Joydeep Goswami, PhD
Chief Strategy and Corporate Development Officer, Interim Chief Financial Officer at Illumina
Thanks, Francis. As a reminder, our second quarter financial results include the consolidated financial results for GRAIL. I'll start by reviewing our consolidated financial results, followed by segment results for core Illumina and GRAIL, then conclude with additional remarks on our current outlook for 2022. I'll be discussing non-GAAP results, which include stock-based compensation. I encourage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release and in supplementary data available on our website. In the second quarter, consolidated revenue was $1.16 billion, up 3% year-over-year or 5% on a constant currency basis, net of the effects of hedging. Revenue was impacted by the macroeconomic factors that Francis referenced.
As you know, we had anticipated the headwinds from the China shutdowns, the negative impact of FX and slowing COVID surveillance. Each of these were slightly worse than we expected. And collectively, they drove 1/4 of the variance between our expectations and actual results. The remainder of this variance was driven by the lab expansion delays encountered by a few of our large customers as a result of global supply chain constraints as well as customer inventory and capital management. Nonetheless, overall sequencing activity on our connected instruments was strong in the second quarter with sequencing runs in our high- and mid-throughput instruments growing more than 15% year-over-year.
We believe this is a useful reference that shows the general activity trend across our installed base and is directionally correlated with revenue over time. For the second quarter, GAAP net loss was $535 million or a loss of $3.40 per diluted share, which included $609 million in legal contingencies recorded in Q2 due to the potential fine that the European Commission may impose related to our GRAIL acquisition and settlement of our litigation with BGI. Non-GAAP earnings were $91 million or $0.57 per diluted share, including dilution from GRAIL's non-GAAP operating loss of $152 million for the quarter. Our non-GAAP tax rate was 25.8%, which increased 790 basis points year-over-year and 800 basis points from Q1 2022 primarily due to the increased impact of R&D expense capitalization requirements implemented by the Tax Cuts and Jobs Act of 2017.
Our non-GAAP weighted average diluted share count for the quarter was approximately 159 million. Moving to segment results. I will start by discussing the financial results of core Illumina. Core Illumina revenue of $1.16 billion grew 3% year-over-year or 4% on a constant currency basis, net of the effects of hedging. Core Illumina sequencing consumables grew 6% year-over-year to $744 million, driven by almost 20% growth in oncology testing. Core consumables growth more than offset headwinds from lockdowns in China, the completion of the UK Biobank program in quarter three of 2021, reductions in COVID surveillance and negative FX impacts.
Sequencing instruments revenue for core Illumina grew 1% year-over-year to $119 million, driven by 23% growth in NovaSeq shipments offset by a 14% decrease in the mid-throughput shipments year-over-year. The decrease in mid-throughput shipments was primarily due to headwinds from COVID surveillance and COVID lockdowns in China with NextSeq 1000/2000 growth more than offset by a decrease in NextSeq 550. NextSeq 1000/2000 instruments continued to grow year-over-year, and the growth would have been stronger had it not been for temporary supply constraints that delayed shipments into the third quarter. NextSeq 1000/2000 orders were up 20% year-over-year with continuing strong adoption of our newest platform.
During the second quarter, COVID surveillance contributed approximately $25 million in sequencing consumables revenue and $2 million in incremental instruments revenue, representing a decline of 55% year-over-year. This decline was driven by lower-than-expected testing samples and the expected decline in instrument shipments as COVID surveillance capacity was largely established in 2021. Core Illumina sequencing service and other revenue of $125 million was down 2% year-over-year driven by $20 million of a onetime revenue recognized in 2021 from NIPT royalties received related to a patent litigation settlement, partially offset by increased instrument service contracts and contributions from oncology codevelopment partnerships. Moving to regional results for core Illumina.
Revenue for the Americas region was $633 million, up 7% year-over-year, primarily due to NovaSeq strength with continued demand from oncology testing customers driving instrument placements and consumables grow. Growth in the region was nonetheless lower than expected primarily due to customer lab expansion delays and inventory and capital management we have mentioned during the call. EMEA revenue of $308 million represented a 4% decrease year-over-year but a 1% increase on a constant currency basis, net of the effect of hedges. Sequencing growth driven by clinical and large-scale research projects was more than offset by the UK Biobank program in 2021 and a decline in COVID surveillance revenue. Cumulatively, these significant headwinds and FX negatively impacted year-over-year revenue growth by 20 percentage points.
Greater China revenue of $118 million represented an 11% decrease year-over-year and a 10% decrease on a constant currency basis. This was slightly more negative than the approximately $35 million headwind to guidance we provided last quarter. As expected, the region continued to be impacted by prolonged COVID-19 restrictions and shutdowns that began in March this year. Finally, APJ revenue of $97 million grew 14% year-over-year or 20% on a constant currency basis, net of the effects of hedges. Growth in the region was primarily due to increased NovaSeq shipments, which doubled year-over-year, driven by large-scale research project demand as well as strength in NIPT and oncology testing.
Moving to the rest of core Illumina P&L. Core Illumina non-GAAP gross margin of 69.8% decreased 200 basis points year-over-year, primarily due to less fixed cost leverage on lower manufacturing volumes, margin impact from a onetime revenue from a patent litigation settlement in 2021 and increased freight costs attributable to broader global supply chain pressures. These factors were partially offset by a more favorable product mix as well as a number of productivity initiatives we continue to execute. Core Illumina non-GAAP operating expenses of $519 million were up $48 million year-over-year due primarily to head count growth and investments we're making in R&D to support the continued advancements of our innovation road map.
Despite the year-over-year increase, non-GAAP core Illumina operating expenses were lower than we originally planned as a result of lower performance-based compensation expense given our lower revenue outlook and cost containment initiatives focused on select hires and discretionary spend, including travel. Transitioning to the financial results for GRAIL. GRAIL revenue of $12 million for the quarter consisted primarily of Galleri test fees. GRAIL non-GAAP operating expenses totaled $156 million for the quarter and consisted primarily of expenses related to head count and clinical trials. These expenses were lower than expected as GRAIL managed its project spend in light of its lower quarterly outlook.
Moving to consolidated cash flow and balance sheet items. Cash flow from operations was $125 million. DSO was 50 days compared to 46 days last quarter due to revenue linearity. Second quarter 2022 capital expenditures were $71 million, and free cash flow was $54 million. We did not repurchase any common stock in the quarter. We ended the quarter with approximately $1.3 billion in cash, cash equivalents and short-term investments. Moving now to 2022 guidance. We have revised our outlook for the full year to represent the macroeconomic factors we observed through early August and we assume will continue for the rest of the year.
We now expect full year 2022 consolidated revenue to grow in the range of 4% to 5%, including core Illumina revenue growth in the range of three to -- 3.5% to 4.5% and GRAIL revenue of $50 million to $70 million. For the full year, at the midpoint of our revenue guidance range, we now expect core Illumina sequencing revenue to grow approximately 4.5%. This includes intercompany sales to GRAIL of approximately $25 million, which are eliminated in consolidation.
Within core Illumina sequencing revenue, we now expect instrument growth of 1.5% and consumables growth of 5%, which reflects NovaSeq pull-through in the range of $1.1 million to $1.2 million per system for 2022. We continue to expect pull-through for NextSeq 1000/2000 in the range of $130,000 to $180,000 per system and for the NextSeq 550 in the range of $100,000 to $150,000 per system. For MiSeq, we continue to expect pull-through in the range of $35,000 to $45,000 per system. And for MiniSeq, we continue to expect pull-through in the range of $20,000 to $25,000 per system. We now expect revenue from COVID surveillance in the range of $110 million to $130 million. While we anticipated a decline in COVID surveillance in 2022, the deceleration has occurred at a more rapid pace than we've previously forecasted.
As we navigate the macroeconomic factors we have mentioned, we're implementing multiple strategies, including prioritizing key innovation investments and critical hires while pausing investments that can be made at later times. We've retained all critical investments in our innovation road map, including NovaSeqDx, Chemistry X, our Infinity long-read technology and our TSO portfolio. We now expect consolidated non-GAAP operating margin in the range of 11.5% to 12% and core Illumina non-GAAP operating margin in the range of 24.5% to 25%. We expect a consolidated non-GAAP tax rate of approximately 14%, which continues to assume that the R&D expense capitalization requirements implemented by the Tax Cuts and Jobs Act of 2017 will be repealed or deferred in Q4.
And we now expect non-GAAP earnings per diluted share in the range of $2.75 to $2.90, which includes dilution from GRAIL non-GAAP operating loss of approximately $610 million, in line with previous expectations. Lastly, we continue to expect diluted shares outstanding of approximately 159 million shares for 2022. For the third quarter of 2022, we expect consolidated revenue to be flat to 1% higher year-over-year from the third quarter of 2021. We expect consolidated non-GAAP operating margin to be approximately 5%. We expect core Illumina non-GAAP operating margin to be approximately 20%.
We expect consolidated non-GAAP tax rate to be approximately 22%, which continues to reflect the negative impact from the R&D capitalization requirements we expect will be repealed or deferred in the fourth quarter of this year. And lastly, we expect diluted shares outstanding to be in line with our full year 2022 guidance of approximately 159 million shares.
I will now hand the call back over to Francis for his final remarks.