Illumina Reports Financial Results for Third Quarter 2009

Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for the third quarter of 2009.

For the third quarter of 2009, Illumina reported revenue of $158.4 million, a 5% increase over the $150.3 million reported in the third quarter of 2008. The Company reported net income for the quarter of $17.1 million, or $0.12 per diluted share, compared to net loss of $10.1 million, or ($0.08) per diluted share in the comparable period of 2008. The net loss in the prior year period was directly attributable to a $24.7 million in process research and development charge associated with the Company’s acquisition of Avantome, Inc. Net income for the third quarter of 2009 included non-cash charges of $14.6 million in stock compensation expense, $4.8 million in non-cash interest expense, and other items listed in the table entitled "An itemized Reconciliation Between GAAP and Non-GAAP Net Income (Loss).” Excluding the impact of these items, and net of pro forma tax expense, Illumina’s net income on a non-GAAP basis for the third quarter of 2009 was $32.3 million, or $0.24 per diluted share, compared to $28.6 million, or $0.22 per diluted share, for the third quarter of 2008.

Gross margin in the third quarter of 2009 was 67.6% compared to 62.0% 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 69.5% for the third quarter of 2009 compared to 64.6% in the prior year period.

Research and development (R&D) expenses for the third quarter of 2009 were $34.4 million compared to $27.6 million in the third quarter of 2008. R&D expenses include $4.8 million and $3.5 million of non-cash stock compensation expense in the third quarter of 2009 and 2008, respectively. R&D expenses also include $0.9 million and $0.6 million of accrued contingent compensation associated with the Avantome acquisition. Excluding these charges, R&D expenses as a percentage of revenues were 18.1% compared to 15.6% in the prior year period.

Selling, general, and administrative (SG&A) expenses for the third quarter of 2009 were $42.1 million compared to $39.4 million for the third quarter of 2008. SG&A expenses include $8.5 million and $8.0 million of non-cash stock compensation expense in the third quarter of 2009 and 2008, respectively. Excluding these charges, SG&A expenses as a percentage of revenues were 21.2% compared to 20.9% in the prior year period.

The Company generated $23.1 million in cash flow from operations during the third quarter of 2009 compared to $27.3 million in the prior year period. Depreciation and amortization expenses were $8.3 million and capital expenditures were $19.7 million during the third quarter. The Company ended the third quarter with $815.4 million in cash and investments compared to $790.3 million as of June 28, 2009.

Highlights since our last earnings release:

• Announced the Company’s 2010 roadmap for the Infinium whole-genome genotyping platform that will offer products capable of analyzing up to five million variants per sample. These products will include the highest value content from the 1,000 Genomes Project selected through collaboration with leading researchers.
• Launched cBot, a fully automated system for amplification of sequencing libraries which reduces sample prep time by 25 percent compared to the Cluster Station.
• Delivered the first genome sequenced through the Company’s individual genome sequencing service.
• Announced that its Board of Directors approved a new repurchase plan authorizing the Company to repurchase up to $75 million of its outstanding common stock.
• Appointed Christian Henry to the newly created role of Senior Vice President of Corporate Development. A search for a new Chief Financial Officer is currently in process.

Financial Outlook and Guidance

The non-GAAP financial guidance discussed below excludes tax-adjusted non-cash charges resulting from stock compensation expense, the incremental interest expense and gain on debt extinguishment associated with the adoption on December 29, 2008 of authoritative accounting guidance for convertible debt instruments that may be settled in cash, the amortization expense related to intangible assets, the accrual of contingent compensation and in-process research and development related to the Avantome acquisition, acquired research and development, 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).

For the fourth quarter of 2009, we expect minimum revenues of $165 million which implies full-year 2009 revenues of $651 million. This represents year-over-year growth of 3% in the fourth quarter and 14% for the full year. We expect gross margin percentage for the fourth quarter and the full year to be between 69% and 70%. We expect non-GAAP earnings per fully diluted pro forma share in the fourth quarter between $0.24 and $0.25 and $1.05 to $1.06 for the full-year. We expect the full-year pro forma tax rate to be approximately 34% and stock compensation expense of approximately $61 million or a tax-adjusted amount of $0.31 per fully diluted pro forma share. We expect full-year weighted-average diluted shares outstanding for the measurement of pro forma amounts to be approximately 133 million. We believe total capital expenditures will be approximately $52 million for 2009.

Quarterly Conference Call Information

The conference call will begin at 2:00pm Pacific Time (5:00pm Eastern Time) on Tuesday, October 27, 2009. Interested parties may listen to the call by dialing 866.831.6272 (passcode: 41971199), or if outside North America, by dialing +1.617.213.8859 (passcode: 41971199). Individuals may access the live teleconference under the "Company/Investor Relations" tab of Illumina's web site at www.illumina.com.

A replay of the conference call will be available from 4:00pm Pacific Time (7:00pm Eastern Time) on October 27, 2009 through November 3, 2009 by dialing 888.286.8010, or if outside North America, by dialing +1.617.801.6888 (passcode: 51354157).

About Illumina

Illumina is a leading developer, manufacturer, and marketer of next-generation life science tools and integrated systems for the large scale analysis of genetic variation and biological function. We provide a comprehensive line of proprietary products and services that currently serve the sequencing, genotyping, and gene expression markets, and we expect to enter the market for molecular diagnostics. Our customers include leading genomic research centers, academic institutions, agriculture and livestock companies, pharmaceutical companies, clinical research organizations and biotechnology companies. Our tools provide researchers around the world with the performance, throughput, cost effectiveness and flexibility necessary to perform the billions of genetic tests needed to extract valuable medical information from advances in genomics and proteomics. We believe this information will enable researchers to correlate genetic variation and biological function that will enhance drug discovery and clinical research, allow diseases to be detected earlier and permit better choices of drugs for individual patients.

Statement Regarding Use of Non-GAAP Financial Measures

The Company reported non-GAAP results for diluted net income per share, net income, gross margins, operating margins, cash flow from operations 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 results under GAAP include substantial non-cash charges related to stock compensation expense, interest expense and gain on debt extinguishment associated with the adoption of authoritative accounting guidance for convertible debt instruments that may be settled in cash, the amortization of intangible assets, compensation expense related to contingent consideration due to stockholders of Avantome, Inc., and expense related to in-process and acquired research and development. Per share amounts also include the double dilution associated with the accounting treatment of the Company’s convertible debt outstanding and the corresponding call option overlay. Management believes that presentation of operating results that excludes these non-cash charges 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 made 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 BeadArray™, VeraCode®, and Solexa® technologies and to deploy new sequencing, gene expression, and genotyping products and applications for our technology platforms, (ii) our ability to manufacture robust instrumentation and reagents technology, and (iii) reductions in the funding levels to our primary customers, including as a result of the timing and amount of funding provided by the American Recovery and Reinvestment Act of 2009, together with other factors detailed in our filings with the Securities and Exchange Commission, including our 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 disclaim any obligation to 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.