01—Abstract
Summary
Summary of the 10-K filed February 18, 2022. Cited figures are marked; the original filing is the authoritative source.
Illumina, Inc. (ILMN) reported fiscal 2021 (year ended January 2, 2022) revenue of $4.53 billiona, up 40% from $3.24 billion in 2020, driven mainly by growth in sequencing consumables and instruments as customers recovered from the COVID-19 pandemic.
Gross margin rose to 69.7% from 68.0%, but the company reported a loss from operations of $123 millionb (-2.7% of revenue) versus income of $580 million in 2020, primarily due to share-based compensation tied to the GRAIL acquisition and other GRAIL-related expenses. Net income attributable to Illumina stockholders was $762 million, supported by a $899 million gain on the company's previously held GRAIL investment and an effective tax rate of 13.8%. The company acquired GRAIL, Inc. on August 18, 2021 for total consideration of $9.7 billion, including $2.9 billion in cash and $757 million in contingent value rights.
GRAIL is currently held and operated as a separate company under an interim measures order from the European Commission, with an independent monitoring trustee overseeing it during the ongoing merger review. The FTC administrative trial concluded live testimony in September 2021, and Illumina's challenge to the European Commission's jurisdiction awaits a ruling from the EU General Court. The filing states the company may face a fine of up to 10%c of consolidated annual revenues under the EU Merger Regulation, and Illumina intends to vigorously defend against the FTC and European Commission actions.
At year-end, cash and cash equivalents were $1.23 billiond and short-term investments were $107 million. Illumina issued $1 billion of term notes in March 2021 and reported total debt-related carrying amounts that include $993 million of term notes and $702 million of convertible senior notes. The company stated it expects revenue to continue increasing in 2022 and that research and development expense will rise, and it does not intend to repurchase shares in fiscal 2022.
02—Key points
Key Highlights
- Revenue rose 40% to $4.53 billion in 2021 from $3.24 billion in 2020, led by Core Illumina consumables (up $916 million) and instruments (up $322 million).
- Gross margin increased to 69.7% from 68.0%, driven by higher revenue and fixed-cost leverage.
- Loss from operations of $123 million (-2.7% of revenue) compared with income of $580 million in 2020, largely due to GRAIL-related share-based compensation and acquisition expenses.
- Net income attributable to Illumina stockholders was $762 million, or $5.04 diluted EPS, aided by a $899 million gain on the previously held GRAIL investment.
- The GRAIL acquisition (completed August 18, 2021) for $9.7 billion remains subject to an FTC administrative action, an EU Article 22 referral, and a European Commission interim measures order requiring GRAIL to be held separate.
- Backlog was approximately $1.04 billion as of January 2, 2022, with about 89% expected to ship in 2022.
- Illumina ended 2021 with $1.23 billion in cash and cash equivalents and $107 million in short-term investments, and stated it does not intend to repurchase shares in 2022.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Illumina kept $0.17.
- Revenue$4.53B100.0%
- Cost of revenue−$1.37B30.3%
- Gross profit$3.15B69.7%
- Operating costs−$3.28B72.4%
- Operating income−$123.0M2.7%
- Interest, other & tax$885.0M19.6%
- Net income$762.0M16.8%
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 18, 2022Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $4.53B$3.24B | +39.7% |
| Cost of Revenue | $1.37B$1.04B | +32.4% |
| Gross Profit | $3.15B$2.20B | +43.2% |
| R&D Expenses | $1.19B$682.00M | +73.8% |
| SG&A Expenses | $2.09B$941.00M | +122.3% |
| Operating Expenses | $3.28B$1.62B | +101.9% |
| Operating Income | -$123.00M$580.00M | −121.2% |
| Interest Expense | $61.00M$49.00M | +24.5% |
| Net Income | $762.00M$650.00M | +17.2% |
| EPS (Basic) | $5.07$4.48 | +13.2% |
| EPS (Diluted) | $5.04$4.45 | +13.3% |
| Shares Outstanding (Basic) | 150.00M147.00M | +2.0% |
| Shares Outstanding (Diluted) | 151.00M148.00M | +2.0% |
05—Questions
Frequently Asked Questions
Why did Illumina post an operating loss in 2021 despite strong revenue growth?
The filing attributes the swing to (loss) income from operations of (2.7)% of revenue in 2021 versus 17.9% in 2020, primarily due to share-based compensation expense related to the acceleration of GRAIL equity awards, other GRAIL acquisition-related expenses, and higher performance-based compensation. Selling, general and administrative expense rose to $2.09 billion from $941 million, and research and development expense rose to $1.19 billion from $682 million.
What is the status of the GRAIL acquisition?
The acquisition closed on August 18, 2021, but remains subject to ongoing legal and regulatory proceedings. The FTC filed an administrative complaint alleging a Clayton Act Section 7 violation, and post-trial briefing deadlines have not yet been scheduled. The European Commission opened a Phase II review and issued an Interim Measures Order requiring GRAIL to operate independently under an appointed monitoring trustee. Illumina has filed actions challenging the EU's jurisdiction and the interim measures order, and states it intends to vigorously defend against these actions.
What potential financial penalties does Illumina face related to GRAIL?
The filing states the European Commission will likely seek to impose a fine under Article 14(2)(b) of the EU Merger Regulation of up to 10% of Illumina's consolidated annual revenues, because the company chose to complete the acquisition during the review. The FTC and other authorities may also seek other fines, penalties, remedies, or restrictions, and the company says it cannot predict their scope or severity.
How did Illumina finance the GRAIL acquisition and what debt does it carry?
Illumina paid $2.9 billion in cash, funded with existing cash of both companies and $1 billion raised through term notes issued in March 2021. The notes consist of $500 million of 0.550% term notes due 2023 and $500 million of 2.550% term notes due 2031, with net proceeds of $992 million. The company also has $750 million of 0% convertible senior notes due 2023 outstanding and an undrawn $750 million revolving Credit Facility.
What did the filing say about the outlook for 2022?
Illumina stated it expects revenue to continue to increase in 2022 and expects research and development expense to increase to support business growth. It expects its operating expenses to continue to grow on an absolute basis when excluding the GRAIL-related share-based compensation expense. The company also said it expects its future effective tax rate to be lower than the 21% U.S. federal statutory rate, and it does not intend to make any share repurchases in fiscal 2022.
06—Continue