The operator introduces the First Quarter 2024 Illumina Earnings Conference Call and hands it over to Salli Schwartz, who welcomes participants and introduces the speakers - Jacob Thaysen and Ankur Dhingra. Joydeep Goswami will join for the Q&A session. The call will review financial results, commercial and regulatory activity, and will be recorded and archived. Forward-looking statements will be protected under the Private Securities Litigation Reform Act of 1995.

The paragraph discusses Illumina's first quarter results and mentions the departure of their former CFO, Joydeep Goswami, and the welcoming of their new CFO, Ankur Dhingra. The company's new Chief Strategy and Corporate Development Officer, Jakob Wedel, is also introduced. The CEO, Jacob Thaysen, talks about meeting with customers and their plans to collaborate and innovate with Illumina. The company is seeing growth in projects using NovaSeq X and expanding into multiomics.

Illumina is focused on providing sophisticated solutions for their customers and recently acquired Partek to expand into this space. They are working closely with customers to understand their needs and continue to be a leader in the industry. In the first quarter, Core Illumina revenue exceeded expectations, but they remain cautious due to the global macro environment. NovaSeq X placements were lower compared to the first quarter of 2023, but the company continues to see growth in their installed base. The Illumina management team is making progress in accelerating value creation and shipped 55 NovaSeq X instruments in the first quarter.

In the fourth quarter, there was a high demand for consumables as customers expanded their sequencing projects. Illumina launched new products and received positive feedback from customers. They also formed partnerships to drive the genomics ecosystem forward. The company's focus is on delivering operational excellence and driving margin improvement through increased productivity and innovation. They have aligned their organization to better support customer needs.

The company is merging their commercial teams to improve customer service and increase growth and margins. They are also focused on improving their supply chain and reducing costs. They have made progress in stabilizing their business in China and have a new leader to drive changes in the region. The company is also working to resolve their divestment of GRAIL, with progress being made in both sales and capital market options. They are on track to finalize the terms of the transaction by the end of the second quarter.

In the first quarter, Illumina's revenue was $1.06 billion, down 2% year-on-year. This was better than expected due to strong performance in high throughput consumables, timing of revenue from partnerships, and customers accelerating instrument deliveries. Ankur Dhingra, the new member of the team, expressed his excitement to join Illumina and contribute to the advancement of genomics in healthcare. He thanked his predecessor for his support during the transition and discussed the company's outlook for 2024.

In the first quarter of 2024, Core Illumina saw a 1% increase in revenue from sequencing consumables, driven by growth in high throughput. NovaSeq X consumables grew in the double digits and total sequencing GB output on connected instruments increased by over 35%. Research and applied activity benefited from the transition to NovaSeq X and 25B adoption at large core labs. Clinical activity was driven by the NovoSeq 6000. However, sequencing instruments revenue declined by 29% due to expected mid-throughput shipment declines and lower NovaSeq X placements compared to the previous year. Core Illumina sequencing service and other revenue increased by 27%, driven by strategic partnerships and higher instrument service contract revenue. Non-GAAP gross margin also increased by 190 basis points, thanks to a more favorable mix of sequencing consumables and cost-saving measures.

In the first quarter, Illumina's revenue decreased by 1% due to lower margin strategic partnership revenue and increased costs. However, their non-GAAP operating expenses were lower than expected due to reduced headcount and cost containment initiatives. This resulted in an increase in non-GAAP operating margin from 17.4% to 20.6%. GRAIL, a subsidiary of Illumina, saw a 35% increase in revenue due to adoption of Galleri. Consolidated revenue for the quarter was $1.08 billion, with non-GAAP net income of $14 million. The non-GAAP tax rate was higher than the previous year due to the inclusion of GRAIL's operating loss. The non-GAAP weighted average diluted share count was approximately 159 million.

In the first quarter of 2024, Illumina had a cash flow of $77 million and ended with $1.12 billion in cash and investments. They are focusing on their core business and have seen positive results, but are still facing challenges in the macroeconomic environment and in China. They are reiterating their 2024 revenue guidance of flat growth and an operating margin of 20%. For the second quarter, they expect a decline in revenue of 6.5 to 7.5 percentage points.

The decline in year-over-year sales is due to lower shipments of the NovaSeq X instrument. The company expects an increase in operating expenses for the second quarter, primarily due to stock-based compensation and project spending. The company's leadership team is reexamining their strategy and will focus on making customers the heroes in their labs. They will continue to develop sample-to-answer solutions and maintain their open platform approach to drive innovation. Illumina has been a leader in NGS technology.

The speaker, Jacob, is announcing that the company will be sharing its comprehensive strategy during a virtual event in the fall. They are confident in their ability to continue leading the industry and improving human health due to their global support, expertise, and technology roadmap. They thank the listeners and invite two others for a Q&A session. The first question from Doug Schenkel asks for more information about the company's long-term growth, operational targets, and ability to play offense.

Jacob Thaysen, the CEO of Illumina, was asked about the company's high throughput sequencing consumable revenue growth and its implications on competitive dynamics and elasticity. He responded by saying that he has been with the company for seven months and is still getting familiar with it. However, he is spending a lot of time with customers and employees, and is excited about the company's innovations. He also mentioned that there are a lot of opportunities in genomics, particularly with the launch of the X system, and that they are already seeing elasticity in this area. Thaysen did not reveal the company's long-term growth plans, but assured that they are optimistic about Illumina's future growth. He also mentioned that they are dedicated to expanding their margins, as seen in the first quarter with the gross margin expansion.

The speaker discusses the company's commitment to driving up margins and believes there is no obstacle to achieving historic levels. They plan to share more details about their strategy in the future and believe Illumina has a great opportunity to lead the genomics industry. The speaker also mentions strong growth in consumables and sequencing activity, driven by X and X customers. A question is asked about the mid-throughput segment.

The speaker is unable to provide specific details on the growth of the mid-throughput segment, but addresses concerns about competition and the company's commitment to this market. They mention the recent release of XLEAP chemistry for 1K/2K instruments and the excitement it has generated among customers. They acknowledge that there is competition in this space, particularly in China, but state that they will continue to innovate and fight for market share.

The company is seeing growth in consumables and competition as expected. The guidance for the year is in line with their previous forecasts and takes into account macroeconomic headwinds. The increase in revenues is driven by the adoption of the X consumables and partnerships for BD revenue.

The company's performance was discussed, with a focus on the expected increase in business from instruments and consumables. The CEO expressed excitement about the potential for multiomics, specifically mentioning the partnership with SomaLogic. They are currently in early access and will be going out with a few customers in 2024. The CEO is optimistic about the feedback they have received so far.

The company will continue to explore options for expanding into multiomics, both organically and through partnerships. They see opportunities in end-to-end workflows and aim to simplify and automate processes for customers. There may be budget pressure for POPSEQ, but overall the company is excited about the potential for big genomic studies to impact healthcare systems.

The company has over 30 ongoing programs and has the same number in the pipeline for future opportunities. They are not relying on any one individual program and are not budgeting based on them. The XLEAP technology is expected to help in the mid-throughput market, but there is concern about preventing a race to the bottom in terms of pricing. The high throughput order rate is expected to build, but it is unclear if this is based on actual orders or anticipation of budgets.

The introduction of XLEAP chemistry has allowed customers to do more with their sequences, making it possible for customers to afford single cell or spatial sequencing. This has created an elasticity game that will continue to play out in the future. Customers are looking to work with innovators and the XLEAP chemistry is an example of the company's ongoing innovation. The launch of XLEAP in Q1 has already shown an increase in output and better performance, and the company is maintaining a price premium due to its technical superiority.

The company is confident in their macroeconomic situation and expects improvements in the future. They have seen an increase in orders for their X instrument and expect this trend to continue throughout the year. They have also reiterated their guidance for the year, with a focus on the mix of consumables and instruments remaining the same. The Q1 performance has been strong and supports their overall outlook for the year.

The company is seeing good traction with their 25B flow cell and they have a 40% adoption rate among customers. They are also seeing progress with high throughput clinical customers in their X validation process, but no specific metrics were shared.

During the call, Jacob Thaysen shared that approximately half of their customers are using the 25B flow cell, and they are encouraged by this momentum. He also mentioned that many of their clinical customers are still running most of their assays on the 6K, and they are closely tracking when they will go into production. He did not share specific details on this, but they have a good understanding of it. In response to a question, he mentioned that win rates outside of China have stabilized in Q3 and Q4 of last year, and they have seen this stability continue so far in 2024.

The speaker discusses the mix of orders and instrument placements for the X model in the first quarter. They mention that they are closely monitoring their win rate and competition, and that the majority of orders are still in the transition phase. They also mention that 55 placements were made in the first quarter, but some were pulled forward from the second quarter. They acknowledge that the macro backdrop remains challenging for the sector.

In the second quarter, there was a slight decrease in margins, which was mostly due to some product costs. However, the company did not pull any orders forward and there is still a strong backlog for 2023. The company is not changing their expectations for the year at this point. In terms of margins, there was a slight pickup in spending in the second quarter, but the company did not provide specific details on what this spending was for. Investors should continue to monitor the margin metric as the year progresses.

The speaker addresses a question about the higher service revenues and explains that it was due to a step-up in spending from Q1 to Q2, primarily from annual stock branch cycle and project-related spend. They also mention that operating margin performance is expected to continue improving throughout the year and that the strong growth in core instrument services business and better gross margin performance should help with operating margin.

The speaker discusses the company's cost control measures and reduction in headcount, which is expected to benefit the operating margin. They also mention the recent FDA ruling on lab developed tests, stating that the company's positioning and investment in high-quality machines and documentation will give them a competitive advantage. They are committed to supporting their customers in this new regulatory environment.

The conference call operator introduces the next question from a RBC Capital Markets analyst, Conor McNamara. McNamara asks if the company can provide any details on the adoption of consumables by X customers, and if there have been any stock orders. The CEO and COO respond, stating that most customers are still in the ramp phase, with some research customers already at scale. They also mention that there has not been much stocking of consumables yet. The operator then concludes the Q&A session.

The call will be available for replay on the company's website and the call has ended. The operator then instructs participants to disconnect.

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