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SAN DIEGO–(BUSINESS WIRE)–Illumina, Inc. (NASDAQ: ILMN) today announced its financial results for the first quarter of fiscal year 2016.First quarter 2016 results: Revenue of $572 million, a 6% increase compared to $539 million in the first quarter of 2015, and an increase of 7% on a constant currency basis GAAP net income attributable to Illumina …

SAN DIEGO–(BUSINESS WIRE)–Illumina, Inc. (NASDAQ: ILMN) today announced its financial results for
the first quarter of fiscal year 2016.
First quarter 2016 results:

  • Revenue of $572 million, a 6% increase compared to $539 million in the
    first quarter of 2015, and an increase of 7% on a constant currency
    basis
  • GAAP net income attributable to Illumina stockholders for the quarter
    of $90 million, or $0.60 per diluted share, compared to $137 million,
    or $0.92 per diluted share, for the first quarter of 2015
  • Non-GAAP net income attributable to Illumina stockholders for the
    quarter of $106 million, or $0.71 per diluted share, compared to $135
    million, or $0.91 per diluted share, for the first 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 $40 million and free cash flow of
    negative $14 million for the quarter, compared to $67 million and
    positive $30 million in the prior year period. Increased operating
    expenses and higher capital expenditures contributed to the lower free
    cash flow.

Gross margin in the first quarter of 2016 was 69.4% compared to 69.6% 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 71.7% for the first quarter of 2016 compared
to 72.2% in the prior year period.
Research and development (R&D) expenses for the first quarter of 2016
were $124.0 million compared to $91.8 million in the prior year period.
R&D expenses included $10.7 million and $11.3 million of non-cash stock
compensation expense in the first quarters of 2016 and 2015,
respectively. Excluding these charges and contingent compensation, R&D
expenses as a percentage of revenue were 19.8%, including 0.9%
attributable to GRAIL and Helix. This compares to 14.9% in the prior
year period.
Selling, general and administrative (SG&A) expenses for the first
quarter of 2016 were $149.2 million compared to $116.3 million in the
prior year period. SG&A expenses included $22.0 million and $18.0
million of non-cash stock compensation expense in the first 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 21.9%, including 0.6% attributable to
GRAIL and Helix. This compares to 18.0% in the prior year period.
Depreciation and amortization expenses were $33.2 million and capital
expenditures were $53.4 million during the first quarter of 2016. The
company settled the remaining 0.25% Convertible Senior Notes of $75.5
million. At the close of the quarter, the company held $1.34 billion in
cash, cash equivalents and short-term investments, compared to $1.39
billion as of January 3, 2016.
“As we have previously shared, Q1 was a slower start to the year than we
expected,” stated Jay Flatley, Chairman and CEO. “Our view of the growth
potential of the sequencing market remains unchanged, as the largest
opportunities are in their earliest stages of development. In the
near-term, we are focused on improving execution to restore the growth
rate we believe our markets can support.”
Updates since our last earnings release:

  • Introduced BaseSpace® Informatics Suite, a complete set of genomics
    software tools and solutions to facilitate precision medicine and
    genomics research
  • Applied CE mark to VeriSeq™ NIPT Analysis Software for use in clinical
    laboratories
  • Announced partnerships to enable long read applications including
    co-marketing agreements with 10X Genomics and NRGene
  • Entered into a partnership with Genomics England to develop a platform
    and knowledge base to improve and automate genome interpretation
  • Committed $100 million to a new venture capital firm that will pursue
    early stage investments which are strategically aligned with
    Illumina’s vision
  • Announced that on July 5, 2016 Jay Flatley will assume the role of
    Executive Chairman of the Board of Directors and Francis deSouza will
    be appointed President and Chief Executive Officer

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 is projecting approximately 12% revenue
growth and non-GAAP earnings per diluted share attributable to Illumina
stockholders of $3.35 to $3.45. For the second quarter 2016, the company
is projecting revenue of $590 million to $595 million and non-GAAP
earnings per diluted share attributable to Illumina stockholders of
$0.72 to $0.74.
Quarterly conference call information
The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern
Time) on Tuesday, May 3, 2016. Interested parties may listen to the call
by dialing 888.687.3295 (passcode: 85797542), or if outside North
America by dialing +1.503.406.4070 (passcode: 85797542). 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 May 3, 2016 through May 10, 2016 by
dialing 855.859.2056 (passcode: 85797542), or if outside North America
by dialing +1.404.537.3406 (passcode: 85797542).
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 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) 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)
April 3,
2016
January 3,
2016
ASSETS(unaudited)
Current assets:
Cash and cash equivalents$754,910$768,770
Short-term investments588,182617,450
Accounts receivable, net402,514385,529
Inventory287,919270,777
Prepaid expenses and other current assets40,27354,297
Total current assets2,073,7982,096,823
Property and equipment, net385,253342,694
Goodwill776,029752,629
Intangible assets, net269,576273,621
Deferred tax assets196,198134,515
Other assets92,85287,465
Total assets$3,793,706$3,687,747
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$154,680$148,721
Accrued liabilities326,548386,844
Long-term debt, current portion74,929
Total current liabilities481,228610,494
Long-term debt1,022,6461,015,649
Other long-term liabilities185,526180,505
Redeemable noncontrolling interests33,38332,546
Stockholders’ equity2,070,9231,848,553
Total liabilities and stockholders’ equity$3,793,706$3,687,747
Illumina, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(unaudited)
Three Months Ended
April 3,
2016
March 29,
2015
Revenue:
Product revenue$482,750$459,127
Service and other revenue89,01379,438
Total revenue571,763538,565
Cost of revenue:
Cost of product revenue (a)125,326119,624
Cost of service and other revenue (a)38,88732,529
Amortization of acquired intangible assets10,49611,385
Total cost of revenue174,709163,538
Gross profit397,054375,027
Operating expense:
Research and development (a)123,99491,772
Selling, general and administrative (a)149,233116,317
Legal contingencies2,000
Headquarter relocation382699
Acquisition related gain, net(9,887)
Total operating expense275,609198,901
Income from operations121,445176,126
Other (expense) income, net(5,849)1,920
Income before income taxes115,596178,046
Provision for income taxes28,37741,388
Consolidated net income87,219136,658
Add: Net loss attributable to noncontrolling interests2,368
Net income attributable to Illumina stockholders$89,587$136,658
Earnings per share attributable to Illumina stockholders:
Basic$0.61$0.95
Diluted$0.60$0.92
Shares used in computing earnings per common share:
Basic146,866143,771
Diluted148,357148,683
(a) Includes stock-based compensation expense for stock-based
awards:
Three Months Ended
April 3,
2016
March 29,
2015
Cost of product revenue$2,192$2,332
Cost of service and other revenue432279
Research and development10,68111,307
Selling, general and administrative21,98718,000
Stock-based compensation expense before taxes$35,292$31,918
Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Three Months Ended
April 3,
2016
March 29,
2015
Net cash provided by operating activities (a)$39,738$66,779
Net cash used in investing activities(43,553)(154,147)
Net cash used in financing activities (a)(12,349)(12,534)
Effect of exchange rate changes on cash and cash equivalents2,304(2,715)
Net decrease in cash and cash equivalents(13,860)(102,617)
Cash and cash equivalents, beginning of period768,770636,154
Cash and cash equivalents, end of period$754,910$533,537
Calculation of free cash flow:
Net cash provided by operating activities (a)$39,738$66,779
Purchases of property and equipment(53,418)(36,551)
Free cash flow (b)$(13,680)$30,228

______________________________________________________________________________________________________
(a) Net cash provided by operating activities excludes excess tax
benefit related to stock-based compensation of $59.0 million in Q1 2016
and $76.4 million in Q1 2015. 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 EARNINGS PER
SHARE ATTRIBUTABLE TO ILLUMINA STOCKHOLDERS:
Three Months Ended
April 3,
2016
March 29,
2015
GAAP earnings per share attributable to Illumina stockholders –
diluted
$0.60$0.92
Amortization of acquired intangible assets0.090.09
Non-cash interest expense (a)0.050.07
Legal contingencies (b)0.01
Acquisition related gain, net (c)(0.07)
Cost-method investment gain, net (d)(0.08)
Incremental non-GAAP tax expense (e)(0.04)(0.02)
Non-GAAP earnings per share attributable to Illumina stockholders –
diluted (f)
$0.71$0.91
Shares used in calculating non-GAAP diluted earnings per share
attributable to Illumina stockholders
148,357148,683
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
ATTRIBUTABLE TO ILLUMINA STOCKHOLDERS:
GAAP net income attributable to Illumina stockholders$89,587$136,658
Amortization of acquired intangible assets12,02612,887
Non-cash interest expense (a)7,74610,188
Legal contingencies (b)2,000
Contingent compensation expense (g)700
Headquarter relocation382699
Acquisition related gain, net (c)(9,887)
Cost-method investment gain, net (d)(12,582)
Incremental non-GAAP tax expense (e)(6,904)(2,587)
Non-GAAP net income attributable to Illumina stockholders (f)$105,537$135,376

______________________________________________________________________________________________________
(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 charges related to patent
litigation.
(c) Acquisition related gain, net consists of changes in fair
value of contingent consideration.
(d) Cost-method investment gain, net consists primarily of a gain
on the sale of a cost-method investment.
(e) Incremental non-GAAP tax expense reflects the tax impact
related to the non-GAAP adjustments listed above.
(f) 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 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.
(g) 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
April 3,
2016
March 29,
2015
GAAP gross profit$397,05469.4%$375,02769.6%
Stock-based compensation expense2,6240.5%2,6110.5%
Amortization of acquired intangible assets10,4961.8%11,3852.1%
Non-GAAP gross profit (a)$410,17471.7%$389,02372.2%
GAAP research and development expense$123,99421.7%$91,77217.0%
Stock-based compensation expense(10,681)(1.9)%(11,307)(2.1)%
Contingent compensation expense (b)(108)
Non-GAAP research and development expense$113,20519.8%$80,46514.9%
GAAP selling, general and administrative expense$149,23326.1%$116,31721.6%
Stock-based compensation expense(21,987)(3.8)%(18,000)(3.3)%
Amortization of acquired intangible assets(1,530)(0.3)%(1,502)(0.3)%
Contingent compensation expense (b)(592)(0.1)%
Non-GAAP selling, general and administrative expense$125,12421.9%$96,81518.0%
GAAP operating profit$121,44521.2%$176,12632.7%
Stock-based compensation expense35,2926.3%31,9185.9%
Amortization of acquired intangible assets12,0262.1%12,8872.4%
Legal contingencies (c)2,0000.3%
Contingent compensation expense (b)7000.1%
Headquarter relocation3820.1%6990.1%
Acquisition related gain, net (d)(9,887)(1.8)%
Non-GAAP operating profit (a)$171,84530.1%$211,74339.3%
GAAP other (expense) income, net$(5,849)(1.0)%$1,9200.4%
Non-cash interest expense (e)7,7461.3%10,1881.9%
Cost-method investment gain, net (f)(12,582)(2.4)%
Non-GAAP other income (expense), net (a)$1,8970.3%$(474)(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 charges related to patent
litigation.
(d) Acquisition related 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 filed with
the SEC on March 2, 2016. The company assumes no obligation to update
any forward-looking statements or information.

Fiscal Year 2016
Operating margin
Non-GAAP operating margin (a)31.5%
Stock-based compensation expense(5.9)%
Amortization of acquired intangible assets(1.9)%
Legal contingencies (b)(0.1)%
Contingent compensation (c)(0.1)%
Headquarter relocation (d)(0.1)%
GAAP operating margin23.4%
Diluted earnings per share attributable to Illumina stockholders
Non-GAAP diluted earnings per share attributable to Illumina
stockholders
$3.35 – $3.45
Amortization of acquired intangible assets(0.32)
Non-cash interest expense (d)(0.20)
Contingent compensation (c)(0.02)
Legal contingencies (b)(0.01)
Headquarter relocation (d)(0.01)
Incremental non-GAAP tax expense (f)0.18
GAAP diluted earnings per share attributable to Illumina
stockholders
$2.97 – $3.07
Q2 2016
Diluted earnings per share attributable to Illumina stockholders
Non-GAAP diluted earnings per share attributable to Illumina
stockholders
$0.72 – $0.74
Amortization of acquired intangible assets(0.08)
Non-cash interest expense (e)(0.05)
Incremental non-GAAP tax expense (f)0.04
GAAP diluted earnings per share attributable to Illumina
stockholders
$0.63 – $0.65

______________________________________________________________________________________________________
(a) Operating margin implied at the mid-point of guidance
provided for non-GAAP diluted earnings per share.
(b) Legal contingencies represent charges related to patent
litigation.
(c) Contingent compensation expense relates to contingent
payments for post-combination services associated with an acquisition.
(d) Headquarter relocation represents accretion of interest
expense on lease exit liability and changes in estimate of such
liability.
(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) Incremental non-GAAP tax expense reflects the tax impact
related to the non-GAAP adjustments listed above.

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