Q2 2024 Illumina Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the second quarter 'twenty 'twenty four Illumina earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session. Please.
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.
Speaker Change: Hello, everyone and welcome to our earnings call for the second quarter of 2024.
Speaker Change: 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.
Speaker Change: After which we will host a question and answer session.
Speaker Change: Our earnings release can be found in the Investor Relations section of our website at Illumina dotcom.
Speaker Change: Providing prepared remarks for Illumina today will be Jacob Tyson, Chief Executive Officer, and anchor gain Gras Chief Financial Officer.
Speaker Change: Jacob will provide an update on the state of Illumina is business and anchor will review our financial results for core Illumina.
Speaker Change: As a reminder, we divested Grail in June of this year.
Speaker Change: For a review of second quarter financial results for Grill, and consolidated Illumina. Please see our earnings release and our SEC filings.
Speaker Change: This call is being recorded and the audio portion will be archived in the investors section of our website.
Speaker Change: It is our intent that all forward looking statements regarding our financial results.
Speaker Change: Hershey 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 uncertainties.
Actual events or results may differ materially from those projected or discussed.
Unknown Executive: All forward-looking statements are based upon current available information, and Illumina assumes no obligation to update these statements.
Speaker Change: All forward looking statements are based upon current available information and Illumina assumes no obligation to update these statements.
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. Most recent forms 10-Q and 10-K.
With that I will now turn the call over to Jacob.
Jacob: Thank you Sally good afternoon, everyone.
Throughout the second quarter I continue to meet with our customers and partners around the world.
I've been hearing about all of the opportunities they're excited for Andrew.
Speaker Change: And discussing the issues, we're facing together in this environment.
Andrew: Most importantly, it's been encouraging to see our customers and partners launched the next generation of their products.
Andrew: Illumina is uniquely positioned to support our customers' aspirations.
Andrew: Going progress in science and technology allows our customers to envision large scale discovery programs that are now possible using would you omics and customers are more empowered to move whole genome sequencing that provides significant can be more insights.
Andrew: Furthermore, there is an opportunity to integrate genomics throughout the health care system to improve patient outcomes.
Andrew: But we also have to help our customers navigate the current realities.
Speaker Change: There are still many moving elements in the global economy, and we are taking a more measured view.
Unknown Executive: I'm regularly hearing that our customers feel constrained to make significant capital outlays. Our strategy update next week will address Illumina's vision for the future and our strategy to execute new dimensions of technology from our R&D vault and our financial outlook for the next several years. This new structure will provide the alignment needed to deliver long-term results for our customers and for the business.
Speaker Change: I'm regularly hearing that our customers feel constrained to make significant capital outlays.
We also see it in delays no same cycling and in orders being pushed out.
Illumina: By Illumina. This means we balance two important jobs job one is to stabilize our own base.
Speaker Change: Doing that through continued rollout of the Nova C X serious to lay the groundwork for everything all customers and we want to pursue in the future.
Speaker Change: We are also highly focused on operational excellence and optimizing the ways in which we run our business.
Speaker Change: And job two is accelerating growth.
Our strategy update next week, we'll address Illumina his vision for the future and our strategy to execute new dimensions of technology from our on the vault and our financial outlook for the next several years.
Speaker Change: Purposes of today's call will focus on our second quarter results.
Speaker Change: In Q2, Illumina again delivered results ahead of expectations with core Illumina revenue of $1.1 billion and non-GAAP operating margins of 22, 2%.
Speaker Change: By continued execution against our strategic priorities.
Speaker Change: Ongoing transition of sequencing activity. She was an overseas X plus led to a significant step up in consumables in the quarter.
Speaker Change: Also placed another 62.
Speaker Change: X plus instruments with that said, we continue to see our customers actively managing their capital spend as a result for the remainder of the year. We are adding caution 12 got you.
Speaker Change: We're taking a more prudent view on the instrument business to reflect the further extension of sales cycles.
Speaker Change: But at the same time, we have a slightly stronger view on consumables.
Speaker Change: <unk> will provide further details on our adjusted guidance shortly.
Speaker Change: Turning to our regions performance in the second quarter.
Speaker Change: Americas revenue was relatively flat year over year.
Speaker Change: Your revenue was down 5% given the significant backlog we work through early last year following the X launch.
Speaker Change: EMEA revenue was down 8% in greater China was down 35%.
Speaker Change: I've been talking with you about our three key priorities.
Speaker Change: I'd like to highlight the progress made by luminous management team during the second quarter towards those prices I'll start with driving our top line, which has been focused on expanding our installed base and helping our customers maximize the potential of instruments as I mentioned earlier in Q2, we shipped 60 tune overseas.
Speaker Change: X plus instruments, bringing our total X plus installed base to 469 instruments.
Speaker Change: Customers continue to choose institution their projects onto the Nova seek X plus and we are encouraged by the corresponding increase in sequencing activity.
Speaker Change: <unk> X plus average Anadarko through has topped $1 million per instrument and milestone achievement.
Speaker Change: Moving to mid throughput in Q2, we introduced the ex U S. P. S chemistry to our next one K two K P. One pizza U M. P. Three flow cells complementing the people flow cell, we launched earlier this year.
Speaker Change: Ex leap launch has exceeded our expectations more than 60% of the <unk> installed base now has upgraded software a leading indicator for adoption.
Speaker Change: <unk> S. P. S chemistry delivers improved quality greater usable rights and lower turnaround times in addition to an attractive pricing.
Speaker Change: While customers interest in ex leap is encouraging translation to additional instrument uptake has been less than we expected.
Speaker Change: Mid throughput segment remains the most sensitive to the macro economic environment and we have seen our sales cycles continue to lengthen.
Speaker Change: This is clearly driven by constrained capital spending our win rates have remained stable and our pipeline has grown.
Speaker Change: We will continue to support our mid throughput customers through this environment and are confident that bringing ex leap. Two next week. One K two K is further strengthened our leadership position around the world.
Speaker Change: Turning to our second priority delivering operational excellence.
Everett Cunningham: We are thrilled to have Everett Cunningham on board as Chief commercial officer.
Speaker Change: However, it is already driving a shop customer focus across the business with an essential underpinning of operational excellence.
Everett Cunningham: I'm sure. It has been my goal to align our organization in a way that will make our customer heroes by delivering the products services and solutions that address their most pressing needs.
Speaker Change: Our move to combine our marketing and commercial functions, we've implemented our new commercial organization design.
Speaker Change: Positioning our teams to more effectively serve our customers as their partner for innovation.
Speaker Change: Teams are equipped with a go to market expertise to accelerate our multi omics capabilities and commercialize and scale, our software stack across research and clinical customers.
Speaker Change: This new structure will provide the alignment needed to deliver long term results for customers and for the business.
Speaker Change: Additionally earlier this year, we share that we are implementing a portfolio optimization strategy to drive productivity improvements across our supply chain.
Speaker Change: One recent example, we have identified a number of products W were rationalized.
Speaker Change: In an effort to increase our focus on higher profitable offerings.
Speaker Change: We'll of course work with our customers to provide a seamless transition to other offerings in our portfolio.
Speaker Change: We continue to make good progress towards achieving greater operating leverage this year.
Speaker Change: Moving onto my third priority, which has been working to resolve grail as quickly as possible.
Speaker Change: As you know in June we completed the spinoff of Grail and grain is now an independent public company.
Speaker Change: Illumina has maintained minority portion of the op percent stake great plays a critical role in the fight against cancer and while there is no longer part of alumina, we remained confident in its future.
Speaker Change: Changes to support rail with our sequencing technology and suite of services.
Speaker Change: As we continuing to deliver our priorities and activating our new strategy.
Speaker Change: No we will be well positioned to move forward and lead the next euro of genomics growth and discovery.
Speaker Change: Now I'll ask ankur to share more detail on our second quarter results and outlook.
Ankur: Thank you Jacob and Hello, everyone.
Ankur: We'll be discussing non-GAAP results, which includes stock based compensation.
Ankur: I encourage you to review the GAAP reconciliation of these non-GAAP measures.
Ankur: As well as our consolidated financials that include grill, which can be found in today's release and the supplementary data available on our website.
Ankur: In the last three months I've had a chance to spend time with illumina teams across all functions.
Speaker Change: I continue to be impressed with how mission driven this team is and also how transformation is taking hold at illumina.
Speaker Change: Also heard from several of our investors as part of a listening tour.
Speaker Change: As I focus my commentary on the financial results and current outlook I will include some additional color in my remarks.
Speaker Change: Core Illumina second quarter revenue of $1.1 billion was down 6% year over year on both reported and constant currency basis and up 3% from the first quarter of 2024.
Speaker Change: These results exceeded our guidance.
Speaker Change: The above expectations performance was driven primarily by continued increase in high throughput sequencing consumables revenue as our customers further ramp activity on <unk> X plus.
Speaker Change: The strength in consumables was partially offset by fewer than expected shipments of our mid throughput instruments as capital and cash flow constraints continue to impact our customers' purchasing decisions.
Speaker Change: Total core Illumina sequencing consumable revenue of $737 million was flat against last year's second quarter, which was the highest sequencing consumables revenue quarter of the year 2023.
Speaker Change: High throughput was a particularly bright spot in this years second quarter with consumable shipments growing both year over year and sequentially.
Speaker Change: X consumable revenue grew 35% from the first quarter of 2024 accelerating from the double digit sequential growth we saw in the first quarter.
Speaker Change: In order to provide some additional color on transition.
Speaker Change: As of Q2, approximately 45% of high throughput Gigabases sequenced.
Speaker Change: And little over 25% of high throughput consumables revenue wasn't novo seek X plus.
Speaker Change: In terms of pace of shifting mix from six scheduled X to date on average roughly five percentage points of high throughput sequencing consumable revenue has moved from Novo seek 6K do know lets seek X plus each quarter.
Speaker Change: As this transition progresses, the impact of price continues to reduce.
Speaker Change: If this trajectory holds almost half of high throughput sequencing consumables revenue should transition to de novo seek ex by mid 2025.
Speaker Change: Continuing to reduce the impact of pricing transition and converting volume growth into higher revenue growth thereafter.
Speaker Change: I hope you find this additional information helpful.
Speaker Change: We are increasing our disclosures around the new well seek ex to give you a clearer picture of the progress we are making in this important transition.
Speaker Change: Moving to sequencing activity.
Speaker Change: Total sequencing gd output on a connected high and mid throughput instruments grew more than 40% year over year, and approximately 10% quarter over quarter.
Speaker Change: Growth in activity from both the research and applied and clinical customers was healthy.
Speaker Change: Although not a predictor of near term revenue GV output provides us a directional view of underlying applications demand and levels of utilization of our instruments and consumables.
Speaker Change: Yeah.
Speaker Change: Sequencing instrument revenue for core Illumina of $116 million for Q2 grew 5% sequentially, but declined 40% year over year.
Speaker Change: The year over year decline was driven by two factors.
Speaker Change: One lower noetic X placements as compared to significant pre ordered launch related shipments in the second quarter of 2023.
Speaker Change: And to an expected decline in mid throughput shipments as capital and cash flow constraints continue to impact purchasing behavior and moderate instrument placements.
Speaker Change: Core Illumina sequencing service and other revenue of $143 million was up 7% year over year.
Speaker Change: Driven by an increase in revenue from strategic partnerships as well as higher instrument service contract revenue on a growing installed base.
Unknown Executive: Moving to the rest of the core Illumina P&L, Illumina has been able to execute unstated operational excellence initiatives, delivering operating leverage above our previous expectations. With that, I will now turn it back over to Jacob for his closing remarks. Thank you.
Speaker Change: Moving to the rest of the core Illumina P&L.
Speaker Change: Yeah.
Speaker Change: Below the operating income line core Illumina non-GAAP other expense of $13 million in Q2.
Speaker Change: Includes 11 days of interest expense for the $750 million delayed draw term loan we drew in full on June 28 2024.
Speaker Change: Core Illumina non-GAAP net income for Q2 was $174 million or $1 <unk> per diluted share.
Speaker Change: Core Illumina non-GAAP tax rate was 24, 2% for the quarter.
Speaker Change: Our non-GAAP weighted average diluted share count for the quarter was approximately $159 million.
Speaker Change: Moving to coda alumina cash flow and balance sheet items for the quarter cash flow provided by operations was $243 million.
Speaker Change: Capex.
Speaker Change: We're $30 million and free cash flow was $213 million.
Speaker Change: We ended the quarter with approximately $994 million in cash cash equivalents and short term investments.
Speaker Change: Moving now to 2020 for guidance.
Speaker Change: While we were encouraged by our results in Q2, we see several puts and takes as we consider the remainder of the year on.
Speaker Change: On one hand, our customers capital spending remains constrained.
Speaker Change: On the other hand, our consumables business, especially high throughput driven by the transition of <unk> X remains solid.
Speaker Change: We are therefore, reducing our revenue expectations, especially for instruments for the second half of the year.
Speaker Change: We've now launched several new initiatives under this continuous improvement program, which we expect will deliver an additional $200 million in expense savings over the next few years.
Speaker Change: We will talk about this in more detail at the upcoming strategy update.
Speaker Change: Additionally, we expect the core illumina on non-GAAP tax rate to be approximately 25%.
Speaker Change: And lastly, we are introducing guidance for core Illumina and non-GAAP diluted earnings per share in the range of $3 80.
Speaker Change: And $3 95.
Speaker Change: For full year 2024.
Speaker Change: This range includes second half interest expense, resulting from the $750 million delayed draw term loan we put in place in June this year.
Speaker Change: For the third quarter of 2024.
Speaker Change: We expect core Illumina revenue in the range of 1.0 75 billion.
Speaker Change: To 1.085 billion.
Speaker Change: The decline from the prior year is driven predominantly by lower tonghua seek ex instrument shipments given the significant backlog we worked through last year following the launch.
Speaker Change: For the third quarter, we also expect core illumina in non-GAAP operating margin of approximately 20%.
Speaker Change: The sequential decrease from the second quarter is primarily due to lower revenue.
Speaker Change: And timing of the project spend delayed from Q2.
Speaker Change: We will introduce hundreds cycle and 200 cycling twenty-five be flow cells designed for high output counting application such as single cell proteomics. Additionally, our next software update for the <unk> X and X plus will enable increased yield and other improvements.
Speaker Change: Also pleased with the opportunities Illumina has to further enable the multi omics ecosystem, we will share more next week, but one recent highlight was our acquisition of fluent Bioscience a company with single cell technology that source and labels complex cell mixtures to be processed for sequencing.
Speaker Change: <unk>.
Speaker Change: Fluent approach will make single cell analysis available to a broader set of customers together with our specialized multi omics software solution from Apotex acquisition fluency solution.
Speaker Change: Yet another building block in our efforts to create a greater value for customers by further integrating their workflows.
Speaker Change: We want our customers to have the flexibility to adapt tools that best fit their needs Illumina will therefore remain an open NDS platform and is committed to maintaining and supporting our existing single cell partnerships.
Speaker Change: I'm looking forward to speaking more about our vision, our strategy and our financial outlook next week at our strategy update.
Unknown Executive: This virtual event will be on Tuesday, August 13th.
Speaker Change: It out as I said in the script so.
Speaker Change: In terms of transition from 6K two two.
Speaker Change: Two never seek ex.
Speaker Change: What we're saying is roughly about 45% of the consumables volume, but then high throughput is now on X.
Speaker Change: Nearing roughly about a half with BARDA.
Speaker Change: At the halfway point so in the second half of this year. If the trajectory holds behalf of volume would have moved to <unk> X.
Speaker Change: But I also included was that the pace of that mix is that we're seeing roughly about five points of mix shifting from 6K, two two NOLA seek ex every quarter.
Speaker Change: And if that trajectory holds by them by next year, we should also get through about half of revenue coming from Novo seek ex so that's on the on the trajectory to your question around the around the volume growth yeah. The overall G be sequenced was about about 40% of that is of course high throughput across mid throughput.
Speaker Change: And as you think about I took with revenue growth of about 1%. The delta is roughly the pricing and the change of the mix impact there.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: And we'll move to our next question comes from Connor Mcnamara with RBC capital markets. Please go ahead.
Speaker Change: As a lever.
Speaker Change: Again over 20% here can.
Connor McNamara: Can you just talk about again, if there are any areas that are off limits in terms of the cost reductions and where youre focusing on for those expense controls. It does feel like there's a lot of opportunity in the P&L. So I'd love to just the stuff out of it.
Speaker Change: Yeah, let me start by saying that there's certainly no off limits area. We're looking at all elements in the in the piano and $200 million is the reflection of that also.
Speaker Change: We are we are not at this point, we are not providing insights on the pacing of this.
Speaker Change: But what I can tell you is that we are looking at all elements.
Speaker Change: And we will provide more insight next week, just referring to the R&D and we continue to take a look at how we want to set up.
Speaker Change: The money that you're spending your R&D, but just to give you a little bit of my philosophy around that.
Speaker Change: Internally looking at each R&D project and valuing them based on tight Miss shows, including MTV, and <unk> and and I'm using that also as you know I have a background R&D.
Speaker Change: And thereby not just driving by an overall number but truly just focusing on the programs that provides.
Unknown Executive: This is the steps we're taking towards a multi-year margin expansion strategy, and we'll focus across all areas where we can lead to a structurally better and sustainable cost structure for the company in the long term. So more to come, but the focus is across all opportunities, across all lines.
Unknown Executive: It does seem like you're assuming, you know, stabilizing instrument revenue in the range of like 110 to $120 million every quarter this year.
Unknown Executive: So, too early to call on 2025, but the trends we are seeing on the X transition for the high-throughput consumables, as well as the fact that the impact of pricing should continue to erode or become lower over time are all positive factors, right? This year, what we've also seen is that overall GB output growth during the first half of the year has been very strong. The first quarter was over 35. We're now seeing over 40.
Unknown Executive: If you look at the last several years, sort of the five-year average, that was more in the 20s to mid-20s range as well. So, several moving parts. The fundamentals of the business seem to be moving in the right direction, but still too early to call for 2025. Okay.
Dan Areas: Next question comes from Dan areas with Stifel. Please go ahead Sir.
Dan Areas: Good afternoon, guys. Thanks for the questions anchor or Jacob how is the clinical community moving to adopt the X and then what kind of expectations should we have for those labs.
Speaker Change: Adopting the twenty-five be kid and if those two things are presumably later than the research community.
Speaker Change: That represent an incremental headwind in the back half of the year or 25. If you then have to start.
Speaker Change: About the pricing pressure there or do you think that you know there was a point where elasticity in the clinical markets. There's actually something you guys are talking about do you think that can start to work for you as we head into next year.
Speaker Change: Yeah, I think we we continue to see of course that the academic environment did have academia environment has moved faster to the extend then where the clinical it and that's very that's good reasons for that.
Speaker Change: You have to validate your your products and your assets on the X before you put it into full production mode, but have you seen the strategy from many of our clinical customer has been to keep that current validated products assets on there on the 6K, and then really been focusing on the new assays.
Speaker Change: <unk> seen a few releases actually over the last few weeks on our new assays coming out so you're starting to see that happening.
Speaker Change: We actually believe this is gonna be a most of all in pretty much all our big clinic.
Speaker Change: Clinical customers have multiple exits already in there in their laboratories. So we don't we don't we're not foreseeing any material change to swings in transition, we actually think that it's going to be quite stable over the next period of time So I'm.
Unknown Executive: I'm not too concerned about the sudden change in direction.
Unknown Executive: Specific to existing customers, when they purchase X, are they moving existing assays to X, or are they typically using the X for new assays, assays that tend to require deeper or wider sequencing? I ask this last part because it does seem like utilization of 6,000 is fairly resilient.
Unknown Executive: The general approach is still the same, and we will continue to develop new tests for next year. Thank you. We will continue to develop new tests for next year. Thank you.
Speaker Change: So GAAP there with.
Speaker Change: A competitor.
Speaker Change: In in the mid throughput segment.
Yeah, I think thanks for that I think both I mean, meaning that that further <unk> with one flow cell you can run all the applications you can run 20, <unk> flow cell and take full power of the pricing we have for the Nordic X plus level of flow cells.
Speaker Change: But I would say on the mid throughput, we certainly have an opportunity to.
Speaker Change: To use our pricing if we if we need to but I do think that.
Speaker Change: But what that is but actually it actually provides a lot of we have already priced at.
Speaker Change: So a very very competitive element, but I do think it's more complicated than that and while I. Certainly believe there is a lot of great members of the team with our competitors I think sometimes you also get caught up in very too narrow definitions of claims so sometimes we see into.
Speaker Change: Workflow steps being just looked at from a claim perspective, we're seeing limited applications or even performance that is based on very limited data.
Speaker Change: I think.
Speaker Change: Pretty much in all cases are meeting the full computational chain from Dragon that has also significantly improved the quality and reduce your overall workflow costs. So if you take all that into consideration and even when we provide premium car.
Speaker Change: Per gigabit, you would actually see that fall.
Speaker Change: Cost of workflow breadth of application of full compensation power, we continue to be highly differentiated and I actually think our customers are seeing that.
Speaker Change: I agree we could do a better job in communicating this but we will spend more time next week also providing more insights on that but also more of the differentiation that we are going to provide both to mid throughput and high throughput by giving you examples for what we have in our diebold.
Speaker Change: Okay. That's helpful and then on the commercial Org I'm just trying to understand.
Speaker Change: Why is now the right time to change and just trying to sort of understand what are some of the changes their water.
Speaker Change: Are you driving some change in the quota bearing sales force thats out there some of that has worked really well historically.
Speaker Change: You, obviously have a really solid product in the marketplace, but just wondering what's driving that and what are some of the changes there.
Speaker Change: Yes, I mean, I think what we announced already looked at.
Speaker Change: Before I ever come in come in that that I felt it was important to bring our marketing and our sales teams together. So if you start at the top level. When you bring those two teams together you also have some synergistic effect.
Speaker Change: You will aligned leadership team and we have done that now on average so we have one commercial team.
Speaker Change: So that's number one.
Speaker Change: Number two is that we have taken a deeper look into how do we actually get more quota carrying people out into the field and how do we make sure we have even better application capabilities now when we are accelerating ourself into multi omics and also where we believe informatics should have an even bigger place. So this is less about changing the region.
Speaker Change: And the region structure, but more adding more feet underground so to say.
Speaker Change: Got it.
Speaker Change: And then the last one if I could just ask.
Speaker Change: How should we think about the overall pull through that's already more than $1 million.
Speaker Change: Whats your whats youre not suggesting that's Atlanta eventually thank you so much before I hop off.
Speaker Change: Yes.
Speaker Change: We certainly saw very encouraged to be already in all of that at 1 million per annually for the for the X series and.
Speaker Change: While we believe it is gone we don't think this is the.
Speaker Change: Exit point.
Speaker Change: Equilibrium. So we believe it can go higher we also see customers doing much higher right now already.
Speaker Change: So we encourage to see where this could go but we don't have an at least we're not ready to share detailed view on where we think it could go at this point.
Speaker Change: And our next question comes from sung <unk> Nam with Scotiabank. Please go ahead.
Speaker Change: Hi, Thanks for taking the questions.
Speaker Change: One one for encore.
Unknown Executive: Could you maybe give us a bit more color in terms of the outlook in China, in Greater China, and AMEA? I think if you look at the growth trends over the last few quarters, it seems pretty stable, but just kind of curious if your guidance, I think you said that half of that's attributable to China and Asia, and so just kind of curious how your expectations have changed since the last quarter and if you expect significant deterioration in those regions.
Speaker Change: Could you maybe give us a bit more color in terms of your outlook in China.
Speaker Change: Greater China and India.
Speaker Change: Thank you.
Speaker Change: If you look at the growth trends over the last few quarters that seems pretty stable, but just kind of curious if your guidance I think you said that happens that's attributable to.
Speaker Change: China Asia and so it just kind of curious what your how has your expectation changed since the last quarter and do you expect you know a significant deterioration in those region going forward.
Speaker Change: Thank you. So let me start by addressing let me start by addressing this year that I think first of all related to China, It's still too early to call where we are in the cycle.
Speaker Change: From what we can see the economy is still.
Speaker Change: Weak and customer continues to be constrained.
Speaker Change: So we don't really as you mentioned also we don't really see any change material change in the competitive intensity in China, but it's still a.
Speaker Change: Tough market to be in.
Speaker Change: What I'm really excited about is that we have and as mentioned I think in the last call. So we hired a new head of region. There in China and she has been in place for a little more than a quarter and she is very active also in optimizing the commercial structure as with the rest of the world really focusing on bringing more into field from the back office She's also resetting.
Speaker Change: Partnerships and optimizing.
Speaker Change: Those kind of relationships and of course, continuing to consider how we targeted in our pricing strategies for specific product groups and finally bring IBD.
Speaker Change: <unk> products to China. So there's a lot we are doing that right now and I think eventually this will this will turn but at this point, it's too early to to provide deeper insights I think maybe you can provide a little more insight on rest of let me give you just a couple more colors, specifically because we've included that as part of our guidance.
Speaker Change: <unk>.
Speaker Change: Our pvs estimates and the expectations of China was not a material recovery in there.
Speaker Change: That business. However, if you look at the sequential build up that business.
Speaker Change: It was an implied increase even though still down year over year the business in China over the last.
Speaker Change: Several over six to eight quarters now has been weak in fact.
Speaker Change: If you look at all of Illumina from a year over year basis at midpoint now that midpoint of my full year guidance is roughly one five points lower.
Speaker Change: On a constant currency basis or two points on a constant currency basis.
Speaker Change: A very big part almost two thirds of that is all due to China.
Speaker Change: Well our business has been has been quite weak, we're not seeing signs of recovery lots of commercial action from our perspective.
Speaker Change: We're making changes in the team, but just the overall environment there right now it doesn't look like.
Speaker Change: Well I would go out and assume any kind of increase in business volumes for the rest of the rest of the year, so kind of taken that out of the forecast and trying trying to derisk that.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Operator: And our next question comes from Eve Burstein from Bernstein Associates. Please go ahead.
Speaker Change: And our next question comes from <unk> <unk> from Bernstein Associates. Please go ahead.
Speaker Change: Great. Thanks, so much for that question and in the last few months, we've seen quest and Labcorp announced or expand collaboration one of your competitors.
Speaker Change: Can you remind us what portion of your revenue comes from those companies and then I can imagine some reasons why there's companies would act differently than either of your clinical customers.
Speaker Change: For example, I'm guessing that they do a higher portion of Albion achieves an FDA approved test.
Speaker Change: And so they don't need as many Dx boxes, you know maybe theres some more natural but why shouldn't we take this as a major sign of potential share loss in the clinical market not just potentially a hitch.
Speaker Change: Revenue, if and when assays chef to the Aframax plus.
Speaker Change: Yes, I think.
Speaker Change: I suggest you speak closer to those.
Speaker Change: Companies about their decisions on making collaboration agreements with the other parties in the Mds space I think we are we focusing on first and foremost provides the highest quality.
Speaker Change: Our customers because I think there is a little bit over rotation here on a price that goes for a very very limited application space and is not really addressing what you can do for actually the patents. We do today are the whole genomes.
Speaker Change: So on the other hand I think.
Speaker Change: It's not only about providing our prices are also providing a product and a solution where you have confidence in that the vendor can provide and and and continue to support you. So I think there is many more.
Speaker Change: Details that goes into this and we hear the Illumina will continue to do our best to provide the best solutions, but not only focusing on one single element into workflow the cost of sequencing, but the whole cost of workflow and providing the highest quality of answers to our customers.
Speaker Change: Great. Thank you.
Speaker Change: And our next question comes from David Westenburg with Piper Sandler. Please go ahead.
David Westenburg: Hi, Thank you for taking the question. So can you talk about some of the pricing transition and actually if I believe that is the.
David Westenburg: Ex leap is on the on the mid throughput is backwards compatible I believe you said, 60% adoption how should we think about actual total dollar impact with that pricing transition can you talk about this year, specifically and that in the guidance and I just have one follow up.
Speaker Change: And then just one.
Speaker Change: One clarifying one further clarification that I had throughput.
Speaker Change: Can you talk about the validation step required for clinical.
Speaker Change: Moving from regular two actually.
Speaker Change: On that.
Speaker Change: So so first on <unk> overall, as we mentioned we had 60% of our installed base is downloaded software.
Speaker Change: This is <unk> an indicator for that people are very interested in the <unk> chemistry, but you'll also see a lot of.
Speaker Change: A lot of interest in particular, the purple people flow sale, it's been off for a while but also now going into the P 123.
Speaker Change: We have a different price point that we have also been out there talking about four <unk> chemistry, which is one of the interested.
Speaker Change: Interested area interesting areas, but we also have a high quality of sequencing and high capacity. So.
Jacob Thaysen: So, Ankur, maybe you can provide a little bit more insight on where we are in the transition, but let me just talk through the validation. That depends on the assays, but normally you would have to go through normal validation, that is, just when you shift other software or agents, and you will do that, and each clinical lab will know how to do so, but there is no specific step that is required from our end when going from one to the other. Ankur, do you want to provide more on the transition? Yeah, in terms of...
Speaker Change: And maybe you can provide a little bit more insights on our way beyond the transition, but let me just talk to the validation is that that depends on the.
Speaker Change: Going from ex leap over to from the from the standard SBS chemistry auto ex leap chemistry, it really depends on the on the assays, but normally you would have to go through.
Speaker Change: Normal validation that is just when you when you shift to other software of agents.
Speaker Change: And you'll do that.
Speaker Change: Clinical lab will know how to do so but there's no specific step that is required from all in from going from one to the other.
Speaker Change: And could do you want to provide more precision in terms of transition ex sleep to our to our original the pvs consumables that will that will be a placing transition that will happen, but it is significantly smaller.
Ankur Dhingra: Yeah, in terms of transitioning from X leap to our original or previous consumables, there will be a pricing transition that will happen, but it is significantly smaller and likely more proactive relative to what you've seen on the X side. So, from a modeling or going forward perspective, the volume of empty consumables as a business is a much, much smaller portion of our P&L and revenue base relative to what our X consumables business has. So, from an impact on the overall revenue line perspective, it will be significantly smaller.
Unknown Executive: Got it. And then just a quick follow up on Fluent.
Speaker Change: And likely more corrected.
Speaker Change: Relative to what you've seen in the X sight, so from a modeling or going forward perspective, the volume of empty consumables as a business is a much much smaller portion of our P&L and revenue base relative to.
Speaker Change: What on X consumables business has been so I'm not from a from a impact on overall revenue line perspective, it'll be it'll be significantly smaller.
Unknown Executive: What's the intention there in terms of pricing? Can you drive pricing even lower than that in terms of pricing and bundles? Have you had any thoughts on how you would do bundled pricing? And just on IP, do you feel pretty comfortable with IP? I know that's an, I believe that's an emulsion step versus a microfluidic step.
Speaker Change: Got it.
Speaker Change: And then just a quick follow up on fluent.
Speaker Change: What's the intention there in terms of pricing can you drive pricing, even lower than that and in terms of pricing and bundles have you have any thoughts to how you would do bundled pricing and just on IP do you feel pretty comfortable with IP I know Thats and I believe that's an emulsion stat versus a microfluidic step so does that protect you.
Speaker Change: A lot of IP in that space. So thank you.
Unknown Executive: Yes, so we are certainly very excited about the Fluent acquisition, and as we also mentioned, we first and foremost believe that the Fluent technology allows for a broader adoption of single-cell technology. So there are some areas, certainly areas in the mid-throughput where customers can get easily into single-cells with no issues. We are still too early to go into a discussion about how we're going to commercialize this, but as we mentioned before, we will, of course, go in there and present Fluent as a very attractive offering. We will continue to work with all the partners and all the single cell providers in the industry and allow them to have a very, very competitive offering on our platform.
Unknown Executive: So does that protect you? I mean, there's a lot of IP in that space. So thank you. Yes, we are.
Speaker Change: Yeah. So we are certainly very excited about the fluent acquisition and as you also mentioned is that we first of all most believe that the <unk>.
Speaker Change: <unk> technology allows for a broader adoption of single cell. So.
Speaker Change: Some are.
Speaker Change: Early suddenly areas in the mid throughput where customers can get easily into a single cell.
Speaker Change: Asia.
Speaker Change: In high volume where the.
Speaker Change: Actually the cost of the individual.
Speaker Change: <unk> experience here the individual cell is competitive and can certainly address that market space.
Speaker Change: We are we still too early to go into a discussion about how are we going to commercialize this but as we mentioned before we will of course go in there and in percent fluid at a very attractive offering we.
Speaker Change: We will continue to work with all the partners and all the.
Speaker Change: Single cell provide us in the industry and it allowed them to have a very very competitive offering on our platform Salto.
Speaker Change: Yeah.
Operator: And we'll move to our next question with Dan Brennan from TD Cal. Please go ahead.
Speaker Change: And we will move to our next question with Dan Brennan with TD Kal. Please go ahead.
Dan Brennan: Great, thanks for taking the questions, Jacob and Ankur. Maybe just a clarification first, and then just a question on MGS Consumables. On clarification, Ankur, you said there's really not much of a margin drag as you move x-leap into the mid-through, but is that correct? Because we were under the impression. I think XLEAP is at $9 per G, and I guess the on-label price for next week might have been something into the teens or low 20s. So maybe can you just speak a little bit about how the margin impact flows through as your mid-throughput base adopts XLEAP?
Dan Brennan: Great. Thanks for taking the questions Jacob and anchor.
Dan Brennan: Maybe just a clarification first and then just on a question on and just consumers on the clarification.
Dan Brennan: You said, there's really not much of a margin drag as you move actually printed in the throughput is that correct because we were in the impression.
Speaker Change: Thank actually present $9 per day, and I guess on label price for next week might have been something into the teens or low twenty's.
Speaker Change: So maybe can you just speak to a little bit how the margin impact flows through as mid throughput base adopts actually.
Ankur Dhingra: Yeah, so I'm saying there will be margin drag. What you're looking at is the list prices, but the on-market prices are likely different from where the list prices are already. And then, second on the margin drag side, given the contribution that mid throughput consumables make to our overall revenue is relatively a smaller part of my P&L, that drag on full Illumina P&L is going to be generally manageable. But I will
Speaker Change: Yes, so I'm, saying there will be margin track when youre looking at is the list prices, but the on marketplaces likely different from where the less places are already in.
Speaker Change: And then second on the margin side, given the contribution that mid throughput consumables snake on overall revenue is relatively a smaller part of my P&L.
Speaker Change: That drag on full alumina P&L, it's going to be generally manageable, but I'll also say that the R&D team has done a great job together with manufacturing to lower the price of the <unk> chemistry. So it actually comes with a lower cost and thereby less of a drag on the on the margins yes.
Unknown Executive: But I would also say that the R&D team has done a great job, together with manufacturing, to lower the price of the X-leaf chemistry, so it actually comes with lower costs and thereby less of a drag on the market.
Unknown Executive: I got it. And then I know you gave a lot of color during the presentation about volume, but did you speak to, and I apologize if you did, a little bit more on the research versus clinical side, like revenue growth in the quarter, like how that broke out for MGS, and any color on kind of what's assumed in the 24 guide between research and clinical and, presumably, whatever competitive impact that is there, even though I guess you see that you're So any color you could provide there would be helpful. Thank you.
Speaker Change: Got it and then I know you gave a lot of color during the presentation about volume.
Speaker Change: Could you speak to and I apologize if you did a little bit more on the research first clinical sign like revenue growth in the quarter like how does that break out for Ngls and any color on kind of what's assumed in the 'twenty four guide between like research and clinical and presumably whatever whatever competitive impact that is there even though I guess you said that you really have.
Speaker Change: Success, winning.
Speaker Change: I presume it's more on the research on the clinical side. So any color you could provide there would be helpful. Thank you.
Unknown Executive: Yeah, so we're not normally splitting that out, but I can tell you that we are doing well on both sides of the academic and the clinical part.
Speaker Change: Yeah. So we're not normally splitting that out but I can tell you that we are growing healthy on both sides. So.
Speaker Change: Academic and the clinical path.
Speaker Change: The business.
Operator: And ladies and gentlemen, that concludes our Q&A session. I will now hand the call back over to Sally Schwartz.
Speaker Change: And ladies and gentlemen that concludes our Q&A session I will now hand, the call back over to Sally Schwartz.
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 our upcoming Investor Day and other events.
Sally 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 our upcoming Investor day and other events.
Operator: Ladies and gentlemen, this concludes today's call. You may now disconnect.
Speaker Change: Ladies and gentlemen. This concludes today's call you may now disconnect.
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