ILLUMINA, INC. Q4 FY2024 earnings call

Key Managerial Messages - Jacob Thaysen:

• 2024 was a transformative year with progress towards strategic goals despite market conditions. Launched new corporate strategy to return to revenue growth in 2025 and achieve high single-digit revenue growth by 2027. Deepened focus on customers and partners, introduced new innovations across sequencing workflow, made progress with NovaSeq X transition, built new leadership team and refined organization structure, and rolled out operational excellence initiatives.
• In Q4, revenue of $1.1 billion exceeded expectations, driven by consumables as customers increased instrument utilization. Placed 91 NovaSeq X instruments during the quarter, with the installed base reaching 630. America, Europe, and Greater China had positive revenue growth, while EMEA had a decline.
• Focused on three key priorities: deeper customer and partner collaboration (e.g., partnerships with NVIDIA and Truvera), continuous innovation (e.g., new NovaSeq X products, MySeq I 100, proteomics solution), and commercial and operational excellence (achieved over $100 million in cost savings in 2024).

Ankur Dhingra:

• Q4 revenue of $1.1 billion exceeded expectations, with growth mainly from high-throughput consumables business. Sequencing consumables revenue grew ~2% year-over-year. More than 65% of high-throughput gigabases shipped and ~40% of high-throughput consumables revenue was on the NovaSeq X series. Non-GAAP gross margins for Q4 were 67.4%, up 270 basis points year-over-year due to operational excellence initiatives. Cash generation remained strong, and ended the year with approximately $1.22 billion in cash, cash equivalents, and short-term investments.

In the fourth quarter, Illumina generated revenue of $1.1 billion, which was a 1% year-over-year increase. The sequencing consumables business contributed significantly, with revenue reaching $698 million, a roughly 2% year-over-year growth. Sequencing instruments revenue stood at $155 million, down 3% year-over-year, while sequencing service and other revenue was $151 million, a 1% year-over-year decline. Regionally, America's revenue saw a 3% year-over-year increase on a constant currency basis, Europe's revenue was up 3%, EMEA's revenue dropped 10%, and Greater China's revenue grew 1%. The revenue contribution of each segment in terms of percentage to the total revenue needs to be considered based on the overall $1.1 billion figure, but the key absolute figures are as stated above.

2025 Guidance

• Overall, 2025 guidance does not reflect the impact of the recent China announcements and assumes continuation of current macroeconomic and political environments. Expected constant currency revenue growth in the low single-digit percentage range, weighted towards the second half of the year, driven by the NovaSeq X transition. Non-GAAP operating margin is expected to be approximately 23%, a 170 basis points improvement from 2024. Diluted EPS is expected to be in the range of $4.50 to $4.65.
• For Q1 2025, expected constant currency revenue to be flat to down 1% year-over-year, driven predominantly by a decline in sequencing instruments and timing of certain strategic partnership revenues. Non-GAAP operating margin is expected to be approximately 20.5%, and non-GAAP earnings per share in the range of $0.93 to $0.98.

• Uncertainty from the recent announcement by the Chinese Ministry of Commerce, which is being promptly assessed and could impact the business. - Macroscopic economic and political environments that may affect the company's operations and financial performance.

Q: Vijay Kumar with Evercore asked about China revenue mix, clinical versus research margin profile and the cadence of revenue in 2025.

A: Jacob Thaysen said China is approximately 7% of the total revenue and is working with relevant parties to resolve the recent announcement; Ankur Dhingra said top line growth is weighted towards the second half of 2025 driven by the NovaSeq X transition.

Q: Dan Brennan with Cowen asked about volumes, elasticity, and the NovaSeq X transition.

A: Jacob Thaysen said volume growth is above the mid-20% range and they expect more than 75% of high-throughput gigabases to be on the NovaSeq X series by the mid-2025; Dan Brennan was also informed that detailed assumptions for modeling are on the slides.

Q: Puneet Souda with Leerink asked about China's unreliable entity list and the clinical transition gigabyte shipped.

A: Jacob Thaysen said they are in dialogue with relevant parties and cannot comment further on timelines; Ankur Dhingra said approximately 50% of clinical volume had transitioned to the NovaSeq X series by the end of 2024 and they aim for 75% by the mid-2025.

Q: Doug Schenkel with Wolfe asked about the overhang on the stock due to China and the long-term growth commitment.

A: Jacob Thaysen said they are committed to achieving high single-digit revenue growth by 2027 and double-digit to teens EPS growth; Ankur Dhingra said they are looking at margin expansion opportunities regardless of the outcome from China.

Q: Conor McNamara with RBC asked about the impact of sequencing growth and the pricing in Q1.

A: Jacob Thaysen said they are on track to have more than 75% of volume on the NovaSeq X series by the mid-2025, Q4 slowdown was due to fewer working days, and they expect consumables growth to improve during the year.

Q: Dan Arias with Stifel asked about the production and efficiency exercises.

A: Ankur Dhingra said there are still significant opportunities in 2024, including working on manufacturing strategies, R&D consolidation in Singapore, and setting up an office in India with 150 people already there.

Q: Rachel Vatnsdal Olson with JPMorgan asked about China's 2025 guidance and Q1 consumables growth.

A: Jacob Thaysen said they expected flat growth for China in 2025; Ankur Dhingra said China's revenue was up 1% in Q4 and Q1 consumables are expected to be positive year-over-year.

Q: Tejas Savant with Morgan Stanley asked about China deals and emerging vendors.

A: Jacob Thaysen said competition is good in the industry and left the Capitol Hill conversation to lawmakers; on emerging vendors, competition exists but they believe in their technology.

Q: Tycho Peterson with Jefferies asked about Q4 instrument placements, clinical X momentum, and pricing dynamic.

A: Jacob Thaysen said approximately 20% of customers may stay on older technology, and they are working on application-specific pricing; Ankur Dhingra said they are having active discussions with customers on application-specific pricing for certain tests.

Q: Dave Westenberg with Piper Sandler asked about the NVIDIA collaboration and private sector genome projects.

A: Jacob Thaysen said they are excited about the NVIDIA collaboration for compute power and multiomics, and they are seeing interest in private sector genome projects globally.

Q: Subha Nambi with Guggenheim asked about R&D investment.

A: Jacob Thaysen said they continue to invest in R&D as the genomics and multiomics opportunities are significant and they are just getting started.

Q: Sung Ji Nam with Scotiabank asked about the Stargate project.

A: Jacob Thaysen said Illumina is a natural partner for the genomics aspect of the Stargate project.

Q: Patrick Donnelly with Citi asked about consumables guidance and China sales.

A: Jacob Thaysen said they continue to sell into China and are working through the challenges; Ankur Dhingra said consumables in Q4 were in line with guidance, and Q1 consumables are expected to be positive year-over-year.