Analyst Conference Summary


conference date: February 11, 2021 @ 2:00 PM Pacific Time
for quarter ending: January 3, 2021 (fourth quarter, Q4 2020)

Forward-looking statements

Overview: Recovering from pandemic slump.

Basic data (GAAP):

Revenue was $953 million, up 20% sequentially from $794 million but flat from $953 million in the year-earlier quarter.

Net income was $257 million, up 44% sequentially from $179 million, and up 8% from $239 million year-earlier. Net income included an investment gain of $159 million.

Diluted EPS was $1.75, up 45% sequentially from $1.21, and up 9% from $1.61 year-earlier.


For 2021 EPS estimated at $4.76 to $5.01 GAAP, or $5.10 to $5.35 non-GAAP. Revenue growth y/y range 17% to 20%. Guidance excludes planned acquisition of GRAIL.

Conference Highlights:

Francis deSouza, President and CEO, said "Illumina delivered a strong finish to 2020 with record fourth quarter revenue exceeding our expectations. We also had record orders in the quarter, including record sequencing instrument orders and the second highest quarter for NovaSeq instrument orders. Our business delivered strong sequential growth in the second half of 2020 and we expect continued recovery from the pandemic in 2021." In quarter announced TSO 500 partnerships with Bristol Myers Squibb, Kura Oncology, Myriad Genetics, and Merck to advance comprehensive genomic profiling. Revenue in quarter was a record, though just $0.5 million more than in Q4 2019. 9% y/y decline for full year revenue.

During Q3 2020 Illumina announced an agreement to acquire GRAIL to accelerate commercialization and adoption of transformative multi-cancer screening genetic tests. GRAIL was spun off from Illumina in 2016. Will pay $8 billion to acquire it, but believes will close in second half of 2021.

Non-GAAP numbers: net income $179 million, up 19% sequentially from $150 million, and down 29% from $252 million year-earlier. Diluted EPS was $1.22, up 20% sequentially from $1.02, and down 28% from $1.70 year-earlier. Main difference with GAAP was eliminating $146 million in other income.

Cash, equivalents and investment balance was $3.5 billion, up sequentialy from $3.32 billion. Long term debt was $0.67 billion. Cash flow from operations was $406 million. Free cash flow was $344 million. Capital expenditures were $62 million. Cash used to repurchase stock was $280 million.

Product revenue was $831 million, services $122 million.

Seeing continued HiSeq to NovaSeq adoption. NextSeq DX approved in China and there will be a collaboration with Sequoia Capital China to catalyze the genomic startup ecosystem in China.

In Q4 2020 consumables growth grew y/y, implying instrument growth declined, though sequencing instrument revenue was flat y/y. Microarray revenue declined 8% y/y.

GAAP cost of revenue was $323 million, leaving gross profit of $630 million. Operating expenses were $498 million, consisting of: $200 million for research and development; $298 million for selling, general, and administrative. Leaving income from operations of $132 million. Other income was $166 million. Income tax provision $41 million.

Q&A selective summary:

Earnings guidance, reason for higher op ex? We expect 24% operating margin, non-GAAP. Part of that is a catch-up expense of $50 to $55 million for stock compensation. Also need to grow in research and sales expenses for long-term benefits.

Sequencing guidance given NovaSeq success? We have a lot of NovaSeq momentum. The new model 1.5 unlocked a lot of demand. NovaSeq consumables had a record quarter, and the highest bookings since launch. We are seeing over half of bookings from new high throughput customers. We still have 320 HiSeq customers who have not begun upgrading. We made the pricing very attractive because of savings on consumables.

We are still seeing an impact from the pandemic. The main impact on margins in Q4 were the mix, they should improve in 2021 to near 70% as we get out of pandemic constraints.

We raised Q1 guidance over what we said at JP Morgan, but since then we saw ordering strength. So up high single digits from year-earlier.

We are still in a pandemic year, the first 6 months will be a pandemic reality, so guidance is partly a reflection of that.

20% sequencing consumable growth in 2021 assumption? Given all the drivers you said, is that not conservative? NIPT market access and coverage, oncology, no assumption of significant impact from Covid sequencing. But we are still in a pandemic year.

MRD and Grail? We are excited for cancer patients for MRD tests. We have two customers already. Grail has a different approach on MRD. Most tests on the market are patient specific. Grail's is not patient specific, so quicker and no tissue biopsy needed.

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Disclaimer: My analyst call summaries may include both condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. This is journalism, not advice.

Copyright 2021 William P. Meyers