Illumina Reports Financial Results for First Quarter of Fiscal Year 2017
Successful NovaSeq™ launch, with more than 135 instruments ordered
in the first quarter
SAN DIEGO–(BUSINESS WIRE)–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 |
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(b) Headquarter relocation expense of $0.4 million was |
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(c) Amount reflects the additional losses attributable to |
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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 |
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(b) Excludes property and equipment recorded under |
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(c) Free cash flow, which is a non-GAAP financial measure, |
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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: |
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Three Months Ended | ||||||||
April 2, 2017 |
April 3, 2016 |
|||||||
GAAP earnings per share attributable to Illumina stockholders – |
$ | 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, |
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(b) Non-cash interest expense is calculated in accordance |
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(c) Amount represents performance-based stock which vested |
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(d) Equity-method investment gain represents mark-to-market |
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(e) Acquisition related gain consists of change in fair |
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(f) Legal contingencies represent charges related to patent |
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(g) Incremental non-GAAP tax expense reflects the tax |
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(h) Excess tax benefits from share-based compensation are |
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(i) Non-GAAP net income attributable to Illumina |
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(j) GAAP net income attributable to Illumina stockholders |
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(k) Contingent compensation expense relates to contingent |
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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: |
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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 |
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(b) Amount represents performance-based stock which vested |
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(c) Acquisition related gain consists of change in fair |
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(d) Contingent compensation expense relates to contingent |
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(e) Legal contingencies represent charges related to patent |
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(f) The company sold a portion of its interest in GRAIL, |
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(g) Non-cash interest expense is calculated in accordance |
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(h) Equity-method investment gain represents mark-to-market |
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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, |
|
(b) Non-cash interest expense is calculated in accordance |
|
(c) Amount represents performance-based stock which vested |
|
(d) Equity-method investment gain represents mark-to-market |
|
(e) Acquisition related gain consists of change in fair |
|
(f) Incremental non-GAAP tax expense reflects the tax |
|
(g) Excess tax benefits from share-based compensation are |
Contacts
Illumina, Inc.
Investors:
Rebecca Chambers,
858.255.5243
ir@illumina.com
or
Media:
Eric
Endicott, 858.882.6822
pr@illumina.com