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Illumina Lowers FY 2022 Guidance as Q3 Revenues Rise 1 Percent

NEW YORK – Illumina said on Thursday that it is lowering its full-year 2022 revenue and EPS guidance for the second consecutive quarter as it reported a 1 percent year-over-year increase in third quarter revenues. 

The San Diego-based sequencing firm said it now expects full-year revenues to be flat to 1 percent higher year over year and full-year adjusted EPS in the range of $2.35 to $2.50. In August, Illumina said it expected revenue growth in the range of 4 percent to 5 percent for 2022 and adjusted EPS in the range of $2.75 to $2.90.

Core Illumina revenue growth is now expected to be approximately flat while Grail revenue is now expected to be in the range of $55 million to $65 million.

On a conference call to discuss Q3 financial results, Illumina officials attributed the lowered guidance to challenging macroeconomic conditions, as well as a continuation of circumstances that led it to lower guidance in August, especially delayed lab openings as well as some deferred orders from customers who are now holding out for the new NovaSeq X series instruments announced in September.

CEO Francis deSouza noted that Illumina has already sold out its first allotment of NovaSeq X plus instruments, with 50 orders already booked and another 170 orders in its sales pipeline. Overall, Illumina guided to 300 NovaSeq X placements in 2023.

"The expected 300 shipments in first year of launch is bigger than any other launch in their history during year one," Cowen Analyst Dan Brennan wrote in a note to investors. "Our estimates of history have [Illumina] placing 285 NovaSeqs in 2017, 208 HiSeqs in 2010, and 216 Genome Analyzers in 2007."

Clinical customers have shown strong interest in the instrument, and many are planning to use it to expand the types of sequencing they do, rather than immediately port over validated workflows.

For the three months ended Oct. 2, Illumina reported consolidated revenues of $1.12 billion, up 1 percent year over year from $1.11 billion in Q3 2021 and up 3 percent on a constant currency basis, beating the consensus Wall Street analyst estimate of $1.11 billion and in line with the company's expectations, deSouza said.

Illumina has promised to hold and operate Grail separately until regulatory matters in Europe are either resolved or Illumina is forced to unwind the deal. Therefore, the company has been reporting consolidated results as well as separate results for its core business and Grail.

Core Illumina accounted for the vast majority of revenues, with Grail contributing approximately $10 million in Q3.

Core Illumina sequencing consumables revenues were flat at $725 million, driven by an increased installed base offset by delayed lab openings and "consumables inventory deleveraging," deSouza said. Instrument revenues were down 10 percent year over year to $162 million. Revenue from COVID-19 surveillance contributed $23 million in sequencing consumables revenues and $5 million in instrument revenues. Core Illumina services and other revenues grew 12 percent to $123 million, driven by higher instrument service contract revenue and licensing revenue.

Clinical sequencing consumables revenues were up 5 percent year over year, deSouza said, driven by growth in oncology and genetic disease testing. Oncology testing consumables grew 9 percent and sales of the firm's TSO 500 assay grew 17 percent year over year, with total accounts nearing 500.

Revenues from the Americas were $592 million, up 2 percent year over year, driven by NovaSeq consumables sales and offset by customer lab expansion delays and inventory management. Revenues from Europe, the Middle East, and Africa were $290 million, down 7 percent year over year and 2 percent on a constant currency basis, with strong growth in mid-throughput sequencing offset by the end of the UK Biobank project and a decline in COVID-19 surveillance. Greater China revenues were $133 million, up 9 percent year over year and up 14 percent on a constant currency basis, driven by growth in sequencing consumables sales. Asia-Pacific and Japan revenues were $95 million, up 6 percent and up 10 percent on a constant currency basis, driven by strong demand in India, Indonesia, and Thailand.

Illumina officials noted that the firm is taking a $3.91 billion "goodwill impairment" related to Grail, which it acquired for approximately $8 billion just over a year ago. In September, Illumina announced that it has received a decision from the European Commission's competition regulators that will likely prohibit it from holding onto Grail.

"The reassessment of Grail's book value was really more of an accounting requirement triggered by some of the regulatory decisions coming out of Europe," interim CFO Joydeep Goswami said, adding that it was also "a result of the current capital and equity market conditions."

The write-off resulted in a consolidated net loss of $3.82 billion, or $24.26 per share, compared to net income of $317 million, or $2.08 per share, in the year-ago period. On an adjusted basis, EPS was $.34, beating analysts' consensus estimate for EPS of $.30.

Illumina's consolidated R&D expenses were $325 million, down 25 percent from $436 million a year ago. Core Illumina R&D expenses grew 19 percent to $253 million from $212 million a year ago, while Grail R&D expenses were $74 million.

The company's consolidated SG&A expenses fell 83 percent to $146 million from $879 million in Q3 2021. Core Illumina SG&A expenses dropped 81 percent to $66 million from $365 million a year ago, while Grail SG&A expenses were $81 million.

The company finished the quarter with $1.00 billion in cash and cash equivalents and $41 million in short-term investments.

In Friday morning trading on the Nasdaq, shares of Illumina were up 7 percent at $226.10.