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8-K - 8-K - ILLUMINA, INC.ilmn-20201029.htm

Investors:
Juliet Cunningham
+1.858.200.6583
ir@illumina.com
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Media:
Dr. Karen Birmingham
+1.646.355.2111
kbirmingham@illumina.com
Illumina Reports Financial Results for Third Quarter of Fiscal Year 2020

San Diego -- (BUSINESS WIRE) - October 29, 2020 - Illumina, Inc. (NASDAQ: ILMN) today announced its financial results for the third quarter of fiscal year 2020.

Third quarter 2020 results reflect strong sequential growth:

Revenue of $794 million, an increase of 26% compared to the second quarter of 2020 and a 12% decrease compared to $907 million in the prior year period
GAAP net income attributable to Illumina stockholders for the quarter of $179 million, or $1.21 per diluted share, compared to $234 million, or $1.58 per diluted share, for the prior year period
Non-GAAP net income attributable to Illumina stockholders for the quarter of $150 million, or $1.02 per diluted share, compared to $286 million, or $1.93 per diluted share, for the prior year period. Non-GAAP net income excludes net gains from mark-to-market adjustments on our strategic investments, primarily from our marketable equity securities (see the “Reconciliation Between GAAP and Non-GAAP Net Income Attributable to Illumina Stockholders” table for a reconciliation of these GAAP and non-GAAP financial measures)
Cash flow from operations of $153 million compared to $267 million in the prior year period
Free cash flow (cash flow from operations less capital expenditures) of $105 million for the quarter compared to $218 million in the prior year period

“Our business accelerated in the third quarter with sequencing consumable revenue growing 29% from the second quarter,” said Francis deSouza, Chief Executive Officer. “We’re also making progress incorporating genomics into the standard of care in non-invasive pre-natal testing, oncology therapy selection, and genetic disease diagnosis. Looking forward, we believe our planned acquisition of GRAIL will catalyze a new era of early cancer detection, transforming cancer survivability and opening up the largest clinical application of genomics we’ve seen.”

Gross margin in the third quarter of 2020 was 66.2% compared to 71.5% in the prior year period. Excluding amortization of acquired intangible assets and the net impact from expenses and payroll credits related to COVID-19, non-GAAP gross margin was 67.4% for the third quarter of 2020 compared to 72.5% in the prior year period.

Research and development (R&D) expenses for the third quarter of 2020 were $172 million compared to $151 million in the prior year period. Excluding expenses related to COVID-19, non-GAAP R&D expenses as a percentage of revenue were 21.2% compared to 16.4% in the prior year period.

Selling, general and administrative (SG&A) expenses for the third quarter of 2020 were $192 million compared to $189 million in the prior year period. Excluding amortization of acquired intangible assets, gain on litigation, acquisition-related expenses, and expenses related to COVID-19, non-GAAP SG&A expenses as a percentage of revenue were 24.8% compared to 20.0% in the prior year period.

Depreciation and amortization expenses were $46 million and capital expenditures for free cash flow purposes were $48 million during the third quarter of 2020. At the close of the quarter, the company held $3.3 billion in cash, cash equivalents and short-term investments, compared to $3.4 billion as of December 29, 2019.





Updates since our last earnings release:

Announced a definitive agreement to acquire GRAIL to accelerate commercialization and adoption of transformative multi-cancer screening genetic tests
Released the NovaSeqTM 6000 v1.5 reagents to unlock deeper genomic discoveries by making a $600 genome more broadly available and catalyzing the next wave of adoption in smaller core labs
Updated guidelines from the American College of Obstetricians and Gynecologists (ACOG) recommended Non-Invasive Prenatal Testing (NIPT) be made available to all pregnant women, regardless of maternal age or baseline risk
Repurchased approximately $125 million of common stock in the third quarter with $295 million remaining for repurchase under our current plan
Appointed Kathryne Reeves as Chief Marketing Officer

Financial outlook and guidance

As previously announced, Illumina has withdrawn its fiscal 2020 full year revenue and earnings per share guidance due to the uncertainties around the severity and duration of the COVID-19 pandemic.

Quarterly conference call information

The conference call will begin at 2:00 pm Pacific Time (5:00 pm Eastern Time) on Thursday, October 29, 2020. 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 (866) 211-4597 or 1 (647) 689-6853 outside North America, both with conference ID 9488740.

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, operating margins, other income, and free cash flow in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The company’s financial measures under GAAP include substantial charges such as amortization of acquired intangible assets, non-cash interest expense associated with the company’s convertible debt instruments that may be settled in cash, and others that are listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release. Management has excluded the effects of these items in non-GAAP measures to assist investors in analyzing and assessing past and future operating performance. Additionally, non-GAAP net income attributable to Illumina stockholders and diluted earnings per share attributable to Illumina stockholders are key components of the financial metrics utilized by the company’s board of directors to measure, in part, management’s performance and determine significant elements of management’s compensation.

The company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand its business. Reconciliations between GAAP and non-GAAP results are presented in the tables of this release.




Use of forward-looking statements

This release 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) the outcome of the pending acquisition of GRAIL, Inc.; (vi) our ability to manufacture robust instrumentation and consumables; (vii) the success of products and services competitive with our own; (viii) 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; (ix) the impact of recently launched or pre-announced products and services on existing products and services; (x) our ability to further develop and commercialize our instruments and consumables, to deploy new products, services, and applications, and to expand the markets for our technology platforms; (xi) our ability to obtain regulatory clearance for our products from government agencies; (xii) our ability to successfully partner with other companies and organizations to develop new products, expand markets, and grow our business; (xiii) our ability to successfully identify and integrate acquired technologies, products, or businesses; and (xiv) the application of generally accepted accounting principles, which are highly complex and involve many subjective assumptions, estimates, and judgments, together with other factors detailed in our filings with the Securities and Exchange Commission, including our most recent filings on Forms 10-K and 10-Q, or in information disclosed in public conference calls, the date and time of which are released beforehand. We undertake no obligation, and do not intend, to update these forward-looking statements, to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of the current quarter.

About Illumina

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

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

September 27,
2020
December 29,
2019
ASSETS(unaudited)
Current assets:
Cash and cash equivalents$1,761 $2,042 
Short-term investments1,563 1,372 
Accounts receivable, net464 573 
Inventory415 359 
Prepaid expenses and other current assets126 105 
Total current assets4,329 4,451 
Property and equipment, net910 889 
Operating lease right-of-use assets545 555 
Goodwill897 824 
Intangible assets, net149 145 
Deferred tax assets, net19 64 
Other assets555 388 
Total assets$7,404 $7,316 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$156 $149 
Accrued liabilities452 516 
Long-term debt, current portion507 — 
Total current liabilities1,115 665 
Operating lease liabilities678 695 
Long-term debt666 1,141 
Other long-term liabilities245 202 
Stockholders’ equity4,700 4,613 
Total liabilities and stockholders’ equity$7,404 $7,316 




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

Three Months EndedNine Months Ended
September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Revenue:
Product revenue$676 $746 $1,904 $2,117 
Service and other revenue118 161 382 474 
Total revenue794 907 2,286 2,591 
Cost of revenue:
Cost of product revenue (a)
209 195 535 573 
Cost of service and other revenue (a)
52 55 157 185 
Amortization of acquired intangible assets7 21 28 
Total cost of revenue268 259 713 786 
Gross profit526 648 1,573 1,805 
Operating expense:
Research and development (a)
172 151 483 486 
Selling, general and administrative (a)
192 189 643 602 
Total operating expense364 340 1,126 1,088 
Income from operations162 308 447 717 
Other income (expense), net53 (38)110 132 
Income before income taxes215 270 557 849 
Provision for income taxes36 36 158 98 
Consolidated net income179 234 399 751 
Add: Net loss attributable to noncontrolling interests —  12 
Net income attributable to Illumina stockholders$179 $234 $399 $763 
Earnings per share attributable to Illumina stockholders:
Basic$1.22 $1.59 $2.72 $5.19 
Diluted$1.21 $1.58 $2.70 $5.13 
Shares used in computing earnings per common share:
Basic146 147 147 147 
Diluted148 148 148 149 




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

Three Months EndedNine Months Ended
September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Cost of product revenue$6 $$13 $15 
Cost of service and other revenue1 3 
Research and development21 15 48 50 
Selling, general and administrative33 24 52 77 
Stock-based compensation expense before taxes (1)
$61 $45 $116 $145 
(1) Includes stock-based compensation of $1.5 million for Helix during the nine months ended September 29, 2019



Illumina, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(unaudited)

Three Months EndedNine Months Ended
September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Net cash provided by operating activities$153 $267 $674 $608 
Net cash (used in) provided by investing activities(65)(219)(520)849 
Net cash used in financing activities(101)(172)(435)(782)
Effect of exchange rate changes on cash and cash equivalents4 (4) (4)
Net (decrease) increase in cash and cash equivalents(9)(128)(281)671 
Cash and cash equivalents, beginning of period1,770 1,943 2,042 1,144 
Cash and cash equivalents, end of period$1,761 $1,815 $1,761 $1,815 
Calculation of free cash flow:
Net cash provided by operating activities (b)
$153 $267 $674 $608 
Purchases of property and equipment(48)(49)(127)(152)
Free cash flow (a)
$105 $218 $547 $456 
(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.
(b) Net cash provided by operating activities for the nine months ended September 29, 2019 included an $84 million payment of the accreted debt discount related to the conversions of our 2019 Notes.



Illumina, Inc.
Results of Operations - Non-GAAP
(In millions, except per share amounts)
(unaudited)

RECONCILIATION BETWEEN GAAP AND NON-GAAP EARNINGS PER SHARE ATTRIBUTABLE TO ILLUMINA STOCKHOLDERS:

Three Months EndedNine Months Ended
September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
GAAP earnings per share attributable to Illumina stockholders - diluted$1.21 $1.58 $2.70 $5.13 
Cost of revenue (b)
0.06 0.06 0.16 0.19 
Research and development costs (b)
0.03 0.01 0.01 0.01 
Selling, general and administrative costs (b)
(0.03)0.05 0.58 0.22 
Other (income) expense, net (b)
(0.31)0.34 (0.61)(0.56)
Incremental non-GAAP tax expense (c)
0.07 (0.09)(0.05)(0.01)
Income tax benefit (d)
(0.01)(0.02)(0.12)(0.11)
Tax expense related to increase in valuation allowance (e)
 — 0.42 — 
Tax expense related to cost-sharing arrangement (f)
 — 0.19 — 
Non-GAAP earnings per share attributable to Illumina stockholders - diluted (a)
$1.02 $1.93 $3.28 $4.87 

RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME ATTRIBUTABLE TO ILLUMINA STOCKHOLDERS:

Three Months EndedNine Months Ended
September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
GAAP net income attributable to Illumina stockholders$179 $234 $399 $763 
Cost of revenue (b)
9 24 28 
Research and development costs (b)
3 1 
Selling, general and administrative costs (b)
(4)87 33 
Other (income) expense, net (b)
(46)51 (90)(83)
Incremental non-GAAP tax expense (c)
11 (15)(8)(2)
Income tax benefit (d)
(2)(3)(18)(17)
Tax expense related to increase in valuation allowance (e)
 — 62 — 
Tax expense related to cost-sharing arrangement (f)
 — 28 — 
Non-GAAP net income attributable to Illumina stockholders (a)
$150 $286 $485 $724 
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 attributable to Illumina stockholders and diluted earnings per share attributable to Illumina stockholders exclude the effect of the pro forma adjustments as detailed above. Non-GAAP net income attributable to Illumina stockholders and diluted earnings per share attributable to Illumina stockholders are key components of the financial metrics utilized by the company’s board of directors to measure, in part, management’s performance and determine significant elements of management’s compensation. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing our past and future core operating performance.
(b) Refer to our “Itemized Reconciliation between GAAP and Non-GAAP Results of Operations as a Percent of Revenue,” below, for the components of these amounts.
(c) Incremental non-GAAP tax expense reflects the tax impact of the non-GAAP adjustments listed.
(d) Amounts represent tax deductions taken in excess of stock compensation cost.



(e) Amount represents discrete tax expense recorded in Q2 2020 related to the valuation allowance established against the deferred tax asset for California research and development credits.
(f) Amount represents discrete tax expense recorded in Q2 2020 related to the finalization of the Altera court case which determined stock-based compensation must be included in intercompany cost sharing payments.




Illumina, Inc.
Results of Operations - Non-GAAP (continued)
(Dollars in millions)
(unaudited)

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

Three Months EndedNine Months Ended
September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
GAAP gross profit (b)$526 66.2 %$648 71.5 %$1,57368.8 %$1,805 69.7 %
Amortization of acquired intangible assets7 0.9 %1.0 %21 0.9 %28 1.0 %
Expenses related to COVID-19 (c)
3 0.4 %— — 5 0.2 %— — 
Income related to COVID-19 (d)
(1)(0.1)%— — (4)(0.2)%— — 
Restructuring (e)
  — — 2 0.1 %— — 
Non-GAAP gross profit (a)
$535 67.4 %$657 72.5 %$1,597 69.8 %$1,833 70.7 %
GAAP research and development expense$172 21.6 %$151 16.7 %$483 21.1 %$486 18.8 %
Expenses related to COVID-19 (c)
(3)(0.4)%— — (3)(0.1)%— — 
Income related to COVID-19 (d)
  — — 2 0.1 %— — 
Restructuring (e)
  (2)(0.3)%  (2)(0.1)%
Non-GAAP research and development expense$169 21.2 %$149 16.4 %$482 21.1 %$484 18.7 %
GAAP selling, general and administrative expense$192 24.2 %$189 20.9 %$643 28.1 %$602 23.2 %
Amortization of acquired intangible assets(1)(0.1)%— — (1) (1)— 
Gain on litigation (f)
25 3.1 %— — 25 1.1 %— — 
Acquisition-related expenses (g)
(13)(1.5)%(7)(0.8)%(106)(4.6)%(31)(1.2)%
Expenses related to COVID-19 (c)
(7)(0.9)%— — (9)(0.5)%— — 
Income related to COVID-19 (d)
  — — 2 0.1 %— — 
Restructuring (e)
  (1)(0.1)%2 0.1 %(1)— 
Non-GAAP selling, general and administrative expense$196 24.8 %$181 20.0 %$556 24.3 %$569 22.0 %
GAAP operating profit$162 20.4 %$308 33.9 %$447 19.6 %$717 27.7 %
Cost of revenue9 1.2 %1.0 %24 1.0 %28 1.0 %
Research and development costs3 0.4 %0.3 %1  0.1 %
Selling, general and administrative costs(4)(0.6)%0.9 %87 3.8 %33 1.3 %
Non-GAAP operating profit (a)
$170 21.4 %$327 36.1 %$559 24.4 %$780 30.1 %
GAAP other income (expense), net$53 6.6 %$(38)(4.2)%$110 4.8 %$132 5.1 %
Non-cash interest expense (h)
11 1.4 %10 1.1 %31 1.4 %38 1.5 %
Strategic investment related (gain) loss, net (i)
(67)(8.4)%43 4.7 %(141)(6.2)%(68)(2.6)%
Loss on derivative assets (j)
10 1.3 %— — 25 1.1 %— — 
(Gain) loss on contingent value right (k)
  (2)(0.2)%(5)(0.2)%— 
Gains on deconsolidation (l)
  — —   (54)(2.1)%
Non-GAAP other income, net (a)
$7 0.9 %$13 1.4 %$20 0.9 %$49 1.9 %
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 gross profit, included within non-GAAP operating profit, is a key measure of the effectiveness and efficiency of manufacturing processes, product mix and the average selling prices of our products and services. Non-GAAP operating profit, and non-GAAP other 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.
(b) Reconciling amounts are recorded in cost of revenue.
(c) Amounts consist of direct and incremental expenses incurred due to the COVID-19 pandemic, primarily a one-time allowance paid to employees working remotely in Q3 2020 to help with additional expenses, premium pay for onsite essential workers, and personal protective equipment.
(d) Amounts consist of direct and incremental income due to the COVID-19 pandemic, primarily payroll-related credits earned in Singapore.
(e) Amounts consist primarily of employee costs, net of adjustments, related to restructuring.
(f) Amount consists of a gain related to a patent litigation judgement.
(g) Amount for Q3 2020 consists primarily of acquisition-related expenses related to the pending acquisition of GRAIL, Inc. Amount for the first three quarters of 2020 consists primarily of expenses related to the Continuation Advances and Reverse Termination Fee paid to PacBio.
(h) Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.
(i) Amounts consist primarily of mark-to-market adjustments and impairments from our strategic investments.
(j) Amounts consist of fair value adjustments on our derivative assets related to the terminated acquisition with PacBio.
(k) Amounts consist of fair value adjustments related to our contingent value right received from Helix.
(l) Amount consists of the $39 million gain recognized in Q2 2019 as a result of the Helix deconsolidation and the $15 million gain recorded in Q1 2019 that resulted from the settlement of a contingency related to the deconsolidation of GRAIL, Inc. in 2017.