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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 27, 2020
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from             to            
Commission File Number 001-35406 
ilmn-20200927_g1.jpg
Illumina, Inc.
(Exact name of registrant as specified in its charter)
Delaware33-0804655
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
5200 Illumina Way, San Diego, CA 92122
(Address of principal executive offices) (Zip code)
(858) 202-4500
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueILMNThe NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerþAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13a of the Exchange Act.     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No   þ
As of October 23, 2020, there were 146 million shares of the registrant’s common stock outstanding.


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ILLUMINA, INC.
FORM 10-Q
FOR THE FISCAL QUARTER ENDED SEPTEMBER 27, 2020
TABLE OF CONTENTS

See “Form 10-Q Cross-Reference Index” within Other Key Information for a cross-reference to the parts and items requirements of the Securities and Exchange Commission Quarterly Report on Form 10-Q.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTSPAGE
MANAGEMENT’S DISCUSSION & ANALYSIS
OTHER KEY INFORMATION
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Consideration Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains, and our officers and representatives may from time to time make, “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “continue,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “potential,” “predict,” should,” “will,” or similar words or phrases, or the negatives of these words, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward looking.  Examples of forward-looking statements include, among others, statements we make regarding:
our expectations as to our future financial performance, results of operations, or other operational results or metrics;
our expectations regarding the launch of new products or services;
the benefits that we expect will result from our business activities and certain transactions we have completed, such as product introductions, increased revenue, decreased expenses, and avoided expenses and expenditures;
our expectations of the effect on our financial condition of claims, litigation, contingent liabilities, and governmental investigations, proceedings, and regulations;
our strategies or expectations for product development, market position, financial results, and reserves;
our expectations regarding the integration of any acquired technologies with our existing technology; and
other expectations, beliefs, plans, strategies, anticipated developments, and other matters that are not historical facts.

Forward-looking statements are neither historical facts nor assurances of future performance.  Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions.  Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control.  Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.  Therefore, you should not rely on any of these forward-looking statements.  Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
the impact to our business and operating results caused by the COVID-19 pandemic;
our expectations and beliefs regarding prospects and growth for our business and the markets in which we operate;
the timing and mix of customer orders among our products and services;
challenges inherent in developing, manufacturing, and launching new products and services, including expanding manufacturing operations and reliance on third-party suppliers for critical components;
the impact of recently launched or pre-announced products and services on existing products and services;
our ability to develop and commercialize our instruments and consumables, to deploy new products, services, and applications, and to expand the markets for our technology platforms;
our ability to manufacture robust instrumentation and consumables;
our ability to identify and integrate acquired technologies, products, or businesses successfully;
our expectations regarding the pending acquisition of GRAIL, Inc. (GRAIL);
the assumptions underlying our critical accounting policies and estimates;
our assessments and estimates that determine our effective tax rate;
our assessments and beliefs regarding the outcome of pending legal proceedings and any liability, that we may incur as a result of those proceedings;
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uncertainty, or adverse economic and business conditions, including as a result of slowing or uncertain economic growth in the United States or worldwide; and
other factors detailed in our filings with the SEC, including the risks, uncertainties, and assumptions described in “Risk Factors” within the Business and Market Information section of our Annual Report on Form 10-K for the fiscal year ended December 29, 2019, or in information disclosed in public conference calls, the date and time of which are released beforehand.

The foregoing factors should be considered together with other factors detailed in our filings with the Securities and Exchange Commission, including our most recent filings on Forms 10-K and 10-Q, or in information disclosed in public conference calls, the date and time of which are released beforehand.  We undertake no obligation, and do not intend, to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, or to review or confirm analysts’ expectations, or to provide interim reports or updates on the progress of any current financial quarter, in each case whether as a result of new information, future developments, or otherwise.
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CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ILLUMINA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
September 27,
2020
December 29,
2019
 (Unaudited) 
ASSETS
Current assets:
Cash and cash equivalents$1,761 $2,042 
Short-term investments1,563 1,372 
Accounts receivable, net464 573 
Inventory415 359 
Prepaid expenses and other current assets126 105 
Total current assets4,329 4,451 
Property and equipment, net910 889 
Operating lease right-of-use assets545 555 
Goodwill897 824 
Intangible assets, net149 145 
Deferred tax assets, net19 64 
Other assets555 388 
Total assets$7,404 $7,316 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$156 $149 
Accrued liabilities452 516 
Long-term debt, current portion507  
Total current liabilities1,115 665 
Operating lease liabilities678 695 
Long-term debt666 1,141 
Other long-term liabilities245 202 
Stockholders’ equity:
Common stock2 2 
Additional paid-in capital3,737 3,560 
Accumulated other comprehensive income12 5 
Retained earnings4,466 4,067 
Treasury stock, at cost(3,517)(3,021)
Total stockholders’ equity4,700 4,613 
Total liabilities and stockholders’ equity$7,404 $7,316 
See accompanying notes to condensed consolidated financial statements.

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ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except per share amounts)
 
 Three Months EndedNine Months Ended
 September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Revenue:
Product revenue$676 $746 $1,904 $2,117 
Service and other revenue118 161 382 474 
Total revenue794 907 2,286 2,591 
Cost of revenue:
Cost of product revenue209 195 535 573 
Cost of service and other revenue52 55 157 185 
Amortization of acquired intangible assets7 9 21 28 
Total cost of revenue268 259 713 786 
Gross profit526 648 1,573 1,805 
Operating expense:
Research and development172 151 483 486 
Selling, general and administrative192 189 643 602 
Total operating expense364 340 1,126 1,088 
Income from operations162 308 447 717 
Other income (expense):
Interest income5 16 26 59 
Interest expense(11)(11)(33)(41)
Other income (expense), net59 (43)117 114 
Total other income (expense), net53 (38)110 132 
Income before income taxes215 270 557 849 
Provision for income taxes36 36 158 98 
Consolidated net income179 234 399 751 
Add: Net loss attributable to noncontrolling interests —  12 
Net income attributable to Illumina stockholders$179 $234 $399 $763 
Earnings per share attributable to Illumina stockholders:
Basic$1.22 $1.59 $2.72 $5.19 
Diluted$1.21 $1.58 $2.70 $5.13 
Shares used in computing earnings per share:
Basic 146 147 147 147 
Diluted148 148 148 149 
See accompanying notes to condensed consolidated financial statements.

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ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 
 Three Months EndedNine Months Ended
 September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Consolidated net income$179 $234 $399 $751 
Unrealized (loss) gain on available-for-sale debt securities, net of deferred tax(2)— 7 6 
Total consolidated comprehensive income 177 234 406 757 
Add: Comprehensive loss attributable to noncontrolling interests —  12 
Comprehensive income attributable to Illumina stockholders$177 $234 $406 $769 
See accompanying notes to condensed consolidated financial statements.

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ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions)
Illumina Stockholders
AdditionalAccumulated OtherTotal
 Common StockPaid-InComprehensiveRetainedTreasury StockNoncontrollingStockholders’
 SharesAmountCapital(Loss) IncomeEarningsSharesAmountInterestsEquity
Balance as of December 30, 2018192 $2 $3,290 $(1)$3,083 (45)$(2,616)$87 $3,845 
Net income (loss)— — — — 233 — — (2)231 
Unrealized gain on available-for-sale debt securities, net of deferred tax— — — 3 — — — — 3 
Issuance of common stock, net of repurchases— — 27 — — — (86)— (59)
Share-based compensation— — 51 — — — — — 51 
Cumulative-effect adjustment from adoption of ASU 2016-02, net of deferred tax— — — — (18)— — — (18)
Vesting of redeemable equity awards— — (1)— — — — — (1)
Adjustment to the carrying value of redeemable noncontrolling interests— — 18 — — — — — 18 
Balance as of March 31, 2019192 2 3,385 2 3,298 (45)(2,702)85 4,070 
Net income (loss)— — — — 296 — — (1)295 
Unrealized gain on available-for-sale debt securities, net of deferred tax— — — 3 — — — — 3 
Issuance of common stock, net of repurchases1 — 3 — — — (3)—  
Share-based compensation— — 48 — — — — — 48 
Adjustment to the carrying value of redeemable noncontrolling interests— — (2)— — — — — (2)
Deconsolidation of Helix— — 2 — — — — (84)(82)
Balance as of June 30, 2019193 2 3,436 5 3,594 (45)(2,705) 4,332 
Net income— — — — 234 — — — 234 
Issuance of common stock, net of repurchases— — 29 — — (1)(201)— (172)
Share-based compensation— — 45 — — — — — 45 
Balance as of September 29, 2019193 2 3,510 5 3,828 (46)(2,906) 4,439 
Net income— — — — 239 — — — 239 
Issuance of common stock, net of repurchases1 — — — — (1)(115)— (115)
Share-based compensation— — 50 — — — — — 50 
Balance as of December 29, 2019194 2 3,560 5 4,067 (47)(3,021) 4,613 
Net income    173    173 
Unrealized gain on available-for-sale debt securities, net of deferred tax   1     1 
Issuance of common stock, net of repurchases  32    (223) (191)
Share-based compensation  39      39 
Balance as of March 29, 2020194 2 3,631 6 4,240 (47)(3,244) 4,635 
Net income    47    47 
Unrealized gain on available-for-sale debt securities, net of deferred tax   8     8 
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Issuance of common stock, net of repurchases  2   (1)(145) (143)
Share-based compensation  16      16 
Balance as of June 28, 2020194 2 3,649 14 4,287 (48)(3,389) 4,563 
Net income    179    179 
Unrealized loss on available-for-sale debt securities, net of deferred tax   (2)    (2)
Issuance of common stock, net of repurchases  27    (128) (101)
Share-based compensation  61      61 
Balance as of September 27, 2020194 $2 $3,737 $12 $4,466 (48)$(3,517)$ $4,700 
See accompanying notes to condensed consolidated financial statements.
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ILLUMINA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 Nine Months Ended
 September 27,
2020
September 29,
2019
Cash flows from operating activities:
Consolidated net income$399 $751 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense114 113 
Amortization of intangible assets23 30 
Share-based compensation expense116 145 
Accretion of debt discount29 36 
Deferred income taxes50 (13)
Unrealized gains on marketable equity securities(128)(57)
Payment of accreted debt discount (84)
Gains on deconsolidation (54)
Loss on derivative assets related to terminated acquisition116 — 
Other(14)(10)
Changes in operating assets and liabilities:
Accounts receivable108 (29)
Inventory(56)(33)
Prepaid expenses and other current assets(15)(14)
Operating lease right-of-use assets and liabilities, net(9)(3)
Other assets(25)(29)
Accounts payable(2)(46)
Accrued liabilities(68)(81)
Other long-term liabilities36 (14)
Net cash provided by operating activities674 608 
Cash flows from investing activities:
Maturities of available-for-sale securities327 1,262 
Purchases of available-for-sale securities(757)(760)
Sales of available-for-sale securities379 528 
Proceeds from the deconsolidation of GRAIL 15 
Cash paid for derivative assets related to terminated acquisition(132)— 
Purchases of property and equipment(127)(152)
Deconsolidation of Helix cash (29)
Net purchases of strategic investments(112)(15)
Net cash paid for acquisitions(98) 
Net cash (used in) provided by investing activities(520)849 
Cash flows from financing activities:
Payments on financing obligations (550)
Common stock repurchases(455)(261)
Taxes paid related to net share settlement of equity awards(41)(30)
Proceeds from issuance of common stock61 59 
Net cash used in financing activities(435)(782)
Effect of exchange rate changes on cash and cash equivalents (4)
Net (decrease) increase in cash and cash equivalents(281)671 
Cash and cash equivalents at beginning of period2,042 1,144 
Cash and cash equivalents at end of period$1,761 $1,815 
See accompanying notes to condensed consolidated financial statements.
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ILLUMINA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Unless the context requires otherwise, references in this report toIllumina,” “we,” “us,” the “Company,” and “our” refer to Illumina, Inc. and its consolidated subsidiaries.

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Business Overview

We are a provider of sequencing- and array-based solutions, serving customers in the research, clinical and applied markets.  Our products are used for applications in the life sciences, oncology, reproductive health, agriculture and other emerging segments. Our customers include leading genomic research centers, academic institutions, government laboratories, and hospitals, as well as pharmaceutical, biotechnology, commercial molecular diagnostic laboratories, and consumer genomics companies.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the fiscal year ended December 29, 2019, from which the prior year balance sheet information herein was derived. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expense, and related disclosure of contingent assets and liabilities. Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to inform our critical accounting estimates. Actual results could differ from those estimates.

The unaudited condensed consolidated financial statements include our accounts, our wholly-owned subsidiaries, majority-owned or controlled companies, and variable interest entities (VIEs) for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented.

Fiscal Year

Our fiscal year is the 52 or 53 weeks ending the Sunday closest to December 31, with quarters of 13 or 14 weeks ending the Sunday closest to March 31, June 30, September 30, and December 31. References to Q3 2020 and Q3 2019 refer to the three months ended September 27, 2020 and September 29, 2019, respectively, which were both 13 weeks, and references to year-to-date (YTD) 2020 and 2019 refer to the nine months ended September 27, 2020 and September 29, 2019, respectively, which were both 39 weeks.

Significant Accounting Policies

During Q3 2020 and YTD 2020, there were no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019, except as described in Recently Adopted Accounting Pronouncements below.

Recently Adopted Accounting Pronouncements

In May 2020, the SEC issued Final Rule Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, which amends the disclosure requirements applicable to acquisitions and dispositions of businesses, including the required pro forma financial information. The amendments are effective for
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us beginning January 1, 2021, with early compliance permitted. Among other changes, the final amendments revised the investment and income tests used to determine whether a business acquisition is significant, and reduced the filing requirements for financial statements and pro forma financial information of a significant acquired business to cover a maximum of two years. We have elected to adopt the amendments in Q3 2020 in connection with our pending acquisition of GRAIL, which is further described in note “3. Investments and Fair Value Measurements”.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. We adopted the standard on its effective date in the first quarter of 2020 using a modified retrospective approach. The cumulative effect of applying the new credit loss standard was not material and, therefore, did not result in an adjustment to retained earnings. There was no material difference to the condensed consolidated financial statements in YTD 2020 due to the adoption of ASU 2016-13.

In accordance with ASU 2016-13, we no longer evaluate whether our available-for-sale debt securities in an unrealized loss position are other than temporarily impaired. Instead, we assess whether such unrealized loss positions are credit-related. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account. Unrealized gains and losses that are not credit-related are included in accumulated other comprehensive income (loss). We estimate our allowance for credit losses on our trade receivables as described in our Accounts Receivable policy, below.

Accounts Receivable

Trade accounts receivable are considered past due based on the contractual payment terms. We reserve specific receivables when collectibility is no longer probable. We also reserve a percentage of our trade receivable balance based on collection history and current economic trends that we expect will impact the level of credit losses over the life of our receivables. These reserves are re-evaluated on a regular basis and adjusted, as needed. Once a receivable is deemed to be uncollectible, such balance is charged against the reserve.

Accounting Pronouncements Pending Adoption

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The new standard reduces the number of accounting models for convertible debt instruments, amends the accounting for certain contracts in an entity’s own equity, and modifies how certain convertible instruments and contracts that may be settled in cash or shares impact the calculation of diluted EPS. The standard is effective for us beginning in the first quarter of 2022, with early adoption permitted in Q1 2021. We are currently evaluating the impact of ASU 2020-06 on the consolidated financial statements.

Earnings per Share

Basic earnings per share attributable to Illumina stockholders is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share attributable to Illumina stockholders is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Up to April 25, 2019, the date of Helix Holdings I, LLC’s (Helix) deconsolidation, per-share losses of Helix were included in the consolidated basic and diluted earnings per share computations based on our share of Helix’s securities.

Potentially dilutive common shares consist of shares issuable under convertible senior notes and equity awards. Convertible senior notes have a dilutive impact when the average market price of our common stock exceeds the applicable conversion price of the respective notes. Potentially dilutive common shares from equity awards are determined using the average share price for each period under the treasury stock method. In addition, proceeds from exercise of equity awards and the average amount of unrecognized compensation expense for equity awards are assumed to be used to repurchase shares.

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The following table presents the calculation of weighted average shares used to calculate basic and diluted earnings per share:
In millionsQ3 2020Q3 2019YTD 2020YTD 2019
Weighted average shares outstanding146 147 147 147 
Effect of potentially dilutive common shares from:
Equity awards1 1 1 1 
Convertible senior notes1 —  1 
Weighted average shares used in calculating d