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 Illumina Reports Full Financial Results for Fourth Quarter and Fiscal Year 2016
   Tuesday, January 31, 2017 4:29:00 PM ET

Illumina, Inc. (ILMN ) today announced its full financial results for the fourth quarter and fiscal year 2016.

Fourth quarter 2016 results:

-- Revenue of $619 million, a 5% increase compared to $592 million in the fourth quarter of 2015

-- GAAP net income attributable to Illumina stockholders for the quarter of $124 million, or $0.84 per diluted share, compared to $104 million, or $0.70 per diluted share, for the fourth quarter of 2015

-- Non-GAAP net income attributable to Illumina stockholders for the quarter of $126 million, or $0.85 per diluted share, compared to $121 million, or $0.81 per diluted share, for the fourth quarter of 2015 (see the table entitled "Itemized Reconciliation Between GAAP and Non-GAAP Net Income Attributable to Illumina Stockholders" for a reconciliation of these GAAP and non-GAAP financial measures)

-- Cash flow from operations of $280 million and free cash flow of $199 million for the quarter, compared to $240 million and $205 million, respectively, in the prior year period

Gross margin in the fourth quarter of 2016 was 67.7% compared to 69.4% in the prior year period. Excluding the effect of non-cash stock compensation expense and amortization of acquired intangible assets, non-GAAP gross margin was 69.9% for the fourth quarter of 2016 compared to 71.7% in the prior year period.

Research and development (R&D) expenses for the fourth quarter of 2016 were $129.9 million, or 21.0% of revenue, compared to $114.3 million, or 19.3% of revenue, in the prior year period. R&D expenses included $9.4 million and $10.8 million of non-cash stock compensation expense in the fourth quarters of 2016 and 2015, respectively. Excluding these charges and contingent compensation, R&D expenses as a percentage of revenue were 19.5%, including 2.5% attributable to GRAIL and Helix. This compares to 17.5% in the prior year period.

Selling, general and administrative (SG&A) expenses for the fourth quarter of 2016 were $146.1 million, or 23.6% of revenue, compared to $147.3 million, or 24.9% of revenue, in the prior year period. SG&A expenses included $15.2 million and $21.4 million of non-cash stock compensation expense in the fourth quarters of 2016 and 2015, respectively. Excluding these charges, amortization of acquired intangible assets, and contingent compensation, SG&A expenses as a percentage of revenue were 20.9%, including 1.6% attributable to GRAIL and Helix. This compares to 20.9% in the prior year period.

Depreciation and amortization expenses were $37.4 million and capital expenditures for free cash flow purposes were $81.5 million during the fourth quarter of 2016, which excludes an increase of $24.6 million in property and equipment recorded under build-to-suit lease accounting since such expenses were paid for by the landlord. At the close of the quarter, the company held $1.56 billion in cash, cash equivalents and short-term investments, compared to $1.39 billion as of January 3, 2016.

Fiscal 2016 results:

-- Revenue of $2,398 million, an 8% increase compared to $2,220 million in fiscal 2015

-- GAAP net income attributable to Illumina stockholders of $463 million, or $3.07 per diluted share, compared to $462 million, or $3.10 per diluted share, in fiscal 2015

-- Non-GAAP net income attributable to Illumina stockholders of $503 million, or $3.33 per diluted share, compared to $495 million, or $3.32 per diluted share, in fiscal 2015 (see the table entitled "Itemized Reconciliation Between GAAP and Non-GAAP Net Income Attributable to Illumina Stockholders" for a reconciliation of these GAAP and non-GAAP financial measures)

-- Cash flow from operations of $687 million and free cash flow of $427 million for the fiscal year, compared to $660 million and $517 million, respectively, in the prior year

Gross margin for fiscal 2016 was 69.5% compared to 69.8% in the prior year. Excluding the effect of non-cash stock compensation expense and amortization of acquired intangible assets, non-GAAP gross margin was 71.7% for fiscal 2016 compared to 72.4% in the prior year period.

Research and development (R&D) expenses for fiscal 2016 were $504.4 million compared to $401.5 million in the prior year. R&D expenses included $42.3 million and $42.0 million of non-cash stock compensation expense in fiscal 2016 and 2015, respectively. Excluding these charges and contingent compensation, R&D expenses as a percentage of revenue were 19.3%, including 1.8% attributable to GRAIL and Helix. This compares to 16.2% in the prior year period.

Selling, general and administrative (SG&A) expenses for fiscal 2016 were $583.0 million compared to $524.7 million in the prior year. SG&A expenses included $76.1 million and $79.1 million of non-cash stock compensation expense in fiscal 2016 and 2015, respectively. Excluding these charges, amortization of acquired intangible assets, and contingent compensation, SG&A expenses as a percentage of revenue were 20.8%, including 1.2% attributable to GRAIL and Helix. This compares to 19.8% in the prior year period.

"We ended 2016 on a stronger note than we anticipated, with robust performance across sequencing consumables and microarrays," stated Francis de Souza, President and CEO. "We also made significant progress on key R&D programs as evidenced by the launch of NovaSeq, a brand new architecture that delivers the most powerful, flexible sequencer ever created, once again redefining the trajectory of sequencing."

Updates since our last earnings release:

-- Launched the NovaSeq System(TM), an entirely new scalable high throughput architecture designed to one day usher in the $100 genome

-- Announced the launch of the Illumina(R) Bio-Rad(R) Single-Cell Sequencing Solution, the first next-generation sequencing (NGS) workflow for single-cell analysis

-- Launched TruSight(R) Tumor 170, a 170 gene next-generation sequencing solution to support a multi-analyte approach and provide a more thorough picture of a tumor’s genomic landscape

-- Applied the CE mark to our VeriSeq(TM) NIPT Analysis Software, designed for larger batches of 48 samples

-- Entered into a strategic collaboration with Philips to integrate Illumina’s sequencing systems for large-scale analysis of genetic variation and function and Philips’ IntelliSpace Genomics clinical informatics platform

-- Partnered with IBM to expand access to genome data interpretation by integrating Watson for Genomics into Illumina’s BaseSpace Sequence Hub and tumor sequencing process

-- Announced that GRAIL has received indications of interest to invest approximately $1B in its Series B financing, which is intended to close prior to the end of the first quarter

-- Announced several key senior appointments to our executive team: Garret Hampton as EVP, Clinical Genomics Group, Sam Samad as Senior Vice President and Chief Financial Officer, and Jonathan Seaton as Senior Vice President of Corporate and Business Development

-- Appointed Caroline Dorsa to the company’s Board of Directors and the Audit Committee of the Board

Financial outlook and guidance

The non-GAAP financial guidance discussed below reflects certain pro forma adjustments to assist in analyzing and assessing our 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 2017, the company is projecting 10% to 12% revenue growth, GAAP earnings per diluted share attributable to Illumina stockholders of $3.25 to $3.35 and non-GAAP earnings per diluted share attributable to Illumina stockholders of $3.60 to $3.70. Our annual guidance assumes first quarter revenue of $580 million to $595 million, GAAP earnings per diluted share attributable to Illumina stockholders of $0.51 to $0.56 and non-GAAP earnings per diluted share attributable to Illumina stockholders of $0.60 to $0.65.

All earnings per diluted share guidance includes the consolidated results of GRAIL in the first quarter, with the exception of any one-time items associated with the expected close of the Series B financing.

Quarterly conference call information

The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Tuesday, January 31, 2017. Interested parties may listen to the call by dialing 888.771.4371 (passcode: 44094804), or if outside North America by dialing +1.847.585.4405 (passcode: 44094804). 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 4:30 pm Pacific Time (7:30 pm Eastern Time) on January 31, 2017 through February 7, 2017 by dialing 888.843.7419 (passcode: 44094804), or if outside North America by dialing +1.630.652.3042 (passcode: 44094804).

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 such as stock compensation expense, amortization of acquired intangible assets, non-cash interest expense associated with the company’s convertible debt instruments that may be settled in cash, and others that are listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release. Management has excluded the effects of these items in non-GAAP measures to assist investors in analyzing and assessing past and future operating performance. Additionally, non-GAAP net income attributable to Illumina stockholders and diluted earnings per share attributable to Illumina stockholders are key components of the financial metrics utilized by the company’s board of directors to measure, in part, management’s performance and determine significant elements of management’s compensation.

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 forward-looking statements that involve risks and uncertainties, such as Illumina’s expectations regarding the launch of any products and the future cost of genome sequencing. 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) achievement and timing of the planned deconsolidation of GRAIL, Inc.’s financial results in our financial statements; (iv) our ability to successfully identify and integrate acquired technologies, products, or businesses; (v) our expectations and beliefs regarding future conduct and growth of the business and the markets in which we operate; (vi) challenges inherent in developing, manufacturing, and launching new products and services, including the timing of customer orders and impact on existing products and services; and (vii) the application of generally accepted accounting principles, which are highly complex and involve many subjective assumptions, estimates, and judgments, 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 quarter.

About Illumina

Illumina is improving human health by unlocking the power of the genome. Our focus on innovation has established us as the global leader in DNA sequencing and array-based technologies, serving customers in the research, clinical and applied markets. Our products are used for applications in the life sciences, oncology, reproductive health, agriculture and other emerging segments. To learn more, visit www.illumina.com and follow @illumina.

                                                                                     Illumina, Inc.
                                                                          Condensed Consolidated Balance Sheets
                                                                                     (In thousands)
                                                                                                                 
                                                                                                              January 1,                                           January 3,
                                                                                                                 2017                                                 2016
                                                                                                    -------------------------------                     --------------------------------
ASSETS                                                                                                        (unaudited)
Current assets:
   Cash and cash equivalents                                                                                           $   734,516                                         $    768,770
   Short-term investments                                                                                                  824,208                                              617,450
   Accounts receivable, net                                                                                                381,316                                              385,529
   Inventory                                                                                                               300,170                                              270,777
   Prepaid expenses and other current assets                                                             77,881                            54,297
                                                                                                    -------------------- ---------                      -------------------- ----------
         Total current assets                                                                                            2,318,091                                            2,096,823
Property and equipment, net                                                                                                713,334                                              342,694
Goodwill                                                                                                                   775,995                                              752,629
Intangible assets, net                                                                                                     242,652                                              273,621
Deferred tax assets                                                                                                        123,317                                              134,515
Other assets                                                                                            107,211                            87,465
                                                                                                    -------------------- ---------                      -------------------- ----------
         Total assets                                                                                                  $ 4,280,600                                         $  3,687,747
                                                                                                    ==================== =========                      ==================== ==========
                                                                                                                                                         
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
   Accounts payable                                                                                                    $   137,930                                         $    139,226
   Accrued liabilities                                                                                                     342,751                                              386,844
   Build-to-suit lease liability                                                                                           222,734                                                9,495
   Long-term debt, current portion                                                                        1,250                            74,929
                                                                                                    -------------------- ---------                      -------------------- ----------
         Total current liabilities                                                                                         704,665                                              610,494
Long-term debt                                                                                                           1,047,805                                            1,015,649
Other long-term liabilities                                                                                                213,955                                              180,505
Redeemable noncontrolling interests                                                                                         43,940                                               32,546
Stockholders’ equity                                                       2,270,235                         1,848,553
                                                                                                    -------------------- ---------                      -------------------- ----------
         Total liabilities and stockholders’ equity                                         $ 4,280,600                                         $  3,687,747
                                                                                                    ==================== =========                      ==================== ==========
 
                                                                                                                                                                                Illumina, Inc.
                                                                                                                                                                  Condensed Consolidated Statements of Income
                                                                                                                                                                   (In thousands, except per share amounts)
                                                                                                                                                                                  (unaudited)
                                                                                                                                                                                                     
                                                                                                                                              Three Months Ended                                                                                                                                        Years Ended
                                                                                       --------------------------------------------------------------------------------------------------------------------------------                     ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                              January 1,                                              January 3,                                                                January 1,                                               January 3,
                                                                                              2017                                 2016                                2017                                  2016    
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
Revenue:
   Product revenue                                                                                        $        525,581                                                              $ 497,922                                                              $      2,031,997                                                              $ 1,890,633
   Service and other revenue                                                                     93,766                           93,626                                 366,376                            329,129  
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
      Total revenue                                                                             619,347                          591,548                               2,398,373                          2,219,762  
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
Cost of revenue:
   Cost of product revenue (a)                                                                                     151,343                                                                130,775                                                                       534,199                                                                  490,812
   Cost of service and other revenue (a)                                                                            37,606                                                                 39,561                                                                       154,762                                                                  133,850
   Amortization of acquired intangible assets                                                    10,959                           10,853                                  42,964                             45,810  
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
      Total cost of revenue                                                                     199,908                          181,189                                 731,925                            670,472  
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
         Gross profit                                                                           419,439                          410,359                               1,666,448                          1,549,290  
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
Operating expense:
   Research and development (a)                                                                                    129,915                                                                114,347                                                                       504,415                                                                  401,527
   Selling, general and administrative (a)                                                                         146,091                                                                147,251                                                                       583,005                                                                  524,657
   Legal contingencies                                                                                      --                                                                  4,000                                                                        (9,490 )                                                                 19,000
   Headquarter relocation                                                                                              417                                                                    436                                                                         1,486                                                                   (2,611 )
   Acquisition related expense (gain), net                                               --                              325                          --                             (6,124 )
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
      Total operating expense                                                                   276,423                          266,359                               1,079,416                            936,449  
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
Income from operations                                                                                             143,016                                                                144,000                                                                       587,032                                                                  612,841
   Other expense, net                                                                            (8,773 )                                            (8,993 )                                                  (25,854 )                                             (29,699 )
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
Income before income taxes                                                                                         134,243                                                                135,007                                                                       561,178                                                                  583,142
   Provision for income taxes                                                                    26,701                           32,143                                 133,088                            125,752  
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
Consolidated net income                                                                                            107,542                                                                102,864                                                                       428,090                                                                  457,390
   Add: Net loss attributable to noncontrolling interests                                        16,220                            1,613                                  34,559                              4,169  
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
Net income attributable to Illumina stockholders                                                          $        123,762                                           $ 104,477                                           $        462,649                                           $   461,559  
                                                                                       ==================== ============== ====================                      ==================== ======= ====================                      ==================== ============== ====================                      ==================== ========= ====================
Net income attributable to Illumina stockholders for earnings per                                         $        123,884                                           $ 104,477                                           $        454,106                                           $   461,526  
share (b)
                                                                                       ==================== ============== ====================                      ==================== ======= ====================                      ==================== ============== ====================                      ==================== ========= ====================
Earnings per share attributable to Illumina stockholders:
   Basic                                                                                                  $           0.84                                                              $    0.72                                                              $           3.09                                                              $      3.19
   Diluted                                                                                                $           0.84                                                              $    0.70                                                              $           3.07                                                              $      3.10
Shares used in computing earnings per common share:
   Basic                                                                                                           146,804                                                                145,963                                                                       146,788                                                                  144,826
   Diluted                                                                                                         148,015                                                                148,952                                                                       148,040                                                                  149,069
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(a) Includes stock-based compensation expense for stock-based
awards:
                                                                                                                                                                                                                                             
                                                                                                                                              Three Months Ended                                                                                                                                        Years Ended
                                                                                       --------------------------------------------------------------------------------------------------------------------------------                     ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                              January 1,                                                                 January 3,                                                                January 1,                                                                  January 3,
                                                                                              2017                                 2016                                2017                                  2016    
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
Cost of product revenue                                                                                   $          3,121                                                              $   2,829                                                              $          9,070                                                              $     9,841
Cost of service and other revenue                                                                                     (530 )                                                                  366                                                                         1,584                                                                    1,609
Research and development (1)                                                                                         9,406                                                                 10,849                                                                        42,295                                                                   42,001
Selling, general and administrative (2)                                                          15,223                           21,445                                  76,116                             79,142  
                                                                                       -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------
   Stock-based compensation expense before taxes                                                          $         27,220                                           $  35,489                                           $        129,065                                           $   132,593  
                                                                                       ==================== ============== ====================                      ==================== ======= ====================                      ==================== ============== ====================                      ==================== ========= ====================
 
      (1) Includes stock-based compensation from GRAIL and Helix
      of $0.2 million and $0.7 million for the three months and year
      ended January 1, 2017, respectively, and stock-based compensation
      from Helix of $0.2 million for the three months and year ended
      January 3, 2016.
 
      (2) Includes stock-based compensation from GRAIL and Helix
      of $0.3 million and $1.7 million for the three months and year
      ended January 1, 2017, respectively, and stock-based compensation
      from Helix of $0.3 million for the three months and year ended
      January 3, 2016.
 
(b) Amount reflects the additional losses attributable to
the common shareholders of GRAIL and Helix for earnings per share
purposes. For the year ended January 1, 2017, the additional
losses were partially offset by the net impact of a deemed
dividend from the company’s common to preferred share exchange
with GRAIL.
 
                                                                                                                                                                       Illumina, Inc.
                                                                                                                                                       Condensed Consolidated Statements of Cash Flows
                                                                                                                                                                       (In thousands)
                                                                                                                                                                         (unaudited)
                                                                                                                                                                                                                             
                                                                                                                                      Three Months Ended                                                                                                                                  Years Ended
                                                                                  ---------------------------------------------------------------------------------------------------------------------------                     ---------------------------------------------------------------------------------------------------------------------------
                                                                                                      January 1,                                                              January 3,                                                              January 1,                                                              January 3,
                                                                                      2017                              2016                              2017                              2016    
                                                                                  -------------------- -------- --------------------                      -------------------- -------- --------------------                      -------------------- -------- --------------------                      -------------------- -------- --------------------
Net cash provided by operating activities (a)                                                        $  280,153                                                              $  240,378                                                              $  687,238                                                              $  659,596
Net cash (used in) provided by investing activities                                                    (173,292 )                                                               229,398                                                                (514,539 )                                                              (106,146 )
Net cash used in financing activities (a)                                                              (163,492 )                                                              (253,141 )                                                              (204,713 )                                                              (418,762 )
Effect of exchange rate changes on cash and cash equivalents                          (3,550 )                                                606                            (2,240 )                                             (2,072 )
                                                                                  -------------------- -------- --------------------                      -------------------- -------- --------------------                      -------------------- -------- --------------------                      -------------------- -------- --------------------
Net (decrease) increase in cash and cash equivalents                                                    (60,181 )                                                               217,241                                                                 (34,254 )                                                               132,616
Cash and cash equivalents, beginning of period                                       794,697                           551,529                           768,770                           636,154  
                                                                                  -------------------- -------- --------------------                      -------------------- -------- --------------------                      -------------------- -------- --------------------                      -------------------- -------- --------------------
Cash and cash equivalents, end of period                                                             $  734,516                                           $  768,770                                           $  734,516                                           $  768,770  
                                                                                  ==================== ======== ====================                      ==================== ======== ====================                      ==================== ======== ====================                      ==================== ======== ====================
                                                                                                                                                                                                                                                                                                           
Calculation of free cash flow:
Net cash provided by operating activities (a)                                                        $  280,153                                                              $  240,378                                                              $  687,238                                                              $  659,596
Purchases of property and equipment (b)                                              (81,538 )                                            (35,486 )                                           (259,891 )                                           (142,847 )
                                                                                  -------------------- -------- --------------------                      -------------------- -------- --------------------                      -------------------- -------- --------------------                      -------------------- -------- --------------------
Free cash flow (c)                                                                                   $  198,615                                           $  204,892                                           $  427,347                                           $  516,749  
                                                                                  ==================== ======== ====================                      ==================== ======== ====================                      ==================== ======== ====================                      ==================== ======== ====================
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(a) Net cash provided by operating activities excludes
excess tax benefit related to stock-based compensation of $91.3
million in fiscal 2016, of which $18.6 million was recorded as
cash inflow from operating activities in Q4. This compares to
$126.7 million in fiscal 2015, of which $5.0 million was recorded
in Q4. Net cash used in financing activities reflects the excess
tax benefit as a corresponding inflow in the respective periods
except Q4 2016 which is an outflow.
 
(b) Excludes property and equipment recorded under
build-to-suit lease accounting, which are non-cash expenditures,
of $193.4 million in fiscal 2016, of which $24.6 million was in
Q4, and $9.5 million in fiscal 2015, all of which was in Q4.
 
(c) 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 EARNINGS PER
SHARE ATTRIBUTABLE TO ILLUMINA STOCKHOLDERS:
                                                                                                                                Three Months Ended                                                                                                                           Years Ended
                                                                                         ---------------------------------------------------------------------------------------------------------------------------------------                     ---------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                January 1,                                                 January 3,                                                                    January 1,                                                 January 3,
                                                                                                2017                                    2016                                    2017                                    2016       
                                                                                         -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
GAAP earnings per share attributable to Illumina stockholders -                                             $           0.84                                                              $           0.70                                                              $           3.07                                                              $           3.10
diluted
   Amortization of acquired intangible assets                                                                           0.08                                                                          0.09                                                                          0.33                                                                          0.35
   Non-cash interest expense (a)                                                                                        0.05                                                                          0.06                                                                          0.20                                                                          0.26
   Contingent compensation (gain) expense (b)                                                                 --                                                                --                                                                          0.01                                                                --
   Legal contingencies (c)                                                                                    --                                                                          0.03                                                                         (0.06 )                                                                        0.13
   Headquarter relocation                                                                                     --                                                                --                                                                          0.01                                                                         (0.02 )
   Deemed dividend (d)                                                                                        --                                                                --                                                                         (0.01 )                                                              --
   Loss on extinguishment of debt                                                                             --                                                                --                                                                --                                                                          0.03
   Acquisition related expense (gain), net (e)                                                                --                                                                --                                                                --                                                                         (0.04 )
   Cost-method investment gain, net (f)                                                                       --                                                                --                                                                --                                                                         (0.10 )
   Tax benefit related to cost-sharing arrangement (g)                                                                 (0.05 )                                                              --                                                                         (0.05 )                                                                       (0.17 )
   Incremental non-GAAP tax expense (h)                                                             (0.07 )                                                    (0.07 )                                                    (0.17 )                                                    (0.22 )
                                                                                         -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
Non-GAAP earnings per share attributable to Illumina stockholders -                                         $           0.85                                           $           0.81                                           $           3.33                                           $           3.32  
diluted (i)
                                                                                         ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                    
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME
ATTRIBUTABLE TO ILLUMINA STOCKHOLDERS:
GAAP net income attributable to Illumina stockholders (j)                                                   $        123,762                                                              $        104,477                                                              $        462,649                                                              $        461,559
   Amortization of acquired intangible assets                                                                         12,423                                                                        12,376                                                                        48,984                                                                        51,829
   Non-cash interest expense (a)                                                                                       7,404                                                                         8,705                                                                        29,786                                                                        38,589
   Headquarter relocation                                                                                                417                                                                           436                                                                         1,486                                                                        (2,611 )
   Contingent compensation (gain) expense (b)                                                                           (252 )                                                                         685                                                                         1,833                                                                           934
   Legal contingencies (c)                                                                                    --                                                                         4,000                                                                        (9,490 )                                                                      19,000
   Loss on extinguishment of debt                                                                             --                                                                           325                                                                --                                                                         4,062
   Acquisition related expense (gain), net (e)                                                                --                                                                           325                                                                --                                                                        (6,124 )
   Cost-method investment gain, net (f)                                                                       --                                                                          (119 )                                                              --                                                                       (15,601 )
   Tax benefit related to cost-sharing arrangement (g)                                                                (6,696 )                                                                         (56 )                                                                      (6,696 )                                                                     (24,813 )
   Incremental non-GAAP tax expense (h)                                                           (10,625 )                                                  (10,584 )                                                  (25,320 )                                                  (31,621 )
                                                                                         -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
Non-GAAP net income attributable to Illumina stockholders (i)                                               $        126,433                                           $        120,570                                           $        503,232                                           $        495,203  
                                                                                         ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(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) Contingent compensation (gain) expense relates to
contingent payments for post-combination services associated with
an acquisition.
 
(c) Legal contingencies in 2016 represent a reversal of
prior year expense related to settlement of patent litigation.
 
(d) Amount represents the impact of a deemed dividend, net
of Illumina’s portion of the losses incurred by GRAIL’s common
shareholders resulting from the company’s common to preferred
share exchange with GRAIL. The amount was added to net income
attributable to Illumina stockholders for purposes of calculating
Illumina’s consolidated earnings per share. The deemed dividend,
net of tax, was recorded through equity.
 
(e) Acquisition related expense (gain), net consists of
changes in fair value of contingent consideration.
 
(f) Cost-method investment gain, net consists primarily of
a gain on the sale of a cost-method investment.
 
(g) Tax benefit related to cost-sharing arrangement refers
to the exclusion of stock compensation from prior period
cost-sharing charges as a result of a tax court ruling.
 
(h) Incremental non-GAAP tax expense reflects the tax
impact related to the non-GAAP adjustments listed above.
 
(i) Non-GAAP net income attributable to Illumina
stockholders and diluted earnings per share attributable to
Illumina stockholders exclude the effect of the pro forma
adjustments as detailed above. Non-GAAP net income attributable to
Illumina stockholders and diluted earnings per share attributable
to Illumina stockholders are key components of the financial
metrics utilized by the company’s board of directors to measure,
in part, management’s performance and determine significant
elements of management’s compensation. 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.
 
(j) GAAP net income attributable to Illumina stockholders
excludes the net impact of the deemed dividend as detailed in (d)
above and the additional losses attributable to common
shareholders of GRAIL and Helix for earnings per share purposes.
These amounts are included in GAAP net income attributable to
Illumina stockholders for earnings per share of $123.9 million and
$454.1 million for the three months and year ended January 1,
2017, respectively and $104.5 million and $461.5 million for the
three months and year ended January 3, 2016, respectively.
 
                                                                                                                                                                                                                                     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                                                                                                                                                                                                                                       Years Ended
                                                                          ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------                     ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              January 1,                                                                                                      January 3,                                                                                                                          January 1,                                                                                                       January 3,
                                                                                                                                 2017                                                                                                                               2016                                                                                                                                2017                                                                                                                                2016
                                                                          ------------------------------------------------------------------------------------------------------------------                     -----------------------------------------------------------------------------------------------------------                     ------------------------------------------------------------------------------------------------------------------                     -------------------------------------------------------------------------------------------------------------
GAAP gross profit                                                                            $        419,439                                  67.7 %                                                            $ 410,359                                  69.4 %                                                            $      1,666,448                                  69.5 %                                                            $ 1,549,290                                  69.8 %
Stock-based compensation expense                                                                        2,591                                                      0.4 %                                                                3,195                                                      0.5 %                                                                      10,654                                                      0.4 %                                                                 11,450                                                      0.5 %
Amortization of acquired intangible assets                                          10,959                                   1.8 %                                            10,853                                   1.8 %                                                   42,964                                   1.8 %                                              45,810                                   2.1 %
                                                                          -------------------- -------------- --------------------                      -------------- --------------------                      -------------------- ------- --------------------                      -------------- --------------------                      -------------------- -------------- --------------------                      -------------- --------------------                      -------------------- --------- --------------------                      -------------- --------------------
Non-GAAP gross profit (a)                                                                    $        432,989                                  69.9 %                                                            $ 424,407                                  71.7 %                                                            $      1,720,066                                  71.7 %                                                            $ 1,606,550                                  72.4 %
                                                                          ==================== ============== ====================                      ============== ====================                      ==================== ======= ====================                      ============== ====================                      ==================== ============== ====================                      ============== ====================                      ==================== ========= ====================                      ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
GAAP research and development expense                                                        $        129,915                                                     21.0 %                                                            $ 114,347                                                     19.3 %                                                            $        504,415                                                     21.0 %                                                            $   401,527                                                     18.1 %
Stock-based compensation expense                                                                       (9,406 )                                                   (1.5 )%                                                             (10,849 )                                                   (1.8 )%                                                                    (42,295 )                                                   (1.7 )%                                                               (42,001 )                                                   (1.9 )%
Contingent compensation gain (expense) (b)                                              12                        --                              (83 )                                         --                                    (313 )                                         --                               (127 )                                         --  
                                                                          -------------------- -------------- --------------------                      -------------- --------------------                      -------------------- ------- --------------------                      -------------- --------------------                      -------------------- -------------- --------------------                      -------------- --------------------                      -------------------- --------- --------------------                      -------------- --------------------
Non-GAAP research and development expense                                                    $        120,521                                  19.5 %                                                            $ 103,415                                  17.5 %                                                            $        461,807                                  19.3 %                                                            $   359,399                                  16.2 %
                                                                          ==================== ============== ====================                      ============== ====================                      ==================== ======= ====================                      ============== ====================                      ==================== ============== ====================                      ============== ====================                      ==================== ========= ====================                      ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
GAAP selling, general and administrative expense                                             $        146,091                                                     23.6 %                                                            $ 147,251                                                     24.9 %                                                            $        583,005                                                     24.3 %                                                            $   524,657                                                     23.6 %
Stock-based compensation expense                                                                      (15,223 )                                                   (2.5 )%                                                             (21,445 )                                                   (3.6 )%                                                                    (76,116 )                                                   (3.2 )%                                                               (79,142 )                                                   (3.5 )%
Amortization of acquired intangible assets                                                             (1,464 )                                                   (0.2 )%                                                              (1,523 )                                                   (0.3 )%                                                                     (6,020 )                                                   (0.2 )%                                                                (6,019 )                                                   (0.3 )%
Contingent compensation gain (expense) (b)                                             240                        --                             (602 )                                                   (0.1 )%                                                  (1,520 )                                                   (0.1 )%                                               (807 )                                         --  
                                                                          -------------------- -------------- --------------------                      -------------- --------------------                      -------------------- ------- --------------------                      -------------- --------------------                      -------------------- -------------- --------------------                      -------------- --------------------                      -------------------- --------- --------------------                      -------------- --------------------
Non-GAAP selling, general and administrative expense                                         $        129,644                                  20.9 %                                                            $ 123,681                                  20.9 %                                                            $        499,349                                  20.8 %                                                            $   438,689                                  19.8 %
                                                                          ==================== ============== ====================                      ============== ====================                      ==================== ======= ====================                      ============== ====================                      ==================== ============== ====================                      ============== ====================                      ==================== ========= ====================                      ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
GAAP operating profit                                                                        $        143,016                                                     23.1 %                                                            $ 144,000                                                     24.3 %                                                            $        587,032                                                     24.5 %                                                            $   612,841                                                     27.6 %
Stock-based compensation expense                                                                       27,220                                                      4.4 %                                                               35,489                                                      6.0 %                                                                     129,065                                                      5.3 %                                                                132,593                                                      5.9 %
Amortization of acquired intangible assets                                                             12,423                                                      2.0 %                                                               12,376                                                      2.1 %                                                                      48,984                                                      2.0 %                                                                 51,829                                                      2.4 %
Headquarter relocation                                                                                    417                                           --                                                                    436                                                      0.1 %                                                                       1,486                                                      0.1 %                                                                 (2,611 )                                                   (0.1 )%
Contingent compensation (gain) expense (b)                                                               (252 )                                         --                                                                    685                                                      0.1 %                                                                       1,833                                                      0.1 %                                                                    934                                           --
Legal contingencies (c)                                                                        --                                           --                                                                  4,000                                                      0.7 %                                                                      (9,490 )                                                   (0.4 )%                                                                19,000                                                      0.9 %
Acquisition related expense (gain), net (d)                                 --                        --                              325                                   0.1 %                                           --                        --                             (6,124 )                                                   (0.3 )%
                                                                          -------------------- -------------- --------------------                      -------------- --------------------                      -------------------- ------- --------------------                      -------------- --------------------                      -------------------- -------------- --------------------                      -------------- --------------------                      -------------------- --------- --------------------                      -------------- --------------------
Non-GAAP operating profit (a)                                                                $        182,824                                  29.5 %                                                            $ 197,311                                  33.4 %                                                            $        758,910                                  31.6 %                                                            $   808,462                                  36.4 %
                                                                          ==================== ============== ====================                      ============== ====================                      ==================== ======= ====================                      ============== ====================                      ==================== ============== ====================                      ============== ====================                      ==================== ========= ====================                      ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
GAAP other expense, net                                                                      $         (8,773 )                                                   (1.4 )%                                                           $  (8,993 )                                                   (1.5 )%                                                           $        (25,854 )                                                   (1.1 )%                                                           $   (29,699 )                                                   (1.3 )%
Non-cash interest expense (e)                                                                           7,404                                                      1.2 %                                                                8,705                                                      1.5 %                                                                      29,786                                                      1.3 %                                                                 38,589                                                      1.7 %
Loss on extinguishment of debt                                                                 --                                           --                                                                    325                                           --                                                                --                                           --                                                                    4,062                                                      0.2 %
Cost-method investment gain, net (f)                                        --                        --                             (119 )                                         --                          --                        --                            (15,601 )                                                   (0.7 )%
                                                                          -------------------- -------------- --------------------                      -------------- --------------------                      -------------------- ------- --------------------                      -------------- --------------------                      -------------------- -------------- --------------------                      -------------- --------------------                      -------------------- --------- --------------------                      -------------- --------------------
Non-GAAP other income (expense), net (a)                                                     $         (1,369 )                                                   (0.2 )%                                                           $     (82 )                                         --                                           $          3,932                                   0.2 %                                                            $    (2,649 )                                                   (0.1 )%
                                                                          ==================== ============== ====================                      ============== ====================                      ==================== ======= ====================                      ============== ====================                      ==================== ============== ====================                      ============== ====================                      ==================== ========= ====================                      ============== ====================
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(a) 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 operating performance.
 
(b) Contingent compensation gain/expense relates to
contingent payments for post-combination services associated with
an acquisition.
 
(c) Legal contingencies in 2016 represent a reversal of
prior year expense related to settlement of patent litigation.
 
(d) Acquisition related expense (gain), net consists of
changes in fair value of contingent consideration.
 
(e) Non-cash interest expense is calculated in accordance
with the authoritative accounting guidance for convertible debt
instruments that may be settled in cash.
 
(f) Cost-method investment gain, net consists primarily of
a gain on the sale of a cost-method investment.
 
                                                       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 Securities
and Exchange Commission, including the company’s Form 10-K for the
fiscal year ended January 3, 2016, and the company’s Form 10-Q for
the fiscal quarters ended April 3, 2016, July 3, 2016, and October
2, 2016. The company assumes no obligation to update any
forward-looking statements or information.
 
                                                                                  Fiscal Year 2017
                                                                                             -------------------------------
GAAP diluted earnings per share attributable to Illumina                                               $3.25 - $3.35
stockholders (a)
   Amortization of acquired intangible assets                                                              0.31
   Non-cash interest expense (b)                                                                           0.20
   Incremental non-GAAP tax expense (c)                                                                   (0.16)
                                                                                             -------------------------------
Non-GAAP diluted earnings per share attributable to Illumina                                           $3.60 - $3.70
stockholders (a)
                                                                                             ===============================
                                                                                              
                                                                                                          Q1 2017
                                                                                             -------------------------------
GAAP diluted earnings per share attributable to Illumina                                               $0.51- $0.56
stockholders (a)
   Amortization of acquired intangible assets                                                              0.08
   Non-cash interest expense (b)                                                                           0.05
   Incremental non-GAAP tax expense (c)                                                                   (0.04)
                                                                                             -------------------------------
Non-GAAP diluted earnings per share attributable to Illumina                                           $0.60 - $0.65
stockholders (a)
                                                                                             ===============================
 
-----------------------------------------------------------------------------------------------------------------------------
(a) The company adopted Accounting Standard Update (ASU)
2016-09, Compensation - Stock Compensation (Topic 718) as
of January 2, 2017. The impact of such adoption is not
included in the GAAP diluted net income per share attributable to
Illumina stockholders guidance for fiscal year 2017. The GAAP
diluted net income per share attributable to Illumina stockholders
guidance for fiscal year 2017 also excludes one-time items related
to the close of the GRAIL, Inc. Series B financing, which is
expected to occur prior to the end of the first quarter. Such
impacts will be recorded as incurred and excluded from non-GAAP
diluted net income per share attributable to Illumina stockholders.
 
(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) Incremental non-GAAP tax expense reflects the tax
impact related to the non-GAAP adjustments listed above.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20170131006338r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20170131006338/en/

SOURCE: Illumina, Inc."> <Property FormalName="PrimaryTwitterHandle" Value="@illumina

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


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