Raises Fiscal Year 2013 Guidance
Third quarter 2013 results:
- Revenue of
$357 million , a 25% increase compared to$286 million in the third quarter of 2012 - GAAP net income for the quarter of
$31 million , or$0.22 per diluted share, compared to$30 million , or$0.22 per diluted share, for the third quarter of 2012 - Non-GAAP net income for the quarter of
$63 million , or$0.45 per diluted share, compared to$54 million , or$0.41 per diluted share, for the third 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
$83 million and free cash flow of$64 million for the quarter
Gross margin in the third quarter of 2013 was 58.8% compared to 68.5% in the prior year period. Cost of product sales during the third quarter of 2013 included impairment charges of
Research and development (R&D) expenses for the third quarter of 2013 were
Selling, general and administrative (SG&A) expenses for the third quarter of 2013 were
Depreciation and amortization expenses were
“These results highlight another quarter of solid operational execution and record financial performance,” said Illumina’s President and Chief Executive Officer,
Updates since our last earnings release:
- Launched new reagent kits for MiSeq® which doubled sequencing output to 15 gigabases per run by increasing the number of sequencing reads and overall read length
- Introduced the
TruSight One Sequencing Panel , that targets more than 4800 genes with known associated clinical phenotypes - Applied CE mark to the MiSeqDx™ system, expanding its use in clinical laboratories
- Launched the 24-sample array format on the Infinium® BeadChip family of genotyping arrays
- Announced that the verifi® non-invasive prenatal test is available for women pregnant with twins
- Announced that
Verinata Health received the Clinical Laboratory Permit from theNew York State Department of Health - Published peer-reviewed data showing that Verinata’s non-invasive verifi prenatal test correctly detects aneuploidies across patients with very low fetal fractions
- Announced a three-year agreement with Natera to supply the HiSeq® 2500 sequencing system and associated consumables for non-invasive prenatal testing
- Announced a project with
Genomics England Ltd. and theUniversity of Cambridge to sequence 10,000 whole genomes - Partnered with the
Global Genomics Group to investigate novel biomarkers and biological pathways involved in the development and diagnosis of cardiovascular diseases - Further strengthened
Illumina's management team by appointing Dr.Richard Klausner as Senior Vice President and Chief Medical Officer, andBob Ragusa as Senior Vice President of Operations - Announced organizational changes, effective
January 1, 2014 , to ensureIllumina is best positioned for future growth
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 now projecting approximately 22% revenue growth and non-GAAP earnings per fully diluted share of
Quarterly conference call information
The conference call will begin at
A replay of the conference call will be available from
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, impairment charges, 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, 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
About
| Illumina, Inc. | |||||||||
| Condensed Consolidated Balance Sheets | |||||||||
| (In thousands) | |||||||||
| September 29, 2013 | December 30, 2012 | ||||||||
| ASSETS | (unaudited) | ||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 691,836 | $ | 433,981 | |||||
| Short-term investments | 336,155 | 916,223 | |||||||
| Accounts receivable, net | 235,437 | 214,975 | |||||||
| Inventory | 159,866 | 158,718 | |||||||
| Deferred tax assets, current portion | 85,475 | 30,451 | |||||||
| Prepaid expenses and other current assets | 28,877 | 32,700 | |||||||
| Total current assets | 1,537,646 | 1,787,048 | |||||||
| Property and equipment, net | 193,649 | 166,167 | |||||||
| Goodwill | 667,192 | 369,327 | |||||||
| Intangible assets, net | 297,911 | 130,196 | |||||||
| Deferred tax assets, long-term portion | 43,296 | 40,183 | |||||||
| Other assets | 78,002 | 73,164 | |||||||
| Total assets | $ | 2,817,696 | $ | 2,566,085 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
| Current liabilities: | |||||||||
| Accounts payable | $ | 63,126 | $ | 65,727 | |||||
| Accrued liabilities | 199,977 | 201,877 | |||||||
| Accrued legal contingencies | 127,012 | — | |||||||
| Long-term debt, current portion | 28,810 | 36,967 | |||||||
| Total current liabilities | 418,925 | 304,571 | |||||||
| Long-term debt | 830,690 | 805,406 | |||||||
| Other long-term liabilities | 192,807 | 134,369 | |||||||
| Conversion option subject to cash settlement | 810 | 3,158 | |||||||
| Stockholders’ equity | 1,374,464 | 1,318,581 | |||||||
| Total liabilities and stockholders’ equity | $ | 2,817,696 | $ | 2,566,085 | |||||
| Illumina, Inc. | ||||||||||||||||||||||
| Condensed Consolidated Statements of Income | ||||||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 29, | September 30, | September 29, | September 30, | |||||||||||||||||||
| Revenue: | ||||||||||||||||||||||
| Product revenue | $ | 318,603 | $ | 262,418 | $ | 928,270 | $ | 776,893 | ||||||||||||||
| Service and other revenue | 38,197 | 23,456 | 105,582 | 62,358 | ||||||||||||||||||
| Total revenue | 356,800 | 285,874 | 1,033,852 | 839,251 | ||||||||||||||||||
| Cost of Revenue: | ||||||||||||||||||||||
| Cost of product revenue (a) | 119,954 | 75,873 | 308,082 | 230,935 | ||||||||||||||||||
| Cost of service and other revenue (a) | 17,643 | 10,540 | 48,732 | 28,761 | ||||||||||||||||||
| Amortization of acquired intangible assets | 9,263 | 3,588 | 24,397 | 9,674 | ||||||||||||||||||
| Total cost of revenue | 146,860 | 90,001 | 381,211 | 269,370 | ||||||||||||||||||
| Gross profit | 209,940 | 195,873 | 652,641 | 569,881 | ||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||
| Research and development (a) | 70,957 | 54,056 | 200,015 | 174,118 | ||||||||||||||||||
| Selling, general and administrative (a) | 95,617 | 69,791 | 269,391 | 206,276 | ||||||||||||||||||
| Acquisition related (gain) expense, net | (3,942 | ) | (357 | ) | (5,846 | ) | 2,460 | |||||||||||||||
| Unsolicited tender offer related expense | 1,326 | 3,956 | 13,621 | 18,742 | ||||||||||||||||||
| Headquarter relocation | 518 | 19,475 | (232 | ) | 23,445 | |||||||||||||||||
| Legal contingencies | — | — | 115,369 | — | ||||||||||||||||||
| Restructuring | — | 138 | — | 3,434 | ||||||||||||||||||
| Total operating expenses | 164,476 | 147,059 | 592,318 | 428,475 | ||||||||||||||||||
| Income from operations | 45,464 | 48,814 | 60,323 | 141,406 | ||||||||||||||||||
| Other expense, net | (8,317 | ) | (5,169 | ) | (21,378 | ) | (22,701 | ) | ||||||||||||||
| Income before income taxes | 37,147 | 43,645 | 38,945 | 118,705 | ||||||||||||||||||
| Provision for (benefit from) income taxes | 5,790 | 13,897 | (5,702 | ) | 39,354 | |||||||||||||||||
| Net income | $ | 31,357 | $ | 29,748 | $ | 44,647 | $ | 79,351 | ||||||||||||||
| Net income per basic share | $ | 0.25 | $ | 0.24 | $ | 0.36 | $ | 0.65 | ||||||||||||||
| Net income per diluted share | $ | 0.22 | $ | 0.22 | $ | 0.32 | $ | 0.60 | ||||||||||||||
| Shares used in calculating basic net income per share | 125,465 | 122,930 | 124,532 | 122,929 | ||||||||||||||||||
| Shares used in calculating diluted net income per share | 140,601 | 132,507 | 138,630 | 133,126 | ||||||||||||||||||
| (a) Includes total stock-based compensation expense for stock-based awards: | ||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 29, | September 30, | September 29, | September 30, | |||||||||||||||||||
| Cost of product revenue | $ | 1,524 | $ | 1,928 | $ | 4,410 | $ | 5,584 | ||||||||||||||
| Cost of service and other revenue | 233 | 142 | 544 | 327 | ||||||||||||||||||
| Research and development | 9,561 | 7,764 | 26,521 | 22,878 | ||||||||||||||||||
| Selling, general and administrative | 16,091 | 13,238 | 44,605 | 41,359 | ||||||||||||||||||
| Stock-based compensation expense before taxes | $ | 27,409 | $ | 23,072 | $ | 76,080 | $ | 70,148 | ||||||||||||||
| Illumina, Inc. | ||||||||||||||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 29, | September 30, | September 29, | September 30, | |||||||||||||||||
| Net cash provided by operating activities | $ | 83,136 | $ | 51,228 | $ | 259,582 | $ | 212,997 | ||||||||||||
| Net cash (used in) provided by investing activities | (101,295 | ) | (17,105 | ) | 81,161 | (168,623 | ) | |||||||||||||
| Net cash used in financing activities | (75,053 | ) | (8,065 | ) | (82,275 | ) | (4,713 | ) | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 1,437 | 619 | (613 | ) | 450 | |||||||||||||||
| Net (decrease) increase in cash and cash equivalents | (91,775 | ) | 26,677 | 257,855 | 40,111 | |||||||||||||||
| Cash and cash equivalents, beginning of period | 783,611 | 316,412 | 433,981 | 302,978 | ||||||||||||||||
| Cash and cash equivalents, end of period | $ | 691,836 | $ | 343,089 | $ | 691,836 | $ | 343,089 | ||||||||||||
| Calculation of free cash flow (a): | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 83,136 | $ | 51,228 | $ | 259,582 | $ | 212,997 | ||||||||||||
| Purchases of property and equipment | (18,930 | ) | (17,650 | ) | (51,905 | ) | (51,680 | ) | ||||||||||||
| Free cash flow | $ | 64,206 | $ | 33,578 | $ | 207,677 | $ | 161,317 | ||||||||||||
| (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 29, | September 30, | September 29, | September 30, | |||||||||||||||||
| GAAP net income per share - diluted | $ | 0.22 | $ | 0.22 | $ | 0.32 | $ | 0.60 | ||||||||||||
| Pro forma impact of weighted average shares (a) | 0.01 | — | 0.01 | — | ||||||||||||||||
| Adjustments to net income: | ||||||||||||||||||||
| Impairments (b) | 0.18 | — | 0.18 | 0.16 | ||||||||||||||||
| Amortization of acquired intangible assets | 0.09 | 0.03 | 0.23 | 0.08 | ||||||||||||||||
| Non-cash interest expense (c) | 0.07 | 0.07 | 0.20 | 0.20 | ||||||||||||||||
| Legal contingencies (d) | 0.03 | — | 0.93 | 0.02 | ||||||||||||||||
| Acquisition related (gain) expense, net (e) | (0.03 | ) | — | (0.04 | ) | 0.02 | ||||||||||||||
| Contingent compensation expense (f) | 0.02 | 0.01 | 0.06 | 0.04 | ||||||||||||||||
| Unsolicited tender offer related expense | 0.01 | 0.03 | 0.10 | 0.14 | ||||||||||||||||
| Headquarter relocation (g) | — | 0.15 | — | 0.18 | ||||||||||||||||
| Loss on extinguishment of debt | — | — | — | — | ||||||||||||||||
| Cost-method investment related gain | — | — | (0.04 | ) | — | |||||||||||||||
| Amortization of inventory revaluation costs (h) | — | — | — | — | ||||||||||||||||
| Restructuring | — | — | — | 0.03 | ||||||||||||||||
| Incremental non-GAAP tax expense (i) | (0.15 | ) | (0.10 | ) | (0.60 | ) | (0.31 | ) | ||||||||||||
| Non-GAAP net income per share - diluted (j) | $ | 0.45 | $ | 0.41 | $ | 1.35 | $ | 1.16 | ||||||||||||
| Shares used in calculating non-GAAP diluted net income per share | 139,573 | 131,601 | 137,579 | 132,185 | ||||||||||||||||
| ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME: | ||||||||||||||||||||
| GAAP net income | $ | 31,357 | $ | 29,748 | $ | 44,647 | $ | 79,351 | ||||||||||||
| Impairments (b) | 25,214 | — | 25,214 | 21,438 | ||||||||||||||||
| Amortization of acquired intangible assets | 12,853 | 3,740 | 31,789 | 10,130 | ||||||||||||||||
| Non-cash interest expense (c) | 9,103 | 8,846 | 27,221 | 26,230 | ||||||||||||||||
| Legal contingencies (d) | 4,299 | — | 127,780 | 3,021 | ||||||||||||||||
| Acquisition related (gain) expense, net (e) | (3,942 | ) | (357 | ) | (5,846 | ) | 2,460 | |||||||||||||
| Contingent compensation expense (f) | 2,444 | 1,496 | 8,124 | 4,804 | ||||||||||||||||
| Unsolicited tender offer related expense | 1,326 | 3,956 | 13,621 | 18,742 | ||||||||||||||||
| Headquarter relocation (g) | 518 | 19,475 | (232 | ) | 23,445 | |||||||||||||||
| Loss on extinguishment of debt | 44 | — | 555 | — | ||||||||||||||||
| Cost-method investment related gain | — | — | (6,113 | ) | — | |||||||||||||||
| Amortization of inventory revaluation costs (h) | — | — | 458 | — | ||||||||||||||||
| Restructuring | — | 138 | — | 3,434 | ||||||||||||||||
| Incremental non-GAAP tax expense (i) | (20,370 | ) | (13,539 | ) | (82,059 | ) | (39,427 | ) | ||||||||||||
| Non-GAAP net income (j) | $ | 62,846 | $ | 53,503 | $ | 185,159 | $ | 153,628 | ||||||||||||
| ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES: | ||||||||||||||||||||
| Weighted average shares used in calculation of GAAP diluted net income per share | 140,601 | 132,507 | 138,630 | 133,126 | ||||||||||||||||
| Weighted average dilutive potential common shares issuable of redeemable convertible senior notes (a) | (1,028 | ) | (906 | ) | (1,051 | ) | (941 | ) | ||||||||||||
| Weighted average shares used in calculation of non-GAAP diluted net income per share | 139,573 | 131,601 | 137,579 | 132,185 | ||||||||||||||||
| (a) | Pro forma impact of weighted average shares includes the impact of double dilution associated with the accounting treatment of the Company’s outstanding convertible debt and the corresponding call option overlay. | |
| (b) | Impairment charges of $25.2 million were recorded in Q3 2013 due to the discontinuation of a non-core product line. Assets impaired primarily included a developed technology intangible asset. The impairment charge in 2012 related to the impairment of an in-process research and development intangible asset. | |
| (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) | Legal contingencies during the current year primarily represent charges recorded based on an amended judgment associated with the patent litigation brought by Syntrix Biosystems, Inc., or Syntrix. Illumina continues to believe that Syntrix's claims are without merit and are not supported by the law or facts. Accordingly, Illumina filed its post-trial motion on July 17, 2013 asking the court to vacate the amended judgment and to enter judgment in our favor or, alternatively, to grant a new trial. If the post-trial motion is unsuccessful, the Company plans to file an appeal challenging the adverse verdict. | |
| (e) | Acquisition related (gain) expense, net, during the first three quarters of 2013 consisted primarily of $11.0 million in net gains from changes in fair value of contingent consideration, of which $5.8 million was recorded in Q3. Such gains were partially offset by transaction costs of $3.5 million recorded mostly in Q1, and other acquisition related costs. Acquisition related (gain) expense, net, in Q3 2012 and first three quarters of 2012 consisted of changes in fair value of contingent consideration and transaction costs of $0.7 million recorded in Q3. | |
| (f) | Contingent compensation expense relates to contingent payments for post-combination services associated with acquisitions. | |
| (g) | Headquarter relocation for the first three quarters of 2013 consisted of a gain on lease exit liability recorded in Q2 as a result of the Company entering into a sublease at a more favorable rate than previously estimated, partially offset by accretion of interest expense recorded in each of the three quarters on such lease exit liability. Headquarter relocation expense in Q3 2012 and first three quarters of 2012 consisted primarily of the cease-use loss recorded upon vacating our headquarters, double rent expense during the transition to the new headquarters, accretion of interest expense on lease exit liability, and moving costs. | |
| (h) | The Company recorded $0.5 million in cost of goods sold in Q1 2013 for the amortization of inventory revaluation costs in conjunction with the acquisition of Verinata Health, Inc. | |
| (i) | Incremental non-GAAP tax expense reflects the increase to GAAP tax expense related to the non-GAAP adjustments listed above. | |
| (j) | Non-GAAP net income and net income per share exclude the effect of the pro forma adjustments as detailed above. Non-GAAP net income and net income per share are key drivers of the Company’s 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 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 29, | September 30, | September 29, | September 30, | |||||||||||||||||||||||||||||||||
| GAAP gross profit | $ | 209,940 | 58.8 | % | $ | 195,873 | 68.5 | % | $ | 652,641 | 63.1 | % | $ | 569,881 | 67.9 | % | ||||||||||||||||||||
| Stock-based compensation expense | 1,757 | 0.5 | % | 2,070 | 0.7 | % | 4,954 | 0.5 | % | 5,911 | 0.7 | % | ||||||||||||||||||||||||
| Impairments (a) | 25,214 | 7.1 | % | - | - | 25,214 | 2.4 | % | - | - | ||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 9,263 | 2.6 | % | 3,588 | 1.3 | % | 24,397 | 2.4 | % | 9,674 | 1.1 | % | ||||||||||||||||||||||||
| Legal contingencies (b) | 4,299 | 1.2 | % | - | - | 12,411 | 1.2 | % | 3,021 | 0.4 | % | |||||||||||||||||||||||||
| Amortization of inventory revaluation costs (c) | - | - | - | - | 458 | - | - | - | ||||||||||||||||||||||||||||
| Non-GAAP gross profit (d) | $ | 250,473 | 70.2 | % | $ | 201,531 | 70.5 | % | $ | 720,075 | 69.6 | % | $ | 588,487 | 70.1 | % | ||||||||||||||||||||
| Research and development expense | $ | 70,957 | 19.9 | % | $ | 54,056 | 18.9 | % | $ | 200,015 | 19.3 | % | $ | 174,118 | 20.7 | % | ||||||||||||||||||||
| Stock-based compensation expense | (9,561 | ) | (2.7 | )% | (7,764 | ) | (2.7 | )% | (26,521 | ) | (2.6 | )% | (22,878 | ) | (2.7 | )% | ||||||||||||||||||||
| Contingent compensation expense (e) | (107 | ) | - | (754 | ) | (0.3 | )% | (432 | ) | - | (2,218 | ) | (0.2 | )% | ||||||||||||||||||||||
| Impairments (a) | - | - | - | - | - | - | (21,438 | ) | (2.6 | )% | ||||||||||||||||||||||||||
| Non-GAAP research and development expense | $ | 61,289 | 17.2 | % | $ | 45,538 | 15.9 | % | $ | 173,062 | 16.7 | % | $ | 127,584 | 15.2 | % | ||||||||||||||||||||
| Selling, general and administrative expense | $ | 95,617 | 26.8 | % | $ | 69,791 | 24.4 | % | $ | 269,391 | 26.1 | % | $ | 206,276 | 24.6 | % | ||||||||||||||||||||
| Stock-based compensation expense | (16,091 | ) | (4.5 | )% | (13,238 | ) | (4.5 | )% | (44,605 | ) | (4.3 | )% | (41,359 | ) | (4.9 | )% | ||||||||||||||||||||
| Amortization of acquired intangible assets | (3,590 | ) | (1.0 | )% | (152 | ) | (0.1 | )% | (7,392 | ) | (0.8 | )% | (456 | ) | (0.1 | )% | ||||||||||||||||||||
| Contingent compensation expense (e) | (2,337 | ) | (0.7 | )% | (742 | ) | (0.3 | )% | (7,692 | ) | (0.7 | )% | (2,586 | ) | (0.3 | )% | ||||||||||||||||||||
| Non-GAAP selling, general and administrative expense | $ | 73,599 | 20.6 | % | $ | 55,659 | 19.5 | % | $ | 209,702 | 20.3 | % | $ | 161,875 | 19.3 | % | ||||||||||||||||||||
| GAAP operating profit | $ | 45,464 | 12.7 | % | $ | 48,814 | 17.1 | % | $ | 60,323 | 5.8 | % | $ | 141,406 | 16.8 | % | ||||||||||||||||||||
| Stock-based compensation expense | 27,409 | 7.7 | % | 23,072 | 8.1 | % | 76,080 | 7.4 | % | 70,148 | 8.4 | % | ||||||||||||||||||||||||
| Impairments (a) | 25,214 | 7.1 | % | - | - | 25,214 | 2.4 | % | 21,438 | 2.6 | % | |||||||||||||||||||||||||
| Amortization of acquired intangible assets | 12,853 | 3.6 | % | 3,740 | 1.3 | % | 31,789 | 3.1 | % | 10,130 | 1.2 | % | ||||||||||||||||||||||||
| Legal contingencies (b) | 4,299 | 1.2 | % | - | - | 127,780 | 12.4 | % | 3,021 | 0.4 | % | |||||||||||||||||||||||||
| Acquisition related (gain) expense, net (f) | (3,942 | ) | (1.1 | )% | (357 | ) | (0.1 | )% | (5,846 | ) | (0.6 | )% | 2,460 | 0.3 | % | |||||||||||||||||||||
| Contingent compensation expense (e) | 2,444 | 0.7 | % | 1,496 | 0.5 | % | 8,124 | 0.8 | % | 4,804 | 0.6 | % | ||||||||||||||||||||||||
| Unsolicited tender offer related expense | 1,326 | 0.4 | % | 3,956 | 1.4 | % | 13,621 | 1.3 | % | 18,742 | 2.2 | % | ||||||||||||||||||||||||
| Headquarter relocation (g) | 518 | 0.1 | % | 19,475 | 6.8 | % | (232 | ) | - | 23,445 | 2.7 | % | ||||||||||||||||||||||||
| Amortization of inventory revaluation costs (c) | - | - | - | - | 458 | - | - | - | ||||||||||||||||||||||||||||
| Restructuring | - | - | 138 | - | - | - | 3,434 | 0.4 | % | |||||||||||||||||||||||||||
| Non-GAAP operating profit (d) | $ | 115,585 | 32.4 | % | $ | 100,334 | 35.1 | % | $ | 337,311 | 32.6 | % | $ | 299,028 | 35.6 | % | ||||||||||||||||||||
| GAAP other expense, net | $ | (8,317 | ) | (2.3 | )% | $ | (5,169 | ) | (1.8 | )% | $ | (21,378 | ) | (2.1 | )% | $ | (22,701 | ) | (2.7 | )% | ||||||||||||||||
| Non-cash interest expense (h) | 9,103 | 2.6 | % | 8,846 | 3.1 | % | 27,221 | 2.6 | % | 26,230 | 3.1 | % | ||||||||||||||||||||||||
| Loss on extinguishment of debt | 44 | (0.1 | )% | - | - | 555 | 0.1 | % | - | - | ||||||||||||||||||||||||||
| Cost-method investment related gain | - | - | - | - | (6,113 | ) | (0.6 | )% | - | - | ||||||||||||||||||||||||||
| Non-GAAP other income, net (d) | $ | 830 | 0.2 | % | $ | 3,677 | 1.3 | % | $ | 285 | - | $ | 3,529 | 0.4 | % | |||||||||||||||||||||
| (a) | Impairment charges of $25.2 million were recorded in Q3 2013 due to the discontinuation of a non-core product line. Assets impaired primarily included a developed technology intangible asset. The impairment charge in 2012 related to the impairment of an in-process research and development intangible asset. | |
| (b) | Legal contingencies during the current year primarily represent charges recorded based on an amended judgment associated with the patent litigation brought by Syntrix Biosystems, Inc., or Syntrix. Illumina continues to believe that Syntrix's claims are without merit and are not supported by the law or facts. Accordingly, Illumina filed its post-trial motion on July 17, 2013 asking the court to vacate the amended judgment and to enter judgment in our favor or, alternatively, to grant a new trial. If the post-trial motion is unsuccessful, the Company plans to file an appeal challenging the adverse verdict. | |
| (c) | The Company recorded $0.5 million in cost of goods sold in Q1 2013 for the amortization of inventory revaluation costs in conjunction with the acquisition of Verinata Health, Inc. | |
| (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 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 manufacturing processes, product mix and the average selling prices of the Company’s products and services. | |
| (e) | Contingent compensation expense relates to contingent payments for post-combination services associated with acquisitions. | |
| (f) | Acquisition related (gain) expense, net, during the first three quarters of 2013 consisted primarily of $11.0 million in net gains from changes in fair value of contingent consideration, of which $5.8 million was recorded in Q3. Such gains were partially offset by transaction costs of $3.5 million recorded mostly in Q1, and other acquisition related costs. Acquisition related (gain) expense, net, in Q3 2012 and first three quarters of 2012 consisted of changes in fair value of contingent consideration and transaction costs of $0.7 million recorded in Q3. | |
| (g) | Headquarter relocation for the first three quarters of 2013 consisted of a gain on lease exit liability recorded in Q2 as a result of the Company entering into a sublease at a more favorable rate than previously estimated, partially offset by accretion of interest expense recorded in each of the three quarters on such lease exit liability. Headquarter relocation expense in Q3 2012 and first three quarters of 2012 consisted primarily of the cease-use loss recorded upon vacating our headquarters, double rent expense during the transition to the new headquarters, accretion of interest expense on lease exit liability, and moving costs. | |
| (h) | Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash. | |
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
| Fiscal Year 2013 | |||||||
| Gross margin | |||||||
| Non-GAAP gross margin | 69.5% | ||||||
| Amortization of acquired intangible assets | (2.3)% | ||||||
| Impairments (a) | (1.8)% | ||||||
| Legal contingencies (b) | (1.3)% | ||||||
| Stock-based compensation expense | (0.5)% | ||||||
| GAAP gross margin | 63.6% | ||||||
| Diluted net income per share | |||||||
| Non-GAAP diluted net income per share | $1.75 - $1.77 | ||||||
| Legal contingencies (b) | (0.60) | ||||||
| Amortization of acquired intangible assets | (0.20) | ||||||
| Non-cash interest expense (c) | (0.16) | ||||||
| Impairments (a) | (0.11) | ||||||
| Unsolicited tender offer related expense | (0.09) | ||||||
| Contingent compensation expense (d) | (0.07) | ||||||
| Cost-method investment related gain | 0.04 | ||||||
| Acquisition related gain, net (e) | 0.03 | ||||||
| GAAP diluted net income per share | $0.59 - $0.61 | ||||||
| (a) | The Company recorded impairments during Q3 2013 due to the discontinuation of a non-core product line. Such impairment charges primarily related to a developed technology intangible asset. | |
| (b) | Legal contingencies primarily represent charges recorded based on an amended judgment associated with the patent litigation brought by Syntrix Biosystems, Inc., or Syntrix. Illumina continues to believe that Syntrix's claims are without merit and are not supported by the law or facts. Accordingly, Illumina filed its post-trial motion on July 17, 2013 asking the court to vacate the amended judgment and to enter judgment in our favor or, alternatively, to grant a new trial. If the post-trial motion is unsuccessful, the Company plans to file an appeal challenging the adverse verdict. | |
| (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 represents contingent consideration for post-combination services associated with acquisitions. | |
| (e) | Acquisition related gain, net primarily consists of net changes in fair value of contingent consideration and transaction costs. |
Source:
Illumina, Inc.
Investors:
Rebecca Chambers
858.255.5243
rchambers@illumina.com
or
Media:
Jennifer Temple
858.882.6822
pr@illumina.com
