Illumina Reports Record Financial Results for Fourth Quarter and Fiscal Year 2012

  Illumina Reports Record Financial Results for Fourth Quarter and Fiscal Year
  2012

Business Wire

SAN DIEGO -- January 28, 2013

Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for the
fourth quarter and fiscal year of 2012.

Fourth quarter 2012 results:

  *Revenue of $309 million, a 24% increase compared to $250 million in the
    fourth quarter of 2011
  *GAAP net income for the quarter of $72 million, or $0.53 per diluted
    share, compared to net income of $12 million, or $0.09 per diluted share,
    for the fourth quarter of 2011
  *Non-GAAP net income for the quarter of $57 million, or $0.42 per diluted
    share, compared to $44 million, or $0.35 per diluted share, for the fourth
    quarter of 2011 (see the table entitled "Itemized Reconciliation Between
    GAAP and Non-GAAP Net Income" for a reconciliation of these GAAP and
    non-GAAP financial measures)
  *Cash flow from operations of $79 million and free cash flow of $62 million
    for the quarter

Gross margin in the fourth quarter of 2012 was 65.8% compared to 68.2% in the
prior year period. Excluding the effect of non-cash charges associated with
stock compensation, amortization of acquired intangibles, and amortization of
inventory revaluation costs, non-GAAP gross margin was 68.5% for the fourth
quarter of 2012 compared to 70.2% in the prior year period.

Research and development (R&D) expenses for the fourth quarter of 2012 were
$56.9 million compared to $45.5 million in the fourth quarter of 2011. R&D
expenses included $8.0 million and $7.3 million of non-cash stock compensation
expense in the fourth quarters of 2012 and 2011, respectively. Excluding these
charges and contingent compensation expense, R&D expenses as a percentage of
revenue were 15.4% compared to 15.0% in the prior year period.

Selling, general and administrative (SG&A) expenses for the fourth quarter of
2012 were $79.7 million compared to $60.9 million for the fourth quarter of
2011. SG&A expenses included $14.1 million and $12.7 million of non-cash stock
compensation expense in the fourth quarters of 2012 and 2011, respectively.
Excluding these charges, contingent compensation, acquired intangible asset
amortization, and legal contingencies, SG&A expenses as a percentage of
revenue were 19.9% compared to 20.1% in the prior year period.

GAAP net income included the impact of a pre-tax gain of $48.6 million from
the sale of the Company's minority ownership interest in deCODE Genetics to
Amgen, Inc.

Depreciation and amortization expenses were $18.1 million and capital
expenditures were $17.1 million during the fourth quarter of 2012. The Company
ended the quarter with $1.35 billion in cash, cash equivalents and short-term
investments, compared to $1.19 billion as of January1, 2012.

Fiscal 2012 results:

  *Revenue of $1.15 billion, a 9% increase over the $1.06 billion reported in
    fiscal 2011
  *GAAP net income of $151 million, or $1.13 per diluted share, compared to
    $87 million, or $0.62 per diluted share in fiscal 2011
  *Non-GAAP net income of $210 million, or $1.59 per diluted share, compared
    to $176 million, or $1.30 per diluted share, in fiscal 2011 (see table
    entitled "Itemized Reconciliation Between GAAP and Non-GAAP Net Income"
    for a reconciliation of these GAAP and non-GAAP financial measures)

Gross margin for fiscal 2012 was 67.4% compared to 67.2% in fiscal 2011.
Excluding the effect of non-cash charges associated with stock compensation,
amortization of acquired intangibles, legal contingencies, and amortization of
inventory revaluation costs, non-GAAP gross margin was 69.7% for fiscal 2012
compared to 69.0% in fiscal 2011.

R&D expenses for fiscal 2012 were $231.0 million compared to $196.9 million in
fiscal 2011. R&D expenses for fiscal 2012 included a one-time impairment
charge of $21.4 million related to an in-process research and development
asset previously acquired. R&D expenses also included $30.9 million and $32.1
million of non-cash stock compensation expense in fiscal 2012 and 2011,
respectively. Excluding these charges and contingent compensation expense, R&D
expenses as a percentage of revenue were 15.3% compared to 15.2% in the prior
year.

SG&A expenses for fiscal 2012 were $286.0 million compared to $261.8 million
in fiscal 2011. SG&A expenses included $55.4 million and $52.3 million of
non-cash stock compensation expense in fiscal 2012 and 2011, respectively.
Excluding these charges, contingent compensation expense, acquired intangible
asset amortization, and legal contingencies, SG&A expenses as a percentage of
revenue were 19.5% compared to 19.9% in the prior year.

“We are very pleased with our execution in 2012,” stated Jay Flatley,
President and CEO. “We ended the year with a strong performance, and made
significant progress on our strategy of growing our clinical business, both
organically and through acquisition. We remain optimistic about our growth
prospects in 2013 and beyond, in spite of the continuing challenges of the
economic environment.”

Highlights since our last earnings release

  *Announced a definitive agreement to acquire Verinata Health, Inc., a
    leading provider of non-invasive tests for the early identification of
    fetal chromosomal abnormalities
  *Completed the acquisition of Moleculo Inc., which will enable the
    introduction of a novel library prep method and analysis algorithm to
    produce synthetic read lengths up to 10 Kb
  *Previewed a new, ordered array flow cell technology that will provide a
    significant increase in cluster density and number of reads per flow cell
  *Announced a new kit for the HiSeq® 2500 which is capable of generating up
    to 300 Gb in rapid mode
  *Presented an updated MiSeq® roadmap with chemistry and software
    enhancements to deliver 15 Gb of throughput
  *Announced Nextera® Rapid Capture Exome Kits to provide the fastest exome
    enrichment workflow on both the HiSeq 2500 and MiSeq
  *Launched TruSeq® DNA PCR-Free Kits, a simple, all-inclusive sample prep
    solution for whole-genome sequencing
  *Announced TruSeq Targeted RNA Kits for mid-plex gene expression profiling
    and validation
  *Announced that Caris Life Sciences has selected the MiSeq system to
    support Caris' evidence-based molecular profiling service
  *Announced that VWR International, LLC, will distribute Illumina's qPCR
    portfolio within the United States
  *Announced winners of the MiSeq grant program to accelerate original
    research in microbial ecology, neglected disease, and human health
  *Named Dr. Robert S. Epstein to the Board of Directors
  *Announced a favorable ruling in patent litigation against Complete
    Genomics, Inc.
  *Announced new grant recipients of our Agricultural Greater Good Initiative
    at the 21st International Plant and Animal Genome Conference
  *Repurchased $25 million of common stock under our previously announced
    share repurchase program

Financial outlook and guidance

The non-GAAP financial guidance discussed below excludes various one-time or
specified non-cash charges. 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 2013 we are projecting 15% total company revenue growth and non-GAAP
earnings per fully diluted share of $1.55 to $1.62, including the pending
Verinata acquisition. These projections include full year non-GAAP gross
margin of approximately 70%, a pro forma tax rate of approximately 31% and
stock compensation expense of approximately $115 million. Full-year weighted
average diluted shares outstanding, for the measurement of pro forma amounts,
is expected to be approximately 134 million shares.

Quarterly conference call information

The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time)
on Monday, January28, 2013. Interested parties may listen to the call by
dialing 888-679-8035 (passcode: 35493315), or, if outside North America, by
dialing +1-617-213-4848 (passcode: 35493315). 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 4:00 pm Pacific Time
(7:00 pm Eastern Time) on January28, 2013 through February 4, 2013 by dialing
888-286-8010 (passcode: 76555573), or if outside North America, by dialing
+1-617-801-6888 (passcode: 76555573).

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
related to stock compensation expense, non-cash interest expense associated
with the Company's convertible debt instruments that may be settled in cash,
net gains related to cost-method investments, headquarter relocation expense,
costs related to unsolicited tender offer for the Company's stock, impairment
of in-process research and development, amortization expense related to
acquired intangible assets, contingent compensation expense, restructuring
charges, legal contingencies, acquisition related expense, amortization of
inventory revaluation costs, and loss on extinguishment of debt. Per share
amounts also include the double dilution associated with the accounting
treatment of the Company's 0.625% convertible senior notes outstanding and the
corresponding call option overlay. Management believes that presentation of
operating results that excludes these items and per share double dilution
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 therefore 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 develop and commercialize further our sequencing, array, PCR, and
consumables technologies and to deploy new products and applications, and
expand the markets, for our technology platforms; (ii) our ability to
manufacture robust instrumentation and consumables; (iii) our expectations and
beliefs regarding future conduct and growth of the business and the markets in
which we operate; (iv)challenges inherent in developing, manufacturing, and
launching new products and services; and (v) our ability to maintain our
revenue and profitability during periods of research funding reduction or
uncertainty and adverse economic and business conditions, including as a
result of slowing economic growth in the United States or worldwide, 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 financial quarter.

About Illumina

Illumina (www.illumina.com) is a leading developer, manufacturer, and marketer
of life science tools and integrated systems for the analysis of genetic
variation and function. We provide innovative sequencing and array-based
solutions for genotyping, copy number variation analysis, methylation studies,
gene expression profiling, and low-multiplex analysis of DNA, RNA, and
protein. We also provide tools and services that are fueling advances in
consumer genomics and diagnostics. Our technology and products accelerate
genetic analysis research and its applications, paving the way for molecular
medicine and ultimately transforming healthcare.


Illumina, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
                                                            
                                                 December 30,   January 1,

                                                 2012           2012
ASSETS                                           (unaudited)
Current assets:
  Cash and cash equivalents                      $  433,981     $ 302,978
  Short-term investments                            916,223       886,590
  Accounts receivable, net                          214,975       173,886
  Inventory, net                                    158,718       128,781
  Deferred tax assets, current portion              30,451        23,188
  Prepaid expenses and other current assets        32,700       29,196
  Total current assets                              1,787,048     1,544,619
  Property and equipment, net                       166,167       143,483
  Goodwill                                          369,327       321,853
  Intangible assets, net                            130,196       106,475
  Deferred tax assets, long-term portion            40,183        19,675
  Other assets                                     73,164       59,735
  Total assets                                   $  2,566,085   $ 2,195,840
                                                                
LIABILITIES AND STOCKHOLDERS’ EQUITY
  Current liabilities:
  Accounts payable                               $  65,727      $ 49,806
  Accrued liabilities                               201,877       177,115
  Long-term debt, current portion                  36,967       —
  Total current liabilities                         304,571       226,921
  Long-term debt                                    805,406       807,369
  Other long-term liabilities                       134,369       80,613
  Conversion option subject to cash settlement      3,158         5,722
  Stockholders’ equity                             1,318,581    1,075,215
  Total liabilities and stockholders’ equity     $  2,566,085   $ 2,195,840
                                                                  
                                                                  

Illumina, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(unaudited)
                                                         
                       Three Months Ended          Year Ended
                       December      January 1,    December      January 1,
                       30,                         30,
                                     2012                        2012
                       2012                        2012
Revenue:
   Product revenue     $  278,933    $ 230,396     $ 1,055,826   $ 987,280
   Service and other     30,332      19,675      92,690       68,255    
   revenue
      Total revenue       309,265      250,071       1,148,516     1,055,535
Cost of Revenue:
   Cost of product        86,348       69,509        317,283       308,228
   revenue (a)
   Cost of service
   and other revenue      14,791       6,940         43,552        26,118
   (a)
   Amortization of
   acquired              4,479       3,036       14,153       12,091    
   intangible assets
      Total cost of      105,618     79,485      374,988      346,437   
      revenue
         Gross           203,647     170,586     773,528      709,098   
         profit
Operating Expenses:
   Research and           56,907       45,513        231,025       196,913
   development (a)
   Selling, general
   and                    79,715       60,918        285,991       261,843
   administrative
   (a)
   Unsolicited
   tender offer           4,394        —             23,136        —
   related expense
   Headquarter
   relocation             2,883        30,243        26,328        41,826
   expense
   Restructuring          88           8,136         3,522         8,136
   charges
   Acquisition
   related expense       314         (1,523  )    2,774        919       
   (gain), net
      Total
      operating          144,301     143,287     572,776      509,637   
      expenses
         Income from      59,346       27,299        200,752       199,461
         operations
   Other income          44,557      (7,077  )    21,856       (66,416   )
   (expense), net
         Income
         before           103,903      20,222        222,608       133,045
         income
         taxes
Provision for income     32,000      8,502       71,354       46,417    
taxes
         Net income    $  71,903     $ 11,720     $ 151,254     $ 86,628    
Net income per basic   $  0.58       $ 0.10       $ 1.23        $ 0.70      
share
Net income per         $  0.53       $ 0.09       $ 1.13        $ 0.62      
diluted share
Shares used in
calculating basic        123,211     121,541     122,999      123,399   
net income per share
Shares used in
calculating diluted      135,393     124,888     133,693      138,937   
net income per share
                                                      
(a) Includes total stock-based compensation
expense for stock-based awards:
                                                                 
                       Three Months Ended          Year Ended
                       December      January 1,    December      January 1,
                       30,                         30,
                                     2012                        2012
                       2012                        2012
   Cost of product     $  1,991      $ 1,684       $ 7,575       $ 6,951
   revenue
   Cost of service        134          159           461           695
   and other revenue
   Research and           8,001        7,295         30,879        32,105
   development
   Selling, general
   and                   14,050      12,678      55,409       52,341    
   administrative
      Stock-based
      compensation     $  24,176     $ 21,816     $ 94,324      $ 92,092    
      expense before
      taxes
                                                                 
                                                                 

Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
                                                             
                 Three Months Ended                Year Ended
                 December 30,      January 1,      December 30,   January 1,

                 2012              2012            2012           2012
Net cash
provided by      $  78,876         $  108,300      $ 291,873      $ 358,140
operating
activities
Net cash
provided by
(used in)           18,611            (42,960  )     (150,012 )     (400,999 )
investing
activities
Net cash
(used in)
provided by         (6,042   )        7,848          (10,755  )     97,016
financing
activities
Effect of
exchange rate
changes on         (553     )       (56      )    (103     )    (126     )
cash and cash
equivalents
Net increase
in cash and         90,892            73,132         131,003        54,031
cash
equivalents
Cash and cash
equivalents,       343,089         229,846      302,978      248,947  
beginning of
period
Cash and cash
equivalents,     $  433,981       $  302,978     $ 433,981     $ 302,978  
end of period
                                                                  
Calculation
of free cash
flow (a):
Net cash
provided by      $  78,876         $  108,300      $ 291,873      $ 358,140
operating
activities
Purchases of
property and       (17,101  )       (27,114  )    (68,781  )    (77,800  )
equipment
Free cash        $  61,775        $  81,186      $ 223,092     $ 280,340  
flow
                                                                             
                                                             
                                                                             
(a) 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 NET INCOME PER SHARE:
                                                                   
                   Three Months Ended                Year Ended
                   December 30,      January 1,      December      January 1,
                                                     30,
                   2012              2012                          2012
                                                     2012
GAAP net income
per share -        $  0.53           $  0.09         $ 1.13        $ 0.62
diluted
Pro forma
impact of
weighted              —                 —              0.02          0.03
average shares
(a)
Adjustments to
net income:
Cost-method
investment            (0.34    )        —              (0.35   )     —
related gains,
net (b)
Non-cash
interest              0.07              0.07           0.27          0.24
expense (c)
Recovery of
previously            (0.04    )        —              (0.05   )     —
impaired note
receivable
Amortization of
acquired              0.04              0.02           0.12          0.09
intangible
assets
Unsolicited
tender offer          0.03              —              0.17          —
related expense
Contingent
compensation          0.03              0.01           0.07          0.04
expense (d)
Headquarter
relocation            0.02              0.24           0.20          0.31
expense (e)
Amortization of
inventory             0.01              —              0.01          —
revaluation
costs (f)
Acquisition
related expense       —                 (0.01    )     0.03          0.01
(gain), net (g)
Restructuring         —                 0.07           0.02          0.06
charges
Impairment of
in-process            —                 —              0.02          —
research and
development
Legal                 —                 (0.02    )     0.16          (0.02   )
contingencies
Loss on
extinguishment        —                 —              —             0.28
of debt
Incremental
non-GAAP tax         0.07            (0.12    )    (0.23   )    (0.36   )
expense (h)
Non-GAAP net
income per         $  0.42          $  0.35        $ 1.59       $ 1.30    
share - diluted
(i)
Shares used in
calculating
non-GAAP             134,348         124,409      132,725     135,154 
diluted net
income per
share
                                                                   
ITEMIZED
RECONCILIATION
BETWEEN GAAP
AND NON-GAAP
NET INCOME:
                                                                   
GAAP net income    $  71,903         $  11,720       $ 151,254     $ 86,628
Cost-method
investment            (45,911  )        —              (45,911 )     —
related gains,
net (b)
Non-cash
interest              8,950             8,542          35,180        32,495
expense (c)
Recovery of
previously            (6,000   )        —              (6,000  )     —
impaired note
receivable
Amortization of
acquired              5,411             3,188          15,541        12,689
intangible
assets
Unsolicited
tender offer          4,394             —              23,136        —
related expense
Contingent
compensation          4,347             732            9,151         6,057
expense (d)
Headquarter
relocation            2,883             30,243         26,328        41,826
expense (e)
Amortization of
inventory             1,458             —              1,458         —
revaluation
costs (f)
Acquisition
related (gain)        314               (1,523   )     2,774         919
expense, net
(g)
Restructuring         88                8,136          3,522         8,136
charges
Impairment of
in-process            —                 —              21,438        —
research and
development
Legal                 —                 (2,300   )     3,021         (2,300  )
contingencies
Loss on
extinguishment        —                 —              —             37,611
of debt
Incremental
non-GAAP tax         8,963           (15,215  )    (30,464 )    (48,053 )
expense (h)
Non-GAAP net       $  56,800        $  43,523      $ 210,428    $ 176,008 
income (i)
                                                                   
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES:

Weighted
average shares
used in
calculation of        135,393           124,888        133,693       138,937
GAAP diluted
net income per
share
Weighted
average
dilutive
potential
common shares        (1,045   )       (479     )    (968    )    (3,783  )
issuable of
redeemable
convertible
senior notes
(a)
Weighted
average shares
used in
calculation of       134,348         124,409      132,725     135,154 
Non-GAAP
diluted net
income per
share
                                                                             
                                                             
                                                                             
(a)Pro forma impact of weighted average shares represents the impact of
double dilution associated with the accounting treatment of the Company's
outstanding convertible debt and the corresponding call option overlay.
                                                                             
(b)Cost-method investment related gain, net, consists of $48.6 million in
gains from sale of minority interest in deCODE Genetics offset by $2.7 million
in impairment of another cost-method investment.
                                                                             
(c) Non-cash interest expense is calculated in accordance with the
authoritative accounting guidance for convertible debt instruments that may be
settled in cash.
                                                                             
(d) Contingent compensation expense relates to contingent payments for
post-combination services associated with acquisitions.
                                                                             
(e)Headquarter relocation expense in Q4 2012 consists primarily of
additional cease-use loss recorded due to a delay in the sublease of our prior
headquarters and accretion of interest expense on lease exit liability
recorded upon vacating our prior headquarters. Headquarter relocation expense
in fiscal year 2012 consists primarily of cease-use loss recorded upon
vacating our prior headquarters, double rent expense during the transition to
our new headquarter facility, accretion of interest expense on lease exit
liability, and moving costs.Headquarter relocation expense recorded in Q4
2011 and fiscal year 2011 consisted of cease-use loss, accelerated
depreciation expense and double rent expense during the transition to the new
facility.
                                                                             
(f)The Company recorded $1.5 million in inventory revaluation costs in
conjunction with the acquisition of BlueGnome, Ltd., which was amortized into
cost of goods sold during Q4 2012.
                                                                             
(g) Acquisition related expense (gain), net during fiscal year 2012 includes
changes in fair value of contingent consideration of $2.0 million, of which
$0.3 million was recorded in Q4, and transaction costs of $0.8 million related
to the acquisition of BlueGnome Ltd. Acquisition related (gain) expense, net
in the fiscal year 2011 consists of an acquired in-process research and
development charge of $5.4 million related to a milestone payment for a prior
acquisition, offset by changes in fair value of contingent consideration of
$4.5 million, of which $1.5 million was recorded in Q4.
                                                                             
(h)Incremental non-GAAP taxbenefit (expense) reflects the increase to GAAP
tax expense related to the non-GAAP adjustments listed above.
                                                                             
(i)Non-GAAP net income per share and net income exclude the effect of the
pro forma adjustments as detailed above.Non-GAAP diluted net income per
share and net income are key drivers of our 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.


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                              Year Ended
                 December 30,             January 1,              December 30,            January 1,
                                                                                       
                 2012                     2012                    2012                    2012
GAAP gross       $ 203,647    65.8  %    $ 170,586    68.2 %    $ 773,528    67.4 %    $ 709,098    67.2 %
profit
Stock-based
compensation       2,125       0.7   %      1,843       0.7  %      8,036       0.7  %      7,646       0.7  %
expense
Amortization
of acquired        4,479       1.5   %      3,036       1.3  %      14,153      1.2  %      12,091      1.1  %
intangible
assets
Amortization
of inventory       1,458       0.5   %      —           —           1,458       0.1  %      —           —
revaluation
costs (a)
Legal             —          —          —          —         3,021      0.3  %     —          —    
contingencies
Non-GAAP gross   $ 211,709    68.5  %    $ 175,465    70.2 %    $ 800,196    69.7 %    $ 728,835    69.0 %
profit
                                                                                                        
Research and
development      $ 56,907      18.4  %    $ 45,513      18.2 %    $ 231,025     20.1 %    $ 196,913     18.7 %
expense
Stock-based
compensation       (8,001  )   (2.6  )%     (7,295  )   (2.9 )%     (30,879 )   (2.7 )%     (32,105 )   (3.0 )%
expense
Contingent
compensation       (1,201  )   (0.4  )%     (732    )   (0.3 )%     (3,419  )   (0.2 )%     (4,799  )   (0.5 )%
expense (b)
Impairment of
in-process        —          —          —          —         (21,438 )   (1.9 )%    —          —    
research and
development
Non-GAAP
research and     $ 47,705     15.4  %    $ 37,486     15.0 %    $ 175,289    15.3 %    $ 160,009    15.2 %
development
expense
                                                                                                        
Selling,
general and      $ 79,715      25.8  %    $ 60,918      24.4 %    $ 285,991     24.9 %    $ 261,843     24.8 %
administrative
expense
Stock-based
compensation       (14,050 )   (4.6  )%     (12,678 )   (5.1 )%     (55,409 )   (4.8 )%     (52,341 )   (4.9 )%
expense
Contingent
compensation       (3,146  )   (1.0  )%     —           —           (5,732  )   (0.5 )%     (1,258  )   (0.1 )%
expense (b)
Amortization
of acquired        (932    )   (0.3  )%     (152    )   (0.1 )%     (1,388  )   (0.1 )%     (598    )   (0.1 )%
intangible
assets
Legal             —          —          2,300      0.9  %     —          —         2,300      0.2  %
contingencies
Non-GAAP
selling,
general and       61,587     19.9  %     50,388     20.1 %     223,462    19.5 %     209,946    19.9 %
administrative
expense
                                                                                                        
GAAP operating   $ 59,346      19.2  %    $ 27,299      10.9 %    $ 200,752     17.5 %    $ 199,461     18.9 %
profit
Stock-based
compensation       24,176      7.8   %      21,816      8.7  %      94,324      8.2  %      92,092      8.6  %
expense
Amortization
of acquired        5,411       1.7   %      3,188       1.2  %      15,541      1.4  %      12,689      1.2  %
intangible
assets
Unsolicited
tender offer       4,394       1.4   %      —           —           23,136      2.0  %      —           —
related
expense
Contingent
compensation       4,347       1.4   %      732         0.3  %      9,151       0.8  %      6,057       0.6  %
expense (b)
Headquarter
relocation         2,883       1.0   %      30,243      12.1 %      26,328      2.3  %      41,826      4.0  %
expense (c)
Amortization
of inventory       1,458       0.5   %      —           —           1,458       0.1  %      —           —
revaluation
costs (a)
Acquisition
related
expense            314         0.1   %      (1,523  )   (0.6 )%     2,774       0.2  %      919         0.1  %
(gain), net
(d)
Restructuring      88          —            8,136       3.3  %      3,522       0.3  %      8,136       0.8  %
charges
Impairment of
in-process         —           —            —           —           21,438      1.9  %      —           —
research and
development
Legal             —          —          (2,300  )   (0.9 )%    3,021      0.3  %     (2,300  )   (0.2 )%
contingencies
Non-GAAP
operating        $ 102,417    33.1  %    $ 87,591     35.0 %    $ 401,445    35.0 %    $ 358,880    34.0 %
profit (e)
                                                                                                        
GAAP other
income           $ 44,557      14.4  %    $ (7,077  )   (2.8 )%   $ 21,856      1.9  %    $ (66,416 )   (6.3 )%
(expense), net
Cost-method
investment         (45,911 )   (14.8 )%     —           —           (45,911 )   (4.1 )%     —           —
related gains,
net (f)
Non-cash
interest           8,950       2.8   %      8,542       3.4  %      35,180      3.1  %      32,495      3.0  %
expense (g)
Recovery of
previously         (6,000  )   (1.9  )%     —           —           (6,000  )   (0.5 )%     —           —
impaired note
receivable
Loss on
extinguishment    —          —          —          —         —          —         37,611     3.6  %
of debt
Non-GAAP other
income, net      $ 1,596      0.5   %    $ 1,465      0.6  %    $ 5,125      0.4  %    $ 3,690      0.3  %
(e)
                                                                                                             
                                                                                 
                                                                                                             
(a)The Company recorded $1.5 million in inventory revaluation costs in conjunction with the acquisition of
BlueGnome, Ltd., which was amortized into cost of goods sold during Q4 2012.
                                                                                                             
(b)Contingent compensation expense relates to contingent payments for post-combination services associated
with acquisitions.
                                                                                                             
(c)Headquarter relocation expense in Q4 2012 consists primarily of additional cease-use loss recorded due to
a delay in the sublease of our prior headquarters and accretion of interest expense on lease exit liability
recorded upon vacating our prior headquarters. Headquarter relocation expense in fiscal year 2012 consists
primarily of cease-use loss recorded upon vacating our prior headquarters, double rent expense during the
transition to our new headquarter facility, accretion of interest expense on lease exit liability, and moving
costs.Headquarter relocation expense recorded in Q4 2011 and fiscal year 2011 consisted of cease-use loss,
accelerated depreciation expense and double rent expense during the transition to the new facility.
                                                                                                             
(d)Acquisition related expense (gain), net during fiscal year 2012 includes changes in fair value of
contingent consideration of $2.0 million, of which $0.3 million was recorded in Q4, and transaction costs of
$0.8 million related to the acquisition of BlueGnome Ltd. Acquisition related (gain) expense, net in the fiscal
year 2011 consists of an acquired in-process research and development charge of $5.4 million related to a
milestone payment for a prior acquisition, offset by changes in fair value of contingent consideration of $4.5
million, of which $1.5 million was recorded in Q4.
                                                                                                             
(e)Non-GAAP operating profit, and non-GAAP other income, 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 our past and future core operating performance. Non-GAAP gross profit,
included within the non-GAAP operating profit, is a key measure of the effectiveness and efficiency of our
manufacturing processes, product mix and the average selling prices of our products and services.
                                                                                                             
(f)Cost-method investment related gain, net, consists of $48.6 million in gains from sale of minority
interest in deCODE Genetics offset by $2.7 million in impairment of another 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.


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 SEC,
including the Company's Form 10-K for the fiscal year ended December 30, 2012
to be filed with the SEC, and the Company's Form 10-Q for the fiscal quarters
ended April 1, 2012, July 1, 2012, and September 30, 2012. The Company assumes
no obligation to update any forward-looking statements or information.
                                          
                                                     
                                                     Fiscal Year 2013
Gross Margin
Non-GAAP gross margin                                70 %
Stock-based compensation expense                     (1)%
Amortization of acquired intangible                  (1)%
assets
GAAP gross margin                                    68 %
                                                     
Diluted net income per share
Non-GAAP diluted net income per share                $1.55 - $1.62
Non-cash interest expense (a)                        (0.17)
Amortization of acquired intangible                  (0.12)
assets
Contingent compensation expense (b)                  (0.06)
Unsolicited tender offer related expense             (0.05)
Headquarter relocation expense (c)                   (0.01)
Pro forma impact of weighted average                 (0.01)
shares (d)
GAAP diluted net income per share (e)                $1.13 - $1.20
                                                     
                                                   
                                                     
(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) Contingent compensation expense represents contingent consideration for
post-combination services associated with acquisitions.

(c) We expect to incur additional headquarter relocation expenses, consisting
primarily of accretion of interest expense on such cease-use liabilities.

(d) Pro forma impact of weighted average shares represents the estimated
impact of double dilution associated with the accounting treatment of the
Company's outstanding convertible debt and the corresponding call option
overlay.

(e) Reconciliation items from non-GAAP to GAAP diluted net income per share do
not reflect potential impact from Verinata acquisition.

Contact:

Illumina, Inc.
Investors:
Rebecca Chambers
Investor Relations
858-255-5243
rchambers@illumina.com
or
Media:
Jennifer Temple
Public Relations
858-882-6822
pr@illumina.com
 
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