01—Abstract
Summary
Summary of the 10-Q filed August 7, 2024. Cited figures are marked; the original filing is the authoritative source.
Illumina, Inc. reported a sharply weaker second quarter and first half of 2024, driven largely by the spin-off of GRAIL, Inc. on June 24, 2024, and related impairments.
Total revenue for Q2 2024 was $1.112 billiona versus $1.176 billion in Q2 2023, and YTD 2024 revenue was $2.188 billion versus $2.263 billion. The company recorded a net loss of $1.988 billion in Q2 2024 and $2.114 billion YTD 2024, compared with net losses of $234 million and $231 million in the prior-year periods. The loss was primarily attributable to goodwill and intangible impairment charges of $1.889 billion YTD, including a $1.466 billion goodwill impairment and a $420 million IPR&D impairment tied to GRAIL, along with a $328 million unrealized loss on the retained GRAIL investment after the spin-off.
Gross margin improved to 63.5% YTD 2024 from 61.3% in YTD 2023, supported by favorable sequencing consumables mix and cost savings. Balance sheet and liquidity changed materially. Total assets fell to $6.081 billionb at June 30, 2024 from $10.111 billion at December 31, 2023, and stockholders' equity dropped to $1.436 billion from $5.745 billion.
Cash and cash equivalents were $920 millionc, and the company drew $750 million on a 364-day delayed draw term loan to fund the GRAIL disposal funding of $974 million. Total current liabilities rose to $2.208 billion, including $744 million of current term debt. The company also remains the obligor on contingent value rights tied to GRAIL, and carries an accrued liability of $481 million related to the European Commission Article 14(2)(b) fine of approximately €432 million.
The filing also details ongoing legal and regulatory matters, including the EU General Court and Court of Justice proceedings on the GRAIL acquisition, an SEC inquiry, a DOJ civil investigative demand under the False Claims Act, multiple stockholder derivative suits, and federal and state securities class actions. The company stated that cash, short-term investments and available borrowing capacity are sufficient to fund near-term needs for at least the next 12 months.
02—Key points
Key Highlights
- Total revenue was $1.112 billion in Q2 2024 versus $1.176 billion in Q2 2023; YTD 2024 revenue was $2.188 billion versus $2.263 billion, with lower sequencing instrument shipments partly offset by higher service revenue.
- Net loss was $1.988 billion in Q2 2024 and $2.114 billion YTD 2024, driven by $1.889 billion of YTD goodwill and intangible impairments, including $1.466 billion of goodwill and $420 million of IPR&D related to GRAIL.
- The GRAIL spin-off was completed June 24, 2024; Illumina distributed approximately 85.5% of GRAIL common stock and retained approximately 14.5%, recorded as a $397 million investment and subsequently reduced by a $328 million unrealized loss.
- Gross margin rose to 63.5% YTD 2024 from 61.3% in YTD 2023, driven by a more favorable sequencing consumables mix and operational cost savings.
- Total stockholders' equity fell to $1.436 billion at June 30, 2024 from $5.745 billion at December 31, 2023, reflecting a $2.399 billion charge to paid-in capital from the spin-off and the YTD net loss.
- Liquidity included $920 million of cash and cash equivalents and a $750 million delayed draw term loan borrowed June 20, 2024, used to fund the $974 million GRAIL disposal funding; current term debt rose to $744 million.
- Ongoing legal exposure includes a $481 million accrual for the European Commission fine, an SEC inquiry, a DOJ civil investigative demand, multiple stockholder derivative and securities class actions, and the EU Court of Justice judgment expected in early September 2024.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed August 7, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $1.11B$1.09B | +2.3% |
| Cost of Revenue | $391.00M$432.00M | −9.5% |
| Gross Profit | $721.00M$655.00M | +10.1% |
| R&D Expenses | $325.00M$341.00M | −4.7% |
| SG&A Expenses | $147.00M$378.00M | −61.1% |
| Operating Expenses | $2.36B$719.00M | +228.0% |
| Operating Income | -$1.64B-$64.00M | −2457.8% |
| Net Income | -$1.99B$3.00M | −66366.7% |
| EPS (Basic) | $-12.48$0.02 | −62500.0% |
| EPS (Diluted) | $-12.48$0.02 | −62500.0% |
| Shares Outstanding (Basic) | 159.00M158.00M | +0.6% |
| Shares Outstanding (Diluted) | 159.00M158.00M | +0.6% |
05—Questions
Frequently Asked Questions
Why did Illumina report such a large net loss in the second quarter of 2024?
The Q2 2024 net loss of $1.988 billion was mainly due to a $1.886 billion goodwill and intangible impairment charge related to GRAIL, which included a $1.466 billion goodwill impairment and a $420 million IPR&D impairment. Other expense, net of $332 million also contributed, primarily from a $328 million unrealized loss on Illumina's retained GRAIL investment after the spin-off.
What did Illumina give up in the GRAIL spin-off, and what did it keep?
Illumina distributed approximately 85.5% of GRAIL's outstanding common stock to its stockholders, at one GRAIL share for every six Illumina shares held on the June 13, 2024 record date. It retained approximately 14.5% of GRAIL shares, which were initially recorded at $397 million. Illumina also contributed Disposal Funding of $974 million, less GRAIL's cash, and remains the obligor on the GRAIL contingent value rights.
How is Illumina's balance sheet and liquidity position after the spin-off?
Total assets declined to $6.081 billion from $10.111 billion at December 31, 2023, and total stockholders' equity declined to $1.436 billion from $5.745 billion. Cash and cash equivalents were $920 million at June 30, 2024. Term debt totaled $2.234 billion including $750 million drawn under the delayed draw term loan, with $744 million classified as current. The company has no borrowings under its $750 million revolving credit facility and states that its liquidity is sufficient for at least the next 12 months.
What are the main legal and regulatory risks still facing Illumina?
The filing describes ongoing proceedings related to the GRAIL acquisition, including an EU Court of Justice appeal with a judgment scheduled for early September 2024, and an appeal of the European Commission's Article 14(2)(b) fine of approximately €432 million, for which $481 million is accrued. It also discloses an SEC investigation, a DOJ civil investigative demand under the False Claims Act, several stockholder derivative suits, and federal and state securities class actions. The company states it denies the allegations and intends to vigorously defend these matters.
Did Illumina's core operations improve in the first half of 2024?
Core Illumina revenue fell to $2.148 billion YTD 2024 from $2.235 billion, mainly due to fewer sequencing instrument shipments, while Core Illumina gross margin rose to 66.9% from 64.7%. Core Illumina operating income was $558 million YTD 2024 compared with $257 million in YTD 2023, aided by lower SG&A that included a $255 million gain from the change in fair value of the GRAIL contingent consideration liability. Core Illumina R&D expense decreased 10% YTD 2024.
06—Continue