Core Illumina

GAAP

Non-GAAP (a)

Dollars in millions

Q3 2021

Q3 2020

Q3 2021

Q3 2020

Revenue

$

1,106

$

794

Gross margin

70.7

%

66.2

%

71.3

%

67.4

%

Research and development expense

$

212

$

172

$

212

$

169

Selling, general and administrative expense

$

365

$

192

$

266

$

196

Operating income

$

205

$

162

$

310

$

170

Operating margin

18.5

%

20.4

%

28.0

%

21.4

%

(a) See the "Core Illumina Itemized Reconciliation Between GAAP and Non-GAAP Results of Operations as a Percentage of Revenue" table for a reconciliation of these GAAP and non-GAAP financial measures.

GRAIL

GAAP

Non-GAAP (a)

In millions

Q3 2021

Q3 2020

Q3 2021

Q3 2020

Revenue

$

2

—

$

2

—

Operating loss

$

(750)

—

$

(50)

—

(a) See the "GRAIL Itemized Reconciliation Between GAAP and Non-GAAP Results of Operations" table for a reconciliation of these GAAP and non-GAAP financial measures.

Illumina, Inc.Condensed Consolidated Balance Sheets(In millions)

October 3, 2021

January 3, 2021

ASSETS

(unaudited)

Current assets:

Cash and cash equivalents

$

1,080

$

1,810

Short-term investments

185

1,662

Accounts receivable, net

604

487

Inventory

401

372

Prepaid expenses and other current assets

181

152

Total current assets

2,451

4,483

Property and equipment, net

1,009

922

Operating lease right-of-use assets

676

532

Goodwill

7,098

897

Intangible assets, net

3,351

142

Other assets

478

609

Total assets

$

15,063

$

7,585

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

248

$

192

Accrued liabilities

666

541

Convertible senior notes, current portion

—

511

Total current liabilities

914

1,244

Operating lease liabilities

784

671

Term notes

993

—

Convertible senior notes

694

673

Other long-term liabilities

1,085

303

Stockholders' equity

10,593

4,694

Total liabilities and stockholders' equity

$

15,063

$

7,585

Illumina, Inc.Condensed Consolidated Statements of Income(In millions, except per share amounts)(unaudited)

Three Months Ended

Nine Months Ended

October 3,2021

September 27,2020

October 3,2021

September 27,2020

Revenue:

Product revenue

$

978

$

676

$

2,903

$

1,904

Service and other revenue

130

118

424

382

Total revenue

1,108

794

3,327

2,286

Cost of revenue:

Cost of product revenue (a)

264

209

782

535

Cost of service and other revenue (a)

56

52

177

157

Amortization of acquired intangible assets

18

7

31

21

Total cost of revenue

338

268

990

713

Gross profit

770

526

2,337

1,573

Operating expense:

Research and development (a)

436

172

835

483

Selling, general and administrative (a)

879

192

1,666

643

Total operating expense

1,315

364

2,501

1,126

(Loss) income from operations

(545)

162

(164)

447

Other income, net

965

53

962

110

Income before income taxes

420

215

798

557

Provision for income taxes

103

36

148

158

Net income

$

317

$

179

$

650

$

399

Earnings per share:

Basic

$

2.09

$

1.22

$

4.39

$

2.72

Diluted

$

2.08

$

1.21

$

4.36

$

2.70

Shares used in computing earnings per common share:

Basic

152

146

148

147

Diluted

153

148

149

148

(a) Includes stock-based compensation expense for stock-based awards:

Three Months Ended

Nine Months Ended

October 3,2021

September 27,2020

October 3,2021

September 27,2020

Cost of product revenue

$

7

$

6

$

22

$

13

Cost of service and other revenue

1

1

3

3

Research and development

193

21

243

48

Selling, general and administrative

496

33

576

52

Stock-based compensation expense before taxes

$

697

$

61

$

844

$

116

Illumina, Inc.Condensed Consolidated Statements of Cash Flows(In millions)(unaudited)

Three Months Ended

Nine Months Ended

October 3,2021

September 27,2020

October 3,2021

September 27,2020

Net cash (used in) provided by operating activities

$

(272)

$

153

$

263

$

674

Net cash used in investing activities

(2,448)

(65)

(1,069)

(520)

Net cash (used in) provided by financing activities

(394)

(101)

78

(435)

Effect of exchange rate changes on cash and cash equivalents

(2)

4

(2)

—

Net decrease in cash and cash equivalents

(3,116)

(9)

(730)

(281)

Cash and cash equivalents, beginning of period

4,196

1,770

1,810

2,042

Cash and cash equivalents, end of period

$

1,080

$

1,761

$

1,080

$

1,761

Calculation of free cash flow:

Net cash (used in) provided by operating activities

$

(272)

$

153

$

263

$

674

Purchases of property and equipment

(52)

(48)

(138)

(127)

Free cash flow (a)

$

(324)

$

105

$

125

$

547

(a)

Free cash flow, which is a non-GAAP financial measure, is calculated as net cash provided by operating activities reduced by purchases of property and equipment. Free cash flow is useful to management as it is one of the metrics used to evaluate our performance and to compare us with other companies in our industry. However, our calculation of free cash flow may not be comparable to similar measures used by other companies.

Illumina, Inc.Results of Operations - Non-GAAP(In millions, except per share amounts)(unaudited)

CONSOLIDATED RECONCILIATION BETWEEN GAAP AND NON-GAAP EARNINGS PER SHARE:

Three Months Ended

Nine Months Ended

October 3,2021

September 27,2020

October 3,2021

September 27,2020

GAAP earnings per share - diluted

$

2.08

$

1.21

$

4.36

$

2.70

Cost of revenue (b)

0.12

0.06

0.21

0.16

Research and development costs (b)

1.28

0.03

1.32

0.01

Selling, general and administrative costs (b)

3.86

(0.03)

5.94

0.58

Other income, net (b)

(6.35)

(0.31)

(6.53)

(0.61)

Incremental non-GAAP tax expense (c)

0.47

0.07

(0.05)

(0.05)

Income tax benefit (d)

(0.01)

(0.01)

(0.05)

(0.12)

Tax expense related to increase in valuation allowance (e)

—

—

—

0.42

Tax expense related to cost-sharing arrangement (f)

—

—

—

0.19

Non-GAAP earnings per share - diluted (a)

$

1.45

$

1.02

$

5.20

$

3.28

CONSOLIDATED RECONCILIATION BETWEEN GAAP AND NON-GAAP NET INCOME:

Three Months Ended

Nine Months Ended

October 3,2021

September 27,2020

October 3,2021

September 27,2020

GAAP net income

$

317

$

179

$

650

$

399

Cost of revenue (b)

18

9

32

24

Research and development costs (b)

196

3

196

1

Selling, general and administrative costs (b)

591

(4)

885

87

Other income, net (b)

(971)

(46)

(973)

(90)

Incremental non-GAAP tax expense (c)

71

11

(8)

(8)

Income tax benefit (d)

(1)

(2)

(7)

(18)

Tax expense related to increase in valuation allowance (e)

—

—

—

62

Tax expense related to cost-sharing arrangement (f)

—

—

—

28

Non-GAAP net income (a)

$

221

$

150

$

775

$

485

All amounts in tables are rounded to the nearest millions, except as otherwise noted.  As a result, certain amounts may not recalculate using the rounded amounts provided.

(a) 

Non-GAAP net income and diluted earnings per share exclude the effect of the pro forma adjustments as detailed above. Non-GAAP net income and diluted earnings per share are key components of the financial metrics utilized by the company's board of directors to measure, in part, management's performance and determine significant elements of management's compensation. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing our past and future operating performance.

(b)

Refer to our "Itemized Reconciliation between GAAP and Non-GAAP Results of Operations as a Percent of Revenue," below, for the components of these amounts.

(c)

Incremental non-GAAP tax expense reflects the tax impact of the non-GAAP adjustments listed.

(d) 

Amounts represent tax deductions taken in excess of stock-based compensation cost.

(e) 

Amounts represent discrete tax expense related to the valuation allowance established in Q2 2020 against the deferred tax asset for California research and development credits.

(f)

Amounts represent discrete tax expense related to the finalization of the Altera court case in Q2 2020 which determined stock-based compensation must be included in intercompany cost sharing payments.

Illumina, Inc.Results of Operations - Non-GAAP (continued)(Dollars in millions)(unaudited)

CONSOLIDATED ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF OPERATIONS AS A PERCENT OF REVENUE:

Three Months Ended

Nine Months Ended

October 3,2021

September 27,2020

October 3,2021

September 27,2020

GAAP gross profit (b)

$

770

69.5

%

$

526

66.2

%

$

2,337

70.2

%

$

1,573

68.8

%

Core Illumina cost of revenue

6

0.6

%

9

1.2

%

20

0.6

%

24

1.0

%

GRAIL cost of revenue

12

1.1

%

—

—

12

0.4

%

—

—

Non-GAAP gross profit (a)

$

788

71.2

%

$

535

67.4

%

$

2,369

71.2

%

$

1,597

69.8

%

GAAP research and development expense

$

436

39.4

%

$

172

21.6

%

$

835

25.1

%

$

483

21.1

%

Core Illumina research & development costs

—

—

(3)

(0.4)

%

—

—

(1)

—

GRAIL research & development costs

(196)

(17.7)

%

—

—

(196)

(5.9)

%

—

—

Non-GAAP research and development expense

$

240

21.7

%

$

169

21.2

%

$

639

19.2

%

$

482

21.1

%

GAAP selling, general and administrative expense

$

879

79.3

%

$

192

24.2

%

$

1,666

50.1

%

$

643

28.1

%

Core Illumina selling, general, and administrative costs

(99)

(8.9)

%

4

0.6

%

(393)

(11.8)

%

(87)

(3.8)

%

GRAIL selling, general, and administrative costs

(492)

(44.4)

%

—

—

(492)

(14.8)

%

—

—

Non-GAAP selling, general and administrative expense

$

288

26.0

%

$

196

24.8

%

$

781

23.5

%

$

556

24.3

%

GAAP operating (loss) profit

$

(545)

(49.2)

%

$

162

20.4

%

$

(164)

(5.0)

%

$

447

19.6

%

Core Illumina

105

9.5

%

8

1.0

%

413

12.4

%

112

4.8

%

GRAIL

700

63.2

%

—

—

700

21.1

%

—

—

Non-GAAP operating profit (a)

$

260

23.5

%

$

170

21.4

%

$

949

28.5

%

$

559

24.4

%

GAAP other income (expense), net

$

965

87.1

%

$

53

6.6

%

$

962

28.9

%

$

110

4.8

%

Core Illumina adjustments

(971)

(87.6)

%

(46)

(5.7)

%

(973)

(29.2)

%

(90)

(3.9)

%

Non-GAAP other (expense) income, net (a)

$

(6)

(0.5)

%

$

7

0.9

%

$

(11)

(0.3)

%

$

20

0.9

%

Illumina, Inc.Results of Operations - Non-GAAP (continued)(Dollars in millions)(unaudited)

CORE ILLUMINA ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF OPERATIONS AS A PERCENT OF REVENUE:

Three Months Ended

Nine Months Ended

October 3,2021

September 27,2020

October 3,2021

September 27,2020

GAAP gross profit - Core Illumina (b)

$

781

70.7

%

$

526

66.2

%

$

2,348

70.6

%

$

1,573

68.8

%

Amortization of acquired intangible assets

7

0.6

%

7

0.9

%

19

0.6

%

21

0.9

%

Expenses related to COVID-19 (c)

—

—

3

0.4

%

1

—

5

0.2

%

Income related to COVID-19 (d)

—

—

(1)

(0.1)

%

—

—

(4)

(0.2)

%

Restructuring(e)

—

—

—

—

—

—

2

0.1

%

Non-GAAP gross profit - Core Illumina (a)

$

788

71.3

%

$

535

67.4

%

$

2,368

71.2

%

$

1,597

69.8

%

GAAP research and development expense - Core Illumina

$

212

19.1

%

$

172

21.6

%

$

611

18.4

%

$

483

21.1

%

Expenses related to COVID-19 (c)

—

—

(3)

(0.4)

%

—

—

(3)

(0.1)

Income related to COVID-19 (d)

—

—

—

—

—

—

2

0.1

%

Non-GAAP research and development expense - Core Illumina

$

212

19.1

%

$

169

21.2

%

$

611

18.4

%

$

482

21.1

%

GAAP selling, general and administrative expense - Core Illumina

$

365

33.0

%

$

192

24.2

%

$

1,152

34.6

%

$

643

28.1

%

Amortization of acquired intangible assets

—

—

(1)

(0.1)

%

(1)

—

(1)

—

Acquisition-related (f)

(106)

(9.6)

%

(13)

(1.5)

%

(400)

(12.0)

%

(106)

(4.6)

%

Contingent consideration liabilities (n)

7

0.7

%

—

—

7

0.2

%

—

—

Expenses related to COVID-19 (c)

—

—

(7)

(0.9)

%

(2)

(0.1)

%

(9)

(0.5)

%

Income related to COVID-19 (d)

—

—

—

—

1

—

2

0.1

%

Gain on litigation (g)

—

—

25

3.1

%

2

0.1

%

25

1.1

%

Restructuring (e)

—

—

—

—

—

—

2

0.1

%

Non-GAAP selling, general and administrative expense - Core Illumina

$

266

24.1

%

$

196

24.8

%

$

759

22.8

%

$

556

24.3

%

GAAP operating profit - Core Illumina

$

205

18.5

%

$

162

20.4

%

$

586

17.6

%

$

447

19.6

%

Cost of revenue

6

0.6

%

9

1.2

%

20

0.6

%

24

1.0

%

Research and development costs

—

—

3

0.4

%

—

—

1

—

Selling, general and administrative costs

99

8.9

%

(4)

(0.6)

%

393

11.8

%

87

3.8

%

Non-GAAP operating profit - Core Illumina (a)

$

310

28.0

%

$

170

21.4

%

$

999

30.0

%

$

559

24.4

%

GAAP other income (expense), net - Core Illumina

$

965

87.3

%

$

53

6.6

%

$

962

28.9

%

$

110

4.8

%

Acquisition-related (f)

(900)

(81.4)

%

—

—

(900)

(27.1)

%

—

—

Non-cash interest expense (h)

7

0.7

%

11

1.4

%

27

0.9

%

31

1.4

%

Strategic investment related (gain), net (i)

(66)

(6.0)

%

(67)

(8.4)

%

(52)

(1.6)

%

(141)

(6.2)

%

Loss (gain) on derivative assets (j)

—

—

10

1.3

%

(26)

(0.8)

%

25

1.1

%

Bridge facility fees (k)

—

—

—

—

7

0.3

%

—

—

Gain on contingent value right (l)

(12)

(1.1)

%

—

—

(30)

(0.9)

%

(5)

(0.2)

%

Loss on extinguishment of debt (m)

—

—

—

—

1

—

—

—

Non-GAAP other (expense) income, net - Core Illumina (a)

$

(6)

(0.5)

%

$

7

0.9

%

$

(11)

(0.3)

%

$

20

0.9

%

Illumina, Inc.Results of Operations - Non-GAAP (continued)(In millions)(unaudited)

GRAIL ITEMIZED RECONCILIATION BETWEEN GAAP AND NON-GAAP RESULTS OF OPERATIONS:

Three Months Ended

Nine Months Ended

October 3,2021

September 27,2020

October 3,2021

September 27,2020

GAAP gross loss - GRAIL (b)

$

(11)

—

$

(11)

—

Amortization of acquired intangible assets

12

—

12

—

Non-GAAP gross profit - GRAIL (a)

$

1

—

$

1

—

GAAP research and development expense - GRAIL

$

224

—

$

224

—

Acquisition related (f)

(196)

—

(196)

—

Non-GAAP research and development expense - GRAIL

$

28

—

$

28

—

GAAP selling, general and administrative expense - GRAIL

$

514

—

$

514

—

Acquisition-related (f)

(492)

—

(492)

—

Non-GAAP selling, general and administrative expense - GRAIL

$

22

—

$

22

—

GAAP operating loss - GRAIL

$

(750)

—

$

(750)

—

Cost of revenue

12

—

12

—

Research and development costs

196

—

196

—

Selling, general and administrative costs

492

—

492

—

Non-GAAP operating loss - GRAIL (a)

$

(50)

—

$

(50)

—

All amounts in tables are rounded to the nearest millions, except as otherwise noted. As a result, certain amounts may not recalculate using the rounded amounts provided.

(a) 

Non-GAAP gross profit, included within non-GAAP operating profit (loss), is a key measure of the effectiveness and efficiency of manufacturing processes, product mix and the average selling prices of our products and services. Non-GAAP operating profit (loss), and non-GAAP other (expense) income, net, exclude the effects of the pro forma adjustments as detailed above. Management has excluded the effects of these items in these measures to assist investors in analyzing and assessing past and future operating performance, including in the non-GAAP measures relating to our Core Illumina and GRAIL segments.

(b)

Reconciling amounts are recorded in cost of revenue.

(c)

Amounts consist of direct and incremental expenses incurred due to the COVID-19 pandemic, primarily expenses related to employee testing and incremental cleaning in 2021, and a one-time allowance paid to employees working remotely in Q3 2020 to help with additional expenses, premium pay for onsite essential workers, and personal protective equipment.

(d) 

Amounts consist of direct and incremental income due to the COVID-19 pandemic, primarily payroll-related credits earned in the US and Canada in Q1 2021, and payroll-related credits earned in Singapore in 2020.

(e)

Amount consists primarily of employee costs, net of adjustments, related to restructuring in 2020. 

(f)

Amounts for Q3 2021 consist primarily of gain related to fair value adjustment of our previously held interest in GRAIL of approximately $900 million, GRAIL day one acquisition-related compensation expense of approximately $654 million, and other acquisition related expenses. In addition to this, amount for the first three quarters of 2021 consists of expenses related to the Continuation Payments related to the acquisition totaling $245 million.  Amounts for 2020 consist primarily of acquisition related expenses, expenses related to the Continuation Advances and Reverse Termination Fee paid to Pacific Biosciences related to the terminated acquisition.

(g)

Amount consists of a gain related to a patent litigation settlement.

(h) 

Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

(i) 

Amounts consist primarily of mark-to-market adjustments and impairments from our strategic investments.

(j)

Amount for the three quarters of 2021 consists of a gain recorded on our derivative assets related to the terminated acquisition with Pacific Biosciences as a result of Pacific Biosciences repaying to us $52 million in Continuation Advances.  Amounts for Q3 2020 and the three quarters of 2020 consist of fair value adjustments recorded on our derivative assets.

(k)

Amount consists of expenses related to the bridge facility commitment which was terminated in March 2021, in conjunction with our issuance of term notes.

(l) 

Amounts consist of fair value adjustments related to our contingent value right received from Helix.

(m) 

Amount consists of loss on extinguishment of our 2021 Convertible Senior Notes, which matured in June 2021.

(n)

Amount consists of fair value adjustment of contingent consideration liabilities related to the acquisitions.

Illumina, Inc.Reconciliation of Non-GAAP Financial Guidance(unaudited)

Our future performance and financial results are subject to risks and uncertainties, and actual results could differ materially from the guidance set forth below. Some of the factors that could affect our financial results are stated above in this press release. More information on potential factors that could affect our financial results is included from time to time in the public reports filed with the Securities and Exchange Commission, including Form 10-K for the fiscal year ended January 3, 2021 filed with the SEC on February 17, 2021, Form 10-Q for the fiscal quarter ended April 4, 2021, and Form 10-Q for the fiscal quarter ended July 4, 2021. We assume no obligation to update any forward-looking statements or information.

Fiscal Year

2021

GAAP diluted earnings per share

$4.41 - $4.51

Amortization of acquired intangible assets

0.49

Non-cash interest expense (a)

0.23

Acquisition-related (b)

1.24

Bridge facility fees (c)

0.05

COVID-19 expenses, net (d)

0.02

Loss on extinguishment of debt (e)

0.01

Strategic investment related gain, net(f)

(0.34)

Gain on contingent value right (g)

(0.20)

Gain on derivative assets(h)

(0.17)

Contingent consideration liabilities(i)

(0.05)

Gain on litigation (j)

(0.01)

Incremental non-GAAP tax expense (k)

(0.13)

Excess tax benefits from share-based compensation(l)

(0.05)

Non-GAAP diluted earnings per share

$5.50 - $5.60

(a)

Non-cash interest expense is calculated in accordance with the authoritative accounting guidance for convertible debt instruments that may be settled in cash.

(b) 

Amount consists primarily of gain related to fair value adjustment of our previously held interest in GRAIL of approximately $900 million, day one acquisition-related compensation expense of approximately $654 million, Continuation Payments related to the acquisition of $245 million, and other acquisition related expenses.

(c) 

Amount consists of expenses related to the bridge facility commitment which was terminated in March 2021, in conjunction with our issuance of term notes. 

(d)

Amount consists of direct and incremental expenses incurred due to the COVID-19 pandemic, primarily expenses related to employee testing and incremental cleaning, partially offset by direct and incremental income due to the COVID-19 pandemic, primarily payroll-related credits earned in the US and Canada.

(e)

Amount consists of loss on extinguishment of our 2021 Convertible Senior Notes, which matured in June 2021.

(f)

Amount consists primarily of mark-to-market adjustments and impairments from our strategic investments.

(g)

Amount consists of fair value adjustments related to our contingent value right received from Helix.

(h)

Amount consists of gain recorded on our derivative assets related to the terminated acquisition with Pacific Biosciences as a result of Pacific Biosciences repaying to us $52 million in Continuation Advances.

(i)

Amount consists of fair value adjustment of contingent consideration liabilities related to the acquisitions.

(j)

Amount consists of a gain related to a patent litigation settlement.

(k)

Incremental non-GAAP tax expense reflects the tax impact related to the non-GAAP adjustments listed.

(l)

Amount represents tax deductions taken in excess of stock-based compensation cost.