The paragraph is an introduction to Illumina's first quarter 2025 earnings conference call. The operator welcomes participants and mentions that the call is recorded. Brian Blanchett, the Interim Head of Investor Relations, introduces the agenda, noting that Jacob Thaysen, CEO, and Ankur Dhingra, CFO, will present updates on the business and financials. The earnings release, accessible on Illumina's website, includes reconciliations and supplementary data. The paragraph highlights that revenue growth rates are discussed on a constant currency basis and advises reviewing the company's SEC filings for risks and uncertainties related to forward-looking statements.

Jacob Thaysen commends former board chair Steve MacMillan for strengthening Illumina's position in genomics and welcomes new board chair Scott Gottlieb and board member Keith Meister. Despite recent macroeconomic challenges, Illumina's Q1 performance exceeded expectations, driven by strong sales of NovaSeq X instruments and increased consumables demand, particularly among clinical customers. The company is focused on innovation, advancing the multi-omics ecosystem, and achieving long-term financial goals.

The paragraph discusses Illumina's strategic approach to achieving high single-digit revenue growth and significant margin expansions by 2027, excluding the Greater China region due to regulatory challenges. Illumina acknowledges pressures from China's regulatory environment, U.S. funding uncertainties, and global trade dynamics, addressing them proactively. The company is revising its guidance accordingly and will offer separate forecasts for China and other regions. Restrictions on exporting sequencing instruments to China are expected to lower revenue from the region by 2025. Illumina is actively engaging with Chinese authorities for sustainable market presence. In the U.S., research funding uncertainty affects customer purchasing, so Illumina is assisting customers with flexible solutions. A $100 million global cost reduction program was implemented in March to mitigate these impacts.

The paragraph discusses Illumina's strategies to offset the financial impact of new U.S. import tariffs, including supply chain optimization and pricing adjustments. The company aims to fully mitigate these costs by 2026 while maintaining its focus on customer satisfaction and innovation. Illumina highlights its progress in delivering cutting-edge solutions, such as a new spatial offering with improved capture and sensitivity, allowing for more detailed cellular analysis. This development will enhance Illumina's multi-omics capabilities and support long-term goals in research advancement.

The paragraph discusses early access and upcoming releases of various innovations from Illumina. They have received positive feedback on their spacious solutions that simplify complex processes. Their new spatial offering is set to launch in 2026, and they have introduced a single-cell solution for CRISPR research, enabling genome-wide CRISPR screens at reduced costs, expected to be released later this year. Their proteomics solution, developed with Standard BioTools, is in early access and will be commercially launched in the first half of 2025. Additionally, their constellation mapped reads and 5-base genome technologies are also in early access, with full launches planned for 2026. These innovations align with their strategy to advance multi-omics and empower customers with deeper insights. The company's core is strong, and they're on track to meet growth projections, excluding China. Ankur Dhingra will provide more details on their 2025 results and outlook in the following section.

In the first quarter, Illumina's financial performance met the high end of their guidance despite market challenges. Revenue was stable compared to the previous year, and earnings per share were $0.97. Revenue for the quarter was $1.04 billion, a slight decrease due to foreign exchange impacts. Excluding China, revenue increased slightly on a constant currency basis, with sequencing consumables growing by 1%, driven by high throughput consumables. Uncertainty in NIH and other research funding led to conservative purchasing by research customers, impacting consumables growth by about 1%. However, sequencing activity remained robust. Strong ordering activity and long-term purchase commitments in Q1 are positive indicators for the rest of the year.

The paragraph discusses the ongoing transition to the NovaSeq X series, indicating strong progress in its adoption. In Q1, 68% of high throughput gigabases and 43% of high throughput consumables revenue were attributed to the NovaSeq X series, with over 50% of clinical volumes also on X. The company anticipates that by the second half of 2025, 50% of high throughput revenue and 75% of gigabases shipped will come from the NovaSeq X series. Sequencing volume is growing over 30% year-over-year, driven by both clinical and research customers. Sequencing instrument revenue remained stable at $109 million, with a high number of X series instruments shipped and the launch of the MiSeq i100 for low throughput. Although exports to China were restricted, inventory allowed for fulfilling Q1 orders. Sequencing services and other revenues fell by 5%, mainly due to timing issues with strategic partnerships, though core services and informatics saw mid-single-digit growth.

The company reported a non-GAAP gross margin of 67.4% for the first quarter, a 30 basis point increase from the previous year, but slightly below expectations due to a higher mix of instruments business and costs associated with software upgrades and routine service. Most upgrades are expected to be completed by the second quarter. Non-GAAP operating expenses were $489 million, reflecting cost optimization and growth investment prioritization. Actions were initiated to reduce full-year expenses by $100 million, with partial benefits realized in Q1, leading to expectations of flat or slightly decreased operating expenses for the rest of the year. The cost reductions are part of an over $225 million run rate reduction plan, to be fully annualized over four years and include stock-based compensation changes. Q1 non-GAAP operating margin was 20.4%, with non-GAAP other expenses, mainly net interest expense, at $15 million, and a non-GAAP tax rate of 22%. Average diluted shares were 159 million, reduced by share repurchases. Non-GAAP EPS was $0.97 per diluted share, at the high end of guidance. Cash flow from operations was $240 million, noting that annual cash bonuses are typically paid in Q1.

In the article paragraph, the company reported capital expenditures of $32 million and a free cash flow of $208 million. It repurchased 1.73 million shares for $200 million at an average price of $115.74 per share, completing the transactions in February and ending the quarter with $1.24 billion in cash, cash equivalents, and short-term investments, with a gross leverage of 1.8x. For 2025 guidance, reflecting recent geopolitical changes, the company is now providing separate guidance for its Greater China region due to export restrictions and reduced revenue expectations by $125 million at the midpoint. For the rest of the world, revenue guidance is lowered due to a 2-4% reduction from research customers amidst a constrained funding environment, partly offset by a 1% growth from clinical customers, with a net impact of around $60 million over the next three quarters.

The paragraph discusses the company's financial outlook and strategic measures, highlighting pricing actions and favorable foreign exchange rates that enhance projected revenue. It notes a revenue growth expectation of 1% for regions outside China and addresses ongoing regulatory discussions in China to potentially improve guidance. The company anticipates between $165 million and $185 million in full-year revenue from Greater China, with notable amounts recognized or projected for specific quarters. In terms of product performance, sequencing consumables are expected to grow up to 2%, while sequencing instrument demand is expected to remain stable, especially for NovaSeq X and MiSeq i100 instruments. The revised earnings per share (EPS) guidance of approximately $4.50 reflects adjustments due to reduced revenue in Greater China and other financial constraints, along with measures to sustain earnings growth.

In this paragraph, Illumina discusses how new tariffs are impacting their earnings per share (EPS) guidance. They estimate the gross cost of tariffs for 2025 to be around $85 million, primarily due to goods shipped from Singapore to the U.S. and parts imported to their U.S. operations. They anticipate a partial impact in Q2 and a $30-$35 million impact per quarter afterwards. The company is taking steps to mitigate half of this impact by 2025 and expects to realize full mitigation by 2026. Their EPS guidance reflects a $0.25 reduction due to tariffs, but they plan cost-reduction and share repurchase strategies to offset this. Greater China is expected to contribute $0.35 to EPS in FY25, compared to $0.76 in FY24, while EPS from the rest of the world is projected to grow by 15% to $3.90. The company is focused on driving earnings growth, irrespective of developments in China.

The updated guidance for the year projects revenue between $4.18 billion and $4.26 billion, reflecting a decline of 3% to 1%, but excluding Greater China, growth is expected between flat and 2%. The non-GAAP operating margin is anticipated to be between 21.5% and 22%, with a 45 basis point expansion at the midpoint compared to 2024. Tariffs are expected to reduce the operating margin by 125 basis points. The non-GAAP tax rate is lowered to approximately 22%, resulting in an EPS guidance range of $4.20 to $4.30. For Q2 2025, revenue is anticipated to be between $1.04 billion and $1.06 billion. This includes $55 million to $65 million from Greater China and between $980 million and $1 billion from outside Greater China, reflecting a 2% to 3% year-over-year decline, due to strategic partnership and market dynamics. Q2's non-GAAP operating margin is projected at approximately 21%, with EPS expected to range from $1 to $1.04, factoring in a $15 million cost impact due to tariffs. The outlook suggests stronger performance in the second half of the year, supported by improvements in consumables growth, strategic transitions, and pricing actions. The company acknowledges its employees' efforts and remains confident in meeting its financial goals.

The paragraph is from a Q&A session with Doug Schenkel of Wolfe addressing Illumina's financial outlook. Doug highlights the need for belief in revenue growth rebounding soon and margins expanding beyond 25% to justify investment in the company. He asks about current clinical and research revenue growth, guidance assumptions for different markets, and how Illumina plans to handle declining sales in China, which now account for 4% of total sales. Jacob Thaysen responds by emphasizing the resilience of Illumina's business despite strong headwinds and indicates that Ankur may assist in addressing the specific questions.

The paragraph outlines the company's strategic plan to achieve high single-digit revenue growth over the next few years, primarily by transitioning to the X, which is expected to account for at least 50% of revenue by the second half of the year. The focus is on markets outside of China, which currently makes up 5% of the business due to uncertainties in the Chinese market. Despite potential challenges in China, cost-saving measures are in place to offset any financial impact, projecting a $100 million impact this year and over $200 million in the future. The company aims to establish a $4.25 EPS as a base for future growth, with a goal of transitioning from double-digit to teens growth rates. The strategy remains intact, emphasizing the importance of the ex-China business, which comprises 95% of the company's operations.

In the paragraph, Ankur Dhingra discusses the company's growth prospects, distinguishing between the clinical and research business sectors. In Q1, the clinical side showed strong performance with steady demand and increased expectations for the year, driven by established and upcoming tests. Conversely, the research business faced challenges, with a decline in sales due to a constrained funding environment and inflationary impacts from tariffs. As a result, the company has lowered its expectations for the research market for the remainder of the year.

The paragraph discusses a financial outlook and market conditions in a specific sector, with an anticipated mid-double-digit decline around 15% for a particular business segment [ANG] by the year-end. While the clinical sector looks strong, research is expected to weaken. Dave Westenberg from Piper Sandler is questioning the reasons behind reduced demand in mid-throughput and low-throughput consumables, considering factors such as switching to a new product/service provider, competitive pressures, or a lack of funding. He seeks clarity on how these factors contribute percentage-wise to the decline. He also inquires about contractual commitments from customers that may reassure the financial guidance. Jacob Thaysen responds, expressing enthusiasm about the new MiSeq i100 product that launched late last year and is gaining momentum.

The paragraph discusses the performance and market conditions of the MiSeq i100 and the mid-throughput sequencing market. The MiSeq i100 is performing well with strong interest and orders. However, the mid-throughput market faces challenges due to difficult market conditions and lower demand compared to high-throughput environments, which are more production-focused. This segment often consists of research or small clinical accounts that may not need or afford high-throughput systems. When faced with constraints, these customers might delay purchases or use service providers, affecting instrument sales but maintaining consumables flow. The introduction of a new [X] chemistry a year ago improved customer offerings with better pricing and increased sequencer capacity, but overall, competition and these market dynamics contribute to the weakness in the mid-throughput segment.

The paragraph discusses the challenges and performance of a company in the Chinese market. Despite strong competition, the company has performed well against its closest competitor. The challenging environment is attributed more to macroeconomic factors than competitive issues. Ankur Dhingra mentions increased performance obligations and backlog growth, noting a significant rise in long-range order bookings compared to previous years. In response to a question from Jack Meehan about potential impacts of tariffs on demand, Jacob Thaysen states that there was no noticeable change in customer behavior during the first quarter due to tariffs.

The paragraph discusses the company's updated revenue guidance, noting a shift from an earlier forecast of low single-digit growth to a decrease in the same range, largely due to changes in the Chinese market. Ankur Dhingra and Jacob Thaysen explain that their March forecast already accounted for potential impacts from China and NIH funding reductions. Vijay Kumar questions how these changes, particularly a 15% reduction in research expectations, are integrated into their guidance, and whether clinical factors have altered from prior assumptions. The company believes it has a better understanding of the academic and government sectors' current state.

The paragraph discusses the financial outlook shared by Ankur Dhingra and Vijay in a conversation. They anticipate a continued 15% decrease, primarily driven by changes in China, though a stronger performance is observed in the clinical sector, especially in Q1. The research business is expected to decline by about 3 percentage points, equating to around $90 million due to research and tariff impacts. This decline is partially offset by the clinical sector and mitigating actions like certain pricing strategies and more favorable foreign exchange conditions, contributing to some positive growth in reported figures. Tycho Peterson from Jefferies then inquires about assumptions related to pricing.

Jacob Thaysen discusses Illumina’s pricing strategy in the face of competitive pressures, including competitors offering free sequencing. While Illumina has historically focused on reducing prices, they are now adopting a balanced approach to ensure the company’s long-term presence and innovation for customers. Thaysen acknowledges that price increases are unpopular but believes they are necessary to maintain a stable, long-term partnership with customers. He expresses confidence that customers will understand the need for this strategy, despite the short-term challenges. Thaysen also warns that competing on price alone, like giving away services for free, is unsustainable in the long run.

In this conversation, Conor McNamara inquires about whether customers are delaying equipment purchases due to upcoming competitor offerings. Jacob Thaysen acknowledges this concern but asserts that their company is performing well against competitors. He notes a recent announcement from competitors about a new technology, which has generated excitement but hasn't resulted in customers deferring purchases. Thaysen emphasizes the importance of reliable delivery and customer satisfaction, especially in challenging times, and expresses confidence in their current market position. Additionally, he points out that new technologies require time for validation and acceptance in academic and research circles.

The paragraph contains a conversation during a call involving Conor McNamara, Mike Ryskin of Bank of America, and Jacob Thaysen. Mike Ryskin asks about the outlook for China and U.S. markets in relation to academic and government headwinds, questioning the sustainability of revenue levels in China and the impact of NIH challenges in the U.S. Jacob Thaysen acknowledges the concern but emphasizes that China represents only a small portion (5%) of their business. He suggests that too much focus is placed on these headwinds, highlighting the company's strength and growth in other markets, particularly in Europe and the clinical market, and emphasizing the overall resilience and strong cash flow of the business.

The paragraph discusses a company's ongoing efforts to resolve business challenges in China due to regulatory issues. Despite expecting a decline in revenue from its Chinese operations in the second half of the year and possibly into 2026, the company remains hopeful about finding a solution. It emphasizes the importance of the Chinese market and mentions engagement with Chinese colleagues and customers who are eager for the company to remain there. The company is prepared to mitigate potential losses with cost measures if necessary. Additionally, the paragraph touches on broader industry headwinds in academia and government sectors but remains optimistic about overcoming these challenges. Lastly, it briefly references an investigation into GRAIL by the SEC, noting that the investigation is expected to close soon.

The paragraph discusses Illumina's financial strategy and recent developments following a divestiture. Jacob Thaysen expresses satisfaction with the conclusion of an SEC investigation and states that Illumina is generating significant cash, which provides flexibility for potential value-added acquisitions. However, they do not intend to pursue opportunities in the MRD space at this time. Ankur Dhingra highlights the company's strong balance sheet and successful cash flow generation, including over $1 billion since GRAIL, $200 million in the recent quarter, and a share buyback of $200 million. Despite these achievements, their primary focus remains on growth and strategic bolt-on mergers and acquisitions.

The paragraph discusses a company's strategic focus on utilizing its size and large installed base by adopting new technologies, with plans to strategically buy back shares throughout the year. Jacob Thaysen specifically mentions opportunities in MRD unrelated to mergers and acquisitions. An analyst asks about the company's actions related to tariff mitigation and their expected impact on earnings per share. Thaysen explains that although the tariff situation is still developing, the company anticipates a $85 million impact for 2025, with plans to offset about half of that through supply chain adjustments and manufacturer collaborations.

The company conducts most of its manufacturing in Singapore and the U.S. and isn't planning major changes to this setup, although optimization is still a priority. They have taken actions concerning pricing and feel confident in their decisions so far. The Q&A session concluded, and Brian Blanchett expressed gratitude to participants, noting that a replay of the call will be available on their website and looking forward to future events.

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