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© 2011 Illumina, Inc. All rights reserved. Illumina, illuminaDx, BaseSpace, BeadArray, BeadXpress, cBot, CSPro, DASL, DesignStudio, Eco, GAIIx, Genetic Energy, Genome Analyzer, GenomeStudio, GoldenGate, HiScan, HiSeq, Infinium, iSelect, MiSeq, Nextera, Sentrix, SeqMonitor, Solexa, TruSeq, VeraCode, the pumpkin orange color, and the Genetic Energy streaming bases design are trademarks or registered trademarks of Illumina, Inc. All other brands and names contained herein are the property of their respective owners. PN 15023168 Illumina, Inc. Investor Presentation Spring 2012 |
2 This communication may contain statements that are forward-looking. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Among the important factors that could cause actual results to differ materially from those in any forward-looking statements are (i) our ability to develop and commercialize further our sequencing, BeadArray™, VeraCode®, Eco™, and consumables technologies and to deploy new sequencing, genotyping, gene expression, and diagnostics products and applications for our technology platforms, (ii) our ability to manufacture robust instrumentation and consumables, (iii) significant uncertainty concerning government and academic research funding worldwide as governments in the United States and Europe, in particular, focus on reducing fiscal deficits while at the same time confronting slowing economic growth, (iv) business disruptions associated with the tender offer commenced by CKH Acquisition Corporation, a wholly owned subsidiary of Roche Holding Ltd, and (v) other factors detailed in our filings with the U.S. Securities and Exchange Commission (“SEC”), 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. Illumina undertakes no obligation, and does not intend, to update these forward-looking statements. Safe Harbor Statement |
3 Illumina Inc. Investor Presentation Executive Summary Roche is attempting a hostile take-over of Illumina: The offer price of $51.00 grossly undervalues the company and does not represent a reasonable basis from which to enter into a meaningful negotiation regarding a potential transaction The tender offer is blatantly opportunistic, timed to take advantage of a temporary dislocation in Illumina’s stock price and in advance of extraordinary growth in the market opportunity for next generation genetic sequencing To advantage itself at the expense of Illumina stockholders, Roche is proposing a slate of director nominees to replace four experienced Illumina directors and to increase the size of Illumina’s Board in order to take control of the Company Illumina has rejected Roche’s offer: Our independent Board, with financial advice from Goldman Sachs and Bank of America Merrill Lynch, carefully evaluated Roche’s offer and concluded that it is grossly inadequate and not in the best interest of our stockholders Expansion of Illumina’s Board and election of the Roche nominees will not be in the best interest of our stockholders |
4 1. Introduction to Illumina 2. Illumina’s Independent Board 3. Response to Roche’s Offer 4. Illumina’s Growth Opportunities 5. Financial Performance and Outlook 6. Summary and Conclusion |
5 Illumina’s Mission Innovating for the Future of Genetic Analysis To be the leading provider of integrated solutions that advance the understanding of genetics and health From Genome Wide Discovery… To Targeted Validation and Beyond… |
Illumina’s Matrixed Organization Optimized to Tap Into New Markets Jay Flatley CEO & President Chris Cabou SVP & General Counsel Tristan Orpin SVP, Commercial Operations Kevin Harley VP, HR Nick Naclerio SVP Corporate & Venture Development Mostafa Ronaghi Chief Technology Officer Marc Stapley SVP & CFO Diagnostics Genomic Solutions Business Units Functions Research/Services & New Technologies Legal & Administration Finance & Investor Relations Commercial Operations Market Development & Collaborations Human Resources Greg Heath SVP & GM Christian Henry SVP & GM Translational & Consumer Genomics PCR & Molecular Biology Matt Posard SVP & GM Mark Lewis SVP & GM 6 |
7 Illumina is a Global Organization Multi-Site Manufacturing, R&D, Sales, Service & Support Commercial Mfg/R&D Partners Illumina KK (Tokyo) Jinan, China Chengdu, China Korea India Malaysia Vietnam Shanghai New Zealand Thailand Taiwan Illumina BV (The Netherlands) Illumina China (Beijing) Illumina Cambridge Illumina Singapore Illumina Hayward (Hayward, CA) Illumina Global Headquarters (San Diego, CA) Australia South Africa Greece Turkey Russia Middle East Israel Epicentre (Madison, WI) Illumina Brazil >2,200 Employees |
8 Large and Growing Addressable Markets Next-Gen Sequencing Creates New Markets Life Sciences ~$4B Consumer Molecular Dx ~$3B Applied Markets ~$1B |
Key Technologies Driving the Genomic Revolution Sequencing vs. Genotyping DNA Sequencing: Reading the Letters Genotyping: Reading known “sign posts” 9 |
10 Who is Illumina? Worldwide Leader in Genomic Analysis Recognized leader in next-generation sequencing with >90% of the world’s sequencing data generated using Illumina platforms Recognized leader in microarrays with ~80% market share in DNA genotyping Unmatched history of innovation and strong R&D pipeline Singularly positioned in nascent but rapidly growing market Enormous potential to capture major share of emerging new markets |
11 Recognized leader in Genetic Analysis Illumina Has Earned and Maintained a Leadership Position Overcame much larger market leader (Roche) Have grown or maintained market share against multiple new entrants Overcame larger and more established DNA array market leaders (Affymetrix, Agilent) Recognized as the de facto collaborator on new arrays (e.g., Exome, Bovine LD) Year-End Next Gen Sequencing Market Share by Revenue¹ 2011 DNA Genotyping Microarray Market Share by Revenue² 1. Based on company estimates and company filings. 2. Based on company estimates. (Solexa) 78% 11% 3% 7% 1% Illumina Affymetrix Fluidigm Sequenom Other Arrays 0% 20% 40% 60% 80% 100% 2006 2007 2008 2009 2010 2011 Complete Genomics Pacific Biosciences Roche Illumina Life Technologies |
12 Illumina Portfolio Overview Addressing the Breadth of Complexity Across Genetic Analysis From Genome-Wide Discovery to Targeted Validation and Screening Sequencing Arrays qPCR Redefining the trajectory of sequencing High performance desktop sequencing Most widely adopted NGS platform Unique combination of sequencing and arrays Speed, quality and versatility for arrays Accuracy, versatility and flexibility for molecular testing Gold-standard qPCR made accessible HiScanSQ Genome Analyzer IIx HiScan BeadXpress MiSeq HiSeq Family Eco |
13 Innovation is in Our DNA Lower Array and Sequencing Costs Drive New, Large Market Opportunities Consistently innovating microarrays and next-generation sequencing at a much faster rate than Moore’s Law Elasticity unlocks huge markets like agriculture, cancer, newborn screening and consumer genomics Array Cost Per Data Point¹ Cost Per Whole Human Genome¹ 1. Based on company estimates. $1,000 $10,000 $100,000 $1,000,000 $10,000,000 2009 GAIIx 2010 HiSeq 2011 HiSeq v3 Cost per Whole Human Genome (30x) Moore's Law 2006 GA1G 2007 G 2008 GAII $0.0001 $0.0010 $0.0100 $0.1000 $1.0000 6/30/02 4/30/04 2/28/06 12/31/07 10/31/09 8/31/11 Cost per Datapoint Moore's Law |
14 Developed with bovine thought leaders Screening for milk production, reproduction, health Customizable with add-on content Illumina’s Microarray Portfolio Broadest and Most Integrated Portfolio of Common, Rare & Custom Content AG Focused Whole-Genome Omni5 Human Exome Over 250k markers based on exome sequencing Over 1m samples ordered to date Available as add-on content to OmniExpress and Omni5 The highest value content to power GWAS (Genome-wide Association Studies) Up to 5m markers and custom add-on capability BovineLD |
15 An Example of Scale: the Human Genome Project (HGP) 1990-2003 – 13 years – ~40 Institutions – 8-9X Coverage – $3.8 Billion 2012 – 1 instrument – ~1week – <1 FTE (Full-Time Equivalent) – 5 Genomes at 30X coverage – Or approximately the output of the entire, 13-year HGP in one 8 hour shift – >2,000,000 times cheaper – 1 instrument >14,000 X faster than the 40 labs combined |
The Missing Heritability “Genetics Loads the Gun, Environment Pulls the Trigger” Explained Heritability Missing Heritability Rare Common Disease Most diseases have familial risk, or heritability The sum of individual effects found so far is much less than the total measured heritability Adapted from Manolio et al 2009 0% 20% 40% 60% 80% 100% 16 |
17 Genomics Technology Moves To the Clinic Profound Impact of Whole Human Genome Sequencing Variants, disease mechanisms, diagnosis, treatment, prevention Illumina sequencing customers – Trisomy 21 – Down’s Syndrome (Potential for T18, T13) – Immune system – Targeted gene tests Research hospitals planning to sequence incoming patients – Already done by CHOP* for children (genotyping) Most cancer centers planning to sequence every tumor biopsy A state proposing to sequence their entire population Several countries considering sequencing their populations – Over representation of specific diseases in population * Children’s Hospital of Philadelphia |
18 Superior Revenue and EPS Growth Continually Innovating and Redefining the Genetic Analysis Market 1. Non-GAAP Diluted EPS. *Non-GAAP EPS unprofitable prior to 2006 10 Year Revenue CAGR: 83% 5 Year EPS CAGR¹: 26% $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $0 $200 $400 $600 $800 $1,000 $1,200 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Revenue Non-GAAP EPS 1 |
19 10 Year Stock Performance Execution Delivers Superior Shareholder Value BeadLab System Launched Human-1 Genotyping BeadChip Launched Solexa Acquisition Illumina #1 Microarrays BeadXpress Launched Illumina #1 NGS iScan Launched HiSeq 2000 and Genome Analyzer IIe Launched Eco Real-Time PCR System Launched Epicentre Acquisition ILMN: 1,129% S&P 500: 16% $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 Jan-02 Oct-02 Jul-03 Apr-04 Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 S&P 500 ILMN HiScanSQ Begins Shipping MiSeq & BaseSpace Launched HiSeq 2500 Announced |
20 Cancer Newborn Screening Agrigenomics Whole Populations The Future of Genomic Analysis Emerging and Very Large Markets Cancer is a disease of the genome, resulting from a modified genome Saving lives, improving diagnosis, and tailoring personalized treatment Primary diagnosis of metabolic and genetic diseases Predictive medicine – identifying health risk during a later part of life Helping to feed the world The world must increase food output by 70-100% by 2050 Improving health and healthcare delivery through knowledge Identifying risks and modifying lifestyles or intervening earlier for a more successful healthcare outcome |
21 1. 2. 3. 4. 5. 6. Summary and Conclusion Financial Performance and Outlook Illumina’s Growth Opportunities Response to Roche’s Offer Illumina’s Independent Board Introduction to Illumina |
22 Independent Board of Directors Possesses Critical Industry and Business Experience William H. Rastetter, Ph.D. (Chairman): Director since 1998 – Partner of Venrock Associates (venture capital firm); Former Exec. Chairman of Biogen Idec Inc.; Former CEO, Chairman, President, and CFO of IDEC Pharmaceuticals Corp.; S.B. (Chemistry) from MIT and Ph.D. (Chemistry) from Harvard A. Blaine Bowman (Chair of Audit Committee): Director since 2007 – Former Chairman, President, and CEO of Dionex Corporation, and a board director at the time of its sale to Thermo Fisher; Past director of Solexa, Inc. (acquired by Illumina); Previously management consultant with McKinsey & Company Daniel M. Bradbury: Director since 2004 – CEO and director of Amylin Pharmaceuticals, Inc.; Past President and EVP of Amylin; Member of UCSD Rady School of Management’s Advisory Council; Member of the Univ. of Miami’s Innovation Corporate Advisory Council and its Diabetes Research Institute Corporate Advisory Council Karin Eastham, CPA (Chair of Nominating/Corporate Gov. Committee): Director since 2004 – Full-time independent director, with extensive experience serving on a number of public company boards – Former EVP and Chief Operating Officer and Board of Trustees member of Burnham Institute for Medical Research; Former SVP (Finance), CFO, and Secretary of Diversa Corp.; Past director of Genoptix, Inc. until its sale to Novartis Paul C. Grint, M.D.: Director since 2005 – President of Cerexa, Inc., a wholly-owned subsidiary of Forest Laboratories, Inc.; Past Chief Medical Officer of Kalypsys Inc.; Past executive positions at Pfizer Inc., IDEC Pharmaceuticals Corp., and Schering-Plough Gerald Möller, Ph.D.: Director since 2010 – Advisor at HBM Bio Ventures AG (Swiss investment firm focusing on biotechnology, emerging pharmaceutical, and medical technology); Former Head of Global Development and Strategic Marketing, Pharmaceuticals, and Exec. Committee member of Hoffmann LaRoche; Former CEO of Boehringer Mannheim Group (acquired by Roche) David R. Walt, Ph.D.: Director since 1998 (one of Illumina’s founders) – Robinson Professor of Chemistry at Tufts University; Member of the National Academy of Engineering; Fellow of the American Institute of Medical and Biological Engineers; Fellow of the American Association for the Advancement of Science Roy A. Whitfield (Chair of Compensation Committee): Director since 2007 – Former Chairman and CEO of Incyte Corporation; Past director of Solexa, Inc. (acquired by Illumina); Previously management consultant with Boston Consulting Group |
Strong Committee Structure Ensuring Effective Corporate Governance Below is a summary of our committee structure and membership information: 23 |
24 Directors Up For Re-election Tremendous Experience and Leadership is at Stake – Bill has tremendous scientific and technical expertise combined with the highest level executive business experience leading rapidly growing companies in our industry – Bill’s board and executive leadership experience provides valuable strategic and governance insight to our Board – Bill has led a number of public company transactions, including IDEC's tender for, and merger with, Biogen in 2003 Jay T. Flatley (President and CEO since 1999) – Jay has led and managed our remarkable growth and development – Jay’s long experience with Illumina is critical to our Board’s understanding of the needs of our customers, the markets in which we compete, and the risks and opportunities associated with our product development and technological advances – Jay was a co-founder of Molecular Dynamics, Inc., and led its sale to Amersham Pharmacia Biotech in 1998 A. Blaine Bowman (Director since 2007) – Blaine has a thorough understanding of highly technical manufacturing processes associated with scientific instruments such as ours combined with deep business leadership experience – Blaine’s past service as a director of Solexa, Inc. (at the time we acquired Solexa) provides our Board with critical insight in addressing the DNA sequencing market – Blaine has participated in a number of public company transactions, including the sale of Dionex to Thermo Fisher in 2011 Karin Eastham, CPA (Director since 2004) – Karin’s unmatched understanding of biomedical research institutions, which are among our core customers, is critical to our Board’s understanding of the needs of our end markets – Karin’s broad senior level business leadership and finance experience, including 12 years at Boehringer Mannheim Corporation, ultimately serving as Vice President, Finance for the Diagnostics Division, provides our Board with deep insight into governance and strategy matters that have materially contributed to our success William H. Rastetter, Ph.D. (Chairman since 2005; Director since 1998) |
25 Active and Engaged Board of Directors Committed to Acting in the Best Interests of Our Stockholders Active and responsive Board – 40 Board and Board Committee meetings in the last 12 months All directors except CEO (Jay Flatley) are independent under NASDAQ rules and are committed to maximizing shareholder value Board members have significant equity ownership, which aligns their interests with the interests of our stockholders Chairman and CEO roles are separated – CEO is responsible for setting our strategic direction and for our day-to-day leadership and performance – Chairman provides frequent strategic guidance to the CEO, assists in setting the schedules and agendas for Board meetings, and presides over Board meetings – Chairman also facilitates robust director, Board, and CEO evaluation processes and leads the Board in reaching consensus on particular strategies and policies Independent Compensation Committee oversees and directs the design and implementation of executive compensation plans – Senior management compensation is tied to the long-term success of the business and is aligned with the creation of shareholder value |
26 1. Introduction to Illumina 2. Illumina’s Independent Board 3. Response to Roche’s Offer 4. Illumina’s Growth Opportunities 5. Financial Performance and Outlook 6. Summary and Conclusion |
27 Chronology of Roche’s Unsolicited Offer Illumina’s Board Acted Proactively and Managed Review From the Start December 13, 2011 – Roche’s chairman made an unsolicited oral proposal to acquire Illumina (no price specified) December 14, 2011 – Illumina’s Board met to discuss and establish a process to fully evaluate Roche’s proposal, including appointing financial advisors and reviewing Illumina’s long-term strategic plan and forecasts December 20, 2011 – Roche’s chairman updated its unsolicited proposal to acquire Illumina by orally suggesting it would be willing to pay a 50% premium January 3, 2012 – Roche’s chairman sent a letter making an unsolicited proposal to acquire Illumina for $40 per share in cash January 17, 2012 – After careful review and consideration with its financial and legal advisors (over the course of four Board meetings between December 23, 2011 and January 17, 2012), Illumina’s Board unanimously concluded that Roche’s proposal grossly undervalued Illumina and its prospects for continued growth and was not in the best interests of Illumina’s stockholders. Accordingly, Illumina’s board rejected the proposal |
28 Chronology of Roche’s Unsolicited Offer Illumina’s Board Acted Proactively and Managed Review From the Start January 24, 2012 – Roche’s chairman sent a letter, which Roche simultaneously publicly disclosed, making an unsolicited proposal to acquire Illumina for $44.50 per share in cash February 7, 2012 – After careful review and consideration with its financial and legal advisors (over the course of three Board meetings between January 25, 2012 and February 7, 2012), Illumina’s Board unanimously concluded that Roche’s proposal grossly undervalued Illumina and its prospects for continued growth and was not in the best interests of Illumina’s stockholders. Accordingly, Illumina’s board rejected the proposal March 28, 2012 – Roche’s chairman sent a letter, which Roche simultaneously publicly disclosed, increasing its offer price to $51.00 per share in cash April 2, 2012 – After careful review and consideration with its financial and legal advisors (over the course of two Board meetings between March 31, 2012 and April 2, 2012), Illumina’s Board unanimously concluded that Roche’s proposal grossly undervalued Illumina and its prospects for continued growth, and was not in the best interests of Illumina’s stockholders. Accordingly, Illumina’s board rejected the proposal |
29 Evaluating Roche’s Unsolicited Offer The Board’s Process Was Thorough and Comprehensive The Board was fully engaged in managing this process Met thirteen times between December 14, 2011 and April 2, 2012 to review and consider matters relating to Roche’s unsolicited proposals and Illumina’s long-term strategic plan and financial models Established a Transactions Committee having broad authority to assist the Board of Directors in evaluating Roche’s unsolicited proposals and alternatives thereto Retained experienced financial and legal advisors from the very start – Goldman Sachs and Bank of America Merrill Lynch as financial advisors – Dewey & LeBoeuf as transaction counsel and Abrams & Bayliss as Delaware counsel With counsel from Dewey & LeBoeuf and Abrams & Bayliss, the Board carefully considered its fiduciary duties throughout the process, including whenever the Board made a recommendation regarding the Roche proposal The Board carefully reviewed and considered Illumina’s long-term strategic plan and financial models, which were already being updated as part of an annual strategic review process |
30 Roche’s Offer is Grossly Inadequate Far From a Reasonable Starting Point For Negotiations The offer is grossly inadequate, does not reflect the intrinsic or scarcity value of Illumina, and is far from being a reasonable starting point for negotiations Dramatically undervalues Illumina’s unmatched leadership position in an industry on the verge of extraordinary growth Does not adequately compensate our stockholders for the value of Illumina’s: – Unique and innovative technological capabilities and platforms – Proven track record of operational and financial performance – Tremendous growth prospects in clinical, diagnostics, and other markets – Central role as an enabler of personalized healthcare The offer is opportunistically and urgently timed to exploit a temporary dislocation in Illumina’s stock price caused by external factors Illumina’s Standalone Performance Will Deliver Far Superior Value |
31 1. Introduction to Illumina 2. Illumina’s Independent Board 3. Response to Roche’s Offer 4. Illumina’s Growth Opportunities 5. Financial Performance and Outlook 6. Summary and Conclusion |
32 Next Gen Sequencing Will Become Ubiquitous Cost Reduction & Ease of Use Will Broaden Adoption Potential for Total Next-Gen Sequencing Installations >50,000 Molecular Biology Labs Globally |
33 Segmenting the Sequencing Market Markets and Key Characteristics Whole genome and exome sequencing Tumor/normal sequencing Applied markets Clinical applications (CLIA) Foundational research Initial Markets – Existing HiSeq customers – CE replacement – Clinical research – Applied markets Long Term Markets – Clinical applications – Diagnostics Low capital cost, ease of use, rapid turnaround time, sample prep, and high data quality Low cost per base and high data quality Low – Mid Throughput High Throughput |
34 Key Features of HiSeq 2500 Strong Customer Interest – Initial Orders Booked HiSeq 2500 – delivering “a genome in a day” Special flow cell and reagents On-board cluster generation a la MiSeq Quality equal to or better than standard 600 G/run Capable of 20 exomes a day or up to 30 RNA-seq samples in 5 hours 1 Instrument – 2 Run Configurations 5 human genomes in 10 days 1 human genome in a day |
35 Expanding the MiSeq Market Near-Term Performance Improvements Low run cost Amplicon & small microbial sequencing Targeted resequencing 4 Gb at 2 x 150 6 - 7 Gb at 2 x 250 Targeted cancer panels 100’s Mb 1-1.5 Gb 4-7 Gb |
36 BaseSpace Creates a Connected Ecosystem Accelerates Analysis and Sharing of Genomic Data App Space Public Databases |
37 NIH Spending Levels |
38 NCI Spend on Sequencing Spend in Sequencing Small Portion of Total Budget NCI Sequencing Spend NCI Hypothetical Sequencing Spend at 2% of Budget $0 $20 $40 $60 $80 $100 $120 2009 2010 2011 2012 2013 2014 2015 |
39 NIH Hypothetical Sequencing Spend at 12% CAGR NIH Sequencing Spend Trend of NIH Spend in Sequencing Utility of Sequencing Drives Double Digit Growth $0 $100 $200 $300 $400 $500 $600 $700 2009 2010 2011 2012 2013 2014 2015 |
40 Large Sequencing Opportunities Sequencing Core Technology for Modern Life Science Research |
41 European Funding Environment Improving Genomics Expected to Grow Significantly $100 $150 $200 $250 $300 $350 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E FP7 Outlays Horizon 2020 Estimated Outlays $ - $50 |
Industrial Markets Present Significant Opportunities Illumina Technologies Ready to Address Key Drivers for Broad Adoption Key Drivers for Adoption: – Low cost / sample – Decreased capital costs – Simplified sample prep with high levels of automation – Automated data analysis $1.8 Billion Incremental Opportunity Industrial Market Opportunity ($millions) Forensics Bio / Pharma QC Food Testing Seed Testing Biodefense Vet Dx Hi Value Agriculture 300 170 200 150 300 200 500 42 |
43 Diagnostic Market Opportunities Cancer & Reproductive Genetics driven by sequencing $5.7 $13.0 $23.1 $0 $5 $10 $15 $20 $25 2012 2015 2020 Infectious Disease Reproductive Genetics CDx & PGx Other Cancer |
HiSeq Creates High-Throughput Clinical Market Doubled Placements into Translational Sites (YoY) Sequenom MaterniT21 for Down syndrome Children’s Mercy Hospital 592- rare childhood disorder exome carrier test Foundation Medicine Cancer treatment Wash U Med School 28-gene cancer diagnostic panel Mayo Clinic 18-gene colorectal cancer panel Partners Healthcare 46-gene cardiomyopathy panel 44 |
45 Future Market Opportunities Very Large Sequencing Markets Emerging ~$348 Million ~$348 Million (Newborns) (Newborns) ~$254 Million ~$254 Million (Cancer + Normal) (Cancer + Normal) ~$24 Million ~$24 Million (Clinical trials) (Clinical trials) 1. http://www.ciscrp.org/professional/facts_pat.html. 2. http://www.cancer.org/acs/groups/content/@epidemiologysurveilance/documents/document/acspc-031941.pdf. 3. Assumes tumor-normal sequencing pair. 4. http://globocan.iarc.fr/factsheet.asp. 5. http://www.unicef.org/infobycountry. 6. Includes China, Russia and Mexico. US annual newborns 4.4M 5 Ex-US Industrial countries’ annual newborns 30.4M 5,6 US annual cancer diagnoses ex- non melanoma skin cancer 1.6M 2,3 Ex-US annual cancer diagnoses ex-non melanoma skin cancer 11M 3,4 US clinical trial participants ~1.5M¹ Ex-US clinical trial participants ~.9M¹ ~$626 Million Total Assuming $1,000 genome and 1% penetration |
46 Summary Rapid innovation is driving new market opportunities – Integrated systems will create competitive advantage Global funding environment expected to improve – Allocation to next generation sequencing increasing Diverse array of applications is driving industrial markets – Enabled by lower costs, higher throughput and ease of use Largest opportunity is beginning to emerge in Diagnostics – Reproductive Genetics market – Clinical utility demonstrated in cancer market – Infectious disease market growing rapidly |
47 1. Introduction to Illumina 2. Illumina’s Independent Board 3. Response to Roche’s Offer 4. Illumina’s Growth Opportunities 5. Financial Performance and Outlook 6. Summary and Conclusion |
48 Revenue Growth Illumina Has Delivered Consistent and Superior Revenue Growth… Illumina Historical Revenue 5 Year Revenue CAGR vs. Peers Source: Company filings, Capital IQ, and IBES. Note: Life Sciences include: Affymetrix, Agilent, Bio-Rad, Bruker, Complete Genomics, Fluidigm, Life Technologies, Luminex, Pacific Biosciences, PerkinElmer, Qiagen, Sigma-Aldrich, Techne, Thermo Fisher, and Waters. Molecular Diagnostics include: Cepheid, Genomic Health, Gen-Probe, Myriad, Qiagen, and Sequenom. $184.6 $366.8 $573.2 $666.3 $902.7 $1,055.5 $0.0 $200.0 $400.0 $600.0 $800.0 $1,000.0 $1,200.0 2006 2007 2008 2009 2010 2011 41.7% 10.2% 23.1% Illumina Life Sciences Median Molecular Diagnostics Median |
49 Gross Profit …Supported by Solid Gross Margins… Constant technology & chemistry innovation has enabled us to lead the enormous reduction in the cost of sequencing Our advances in production methods concurrently preserve robust gross margins New generations of instruments, while preserving support for the previous generations, contribute to our increasing installed base The growing installed base increases consumable revenue, providing an annuity stream of income with strong margins Source: Company filings, Capital IQ, and IBES. Note: Life Sciences include: Affymetrix, Agilent, Bio-Rad, Bruker, Complete Genomics, Fluidigm, Life Technologies, Luminex, Pacific Biosciences, PerkinElmer, Qiagen, Sigma-Aldrich, Techne, Thermo Fisher, and Waters. Molecular Diagnostics include: Cepheid, Genomic Health, Gen-Probe, Myriad, Qiagen, and Sequenom. 1. Adjusted gross profit defined as non-GAAP gross profit, excluding stock based compensation expense. $239.5 $372.7 $465.8 $615.2 $728.8 69% 50% 60% 70% 80% 90% 100% $0.0 $100.0 $200.0 $300.0 $400.0 $500.0 $600.0 $700.0 $800.0 2006 2007 2008 2009 2010 2011 $126.8 65% 65% 70% 68% 69% Illumina Historical Adjusted Gross Profit¹ Key Drivers |
50 2011 Operating Profit Margin vs. Peers¹ Source: Company filings, Capital IQ, and IBES. Note: Life Sciences include: Affymetrix, Agilent, Bio-Rad, Bruker, Complete Genomics, Fluidigm, Life Technologies, Luminex, Pacific Biosciences, PerkinElmer, Qiagen, Sigma-Aldrich, Techne, Thermo Fisher, and Waters. Molecular Diagnostics include: Cepheid, Genomic Health, Gen-Probe, Myriad, Qiagen, and Sequenom. 1. Non-GAAP operating profit as defined by IBES; includes stock based compensation expense. 25.3% 15.7% 14.8% Illumina Molecular Diagnostics Median Life Sciences Median Operating Profit …Coupled with Robust and Improving Operating Margins… $37.8 $59.8 $121.2 $149.3 $214.6 $266.8 20% 16% 21% 22% 24% 25% 10% 15% 20% 25% 30% 35% 40% 45% 50% $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 2006 2007 2008 2009 2010 2011 Illumina Historical Non-GAAP Operating Profit¹ |
Earnings Per Share …And Industry Leading EPS Growth… Source: Company filings, Capital IQ, and IBES. Excludes companies with not meaningful metrics. Note: Life Sciences include: Affymetrix, Agilent, Bio-Rad, Bruker, Complete Genomics, Fluidigm, Life Technologies, Luminex, Pacific Biosciences, PerkinElmer, Qiagen, Sigma-Aldrich, Techne, Thermo Fisher, and Waters. Molecular Diagnostics include: Cepheid, Genomic Health, Gen-Probe, Myriad, Qiagen, and Sequenom. 1. Non-GAAP EPS as defined by IBES. $0.41 $0.42 $0.68 $0.80 $1.06 $1.30 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 2006 2007 2008 2009 2010 2011 26.0% 12.8% 13.2% Life Sciences Median Illumina Molecular Diagnostics Median Illumina Historical Non-GAAP EPS¹ 5 Year Non-GAAP EPS CAGR vs. Peers¹ 51 |
52 Return on Invested Capital …In Addition to Strong and Improving Return on Invested Capital… Source: Company filings, Capital IQ, and IBES. Excludes companies with not meaningful metrics. Note: Life Sciences include: Affymetrix, Agilent, Bio-Rad, Bruker, Complete Genomics, Fluidigm, Life Technologies, Luminex, Pacific Biosciences, PerkinElmer, Qiagen, Sigma-Aldrich, Techne, Thermo Fisher, and Waters. Molecular Diagnostics include: Cepheid, Genomic Health, Gen-Probe, Myriad, Qiagen, and Sequenom. 1. ROIC defined as after tax non-GAAP operating profit (including SBC expense) divided by the sum of shareholders equity and debt less cash. Based on statutory tax rate. 20.5% 11.2% 15.8% Life Sciences Median Illumina 10.6% 14.1% 17.3% 20.1% 20.5% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 2007 2008 2009 2010 2011 Molecular Diagnostics Median Illumina Historical ROIC¹ 2011 ROIC vs. Peers¹ |
53 Analyst Estimates Illumina Has Outperformed Analyst EPS Estimates for 16 of the Last 20 Quarters Source: Company filings and IBES. 1. For quarters in which the company pre-announced results, the IBES median is based on estimates prior to the pre-announcement date. Source: Company filings and IBES 1. For quarters in which the company pre-announced results, the IBES median is based on estimates prior to the pre-announcement date Revenue Non-GAAP EPS % vs. IBES 8.6% 9.1% 4.0% 6.9% 5.6% 7.8% 2.9% 4.1% 1.2% (0.4)% (5.4)% 7.6% 8.0% 9.3% 8.7% 4.7% 8.1% 2.1% (15.7)% 1.0% 2007 2008 2009 2011 2010 % vs. IBES 40.3% 55.6% 26.7% 20.4% 8.3% 12.7% (8.0)% 47.1% 5.3% 28.5% (15.8)% 16.7% 11.1% 14.0% 23.5% (6.5)% 13.3% 3.8% (37.5)% 34.6% 2007 2008 2009 2011 2010 $72 $85 $98 $113 $122 $140 $150 $161 $166 $162 $158 $181 $192 $212 $237 $261 $283 $287 $235 $250 $66 $77 $94 $105 $115 $130 $146 $155 $164 $162 $167 $168 $178 $194 $218 $250 $261 $282 $279 $248 $0 $50 $100 $150 $200 $250 $300 $350 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4¹ Q1 Q2 Q3 Q4¹ Q1 Q2 Q3¹ Q4¹ $0.06 $0.10 $0.12 $0.15 $0.13 $0.16 $0.15 $0.25 $0.20 $0.23 $0.17 $0.21 $0.21 $0.26 $0.30 $0.29 $0.35 $0.38 $0.22 $0.35 $0.04 $0.06 $0.10 $0.12 $0.12 $0.14 $0.16 $0.17 $0.19 $0.18 $0.20 $0.18 $0.19 $0.23 $0.24 $0.31 $0.31 $0.37 $0.35 $0.26 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4¹ Q1 Q2 Q3 Q4¹ Q1 Q2 Q3¹ Q4¹ Reported Results Above IBES Median Reported Results Below IBES Median IBES Median Estimate No. Above = ILMN Actual No. Below = IBES Median |
54 Illumina Life Sciences Molecular Diagnostics Share Price and Total Shareholder Return …Leading to Superior Share Price Performance and Shareholder Return… 5 Year Stock Price Performance¹ 5 Year Total Shareholder Return¹ Source: Bloomberg. Note: Excludes Complete Genomics, Fluidigm, and Pacific Biosciences because companies have not been publicly traded for the entire time period. 1. For the 5 years prior to Roche’s public announcement of unsolicited offer for Illumina on 24-Jan-2012. (2.3)% (2.3)% 297.3 % 84.1 % 82.6 % 78.6 % 56.5 % 50.6 % 50.3 % 30.6 % 30.6 % 24.3 % 22.1 % 21.4 % 17.0 % 8.4 % 5.2 % 0.2 % 297.3 % 88.9 % 84.1 % 82.6 % 56.5 % 50.6 % 50.3 % 30.6 % 30.6 % 30.4 % 23.4 % 22.1 % 21.4 % 12.2 % 8.4 % 0.2 % |
EV / Sales Trading Multiples …And Premium Trading Multiples 5.7x 2.8x 4.5x 5.5x 0x 2x 4x 6x 8x 10x 12x 14x Mar-2007 Jan-2008 Nov-2008 Sep-2009 Jul-2010 May-2011 Mar-2012 Daily from 30-Mar-2007 to 30-Mar-2012 Illumina Life Sciences Molecular Diagnostics Roche Tender Offer at $51.00 1 Year 3 Year 5 Year Illumina Average 5.8 x 6.5 x 7.6 x % of Days Illumina Multiple Greater than Roche Offer 51% 77% 82% Life Sciences Average 2.8 x 2.7 x 2.9 x Implied Premium for Illumina 106% 139% 163% Molecular Diagnostics Average 4.6 x 4.5 x 5.5 x Implied Premium for Illumina 27% 44% 38% Source: Company filings, Capital IQ, and IBES. Excludes companies with not meaningful multiples. Market capitalization component of EV represents basic market capitalization. Note: Life Sciences include: Affymetrix, Agilent, Bio-Rad, Bruker, Complete Genomics, Fluidigm, Life Technologies, Luminex, Pacific Biosciences, PerkinElmer, Qiagen, Sigma-Aldrich, Techne, Thermo Fisher, and Waters. Molecular Diagnostics include: Cepheid, Genomic Health, Gen-Probe, Myriad, Qiagen, and Sequenom. LTM EV/Sales 55 |
Premium P/E Multiple Most Analysts Use P/E as Their Primary Valuation Metric for Illumina Source: Company filings, Capital IQ, and IBES. Excludes companies with not meaningful multiples. Note: Life Sciences include: Affymetrix, Agilent, Bio-Rad, Bruker, Complete Genomics, Fluidigm, Life Technologies, Luminex, Pacific Biosciences, PerkinElmer, Qiagen, Sigma-Aldrich, Techne, Thermo Fisher, and Waters. Molecular Diagnostics include: Cepheid, Genomic Health, Gen-Probe, Myriad, Qiagen, and Sequenom. 34.8x 15.5x 16.8x 33.7x 0x 10x 20x 30x 40x 50x 60x 70x Mar- 2007 Jan-2008 Nov-2008 Sep-2009 Jul-2010 May-2011 Mar-2012 Illumina Life Sciences Molecular Diagnostics Roche Tender Offer at $51.00 Daily from 30-Mar-2007 to 30-Mar-2012 56 1 Year 3 Year 5 Year Illumina Average 31.9 x 35.3 x 40.5 x % of Days Illumina Multiple Greater than Roche Offer 45% 70% 76% Life Sciences Average 15.7 x 16.7 x 17.4 x Implied Premium for Illumina 104% 111% 133% Molecular Diagnostics Average 17.1 x 18.8 x 22.6 x Implied Premium for Illumina 87% 88% 79% NTM P/E |
57 Recent Performance Third Quarter 2011 Challenges Illumina Life Sciences Illumina Quarterly Revenue Stock Performance Source: Company filings and Bloomberg as of 30-Mar-2012. Note: Life Sciences include: Affymetrix, Agilent, Bio-Rad, Bruker, Complete Genomics, Fluidigm, Life Technologies, Luminex, Pacific Biosciences, PerkinElmer, Qiagen, Sigma-Aldrich, Techne, Thermo Fisher, and Waters. Multi-Year NIH Funding Uncertainty European Debt Crisis Temporary Excess Capacity from Launch of V3 kits “Perfect Storm” in Q3 Corrective Actions Taken: Suspended management guidance Pre-announced disappointing results Took immediate action on restructuring Significant Progress in Q4 Key Accomplishments: MiSeq instruments drove return to sequential growth 1.2 book-to-bill ratio delivered strong backlog of $251mm Record cash flow from operations of $108mm Continued Recovery in Q1 Quarter-to-Date Trends: MiSeq continuing to gain momentum V3 overcapacity largely absorbed Strong international performance Clarity on 2012 NIH Budget Market Dynamics |
Revenue Expectations and Share Price Performance Industry Headwinds Impacted the NextGen Sequencing Sector Illumina ($bn) Life Technologies ($bn) Pacific Biosciences ($mm) Complete Genomics ($mm) Source: Bloomberg and IBES. 58 Sum of 2012-2014 Revenue Estimates Stock Price |
59 Sources of Revenue The Company has Significantly Diversified its Revenue Base Over the Last 5 Years Source: Company filings, company estimates and Wall Street research. 2006 2011 Revenue by Product Mix Revenue by End Market Revenue by Geography |
Financial Outlook Illumina Will Continue to Deliver Growth for the Foreseeable Future 2012 2013 and Beyond Financial Guidance Key Target Markets: – Life sciences: $4bn – Molecular Dx: $3bn – Applied markets: $1bn – Consumer Emerging Diagnostic Opportunities: Based on $1,000 per genome and 1% market penetration, Illumina can target and could generate: – ~$350mm in neo-natal market revenues – ~$250mm in oncology market revenues – ~$25mm in clinical trial market revenues Revenue: $1,100 - $1,175mm (4% – 11% Y-o-Y growth) Gross Margin: ~ 70% Non-GAAP EPS¹: $1.40 - $1.50 (8% – 15% Y-o-Y growth) Shares Outstanding: ~135mm Stock Based Compensation: $105mm 1. Non-GAAP EPS guidance includes stock based compensation. Future Growth Drivers 60 |
61 1. Introduction to Illumina 2. Illumina’s Independent Board 3. Response to Roche’s Offer 4. Illumina’s Growth Opportunities 5. Financial Performance and Outlook 6. Summary and Conclusion |
62 Summary and Conclusions Recommend a Vote AGAINST Roche’s Proposals and FOR Illumina’s Proposals Illumina is the clear innovation and market leader in tools for genetic analysis at a time when our industry as a whole – and Illumina in particular – has the potential to experience extraordinary growth Illumina’s track record of innovation, commercialization and creating stockholder value is recognized as unique in the industry Roche has acted opportunistically to take advantage of a temporary dislocation in Illumina’s stock price as well as the certainty of extraordinary growth in the market opportunity in the near term Illumina’s independent Board has evaluated Roche’s offer thoroughly and carefully and is committed to continuing to act in the best interests of stockholders We believe the facts and circumstances strongly support recommendations against Roche’s proposals and nominees, and in favor of Illumina’s directors |
63 “…the sequence of the human DNA is the reality of the species, and everything that happens in the world depends upon those sequences.” Renato Dulbecco, Nobel Laureate |
64 ADDITIONAL INFORMATION AND WHERE TO FIND IT This communication does not constitute an offer to buy or a solicitation of an offer to sell any securities. In response to the tender offer commenced by CKH Acquisition Corporation, a wholly owned subsidiary of Roche Holding Ltd, Illumina has filed a solicitation/recommendation statement on Schedule 14D-9 with the SEC. INVESTORS AND SECURITY HOLDERS OF ILLUMINA ARE URGED TO READ THE SOLICITATION/RECOMMENDATION STATEMENT AND OTHER DOCUMENTS FILED WITH THE SEC (WHEN THEY BECOME AVAILABLE) CAREFULLY IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION. Investors and security holders are able to obtain free copies of these documents and other documents filed with the SEC by Illumina (when they become available) through the web site maintained by the SEC at http://www.sec.gov. Investors and security holders also are able to obtain free copies of these documents, and other documents filed with the SEC by Illumina (when they become available), from Illumina by directing a request to Illumina, Inc., Attn: Investor Relations, Kevin Williams, MD, kwilliams@illumina.com. In addition, in connection with its 2012 Annual Meeting of Stockholders, Illumina has filed a definitive proxy statement and a WHITE proxy card with the SEC on March 19, 2012, and has mailed the definitive proxy statement and WHITE proxy card to its security holders. INVESTORS AND SECURITY HOLDERS OF ILLUMINA ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT AND THE WHITE PROXY CARD FOR THE 2012 ANNUAL MEETING OF STOCKHOLDERS AND OTHER DOCUMENTS FILED WITH THE SEC (WHEN THEY BECOME AVAILABLE) CAREFULLY IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION. Investors and security holders are able to obtain free copies of the definitive proxy statement and other documents filed with the SEC by Illumina (when they become available) through the web site maintained by the SEC at http://www.sec.gov. Investors and security holders also are able to obtain free copies of the definitive proxy statement, and other documents filed with the SEC by Illumina (when they become available), from Illumina by directing a request to Illumina, Inc., Attn: Investor Relations, Kevin Williams, MD, kwilliams@illumina.com. |
65 CERTAIN INFORMATION REGARDING PARTICIPANTS IN THE SOLICITATION Illumina and certain of its directors and executive officers may be deemed to be participants in the solicitation of proxies in connection with Illumina’s 2012 Annual Meeting of Stockholders under the rules of the SEC. Security holders may obtain information regarding the names, affiliations and direct and indirect interests (by security holdings or otherwise) of Illumina’s directors and executive officers in (i) Illumina’s Annual Report on Form 10-K for the year ended January 1, 2012, which was filed with the SEC on February 24, 2012, and (ii) Illumina’s definitive proxy statement for its 2012 Annual Meeting of Stockholders, which was filed with the SEC on March 19, 2012. To the extent that Illumina’s directors’ and executive officers’ holdings of Illumina’s securities have changed from the amounts printed in the definitive proxy statement for the 2012 Annual Meeting of Stockholders, such changes have been or will be reflected on Statements of Changes in Beneficial Ownership on Form 4 filed with the SEC. These documents can be obtained free of charge from the sources indicated above. |
Annex
ILLUMINA, INC.
ITEMIZED RECONCILIATIONS OF GAAP TO NON-GAAP RESULTS
Below is a reconciliation of Illumina’s diluted net income per share, gross profit, and operating profit calculated in accordance with accounting principles generally accepted in the United States (“GAAP”), to non-GAAP diluted net income per share, gross profit, and operating profit. Illumina believes the non-GAAP information that is detailed below provides useful supplemental information to investors and facilitates the analysis of our core operating results and major factors in management’s bonus compensation each year. Management has excluded the effects of the items detailed below to assist investors in analyzing and assessing our past and future operating performance. Non-GAAP results should be read in conjunction with GAAP financial measures, as non-GAAP metrics are merely a supplement to, and not a replacement for, or superior to, GAAP financial measures. It should be noted as well that our Non-GAAP metrics may be different from those provided by other companies.
Results of Operations - Non-GAAP
(In thousands, except per share amounts)
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME PER SHARE BY YEAR:
Fiscal Year 2011 | Fiscal Year 2010 | Fiscal Year 2009 | Fiscal Year 2008 (h) | Fiscal Year 2007 (h) | Fiscal Year 2006 (i) | |||||||||||||||||||
GAAP net income per share — diluted | $ | 0.62 | $ | 0.87 | $ | 0.53 | $ | 0.30 | $ | (2.65 | ) | $ | 0.41 | |||||||||||
Pro forma impact of weighted average shares (a) | 0.03 | 0.06 | 0.03 | 0.01 | 0.20 | |||||||||||||||||||
Adjustments to net income: | ||||||||||||||||||||||||
Headquarter relocation expense (b) | 0.31 | — | — | — | — | — | ||||||||||||||||||
Non-cash interest expense(c) | 0.24 | 0.16 | 0.15 | 0.15 | 0.13 | |||||||||||||||||||
Restructuring charges | 0.06 | — | — | — | — | — | ||||||||||||||||||
Amortization of acquired intangible assets | 0.09 | 0.06 | 0.05 | 0.08 | 0.02 | |||||||||||||||||||
Legal settlements | (0.02 | ) | — | — | — | 0.46 | — | |||||||||||||||||
Acquisition related (gain) expense, net (d) | 0.01 | (0.09 | ) | 0.10 | 0.20 | 2.59 | ||||||||||||||||||
Contingent compensation expense (e) | 0.04 | 0.03 | 0.03 | 0.01 | — | |||||||||||||||||||
Loss on extinguishment of debt | 0.28 | — | (0.01 | ) | — | — | ||||||||||||||||||
Impairment loss related to a cost-method investment | — | 0.10 | — | — | — | — | ||||||||||||||||||
Impairment of manufacturing equipment | — | — | — | 0.03 | — | — | ||||||||||||||||||
Amortization of inventory revaluation costs | 0.01 | |||||||||||||||||||||||
Incremental non-GAAP tax expense(f) | (0.36 | ) | (0.13 | ) | (0.08 | ) | (0.10 | ) | (0.34 | ) | — | |||||||||||||
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Non-GAAP net income per share — diluted(g) | $ | 1.30 | $ | 1.06 | $ | 0.80 | $ | 0.68 | $ | 0.42 | $ | 0.41 | ||||||||||||
Weighted average shares used in calculation of Non-GAAP diluted net income per share | 135,154 | 134,375 | 130,599 | 126,836 | 116,860 | 97,508 | ||||||||||||||||||
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES (i): |
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Weighted average shares used in calculation of GAAP diluted net income per share | 138,937 | 143,433 | 137,096 | 133,607 | 108,308 | 97,508 | ||||||||||||||||||
Weighted average dilutive potential common shares issuable of redeemable convertible senior notes(a) | (3,783 | ) | (9,058 | ) | (6,497 | ) | (6,771 | ) | (1,357 | ) | — | |||||||||||||
Weighted average potential common shares excluded due to anti-dilutive effect(j) | — | — | — | — | 9,909 | — | ||||||||||||||||||
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Weighted average shares used in calculation of Non-GAAP diluted net income per share | 135,154 | 134,375 | 130,599 | 126,836 | 116,860 | 97,508 |
(a) | Pro forma impact of weighted average shares represents the impact of double dilution associated with the accounting treatment of the company’s outstanding convertible debt and the corresponding call option overlay. |
(b) | The Company relocated its headquarters to a new facility in San Diego, California during the second half of 2011. Headquarter relocation expense in fiscal year 2011 is primarily non-cash in nature and includes a cease-use loss upon vacating certain buildings of our prior headquarters, accelerated depreciation expense, and double rent expense during the transition to our new headquarter facility. |
(c) | Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash. |
(d) | Acquisition related (gain) expense, net includes the following current year and prior year adjustments: |
2011 adjustments: |
- | IPR&D charge of $5.4 million related to milestone payments for a prior acquisition |
- | Gain of $4.5 million for changes in fair value of contingent consideration, $1.5 million of which was recorded in Q4 2011 |
2010 adjustments: |
- | IPR&D charge of $1.3 million related to milestone payments for a prior acquisition |
- | Acquisition expenses of $0.5 million |
- | Gain on acquisition of $2.9 million recorded for the difference between the carrying value of a cost-method investment prior to acquisition and the fair value of that investment at the time of acquisition |
- | Gain of $10.4 million recorded in Q4 2010 for changes in fair value of contingent consideration |
2009, 2008, & 2007 adjustments: |
- | Research and development charges related to acquisitions |
(e) | Contingent compensation expense represents contingent consideration for post-combination services associated with acquisitions. |
(f) | Incremental non-GAAP tax expense reflects the increase to GAAP tax expense related to the non-GAAP adjustments listed above. |
(g) | Non-GAAP net income per share and net income exclude the effect of the pro forma adjustments as detailed above. Non-GAAP diluted net income per share and net income are key drivers of our core operating performance and major factors in management’s bonus compensation each year. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing our past and future core operating performance. |
(h) | Adjusted to reflect retroactive adoption of authoritative accounting guidance for convertible debt instruments that may be settled in cash upon conversion effective December 28, 2008. |
(i) | Adjusted as necessary to reflect a two-for-one stock split effective September 22, 2008 |
(j) | Weighted average shares excluded from calculation of GAAP diluted net income per share for 2007 due to anti-dilutive effect on GAAP net loss. |
Annex
Results of Operations as a Percentage of Revenue
(Dollars in thousands)
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP GROSS PROFIT AS A PERCENTAGE OF REVENUE:
Fiscal Year | ||||||||||||||||||||||||||||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||||||||||||||||
GAAP gross profit | $ | 709.1 | 67 | % | 601.5 | 67 | % | $ | 453.9 | 68 | % | $ | 353.1 | 62 | % | 231.9 | 63 | % | $ | 125.2 | 68 | % | ||||||||||||||||||||||||||
Stock-based compensation | 7.6 | 1 | % | 5.9 | 0 | % | 5.2 | 1 | % | 5.1 | 1 | % | 4.5 | 1 | % | 1.6 | 1 | % | ||||||||||||||||||||||||||||||
Amortization of acquired intangible assets | 12.1 | 1 | % | 7.8 | 1 | % | 6.7 | 1 | % | 10.4 | 2 | % | 2.4 | 1 | % | — | — | |||||||||||||||||||||||||||||||
Impairment of manufacturing equipment | — | 0 | % | — | 0 | % | — | — | 4.1 | 0 | % | — | — | — | — | |||||||||||||||||||||||||||||||||
Amortization of inventory revaluation costs | — | 0 | % | — | 0 | % | — | — | — | — | 0.7 | 0 | % | — | — | |||||||||||||||||||||||||||||||||
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Non-GAAP gross profit | $ | 728.8 | 69 | % | $ | 615.2 | 68 | % | $ | 465.8 | 70 | % | $ | 372.7 | 65 | % | $ | 239.5 | 65 | % | $ | 126.8 | 69 | % | ||||||||||||||||||||||||
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ITEMIZED RECONCILIATION BETWEEN GAAP & NON-GAAP OPERATING PROFIT AS A PERCENTAGE OF REVENUE:
Fiscal Year | ||||||||||||||||||||||||||||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||||||||||||||||
GAAP operating profit | $ | 199.5 | 18.9 | % | $ | 211.7 | 23.4 | % | $ | 125.6 | 18.8 | % | $ | 80.5 | 14.0 | % | $ | (301.2 | ) | (82.1 | %) | $ | 37.8 | 20.4 | % | |||||||||||||||||||||||
Headquarter relocation expense (a) | 41.8 | 4.0 | % | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Amortization of acquired intangible assets | 12.7 | 1.2 | % | 7.8 | 0.9 | % | 6.7 | 1.0 | % | 10.4 | 1.8 | % | 2.4 | 0.6 | % | — | — | |||||||||||||||||||||||||||||||
Restructuring charges | 8.1 | 0.7 | % | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Contingent compensation expense (b) | 6.1 | 0.6 | % | 3.7 | 0.4 | % | 3.7 | 0.6 | % | 1.5 | 0.3 | % | — | — | — | — | ||||||||||||||||||||||||||||||||
Acquisition related expense (gain), net (c) | 0.9 | 0.1 | % | (8.6 | ) | (0.9 | %) | 13.3 | 2.0 | % | 24.7 | 4.3 | % | 303.4 | 82.7 | % | — | — | ||||||||||||||||||||||||||||||
Legal settlement | (2.3 | ) | (0.2 | %) | — | — | — | — | — | — | 54.5 | 14.9 | % | — | — | |||||||||||||||||||||||||||||||||
Impairment of manufacturing equipment | — | — | — | — | — | — | 4.1 | 0.7 | % | — | — | — | — | |||||||||||||||||||||||||||||||||||
Amortization of inventory revaluation costs | — | — | — | — | — | — | — | — | 0.7 | 0.2 | % | — | — | |||||||||||||||||||||||||||||||||||
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Non-GAAP operating profit | $ | 266.8 | 25.3 | % | $ | 214.6 | 23.8 | % | $ | 149.3 | 22.4 | % | $ | 121.2 | 21.1 | % | $ | 59.8 | 16.3 | % | $ | 37.8 | 20.4 | % | ||||||||||||||||||||||||
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(a) | Headquarter relocation expense are primarily non-cash in nature and includes a cease-use loss upon vacating certain buildings of our prior headquarters, accelerated depreciation expense, and double rent expense during the transition to our new headquarter facility. |
(b) | Contingent compensation expense represents contingent consideration for post-combination services associated with acquisitions. |
(c) | Acquisition related (gain) expense, net includes the following adjustments: |
2011 adjustments: |
- | IPR&D charge of $5.4 million related to milestone payments for a prior acquisition |
- | Gain of $4.5 million for changes in fair value of contingent consideration, $1.5 million of which was recorded in Q4 2011 |
2010 adjustments: |
- | IPR&D charge of $1.3 million related to milestone payments for a prior acquisition |
- | Acquisition expenses of $0.5 million |
- | Gain on acquisition of $2.9 million recorded for the difference between the carrying value of a cost-method investment prior to acquisition and the fair value of that investment at the time of acquisition |
- | Gain of $10.4 million recorded in Q4 2010 for changes in fair value of contingent consideration |
2009, 2008, & 2007 adjustments: |
- | Research and development charges related to acquisitions |
Annex
Results of Operations - Non-GAAP
(In thousands, except per share amounts)
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME PER SHARE BY QUARTER:
Fiscal Year 2011 (a) | Fiscal Year 2010 (a) | Fiscal Year 2009 (a) | Fiscal Year 2008 (a) | Fiscal Year 2007 (a) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GAAP net income per share — diluted | $ | 0.09 | $ | 0.15 | $ | 0.22 | $ | 0.16 | $ | 0.25 | $ | 0.24 | $ | 0.21 | $ | 0.16 | $ | 0.09 | $ | 0.12 | $ | 0.18 | $ | 0.14 | $ | 0.20 | $ | (0.08 | ) | $ | 0.09 | $ | 0.08 | $ | (0.06 | ) | $ | 0.10 | $ | 0.06 | $ | (2.80 | ) | |||||||||||||||||||||||||||||||||||||
Pro forma impact of weighted average shares (b) | — | — | 0.01 | 0.01 | 0.01 | 0.01 | 0.02 | 0.01 | — | 0.01 | 0.01 | 0.01 | — | 0.01 | 0.02 | 0.02 | 0.01 | (0.01 | ) | (0.01 | ) | 0.22 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments to net income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Headquarter relocation expense (c) | 0.24 | 0.05 | 0.02 | 0.02 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-cash interest expense(d) | 0.07 | 0.07 | 0.06 | 0.05 | 0.04 | 0.04 | 0.04 | 0.04 | 0.04 | 0.04 | 0.04 | 0.04 | 0.04 | 0.03 | 0.03 | 0.03 | 0.04 | 0.04 | 0.04 | 0.02 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring charges | 0.07 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of acquired intangible assets | 0.02 | 0.02 | 0.02 | 0.02 | 0.02 | 0.02 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.02 | 0.02 | 0.02 | 0.02 | 0.01 | 0.01 | 0.01 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Legal settlements | (0.02 | ) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 0.46 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition related (gain) expense, net(e) | (0.01 | ) | (0.02 | ) | 0.03 | — | (0.07 | ) | — | (0.01 | ) | — | 0.08 | — | — | 0.02 | — | 0.20 | — | — | — | — | — | 2.61 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contingent compensation expense(f) | 0.01 | — | 0.02 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss on extinguishment of debt | — | 0.01 | 0.07 | 0.19 | — | — | — | — | — | — | — | (0.01 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment loss related to a cost-method investment | — | — | — | — | 0.09 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment of manufacturing equipment | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 0.03 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of inventory revaluation costs | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 0.01 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Incremental non-GAAP tax expense(g) | (0.12 | ) | (0.06 | ) | (0.07 | ) | (0.11 | ) | (0.06 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | (0.03 | ) | (0.03 | ) | (0.02 | ) | (0.31 | ) | (0.02 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
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Non-GAAP net income per share — diluted | $ | 0.35 | $ | 0.22 | $ | 0.38 | $ | 0.35 | $ | 0.29 | $ | 0.30 | $ | 0.26 | $ | 0.21 | $ | 0.21 | $ | 0.17 | $ | 0.23 | $ | 0.20 | $ | 0.25 | $ | 0.15 | $ | 0.16 | $ | 0.13 | $ | 0.15 | $ | 0.12 | $ | 0.10 | $ | 0.06 | ||||||||||||||||||||||||||||||||||||||||
Weighted average shares used in calculation of Non-GAAP diluted net income per share | 124,409 | 134,674 | 139,357 | 142,176 | 140,080 | 135,913 | 132,547 | 128,960 | 129,698 | 132,839 | 132,329 | 127,546 | 128,044 | 133,046 | 125,310 | 120,944 | 117,756 | 118,790 | 116,122 | 116,040 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED NUMBER OF SHARES: |
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Weighted average shares used in calculation of GAAP diluted net income per share | 124,888 | 135,966 | 141,765 | 153,129 | 151,171 | 145,205 | 140,951 | 136,407 | 136,095 | 139,874 | 139,465 | 132,967 | 131,301 | 119,733 | 133,396 | 127,528 | 110,110 | 118,790 | 116,122 | 106,844 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average dilutive potential common shares issuable of redeemable convertible senior notes(b) | (479 | ) | (1,292 | ) | (2,408 | ) | (10,953 | ) | (11,091 | ) | (9,292 | ) | (8,404 | ) | (7,447 | ) | (6,397 | ) | (7,035 | ) | (7,136 | ) | (5,421 | ) | (3,257 | ) | (9,157 | ) | (8,086 | ) | (6,584 | ) | (4,162 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Weighted average potential common shares excluded due to anti-dilutive effect(h) | — | — | — | — | — | — | — | — | — | — | — | — | 22,470 | 11,808 | — | — | 9,196 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Weighted average shares used in calculation of Non-GAAP diluted net income per share | 124,409 | 134,674 | 139,357 | 142,176 | 140,080 | 135,913 | 132,547 | 128,960 | 129,698 | 132,839 | 132,329 | 127,546 | 128,044 | 133,046 | 125,310 | 120,944 | 117,756 | 118,790 | 116,122 | 116,040 |
(a) | The sum of all four quarterly results by line item as presented above may be different than the reported full fiscal year results, due to the effect of rounding. In addition, for years of 2009 and prior, non-GAAP results presented above may be different from the non-GAAP results historically reported in the respective years as they have been adjusted for the following items to achieve comparability to non-GAAP results in 2010 and 2011: |
- | Two-for-one stock split effective September 22, 2008; |
- | Retroactive application of authoritative accounting guidance effective December 28, 2008 for convertible debt instruments that may be settled in cash upon conversion; |
- | The effect of share-based compensation expense, while excluded from the non-GAAP results historically reported in years of 2009 and prior, is included in the non-GAAP results presented above, consistent with the inclusion of such effect in 2010 and 2011. |
(b) | Pro forma impact of weighted average shares represents the impact of double dilution associated with the accounting treatment of the company’s outstanding convertible debt and the corresponding call option overlay. |
(c) | Headquarter relocation expense are primarily non-cash in nature and includes a cease-use loss upon vacating certain buildings of our prior headquarters, accelerated depreciation expense, and double rent expense during the transition to our new headquarter facility. |
(d) | Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash. |
(e) | Acquisition related (gain) expense, net includes the following current year and prior year adjustments: |
2011 adjustments: |
- | IPR&D charge of $5.4 million in Q2 2011 related to milestone payments for a prior acquisition |
- | Changes in fair value of contingent consideration as follows: loss of $0.3 million in Q1, gain of $0.7 million in Q2, gain of $2.6 million in Q3, and gain of $1.5 million in Q4. |
2010 adjustments: |
- | IPR&D charge of $1.3 million in Q2 related to milestone payments for a prior acquisition |
- | Acquisition expenses in Q2 of $0.5 million |
- | Gain on acquisition of $2.9 million recorded for the difference between the carrying value of a cost-method investment prior to acquisition and the fair value of that investment at the time of acquisition, recorded in Q2 |
- | Gain of $10.4 million recorded in Q4 for changes in fair value of contingent consideration |
2009, 2008, & 2007 adjustments: |
- | Research and development charges related to acquisitions |
(f) | Contingent compensation expense represents contingent consideration for post-combination services associated with acquisitions. |
(g) | Incremental non-GAAP tax expense reflects the increase to GAAP tax expense related to the non-GAAP adjustments listed above. |
(h) | Weighted average shares excluded from calculation of GAAP diluted net income per share for Q1 2007, Q4 2007, and Q3 2008 due to anti-dilutive effect on GAAP net loss. |
Annex
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. Information on potential factors that could affect the company’s financial results is included from time to time in the company’s public reports filed with the SEC, including the company’s Form 10-K for the fiscal year ended January 1, 2012. The company assumes no obligation to update any forward-looking statements or information.
Fiscal Year 2012 | ||||
Gross Margin | ||||
Non-GAAP gross margin | 70 | % | ||
Stock-based compensation expense | (1 | %) | ||
Amortization of acquired intangible assets | (1 | %) | ||
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GAAP gross margin | 68 | % | ||
Diluted net income per share | ||||
Non-GAAP diluted net income per share | $ | 1.40 - $1.50 | ||
Non-cash interest expense(a) | (0.16 | ) | ||
Headquarter relocation expense(b) | (0.11 | ) | ||
Expenses related to unsolicited tender offer | (0.11 | ) | ||
Amortization of intangible assets | (0.06 | ) | ||
Contingent compensation expense(c) | (0.03 | ) | ||
Restructuring charges | (0.03 | ) | ||
Pro forma impact of weighted average shares(d) | (0.01 | ) | ||
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GAAP diluted net income per share | $ | 0.89 - $0.99 | ||
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(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) | We expect to incur additional headquarter relocation expenses during the first half of 2012, the majority of which are non-cash in nature. These expenses include items such as additional cease-use loss upon vacating our former headquarter facilities, accelerated depreciation of certain property and equipment, and double rent expense during the transition to the new facility. |
(c) | Contingent compensation expense represents contingent consideration for post-combination services associated with acquisitions. |
(d) | Pro forma impact of weighted average shares represents the estimated impact of double dilution associated with the accounting treatment of the company’s outstanding convertible debt and the corresponding call option overlay. |