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Press release from Business Wire

Illumina Reports Financial Results for First Quarter 2011

Tuesday, April 26, 2011

Illumina Reports Financial Results for First Quarter 201116:01 EDT Tuesday, April 26, 2011 SAN DIEGO (Business Wire) -- Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for the first quarter of 2011. First quarter 2011 results: Revenue of $282.5 million, a 47% increase over the $192.1 million reported in the first quarter of 2010. GAAP net income of $24.1 million, or $0.16 per diluted share, compared to net income of $21.2 million, or $0.16 per diluted share, for the first quarter of 2010. Non-GAAP net income of $50.3 million, or $0.35 per diluted share, compared to $26.6 million, or $0.21 per diluted share, for the first quarter of 2010 (see the table entitled “Itemized Reconciliation Between GAAP and Non-GAAP Net Income”). Gross margin in the first quarter of 2011 was 66.6% compared to 68.8% in the comparable period of 2010. Excluding the effect of non-cash charges associated with stock compensation and the amortization of intangibles, non-GAAP gross margin was 68.2% for the first quarter of 2011 compared to 70.3% in the prior year period. Research and development (R&D) expenses for the first quarter of 2011 were $50.2 million compared to $43.7 million in the first quarter of 2010. R&D expenses included $7.7 million and $5.9 million of non-cash stock compensation expense in the first quarters of 2011 and 2010, respectively. Excluding these charges and contingent compensation expense, R&D expenses as a percentage of revenue were 14.5% compared to 19.2% in the prior year period. Selling, general and administrative (SG&A) expenses for the first quarter of 2011 were $65.9 million compared to $50.3 million for the first quarter of 2010. SG&A expenses included $12.6 million and $9.8 million of non-cash stock compensation expense in the first quarters of 2011 and 2010, respectively. SG&A expenses also included contingent compensation expense and a change in the fair value of contingent consideration in the first quarter of 2011. Excluding these charges, SG&A expenses as a percentage of revenue were 18.5% compared to 21.1% in the prior year period. The company generated $88.6 million in cash flow from operations during the first quarter of 2011 compared to $59.1 million in the prior year period. Depreciation and amortization expenses were $15.8 million and capital expenditures were $12.3 million during the first quarter. The company ended the first quarter with $1.1 billion in cash and short-term investments compared to $894.3 million as of January 2, 2011. Highlights since our last earnings release: Issued $800 million principal amount of 0.25% convertible senior notes due 2016. The offering generated net proceeds of $785.6 million, of which $314.3 million were used to repurchase 4.9 million shares of common stock. On April 18, 2011, we issued an additional $120 million principal amount of 0.25% convertible senior notes due 2016 pursuant to an over-allotment option, which generated additional net proceeds of $117.9 million. Launched a new 8-sample format of the Omni2.5 BeadChip with the same rare variant content of the existing 4-sample Omni2.5 in a more efficient and economical format. Repurchased $24 million of common stock under our 10b5-1 share repurchase program. Quarterly conference call information The conference call will begin at 2:30pm Pacific Time (5:30pm Eastern Time) on Tuesday, April 26, 2011. Interested parties may listen to the call by dialing 866-543-6411 (passcode: 85631425), or if outside North America, by dialing +1-617-213-8900 (passcode: 85631425). 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 6:30pm Pacific Time (9:30pm Eastern Time) on April 26, 2011 through May 3, 2011 by dialing 888-286-8010 (passcode: 66177006), or if outside North America, by dialing +1-617-801-6888 (passcode: 66177006). 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 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 non-cash and other charges related to stock compensation expense, loss on the extinguishment of convertible debt, accelerated depreciation, non-cash interest expense associated with the company's convertible debt instruments that may be settled in cash, amortization expense related to acquired intangible assets, contingent compensation expense, and change in the fair value of contingent consideration. 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 charges 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 Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. 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, BeadArray™, VeraCode®, and Eco™, and consumables technologies and to deploy new sequencing, genotyping, gene expression, and diagnostics products and applications for our technology platforms, (ii) our ability to manufacture robust instrumentation and consumables, and (iii) reductions in the funding levels to our primary customers, including as the result of timing and amount of funding provided by the American Recovery and Reinvestment Act of 2009, 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 application, paving the way for molecular medicine and ultimately transforming healthcare.   Illumina, Inc.Condensed Consolidated Balance Sheets(In thousands)       April 3, 2011January 2, 2011ASSETS(unaudited) Current assets: Cash and cash equivalents $ 410,341 $ 248,947 Short-term investments 724,297 645,342 Accounts receivable, net 181,924 165,598 Inventory, net 150,708 142,211 Deferred tax assets, current portion 17,442 19,378 Prepaid expenses and other current assets   26,761   36,922 Total current assets 1,511,473 1,258,398 Property and equipment, net 125,185 129,874 Goodwill 320,543 278,206 Intangible assets, net 118,419 91,462 Deferred tax assets, long-term portion 2,007 39,497 Other assets   45,522   41,676 Total assets $ 2,123,149 $ 1,839,113   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 66,287 $ 66,744 Accrued liabilities 167,703 156,164 Long-term debt, current portion   111,323   311,609 Total current liabilities 345,313 534,517 Long-term debt 652,083 - Other long-term liabilities 35,986 28,531 Conversion option subject to cash settlement 25,541 78,390 Stockholders' equity   1,064,226   1,197,675 Total liabilities and stockholders' equity $ 2,123,149 $ 1,839,113   Illumina, Inc.Condensed Consolidated Statements of Income(In thousands, except per share amounts)(unaudited)         Three Months EndedApril 3, 2011April 4, 2010 Revenue: Product revenue $ 266,717 $ 173,679 Service and other revenue   15,798     18,452   Total revenue   282,515     192,131   Cost of Revenue: Cost of product revenue (a) 85,437 52,939 Cost of service and other revenue (a) 6,052 5,394 Amortization of acquired intangible assets   2,985     1,620   Total cost of revenue   94,474     59,953   Gross profit   188,041     132,178   Operating Expenses: Research and development (a) 50,200 43,675 Selling, general and administrative (a) 65,931 50,278 Headquarter relocation expense   2,522     -   Total operating expenses   118,653     93,953   Income from operations 69,388 38,225 Other expense, net   (33,380 )   (4,864 ) Income before income taxes 36,008 33,361 Provision for income taxes   11,871     12,153   Net income $ 24,137   $ 21,208   Net income per basic share $ 0.19   $ 0.18   Net income per diluted share $ 0.16   $ 0.16   Shares used in calculating basic net income per share   126,517     120,668   Shares used in calculating diluted net income per share   153,129     136,407     (a) Includes total stock-based compensation expense for stock based awards:   Three Months EndedApril 3, 2011April 4, 2010 Cost of product revenue $ 1,512 $ 1,209 Cost of service and other revenue 210 111 Research and development 7,728 5,898 Selling, general and administrative   12,589     9,781   Stock-based compensation expense before taxes $ 22,039   $ 16,999     Illumina, Inc.Condensed Consolidated Statements of Cash Flows(In thousands)(unaudited)     Three Months EndedApril 3, 2011April 4, 2010 Net cash provided by operating activities $ 88,578 $ 59,065 Net cash used in investing activities (152,876 ) (24,664 ) Net cash provided by financing activities 225,481 34,306 Effect of exchange rate changes on cash and cash equivalents   211     (115 ) Net increase in cash and cash equivalents 161,394 68,592 Cash and cash equivalents, beginning of period   248,947     144,633   Cash and cash equivalents, end of period $ 410,341   $ 213,225     Calculation of free cash flow (a): Net cash provided by operating activities $ 88,578 $ 59,065 Purchases of property and equipment   (12,300 )   (11,180 ) Free cash flow $ 76,278   $ 47,885   (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 EndedApril 3, 2011April 4, 2010GAAP net income per share - diluted$0.16$0.16 Pro forma impact of weighted average shares 0.01 0.01 Adjustments to net income: Loss on extinguishment of debt 0.19 - Non-cash interest expense (a) 0.05 0.04 Amortization of acquired intangible assets 0.02 0.01 Contingent compensation expense (b) 0.01 0.01 Headquarter relocation expense (c) 0.02 - Change in fair value of contingent consideration - - Incremental non-GAAP tax expense (d)   (0.11 )   (0.02 ) Non-GAAP net income per share - diluted (e) $ 0.35   $ 0.21   Shares used in calculating non-GAAP diluted net income per share   142,176     128,960   ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:GAAP net income$24,137$21,208 Loss on extinguishment of debt 27,177 - Non-cash interest expense (a) 6,501 5,055 Amortization of acquired intangible assets 2,985 1,620 Contingent compensation expense (b) 2,124 919 Headquarter relocation expense (c) 2,522 - Change in fair value of contingent consideration 270 - Incremental non-GAAP tax expense (d)   (15,449 )   (2,244 ) Non-GAAP net income (e) $ 50,267   $ 26,558   (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) Headquarter relocation expense in Q1 2011 represents accelerated depreciation expense recorded in anticipation of the exit of our current headquarter facilities. During 2011, we expect to incur additional headquarter relocation expenses, the majority of which are non-cash in nature. These expenses include items such as a cease-use loss upon vacating our current headquarters, accelerated depreciation of certain property and equipment, and double rent expense during the transition to the new facility. (d) Incremental non-GAAP tax expense reflects the increase to GAAP tax expense related to the non-GAAP adjustments listed above. (e) 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)(unaudited)   ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF OPERATIONS AS A PERCENT OF REVENUE:       Three Months EndedApril 3, 2011April 4, 2010GAAP gross profit$188,041   66.6%$132,17868.8% Stock-based compensation expense 1,722 0.6 % 1,320 0.7 % Amortization of acquired intangible assets   2,985   1.1 %   1,620   0.8 % Non-GAAP gross profit $ 192,748   68.2 % $ 135,118   70.3 %   Research and development expense$50,20017.8%$43,67522.7% Stock-based compensation expense (7,728 ) (2.7 %) (5,898 ) (3.1 %) Contingent compensation expense (a)   (1,436 ) (0.5 %)   (919 ) (0.5 %) Non-GAAP research and development expense $ 41,036   14.5 % $ 36,858   19.2 %   Selling, general and administrative expense$65,93123.3%$50,27826.2% Stock-based compensation expense (12,589 ) (4.5 %) (9,781 ) (5.1 %) Contingent compensation expense (a) (688 ) (0.2 %) - - Change in fair value of contingent consideration   (270 ) (0.1 %)   -   -   Non-GAAP selling, general and administrative expense $ 52,384   18.5 % $ 40,497   21.1 %   GAAP operating profit$69,38824.6%$38,22519.9% Stock-based compensation expense 22,039 7.8 % 16,999 8.8 % Headquarter relocation expense (b) 2,522 0.9 % - 0.0 % Amortization of acquired intangible assets 2,985 1.1 % 1,620 0.8 % Contingent compensation expense (a) 2,124 0.8 % 919 0.5 % Change in fair value of contingent consideration   270   0.1 %   -   -   Non-GAAP operating profit (c) $ 99,328   35.2 % $ 57,763   30.1 %   GAAP other expense, net$(33,380)(11.8%)$(4,864)(2.5%) Loss on extinguishment of debt 27,177 9.6 % - 0.0 % Non-cash interest expense (d)   6,501   2.3 %   5,055   2.6 % Non-GAAP other income, net (c) $ 298   0.1 % $ 191   0.1 % (a) Contingent compensation expense represents contingent consideration for post-combination services associated with acquisitions. (b) Headquarter relocation expense in Q1 2011 represents accelerated depreciation expense recorded in anticipation of the exit of our current headquarter facilities. During 2011, we expect to incur additional headquarter relocation expenses, the majority of which are non-cash in nature. These expenses include items such as a cease-use loss upon vacating our current headquarters, accelerated depreciation of certain property and equipment, and double rent expense during the transition to the new facility. (c) 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. (d) 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.Investors:Peter J. FromenSenior DirectorInvestor Relations858-202-4507pfromen@illumina.comMedia:Wilson GrabillSenior ManagerPublic Relations858-882-6822wgrabill@illumina.com