Successful NovaSeq™ launch, with more than
135 instruments ordered in the first quarter
Illumina, Inc. (NASDAQ: ILMN) today announced its financial
results for the first quarter of fiscal year 2017.
First quarter 2017 results:
- Revenue of $598 million, a 5% increase
compared to $572 million in the first quarter of 2016
- GAAP net income attributable to
Illumina stockholders for the quarter of $373 million, or $2.52 per
diluted share, including the impact of a pre-tax gain of $453
million as a result of the GRAIL repurchase of shares from
Illumina, compared to $90 million, or $0.60 per diluted share, for
the first quarter of 2016
- Non-GAAP net income attributable to
Illumina stockholders for the quarter of $94 million, or $0.64 per
diluted share, compared to $106 million, or $0.71 per diluted
share, for the first quarter of 2016 (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 $168
million and free cash flow of $85 million for the quarter, compared
to $99 million and $46 million, respectively, in the first quarter
of 2016
Gross margin in the first quarter of 2017 was 61.5% compared to
69.4% in the prior year period. Excluding impairment and
amortization of acquired intangible assets, but including
stock-based compensation expense, non-GAAP gross margin was 66.4%
for the first quarter of 2017 compared to 71.3% in the prior year
period. Non-GAAP gross margin compared to the prior year period was
impacted by the NovaSeq introduction, higher array services revenue
and product mix within sequencing consumables.
Research and development (R&D) expenses for the first
quarter of 2017 were $145 million compared to $124 million in the
prior year period. Excluding an impairment of in-process R&D,
but including stock-based compensation expense, R&D expenses as
a percentage of revenue were 23.3%, including 2.1% attributable to
GRAIL and Helix. This compares to 21.7% in the prior year period,
including 0.9% attributable to GRAIL and Helix.
Selling, general and administrative (SG&A) expenses for the
first quarter of 2017 were $163 million compared to $150 million in
the prior year period. Excluding the effect of performance-based
compensation related to the GRAIL Series B financing, acquisition
related gain, amortization of acquired intangible assets, and
contingent compensation, but including stock-based compensation
expense, SG&A expenses as a percentage of revenue were 25.6%,
including 1.5% attributable to GRAIL and Helix. This compares to
25.7% in the prior year period, including 0.6% attributable to
GRAIL and Helix.
Depreciation and amortization expenses were $38 million and
capital expenditures for free cash flow purposes were $83 million
during the first quarter of 2017. At the close of the quarter, the
company held $1.8 billion in cash, cash equivalents and short-term
investments, compared to $1.6 billion as of January 1, 2017.
"We are pleased with our first quarter results,” said Francis
deSouza, President and CEO. “We are witnessing an exciting uptake
of the NovaSeq platform with more than 135 orders placed in Q1, and
look forward to the advancements in genomics this instrument will
enable for years to come.”
Updates since our last earnings release:
- Launched the VeriSeq™ NIPT Solution in
Europe, a CE-IVD marked next-generation sequencing based approach
to noninvasive prenatal testing
- Contributed more than 8,000
associations of somatic genetic alterations to the Clinical
Interpretation of Variants in Cancer (CIViC) database
- Announced the iHope Network, a
consortium of institutions who have committed to providing clinical
whole genome sequencing to underserved families
- Announced that GRAIL raised over $900
million in the first close of its Series B financing and that
Illumina’s stake is now less than 20 percent of GRAIL
- Announced that John W. Thompson will
join the company’s Board of Directors
- Repurchased $101 million of common
stock under the previously announced share repurchase program
thereby completing the authorization
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 2017, the company is projecting 10% to
12% revenue growth, GAAP earnings per diluted share
attributable to Illumina stockholders of $5.26 to $5.36 and
non-GAAP earnings per diluted share attributable to Illumina
stockholders of $3.60 to $3.70. Our annual guidance
assumes second quarter revenue growth of approximately 7% versus
the prior year, GAAP earnings per diluted share attributable to
Illumina stockholders of $0.56 to $0.61 and non-GAAP earnings per
diluted share attributable to Illumina stockholders of $0.65 to
$0.70.
Quarterly conference call information
The conference call will begin at 2:00 pm Pacific
Time (5:00 pm Eastern Time) on Tuesday, April 25, 2017.
Interested parties may listen to the call by dialing 888.771.4371
(passcode: 44658255), or if outside North America by
dialing +1.847.585.4405 (passcode: 44658255). 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 4:30
pm Pacific Time (7:30 pm Eastern Time) on April 25,
2017 through May 2, 2017 by dialing 888.843.7419
(passcode: 44658255), or if outside North America by
dialing +1.630.652.3042 (passcode: 44658255).
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 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 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 forward-looking statements that involve
risks and uncertainties, such as Illumina’s expectations regarding
the launch of any products and the future cost of genome
sequencing. 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, including the timing of
customer orders and impact on existing 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 millions) April 2, 2017 January
1, 2017 ASSETS (unaudited) Current assets:
Cash and cash equivalents $ 981 $ 735 Short-term investments 797
824 Accounts receivable, net 368 381 Inventory 299 300 Prepaid
expenses and other current assets 72 78 Total current assets
2,517 2,318 Property and equipment, net 734 713 Goodwill 771 776
Intangible assets, net 207 243 Deferred tax assets 83 123 Other
assets 286 108 Total assets $ 4,598 $ 4,281
LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities:
Accounts payable $ 142 $ 138 Accrued liabilities 380 343
Build-to-suit lease liability 192 223 Long-term debt, current
portion 1 1 Total current liabilities 715 705 Long-term debt
1,055 1,048 Other long-term liabilities 212 214 Redeemable
noncontrolling interests 59 44 Stockholders’ equity 2,557
2,270 Total liabilities and stockholders’ equity $ 4,598 $
4,281
Illumina, Inc. Condensed Consolidated
Statements of Income (In millions, except per share
amounts) (unaudited) Three Months Ended
April 2, 2017 April 3, 2016
Revenue: Product revenue $ 491 $ 483 Service and other revenue 107
89 Total revenue 598 572 Cost of
revenue: Cost of product revenue
(a) 166 125 Cost of service
and other revenue
(a) 53 39 Amortization of acquired
intangible assets 11 11 Total cost of revenue 230
175 Gross profit 368 397 Operating
expense: Research and development
(a) 145 124 Selling,
general and administrative
(a) (b) 163 150 Legal
contingencies — 2 Total operating expense 308
276 Income from operations 60 121 Other income (expense),
net 451 (5 ) Income before income taxes 511 116 Provision
for income taxes 157 28 Consolidated net income 354
88 Add: Net loss attributable to noncontrolling interests 19
2 Net income attributable to Illumina stockholders $ 373
$ 90 Net income attributable to Illumina stockholders
for earnings per share
(c) $ 372 $ 90 Earnings
per share attributable to Illumina stockholders: Basic $ 2.54 $
0.61 Diluted $ 2.52 $ 0.60 Shares used in computing earnings per
common share: Basic 146 147 Diluted 147 148
(a) Includes stock-based compensation
expense for stock-based awards:
Three Months Ended
April 2, 2017 April 3, 2016 Cost of
product revenue $ 3 $ 2 Research and development 14 11 Selling,
general and administrative 33 22 Stock-based
compensation expense before taxes
(1) $ 50 $ 35
(1) Includes stock-based
compensation from GRAIL and Helix of $10 million and $0.3 million
for the three months ended April 2, 2017, respectively, and
stock-based compensation from GRAIL and Helix of $1 million and
$0.2 million for the three months ended April 3, 2016,
respectively.
(b) Headquarter relocation expense
of $0.4 million was reclassified to selling, general and
administrative expense for the three months ended April 3, 2016 to
conform to the current period presentation.
(c) Amount reflects the additional
losses attributable to the common shareholders of GRAIL and Helix
for earnings per share purposes.
Illumina, Inc. Condensed Consolidated Statements
of Cash Flows (In millions) (unaudited)
Three Months Ended April 2, 2017 April
3, 2016 Net cash provided by operating activities
(a) $ 168 $ 99 Net cash provided by (used in) investing
activities 163 (44 ) Net cash used in financing activities
(a) (86 ) (71 ) Effect of exchange rate changes on cash and
cash equivalents 1 2 Net increase (decrease) in cash
and cash equivalents 246 (14 ) Cash and cash equivalents, beginning
of period 735 769 Cash and cash equivalents, end of
period $ 981 $ 755 Calculation of free cash
flow: Net cash provided by operating activities
(a) $ 168 $
99 Purchases of property and equipment
(b) (83 ) (53 ) Free
cash flow
(c) $ 85 $ 46
(a) Excess tax benefit related to
stock-based compensation of $59 million for Q1 2016 was
reclassified from cash used in financing activities to cash
provided by operating activities as a result of the Company’s
retrospective application of ASU 2016-09 adopted in Q1 2017.
(b) Excludes property and equipment
recorded under build-to-suit lease accounting, which are non-cash
expenditures, of $27 million in Q1 2017 and $10 million in Q1
2016.
(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 millions, except per share amounts)
(unaudited) ITEMIZED RECONCILIATION BETWEEN GAAP
AND NON-GAAP EARNINGS PER SHARE ATTRIBUTABLE TO ILLUMINA
STOCKHOLDERS: Three Months Ended April 2,
2017 April 3, 2016
GAAP earnings per share attributable to
Illumina stockholders - diluted
$ 2.52 $ 0.60 Gain on deconsolidation
of GRAIL
(a) (3.07 ) — Impairment of acquired intangible
asset 0.12 — Amortization of acquired intangible assets 0.09 0.09
Non-cash interest expense
(b) 0.05 0.05 Impairment of
in-process research and development 0.03 Performance-based
compensation related to GRAIL Series B financing
(c) 0.03 —
Equity-method investment gain
(d) (0.01 ) — Acquisition
related gain
(e) (0.01 ) — Legal contingencies
(f) —
0.01 Incremental non-GAAP tax expense
(g) 0.94 (0.04 )
Excess tax benefit from share-based compensation
(h) (0.05 )
— Non-GAAP earnings per share attributable to Illumina
stockholders - diluted
(i) $ 0.64 $ 0.71
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET
INCOME ATTRIBUTABLE TO ILLUMINA STOCKHOLDERS: GAAP net
income attributable to Illumina stockholders (j) $
373 $ 90 Gain on deconsolidation of GRAIL
(a) (453 ) — Impairment of acquired intangible asset 18 —
Amortization of acquired intangible assets 13 12 Non-cash interest
expense
(b) 7 8 Impairment of in-process research and
development 5 — Performance-based compensation related to GRAIL
Series B financing
(c) 4 — Equity-method investment gain
(d) (2 ) — Acquisition related gain
(e) (1 ) — Legal
contingencies
(f) — 2 Contingent compensation expense
(k) — 1 Incremental non-GAAP tax expense
(g) 138 (7 )
Excess tax benefit from share-based compensation
(h) (8 ) —
Non-GAAP net income attributable to Illumina stockholders
(i) $ 94 $ 106
(a) The company sold a portion of
its interest in GRAIL, resulting in the deconsolidation of GRAIL.
The $150 million tax effect of the gain is included in incremental
non-GAAP tax expense. Subsequent to the transaction, the company’s
remaining interest will be treated as a cost-method investment.
(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 represents
performance-based stock which vested as a result of the financing,
net of attribution to noncontrolling interest.
(d) Equity-method investment gain
represents mark-to-market adjustments from our investment in
Illumina Innovations Fund I, L.P.
(e) Acquisition related gain
consists of change in fair value of contingent consideration.
(f) Legal contingencies represent
charges related to patent litigation.
(g) Incremental non-GAAP tax
expense reflects the tax impact related to the non-GAAP adjustments
listed above.
(h) Excess tax benefits from
share-based compensation are recorded as a discrete item within the
provision for income taxes on the consolidated statement of income
pursuant to ASU 2016-09, which was previously recognized in
additional paid-in capital on the consolidated statement of
stockholders’ equity.
(i) 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.
(j) GAAP net income attributable to
Illumina stockholders excludes the additional losses attributable
to common shareholders of GRAIL and Helix for earnings per share
purposes. These amounts are included in GAAP net income
attributable to Illumina stockholders for earnings per share of
$372 million for the three months ended April 2, 2017.
(k) 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 millions) (unaudited)
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF
OPERATIONS AS A PERCENT OF REVENUE: Three Months Ended
April 2, 2017 April 3, 2016
GAAP gross profit $ 368 61.5
% $ 397 69.4 % Impairment
of acquired intangible asset 18 3.0 % — — Amortization of acquired
intangible asset 11 1.9 % 10 1.9 % Non-GAAP gross
profit
(a) $ 397 66.4 % $ 407 71.3 %
GAAP research and development expense $ 145
24.2 % $ 124 21.7 %
Impairment of in-process research and development (5 ) (0.9 )% —
— Non-GAAP research and development expense $ 140
23.3 % $ 124 21.7 %
GAAP selling, general
and administrative expense $ 163 27.3
% $ 150 26.2 % Performance-based
compensation related to GRAIL Series B financing
(b) (10 )
(1.7 )% — — Acquisition related gain
(c) 1 0.2 % — —
Amortization of acquired intangible assets (2 ) (0.2 )% (2 ) (0.3
)% Contingent compensation expense
(d) — — (1
) (0.2 )% Non-GAAP selling, general and administrative expense $
152 25.6 % $ 147 25.7 %
GAAP operating
profit $ 60 10.0 % $
121 21.2 % Impairment of acquired intangible
asset 18 3.0 % — — Amortization of acquired intangible assets 13
2.1 % 12 2.2 % Impairment of in-process research and development 5
0.9 % — — Performance-based compensation related to GRAIL Series B
financing
(b) 10 1.7 % — — Acquisition related gain
(c) (1 ) (0.2 )% — — Legal contingencies
(e) — — 2
0.3 % Contingent compensation expense
(e) — —
1 0.2 % Non-GAAP operating profit
(a) $ 105
17.5 % $ 136 23.9 %
GAAP other income (expense),
net $ 451 75.4 % $ (5
) (1.0 )% Gain on deconsolidation of GRAIL
(f) (453 ) (75.9 )% — — Non-cash interest expense
(g)
7 1.2 % 8 1.3 % Equity-method investment gain
(h) (2 ) (0.2
)% — — Non-GAAP other income, net
(a) $ 3
0.5 % $ 3 0.3 %
(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 operating performance.
(b) Amount represents
performance-based stock which vested as a result of the
financing.
(c) Acquisition related gain
consists of change in fair value of contingent consideration.
(d) Contingent compensation expense
relates to contingent payments for post-combination services
associated with an acquisition.
(e) Legal contingencies represent
charges related to patent litigation.
(f) The company sold a portion of
its interest in GRAIL, resulting in the deconsolidation of GRAIL.
Subsequent to the transaction, the company’s remaining interest
will be treated as a cost-method investment.
(g) Non-cash interest expense is
calculated in accordance with the authoritative accounting guidance
for convertible debt instruments that may be settled in cash.
(h) Equity-method investment gain
represents mark-to-market adjustments from our investment in
Illumina Innovations Fund I, L.P.
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 1, 2017 filed with the SEC on February
13, 2017. The company assumes no obligation to update any
forward-looking statements or information.
Fiscal Year 2017 GAAP diluted earnings per share
attributable to Illumina stockholders $5.26 - $5.36 Gain
on deconsolidation of GRAIL
(a) (3.07) Amortization of
acquired intangible assets 0.30 Non-cash interest expense
(b) 0.20 Impairment of acquired intangible asset 0.12
Impairment of in-process research and development 0.03
Performance-based compensation related to Series B financing
(c) 0.03 Equity-method investment gain, net
(d)
(0.01) Acquisition related gain
(e) (0.01) Incremental
non-GAAP tax expense
(f) 0.80 Excess tax benefits from
share-based compensation
(g) (0.05) Non-GAAP diluted
earnings per share attributable to Illumina stockholders $3.60 -
$3.70
Q2 2017 GAAP diluted earnings per share
attributable to Illumina stockholders $0.56 - $0.61
Amortization of acquired intangible assets 0.08 Non-cash interest
expense
(b) 0.05 Incremental non-GAAP tax expense
(f)
(0.04) Non-GAAP diluted earnings per share attributable to Illumina
stockholders $0.65 - $0.70
(a) The company sold a portion of
its interest in GRAIL, resulting in the deconsolidation of GRAIL.
The $150 million tax effect of the gain is included in incremental
non-GAAP tax expense. Subsequent to the transaction, the company’s
remaining interest will be treated as a cost-method investment.
(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 represents
performance-based stock which vested as a result of the financing,
net of attribution to noncontrolling interest.
(d) Equity-method investment gain
represents mark-to-market adjustments from our investment in
Illumina Innovations Fund I, L.P.
(e) Acquisition related gain
consists of change in fair value of contingent consideration.
(f) Incremental non-GAAP tax
expense reflects the tax impact related to the non-GAAP adjustments
listed above.
(g) Excess tax benefits from
share-based compensation are recorded as a discrete item within the
provision for income taxes on the consolidated statement of income
pursuant to ASU 2016-09, which was previously recognized in
additional paid-in capital on the consolidated statement of
stockholders’ equity.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170425006786/en/
Illumina, Inc.Investors:Rebecca Chambers,
858.255.5243ir@illumina.comorMedia:Eric Endicott,
858.882.6822pr@illumina.com
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