ILMN - Earnings call 4 2023

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Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2023 Illumina Earnings Conference Call. [Operator Instructions] 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.

Sallilyn Schwartz

Hello, everyone, and welcome to our earnings call for the fourth quarter and year-end 2023.

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

and be at the will and illumina.com. Participating Thaysen, Executive can of Relations be Corporate release Financial Chief website Chief our for Officer; Development earnings Officer. found Chief Investor in section Jacob Officer Our and Goswami, Strategy Joydeep Illumina today Jacob an the update state and Illumina's business, GRAIL. will will which review include provide Joydeep our on of financial results,

activity the must independently transitional regulation. This GRAIL and reminder, the be Investors Commission, by from measures pursuant intent be will a during under portion will statements today's operated under and the audio held financial forward-looking the protected the Reform our Litigation As separately call prohibited Private the our commercial Illumina to ordered GRAIL website. It our recorded, XXXX. acquisition European section which and that in is Act of made all being is of our merger be call regarding archived EU Securities and of results

Jacob. to Actual to results I will upon current Forward-looking Commission, projected now assumes forward-looking risks the To based the are are better materially these we events Securities statements XX-Q update XX-K. With that, and or including Forms information, and discussed. understand and to and could those to differ may cause and Illumina's Illumina turn subject files no uncertainties that call actual available Illumina refer to Exchange that from you statements differ, documents with most statements. results All or risks over obligation the uncertainties. recent the

Jacob Thaysen

afternoon, Good Salli. you, everyone. Thank

on with collaborative and their In this priorities, their little a as customers focus ago. to know, relationships. feedback time, has months I understand my you As Illumina more X CEO joined part develop meeting of been hear over

forward. want in whole ecosystem to Our our customer partnerships and to us the highly and strategic NGS work move with of they solutions, Illumina thinks

future for what customers Now that it to has that easier GRAIL, their we and looks Illumina. These inspiring. been meetings announced divest have like been our instructive we have with plan will

part see During my and we recent accelerate trip working are to effectively the to our and whole governments community genome safely Europe, care. learned diseases model fully with standard was understand to genomics and integrate to broader and beginning of in year. firsthand that I've genomic how the system the also able a sequencing aims about project adoption health more I of there customers, as cancers comprehensive Germany's testing this into QX rare care to

of agenda is my for expected, delivered a business. XXXX to talented the billion. we conferences. was easy the continued year-on-year revenue NovaSeq of sanctions consolidated has challenges a of prior backdrop was and revenue from leadership I their year of higher-than-expected XXX many many the global impact reflecting importantly, XX although are been percentage with Illumina's declined was who down year remaining revenue that a challenging to $X.XX our committed genomics our hallways decisions. In We having and to X comparable. These customers year-on-year conversations opportunity Russia. continuing Greater EMEA included X%, Europe revenue, on the local year-on-year. competition ecosystem. I've we geopolitical also dynamic up to and amid business mid-throughput. out XX% build and employees flat headquarters are several China ended history. XX% in in product in relatively driving than in was core quarter, the offices, macroeconomic with we connecting recent investor X purchasing above XXX with confidence a Americas have in had shipments, revenue point approximately successful fourth saw our of half which engage most our XXX that NovaSeq constrained innovation more our high-throughput my Within reinforced been in informing year at Illumina. an also you the launch

to yield taken are before, our there customers We've Illumina. are As already to results. beginning and certain I've strategic pricing China noted important actions and that other

share we our And time. Globally, expect results progress more will similar over continue to remain look expect cautious. on customers specifics will our we to to very there for We XXXX XXXX. now,

a headlines we through in macro our some our have While take you Joydeep translate guidance haven't are and yet reflected more investment that in seen our increased it guidance. therefore, industry will in few encouraging, in minutes. to details not

the committed accelerating the environment, management control across I and value external to team cannot we remain While enterprise. creations the

and on continuing will My year in out discussed grow first market is believe position you that with our these key priority, Illumina X accelerate shipments. laid growth priorities and I aware, As profitability existing centered accelerated top customers driving I pleased installed for we helping I and as how are have new improve. base instruments are first earlier of X of conditions our utilization to NovaSeq the applications. line,

XXXX, throughput the the significant growing customers. customers primarily throughput large residual placed expansions the and in said, MRD. XXXX, or new instrument in We more XXX from NovaSeq minimal placements X With XXXX, high term, we applications of XXXX. believe instruments orders and this as will NovaSeq XXXX. In support high-throughput fewer conversion projects high number high-throughput sequencing-intensive of we more that X, multiomics, given to disease, in will from like NovaSeq across and from more base biopsy throughout we broadly, ultimately and customer anticipate shift XXXX, For instruments launch ongoing installed than XXXX further we long to coming customers fleet liquid

significant X and the time been XLEAP-SBS As cost. engine you're turnaround our aware, delivering chemistry quality, for improvements in platform, has

instruments leadership mid-throughput progress will offering as XLEAP we spatial This and our having to in their under upgrade our drive making single world such instruments. around proteomics. existing XXXX customers without available cell, further markets be to NextSeq will strengthen quarter, the XXXX, and This position

efforts January, and build develop grow demand this momentum off. for In we launch will growth on consumables supporting This QX, we ex will they XXB kit. XXB the in our our as kit, projects. allows base, More cells, year to flow of installed As the rating recently, consumable customers. to paying with demand is of we late focused saw a and XXB higher-than-expected the much Already, forward. this together following our to offer sales remain in we which, us X NovaSeq customers the new suite a products October launched anticipated X.XB full going launch

consumables NovaSeq building drive While throughput inventories customers on X, our we will XXXX their the will to high they to reduce transition continue NovaSeq this see the X pull-through year. overall of growth consumables as

innovation P&L, on applying by priority. growth. second focused operational greater while excellence and my sustaining delivering to I'm Turning throughout rigor our

multiyear optimize We cost on additional additional our focusing savings. global improving through margins we productivity to further and launched effort January, a pursuing action workforce. our an have In took greater areas for

year, made the role approximately reductions totaling past we Over cumulative XX%. have

XXXX Our our most recent actions optimization aligned we an late portfolio included efforts. with adjustment that

only growth returns taking continue to steps our and but support and not a throughout time. Illumina to approach us to margins and macroeconomic range take deliver over cost partners see You'll also a employees our agility highly environments. to disciplined shareholder of is more our to manage build near-term deliver sustained to customers,

through. with we the have actively order. To Illumina, In speed XX divestiture Commission's third announced I've my with make forward GRAIL. as as help Since GRAIL this path. imperative quarter on move made of progress. encouraged the to is market both process with an of by been December, entered QX quick date, move GRAIL priority, to we continues established we the that I'm sale capital the Advisers momentum committed to be executed resolve divestiture European XXXX to SEC. parallel Moving third-party Board joining and capital with, working swift transaction special consistent a this are Form to year. possible. sale GRAIL's or ensure the transaction, the with end I'm to terms would forward confidentially by able which it the finalizing been of moving the markets The committee we continue We'll filed our pursue process of seeing goal second to will The and we've through path. in on a that divest efficiently. has initiative the

For will more for on Joydeep our XXXX. outlook results detail for to now, ask and XXXX I share our

Joydeep Goswami

by X% our which was then XXXX. these or reported with I'll on our fourth data of both revenue supplementary currency be of Non-GAAP from core operating million the conclude results, billion reconciliation for for I'll today's constant in includes measures, non-GAAP year-over-year, GAAP revenue income stock-based the discussing non-GAAP the the compensation. quarter. flat consolidated followed you XXXX. higher $XXX Thank basis. was can GRAIL's for and encourage per margin $X.XX $X.XX you, $XX the expectations, Consolidated to third quarter non-GAAP review by results of Non-GAAP our up and was which found and outlook website. In net Jacob. revenue results exceeded EPS quarter, financial on current start which diluted for the dilution in and from share, included be our lower and and of I consolidated GRAIL, available by remarks million gross expense release operating loss my Illumina driven quarter. a reviewing segment on

and non-GAAP to year QX Our XXXX. XXXX was in full full XXXX XX.X% tax rate compared and XX% quarter XX.X% the XX.X% for for for year

of was the rate both due to impact capitalization more requirements, XXXX our impact to significant reflect R&D tax earnings. in lower Although effective periods the our

of the both meaningful GRAIL's for consolidation rate tax from Absent a losses. impact year was tax non-GAAP GRAIL, our our the mid-XXs. full addition, in In years core XXXX include rate the of impact

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

of in pricing sequencing NovaSeq revenue continue consumables flow currency revenue effect together included approximately year-over-year of categories: an due X flat in results. consumables anticipated as by X year-over-year placements, QX. transitions cell with in that for X. X reduction XXXX the to of Moving consumables percentage strong the customers demand points were and the the on percentage impact launched X% was sequencing purchases previously Illumina $X that that revenue X year-over-year. Stronger-than-expected $XX the X was NovaSeq China I offset in of Russia million Core up decrease anticipated adopt Despite an early quarter total stronger-than-projected fourth the impact to of X Total points and uptake these and continued consumables constant in QX $XXX largely XXXX revenue percentage primary that customers' and X reported noted from impacts, expectations $X.X in NovaSeq surveillance revenue core contributed Russia revenue basis, sanctions Illumina reduction macroeconomic compared surveillance consumables factors as was exceeded both China XXXX. COVID XXB reduction also to one, represented by Illumina of in NovaSeq the as a in COVID segment approximately and in purchasing well QX approximately behavior. conditions million impacted and million billion on to the COVID, represented points. Core two, approximately

sequencing high grew activity QX. connected to year-over-year grew the quarter reported year-over-year from QX. in XX% Total XX% activity. on the mid-throughput Turning sequencing in we our following Sequentially, instruments XX% and activity growth QX

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

instruments expected grew competition shipments million mid- as purchase in in NovaSeq as by decline our cash revenue $XXX XX% X, local more primarily customers' core due to to Growth than the Illumina and offset high-throughput partially driven continue that offset capital purchasing NovaSeq by flow decline shipments. of low-throughput and behaviors year-over-year impact China. XXXX constraints in which was Sequencing in for QX, in instruments the well

QX XXX launch. X, NovaSeq with we For orders exited since

base in instruments to QX Our brought our X shipments XXX installed instruments. total of NovaSeq XX

While XXXX are in most still transition over NovaSeq NovaSeq very our transition. we we this X time, expect early the customers to to of

XXX As been deactivated that base between of our of approximately The installed instruments NovaSeq X,XXX majority was XXXX XXXX, these due customer the which net instruments, transitions were NovaSeq X. XXXX XXXX in have XXXX. to and approximately to reflects for end of

ramp as to XXXX We NovaSeq X. utilization of up this in increase expect to customers continue

modeling. forward, going on since accounts slide included to annual instrument this your help basis, we be net decommissioned Additionally, inactivated information with details on our launch. base for been additional you includes will reporting The which or figures instruments a installed have that

We Investor growing from XX% other of and Relations base. and in sequencing revenue our Illumina posting instrument a year-over-year, presentation to our service prepared remarks. Core service this website will revenue be million higher was on driven following $XXX an installed partnerships strategic by primarily contract revenue up increase

of of rest P&L. freight year-over-year. installation a the Illumina the primarily primarily lower-margin introduction, with of the and launch, operating continued XXX basis Core non-GAAP mix by year-over-year, lower field by new $XXX million Illumina lower partially NovaSeq stock year-over-year, due margin X for lower which XX.X% performance-based expenses of reduction initiatives partnership offset non-GAAP increased expense driven compensation services Moving revenue, expense decreased due is million to were platform costs. points margins instrument typical quarter $XX and gross and the to Core Illumina costs to strategic core down

factors financial primarily revenue million results As operating of XXXX to a by revenue, XX% result operating XXXX. Transitioning quarter to for year-over-year. margin of was XX.X% core and in compared non-GAAP expenses adoption QX GRAIL these Illumina XX.X% non-GAAP for driven million million QX $X $XX totaled higher Galleri. year-over-year, $XXX GRAIL. the GRAIL increased of in and grew

investments. operations in Moving sheet stock. expenditures We million, cash flow $XXX was approximately $XXX ended to balance million. items equivalents quarter. provided and not cash consolidated Cash Capital short-term billion We cash million. was were repurchase flow quarter the $X.XX by cash, and common the any and with for did $XX flow free

now to guidance. XXXX Moving

to to of continues divestment, the uncertainty timing on focusing and the the GRAIL, is around outlook as Illumina resolve core possible the GRAIL Illumina. as its given XXXX financial As impact quickly specific company move

does for the the XXXX. any assume Upon year the guidance XXXX. divestment, of in Our potential for full we EPS not will of non-GAAP guidance completion provide impact divestment the GRAIL

impact As challenging and XXXX, the to Jacob in macroeconomic persists our assumes tighter funding pressures budget our environment outlook decisions. and customers' current purchasing mentioned, continue

We approximately offsetting the factors. reflecting be XXXX full flat XXXX, year revenue from following to expect core

customers in to adopters We Illumina driven XXXX. expected XXXX from placements. curve high expect sequencing decline primarily the X early adoption to reduction in a The early to by decrease in NovaSeq majority entering lower revenue teens core year-over-year backlog and reflects transition instrument the compared instrument our the

expect also XXXX. capital purchasing in impact and constraints continue cash to We flow instrument moderate and to placements behavior

outpaced single the driven the modest We primarily expect year-over-year, and core consumables impact volume consumables in transitions. high-throughput NovaSeq X consumables, in pricing low grow sequencing in decline increased by Illumina sequencing expected consumables and purchases NovaSeq revenue to as of digits the XXXX growth

to pull-through. Moving annual

pull-through installed Going the on based forward, figures we net will be calculating and instruments' providing base.

information As included Investor to previously, will our Relations following modeling, supplemental I be with mentioned which presentation to earnings remarks. prepared our in is website posted help our

not does in revenue reported this Importantly, way. change any

transition per pull-through approximately to continue annual for $XXX,XXX of XXXX NovaSeq to sequencing as in customers X. to expect XXXX, system We volume $XXX,XXX NovaSeq

of lead NextSeq on for pull-through becomes to XXXX transitioning customers XXXX, annual as the to XXXX, in it $XX,XXX expect range We NextSeq which in per the X $XXX,XXX system of primarily chemistry reflects XXXX. available impact XXXX,

for pull-through range of annual expect $XX,XXX. in We $XX,XXX the MiSeq to

remainder our in ranges the be historical pull-through of line with expect We to guidance.

approximately revenue Illumina intercompany We GRAIL This expect includes core total year-over-year. sequencing are of to be approximately to eliminated consolidation. flat million, which $XX in sales

core We expect Illumina margin approximately of non-GAAP XX%. operating

operating expense improvement of normalization our of of market-based as well by increases. initiatives benefit reflect merit inflation gross and the continued expectations compensation and the offset as performance-based Our reduction margin margin impacts our

following a of of by quarter Illumina driven year-over-year reflecting to core first in $X.XX the we decrease the factors. predominantly X.X% For the billion, X.X%, $X.XX to XXXX, expect range revenue of billion

with we that given XXXX year-over-year shipments instrument compared X. entered X backlog book we of a the NovaSeq significant are to modest NovaSeq the launch lower preorder expect more We following entering XXXX

X We anticipated be in to QX. expect the XXXX consumables in increase purchases transitions the of reduction largely and consistent with trend consumables pricing NovaSeq NovaSeq offset the impact we the saw in year-over-year by

base. installed We a contract by and expect and initiatives service sequencing revenue on revenue strategic instrument growing other in partnership service higher driven an year-over-year increase

core For first the operating approximately margin quarter, non-GAAP of Illumina we expect XX%.

balance it remarks. expect in year-over-year lower we repayment of back Illumina million will Thank now following for driven core approximately our our lower you. his by expense convertible quarter, $XX income first Jacob notes on the primarily mid-XXXX. I turn to for closing Lastly, over interest the other with net increase non-GAAP of the cash

Jacob Thaysen

Joydeep. Thanks,

looks and Q&A, and next-generation forward. to opportunity we want the Before both this believe to discuss the move what has years I success I close like, Illumina to sequencing year the ahead. ecosystem drive truly

We adoption of will and customers, to seek greater partner with and out our deepen drive ways to our NGS. relationships greater them with collaborate

and to their to and capitalize our make and them in expand research and as they to position is multiomics. markets. in turn, Illumina goal the clinical market-leading In differentiate help labs genomics this innovation our across work industry-leading Our continue maintain heroes our their customers will support and

innovation our customers' solutions. build to delivering also our our There We drive greater includes workflow our will evolving that customers' This as for value opportunity an greater sample-to-answer sequencing to continue and focused integrate priorities. on platform wallet to is share of is create we further customers.

be operator the with work you later you part to for Our is unmatched comprehensive open strategy more I'm year. driving to Illumina's business share team the Q&A. now of we leadership line Thank that excited and our core underway, invite is joining. I'll will forward. this for well

Operator

Our come Research. Wolfe with Schenkel Douglas Instructions] from [Operator question first will

Douglas Schenkel

I seeing year. field in chip the release want the the XXB entering early ask to and just the about what of part you're

you genome it to XXB per the cost fully $XXX, about As cells. customers enough the requires reduces also samples but to know, flow run have to use up to

So what have access are to the signs field did consumables? availability? And How on What's that you move what X seen QX? you folks trend to that not in of you the is first spending see months few the XXB? in -- relative sample problem a seeing as are

Jacob Thaysen

question that nice And there. Doug. Thanks, one was

we've that launch So XXB the start in since late pickup pleased very by the November. of let me the been with saying

well it's fact, our the of received kind by over In expectations performed have very customers. and been

but performance we the we course, really of continue to of to will drive completely wagon customers on the XXB jump full that to expect instrument, more have unleashed also, the to also the that the it's and So now continue here. thereby, of availability X expect -- this performance, the will XXB X

to able it. being customers I think we load are seeing

doing are the to that course, validation enough seeing but flow load have they big are projects we Of still many work, cells. them of

Joydeep Goswami

X have far quick so one of XX% the right? our just And adopted About maybe customers Yes. add, XXB.

Jacob Thaysen

Correct.

Operator

question Puneet come next our Partners. Leerink Souda And will with from

Puneet Souda

So to growth do the installs. is is just low challenging There's too. of then X this maybe get mean lower. single-digit continues point. backdrop and us up happening the reductions how following just database the in I obviously from help rate per There's challenging, -- understand on sort market XXB. to that Cost you that just are year. China be

details if a continue little of of do single-digit confidence sort have maybe in sort the to would of So you're spend could you and that really And the Any I GRAIL low you how context progress us interest talk are to What's growth about finding? what you consumable contemplating appreciate level around rate? And provide there? some the well. sequencing GRAIL year? around this on as just us bit for

Jacob Thaysen

All as right. question this consumables Thanks have in start our me for I'll on latter then Puneet. that, pleased here we in I the expectations about progress we But now the with we that of by here December very GRAIL, let part are very chime Joydeep and sure, with And on that growth. for mentioned, GRAIL announcement made far. so I'm are actually the and divesting pleased

in our and advisers We relevant the [ ] connection really moving now with parties. conversations and have ahead in

run can market it capital We track, a be initiative via or to course, are a dual continuing a of transaction.

QX. And time that so -- we previously we we have talking by be have of still were finalized We the about terms expect track will all the with on end to would line.

on not this expenditure talking So year, we we are having are not this about are for expecting we GRAIL to -- we're GRAIL the year. finish guidance since this with up -- any at point,

Joydeep Goswami

elasticity, saw Puneet, digits, and And flow question very so let that the start driven by by quarter in to for in of We're sequencing second being on quarter. good. XXB right? a the activity uptick of see growth, customers, me uptake now the We the we both consumables about that cells were to XXB low saying single sequencing by pleased saw those row. X fourth activity Yes. in the are also growth we very the the encouraged address So your underlying

broad-based. growth. And it's It's So and quarter-on-quarter year-on-year and clinical again, customers. it's both research

expected price from were XXXX growth consumables, pointed in out, saw that to customers those moving the as X similar of in switch the other, in transition the XXXX. is really course, the right? the the So or leading to one in you consumables some growth XXXX very of the the the rightly X. to what's consumables This -- you lower the as is to -- that reduction what's move from to So rate as transition on and customers expected low again, XXXX -- expected offsetting HiSeq you big is when then, platform piece NovaSeq single-digit price from

Operator

Vijay from And Kumar ISI. our next question will Evercore come with

Vijay Kumar

S-X what are this is like exit see capital would to we're S-X. $XXX QX on be is I GRAIL's QX, at two-part consumable reason at very XXXX, kind ask starting a It's be had is a operating Joydeep, with I on those to million the range? the spend foresee market GRAIL. levels, I And the assumption And the that that $XXX,XXX public? were on pull-through, so question cadence curious GRAIL. was to assumptions there I NovaSeq made the end? high $XXX,XXX losses know When confidential hard a a end transaction of will it And last year. we perhaps, of low really on

Jacob Thaysen

Yes.

I let's start now, in into to be is late information to filing with obviously, and all Right the provide public So available you as don't will as And QX, we'd here. possible. you think dripping much the QX maybe question. say, it very confidential, of before as like GRAIL

think I at we as available, that's you it's make So we'll where as this. soon But know. are sure

Joydeep Goswami

want I Vijay, sure. to then, be And

sorry, how -- numbers through NextSeq pull-through asking NovaSeq XXXX You're XXXX the modulate about they year? and

Vijay Kumar

of end start the assumption low Joydeep. end there or high the exit range? Is high above year Correct, end we the at and that an at the

Joydeep Goswami

there No, isn't.

of amount consumables an the of quarter, in number terms -- quarter in total I will installed have so So that. the don't more any divided of a right? we of sold by in now the pull-through, think, is again, active I and calculated number, spread it's assumption reemphasize, the quarterly base on

Operator

Dan Stifel. from question next with our come Arias will And

Daniel Arias

clinical own big just about these are just watching be the Jacob side are X labs of a tightly XXXX or things, that to their part to and Joydeep, transition of that margins of trying find commercial efficient. the to pretty and bucket thinking ways sort on more

could sensing do adoption of the advantage that, see know are cost but like faster It also normal the they're clinical that those wheel in environment folks X order maybe take a spins you So maybe seems in savings? I than to for you to in slowly. incentivized that

So I'm just factor sure not whether for that's them. a

Jacob Thaysen

Yes.

hypothesis course, it's relevant providing Of come a that with. we seen with and bigger expand most the panels cost clinical on. in of What customers opportunity actually using the the lower is sequencing, depth to are our so have of X to of

of is might continue now, panels on that right So the they we're not drive have XXXX also the the assays X. there. And seeing continue thereby NovaSeq to what XXXX and that assays current possible most the of on be are, cost the due the validating then volume the or to been run new on in new many to and so to

of order labs now NovaSeq of also about We've encouraged customer specialty our quite several seen we're tens that. X. So

of a here see So going forward I'm will encouraged we that lot this. volume on

Operator

And come our Nambi will question Subha with Securities. from Guggenheim next

Subhalaxmi Nambi

has You XXXX The to R&D spent $X at X% in XXXX. billion about relative revenue on CAGR. grown

grown allocating? in over the Can levels dollar Why terms you However, where years? R&D spend R&D spend has X from can't current is you reduce or CAGR. the X outline next XX%

Jacob Thaysen

you. Yes, thank

period said a thereby, we whole whole ecosystem we in here. what things be pipeline as in excited over NGS Illumina continue the out NGS to of said, of are -- believe make of in of coming continue We but we the we You're -- order to thereby And forward. drive a is that the that. even lot there next opportunities I the there's is in previously multiomics, required, is investment of I also innovation right into here have of one things stages and about that really investment thereby, and that was from that in running that to one into to will time the we right of innovation I that R&D innovation believe also continue now the lot early the

looking right in required, that versus and an that is also We a revenue increase there trajectory R&D, down. over start investment level but years to high R&D will You're the certainly percentage that in you has been time. will over change the that next believe spend still of to see come here we're

Joydeep Goswami

strategic the R&D had Just Subha, longer in -- think of last payoffs we matured, we have as And time terms portfolio R&D we overall have as risky. our of that areas longer very It's been I specific et medical or on to they customers. certain support like -- in much that also to aspects we over And considered there the more year. been add, affecting to back made reductions doing without we affairs, spend innovation. in cetera, were includes have investment right, have able pull of

Operator

And we'll Stephens. take a question from Mason Carrico with

Mason Carrico

I opportunities, mean conversations remain opportunity So shipments, the potential and through come around expansions? orders of an those for whether this what have how high-throughput customers the you're who already portion about have already purchased an fleet talk X, many could or having it's year? you

Jacob Thaysen

Yes.

customers a more our instruments. X consider mean, lot of high-end I certainly high-volume I X, starting purchasing we X NovaSeq or that see think, started the to buying is customers,

So But want in assays front big into real on. use the is they're to X validate of mode, And thereby, opportunity additional Xs expand to production us. still to using very and first run gone actually then they a have there few -- the few in into customers production.

mentioned, of I an still have But so also purchased have high-volume our think customers that that of purchased far, so in now high-volume there. instruments. X as or opportunities XX less some X I a than the for X customers lot think there's half have orders of put

to in the we're opportunities here, stages, both of very early there think still should a in and lot I more So drive and placements. be 'XX 'XX,

Joydeep Goswami

add, see those we flow really, and this fleet to there, in expecting just in, weren't the expansions launch XXB do of before innings cell, to So I'd we in that right? the expect see come early very you're Yes. year.

Operator

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

David Westenberg

that? of going ago. spatial And of competitively? then things pursue bells do a $XXX of you of A competition you the on some saw Ultima, and years genome, the a platform. price How -- look at better for coming on some specs stacking that strategy How we your couple of like significantly and with you $XXX a one couple than the actually in. up it the see do key on the hit AGBT, combination I'm whistles? against Would stacked to did different some of example, sequencing feel

Jacob Thaysen

seriously. Yes. multiomics Thanks, heard everything course, on But of me of take in our course, very think also place. market the happening And out tracking, that the competition we and Dave. we're is I you've

think you've times heard I multiomics. multiple about me speak

So an in intention space. we have be to also that

point I about we forward see SomaLogic. But be proteomics as actually, think available instruments. a -- the talking modalities starting here now there you I many with can can relationships more on with our is with believe we were moving that think that

is it, that I and provide ready in out the when and about So -- market we in something more the where Illumina -- go when the insight we're speak it's to think we where put future. doing that less will it

very the few we with applications ones. only a point attractive and not for a out with come feel we lot price X different Secondly, where of very NovaSeq a

-- you you sequencing whole not solution. much you attractive we relevant, only workflow, spending I think how So whole to how steps you the a is -- the remind also manual is and per But also that that anymore look the very instrument are feel have, we so waste on. many that but cost I it's of that have at cost need

and Illumina if will into differentiated that realize the details, you actually has dig platform. a So you attractive very very I think

Operator

RBC. We'll question McNamara take from a Conor with

Conor Noel McNamara

Just a on question margins. financial

year. and You're XX% guiding to QX in XX% whole the for

on the same do how about I tax cadence of rate. progression? we And think guess So the margin

about talked How that you core a should we think in for Just tax about rate. Illumina 'XX? mid-XXs the

Joydeep Goswami

Yes.

something you the be you should that is core So as again, year And again, expect for not We Illumina into relatively into on XXXX. this rate, again, tax giving to is, Illumina, the number. and this yet are core guidance -- be constant right? should -- go consolidated

the year. cadence, greater operating that typically, margins to -- the and gross the go of we as move into -- tend terms does In through that up volume again, go up margin as is

operating improvement that in the the the we at the terms decrease the into course, is that, of but of but But our there's increase rate, If you But sorry, you a margin, needs carefully. come as after Senate we as of the not thing, see inflation-related this of it will I are move through a play. into further right? tax movement other I the to something the House, some think in will that, very capitalization -- It see right? we're still then, get other -- just we into R&D that one the merit terms in and can then and quarter-on-quarter on President monitoring know rest is piece, In the QX point. in aspects you get building a signing. expect year. And potentially past been assumptions

Operator

And our next question will come Nam from with Sung Scotiabank. Ji

Sung Ji Nam

and or MRD whether Just on future you if the the -- be wondering clinical might whether tumor-informed tumor-naive for to that into comment a that be for that's something be altogether assay developed might to able in a development different was there assay applications? under approach potential have or IBD might whether a Janssen, with

Joydeep Goswami

Yes. Thanks for question. the

tumor-informed potential move naive, So tumor the us we But some a again, heavily It mainly whole Illumina more right? In and is to quite right move a point, have pharma into It's capable to, being is when with is course, remind as forms. and initially everyone, IBD, move behind a MRD with assay. does that to have it IBD the being you right? of of can time platforms terms time the approach allow invested go has genome-based it of assays this assay, the in to explore but data into at be technologies we that IBD is has know, very the to right, right. now, agreement have been various in So we infrastructure and when unique.

Jacob Thaysen

running lab providing Let also CLIA no add we're course, through very we that have CLIA a me commercialize going We not few lab. is out lab of our commercial through samples, CLIA but that it have our and intention that, CLIA lab. -- of do

we're to to develop and very with interested customers fact, partners work this. In to continue

Operator

And from we'll with Patrick Citi. Donnelly take our next question

Patrick Donnelly

margin just about were. that just came probably seeing think talk side. bit, price the piece, talk margin of saying then someone quick noise, you little to on in the the where the light follow-up the side? throughout Joydeep, a gross know But 'XX? And and down way market, Can I they're making maybe there gross XQ Competitors can right that little on for about in are the kind in of about about the would for anything Jacob, more on how Again, we one Jacob. a a discounting the impacted are you you XQ, progression pricing mentioned initiatives, a step kind of be you of kind particularly AGBT. just mid-throughput thinking

here, just a you've about on So the you're side. look pricing thinking curious, taken what as

Joydeep Goswami

Yes.

decrease impact, in of there right? quarter Patrick, absorption terms on fixed obviously, margin, so fourth revenue in gross of sequential terms One, So was just are factors lower, an several costs. has there, of in that

numbers. revenue, our of lower all did have impact an X also X consumables, shift margin the there XXXX for also mix say gross margin contribution. had from And a will tends in I overall number a consumables gross We coupled which and margin more be that higher-than-expected then partnership affected was our driven, QX. And that, with to lastly, to

XXXX we into a the leads in question of I and and seeing think beyond. your and of say, progress have benefits will started XXXX to as that of Jacob, in COGS made and of I it terms we well rolled out productivity lot as XXXX into we

Jacob Thaysen

that is customers. only informatics, prep sample to in our I but pricing we thereby, and whole into key customers of that Illumina product driver coming -- cost industry. premium cost also a automation workflows. including that and for But which our If and more our how pricing forward, gigabase course, are premium that Yes. command for are going probably when importantly talking I here, will looking -- say the can into about the for think most I And simplistic are customers. They sample company about is presenting a the cost is whole probably more I seeing per too also we is, for in first, the think importantly, the for interested insight, Patrick, is pricing a of thinking even more

the we customer solution. offering, comprehensive be and with a what we informatics platform the really have our very DRAGEN provide cost-attractive So actually in can

just future about a and talking little cost at per -- kind the thing the the comprehensive. maybe therefore, of the looking we is at way gigabase So old more it way of look

that really with be pricing, mid-throughput we now and feel chemistry coming a on will with I are. our XLEAP-SBS we good in available, with And attractive more the and the are where So out we -- quality XXXX that, instruments. about said, more capacity XXXX

that that driving really on I'm point. new So based again, and elasticity about price excited

on element. ] So one see the us elements pricing move just many you will on knots [ really more

Operator

Our next question Bernstein with Eve comes Burstein Research. from

Eve Burstein

-- I a to NextSeq about wanted had ask placement.

year there, with been that's it's and So where comfortably placements, you pre-pandemic, ended you XXX but where the X below also last for the you've were years. above

demand how going talked also to just And So about? you And constraints think that you of about capital competitive do needs, attribute looks you do cash talked this post-pandemic? we should flow how much the which what much you to attribute you about? like and How how changing much to forward? here normalized then attribute obviously, dynamics, do purchase

Joydeep Goswami

Yes.

maybe And the X, So would major right? I put X, factor. I there's think sub factors a then

a in low-throughput the the rightly threat mid-throughput of And major amount and of 'XX coming has you a in the thankfully COVID and 'XX, that instrument out, as has normalized uptick as factors, COVID So right? out pointed reduced. little sales, real we had bit instruments

more did the We of to in time, on capital the also, more conservatism macroeconomic some purchases conservatism and customers come at in through. conditions same the XXXX that see at led our

we China The have and impacted did calls. at also macroeconomic an competition in reasons if in looking earnings our you're for we third in factor for right? repeatedly was get stated mid-throughput as especially XXXX So China, overall number,

As seem far we a and win mean, And not in did our see QX. world, track in does we as of rates huge the was clearly, competitive factor I QX that factor that in a but the closely, competition did our stabilize be and see fairly that we right? China, goes, -- to rest in

Operator

And on with Brennan moving Dan Cowen. to TD

Daniel Brennan

the in $X some coming something and $XXX,XXX XXXX. On math. around up like the maybe were X million quarter arrived in we fourth We pull-through, quick at

So could the numbers any like comment of just down? that what to assumption reasonable? that step they And would kind on if sequential speak you those for so, drive seem

Jacob Thaysen

in here than the from at pull-through still on early since way innings thanks, And math have at -- start I we So think Dan. to look this you've that point early more done too to it's X. way

provide more haven't on yet, are comments in we that Joydeep? sense. where So when we done as we situation Any will stable math math and we really other a of makes that think it that,

Joydeep Goswami

No.

early. I'll think look, reiterate, it I is

I are earlier think Jacob stated validation, the just XXB. many going on customers that through especially

math disagree out this we us. is will to has encouraging right, have done what I we we far, the When don't come him seen So a absolutely haven't but want that with number, math, not so with we to the and been you. will relevant, but confuse stabilizes,

Operator

question Dan a from with have And we Leonard UBS.

Daniel Leonard

FDA with for your Jacob, or that of not? impact of tour. how I'm your curious does customer And markets the elaborate diagnostics your if following looming you further on regulation health could demand listening LDTs, products

Jacob Thaysen

into eager coming I I was better No, something that's Illumina. think question, a also to really understand Yes. good

the on but a lot and there have I other XXX As you TSO space. about into that last customers the out if of you for diagnostic LDT $XXX of fast we more also have growth high And and using is know, have offerings IBD, and companies I lot IBD, than especially And XXX to primarily end of a think any over course, it's TSO also, places and that, top in really it's growing ecosystem how we don't have serve a expect time. and year, really of -- a places the I on to -- this cancer where of it, see period the clinical own now, the we and we double-digit all look now. business, right million into but that in we and our been our into that fighting build then think and background other passion LDT cancers in Illumina NIPT

the we another where question? play bring space forward. There would strategic clearly, core that of how overall that fit there of that. was we around -- into looking now that in going review does we to can But course, a bullish right really was like second I'm are, strategy. And business also So into a on part

Joydeep Goswami

impact? Regulation

Jacob Thaysen

Yes.

Okay.

customers ready the second that So very, I think we are the now. helping again, of was part are with sure course, some for regulation. we're And customers and they make of a monitoring impact deeply our right that. mean, course, of there's, conversation I the very

certainly in PMA, of -- course, Our maybe the of products the a there's -- also right being and It's the are them. But table different brought helps larger of reduce the go II which single-site so getting to through III for clinical products that now. some still down Class that happens, trials leveling will requirements But that's customers on Class considered also so a consideration. the the kind can, of change through on. if for

is on moving landing that, of what is think, tell But I the forward, think I is almost very there's So elements. to this one. on lot going FDA you well Illumina a where positioned independent still markets can I support

Joydeep Goswami

want in about are customers to XXXXX we're has, to most even REO company all it, instruments in. positioned on well consumables, and I'd products, ISO and whichever that direction only go of our classification the we our our serve to obviously, they IBD want the just add, have, right? our Jacob, that So should we path

Operator

And from Kyle question with will come Mikson Canaccord. next our

Kyle Mikson

guidance. following Just

you had that outlook softer kind of what like seems Could low set to it So in a than said probably the bar. was opportunity establish you have an November.

compared How of just should in post pull-through. -- Joydeep, compared we its years? second to conservatism swing And material on of XXXX XQ the you, much You how I how then prior for of of $XXX,XXX, like And or HiSeq what in one kind factors $XXX,XXX baking though. launch. half declined XXXX possibly much have? aggressive range, you remain. to listed consider the most years, do ask first and that clearly The some versus half. And could kind risks and if visibility Risks you comments the you kind in like are are kept seems

walk guess, of the just through I of So pull-through? in what kind you're terms XXXX or deterioration about in decline, thinking

Joydeep Goswami

clinical when an introduced, first. right? didn't one, piece our maybe where clinical term. -- is cons well, So Let not of about who validated we from in -- It's me platforms have So XX% customers, going have revenue as right, short many NovaSeq remember change you're to clinical these coming right? customers HiSeq we was XXXX address was assays, now the have XXXX easier the

with to HiSeq. Jacob, So do compared to saw the will or mitigated you more be in reduction me the overall overall what to? comment pull-through want want you you to on guidance

Jacob Thaysen

continue. can you No,

Joydeep Goswami

course, think, also place as the in this to been have been to look, right, some And news recent I the overall have said, have So in overall, we piece. the been of repeatedly be prudent approach that there pessimistic our a right? some forecast. while this turning, China, see where in macroeconomic have that only signs forecast, right, might And seems not we we markets conditions and assumed the we corroborate has

transition can takes, inordinate we're and positioned continue are of upsides. benefit well get the pick assays will if As quickly, as a right? we their possible. very And as on and with look, our X, that. course, as that the of adopt time then customers X markets of can an to any spending adoption do sure making quickly lot up, of puts So to we And far the about it's amount the from

well. Jacob, ability side, bring I as want else customers' headwinds reduce flip anything X to us will further to spend affect the know you there's our on if consumables the add. macroeconomic it's the don't on or that On further

Jacob Thaysen

think I good. we're

Operator

next Rachel JPMorgan. from question will Vatnsdal our with come And

Rachel Vatnsdal Olson

to Patrick's earlier. want up just follow I question your on to answer

in was to the to mentioned that the due XXXX consumables from mix line shift gross You margin X. XQ lighter that

structurally then there's that a point? mix think little impacting X function is walk just us so this at are consumables a And bit about you this margin gross where as can there how dynamic should volume well? consumables just So leverage through margin? Xs something of that the Is Or less lower ramping, we more? throughout 'XX

Joydeep Goswami

Yes.

had X we consumables they you're on scale, margins the -- is, see at expect you're part we would the comparable consumables going that, consumables and said that be adoption, have is, in would to right, at all designed X course, to right, So lower. margins easy the seeing be through, X to of right early to What first, no, the we scale.

We haven't through will scaled see fully 'XX, up. And we less normalized. more you that move or as

placement So be will factors, right? lower go from margins you will of as we gross several of -- instruments. a into a 'XX, little have benefit Now bit this one, overall have

expect As in an margin. we've bit. a More you will that said, lead do we decline to that that gross -- consumables, increase little to right,

the in COGS also We to have benefit productivity. improve we terms will from some of all taken uptick actions

margins as the are to serve those we So X things will get XXXX. that our to gross largest improve

Operator

session. that hand back now call over our the Q&A And Schwartz. to I concludes Salli will

Sallilyn Schwartz

Thank today. joining for us you

a a forward our of section seeing Investors events. and reminder, As conferences available our in other we the call replay website. to this of will and be you at upcoming This look concludes call,

Operator

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

Illumina (ILMN) 8 Feb 242023 Q4 Earnings call transcript