Press Release

Press Release

Illumina Reports Financial Results for Second Quarter of Fiscal Year 2015

SAN DIEGO--(BUSINESS WIRE)--Jul. 21, 2015-- Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for the second quarter of fiscal year 2015.

Second quarter 2015 results:

  • Revenue of $539 million, a 21% increase compared to $448 million in the second quarter of 2014, and an increase of 25% on a constant currency basis
  • GAAP net income for the quarter of $102 million, or $0.69 per diluted share, compared to $47 million, or $0.31 per diluted share, for the second quarter of 2014
  • Non-GAAP net income for the quarter of $120 million, or $0.80 per diluted share, compared to $85 million, or $0.57 per diluted share, for the second quarter of 2014 (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 $171 million and free cash flow of $130 million for the quarter

Gross margin in the second quarter of 2015 was 69.8% compared to 67.1% in the prior year period. Excluding the effect of non-cash stock compensation expense, amortization of acquired intangible assets, and legal contingencies, non-GAAP gross margin was 72.4% for the second quarter of 2015 compared to 70.9% in the prior year period.

Research and development (R&D) expenses for the second quarter of 2015 were $96.2 million compared to $83.0 million in the prior year period. R&D expenses included $10.7 million and $12.8 million of non-cash stock compensation expense in the second quarters of 2015 and 2014, respectively. Excluding these charges and contingent compensation, R&D expenses as a percentage of revenue were 15.8% compared to 15.6% in the prior year period.

Selling, general and administrative (SG&A) expenses for the second quarter of 2015 were $124.4 million compared to $114.6 million in the prior year period. SG&A expenses included $19.6 million and $20.8 million of non-cash stock compensation expense in the second quarters of 2015 and 2014, respectively. Excluding these charges and amortization of acquired intangible assets, SG&A expenses as a percentage of revenue were 19.2% compared to 20.5% in the prior year period.

Depreciation and amortization expenses were $30.7 million and capital expenditures were $41.4 million during the second quarter of 2015. The Company ended the quarter with $1.51 billion in cash, cash equivalents and short-term investments, compared to $1.34 billion as of December 28, 2014.

“We delivered solid financial results in the second quarter with increasing demand for our new products,” stated Jay Flatley, CEO. “The fundamentals of our business are strong and we remain focused on innovation and market expansion.”

Updates since our last earnings release:

  • Announced an agreement with Annoroad to jointly develop advanced clinical applications for non-invasive prenatal testing in China based on our next-generation sequencing technology
  • Launched Illumina SeqLab for large-scale human whole genome sequencing operations, an integrated solution for customers with HiSeq X™ systems
  • Published a preliminary study in The Journal of the American Medical Association which retrospectively correlated 10 cases of occult maternal cancer among pregnant women receiving an “aneuploidy detected” or “aneuploidy suspected” positive results on the verifi® noninvasive Prenatal Test (NIPT)
  • Entered into a collaboration with Merck KGaA and Genea to advance excellence in fertility technologies and processes within the assisted reproductive treatment (ART) laboratory
  • Further strengthened Illumina's management team by appointing Sanjay Chikarmane as Senior Vice President and General Manager of the Enterprise Informatics business unit

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.

For fiscal 2015, the Company continues to project approximately 20% total revenue growth, including a 3% negative impact from foreign exchange assuming current currency exchange rates. The Company has increased its projections for non-GAAP earnings per diluted share to $3.39 to $3.45.

Quarterly conference call information

The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Tuesday, July 21, 2015. Interested parties may listen to the call by dialing 877.703.6110 (passcode: 79927332), or if outside North America by dialing 1.857.244.7309 (passcode: 79927332). 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 July 21, 2015 through July 28, 2015 by dialing 888.286.8010 (passcode: 76382666), or if outside North America by dialing 1.617.801.6888 (passcode: 76382666).

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 such as stock compensation expense, amortization of acquired intangible assets, non-cash interest expense associated with the Company’s convertible debt instruments that may be settled in cash, and others that are listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release. Management believes that presentation of operating results that excludes these items 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 quarter.

About Illumina

Illumina is improving human health by unlocking the power of the genome. Our focus on innovation has established us as the global leader in DNA sequencing and array-based technologies, serving customers in the research, clinical and applied markets. Our products are used for applications in the life sciences, oncology, reproductive health, agriculture and other emerging segments. To learn more, visit www.illumina.com and follow @illumina.

 
Illumina, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
   
June 28,
2015
December 28,
2014
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $   591,057 $   636,154
Short-term investments 919,325 702,217
Accounts receivable, net 368,611 289,458
Inventory 223,620 191,144
Deferred tax assets, current portion 51,676 40,786
Prepaid expenses and other current assets 83,402   29,844
Total current assets 2,237,691 1,889,603
Property and equipment, net 302,840 265,264
Goodwill 724,904 724,904
Intangible assets, net 288,177 314,500
Deferred tax assets, long-term portion 66,723 49,848
Other assets 82,790   95,521
Total assets $   3,703,125   $   3,339,640
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 107,884 $ 82,626
Accrued liabilities 314,722 335,276
Long-term debt, current portion 302,447   304,256
Total current liabilities 725,053 722,158
Long-term debt 1,000,829 986,780
Other long-term liabilities 183,331 167,904
Stockholders’ equity 1,793,912   1,462,798
Total liabilities and stockholders’ equity $   3,703,125   $   3,339,640
 
Illumina, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(unaudited)
             
Three Months Ended Six Months Ended
June 28,
2015
June 29,
2014
June 28,
2015
June 29,
2014
Revenue:
Product revenue $ 462,760 $ 390,808 $ 921,887 $ 753,019
Service and other revenue 76,618   56,760   156,056   115,330  
Total revenue 539,378   447,568   1,077,943   868,349  
Cost of revenue:
Cost of product revenue (a) 119,459 114,307 239,083 225,748
Cost of service and other revenue (a) 32,170 23,176 64,699 44,689
Amortization of acquired intangible assets 11,384   9,545   22,769   19,080  
Total cost of revenue 163,013   147,028   326,551   289,517  
Gross profit 376,365   300,540   751,392   578,832  
Operating expense:
Research and development (a) 96,182 82,985 187,954 160,026
Selling, general and administrative (a) 124,441 114,649 240,758 224,222
Acquisition related expense (gain), net 2,329 (225 ) (7,558 ) (1,238 )
Headquarter relocation 1,480   2,892   2,179   3,487  
Total operating expense 224,432   200,301   423,333   386,497  
Income from operations 151,933 100,239 328,059 192,335
Other expense, net (10,761 ) (39,773 ) (8,841 ) (48,081 )
Income before income taxes 141,172 60,466 319,218 144,254
Provision for income taxes 38,925   13,861   80,313   37,672  
Net income $ 102,247   $ 46,605   $ 238,905   $ 106,582  
Net income per basic share $ 0.71   $ 0.36   $ 1.66   $ 0.82  
Net income per diluted share $ 0.69   $ 0.31   $ 1.61   $ 0.71  
Shares used in calculating basic net income per share 144,220   130,583   143,996   129,365  
Shares used in calculating diluted net income per share 148,969   149,121   148,826   149,870  
                       
(a) Includes total stock-based compensation expense for stock-based awards:
 
Three Months Ended Six Months Ended
June 28,
2015
June 29,
2014
June 28,
2015
June 29,
2014
Cost of product revenue $ 2,113 $ 2,149 $ 4,445 $ 4,244
Cost of service and other revenue 466 284 745 569
Research and development 10,747 12,785 22,054 24,454
Selling, general and administrative 19,631   20,778   37,631   40,153  
Stock-based compensation expense before taxes $ 32,957   $ 35,996   $ 64,875   $ 69,420  
 
Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
       
Three Months Ended Six Months Ended
June 28,
2015
June 29,
2014
June 28,
2015
June 29,
2014
Net cash provided by operating activities (a) $ 171,445 $ 178,030 $ 238,224 $ 215,117
Net cash (used in) provided by investing activities (142,470 ) 114,777 (296,617 ) (29,610 )
Net cash provided by (used in) financing activities (a) 27,810 (136,521 ) 15,276 (222,445 )
Effect of exchange rate changes on cash and cash equivalents 735   422   (1,980 ) 522  
Net increase (decrease) in cash and cash equivalents 57,520 156,708 (45,097 ) (36,416 )
Cash and cash equivalents, beginning of period 533,537   518,513   636,154   711,637  
Cash and cash equivalents, end of period $ 591,057   $ 675,221   $ 591,057   $ 675,221  
 
Calculation of free cash flow:
Net cash provided by operating activities (a) $ 171,445 $ 178,030 $ 238,224 $ 215,117
Purchases of property and equipment (41,351 ) (23,324 ) (77,902 ) (42,336 )
Free cash flow (b) $ 130,094   $ 154,706   $ 160,322   $ 172,781  

______________________________________________________________________________________________________

(a) Net cash provided by operating activities excludes excess tax benefit related to stock-based compensation of $106.2 million in the first half of 2015, of which $29.8 million was recorded in Q2, and $77.3 million in the first half of 2014, of which $26.8 million was recorded in Q2. Net cash used in financing activities reflects the excess tax benefit as a corresponding in-flow in the respective periods.

(b) Free cash flow, which is a non-GAAP financial measure, is calculated as net cash provided by operating activities reduced by purchases of property and equipment. Free cash flow is useful to management as it is one of the metrics used to evaluate our performance and to compare us with other companies in our industry. However, our calculation of free cash flow may not be comparable to similar measures used by other companies.

 
Illumina, Inc.
Results of Operations - Non-GAAP
(In thousands, except per share amounts)
(unaudited)
   
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME PER SHARE:
   
Three Months Ended Six Months Ended
June 28,
2015

June 29,
2014

June 28,
2015
June 29,
2014
GAAP net income per share – diluted $ 0.69 $ 0.31 $ 1.61 $ 0.71
Adjustments to net income:
Amortization of acquired intangible assets 0.08 0.08 0.17 0.17
Non-cash interest expense (a) 0.07 0.06 0.14 0.12
Acquisition related expense (gain), net (b) 0.02 (0.05 ) (0.01 )
Headquarter relocation 0.01 0.02 0.01 0.02
Loss on extinguishment of debt 0.21 0.21
Legal contingencies 0.03 0.07
Contingent compensation expense (c) 0.02
Cost-method investment gain, net (d) (0.09 )
Incremental non-GAAP tax expense (e) (0.07 ) (0.14 ) (0.08 ) (0.21 )
Non-GAAP net income per share - diluted (f) $ 0.80   $ 0.57   $ 1.71   $ 1.10  
Shares used in calculating non-GAAP diluted net income per share 148,969   149,121   148,826   149,546  
 
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:
GAAP net income $ 102,247 $ 46,605 $ 238,905 $ 106,582
Amortization of acquired intangible assets 12,772 11,507 25,659 24,698
Non-cash interest expense (a) 10,227 9,143 20,415 18,165
Acquisition related expense (gain), net (b) 2,329 (225 ) (7,558 ) (1,238 )
Headquarter relocation 1,480 2,892 2,179 3,487
Loss on extinguishment of debt 233 31,360 233 31,360
Legal contingencies 4,817 10,663
Contingent compensation expense (c) 496 3,336
Cost-method investment gain, net (d) (12,582 )
Incremental non-GAAP tax expense (e) (9,617 ) (22,025 ) (12,204 ) (32,436 )
Non-GAAP net income (f) $ 119,671   $ 84,570   $ 255,047   $ 164,617  
 
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES:
Weighted average shares used in calculation of GAAP diluted net income per share 148,969 149,121 148,826 149,870
Weighted average dilutive potential common shares issuable of redeemable convertible senior notes       (324 )
Weighted average shares used in calculation of non-GAAP diluted net income per share 148,969   149,121   148,826   149,546  
                         

(a) Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

(b) Acquisition related expense (gain), net consists of changes in fair value of contingent consideration and transaction related costs.

(c) Contingent compensation expense relates to contingent payments for post-combination services associated with prior period acquisitions.

(d) Cost-method investment gain, net consists primarily of a gain on the sale of an investment partially offset by impairment charges on other investments.

(e) Incremental non-GAAP tax expense reflects the tax impact related to the non-GAAP adjustments listed above.

(f) Non-GAAP net income and diluted net income per share exclude the effect of the pro forma adjustments as detailed above. Non-GAAP net income and diluted net income per share are key drivers of the Company’s core operating performance and major factors in management’s bonus compensation each year. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing our past and future core operating performance.

 
Illumina, Inc.
Results of Operations - Non-GAAP (continued)
(Dollars in thousands)
(unaudited)
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF OPERATIONS AS A PERCENT OF REVENUE:
  Three Months Ended   Six Months Ended
June 28,
2015
  June 29,
2014
June 28,
2015
  June 29,
2014
GAAP gross profit $ 376,365   69.8 % $ 300,540   67.1 % $ 751,392   69.7 % $ 578,832   66.7 %
Stock-based compensation expense 2,579 0.5 % 2,433 0.6 % 5,190 0.5 % 4,813 0.5 %
Amortization of acquired intangible assets 11,384 2.1 % 9,545 2.1 % 22,769 2.1 % 19,080 2.2 %
Legal contingencies     4,817   1.1 %     10,663   1.2 %
Non-GAAP gross profit (a) $ 390,328   72.4 % $ 317,335   70.9 % $ 779,351   72.3 % $ 613,388   70.6 %
 
GAAP research and development expense $ 96,182 17.8 % $ 82,985 18.5 % $ 187,954 17.4 % $ 160,026 18.4 %
Stock-based compensation expense (10,747 ) (2.0 )% (12,785 ) (2.8 )% (22,054 ) (2.0 )% (24,454 ) (2.8 )%
Contingent compensation expense (b)     (496 ) (0.1 )%     (580 ) (0.1 )%
Non-GAAP research and development expense $ 85,435   15.8 % $ 69,704   15.6 % $ 165,900   15.4 % $ 134,992   15.5 %
 
GAAP selling, general and administrative expense $ 124,441 23.1 % $ 114,649 25.6 % $ 240,758 22.3 % $ 224,222 25.8 %
Stock-based compensation expense (19,631 ) (3.6 )% (20,778 ) (4.6 )% (37,631 ) (3.5 )% (40,153 ) (4.7 )%
Amortization of acquired intangible assets (1,388 ) (0.3 )% (1,962 ) (0.5 )% (2,890 ) (0.2 )% (5,618 ) (0.6 )%
Contingent compensation expense (b)             (2,756 ) (0.3 )%
Non-GAAP selling, general and administrative expense $ 103,422   19.2 % $ 91,909   20.5 % $ 200,237   18.6 % $ 175,695   20.2 %
 
GAAP operating profit $ 151,933 28.2 % $ 100,239 22.4 % $ 328,059 30.4 % $ 192,335 22.1 %
Stock-based compensation expense 32,957 6.1 % 35,996 8.0 % 64,875 6.0 % 69,420 8.0 %
Amortization of acquired intangible assets 12,772 2.4 % 11,507 2.6 % 25,659 2.4 % 24,698 2.8 %
Acquisition related expense (gain), net (c) 2,329 0.4 % (225 ) (0.1 )% (7,558 ) (0.7 )% (1,238 ) (0.1 )%
Headquarter relocation 1,480 0.3 % 2,892 0.7 % 2,179 0.2 % 3,487 0.5 %
Legal contingencies 4,817 1.1 % 10,663 1.2 %
Contingent compensation expense (b)     496   0.1 %     3,336   0.4 %
Non-GAAP operating profit (a) $ 201,471   37.4 % $ 155,722   34.8 % $ 413,214   38.3 % $ 302,701   34.9 %
 
GAAP other expense, net $ (10,761 ) (2.0 )% $ (39,773 ) (8.9 )% $ (8,841 ) (0.8 )% $ (48,081 ) (5.5 )%
Non-cash interest expense (d) 10,227 1.9 % 9,143 2.1 % 20,415 1.9 % 18,165 2.1 %
Loss on extinguishment of debt 233 31,360 7.0 % 233 31,360 3.6 %
Cost-method investment gain, net (e)         (12,582 ) (1.2 )%    
Non-GAAP other (expense) income, net (a) $ (301 ) (0.1 )% $ 730   0.2 % $ (775 ) (0.1 )% $ 1,444   0.2 %
                                                         

(a) Non-GAAP gross profit, included within non-GAAP operating profit, is a key measure of the effectiveness and efficiency of manufacturing processes, product mix and the average selling prices of the Company’s products and services. Non-GAAP operating profit, and non-GAAP other (expense) income, net, exclude the effects of the pro forma adjustments as detailed above. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing past and future core operating performance.

(b) Contingent compensation expense relates to contingent payments for post-combination services associated with prior period acquisitions.

(c) Acquisition related expense (gain), net consists of changes in fair value of contingent consideration and transaction related costs.

(d) Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

(e) Cost-method investment gain, net consists primarily of a gain on the sale of an investment partially offset by impairment charges on other investments.

Illumina, Inc.
Reconciliation of Non-GAAP Financial Guidance

The Company’s future performance and financial results are subject to risks and uncertainties, and actual results could differ materially from the guidance set forth below. Some of the factors that could affect the Company’s financial results are stated above in this press release. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the Securities and Exchange Commission, including the Company’s Form 10-K for the fiscal year ended December 28, 2014, and the Company’s Form 10-Q for the fiscal quarter ended March 29, 2015. The Company assumes no obligation to update any forward-looking statements or information.

Fiscal Year 2015
Diluted net income per share
Non-GAAP diluted net income per share $3.39 - $3.45
Amortization of acquired intangible assets (0.21)
Non-cash interest expense (a) (0.17)
Cost-method investment gain, net (b) 0.06
Acquisition related gain, net (c) 0.03
Headquarter relocation (d) (0.02)
GAAP diluted net income per share $3.08 - $3.14
   

(a) Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

(b) Cost-method investment gain, net consists primarily of a gain on the sale of an investment partially offset by impairment charges on other investments.

(c) Acquisition related gain, net consists of changes in fair value of contingent consideration.

(d) Headquarter relocation represents accretion of interest expense on lease exit liability and changes in estimate of such liability.

Source: Illumina, Inc.

Illumina, Inc.
Investors:
Rebecca Chambers, 858.255.5243
rchambers@illumina.com
or
Media:
Eric Endicott, 858.882.6822
pr@illumina.com