Analyst Conference Summary

conference date: May 2, 2024 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2024 (first quarter, Q1 2024)

Forward-looking statements

Overview: Declining revenue, but still a very high P/E ratio. Grail still a drag.

Basic data (GAAP):

Revenue was $1.07 billion, down 4% sequentially from $1.12 billion and down 2% from $1.09 billion in the year-earlier quarter.

Net income was negative $126 million, up sequentially from negative $176 million, and down from $3 million year-earlier.

Diluted EPS was negative $0.79, up sequentially from negative $1.11, and down from $0.02 year-earlier.

Guidance:

Full 2024 core Illumina revenue about flat y/y. Non-GAAP operating margin about 20%

Conference Highlights:

Jacob Thaysen, CEO, said "Our customers are leveraging the NovaSeq X to drive increased sequencing activity, even in a persistently challenging global macroeconomic environment. Additionally, our team's strong execution and continued focus on operational excellence enabled us to deliver year-over-year improvement in both gross margin and non-GAAP operating margin." Looking to resolve GRAIL divestment as quickly as possible. Believes customers are still looking for better sequencing solutions. Global macroenvironment is tough. Is exiting select facilities in the Bay Area and San Diego.

On December 17, 2023 Illumina announced it would divest GRAIL. Hopes to finalize terms in Q2 2024. The EU has approved the divestment plan. Could be a third-party sale or a capital markets transaction.

Product revenue was $876 million, services $200 million.

Illumina shipped 55 NovaSeq X instruments in Q1 2024. Had sold 400 instruments to date. [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 $27 million in revenue and a $227 million operating loss, or $185 million non-GAAP. Grail must be held separately because the EU forbade a merger.

Core segment had revenue of $1.06 billion, down 1% from $1.08 billion year-earlier, and an operating profit of $116 million. Non-GAAP operating profit was $218 million.

Non-GAAP numbers: net income $14 million, down sequentially from $22 million, and up from $13 million year-earlier. Diluted EPS was $0.09, down 36% sequentially from $0.14, and up from $0.08 year-earlier.

Cash, equivalents and investment balance was $1.11 billion, up sequentialy from $1.05 million. No Long term debt. Cash flow from operations was $77 million. Free cash flow was $41 million. Capital expenditures were $36 million. Cash used to repurchase stock was $0 million. $0 million was used to pay down debt.

GAAP cost of revenue was $409 million, leaving gross profit of $667 million. Operating expenses were $778 million, consisting of: $339 million for research and development; $439 million for selling, general, and administrative; $48 million amortization. Leaving income from operations of negative $111 million. Other income was $2 million. Income tax $17 million.

Q&A selective summary:

Your thoughts on long-term future of Illumina? We are seeing a lot of opportunity types going forward. We expect to see elasticity that will help us. Looking to expand margins. Continuing to examine the strategy for going forward. Customer expectations are changing.

Hi-throughput consumables? Saw strong growth for X, offsetting decline in lower range consumables. We are seeing strong growth overall in sequencing volumes, including new uses.

Mid-throughput segment? With software upgrade and new flow cell you can do more at a lower price point. There is competition in this segment, we see it mostly in China. Consumables are growing in the segment. Competition is as expected.

Guidance, revenue driven just by consumables? Adoption of the full portfolio of X consumables is the key driver. Our BD revenue, partnerships continue to grow. Guidance trend is both for instruments and cosumables.

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