Analyst Conference Summary

conference date: November 4, 2024 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2024 (third quarter, Q3 2024)

Forward-looking statements

Overview: Looks better after dumping Grail, but not growing.

Basic data (GAAP):

Revenue was $1.08 billion, down 3% sequentially from $1.11 billion and also down 3% from $1.11 billion in the year-earlier quarter.

Net income was $642 million, up sequentially from negative $1.99 billion, and up from negative $754 million year-earlier.

Diluted EPS was $4.42, up sequentially from negative $12.48, and up from negative $4.77 year-earlier.

Guidance:

Lowered revenue guidance but raised margin guidance. Fiscal 2024 revenue to decline 3% y/y. Q4 revenue near $1.07 billion. Operating margin (non-GAAP) 21% to 21.5%. Core Illumina non-GAAP diluted EPS $4.05 to $4.15. [but with Grail part of year, will be much lower]

Conference Highlights:

Jacob Thaysen, CEO, said "We are making good strides towards Illumina's strategic goals, both in launching breakthrough innovation and in helping our customers accelerate their adoption of the NovaSeq X. The near-term macroeconomic environment remains constrained, and we are slightly lowering our 2024 revenue guidance. The underlying demand for Illumina products and applications remains strong and we are demonstrating significant progress in driving margin and earnings expansion." Has a three year plan to accelerate revenue growth and expand margins.

On June 24, 2024 Illumina divested GRAIL. Illumina retains a 14.5% stake in Grail. The rest of the Grail stock was distributed to Illumina stockholders.

In Q3 2024 Illumina acquired Fluent Biosciences.

Product revenue was $914 million, services $166 million. $741 million of the product revenue was for consumables.

Illumina shipped 58 NovaSeq X instruments in Q3 2024. Had sold 527 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.

In Q3 2024, Illumina introduced the MiSeq i100 Series, its simplest, fastest benchtop sequencer.

Non-GAAP numbers: net income $181 million, up sequentially from $57 million, and up from $52 million year-earlier. Diluted EPS was $1.14, up sequentially from $0.36, and up from $ 0.33 year-earlier.

Cash, equivalents and investment balance was $939 million, down sequentialy from $994 million. No Long term debt. Cash flow from operations was $316 million. Free cash flow was $284 million. Capital expenditures were $32 million. Cash used to repurchase stock was $0 million. $0 million was used to pay down debt.

GAAP cost of revenue was $335 million, leaving gross profit of $745 million. Operating expenses were $0.0 billion, consisting of: $253 million for research and development; $239 million for selling, general, and administrative; $488 million income from legal settlement. Leaving income from operations of $741 million. Other expense was $21 million. Income tax $15 million.

Q&A selective summary:

Guidance, what is causing the drop? Excited on momentum in move to X. Tweak downward is not seeing the normal end-of-year instrument activity. Consumables are good, just the usual seasonal Q3 to Q4 decline due to holidays. We have a good view of our customers plan. It takes time to transition from earlier intruments to the X.

Mid throughput decline, China? Pleased with China, working on pricing strategy, flat revenue. We see the most competition in the rest of the world in mid-throughput instruments. Seeing the small biotechs doing more outsourcing of their sequencing. No prediction on 2025 yet.

Margins? Delivering on margins. Committed to delivering on 500 basis point improvement. That is on the 21% base. We still can take more costs out of COGS.

Consumables growth was up 7% for the quarter (y/y) with no obvious difference between clinical and academic research sectors.

Pricing of X transition? X provides substantial benefits, both price and workflow, to customers. There is a cost to validating moving an assay over. Often they move bigger panels. The higher throughput makes up for the lower cost per sequence. It also accelerates the flow of consumables. There is no cliff in the transition.

Lack of Q4 flush this year? Sequentially the instruments would be up, it is consumables that would be down due to holidays. X consumables have shorter shelf lives.

We expect cash generation to remain healthy going forward. Intent is to deploy to share buybacks at least enough to prevent dilution, core business, and revenue growth.

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