Illumina Reports 2008 Results

For the fourth quarter of 2008, Illumina reported revenue of $160.9 million, up 43% over the $112.6 million reported in the fourth quarter of 2007 and up 7% over revenue of $150.3 million in the third quarter of 2008. The company reported GAAP net income for the quarter of $28.9 million, or $0.22 per diluted share, against a GAAP net loss of $4.1 million, or ($0.04) per basic and diluted share in the comparable period of 2007. The GAAP net loss in the fourth quarter of 2007 was attributable to the recognition of litigation settlement expenses. GAAP net income for the fourth quarter of 2008 included non-cash charges of $11.8 million in stock compensation expense associated with SFAS No. 123R, $2.7 million attributable to the amortization of intangible assets and $0.9 million of accrued contingent compensation associated with the acquisition of Avantome, Inc. Excluding the impact of these specified items, and net of pro forma tax expense, Illumina’s net income on a non-GAAP basis for the fourth quarter of 2008 was $39.4 million, or $0.31 per diluted share, against $22.5 million, or $0.19 per diluted share, for the fourth quarter of 2007.

Gross margin in the fourth quarter of 2008 was 64.4% against 63.8% in the comparable period of 2007. Excluding the effect of the amortization of intangibles and non-cash charges associated with stock compensation, non-GAAP gross margin was 66.7% for the fourth quarter of 2008 against 65.5% in the prior year period.

Research and development (R&D) expenses for the fourth quarter of 2008 were $28.3 million against $20.1 million in the fourth quarter of 2007. R&D expenses include $3.8 million and $3.0 million of non-cash stock compensation expense in the fourth quarter of 2008 and 2007, respectively, as well as $0.9 million of accrued contingent compensation associated with the Avantome acquisition completed during the third quarter of 2008. Excluding these charges, R&D expenses as a percentage of revenues were 14.7% against 15.2% in the prior year period.

Selling, general, and administrative (SG&A) expenses for the quarter were $39.2 million against $30.0 million for the fourth quarter of 2007. SG&A expenses include $6.9 million and $5.4 million of non-cash stock compensation expense in the fourth quarter of 2008 and 2007, respectively. Excluding these charges, SG&A expenses as a percentage of revenues were 20.1% against 21.9% in the prior year period.

The company generated $49.4 million in cash flow from operations during the fourth quarter of 2008, against $11.9 million in the comparable quarter of 2007. Depreciation and amortization expenses were $7.7 million and capital expenditures were $14.6 million during the quarter. During the quarter, the company repurchased 3.1 million shares of common stock outstanding for a total of $70.8 million. Net of this repurchase, the company ended the quarter with $687.3 million in cash and investments against $701.2 million as of September 28, 2008.

Fiscal 2008

For the fiscal year 2008, the company reported revenue of $573.2 million, a 56% increase over the $366.8 million reported in fiscal 2007. On a GAAP basis, the company reported net income of $50.5 million or $0.38 per diluted share against a GAAP net loss of $278.4 million or $2.57 per share in 2007. 2008 GAAP net income included non-cash charges of $47.7 million related to stock compensation expense, $24.7 million for the write off of in-process research and development associated with the acquisition of Avantome, Inc., $10.4 million attributable to the amortization of intangible assets, $4.1 million associated with the write-off of manufacturing equipment, and $1.5 million of accrued contingent compensation associated with the acquisition of Avantome, Inc. Excluding the impact of the non-cash items listed above and net of pro forma tax expense, Illumina’s non-GAAP net income was $118.0 million, or $0.93 per diluted share, against $71.9 million, or $0.62 per diluted share in fiscal 2007.

Gross margin for fiscal 2008 was 61.6%, against 63.2% in fiscal 2007. Excluding non-cash charges associated with stock compensation, the amortization of intangible assets, the write-off of manufacturing equipment, and certain acquisition related expenses, non-GAAP gross margin was 65.0% in fiscal 2008 against 65.3% in fiscal 2007.

R&D expenses for fiscal 2008 were $100.0 million against $73.9 million in fiscal 2007. R&D expenses for 2008 included non-cash stock compensation expense of $14.1 million against $10.0 million in 2007. 2008 R&D expenses also included $1.5 million of accrued contingent compensation associated with the acquisition of Avantome, Inc. SG&A expenses for fiscal 2008 were $148.0 million against $101.3 million in 2007 and included $28.5 million and $19.4 million of non-cash stock compensation expense respectively.

The company generated $51.1 million in cash from operations in 2008 which included $90.5 million in litigation settlement payments. Excluding these payments, the company generated $141.7 million in cash from operations. Depreciation and amortization expenses for the year were $27.7 million and capital expenditures were $59.7 million.

Financial outlook and guidance

For fiscal year 2009, Illumina anticipates earnings per share between $1.10 and $1.20, and revenues between $690 and $720 million, representing year-over-year growth between 20% and 26%.

For the first quarter of 2009, the company expects earnings per share of $0.23 to $0.26, and revenues between $158 and $164 million.