerated depreciation expense and double rent expense during the transition to the new facility.

 

(d)  Acquisition related expense (gain), net during fiscal year 2012 includes changes in fair value of contingent consideration of $2.0 million, of which $0.3 million was recorded in Q4, and transaction costs of $0.8 million related to the acquisition of BlueGnome Ltd. Acquisition related (gain) expense, net in the fiscal year 2011 consists of an acquired in-process research and development charge of $5.4 million related to a milestone payment for a prior acquisition, offset by changes in fair value of contingent consideration of $4.5 million, of which $1.5 million was recorded in Q4.

 

(e)  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.

 

(f)  Cost-method investment related gain, net, consists of $48.6 million in gains from sale of minority interest in deCODE Genetics offset by $2.7 million in impairment of another cost-method investment.

 

(g)  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. Some of the factors that could affect the Company's financial results are stated above in this press release. 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 December 30, 2012 to be filed with the SEC, and the Company's Form 10-Q for the fiscal quarters ended April 1, 2012, July 1, 2012, and September 30, 2012. The Company assumes no obligation to update any forward-looking statements or information.

 
 
Fiscal Year 2013
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 $1.55 - $1.62
Non-cash interest expense (a) (0.17)
Amortization of acquired intangible assets (0.12)
Contingent compensation expense (b) (0.06)
Unsolicited tender offer related expense (0.05)
Headquarter relocation expense (c) (0.01)
Pro forma impact of weighted average shares (d) (0.01)

GAAP diluted net income per share (e)

$1.13 - $1.20
 
     
 

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

 

(c) We expect to incur additional headquarter relocation expenses, consisting primarily of accretion of interest expense on such cease-use liabilities.

 

(d) 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.

 

(e) Reconciliation items from non-GAAP to GAAP diluted net income per share do not reflect potential impact from Verinata acquisition.





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