ILLUMINA, INC. [ILMN] Filings

10-Q 1 ilmn-20231001.htm 10-Q ilmn-20231001

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 October 1, 2023


☐			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

Illumina, Inc.

(Exact name of registrant as specified in its charter)


Delaware						33-0804655
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	ILMN	The Nasdaq Stock Market LLC

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 filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth 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 November 6, 2023, there were 158.8 million shares of the registrant’s common stock outstanding.

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ILLUMINA, INC.

FORM 10-Q

FOR THE FISCAL QUARTER ENDED OCTOBER 1, 2023

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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 STATEMENTS			PAGE
Condensed Consolidated Balance Sheets			6
Condensed Consolidated Statements of Operations			7
Condensed Consolidated Statements of Comprehensive Loss			8
Condensed Consolidated Statement s of Stockholders’ Equity			9
Condensed Consolidated Statements of Cash Flows			11
Notes to Condensed Consolidated Financial Statements			12
1. Organization and Significant Accounting Policies			12
2. Revenue			13
3. Investments and Fair Value Measurements			14

4. Debt			17
5. Stockholders’ Equity			19
6. Supplemental Balance Sheet Details			22
7. Legal Proceedings			25
8. Income Taxes			27
9. Segment Information			28


MANAGEMENT’S DISCUSSION & ANALYSIS
Management’s Overview and Outlook			29
Results of Operations			31
Liquidity and Capital Resources			36
Critical Accounting Policies and Estimates			38
Recent Accounting Pronouncements			39

Quantitative and Qualitative Disclosures About Market Risk			39

OTHER KEY INFORMATION
Controls and Procedures			39
Legal Proceedings			39
Risk Factors			39
Share Repurchases and Sales			42
Adoptions, Modifications or Terminations of Trading Plans			42
Exhibits			43
Form 10-Q Cross-Reference Index			44

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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. 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;

•the benefits that we expect will result from our business activities and certain transactions we have completed, or may complete, 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 ability to successfully implement cost reduction plans in a timely manner and the possibility that costs associated with our cost reduction plans are greater than we anticipate;

•our expectations regarding the outcome of the legal and regulatory proceedings, including appeals, related to our acquisition of GRAIL, Inc. (GRAIL) and other actions that may be taken or pursued by the European Commission, the U.S. Federal Trade Commission (FTC) and/or other governmental or regulatory authorities in connection with such acquisition;

•the transitional measures imposed by the European Commission, the duration and impact of such measures on Illumina and GRAIL, and the appointment of a monitoring trustee to monitor our compliance with such measures;

•the prohibition decision adopted by the European Commission on September 6, 2022 (the Prohibition Decision), informing us of its decision to prohibit our acquisition of GRAIL, and the decision adopted by the European Commission on October 12, 2023 requiring us to (among other things) divest GRAIL and imposing transitional measures (the EC Divestment Decision);

•the opinion and order issued by the FTC on March 31, 2023 (the FTC Order), requiring us to divest GRAIL and to hold GRAIL separate through the completion of the divestiture;

•the Article 14(2)(b) fine imposed by the European Commission on July 12, 2023; 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:

•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;

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•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;

•risks and uncertainties regarding the legal and regulatory proceedings, including the failure to obtain or delays in obtaining the required regulatory approvals or clearances including for any potential divestiture of GRAIL, any appeals relating to our acquisition of GRAIL and our ability to achieve the expected benefits of such acquisition and other actions that have been or may be taken or pursued by the European Commission, the FTC and/or other governmental or regulatory authorities in connection with such acquisition;

•the transitional measures and hold separate requirements imposed by the European Commission, the duration and impact of these requirements on Illumina and GRAIL (which may include material and adverse effects on benefits we expect to achieve as a result of the acquisition of GRAIL, additional costs or liabilities, loss of revenue and other adverse effects on our business, financial condition and results of operations) and the administration of these requirements by an appointed monitoring trustee;

•our compliance with burdensome transitional measures imposed by the European Commission and the risk that the European Commission could impose or seek to impose additional fines and other penalties for alleged noncompliance with these requirements;

•the EC Divestment Decision and the FTC Order, which may each adversely affect us and our business, including current plans and operations, financial condition and results of operations, each requiring us to divest GRAIL and to hold GRAIL separate through the completion of the divestiture, the terms and conditions thereof (including with respect to a divestiture of GRAIL), and the timing of and the risks, costs and business disruptions (including the diversion of management’s attention) associated with such divestiture and/or any related appeals, the implementation thereof or any associated legal or regulatory proceedings or obligations, including any related appeals, and other uncertainties related to our compliance (or ability to comply) with each of the EC Divestment Decision and the FTC Order, which may adversely affect us and our business, including current plans and operations, financial condition and results of operations;

•risks associated with contracts or other agreements containing provisions that might be implicated by any divestiture of GRAIL or the EC Divestment Decision, including our ability to fully realize the anticipated economic benefits of our commercial arrangements with GRAIL and our obligations with respect to contingent value rights (the CVRs) issued by us in connection with the GRAIL acquisition and the risk that we will be unable to fully discharge such obligations in connection with a divestiture of GRAIL, that a divestiture will result in a change in obligor on the CVRs and/or of other consequences related thereto, which may adversely affect us and our business and/or the market value of the CVRs;

•the risk of adverse effects resulting from additional potential litigation associated with the acquisition of GRAIL, such as additional legal, financial advisory, regulatory and other professional services fees;

•the risk of additional litigation arising against us in connection with the GRAIL acquisition;

•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 as well as the cost and potential diversion of management resources associated with these proceedings;

•uncertainty, or adverse economic and business conditions, including as a result of slowing or uncertain economic growth, COVID-19 pandemic mitigation measures, or armed conflict; and

•other factors detailed in our filings with the Securities and Exchange Commission (SEC), including the risks, uncertainties, and assumptions described in “Risk Factors” within the Business & Market Information section of our Annual Report on Form 10-K for the fiscal year ended January 1, 2023, the “Other Key Information” section of our Quarterly Report on Form 10-Q for the period ended April 2, 2023

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and on Form 10-Q for the period ended July 2, 2023, the “Risk Factors” section below, or in information disclosed in public conference calls, the date and time of which are released beforehand.

Any forward-looking statement made by us in this Quarterly Report on Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. 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)


	October 1, 2023		January 1, 2023
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	927	$	2,011
Short-term investments	6		26
Accounts receivable, net	690		671
Inventory, net	615		568

Prepaid expenses and other current assets	268		285
Total current assets	2,506		3,561
Property and equipment, net	1,040		1,091
Operating lease right-of-use assets	581		653
Goodwill	2,527		3,239
Intangible assets, net	3,029		3,285

Other assets	439		423
Total assets	$	10,122	$	12,252

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	240	$	293
Accrued liabilities	1,242		1,232



Term notes, current portion	—		500
Convertible senior notes, current portion	—		748
Total current liabilities	1,482		2,773
Operating lease liabilities	698		744
Term notes	1,489		1,487


Other long-term liabilities	555		649

Stockholders’ equity:

Common stock	2		2
Additional paid-in capital	9,487		9,207
Accumulated other comprehensive income	21		3
Retained earnings	157		1,142
Treasury stock, at cost	(3,769)		(3,755)


Total stockholders’ equity	5,898		6,599
Total liabilities and stockholders’ equity	$	10,122	$	12,252

See accompanying notes to condensed consolidated financial statements.

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ILLUMINA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In millions, except per share amounts)


	Three Months Ended				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Revenue:
Product revenue	$	941	$	963	$	2,864	$	3,039
Service and other revenue	178		152		518		462
Total revenue	1,119		1,115		3,382		3,501
Cost of revenue:
Cost of product revenue	293		280		884		866
Cost of service and other revenue	95		72		285		210
Amortization of acquired intangible assets	47		46		143		125
Total cost of revenue	435		398		1,312		1,201
Gross profit	684		717		2,070		2,300
Operating expense:
Research and development	315		325		1,013		975
Selling, general and administrative	303		146		1,127		865
Goodwill and intangible impairment	821		3,914		821		3,914
Legal contingency and settlement	(1)		(11)		14		598



Total operating expense	1,438		4,374		2,975		6,352
Loss from operations	(754)		(3,657)		(905)		(4,052)
Other income (expense):
Interest income	13		3		47		4
Interest expense	(19)		(6)		(59)		(17)

Other expense, net	(22)		(12)		(33)		(103)
Total other expense, net	(28)		(15)		(45)		(116)
Loss before income taxes	(782)		(3,672)		(950)		(4,168)
(Benefit) provision for income taxes	(28)		144		36		97
Net loss	$	(754)	$	(3,816)	$	(986)	$	(4,265)



Loss per share:
Basic	$	(4.77)	$	(24.26)	$	(6.23)	$	(27.13)
Diluted	$	(4.77)	$	(24.26)	$	(6.23)	$	(27.13)
Shares used in computing loss per share:
Basic	158		157		158		157
Diluted	158		157		158		157

See accompanying notes to condensed consolidated financial statements.

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ILLUMINA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In millions)


	Three Months Ended				Nine Months Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Net loss	$	(754)	$	(3,816)	$	(986)	$	(4,265)

Unrealized gain on cash flow hedges, net of deferred tax	9		9		18		22
Total comprehensive loss	$	(745)	$	(3,807)	$	(968)	$	(4,243)

See accompanying notes to condensed consolidated financial statements.

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ILLUMINA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In millions)



				Additional		Accumulated Other							Total
	Common Stock			Paid-In		Comprehensive		Retained		Treasury Stock			Stockholders’
	Shares	Amount		Capital		Income		Earnings		Shares	Amount		Equity














































































































































































































Balance as of January 2, 2022	197	$	2	$	8,938	$	17	$	5,485	(40)	$	(3,702)	$	10,740
Net income	—	—		—		—		86		—	—		86
Unrealized gain on cash flow hedges, net of deferred tax	—	—		—		1		—		—	—		1
Issuance of common stock, net of repurchases	—	—		33		—		—		—	(12)		21
Share-based compensation	—	—		79		—		—		—	—		79
Cumulative-effect adjustment from adoption of ASU 2020-06, net of deferred tax	—	—		(93)		—		61		—	—		(32)
Balance as of April 3, 2022	197	2		8,957		18		5,632		(40)	(3,714)		10,895
Net loss	—	—		—		—		(535)		—	—		(535)
Unrealized gain on cash flow hedges, net of deferred tax	—	—		—		12		—		—	—		12
Issuance of common stock, net of repurchases	—	—		—		—		—		—	(4)		(4)
Share-based compensation	—	—		76		—		—		—	—		76
Balance as of July 3, 2022	197	2		9,033		30		5,097		(40)	(3,718)		10,444
Net loss	—	—		—		—		(3,816)		—	—		(3,816)
Unrealized gain on cash flow hedges, net of deferred tax	—	—		—		9		—		—	—		9
Issuance of common stock, net of repurchases	—	—		30		—		—		—	(2)		28
Share-based compensation	—	—		66		—		—		—	—		66
Balance as of October 2, 2022	197	2		9,129		39		1,281		(40)	(3,720)		6,731
Net loss	—	—		—		—		(139)		—	—		(139)
Unrealized loss on cash flow hedges, net of deferred tax	—	—		—		(36)		—		—	—		(36)
Issuance of common stock, net of repurchases	1	—		—		—		—		—	(35)		(35)
Share-based compensation	—	—		78		—		—		—	—		78

Balance as of January 1, 2023	198	$	2	$	9,207	$	3	$	1,142	(40)	$	(3,755)	$	6,599

See accompanying notes to condensed consolidated financial statements.

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ILLUMINA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In millions)



				Additional		Accumulated Other							Total
	Common Stock			Paid-In		Comprehensive		Retained		Treasury Stock			Stockholders’
	Shares	Amount		Capital		Income (Loss)		Earnings		Shares	Amount		Equity











































Balance as of January 1, 2023	198	$	2	$	9,207	$	3	$	1,142	(40)	$	(3,755)	$	6,599
Net income	—	—		—		—		3		—	—		3
Unrealized loss on cash flow hedges, net of deferred tax	—	—		—		(4)		—		—	—		(4)
Issuance of common stock, net of repurchases	—	—		37		—		—		—	(9)		28
Share-based compensation	—	—		67		—		—		—	—		67

Balance as of April 2, 2023	198	2		9,311		(1)		1,145		(40)	(3,764)		6,693
Net loss	—	—		—		—		(234)		—	—		(234)
Unrealized gain on cash flow hedges, net of deferred tax	—	—		—		13		—		—	—		13
Issuance of common stock, net of repurchases	—	—		—		—		—		—	(3)		(3)
Share-based compensation	—	—		77		—		—		—	—		77
Reclassification of liability-classified awards	—	—		9		—		—		—	—		9

Balance as of July 2, 2023	198	2		9,397		12		911		(40)	(3,767)		6,555
Net loss	—	—		—		—		(754)		—	—		(754)
Unrealized gain on cash flow hedges, net of deferred tax	—	—		—		9		—		—	—		9
Issuance of common stock, net of repurchases	—	—		30		—		—		—	(2)		28
Share-based compensation	—	—		60		—		—		—	—		60


Balance as of October 1, 2023	198	$	2	$	9,487	$	21	$	157	(40)	$	(3,769)	$	5,898

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
	October 1, 2023		October 2, 2022
Cash flows from operating activities:
Net loss	$	(986)	$	(4,265)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense	175		158
Amortization of intangible assets	148		130
Share-based compensation expense	286		266




Deferred income taxes	(42)		(40)
Goodwill and intangible (IPR&D) impairment	821		3,914
Property and equipment and right-of-use asset impairment	56		—

Net losses on strategic investments	39		79

(Gain) loss on Helix contingent value right	(8)		8

Payment of accreted debt discount	(15)		—


Change in fair value of contingent consideration liabilities	(82)		(230)
Unrealized loss on foreign exchange translation	21		1
Other	9		6
Changes in operating assets and liabilities:
Accounts receivable	(31)		13
Inventory	(47)		(127)
Prepaid expenses and other current assets	(3)		10
Operating lease right-of-use assets and liabilities, net	(13)		(10)
Other assets	6		17
Accounts payable	(50)		(51)
Accrued liabilities	(25)		388

Other long-term liabilities	(5)		(22)
Net cash provided by operating activities	254		245
Cash flows from investing activities:





Purchases of property and equipment	(144)		(198)


Purchases of strategic investments	(19)		(26)
Sales of strategic investments	18		—
Net cash paid for acquisitions	—		(85)
Cash paid for intangible asset	(1)		(180)
Net cash used in investing activities	(146)		(489)
Cash flows from financing activities:

Debt issuance costs paid for credit facility	(1)		—


Payments on financing obligations	(1,235)		—


Taxes paid related to net share settlement of equity awards	(14)		(19)

Proceeds from issuance of common stock	67		63


Net cash (used in) provided by financing activities	(1,183)		44
Effect of exchange rate changes on cash and cash equivalents	(9)		(32)
Net decrease in cash and cash equivalents	(1,084)		(232)
Cash and cash equivalents at beginning of period	2,011		1,232
Cash and cash equivalents at end of period	$	927	$	1,000

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 to “Illumina,” the “Company,” “we,” “us,” 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.

On August 18, 2021, we acquired GRAIL, a healthcare company focused on early detection of multiple cancers. The acquisition is subject to ongoing legal proceedings and, currently, GRAIL must be held and operated separately and independently from Illumina pursuant to the transitional measures ordered by the European Commission in the EC Divestment Decision, following the prohibition of our acquisition of GRAIL on September 6, 2022. Refer to note “7. Legal Proceedings” for additional details. GRAIL is a separate reportable segment.

With respect to GRAIL, we have retained advisors and are preparing for sale and capital markets transaction options in accordance with the European Commission’s divestiture order. In parallel, ongoing appeals preserve flexibility for any divestiture of GRAIL and future transactions.

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 January 1, 2023, 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 COVID-19 pandemic, the armed conflict between Russia and Ukraine, and macroeconomic factors such as inflation, exchange rates and concerns about an economic downturn present additional uncertainty, we continue to use the best information available to form our critical accounting estimates. Actual results could differ from those estimates.

The unaudited condensed consolidated financial statements include our accounts, our wholly-owned subsidiaries, and majority-owned or controlled companies. 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 2023 and Q3 2022 refer to the three months ended October 1, 2023 and October 2, 2022, respectively, which were both 13 weeks, and references to year-to-date (YTD) 2023 and 2022 refer to the nine months ended October 1, 2023 and October 2, 2022, respectively, which were both 39 weeks.

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Significant Accounting Policies

During YTD 2023, there were no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended January 1, 2023, with the exception of the following for income taxes:

Historically, we calculated the provision/(benefit) for income taxes for interim periods utilizing an estimated annual effective tax rate applied to the income/(loss) for the reporting period, except in Q2 2023 when a year-to-date effective tax rate method was utilized. We determined the estimated annual effective tax rate method would provide a more reliable estimate of the provision for income taxes for Q3 2023 and YTD 2023 since minor changes in the estimated income/(loss) before income taxes would not result in significant changes in the estimated annual effective tax rate.

Loss per Share

Basic loss per share is computed based on the weighted average number of common shares outstanding during the period. Diluted loss per share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. In loss periods, basic and diluted loss per share are identical since the effect of potentially dilutive common shares is antidilutive and therefore excluded.

Potentially dilutive common shares consist of shares issuable under convertible senior notes and equity awards. We utilize the if-converted method to calculate the impact of convertible senior notes on diluted loss per share. 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.

The following table presents the weighted average shares used to calculate basic and diluted loss per share:

In millions

Q3 2023

Q3 2022

YTD 2023

YTD 2022

Weighted average shares used in calculating basic loss per share

158

157

158