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Press release from Business Wire

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

<p class='bwalignc'> <b>Raises Fiscal Year 2014 Guidance</b> </p>

Wednesday, July 23, 2014

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

16:05 EDT Wednesday, July 23, 2014

SAN DIEGO (Business Wire) -- 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 December 29, 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,
2014
December 29,
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,
2014
June 30,
2013
June 29,
2014
June 30,
2013
Revenue:
Product revenue $ 390,808 $ 313,497 $ 753,019 $ 609,667
Service and other revenue 56,760   32,597   115,330   67,385  
Total revenue 447,568   346,094   868,349   677,052  
Cost of revenue:
Cost of product revenue (a) 114,307 98,150 225,748 188,128
Cost of service and other revenue (a) 23,176 15,951 44,689 31,089
Amortization of acquired intangible assets 9,545   8,584   19,080   15,134  
Total cost of revenue 147,028   122,685   289,517   234,351  
Gross profit 300,540   223,409   578,832   442,701  
Operating expense:
Research and development (a) 82,985 67,608 160,026 129,058
Selling, general and administrative (a) 114,649 88,700 224,222 173,774
Headquarter relocation 2,892 (1,507 ) 3,487 (750 )
Acquisition related gain, net (225 ) (5,725 ) (1,238 ) (1,904 )
Legal contingencies 9,516 115,369
Unsolicited tender offer related expense   4,811     12,295  
Total operating expense 200,301   163,403   386,497   427,842  
Income from operations 100,239 60,006 192,335 14,859
Other expense, net (39,773 ) (10,646 ) (48,081 ) (13,061 )
Income before income taxes 60,466 49,360 144,254 1,798
Provision for (benefit from) income taxes 13,861   13,483   37,672   (11,492 )
Net income $ 46,605   $ 35,877   $ 106,582   $ 13,290  
Net income per basic share $ 0.36   $ 0.29   $ 0.82   $ 0.11  
Net income per diluted share $ 0.31   $ 0.26   $ 0.71   $ 0.10  
Shares used in calculating basic net income per share 130,583   124,362   129,365   124,065  
Shares used in calculating diluted net income per share 149,121   139,377   149,870   137,645  
 
(a) Includes total stock-based compensation expense for stock-based awards:
 
Three Months Ended Six Months Ended
June 29,
2014
June 30,
2013
June 29,
2014
June 30,
2013
Cost of product revenue $ 2,149 $ 1,444 $ 4,244 $ 2,886
Cost of service and other revenue 284 157 569 311
Research and development 12,785 8,954 24,454 16,960
Selling, general and administrative 20,778   13,897   40,153   28,514  
Stock-based compensation expense before taxes $ 35,996   $ 24,452   $ 69,420   $ 48,671  
 
Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
       
Three Months Ended Six Months Ended
June 29,
2014
June 30,
2013
June 29,
2014
June 30,
2013
Net cash provided by operating activities (a) $ 178,030 $ 88,606 $ 215,117 $ 176,446
Net cash provided by (used in) investing activities 114,777 247,477 (29,610 ) 182,456
Net cash (used in) provided by financing activities (a) (136,521 ) 5,784 (222,445 ) (7,222 )
Effect of exchange rate changes on cash and cash equivalents 422   (1,338 ) 522   (2,050 )
Net increase (decrease) in cash and cash equivalents 156,708 340,529 (36,416 ) 349,630
Cash and cash equivalents, beginning of period 518,513   443,082   711,637   433,981  
Cash and cash equivalents, end of period $ 675,221   $ 783,611   $ 675,221   $ 783,611  
 
Calculation of free cash flow:
Net cash provided by operating activities (a) $ 178,030 $ 88,606 $ 215,117 $ 176,446
Purchases of property and equipment (23,324 ) (11,534 ) (42,336 ) (32,975 )
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,
2014
June 30,
2013
June 29,
2014
June 30,
2013
GAAP net income per share - diluted $ 0.31 $ 0.26 $ 0.71 $ 0.10
Pro forma impact of weighted average shares (a) 0.01
Adjustments to net income:
Loss on extinguishment of debt 0.21 0.21
Amortization of acquired intangible assets 0.08 0.08 0.17 0.14
Non-cash interest expense (b) 0.06 0.07 0.12 0.13
Legal contingencies (c) 0.03 0.12 0.07 0.90
Headquarter relocation (d) 0.02 (0.01 ) 0.02 (0.01 )
Contingent compensation expense (e) 0.02 0.02 0.04
Acquisition related gain, net (f) (0.04 ) (0.01 ) (0.01 )
Unsolicited tender offer related expense 0.03 0.09
Cost-method investment related gain (0.04 )
Inventory revaluation adjustment (g)
Incremental non-GAAP tax expense (h) (0.14 ) (0.10 ) (0.21 ) (0.45 )
Non-GAAP net income per share - diluted (i) $ 0.57   $ 0.43   $ 1.10   $ 0.90  
Shares used in calculating non-GAAP diluted net income per share 149,121   138,313   149,546   136,581  
 
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:
GAAP net income $ 46,605 $ 35,877 $ 106,582 $ 13,290
Loss on extinguishment of debt 31,360 511 31,360 511
Amortization of acquired intangible assets 11,507 10,805 24,698 18,936
Non-cash interest expense (b) 9,143 9,066 18,165 18,118
Legal contingencies (c) 4,817 16,559 10,663 123,481
Headquarter relocation (d) 2,892 (1,507 ) 3,487 (750 )
Contingent compensation expense (e) 496 2,262 3,336 5,680
Acquisition related gain, net (f) (225 ) (5,725 ) (1,238 ) (1,904 )
Unsolicited tender offer related expense 4,811 12,295
Cost-method investment related gain (6,113 )
Inventory revaluation adjustment (g) 458
Incremental non-GAAP tax expense (h) (22,025 ) (12,965 ) (32,436 ) (61,689 )
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 GAAP diluted net income per share 149,121 139,377 149,870 137,645
Weighted average dilutive potential common shares issuable of redeemable convertible senior notes (a)   (1,064 ) (324 ) (1,064 )
Weighted average shares used in calculation of non-GAAP diluted net income per share 149,121   138,313   149,546   136,581  

______________________________________________________________________________________________________

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

______________________________________________________________________________________________________

(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 inconjunction 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 efficiencyof manufacturing processes, product mix and the average selling prices of the Company's products and services. Non-GAAPoperating 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.

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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