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II

ILLUMINA, INC. (ILMN)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered core revenue of $1.04B (down 1% YoY; flat in constant currency), non-GAAP EPS of $0.97, and non-GAAP operating margin of 20.4%; performance was at the upper end of guidance, aided by NovaSeq X adoption and operational execution .
  • Guidance reset: FY25 constant currency revenue now expected to decline (1%)–(3%), non-GAAP operating margin 21.5%–22.0%, and non-GAAP EPS $4.20–$4.30, reflecting ~$85M tariff costs (≈125 bps OM and $0.25 EPS hit) and China export restrictions; outside Greater China, revenue expected to grow 0%–2% CC .
  • Operational mix trends: sequencing consumables revenue grew ~1% YoY to $696M; instruments revenue was ~$109M (flat YoY), with “another quarter of over 60” NovaSeq X placements and >30% YoY growth in high/mid-throughput Gb output, underscoring durable utilization despite research funding uncertainty .
  • Near-term catalysts: pricing actions and cost program ($100M incremental in 2025; >$225M run-rate when annualized) to mitigate tariffs; distinct China vs. Rest-of-World guidance improves transparency, while multiomics/DRAGEN v4.4 and partnerships (Tempus, Ovation) support the medium-term narrative .

What Went Well and What Went Wrong

What Went Well

  • “Strong Q1 revenue and EPS” at the upper end of guidance amid a dynamic environment; NovaSeq X saw “another quarter of over 60 placements” with rising consumables penetration and >30% YoY growth in connected Gb output .
  • Sequencing consumables strength and X transition: ~43% of high-throughput consumables revenue on X; >80% of high-throughput Gb in research on X; >50% of clinical volumes on X; clinical consumables grew mid-single digits .
  • Operational excellence driving margin: non-GAAP gross margin 67.4% (+30 bps YoY) and non-GAAP OpEx discipline; Q1 free cash flow $208M and cash from operations $240M demonstrate cash generation resilience .

What Went Wrong

  • China export ban for sequencing instruments and tariff headwinds forced guidance cuts (FY25 EPS lowered by $0.25 at midpoint), with Greater China revenue now expected at $165–$185M (Q1 recognized $72M) .
  • Research funding uncertainty (NIH and academia) weighed on consumables purchases; management assumes ~15% decline for research ANG for the remainder of FY25 .
  • Elevated field service costs and tariff-driven duties/freight pressured margins temporarily; software upgrades and service work pulled forward, with majority completed by Q2 .

Financial Results

Headline results across recent quarters

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$1,080 $1,104 $1,041
GAAP Diluted EPS ($)$4.03 $0.73 $0.82
Non-GAAP Diluted EPS ($)$1.14 $0.95 $0.97
Non-GAAP Gross Margin %70.5% 67.4% 67.4%
Non-GAAP Operating Margin %22.6% 19.7% 20.4%

Q1 2025 vs. prior year and vs. consensus

MetricQ1 2024Q1 2025 ActualQ1 2025 Consensus*
Revenue ($USD Millions)$1,056 $1,041 $1,036.9*
Non-GAAP Diluted EPS ($)$0.98 $0.97 $0.9390*
Non-GAAP Operating Margin %20.6% 20.4% N/A
EBITDA ($USD Millions)N/A$253 [GetEstimates]$258.3*

*Values retrieved from S&P Global.

Segment/Product mix

MetricQ3 2024Q4 2024Q1 2025
Product Revenue ($USD Millions)$914 $939 $880
Service and Other Revenue ($USD Millions)$166 $165 $161

KPIs (operational)

KPI (Q1 2025 unless noted)Value
Sequencing consumables revenue$696M; ~+1% YoY
Sequencing instruments revenue$109M; ~flat YoY
NovaSeq X placements>60 in Q1
% high-throughput consumables revenue on X~43%
% high-throughput Gb shipped on X (research)>80%
% clinical volumes on X>50%
Connected high/mid-throughput Gb output growth YoY>30%
Cash from operations (Q1)$240M
Free cash flow (Q1)$208M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core Illumina constant currency revenue growthFY 2025Low single-digit growth (1%) to (3%) decline Lowered
Non-GAAP Operating Margin %FY 2025~23% ~21.5%–22.0% Lowered
Non-GAAP Diluted EPS ($)FY 2025$4.50–$4.65 ; ~$4.50 (Mar update) $4.20–$4.30 Lowered (Tariffs)
Greater China Revenue ($)FY 2025Not quantified$165–$185M; $72M recognized in Q1 New disclosure
Tariff Cost ($), margin/EPS impactFY 2025Not quantified~$85M; ~125 bps OM; ~$0.25 EPS reduction New disclosure
Non-GAAP Tax RateFY 2025Not specified~22% New disclosure
Total Revenue ($)Q2 2025N/A$1.04–$1.06B; China $55–$65M; RoW $980M–$1.00B New
Non-GAAP EPS ($)Q2 2025N/A$1.00–$1.04 (incl. ~$15M tariffs) New
Non-GAAP Operating Margin %Q2 2025N/A~21% New

Earnings Call Themes & Trends

TopicQ3 2024 (Previous-2)Q4 2024 (Previous-1)Q1 2025 (Current)Trend
AI/Technology initiativesStrategy update; MiSeq i100 launch; advancing WGS/proteomics/single-cell Continued transformation; 2025 guide framed DRAGEN v4.4 launch; multiomics pipeline (5-base genome, spatial, single-cell CRISPR); PromoterAI; partnerships (Tempus, Ovation) Strengthening
Supply chain/tariffsLimited mentionChina “unreliable entities list” risk flagged; macro cautions $85M tariff cost; pricing/supply chain actions to offset; ~125 bps OM hit New headwind; mitigation underway
Product performanceNovaSeq X adoption progressing Better consumables mix; margin expansion >60 X placements; consumables up ~1%; instruments flat; >30% Gb growth Solid utilization, transition on track
Regional trendsGlobal demand constrained; execution focus FY25 guidance did not include China’s MOFCOM impact China export ban; RoW guidance separated; Europe strong per mgmt China down; RoW resilient
Regulatory/legalEC fine reversal aided 2024 FY24 non-GAAP OM uplift; divestiture-related items SEC investigation closed (no findings); Board Chair change (Gottlieb); Meister joins Governance stabilized
R&D execution/cost actionsMargin focus; roadmap commitments FY25 OM target ~23% $100M incremental 2025 cost reductions; >$225M annualized run-rate Accelerated efficiency

Management Commentary

  • CEO: “I’m proud that the Illumina team delivered strong Q1 revenue and EPS… Our outlook for the year has weakened due to shifting policy and geopolitical developments and we have taken swift incremental actions to protect our earnings” .
  • CEO: “NovaSeq X instruments continue to perform well, exceeding our expectations with another quarter of over 60 placements… [and] sequential increase in … high throughput consumables” .
  • CFO: “Revenue was flat year-over-year at top end of our guidance, and EPS at $0.97 was also towards the top end of the range” .
  • CFO: “Non-GAAP gross margin of 67.4%… increased 30 bps YoY… rolling out software upgrades… pulling forward some routine instrument service… majority of the upgrades should be completed by Q2” .
  • CFO: “$100 million in cost actions to be realized in 2025… represent over $225 million in total run rate reductions when fully annualized over the next 4 years” .

Q&A Highlights

  • Clinical vs. research trajectory: clinical consumables grew mid-single digits; research consumables down mid-to-high single digits; for the remainder of the year, mgmt assumes ~15% decline in research ANG; clinical offsets continue .
  • Tariffs and mitigation: FY25 tariff cost ~$85M; partial period ~$30–$35M per quarter thereafter; pricing, supply chain optimization and other expense measures target ~50% mitigation in 2025 and fuller offset in 2026 .
  • Pricing confidence: despite competitive chatter (including “free sequencing”), mgmt expects prudent pricing actions to be accepted, balancing long-term partnership and sustainability .
  • Competitive dynamics: recent competitor “technology overview” not impacting decisions; customers prioritize proven performance and reliability; no observed deferrals tied to competitor announcements .
  • Demand impact: little evidence of tariffs pulling demand forward in Q1/Q2 outside China; some China “pull-in” prior to restrictions noted .

Estimates Context

  • Q1 2025 beat: revenue $1.041B vs. consensus $1.037B*; non-GAAP EPS $0.97 vs. $0.9390*; EBITDA $253M vs. $258.3M* (slight miss), consistent with heavier field service and tariff-related duty costs .
  • FY 2025 consensus prior to Q1: $4.712* EPS and ~$4.286B* revenue; mgmt cut guidance to $4.20–$4.30 with CC revenue decline (1%)–(3%) and OM 21.5%–22.0%, citing tariffs and China .

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • Q1 fundamentals were resilient with utilization-led strength (NovaSeq X, >30% Gb growth); non-GAAP EPS and revenue landed at the high end of guidance, supporting execution credibility .
  • Guidance reset was a policy/tariff story, not a demand collapse: distinct China disclosure ($165–$185M) plus ~$85M tariff burden drove OM/EPS reductions; pricing and cost actions are active mitigants .
  • Clinical demand remains the bright spot (mid-single-digit consumables growth, continued X placements); research headwinds (NIH/academia) likely persist through 2025, with mgmt assuming ~15% decline .
  • Cash generation is robust (Q1 FCF $208M), enabling continued buybacks ($200M repurchased in Q1) and strategic flexibility (Tempus/Ovation collaborations; DRAGEN v4.4; future multiomics rollouts) .
  • Watch Q2 setup: revenue $1.04–$1.06B, EPS $1.00–$1.04 and OM 21% incorporate tariff impact ($15M) and minimal early pricing benefits; stronger H2 implied on pricing and cost actions .
  • Medium-term thesis hinges on X transition elasticity, multiomics pipeline (5-base genome/spatial/single-cell CRISPR), and tariff normalization/offsets by 2026; governance changes and SEC closure reduce overhangs .
  • Trading lens: near-term skew is to estimate stabilization/upward revisions in H2 on pricing/cost action delivery; headline risk remains around China resolution and tariff policy shifts .