Earnings call transcript Q1 2023

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Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2023 Illumina Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Salli Schwartz, Vice President of Investor Relations.

Salli Schwartz

to call welcome quarter the and XXXX. of everyone, our for earnings first Hello

today, review offer we released call we the During will question-and-answer a close commercial after session. the will our host after the of market, on and commentary activity, which the results financial

earnings Investor have of Relations not the our chance be can website to a you it found illumina.com. section If review at had release, in the

Chief will today will Officer; be Francis Officer and and President Strategy Executive GRAIL. Goswami, on provide the Francis Illumina deSouza, and state business Chief Corporate Joydeep our review of which for will financial Financial update Officer. include Chief and Illumina's Participating Development Joydeep results and an

from European to by Merger Illumina measures ordered As the which GRAIL Commission, interim pursuant and reminder, a must independently be the the GRAIL our EU held under acquisition prohibited Regulation. of and operated separately

will section will our Reform This audio and XXXX. the under call in of portion financial call our made all It commercial Private Securities is the archived protected Act being website. results activity Investor during recorded is intent statements regarding our today's be be the forward-looking that Litigation and of

risks these differ statements. Actual based or update and subject or results available events information, may current upon Forward-looking are All forward-looking statements no assumes materially to obligation to projected those are from uncertainties. discussed. statements and Illumina

differ, we including XX-Q Securities to forms the understand the Illumina's cause you and results uncertainties refer better XX-K. recent risks to documents could and most To Commission, files that that the Exchange and with Illumina actual

the call turn to I will Francis. that, now With over

Francis deSouza

afternoon, everyone. Good you, Thank Salli.

but of diluted the you through both in guidance of delivered take we later the as detail provided will year of Joydeep ahead and beginning non-GAAP of in EPS $X.XX $X.XX down expected. QX, Illumina revenue more approximately the call. at the year-over-year, billion

elasticity year and rest of on Our of NovaSeq of focus sequential improving capabilities, driving production and the the X, distribution primarily its margins. by increased is scaling deliver the the to for growth back

will We share more each. on

the QX, in We achieved systems. shipping product milestones including NovaSeq first X key

Illumina launched to that barrier for addresses Illumina technology comprehensive and will more advanced labs Insights, genomic tertiary also key We Read tumors. to profiling a Complete adoption, analysis enable cloud-based perform Long and tool a Connected

beginning to performance strengthened high-throughput XX received quarter NovaSeq with high-throughput. orders than in The our Turning interest The from across for more Illumina's exited platforms, we launch series QX the with X strong position XXX further NovaSeq X global sequencing. in and competitive continued over countries. the

expected, NovaSeq that with than approximately to to benefits are some launch Clinical of whole throughput leverage orders clinical is X's cell, the new-to-high cost of orders, offerings. and NovaSeq leveraging genomics new use About lab planning demand and stronger ease to XX% of high-throughput genome, XX% continued from customers like RNA generating single the be perform X customers, to clinical sequencing.

from Our expectations than NovaSeq manufacturing are and more instruments X to scaling this instruments nicely. in XX X above of expect up and now X instruments deliver NovaSeq to XXX. XX, XX shipped initial XXX QX, capabilities year, NovaSeq consumables for We

reporting runs ahead well data above than published initial some with robust terabases Customers' of X and showing specifications. more bases QXX, XX% customers outputs are quality, of sequencing than output and greater

analyses sequencing and their per X's leverage unlock will plan examples and they to elasticity planning the perform X Customers more delivery customers data and analysis. more As demand output per price to lower sequence take of Xs market. more about sharing NovaSeq sample, obtain greater NovaSeq the how per their are samples, are sample deployments, in

to multi-omics, "atlas-scale" up research to scale single For programs, deliver use example, a projects. institute research in data-intensive leading specifically them cell, science will life and X spatial, European enabling its NovaSeq

new, launch and base, cost using X are sequencing-intensive offerings. customers clinical output greater the of our Within to savings NovaSeq

use times planning Some more and XX customer customers solid to healthcare requires XX testing. sequencing exomes planning than from to An testing, efficiency. diagnostic to tumor to which liquid higher to X oncology panels is yield targeted move genomes, are the and achieve launch to biopsy

turnaround using Some minimal or applications benefits to at datasets are to like the time customers cost enter sequencing scale. and MRD, disease, deeper build residual

to demand We XX% clinical also shipped saw of in expansions were to XXXX, XXXX of of fleet NovaSeq continued More and customers, for approximately primarily NovaSeq XX% workflows, NovaSeq than XXXXs XX shipments we oncology for shipments testing. existing and QX.

NextSeq of unit customers. existing in or XX% were X% increased year-over-year, Xk/Xk shift units expand the QX customers continue shipments fleets, placed XXX. and as NextSeq mid-throughput, NextSeq their than Xk/Xk In More new-to-Illumina from MiSeq to projects with

rate win some strong, segment sales cycles in we the remains lengthen. seeing but mid-throughput Our are

provide continue Approximately of quarter sequencing entry across XX% increasing platforms a shipments first in of new-to-Illumina sequencing. adoption customers, to base these to low-throughput further customer installed Our an to were point and our network. the enabling broad

with Illumina, representing Looking consumables sequencing revenue now clinical revenue the QX at total an our of clinical important for first marked time. our XX% milestone consumables sequencing for markets.

volumes clinical oncology year-over-year, by testing product MRD. X% declined areas QX, growing driven In biopsy increased development increased testing and and sequentially, XX% in consumables but like liquid

this are profitability, pressures ability facing in to their segment down which to develop tests improve slow new turn and customers may Some in scale.

million utilization TSO by up Europe. pull-through, was XXX than increased assay, Oncology quarter, year-over-year TruSight and market-leading our more the in particularly greater XX% $XX XXX, in from across driven accounts, Revenue than

or announced broaden a type pancreatic biomarker of with we ovarian, HRD is expansion to to important tumors damage, of deficiency, recombination March, an DNA access our prostate, partnership like in with specific identifying and the HRD, cancers. Genetics homologous testing. those In breast, Myriad

the Institute, customers now the Cancer early largest research-use-only oncology a novel Specialists agents diagnostic a with these in Research HRD, The for available one States. medical tumors. in also a develop XXX independent targeting HRD hematological companion United and TSO partnership to practices & Florida unique of like the US, as alliance is expanded test, Our establishes

cancer. Seven regions was in Italy In market. testing lung accessible NGS-based in national oncology There next-generation genome with Xst. significant whole genomic for funding health for for million the this cancer Europe, pediatric committed Republic, Germany, quarter patients progress effective January reimbursement €XX sequencing the in reimbursement to was fee comprehensive schedule, commenced And in sequencing the relapse. added in Czech insurers profiling expanding for

oncology, and in exceeding detection Galleri in million, $XXX primarily commercial for organization. investments Also XXX% revenue non-GAAP million, early delivered trials by representing clinical plan, saw QX scaling of increased multi-cancer $XX test and blood its to growth GRAIL accelerating demand expenses and GRAIL's year-over-year. operating GRAIL driven in

test in Since orders, than about has XX,XXX delivered XX,XXX received QX launch, Galleri GRAIL with alone. more

annual NHS-Galleri trial halfway recently more targets. study their to of retention point meet is than XXX,XXX-participant currently completed draw. achieved XXXX well, in trial, on with is in participants blood July and progressing The which its over half returned for The second months, enrollment ten just track having

GRAIL continued partner to relationships. expand its

one the Galleri largest Following and life of a insurance to access a its across the And of announced Manulife, expand system health US US, XX partnership serving year, XXX GRAIL Providence, pilot in Hancock, hospitals companies eligible customers. and its insurance a with seven Galleri successful would states. life clinics individuals last to offer that unit Western to the expanded John eligible it across to

pregnancies, X.X state reproductive per to XX,XXX covered about XX% the FX, year-over-year, Virginia due Michigan year. In all Medicaid to initiated for coverage coverage consumables due million in continued primarily In pregnancies and shipments additional lives adding US, NIPT X% progress. sequentially more but and increased health, declined than

QX, X% and a Disease had or record GDT sequentially. In X% Testing, consumables shipments grew year-over-year quarter. Genetic GDT,

for rare sequencing genetic grow to undiagnosed continues and diseases. in Coverage genome whole patients with

lives million During US adding covered the Managed insurance another the updated sequencing. largest include X.X states, companies of policy XX quarter, approximately Medicaid genome one for in health to their lives whole

Health, Ford improve in whole-genome area Also center, with cardiovascular with in disease can health in and particular this organization and Detroit month assess how US GDT, management, we earlier Henry a the a leading academic a medical announced underserved care a populations. sequencing interest diverse partnership metro to

surveillance. were to year-over-year, Research markets, Turning sequencing the in shipments XX% due consumables to our COVID slowdown Applied down and primarily

Looking we deliver commitments on releases some the are coming as for on XXXX at quarters. the in as year, our important financial track well whole to

in will XXXX, enrichment ship the an XLEAP-SBS benefits we assay, throughput, step-change chemistry solution, long-read of on Xk/Xk half first in ICLR and QX delivering sustainability speed, platform. affordable, the on and that high cost, Specifically, NextSeq targeted

navigate investing success we through growth, disciplined breakthrough in durable of expense Finally, environment, leverage operating through organization. are across management delivering delivering balance shareholders future while our on dynamic as focused for this for innovations a through we the

our progress capital more investment taking are additional beginning expenses rate will reduce of we cost reduction deliver Illumina To to later XX% announced increase This XXXX. as by Core in today earlier XX% well than toward roadmap. commitment $XXX on areas. the November, while operating margins as key steps run in high-growth Building of higher that margins to in our maintaining up annualized in investment announced last million accelerate XXXX, end, the our innovation actions we non-GAAP XXXX and in elements free to

I'll outlook, as discuss the provide to we and Joydeep to additional well cost on steps taking call results the reduction on as deliver now I are more the turn over on Joydeep? mentioned. detail to our details

Joydeep Goswami

you, Thank Francis.

results outlook our segment additional I'll Illumina current will and start reconciliation encourage website. of I in can supplementary include release GAAP measures today's available on review be by and with by conclude results, our you remarks found for stock-based discussing Core financial in which our the these results, followed GRAIL, reviewing non-GAAP consolidated data non-GAAP I be to then for compensation. and on XXXX. which

exceeding was billion, consolidated effects high X% constant to X% hedging. China, in up basis, revenue the quarter, down some managing of surveillance, X, the COVID-related range quarter customers on year-over-year stronger-than-expected our capital a our currency $X.XX In XXXX, the end This was the on NovaSeq net or the globally. slowdown driven shipments an of markets of first from revenue of and year-over-year, guidance customers constrained by of transition primarily high-throughput of XX% was Consolidated X. of down disruptions COVID NovaSeq fourth expected in

which Non-GAAP $X.XX of million GRAIL's operating was from net for quarter. included the loss or million, $XXX diluted dilution share, income per non-GAAP $XX

XX.X% rate tax QX reflecting in the for the from requirements. with was capitalization R&D increased quarter, of quarters XXXX, both non-GAAP XX.X% impact Our which

impact requirements was tax tax quarter our one periods, rate was non-GAAP dollar earnings. significant R&D lower expense same the in of our more due in effective impact Although the XXXX both in to terms capitalization the to

average quarter Our XXX share diluted the non-GAAP weighted count was million. for approximately

segment to results: Moving

million was million points. in the $X.XX $XX anticipated in surveillance an which hedging. compared from included On a Core of in down of surveillance was billion contributed year-over-year, Illumina million basis, XX% effects of constant down XXXX, basis Core headwind total Illumina revenue approximately revenue headwind. XX%, approximately XXX a reflecting COVID currency QX $XX XXXX to $XX QX net of revenue COVID

revenue headwind down from sequencing XX% COVID $XXX of year-over-year, million X% basis was included XXX which an Illumina up consumables approximately sequentially, Core point but surveillance.

COVID-related disruptions to the slowdown capital and surveillance, decrease customers markets pull-through I primarily addition was of to consumables constrained China, COVID headwinds managing globally. year-over-year X, earlier, transition in In due XXXX the in the NovaSeq high-throughput to NovaSeq attributable our the mentioned to some of lower customers

year-over-year. high- XXXX declined on X% X% and XX% grew QX Total XXXX from sequencing X% remained XXXX activity Clinical year-over-year. QX QX sequencing growth from and up & Applied connected Research activity grew instruments and X% our from robust, mid-throughput year-over-year. X% and

we with revenue over is reference our shows reminder, general useful across a a is installed data base time. trends that believe correlated As activity and this the directionally

Core Sequencing COVID for instruments surveillance. basis year-over-year, XXX declined Illumina of XX% point $XXX from including million revenue headwind a

helped shipments in expected, XXXX shipments although XXX QX fewer of shipments placements mid-throughput record the Stronger-than-expected by offset decrease constrained primarily launch. supply of X a NovaSeq in China. and was XXXX, As to year remain decrease to a we NovaSeq NextSeq the lower this primarily impact, year-over-year first due in partially driven compared

see to continued strong We from NextSeq customers. XK/XK new-to-Illumina demand for

by revenue $XXX contract sequencing primarily instrument of Core revenue installed Illumina was driven other on service million higher base. X% and up a service growing year-over-year,

highlight markets. implemented local regional align emerging Before to improve results We've APJ Middle better moving operating like global to Illumina, to efficiencies Turkey, CIS. that commercial with integrated I'd and a new markets for across and Core structure we've Africa, East, with

report Going and AMEA, Asia Africa. regional Americas, East, or for the China Greater forward, we results Middle Europe, and Pacific, will following regions:

delayed Revenue to sequentially driven stronger-than-anticipated and some $XXX Americas due due recruitment X expected of our research shipments. for by XXXX million and in X% for to grew down NovaSeq year-over-year the QX large exceeded region in COVID was projects. X% decline the revenue from slowdown the expectations surveillance Research,

up instrument We year-over-year. continued over Americas, strong the demand to Xk/Xk NextSeq XX% in shipments see with for

on shipments Growth NovaSeq a Europe revenue or a of first the X year-over-year, the revenue led constraints currency X% supply more by decrease than of X% hedges. million surveillance constant net as offset expected of instrument on decrease to $XXX by decline testing, was in as high-throughput basis, a due in Clinical, well quarter. represented COVID lower effects in oncology the

a currency $XX of revenue hedges. decrease China last instrument and persistent decrease sequencing This funding and net resulted of mid-throughput revenue Greater COVID XX% liquidity driven year-over-year a primarily The lower the by and or in was on in effect customers. a shipments basis, year. our at decline of million disruptions a constant XX% year-over-year, consumables to represented decrease compared constraints

We the mitigate year. will monitor in and continue to headwinds through market closely the of rest China

revenue $XXX or XX% effects net on of XX% a currency constant the Finally, AMEA year-over-year, million of of declined hedges. basis,

sanctions our As revenue shipments in year-over-year supply. AMEA outpaced and offset NovaSeq by affecting caused business demand research shipments, large expected, was conduct primarily instrument NovaSeq to revenue the completion decrease a surveillance Russia. in the in Japan, was the also by by decline project partially ability region a X lower in of COVID XXXX as impacted only

through expect revenue the We expectations million outlook lower sequencing approximately reflected and our $XX sanctions XXXX persist region impact for for have to consumables the in XXXX. in of

rest to Moving Illumina of Core the P&L: the

NovaSeq non-GAAP Illumina launch, year-over-year, points gross platform to lower margins volumes, of with typical decreased and XXX margin the is due which X instrument primarily introduction. Core XX.X% manufacturing by new a on fixed leverage basis cost lower less driven

gross X operating margins sequentially drive improve to through year and to NovaSeq as continue scale the expect We we efficiencies. manufacturing

year-over-year, of growth year $X operating in primarily expected containment Illumina cost were expenses million as our non-GAAP lower expenses of Non-GAAP to initiatives. than operating $XXX full up the were result impact XXXX. million a Core of headcount due

for GRAIL: Transitioning financial results to the

quarter driven by year-over-year, primarily the grew Galleri. of $XX XXX% revenue GRAIL adoption accelerating million for of

payment revenue MRD pharma As to expected, QX XXXX in partnerships. decreased GRAIL milestone sequentially related a due to

GRAIL driven trials non-GAAP $XX organization. operating clinical expenses million primarily increased and scale GRAIL's totaled $XXX million in and year-over-year, commercial continued by to investments

Moving operations and flow by was to sheet $XX consolidated cash Cash million. flow provided balance items.

million, not in in was capital First quarter did with $XX and million. $X.X billion quarter. repurchase flow negative quarter common equivalents approximately cash were investments. any $XX short-term and expenditures We the cash free We stock the XXXX ended cash,

XXXX quarter, first matured the the term notes During outstanding we $XXX repay our of to million used that March. principal in

Moving We Core expect consolidated of now X%. X% XXXX to revenue grow full revenue guidance. XX%, growth Illumina year to X% to still to including XXXX

COVID be to million these for is of surveillance well reminder, an headwind a As ranges the points include foreign GRAIL range XXX revenue approximately still from as expected anticipated rates. of a as year-over-year basis XXXX. to in from million headwind $XX exchange $XXX

an offsetting outlook Our to AMEA to from factors: three, sanctions for X XXXX Russia; drug conduct partnerships instruments; and business due our our shipment revenue NovaSeq now the impact one, lower more higher to in XXX following revenue reflects in of expectations two, than the related ability affecting increase contributions strategic our in discovery. to

approximately of XXXX, of in XXXX, the XX% remainder we As QX. trends expect XX% we ramp quarterly Core including in approximately revenue linearity revenue XXXX our total to similar and year, with stated, second we Illumina throughout the sequentially when launched NovaSeq previously half to the the we have in delivered where QX

X as customers following each COVID reflects sequencing ramp shipments quarter; quarterly Our assumptions: a of in of from a XXXX; three, kick in two, capacity second X XXXX, half revenue NovaSeq in the manufacturing the China. one, NovaSeq disruptions in including the and second as improves instrument recovery lessen the certain for headwinds off revenue macroeconomic consumables ramp half increases projects XXXX

revenue of Illumina revenue expect X.X% lower sanctions expect year-over-year. our X predominately guidance: revenue our approximately now Illumina the from outlook of Illumina Core by midpoint of year-over-year Core the at to we X% NovaSeq consumables growth revenue XXXX, other driven to revenue reflecting Russia; in instrument approximately ability higher due shipment for sequencing higher now sequencing Core a we affecting conduct grow revenue approximately our fiscal to service to contributions expect expectations; growth partnerships. For AMEA we primarily to year-over-year, now includes XX% from our sequencing continue business contribution pharma strategic of This impact due sequencing higher and

We approximately $X.XX margin $X.XX consolidated X% of non-GAAP including per in to Illumina of non-GAAP diluted continue for earnings of XX%. a XXXX, non-GAAP to margin Core operating and range operating share the expect approximately

other February for are We all provided that reaffirming fiscal we on XXXX. X, XXXX financial guidance

quarter second of the XXXX. to Moving

$X.XX XXXX, million, seasonality. revenue XXX QX We of as approximately sequential offset midpoint come manufacturing in to increase expect the basis continues for increase growth online; to a QX the revenue service reflecting new and NovaSeq sequential instruments points revenue accelerating shipments capacity consumables instrument sequential primarily due range billion Galleri driven from of $XX sequencing adoption; X as consolidated XXXX to partially a at decrease a historical in to approximately or $X.XX sequential by: sequential a ramp; revenue increase GRAIL billion driven by in by continue microarrays continued in in

approximately second non-GAAP $X.XX, approximately of margin Core approximately the of the operating of For diluted range, margin expect we midpoint operating revenue and at consolidated quarter, non-GAAP reflecting EPS our non-GAAP guidance in X% equity our Illumina of compensation-related a merit sequential These an XX%. due Core and Illumina margins expense operating by annual March. expenses grant in in increase adjustment typical increase to driven reflect

expect XXXX to fixed leverage and second improve of as ramps revenue margins of the scale half continue in the cost of manufacturing We X and base. our the operating production NovaSeq we to

are we XX% and non-GAAP of in in XXXX. to Core margins XX% forward, committing XXXX Illumina operating achieve Looking

later high-growth as in its annualized higher areas. by in Illumina XXXX. savings increase margins more will as to than progress million capital up run will reduce expenses These rate $XXX free well beginning toward accelerate cost investment

of achieve several actions. Illumina a combination these will savings through

platforms. future NovaSeq of market to of development, cost R&D to technology, new the and and including will accelerate leverage innovation the recent flow We XLEAP-SBS lower cell part modularization time for X as created the

enabling cost-effective additional will hubs. achieve at global more savings our We through footprint activities leveraging

third-party global as processes, well the rationalization optimization IT of streamlining including efforts. vendor and as estate company's portfolio also spend, are accelerating We real organization and our

innovations will products by generate company continue differentiated The that to are customers. valued prioritize highly Illumina's that

the Thank I open operator now will to invite line Q&A. for the you.

Operator

our come question with from Puneet will Souda Instructions] [Operator you. And Thank Securities. first SVB

Puneet Souda

taking Yeah, hi, thanks question. Joydeep, the for Francis,

So, us you deliver ability cadence year? the in that there, installs? as terms be of to year? to per It's could terms the through sort first increase the one wanted of increase the funnel to What but you on number just understand you're help we to in good order should the expectations assuming through see the ramp XXX continue get production just go of your And Could overall quarter your book. seeing?

I then, as at legal on operational a of distractions front an more GRAIL you execution product FDC everything, may sort question, in activist now Commission, of well. European with are cycle terms mean, I campaign ask preference has there And if above number and but of just a historically, questions. have taken and Illumina

So, any have and the or those. on the that cycle how that these here, product of wondering you efforts? the execution are Appreciate risks if separate responses

ask about peer There could a And funding. biotech been also today. then, questions I if around from that have

if Just the your Thanks wondering seeing biotechs contemplated guide? from emerging the taking impact you're questions. for into and any is of that

Francis deSouza

Great. Thanks, Puneet.

few You questions a had there.

work me it. our through let So, way

book think is the could order is question was, and the bound XXX I X to seeing around first than go going was pipeline for here And of question bound. the up? more manufacturing X reality XXX, And your be it that So, demand we're actually the and that X. the the well,

customer interest amount now I a on we're of the across X huge getting on base. in it's hands that right getting feeling our the think customers' -- there's

are X launch expected we bit, too Illumina, offerings. demand as time. customers. We're we're Clinical demand early we to the seeing strong be heard more on adopters strong seeing little but seeing into that also always new-to- customers this As you the not lag new-to-high-throughput looking offerings we're most intensive and from thought expand a among Research know, that And would from and you Clinical to customers they sequencing new aggressive

instruments, this build many ship so, the we'll of you guide expectation little as the so in to by our Xs the And by is can of we door we XX to of bit year. QX. be ahead out had in that and how we very our And instruments operations we'll up sort QX. to the continue the We a of gated and were over course teams saw, of scaling able encouraged were comfortably XX ship manufacturing XX demand

nicely. So, The manufacturing a and job. are doing terrific teams scaling

that the And take nice a we'll in to scaling get of to us steps sort and that so are the over up of We XXX. year little up XX QX. gradual QX, course to step from

that, so, the keep And to we're update, able you extent updated. guys than to that we'll scale certainly better manufacturing

eyes what what the In X terms what the a lot is going as this all of do, this we and year is is on do the a story -- of for Illumina best, to Obviously, X on are you love us, there's said. doing this launching high-throughput -- we instrument.

there's right lot like small a on that. that's out a seems And and company the involved on most products regulatory it time actually is the the vast, our part vast, it's so attention while vast so majority the getting in and the spent process of of going X terms is And focus on very reality is Illumina on, of of the and at now. our really

you companies exposure Oh, is question our question a – question, piece. mid-cap Salli perspective, and very about other just had small From you to biotech funding small. a reminded our have funding. direct last one biotech the sorry,

to this course on revenue our expect that any of have don't we material so, And over kind impact of year. the

Operator

question will next Dan Brennan Cowen. TD come our with And from

Dan Brennan

ordering could questions how early X? a shaping give year. you. from that the the far, X, book the Thank up terms you is Great. on on on color the to (ph) for customers on this of thus Maybe terms in Congrats ratio] the in existing idea the [replacement the just guys. Thanks of little of NovaSeq order start strong

we X to question is frequently Kind dramatically of capacity. the expands that, another get related

having looks they fill what like to are they appear customers the next factor? we're It year. -- doesn't any kind as how see look and of of wondering on, that obviously, a as be. the through X just So, to this gating get it? we viewing early But is going buy you Are year, to volume kind

GRAIL, got middle regulatory you're on EU mind when How and on the Thank get investors final just likely will outcome we clarity the in the that? different then, one anticipating? your And kind with for GRAIL pending think should be soon. you. that we What's most those should -- coming three decisions of Francis. of directive you've And in likely the

Francis deSouza

Great. Thank you, for Dan, the questions.

So, conversion about in an Now start it, if could mean? and to what is are a static the that over and think from the One of number that right? to really the say, today just a X. start the you modeling take coming year. few to have let's the absorbed with terms the We're as about expect excited And the XXXX strong cycle X okay, we that into And by of number add of customers ways spent could have new-to-high-throughput. there the Yes, new-to-Illumina of upgrade very what be market that. a we to next to the lot years. view from to X, are time of number Xs that to the

But let and to again that, moment. with me for moment. elasticity put But elasticity come start a I'll and in assuming -- a just aside let's

to XXXX the units satisfy take a would it. and of you could you so, upgrade we couple say, about many to also discussion there're this remember through with you And should do the upgrade how well, And cycle? it went may think the cycle how ways

back that think many replacing. capacity ratio about X, with what is start you're and XXXX each for how You the could

customers And to think it go one by the what only is them about way think we customers X,XXX we XXXX. that better About really, XXX of customer I that is maybe But are have roughly mean high-throughput to of have ours. out.

single you XXX, X. than those for can't buy so, a And less

XXX about purchase to And X. an needing think so, you can those

their so, see beyond they'll And conversion of serve that the customer you ratio. expand the course apply for and of XXX into right XXX sequencing elasticity, it doesn't sort we'll off will require if that tap again, bat to And their demand can XXXXs have then will that multiple even own base. today, which

then, want elasticity of that And right? the course, purchasing elasticity customers because into call, tap purchasing And price X on the the of with shared into, they per as sequencing. tapping associated we're majority are X we the the the the are the lower to

-- And into liquid now to testing about looking the solid the it takes customers looking that to they price so, can to sequencing, the access sequencing. are they to and of get XX biopsy price more enable knowing are the can that's new access enabled limits that research for they talking around under XX to times that a are the they have. get that customers that X spatial. reimbursement point tumor do lower oncology It's applications by experiments or the into but clinical larger customer to want fundamentally single the It's the do cell

talked will just straight people upgrading. And so, that base about be the on top numbers just I up of case of with the

the got we the appeal the that way the for jurisdiction granted get US, you last of week, in end in appeal because the this Europe, that of it expect seen get whole review appeals by around so our to two the the of decision have FTC. against a In process, at we're US might regulatory Appeals thinking expect GRAIL And timeframe. comes is towards in we that the beginning the about to process the Court of that important to terms head around a the most next year, Fifth timeframe. expedited In we Circuit year, in decisions

initially but certainly a And earlier timeframe than early so, us decision the this been maybe anticipated, the little in had later confidence of even even more gives next come will year, that year.

that winds And of legal timeframe. up so, in our expectation is the whole process sort that

while is We're we come ago, marching expect the a to that which the a Overall, divestiture we time, shortly. divestiture at the started Commission, all work down European same from continue for waiting work set we the got stream to divestiture order stream that out path.

be appeals path that And the as are the in run-in will timeframe same parallel so happening.

Joydeep Goswami

sequencing. money add And require signatures just these Typically, so fairly right, Illumina, applications. clinical, these -- I'll it's because right? tools of right, Francis, begins to your and a new even off you're actually clinical comment that market. of test high as reaches market, kick are the before tests are elasticity even available public making complex the supplier elasticity in trials those before starts it's are levels absolutely on our the the reagents, So,

Operator

next with from Arias And question comes Stifel. our Dan

Dan Arias

year? guys. I Francis, something the of to of elasticity? there the up meaningfully I X% just questions. the the contribute in year one was mean, just Joydeep, consumables on in of to explicit afternoon, outlook, it for sense on comments Good materialize growth I the the you for the gave the that expect in can the when consumables can Thanks back growth you that is half know elasticity. follow January, drivers

So, to sit on and understand on in actually allows to see and where when installation timing the trying year? overall to ramping think the that it contributing usage year it second that to you the that of half count time for just the target things about you comes can

Joydeep Goswami

that's right. Dan, exactly Yes,

QX to build started [world-class] their we the And as platform. workflow some up in initial installations projects into we to up stated, to had QX. and happen their As right, get that ramp inventory see we QX, and bring these start the to expect Xs earnestly and moving customers (ph) and we customers work to the of

Operator

And oh, moving go next -- ahead. our I'm sorry, on to

Joydeep Goswami

good. that's No,

the think that. the about answers hopefully, I X, question was that

Operator

you. Thank

will question next with Kumar Evercore Vijay ISI. Our come from

Vijay Kumar

you a I incremental? quantify Joydeep, what the Thanks this Russia guys. on here. can for couple headwind, guess, I question. is taking which guidance my had -- Hey,

at And sequentially at hundred gross sub-XX%. And We're margin sequentially. a to about XX%, I talk from XX% XX%-and-change, hit first related looking half half? you you basis it's were Core to half, the think Illumina Can margins operating XX% to like down at points. down the XQ, XX% What annual of QX the number of you when that need guidance guidance, with being hit look the for couple back what you. changed then, back XX%, step-up for in guide. to Thank the drives

Joydeep Goswami

Yes.

calculations, and calculation the So, thanks of for rapid Vijay, question, the good math.

question hit the the So, headwind. let first me on simple Russia

in we the the call, approximately year for million in about as $XX said So, in headwind full year-over-year $XX million QX. it's and

QX. in in reasons. of signaled There our as specific us are were margins gross some had Actually, for right, February. this we You're we guide down gave two sequentially

of one, in X more Xs is so told tend X we ramping of we margins the is QX. course, for the Xs. We to up, than low. course, So launch you, be of anticipated the sold just the And

to The gross tends from typically lead go to -- from QX from to you sorry, decline So lower in -- reason, as right? QX to move QX a margin sequential that as QX have other QX. Q you absorption in factories, QX, our to you

So, right? typical a adjustments terms for mentioned and as the margin -- there's of we had there there, factors operating of our In and we in -- QX, call, salary adjustments. I are couple equity promotional

a jump as to So, is rest of then overall in move course, operating the QX year. from the for stabilizes QX, that there -- one-time But you from expense. of

an being The Russia in second a margin. factor, amount of course, the a again of we impact terms is gross sold, has QX of because have of which have margins issue, instruments in we on -- higher shift in

some of offset combined two we XX%. keep getting at the that to are margins leverage those operating So,

we scale margins Now, biggest our that We had and up course, expect The second margins the really that and start X, we improve in then the you're as call half of to year. are indicated ramp two for to consumables improve on right. up. absolutely the reasons of in

high to step-up our And margins gross indicated. because operating improves, have numbers margins XX%-s of absorption that, in you in we with And a quarter. the margin. the factories each gross close sequential exit that to we do increased the XX% high leading year and in So, to expect

Operator

next Morgan Stanley. our question Savant with will from And Tejas come

Tejas Savant

for good evening, thanks the guys, and here. time Hey,

a So, on then GRAIL. and on Joydeep, a couple couple Francis maybe Core the and

nice year. Core on X you shipments what the on line versus instrument here, forecast. upside obviously were essentially with the indicated in our earlier So, But business the revenues in

was weakness So, XXX in the Joydeep, NextSeq just essentially discounting elsewhere Or EMEA China? sort greater-than-expected the offset such shipments was the there math some with some like the portfolio? of the there, in or

to thoughts NextSeq, the where to price need roughly competition bring next the any a you point gig. on updated for year? is The at once Francis, on that GB land you per on XLEAP $X.XX platform Second, you,

higher Or here? inertia the you to a that be $X.XX sort given is to of fair it do than could $X.XX even So, switching think assumption?

are the walk a under how which claw the on or scenarios instead? thought And then, jurisdictional asset? us you what an I asset committed mean, on lot back that mean, could just the sale question a you. on put really, another GRAIL GRAIL you you'd get the divesting share process. for Or via could way, I to essentially win that decide some such? appeal European you through is color Commission keep Thank IPO and is it So, get that or we you the to fine? Should what premised

Joydeep Goswami

Yes.

let me the instrument first. So, question answer

the the due that China. were offset increased the NovaSeq And primary happy terms on was primarily shipments, So, offset of supply call, reduced was the and mid-throughput as XXX that was instruments, to And yes, we in cycle. mostly X. instrument with we mentioned in of in again the our

In We're any we both want that in the consumables. we terms nor our a differential seeing carefully. prices track, very be not pricing to clear, of and I pricing, expected for track prices pretty the instruments with decrease

are had exactly be. we they at where expected to them So,

And was, it the to think I was GRAIL question next or... out

Francis deSouza

But you next XLEAP-SBS be XLEAP-SBS was to come and to on question dramatic -- of the impact put question where back see the with about NextSeq, I'll improvement because NextSeq, Tejas, that's see I'll could you'll actual and quality an associated with price so, your jump NextSeq? NextSeq number the and maybe pretty about a when -- you the are need you'll sustainability big chemistry other for because So in when the a performance sustainability consumables. benefits, terms in of so also a you shipping a chain our the big savings of cold and proposition value the product. for in of terms chemistry, draw really customers, that's XLEAP-SBS that's the our right? customers on. don't And the capabilities, And of what on obviously was. as know, And of in, we then, One, in you'll improvements. see points The you'll talk see that improvements

it in how price our perspective maximize we're can we enhancing our but the price, market we to is the price the and opportunity. such of not perspective we now, want right that is Now about terms think --

about, to prices sustainability talked additional compute our But features NextSeq. in down. into that the products onboard also clearly, market, the built bring we're but the have, associated going I only FPGAs the just so have we with And capabilities, uniquely not having the

We compared in market. is other also onboard the optimization, instrument also have to Illumina's to mid-throughput any unique the which storage NextSeq

the we're will to also additional be And what around instruments. we that the we're provide so, calculus pricing the but our down, in part it opens going to value in the prices going ultimate market mid-throughput the what most the up and be And the determines recognize bring of will that segment. is,

GRAIL, -- scenario and keep your divestiture pass-through about around of do so in divestiture GRAIL. is terms what's the answer question In the you to what then

So, come the out the order pass-through is, the divestiture. the shortly, structure divestiture that divestiture obviously, will will of lay the process and out

year we the we already divest timeframe the a in early appeals parallel parallel, shareholders. we'll with to two with have we'll that in the appeals, forward year, best and kind appeals play Commission, engaged If And the the are We divestiture again happening. team, that's we team lose In this of going. out late move with of next either have the promptly expect that our of European process. the in in that interest

it. a appeals time, compared that and look scenario sort did keeping asset win to at we what we case the hold chance it we would Under sure and, assumptions we at make that the in business in that keep divesting of terms the both have of towards sort us the of it? If

scenario would asset keep And integrate. so we the under be the that would and which

Operator

question remarks. call Morgan. closing And [Operator to shortly, J.P. comes I'll be from Qin Francis turning Julia for the over with next back Instructions] The

Julia Qin

taking question. afternoon. Hi, Thanks for good the

margin First those think end targets, regarding by or 'XX? numbers, operating do upside/downside efficiency help And in-house can the end you manufacturing assume scenario? the us by NovaSeq you 'XX your the X that your of in about full off, reaches of

after R&D think structure? the elaborate you [indiscernible] could efficiency, And for you that the on and product implement improvement magnitude if in of new new about R&D before I how wondering to

any offset China. then, wonder if you you. seeing [indiscernible] the more you government are signs of And you Are here? any lastly, recovery stimulus? from on can Thank And I comment seeing

Joydeep Goswami

Okay.

let margin me the So, Julia, me -- target question. operating let take

I two there So, there. are steps probably think

of a reaffirm margin I at XX% XXXX, the For to guidance of offsets we We our that year there. for couple operating see Core. still are want for

year, for for million year. the about number seeing $XX to Russia due from of So, course, some the are we again, more in instruments the of offset the

our will So cost by further gross we productivity for manufacturing, that impact some on which have do be that, expect from course, a margin we further hit, of efforts introduced. the offset the and slight of reductions

your We we In the efficiencies, terms achieved will X think manufacturing have don't stop we that end we of of do that the will instrument or outlined. the expect year, there. efficiencies had by initially efficiencies the

further continue as As subsequent we instruments, into we go efficiencies of done our years. with we to have all have

three see of year manufacture. those we will you two, continue So, to into get that as progress efficiencies

In And of we cell and effort from R&D of per it's Xk/Xk. terms course, X and platform areas, right? spent coming modularizing us subsequent NextSeq even So, a beyond, of new and the and from really of allow XLEAP-SBS technology a innovations the side, this in R&D really of talked to as part R&D part spend is have our radically couple flow efficiencies the we of the and time about, accelerate and so that to reduce for platforms like their market. the innovations the lot

in you'll you So, but this in 'XX won't see this see XXXX, beyond. and

our we leveraging also are some global And more where footprint so in of then, streamlining our R&D, doing cost-effective hubs. we're

portfolio, our that and activities IT -- also for our is our organization this And So, well. functions. estate us then other but processes also streamlining those rationalize of allow real R&D, further as global lead spend to kinds for our infrastructure and to

towards this starting through the really XXXX into we coming place year, that see of go as but you'll again, end into beyond. and So, kicking

are for China, finally, seeing in China, business. And at our any least we benefits in stimulus of the not

mitigate monitoring are at customers steps challenges. We of are our of closely and the China looking funding of some taking in to terms some these challenges facing

Operator

from question with Sandler. Westenberg David a Piper have we And

David Westenberg

on congrats and questions, the NovaSeq taking for X big you the Thank Hi. placement.

had those kind stick of the those can customers their X. any finish placements. projects of to before decommissioning Have old starting Traditionally, XX any want XXXXs? I started their So, you customers on on of

of they've Has a switched Now any between orders might this even on you you have get of to dynamic. Thank already really maybe sense you changed? behavior consistency very Just Have though XXXX trying that have really platforms. to seen much. kind X? any on good subsequent

Joydeep Goswami

Yeah.

question. the Dave, -- So, thanks on for

transition to they the so intending, not of intending will and on Xs, think on not are -- projects they side, they a NovaSeq NovaSeq clinical their XXXXs. our right, the decommission I especially time, customers, their you're are right, majority over

initial of we a And base we the the provide online. customers XX not into terms continues year, inventory or, will decommissions tracking QX, are into XX as come replacements in set to updates QX from as installed XXXX, smaller the be evolve. expect we -- just of inventory, about how to again, Xs into set that For But and decommissions those more fraction. XXXX of get we'll but

Operator

from next take will question with we And Kyle Mikson our Canaccord.

Kyle Mikson

Great. X Thanks and questions here. of congrats on Thanks guys. the launch the taking for the

of HiSeq two those with one in kind 'XX, following single year 'XX X. or and the strong meaningful was But growth digit. 'XX, were signature launches. was the me. were setback, one the revenue question has Historically, with elevated 'XX a XXXX. growth in for the 'XX solid company's of Just 'XX, been

would the kind driving NovaSeq outcome? of new more headwinds the had about anything kind you could launch to products growth? a Illumina there Or be stuck and in this now dependence different X lead of is near-term you So, Because cycle than have in past. that perennial on

to it helpful think I would Thanks. understand. be

Francis deSouza

market. a say they catalyze Kyle. important an in market of One, there's product cycles One, more for upgrade couple I'll typically the make. of obviously, I'll and couple from are cycle points question, our research quick a Thanks that that perspectives. maybe Yes. -- in that's

terms the one But is growth market I'd it's historically, growth, in the been of quarter, in drivers big clinical of our of as because near-term the out of growth revenue driving very a are market. market. that's consumables XX% the so important And growth a to coming be just but from driver pointed research cases. going last of say use clinical now was primarily our we

selection And more seeing seeing fact tests the so, runs in therapy growth grow clinical uptake to our of with more we're customers monitor oncology that about or testing like we're continued markets of strong the that's we NIPT we segment coverage. or coverage the increased from because our proactive disease continuing that genetic just talked clinical associated

in a the so, clinical come just cycle. is sequencing more from And as of a necessary you look growth upgrade to forward, more going significant adoption driver straight of market than so

Joydeep Goswami

cut right? the system from will thing be will what other, to the one customers Kyle, just you add, from consumables think I a transition we to see over traditionally one as see little one more to from a bit other. right? little of There system of bit a

But right. think don't be avoided. that I is can totally So, Francis

So that much customers right? see customers, clinical with tend research than to You mitigate. will more that

Operator

hand Thank you. will over Q&A deSouza. the to back call And Francis now that concludes session. our I

Francis deSouza

joining for us. you Thank

still population, dramatically and important representing we we X.XX% biology also unlocking an era. close only the This only genomic of delivering reduce the breakthrough at broaden DNA new genomics, that our genome today of beginning And innovations of with played the our role sequenced, sequencing discovery anniversary in call, the structure history, is yet X Over the in month revolution frontiers As Day, the costs million has today, DNA. XXth anniversary. and is access by healthcare. of celebrating double the to team of genomes ever Illumina's are the XXth helix

look We conferences upcoming you our at events. call and other seeing forward That today. to concludes

Operator

does thank for That Have day. today's your conference. you. do participation. excellent We an conclude you Thank

Illumina (ILMN) 25 Apr 232023 Q1 Earnings call transcript