On October 24, 2017 Illumina, Inc. (NASDAQ:ILMN) reported its financial results for the third quarter of fiscal year 2017.

Third quarter 2017 results:
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Revenue of $714 million, an 18% increase compared to $607 million in the third quarter of 2016
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GAAP net income attributable to Illumina stockholders for the quarter of $163 million, or $1.11 per diluted share, compared to $129 million, or $0.87 per diluted share, for the third quarter of 2016
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Non-GAAP net income attributable to Illumina stockholders for the quarter of $163 million, or $1.11 per diluted share, compared to $144 million, or $0.97 per diluted share, for the third 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)
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Cash flow from operations of $235 million compared to $176 million in the third quarter of 2016
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Free cash flow (cash flow from operations less capital expenditures) of $153 million for the quarter, compared to $119 million in the third quarter of 2016

Gross margin in the third quarter of 2017 was 67.5% compared to 70.2% in the prior year period. Excluding amortization of acquired intangible assets, non-GAAP gross margin was 68.8% for the third quarter of 2017 compared to 72.0% in the prior year period.

Research and development (R&D) expenses for the third quarter of 2017 were $134 million compared to $126 million in the prior year period. R&D expenses as a percentage of revenue were 18.7%, including 0.8% attributable to Helix. This compares to 20.7% in the prior year period, including 2.4% attributable to GRAIL and Helix.

Selling, general and administrative (SG&A) expenses for the third quarter of 2017 were $167 million compared to $139 million in the prior year period. Excluding the amortization of acquired intangible assets, SG&A expenses as a percentage of revenue were 23.2%, including 1.7% attributable to Helix. This compares to 22.6% in the prior year period, including 1.5% attributable to GRAIL and Helix.

Depreciation and amortization expenses were $40 million and capital expenditures for free cash flow purposes were $82 million during the third quarter of 2017. At the close of the quarter, the company held $2.0 billion in cash, cash equivalents and short-term investments, compared to $1.6 billion as of January 1, 2017.

“We delivered strong financial results in the third quarter with revenue growth across both our sequencing and microarray portfolios,” said Francis deSouza, President and CEO. “NovaSeqTM momentum continued to grow in the third quarter, with close to 200 NovaSeq systems now in customers’ hands. Further innovations, including the recently launched S4 flow cell, Xp workflow and Nextera DNA Flex library preparation kit, are expected to fuel incremental NovaSeq demand.”

Updates since our last earnings release:

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Released the NovaSeq S4 flow cell, reagent kit for the NovaSeq 6000 System, delivering up to 6TB of output in two days
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Announced the upcoming availability of NovaSeq Xp workflow, enabling users to load libraries directly into individual lanes of the flow cells, further enhancing the flexibility of the NovaSeq 6000 System
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Launched the Nextera DNA Flex library preparation kit, offering a fast, integrated workflow for a wide variety of applications
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Announced Verogen, Inc., a newly established independent company focused on accelerating growth of Illumina’s next-generation sequencing technology in the forensic genomics market
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Repurchased $75 million of common stock in the third quarter under the previously announced share repurchase program

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 now projects approximately 13% revenue growth from fiscal 2016, GAAP earnings per diluted share attributable to Illumina stockholders of $5.56 to $5.61 and non-GAAP earnings per diluted share attributable to Illumina stockholders of $3.73 to $3.78.

Quarterly conference call information
The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Tuesday, October 24, 2017. Interested parties may access the live teleconference through the Investor Relations section of Illumina’s web site under the “company” tab at www.illumina.com. Alternatively, individuals can access the call by dialing 888-771-4371, or 1-847-585-4405 outside North America, both with passcode 45640029.

A replay of the conference call will be available from 4:30 pm Pacific Time (7:30 pm Eastern Time) on October 24, 2017 through October 31, 2017 by dialing 888-843-7419, or 1-630-652-3042 outside North America, both with passcode 45640029.

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 new products. 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.