Illumina Reports Financial Results for Third Quarter of Fiscal Year 2013

  Illumina Reports Financial Results for Third Quarter of Fiscal Year 2013

                       Raises Fiscal Year 2013 Guidance

Business Wire

SAN DIEGO -- October 21, 2013

Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for the
third quarter of 2013.

Third quarter 2013 results:

  *Revenue of $357 million, a 25% increase compared to $286 million in the
    third quarter of 2012
  *GAAP net income for the quarter of $31 million, or $0.22 per diluted
    share, compared to $30 million, or $0.22 per diluted share, for the third
    quarter of 2012
  *Non-GAAP net income for the quarter of $63 million, or $0.45 per diluted
    share, compared to $54 million, or $0.41 per diluted share, for the third
    quarter of 2012 (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 $83 million and free cash flow of $64 million
    for the quarter

Gross margin in the third quarter of 2013 was 58.8% compared to 68.5% in the
prior year period. Cost of product sales during the third quarter of 2013
included impairment charges of $25.2 million related to discontinuation of a
non-core product line. Excluding the effect of these charges as well as stock
compensation, amortization of acquired intangible assets, and legal
contingencies, non-GAAP gross margin was 70.2% for the third quarter of 2013
compared to 70.5% in the prior year period.

Research and development (R&D) expenses for the third quarter of 2013 were
$71.0 million compared to $54.1 million in the third quarter of 2012. R&D
expenses included $9.6 million and $7.8 million of non-cash stock compensation
expense in the third quarters of 2013 and 2012, respectively. Excluding these
charges and contingent compensation, R&D expenses as a percentage of revenue
were 17.2% compared to 15.9% in the prior year period.

Selling, general and administrative (SG&A) expenses for the third quarter of
2013 were $95.6 million compared to $69.8 million for the third quarter of
2012. SG&A expenses included $16.1 million and $13.2 million of non-cash stock
compensation expense in the third quarters of 2013 and 2012, respectively.
Excluding these charges, amortization of acquired intangible assets, and
contingent compensation, SG&A expenses as a percentage of revenue were 20.6%
compared to 19.5% in the prior year period.

Depreciation and amortization expenses were $26.9 million and capital
expenditures were $18.9 million during the third quarter of 2013. The Company
ended the third quarter of 2013 with $1.03 billion in cash, cash equivalents
and short-term investments, compared to $1.35 billion as of December30, 2012.

“These results highlight another quarter of solid operational execution and
record financial performance,” said Illumina’s President and Chief Executive
Officer, Jay Flatley. “We continue to be pleased with the robust global trends
demonstrated by our business and believe we are positioned to continue to
deliver strong growth.”

Updates since our last earnings release:

  *Launched new reagent kits for MiSeq® which doubled sequencing output to 15
    gigabases per run by increasing the number of sequencing reads and overall
    read length
  *Introduced the TruSight One Sequencing Panel, that targets more than 4800
    genes with known associated clinical phenotypes
  *Applied CE mark to the MiSeqDx™ system, expanding its use in clinical
    laboratories
  *Launched the 24-sample array format on the Infinium® BeadChip family of
    genotyping arrays
  *Announced that the verifi® non-invasive prenatal test is available for
    women pregnant with twins
  *Announced that Verinata Health received the Clinical Laboratory Permit
    from the New York State Department of Health
  *Published peer-reviewed data showing that Verinata’s non-invasive verifi
    prenatal test correctly detects aneuploidies across patients with very low
    fetal fractions
  *Announced a three-year agreement with Natera to supply the HiSeq® 2500
    sequencing system and associated consumables for non-invasive prenatal
    testing
  *Announced a project with Genomics England Ltd. and the University of
    Cambridge to sequence 10,000 whole genomes
  *Partnered with the Global Genomics Group to investigate novel biomarkers
    and biological pathways involved in the development and diagnosis of
    cardiovascular diseases
  *Further strengthened Illumina's management team by appointing Dr. Richard
    Klausner as Senior Vice President and Chief Medical Officer, and Bob
    Ragusa as Senior Vice President of Operations
  *Announced organizational changes, effective January 1, 2014, to ensure
    Illumina is best positioned for future growth

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 2013 the Company is now projecting approximately 22% revenue growth
and non-GAAP earnings per fully diluted share of $1.75 to $1.77, including the
impact of the Verinata and Advanced Liquid Logic acquisitions. These
projections assume full year non-GAAP gross margin of approximately 69.5%, a
pro forma tax rate of approximately 30% and stock compensation expense of
approximately $105 million. Full-year weighted average diluted shares
outstanding, for the measurement of pro forma amounts, is expected to be
approximately 139 million shares assuming the current stock price.

Quarterly conference call information

The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time)
on Monday, October 21, 2013. Interested parties may listen to the call by
dialing 888.680.0869 (passcode: 91263308), or if outside North America by
dialing 1.617.213.4854 (passcode: 91263308). 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 6:00 pm Pacific Time
(9:00 pm Eastern Time) on October 21, 2013 through October 28, 2013 by dialing
888.286.8010 (passcode: 82917243), or if outside North America by dialing
1.617.801.6888 (passcode: 82917243).

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, legal contingencies, amortization
expense related to acquired intangible assets, non-cash interest expense
associated with the company's convertible debt instruments that may be settled
in cash, impairment charges, costs related to the unsolicited tender offer for
the company's stock, acquisition related expense, and others that are listed
in the itemized reconciliations between GAAP and non-GAAP financial measures
included in this press release. 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, 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)
                                                           
                                             September 29,      December 30,
                                              2013                2012
ASSETS                                        (unaudited)
Current assets:
Cash and cash equivalents                   $ 691,836           $ 433,981
Short-term investments                      336,155             916,223
Accounts receivable, net                    235,437             214,975
Inventory                                   159,866             158,718
Deferred tax assets, current portion        85,475              30,451
Prepaid expenses and other current          28,877             32,700
assets
Total current assets                        1,537,646           1,787,048
Property and equipment, net                 193,649             166,167
Goodwill                                    667,192             369,327
Intangible assets, net                      297,911             130,196
Deferred tax assets, long-term portion      43,296              40,183
Other assets                                78,002             73,164
Total assets                                $ 2,817,696        $ 2,566,085
                                                                  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                            $ 63,126            $ 65,727
Accrued liabilities                         199,977             201,877
Accrued legal contingencies                 127,012             —
Long-term debt, current portion             28,810             36,967
Total current liabilities                   418,925             304,571
Long-term debt                              830,690             805,406
Other long-term liabilities                 192,807             134,369
Conversion option subject to cash           810                 3,158
settlement
Stockholders’ equity                        1,374,464          1,318,581
Total liabilities and stockholders’         $ 2,817,696        $ 2,566,085
equity
                                                                  


Illumina, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(unaudited)
                                                        
                   Three Months Ended              Nine Months Ended
                   September       September       September       September
                   29,             30,             29,             30,
                   2013            2012            2013            2012
Revenue:
  Product          $ 318,603       $ 262,418       $ 928,270       $ 776,893
  revenue
  Service and      38,197         23,456         105,582        62,358    
  other revenue
    Total          356,800        285,874        1,033,852      839,251   
    revenue
Cost of Revenue:
  Cost of
  product          119,954         75,873          308,082         230,935
  revenue (a)
  Cost of
  service and      17,643          10,540          48,732          28,761
  other revenue
  (a)
  Amortization
  of acquired      9,263          3,588          24,397         9,674     
  intangible
  assets
    Total cost     146,860        90,001         381,211        269,370   
    of revenue
      Gross        209,940        195,873        652,641        569,881   
      profit
Operating
Expenses:
  Research and
  development      70,957          54,056          200,015         174,118
  (a)
  Selling,
  general and      95,617          69,791          269,391         206,276
  administrative
  (a)
  Acquisition
  related (gain)   (3,942    )     (357      )     (5,846    )     2,460
  expense, net
  Unsolicited
  tender offer     1,326           3,956           13,621          18,742
  related
  expense
  Headquarter      518             19,475          (232      )     23,445
  relocation
  Legal            —               —               115,369         —
  contingencies
  Restructuring    —              138            —              3,434     
    Total
    operating      164,476        147,059        592,318        428,475   
    expenses
      Income
      from         45,464          48,814          60,323          141,406
      operations
  Other expense,   (8,317    )     (5,169    )     (21,378   )     (22,701   )
  net
      Income
      before       37,147          43,645          38,945          118,705
      income
      taxes
Provision for
(benefit from)     5,790          13,897         (5,702    )     39,354    
income taxes
      Net income   $ 31,357       $ 29,748       $ 44,647       $ 79,351  
Net income per     $ 0.25         $ 0.24         $ 0.36         $ 0.65    
basic share
Net income per     $ 0.22         $ 0.22         $ 0.32         $ 0.60    
diluted share
Shares used in
calculating        125,465        122,930        124,532        122,929   
basic net income
per share
Shares used in
calculating        140,601        132,507        138,630        133,126   
diluted net
income per share
                                                   
(a) Includes total stock-based compensation expense for stock-based awards:
                   Three Months Ended              Nine Months Ended
                   September       September       September       September
                   29,             30,             29,             30,
                   2013            2012            2013            2012
  Cost of
  product          $ 1,524         $ 1,928         $ 4,410         $ 5,584
  revenue
  Cost of
  service and      233             142             544             327
  other revenue
  Research and     9,561           7,764           26,521          22,878
  development
  Selling,
  general and      16,091         13,238         44,605         41,359    
  administrative
    Stock-based
    compensation   $ 27,409       $ 23,072       $ 76,080       $ 70,148  
    expense
    before taxes
                                                                             


Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
                                                          
                  Three Months Ended               Nine Months Ended
                  September        September       September       September
                  29,              30,             29,             30,
                  2013             2012            2013            2012
Net cash
provided by       $  83,136        $ 51,228        $ 259,582       $ 212,997
operating
activities
Net cash
(used in)
provided by       (101,295   )     (17,105   )     81,161          (168,623  )
investing
activities
Net cash used
in financing      (75,053    )     (8,065    )     (82,275   )     (4,713    )
activities
Effect of
exchange rate
changes on        1,437           619            (613      )     450       
cash and cash
equivalents
Net
(decrease)
increase in       (91,775    )     26,677          257,855         40,111
cash and cash
equivalents
Cash and cash
equivalents,      783,611         316,412        433,981        302,978   
beginning of
period
Cash and cash
equivalents,      $  691,836      $ 343,089      $ 691,836      $ 343,089 
end of period
                                                                   
Calculation
of free cash
flow (a):
Net cash
provided by       $  83,136        $ 51,228        $ 259,582       $ 212,997
operating
activities
Purchases of
property and      (18,930    )     (17,650   )     (51,905   )     (51,680   )
equipment
Free cash         $  64,206       $ 33,578       $ 207,677      $ 161,317 
flow
                                                                             

    
    
      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
(a)   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             Nine Months Ended
                    September       September      September       September
                    29,             30,            29,             30,
                    2013            2012           2013            2012
GAAP net income
per share -         $  0.22         $ 0.22         $ 0.32          $ 0.60
diluted
Pro forma
impact of
weighted            0.01            —              0.01            —
average shares
(a)
Adjustments to
net income:
Impairments (b)     0.18            —              0.18            0.16
Amortization of
acquired            0.09            0.03           0.23            0.08
intangible
assets
Non-cash
interest            0.07            0.07           0.20            0.20
expense (c)
Legal
contingencies       0.03            —              0.93            0.02
(d)
Acquisition
related (gain)      (0.03     )     —              (0.04     )     0.02
expense, net
(e)
Contingent
compensation        0.02            0.01           0.06            0.04
expense (f)
Unsolicited
tender offer        0.01            0.03           0.10            0.14
related expense
Headquarter         —               0.15           —               0.18
relocation (g)
Loss on
extinguishment      —               —              —               —
of debt
Cost-method
investment          —               —              (0.04     )     —
related gain
Amortization of
inventory           —               —              —               —
revaluation
costs (h)
Restructuring       —               —              —               0.03
Incremental
non-GAAP tax        (0.15     )     (0.10    )     (0.60     )     (0.31     )
expense (i)
Non-GAAP net
income per          $  0.45        $ 0.41        $ 1.35         $ 1.16    
share - diluted
(j)
Shares used in
calculating
non-GAAP            139,573        131,601       137,579        132,185   
diluted net
income per
share
                                                                     
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:
GAAP net income     $  31,357       $ 29,748       $ 44,647        $ 79,351
Impairments (b)     25,214          —              25,214          21,438
Amortization of
acquired            12,853          3,740          31,789          10,130
intangible
assets
Non-cash
interest            9,103           8,846          27,221          26,230
expense (c)
Legal
contingencies       4,299           —              127,780         3,021
(d)
Acquisition
related (gain)      (3,942    )     (357     )     (5,846    )     2,460
expense, net
(e)
Contingent
compensation        2,444           1,496          8,124           4,804
expense (f)
Unsolicited
tender offer        1,326           3,956          13,621          18,742
related expense
Headquarter         518             19,475         (232      )     23,445
relocation (g)
Loss on
extinguishment      44              —              555             —
of debt
Cost-method
investment          —               —              (6,113    )     —
related gain
Amortization of
inventory           —               —              458             —
revaluation
costs (h)
Restructuring       —               138            —               3,434
Incremental
non-GAAP tax        (20,370   )     (13,539  )     (82,059   )     (39,427   )
expense (i)
Non-GAAP net        $  62,846      $ 53,503      $ 185,159      $ 153,628 
income (j)
                                                                     
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES:
Weighted
average shares
used in
calculation of      140,601         132,507        138,630         133,126
GAAP diluted
net income per
share
Weighted
average
dilutive
potential
common shares       (1,028    )     (906     )     (1,051    )     (941      )
issuable of
redeemable
convertible
senior notes
(a)
Weighted
average shares
used in
calculation of      139,573        131,601       137,579        132,185   
non-GAAP
diluted net
income per
share
                                                                             

    
    
      Pro forma impact of weighted average shares includes the impact of
(a)   double dilution associated with the accounting treatment of the
      Company’s outstanding convertible debt and the corresponding call option
      overlay.
      
      Impairment charges of $25.2 million were recorded in Q3 2013 due to the
      discontinuation of a non-core product line. Assets impaired primarily
(b)   included a developed technology intangible asset. The impairment charge
      in 2012 related to the impairment of an in-process research and
      development intangible asset.
      
      Non-cash interest expense is calculated in accordance with the
(c)   authoritative accounting guidance for convertible debt instruments that
      may be settled in cash.
      
      Legal contingencies during the current year primarily represent charges
      recorded based on an amended judgment associated with the patent
      litigation brought by Syntrix Biosystems, Inc., or Syntrix. Illumina
      continues to believe that Syntrix's claims are without merit and are not
(d)   supported by the law or facts. Accordingly, Illumina filed its
      post-trial motion on July 17, 2013 asking the court to vacate the
      amended judgment and to enter judgment in our favor or, alternatively,
      to grant a new trial. If the post-trial motion is unsuccessful, the
      Company plans to file an appeal challenging the adverse verdict.
      
      Acquisition related (gain) expense, net, during the first three quarters
      of 2013 consisted primarily of $11.0 million in net gains from changes
      in fair value of contingent consideration, of which $5.8 million was
(e)   recorded in Q3. Such gains were partially offset by transaction costs of
      $3.5 million recorded mostly in Q1, and other acquisition related costs.
      Acquisition related (gain) expense, net, in Q3 2012 and first three
      quarters of 2012 consisted of changes in fair value of contingent
      consideration and transaction costs of $0.7 million recorded in Q3.
      
(f)   Contingent compensation expense relates to contingent payments for
      post-combination services associated with acquisitions.
      
      Headquarter relocation for the first three quarters of 2013 consisted of
      a gain on lease exit liability recorded in Q2 as a result of the Company
      entering into a sublease at a more favorable rate than previously
      estimated, partially offset by accretion of interest expense recorded in
(g)   each of the three quarters on such lease exit liability. Headquarter
      relocation expense in Q3 2012 and first three quarters of 2012 consisted
      primarily of the cease-use loss recorded upon vacating our headquarters,
      double rent expense during the transition to the new headquarters,
      accretion of interest expense on lease exit liability, and moving costs.
      
      The Company recorded $0.5 million in cost of goods sold in Q1 2013 for
(h)   the amortization of inventory revaluation costs in conjunction with the
      acquisition of Verinata Health, Inc.
      
(i)   Incremental non-GAAP tax expense reflects the increase to GAAP tax
      expense related to the non-GAAP adjustments listed above.
      
      Non-GAAP net income and net income per share exclude the effect of the
      pro forma adjustments as detailed above. Non-GAAP net income and net
      income per share are key drivers of the Company’s core operating
(j)   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 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                                    Nine Months Ended
                   September 29,             September 30,               September 29,             September 30,
                   2013                        2012                        2013                        2012
GAAP gross         $ 209,940     58.8 %      $ 195,873     68.5 %      $ 652,641     63.1 %      $ 569,881     67.9 %
profit
Stock-based
compensation         1,757         0.5  %        2,070         0.7  %        4,954         0.5  %        5,911         0.7  %
expense
Impairments          25,214        7.1  %        -             -             25,214        2.4  %        -             -
(a)
Amortization
of acquired          9,263         2.6  %        3,588         1.3  %        24,397        2.4  %        9,674         1.1  %
intangible
assets
Legal
contingencies        4,299         1.2  %        -             -             12,411        1.2  %        3,021         0.4  %
(b)
Amortization
of inventory        -            -           -            -           458          -           -            -    
revaluation
costs (c)
Non-GAAP gross     $ 250,473      70.2 %      $ 201,531      70.5 %      $ 720,075      69.6 %      $ 588,487      70.1 %
profit (d)
                                                                                                                       
Research and
development        $ 70,957        19.9 %      $ 54,056        18.9 %      $ 200,015       19.3 %      $ 174,118       20.7 %
expense
Stock-based
compensation         (9,561  )     (2.7 )%       (7,764  )     (2.7 )%       (26,521 )     (2.6 )%       (22,878 )     (2.7 )%
expense
Contingent
compensation         (107    )     -             (754    )     (0.3 )%       (432    )     -             (2,218  )     (0.2 )%
expense (e)
Impairments         -            -           -            -           -            -           (21,438 )     (2.6 )%
(a)
Non-GAAP
research and       $ 61,289       17.2 %      $ 45,538       15.9 %      $ 173,062      16.7 %      $ 127,584      15.2 %
development
expense
                                                                                                                       
Selling,
general and        $ 95,617        26.8 %      $ 69,791        24.4 %      $ 269,391       26.1 %      $ 206,276       24.6 %
administrative
expense
Stock-based
compensation         (16,091 )     (4.5 )%       (13,238 )     (4.5 )%       (44,605 )     (4.3 )%       (41,359 )     (4.9 )%
expense
Amortization
of acquired          (3,590  )     (1.0 )%       (152    )     (0.1 )%       (7,392  )     (0.8 )%       (456    )     (0.1 )%
intangible
assets
Contingent
compensation        (2,337  )     (0.7 )%      (742    )     (0.3 )%      (7,692  )     (0.7 )%      (2,586  )     (0.3 )%
expense (e)
Non-GAAP
selling,
general and        $ 73,599       20.6 %      $ 55,659       19.5 %      $ 209,702      20.3 %      $ 161,875      19.3 %
administrative
expense
                                                                                                                       
GAAP operating     $ 45,464        12.7 %      $ 48,814        17.1 %      $ 60,323        5.8  %      $ 141,406       16.8 %
profit
Stock-based
compensation         27,409        7.7  %        23,072        8.1  %        76,080        7.4  %        70,148        8.4  %
expense
Impairments          25,214        7.1  %        -             -             25,214        2.4  %        21,438        2.6  %
(a)
Amortization
of acquired          12,853        3.6  %        3,740         1.3  %        31,789        3.1  %        10,130        1.2  %
intangible
assets
Legal
contingencies        4,299         1.2  %        -             -             127,780       12.4 %        3,021         0.4  %
(b)
Acquisition
related (gain)       (3,942  )     (1.1 )%       (357    )     (0.1 )%       (5,846  )     (0.6 )%       2,460         0.3  %
expense, net
(f)
Contingent
compensation         2,444         0.7  %        1,496         0.5  %        8,124         0.8  %        4,804         0.6  %
expense (e)
Unsolicited
tender offer         1,326         0.4  %        3,956         1.4  %        13,621        1.3  %        18,742        2.2  %
related
expense
Headquarter          518           0.1  %        19,475        6.8  %        (232    )     -             23,445        2.7  %
relocation (g)
Amortization
of inventory         -             -             -             -             458           -             -             -
revaluation
costs (c)
Restructuring       -            -           138          -           -            -           3,434        0.4  %
Non-GAAP
operating          $ 115,585      32.4 %      $ 100,334      35.1 %      $ 337,311      32.6 %      $ 299,028      35.6 %
profit (d)
                                                                                                                       
GAAP other         $ (8,317  )     (2.3 )%     $ (5,169  )     (1.8 )%     $ (21,378 )     (2.1 )%     $ (22,701 )     (2.7 )%
expense, net
Non-cash
interest             9,103         2.6  %        8,846         3.1  %        27,221        2.6  %        26,230        3.1  %
expense (h)
Loss on
extinguishment       44            (0.1 )%       -             -             555           0.1  %        -             -
of debt
Cost-method
investment          -            -           -            -           (6,113  )     (0.6 )%      -            -    
related gain
Non-GAAP other
income, net        $ 830          0.2  %      $ 3,677        1.3  %      $ 285          -          $ 3,529        0.4  %
(d)
                                                                                                                            

    
    
      Impairment charges of $25.2 million were recorded in Q3 2013 due to the
      discontinuation of a non-core product line. Assets impaired primarily
(a)   included a developed technology intangible asset. The impairment charge
      in 2012 related to the impairment of an in-process research and
      development intangible asset.
      
      Legal contingencies during the current year primarily represent charges
      recorded based on an amended judgment associated with the patent
      litigation brought by Syntrix Biosystems, Inc., or Syntrix. Illumina
      continues to believe that Syntrix's claims are without merit and are not
(b)   supported by the law or facts. Accordingly, Illumina filed its
      post-trial motion on July 17, 2013 asking the court to vacate the
      amended judgment and to enter judgment in our favor or, alternatively,
      to grant a new trial. If the post-trial motion is unsuccessful, the
      Company plans to file an appeal challenging the adverse verdict.
      
      The Company recorded $0.5 million in cost of goods sold in Q1 2013 for
(c)   the amortization of inventory revaluation costs in conjunction with the
      acquisition of Verinata Health, Inc.
      
      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
(d)   investors in analyzing and assessing 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 manufacturing processes, product mix and the average selling prices
      of the Company’s products and services.
      
(e)   Contingent compensation expense relates to contingent payments for
      post-combination services associated with acquisitions.
      
      Acquisition related (gain) expense, net, during the first three quarters
      of 2013 consisted primarily of $11.0 million in net gains from changes
      in fair value of contingent consideration, of which $5.8 million was
(f)   recorded in Q3. Such gains were partially offset by transaction costs of
      $3.5 million recorded mostly in Q1, and other acquisition related costs.
      Acquisition related (gain) expense, net, in Q3 2012 and first three
      quarters of 2012 consisted of changes in fair value of contingent
      consideration and transaction costs of $0.7 million recorded in Q3.
      
      Headquarter relocation for the first three quarters of 2013 consisted of
      a gain on lease exit liability recorded in Q2 as a result of the Company
      entering into a sublease at a more favorable rate than previously
      estimated, partially offset by accretion of interest expense recorded in
(g)   each of the three quarters on such lease exit liability. Headquarter
      relocation expense in Q3 2012 and first three quarters of 2012 consisted
      primarily of the cease-use loss recorded upon vacating our headquarters,
      double rent expense during the transition to the new headquarters,
      accretion of interest expense on lease exit liability, and moving costs.
      
      Non-cash interest expense is calculated in accordance with the
(h)   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,
and the Company’s Form 10-Q for the fiscal quarters ended March 31, 2013 and
June 29, 2013. The Company assumes no obligation to update any forward-looking
statements or information.

                                                 Fiscal Year 2013
Gross margin
Non-GAAP gross margin                                  69.5%
Amortization of acquired intangible assets             (2.3)%
Impairments (a)                                        (1.8)%
Legal contingencies (b)                                (1.3)%
Stock-based compensation expense                       (0.5)%
GAAP gross margin                                      63.6%
                                                       
Diluted net income per share
Non-GAAP diluted net income per share                  $1.75 - $1.77
Legal contingencies (b)                                (0.60)
Amortization of acquired intangible assets             (0.20)
Non-cash interest expense (c)                          (0.16)
Impairments (a)                                        (0.11)
Unsolicited tender offer related expense               (0.09)
Contingent compensation expense (d)                    (0.07)
Cost-method investment related gain                    0.04
Acquisition related gain, net (e)                      0.03
GAAP diluted net income per share                      $0.59 - $0.61
                                                       

    
    
      The Company recorded impairments during Q3 2013 due to the
(a)   discontinuation of a non-core product line. Such impairment charges
      primarily related to a developed technology intangible asset.
      
      Legal contingencies primarily represent charges recorded based on an
      amended judgment associated with the patent litigation brought by
      Syntrix Biosystems, Inc., or Syntrix. Illumina continues to believe that
      Syntrix's claims are without merit and are not supported by the law or
(b)   facts. Accordingly, Illumina filed its post-trial motion on July 17,
      2013 asking the court to vacate the amended judgment and to enter
      judgment in our favor or, alternatively, to grant a new trial. If the
      post-trial motion is unsuccessful, the Company plans to file an appeal
      challenging the adverse verdict.
      
      Non-cash interest expense is calculated in accordance with the
(c)   authoritative accounting guidance for convertible debt instruments that
      may be settled in cash.
      
(d)   Contingent compensation expense represents contingent consideration for
      post-combination services associated with acquisitions.
      
(e)   Acquisition related gain, net primarily consists of net changes in fair
      value of contingent consideration and transaction costs.

Contact:

Illumina, Inc.
Investors:
Rebecca Chambers
858.255.5243
rchambers@illumina.com
or
Media:
Jennifer Temple
858.882.6822
pr@illumina.com
 
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