Analyst Conference Summary


conference date: May 5, 2022 @ 2:00 PM Pacific Time
for quarter ending: April 3, 2022 (first quarter, Q1 2022)

Forward-looking statements

Overview: Moderate revenue growth but declining profits.

Basic data (GAAP):

Revenue was $1.22 billion, up 2% sequentially from $1.20 billion and up 12% from $1.09 million in the year-earlier quarter.

Net income was $86 million, down 23% sequentially from $112 million, and down 41% from $147 million year-earlier.

Diluted EPS was $0.55, down 23% sequentially from $0.71, and down 45% from $1.00 year-earlier.


Reiterated full year revenue guidance of 14-16% growth from fiscal year 2021. Reiterated EPS.

Conference Highlights:

Francis deSouza, President and CEO, said "Our business fundamentals are robust. We saw record total orders and exited the quarter with record total backlog. GRAIL also continued to gain traction and has now entered more than 30 partnerships with health systems, employers, and insurers. We are advancing our innovation roadmap, delivering the sequencing breakthroughs that power genomic research and improve human health." In Q1 2022 Illumina Launched TruSight Oncology Comprehensive in Europe, a single test that assesses multiple tumor genes and biomarkers to reveal the specific molecular profile of a patient's cancer. There was a record order backlog at the end of the quarter.

Product revenue was $1.07 billion, services $153 million. A record number of NovaSeqs were shipped in the quarter. Sequencing instrument revenue was $212 million, with (not given) total instruments sold. Consumable revenue was $784 million. Services generated $111 million. Oncology testing led consumable sales.

European regulators are requiring Grail to continue to be run as a separate company for now. The merger review is ongoing.

Grail had $10 million in revenue and a $172 million operating loss, leading to the y/y decline in net income and EPS. In Q2 2022 GRAIL partnered with Munich Re Life US to give access to Galleri cancer detection. Also collaborating with Point32Health.

In Q3 2021 Illumina, on August 18, closed the Grail acquisition. Illumina is holding Grail as a separate entity by request from EU Commission. Grail hopes to lead in early cancer detection with the Gallery system. Signed agreements with several health system partners to begin offering services in Q4 2021 and then in 2022. English NHS large clinical trial is underway. MRD products will also be a growth driver. Coverage for NIPT testing is increasing in Europe.

Non-GAAP numbers: net income $169 million, up 44% sequentially from $117 million, and down 39% from $278 million year-earlier. Diluted EPS was $1.07, up 43% sequentially from $0.75, and down 43% from $1.89 year-earlier.

Cash, equivalents and investment balance was $1.4 billion, up sequentialy from $1.23 billion. Long term debt $1.2 billion. Cash flow from operations was $172 million. Free cash flow was $111 million. Capital expenditures were $61 million. Cash used to repurchase stock was $0 million.

GAAP cost of revenue was $408 million, leaving gross profit of $815 million. Operating expenses were $631 million, consisting of: $323 million for research and development; $308 million for selling, general, and administrative. Leaving income from operations of $184 million. Other expense was $44 million. Income taxes $54 million.

Q&A selective summary:

China sales? It was about $10 million lower than our expectations in Q1 due to the restrictions we saw in March, particularly in Shanghai. We expect a headwind of about $35 million in Q2, then better as restrictions ease. Underlaying demand is strong, backlog is up.

NGS guidance, consumables and instruments? 20% growth y/y in instruments in Q1. Expect year to be more sequentially even. We have a strong backlog. Consumables did better than expected in Q1 and we have confidence in our guidance.

Backlog size? Instrument backlog and overall backlog were both records exiting the quarter. The doubling was more the instrument part.

Grail EU timing? EC commission Phase 2 review clock is stopped, could decide in Q2 or Q3. Also in the EU court for a decision, same timing.

New competition in instruments? Genomics is a large and growing market. There is room for multiple players. Our customers are aware of the new options. We believe we lead in terms of total cost of ownership. Price per genome is just one part of the equation. We have room, too, to drive down the price per genome. We have levers to drive end-to-end work flow.

Grail revenue ramp? Pleased with traction in Q1, particularly increasing prescibing physicians and partners. On track for $70 to $90 million in revenue this year. Signed up first life insurance company. Longer term we see progress with the NHS trials.

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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 2022 William P. Meyers