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Press release from Business Wire

Illumina Reports Financial Results for First Quarter of Fiscal Year 2012

<p class='bwalignc'> <i>Announces $250 Million Share Repurchase Program</i> </p>

Monday, April 23, 2012

Illumina Reports Financial Results for First Quarter of Fiscal Year 201216:05 EDT Monday, April 23, 2012 SAN DIEGO (Business Wire) -- Illumina, Inc. (NASDAQ:ILMN) today announced its financial results for the first quarter of 2012. First quarter 2012 results: Revenue of $273 million, a 3% decrease compared to $283 million in the first quarter of 2011. GAAP net income for the quarter of $26 million, or $0.20 per diluted share, compared to net income of $24 million, or $0.16 per diluted share, for the first quarter of 2011. Non-GAAP net income for the quarter of $48 million, or $0.36 per diluted share, compared to $50 million, or $0.35 per diluted share, for the first quarter of 2011 (see the table entitled "Itemized Reconciliation Between GAAP and Non-GAAP Net Income" for a reconciliation of these GAAP and non-GAAP financial measures). Gross margin in the first quarter of 2012 was 66.4% compared to 66.6% in the prior year period. Excluding the effect of non-cash charges associated with stock compensation, amortization of acquired intangibles, and legal contingencies, non-GAAP gross margin was 69.0% for the first quarter of 2012 compared to 68.2% in the prior year period. Research and development (R&D) expenses for the first quarter of 2012 were $48.8 million compared to $50.2 million in the first quarter of 2011. R&D expenses included $7.4 million and $7.7 million of non-cash stock compensation expense in the first quarters of 2012 and 2011, respectively. Excluding these charges and contingent compensation expense, R&D expenses as a percentage of revenue were 14.9% compared to 14.5% in the prior year period. Selling, general and administrative (SG&A) expenses for the first quarter of 2012 were $68.0 million compared to $65.7 million for the first quarter of 2011. SG&A expenses included $13.8 million and $12.6 million of non-cash stock compensation expense in the first quarters of 2012 and 2011, respectively. Excluding these charges, contingent compensation expense, and acquired intangible asset amortization, SG&A expenses as a percentage of revenue were 18.9% compared to 18.5% in the prior year period. The company generated $65 million in cash flow from operations during the first quarter of 2012 compared to $89 million in the prior year period. Depreciation and amortization expenses were $15.2 million and capital expenditures were $13.1 million during the first quarter of 2012. The company ended the first quarter of 2012 with $1.3 billion in cash, cash equivalents and short-term investments compared to $1.2 billion as of January 1, 2012. Share Repurchase Program Illumina also announced today that on April 18, 2012, its Board of Directors authorized the Company to repurchase up to $250 million of its outstanding common shares. "We believe that the repurchase of our common stock represents an effective use of our capital and underscores our commitment to maximize value for our shareholders," said Illumina's Marc Stapley, Senior Vice President and Chief Financial Officer. "Since 2008, we have bought over 19 million shares of our common stock through prior authorizations, returning over $860 million to shareholders, including shares repurchased in conjunction with our 2016 convertible debt offering. Through the Board's new authorization, we expect to continue our share repurchase programs." Highlights since our last earnings release Announced that the company's stockholders supported all of the company's proposals at its Annual Meeting of Stockholders. Announced the TruSeq® Amplicon - Cancer Panel for MiSeq® system, a research use only, highly multiplexed panel with the ability to sequence hundreds of the most relevant cancer loci. Launched the Cancer Analysis Service from the Illumina Genome Network (IGN) which delivers the most accurate data for comprehensive cancer studies at the lowest sample input volume of any commercial whole human genome sequencing service (5µg). Announced that the Broad Institute joined the Illumina Genome Network to offer its proprietary sample preparation processes for whole human genome sequencing, enabling low input DNA (<500ng ) and FFPE samples. Announced a favorable Patent Claim Construction ruling in litigation against Complete Genomics, Inc. Announced that Macrogen, Inc., a global sequencing services company based in Korea, purchased an additional 10 HiSeq 2000 systems and two MiSeq systems, as well as HiSeq 2500 upgrades. Financial outlook and guidance "We are pleased with our financial performance for the first quarter of 2012," said Illumina's President and Chief Executive Officer Jay Flatley. "While some uncertainty exists with respect to academic and research funding in the second half of the year, we have built backlog for the 3rd consecutive quarter and our full-year outlook is generally as we anticipated. Accordingly, we are re-affirming our 2012 guidance." Quarterly conference call information The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Monday, April 23, 2012. Interested parties may listen to the call by dialing 888-679-8038 (passcode: 40633465), or if outside North America by dialing +1-617-213-4850 (passcode: 40633465). 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 April 23, 2012 through April 20, 2012 by dialing 888-286-8010 (passcode: 55576523), or if outside North America by dialing +1-617-801-6888 (passcode: 55576523). Statement regarding use of non-GAAP financial measures The company reports non-GAAP results for diluted net income per share, net income, gross margins, operating expenses, operating margins, other income, and free cash flow in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The company's financial measures under GAAP include substantial charges related to stock compensation expense, non-cash interest expense associated with the company's convertible debt instruments that may be settled in cash, costs incurred for unsolicited tender offer, amortization expense related to acquired intangible assets, contingent compensation expense, restructuring charges, legal contingencies, headquarter relocation expense, loss on the extinguishment of convertible debt, and acquisition related expense. 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 (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 application, paving the way for molecular medicine and ultimately transforming healthcare.   Illumina, Inc.Condensed Consolidated Balance Sheets(In thousands)       April 1,2012January 1,2012ASSETS(unaudited) Current assets: Cash and cash equivalents $ 260,194 $ 302,978 Short-term investments 1,006,169 886,590 Accounts receivable, net 202,234 173,886 Inventory, net 128,684 128,781 Deferred tax assets, current portion 22,692 23,188 Prepaid expenses and other current assets 17,318   29,196 Total current assets 1,637,291 1,544,619 Property and equipment, net 143,494 143,483 Goodwill 321,853 321,853 Intangible assets, net 103,007 106,475 Deferred tax assets, long-term portion 26,479 19,675 Other assets 69,350   59,735 Total assets $ 2,301,474   $ 2,195,840   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 59,861 $ 49,806 Accrued liabilities 198,040 187,774 Long-term debt, current portion 35,025   — Total current liabilities 292,926 237,580 Long-term debt 780,943 807,369 Other long-term liabilities 62,333 69,954 Conversion option subject to cash settlement 5,100 5,722 Stockholders' equity 1,160,172   1,075,215 Total liabilities and stockholders' equity $ 2,301,474   $ 2,195,840   Illumina, Inc.Condensed Consolidated Statements of Income(In thousands, except per share amounts)(unaudited)           Three Months EndedApril 1,2012April 3,2011 Revenue: Product revenue $ 255,636 $ 266,717 Service and other revenue 17,134   15,798   Total revenue 272,770   282,515   Cost of Revenue: Cost of product revenue (a) 80,151 85,437 Cost of service and other revenue (a) 8,565 6,052 Amortization of acquired intangible assets 3,043   2,985   Total cost of revenue 91,759   94,474   Gross profit 181,011   188,041   Operating Expenses: Research and development (a) 48,839 50,200 Selling, general and administrative (a) 67,969 65,661 Unsolicited tender offer related expense 8,092 — Restructuring charges 2,622 — Headquarter relocation expense 2,140 2,522 Acquisition related expense 1,737   270   Total operating expenses 131,399   118,653   Income from operations 49,612 69,388 Other expense, net (9,339 ) (33,380 ) Income before income taxes 40,273 36,008 Provision for income taxes 14,071   11,871   Net income $ 26,202   $ 24,137   Net income per basic share $ 0.21   $ 0.19   Net income per diluted share $ 0.20   $ 0.16   Shares used in calculating basic net income per share 122,642   126,517   Shares used in calculating diluted net income per share 133,859   153,129                   (a) Includes total stock-based compensation expense for stock based awards: Three Months EndedApril 1,2012April 3,2011 Cost of product revenue $ 1,812 $ 1,512 Cost of service and other revenue 17 210 Research and development 7,427 7,728 Selling, general and administrative 13,773   12,589   Stock-based compensation expense before taxes $ 23,029   $ 22,039     Illumina, Inc.Condensed Consolidated Statements of Cash Flows(In thousands)(unaudited)     Three Months EndedApril 1, 2012April 3, 2011 Net cash provided by operating activities $ 65,440 $ 88,578 Net cash used in investing activities (141,870 ) (152,876 ) Net cash provided by financing activities 33,616 225,481 Effect of exchange rate changes on cash and cash equivalents 30   211   Net (decrease) increase in cash and cash equivalents (42,784 ) 161,394 Cash and cash equivalents, beginning of period 302,978   248,947   Cash and cash equivalents, end of period $ 260,194   $ 410,341     Calculation of free cash flow (a): Net cash provided by operating activities $ 65,440 $ 88,578 Purchases of property and equipment (13,084 ) (12,300 ) Free cash flow $ 52,356   $ 76,278                     (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 EndedApril 1,2012April 3,2011GAAP net income per share - diluted$0.20$0.16 Pro forma impact of weighted average shares (a) — 0.01 Adjustments to net income: Non-cash interest expense (b) 0.07 0.05 Unsolicited tender offer related expense 0.06 — Amortization of acquired intangible assets 0.02 0.02 Contingent compensation expense (c) 0.02 0.01 Restructuring charges 0.02 — Legal contingencies 0.02 — Headquarter relocation expense (d) 0.02 0.02 Acquisition related expense (e) 0.01 — Loss on extinguishment of debt — 0.19 Incremental non-GAAP tax expense (f) (0.08 ) (0.11 ) Non-GAAP net income per share - diluted (g) $ 0.36   $ 0.35   Shares used in calculating non-GAAP diluted net income per share 132,868   142,176     ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:GAAP net income$26,202$24,137 Non-cash interest expense (b) 8,642 6,501 Unsolicited tender offer related expense 8,092 — Amortization of acquired intangible assets 3,195 2,985 Contingent compensation expense (c) 3,092 2,124 Restructuring charges 2,622 — Legal contingencies 2,223 — Headquarter relocation expense (d) 2,140 2,522 Acquisition related expense (e) 1,737 270 Loss on extinguishment of debt — 27,177 Incremental non-GAAP tax expense (f) (10,393 ) (15,449 ) Non-GAAP net income (g) $ 47,552   $ 50,267     ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES: Weighted average shares used in calculation of GAAP diluted net income per share 133,859 153,129 Weighted average dilutive potential common shares issuable of redeemable convertible senior notes (a) (991 ) (10,953 ) Weighted average shares used in calculation of Non-GAAP diluted net income per share 132,868   142,176                 (a) Pro forma impact of weighted average shares represents the impact of double dilution associated with the accounting treatment of the company's outstanding convertible debt and the corresponding call option overlay. (b) 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) Headquarter relocation expense in Q1 2012 consists primarily of accretion interest expense on lease exit liability recorded upon vacating certain buildings of our prior headquarters, double rent expense during the transition to our new headquarter facility, and moving costs. Headquarter relocation expense recorded in Q1 2011 consisted of accelerated depreciation. (e) Acquisition related expense represents changes in fair value of contingent consideration. (f) Incremental non-GAAP tax expense reflects the increase to GAAP tax expense related to the non-GAAP adjustments listed above. (g) Non-GAAP net income per share and net income exclude the effect of the pro forma adjustments as detailed above. Non-GAAP diluted net income per share and net income are key drivers of our core operating performance and major factors in management's bonus compensation each year. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing our past and future core operating performance.   Illumina, Inc.Results of Operations - Non-GAAP (continued)(Dollars in thousands)(unaudited)ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF OPERATIONS AS A PERCENT OF REVENUE:     Three Months EndedApril 1, 2012   April 3, 2011GAAP gross profit$181,011   66.4%$188,041   66.6% Stock-based compensation expense 1,829 0.7 % 1,722 0.6 % Amortization of acquired intangible assets 3,043 1.1 % 2,985 1.1 % Legal contingencies 2,223   0.8 % —   — % Non-GAAP gross profit $ 188,106   69.0 % $ 192,748   68.2 %   Research and development expense$48,83917.9%$50,20017.8% Stock-based compensation expense (7,427 ) (2.7 )% (7,728 ) (2.7 )% Contingent compensation expense (a) (732 ) (0.3 )% (1,436 ) (0.5 )% Non-GAAP research and development expense $ 40,680   14.9 % $ 41,036   14.5 %   Selling, general and administrative expense$67,96924.9%$65,66123.2% Stock-based compensation expense (13,773 ) (5.0 )% (12,589 ) (4.5 )% Contingent compensation expense (a) (2,360 ) (0.9 )% (688 ) (0.2 )% Amortization of acquired intangible assets (152 ) (0.1 )% —   — % Non-GAAP selling, general and administrative expense $ 51,684   18.9 % $ 52,384   18.5 %   GAAP operating profit$49,61218.2%$69,38824.6% Stock-based compensation expense 23,029 8.4 % 22,039 7.8 % Unsolicited tender offer related expense 8,092 3.0 % — — % Amortization of acquired intangible assets 3,195 1.2 % 2,985 1.1 % Contingent compensation expense (a) 3,092 1.1 % 2,124 0.8 % Restructuring charges 2,622 1.0 % — — % Legal contingencies 2,223 0.8 % — — % Headquarter relocation expense (b) 2,140 0.8 % 2,522 0.9 % Acquisition related expense (c) 1,737   0.6 % 270   0.1 % Non-GAAP operating profit (d) $ 95,742   35.1 % $ 99,328   35.2 %   GAAP other expense, net$(9,339)(3.4)%$(33,380)(11.8)% Non-cash interest expense (e) 8,642 3.2 % 6,501 2.3 % Loss on extinguishment of debt —   — % 27,177   9.6 % Non-GAAP other (expense) income, net (d) $ (697 ) (0.3 )% $ 298   0.1 %                               (a) Contingent compensation expense represents contingent consideration for post-combination services associated with acquisitions. (b) Headquarter relocation expense in Q1 2012 consists primarily of accretion interest expense on lease exit liability recorded upon vacating certain buildings of our prior headquarters, double rent expense during the transition to our new headquarter facility, and moving costs. Headquarter relocation expense recorded in Q1 2011 consisted of accelerated depreciation. (c) Acquisition related expense represents changes in fair value of contingent consideration. (d) Non-GAAP operating profit, and non-GAAP other income, net, exclude the effects of the pro forma adjustments as detailed above. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing our past and future core operating performance. Non-GAAP gross profit, included within the non-GAAP operating profit, is a key measure of the effectiveness and efficiency of our manufacturing processes, product mix and the average selling prices of our products and services. (e) 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.Investors:Kevin Williams, MDInvestor Relations858-332-4989kwilliams@illumina.comorMedia:Jennifer TemplePublic Relations858-246-8816PR@illumina.com