Illumina, Inc. (NASDAQ:ILMN) today announced its financial
results for the second quarter of fiscal year 2016.
Second quarter 2016 results:
- Revenue of $600 million, an 11%
increase compared to $539 million in the second quarter of
2015
- GAAP net income attributable to
Illumina stockholders for the quarter of $120 million, or $0.82 per
diluted share, compared to $102 million, or $0.69 per diluted
share, for the second quarter of 2015
- Non-GAAP net income attributable to
Illumina stockholders for the quarter of $127 million, or $0.86 per
diluted share, compared to $120 million, or $0.80 per diluted
share, for the second quarter of 2015 (see the table entitled
“Itemized Reconciliation Between GAAP and Non-GAAP Net Income
Attributable to Illumina Stockholders” for a reconciliation of
these GAAP and non-GAAP financial measures)
- Cash flow from operations of $217
million and free cash flow of $149 million for the quarter,
compared to $171 million and $130 million in the prior year
period
Gross margin in the second quarter of 2016 was 70.6% compared to
69.8% in the prior year period. Excluding the effect of non-cash
stock compensation expense and amortization of acquired intangible
assets, non-GAAP gross margin was 72.8% for the second quarter of
2016 compared to 72.4% in the prior year period.
Research and development (R&D) expenses for the second
quarter of 2016 were $124.6 million compared to $96.2 million in
the prior year period. R&D expenses included $10.7 million of
non-cash stock compensation expense in the second quarters of 2016
and 2015. Excluding these charges and contingent compensation,
R&D expenses as a percentage of revenue were 19.0%, including
1.4% attributable to GRAIL and Helix. This compares to 15.8% in the
prior year period.
Selling, general and administrative (SG&A) expenses for the
second quarter of 2016 were $148.5 million compared to $124.4
million in the prior year period. SG&A expenses included $18.9
million and $19.6 million of non-cash stock compensation expense in
the second quarters of 2016 and 2015, respectively. Excluding these
charges, amortization of acquired intangible assets, and contingent
compensation, SG&A expenses as a percentage of revenue were
21.2%, including 1.1% attributable to GRAIL and Helix. This
compares to 19.2% in the prior year period.
Depreciation and amortization expenses were $34.4 million and
capital expenditures for free cash flow purposes were $67.8 million
during the second quarter of 2016, which excludes a $75.4 million
increase in property & equipment recorded under build-to-suit
lease accounting since such expenses were paid for by the landlord.
The company repurchased $100.0 million of common stock under the
previously announced discretionary program. At the close of the
quarter, the company held $1.43 billion in cash, cash equivalents
and short-term investments, compared to $1.39 billion as of
January 3, 2016.
“We delivered solid second quarter financial results with
notable strength across our sequencing consumable and array
portfolios,” stated Francis deSouza, President and CEO. “We will
continue to focus on our execution to deliver the sequential growth
we are forecasting in the second half of the year. I would like to
thank Jay Flatley for his leadership and strategic vision as CEO
for the past 17 years and I look forward to his continued
contribution in his new role as Executive Chairman of the Board of
Directors.”
Updates since our last earnings release:
- Received orders for more than 3 million
samples of the new Infinium® Global Screening Array, a highly
economical tool for genetic risk screening of large global
populations
- Received a product approval certificate
for the MiSeqDx® Instrument and the MiSeqDx
Universal Kit with the Ministry of Food and Drug
Safety (MFDS) in South Korea
- Appointed Jay Flatley Executive
Chairman of the Board of Directors of Illumina and Francis deSouza
President and CEO
- Appointed Paula Dowdy Senior Vice
President and General Manager of commercial operations for Europe,
the Middle East and Africa
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 2016, the company continues to project
approximately 12% revenue growth and non-GAAP earnings
per diluted share attributable to Illumina stockholders
of $3.48 to $3.58. For the third quarter 2016, the
company is projecting revenue of $625 million to $630 million.
Quarterly conference call information
The conference call will begin at 2:00 pm Pacific Time (5:00 pm
Eastern Time) on Tuesday, July 26, 2016. Interested parties may
listen to the call by dialing 844.647.5490 (passcode: 45971090), or
if outside North America by dialing +1.615.247.0295 (passcode:
45971090). 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 5:00 pm
Pacific Time (8:00 pm Eastern Time) on July 26, 2016 through August
2, 2016 by dialing 855.859.2056 (passcode: 45971090), or if outside
North America by dialing +1.404.537.3406 (passcode: 45971090).
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 has excluded
the effects of these items in non-GAAP measures to assist investors
in analyzing and assessing past and future core operating
performance. Additionally, non-GAAP net income attributable to
Illumina stockholders and diluted earnings per share attributable
to Illumina stockholders are key components of the financial
metrics utilized by the company’s board of directors to measure, in
part, management’s performance and determine significant elements
of management’s compensation. 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) the 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) the application of generally accepted accounting
principles, which are highly complex and involve many subjective
assumptions, estimates, and judgments, 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) July 3, January
3, 2016 2016 ASSETS (unaudited)
Current assets: Cash and cash equivalents $ 951,662 $ 768,770
Short-term investments 473,594 617,450 Accounts receivable, net
372,480 385,529 Inventory 311,364 270,777 Prepaid expenses and
other current assets 33,921 54,297 Total current
assets 2,143,021 2,096,823 Property and equipment, net 511,354
342,694 Goodwill 775,995 752,629 Intangible assets, net 268,469
273,621 Deferred tax assets 186,462 134,515 Other assets
99,789 87,465 Total assets $ 3,985,090 $ 3,687,747
LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities:
Accounts payable $ 250,670 $ 148,721 Accrued liabilities 330,326
386,844 Long-term debt, current portion 511 74,929
Total current liabilities 581,507 610,494 Long-term debt 1,031,370
1,015,649 Other long-term liabilities 198,568 180,505 Redeemable
noncontrolling interests 33,733 32,546 Stockholders’ equity
2,139,912 1,848,553 Total liabilities and stockholders’
equity $ 3,985,090 $ 3,687,747
Illumina, Inc.
Condensed Consolidated Statements of Income (In
thousands, except per share amounts) (unaudited)
Three Months Ended Six Months Ended July
3, June 28, July 3, June 28,
2016 2015
2016 2015 Revenue: Product
revenue $ 509,922 $ 462,760 $ 992,672 $ 921,887 Service and other
revenue 90,202 76,618 179,215
156,056 Total revenue 600,124
539,378 1,171,887 1,077,943
Cost of revenue: Cost of product revenue
(a) 125,107
119,459 250,433 239,083 Cost of service and other revenue
(a) 40,663 32,170 79,550 64,699 Amortization of acquired
intangible assets 10,549 11,384
21,045 22,769 Total cost of revenue
176,319 163,013 351,028
326,551 Gross profit 423,805 376,365
820,859 751,392 Operating
expense: Research and development
(a) 124,589 96,182 248,583
187,954 Selling, general and administrative
(a) 148,535
124,441 297,768 240,758 Legal contingencies (11,490 ) — (9,490 ) —
Headquarter relocation 302 1,480 684 2,179 Acquisition related
expense (gain), net — 2,329 —
(7,558 ) Total operating expense 261,936
224,432 537,545 423,333
Income from operations 161,869 151,933 283,314 328,059 Other
expense, net (4,894 ) (10,761 ) (10,743 )
(8,841 ) Income before income taxes 156,975 141,172 272,571
319,218 Provision for income taxes 40,581
38,925 68,958 80,313
Consolidated net income 116,394 102,247 203,613 238,905 Add: Net
loss attributable to noncontrolling interests 4,018
— 6,386 — Net income
attributable to Illumina stockholders $ 120,412 $ 102,247
$ 209,999 $ 238,905 Net income attributable to
Illumina stockholders for earnings per share
(b) $ 121,971
$ 102,247 $ 211,558 $ 238,905 Earnings
per share attributable to Illumina stockholders: Basic $ 0.83 $
0.71 $ 1.44 $ 1.66 Diluted $ 0.82 $ 0.69 $ 1.43 $ 1.61 Shares used
in computing earnings per common share: Basic 146,778 144,220
146,822 143,996 Diluted 147,889 148,969 148,123 148,826
(a) Includes stock-based
compensation expense for stock-based awards:
Three Months Ended
Six Months Ended
July 3,
June 28,
July 3,
June 28,
2016
2015
2016
2015
Cost of product revenue
$
1,958
$
2,113
$
4,150
$
4,445
Cost of service and other revenue
421
466
853
745
Research and development
10,693
10,747
21,374
22,054
Selling, general and administrative
18,898
19,631
40,885
37,631
Stock-based compensation expense before
taxes
$
31,970
$
32,957
$
67,262
$
64,875
(b) Amount reflects the net impact
of a deemed dividend from the company’s common to preferred share
exchange with GRAIL offset by resulting additional losses
attributable to the common shareholders of GRAIL for earnings per
share purposes.
Illumina, Inc. Condensed Consolidated Statements
of Cash Flows (In thousands) (unaudited)
Three Months Ended Six Months
Ended July 3, June 28, July 3, June
28, 2016 2015
2016 2015 Net cash provided by
operating activities
(a) $ 217,047 $ 171,445 $ 256,785 $
238,224 Net cash used in investing activities 43,537 (142,470 ) (16
) (296,617 ) Net cash (used in) provided by financing activities
(a) (63,345 ) 27,810 (75,694 ) 15,276 Effect of exchange
rate changes on cash and cash equivalents (487 ) 735
1,817 (1,980 ) Net (decrease) increase
in cash and cash equivalents 196,752 57,520 182,892 (45,097 ) Cash
and cash equivalents, beginning of period 754,910
533,537 768,770 636,154
Cash and cash equivalents, end of period $ 951,662 $ 591,057
$ 951,662 $ 591,057 Calculation of free
cash flow: Net cash provided by operating activities
(a) $
217,047 $ 171,445 $ 256,785 $ 238,224 Purchases of property and
equipment
(b) (67,813 ) (41,351 )
(121,231 ) (77,902 ) Free cash flow
(c) $ 149,234
$ 130,094 $ 135,554 $ 160,322
(a) Net cash provided by operating
activities excludes excess tax benefit related to stock-based
compensation of $84.2 million in the first half of 2016, of which
$25.2 million was recorded in Q2, and $106.2 million in the first
half of 2015, of which $29.8 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) Excludes $75 million increase
in property & equipment recorded under build-to-suit lease
accounting since such expenses were paid for by the landlord.
(c) 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 EARNINGS PER SHARE ATTRIBUTABLE TO ILLUMINA
STOCKHOLDERS: Three Months Ended Six
Months Ended July 3, June 28, July 3,
June 28, 2016 2015 2016 2015
GAAP earnings per share attributable to Illumina stockholders -
diluted $ 0.82 $ 0.69 $
1.43 $ 1.61 Amortization of acquired
intangible assets 0.08 0.08 0.16 0.17 Legal contingencies
(a) (0.07 ) — (0.06 ) — Non-cash interest expense
(b)
0.05 0.07 0.10 0.14 Deemed dividend, net of tax
(c) (0.01 )
— (0.01 ) — Headquarter relocation — 0.01 — 0.01 Acquisition
related expense (gain), net
(d) — 0.02 — (0.05 ) Cost-method
investment gain, net
(e) — — — (0.09 ) Incremental non-GAAP
tax expense
(f) (0.01 ) (0.07 ) (0.06 )
(0.08 ) Non-GAAP earnings per share attributable to Illumina
stockholders - diluted
(g) $ 0.86 $ 0.80 $
1.56 $ 1.71 Shares used in calculating non-GAAP
diluted earnings per share attributable to Illumina stockholders
147,889 148,969 148,123
148,826
ITEMIZED RECONCILIATION BETWEEN
GAAP AND NON-GAAP NET INCOME ATTRIBUTABLE TO ILLUMINA
STOCKHOLDERS: GAAP net income attributable to Illumina
stockholders (h) $ 120,412 $
102,247 $ 209,999 $ 238,905
Amortization of acquired intangible assets 12,112 12,772 24,138
25,659 Legal contingencies
(a) (11,490 ) — (9,490 ) —
Non-cash interest expense
(b) 7,290 10,227 15,036 20,415
Contingent compensation expense
(i) 694 — 1,394 —
Headquarter relocation 302 1,480 684 2,179 Loss on extinguishment
of debt — 233 — 233 Acquisition related expense (gain), net
(d) — 2,329 — (7,558 ) Cost-method investment gain, net
(e) — — — (12,582 ) Incremental non-GAAP tax expense
(f) (2,116 ) (9,617 ) (9,020 )
(12,204 ) Non-GAAP net income attributable to Illumina stockholders
(g) $ 127,204 $ 119,671 $ 232,741 $
255,047
(a) Legal contingencies represent a
reversal of previously recorded expense related to the settlement
of patent litigation.
(b) Non-cash interest expense is
calculated in accordance with the authoritative accounting guidance
for convertible debt instruments that may be settled in cash.
(c) Amount reflects the net impact
of a deemed dividend from the company’s common to preferred share
exchange with GRAIL offset by resulting additional losses
attributable to the common shareholders of GRAIL for earnings per
share purposes.
(d) Acquisition related expense
(gain), net consists of changes in fair value of contingent
consideration.
(e) Cost-method investment gain,
net consists primarily of a gain on the sale of a cost-method
investment.
(f) Incremental non-GAAP tax
expense reflects the tax impact related to the non-GAAP adjustments
listed above.
(g) Non-GAAP net income
attributable to Illumina stockholders and diluted earnings per
share attributable to Illumina stockholders exclude the effect of
the pro forma adjustments as detailed above. Non-GAAP net income
attributable to Illumina stockholders and diluted earnings per
share attributable to Illumina stockholders are key components of
the financial metrics utilized by the company’s board of directors
to measure, in part, management’s performance and determine
significant elements of management’s compensation. 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.
(h) GAAP net income attributable to
Illumina stockholders excludes the net impact of the deemed
dividend as detailed in (c) above, which is included in GAAP
net income attributable to Illumina stockholders for earnings per
share of $121,971 and $211,558 for the three and six months ended
July 3, 2016, respectively. The net impact of the deemed dividend
was recorded through equity.
(i) Contingent compensation expense
relates to contingent payments for post-combination services
associated with an acquisition.
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 July 3,
June 28, July 3, June 28, 2016
2015 2016 2015 GAAP gross profit
$ 423,805 70.6 % $
376,365 69.8 % $ 820,859
70.0 % $ 751,392
69.7 % Stock-based compensation expense 2,379 0.4 %
2,579 0.5 % 5,003 0.5 % 5,190 0.5 % Amortization of acquired
intangible assets 10,549 1.8 % 11,384
2.1 % 21,045 1.8 % 22,769 2.1 %
Non-GAAP gross profit
(a) $ 436,733 72.8 % $ 390,328
72.4 % $ 846,907 72.3 % $ 779,351 72.3 %
GAAP research and development expense $
124,589 20.8 % $ 96,182
17.8 % $ 248,583 21.2 %
$ 187,954 17.4 % Stock-based
compensation expense (10,693 ) (1.8 )% (10,747 ) (2.0 )% (21,374 )
(1.8 )% (22,054 ) (2.0 )% Contingent compensation expense
(b) (109 ) — — —
(217 ) — — — Non-GAAP research and
development expense $ 113,787 19.0 % $ 85,435 15.8 %
$ 226,992 19.4 % $ 165,900 15.4 %
GAAP
selling, general and administrative expense $
148,535 24.8 % $ 124,441
23.1 % $ 297,768 25.4 %
$ 240,758 22.3 % Stock-based
compensation expense (18,898 ) (3.2 )% (19,631 ) (3.6 )% (40,885 )
(3.4 )% (37,631 ) (3.5 )% Amortization of acquired intangible
assets (1,563 ) (0.3 )% (1,388 ) (0.3 )% (3,093 ) (0.3 )% (2,890 )
(0.2 )% Contingent compensation expense
(b) (585 )
(0.1 )% — — (1,177 ) (0.1 )% —
— Non-GAAP selling, general and administrative
expense $ 127,489 21.2 % $ 103,422 19.2 % $ 252,613
21.6 % $ 200,237 18.6 %
GAAP operating
profit $ 161,869 27.0 % $
151,933 28.2 % $ 283,314
24.2 % $ 328,059 30.4 %
Stock-based compensation expense 31,970 5.3 % 32,957 6.1 % 67,262
5.6 % 64,875 6.0 % Amortization of acquired intangible assets
12,112 2.0 % 12,772 2.4 % 24,138 2.1 % 25,659 2.4 % Legal
contingencies
(c) (11,490 ) (1.9 )% — — (9,490 ) (0.8 )% — —
Contingent compensation expense
(b) 694 0.1 % — — 1,394 0.1
% — — Headquarter relocation 302 0.1 % 1,480 0.3 % 684 0.1 % 2,179
0.2 % Acquisition related expense (gain), net
(d) —
— 2,329 0.4 % — —
(7,558 ) (0.7 )% Non-GAAP operating profit
(a) $
195,457 32.6 % $ 201,471 37.4 % $ 367,302 31.3
% $ 413,214 38.3 %
GAAP other expense, net
$ (4,894 ) (0.8 )% $
(10,761 ) (2.0 )% $
(10,743 ) (0.9 )% $
(8,841 ) (0.8 )% Non-cash interest
expense
(e) 7,290 1.2 % 10,227 1.9 % 15,036 1.3 % 20,415 1.9
% Loss on extinguishment of debt — — 233 — — — 233 — Cost-method
investment gain, net
(f) — — —
— — — (12,582 ) (1.2 )%
Non-GAAP other income (expense), net
(a) $ 2,396 0.4
% $ (301 ) (0.1 )% $ 4,293 0.4 % $ (775 ) (0.1 )%
(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 income
(expense), 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 an acquisition.
(c) Legal contingencies represent a
reversal of previously recorded expense related to the settlement
of patent litigation.
(d) Acquisition related expense
(gain), net consists of changes in fair value of contingent
consideration.
(e) Non-cash interest expense is
calculated in accordance with the authoritative accounting guidance
for convertible debt instruments that may be settled in cash.
(f) Cost-method investment gain,
net consists primarily of a gain on the sale of a cost-method
investment.
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 January
3, 2016, and the company’s Form 10-Q for the fiscal quarter ended
April 3, 2016. The company assumes no obligation to update any
forward-looking statements or information.
Fiscal Year 2016 Diluted earnings per share
attributable to Illumina stockholders Non-GAAP diluted earnings
per share attributable to Illumina stockholders $3.48 - $3.58
Amortization of acquired intangible assets (0.33) Non-cash interest
expense
(a) (0.20) Legal contingencies
(b) 0.06
Contingent compensation
(c) (0.02) Headquarter relocation
(0.01) Deemed dividend, net of tax
(d) 0.01 Incremental
non-GAAP tax expense
(e) 0.14
GAAP diluted earnings per
share attributable to Illumina stockholders $3.13 -
$3.23
(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) Legal contingencies represent a
reversal of previously recorded expense related to the settlement
of patent litigation.
(c) Contingent compensation expense
relates to contingent payments for post-combination services
associated with an acquisition.
(d) Amount reflects the net impact
of a deemed dividend from the company’s common to preferred share
exchange with GRAIL offset by resulting additional losses
attributable to the common shareholders of GRAIL for earnings per
share purposes.
(e) Incremental non-GAAP tax
expense reflects the tax impact related to the non-GAAP adjustments
listed above.
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Illumina, Inc.Investors:Rebecca
Chambers858.255.5243ir@illumina.comorMedia:Eric
Endicott858.882.6822pr@illumina.com
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