Analyst Conference Summary


conference date: April 25, 2023 @ 2:00 PM Pacific Time
for quarter ending: April 2, 2023 (first quarter, Q1 2023)

Forward-looking statements

Overview: Falling revenue and profit, but priced as a super-growth stock.

Basic data (GAAP):

Revenue was $1.09 billion, up 1% sequentially from $1.08 billion and down 11% from $ billion in the year-earlier quarter.

Net income was $3 million, up sequentially from negative $140 million, and down 87% from $86 million year-earlier.

Diluted EPS was $0.02, up sequentially from negative $0.89, and down 96% from $0.55 year-earlier.


For full year 2023, expects revenue growth of 7% to 10% y/y. Expects Core Illumina revenue growth of 6% to 9%. GRAIL revenue expected in the range of $90 million to $110 million. GAAP EPS loss $0.28 to $0.03; non-GAAP EPS $1.25 to $1.50.

Conference Highlights:

Francis deSouza, President and CEO, said "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." Plans to save $100 in annual run rate, improving margins, and investing in high-growth areas. Insurance coverage continues to grow for whole-genome sequencing. Slow down in Covid surveillance hurt consumables revenue. Also hurt by sanctions against Russia.

Product revenue was $922 million, services $165 million. Segments are now Core and Grail.

NovaSeq X Series (NovaSeq X and NovaSeq X Plus), was available as of Q1 2023, enabling the highest levels of accuracy at immense scale, with the power to sequence more than 20,000 genomes per year. Has exceeded 200 orders and shipped 67 by the end of Q1. Expects 330 shipments in 2023.

In Q1 launched Complete Long Read Prep, Human, which enables access to both long- and short-read data on the same instrument for the first time. Also launched Connected Insights cloud-based software.

About 30% of shipments in the quarter were to new-to-illumina customers.

Grail had $20 million in revenue and a $204 million operating loss. European regulators are requiring Grail to continue to be run as a separate company for now. The merger review received a setback when the FTC ordered Illumina to divest GRAIL, but aleady appealed.

Core segment had revenue of $1.08 billion, down from $1.22 billion year-earlier, and an operating profit of $142 million, down from $362 million. Non-GAAP opearting profit was $187 million.

Non-GAAP numbers: net income $13 million, down 41% sequentially from $22 million, and down 92% from $169 million year-earlier. Diluted EPS was $0.08, down 43% sequentially from $0.14, and down 93% from $1.07 year-earlier.

Cash, equivalents and investment balance was $1.52 billion, down sequentialy from $2.04 billion. Long term debt $1.5 billion. Cash flow from operations was $10 million. Free cash flow was negative $42 million. Capital expenditures were $52 million. Cash used to repurchase stock was $0 million. $500 million was used to pay down debt.

GAAP cost of revenue was $432 million, leaving gross profit of $655 million. Operating expenses were $719 million, consisting of: $341 million for research and development; $378 million for selling, general, and administrative. Leaving income from operations of negative $64 million. Other expense was $14 million. Income tax benefit $81 million.

Q&A selective summary:

Order book expectations, NovaSeq X? 330 is likely the manufacturing ceiling, customer demand could be higher. Clinical adoption is stronger than expected. We have scaled up manufacturing faster than expected.

Grail legal effects on Core business? Only a small part of the company is about Grail. Most focus is on the X.

We believe customers want to tap into the elasticity of demand from the lower price of sequencing. For instance solid tumor testing customers.

We think of Grail regulation coming to a head end of 2023, beginning of 2024. We have a divestiture work plan if we are required to do that.

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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 2023 William P. Meyers