Q1 2024 Illumina Inc Earnings Call

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Good day, ladies and gentlemen, and welcome to the first quarter 2020 for Illumina earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded I would now like to hand, the conference over to Sally Schwartz Vice President of Investor Relations.

Operator: Good morning, ladies and gentlemen, and welcome to the first quarter 2024 Illumina Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the call over to Sally Schwartz, Vice President of Investor Relations.

Sallilyn Schwartz: Hello, everyone, and welcome to our earnings call for the first quarter of 2024. During the call today, we will review the financial results we released after the close of market and offer commentary on our commercial and regulatory activity, after which we will host a question-and-answer session. Our earnings release can be found in the Investor Relations section of our website at Illumina.com. Providing prepared remarks for Illumina today will be Jacob Thaysen, Chief Executive Officer, and Ankur Dhingra, Chief Financial Officer.

Sallilyn Schwartz: Hello, everyone and welcome to our earnings call for the first quarter of 'twenty 'twenty four.

Sallilyn Schwartz: Jacob will provide an update on the state of Illumina's business, and Ankur will review our financial results, which include GRAIL. Joydeep Goswami, who is serving as an advisor to the company through June 30th, will then join us for Q&A. As a reminder, GRAIL must be held and operated separately and independently from Illumina pursuant to the transitional measures ordered by the European Commission which prohibited our acquisition of GRAIL under the EU merger regulation.

Sallilyn Schwartz: During the call today, we will review the financial results, we released after the close of market and offer commentary on our commercial and regulatory activity after which we will host a question and answer session.

Sallilyn Schwartz: Our earnings release can be found in the Investor Relations section of our website at Illumina dotcom.

Sallilyn Schwartz: Providing prepared remarks for Illumina today will be Jacob Tyson, Chief Executive Officer, and anchor Dendra Chief Financial Officer.

Sallilyn Schwartz: Jacob will provide an update on the state of alumina business and anchor will review our financial results which include grill.

Sallilyn Schwartz: Georgia Goswami, who is serving as an advisor to the company through June 30th will then join us for Q&A.

Sallilyn Schwartz: As a reminder, grilled must be held and operated separately and independently from Illumina pursuant to the transitional measures ordered by the European Commission, which prohibited our acquisition of grill under the EU merger regulation.

Sallilyn Schwartz: This call is being recorded, and the audio portion will be archived in the investor section of our website. It is our intent that all forward-looking statements regarding our financial results and commercial activity made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainty. The actual events or results may differ materially from those projected or discussed. All forward-looking statements are based upon current available information, and Illumina assumes no obligation to update these statements.

Sallilyn Schwartz: This call is being recorded and the audio portion will be archived in the investors section of our website.

Sallilyn Schwartz: It is our intent that all forward looking statements regarding our financial results and commercial activity made during today's call will be protected under the private Securities Litigation Reform Act of 1995.

Sallilyn Schwartz: Forward looking statements are subject to risks and uncertainties.

Sallilyn Schwartz: Actual events or results may differ materially from those projected or discussed.

Sallilyn Schwartz: All forward looking statements are based upon current available information and Illumina assumes no obligation to update these statements.

Sallilyn Schwartz: To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Illumina files with the Securities and Exchange Commission, including its most recent forms 10-Q and 10-K. With that, I will now turn the call over to Jacob.

Sallilyn Schwartz: To better understand the risks and uncertainties that could cause actual results to differ we refer you to the documents that Illumina files with the Securities and Exchange Commission, including illuminates. The most recent forms 10-Q and 10-K.

Sallilyn Schwartz: With that I will now turn the call over to Jacob.

Jacob Thaysen: Thank you, Sally. Good afternoon, everyone.

Jacob: Sally good afternoon, everyone before going into our first quarter results I want to take a moment to thank our former Chief financial Officer, and Chief strategy, and corporate Development Officer, Joe Jeep with Swami <unk>.

Jacob Thaysen: Before going into our first quarter results, I want to take a moment to thank our former Chief Financial Officer and Chief Strategy and Corporate Development Officer, Joydeep Goswami, for his many contributions to Illumina over more than four years. As Sally noted, Joydeep will stay in an advisory role through June to support a smooth transition. I also wanted to welcome our new CFO, Ankur Dhingra, who you will hear from shortly, and congratulate Jakob Wedel, who has now been named Chief Strategy and Corporate Development Officer.

Jacob Thaysen: Contribution to alumina over more than four years.

Jacob Thaysen: As Sandy noted George Hager.

Jacob Thaysen: They wanted advisory role through June to support a smooth transition.

Jacob Thaysen: I also wanted to welcome our new CFO I'm quoting Grubb, who.

Jacob Thaysen: As you'll hear from shortly and congratulate Yagur Boone, who has now been named as Chief strategy and corporate development Officer Yaacov joined Illumina in November and has been heavily involved in our long term strategy planning.

Jacob Thaysen: Jacob joined Illumina in November and has been heavily involved in our long-term strategy. Throughout the quarter, I continued to meet with customers around the world and had the opportunity to bring a number of them to our San Diego headquarters to discuss new ways to collaborate, innovate, and shape what their future looks like with Illumina. Some of our customers shared how they are scaling up their projects with NovaSeq X to unlock greater discovery power. One key area of focus is harnessing whole genome opportunities in minimal residual design.

Jacob Thaysen: Throughout the quarter I continue to meet with customers around the world and have the opportunity to bring a number of them to our San Diego headquarters to discuss new ways to collaborate innovate and shape, what that future looks like with Illumina.

Jacob Thaysen: Some of our customers shared how they are scaling up their projects with no extra to unlock greater discovery power.

Jacob Thaysen: One key area of focus is harnessing whole genome opportunities and minimal residual disease.

Jacob Thaysen: Other customers are starting to sequence deeper and are adding multi-omics layers to their projects, while others are looking at epigenomic biomarkers and methylation to help diagnose and characterize disease. We are seeing a significant opportunity to expand in the multi-omics field. Customers are looking for more sophisticated solutions to support their work, and we are exploring all avenues to create value in this space. Our recent acquisition of Partek, a specialized multiomics software solution, is a building block of our expansion into this space. Our intent is to collaborate with our customers to understand how we can provide more sample-to-answer solutions.

Jacob Thaysen: Other customers are starting to sequence deeper and adding wuxi omics layers to that projects, but others are looking at genomic biomarkers and methylation to help diagnose and characterize disease.

Jacob Thaysen: We are seeing a significant opportunities to expand and with <unk> customers are looking for more sophisticated solutions.

Jacob Thaysen: Caught that work and we are exploring all avenues to create value in this space.

Jacob Thaysen: Our recent acquisition of public, especially Wuxi Omics software solution is a building block of our expansion into this space.

Jacob Thaysen: Our intent is to collaborate with our customers to understand how we can provide more sample to answer solutions.

Jacob Thaysen: Illumina is at the heart of the ecosystem, and we will continue to catalyze the industry with an even greater focus on our customers' priorities. Turning to our first quarter results, I'll focus my comments on Core Illumina.

Jacob Thaysen: <unk> is at the heart of the ecosystem and we will continue to catalyze the industry with an even greater focus on our customers' priorities.

Jacob Thaysen: Turning to our first quarter results I'll focus my comments on call aluminum.

Jacob Thaysen: In Q1, we delivered core Illumina revenue of approximately $1.06 billion, ahead of our expectations. While it was a decent start to the year, we remain cautious due to the persistently challenging global microenvironment where customers are still constrained in their purchasing decisions. As expected, we are seeing this playing out across our region. Notably, with NOVA-NOVASIC-X placements versus the first quarter of 2023 when we shipped our first X instrument to fulfill a strong pre-order, three of our regions declined year-over-year. America's revenue was down 4%, MER revenue was down 3%, and Greater China revenue was down 14%.

Jacob Thaysen: In Q1, we delivered core Illumina revenue of approximately one point C was $6 billion ahead of our expectations. While it was a decent start to the year, we remain cautious due to the persistently challenging global macro environment, where customers are still constrained in their purchasing decisions.

Jacob Thaysen: As expected we are seeing this playing out across all regions, notably with Nova Nova C X placements versus the first quarter of 2023 will be shipped our first ex instrument to fulfill a strong pre order book.

Jacob Thaysen: Three of our regions declined year over year Americas revenue was down 4% EMEA.

Jacob Thaysen: Revenue was down 3% and greater China revenue was down 14%.

Jacob Thaysen: Europe revenue was up 7% year-over-year, although we expect a decline in Q2, given the last year's strong ex-shipment in Europe during the second quarter. Nonetheless, the Illumina management team continues to make significant progress executing against my three key priorities to accelerate value creation across the country. My first priority, driving our top line, is grounded in a growing installed base and helping customers realize the full potential of our industry. In Q1, we shipped an additional 55 NovoSeq-X instruments, bringing our total X-installed base to more than 400 instruments.

Jacob Thaysen: In Europe revenue was up 7% year over year, although we expect a decline in Q2, given the last year's strong ex shipment in Europe in the second quarter.

Jacob Thaysen: Nonetheless, Illumina management team continues to make significant progress executing against my three key priorities to accelerate value creation across the company.

Jacob Thaysen: My first priority driving our topline is grounded in a growing installed base and helping customers realize the full potential of our instruments.

Jacob Thaysen: In Q1, we shipped an additional 55, Nova C X instruments, bringing our total X installed base to more than 400 instruments. This is a solid start of the year and we expect momentum to continue to build.

Jacob Thaysen: This is a solid start to the year, and we expect momentum to continue to build. We also saw promising consumables demand throughout the quarter as our customers continue to scale their operations and expand their sequencing projects. With the launch of the 25B Raging Kit in Q4 and the 1.5B in Q1, and alongside the well-received upgrade of the 10B FlowCell, we are now providing our customers with a full suite of NovoSeq X products.

Jacob Thaysen: We also saw promising consumables demand throughout the quarter as our customers continue to scaling their operations and expanding the sequencing projects.

Jacob Thaysen: With the launch of the 25 be reagent kit in Q4, and a 1.5 beat in Q1 and alongside with the rail received upgrade up to 10 be flow cell. We are now providing our customers with the full suite of novo seek ex products.

Jacob Thaysen: In Q1, we also made Xleap SPS chemistry available to our mid-throughput customers with the launch of our P4 flow cell on the existing NexSeq 1K, 2K, and 3K. In the first several weeks post launch, we have received exceptional feedback from customers who are reporting reads that exceed specs for quantity and quality. Customers are positive about the simple migration that's enabled them to run spatial and single-cell projects, and they are impressed with the accuracy they see with the Dragon on board. Illumina continues to pursue strategic partnerships and alliances to drive the entire genomics ecosystem forward. As a recent example, Pillar Biosciences announced FDA approval for its pan-cancer IVD for general tumor profiling on the Illumina miC-D axis.

Jacob Thaysen: In Q1, we also made excellent SBS chemistry.

Jacob Thaysen: Billable dwell mid throughput customers with the launch of our people close to them on the existing next week, one case to pay instruments.

Jacob Thaysen: In the first several weeks post launch we have received exceptional feedback from customers, who are reporting reefs that exceed specs for quantity and quality costs.

Jacob Thaysen: Customers are positive about the simple migration, that's enabled them to run spatial and single set of projects and they are impressed with accuracy, they see with the Dragon onboard.

Jacob Thaysen: Illumina continues to pursue strategic partnerships and alliances to drive the entire genomics ecosystem forward.

Jacob Thaysen: As a recent example, hailer Biosciences announced FDA approval for its pan cancer, IBD, but general tumor profiling on the aluminum I see Dx system.

Jacob Thaysen: We've been partnering with Pillar since 2017, and I'm excited for this important milestone. Also in the quarter, Bristol-Myers Squibb joined our previously announced collaboration with Johnson & Johnson Innovative Medicine on the development of our multi-cancer, whole genome sequencing-based molecular residual disease assay to better understand disease recurrence. You should expect to see more of these types of activities going forward. Now, my second prize.

Jacob Thaysen: We've been partnered with pillar since 2017 and I'm excited for this important milestone also in the quarter Bristol Myers Scripp's joined our previously announced collaboration with Johnson <unk> Johnson innovative medicine on the development of our multi cancer whole genome sequencing based molecular residual disease assay to better.

Jacob Thaysen: Understand disease recurrence.

Jacob Thaysen: You should expect to see more of these types of activities going forward.

Jacob Thaysen: Now turning to my second priority.

Jacob Thaysen: I'm continuing my focus on delivering operational excellence by driving margin improvement through increased productivity while sustaining innovation and growth. It has been my goal to align our organization in a way that best supports our customers' evolving needs. In March, we brought together our marketing and commercial teams under one customer-first global function.

Jacob Thaysen: I'm continuing my focus on delivering operational excellence by driving margin improvement through increased productivity, while sustaining innovation and growth.

Jacob Thaysen: It has been my goal to align our organization.

Jacob Thaysen: Way that best support our customers' evolving needs in March we brought together, our marketing and commercial teams under one customer first global function.

Jacob Thaysen: I'm confident that combining these teams into one global commercial organization will build our ability to better serve customers while delivering more sustained growth and margins over time. Additionally, we are focused on driving further improvements throughout our end-to-end supply chain and are taking a disciplined approach to improve our cost structure. In Q1, we implemented new initiatives to adjust pricing across our portfolio to better cover our global operational costs. We also made progress in streamlining our real estate footprint as we exited select facilities in the Bay Area and in San Diego.

Jacob Thaysen: Im confident that combining these teams into one global commercial organization will build our agility to better serve customers, while delivering more sustained growth in margins overtime. Additionally.

Jacob Thaysen: Additionally, we are focused on driving further improvements throughout our end to end supply chain and are taking a disciplined approach to improve our cost structure in Q1, we implemented new initiatives to adjust pricing across our portfolio to better cover our global operational cost.

Jacob Thaysen: We also made progress in streamlining our real estate footprint as we exited select facilities in the Bay area and in San Diego. These.

Jacob Thaysen: These actions add to the number of ongoing initiatives that will continue to support our margins and increase further flexibility for investment in high-growth areas. We are also tightly focused on stabilizing our greater China business. And in Q1, we brought on Jenny Zhang as head of region. Jenny has deep expertise in health care and global organization and a strong leadership and execution mindset.

Jacob Thaysen: These actions add to the number of ongoing initiatives that will continue to support our margins and increase further flexibility when investment in high growth areas.

Jacob Thaysen: We're also tightly focused on stabilizing our greater China business and in Q1, we brought on to anything.

Jacob Thaysen: A region Jenny has deep expertise in health care and global organization.

Jacob Thaysen: And a strong leadership and execution mindset.

Jacob Thaysen: He's already proving to be a great leader of our China team and is introducing changes to make our business more China-friendly, which will include improving our local manufacturing and partnerships in the region. Moving on to my third priority, which is working to resolve Grail as quickly as possible. In April, we reached an important milestone in the divestment process when the European Commission approved our divestment plan for Gray. The approved plan contemplates both sales and capital markets options.

Jacob Thaysen: He is already proving to be a great leader of our China team and it's introducing changes to make our business more in China for China, which will include improving our local manufacturing and partnerships in the region.

Jacob Thaysen: Moving on to my third priority, which is working to resolve grail as quickly as possible.

Jacob Thaysen: In April we reached an important milestone in the divestment process, whether European Commission approved our divestment plan for grading.

Jacob Thaysen: The approved plan contemplates both sales and capital markets options and we have made progress on both Pos consistent.

Jacob Thaysen: And we have made progress on both parts. Consistent with the European Commission's divestiture order, in the event of a capital market transaction, we are required to capitalise Grail with approximately $1 billion, reflecting two and a half years of funding based on Grail's long-range plan. The amount includes cash on Grail's balance sheet.

Jacob Thaysen: Consistent with European Commission divestiture earlier in the event of a capital market transaction, we are required to capitalize grain with approximately $1 billion.

Jacob Thaysen: Reflecting two and a half years of funding based on Grail long range plan. The amount includes casts a great balance sheet.

Jacob Thaysen: We are on track to finalize the terms of the transactions by the end of the second quarter. I look forward to having additional updates for you. Overall, I'm encouraged by the progress we have achieved in the quarter and optimistic about delivering on our initiatives here in 2024. Now, I'll ask Ankur to share more detail on our first quarter results and our goals.

Jacob Thaysen: We are on track to finalize the terms of the transactions by the end of the second quarter I look forward to having additional updates for you soon.

Ankur: Overall I'm encouraged by the progress we have achieved in the quarter and optimistic about delivering on our initiatives here in 2024.

Ankur: Now I'll ask ankur to share more detail on our first quarter results and outlook.

Ankur Dhingra: Thank you, Jacob. And hello, everyone.

Ankur: Thank you Jacob and Hello, everyone.

Ankur Dhingra: I'm very excited to join Team Illumina to improve human health by unlocking the power of the genome. I'm passionate about making a positive, meaningful impact on health care. I am very familiar with the role Illumina has played in establishing and advancing the genomics industry over the last 25 years. Building on that strong foundation, I'm confident we can continue leading, supporting our customers, and delivering on the promise of what genomics can do for patients around the world. I would also like to express my thanks to Joydeep for his support as I transition into my role. It's been a great first two and a half weeks.

Ankur Dhingra: I'm very excited to join team illumina to improve human health by unlocking the power of the genome.

Ankur Dhingra: I'm passionate about making a positive meaningful impact in health care.

Ankur Dhingra: I am very familiar with the rule there all illumina has played in establishing and advancing the genomics industry over the last 25 years.

Ankur Dhingra: On that strong foundation I'm confident we can continue leading supporting our customers and delivering on the promise of what genomics can do for patients around the globe.

Ankur Dhingra: I would also like to express my Thanks to join me for his support as I transition into my role.

Ankur Dhingra: It's been a great first two and a half weeks.

Ankur Dhingra: I'll start by reviewing our segment results for Core Illumina and Grail, followed by consolidated financial results, and then conclude with my remarks on our current outlook for 2024. I will be discussing non-GAAP results, which include stock-based compensation. I encourage you to review the gap reconciliation of these non-gap measures, which can be found in today's release and in the supplementary data available on our website.

Ankur Dhingra: I'll start by reviewing our segment results for core Illumina and Grill, followed by consolidated financial results.

Ankur Dhingra: And then conclude with my remarks on our current outlook for 2024.

Ankur Dhingra: I will be discussing non-GAAP results, which include stock based compensation.

Ankur Dhingra: I encourage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release and in the supplementary data available on our website.

Ankur Dhingra: Starting with our segment financials. Core Illumina's first quarter revenue was $1.06 billion, which is down 2% year on year, both on a reported and constant currency basis. This revenue performance exceeded our expectations and was primarily driven by three areas. First, strong performance in high-throughput consumables.

Ankur Dhingra: Starting with our segment financials.

Ankur Dhingra: Core Illumina first quarter revenue was $1.06 billion, which is down 2% year on year, both on a reported and constant currency basis.

Ankur Dhingra: This revenue performance exceeded our expectations.

Ankur Dhingra: And was primarily driven by three areas.

Ankur Dhingra: Second, the timing of revenue from certain strategic partnerships. And third, some customers accelerating delivery of a few NovaSeq-X instruments from Q2 into Q1. Core Illumina sequencing consumables revenue of $698 million was up 1% year-over-year, primarily due to growth in high throughput. On a sequential basis, NOVA-Seq-X consumables grew in the double digits following the successful launch of the 25B flows. Total sequencing GB output on our connected high and mid-throughput instruments grew over 35% year-over-year and grew at a high single-digit rate quarter-over-quarter. Research and applied activity benefited as transition to the NovaSeq-X continues to ramp, and 25B adoption grew at large core labs. Clinical activity continued to be driven predominantly by the NovaSeq 6000.

Ankur Dhingra: Strong performance in high throughput consumables.

Ankur Dhingra: Timing of revenue from certain strategic partnerships.

Ankur Dhingra: And third some customers accelerating delivery of a few nova seek X instruments from Q2 into Q1.

Ankur Dhingra: As a reminder, we believe this data is a useful reference that shows the general activity trends across our install base and is directionally correlated with revenue over time. Sequencing instruments revenue for core Illumina of $110 million declined 29% year-over-year in Q1 2024. The year-over-year decline was driven both by one, an expected decline in mid-throughput shipments as capital and cash flow constraints continue to impact purchasing behavior and moderate instrument placements, and second, lower NovaSeq X placements as compared to significant pre-order launch-related shipments in the first quarter of 2022. For NovaSeq-X, as Jacob noted, we shipped 55 instruments in Q1.

Ankur Dhingra: Core Illumina sequencing service and other revenue of $151 million, up 27% year over year. Driven primarily by an increase in revenue from strategic partnerships and higher instrument service contract revenue on a growing install base. Moving to the rest of the core Illumina P&L.

Ankur Dhingra: For Illumina, its non-gap gross margin of 67.1% for the quarter increased 190 basis points year over year, driven primarily by a more favorable mix of sequencing consumables and execution of our operational excellence priorities that delivered cost savings, including freight and improved productivity. This was partially offset by certain strategic partnership revenue, that is lower margin, and increased warranty and field service costs. Core Illumina non-GAAP operating expenses of $491 million went down $23 million year-over-year, primarily due to decreased labor expense as a result of reduced headcount and continued savings from our cost containment initiatives.

Ankur Dhingra: Core Illumina non-GAAP operating expenses were lower than expected due to timing of project spend shifting from Q1 into Q2 and lower stock-based compensation expense due to a one-time reverse. Putting it all together, Coilumina's non-gap operating margin was 20.6% in Q1 2024 compared to 17.4% in Q1 2020. Transitioning to Financial Results for GRAIL. GRAIL revenue of $27 million for the quarter grew 35% year-over-year, driven primarily by the adoption of Gallery.

Ankur Dhingra: Grail non-GAAP operating expenses totaled $197 million and increased $24 million year-over-year driven primarily by increased headcount to support commercial expansion and research and development. Moving to Consolidated Financial Results. In the first quarter, consolidated revenue of $1.08 billion was down 1% year over year, both on a reported and constant currency basis. Non-GAAP net income was $14 million, or $0.09 per diluted share, which included dilution from Grail's non-GAAP operating loss of $185 million for the quarter.

Ankur Dhingra: Non-GAAP EPS exceeded our expectations, driven primarily by higher core revenue and lower core operating expenses in the quarter. Our Q1 non-GAAP tax rate was 46.4% compared to 27.3% in Q1 2023, with both periods including a meaningful impact from the consolidation of Grails operating loss, which increased by $21 million year over year. Absent the impact of GRAIL, Q1 2024 and Q1 2023 tax rates were in the mid-20s. Our non-GAAP weighted average diluted share count for the quarter was approximately $159 million.

Ankur Dhingra: Moving to consolidated cash flow and balance sheet items for the quarter, cash flow provided by operations was $77 million, capital expenditures were $36 million, and free cash flow was $41 million. We did not repurchase any common stock. We ended the quarter with approximately $1.12 billion in cash, cash equivalents, and short-term investments.

Ankur Dhingra: Moving now to 2024 guidance. As a reminder, Illumina is moving as quickly as possible to resolve GRAIL, and the company is focusing its 2024 financial outlook on core Illumina, given the uncertainty around the specific timing and impact of the GRAIL divestment. Our guidance does not assume any impact from the potential divestment of GRAIL in 2024.

Ankur Dhingra: We will provide non-GAAP EPS guidance for 2024 upon completion of the divestment. We are encouraged by our results in Q1 that came in ahead of our expectations, both for the top line and margin. We've also seen the seasonal rebuild of our total performance obligations or backlog, which increased more than 20% from the end of Q4. At the same time, we're still not seeing any significant improvement in the macroeconomic environment or our business in China.

Ankur Dhingra: And we are monitoring the impact of a strengthening U.S. dollar. While we are seeing early strength in consumables to start the year, it's being offset by capital constraints that are continuing to weigh on instrument purchases. As such, we are reiterating our full year 2024 core Illumina revenue guidance of approximately flat from 2023 and non-GAAP operating margin of approximately 20%. Our operating margin expectations continue to reflect the benefit of gross margin improvement and disciplined management of our expenses, including reduced headcount, offset by normalization of our performance-based compensation, as well as the impacts of inflation.

Ankur Dhingra: For the second quarter of 2024, we expect core Illumina revenue in the range of 1.072 billion dollars to 1.084 billion dollars, reflecting a year-over-year decline of six and a half to seven and a half percentage points. The year-over-year decline is predominantly because of lower NovaSeq-X instrument shipments given the significant backlog we worked through early last year following the launch. At the midpoint, this guidance reflects a $22 million sequential increase from Q1 of 2024.

Ankur Dhingra: For the second quarter, we expect Core Illumina's non-GAAP operating margin of approximately 18%, resulting from a seasonal step-up in operating expenses in Q2 compared to Q1, primarily due to an increase in stock-based compensation expenses from the timing of equity grants. We also expect an increase due to some project spending shifting into Q2 from Q1. With that, I will now turn it back over to Jacob for his closing remarks. Thank you.

Jacob Thaysen: Thanks, Ankur. Before we close and move to Q&A, I'd like to comment on our upcoming strategy update event. Illumina's leadership team has been re-examining our strategy, the roadmap, and initiatives for achieving it, and the profitable growth we believe it can produce. Our strategy will continue to play to Illumina's strength of building the genomics ecosystem and maintaining a tight customer focus in an increasingly competitive space. Central to this is our goal of making customers the heroes in their labs.

Jacob Thaysen: In every customer meeting, we are listening intently to understand what they need to unleash the full power of their Illumina instruments and making their priorities the core of our strategy. You will see us continue to develop more sample-to-answer solutions to enable the genomics and multiomics ecosystems. We will maintain our open platform approach and continue to drive the innovation that our customers need to succeed and for which Illumina is known. Illumina has long been the standard at NGS. Our strategic hands-on support for customers globally, our deep experience and expertise across multiple research and clinical markets, and our decade-long technology roadmap position us as well to continue leading the industry and enabling our customers to improve human health.

Jacob Thaysen: I am excited to announce that we will be sharing our comprehensive strategy work with you during a virtual event in the fall of this year. We will have more information in the coming months. Thank you for joining me. I'll now invite Ankur and Joydeep to join me for Q&A.

Operator: Thank you. If you are dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. As a reminder, please limit yourself to one question so that we can accommodate as many analysts as possible. You are welcome to re-enter the queue if you have additional questions. Again, please press star 1 to ask a question. Our first question comes from the line of Doug Schenkel with Wolf Rees-Mogg.

Douglas Anthony Schenkel: Hey, good afternoon. And thank you for taking my question. Jacob, I want to start with a high-level one that kind of builds off of the announcement you just made, and then I want to ask a specific cleanup question about the quarter. So first, You know, it's hard to believe, but we're now just over, I think it's eight months into your tenure as CEO of the company. From the outside, we see the changes you are starting to make in leadership within the broader organization and in moving towards a resolution on Grail.

Douglas Anthony Schenkel: That said, there continues to be a lot of uncertainty about, you know, things like first, you know, I'd say your view on Illumina's long-term growth profile, especially given uncertainty about the competitive landscape and the outlook for market elasticity. You know, secondly, you know, what are reasonable operational targets? And then thirdly, you know, ultimately, whether the company, as we sit here today, is positioned to play offense. Would you be willing to share at least a little bit more today about where you are in the process of moving from data gathering and business assessment to, you know, maybe putting some stakes in the ground regarding the medium and long-term outlook for the company from a growth and operating margin standpoint?

Douglas Anthony Schenkel: And I know that was a lot, but let me sneak in the mathematical follow-up question on the quarter. It seems like high throughput sequencing consumable revenue grew low to mid teens. Is that right? And if so, what does that tell you about evolving competitive dynamics and questions regarding elasticity?

Jacob Thaysen: Thank you.

Jacob Thaysen: Well, Doug, thank you very much. That was a long question, and I think also happy birthday to you. So I'll do my best here to answer the first question, and I think actually I'm just a little bit over seven months into my tenure, so maybe I should have another month before I really ask this question, but definitely, I spend a lot of time with our customers, with our employees.

Jacob Thaysen: I'm excited every time I go and walk around the R&D building and uncover new innovations that we are doing. There's a lot going on in this company. In the meantime, we're also spending a lot of energy on looking into, of course, where – how are we – in what direction are we putting Illumina going forward? And I think we covered a little bit in my prepared remarks that we see a lot of opportunities in both in genomics with the X coming out there, and we see a lot of elasticity in that area already with many customers using that to go into single cell, into This is not something that will happen in the future.

Jacob Thaysen: It's already happening now, but obviously, at the same time, we're running through that change in price point, and of course, we expect to see elasticity to really help us here over the next period of time. So while I'm not ready to share with you where we would go from an overall growth perspective in the long run, I can guarantee you that we still are optimistic about the growth of Illumina going forward. Secondly, as I think you saw here in Q1, we are highly dedicated to continuing to expand our market.

Jacob Thaysen: And I'm really pleased with all the work that went into with the team here and how we saw the growth margin expansion here for the quarter. So I think that's just evidence of what we are committed to do to continue to drive up. And I don't think there's anything that holds us back from driving up margins over the next period of time to where we have been at historic levels.

Jacob Thaysen: But then again, you know, I do want to wait a little more to have everything lined up from a strategic point of view and, therefore, also our growth algorithm and our cost structure algorithm to really go out and share the details. But fundamentally, I truly believe that Illumina has a great opportunity to continue doing what we have done for the last decade of leading the genomics industry, being in the middle of the ecosystem, and really going out there and supporting our customers.

Jacob Thaysen: But then again you know I do want to wait a little module have everything lined up from a strategic point of view and thereby also our growth algorithm and our cost structure algorithm to really go out and share the details, but fundamentally I truly believe that illumina has a great opportunity of being <unk> and can.

Jacob Thaysen: Cheering to what you've done last decade of bleeding the genomics industry being in the middle of the ecosystem really go out there and support our customers, but now in the future. We have the customer expectations are different from what they had been in the past to really focus on end to end workflows.

Jacob Thaysen: But now, in the future, we have customer expectations that are different from what they have been in the past to really focus on end-to-end workflows, but also new innovations into the genomics space that we highly value. So that's where I'm right now. I think then maybe, yeah, on, Joydeep can help us a little bit on the consumer. Yeah, look, I think.

Joydeep: But also new innovations into the Moon Xiaomi space that'd be hydro committed too.

Joydeep: So that was.

Joydeep: We're in right now I think than maybe yeah on on judge you can help us a little bit on on the consumable question.

Joydeep Goswami: Yeah, look, I think, uh, hey, and happy birthday again, Doug. On consumables, we, as expected, saw strong growth with X consumables, and, you know, we saw X consumable revenues offset, or growth in X consumable revenues offset, the decline in, the expected decline in 6K consumables, right? So that's a good piece. We also are seeing very strong sequencing activity growth driven by X and X customers, right? So this is a really positive thing.

Joydeep: Yeah look I think here and happy birthday again, Doug.

Joydeep Goswami: On consumables, we are as expected you know saw strong growth with X consumables, and we saw X consumable revenues offset our growth in X consumables revenues offset the decline in the expected decline in 6K consume those right. So that's a good piece. We also are seeing.

Joydeep Goswami: Being very strong sequencing activity growth driven by X and X customers right. So this is a really positive thing and it underpins a lot of what Jacob talked about in terms of.

Joydeep Goswami: And it underpins a lot of what Jacob talked about in terms of new applications or expanded applications in clinical and research, right? So we're excited about that. And, you know, we expect that to continue as the 25B flow cell gets more adopted and more used in regular activities by our customers.

Joydeep Goswami: New applications are expanded applications in clinical and research right. So we're excited about that and.

Joydeep Goswami: We expect that to continue.

Joydeep Goswami: The 25 <unk> flow cell gets more adopted and more used.

Joydeep Goswami: In a regular activities at our customers.

Joydeep Goswami: Thank you. Your next question comes from the line of Puneet Souda with Lyrinc Partners.

Joydeep Goswami: Thank you. Your next question comes from the line of Puneet <unk> with Leerink partners.

Puneet Souda: Hi guys, thanks for taking my questions. Let me focus a bit on the mid-throughput segment. I just want to understand, can you please provide us with the growth in that mid-throughput segment for both consumables and, more importantly, instrumentation? There are increasingly more questions as customers in the core labs that don't necessarily have an X or a 6K are taking on a competitor system because it's lower cost per gigabase, almost half of what XLEAP is in the next week. So just wondering, can you elaborate a bit more on what's happening in that segment and how you address that?

Puneet Souda: Yeah, Hi, guys. Thanks for taking my questions.

Puneet Souda: Let me focus a bit on the mid throughput segment I just want to understand can you provide us what was the growth in the mid throughput segment for both the.

Puneet Souda: Consumables and more importantly instrumentation.

Puneet Souda: You know, there's they're increasingly more questions as you know customers in the core labs that don't necessarily have an X or a 6K are taking on a competitor system, because it's lower price lower cost per gigabit, it's almost half of what the sleepers in the next week. So just wondering can you elaborate a bit more on what's happening in that.

Puneet Souda: And how do you address that.

Jacob Thaysen: Thank you. Yeah, thanks for that, Puneet. I think, as a starting point, we are not providing details on the growth in the mid-throughput segment, but let me just try to address some of your questions anyway. We, of course, are very committed to the mid-throughput, and I'm really excited with the X-ray chemistry now coming out on the 1K, 2K. It's only been a few weeks out there, but we have seen, as I mentioned before, You can pretty much, with a software upgrade, use new flow cells, and you can get higher quality scores.

Speaker Change: Thank you yeah. Thanks for that Puneet I think as a starting point, we are not providing details on the growth on on the mid throughput segment, but let me just try to address.

Jacob Thaysen: Some of your questions anyway is that.

Jacob Thaysen: We of course are very committed to the mid throughput and I'm really excited with the with the <unk> chemistry now coming out under one Casey Hey.

Jacob Thaysen: It's only been a few weeks out there, but we have seen as I mentioned also before tremendous excitement from our customers that this doesn't need a new instruments you can pretty much with a software upgrade you can you can you can use a new flow cells that you can get higher quality.

Jacob Thaysen: You can get more capacity, and you can also, of course, at a low price point. So a lot of our customers are super excited about that, and it really makes us highly competitive in that space. That said, you're right, there's competition, and by the way, we take competition very seriously in our whole segment, but mid-throughput is clearly where there are more competitive activities than maybe other spaces. We're seeing that mostly in China still, but in the rest of the world, there's also that, but we will continue to innovate in this space.

Jacob Thaysen: Scores through can you can get more capacity and you can also of course with a with a low price point. So a lot of customers are super excited about that and it really makes us highly competitive in that space that said you're right. There is competition and by the way we take competition very seriously in the.

Jacob Thaysen: And our whole segments, but mid throughput is clearly aware that that's more activity competitive activities that may be all of the spaces. We are seeing that mostly in China still thought in rest of world. That's also that but we will continue to innovate in this space I think the extra Nebraska mentioned was a good step in that direction, but.

Jacob Thaysen: I think the X-leap, as I mentioned, was a good step in that direction, but it's an area we will continue to compete in, and also we expect to fight for every market share point out there. Maybe to add, right, so two things.

Jacob Thaysen: It's an area, we will continue to to compete in and and also we expect to fight for every market share points out there and maybe to add rates are two things. We continue to see consumables growth sort of elasticity in that mid throughput segments. So that's one and two.

Jacob Thaysen: And maybe to add, right, two things. We continue to see consumables grow, so the elasticity in that mid-throughput segment, so that's one. And two, as we had told you when we set our budget for the year, we had already anticipated a certain level of competition, and what we're seeing in the market is in line with what we had expected. And again, I want to emphasize that some of the forecast that we had given for mid-throughput accounted for the macroeconomic headwinds that we had expected to see going through this year, and we actually, those have come to bear, right? So again, it's in line with what we had told you.

Jacob Thaysen: We had as we had told you when we set our budget for the year, we had already anticipated a certain level of competition and what youre seeing in the market is in line with what we had expected and again I want to emphasize that.

Jacob Thaysen: Some of the.

Jacob Thaysen: The Ah <unk>.

Jacob Thaysen: Forecast that we've given for met throughput.

Jacob Thaysen: Accounted for the macroeconomic headwinds that we had expected to see going through this year and we actually those have come to bear right. So again, it's in line with what we had told you.

Vijay Muniyappa Kumar: Thank you. Your next question comes from the line of Vijay Kumar with Evercore ISI.

Jacob Thaysen: Thank you. Your next question comes from the line of Vijay Kumar with Evercore ISI.

Vijay Muniyappa Kumar: Hey guys, thanks for taking my question. Ankur, welcome. Welcome. I guess my first question is about guidance here. And Jacob, maybe you can chime in on this, right?

Vijay Muniyappa Kumar: Hey, guys. Thanks for taking my question Encore are welcome.

Vijay Muniyappa Kumar: Welcome.

Vijay Muniyappa Kumar: I guess my first question is.

Vijay Muniyappa Kumar: My first question is on the guidance here.

Vijay Muniyappa Kumar: And Jacob maybe you can chime in on this rate so sequentially core revenues are up.

Jacob Thaysen: So sequentially, core revenues are up by about 30 million. Is that all being driven by consumables? I think you mentioned you saw improving consumable pull through on the X throughout the quarter as the quarter progressed. So maybe some color on what the exit rate is and where is that increase coming from?

Jacob Thaysen: By about $30 million is that all being driven by consumables I think you mentioned you.

Jacob Thaysen: You saw improving consumable pull through on the X throughout the quarter as the quarter progressed.

Jacob Thaysen: Yeah, I think Ankur can certainly also chime in here, but we saw real strength throughout the quarter. There was nothing of this being the last few weeks of the quarter, but we continue to see customers adopt the X consumables. Now that we have a full portfolio, both the 25B, the 10B, and the 1.5B, we see a lot of more applications coming in from our customers. So it has really been the X, as Joydeep also was talking about before, that we have seen improvement.

Speaker Change: Yeah, I think anchor can certainly also chime in here, but we saw actually strength throughout the quarter and there was nothing of this being the last few weeks of the quarter, but we continue to see our customers adopt the <unk> X consumables.

Jacob Thaysen: Now, where we have a full portfolio of both the 25 be they tend to be in the one five b, we see a we see a lot of more applications coming on board from our customers. So it is really been truly by the X S. J P. Bussell was talking about before that we have seen a seen improvement. Besides that we have also said.

Jacob Thaysen: Besides that, we have also – so the beat was very nice on the consumables, but we've also seen our BD revenue grow. We have seen some partnerships that have been accelerated, and we're just excited about that because it's a big part of our strategy also to continue to develop together with our partners. So that was also a part of our performance. Ankur, do you have more? Yeah, I think the

Ankur Dhingra: So the beat was very nice on on <unk>.

Ankur Dhingra: Consumables, but we've also seen our our BD revenue growth, we have seen some partnerships.

Ankur Dhingra: That has been accelerated and.

Ankur Dhingra: We just excited about that because it's a big part of Australia also to continue to develop together with our with our partners. So so that was also part of our performance and Korea have more yes, I think the thing that was really the only thing I would add specifically that the the sequential increase in business that we are forecasting and built in the guidance.

Ankur Dhingra: I think that was well covered. The only thing I would add specifically that the sequential increase in business that we are forecasting and built into the guidance comes both from instruments and consumables. So we're expecting both that positive trend to continue.

Ankur Dhingra: Both from instruments and consumables. So we're expecting both both of that positive trend to continue.

Daniel Gregory Brennan: Thank you. Your next question comes from the line of Dan Brennan with TD Cowen. Great, thank you.

Daniel Gregory Brennan: Thank you. Your next question comes from the line of Dan Brennan with TD Cowen. Great, thank you, anchor. Welcome aboard. Maybe just a question on multi-omics and some of the new products that

Ankur Dhingra: Thank you. Your next question comes from the line of Dan Brennan with TD Cowen.

Jacob Thaysen: Yeah, for sure. Thanks, Dan.

Speaker Change: Great. Thank you our anchor welcome aboard maybe just a question on.

Jacob Thaysen: Multi all makes and some of the new products at Jacobs <unk> been talking about and it's been kind of in the aluminum proxy as well can you just give us some color maybe start with maybe there is some logic.

Jacob Thaysen: Kind of partnership is that is that.

Daniel Gregory Brennan: Multi omics excitement that you're expressing and then any other color you can provide about like sample to answer and some of the newer areas that youre looking to explore timing wise. When do you think we'll get an update on that will it be the investor day, but just how do we think about potential opportunity for illumina. Thank you.

Jacob Thaysen: And you're absolutely right. I mean, overall, I'm excited about the way that sequences can play a role in multiomics. And I'm excited about how we can help partners and customers stimulate that market. And that goes for all the multiomics spaces, if you look into them. But of course, we are, if you just look at the short term here, we are, of course, very excited about our relationship with Somalogic and where we can go with proteomics. We are still in early access.

Speaker Change: Yeah for sure Thanks, Dan and you're absolutely right I mean overall I am excited about.

Jacob Thaysen: The way that sequences can play and will genomics and I'm excited about what how we can help also partners and end customers stimulate that market and that goes for all the all the multi omics spaces. If you look if you look into them but of course, we are if you just look short term here is of course very excited about our relationship with.

Jacob Thaysen: With melodic and where we can go with proteomics. We are still in early access. So 24 will be the year, but we are going out with a few handfuls of customers that are really going in and make sure. We truly understand the power, but already the feedback from customers. So far has been very positive on that so I'm certainly excited about that.

Jacob Thaysen: So 24 will be the year where we go out with a few handfuls of customers and really go in and make sure we truly understand the power. But already, the feedback from customers so far has been very positive on that. So I'm certainly excited about that.

Jacob Thaysen: But we will continue to look into our options for us to play even stronger into multi omics going forward across all of the opportunities there both.

Jacob Thaysen: But we will continue to look into options for us to play even stronger in multiomics going forward across all the opportunities there, both organically, but, of course, also together with our partners out there. If you look into end-to-end workflows, I think that's a really great opportunity. As I mentioned before, I see customers obviously are looking for the best technology, but they're also looking for ease of use. That it's not only about the sequencer itself but samples to answer.

Jacob Thaysen: Organically, but of course also together with with our partners out there. If you look into end to end workflows.

Jacob Thaysen: I think that's a that's really a great opportunity as I mentioned before that I see customers.

Jacob Thaysen: Obviously, you're looking for the best technology, but they're also looking for ease of use that is not only about you know the sequencer itself, but sample to answer and the more we can automate the more we can simplify and both from a core sample prep, but of course also from informatics.

Jacob Thaysen: And the more we can automate, the more we can simplify, both from, of course, sample prep, but also from informatics. I think we can really make sure that our customers can spend the time on where they can create the most value. So we'll speak more about that, as you mentioned in our strategy update, and I think Illumina has a great opportunity to cover whole workflows and create great applications for our customers.

Jacob Thaysen: We can really make sure that all customers can spend the time on where they can create most value. So we will speak more about that as you mentioned also in our strategy update.

Jacob Thaysen: And I think Illumina has a great opportunity to cover whole workflows and create great applications for vault customers.

Daniel Anthony Arias: Thank you. Your next question comes from the line of Daniel Arias with Stiefel.

Daniel Anthony Arias: Thank you. Your next question comes from the line of Daniel Arias. Hey, guys, this is Paul on for Dan. Thanks for the questions. I think just one from us in terms

Speaker Change: Thank you.

Jacob Thaysen: Next question comes from the line of Danielle <unk> with Stifel.

Daniel Anthony Arias: Hey, guys. This is Paul on for Dan Thanks for the questions.

Paul: I think just one from us and in terms of Ah you know pop seek can we get some some commentary on that it seems like all of US has seen some budget pressure there's been some news there with recent cut.

Paul: Does that create any risk to the consumables forecast for the year and maybe on the flip side on the <unk> you know in Europe with genome of Europe, there's been some chatter about that picking up is that something you could see increased activity in 2025 that would be meaningful.

Jacob Thaysen: I think overall we have, if you look at the longer run, we are a long horizon, a mid-term horizon. I'm very excited about POPGEN, not only for POPGEN, but what it really constitutes in terms of surgeons really looking into big genomic studies to, in the end, implement into the healthcare system.

Paul: I think overall, we have a if you look at the longer run we are a long horizon amid midterm horizon I'm very excited about the pops in not only for <unk>, but what it really constitute in terms of sorry, Im really looking into a big genomic studies to Indiana to implement into the health care system and.

Jacob Thaysen: And we have more than 30 programs ongoing right now, and we have at least the same number in the funnel of opportunities for the future. But we're not banking on anyone's individual programs. So it's clear with these big programs where you have surgeons having to make decisions and budgets and so on that there's a little bit of puts and takes in that, and thereby, we are not really budgeting and building our budgets based on individual programs. So I don't foresee that any of them are making a big impact on our other 24, 25 opportunities. But obviously, we are doing our best to stimulate the market out there.

Jacob Thaysen: The puts and takes in that and thereby we're not really budgeting and make building our budgets based on individual programs. So I don't foresee that that any are.

Jacob Thaysen: Any of them are making a big impact on our other 'twenty four 'twenty five.

Jacob Thaysen: Opportunity, but obviously we were what we are doing our best to stimulate the market out there.

David Michael Westenberg: Thank you. Your next question comes from the line of David Westenberg with Piper Sandler.

Jacob Thaysen: Thank you. Your next question comes from the line of David Westenburg with Piper Sandler.

David Michael Westenberg: Hi, thank you for taking the question. So I just want to start with the continuation of Puneet's question on the mid-throughput side. How has Xleap helped maybe in that mid-throughput, or how do you anticipate it helping it? And Joydeep, I think you mentioned some, there is some elasticity there. I think there it's a little bit less clear, you know, in the X department. You definitely see the whole genome from exome, but you see a lot more single cell kind of stuff.

David Michael Westenberg: So I just want to start with Canadian ration of two needs question on the mid throughput side. How is the ex leap help may be in that mid three report or how do you anticipate it help it helping it and J D. But I think you mentioned some.

David Michael Westenberg: There is some elasticity there I think there, it's a little bit less clear.

David Michael Westenberg: Ex Department, you're absolutely key to whole genome from for Max.

David Michael Westenberg: You see a lot more single cell kind of stuff can you just.

Jacob Thaysen: Can you, you know, just reiterate some of that elasticity and how to prevent that from being a race to the bottom, just given that, as you mentioned, the competitor is using price there. And then, on the high throughput side, you did say that you expected the order rate momentum to build. Is that based on, you know, actual orders in the book? Is it, you know, and very late in the cycle orders, or is it just anticipation of budgets?

Jacob Thaysen: Just reiterate some of that last to see and how to prevent that from being a race to the bottom just given that the.

Jacob Thaysen: As he mentioned that the competitor is.

Jacob Thaysen: Expect the order rate momentum to build is that based on.

Jacob Thaysen: Actual orders in the book is it you know.

Jacob Thaysen: And.

Jacob Thaysen: Very late in the cycle orders or is it just the anticipation of budgets I mean any way you can walk us through how that makes.

Jacob Thaysen: I mean, anyway, you can walk us through how to do this, make us a little more clear on that. Thank you.

Jacob Thaysen: It makes us a little more clear on that.

Jacob Thaysen: Yeah, No.

Speaker Change: Yeah no. Thanks, So let me try to give a little more color on the mill throughput is that are we actually seeing with exceeds chemistry is that that's really treated I mentioned too. It is high quality of sequencing. It but it's also a higher capacity with a lower cost so it really gifts and customers an opportunity to do more with the sequences and thereby we are.

Jacob Thaysen: So thanks. Let me try to give a little more color on the mis-throughput. It's that we're actually seeing with chemistry, actually, as I said, there are really three dimensions to it. It's high quality sequencing, but it's also high capacity with a lower cost. So it really gives customers an opportunity to do more with the sequences. And thereby, we also see that there are customers that were looking to maybe go into a single cell or even space that they felt they couldn't afford or they couldn't do with the equipment capacities or with the cost positioning that was previously, which now opens up for that space.

Jacob Thaysen: Also see that our customers that we're looking to maybe go into single cell.

Jacob Thaysen: All even special that they felt they couldn't afford or they couldn't do on with the capacities with the cost for this positioning.

Jacob Thaysen: Positioning that was previously that now opens up for that space. So I think we are seeing again, an elasticity game that will play out over the next period of time.

Jacob Thaysen: So I think we are seeing, again, an elasticity game that will play out over the next period of time. And I think, in the end, customers are really looking to work with innovators here in the field. And I think, actually, chemistry is just another example that we continue to innovate in all our sectors. And so while it is an environment right now that's also been impacted by the macro, I actually am pretty excited about what active chemistry will do for us over the next period of time and what new applications it will bring to the mid-throughput. As you mentioned, there are a lot of things going on in high-throughput also, but we see some of the same things happening in mid-throughput.

Jacob Thaysen: I think in your end customers.

Jacob Thaysen: Are really looking to work with innovators in the field and they I think actually chemistry is just another example that we will continue to innovate in all our segments and so so while it is an environment right. Now that's also been impacted by the macro.

Jacob Thaysen: I actually have pretty pretty excited about what the exit chemistry will do for us over the next period of time and what new applications. It would bring on also in the mid throughput as you mentioned a lot of things going on in <unk> and high throughput also but we see some of the same things happening in the in the mid throughput.

Joydeep Goswami: Yeah, I think I didn't just want to comment on, you know, and add to what Jacob has said, right? Ex Sleep, remember, was a way for us to help our customers use the same instruments that are already out in the field with simple software changes, right? They basically can get increased output, better accuracy, and better performance. And I think we saw that come through very clearly with our launch in Q1. I want to emphasize, too, right, you're seeing the elasticity and really immediately in the research domain, right, where, you know, a lot of what Jacob was talking about in terms of multiomics, single cell, and spatial things do tend to get performed first on the research side, on mid-throughput.

Speaker Change: Yes, I think I didn't just your comment on you know add to what Jacob said right ex leap remember it was a way for us to help our customers use the same instruments that are already out in the field with a simple.

Joydeep Goswami: Software a change where they basically can get increased output better accuracy better performance and I think we saw that come through very clearly with our launch in Q1.

Joydeep Goswami: I want to emphasize two right youre seeing the elasticity and really immediately in the in the in the research domain right, where you know a lot of what Jacob was talking about in terms of multi omics single cell space.

Joydeep Goswami: Special things do tend to get performed first on the research side on mature, but we are also continuing to see that we can maintain because of our innovation and our technical superiority a price premium over what others are offering in the market right. So we're seeing a lot of that continue and we're encouraged by that.

Joydeep Goswami: We are also continuing to see that we can maintain, because of our innovation and our technical superiority, a price premium over what others are offering in the market, right? So we're seeing a lot of that continue, and we're encouraged by that.

Joydeep Goswami: The macroeconomic pieces are there, but they will end at some point and we do expect that.

Jacob Thaysen: Yeah, and then I think you had the question about orders on the X, and I would say, first of all, we've seen X orders up year-over-year, and so we're certainly encouraged by that, and as you also know, we actually expect that we will have improvements during the momentum during the year. So at this point, we are just expecting this to look better, and especially since we have a lot of customers, you know, that bought one or maybe two Xs, have done validation work on that, and we are starting to see these multiple orders coming in now, up to 10 instruments at a time.

Joydeep Goswami: And then I think you asked the question about how autos.

Jacob Thaysen: On the X and I would say first of all the we have seen the X orders being up year over year and so we saw encouraged by that and an astronaut also know that that a and.

Jacob Thaysen: We actually expect that we will that we will have improvements during the momentum during the year and so at this point. We are just expecting this tool to look better and especially since we have a lot of customers that bought one or maybe two axis have done validation work on that and we are starting to see these multiple orders coming in now up to 10.

Jacob Thaysen: Our instruments at the time, so I think you'll see that momentum going through the year awesome, but Dave. There. This is not based on some magic new budget thing right.

Jacob Thaysen: So I think you will see that momentum going through the year also. But Dave, this is not based on some magic new budget thing, right? We, as you just reiterated, have expected to see the macroeconomic conditions continue as they are right now. Thank you. Your next question comes from the line of Sibu Inandi with Guggenheim.

Sibu Inandi: To reiterate we are expected to see the macroeconomic conditions continue as they are right now.

Unknown Executive: Thank you. Your next question comes from the line in Sibu Nandi with Guggenheim.

Sibu Inandi: Thank you.

Sibu Inandi: Question comes from the line and that's typically 90 with Guggenheim.

Ankur Dhingra: Yeah, great question. This is Ankur.

Sibu Inandi: Yes, Great question. This is on course, so you're right we reiterated our guidance for the full year, both for revenue as well as for the for the operating margin to be off to a great start for the year as well with the Q1 performance certainly looking at that Derisking the performance a little bit of your overall will be confirming that guidance.

Ankur Dhingra: So you're right. We reiterated our guidance for the full year, both for revenue as well as for the operating margin. So we're off to a great start for the year as well with the Q1 performance, certainly looking at that, de-risking the performance a little bit. We're overall reconfirming our guidance, so the construct is still there. And you've seen the Q1 performance. Just to add a little bit more color there, if you think from a have-one, have-two perspective, etc., our instrument growth rates, given how the shipments of X were last year, those growth rates have variability during the year between have-one and have-two. Although consumables, as they're starting now, should have a more steady kind of profile. Now, we saw good pricing. We've seen good pull-through during the quarter as well.

Ankur Dhingra: So the construct is still there.

Ankur Dhingra: And you've seen the Q1 performance just to add a little bit more color. There you could think of it on the half one half two perspective et cetera, our instrument growth rates, given how the shipments of X where last year those growth rates have a variability during the year between half one and half two although consumables at their starting now should should have.

Ankur Dhingra: A more steady kind of profile.

Ankur Dhingra: Now we saw good pricing, we've seen good through pull through during the quarter as well so as of now we've just reiterating the overall guidance for the year.

Ankur Dhingra: Okay.

Ankur Dhingra: So as of now, we're just reiterating the overall guidance for the year. Thank you. Your next question comes from the line of Sungji Nam with Scotiabank. Hi, thanks for taking the question and also welcome.

Sung Ji Nam: Thank you. Your next question comes from the line of Sungjin Nam with Scotiabank.

Sung Ji Nam: Thank you. Your next question comes from the line of sung <unk> Nam with Scotiabank.

Sung Ji Nam: Hi, Thanks for taking the question and also welcome to Oncor and congrats and thank you T. J D. Just a quick one on the status of the jurisdictional appeal in Europe, and whether the resolution of that.

Sung Ji Nam: Timing of that.

Sung Ji Nam: If it doesn't happen before the end of Q would you still be providing your final.

Sung Ji Nam: Terms of the divestiture.

Sung Ji Nam: You.

Jacob Thaysen: Yes, so thanks for that. And overall, as you know, we are moving forward with GRAIL as fast as we can, and we have committed to provide, of course, insights here by the end of Q2. And I would say at this point, there's nothing, no information, nothing that holds us back from that. So, excuse me, we don't know when the ECJ information is coming.

Sung Ji Nam: Yes, so thanks for that and and overall as you know we are moving forward with Grail as fast as we are as we can and we have committed to provide to them.

Jacob Thaysen: Of course insights here by end of Q2 end and I would say at this point there is nothing.

Jacob Thaysen: No information.

Jacob Thaysen: Nothing that holds us back from that so excuse me.

Jacob Thaysen: We don't know when do you C. J information is coming and and as I said, we're not waiting for it if it comes before Q2, it really doesn't change the timeline.

Speaker Change: You too.

Tejas Rajeev Savant: Thank you. Your next question comes from the line of Tejas Savant with Morgan Stanley.

Speaker Change: Thank you.

<unk>: Next question comes from the line of <unk> with Morgan Stanley.

Tejas Rajeev Savant: Hey guys, good evening, and thanks for the time.

Tejas Rajeev Savant: Hey, guys good evening and thanks for the time here.

Tejas Rajeev Savant: A few clean ups on the high throughput side of things Jacob if I may.

Jacob Thaysen: Just a few cleanups on the high-throughput side of things, Jacob, if I may. So on the 25b flow cell, sounds like you're getting really good traction there. Can you give us an update on that 40% number you provided in the past for past customers and ex-customers who adopted 25b? Where is that number today?

Jacob Thaysen: So on the 25 people sell it sounds like you're getting really good traction there.

Jacob Thaysen: Can you give us an update on that 40% number you provided in the Boston X customers have adopted 25 be where is that number today.

Jacob Thaysen: Second, any update on where high-throughput clinical customers are in their ex-validation process? Any metrics you could share? Or should we think of the production workflows and clinical ramping as mainly a 2025 dynamic? And then last one, just on excess high-throughput capacity? That's a dynamic that comes up every once in a while. Is that starting to weigh on customer purchase decisions for these high-throughput customers at all? You've got Ultima launching as well here. So, just curious as to the macro headwinds versus the digestion of that high-throughput capacity that's been added given the NovaSeq X and the 25b launch, but also the competition. Thank you. Yeah, almost.

Jacob Thaysen: Second any update on where high throughput clinical customers are in their X validation process any metrics you could share or should we think of the production workflows and clinical ramping is mainly a 2025 dynamic and then last one just on SaaS high throughput capacity that's the dynamic.

Jacob Thaysen: That comes up every once in a while.

Jacob Thaysen: Is that starting to weigh on customer purchase decisions for these high throughput customers at all you've got ultimate launching as well here. So just curious as Joe you know the macro headwinds versus the digestion of that high throughput capacity, that's being added given the nobody Jackson to 25 be launched but also the comp.

Speaker Change: Petition thank you.

Jacob Thaysen: Yeah, overall, I think we are very pleased with seeing where the X and also the 25B consumers are going. And right now, approximately half of our customers are using the 25B flow cells.

Speaker Change: Yeah. Overall I think we are very pleased with seeing where the where the X and and also the 25 be consumables, where it's going and right. Now we are approximately half of our customers have are using the 25 P. M flow cell. So that's really exciting for us and we are encouraged by by that momentum.

Jacob Thaysen: So that's really exciting for us, and we are encouraged by that momentum. I think many of our clinical customers, I know they're still running most of their assays on the 6K. We are tracking very closely each of them and seeing where they are in, what they're doing from validation, and when they're going into production. So we have deeper insight. I don't think we are at this point ready to share that, but we have a very good understanding of that.

Jacob Thaysen: I think many of our clinical customers nowadays still on the <unk>.

Jacob Thaysen: Running most of there after.

Jacob Thaysen: Opt out assays on the 6K, we are tracking very closely each of them and seeing where they are and where theyre doing from validation and when they're going into production. So we have people that insight I don't think we are at this point, we are ready to share that but we have a very good understanding on that but I still think that is.

Jacob Thaysen: But I still think there is, you know, that a lot of them are still working through the validation. And then they will bring on one by one new types of assays that likely have higher or deeper depth or more insights into these assets than they had on the 6K.

Jacob Thaysen: That is a lot of them are still working through the validation and then they will bring on them one by one of new types of assays that likely have higher.

Jacob Thaysen: Depths are more insights for in these assets and they had on the 6K.

Mason Owen Carrico: Thank you. Your next question comes from the line of Mason Carrico with Stevens.

Mason Owen Carrico: Thank you. Your next question comes from the line of Mason Carrico with Stephen. Hey guys, thanks for taking the questions. Sorry if these have been addressed a bit late here.

Speaker Change: Thank you.

Jacob Thaysen: Next question comes from the line of Nathan <unk> with Stephens.

Mason Owen Carrico: Hey, guys. Thanks for taking the question sorry, if this has been addressed that I joined late here.

Mason Owen Carrico: Could you update us on when rates outside of China last quarter. I think you said they had stabilized in Q3 and Q4 have you seen that stability continue throughout 2024, so far.

Mason Owen Carrico: And then second could you give us any insight into the mix of orders coming that are coming in in terms of 6K upgrades fleet expansions, new customers new to high throughput customers.

Jacob Thaysen: So I think overall, we are, of course, following very closely where we are on the win rate. And as we also mentioned, it's stabilized. And we are looking at that regularly and ensuring that we continue to hone in on how we can do even better. So I'm actually pleased with the performance out there. But obviously, we are keeping a very close eye on this. As I mentioned before, we take competition very seriously.

Mason Owen Carrico: So I think overall, we are of course.

Jacob Thaysen: We are following very closely of course, where we are on the on the win rate and as we also mentioned is stabilized and we are looking at that.

Jacob Thaysen: Regularly and ensuring that we continue to hone in on how we can do even better so I'm actually pleased with the performance out there, but honestly I V.

Jacob Thaysen: Keeping a very close eye on this as I mentioned before we take competition very seriously and we are we are doing everything we can to keep our customers being very highly supported and mixture of the day are successfully in laboratories, which I think in the end in the long run is the winning formula for for being the preferred path.

Jacob Thaysen: We are doing everything we can to keep our customers very highly supported and make sure that they are successful in laboratories, which I think, in the end, in the long run, is the winning formula for being the preferred partner for our customers. I think on mix of orders, I don't know whether we normally are sharing that information, but I think at this point, there are certainly still more research customers that have moved on to the X, and we have seen customers with multiple 6Ks that are now starting to move over to the X, but I would say the vast majority still are in the transition phase.

Jacob Thaysen: For our customers.

Jacob Thaysen: I think on.

Jacob Thaysen: Mixed off orders I don't know, whether we normally are sharing that information.

Jacob Thaysen: But but I think at this point, there's certainly still more research customers that have moved on to the to the to the X and and we have seen customers are well.

Jacob Thaysen: Multiple six six case that is now starting to move over to the X, but I would say the vast majority is still.

Jacob Thaysen: In the transition phase.

Rachel Marie Vatnsdal Olson: Thank you. Your next question comes from the line of Rachel Vattenstall with J.P. Morgan.

Jacob Thaysen: Thank you. Your next question comes from the line of Rachel Vattenstall with J.P. Morgan. Great. Hey, good morning or good afternoon, and thanks for taking the questions. So I want to push a little bit on the instrument placement number for access.

Speaker Change: Thank you.

Jacob Thaysen: Question comes from the line of Rachel <unk> with J P. Morgan.

Rachel Marie Vatnsdal Olson: Hey, good morning, or good afternoon, and thanks for taking the question. So I wanted to first of all a little bit on the instrument placement number for the access corner you mentioned 55 placements, but you also highlighted that there were a number of places that were pulled forward from <unk> into <unk>.

Rachel Marie Vatnsdal Olson: First can you just quantify how many placements were pulled forward and then just in terms of full in terms of full year dynamics you continue to highlight that the macro backdrop remains difficult and we've seen that really across the sector. This quarter, but can you just give us in line with that assumption what are your latest assumptions on placements for the year. Thanks, So much.

Rachel Marie Vatnsdal Olson: Yeah, I'd say overall, as you mentioned, we didn't pull anything forward. We were those customers that were requesting to pull forward because some of their programs were running faster than they had anticipated, but it was only a few. So it was not really a big change in expectations, but in the end, I like that because it shows that there is a lot of interest out there and customers that have already purchased.

Rachel Marie Vatnsdal Olson: Yeah, I'd say overall as we mentioned there were we didn't pull anything forward. We were at those customers that was requesting to pull forward because some of their programs, we're running faster than <unk>, but it's only a few.

Rachel Marie Vatnsdal Olson: So it was not really a big change in expectations, but.

Rachel Marie Vatnsdal Olson: And yet I like that because it shows that a lot of interest out there and customers that have already purchased one is looking to accelerate now that transition into to the X. So we so I'm excited about that at this point, we are not providing a number but we.

Rachel Marie Vatnsdal Olson: One is now looking to accelerate their transition into 2DX, so I'm excited about that. At this point, we're not providing a number, but we know that as we entered into 2023, we had a very, very strong backlog, of course, as you know, coming into 2023. And thereby, 2023 was a very strong placement year of high throughput. So we do expect to be lower than that, as we also communicated in our original guidance. But we're not able to provide – at this point, we're not really changing our expectations for the future. The only thing.

Rachel Marie Vatnsdal Olson: We know that the Astros as we entered into 2023, we had a very very strong backlog of course as you know coming into 'twenty, three so and thereby 20th century was a very strong placement year of high throughput. So we do expect to be lower than that as we also communicated in our original guidance.

Rachel Marie Vatnsdal Olson: But we haven't we are not able to provide at.

Rachel Marie Vatnsdal Olson: It is probably not changing really our expectation for the for the year.

Jacob Thaysen: The only thing I would add, Rachel, for you, just in terms of, you know, our top-line performance was quite better than what we were expecting, relative to that overall achievement or overachievement, only a small portion, say about a one-fourth or so, came from these customers who asked for an earlier delivery of the instrument. So, a relatively small portion from that phenomenon.

Speaker Change: The only thing I would add Richard for you just in terms of you know our topline performance was was quite better than what we would expecting rent.

Jacob Thaysen: Relative to that overall.

Jacob Thaysen: Yes.

Patrick Bernard Donnelly: Thank you. Your next question comes from the line of Patrick Donnelly with Citi.

Ankur Dhingra: Thank you. Your next question comes from the line of Patrick Donnelly with Citi. Hey guys, thanks for taking the questions.

Jacob Thaysen: Thank you. Your next question comes from the line of Patrick Donnelly with Citi.

Patrick Bernard Donnelly: Can you just talk through the margin <unk>, obviously, a little bit of a step down I know you guys mentioned, maybe some product cost there, but can you just give a little more color in terms of what's been picked up in <unk> and how we should think about that metric as we work our way through the year and then just a quick cleanup just on the service reps.

Patrick Bernard Donnelly: Quite a bit higher than we were expecting if you could just flesh out what happened there as well that'd be helpful. Thank you.

Patrick Bernard Donnelly: Yeah, sure. Good question. So, let me address them both. This is Ankur.

Patrick Bernard Donnelly: Yeah sure. Good question. So let me address them both the longer so on the on the Opex I said in my prepared remarks, yes. There is a step up in spending from Q1 to Q2, primarily coming from two factors one of them relates to just the timing of our merit increases in annual stock grants cycles, we end up getting.

Ankur Dhingra: So on the OPEX, as I said in my prepared remarks, yes, there is a step up in spending from Q1 to Q2, primarily coming from two factors. One of them relates to just the timing of our merit increases and the annual stock run cycle. So we end up getting the full impact of that cost in Q2. So that seasonality typically happens every year for the company. So roughly about half of our sequential increase in OPEX comes from that.

Ankur Dhingra: The full impact of that cost.

Ankur Dhingra: In Q2, so that seasonality typically happens every year for the company.

Ankur Dhingra: Half of our sequential increase in the <unk>.

Ankur Dhingra: The Opex comes from that.

Ankur Dhingra: The other half is generally around certain project related spend.

Ankur Dhingra: We've pushed out either pushed out into Q2, there are milestones into Q2 that that will happen.

Ankur Dhingra: The other half is generally around certain project-related spend that we've pushed out, either pushed out into Q2, or there are milestones into Q2 that will happen. In terms of going forward, as you think about your P&L for the rest of the year, I do expect the overall operating margin performance to continue to improve sequentially every quarter. So, Q3 better than Q2, and then Q4 better than Q5.

Ankur Dhingra: In terms of going forward as you think about your P&L for the rest of the year.

Ankur Dhingra: I do expect the overall operating margin performance to continue to improve sequentially every quarter, So Q3, better than Q2 and Q4 rather than Q3.

Ankur Dhingra: And then on the services side, again, very strong overall growth, about 27% year over year growth, two main components. One part of that is a little less than half is coming from specific pharma customer services, which had the timing of that in the quarter. So that was less than half of it, but roughly half of that growth is coming from just the excellent performance in our core instrument services business. You would expect that given

Ankur Dhingra: And then on the service and then on the services side again very strong the overall growth of about 27% year over year growth two main components.

Ankur Dhingra: One part of that is.

Ankur Dhingra: About little less than half is coming from.

Ankur Dhingra: The big pharma customer services, which had the timing of that in the in the quarter. So.

Ankur Dhingra: So that was less than half of it but roughly half of that growth is coming from just the excellent performance in our core instrument services business.

Joydeep Goswami: You would expect that given the number of instruments we placed and, you know, just to add to Ankur's comments right. We are expecting and delivering better gross margin performance, right. So that should help our operating margin. We expect to continue strong performance on gross margins. So that should help us, and as revenue steps up as well. You know, and given that we have taken measures to control our costs, we've reduced our headcount overall by about 12% compared to last year, that should also add benefits to the operating margin line as we go through the year.

Ankur Dhingra: You would expect that given the number of instruments replaced.

Joydeep Goswami: We are expecting.

Joydeep Goswami: And given that we have taken measures to control our costs, we've reduced our head count.

Joydeep Goswami: Overall by about 12% compared to last year that should also add benefits to the operating margin line as we go through the year.

Eve Burstein: Thank you. Your next question comes from the line of Eve Bernstein with Bernstein Research.

Joydeep Goswami: Thank you. Your next question comes from the line of Ian Burstein with Bernstein Research.

Eve Burstein: Hi there. Thanks a lot for taking the question. And earlier this week, the FDA published a final rule exercising regulatory power over lab-developed tests. For you guys, you have the benefit of having IVD-compliant machines when a lot of the companies that are emerging to challenge you don't have those yet. However, our understanding is that research-use-only machines are actually used quite a bit for FDA-approved tests.

Eve Burstein: Hi, there thanks, a lot for taking the question.

Eve Burstein: Cash.

Eve Burstein: For you guys you have the benefit of having IBD compliant machine when a lot of the companies that are emerging to challenge you don't have those yet and.

Eve Burstein: However, our understanding is that researches only machines are actually used quite a bit for FDA approved test.

Jacob Thaysen: It's a little bit harder, but it can be done. So we don't expect this to affect you that much or give you a big competitive advantage. Is that the right way to think about it, or could there be more upside from the role for you?

Jacob Thaysen: Yeah, no, first of all, I think we are pleased, for sure, that we now have more or greater clarity on the FDA ruling and the direction of this. But there's still a lot of details that need to be clarified.

Speaker Change: Yeah, No first of all I think we are we are pleased for sure that we have now more of greater clarity on the F. D. A ruling and the direction of this but there are still a lot of details there needs to be clarified but overall you are you're right that without positioning both with our Dx portfolio and the investment would be.

Conor Noel McNamara: But overall, you're right that with our positioning, both with our DX portfolio and the investment we have made in high quality, and also helping with the required documentation for our customers to go in there and get their PMAs approved, I think we're very well positioned. You mentioned that LGTs are used for FDA approvals. Well, really only if you go into a single site PMA setup. And that actually requires a lot of work for vendors like Illumina to help our customers with that, with the right level of documentation and so on.

Conor Noel McNamara: Have made into the high quality and also helping with.

Conor Noel McNamara: The required documentation for our customers to go in there and get their PMA is approved I think be very well positioned you mentioned that agencies are used for FDA approvals will really only if you go into a single.

Conor Noel McNamara: Single site.

Conor Noel McNamara: PMA setup and that requires actually.

Conor Noel McNamara: A lot of work for vendors like alumina to help our customers with that with the right level of documentation and so on so I think it actually plays to our strengths going forward and we are committed to support this area and help our customers be successful.

Conor Noel McNamara: So I think it actually plays to our strengths going forward, and we are committed to supporting this area and helping our customers be successful, independent of whether it's a full PMA, single site, or other types of opportunities that this new world will bring. Thank you. Your next question comes from the line of Conor McNamara with RBC Capital. Hey guys, thanks for taking the question. You know, I know you talked about not giving...

Conor Noel McNamara: Thank you. Your next question comes from the line of Conor McNamara with RBC Capital Markets.

Conor Noel McNamara: Thank you. Your next question comes from the line of Conor Mcnamara with RBC capital markets.

Conor Noel McNamara: I know you talked about not giving too much detail on the consumable adoption with the X customers, but is there any can you quantify at all like the 400 or so boxes place how many of those customers are just.

Conor Noel McNamara: And would you say are at scale and ordering.

Conor Noel McNamara: At what their demand is versus those that are.

Conor Noel McNamara: Still validating or whether for economic conditions haven't really ordered what you expect from them first of all has there been any stocking orders with any of the X customers.

Jacob Thaysen: Yeah, that's a good question. At this point, we still see that most of our customers are still in the ramp. I think there are, of course, research customers that have already gone very fast out and really run bigger programs. We have seen Perturb, Seek, and Single Cell, which are some elements or areas where there's been a lot of interest in running. And I think that we have seen some of those research customers already on scale, at least with one of the instruments they have bought, and now maybe they're starting to move on to the next one. But then again, if you look at the broader 400, I think most of the general view is still that this is still in a ramp position. Now, yeah, so that's where we are right now.

Conor Noel McNamara: Yeah, Yeah, that's a good question.

Jacob Thaysen: At this point, we still see that that most of our customers to send them to ramp I think there are of course research customers that have those very fast out and really run big up programs. We've seen the TERP seek we have seen a single cell being some elements are areas, where theres been a lot of interest in running and I think that we are seeing we are seeing some of those features.

Jacob Thaysen: Some has already been on scale at least with one of the instruments that border now maybe they are they're starting to move on to the next one but then again if you look at the broader 400 I think most of the general is still that that this is still in a ramp.

Jacob Thaysen: Positioning.

Jacob Thaysen: And the stocking.

Jacob Thaysen: And the stocking.

Joydeep Goswami: Yeah, yeah, go ahead. Just, I mean, on the stocking side, look, you know, when we haven't seen too much stock on the 25 B because, as a standard, right, the initial shelf life is shorter. So you wouldn't expect people to stock up too much on the 10 B side. On the 10 B side, it's very early in that stock-up phase. Again, we expect to see a little bit more as we go through the year, but not yet.

Speaker Change: Yeah, Yeah go ahead.

Joydeep Goswami: I mean on the stocking side looking out when we haven't seen too much stocking on the 25 be because.

Joydeep Goswami: As a standard rate the initial shelf life is shorter so you wouldn't expect people to do a stock up too much on the <unk> side, it's very early in that stock upgrades. So again.

Joydeep Goswami: We expect to see a little bit more as we go through the year, but not yet.

Sallilyn Schwartz: Thank you. That concludes our Q&A session. I will now hand the call back over to Sally Schwartz.

Joydeep Goswami: <unk> Q&A session I will now hand, the call back over to Sally Schweitzer.

Sallilyn Schwartz: Thank you for joining us today. As a reminder, a replay of this call will be available in the investor section of our website. This concludes our call, and we look forward to seeing you at upcoming conferences and other events.

Sallilyn Schwartz: Thank you for joining us today as a reminder, a replay of this call will be available in the investors section of our website. This concludes our call and we look forward to seeing you at upcoming conferences and other events.

Operator: This concludes today's call. You may now disconnect.

Sallilyn Schwartz: This concludes today's call you may now disconnect.

Operator: Yeah.

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