Illumina Reports Record Financial Results for Fourth Quarter and Fiscal Year 2012

Fourth quarter 2012 results:

•    Revenue of $309 million, a 24% increase compared to $250 million in the fourth quarter of 2011
•    GAAP net income for the quarter of $72 million, or $0.53 per diluted share, compared to net income of $12 million, or $0.09 per diluted share, for the fourth quarter of 2011
•    Non-GAAP net income for the quarter of $57 million, or $0.42 per diluted share, compared to $44 million, or $0.35 per diluted share, for the fourth quarter of 2011 (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 $79 million and free cash flow of $62 million for the quarter

Gross margin in the fourth quarter of 2012 was 65.8% compared to 68.2% in the prior year period. Excluding the effect of non-cash charges associated with stock compensation, amortization of acquired intangibles, and amortization of inventory revaluation costs, non-GAAP gross margin was 68.5% for the fourth quarter of 2012 compared to 70.2% in the prior year period.

Research and development (R&D) expenses for the fourth quarter of 2012 were $56.9 million compared to $45.5 million in the fourth quarter of 2011. R&D expenses included $8.0 million and $7.3 million of non-cash stock compensation expense in the fourth quarters of 2012 and 2011, respectively. Excluding these charges and contingent compensation expense, R&D expenses as a percentage of revenue were 15.4% compared to 15.0% in the prior year period.

Selling, general and administrative (SG&A) expenses for the fourth quarter of 2012 were $79.7 million compared to $60.9 million for the fourth quarter of 2011. SG&A expenses included $14.1 million and $12.7 million of non-cash stock compensation expense in the fourth quarters of 2012 and 2011, respectively. Excluding these charges, contingent compensation, acquired intangible asset amortization, and legal contingencies, SG&A expenses as a percentage of revenue were 19.9% compared to 20.1% in the prior year period.

GAAP net income included the impact of a pre-tax gain of $48.6 million from the sale of the Company's minority ownership interest in deCODE Genetics to Amgen, Inc.

Depreciation and amortization expenses were $18.1 million and capital expenditures were $17.1 million during the fourth quarter of 2012. The Company ended the quarter with $1.35 billion in cash, cash equivalents and short-term investments, compared to $1.19 billion as of January 1, 2012.

Fiscal 2012 results:

•    Revenue of $1.15 billion, a 9% increase over the $1.06 billion reported in fiscal 2011
•    GAAP net income of $151 million, or $1.13 per diluted share, compared to $87 million, or $0.62 per diluted share in fiscal 2011
•    Non-GAAP net income of $210 million, or $1.59 per diluted share, compared to $176 million, or $1.30 per diluted share, in fiscal 2011 (see table entitled "Itemized Reconciliation Between GAAP and Non-GAAP Net Income" for a reconciliation of these GAAP and non-GAAP financial measures)

Gross margin for fiscal 2012 was 67.4% compared to 67.2% in fiscal 2011. Excluding the effect of non-cash charges associated with stock compensation, amortization of acquired intangibles, legal contingencies, and amortization of inventory revaluation costs, non-GAAP gross margin was 69.7% for fiscal 2012 compared to 69.0% in fiscal 2011.

R&D expenses for fiscal 2012 were $231.0 million compared to $196.9 million in fiscal 2011. R&D expenses for fiscal 2012 included a one-time impairment charge of $21.4 million related to an in-process research and development asset previously acquired. R&D expenses also included $30.9 million and $32.1 million of non-cash stock compensation expense in fiscal 2012 and 2011, respectively. Excluding these charges and contingent compensation expense, R&D expenses as a percentage of revenue were 15.3% compared to 15.2% in the prior year.

SG&A expenses for fiscal 2012 were $286.0 million compared to $261.8 million in fiscal 2011. SG&A expenses included $55.4 million and $52.3 million of non-cash stock compensation expense in fiscal 2012 and 2011, respectively. Excluding these charges, contingent compensation expense, acquired intangible asset amortization, and legal contingencies, SG&A expenses as a percentage of revenue were 19.5% compared to 19.9% in the prior year.

“We are very pleased with our execution in 2012,” stated Jay Flatley, President and CEO. “We ended the year with a strong performance, and made significant progress on our strategy of growing our clinical business, both organically and through acquisition. We remain optimistic about our growth prospects in 2013 and beyond, in spite of the continuing challenges of the economic environment.”

Highlights since our last earnings release

•    Announced a definitive agreement to acquire Verinata Health, Inc., a leading provider of non-invasive tests for the early identification of fetal chromosomal abnormalities
•    Completed the acquisition of Moleculo Inc., which will enable the introduction of a novel library prep method and analysis algorithm to produce synthetic read lengths up to 10 Kb
•    Previewed a new, ordered array flow cell technology that will provide a significant increase in cluster density and number of reads per flow cell
•    Announced a new kit for the HiSeq® 2500 which is capable of generating up to 300 Gb in rapid mode
•    Presented an updated MiSeq® roadmap with chemistry and software enhancements to deliver 15 Gb of throughput
•    Announced Nextera® Rapid Capture Exome Kits to provide the fastest exome enrichment workflow on both the HiSeq 2500 and MiSeq
•    Launched TruSeq® DNA PCR-Free Kits, a simple, all-inclusive sample prep solution for whole-genome sequencing
•    Announced TruSeq Targeted RNA Kits for mid-plex gene expression profiling and validation
•    Announced that Caris Life Sciences has selected the MiSeq system to support Caris' evidence-based molecular profiling service
•    Announced that VWR International, LLC, will distribute Illumina's qPCR portfolio within the United States
•    Announced winners of the MiSeq grant program to accelerate original research in microbial ecology, neglected disease, and human health
•    Named Dr. Robert S. Epstein to the Board of Directors
•    Announced a favorable ruling in patent litigation against Complete Genomics, Inc.
•    Announced new grant recipients of our Agricultural Greater Good Initiative at the 21st International Plant and Animal Genome Conference
•    Repurchased $25 million of common stock under our previously announced share repurchase program