Illumina Reports Strong Financial Results for Second Quarter of Fiscal Year 2014

  Illumina Reports Strong Financial Results for Second Quarter of Fiscal Year
  2014

                       Raises Fiscal Year 2014 Guidance

Business Wire

SAN DIEGO -- July 23, 2014

Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for the
second quarter of 2014.

Second quarter 2014 results:

  *Revenue of $448 million, a 29% increase compared to $346 million in the
    second quarter of 2013
  *GAAP net income for the quarter of $47 million, or $0.31 per diluted
    share, compared to $36 million, or $0.26 per diluted share, for the second
    quarter of 2013
  *Non-GAAP net income for the quarter of $85 million, or $0.57 per diluted
    share, compared to $60 million, or $0.43 per diluted share, for the second
    quarter of 2013 (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 $178 million and free cash flow of $155
    million for the quarter

Gross margin in the second quarter of 2014 was 67.1% compared to 64.6% in the
prior year period. Excluding the effect of non-cash charges associated with
stock compensation, amortization of acquired intangible assets, and legal
contingencies, non-GAAP gross margin was 70.9% for the second quarter of 2014
compared to 69.5% in the prior year period.

Research and development (R&D) expenses for the second quarter of 2014 were
$83.0 million compared to $67.6 million in the prior year period. R&D expenses
included $12.8 million and $9.0 million of non-cash stock compensation expense
in the second quarters of 2014 and 2013, respectively. Excluding these charges
and contingent compensation, R&D expenses as a percentage of revenue were
15.6% compared to 17.0% in the prior year period.

Selling, general and administrative (SG&A) expenses for the second quarter of
2014 were $114.6 million compared to $88.7 million in the prior year period.
SG&A expenses included $20.8 million and $13.9 million of non-cash stock
compensation expense in the second quarters of 2014 and 2013, respectively.
Excluding these charges, amortization of acquired intangible assets and
contingent compensation, SG&A expenses as a percentage of revenue were 20.5%
compared to 20.3% in the prior year period.

Depreciation and amortization expenses were $27.5 million and capital
expenditures were $23.3 million during the second quarter of 2014. The Company
ended the second quarter of 2014 with $1.10 billion in cash, cash equivalents
and short-term investments, compared to $1.17 billion as of December29, 2013.

“We are witnessing tremendous interest in our products, which led to record
financial results in the second quarter,” stated Jay Flatley, CEO. “With the
most extensive sequencing portfolio available, we remain extremely
well-positioned to develop and address the large and untapped market
opportunities ahead of us.”

Updates since our last earnings release:

  *Launched VeriSeq™ PGS, for preimplantation genetic screening of embryos
    using Illumina’s NextSeq™ 500 and MiSeq® sequencing systems
  *Announced that the Sidra Medical and Research Center purchased a HiSeq X™
    Ten sequencing system
  *Entered into agreements with Biomnis, Genoma, and the Center for Human
    Genetics and Laboratory Diagnostics Martinsried to expand access for
    non-invasive prenatal testing across Europe
  *Announced that Genomics England selected Illumina Cambridge Ltd, a
    subsidiary of Illumina Inc., as the preferred partner for the sequencing
    element of the 100,000 Genomes Project
  *Announced that Berry Genomics chose Illumina’s NGS technology as the
    platform on which to secure Chinese Food and Drug Administration
    regulatory approval for clinical applications, including NIPT
  *Acquired Myraqa, a regulatory and quality consulting firm specializing in
    IVD and companion diagnostics and appointed Mya Thomae as Vice President
    of Regulatory Affairs
  *Further strengthened Illumina’s management team by appointing Tina Nova,
    Ph.D. as Senior Vice President and General Manager of Oncology
  *Completed an offering of convertible senior notes with aggregate net
    proceeds of approximately $1,132 million and repurchased approximately
    $600 million aggregate principal amount of the 0.25% convertible senior
    notes due 2016
  *Repurchased $72 million of common stock under our previously announced
    share repurchase programs

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.

As a result of strong first half results, the Company has increased its full
year 2014 guidance to 25% to 26% revenue growth, and its non-GAAP earnings per
fully diluted share to $2.26 to $2.28.

Quarterly conference call information

The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time)
on Wednesday, July 23, 2014. Interested parties may listen to the call by
dialing 888.679.8034 (passcode: 60693837), or if outside North America by
dialing 1.617.213.4847 (passcode: 60693837). 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 July 23, 2014 through July 30, 2014 by dialing
888.286.8010 (passcode: 85586770), or if outside North America by dialing
1.617.801.6888 (passcode: 85586770).

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 of
acquired intangible assets, non-cash interest expense associated with the
Company’s convertible debt instruments that may be settled in cash,
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 at the beginning of the year 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 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; and (vi) our ability
to maintain our revenue levels and profitability during periods of research
funding reduction or uncertainty and adverse economic and business conditions,
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)
                                                            
                                               June 29,        December 29,
                                               2014            2013
ASSETS                                         (unaudited)
Current assets:
Cash and cash equivalents                      $ 675,221       $  711,637
Short-term investments                         427,835         453,966
Accounts receivable, net                       258,694         238,946
Inventory                                      177,534         154,099
Deferred tax assets, current portion           44,929          36,076
Prepaid expenses and other current assets      36,508         22,811
Total current assets                           1,620,721       1,617,535
Property and equipment, net                    230,113         202,666
Goodwill                                       721,648         723,061
Intangible assets, net                         304,850         331,173
Deferred tax assets, long-term portion         70,126          88,480
Other assets                                   87,597         56,091
Total assets                                   $ 3,035,055    $  3,019,006
                                                               
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                               $ 91,513        $  73,655
Accrued liabilities                            259,676         219,120
Long-term debt, current portion                298,018        29,288
Total current liabilities                      649,207         322,063
Long-term debt                                 972,945         839,305
Long-term legal contingencies                  143,597         132,933
Other long-term liabilities                    188,870         191,221
Conversion option subject to cash settlement   —               282
Stockholders’ equity                           1,080,436      1,533,202
Total liabilities and stockholders’ equity     $ 3,035,055    $  3,019,006
                                                                  

       Illumina, Inc.
          Condensed Consolidated Statements of Income
          (In thousands, except per share amounts)
          (unaudited)
                                                               
                          Three Months Ended         Six Months Ended
                          June 29,      June 30,     June 29,      June 30,
                          2014          2013         2014          2013
Revenue:
    Product revenue       $ 390,808     $ 313,497    $ 753,019     $ 609,667
    Service and other     56,760       32,597      115,330      67,385    
    revenue
       Total revenue      447,568      346,094     868,349      677,052   
Cost of revenue:
    Cost of product       114,307       98,150       225,748       188,128
    revenue (a)
    Cost of service and   23,176        15,951       44,689        31,089
    other revenue (a)
    Amortization of
    acquired intangible   9,545        8,584       19,080       15,134    
    assets
       Total cost of      147,028      122,685     289,517      234,351   
       revenue
          Gross profit    300,540      223,409     578,832      442,701   
Operating expense:
    Research and          82,985        67,608       160,026       129,058
    development (a)
    Selling, general
    and administrative    114,649       88,700       224,222       173,774
    (a)
    Headquarter           2,892         (1,507    )  3,487         (750      )
    relocation
    Acquisition related   (225      )   (5,725    )  (1,238    )   (1,904    )
    gain, net
    Legal contingencies   —             9,516        —             115,369
    Unsolicited tender
    offer related         —            4,811       —            12,295    
    expense
       Total operating    200,301      163,403     386,497      427,842   
       expense
          Income from     100,239       60,006       192,335       14,859
          operations
Other expense, net        (39,773   )   (10,646   )  (48,081   )   (13,061   )
          Income before   60,466        49,360       144,254       1,798
          income taxes
Provision for (benefit    13,861       13,483      37,672       (11,492   )
from) income taxes
          Net income      $ 46,605     $ 35,877    $ 106,582    $ 13,290  
Net income per basic      $ 0.36       $ 0.29      $ 0.82       $ 0.11    
share
Net income per diluted    $ 0.31       $ 0.26      $ 0.71       $ 0.10    
share
Shares used in
calculating basic net     130,583      124,362     129,365      124,065   
income per share
Shares used in
calculating diluted net   149,121      139,377     149,870      137,645   
income per share

(a) Includes total stock-based compensation expense
for stock-based awards:
                                                                             
                          Three Months Ended         Six Months Ended
                          June 29,      June 30,     June 29,      June 30,
                          2014          2013         2014          2013
    Cost of product       $ 2,149       $ 1,444      $ 4,244       $ 2,886
    revenue
    Cost of service and   284           157          569           311
    other revenue
    Research and          12,785        8,954        24,454        16,960
    development
    Selling, general      20,778       13,897      40,153       28,514    
    and administrative
       Stock-based
       compensation       $ 35,996     $ 24,452    $ 69,420     $ 48,671  
       expense before
       taxes
                                                                             

Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
                                                              
                         Three Months Ended          Six Months Ended
                         June 29,      June 30,      June 29,      June 30,
                         2014          2013          2014          2013
Net cash provided by
operating activities     $ 178,030     $ 88,606      $ 215,117     $ 176,446
(a)
Net cash provided by
(used in) investing      114,777       247,477       (29,610   )   182,456
activities
Net cash (used in)
provided by financing    (136,521  )   5,784         (222,445  )   (7,222    )
activities (a)
Effect of exchange
rate changes on cash     422          (1,338    )   522          (2,050    )
and cash equivalents
Net increase
(decrease) in cash and   156,708       340,529       (36,416   )   349,630
cash equivalents
Cash and cash
equivalents, beginning   518,513      443,082      711,637      433,981   
of period
Cash and cash
equivalents, end of      $ 675,221    $ 783,611    $ 675,221    $ 783,611 
period
                                                                             
Calculation of free
cash flow:
Net cash provided by
operating activities     $ 178,030     $ 88,606      $ 215,117     $ 176,446
(a)
Purchases of property    (23,324   )   (11,534   )   (42,336   )   (32,975   )
and equipment
Free cash flow (b)       $ 154,706    $ 77,072     $ 172,781    $ 143,471 

______________________________________________________________________________________________________

(a) Net cash provided by operating activities excludes excess tax benefit
related to stock-based compensation of $77.3 million in the first half of
2014, of which $26.8 million was recorded in Q2, and $14.8 million in the
first half of 2013, of which $9.5 million was recorded in Q2. Net cash used in
financing activities reflects the excess tax benefit as a corresponding
in-flow in the respective periods.

(b) 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        Six Months Ended
                           June 29,     June 30,     June 29,      June 30,
                           2014         2013         2014          2013
GAAP net income per        $ 0.31       $ 0.26       $ 0.71        $ 0.10
share - diluted
Pro forma impact of
weighted average shares    —            —            —             0.01
(a)
Adjustments to net
income:
Loss on extinguishment     0.21         —            0.21          —
of debt
Amortization of acquired   0.08         0.08         0.17          0.14
intangible assets
Non-cash interest          0.06         0.07         0.12          0.13
expense (b)
Legal contingencies (c)    0.03         0.12         0.07          0.90
Headquarter relocation     0.02         (0.01    )   0.02          (0.01     )
(d)
Contingent compensation    —            0.02         0.02          0.04
expense (e)
Acquisition related        —            (0.04    )   (0.01     )   (0.01     )
gain, net (f)
Unsolicited tender offer   —            0.03         —             0.09
related expense
Cost-method investment     —            —            —             (0.04     )
related gain
Inventory revaluation      —            —            —             —
adjustment (g)
Incremental non-GAAP tax   (0.14    )   (0.10    )   (0.21     )   (0.45     )
expense (h)
Non-GAAP net income per    $ 0.57      $ 0.43      $ 1.10       $ 0.90    
share - diluted (i)
Shares used in
calculating non-GAAP       149,121     138,313     149,546      136,581   
diluted net income per
share
                                                                             
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP
NET INCOME:
GAAP net income            $ 46,605     $ 35,877     $ 106,582     $ 13,290
Loss on extinguishment     31,360       511          31,360        511
of debt
Amortization of acquired   11,507       10,805       24,698        18,936
intangible assets
Non-cash interest          9,143        9,066        18,165        18,118
expense (b)
Legal contingencies (c)    4,817        16,559       10,663        123,481
Headquarter relocation     2,892        (1,507   )   3,487         (750      )
(d)
Contingent compensation    496          2,262        3,336         5,680
expense (e)
Acquisition related        (225     )   (5,725   )   (1,238    )   (1,904    )
gain, net (f)
Unsolicited tender offer   —            4,811        —             12,295
related expense
Cost-method investment     —            —            —             (6,113    )
related gain
Inventory revaluation      —            —            —             458
adjustment (g)
Incremental non-GAAP tax   (22,025  )   (12,965  )   (32,436   )   (61,689   )
expense (h)
Non-GAAP net income (i)    $ 84,570    $ 59,694    $ 164,617    $ 122,313 
                                                                             
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES:
Weighted average shares
used in calculation of     149,121      139,377      149,870       137,645
GAAP diluted net income
per share
Weighted average
dilutive potential
common shares issuable     —           (1,064   )   (324      )   (1,064    )
of redeemable
convertible senior notes
(a)
Weighted average shares
used in calculation of     149,121     138,313     149,546      136,581   
non-GAAP diluted net
income per share

______________________________________________________________________________________________________

(a) Pro forma impact of weighted average shares includes the impact of double
dilution associated with the accounting treatment of the Company’s outstanding
convertible debt and the corresponding call option overlay.

(b) Non-cash interest expense is calculated in accordance with the
authoritative accounting guidance for convertible debt instruments that may be
settled in cash.

(c) Legal contingencies primarily represented charges recorded based on a
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 facts. Accordingly, on
December 3, 2013, Illumina filed an appeal to the court challenging the
judgment.

(d) Headquarter relocation for the first half of 2014 consisted primarily of
changes in estimated lease exit liability recorded in Q2 and accretion of
interest expense on such lease exit liability recorded in the period.
Headquarter relocation for the first half of 2013 included a Q2 gain on lease
exit liability as a result of the Company entering into a sublease for a
portion of its prior headquarters at a more favorable rate than previously
estimated. Such gains were offset by accretion of interest expense on such
lease exit liability recorded in the period.

(e) Contingent compensation expense relates to contingent payments for
post-combination services associated with prior period acquisitions.

(f) Acquisition related gain, net in Q2 2014 and first half of 2014 consisted
primarily of $3.3 million in net gains from changes in fair value of
contingent consideration, of which $1.5 million was recorded in Q2, offset by
$2.1 million in transaction related costs for a prior period acquisition, of
which $1.3 million was recorded in Q2. Acquisition related gain, net in Q2
2013 and first half of 2013 consisted of net gains from changes in fair value
of contingent consideration, partially offset by transaction cost of $3.4
million recorded in Q1.

(g) The Company recorded $0.5 million in cost of goods sold in Q1 2013 for the
amortization of inventory revaluation costs in  conjunction with the
acquisition of Verinata Health, Inc.

(h) Incremental non-GAAP tax expense reflects the tax impact related to the
non-GAAP adjustments listed above.

(i) Non-GAAP net income and diluted net income per share exclude the effect of
the pro forma adjustments as detailed above. Non-GAAP net income and diluted
net income per share 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                              Six Months Ended
                 June 29,               June 30,                June 29,               June 30,
                 2014                    2013                    2014                    2013
GAAP gross       $ 300,540    67.1 %    $ 223,409    64.6 %    $ 578,832    66.7 %    $ 442,701    65.4 %
profit
Stock-based
compensation     2,433         0.6  %    1,601         0.5  %    4,813         0.5  %    3,197         0.5  %
expense
Amortization
of acquired      9,545         2.1  %    8,584         2.4  %    19,080        2.2  %    15,134        2.2  %
intangible
assets
Legal
contingencies    4,817         1.1  %    7,043         2.0  %    10,663        1.2  %    8,112         1.2  %
(a)
Inventory
revaluation      —            —        —            —        —            —        458          0.1  %
adjustment (b)
Non-GAAP gross   $ 317,335    70.9 %    $ 240,637    69.5 %    $ 613,388    70.6 %    $ 469,602    69.4 %
profit (c)
                                                                                                            
Research and
development      $ 82,985      18.5 %    $ 67,608      19.5 %    $ 160,026     18.4 %    $ 129,058     19.1 %
expense
Stock-based
compensation     (12,785   )   (2.8 )%   (8,954    )   (2.5 )%   (24,454   )   (2.8 )%   (16,960   )   (2.5 )%
expense
Contingent
compensation     (496      )   (0.1 )%   164          —        (580      )   (0.1 )%   (325      )   (0.1 )%
(expense) gain
(d)
Non-GAAP
research and     $ 69,704     15.6 %    $ 58,818     17.0 %    $ 134,992    15.5 %    $ 111,773    16.5 %
development
expense
                                                                                                            
Selling,
general and      $ 114,649     25.6 %    $ 88,700      25.6 %    $ 224,222     25.8 %    $ 173,774     25.7 %
administrative
expense
Stock-based
compensation     (20,778   )   (4.6 )%   (13,897   )   (4.0 )%   (40,153   )   (4.7 )%   (28,514   )   (4.2 )%
expense
Amortization
of acquired      (1,962    )   (0.5 )%   (2,221    )   (0.6 )%   (5,618    )   (0.6 )%   (3,802    )   (0.6 )%
intangible
assets
Contingent
compensation     —            —        (2,426    )   (0.7 )%   (2,756    )   (0.3 )%   (5,355    )   (0.8 )%
expense (d)
Non-GAAP
selling,
general and      $ 91,909     20.5 %    $ 70,156     20.3 %    $ 175,695    20.2 %    $ 136,103    20.1 %
administrative
expense
                                                                                                            
GAAP operating   $ 100,239     22.4 %    $ 60,006      17.3 %    $ 192,335     22.1 %    $ 14,859      2.2  %
profit
Stock-based
compensation     35,996        8.0  %    24,452        7.1  %    69,420        8.0  %    48,671        7.2  %
expense
Amortization
of acquired      11,507        2.6  %    10,805        3.1  %    24,698        2.8  %    18,936        2.8  %
intangible
assets
Legal
contingencies    4,817         1.1  %    16,559        4.8  %    10,663        1.2  %    123,481       18.2 %
(a)
Headquarter      2,892         0.7  %    (1,507    )   (0.4 )%   3,487         0.5  %    (750      )   (0.1 )%
relocation (e)
Contingent
compensation     496           0.1  %    2,262         0.7  %    3,336         0.4  %    5,680         0.8  %
expense (d)
Acquisition
related gain,    (225      )   (0.1 )%   (5,725    )   (1.7 )%   (1,238    )   (0.1 )%   (1,904    )   (0.3 )%
net (f)
Unsolicited
tender offer     —             —         4,811         1.4  %    —             —         12,295        1.8  %
related
expense
Inventory
revaluation      —            —        —            —        —            —        458          0.1  %
adjustment (b)
Non-GAAP
operating        $ 155,722    34.8 %    $ 111,663    32.3 %    $ 302,701    34.9 %    $ 221,726    32.7 %
profit (c)
                                                                                                            
GAAP other       $ (39,773 )   (8.9 )%   $ (10,646 )   (3.1 )%   $ (48,081 )   (5.5 )%   $ (13,061 )   (1.9 )%
expense, net
Loss on
extinguishment   31,360        7.0  %    511           0.2  %    31,360        3.6  %    511           0.1  %
of debt
Non-cash
interest         9,143         2.1  %    9,066         2.6  %    18,165        2.1  %    18,118        2.7  %
expense (g)
Cost-method
investment       —            —        —            —        —            —        (6,113    )   (1.0 )%
related gain
Non-GAAP other
income           $ 730        0.2  %    $ (1,069  )   (0.3 )%   $ 1,444      0.2  %    $ (545    )   (0.1 )%
(expense), net
(c)

______________________________________________________________________________________________________

(a) Legal contingencies primarily represented charges recorded based on a
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 facts. Accordingly, on
December 3, 2013, Illumina filed an appeal to the court challenging the
judgment.

(b) The Company recorded $0.5 million in cost of goods sold in Q1 2013 for the
amortization of inventory revaluation costs in  conjunction with the
acquisition of Verinata Health, Inc.

(c) Non-GAAP gross profit, included within 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. Non-GAAP  operating profit, and non-GAAP other income (expense),
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 past and future core operating
performance.

(d) Contingent compensation expense relates to contingent payments for
post-combination services associated with prior period acquisitions.

(e) Headquarter relocation for the first half of 2014 consisted primarily of
changes in estimated lease exit liability recorded in Q2 and accretion of
interest expense on such lease exit liability recorded in the period.
Headquarter relocation for the first half of 2013 included a Q2 gain on lease
exit liability as a result of the Company entering into a sublease for a
portion of its prior headquarters at a more favorable rate than previously
estimated. Such gains were offset by accretion of interest expense on such
lease exit liability recorded in the period.

(f) Acquisition related gain, net in Q2 2014 and first half of 2014 consisted
primarily of $3.3 million in net gains from changes in fair value of
contingent consideration, of which $1.5 million was recorded in Q2, offset by
$2.1 million in transaction related costs for a prior period acquisition, of
which $1.3 million was recorded in Q2. Acquisition related gain, net in Q2
2013 and first half of 2013 consisted of net gains from changes in fair value
of contingent consideration, partially offset by transaction cost of $3.4
million recorded in Q1.

(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 29, 2013,
and the Company’s Form 10-Q for the fiscal quarter ended March 30, 2014. The
Company assumes no obligation to update any forward-looking statements or
information.

                                           
                                           Fiscal Year 2014
Diluted net income per share
Non-GAAP diluted net income per share      $2.26 - $2.28
Amortization of acquired intangible assets (0.20)
Non-cash interest expense (a)              (0.16)
Loss on extinguishment of debt             (0.16)
Legal contingencies (b)                    (0.08)
Cost method investment gain (c)            0.03
Contingent compensation expense (d)        (0.02)
Headquarter relocation (e)                 (0.02)
GAAP diluted net income per share          $1.65 - $1.67

______________________________________________________________________________________________________

(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) Legal contingencies represent charges to be recorded based on a 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 facts. Accordingly, on December 3, 2013,
Illumina filed an appeal to the court challenging the judgment.

(c) Cost method investment gain represents additional sales proceeds received
from escrow funds related to a prior year sale of investment.

(d) Contingent compensation expense relates to contingent payments for
post-combination services associated with prior period acquisitions.

(e) Headquarter relocation represents changes in estimated lease exit
liability recorded in Q2 and accretion of interest expense on lease exit
liability.

Contact:

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