Illumina(ILMN) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q3 2024 was $1.1 billion, in line with expectations [10] - Non-GAAP operating margin was 22.6$1.14, exceeding expectations [12] - Revenue in the Americas was down 6% YoY, Europe was up 12%, EMEA was up 7%, and Greater China was down 23% [10] - The company placed an additional 58 NovaSeq X Plus instruments, bringing the total installed base to 527, with 40% shipped to clinical customers [11] - The X-Series surpassed $1 billion in cumulative revenue [11] Business Line Data and Key Metrics - Sequencing consumables revenue was$741 million, up 7% YoY, driven by strong uptake in X consumables [29] - Sequencing instruments revenue was $104 million, a 42$150 million, up 6% YoY, driven by strategic partnerships and high instrument service contract revenue [33] - More than 55% of high-throughput gigabases sequenced and over 35% of high-throughput consumables revenue were on the NovaSeq X series [29] Market Data and Key Metrics - Total sequencing GB output on connected high and mid-throughput instruments grew over 40% YoY, with robust growth from both clinical and research customers [31] - The company expects almost half of high-throughput consumables revenue to transition to the X series by mid-2025 [30] Company Strategy and Industry Competition - The company aims to drive high single-digit revenue growth and 500 basis points of operating margin expansion by 2027, with annual EPS growth in the double-digits to teens over the next three years [14] - Key priorities include deeper customer collaboration, continuous innovation, and operational excellence [15] - The company recently launched the MiSeq i100, addressing demand for flexible solutions for smaller-scale projects with faster turnaround times [19] - The company is developing comprehensive whole genome sequencing and the five-phase genome, which will launch over the next 12 to 18 months [21] Management Commentary on Operating Environment and Future Outlook - The near-term macroeconomic environment remains constrained, and the company expects 2024 revenue growth to be slightly lower than prior guidance [13] - The company is raising guidance for 2024 operating margin and earnings per share, reflecting progress in operational excellence and margin expansion [13] - The company expects to return to growth in 2025, with high single-digit revenue growth by 2027 [49] Other Important Information - The company divested GRAIL in June 2024, and all financial information discussed excludes GRAIL [5][27] - The company issued $500 million in debt at a 4.65$750 million delayed broad term loan, reducing leverage and interest rates [38] - The company repurchased 770,000 shares for $98 million at an average price of$127.71 per share [41] Q&A Session Summary Question: Guidance and Clinical Transition Concerns [50] - The company does not foresee a "clinical cliff" for consumable revenue, as the transition to the X series is gradual, typically taking 12-18 months [52][55] - Q4 consumables guidance assumes a typical seasonal decline due to fewer working days and holidays [56][57] Question: Mid-Throughput Decline and 2025 Outlook [59] - The mid-throughput decline was driven by macroeconomic pressures and competition, particularly in the U.S. and Europe [60][61] - The company expects to return to positive growth in 2025, with high single-digit growth by 2027 [63] Question: Price per GB and Margin Expansion [65] - The price per GB impact was closer to 25%, within the expected range of 20-25% [67] - The company is targeting 500 basis points of margin expansion from a base of 21% [67][68] Question: NGS Consumable Revenue Growth [71] - Consumables revenue grew 7% in Q3, with both research and clinical segments showing strong growth [73] Question: Clinical X Transition and Pricing Dynamics [76] - The transition to the X series is driven by its benefits, including lower costs and improved workflows, with customers gradually moving assays over time [77][78] - Multi-year contracts are not instrument-specific and will continue with the X series [83] Question: Elasticity of Demand and Q4 Seasonality [85] - Customers are expanding assays and increasing sequencing depth, driving volume growth despite lower prices [89] - Q4 seasonality is expected to impact consumables due to fewer working days and inventory management [90][91] Question: Revenue Guidance Change [93] - The revenue guidance change is primarily due to slower deal closures in the instruments business, with the impact spread across instruments, consumables, and services [94][96] Question: Macro Environment and Growth Outlook [99] - The company sees consumables growth as a leading indicator of improvement, but the macroeconomic environment remains a headwind [100][101] Question: Margin Expansion and Cost Savings [103] - The company achieved $100 million in cost savings in 2024 and is targeting an additional$200 million, with a focus on COGS and operating expenses [107][108] Question: Free Cash Flow and Share Buybacks [112] - The company generated $284 million in free cash flow in Q3 and plans to continue share buybacks and tuck-in M&A to drive growth [113][117] Question: End Market Dynamics [120] - Europe showed steady growth, while the Americas faced tougher comparisons due to higher X instrument placements in the prior year [122] Question: Single-Cell Opportunity [124] - The acquisition of Fluent BioSciences expands the single-cell market opportunity, with a focus on enabling large-scale experiments [125][126] Question: MiSeq i100 and XLEAP Impact [130] - The MiSeq i100 is expected to drive growth in the low-throughput segment, with significant interest from customers [131][133] - Over 60% of NextSeq 1K/2K users have adopted the XLEAP chemistry, showing strong market reception [135]