Illumina Reports Financial Results for First Quarter of Fiscal Year 2023; Announces Commitment to Accelerate Margin Growth

GAAP

Non-GAAP (a)

Dollars in millions, except per share amounts

Q1 2023

Q1 2022

Q1 2023

Q1 2022

Revenue

$  1,087

$  1,223

$  1,087

$  1,223

Gross margin

60.3 %

66.6 %

64.7 %

69.9 %

Research and development ("R&D") expense

$     341

$    323

$    339

$    323

Selling, general and administrative ("SG&A") expense

$     378

$    308

$    343

$    320

Operating (loss) profit

$     (64)

$    184

$      21

$    212

Operating margin

(5.7) %

15.0 %

1.9 %

17.3 %

Tax rate

103.9 %

38.3 %

27.3 %

17.8 %

Net income

$         3

$      86

$      13

$    169

Diluted earnings per share

$    0.02

$   0.55

$   0.08

$   1.07

(a)

See the tables included in the "Results of Operations - Non-GAAP" section below for reconciliations of these GAAP and non-GAAP financial measures.

¹

The company only provides non-GAAP measures for operating margin targets because of the difficulty of projecting with reasonable certainty the financial impact of specific GAAP operating adjustments. Please see Illumina's "Statement regarding use of non-GAAP financial measures" for more information.

GAAP

Non-GAAP (a)

Dollars in millions

Q1 2023

Q1 2022

Q1 2023

Q1 2022

Revenue (b)

$  1,076

$  1,221

$  1,076

$  1,221

Gross margin (c)

63.8 %

69.7 %

65.2 %

70.2 %

R&D expense

$    259

$    238

$    257

$    238

SG&A expense

$    286

$    251

$    257

$    267

Operating profit

$    142

$    362

$    187

$    352

Operating margin

13.2 %

29.6 %

17.4 %

28.8 %

(a)

See Table 3 included in the "Results of Operations - Non-GAAP" section below for reconciliations of these GAAP and non-GAAP financial measures.

(b)

Core Illumina revenue for Q1 2023 was down 12% from Q1 2022, and down 10% on a constant currency basis. Amounts for Q1 2023 and Q1 2022 included intercompany revenue of $9 million and $8 million, respectively, which is eliminated in consolidation.

(c)

The year-over-year decrease in gross margin was primarily driven by less fixed cost leverage on lower manufacturing volumes and lower instrument margins due to the NovaSeq X launch, which is typical for a new platform introduction.

GAAP

Non-GAAP (a)

In millions

Q1 2023

Q1 2022

Q1 2023

Q1 2022

Revenue

$      20

$         10

$      20

$         10

Gross (loss) profit

$     (25)

$        (29)

$        9

$           5

R&D expense

$      86

$         85

$      86

$         85

SG&A expense

$      93

$         58

$      87

$         54

Operating loss

$   (204)

$      (172)

$   (164)

$      (134)

(a)

 See Table 3 included in the "Results of Operations - Non-GAAP" section below for reconciliations of these GAAP and non-GAAP financial measures.

Illumina, Inc.

Condensed Consolidated Balance Sheets

(In millions)

April 2,
2023

January 1,
2023

ASSETS

(unaudited)

Current assets:

Cash and cash equivalents

$         1,494

$         2,011

Short-term investments

24

26

Accounts receivable, net

665

671

Inventory, net

586

568

Prepaid expenses and other current assets

403

285

Total current assets

3,172

3,561

Property and equipment, net

1,082

1,091

Operating lease right-of-use assets

658

653

Goodwill

3,239

3,239

Intangible assets, net

3,237

3,285

Other assets

423

423

Total assets

$       11,811

$       12,252

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$            242

$            293

Accrued liabilities

1,239

1,232

Term notes, current portion

—

500

Convertible senior notes, current portion

749

748

Total current liabilities

2,230

2,773

Operating lease liabilities

747

744

Term notes

1,487

1,487

Other long-term liabilities

654

649

Stockholders' equity

6,693

6,599

Total liabilities and stockholders' equity

$       11,811

$       12,252

Illumina, Inc.

Condensed Consolidated Statements of Operations

(In millions, except per share amounts)

(unaudited)

Three Months Ended

April 2,
2023

April 3,
2022

Revenue:

Product revenue

$            922

$         1,070

Service and other revenue

165

153

Total revenue

1,087

1,223

Cost of revenue:

Cost of product revenue (a)

285

299

Cost of service and other revenue (a)

99

69

Amortization of acquired intangible assets

48

40

Total cost of revenue

432

408

Gross profit

655

815

Operating expense:

Research and development (a)

341

323

Selling, general and administrative (a)

378

308

Total operating expense

719

631

(Loss) income from operations

(64)

184

Other expense, net

(14)

(44)

(Loss) income before income taxes

(78)

140

(Benefit) provision for income taxes

(81)

54

Net income

$                3

$              86

Earnings per share:

Basic

$           0.02

$           0.55

Diluted

$           0.02

$           0.55

Shares used in computing earnings per share:

Basic

158

157

Diluted

158

159

(a)

Includes stock-based compensation expense for stock-based awards:

Three Months Ended

April 2,
2023

April 3,
2022

Cost of product revenue

$                6

$                6

Cost of service and other revenue

1

1

Research and development

38

36

Selling, general and administrative

48

49

Stock-based compensation expense before taxes

$              93

$              92

Illumina, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(unaudited)

Three Months Ended

April 2,
2023

April 3,
2022

Net cash provided by operating activities

$              10

$            172

Net cash used in investing activities

(56)

(74)

Net cash (used in) provided by financing activities

(473)

21

Effect of exchange rate changes on cash and cash equivalents

2

—

Net (decrease) increase in cash and cash equivalents

(517)

119

Cash and cash equivalents, beginning of period

2,011

1,232

Cash and cash equivalents, end of period

$         1,494

$         1,351

Calculation of free cash flow:

Net cash provided by operating activities

$              10

$            172

Purchases of property and equipment

(52)

(61)

Free cash flow (a)

$            (42)

$            111

(a)

Free cash flow, which is a non-GAAP financial measure, is calculated as net cash provided by operating activities reduced by purchases of property and equipment. Free cash flow is useful to management as it is one of the metrics used to evaluate our performance and to compare us with other companies in our industry. However, our calculation of free cash flow may not be comparable to similar measures used by other companies.

Illumina, Inc.

Results of Operations - Revenue by Segment

(Dollars in millions)

(unaudited)

Three Months Ended

April 2, 2023

April 3, 2022

% Change

Consolidated revenue

$      1,087

$      1,223

(11) %

Less: Hedge gains

2

5

Consolidated revenue, excluding hedge effect

1,085

1,218

Less: Exchange rate effect

(26)

—

Consolidated constant currency revenue (a)

$      1,111

$      1,218

(9) %

Core Illumina revenue

$      1,076

$      1,221

(12) %

Less: Hedge gains

2

5

Core Illumina revenue, excluding hedge effect

1,074

1,216

Less: Exchange rate effect

(26)

—

Core Illumina constant currency revenue (a)

$      1,100

$      1,216

(10) %

(a)

Constant currency revenue growth, which is a non-GAAP financial measure, is calculated using comparative prior period foreign exchange rates to translate current period revenue, net of the effects of hedges.

Illumina, Inc.

Results of Operations - Non-GAAP

(In millions, except per share amounts)

(unaudited)

TABLE 1: CONSOLIDATED RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED EARNINGS PER SHARE:

Three Months Ended

April 2,
2023

April 3,
2022

GAAP earnings per share - diluted

$           0.02

$           0.55

Cost of revenue (b)

0.30

0.25

R&D expense (b)

0.01

—

SG&A expense (b)

0.22

(0.08)

Other expense, net (b)

0.08

0.24

GILTI and U.S. foreign tax credits (c)

(0.28)

0.15

Incremental non-GAAP tax expense (d)

(0.32)

(0.07)

Income tax provision (e)

0.05

0.03

Non-GAAP earnings per share - diluted (a)

$           0.08

$           1.07

TABLE 2: CONSOLIDATED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:

Three Months Ended

April 2,
2023

April 3,
2022

GAAP net income

$               3

$              86

Cost of revenue (b)

48

40

R&D expense (b)

2

—

SG&A expense (b)

35

(12)

Other expense, net (b)

11

38

GILTI and U.S. foreign tax credits (c)

(44)

24

Incremental non-GAAP tax expense (d)

(50)

(11)

Income tax provision (e)

8

4

Non-GAAP net income (a)

$             13

$            169

All amounts in tables are rounded to the nearest millions, except as otherwise noted. As a result, certain amounts may not recalculate using the rounded amounts provided.

(a)

Non-GAAP net income and diluted earnings per share exclude the effects of the pro forma adjustments as detailed above. Non-GAAP net income and diluted earnings per share 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 operating performance.

(b)

Refer to the Itemized Reconciliations between GAAP and Non-GAAP Results of Operations for the components of these amounts.

(c)

Amounts represent the impact of GRAIL pre-acquisition net operating losses on GILTI and the utilization of U.S. foreign tax credits.

(d)

Incremental non-GAAP tax expense reflects the tax impact of the non-GAAP adjustments listed.

(e)

Amounts represent the difference between book and tax accounting related to stock-based compensation cost.

Illumina, Inc.

Results of Operations - Non-GAAP (continued)

(Dollars in millions)

(unaudited)

TABLE 3: ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF OPERATIONS AS A PERCENT OF REVENUE:

Three Months Ended

April 2, 2023

Core Illumina

GRAIL

Eliminations

Consolidated

GAAP gross profit (loss) (b)

$   687

63.8 %

$           (25)

$              (7)

$    655

60.3 %

Amortization of acquired intangible assets

14

1.4 %

34

—

48

4.4 %

Non-GAAP gross profit (a)

$   701

65.2 %

$               9

$              (7)

$    703

64.7 %

GAAP R&D expense

$   259

24.1 %

$             86

$              (4)

$    341

31.4 %

Acquisition-related expenses (d)

(1)

(0.1) %

—

—

(1)

(0.1) %

Restructuring (g)

(1)

(0.1) %

—

—

(1)

(0.1) %

Non-GAAP R&D expense

$   257

23.9 %

$             86

$              (4)

$    339

31.2 %

GAAP SG&A expense

$   286

26.6 %

$             93

$              (1)

$    378

34.8 %

Amortization of acquired intangible assets

—

—

(1)

—

(1)

(0.1) %

Acquisition-related expenses (d)

(20)

(1.8) %

(5)

—

(25)

(2.3) %

Restructuring (g)

(1)

(0.1) %

—

—

(1)

(0.1) %

Legal contingency and settlement (h)

(2)

(0.2) %

—

—

(2)

(0.2) %

Proxy contest

(6)

(0.6) %

—

—

(6)

(0.6) %

Non-GAAP SG&A expense

$   257

23.9 %

$             87

$              (1)

$    343

31.5 %

GAAP operating profit (loss)

$   142

13.2 %

$         (204)

$              (2)

$     (64)

(5.7) %

Cost of revenue

14

1.3 %

34

—

48

4.4 %

R&D costs

2

0.2 %

—

—

2

0.2 %

SG&A costs

29

2.7 %

6

—

35

3.0 %

Non-GAAP operating profit (loss) (a)

$   187

17.4 %

$         (164)

$              (2)

$      21

1.9 %

GAAP other (expense) income, net

$    (17)

(1.6) %

$               2

$              —

$     (14)

(1.3) %

Strategic investment related loss, net (e)

15

1.4 %

—

—

14

1.3 %

Gain on Helix contingent value right (f)

(3)

(0.3) %

—

—

(3)

(0.3) %

Non-GAAP other (expense) income, net (a)

$      (5)

(0.5) %

$               2

$              —

$       (3)

(0.3) %

All amounts in tables are rounded to the nearest millions, except as otherwise noted. As a result, certain amounts may not recalculate using the rounded amounts provided. Percentages of revenue are calculated based on the revenue of the respective segment.

Illumina, Inc.

Results of Operations - Non-GAAP (continued)

(Dollars in millions)

(unaudited)

TABLE 3 (CONTINUED): ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF OPERATIONS AS A PERCENT OF REVENUE:

Three Months Ended

April 3, 2022

Core Illumina

GRAIL

Eliminations

Consolidated

GAAP gross profit (loss) (b)

$   851

69.7 %

$    (29)

$              (7)

$   815

66.6 %

Amortization of acquired intangible assets

6

0.5 %

34

—

40

3.3 %

Non-GAAP gross profit (a)

$   857

70.2 %

$       5

$              (7)

$   855

69.9 %

GAAP and non-GAAP R&D expense

$   238

19.5 %

$     85

$              —

$   323

26.4 %

GAAP SG&A expense

$   251

20.6 %

$     58

$              (1)

$   308

25.2 %

Acquisition-related expenses (d)

(33)

(2.7) %

(3)

—

(36)

(2.9) %

Contingent consideration liabilities (c)

49

4.0 %

—

—

49

4.0 %

Amortization of acquired intangible assets

—

—

(1)

—

(1)

(0.1) %

Non-GAAP SG&A expense

$   267

21.9 %

$     54

$              (1)

$   320

26.2 %

GAAP operating profit (loss)

$   362

29.6 %

$  (172)

$              (6)

$   184

15.0 %

Cost of revenue

6

0.5 %

34

—

40

3.3 %

SG&A costs

(16)

(1.3) %

4

—

(12)

(1.0) %

Non-GAAP operating profit (loss) (a)

$   352

28.8 %

$  (134)

$              (6)

$   212

17.3 %

GAAP other expense, net

$    (44)

(3.6) %

$      —

$              —

$    (44)

(3.6) %

Strategic investment related loss, net (e)

43

3.5 %

—

—

43

3.5 %

Gain on Helix contingent value right (f)

(5)

(0.4) %

—

—

(5)

(0.4) %

Non-GAAP other expense, net (a)

$      (6)

(0.5) %

$      —

$              —

$     (6)

(0.5) %

All amounts in tables are rounded to the nearest millions, except as otherwise noted. As a result, certain amounts may not recalculate using the rounded amounts provided. Percentages of revenue are calculated based on the revenue of the respective segment.

(a)

Non-GAAP gross profit, included within non-GAAP operating profit (loss), is a key measure of the effectiveness and efficiency of manufacturing processes, product mix and the average selling prices of our products and services. Non-GAAP operating profit (loss) and non-GAAP other (expense) income, net exclude the effects of the pro forma adjustments as detailed above. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing past and future operating performance, including in the non-GAAP measures related to our Core Illumina and GRAIL segments.

(b)

Reconciling amounts are recorded in cost of revenue.

(c)

Amounts consist primarily of fair value adjustments for our contingent consideration liability related to the GRAIL acquisition.

(d)

Amounts consist primarily of legal expenses related to the acquisition of GRAIL.

(e)

Amounts consist primarily of mark-to-market adjustments and impairments from our strategic investments.

(f)

Amounts consist of fair value adjustments related to our Helix contingent value right.

(g)

Amounts consist primarily of employee severance costs related to restructuring activities.

(h)

Amount consists of a loss related to a patent litigation settlement.

Illumina, Inc.

Results of Operations - Non-GAAP (continued)

(Dollars in millions)

(unaudited)

TABLE 4: CONSOLIDATED ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP TAX (BENEFIT) PROVISION:

Three Months Ended

April 2,
2023

GAAP tax benefit

$       (81)

103.9 %

Incremental non-GAAP tax expense (b)

50

Income tax provision (c)

(8)

GILTI and U.S. foreign tax credits (d)

44

Non-GAAP tax provision (a)

$           5

27.3 %

Three Months Ended

April 3,
2022

GAAP tax provision

$         54

38.3 %

Incremental non-GAAP tax expense (b)

11

Income tax provision (c)

(4)

GILTI and U.S. foreign tax credits (d)

(24)

Non-GAAP tax provision (a)

$         37

17.8 %

(a)

Non-GAAP tax provision excludes the effects of the pro forma adjustments as detailed above. Management has excluded the effects of these items in this measure to assist investors in analyzing and assessing past and future operating performance.

(b)

Incremental non-GAAP tax expense reflects the tax impact of the non-GAAP adjustments listed in Table 2.

(c)

Amounts represent the difference between book and tax accounting related to stock-based compensation cost.

(d)

Amounts represent the impact of GRAIL pre-acquisition net operating losses on GILTI and the utilization of U.S. foreign tax credits.       

Illumina, Inc.

Reconciliation of Consolidated Non-GAAP Financial Guidance

(unaudited)

Our 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 our financial results are stated above in this press release. More information on potential factors that could affect our financial results is included from time to time in the public reports filed with the Securities and Exchange Commission, including Form 10-K for the fiscal year ended January 1, 2023 filed with the SEC on February 17, 2023. We assume no obligation to update any forward-looking statements or information.

TABLE 5: RECONCILIATION BETWEEN GAAP AND NON-GAAP DILUTED (LOSS) EARNINGS PER SHARE GUIDANCE:

Fiscal Year

2023

Consolidated GAAP diluted loss per share (b)

$(0.28) - $(0.03)

Amortization of acquired intangible assets

1.23

Legal contingency and settlement (c)

0.02

Acquisition-related expenses (d)

0.16

Strategic investment related loss, net (e)

0.09

Gain on Helix contingent value right (f)

(0.02)

Restructuring (g)

0.01

GILTI and U.S. foreign tax credits (h)

0.42

Incremental non-GAAP tax expense (i)

(0.63)

Income tax provision (j)

0.05

Proxy contest

Consolidated non-GAAP diluted earnings per share (a)(b)

$1.25 - $1.50

(a)

Non-GAAP diluted earnings per share excludes the effects of the pro forma adjustments as detailed above. Non-GAAP diluted earnings per share is a key component 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 this measure to assist investors in analyzing and assessing our past and future operating performance.

(b)

Amounts assume that the existing R&D capitalization requirements are not repealed in 2023 and, as a result, reflect an impact of approximately $75 million.

(c)

Amount consists of a loss related to a patent litigation settlement that occurred in Q1 2023.

(d)

Amounts consist primarily of legal expenses incurred through Q1 2023 related to the acquisition of GRAIL.

(e)

Amounts consist primarily of mark-to-market adjustments and impairments recognized in Q1 2023 on our strategic investments.

(f)

Amount consists of a fair value adjustment recognized in Q1 2023 on our Helix contingent value right.

(g)

Amounts consist primarily of employee severance costs related to restructuring activities incurred in Q1 2023.

(h)

Amount represents the impact of GRAIL pre-acquisition net operating losses on GILTI and the utilization of U.S. foreign tax credits.

(i)

Incremental non-GAAP tax expense reflects the tax impact related to the non-GAAP adjustments listed.

(j)

Amount represents the difference between book and tax accounting related to stock-based compensation cost recognized in Q1 2023.