Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Illumina Inc (ILMN, Financial) delivered results ahead of expectations with Core Illumina revenue of $1.1 billion and non-GAAP operating margins of 22.2%.
- The NovaSeq X Plus series saw significant uptake, with 62 new instruments placed and consumables revenue growing 35% from the first quarter.
- The XLEAP-SBS chemistry launch exceeded expectations, with more than 60% of the NextSeq 1000 and 2000 installed base upgrading their software.
- Operational excellence initiatives led to a 240 basis point increase in non-GAAP gross margins year-over-year.
- The company completed the spinoff of GRAIL, maintaining a 14.5% stake, which is expected to play a critical role in the fight against cancer.
Negative Points
- Core Illumina second quarter revenue was down 6% year-over-year, reflecting a challenging market environment.
- Revenue in Greater China was down 35%, and AMEA revenue was down 8%, indicating significant regional challenges.
- The mid-throughput segment remains highly sensitive to the macro-economic environment, with continued lengthening of sales cycles.
- The company reduced its full-year revenue guidance, projecting a decline of 2% to 3% from 2023.
- Sequencing instruments revenue declined 40% year-over-year, driven by lower NovaSeq X placements and reduced mid-throughput shipments.
Q & A Highlights
Q: Can you explain the impact of the NovaSeq X transition on your guidance and how we should model this transition?
A: We are pleased with the milestone of $1 million annual pull-through on the NovaSeq X. Approximately 45% of high throughput gigabases sequenced and a little over 25% of high throughput consumables revenue is now on NovaSeq X Plus. The transition from NovaSeq 6000 to NovaSeq X is progressing, with roughly 5 percentage points of high throughput sequencing consumables revenue moving to NovaSeq X each quarter. This transition reduces the impact of pricing and converts volume growth into higher revenue growth.
Q: How should we think about the pricing headwind as the transition to NovaSeq X continues?
A: The pricing headwind is higher early on in the NovaSeq X launch and reduces as more volume moves to X. Initially, the transition from NovaSeq 6000 to X resulted in a significant price decline, but as the mix improves and more volume transitions, the impact of pricing continues to decrease.
Q: Are you seeing any pricing changes on the equipment side?
A: We have seen stable pricing for the NovaSeq X Plus. We are introducing the NovaSeq X, which allows for a lower price point for customers that are capital constrained but want access to the NovaSeq series. This instrument can be upgraded to the NovaSeq X Plus later.
Q: Can you provide more details on the $200 million cost savings initiative?
A: We are looking at all elements in the P&L, including R&D, to achieve the $200 million in expense savings over the next few years. We are focusing on programs that drive growth and shareholder value, and we will provide more insights at our upcoming strategy update.
Q: How is the clinical community adopting the NovaSeq X, and what are the expectations for the 25B kit?
A: The clinical community is moving more slowly to adopt the NovaSeq X due to the need to validate assays. Most clinical customers are keeping validated assays on the NovaSeq 6000 and focusing on new assays for the X. We expect a stable transition without significant changes in trajectory.
Q: Can you discuss the competitive landscape in the mid-throughput segment?
A: We take competition seriously and have seen no material change in competitive intensity. Our win rates remain stable, and we attribute the biggest part of the challenges to the economic environment. We continue to focus on providing a comprehensive solution that includes high-quality sequencing and computational power.
Q: What is the outlook for your business in China and broader Asia?
A: The economy in China remains weak, and customer constraints continue. We have made commercial changes, including optimizing our commercial structure and partnerships. However, we do not expect a material recovery in the near term and have adjusted our guidance accordingly.
Q: How should we think about the overall pull-through for NovaSeq X?
A: We are encouraged by the current $1 million annual pull-through for the NovaSeq X and believe it can go higher. We see customers already achieving higher pull-through, but we are not ready to provide a detailed view on the ultimate potential.
Q: Can you provide more color on the Fluent BioSciences acquisition and its impact on pricing and bundles?
A: The Fluent acquisition allows for broader adoption of single-cell analysis. We are still determining the commercialization strategy but will offer a competitive solution. We will continue to work with all single-cell providers to ensure a comprehensive offering on our platforms.
Q: How should we think about the pricing transition for XLEAP chemistry in the mid-throughput segment?
A: The pricing transition for XLEAP chemistry is smaller compared to the NovaSeq X transition. The impact on overall revenue will be manageable due to the smaller contribution of mid-throughput consumables to our P&L. The R&D team has also lowered the cost of XLEAP chemistry, reducing the margin drag.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
