Illumina Reports Financial Results for Third Quarter of Fiscal Year 2013
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 $25.2 million related to discontinuation of a non-core product line. Excluding the effect of these charges as well as stock compensation, amortization of acquired intangible assets, and legal contingencies, non-GAAP gross margin was 70.2% for the third quarter of 2013 compared to 70.5% in the prior year period.
Research and development (R&D) expenses for the third quarter of 2013 were $71.0 million compared to $54.1 million in the third quarter of 2012. R&D expenses included $9.6 million and $7.8 million of non-cash stock compensation expense in the third quarters of 2013 and 2012, respectively. Excluding these charges and contingent compensation, R&D expenses as a percentage of revenue were 17.2% compared to 15.9% in the prior year period.
Selling, general and administrative (SG&A) expenses for the third quarter of 2013 were $95.6 million compared to $69.8 million for the third quarter of 2012. SG&A expenses included $16.1 million and $13.2 million of non-cash stock compensation expense in the third quarters of 2013 and 2012, respectively. Excluding these charges, amortization of acquired intangible assets, and contingent compensation, SG&A expenses as a percentage of revenue were 20.6% compared to 19.5% in the prior year period.
Depreciation and amortization expenses were $26.9 million and capital expenditures were $18.9 million during the third quarter of 2013. The Company ended the third quarter of 2013 with $1.03 billion in cash, cash equivalents and short-term investments, compared to $1.35 billion as of December 30, 2012.
"These results highlight another quarter of solid operational execution and record financial performance," said Illumina's President and Chief Executive Officer, Jay Flatley. "We continue to be pleased with the robust global trends demonstrated by our business and believe we are positioned to continue to deliver strong growth."
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 MiSeqDxTM 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 the New 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 the University 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, and Bob Ragusa as Senior Vice President of Operations
• Announced organizational changes, effective January 1, 2014, to ensure Illumina 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 $1.75 to $1.77, including the impact of the Verinata and Advanced Liquid Logic acquisitions. These projections assume full year non-GAAP gross margin of approximately 69.5%, a pro forma tax rate of approximately 30% and stock compensation expense of approximately $105 million. Full-year weighted average diluted shares outstanding, for the measurement of pro forma amounts, is expected to be approximately 139 million shares assuming the current stock price.