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Illumina Reports Financial Results for Third Quarter of Fiscal Year 2021

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Cision

Raises Fiscal Year 2021 Revenue Guidance

SAN DIEGO, Nov. 4, 2021 /PRNewswire/ -- Illumina, Inc. (NASDAQ: ILMN) today announced its financial results for the third quarter of fiscal year 2021, which include the consolidated financial results of GRAIL.

Third quarter consolidated results:

  • Revenue of $1,108 million, a 40% increase compared to the prior year period

  • GAAP net income for the quarter of $317 million, or $2.08 per diluted share, which included a $900 million gain from our previously held investment in GRAIL and $654 million in day one compensation expense related to the GRAIL acquisition. This compared to $179 million, or $1.21 per diluted share, for the prior year period

  • Non-GAAP net income for the quarter of $221 million, or $1.45 per diluted share, which included dilution from GRAIL non-GAAP operating loss of $0.19 per diluted share and incremental dilution from the 9.8 million shares issued to fund the GRAIL acquisition of $0.06 per diluted share. This compared to $150 million, or $1.02 per diluted share, for the prior year period. Non-GAAP net income excludes gain on previously held investment in GRAIL, day one compensation related expense and other acquisition-related expenses (see the "Reconciliation Between GAAP and Non-GAAP Net Income" table for a reconciliation of these GAAP and non-GAAP financial measures)

  • Cash flow from operations of $(272) million compared to $153 million in the prior year period

  • Free cash flow (cash flow from operations less capital expenditures) of $(324) million for the quarter compared to $105 million in the prior year period

"Illumina's financial results again exceeded expectations in the third quarter led by record shipments for both clinical and research," said Francis deSouza, Chief Executive Officer. "Clinical market expansion is driving momentum in the core business, including significant demand in testing for therapy selection in oncology as we continue to advance genomics as a standard of care in the clinic. Our teams' continued execution to meet this robust demand will enable a strong finish to an exceptional 2021."

Gross margin in the third quarter of 2021 was 69.5% compared to 66.2% in the prior year period. Excluding amortization of acquired intangible assets, non-GAAP gross margin was 71.2% for the third quarter of 2021 compared to 67.4% in the prior year period.

Research and development (R&D) expenses for the third quarter of 2021 were $436 million compared to $172 million in the prior year period. Excluding acquisition-related compensation expense, non-GAAP R&D expenses as a percentage of revenue were 21.7% compared to 21.2% in the prior year period.

Selling, general and administrative (SG&A) expenses for the third quarter of 2021 were $879 million compared to $192 million in the prior year period. Excluding day one compensation related expense and other acquisition-related expenses, and fair value adjustments on contingent consideration liabilities, non-GAAP SG&A expenses as a percentage of revenue were 26.0% compared to 24.8% in the prior year period.

Depreciation and amortization expenses were $65 million and capital expenditures for free cash flow purposes were $52 million during the third quarter of 2021. At the close of the quarter, the company held $1.3 billion in cash, cash equivalents and short-term investments, compared to $3.5 billion as of January 3, 2021.

Third quarter segment results:

Following the acquisition of GRAIL on August 18, 2021, we have two reportable segments, Core Illumina and GRAIL. GRAIL financial results are reflected for the period after the acquisition.

Core Illumina



GAAP


Non-GAAP (a)

Dollars in millions

Q3 2021


Q3 2020


Q3 2021


Q3 2020

Revenue

$

1,106



$

794






Gross margin

70.7

%


66.2

%


71.3

%


67.4

%

Research and development expense

$

212



$

172



$

212



$

169


Selling, general and administrative expense

$

365



$

192



$

266



$

196


Operating income

$

205



$

162



$

310



$

170


Operating margin

18.5

%


20.4

%


28.0

%


21.4

%


(a) See the "Core Illumina Itemized Reconciliation Between GAAP and Non-GAAP Results of Operations as a Percentage of Revenue" table for a reconciliation of these GAAP and non-GAAP financial measures.

GRAIL



GAAP


Non-GAAP (a)

In millions

Q3 2021


Q3 2020


Q3 2021


Q3 2020

Revenue

$

2





$

2




Operating loss

$

(750)





$

(50)





(a) See the "GRAIL Itemized Reconciliation Between GAAP and Non-GAAP Results of Operations" table for a reconciliation of these GAAP and non-GAAP financial measures.

Updates since our last earnings release:

  • Closed the GRAIL acquisition to accelerate patient access to life-saving, multi-cancer early-detection tests; we are holding GRAIL as a separate entity pending EU regulatory review of the merger

  • Announced TSO 500 partnership with Merck to develop and commercialize tests that identify genetic mutations used in the assessment of homologous recombination deficiency (HRD)

  • Co-authored study published in JAMA Pediatrics reporting findings from the NICUSeq Randomized Time-Delayed Trial, demonstrating whole genome sequencing outperforms usual care by two-fold in diagnostic efficacy and clinical management of acutely-ill newborns with suspected genetic disease

  • Announced an agreement with Israel's Ministry of Health for a pilot program to implement the use of whole-genome sequencing in critically-ill infants suspected of having a genetic disorder in neonatal intensive care units

  • Expanded presence in Latin America with the creation of Illumina Colombia S.A.S. and Illumina México Productos de Biotecnología to advance clinical business in the region and increase support for local customers and partners

  • Announced net zero global greenhouse gas emissions commitment by 2050, including milestone targets of 46% reduction in emissions and 100% renewable electricity by 2030

  • GRAIL announced Galleri was approved for prescription by the New York State Department of Health, making the test commercially available in New York, and marking a significant regulatory milestone.

  • NHS launched UK trial of Galleri under a commercial partnership program that aims to confirm Galleri's clinical and economic performance in the NHS system as a precursor to its routine use by the NHS

  • Appointed Robert Ragusa, former Chief Operations Officer of Illumina, as Chief Executive Officer of GRAIL

Financial outlook and guidance

The non-GAAP financial guidance discussed below reflects certain pro forma adjustments to assist in analyzing and assessing our core operational performance, including our Core Illumina and GRAIL segments. 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 2021, the company now expects both consolidated and Core Illumina revenue growth of approximately 36%. The company now expects GAAP earnings per diluted share of $4.41 to $4.51, and non-GAAP earnings per diluted share of $5.50 to $5.60, which includes dilution from GRAIL non-GAAP operating loss of approximately $1.00 and incremental dilution from the 9.8 million shares issued to fund the GRAIL acquisition of $0.15.

Conference call information

The conference call will begin at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) on Thursday, November 4, 2021. Interested parties may access the live teleconference through the Investor Info section of Illumina's website under the "Company" tab at www.illumina.com. Alternatively, individuals can access the call by dialing 1 (844) 200-6205 or 1 (929) 526-1599 outside North America, both using conference ID 808648.

A replay of the conference call will be posted on Illumina's website after the event and will be available for at least 30 days following.

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, including research and development expenses and selling general and administrative expenses, operating income (loss), operating margins, gross profit, other income, and free cash flow (on a consolidated and as applicable, segment basis for our Core Illumina and GRAIL segments) 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 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, including in the non-GAAP measures relating to our Core Illumina and GRAIL segments. Additionally, 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.

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 may contain forward-looking statements that involve risks and uncertainties. Among the important factors to which our business is subject that could cause actual results to differ materially from those in any forward-looking statements are: (i) the impact to our business and operating results of the COVID-19 pandemic; (ii) changes in the rate of growth in the markets we serve; (iii) the volume, timing and mix of customer orders among our products and services; (iv) our ability to adjust our operating expenses to align with our revenue expectations; (v) our ability to manufacture robust instrumentation and consumables; (vi) the success of products and services competitive with our own; (vii) challenges inherent in developing, manufacturing, and launching new products and services, including expanding or modifying manufacturing operations and reliance on third-party suppliers for critical components; (viii) the impact of recently launched or pre-announced products and services on existing products and services; (ix) our ability to further develop and commercialize our instruments, consumables, and products, including Galleri, the cancer screening test developed by GRAIL, to deploy new products, services, and applications, and to expand the markets for our technology platforms; (x) the risks and costs associated with the integration of, and our ability to integrate, GRAIL's business successfully to achieve anticipated synergies, including the restrictions on integration during any hold separate period or any delay in integration following any hold separate period; (xi) the risk that disruptions from the consummation of our recent acquisition of GRAIL or any associated legal or regulatory proceedings or obligations will harm our business, including current plans and operations; (xii) potential adverse reactions or changes to business relationships resulting from the consummation of our recent acquisition of GRAIL; (xiii) our ability to obtain approval by third-party payors to reimburse patients for our products; (xiv) our ability to obtain regulatory clearance for our products from government agencies; (xv) our ability to successfully partner with other companies and organizations to develop new products, expand markets, and grow our business; (xvi) our ability to successfully identify and integrate acquired technologies, products, or businesses; (xvii) the application of generally accepted accounting principles, which are highly complex and involve many subjective assumptions, estimates, and judgments and (xviii) legislative, regulatory and economic developments, 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 connect with us on Twitter, Facebook, LinkedIn, Instagram, and YouTube.

Illumina, Inc.
Condensed Consolidated Balance Sheets
(In millions)



October 3,
2021


January 3,
2021

ASSETS

(unaudited)



Current assets:




Cash and cash equivalents

$

1,080



$

1,810


Short-term investments

185



1,662


Accounts receivable, net

604



487


Inventory

401



372


Prepaid expenses and other current assets

181



152


Total current assets

2,451



4,483


Property and equipment, net

1,009



922


Operating lease right-of-use assets

676



532


Goodwill

7,098



897


Intangible assets, net

3,351



142


Other assets

478



609


Total assets

$

15,063



$

7,585






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

248



$

192


Accrued liabilities

666



541


Convertible senior notes, current portion



511


Total current liabilities

914



1,244


Operating lease liabilities

784



671


Term notes

993




Convertible senior notes

694



673


Other long-term liabilities

1,085



303


Stockholders' equity

10,593



4,694


Total liabilities and stockholders' equity

$

15,063



$

7,585




Illumina, Inc.
Condensed Consolidated Statements of Income
(In millions, except per share amounts)
(unaudited)



Three Months Ended


Nine Months Ended


October 3,
2021


September 27,
2020


October 3,
2021


September 27,
2020

Revenue:








Product revenue

$

978



$

676



$

2,903



$

1,904


Service and other revenue

130



118



424



382


Total revenue

1,108



794



3,327



2,286


Cost of revenue:








Cost of product revenue (a)

264



209



782



535


Cost of service and other revenue (a)

56



52



177



157


Amortization of acquired intangible assets

18



7



31



21


Total cost of revenue

338



268



990



713


Gross profit

770



526



2,337



1,573


Operating expense:








Research and development (a)

436



172



835



483


Selling, general and administrative (a)

879



192



1,666



643


Total operating expense

1,315



364



2,501



1,126


(Loss) income from operations

(545)



162



(164)



447


Other income, net

965



53



962



110


Income before income taxes

420



215



798



557


Provision for income taxes

103



36



148



158


Net income

$

317



$

179



$

650



$

399


Earnings per share:








Basic

$

2.09



$

1.22



$

4.39



$

2.72


Diluted

$

2.08



$

1.21



$

4.36



$

2.70


Shares used in computing earnings per common share:








Basic

152



146



148



147


Diluted

153



148



149



148



(a) Includes stock-based compensation expense for stock-based awards:



Three Months Ended


Nine Months Ended


October 3,
2021


September 27,
2020


October 3,
2021


September 27,
2020

Cost of product revenue

$

7



$

6



$

22



$

13


Cost of service and other revenue

1



1



3



3


Research and development

193



21



243



48...


Selling, general and administrative

496



33



576



52

...