Illumina’s Q4 sales rise 10 percent but net income plummets 55 percent

Illumina Inc. (NSDQ:ILMN) posted fourth-quarter sales of $167.5 million for the three months ended Jan. 3, up 9.6 percent compared with $152.8 million during the same period last year. Net income fell 55.1 percent to $11.7 million, compared with $26.1 million during Q4 2008:

Press Release

Illumina Reports Financial Results for Fourth Quarter and Fiscal Year 2009

SAN DIEGO–(BUSINESS WIRE)–Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for the fourth quarter and fiscal year of 2009.

“An Itemized Reconciliation Between GAAP and Non-GAAP Net Income.”

Fourth quarter 2009 results:

• Revenue of $180.6 million, a 12% increase over the $160.9 million reported in the fourth quarter of 2008.
• GAAP net income for the quarter of $11.7 million, or $0.09 per diluted share, compared to net income of $26.1 million, or $0.20 per diluted share in the comparable period of 2008. Net income for the fourth quarter of 2009 included non-cash charges of $16.5 million in stock compensation expense, $10 million of acquired in-process research and development expense associated with the acquisition of Avantome, Inc., $5.3 million in non-cash interest expense, and other items listed in the table entitled “An Itemized Reconciliation Between GAAP and Non-GAAP Net Income.”
• Non-GAAP net income for the fourth quarter of 2009 of $37.8 million, or $0.29 per diluted share, compared to $39.4 million, or $0.31 per diluted share, for the fourth quarter of 2008. Net income in the prior year period included a one-time benefit of approximately $2.2 million from the retroactive extension of the US R&D tax credit.

Gross margin in the fourth quarter of 2009 was 69.5% compared to 64.4% in the comparable period of 2008. Excluding the effect of non-cash charges associated with stock compensation and the amortization of intangibles, non-GAAP gross margin was 71.2% for the fourth quarter of 2009 compared to 66.7% in the prior year period.

It should be noted that due to the structure of our financial reporting calendar, the company incurred an additional week of operating activity in the fourth quarter of 2009 as compared to both sequential and prior year periods.

Research and development (R&D) expenses for the fourth quarter of 2009 were $40.4 million compared to $28.3 million in the fourth quarter of 2008. R&D expenses include $5.6 million and $3.8 million of non-cash stock compensation expense in the fourth quarter of 2009 and 2008, respectively. R&D expenses in both periods also include $0.9 million of accrued contingent compensation associated with the Avantome acquisition. Excluding these charges, R&D expenses as a percentage of revenues were 18.8% compared to 14.7% in the prior year period.

Selling, general, and administrative (SG&A) expenses for the fourth quarter of 2009 were $49.5 million compared to $39.2 million for the fourth quarter of 2008. SG&A expenses include $9.6 million and $6.9 million of non-cash stock compensation expense in the fourth quarter of 2009 and 2008, respectively. Excluding these charges, SG&A expenses as a percentage of revenues were 22.1% compared to 20.1% in the prior year period.

The company generated $61.3 million in cash flow from operations during the fourth quarter of 2009 compared to $50.1 million in the prior year period. Depreciation and amortization expenses were $7.9 million and capital expenditures were $6.4 million during the fourth quarter. The company ended the fourth quarter with $693.5 million in cash and investments compared to $815.4 million as of September 27, 2009. During the quarter, the company purchased over 6 million shares of its common stock for approximately $175 million completing both outstanding share repurchase programs.

Fiscal 2009 results:

• Revenue of $666.3 million, a 16% increase over the $573.2 million reported in fiscal 2008.
• GAAP net income of $72.3 million, or $0.53 per diluted share, compared to $39.4 million or $0.30 per share in 2008. 2009 GAAP net income included non-cash charges of $60.8 million related to stock compensation expense, $19.7 million in non-cash interest expense, $11.3 million of in-process research and development primarily associated with the acquisition of Avantome, Inc., and other items listed in the table entitled “An Itemized Reconciliation Between GAAP and Non-GAAP Net Income.”
• Non-GAAP net income of $144.9 million, or $1.11 per diluted share, compared to $118.0 million, or $0.93 per diluted share in fiscal 2008.

Gross margin for fiscal 2009 was 68.1%, compared to 61.6% in fiscal 2008. Excluding non-cash charges associated with stock compensation, the amortization of intangibles, and the impairment of manufacturing equipment, non-GAAP gross margin was 69.9% in fiscal 2009 compared to 65.0% in fiscal 2008.

R&D expenses for fiscal 2009 were $140.6 million compared to $100.0 million in fiscal 2008. R&D expenses for 2009 included non-cash stock compensation expense of $20.0 million compared to $14.1 million in 2008. R&D expenses also included $3.7 million and $1.5 million of accrued contingent compensation associated with the acquisition of Avantome, Inc. in 2009 and 2008 respectively. SG&A expenses for fiscal 2009 were $176.3 million compared to $148.0 million in 2008 and included $35.6 million and $28.5 million of non-cash stock compensation expense respectively.

The company generated $174.5 million in cash from operations in 2009 compared to $87.9 million in 2008. The 2008 amount included $54.5 million in litigation settlement payments, without which the company generated $142.4 million in cash from operations. Depreciation and amortization expenses for 2009 were $31.3 million and capital expenditures were $52.7 million.

Highlights since our last earnings release:

• Launched HiSeq 2000, the next generation sequencing system, capable of generating 200Gb of data per run using two flowcells and dual surface imaging.
• Announced that the BGI purchased 128 HiSeq2000 systems, representing the largest order for next-generation sequencing systems to date.
• Launched the Genome Analyzer IIe, a lower-priced sequencing by synthesis sequencing system ideal for smaller labs and expected to generate output up to 40Gb of data per run.
• Launched the OmniExpress, a 12 sample BeadChip incorporating Illumina’s 3^rd generation array technology and containing over 700,000 variants per sample, or a total of 8.4 million total markers. Customers can process over 1,400 samples per week at a list price $250 per sample.
• Launched the BovineHD, a 12 sample BeadChip for agricultural livestock with over 700,000 loci from more than 20 different bovine breeds.
• Announced that The Broad Institute purchased an additional 30 Genome Analyzers bringing its installed base to 89 systems.

Financial Outlook and Guidance

The non-GAAP financial guidance discussed below excludes the incremental interest expense associated with the company’s convertible debt instruments that may be settled in cash, the amortization expense related to intangible assets, contingent compensation expense and the accrual of in-process research and development related to the Avantome acquisition, and the double dilution associated with the accounting treatment of the company’s outstanding convertible debt and the corresponding call option overlay (see table which reconciles these non-GAAP financial measures to the related GAAP measures).

The company expects:

• Revenue growth for the full year 2010 of approximately 20% from 2009 revenue of $666 million.
• Gross margins in the mid to high 60s.
• Non-GAAP earnings per share between $0.90 and $1.00.
• Full year pro forma tax rate of approximately 34%.
• Stock compensation expense of approximately $73 million or a tax adjusted amount of $0.36 per fully diluted pro forma share.
• Full-year weighted-average diluted shares outstanding for the measurement of pro forma results of approximately 132 million.