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    ILLUMINA (ILMN)

    Q1 2024 Earnings Summary

    Reported on Mar 18, 2025 (After Market Close)
    Pre-Earnings Price$120.50Last close (May 2, 2024)
    Post-Earnings Price$123.50Open (May 3, 2024)
    Price Change
    $3.00(+2.49%)
    • Operating margins are expected to improve sequentially every quarter, with Q3 better than Q2 and Q4 better than Q3, driven by better gross margin performance and cost control measures, including a 12% reduction in headcount compared to last year.
    • Despite competitive pressures, Illumina is seeing strong growth in sequencing consumables, particularly with the NovaSeq X, which is offsetting expected declines in older models, indicating positive customer adoption and market elasticity.
    • Customers are excited about the new XLEAP-SBS chemistry on the NextSeq 1000/2000 instruments, enhancing mid-throughput capabilities without the need for new hardware, offering higher quality scores, more capacity, and lower price point, making Illumina highly competitive in the mid-throughput segment.
    • Slow customer adoption and utilization of the NovaSeq X instruments: Management indicated that most of the 400 NovaSeq X instruments placed are still in the ramp phase, with only some research customers fully utilizing them. This suggests that consumable pull-through may be slower than expected, potentially impacting revenue growth.
    • Increased competition in the mid-throughput segment: The company acknowledged that there is competition, especially in the mid-throughput segment, where competitors offer lower cost per gigabase almost half of what XLEAP is on the NextSeq. This may lead to customers adopting competitor systems, impacting Illumina's market share in this segment.
    • Uncertainty regarding long-term growth targets and strategy: The CEO was not ready to share details on the overall long-range growth perspective, and the comprehensive strategy update has been postponed to the fall. This may indicate uncertainty in the company's strategic direction and ability to play offense in a competitive landscape. ,
    1. Long-term Growth and Margin Outlook
      Q: Can you share medium and long-term growth and margin outlook?
      A: CEO Jacob Thaysen is not yet ready to share detailed long-term growth perspectives but remains optimistic about Illumina's growth. He is dedicated to expanding margins back to historic levels, evidenced by gross margin expansion in Q1.

    2. Competition in Mid-Throughput Segment
      Q: How are you addressing competition in mid-throughput segment?
      A: Illumina acknowledges competition, especially in mid-throughput, primarily in China but also globally. They are committed to innovation with the XLEAP chemistry, offering higher quality, capacity, and lower cost without new instruments, making them highly competitive.

    3. Guidance and Mix of Consumables and Instruments
      Q: Do you expect the mix of consumables and instruments to change?
      A: Illumina reiterated guidance for core sequencing revenue growth, with the mix of consumables and instruments expected to remain the same. Instruments may show variability due to last year's NovaSeq X shipments, but consumables should have a steady profile.

    4. NovaSeq X Adoption and Consumables Pull-Through
      Q: What's driving revenue growth—NovaSeq X adoption or consumables?
      A: Revenue growth is driven by both instrument placements and consumables pull-through of NovaSeq X. Customers are adopting the full portfolio of X consumables, with strength seen throughout the quarter.

    5. Regulatory Issues: GRAIL Divestiture
      Q: Will you provide final terms of GRAIL divestiture if EU appeal delays?
      A: Illumina is moving forward with GRAIL divestiture and committed to providing insight by end of Q2, regardless of the timing of the EU jurisdictional appeal decision.

    6. Margins and Operating Expenses
      Q: What's causing the margin step-down in Q2 and outlook ahead?
      A: Q2 operating expenses increase due to timing of merit increases and annual stock grants, accounting for about half the sequential increase; project-related spending accounts for the rest. Operating margin is expected to improve sequentially each quarter.

    7. FDA's LDT Regulatory Rule Impact
      Q: Does FDA's new LDT rule give you an advantage?
      A: Illumina is well-positioned due to their IVD-compliant machines and investments in high-quality documentation, aiding customers in obtaining FDA approvals. The new rule plays to their strengths, and they are committed to supporting customers.

    8. Multiomics and SomaLogic Partnership
      Q: Can you provide color on multiomics and SomaLogic partnership?
      A: Illumina is excited about sequencing's role in multiomics, notably their early-access proteomics collaboration with SomaLogic. They aim to strengthen their position in multiomics both organically and with partners.

    9. High-Throughput Capacity and Competition
      Q: Is excess high-throughput capacity affecting customer decisions?
      A: Approximately half of NovaSeq X customers are using the 25B flow cell, indicating strong adoption. Many clinical customers are still validating assays and will gradually bring new ones online; Illumina monitors competition closely.

    10. Win Rates Outside China
      Q: Have win rates outside China stabilized in 2024?
      A: Win rates have stabilized, and Illumina continues to improve performance by focusing on customer support and taking competition seriously.

    11. Population Genomics Budget Pressure
      Q: Does budget pressure in population genomics risk consumables forecast?
      A: Illumina isn't relying on any individual population genomics program and doesn't foresee significant impact on consumables forecasts for 2024 or 2025.

    12. Service Revenues Higher Than Expected
      Q: Why were service revenues higher than expected?
      A: Strong service revenue growth of 27% year-over-year due to timing of specific pharma customer services and excellent performance in core instrument services.

    13. NovaSeq X Customers in Ramp Phase
      Q: How many NovaSeq X customers are at scale versus validating?
      A: Most of the approximately 400 NovaSeq X customers are still in the ramp phase; some research customers are at scale with one instrument and may be expanding.

    14. Order Momentum and Budget Anticipation
      Q: Is high-throughput order momentum based on actual orders?
      A: NovaSeq X orders are up year-over-year, with momentum expected to improve as customers complete validation and place multiple orders; this is not based on new budgets but existing customer activity.

    15. Mid-Throughput Elasticity and Pricing
      Q: How does XLEAP prevent a race to the bottom on pricing?
      A: XLEAP chemistry provides increased output and performance without requiring new instruments, appealing to customers and allowing Illumina to maintain a price premium due to innovation and technical superiority.

    Research analysts covering ILLUMINA.