Illumina(US:ILMN)2025-08-01 21:24PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements This section presents Illumina's unaudited interim financial statements for the quarter ended June 29, 2025, detailing financial position, performance, and cash flows, along with explanatory notes Condensed Consolidated Balance Sheets As of June 29, 2025, total assets, liabilities, and stockholders' equity all decreased compared to year-end 2024, primarily influenced by changes in cash and treasury stock purchases Condensed Consolidated Balance Sheets (In millions) | | June 29, 2025 (Unaudited) | December 29, 2024 | | :--- | :--- | :--- | | Total current assets | $2,641 | $2,746 | | Total assets | $6,087 | $6,303 | | Total current liabilities | $1,461 | $1,547 | | Total liabilities | $3,829 | $3,930 | | Total stockholders' equity | $2,258 | $2,373 | | Total liabilities and stockholders' equity | $6,087 | $6,303 | Condensed Consolidated Statements of Operations For Q2 2025, total revenue decreased, but the company achieved a significant net income turnaround from a prior-year loss, which was impacted by a goodwill impairment charge Q2 and Six Months Ended Financial Performance (In millions, except per share amounts) | | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,059 | $1,112 | $2,100 | $2,188 | | Gross profit | $695 | $721 | $1,378 | $1,388 | | Income (loss) from operations | $214 | $(1,637) | $378 | $(1,749) | | Net income (loss) | $235 | $(1,988) | $366 | $(2,114) | | Diluted EPS | $1.49 | $(12.48) | $2.31 | $(13.28) | Condensed Consolidated Statements of Comprehensive Income (Loss) Total comprehensive income for Q2 2025 was $206 million, a significant improvement from a prior-year loss, primarily driven by net income offset by unrealized losses on cash flow hedges Comprehensive Income (Loss) Summary (In millions) | | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $235 | $(1,988) | $366 | $(2,114) | | Unrealized (loss) gain on cash flow hedges, net of deferred tax | $(29) | $2 | $(43) | $15 | | Total comprehensive income (loss) | $206 | $(1,986) | $323 | $(2,099) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased as of June 29, 2025, primarily due to share repurchases that more than offset net income for the first six months - Key changes in stockholders' equity for the six months ended June 29, 2025 include a net income of $366 million, offset by share repurchases and an unrealized loss on cash flow hedges23 Condensed Consolidated Statements of Cash Flows For the six months ended June 29, 2025, operating cash flow significantly increased, while cash used in financing activities, primarily share repurchases, led to a net decrease in cash and cash equivalents Cash Flow Summary (Six Months Ended, In millions) | | June 29, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $474 | $157 | | Net cash used in investing activities | $(112) | $(89) | | Net cash used in financing activities | $(566) | $(191) | | Net decrease in cash and cash equivalents | $(193) | $(128) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies and financial results, covering significant events like the GRAIL spin-off, pending acquisitions, and segment performance Management's Discussion & Analysis Management's Overview and Outlook Management discusses business trends, including macroeconomic challenges and the GRAIL spin-off, while focusing on returning to revenue growth in 2025 through cost reduction and strategic acquisitions - On June 22, 2025, Illumina agreed to acquire SomaLogic for $350 million in cash, plus potential royalties and up to $75 million in milestone payments, to expand into the proteomics market. The deal is expected to close in the first half of 2026124 - The company is facing headwinds from macroeconomic factors, competitive challenges in China, and reduced NIH funding. In response, it implemented an incremental $100 million cost reduction program for 2025126127 - For the first six months of 2025, revenue decreased 4% to $2.1 billion, while income from operations was $378 million, a significant improvement from a loss of $1.749 billion in the same period of 2024, which included a $1.886 billion goodwill impairment for GRAIL129 Results of Operations This section provides a detailed analysis of Illumina's financial performance, breaking down changes in revenue, gross margin, and operating expenses, attributing shifts to various business and accounting factors Revenue Consolidated revenue decreased in Q2 and YTD 2025, primarily due to the GRAIL spin-off and a decline in Core Illumina instrument revenue driven by capital constraints Revenue by Segment (In millions) | | Q2 2025 | Q2 2024 | % Change | YTD 2025 | YTD 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Core Illumina Revenue | $1,059 | $1,092 | (3)% | $2,100 | $2,148 | (2)% | | Instruments | $101 | $120 | (16)% | $213 | $234 | (9)% | | Consumables | $811 | $815 | —% | $1,580 | $1,584 | —% | | GRAIL Revenue | — | $29 | (100)% | — | $55 | (100)% | | Total Consolidated Revenue | $1,059 | $1,112 | (5)% | $2,100 | $2,188 | (4)% | Gross Margin Consolidated gross margin increased due to the GRAIL spin-off, but Core Illumina's gross margin declined in Q2 2025 due to an intangible asset impairment, higher tariffs, and increased service costs - Core Illumina's gross margin declined in Q2 and YTD 2025 due to a $23 million intangible asset impairment, increased tariff-related costs, and higher field service expenses135 Operating Expense Total operating expenses significantly decreased in Q2 2025 primarily due to the absence of a large prior-year goodwill impairment charge related to GRAIL, despite an increase in Core Illumina's SG&A expense - The significant decrease in total operating expense YoY is due to the absence of the $1.886 billion goodwill and intangible impairment charge related to GRAIL that was recorded in Q2 2024136139 - Core Illumina's SG&A expense increased in Q2 2025 primarily because of a smaller gain recognized on contingent consideration liabilities ($21 million in Q2 2025 vs. $271 million in Q2 2024)137 Other Income (Expense) Total other income in Q2 2025 showed a sharp reversal from a prior-year expense, primarily driven by net gains on strategic investments compared to significant losses in Q2 2024 - The fluctuation in other income was mainly due to recognizing a $101 million gain on strategic investments in Q2 2025, versus a $335 million loss in Q2 2024. The prior year loss was primarily related to the retained investment in GRAIL140 Provision for Income Taxes The effective tax rate for Q2 and YTD 2025 was positive, a significant change from 2024, and was above the U.S. federal statutory rate primarily due to the tax impact of capitalizing R&D expenses - The effective tax rate for Q2 2025 was 23.4%, higher than the U.S. statutory rate of 21%, mainly due to the income tax expense impact of capitalizing R&D expenses for tax purposes141 - The company anticipates its effective tax rate will decrease starting in Q3 2025 due to recent U.S. tax legislation that no longer requires the capitalization of U.S.-based R&D expenses143 Liquidity and Capital Resources As of June 29, 2025, cash and equivalents decreased primarily due to share repurchases, with key capital commitments including the SomaLogic acquisition and ongoing share repurchase programs Cash Flow Summary (YTD 2025, In millions) | | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $474 | $157 | | Net cash used in investing activities | $(112) | $(89) | | Net cash used in financing activities | $(566) | $(191) | | Net decrease in cash and cash equivalents | $(193) | $(128) | - The company has a commitment to acquire SomaLogic for $350 million in cash, plus potential milestones. A termination fee of $14.5 million is payable by Illumina under certain circumstances147 - A new share repurchase program of $1.5 billion was authorized in August 2024. As of June 29, 2025, $804 million remained available under this authorization149 Critical Accounting Policies and Estimates There were no material changes to the company's critical accounting policies and estimates during the first half of 2025, despite ongoing macroeconomic and regulatory uncertainties - There were no material changes to the company's critical accounting policies and estimates during YTD 2025157 Recent Accounting Pronouncements This section refers to Note 1 of the financial statements for a summary of recent accounting pronouncements applicable to the company - For a summary of recent accounting pronouncements, see Note 1 in the Condensed Consolidated Financial Statements section158 Quantitative and Qualitative Disclosures About Market Risk The company reports no substantial changes to its market risks during the first half of 2025 compared to the disclosures in its 2024 Annual Report on Form 10-K - There were no substantial changes to market risks in YTD 2025 compared to the disclosures in the 2024 Form 10-K159 PART II. OTHER INFORMATION Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the quarter-end, with no material changes in internal control over financial reporting during Q2 2025 - The CEO and CFO concluded that the company's disclosure controls and procedures are effective to provide reasonable assurance162 - No changes in internal control over financial reporting occurred in Q2 2025 that materially affected or are reasonably likely to materially affect internal controls161 Legal Proceedings This section refers to Note 8 for detailed legal proceedings, including ongoing shareholder lawsuits related to the GRAIL acquisition and a recent settlement with the Department of Justice - The company is involved in multiple shareholder derivative and class action lawsuits related to the GRAIL acquisition, which it intends to vigorously defend93104106 - On July 22, 2025, the company settled a False Claims Act investigation with the Department of Justice for a one-time payment of $9.8 million plus interest, resolving allegations of misrepresenting cybersecurity compliance107 Risk Factors The company directs readers to the Risk Factors sections in its Annual Report on Form 10-K for the fiscal year ended December 29, 2024, and its Q1 2025 Form 10-Q for a description of business risks - The company's business is subject to various risks as described in its 2024 Form 10-K and Q1 2025 Form 10-Q164 Share Repurchases and Sales The company continued its share repurchase program in Q2 2025, repurchasing 4.489 million shares for approximately $380 million, with substantial authorization remaining Share Repurchases in Q2 2025 (in thousands, except price) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining | | :--- | :--- | :--- | :--- | | March 31 - April 27, 2025 | — | $— | $1,184,405 | | April 28 - May 25, 2025 | 1,384 | $81.31 | $1,071,906 | | May 26 - June 29, 2025 | 3,105 | $86.15 | $804,406 | | Total | 4,489 | $84.66 | $804,406 | Adoptions, Modifications or Terminations of Trading Plans During the second quarter of 2025, none of the company's directors or officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer adopted, modified, or terminated a trading plan during Q2 2025167 Exhibits This section lists the exhibits filed with the Form 10-Q, including the Stock Purchase Agreement with Standard BioTools, certifications by the CEO and CFO, and XBRL data files