NEW YORK – In the wake of a tumultuous third quarter and year for Illumina, newly appointed CEO Jacob Thaysen yesterday predicted a similarly challenging 2024 though exhibited optimism in his first public comments since taking the helm of the company.
Illumina reported after the close of the market on Thursday that it is lowering its 2023 revenue guidance after a flat third quarter. The sequencing technology firm now expects consolidated revenues to decrease between 2 percent and 3 percent from 2022, with core Illumina revenues to decrease 3 percent to 4 percent. It expects Grail revenue to be between $90 million and $110 million.
The firm also expects loss per share in the range of $6.57 to $6.67, due to $821 million in goodwill and intangible impairments related to Grail, which European regulators have demanded that Illumina divest over the next year. On an adjusted basis, Illumina expects EPS in the range of $.60 to $.70.
In August, the firm lowered its 2023 guidance to revenue growth of approximately 1 percent year over year with core Illumina revenues flat year over year, a loss per share of $2.08 to $1.93, and adjusted EPS of $.75 to $.90.
On a conference call with investors following the release of Illumina's Q3 results, Thaysen said that "2024 will look similar," although the company won't provide official guidance until after the fourth quarter. "We don't expect a near-term improvement to the macroeconomic environment and geopolitical issues have been persistent."
Nevertheless, Thaysen added, "It is clear to me that there's a tremendous opportunity to create value for our customers and our partners worldwide, and of course for our shareholders."
Thaysen noted that he has asked the board of directors to form a special committee to expedite decisions related to Grail. Moreover, Illumina is preparing for either a sale or "capital markets transaction" and the company will be in contact with third parties "as investment capital sources."
Illumina's legal appeals to avert divesting Grail "provide flexibility," he said, but stressed it was not his main concern. "Make no mistake, I'm here to focus on the core business," he said.
Thaysen said he plans to "drive our top line as much as possible" with continued sequencer placements. He also said the firm needs to continue to innovate, in a way "that is highly focused on our customers' priorities." Automated and sample-to-answer sequencing systems could be in store, he said. And Illumina will continue to mind its operational expenses. Already the firm is on track to reduce its annual run rate by $175 million, putting it well ahead of previously announced plans to reduce yearly spending by $100 million, Thaysen said.
In a note to investors, Cowen Analyst Dan Brennan wrote that "Thaysen struck a balanced but confident tone that the NGS market is alive and well."
Canaccord Genuity Analyst Kyle Mikson downgraded shares of Illumina to "Hold" from "Buy," citing the "soft" near-term outlook and Grail "noise."
"No growth does not warrant premium valuation," he wrote in a note to investors.
For the three months ended Oct. 1, Illumina reported consolidated revenues of $1.12 billion, flat year over year, up 1 percent on a constant currency basis, and missing the consensus Wall Street estimate of $1.13 billion.
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 in Q3, with Grail contributing approximately $21 million, more than double $10 million in the year-ago period, driven by Galleri adoption. Total sequencing revenues were negatively affected by weakness in China, the effect of sanctions on doing business in Russia, and declining COVID-19 surveillance. Clinical sequencing revenues were up 10 percent, year over year, CFO Joydeep Goswami said.
Core Illumina sequencing consumables revenues were $695 million, down 4 percent from $725 million a year ago, driven by a 12 percent decrease in sales to research customers and declining NovaSeq 6000 consumables sales, CFO Joydeep Goswami said.
Instrument revenues were up 10 percent year over year to $179 million from $162 million a year ago, driven by NovaSeq X sales; however the firm placed fewer of those instruments in the quarter than expected, Goswami said. Converting interest into orders at the speed Illumina wanted to has been "a little bit more challenging for us" he said, due to macroeconomic conditions. Illumina shipped 97 NovaSeq X instruments in the quarter and now expects to ship between 330 and 340 instruments in 2023.
"The decrease in placement expectations is relatively alarming, in our view, after a seemingly strong start to the launch of a product which the company believes will drive long-term growth," Canaccord Genuity's Mikson wrote.
Revenue from COVID-19 surveillance contributed $4 million, down from $28 million a year ago. Core Illumina services and other revenues grew 15 percent to $142 million from $123 million in Q3 2022, driven by higher instrument service contract revenues and an increase in lab services.
Revenues from the Americas were $650 million, up 10 percent from $592 million a year ago. Revenues from Europe, were $260 million, flat year over year. Greater China revenues were $98 million, down 26 percent from $133 million a year ago, driven by macroeconomic and geopolitical issues, as well as local competition in the mid-throughput instrument market. Asia, Middle East, and Africa revenues were $98 million, down 22 percent year over year, driven by softness in Japan and the slowdown in COVID sequencing.
The firm's consolidated net loss for the quarter was $754 million, or $4.77 per share, compared to a loss of $3.82 billion, or $24.26 per share, in Q3 2022. The loss included a $821 million goodwill and intangible impairment related to Grail. In the year-ago quarter, Illumina took a $3.91 billion goodwill impairment related to Grail. On an adjusted basis, EPS was $.33, beating analysts' consensus estimate for EPS of $.12.
Illumina's consolidated R&D expenses were $315 million, down 3 percent from $325 million, a year ago. Core Illumina R&D expenses fell 6 percent year over year to $238 million from $253 million, while Grail R&D expenses were $79 million, up 7 percent from $74 million a year ago.
The company's consolidated SG&A expenses more than doubled year over year to $303 million from $146 million in Q3 2022. Core Illumina SG&A expenses more than tripled to $216 million from $66 million, while Grail SG&A expenses were $87 million, up 7 percent from $81 million a year ago.
The company finished the quarter with $927 million in cash and cash equivalents and $6 million in short-term investments. In the quarter, Illumina used $750 million in cash to repay the outstanding principal of convertible notes that matured in August.
In Friday morning trading on the Nasdaq, shares of Illumina were down 14 percent at $91.94.