Invitrogen Announces Third Quarter 2007 Results

Invitrogen Corporation (Nasdaq:IVGN) today announced results for its third quarter ended September 30, 2007. Revenues for the third quarter were $315 million, an increase of 11 percent over the $284 million for 2006, excluding the impact of discontinued operations. "We’re pleased our work to achieve balanced growth across all products and regions and return margins to historical levels is paying off sooner than expected,” said Greg Lucier, Chairman and Chief Executive Officer of Invitrogen. "Our focus from here is to sustain and expand upon these results by driving further sales penetration in high growth regions, targeted investments in breakthrough technologies and broader implementation of our reagent productivity strategies.” Third quarter diluted earnings per share from continuing operations was $0.63, which includes $0.13 per share of stock option expense and $0.39 per share for amortization and other items. On a non-GAAP basis, which excludes these items, diluted earnings per share was $1.15, an increase of 40 percent over the same period last year. The following analysis of diluted earnings per share identifies specific items that affect the comparability of results between periods.       Three Months Ending September 30, 2007     2006     % Change   GAAP earnings per share as reported $0.64 ($2.53 ) n/m Discontinued operations ($0.01 ) $2.83   n/m   GAAP earnings per share from continuing operations $0.63 $0.30 110 % Amortization of acquisition related expenses $0.36 $0.35 3 % Stock option expense (FAS123R) $0.13 $0.15 (13 %) Business integration and other expense $0.03   $0.02   50 % Non-GAAP earnings per share $1.15   $0.82   40 % Reconciliations between Invitrogen’s results and non-GAAP results for the periods reported are presented in the attached tables and on the company’s Investor Relations page at www.invitrogen.com. Through the first nine months of 2007, revenues for the company were $945 million, an 11 percent increase over revenues in the first nine months of 2006, excluding the impact of discontinued operations. Non-GAAP net income for the first nine months of 2007 was $165 million and non-GAAP earnings per share was $3.44, compared with $137 million or $2.53 non-GAAP earnings per share for the same period in 2006. Analysis of Third Quarter 2007 Results Third quarter 2007 revenues from continuing operations increased 11 percent over the prior year, driven by solid growth in all businesses and positive currency benefits. The net effect of foreign currency on revenue growth in the third quarter was a positive 3 percent compared to third quarter 2006. Gross margin, on a non-GAAP basis, was 64.4 percent compared to 60.8 percent in the third quarter of 2006. The increase was primarily due to improved operational efficiencies, positive price within BioDiscovery and fixed cost leverage. Non-GAAP operating margin was 24.6 percent, representing a 190 basis point increase over the same period in 2006. Third quarter 2007 non-GAAP effective tax rate was 30.5 percent. Weighted shares outstanding were 48.2 million. The company repurchased 0.4 million shares at a cost of $35 million in the quarter. In the first nine months of 2007, the company repurchased 2.7 million shares at a cost of $185 million. Cash flow from operating activities for the third quarter was at a record $88 million. Third quarter capital expenditures were $10 million and free cash flow was $78 million. For the first nine months of the year, cash flow from operating activities was $225 million, capital expenditures were $36 million and free cash flow was $189 million. The company ended the quarter with $648 million in cash & short-term investments. Segment and Geographic Highlights BioDiscovery revenue was $220 million in the third quarter, an increase of 10 percent over the same period the previous year. Revenue growth was driven by the introduction of new products, price, and volume increases in both the molecular biology and cell biology product segments. Cell Culture Systems revenue was $95 million in the third quarter of 2007, an increase of 12 percent over the same period in the previous year. Revenue growth by region for the third quarter was 9 percent in the Americas, 14 percent in Europe, and 9 percent in Asia Pacific. Fourth Quarter 2007 Outlook Subject to the risk factors detailed in the Safe Harbor Statement section of this release, the company provided revenue expectations for the fourth quarter of mid-single digit growth. Using revised fourth quarter 2006 financials as a base, non-GAAP EPS is expected to grow approximately 3 to 4 times the rate of revenue. Conference Call and Webcast Details The company will discuss its financial and business results as well as its business outlook on its conference call at 5 pm Eastern Time today. This conference call will contain forward-looking information. The conference call will include a discussion of "non-GAAP financial measures” as that term is defined in Regulation G. For actual results, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the company’s financial results determined in accordance with GAAP, as well as other material financial and statistical information to be discussed on the conference call will be posted at the company’s Investor Relations website at www.invitrogen.com. The webcast can be accessed on Invitrogen's website at www.invitrogen.com on the Investor Relations home page. Alternatively, callers may listen to the live conference call by dialing 888.396.2386 (domestic) or 617.847.8712 (international) and use passcode 18285405. A replay of the webcast will be available on the company's website through Tuesday, November 20, 2007. About Invitrogen Invitrogen Corporation (Nasdaq:IVGN) provides products and services that support academic and government research institutions and pharmaceutical and biotech companies worldwide in their efforts to improve the human condition. The company provides essential life science technologies for disease research, drug discovery, and commercial bioproduction. Invitrogen's own research and development efforts are focused on breakthrough innovation in all major areas of biological discovery including functional genomics, proteomics, bioinformatics and cell biology -- placing Invitrogen's products in nearly every major laboratory in the world. Founded in 1987, Invitrogen is headquartered in Carlsbad, California, and conducts business in more than 70 countries around the world. The company is celebrating 20 years of accelerating scientific discovery. Invitrogen globally employs approximately 4,700 scientists and other professionals and had revenues of approximately $1.15 billion in 2006. For more information, visit www.invitrogen.com. Statement Regarding Use of Non-GAAP Measures We regularly have reported non-GAAP measures for net income and earnings per share as non-GAAP results. These measures are provided as supplementary information and are not a substitute for, or superior to, financial measures calculated in accordance with GAAP. These non-GAAP measures are limited because they do not reflect the entirety of our business results. We define our non-GAAP results as our GAAP results excluding the after tax impact of the following: Acquisition related amortization In process research and development expenses Acquisition related gains and losses Asset impairment charges related to a portfolio review Business consolidation costs required to realize cost synergies from combining our acquired entities with our existing operations Certain significant one time events that are unlikely to recur Share based payment expenses as a result of adoption of FAS123R Effect of 2006 convertible subordinated notes Management views these excluded items as not indicative of the operating results or cash flows of its operations and excludes these items as a supplemental disclosure to assist investors in evaluating and assessing our past and future operational performance. This presentation of our non-GAAP results is consistent with how management internally evaluates the performance of its operations. We encourage investors to carefully consider our results under GAAP, as well as our non-GAAP disclosures and the reconciliation between these presentations to more fully understand our business. Reconciliations between GAAP results and non-GAAP results are presented on the following pages. Safe Harbor Statement Certain statements contained in this press release and in today’s conference call are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and it is Invitrogen’s intent that such statements be protected by the safe harbor created thereby. Such statements include, but are not limited to statements regarding Invitrogen’s: 1) financial projections, including revenue and non-GAAP earnings per share; 2) plans regarding our share repurchase program; 3) momentum in 2007; and 4) plans to sustain and expand organic growth and increase operating margins. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to a) the Company’s ability to identify promising technology and new product development opportunities; b) the Company’s repurchase shares of its common stock at prices that are acceptable to its Board of Directors and management; and c) the Company’s ability to identify acquisitions and organic growth opportunities that will position it to serve growing markets, as well as other risks and uncertainties detailed from time to time in Invitrogen’s Securities and Exchange Commission filings.   INVITROGEN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RECONCILIATION OF NON-GAAP ADJUSTMENTS(1)                   For the three months ended September 30, 2007 For the three months ended September 30, 2006 (in thousands, except per share data) (unaudited) GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP Revenues $ 314,959 $ - $ 314,959 $ 284,197 $ 284,197 Cost of revenues 113,875 (1,866 ) (2)(3)(4) 112,009 112,202 (751 ) (2)(3)(4) 111,451 Purchased intangibles amortization   26,294     (26,294 ) (5)   -     27,735     (27,735 ) (5)   -   Gross profit   174,790     28,160     202,950     144,260     28,486     172,746   Gross margin 55.5 % 64.4 % 50.8 % 60.8 % Operating expenses: Sales and marketing 63,864 (1,486 ) (3)(4) 62,378 56,934 (1,185 ) (3)(4) 55,749 General and administrative 40,430 (4,842 ) (3)(4) 35,588 34,435 (7,153 ) (3)(4) 27,282 Research and development 28,571 (1,006 ) (3)(4) 27,565 26,250 (1,025 ) (3)(4) 25,225 Business consolidation costs   2,267     (2,267 ) (6)   -     2,644     (2,644 ) (6)   -   Total operating expenses   135,132     (9,601 )   125,531     120,263     (12,007 )   108,256   Operating income 39,658 37,761 77,419 23,997 40,493 64,490 Operating margin 12.6 % 24.6 % 8.4 % 22.7 % Interest income 7,713 - 7,713 7,200 - 7,200 Interest expense (6,933 ) - (6,933 ) (7,996 ) - (7,996 ) Other income (expense), net   1,516     -     1,516     (1,405 )   -     (1,405 ) Total other income (expense), net   2,296     -     2,296     (2,201 )   -     (2,201 ) Income from continuing operations before provision for income taxes 41,954 37,761 79,715 21,796 40,493 62,289 Income tax provision   (11,464 )   (12,881 ) (7)   (24,345 )   (5,958 )   (13,185 ) (7)   (19,143 ) Income from continuing operations $ 30,490 $ 24,880 $ 55,370 $ 15,838 $ 27,308 $ 43,146 Income (loss) from discontinued operations, net of tax $ 506   $ (506 ) $ -   $ (145,631 ) $ 145,631   $ -   Net income (loss) $ 30,996 $ 24,374 $ 55,370 $ (129,793 ) $ 172,939 $ 43,146 Effective tax rate for continuing operations 27.3 % 30.5 % 27.3 % 30.7 % Add back interest expense for subordinated debt, net of tax   33     -     33     120     -     120   Numerator for diluted earnings per share for continuing operations $ 30,523   $ 24,880   $ 55,403   $ 15,958   $ 27,308   $ 43,266     Earnings (loss) per common share: Basic earnings per share from continuing operations $ 0.66   $ 1.20   $ 0.31   $ 0.84   Basic earnings (loss) per share from discontinued operations $ 0.01   $ -   $ (2.84 ) $ -   Basic earnings (loss) per share $ 0.67   $ 1.20   $ (2.53 ) $ 0.84     Diluted earnings per share from continuing operations $ 0.63   $ 1.15   $ 0.30   $ 0.82   Diluted earnings (loss) per share from discontinued operations $ 0.01   $ -   $ (2.77 ) $ -   Diluted earnings (loss) per share $ 0.64   $ 1.15   $ (2.47 ) $ 0.82     Weighted average shares used in per share calculation: Basic 46,315 46,315 51,271 - 51,271 Diluted 48,198 48,198 52,585 52,585   (1)The Company has regularly reported Non-GAAP results which exclude the amortization of purchased intangibles, charges for inventory revaluation on products sold that were previously written-up under purchase accounting rules, in-process research and development and acquisition related deferred compensation to provide a supplemental comparison of results of operations. In addition, expenses related to share-based payments as a result of the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments," have been excluded from 2007 Non-GAAP results.   (2)Add back noncash charges for purchase accounting inventory revaluations of $0.5 million and $0.3 million for the three months ended September 30, 2007 and 2006, respectively.   (3)Add back amortization of deferred compensation of zero and $0.1 million for the three months ended September 30, 2007 and 2006, respectively, related to stock option plans assumed in business combinations.   (4)Add back stock option expense related to Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments," of $8.7 million and $9.9 million for the three months ended September 30, 2007 and 2006, respectively.   (5)Add back amortization of purchased intangibles.   (6)Add back business consolidation costs.   (7)Non-GAAP tax expense is higher than GAAP tax expense primarily because certain acquisition related costs such as charges for inventory revaluation, amortization of acquired intangibles, in-process research and development and deferred compensation are deducted for GAAP purposes but excluded for Non-GAAP purposes. In addition, 2007 GAAP net income includes expenses related to share-based payments as a result of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments," which are deducted for GAAP purposes but excluded for Non-GAAP purposes. These deductions produce a GAAP only tax benefit which is added back for Non-GAAP presentation.   INVITROGEN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RECONCILIATION OF NON-GAAP ADJUSTMENTS(1)                   For the nine months ended September 30, 2007 For the nine months ended September 30, 2006 (in thousands, except per share data) (unaudited) GAAP Adjustments Non-GAAP   GAAP Adjustments Non-GAAP Revenues $ 945,302 $ - $ 945,302 $ 849,592 $ - $ 849,592 Cost of revenues 341,799 (4,846 ) (2)(3)(4) 336,953 316,289 (5,331 ) (2)(3)(4) 310,958 Purchased intangibles amortization   81,837     (81,837 ) (5)   -     83,519     (83,519 ) (5)   -   Gross profit   521,666     86,683     608,349     449,784     88,850     538,634   Gross margin 55.2 % 64.4 % 52.9 % 63.4 % Operating expenses: Sales and marketing 183,515 (4,661 ) (3)(4) 178,854 174,473 (3,658 ) (3)(4) 170,815 General and administrative 125,742 (15,163 ) (3)(4) 110,579 110,377 (22,083 ) (3)(4) 88,294 Research and development 84,620 (3,150 ) (3)(4) 81,470 79,738 (3,145 ) (3)(4) 76,593 Business consolidation costs   4,789     (4,789 ) (6)   -     8,043     (8,043 ) (6)   -   Total operating expenses   398,666     (27,763 )   370,903     372,631     (36,929 )   335,702   Operating income 123,000 114,446 237,446 77,153 125,779 202,932 Operating margin 13.0 % 25.1 % 9.1 % 23.9 % Interest Income 19,613 - 19,613 21,416 - 21,416 Interest Expense (21,061 ) - (21,061 ) (24,374 ) - (24,374 ) Other income (expense), net   1,612     -     1,612     443     (1,344 ) (7)   (901 ) Total other expense, net   164     -     164     (2,515 )   (1,344 )   (3,859 ) Income from continuing operations before provision for income taxes 123,164 114,446 237,610 74,638 124,435 199,073 Income tax provision   (33,385 )   (39,110 ) (8)   (72,495 )   (21,493 )   (41,011 ) (8)   (62,504 ) Income from continuing operations $ 89,779 $ 75,336 $ 165,115 $ 53,145 $ 83,424 $ 136,569 Income (loss) from discontinued operations, net of tax $ 12,361   $ (12,361 ) $ -   $ (144,040 ) $ 144,040   $ -   Net income (loss) $ 102,140 $ 62,975 $ 165,115 $ (90,895 ) $ 227,464 $ 136,569 Effective tax rate 27.1 % 30.5 % 28.8 % 31.4 % Add back interest expense for subordinated debt, net of tax   113     -     113       485     -     485   Numerator for diluted earnings per share for continuing operations $ 89,892   $ 75,336   $ 165,228   $ 53,630   $ 83,424   $ 137,054     Earnings (loss) per common share: Basic earnings per share from continuing operations $ 1.92   $ 3.53   $ 1.01   $ 2.60   Basic earnings (loss) per share from discontinued operations $ 0.27   $ -   $ (2.74 ) $ -   Basic earnings (loss) per share $ 2.19   $ 3.53   $ (1.73 ) $ 2.60     Diluted earnings per share from continuing operations $ 1.87   $ 3.44   $ 0.99   $ 2.53   Diluted earnings (loss) per share from discontinued operations $ 0.26   $ -   $ (2.66 ) $ -   Diluted earnings (loss) per share $ 2.13   $ 3.44   $ (1.67 ) $ 2.53     Weighted average shares used in per share calculation: Basic 46,710 46,710 52,499 - 52,499 Diluted 48,076 48,076 54,077 - 54,077     (1)The Company has regularly reported Non-GAAP results which exclude the amortization of purchased intangibles, charges for inventory revaluation on products sold that were previously written-up under purchase accounting rules, in-process research and development and acquisition related deferred compensation to provide a supplemental comparison of results of operations. In addition, expenses related to share-based payments as a result of the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments," have been excluded from 2007 Non-GAAP results.   (2)Add back noncash charges for purchase accounting inventory revaluations of $0.5 million and $4.4 million for the nine months ended September 30, 2007 and 2006, respectively.   (3)Add back amortization of deferred compensation was immaterial and $0.5 million for the nine months ended September 30, 2007 and 2006, respectively, related to stock option plans assumed in business combinations.   (4)Add back expenses related to share-based payments as a result of the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments," of $27.4 million and $30.6 million for the nine months ended September 30, 2007 and 2006, respectively.   (5)Add back amortization of purchased intangibles.   (6)Add back business consolidation costs.   (7)Deduct gain on the sale of a business operation.   (8)Non-GAAP tax expense is higher than GAAP tax expense primarily because certain acquisition related costs such as charges for inventory revaluation, amortization of acquired intangibles, in-process research and development and deferred compensation are deducted for GAAP purposes but excluded for Non-GAAP purposes. In addition, 2007 GAAP net income includes expenses related to share-based payments as a result of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments," which are deducted for GAAP purposes but excluded for Non-GAAP purposes. These deductions produce a GAAP only tax benefit which is added back for Non-GAAP presentation.   INVITROGEN CORPORATION BUSINESS SEGMENT HIGHLIGHTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006               (in thousands) (unaudited) Bio-Discovery Cell Culture Systems Unallocated(1) Total Segment results for the three months ended September 30, 2007 Revenues $ 220,366   $ 94,593   $ -   $ 314,959   Gross profit   154,296     48,654     (28,160 )   174,790   Gross margin 70.0 % 51.4 % 55.5 %   Selling and administrative 72,260 25,706 6,328 104,294 Research and development 24,141 3,424 1,006 28,571 Business consolidation costs   -     -     2,267     2,267     Operating income (loss) $ 57,895   $ 19,524   $ (37,761 ) $ 39,658   Operating margin 26.3 % 20.6 % 12.6 %     Segment results for the three months ended September 30, 2006 Revenues $ 199,510   $ 84,687   $ -   $ 284,197   Gross profit   127,223     45,523     (28,486 )   144,260   Gross margin 63.8 % 53.8 % 50.8 %   Selling and administrative 64,075 18,956 8,338 91,369 Research and development 22,353 2,872 1,025 26,250 Business consolidation costs   -     -     2,644     2,644     Operating income (loss) $ 40,795   $ 23,695   $ (40,493 ) $ 23,997   Operating margin 20.4 % 28.0 % 8.4 %   (1)Unallocated items for the three months ended September 30, 2007 and 2006 include noncash charges for purchase accounting inventory revaluations of $0.5 million and $0.3 million, amortization of purchased intangibles of $26.3 million and $27.7 million, amortization of deferred compensation of zero and $0.1 million, business consolidation costs of $2.3 million and $2.6 million, and expenses related to share-based payments as a result of the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments," of $8.7 million and $9.9 million, respectively. These items are not allocated by management for purposes of analyzing the operations since they are principally non-cash or other costs resulting primarily from business restructuring or purchase accounting that are separate from ongoing operations.   INVITROGEN CORPORATION BUSINESS SEGMENT HIGHLIGHTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006               (in thousands) (unaudited) Bio-Discovery Cell Culture Systems Unallocated(1) Total Segment results for the nine months ended September 30, 2007 Revenues $ 663,193   $ 282,109   $ -   $ 945,302   Gross profit   468,877     139,472     (86,683 )   521,666   Gross margin 70.7 % 49.4 % 55.2 %   Selling and administrative 215,255 74,178 19,824 309,257 Research and development 71,361 10,109 3,150 84,620 Business consolidation costs   -     -     4,789     4,789     Operating income (loss) $ 182,261   $ 55,185   $ (114,446 ) $ 123,000   Operating margin 27.5 % 19.6 % 13.0 %   Segment results for the nine months ended September 30, 2006 Revenues $ 604,044   $ 245,548   $ -   $ 849,592   Gross profit   411,364     127,270     (88,850 )   449,784   Gross margin 68.1 % 51.8 % 52.9 %   Selling and administrative 197,414 61,695 25,741 284,850 Research and development 68,600 7,993 3,145 79,738 Business consolidation costs   -     -     8,043     8,043     Operating income (loss) $ 145,350   $ 57,582   $ (125,779 ) $ 77,153   Operating margin 24.1 % 23.5 % 9.1 %     (1)Unallocated items for the nine months ended September 30, 2007 and 2006 include noncash charges for purchase accounting inventory revaluations of $0.5 million and $4.4 million, amortization of purchased intangibles of $81.8 million and $83.5 million, amortization of deferred compensation of immaterial and $0.5 million, business consolidation costs of $4.8 million and $8.0 million, and expenses related to share-based payments as a result of the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments," of $27.4 million and $30.6 million, respectively. These items are not allocated by management for purposes of analyzing the operations since they are principally non-cash or other costs resulting primarily from business restructuring or purchase accounting that are separate from ongoing operations.   INVITROGEN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS           For the nine months ended September 30, (in thousands)(unaudited)   2007     2006     Net income $ 102,140 $ (90,895 ) Add back amortization and stock-based compensation 117,363 127,507 Add back impairment of goodwill - 150,000 Add back depreciation 27,745 29,810 Balance sheet changes (28,003 ) (63,917 ) Other noncash adjustments   5,763     (23,882 ) Net cash provided by operating activities 225,008 128,623 Capital expenditures   (35,858 )   (44,381 ) Free cash flow 189,150 84,242 Net cash provided by investing activities 150,961 263,397 Net cash used in financing activities (118,977 ) (315,621 ) Effect of exchange rate changes on cash   6,902     10,559   Net increase in cash and cash equivalents $ 228,036   $ 42,577     INVITROGEN CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS       September 30, December 31, (in thousands) 2007 2006 ASSETS (unaudited) Current assets: Cash and investments $ 648,454 $ 356,488 Trade accounts receivable, net of allowance for doubtful accounts 192,841 177,510 Inventories 164,979 146,400 Deferred income taxes 30,620 35,184 Prepaid expenses and other current assets   25,952   25,022 Total current assets 1,062,846 740,604   Assets of discontinued operations 651 262,575   Property and equipment, net 285,502 275,419 Goodwill 1,522,866 1,480,008 Intangible assets, net 300,556 371,705 Long-term investments 753 2,850 Other assets   54,238   49,714 Total assets $ 3,227,412 $ 3,182,875   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 566 $ 1,961 Accounts payable, accrued expenses and other current liabilities 197,661 205,421 Income taxes   10,865   20,704 Total current liabilities 209,092 228,086   Liabilities of discontinued operations 3,233 28,171   Long-term debt 1,150,703 1,150,824 Pension liabilities 40,288 38,444 Deferred income tax liabilities 66,657 92,942 Income taxes payables 27,011 - Other long-term liabilities 14,558 13,981 Stockholders' equity   1,715,870   1,630,427 Total liabilities and stockholders' equity $ 3,227,412 $ 3,182,875