Illumina Inc. (NASDAQ:ILMN) Q2 2015 Earnings Conference Call - Final Transcript
Jul 21, 2015 • 05:00 pm ET
Marc A. Stapley
support long-term growth. While this launch represents our single largest phase, we will continue to invest over the next few years in similar projects that enhance our ability to scale.
Returning to our results, adjusted operating margins were 37.4% compared to 39.3% in the first quarter, low sequentially as we added 315 net hires in Q2. Operating margin was higher compared to the 34.8% reported in the second quarter of last year due to the impact of improved gross margins and operating expense leverage.
In the second quarter, our stock-based compensation equaled $33 million, up slightly sequentially. For the remainder of 2015, we expect stock-based compensation expense to increase from the levels seen in the first half due primarily to the impact of our annual grants and growing employee base.
Our non-GAAP tax rate for the quarter was 28.9% compared to 29.8% in the second quarter of last year due primarily to the benefit of increased manufacturing in Singapore. Non-GAAP net income was $120 million for Q2 and non-GAAP EPS was $0.80. This compares to non-GAAP net income and EPS of $85 million and $0.57 respectively in the second quarter of 2014. The impact of foreign exchange lowered Q2 non-GAAP EPS by approximately $0.06 relative to last year. We reported GAAP net income of $102 million or $0.69 per diluted share in the second quarter compared to net income of $47 million or $0.31 per diluted share in the prior-year period.
Cash flow from operations equaled $171 million. DSO increased to 62 days compared to 59 days last quarter and inventory increased 9% in parts prepared for our systems transition. Capital expenditures in Q2 were $41 million due to spending associated with our ERP implementation as well as other ongoing investments focused on scaling the organization resulting in $130 million of free cash flow.
During the quarter, our Board of Directions authorized a new 10b5-1 share repurchase program of $150 million which we will use to manage dilution from employee grants. In addition, we have $96 million remaining under our previously announced discretionary buyback program. We ended the quarter with $1.5 billion in cash and short-term investments.
Turning now to our expectations for the remainder of 2015, we continue to project approximately 20% total company revenue growth and 23% growth on a constant currency basis based on current exchange rates. We've increased our 2015 non-GAAP EPS projection from $3.39 to $3.45, up from $3.36 to $3.42. Additionally, we continue to project the full-year pro forma tax rate of 27% which assumes 2015 federal R&D tax credit and other tax extenders of past prior to our fiscal year end.
For modeling purposes, we feel it is appropriate to assume a Q3 tax rate of 29% given the expectation that the R&D tax credit will be passed in Q4, and at that time, we will record the full-year impact.
In conclusion, I would like to punctuate a number of key fundamental performance indicators related to the second quarter results. Firstly, robust instrument