Analyst Conference Summary

conference date: February 8, 2024 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2023 (fourth quarter, Q4 2023)

Forward-looking statements

Overview: Return to y/y revenue growth, but not enough to justify its current stock price, especially given its GAAP earnings loss.

Basic data (GAAP):

Revenue was $1.12 billion, flat sequentially from $1.12 billion and up 4% from $1.08 billion in the year-earlier quarter.

Net income was negative $176 million, up sequentially from negative $754 million, and down from negative $140 million year-earlier.

Diluted EPS was negative $1.11, up sequentially from negative $4.77, and down from negative $0.89 year-earlier.

Guidance:

2024 revenue expected nearly flat from 2023. But in Q1 expects Core revenue down about 4% y/y.

Conference Highlights:

Jacob Thaysen, CEO, said "I'm pleased that in the fourth quarter, my first full quarter with the company, Illumina delivered results ahead of our expectations, driven by NovaSeq X instrument and consumables sales. While our customers generally remain constrained in their purchasing, we are well-positioned for growth as market conditions improve. Illumina is focused on three key priorities to accelerate value creation: driving our top line; focusing on operational excellence, including boosting productivity, cost savings, and customer-focused innovation; and working to resolve GRAIL as quickly as possible." Has reduced headcount by 12% in the last year.

On December 17, 2023 Illumina announced it would divest GRAIL. Hopes to finalize terms in Q2 2024.

Product revenue was $923 million, services $199 million. Consumables revenue was $687 million, flat y/y.

Illumina shipped 79 NovaSeq X instruments in Q4 2023 and 352 instruments for all 2023. [Which makes the Q4 run rate lower than the full year rate. NovaSeq X is the most power and expensive of its sequencers.] Expects to ship fewer high-throughput devices in 2024 than in 2023.

The flat 2024 revenue guidance is largely due to capital constraints on customers.

Grail had $30 million in revenue and a $197 million operating loss, or $152 million non-GAAP. Grail must be held separately because the EU forbade a merger.

Core segment had revenue of $1.10 billion, up 3% from $1.07 billion year-earlier, and an operating profit of $33 million. Non-GAAP operating profit was $203 million.

Non-GAAP numbers: net income $22 million, down 58% sequentially from $52 million, and flat from $22 million year-earlier. Diluted EPS was $0.14, down 58% sequentially from $0.33, and flat from $0.14 year-earlier.

Cash, equivalents and investment balance was $1.05 billion, up sequentialy from $933 million. No Long term debt. Cash flow from operations was $224 million. Free cash flow was $173 million. Capital expenditures were $51 million. Cash used to repurchase stock was $0 million. $0 million was used to pay down debt.

GAAP cost of revenue was $448 million, leaving gross profit of $674 million. Operating expenses were $838 million, consisting of: $341 million for research and development; $485 million for selling, general, and administrative; $12 other expenses. Leaving income from operations of negative $164 million. Other expense was $4 million. Income tax $8 million.

Q&A selective summary:

25B chip release? Pleased with launch of 25B, performing better than our expectations. Should drive X performance. It should increase attractiveness of X. About 40% of X customers so far have adopted the 25B.

Sequencing consumables growth rate? Helped by 25B uptake and X customers. Research and clinical customers. Offset by the price transition on moves to X.

GRAIL? Pleased with progress. Running a dual track, should have terms finalized in Q2. We are not guiding on GRAIL for 2024 because we expect to exit it. Could have more information late in Q1.

Most of our clinical customers are using the lower cost of X to expand the size of their assays. Some customers are ordering tens of NovaSeq Xs. But less than half of our high-volume customers have bought their first X so far.

R&D spend? We do continue to spend a lot of research. We have a pipeline of innovation that will be coming out over time, we are in the early stages of opportunities. We do hope the % of research spend will come down over the next few years.

Competition? $100 genome price? We take our competition serously. We are moving forward in proteinomics. We could make more forms of analysis available on the instruments. The price point of the NovaSeq X is attractive for a wide variety of targets.

We have made progress in COGS and you should see more of that in 2024.

Because we have a premium product, we can command a premium cost. Also, customers look at the cost of the entire workflow, where we have a cost-effective solution.

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