ILLUMINA INC

MANAGEMENT’S OVERVIEW AND OUTLOOK

This overview and outlook provide a high-level discussion of our operating results and significant known trends that affect our business. We believe an understanding of these trends is important to understanding our financial results for the periods being reported herein as well as our future financial performance. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere.

About Illumina

Our focus on innovation has established us as a global leader in DNA sequencing and array-based technologies, 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. Our comprehensive line of products addresses the scale of experimentation and breadth of functional analysis to advance disease research, drug development, and the development of molecular tests. This portfolio of leading-edge sequencing and array-based solutions addresses a range of genomic complexity and throughput, enabling researchers and clinical practitioners to select the best solution for their scientific challenge.

On June 24, 2024, we completed the Spin-Off of GRAIL into a new public company through the distribution of approximately 85.5% of the outstanding shares of common stock of GRAIL to Illumina stockholders on a pro rata basis. We retained 14.5% of the shares of GRAIL common stock immediately following the Spin-Off. The disposition of GRAIL did not meet the criteria to be reported as a discontinued operation and GRAIL’s results of operations and cash flows have not been reclassified. In connection with the Spin-Off, Illumina’s stockholders received one share of GRAIL common stock for every six shares of Illumina common stock held on the Record Date.

We have one reportable segment, Core Illumina, as of March 30, 2025. Prior to the GRAIL Spin-Off, our reportable segments included both Core Illumina and GRAIL. See note 9. Segment Information for details on our segments.

Our financial results have been, and will continue to be, impacted by several significant trends, which are described below. While these trends are important to understanding and evaluating our financial results, this discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto within the Condensed Consolidated Financial Statements section of this report, and the other transactions, events, and trends discussed in Risk Factors within the Other Key Information section of this report.

Financial Overview

Macroeconomic factors such as tariffs, inflation, exchange rate fluctuations and concerns about an economic downturn, competitive challenges in our China region, the sanctions imposed on Russia as a result of the armed conflict between Russia and Ukraine, and reductions in the U.S. government’s funding of the NIH continue to impact both Illumina directly and our customers’ behavior. For example, some customers experienced supply chain pressures that delayed their lab expansions and others are managing inventory and capital more conservatively. In Q1 2025, we were added to the unreliable entities list by regulatory authorities in China and received notice that we are not permitted to export sequencing instruments into China. See the risk factor “Regulatory Authorities in China have added Illumina to the List of Unreliable Entities” in Risk Factors for additional information. We expect these factors to continue to have an impact on our sales and results of operations in 2025, the size and duration of which is significantly uncertain.

During 2024, we made significant progress towards our strategic goals to accelerate growth and expand operating margins. We focused on operational excellence initiatives, to improve productivity and achieve cost savings, and on our capital allocation strategy, including obtaining authorization for a new share repurchase program. We expect to continue to make further progress towards these goals in 2025, including a focus on returning to revenue growth. We further implemented, in Q1 2025, an incremental $100 million cost reduction program for 2025, including optimizing stock-based compensation and non-labor spending and accelerating certain productivity measures, as well as workforce reductions, to help mitigate the expected impact of a reduction in revenue and related operating income from our Greater China business and the uncertainty in the U.S. government’s funding of the NIH.

In April 2025, the U.S. government and several other countries enacted tariffs on the cross-border movement of goods. Under the current tariff environment, the estimated cost impact of these tariffs to us is approximately $85 million. The largest part of this relates to importation from our manufacturing facility in Singapore. The remainder is a mix of importation of parts and sub-assemblies to our manufacturing operations in the United States and importation into China. We are taking several actions to fully mitigate the impact of these tariffs, expecting to partially mitigate the impact in 2025, through supply chain optimization, cost measures, and pricing actions. Based on the current tariff environment, our aim is to more fully mitigate the impact in 2026.

Financial highlights for Q1 2025 included the following:

•Revenue decreased 3% in Q1 2025 to $1,041 million compared to $1,076 million in Q1 2024 primarily due to a decrease in service and other revenue driven by a decrease in GRAIL service and other revenue, as a result of the Spin-Off in Q2 2024, and a decrease in Core Illumina service and other revenue, primarily due to decreased revenue from our strategic partnerships. The decrease was also driven by slight decreases in Core Illumina sequencing consumables revenue and instruments revenue.

•Gross margin was 65.6% in Q1 2025 compared to 62.0% in Q1 2024. The increase in gross margin was driven by the Spin-Off of GRAIL in Q2 2024. Core Illumina gross margin remained relatively flat in Q1 2025 primarily due to a favorable impact from the execution of our operational excellence initiatives that continue to deliver cost savings and improve productivity and lower strategic partnership revenue that is lower margin. This was offset by lower product margins, primarily due to reduced pricing, and an increase in field service costs. Our gross margin depends on many factors, including: market conditions that may impact our pricing; sales mix changes among consumables, instruments, services, and development and licensing revenue; product mix changes between established products and new products; excess and obsolete inventories; royalties; our cost structure for manufacturing operations relative to volume; freight costs; tariffs; and product support obligations.

•Income from operations was $164 million in Q1 2025 compared to loss from operations of $(111) million in Q1 2024. The change was primarily due to a decrease in operating expense of $259 million and an increase in gross profit of $16 million. The decrease in operating expense was primarily driven by a decrease in GRAIL operating expense of $205 million given the Spin-Off in Q2 2024, as well as a favorable impact from our GRAIL contingent consideration liability of $27 million, a decrease in Core Illumina acquisition-related costs (legal and transaction expenses) of $27 million, primarily due to the GRAIL Spin-Off, and a decrease in Core Illumina restructuring charges of $17 million, primarily due to lease impairments recognized in Q1 2024. We continue to focus on our operational excellence and cost reduction initiatives to accelerate growth and expand operating margins.

•Our effective tax rate was 27.9% in Q1 2025 compared to (15.3)% in Q1 2024. The variance from the U.S. federal statutory tax rate of 21% was primarily because of the income tax expense impact of research and development expense capitalization for tax purposes. This was partially offset by the mix of earnings in jurisdictions with lower statutory tax rates than the U.S. federal statutory tax rate, such as in Singapore.

•We ended Q1 2025 with cash, cash equivalents, and short-term investments totaling $1,237 million, of which approximately $432 million was held by our foreign subsidiaries.