01—Abstract
Summary
Summary of the 10-K filed February 17, 2021. Cited figures are marked; the original filing is the authoritative source.
Illumina, Inc. (ILMN) reported fiscal 2020 (53 weeks ended January 3, 2021) with total revenue down 9% to $3.24 billiona from $3.54 billion in 2019, driven mainly by COVID-19 effects on consumable and instrument shipments.
Gross margin declined to 68.0% from 69.6%, and income from operations fell to $580 millionb (17.9% of revenue) from $985 million. Net income attributable to Illumina stockholders was $656 million, or $4.45 diluted EPS, versus $1,002 million in 2019. Other income, net of $284 million, was boosted by unrealized gains on marketable equity securities of $270 million, and the effective tax rate rose to 23.3% from 11.4%, reflected in part by a $68 million valuation allowance on California R&D credits and $28 million tied to the Altera case.
The pending acquisition of GRAIL, Inc. dominates the outlook. Illumina agreed on September 20, 2020 to acquire GRAIL for total consideration of $8 billionc, consisting of $3.5 billion in cash and $4.5 billion in Illumina stock subject to a collar, plus contingent value rights tied to GRAIL revenue. The filing expects closing in the second half of 2021, funded by balance sheet cash and up to $1 billion of debt, with a $1 billion 364-day bridge facility from Goldman Sachs Bank USA.
Illumina is making $35 milliond monthly Continuation Payments to GRAIL, and termination could trigger a $300 million fee plus a $300 million investment in GRAIL preferred stock. Liquidity remained solid, with cash and cash equivalents of $1.81 billion and short-term investments of $1.66 billion at year end.
Operating cash flow was $1.08 billion, and the company repurchased $736 million of stock during 2020, with $15 million remaining under the $750 million authorization. Convertible notes totaling $517 million due 2021 became convertible on January 1, 2021, and the company expects its cash and operating cash flow to fund needs for at least the next 12 months.
02—Key points
Key Highlights
- Revenue fell 9% to $3.24 billion in 2020 from $3.54 billion in 2019, primarily from COVID-19-related declines in consumable and instrument shipments.
- Gross margin was 68.0% versus 69.6% in 2019, pressured by higher freight costs, less favorable product mix, and lower fixed-cost leverage.
- Income from operations was $580 million (17.9% of revenue) versus $985 million (27.8%) in 2019, as operating expenses rose to 50.1% of revenue, including $92 million of PacBio-related fees and GRAIL acquisition expenses.
- Net income attributable to Illumina stockholders was $656 million ($4.45 diluted EPS) versus $1,002 million ($6.74 diluted EPS) in 2019, helped by $270 million of unrealized gains on marketable equity securities.
- The pending $8 billion GRAIL acquisition ($3.5 billion cash, $4.5 billion stock, plus contingent value rights) is expected to close in the second half of 2021, subject to regulatory approvals and GRAIL stockholder approval.
- Year-end cash, cash equivalents, and short-term investments totaled $3.5 billion, and the company repurchased $736 million of common stock during 2020.
- Remaining 2021 convertible notes of $517 million became convertible on January 1, 2021, and the 2023 notes carry $750 million of principal.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Illumina kept $0.20.
- Revenue$3.24B100.0%
- Cost of revenue−$1.04B32.0%
- Gross profit$2.20B68.0%
- Operating costs−$1.62B50.1%
- Operating income$580.0M17.9%
- Interest, other & tax$70.0M2.2%
- Net income$650.0M20.1%
Where FY2021 revenue went
$3.24B- Cost of revenue: $1.04B, 32% of revenue
- SG&A: $941.0M, 29% of revenue
- R&D: $682.0M, 21% of revenue
- Operating income: $580.0M, 18% of revenue
Kept 18% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 17, 2021Financial Statements
| Revenue | $3.24B |
| Cost of Revenue | $1.04B |
| Gross Profit | $2.20B |
| R&D Expenses | $682.00M |
| SG&A Expenses | $941.00M |
| Operating Expenses | $1.62B |
| Operating Income | $580.00M |
| Interest Expense | $49.00M |
| Net Income | $650.00M |
| EPS (Basic) | $4.48 |
| EPS (Diluted) | $4.45 |
| Shares Outstanding (Basic) | 147.00M |
| Shares Outstanding (Diluted) | 148.00M |
05—Questions
Frequently Asked Questions
Why did Illumina's revenue and profitability decline in 2020?
The filing attributes the 9% revenue decline to decreased shipments of consumables and instruments caused by the COVID-19 pandemic, along with weakness in the direct-to-consumer microarray market. Lower revenue reduced fixed-cost leverage, and freight costs tied to the pandemic also weighed on gross margin, which fell to 68.0% from 69.6%.
What are the key terms of the pending GRAIL acquisition?
Illumina agreed on September 20, 2020 to acquire GRAIL for $8 billion, consisting of $3.5 billion in cash and $4.5 billion in Illumina common stock subject to a collar. GRAIL stockholders also receive contingent value rights paying 2.5% of the first $1 billion of revenue each year and 9% of revenue above $1 billion, for 12 years. Closing is expected in the second half of 2021.
What financial obligations does Illumina bear while the GRAIL deal is pending?
Illumina must pay GRAIL $35 million monthly as Continuation Payments until the deal closes or terminates, and it made $35 million of such payments in 2020 plus another $35 million in January 2021. If the merger agreement is terminated under specified circumstances, Illumina would pay a $300 million termination fee and make an additional $300 million investment in GRAIL preferred stock.
How is Illumina funding its liquidity needs and capital returns?
Illumina ended 2020 with about $1.8 billion in cash and cash equivalents and $1.7 billion in short-term investments. It expects to fund the GRAIL cash consideration of about $3.1 billion with balance sheet cash plus up to $1 billion of debt, backed by a $1 billion bridge facility from Goldman Sachs Bank USA. In 2020 it used $736 million to repurchase stock and had $15 million left under its $750 million authorization.
What are the main risks to the GRAIL acquisition and to Illumina's core business?
The filing cites risks that the deal may not close on time or at all, including regulatory and antitrust challenges, and the outside date of September 20, 2021 (subject to a three-month extension). It also notes integration difficulties, dilution from issuing shares, and potential declines in Illumina's stock price. Core business risks include intense competition, reliance on single-source suppliers, product development delays, and uncertain reimbursement for diagnostic tests.
06—Continue