EX-99.1 2 a2q13earningspressrelease.htm EXHIBIT 2Q13 Earnings Press Release



Illumina Reports Financial Results for Second Quarter of Fiscal Year 2013

Raises Fiscal Year 2013 Guidance

San Diego -- (BUSINESS WIRE) - July 23, 2013 - Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for the second quarter of 2013.

Second quarter 2013 results:
•
Revenue of $346 million, a 23% increase compared to $281 million in the second quarter of 2012
•
GAAP net income for the quarter of $36 million, or $0.26 per diluted share, compared to $23 million, or $0.18 per diluted share, for the second quarter of 2012
•
Non-GAAP net income for the quarter of $60 million, or $0.43 per diluted share, compared to $53 million, or $0.40 per diluted share, for the second 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 $89 million and free cash flow of $77 million for the quarter

Gross margin in the second quarter of 2013 was 64.6% compared to 68.8% 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 69.5% for the second quarter of 2013 compared to 70.9% in the prior year period.

Research and development (R&D) expenses for the second quarter of 2013 were $67.6 million compared to $71.2 million in the second quarter of 2012. R&D expenses included $9.0 million and $7.7 million of non-cash stock compensation expense in the second quarters of 2013 and 2012, respectively. Excluding these charges, contingent compensation, and impairment of in-process R&D, R&D expenses as a percentage of revenue were 17.0% compared to 14.7% in the prior year period.

Selling, general and administrative (SG&A) expenses for the second quarter of 2013 were $88.7 million compared to $68.5 million for the second quarter of 2012. SG&A expenses included $13.9 million and $14.3 million of non-cash stock compensation expense in the second quarters of 2013 and 2012, respectively. Excluding these charges, contingent compensation, and amortization of acquired intangible assets, SG&A expenses as a percentage of revenue were 20.3% compared to 19.4% in the prior year period.

Depreciation and amortization expenses were $23.3 million and capital expenditures were $11.5 million during the second quarter of 2013. The Company ended the second quarter of 2013 with $1.13 billion in cash, cash equivalents and short-term investments, compared to $1.35 billion as of December 30, 2012.

“We are very pleased with our operational execution for the first half of 2013 and the resulting record financial performance,” said Illumina’s President and Chief Executive Officer Jay Flatley. “Our business demonstrated strong trends globally and our 2013 strategic initiatives for robust long-term growth are progressing as planned. As a result we are raising our expectations for 2013 financial performance.”

Updates since our last earnings release:

•
Launched the full commercial availability of BaseSpace® Apps, which includes an e-commerce system that allows customers to quickly and easily purchase Illumina and third-party bioinformatics applications
•
Applied the CE mark to the MiSeqDx™ Cystic Fibrosis System
•
Published clinical laboratory performance data for the verifi® prenatal test
•
Announced an agreement with Teva Pharmaceutical Industries and the MOR Institute for Medical Data to commercialize the verifi® prenatal test in Israel
•
Launched Phasing Analysis Service for Human Whole-Genome Sequencing empowering gene mapping studies which provide a more comprehensive view of genomic variation
•
Announced that HistoGenetics, a leader in high-resolution sequencing-based human leukocyte antigen (HLA) testing services, selected the MiSeq system for use in its CLIA laboratory
•
Acquired Advanced Liquid Logic, a leading provider of liquid handling solutions
•
Announced collaborations with leading providers of liquid handling robotic platforms to develop automation methods for TruSeq® and Nextera® Sample Preparation kits
•
Repurchased $25 million of common stock under our previously announced share repurchase program
•
Retired 3 million warrants for $125 million on July 18, 2013

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 projecting approximately 20% revenue growth and non-GAAP earnings per fully diluted share of $1.68 to $1.72, 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 138 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 Tuesday, July 23, 2013. Interested parties may listen to the call by dialing 888.680.0879 (passcode: 22024538), or if outside North America by dialing 1.617.213.4856 (passcode: 22024538). 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 July 23, 2013 through July 30, 2013 by dialing 888.286.8010 (passcode: 66585327), or if outside North America by dialing 1.617.213.4856 (passcode: 66585327).

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





Illumina, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
 
 
 
 
 
June 30,
2013
 
December 30,
2012
ASSETS
(unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
783,611

 
$
433,981

Short-term investments
345,852

 
916,223

Accounts receivable, net
207,413

 
214,975

Inventory
168,070

 
158,718

Deferred tax assets, current portion
84,887

 
30,451

Prepaid expenses and other current assets
56,558

 
32,700

Total current assets
1,646,391

 
1,787,048

Property and equipment, net
187,362

 
166,167

Goodwill
596,588

 
369,327

Intangible assets, net
304,469

 
130,196

Deferred tax assets, long-term portion
9,715

 
40,183

Other assets
78,677

 
73,164

Total assets
$
2,823,202

 
$
2,566,085

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
67,648

 
$
65,727

Accrued liabilities
198,788

 
201,877

Accrued legal contingencies
122,713

 
—

Long-term debt, current portion
29,731

 
36,967

Total current liabilities
418,880

 
304,571

Long-term debt
822,169

 
805,406

Other long-term liabilities
192,167

 
134,369

Conversion option subject to cash settlement
1,394

 
3,158

Stockholders’ equity
1,388,592

 
1,318,581

Total liabilities and stockholders’ equity
$
2,823,202

 
$
2,566,085







Illumina, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
 
 
June 30,
2013
 
July 1,
2012
 
June 30,
2013
 
July 1,
2012
 
Revenue:
 
 
 
 
 
 
 
 
 
Product revenue
$
313,497

 
$
258,839

 
$
609,667

 
$
514,475

 
 
Service and other revenue
32,597

 
21,768

 
67,385

 
38,902

 
 
 
Total revenue
346,094

 
280,607

 
677,052

 
553,377

 
Cost of Revenue:
 
 
 
 
 
 
 
 
 
Cost of product revenue (a)
98,150

 
74,911

 
188,128

 
155,062

 
 
Cost of service and other revenue (a)
15,951

 
9,656

 
31,089

 
18,221

 
 
Amortization of acquired intangible assets
8,584

 
3,043

 
15,134

 
6,086

 
 
 
Total cost of revenue
122,685

 
87,610

 
234,351

 
179,369

 
 
 
 
Gross profit
223,409

 
192,997

 
442,701

 
374,008

 
Operating Expenses:
 
 
 
 
 
 
 
 
 
Research and development (a)
67,608

 
71,223

 
129,058

 
120,062

 
 
Selling, general and administrative (a)
88,700

 
68,516

 
173,774

 
136,485

 
 
Legal contingencies
9,516

 
—

 
115,369

 
—

 
 
Acquisition related (gain) expense, net
(5,725
)
 
1,080

 
(1,904
)
 
2,817

 
 
Unsolicited tender offer related expense
4,811

 
6,694

 
12,295

 
14,786

 
 
Headquarter relocation
(1,507
)
 
1,830

 
(750
)
 
3,970

 
 
Restructuring
—

 
674

 
—

 
3,296

 
 
 
Total operating expenses
163,403

 
150,017

 
427,842

 
281,416

 
 
 
 
Income from operations
60,006

 
42,980

 
14,859

 
92,592

 
 
Other expense, net
(10,646
)
 
(8,193
)
 
(13,061
)
 
(17,532
)
 
 
 
 
Income before income taxes
49,360

 
34,787

 
1,798

 
75,060

 
Provision for (benefit from) income taxes
13,483

 
11,386

 
(11,492
)
 
25,457

 
 
 
 
Net income
$
35,877

 
$
23,401

 
$
13,290

 
$
49,603

 
Net income per basic share
$
0.29

 
$
0.19

 
$
0.11

 
$
0.40

 
Net income per diluted share
$
0.26

 
$
0.18

 
$
0.10

 
$
0.37

 
Shares used in calculating basic net income per share
124,362

 
123,214

 
124,065

 
122,928

 
Shares used in calculating diluted net income per share
139,377

 
133,011

 
137,645

 
133,435

 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Includes total stock-based compensation expense for stock-based awards:
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
 
 
June 30,
2013
 
July 1,
2012
 
June 30,
2013
 
July 1,
2012
 
 
Cost of product revenue
$
1,444

 
$
1,844

 
$
2,886

 
$
3,656

 
 
Cost of service and other revenue
157

 
168

 
311

 
185

 
 
Research and development
8,954

 
7,687

 
16,960

 
15,114

 
 
Selling, general and administrative
13,897

 
14,348

 
28,514

 
28,121

 
 
 
Stock-based compensation expense before taxes
$
24,452

 
$
24,047

 
$
48,671

 
$
47,076

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
2013
 
July 1,
2012
 
June 30,
2013
 
July 1,
2012
Net cash provided by operating activities
$
88,606

 
$
96,329

 
$
176,446

 
$
161,769

Net cash provided by (used in) investing activities
247,477

 
(9,648
)
 
182,456

 
(151,518
)
Net cash provided by (used in) financing activities
5,784

 
(30,264
)
 
(7,222
)
 
3,352

Effect of exchange rate changes on cash and cash equivalents
(1,338
)
 
(199
)
 
(2,050
)
 
(169
)
Net increase in cash and cash equivalents
340,529

 
56,218

 
349,630

 
13,434

Cash and cash equivalents, beginning of period
443,082

 
260,194

 
433,981

 
302,978

Cash and cash equivalents, end of period
$
783,611

 
$
316,412

 
$
783,611

 
$
316,412

 
 
 
 
 
 
 
 
Calculation of free cash flow (a):
 
 
 
 
 
 
 
Net cash provided by operating activities
$
88,606

 
$
96,329

 
$
176,446

 
$
161,769

Purchases of property and equipment
(11,534
)
 
(20,946
)
 
(32,975
)
 
(34,030
)
Free cash flow
$
77,072

 
$
75,383

 
$
143,471

 
$
127,739

 
 
 
 
 
 
 
 
________________________________________________________________________________________________________________

(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
 
Six Months Ended
 
June 30,
2013
 
July 1,
2012
 
June 30,
2013
 
July 1,
2012
GAAP net income per share - diluted
$
0.26

 
$
0.18

 
$
0.10

 
$
0.37

Pro forma impact of weighted average shares (a)
—

 
—

 
0.01

 
0.03

Adjustments to net income:
 
 
 
 
 
 
 
Legal contingencies (b)
0.12

 
0.01

 
0.90

 
0.02

Amortization of acquired intangible assets
0.08

 
0.02

 
0.14

 
0.05

Non-cash interest expense (c)
0.07

 
0.07

 
0.13

 
0.13

Acquisition related (gain) expense, net (d)
(0.04
)
 
0.01

 
(0.01
)
 
0.02

Unsolicited tender offer related expense
0.03

 
0.05

 
0.09

 
0.11

Contingent compensation expense (e)
0.02

 
—

 
0.04

 
0.02

Headquarter relocation (f)
(0.01
)
 
0.01

 
(0.01
)
 
0.03

Loss on extinguishment of debt
—

 
—

 
—

 
—

Cost-method investment related gain
—

 
—

 
(0.04
)
 
—

Amortization of inventory revaluation costs (g)
—

 
—

 
—

 
—

Impairment of in-process research and development
—

 
0.16

 
—

 
0.16

Restructuring
—

 
0.01

 
—

 
0.02

Incremental non-GAAP tax expense (h)
(0.10
)
 
(0.12
)
 
(0.45
)
 
(0.20
)
Non-GAAP net income per share - diluted (i)
$
0.43

 
$
0.40

 
$
0.90

 
$
0.76

Shares used in calculating non-GAAP diluted net income per share
138,313

 
132,086

 
136,581

 
132,477

 
 
 
 
 
 
 
 
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:
GAAP net income
$
35,877

 
$
23,401

 
$
13,290

 
$
49,603

Legal contingencies (b)
16,559

 
797

 
123,481

 
3,020

Amortization of acquired intangible assets
10,805

 
3,195

 
18,936

 
6,390

Non-cash interest expense (c)
9,066

 
8,743

 
18,118

 
17,385

Acquisition related (gain) expense, net (d)
(5,725
)
 
1,080

 
(1,904
)
 
2,817

Unsolicited tender offer related expense
4,811

 
6,694

 
12,295

 
14,786

Contingent compensation expense (e)
2,262

 
216

 
5,680

 
3,308

Headquarter relocation (f)
(1,507
)
 
1,830

 
(750
)
 
3,970

Loss on extinguishment of debt
511

 
—

 
511

 
—

Cost-method investment related gain
—

 
—

 
(6,113
)
 
—

Amortization of inventory revaluation costs (g)
—

 
—

 
458

 
—

Impairment of in-process research and development
—

 
21,438

 
—

 
21,438

Restructuring
—

 
674

 
—

 
3,296

Incremental non-GAAP tax expense (h)
(12,965
)
 
(15,495
)
 
(61,689
)
 
(25,888
)
Non-GAAP net income (i)
$
59,694

 
$
52,573

 
$
122,313

 
$
100,125

 
 
 
 
 
 
 
 
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES:
Weighted average shares used in calculation of GAAP diluted net income per share
139,377

 
133,011

 
137,645

 
133,435

Weighted average dilutive potential common shares issuable of redeemable convertible senior notes (a)
(1,064
)
 
(925
)
 
(1,064
)
 
(958
)
Weighted average shares used in calculation of non-GAAP diluted net income per share
138,313

 
132,086

 
136,581

 
132,477

______________________________________________________________________________________________________

(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) 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 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.

(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) Acquisition related (gain) expense, net in Q2 2013 and first half of 2013 includes net changes in fair value of contingent consideration and transaction costs of $3.4 million recorded in Q1 2013. Acquisition related (gain) expense, net in Q2 2012 and first half of 2012 consisted of changes in fair value of contingent consideration.

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

(f) Headquarter relocation for the first half of 2013 consisted of a Q2 gain on lease exit liability 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 on such lease exit liability recorded in the period. Headquarter relocation expense in Q2 2012 and first half of 2012 consisted primarily of the accretion of interest expense on lease exit liability, double rent expense during the transition to the new headquarters, and moving costs.

(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 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 the Company’s 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 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 30,
2013
 
July 1,
2012
 
June 30,
2013
 
July 1,
2012
GAAP gross profit
$
223,409

 
64.6
 %
 
$
192,997

 
68.8
 %
 
$
442,701

 
65.4
 %
 
$
374,008

 
67.6
 %
Stock-based compensation expense
1,601

 
0.5
 %
 
2,012

 
0.7
 %
 
3,197

 
0.5
 %
 
3,841

 
0.7
 %
Amortization of acquired intangible assets
8,584

 
2.4
 %
 
3,043

 
1.1
 %
 
15,134

 
2.2
 %
 
6,086

 
1.1
 %
Legal contingencies (a)
7,043

 
2.0
 %
 
797

 
0.3
 %
 
8,112

 
1.2
 %
 
3,020

 
0.5
 %
Amortization of inventory revaluation costs (b)
—

 
—

 
—

 
—

 
458

 
0.1
 %
 
—

 
—

Non-GAAP gross profit
$
240,637

 
69.5
 %
 
$
198,849

 
70.9
 %
 
$
469,602

 
69.4
 %
 
$
386,955

 
69.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development expense
$
67,608

 
19.5
 %
 
$
71,223

 
25.4
 %
 
$
129,058

 
19.1
 %
 
$
120,062

 
21.7
 %
Stock-based compensation expense
(8,954
)
 
(2.5
)%
 
(7,687
)
 
(2.7
)%
 
(16,960
)
 
(2.5
)%
 
(15,114
)
 
(2.7
)%
Contingent compensation gain (expense) (c)
164

 
—

 
(732
)
 
(0.4
)%
 
(325
)
 
(0.1
)%
 
(1,464
)
 
(0.3
)%
Impairment of in-process research and development
—

 
—

 
(21,438
)
 
(7.6
)%
 
—

 
—

 
(21,438
)
 
(3.9
)%
Non-GAAP research and development expense
$
58,818

 
17.0
 %
 
$
41,366

 
14.7
 %
 
$
111,773

 
16.5
 %
 
$
82,046

 
14.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expense
$
88,700

 
25.6
 %
 
$
68,516

 
24.4
 %
 
$
173,774

 
25.7
 %
 
$
136,485

 
24.7
 %
Stock-based compensation expense
(13,897
)
 
(4.0
)%
 
(14,348
)
 
(5.1
)%
 
(28,514
)
 
(4.2
)%
 
(28,121
)
 
(5.1
)%
Contingent compensation (expense) gain (c)
(2,426
)
 
(0.7
)%
 
516

 
0.2
 %
 
(5,355
)
 
(0.8
)%
 
(1,844
)
 
(0.3
)%
Amortization of acquired intangible assets
(2,221
)
 
(0.6
)%
 
(152
)
 
(0.1
)%
 
(3,802
)
 
(0.6
)%
 
(304
)
 
(0.1
)%
Non-GAAP selling, general and administrative expense
$
70,156

 
20.3
 %
 
$
54,532

 
19.4
 %
 
$
136,103

 
20.1
 %
 
$
106,216

 
19.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP operating profit
$
60,006

 
17.3
 %
 
$
42,980

 
15.3
 %
 
$
14,859

 
2.2
 %
 
$
92,592

 
16.7
 %
Stock-based compensation expense
24,452

 
7.1
 %
 
24,047

 
8.6
 %
 
48,671

 
7.2
 %
 
47,076

 
8.5
 %
Legal contingencies (a)
16,559

 
4.8
 %
 
797

 
0.3
 %
 
123,481

 
18.2
 %
 
3,020

 
0.5
 %
Amortization of acquired intangible assets
10,805

 
3.1
 %
 
3,195

 
1.1
 %
 
18,936

 
2.8
 %
 
6,390

 
1.2
 %
Unsolicited tender offer related expense
4,811

 
1.4
 %
 
6,694

 
2.4
 %
 
12,295

 
1.8
 %
 
14,786

 
2.7
 %
Acquisition related (gain) expense, net (d)
(5,725
)
 
(1.7
)%
 
1,080

 
0.4
 %
 
(1,904
)
 
(0.3
)%
 
2,817

 
0.5
 %
Contingent compensation expense (c)
2,262

 
0.7
 %
 
216

 
0.1
 %
 
5,680

 
0.8
 %
 
3,308

 
0.6
 %
Headquarter relocation (e)
(1,507
)
 
(0.4
)%
 
1,830

 
0.7
 %
 
(750
)
 
(0.1
)%
 
3,970

 
0.7
 %
Amortization of inventory revaluation costs (b)
—

 
—

 
—

 
—

 
458

 
0.1
 %
 
—

 
—

Impairment of in-process research and development
—

 
—

 
21,438

 
7.6
 %
 
—

 
—

 
21,438

 
3.9
 %
Restructuring
—

 
—

 
674

 
0.2
 %
 
—

 
—

 
3,296

 
0.6
 %
Non-GAAP operating profit (f)
$
111,663

 
32.3
 %
 
$
102,951

 
36.7
 %
 
$
221,726

 
32.7
 %
 
$
198,693

 
35.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP other expense, net
$
(10,646
)
 
(3.1
)%
 
$
(8,193
)
 
(2.9
)%
 
$
(13,061
)
 
(1.9
)%
 
$
(17,532
)
 
(3.2
)%
Non-cash interest expense (g)
9,066

 
2.6
 %
 
8,743

 
3.1
 %
 
18,118

 
2.7
 %
 
17,385

 
3.2
 %
Loss on extinguishment of debt
511

 
0.2
 %
 
—

 
—

 
511

 
0.1
 %
 
—

 
—

Cost-method investment related gain
—

 
—

 
—

 
—

 
(6,113
)
 
(1.0
)%
 
—

 
—

Non-GAAP other (expense) income, net (f)
$
(1,069
)
 
(0.3
)%
 
$
550

 
0.2
 %
 
$
(545
)
 
(0.1
)%
 
$
(147
)
 
—

_______________________________________________________________________________________________________

(a) 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 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.

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

(d) Acquisition related (gain) expense, net in Q2 2013 and first half of 2013 includes changes in fair value of contingent consideration and transaction costs of $3.4 million recorded in Q1 2013. Acquisition related (gain) expense, net in Q2 2012 and first half of 2012 consisted of changes in fair value of contingent consideration.

(e) Headquarter relocation for the first half of 2013 consisted of a Q2 gain on lease exit liability 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 on such lease exit liability recorded in the period. Headquarter relocation expense in Q2 2012 and first half of 2012 consisted primarily of the accretion of interest expense on lease exit liability, double rent expense during the transition to the new headquarters, and moving costs.

(f) Non-GAAP operating profit, and non-GAAP other (expense) 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 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.

(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, and the Company’s Form 10-Q for the fiscal quarter ended March 30, 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%
Stock-based compensation expense
(0.5)%
Legal contingencies (a)
(1.4)%
Amortization of acquired intangible assets
(2.3)%
GAAP gross margin
65.3%
 
 
Diluted net income per share
 
Non-GAAP diluted net income per share
$1.68 - $1.72
Legal contingencies (a)
(0.61)
Amortization of acquired intangible assets
(0.19)
Non-cash interest expense (b)
(0.16)
Unsolicited tender offer related expense
(0.08)
Contingent compensation expense (c)
(0.06)
Cost-method investment related gain
0.04
Acquisition related expense, net (d)
(0.02)
GAAP diluted net income per share
$0.60 - $0.64
______________________________________________________________________________________________________

(a) 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 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.

(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) Contingent compensation expense represents contingent consideration for post-combination services associated with acquisitions.

(d) Acquisition related expense, net includes net changes in fair value of contingent consideration and transaction costs.