The paragraph introduces the Illumina Earnings Conference Call for the third quarter of 2023. The call will discuss financial results, commercial and regulatory activity, and include a question-and-answer session. The call will be led by Jacob Thaysen, CEO, and Joydeep Goswami, CFO and Chief Strategy and Corporate Development Officer. The call will be recorded and archived on the company's website. Forward-looking statements will be made, but are subject to risks and uncertainties.

The paragraph discusses the risks and uncertainties that could affect Illumina's results, and refers readers to the company's filings with the SEC for more information. It also introduces Jacob Thaysen, the new CEO of Illumina, who joined the company after a long career at Agilent. Thaysen expresses his excitement about leading Illumina and his passion for genomics and its potential in healthcare. The company's Q3 results are also mentioned, with revenue of $1.12 billion, which was flat year-over-year and considered disappointing.

Despite a challenging macroeconomic environment, Illumina's tight management of operating expenses allowed them to deliver flat year-over-year earnings per share. The company's management team is focused on supporting customers and improving operational execution, including reexamining strategic initiatives and targets for long-term growth. A special committee has been established to expedite decisions on GRAIL, and the company is preparing for potential sale or capital markets transactions. The ongoing appeals will not impact the company's ability to move swiftly. Joydeep Goswami then reviews the company's financial results and outlook for 2023.

The fourth paragraph discusses the financial results for the third quarter, including revenue, net income, and net loss. It also mentions the impact of GRAIL's non-GAAP operating loss and the decrease in Illumina's market capitalization on the company's financials. The non-GAAP tax rate and weighted average diluted share count for the quarter are also mentioned.

In the third quarter of 2023, Core Illumina revenue was flat due to decreases in COVID surveillance, sanctions in Russia, and China revenue. Sales to research customers decreased by 12% due to the transition to NovaSeq X, while sales to clinical customers partially offset this decline. Total sequencing gigabase output grew 5% from the previous quarter and 29% year-over-year, with high-throughput customers using NovaSeq X showing higher growth compared to those who have not adopted it yet.

In the sixth paragraph, Illumina discusses their belief that data on their installed base is a useful reference for revenue trends. They report that revenue for their sequencing instruments grew 10% year-over-year, driven by NovaSeq X sales. However, there was a decline in NovaSeq 6000 shipments due to customer budget constraints and competition in China. They also mention an increase in service contract and lab services revenue. All regions are impacted by funding constraints and customers transitioning to NovaSeq X. America's revenue grew 10% due to NovaSeq X placements and clinical testing, while Europe's revenue was flat due to declines in COVID surveillance and exchange rates.

In the third quarter of 2023, Illumina's revenue in India and Greater China declined due to economic factors and competition. The company's non-GAAP gross margin decreased due to product mix and lower manufacturing volumes, but operating expenses were lower than expected. GRAIL's revenue grew due to adoption of Galleri, but operating expenses increased due to efforts to scale their commercial and R&D organizations. Consolidated cash flow provided by operations was $139 million.

In the third quarter of 2023, the company had $45 million in capital expenditures and $94 million in free cash flow. They did not repurchase any common stock and ended the quarter with $933 million in cash. They used $750 million to repay convertible notes. The company expects a 2-3% decline in revenue for 2023, including a decrease in Core Illumina revenue due to factors such as COVID surveillance, sanctions in Russia, and business decline in China. GRAIL revenue is expected to be at the low end of the range. Core Illumina sequencing instrument revenue is expected to decline 5-6% due to capital and cash flow constraints, with lower NovaSeq X shipments. Consumables revenue is also expected to decline due to similar factors.

Illumina's decrease in guidance is due to slower ramp in NovaSeq X consumables and macroeconomic constraints. They expect a decline in Core Illumina total sequencing revenue and a lower non-GAAP operating margin. Their revised expectations for 2023 include a non-GAAP tax rate of 39% and non-GAAP earnings per diluted share of $0.60 to $0.70. They are committed to supporting customers during the difficult macroeconomic environment and anticipate similar results in 2024.

The company is seeing positive results from the NovaSeq X utilization and plans to continue its rollout. Due to the uncertain market conditions, guidance for 2024 will not be provided until February. The company's priorities include driving top-line growth, focusing on customer priorities, and maintaining operational excellence. The recent launch of the 25B Rating Kit is expected to enhance the NovaSeq X's capabilities. The company has successfully reduced expenses and plans to use the savings for further investments and margin improvement.

The speaker, Jacob Thaysen, is committed to executing priorities with urgency and delivering improvements for Illumina and shareholders. The operator opens the line for Q&A and the first question is about GRAIL. Vijay Kumar asks about the EC's divestiture order and the special committee formed to make swift decisions regarding GRAIL's future. Thaysen explains that the committee consists of three board members and himself and they will work with the management team to determine the best path for GRAIL, whether it be a trade sale, spin, split, or without a sponsor.

Dan Brennan asked Jacob about his decision to leave Agilent and join Illumina, and his thoughts on the growth rate and outlook for the company. Jacob mentioned that he is not ready to give a specific growth rate for Illumina yet, but he believes that the NGS market has strong growth potential despite recent price cuts. He also mentioned that the X placement numbers were lowered due to customer constraints, but did not provide any details on orders or backlog. Lastly, he did not give any guidance at this time.

The speaker, Jacob Thaysen, acknowledges that Illumina has faced a tough period with guidance reductions, but believes that the core business has a lot of potential in the NGS market. He also mentions that he is still learning the business and will provide more information on growth rates in the future. Despite the challenges, Thaysen is optimistic about the future of Illumina and their ability to innovate.

The company has recently brought on new leadership and is being cautious about their outlook for 2024 due to the current economic environment. They have previously signaled potential challenges and have experienced slower growth due to a platform transition. However, they remain confident in their new product and are seeing strong interest from customers. The next question comes from Puneet Souda from Leerink Partners.

Jacob Thaysen, the new CEO of Illumina, answers a two-part question about the company's recent launch and its competition in China. He mentions that while there is a Chinese competitor, Illumina is committed to the Chinese market and is working on a strategy to strengthen their position there. Thaysen also notes that many customers in China prefer to work with Illumina due to its quality and reputation as the number one brand.

The speaker agrees that competition exists in the market, but believes that Illumina's strong brand, installed base, and pipeline of new products will keep them competitive. They are focused on their customers and ready to fight for their position. The competition has not significantly affected their share outside of China. Early indicators show that customers who have adopted DX are seeing faster growth in sequencing output compared to those who have not. The introduction of 25B is expected to further increase capacity and experiments.

The company is expecting customers to be excited about the new flow cell and its capabilities, and they anticipate similar dynamics to previous flow cell releases. Additionally, the company's clinical customers are eager to use the new flow cell for new assays and products. The special committee evaluating the GRAIL acquisition is working quickly to reach a decision, and the GRAIL team is still waiting for a readout on the NHS gallery study. The CEO is frustrated with the delays and cannot commit to a specific timeline for a decision.

The company received feedback from ECGA about a mid-December hearing for their appeal. The appeals are important for GRAIL and future transactions. The GRAIL readout is expected in 2024. In response to a question about underlying demand, the company cites macro headwinds and budget concerns in China, but also notes slow growth in orders for the NovaX and a slowdown in consumable purchases for the Nova 6000. This may indicate a lack of demand for the NovaX or a shift towards the upcoming GRAIL readout.

The speaker addresses the issue of the slowdown in demand for instruments and states that it is a combination of both the market environment and the transition to new instruments. They mention the overall healthy long-term perspective for the market and the challenges faced by everyone. They also mention that the slowdown is more pronounced for customers who have purchased the new instruments, providing a control mechanism to isolate the impact of the transition. These customers are still ramping up with the new instruments and are the higher output users.

The speaker discusses the upcoming transition and ramp up of X consumables, which will take a few months to reach full capacity. They also mention the expected ECJ decision in mid-2024 for GRAIL and the active discussions about monetizing the data value within the company. The speaker also mentions the formation of a special committee to address the European divestiture order and the ongoing appeals process. They clarify that this process will not hinder their efforts to move quickly and seek potential acquirers for GRAIL. The speaker concludes by mentioning the stability of the leadership team at Core Illumina.

Jacob Thaysen, CEO of Illumina, discussed the company's plans for GRAIL and its leadership team during a recent conference call. He mentioned that the company is moving quickly to monetize GRAIL and that the divestiture option chosen will impact this decision. Thaysen also stated that he will be conducting a comprehensive business review and will keep investors updated. In terms of demand for the X, the sales cycle has been extended significantly.

The decision-making process in the industry has become more scrutinized, leading to longer sales cycles. However, there is still strong interest in the X and the pipeline continues to grow. The macroeconomic situation has made it challenging to convert pipeline opportunities into orders quickly. However, there is no shift in demand to other technologies, and customers are still interested in the X. One example of this is receiving 10 instrument orders from a major customer.

During a recent conference call, a question was asked about the updated guidance for GRAIL, a company that has recently been acquired by the speaker's company. The speaker, Jacob Thaysen, explained that the guidance was impacted by two main factors: challenges with PDX revenue and lower-than-expected sales for gallery. However, despite these challenges, the growth is still healthy. Another question was asked about the funding for GRAIL, and Thaysen explained that they have various options, including equity or debt offerings, to raise the necessary capital. The speaker also briefly mentioned the initial view for the Core business in 2024, stating that they will provide more details in their Q4 '23 call.

The speaker, Jacob Thaysen, is discussing the potential changes in the business for the year 2024. He mentions that there are still details being worked out for the rest of the year and the budget, so he cannot share specifics at this time. However, he assures that there is a strong pipeline for X and that consumables are expected to pick up in 2024. He also mentions that there are options being considered for funding GRAIL, such as a sponsored spin or a capital markets transaction. When asked about Core Illumina op margins, Thaysen says they may look similar to 2023, but there is potential for improvement due to cost reductions.

Illumina's current business model is strong, with high operating gross margins and the potential for growth to further improve the bottom line. However, in a flat market, the company expects to see flat revenue and earnings. They anticipate an increase in gross margins next year due to the mix of products, but this will be partially offset by cost reductions and increased variable compensation and inflation. The company remains focused on improving operational excellence to achieve historical margins.

Conor McNamara asks Jacob Thaysen about Illumina's projected growth rate and potential for EBIT margin expansion. Thaysen, who has only been in his role for 40 days, is cautious in his response and believes that Illumina has better growth opportunities compared to other life science tools companies. He plans to provide more insights later in 2024. Another question from Rachel Vatnsdal regarding Core Illumina margins is answered by Joydeep Goswami, who mentions a potential step down in 4Q due to lower placement numbers and a higher proportion of consumables.

The company's margins and operating margins are expected to decline in Q4 due to a decrease in revenue and a shift from instruments to consumables. This is also impacted by the transition effects of a new product and strategic deal revenue. However, the company has a strong foundation and sees opportunities for growth in the future.

This summary was generated with AI and may contain some inaccuracies.