Illumina Revenues Jump 35 Percent
Third quarter 2014 results:
• Revenue of $481 million, a 35% increase compared to $357 million in the third quarter of 2013
• GAAP net income for the quarter of $93 million, or $0.63 per diluted share, compared to $31 million, or $0.22 per diluted share, for the third quarter of 2013
• Non-GAAP net income for the quarter of $114 million, or $0.77 per diluted share, compared to $63 million, or $0.45 per diluted share, for the third quarter of 2013 (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 $146 million and free cash flow of $117 million for the quarter
Gross margin in the third quarter of 2014 was 69.5% compared to 58.8% in the prior year period; the prior year period included impairment charges of $25.2 million related to the discontinuation of a non-core product line. Excluding the effect of non-cash charges associated with stock compensation, amortization of acquired intangible assets, legal contingencies, and impairments, non-GAAP gross margin was 73.2% for the third quarter of 2014 compared to 70.2% in the prior year period.
Research and development (R&D) expenses for the third quarter of 2014 were $85.1 million compared to $71.0 million in the prior year period. R&D expenses included $14.6 million and $9.6 million of non-cash stock compensation expense in the third quarters of 2014 and 2013, respectively. Excluding these charges and contingent compensation, R&D expenses as a percentage of revenue were 14.6% compared to 17.2% in the prior year period.
Selling, general and administrative (SG&A) expenses for the third quarter of 2014 were $119.9 million compared to $95.6 million in the prior year period. SG&A expenses included $27.2 million and $16.1 million of non-cash stock compensation expense in the third quarters of 2014 and 2013, respectively. Excluding these charges, amortization of acquired intangible assets, and contingent compensation, SG&A expenses as a percentage of revenue were 19.0% compared to 20.6% in the prior year period.
Depreciation and amortization expenses were $26.7 million and capital expenditures were $28.8 million during the third quarter of 2014. The Company ended the third quarter of 2014 with $1.27 billion in cash, cash equivalents and short-term investments, compared to $1.17 billion as of December 29, 2013.
"Illumina experienced tremendous momentum in the third quarter, with strong shipments in HiSeq X, NextSeq and MiSeq, as well as the associated consumables, resulting in record financial results," stated Jay Flatley, CEO. "With the most extensive sequencing portfolio available, we are well-positioned for continued long-term growth as we develop and address the large and untapped market opportunities ahead of us."
Updates since our last earnings release:
• Announced the launch of the HiSeq XTM HD v2 Reagent Kit for use on the HiSeq X Ten Sequencing System and the HiSeq® Rapid v2 Reagent Kit for use on the HiSeq 2500 Sequencing System
• Announced a £78 million deal with Genomics England to sequence 100,000 human genomes
• Announced the formation of the Actionable Genome Consortium, alongside world-renowned cancer centers, in an effort to recommend standards for applying NGS to cancer tumors
• Entered into strategic partnerships with AstraZeneca, Janssen, and Sanofi to develop a universal NGS-based oncology test system
• Announced the selection of Encoded Genomics, Inc., EpiBiome, Inc., and Xcell Biosciences Inc. to the inaugural class of the Illumina Accelerator
• Launched new BaseSpace® apps developed with AB SCIEX to bring together proteomics and next-generation sequencing capabilities
• Further strengthened Illumina's Board of Directors with the appointment of Jeff Huber, Senior Vice President at Google, Inc.
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.
As a result of strong year-to-date results, the Company has increased its full year 2014 guidance to revenue growth of approximately 30% year-over-year and non-GAAP earnings per fully diluted share of $2.63 to $2.65.
Quarterly conference call information
The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Monday, October 20, 2014. Interested parties may listen to the call by dialing 888.713.4205 (passcode: 24983403), or if outside North America by dialing 1.617.213.4862 (passcode: 24983403). 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 6:00 pm Pacific Time (9:00 pm Eastern Time) on October 20, 2014 through October 27, 2014 by dialing 888.286.8010 (passcode: 59892040), or if outside North America by dialing 1.617.801.6888 (passcode: 59892040).
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 of acquired intangible assets, non-cash interest expense associated with the Company's convertible debt instruments that may be settled in cash, 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, through the first quarter of 2014, the double dilution associated with the accounting treatment of the Company's 0.625% convertible senior notes 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 further develop and commercialize our instruments and consumables and to deploy new products, services, and applications, and expand the markets, for our technology platforms; (ii) our ability to manufacture robust instrumentation and consumables; (iii) our ability to successfully identify and integrate acquired technologies, products, or businesses; (iv) our expectations and beliefs regarding future conduct and growth of the business and the markets in which we operate; (v) challenges inherent in developing, manufacturing, and launching new products and services; and (vi) our ability to maintain our revenue levels and profitability during periods of research funding reduction or uncertainty and adverse economic and business conditions, 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.