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

• Revenue of $1.09 billion for Q1 2023, up 1% from Q4 2022; down 11% from Q1 2022 (down 9% on a constant currency basis)
• GAAP diluted EPS of $0.02 for Q1 2023, compared to GAAP diluted EPS of $0.55 for Q1 2022
• Non-GAAP diluted EPS of $0.08 for Q1 2023, compared to non-GAAP diluted EPS of $1.07 for Q1 2022
• Reiterating fiscal year 2023 consolidated revenue guidance of 7% to 10% growth from 2022, including Core Illumina revenue growth of 6% to 9% and GRAIL revenue in the range of $90 million to $110 million
• Expect GAAP diluted loss per share of $(0.28) to $(0.03) for fiscal year 2023
• Reiterating non-GAAP diluted EPS guidance of $1.25 to $1.50 for fiscal year 2023
• Committing to Core Illumina non-GAAP operating margins of 25% for fiscal year 2024 and 27% for fiscal year 2025¹
• Announcing a plan to achieve more than $100 million in annualized run rate cost savings to accelerate margin improvement and create flexibility for further investment in high-growth areas

SAN DIEGO, April 25, 2023 /PRNewswire/ -- Illumina, Inc. (Nasdaq: ILMN) ("Illumina" or the "company") today announced its financial results for the first quarter of fiscal year 2023, which include the consolidated financial results for GRAIL.

"The year is off to a solid start, led by NovaSeq X outperforming expectations in both customer demand and manufacturing supply," said Francis deSouza, Chief Executive Officer. "We shipped 67 NovaSeq X instruments in the first quarter, exceeding our plan. Demand remains strong, with our quarter-end NovaSeq X order book standing at over 200 instruments. We continue to work closely with our customers and partners to help them manage the challenging macroeconomic environment and to deliver on our 2023 goals. Our commitment to higher margins will set Illumina on the best path to deliver long-term sustainable success for our shareholders."

First quarter consolidated results

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Capital expenditures for free cash flow purposes were $52 million for Q1 2023. Cash flow provided by operations was $10 million, compared to $172 million in the prior year period. Free cash flow (cash flow provided by operations less capital expenditures) was $(42) million for the quarter, compared to $111 million in the prior year period. Depreciation and amortization expenses were $107 million for Q1 2023. At the close of the quarter, the company held $1,518 million in cash, cash equivalents and short-term investments, compared to $2,037 million as of January 1, 2023. During the first quarter, the company used $500 million to repay the outstanding principal of our 2023 term notes that matured in March.

First quarter segment results

Illumina has two reportable segments, Core Illumina and GRAIL.

Core Illumina

GRAIL

Key announcements by Illumina since Illumina's last earnings release

• Launched Illumina Complete Long Read Prep, Human, which enables access to both long- and short-read data on the same instrument for the first time
• Partnered with Henry Ford Health, a not-for-profit health care organization in the Detroit metro area, to assess the impact of comprehensive genomic testing in cardiovascular disease
• Launched Illumina Connected Insights, a new cloud-based software enabling tertiary analysis for clinical next-generation sequencing (NGS) data, with applications for oncology and soon rare diseases
• Celebrated the company's 25th anniversary, a quarter-century after its founding in San Diego in April 1998
• Expanded strategic partnership with Myriad Genetics to broaden access and availability of oncology homologous recombination deficiency (HRD) testing in the United States; under the agreement, Illumina TruSight™ Oncology 500 HRD (TSO 500 HRD), a research-use-only test, is now available in the US
• Received the international privacy certification (ISO/IEC 27701) of six of Illumina's cloud-based informatics programs, recognizing that the company implements, and complies with, robust, international data privacy requirements
• Exceeded more than 200 orders for the revolutionary NovaSeq X, representing a diverse customer base spanning research and clinical customer segments in nearly 30 countries
• Was granted expedited appellate review of the FTC order to divest GRAIL

A full list of recent Illumina announcements can be found in the company's News Center.

Key announcements by GRAIL since Illumina's last earnings release

• Announced that the 140,000 participant NHS trial has successfully reached its halfway point, with over half of the study participants having returned for their second annual blood draw, and is currently progressing as planned to achieve its targeted retention rates
• Announced that FirstHealth of the Carolinas, Inc., a health system serving patients in 15 counties in the mid-Carolinas, will offer Galleri® to eligible patients in North Carolina
• Expanded existing partnership with Providence Health System, one of the largest health systems in the western US, to offer multi-cancer early detection screening as part of clinical care to eligible individuals across the entire Providence health system, consisting of 53 hospitals and 900 clinics across seven states
• Announced that John Hancock, one of the largest life insurers in the US, expanded access to Galleri® to eligible life insurance customers participating in the John Hancock Vitality PLUS program following a successful pilot program
• Presented new data at the American Association for Cancer Research (AACR) Annual Meeting 2023 showcasing the performance of its methylation technology, which had a cancer detection rate of 92% in patients with relapsed or refractory disease across six hematological malignancies

A full list of recent GRAIL announcements can be found in GRAIL's Newsroom.

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 the company's Core Illumina and GRAIL segments. Please see our Reconciliation of Consolidated Non-GAAP Financial Guidance included in this release for a reconciliation of these GAAP and non-GAAP financial measures.

For fiscal year 2023, the company continues to expect consolidated revenue growth of 7% to 10% compared to fiscal year 2022. The company continues to expect Core Illumina revenue growth of 6% to 9% compared to fiscal year 2022. GRAIL revenue is still expected to be in the range of $90 million to $110 million.

The company now expects GAAP diluted loss per share of $(0.28) to $(0.03) and still expects non-GAAP diluted earnings per share of $1.25 to $1.50. The GAAP and non-GAAP diluted (loss) earnings per share guidance ranges continue to assume that the existing R&D capitalization requirements are not repealed in fiscal year 2023 and, as a result, reflect a tax expense impact of approximately $75 million.

Commitment to higher margins; announcing $100 million in run rate cost savings

The company commits to achieving Core Illumina non-GAAP operating margins of 25% in 2024 and 27% in 2025.

Building on the cost reduction steps announced in November 2022, Illumina will further reduce its annualized run rate expenses by more than $100 million beginning later in 2023. These cost savings will accelerate progress toward higher margins as well as free up capital to increase investment in high-growth areas. The company will continue to prioritize and invest in initiatives that generate highly differentiated products that are valued by Illumina's customers.

Illumina will achieve these savings through a combination of several actions. We will leverage the recent modularization of R&D innovation created as part of the NovaSeq X development, including XLEAP-SBS and new flow cell technology, to lower the cost and accelerate time to market for future platforms. The company will achieve additional savings through leveraging its global footprint, enabling activities at more cost-effective hubs. The company is also streamlining its organization and processes, including rationalizing its global real estate portfolio and third-party vendor spend, as well as accelerating IT optimization efforts.

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.

Conference call information

The conference call will begin at 2 p.m. Pacific Time (5 p.m. Eastern Time) on Tuesday, April 25, 2023. 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 877.502.9276 or +1.313.209.4906 outside North America, both using conference ID 1539055. To ensure timely connection, please dial in at least ten minutes before the scheduled start of the call.

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 earnings per share, net income, gross margin, operating expenses, including research and development expense, selling general and administrative expense, and from time to time, as applicable, legal contingencies and settlement, and goodwill impairment, operating income (loss), operating margin, gross profit (loss), other income (expense), tax provision, constant currency revenue growth, 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 among others that are listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release, as well as the effects of currency translation. 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 related 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.

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, such as acquisition-related expenses, gains and losses from our strategic investments, fair value adjustments related to contingent consideration and contingent value rights, potential future asset impairments, restructuring activities, and the ultimate outcome of pending litigation without unreasonable effort. These items are uncertain, inherently difficult to predict, depend on various factors, and could have a material impact on GAAP measures for the operating margin target periods. For the same reasons, the company is unable to address the significance of the unavailable information, which could be material to future results.

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) changes in the rate of growth in the markets we serve; (ii) the volume, timing and mix of customer orders among our products and services; (iii) our ability to adjust our operating expenses to align with our revenue expectations; (iv) our ability to manufacture robust instrumentation and consumables; (v) the success of products and services competitive with our own; (vi) 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; (vii) the impact of recently launched or pre-announced products and services on existing products and services; (viii) our ability to modify our business strategies to accomplish our desired operational goals; (ix) our ability to realize the anticipated benefits from prior or future actions to streamline and improve our R&D processes, reduce our operating expenses and maximize our revenue growth; (x) 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; (xi) the risks and costs associated with our ongoing inability to integrate GRAIL due to the interim measures imposed on us by the European Commission as a result of their prohibition of our acquisition of GRAIL and an order issued by the Federal Trade Commission requiring that we divest GRAIL; (xii) the risks and costs associated with the integration of GRAIL's business if we are ultimately able to integrate GRAIL; (xiii) the risk that disruptions from the consummation of our acquisition of GRAIL and associated legal or regulatory proceedings, including related appeals, or obligations will harm our business, including current plans and operations; (xiv) the risk of incurring fines associated with the consummation of our acquisition of GRAIL and the possibility that we may be required to divest all or a portion of the assets or equity interests of GRAIL on terms that could be materially worse than the terms on which we acquired GRAIL; (xv) our ability to obtain approval by third-party payors to reimburse patients for our products; (xvi) our ability to obtain regulatory clearance for our products from government agencies; (xvii) our ability to successfully partner with other companies and organizations to develop new products, expand markets, and grow our business; (xviii) uncertainty, or adverse economic and business conditions, including as a result of slowing or uncertain economic growth, COVID-19 pandemic mitigation measures, or armed conflict; (xix) the application of generally accepted accounting principles, which are highly complex and involve many subjective assumptions, estimates, and judgments and (xx) 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. In 2023, we celebrate 25 years of innovation, which has established us as a 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, TikTok and YouTube.

About GRAIL

GRAIL is a healthcare company whose mission is to detect cancer early, when it can be cured. GRAIL is focused on alleviating the global burden of cancer by developing pioneering technology to detect and identify multiple deadly cancer types early. The company is using the power of next-generation sequencing, population-scale clinical studies, and state-of-the-art computer science and data science to enhance the scientific understanding of cancer biology, and to develop its multi-cancer early detection blood test. GRAIL is headquartered in Menlo Park, CA with locations in Washington, D.C., North Carolina, and the United Kingdom. GRAIL, LLC, is a wholly-owned subsidiary of Illumina, which currently must be held and operated separately and independently from Illumina pursuant to interim measures ordered by the European Commission, which prohibited our acquisition of GRAIL on September 6, 2022. For more information, please visit www.grail.com.

Investors:
Salli Schwartz
+1.858.291.6421
ir@illumina.com

Media:
David McAlpine
+1.347.327.1336
pr@illumina.com

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SOURCE Illumina, Inc.

Company Codes: NASDAQ-NMS:ILMN