01—Abstract
Summary
Summary of the 10-K filed February 17, 2023. Cited figures are marked; the original filing is the authoritative source.
Illumina, Inc. reported a net loss of $4,404 milliona for the fiscal year ended January 1, 2023, compared with net income of $762 million in 2021, driven mainly by a $3,914 million goodwill impairment related to its GRAIL reporting unit and a $619 million legal contingency and settlement charge.
Total revenue rose to $4,584 millionb from $4,526 million, with Core Illumina revenue of $4,553 million and GRAIL revenue of $55 million. Gross margin fell to 64.8% from 69.7%, which the company attributed mainly to GRAIL's gross loss and lower fixed-cost leverage in Core Illumina. Loss from operations was $(4,179) million, versus $(123) million in 2021.
The bulk of the investor focus centers on the GRAIL acquisition, which remains subject to legal and regulatory proceedings. On September 6, 2022, the European Commission adopted a Prohibition Decision against the acquisition, and on December 5, 2022 it issued a Statement of Objections signaling an order requiring divestiture of GRAIL. Interim measures require GRAIL to be held separate, and the company accrued $458 millionc for a potential European Commission fine of up to 10% of consolidated annual revenues.
The FTC's appeal of an administrative law judge's ruling in Illumina's favor was pending before the full FTC. The company also disclosed that a divestiture could create significant tax liabilities, with tax basis in GRAIL estimated at between $500 milliond and $1 billion.
Liquidity remained solid: cash, cash equivalents and short-term investments totaled $2.0 billion at year-end, and the company issued $1,000 million of term notes in December 2022, with net proceeds of $991 million. Operating cash flow was $392 million, and the company stated that it does not intend to make share repurchases in fiscal 2023.
02—Key points
Key Highlights
- Net loss of $4,404 million in 2022 versus net income of $762 million in 2021, primarily reflecting a $3,914 million goodwill impairment on the GRAIL reporting unit.
- Total revenue increased to $4,584 million from $4,526 million, with consumables revenue of $3,225 million and instruments revenue of $728 million.
- Gross margin declined to 64.8% from 69.7%, driven by GRAIL's gross loss and less fixed-cost leverage in Core Illumina.
- A $458 million accrual was recorded for a potential European Commission fine tied to the GRAIL acquisition, and a $145 million net loss was recorded from settling litigation with BGI.
- The European Commission's Prohibition Decision (September 6, 2022) and Statement of Objections (December 5, 2022) signal a possible order requiring divestiture of GRAIL; the FTC's appeal of the ALJ's favorable ruling is pending.
- Cash, cash equivalents and short-term investments totaled $2.0 billion at year-end, supported by $991 million in net proceeds from December 2022 term notes.
- Operating cash flow was $392 million in 2022 versus $545 million in 2021, and the company expects R&D expense to increase in 2023.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2023, Illumina lost $0.98.
- Revenue$4.50B100.0%
- Cost of revenue−$1.76B39.1%
- Gross profit$2.74B60.9%
- Operating costs−$3.81B84.7%
- Operating income−$1.07B23.7%
- Interest, other & tax−$3.33B74.0%
- Net income−$4.40B97.8%
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 17, 2023Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $4.50B$4.53B | −0.5% |
| Cost of Revenue | $1.76B$1.37B | +28.3% |
| Gross Profit | $2.74B$3.15B | −13.0% |
| R&D Expenses | $1.35B$1.19B | +14.3% |
| SG&A Expenses | $1.61B$2.09B | −22.9% |
| Operating Expenses | $3.81B$3.28B | +16.4% |
| Operating Income | -$1.07B-$123.00M | −769.1% |
| Interest Expense | $26.00M$61.00M | −57.4% |
| Net Income | -$4.40B$762.00M | −678.0% |
| EPS (Basic) | $-7.34$5.07 | −244.8% |
| EPS (Diluted) | $-7.34$5.04 | −245.6% |
| Shares Outstanding (Basic) | 158.00M150.00M | +5.3% |
| Shares Outstanding (Diluted) | 158.00M151.00M | +4.6% |
05—Questions
Frequently Asked Questions
What drove the swing from net income to a net loss in 2022?
The main driver was a $3,914 million goodwill impairment on the GRAIL reporting unit, recorded in Q3 2022 after the European Commission's prohibition decision and a sustained decline in the stock price and market capitalization. A $619 million legal contingency and settlement charge, including the $458 million accrual for the potential EU fine and the $145 million BGI settlement loss, also contributed.
What is the status of the GRAIL acquisition?
The acquisition remains subject to ongoing proceedings. The European Commission adopted a Prohibition Decision on September 6, 2022, and issued a Statement of Objections on December 5, 2022 indicating it intends to require divestiture of GRAIL. Illumina has appealed the Prohibition Decision to the EU General Court and must hold GRAIL separate under interim measures. The FTC's complaint counsel appealed the administrative law judge's September 1, 2022 ruling in Illumina's favor, and a decision from the full FTC is pending.
How much could a divestiture of GRAIL cost the company?
The filing states that a divestiture would likely impose significant costs, including advisory fees and additional expenses, and could result in loss of revenue. It also notes that a sale would likely not be tax-free, potentially creating significant tax liabilities on the gain above Illumina's tax basis in GRAIL, which the company estimates at between $500 million and $1 billion. The company also flagged that it may not control the timing or terms of any divestment.
How is the company funding its operations and obligations?
At January 1, 2023, the company held $2.0 billion in cash, cash equivalents and short-term investments, and it issued $500 million of 2025 term notes and $500 million of 2027 term notes in December 2022. It also entered a new $750 million revolving credit facility on January 4, 2023, with no outstanding borrowings. The company stated these resources are sufficient to fund near-term capital and operating needs for at least the next 12 months.
What does the company expect for 2023?
The company expects revenue to continue to increase in 2023, with the NovaSeq X Series becoming available in Q1 2023. It also expects operating expenses to continue to grow on an absolute basis and R&D expense to increase. It does not intend to make share repurchases in fiscal 2023, and it expects its future effective tax rate to be lower than the 21% U.S. federal statutory rate.
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