Q4 2024 Illumina Inc Earnings 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.
Speaker Change: I would now like to hand, the conference over to Sally Schwartz, Vice President of Investor Relations.
Sally Schwartz: Hello, everyone and welcome to our earnings call for the fourth quarter and year end 2024.
Sally Schwartz: During the call today, we will review the financial results, we released after the close of market and offer commentary on our commercial activity after which we will host a question and answer session.
Sally Schwartz: Our earnings release can be found in the Investor Relations section of our website at Illumina Dot com.
Sally Schwartz: Abiding prepared remarks for Illumina today will be Jacob Tyson, Chief Executive Officer, and anchor dangerous Chief Financial Officer.
Sally Schwartz: Jacob will provide an update on the state of aluminum business.
Speaker Change: And anchor will review our financial results for core Illumina.
Speaker Change: As a reminder, we divested grill in June of 2024.
Speaker Change: For a review of historical financial results for Grail, and consolidated Illumina. Please see our earnings release and our SEC filings.
Speaker Change: We will be discussing non-GAAP results, which include stock based compensation. We 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.
Speaker Change: As we go through the results. Please note that year over year refers to comparisons against the corresponding period in fiscal 2023, while sequential is as compare it against the third quarter of fiscal 2024.
Speaker Change: Additionally, please note that all revenue growth rates discussed are presented on a constant currency basis to exclude the impact of foreign exchange fluctuations.
Speaker Change: This call is being recorded and the audio portion will be archived in the investors section of our website at.
Speaker Change: 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.
Speaker Change: Forward looking statements are subject to risks and uncertainties actual events or results may differ materially from those projected or discussed.
Speaker Change: All forward looking statements are based upon current available information and I'll Illumina assumes no obligation to update these statements.
Speaker Change: To better understand the risks and uncertainties that could cause actual results to differ.
Speaker Change: We refer you to the documents that Illumina files with the Securities and Exchange Commission, including Illumina is most recent forms 10-Q and 10-K.
Jacob Tyson: With that I will now turn the call over to Jacob.
Jacob Tyson: Thank you Sally.
Jacob Tyson: Good afternoon, everyone.
Speaker Change: Before we get started I wanted to take a moment to address the recent announcement from the Chinese Ministry of Commerce that we know is top of mind for many of you and for us.
Jacob Tyson: We are in dialogue with the relevant parties and promptly seeking additional information to reach a resolution.
Jacob Tyson: Illumina has a long standing presence in China, where we continue to serve the local market, including both our clinical and research customers.
Jacob Tyson: Wherever alumina operates we comply with all applicable laws and regulations.
Jacob Tyson: And as a reminder, China represents approximately 7% of our global revenue and we continue to see significant opportunity to bring our innovations to the health care ecosystem there.
Jacob Tyson: Now, let me turn to the overall review.
Jacob Tyson: 'twenty 'twenty fall was a transformative year for illumina, enabling us to enter 2025 with momentum.
Jacob Tyson: As I shared with you last month, we made significant progress towards our strategic goals despite market conditions.
Jacob Tyson: We launched our new corporate strategy to return to revenue growth in 2025 and step into high single digit revenue growth by 2027.
Jacob Tyson: We deepened our focus on customers and partners to further expand the genomics ecosystem into Montreal mix.
Jacob Tyson: We introduced new innovations across the sequencing workflow to support what matters most of our customers the highest quality insight for the lowest end to end cost.
Jacob Tyson: We made strong progress with the <unk> X transition with research and clinical customers increasingly use the instruments with deeper and broader sequencing.
Jacob Tyson: We built a new leadership team and refined our organization structure and we rolled out a robust operational excellence initiatives to improve our margins and to drive double digit low teens EPS growth.
Jacob Tyson: We just at the beginning of our transformation and are confident that 20 to 25 will bring us closer to our goals.
Jacob Tyson: Turning to our Q4 results.
Jacob Tyson: In the fourth quarter, Illumina delivered revenue of $1 $1 billion exceeding expectations, and reflecting approximately 1% growth from the prior year.
Jacob Tyson: Transition to the newest X continues to progress well the Q4 year over year revenue growth driven primarily by consumables as customers increase their instrument utilization.
Jacob Tyson: In 'twenty to 'twenty, four <unk> X pull through averaged one $3 million the system.
Jacob Tyson: Sequentially, our result exceeded expectations due to the higher than anticipated shipments of the Nova seek X series.
Jacob Tyson: We placed 91 instruments during the quarter, bringing the installed base to 630.
Jacob Tyson: Across all regions Americas revenue, which is more than half of our business was up 3% year over year on a constant currency basis.
Jacob Tyson: Europe revenue was up 3% EMEA.
Jacob Tyson: EMEA revenue was down 10% and greater China revenue was up 1%.
Jacob Tyson: We continue to focus on three key priorities to guide execution of our strategy.
Jacob Tyson: First depot customer and partner collaboration.
Jacob Tyson: Continuous innovation and third commitment to commercial and operational excellence.
Jacob Tyson: Our first priority deeper customer and partner collaboration is centered on providing a range of targeted solution to serve the increasingly diverse needs of our customer base to evolve the broader ecosystem and enable higher volumes of sequencing.
Jacob Tyson: Last month, we announced several examples on how are we partnering with leading players to broaden our reach into the intersection of technology health care and pharma.
Jacob Tyson: These partnerships will enable our customers to generate more detailed data and richer insights.
Jacob Tyson: Our recently announced collaboration with Nvidia brings together Illumina software capabilities and Nvidia has advanced AI tools to enhance the analysis and interpretation of multi omics data for customers.
Jacob Tyson: We are also proud to take part in the <unk> genome project alongside Truvada, Regeneron and several leading health systems across the U S.
Jacob Tyson: Together, we are creating one of the largest genetic databases linked with phenotypic data sequencing 10 million extra homes.
Jacob Tyson: <unk> using Illumina technology.
Jacob Tyson: Our second priority is continuous innovation.
Jacob Tyson: Which is underpinned by spending time with customers and partners to share insights and support their ambitions.
Jacob Tyson: In December we began shipping the new single flow cell <unk>, which delivers the same high quality performance.
Jacob Tyson: And speed as an oversea gigs plus but even more accessible price points.
Jacob Tyson: We also began shipping our new 25, <unk> 102 hundred <unk> kits for the <unk>, which is a key for advancing multi omics applications.
Jacob Tyson: These kits also support our recently introduced single cell solution, formerly known as Pepsi influenced biosciences.
As we mentioned during the strategy update our customers are increasingly focused on getting the highest quality inside of the lowest end to end cost.
Jacob Tyson: To meet this need we continue to expand our portfolio of fully automated streamlined workflows, including with our new my seek island 100, which accelerates sample to answer for oncology microbiology and for several other applications.
Jacob Tyson: Uptake since launch in Q4 has been strong you place more than 70 instruments with early access customers before year end.
Jacob Tyson: Also we have been developing our proteomics solutions in collaboration with stand of Biofuels.
Jacob Tyson: This is a fully integrated end to end workflow that offers greater automation and ease of use compared to other on market products.
Speaker Change: As a part of this rollout Illumina announced the pilot proteomics program to analyze 50000, UK biobank samples to generate a new collection of NDS based proteomics data.
Speaker Change: We are also extending our early access program for our constellation met read technology.
Speaker Change: The customers who have elected to enroll in the program have been encouraged by constellation's ability to detect structural variance that was previously challenging to identify with short read sequencing.
Speaker Change: As we said during our strategy update last year, we are committed to keeping customers updated on our innovation roadmap.
Speaker Change: At industry conferences and events, we look forward to sharing more at the <unk> Conference later this month.
Speaker Change: And equally important priority is our commitment to commercial and operational excellence.
Speaker Change: By getting closer to our customers enhancing productivity and optimizing our investment spend we are building a foundation that powers illumina as long term success.
Speaker Change: We have made great progress in building a culture, where every employee is contributing to commercial and operational excellence.
Speaker Change: In Q4, we achieved additional cost savings from greater manufacturing and logistics efficiencies contributing to more than $100 million in cost savings across 2024.
Speaker Change: Our ability to improve margins, even under tough market conditions showcases the essence of the new Illumina operating model and you'll see more of that going forward.
Speaker Change: Turning to 2025, our guidance does not attempt to reflect any impact from the recent China announcements, which we are promptly assessing.
Speaker Change: Our full year guidance also assumes a continuation of the current macroeconomic and political environments.
Speaker Change: We are closely monitoring the evolving circumstances in Washington, particularly as it relates to research funding.
Speaker Change: Ultimately, we are committed to supporting our customers globally and the important work they do to advance scientific discovery using the palace of genomics.
Speaker Change: Within this context, our views for 2025 are aligned with the commentary we provided in mid January.
Speaker Change: We continue to expect revenue to grow in the low single digit percentage range on a constant currency basis.
Speaker Change: And non-GAAP operating margin of approximately 23%.
Speaker Change: 170 basis points improvement from 2024, we also expect diluted EPS in the range of $4 52.
Speaker Change: Two $4 and 65.
Speaker Change: We have a clear vision for expanding the exciting markets in which we operate and our future defining a roadmap to support our customers.
Speaker Change: We remain focused on delivering on our long term financial targets to achieve high single digit percentage growth by 2027 more than 500 basis points of operating margin expansion and double digit to teens EPS growth.
Speaker Change: As we said before three growth drivers will help us achieve these goals one leading with our strong core business of sequencing as we progress the X transition to scaling our entry into multi omics. This year and next and three expanding our data and services to add and <unk>.
Speaker Change: Additional layer of growth.
Speaker Change: Before turning to anchor I want to thank our employees for their commitment and performance this past year.
Speaker Change: I'm very proud of the Illumina team for staying focused on delivering innovation to support our customers.
Speaker Change: And the patients they serve and driving margin improvements I'll now ask ankur to share more detail on our 2024 results and the outlook for 2025.
Speaker Change: Jacob and good afternoon, everyone.
Speaker Change: I will give you an overview of our financial results.
Speaker Change: <unk> more color about revenue expenses earnings and developments on our balance sheet, and then speak about our outlook going forward.
Speaker Change: All financial information, including guidance that we shared on this call is for core Illumina only and excludes grill.
Speaker Change: All revenue growth rates are on a constant currency basis. During the fourth quarter Illumina is revenue of $1 1 billion exceeded our expectations and we made significant progress towards our goals of driving customer centric innovation margin expansion and EPS growth cash generation remains.
Speaker Change: Drawn and we continued to put cash to use in accordance with our capital allocation strategy let.
Speaker Change: Let me add more color starting with revenue.
Speaker Change: Fourth quarter revenue of $1 1 billion exceeded our expectations and was up 1% year over year.
Speaker Change: The growth was mainly driven by a high throughput consumables business, while above expectations performance was driven by NOAA seek X placements, including encouraging uptake from clinical customers.
Speaker Change: Sequencing consumables revenue of $698 million grew approximately 2% year over year.
Speaker Change: Driven by continued transition of high throughput sequencing to X and also growth in mid throughput consumables against a modest prior year compare.
Speaker Change: As of the end of Q4 in line with the X transition cadence, we've discussed more than 65% of high throughput gigabases shipped and approximately 40% of high throughput consumables revenue was on the <unk> X series.
Speaker Change: Moving to sequencing activity.
Speaker Change: Total sequencing GB output on a connected high end mid throughput instruments grew at a rate of more than 30% year over year with robust growth from both clinical and research customers.
Speaker Change: Sequencing instrument revenue of $155 million.
Speaker Change: <unk>, 3% year over year in Q4.
Speaker Change: Driven primarily by a decline in mid throughput shipments due to capital purchases and cash flow constraints continue to impact our customers' purchasing behaviors.
Speaker Change: Partially offset by successful launch of the May seek I 100.
Speaker Change: Sequencing service and other revenue of $151 million was down 1% year over year, mainly due to timing of certain strategic partnership revenue was last year.
Speaker Change: Instruments services contract revenue revenue from CTX agreements and revenue from our informatics solutions grew as we anticipated.
Speaker Change: Moving to the rest of the Illumina P&L.
Speaker Change: non-GAAP gross margins of 67, 4% for the fourth quarter reflected typical Q4 seasonality off of high instruments mix of business.
Speaker Change: On a year over year basis, non-GAAP gross margin increased 270 basis points, primarily driven by the execution of our operational excellence initiatives.
Speaker Change: Continue to improve productivity and deliver cost savings as well as continued growth in our consumables business.
Speaker Change: non-GAAP operating expenses of $526 million, reflecting both cost control measures as well as project expenditures tied to key investments.
Speaker Change: non-GAAP operating margin was 19, 7% in Q4.
Speaker Change: Up 120 basis points from last year, reflecting the discipline and operational excellence measures and delivering results.
Speaker Change: Our non-GAAP tax rate came in lower at 23, 7% for the quarter and 23, 6% portfolio 2024.
Speaker Change: Q4, non-GAAP net income was $152 million.
Speaker Change: Our non-GAAP weighted average diluted share count for the quarter was approximately $160 million.
Speaker Change: Altogether non-GAAP EPS of <unk> 95 cents per diluted share came in above our expectations driven by higher revenue and some benefit from a lower tax rate.
Speaker Change: Moving to cash flow and balance sheet items for the quarter cash flow provided by operations was $364 million.
Speaker Change: Capital expenditures were $42 million.
Speaker Change: Free cash flow was $322 million.
Speaker Change: In Q4, we repurchased 134000 shares of alumni stock for $17 million at an average price of $129 per share.
Speaker Change: We ended the year with approximately one point to $2 billion in cash cash equivalents and short term investments.
Speaker Change: Jacob outlined the significant progress we've made towards the goals. We have set for coda Illumina. We've also established a strong cash generation profile and a robust balance sheet that positions us well for the future.
Moving now to our 2025 guidance.
Speaker Change: As Jacob mentioned, we're currently assessing the recent announcement from China, and our 2025 guidance does not attempt to reflect any impact from this announcement.
Speaker Change: Our guidance also assumes a continuation of the current macroeconomic and political environment.
Speaker Change: Our overall expectations for fiscal year 2025 remain inline with our commentary from a few weeks ago.
Speaker Change: We expect constant currency revenue growth in the low single digit percentage range weighted towards the second half of the year driven by the NOAA seek X transition.
Speaker Change: We expect sequencing consumables to grow in the low single digits on a constant currency basis.
Speaker Change: Driven by strong sequencing activity, especially with our clinical customers.
Speaker Change: The multiyear make product launches like single cell proteomics at attracting a lot of interest from the research community.
Speaker Change: We also remain on track for roughly 75% of high throughput gigabases shipped to transition to the X series at the second half of 2025.
Our instruments, we are assuming that our customers will continue to manage that capital investments closely and hence the predicting instrument placements to moderate in 2025, reflecting a low single digit decline in sequencing instrument revenues on a constant currency basis.
Speaker Change: For your modeling purposes, the usual pull through assumptions have been included in our slides.
Speaker Change: We expect total sequencing revenue growth to be in line with total illumina revenue growth year over year.
Speaker Change: Looking at the rest of the P&L.
Speaker Change: Do you expect a core non-GAAP operating margin of approximately 23% an expansion of 170 basis points versus 2024.
Speaker Change: Our operating margin expectations reflect the benefit of our continued gross margin improvement and expense reduction initiatives, partially offset by the impacts of inflation and market based merit increases.
Speaker Change: We're also lowering our non-GAAP tax rate now.
Speaker Change: Now expected to be approximately 22, 5%.
Speaker Change: Putting it together, we expect non-GAAP diluted earnings per share in the range of $4 52.
To $4 65.
Speaker Change: Growing at 10% at the midpoint.
Speaker Change: We had also included in our slides other financial information that would be helpful. For modeling purpose. The presentation will be posted on our Investor Relations website following our prepared remarks.
Speaker Change: Now moving to the first quarter of 2025.
Speaker Change: As mentioned before our guidance does not attempt to reflect any impact from the recent China announcement.
Speaker Change: First quarter, we expect revenue to be flat to down 1% year over year on a constant currency basis, driven predominantly by a decline in sequencing instruments and timing of certain strategic partnership revenues.
Speaker Change: For the first quarter, we expect non-GAAP operating margin of approximately 25% and non-GAAP earnings per share in the range of 93 to 98 cents.
Jacob Tyson: I will now turn the call back to Jacob for his closing remarks.
Speaker Change: Thanks Ankur.
Jacob Tyson: I'm proud of what our team accomplished in 2024.
Jacob Tyson: As we begin 2025, our refreshed strategy is driving meaningful progress for customers around the world.
Jacob Tyson: We will continue to deliver breakthrough innovations that pushed the ecosystem forward and create value for all our constituents.
Jacob Tyson: We look forward to engaging with many of you at the upcoming conferences and events.
Jacob Tyson: Thank you for joining our call today.
Jacob Tyson: I'll now invite the operator to open the line for Q&A.
Jacob Tyson: Thank you at.
Jacob Tyson: At this time, if you would like to ask a question. Please click on the raise hand button, which can be found in the black bar at the bottom of your screen.
Jacob Tyson: To give as many analysts as possible the opportunity to ask a question. Please limit yourself to a single question. If you have additional questions. Please raise your hand again to be put back into the queue.
Jacob Tyson: Allow a few moments that acute form.
Speaker Change: Our first question will come from Vijay Kumar with Evercore, you May now Amit your audio and ask your question.
Vijay Kumar: Hey, guys. Thanks, Thanks for taking my question.
Jacob Tyson: Yes.
Jacob Tyson: Jacob and encore.
Jacob Tyson: High level I know.
Speaker Change: You noted, China, youre, not making any assumptions for potential disruption I guess, one can you update us on what.
What you heard so far.
Speaker Change: What is your revenue mix in China clinical versus research our margin profile.
As you think about the guidance here encore.
Speaker Change: Flat to down in Q1 does that imply like the revenues throughout the year, it's going to be in the low single digit range or what is the implied exit rate here. Thank you.
Well, thank you Vijay and that was a lot of questions baked into one there. So I'll try to just address China overall here, but as we mentioned.
Speaker Change: First of all this is of course, a very relatively very new news. We have known this for a few days, but just to contextualize that China is a significant market with an aging population. It's a country like many others are investing into and prioritizing health care and are looking at sequencing as a key component into that so therefore, we are seeing that.
Speaker Change: Of course other competitors also seeing China as as a significant market opportunity and we truly believe that illumina with our leading <unk> technology and our innovation pipeline is.
Speaker Change: Well those are serving and will continue to serve the Chinese customers and patients are very very well.
Speaker Change: The recent announcement as I mentioned is really only a few days old and we are working promptly with the relevant parties to get to a resolution.
Speaker Change: On this.
Speaker Change: What I can say is that you know the size of our business is approximately 7% of our total revenue, but at this time, we are not going into the details of our China business in more detail than the revenue.
Speaker Change: Understood and maybe on the cadence.
Speaker Change: Yes, I think the question on the cadence overall for the year remains similar to the discussion I had a few weeks ago.
As you know driven primarily by the by the high throughput sequencing transition.
Speaker Change: Topline.
Speaker Change: Top line growth is more towards skewed towards the second half of the year as.
Speaker Change: As you make the transition to <unk> and the pricing condition, placing transition expecting to come down a little bit.
Speaker Change: So that drives higher.
Speaker Change: Profitability in the topline at the in the second half of the year overall, though our focus on taking costs out.
Speaker Change: As well as driving operational excellence will be visible throughout the year.
Speaker Change: Alright, thank you.
Speaker Change: Thanks.
Speaker Change: Our next question will come from the line of Dan Brennan with Cowen. Please I'm your audio and ask your question.
Dan Brennan: Great. Thank you thanks for the quarter as well maybe.
Speaker Change: Maybe just a couple of part of here.
Speaker Change: On volumes, so I think you talked about greater than 30% volume in Q4.
Speaker Change: A bit of a T cell from what you reported in the prior quarter, maybe just give us some color on what youre seeing in volumes and elasticity and kind of whats contemplated for 2025.
Speaker Change: And then kind of related to that you flash the pull through numbers on the screen, we'd love to get some insight and kind of what's contemplated in the 25% of late the Novus seek to then obviously then obviously you have been obviously X transition kind of what Youre seeing is it ratable is it accelerating just any color on that as it drives 25. Thank you.
Dan Brennan: Dan So let me start by just again positioning where we see the volume is that the what we are what we are really excited about and what you're seeing through 'twenty. Four is a continuation of the movement towards the X and we and our customers are moving to the X that they are they're really using this to increase their volume increased out of sequencing.
Dan Brennan: Both in terms of larger assets, but also deeper sequencing. So we continue to see that the customers moved to X is driving significant more volume than the the customers that have stayed on the 6K. So so that's exciting.
Dan Brennan: Also as you know when we started to provide those volume numbers, we wanted to make sure that everybody understood that it's indicative, it's not a perfect measure fall, whether it's 30% or whether it's 40% if that is not the main message here. The main message is that there is significant volume out there and we continue to see.
Dan Brennan: Volume growth higher than it has done in average while we are expecting is that on a longer horizon is that volume growth should be in around in the mid 20 percents.
Dan Brennan: So we still above that and we expect to be continue above that for a little while here. So I'm I'm I'm still very pleased with where we are with the results and it shows really strong progression as uncle is also talking about towards the X and we still believe that we will have more than 75% of our volume being on the X by by mid year.
Dan Brennan: Yep, that's a well covered Jacob and then we have put the slide out for all of the pull through assumptions et cetera, they've exited 2020 forward with very good flow through overall for the year I'm very pleased with the with the ramp up of X now.
Dan Brennan: And see potential for it to keep growing next year as well the detailed assumptions for modeling out on the site.
Dan Brennan: Okay.
Speaker Change: Our next question will come from Puneet <unk> with Leerink.
puneet: Yes, hi, guys.
Speaker Change: Thanks for taking my questions.
puneet: Just first one Jacob.
puneet: I appreciate the comments earlier on the <unk>.
puneet: Unreliable entity list, but just that was a strong statement from China.
puneet: Obviously, you pointed out.
puneet: A number of years.
puneet: Your strong position in China, historically, but just could you elaborate a little bit just so we understand why you expect that to be reversed.
puneet: There was obviously another larger software company involved here and so it looked fairly pinpointed. So just wanted to understand that and then on the clinical translation Encore wondering if you can clarify where that 50% gigabit shipped number could yield in.
puneet: In 2025 or by end of 2025. Thank you.
Speaker Change: Yeah. Thanks, Puneet I think in the beginning and as you meant I mean this is new information we are only normal this a few days.
Speaker Change: I don't think Ive commented on it on timelines on this when we have more insights or even on weather.
Speaker Change: If we got its been reversed I don't think we have to be bought.
Speaker Change: Haven't that'd be we'll not comment on that.
Speaker Change: We are in dialogue with the relevant parties and we'd like to keep that dialogue between the parties before we probably have more insights here.
Speaker Change: And of course on the 58 on the 50% basically giving additional color on their transition.
Speaker Change: X weave that we've said roughly two thirds of over 65% of the volume.
Speaker Change: At the end of the year here in Q4 has transition when you parse it out by clinical and by research for clinical that's about 50% or half of the clinical volume has already transitioned threats.
Speaker Change: At the end of the year.
Speaker Change: And when do you expect that for 2025.
Speaker Change: While in aggregate still at 75% in aggregate our entire volume given that 80% of research has already transitioned.
Speaker Change: Most of the remainder should now come from Senegal.
Speaker Change: Okay I'll hop back into queue. Thank you.
Speaker Change: Our next question will come from Doug Schenkel with Wolfe. Please limit your audio and ask your question.
Speaker Change: Alright, good afternoon, guys I want to start on China, and then turned to a bigger picture longer term question, so cutting to the chase not providing more detail on China financials, and not taking this opportunity to ring fence things.
Speaker Change: I'm sure you understand but that creates yet another overhang for the stock.
Speaker Change: I'm wondering if you would at least be willing to talk about the levers you have identified and you have available to you at both the margin line and via initiatives like buybacks to protect your at least the low end of your EPS targets for the year. If you are unable to reverse what's going on in China. So that's the first.
Speaker Change: And then longer term sort of related to that.
Speaker Change: Jacob Archerd, recognizing you inherited a lot of problems from the previous leadership team. Once you buy the house you on it. This is your company. It seems like every quarter, there's something new there is pricing than there is with throughput now, it's China and a couple of weeks, we'll get some new announcements from Roche you.
Speaker Change: See what we see in fact, you see more between the market opportunity. Your network of that the fact that you are spending almost $1 billion in R&D per year do you feel comfortable you can get back to mid single digit revenue growth over the next one to two years and drive better than peer group EPS no matter what argue could.
Speaker Change: <unk> to that elevating this to that level. Thank you.
Speaker Change: Yeah. Thanks, Doug that was again a lot of questions baked into there. So let me just come to the essence here is that we as you know I've been in this in this job for one and half year. So you can absolutely certain that I feel like I have fully ownership of the company and the execution of what we need to do over the next period of time.
Speaker Change: And we came out with a plan this summer state and we would step back into a high single digit growth by 2027 and also continue to deliver.
Speaker Change: Double digit to teens EPS growth and deliver on a 26% operating margin that is our commitment and that's what we are committing to do and we will do the right work in order to get them.
Jacob Tyson: Yeah. Thanks Jacob.
Jacob Tyson: To the other part of your question, we're looking at all possible opportunities irrespective of whatever the outcome is from China.
Jacob Tyson: We'll keep driving margin tax operating.
Jacob Tyson: Margin operating leverage drivers.
Jacob Tyson: Forward and we have several opportunities there as we've outlined our base case.
Jacob Tyson: Already looks at 170 basis points of margin expansion year over year and.
Jacob Tyson: And we will keep driving additional margin there so not not really walking off of that but I see additional opportunities from from an earnings growth perspective that we're pretty heavily focused on this.
Jacob Tyson: Yeah.
Speaker Change: Our next question will come from the line of Conor Mcnamara with RBC. Please on mute and ask your question.
Speaker Change: The picture on a phone corner star six will allow you to run yet.
Speaker Change: Thanks, Matt Thanks, guys for taking the question I appreciate that.
Speaker Change: Just on.
Speaker Change: The sequencing growth was there any impact from in the quarter from.
Speaker Change: Slowdown relative to Q3 because of the higher X placements.
Speaker Change: Or any slowdown from customers that were looking at.
Single cell ex that may slowdown consumable growth in the quarter, and then youre already at 65% conversion so.
Speaker Change: To be tracking ahead of the 75% conversion that you've talked about exiting Q2. So how should we think about the pricing impact early on in 2025, and thats going to be less than you've laid out and the senior analyst of it thanks for the questions.
Speaker Change: Yes, Thanks, Colin on overall, we continue to be pleased with the progress we're making on the on the conversion that you're mentioning and we are certainly on a good trajectory for delivering on the midyear as we have said, 75% as you also mentioned where we are today. So we feel good about that.
Speaker Change: I think it's also we still in that in a situation, where you have a very high volume growth and of course mix and other things can impact.
Speaker Change: Some of the performance quarter by quarter, but if you look at the victory. We are definitely on the right track. We did anticipate that we would see a little bit of a slowdown here in Q4 and there is less.
Speaker Change: Working days and other things that impacted us. So we had that we had anticipated some of that so we feel good about where we are and that we will beyond the progress to deliver.
Speaker Change: And as you mentioned also when we are starting to lapse. The main part of the.
Speaker Change: Having the revenue on the accident of costs, you'll see more revenue.
Speaker Change: Revenue growth based on that we now have a.
Speaker Change: Growing on a on a different cost basis say on a price basis. So to say so so we encouraged about that and therefore, we are also expecting that we will continue to see improvement during the year of our consumables growth.
Speaker Change: Our next question will come from Dan Arias with Stifel. Your line is open for feature in mute.
Dan Arias: Hi, guys. Thanks for the questions here anchor can you, maybe just give us a sense of the extent to which you would work your way through the production.
Speaker Change: Production and efficiency exercises that you had teed up I mean, how much of what you saw as an opportunity. When you showed up to Illumina did you tackle and capture in 2024 versus what's sort of open to you in this year look to sort of understand the untapped.
Speaker Change: The opportunity that you have here for the next 12 months yeah sure. So.
Speaker Change: Still still significant opportunities in 'twenty 'twenty four from my perspective, what we've captured is some tweaks in our in our manufacturing strategies some of the lower hanging fruit in terms of.
Speaker Change: Optimizing some of our teams.
Speaker Change: We have and we've started working on this the teams already actioning.
Speaker Change: Our ability to.
Speaker Change: Further consolidate our manufacturing as well as our R&D capabilities in Singapore.
Speaker Change: It's a dual benefit for us to be in Singapore, not only do we get the cost arbitrage. It also allows us to drive synergies.
Speaker Change: He is between our R&D and manufacturing team locally.
Speaker Change: Need to both lower R&D cost as well as a lower cost to manufacture.
Speaker Change: It also below the line allows me.
To increase my R&D based in Singapore, and be able to take advantage of our tax structure, which is beneficial in the long run some of the benefits youre beginning to see in the in the 25 guide.
Speaker Change: They're already.
Speaker Change: Within our operating expenses as we said we've started set up an office in India, we talked about that about four months ago. We had 150 people there now and we have very good runway and meaningful.
Speaker Change: <unk> identified.
Speaker Change: To keep expanding our capabilities within India.
Speaker Change: And we have several plays going on within our sales and marketing as well as the R&D side, so lots of opportunities over the next two years, both through 2025 and through 2026, you'll keep optimizing just structurally our cost structure here.
Speaker Change: Our next question will come from Rachel that installed with J P. Morgan. Please on mute and ask your question.
Speaker Change: Okay. Thank you yeah theres been a few questions on China and you guys are trying to assess the situation given it's still early but could you at least unpack for us what was contemplated initially in the 2025 guidance for China.
Speaker Change: Towards this like $300 million business last year. So can you just give us a view on what you were expecting that to grow or decline in 2025, and then my follow up is just on first quarter or can you walk us through your assumptions in terms of consumables growth is it going to be up sequentially in <unk> or what should we see on that front. Thank you.
Speaker Change: Yeah, Thanks, Rachel and let me, let me start there and then have anchored to provide a little more insight thought about to put on China. As I mentioned also in the in the previous calls is that we.
Speaker Change: We had our new head of China coming in approximately a year ago and Jenny and her team has done a wonderful job on assessing the opportunity in China and put some more structure around wherever you're gone in strategy about whether you're going to focus. Our she has made some changes to the organization and I actually think that either we are starting to see that play through in our performance also.
Speaker Change: Meaning that maybe starting to see them be actually nice to see growth in China in Q4.
Speaker Change: And and also sequentially, it's starting to look really nicely. So we were we were constant we were we were guiding in underlying the guide here, we were expecting approximately flat growth for China in 2025.
Speaker Change: Yes, that's right Jacob Rachel I think they've kind of said that during our strategy day and otherwise in the near term, we weren't anticipating any meaningful growth contribution from China.
Speaker Change: It being stable would have been good very good to see the Q4 growth of 1% now certainly with the announcement we are assessing the situation while we are still while.
Speaker Change: While we are still supporting our customers on the ground.
Speaker Change: Okay.
Speaker Change: Our next question will come from Tejas Savant with Morgan Stanley. Please on mute and ask your question Hey.
Tejas Savant: Hey, guys can you hear me okay, yes.
Speaker Change: Yes, yes, yes.
Dan Arias: So Jacob.
Speaker Change: I wanted to take.
Speaker Change: A slightly different tack on China.
Speaker Change: I know you don't want to say too much on the specifics here, but it is an important question and we live in the era of making deals right. So back in the day there were a lot of folks who lobbied for BG is exclusion from the U S market. We got added to the military entity list in Biosecurity cetera would it make sense for that to be undone flushed with appropriate.
Data safeguards in place in exchange for you guys getting unfettered access to the Chinese market, we live in a different world. Today, you guys have other credible competitors. Besides pgi now so would that be an effort that you would be in principle supportive of us.
Speaker Change: And then second sort of on the competitive landscape you know a couple of <unk>.
Speaker Change: High profile sort of Windier for one of your emerging competitors bundle the UK biobank for proteomics and the other for.
Speaker Change: John does the board.
Speaker Change: They'll work can you just shed some color on what works against you in those rfps.
Speaker Change: So let me start by the first one here and.
Speaker Change: On China and on <unk> I think first of all what I will say that we are as I mentioned before we always take competition very seriously.
Speaker Change: Actually I do like competition, I think that keeps us undertows it keeps.
Speaker Change: All of us to make sure that the customer gets the best and the highest quality of service. So any and competition is good in the industry and I I will we will compete with anyone we believed that we have the best technology. We continue to innovate doesn't matter whether it's in U S. On China, we believe that our innovations and what Illumina stands for.
Speaker Change: Is providing the best solutions for our customers related to.
Speaker Change: What is happening in Washington, we are and we will leave that for the lawmakers to decide it's a it's the capital Hilton conversation and not something that we have any influence on.
Speaker Change: Got it.
Speaker Change: The emerging vendor situation Jacob to bank.
Speaker Change: Yes, I mean again, we are there's competition out there be I recognize that.
Speaker Change: I think we are not going out and do a press release every deal we do.
And so I'll leave it with that.
Speaker Change: Got it fair enough. Thank you.
Speaker Change: Our next question will come from Tycho Peterson with Jefferies. Please on mute and ask a question.
Tycho Peterson: Hey, thanks.
Tycho Peterson: A couple of things I, just want to make sure. There was no pull forward was <unk> 91 placements in the fourth quarter. It doesn't sound like you're calling that out but I want to make sure Theres. Nothing ahead of the new administration and some expected NIH noise and then on the clinical momentum for actually I think you've said before 20% of test will never move over.
Speaker Change: To X is absolutely your view what are.
Speaker Change: Are you assuming for 'twenty be uptake I think it's been about 50% of customers and then on the pricing dynamic you know you've talked about customer discussions around Africa application specific pricing essentially helping customers hit a certain margin target where are you in that net process.
Speaker Change: And.
Speaker Change: And I think you do have to address to you guys. Just last question about the UK Biobank I understand your competitor effectively gave away that business, but there are a lot of these programs out there that you came out and was a big one.
Speaker Change: How do you deal with an irrational competitor in the market potentials, that's giving away instrument. Thanks.
Speaker Change: So let me let me start to address the high level there on the percentage of customers that will be staying with what we are trying to get from a modeling perspective, just saying that we have seen historically that would be the lion's share of customers will move to the X.
Speaker Change: And through the new technology, but there'll always be a fraction of customers that ball for reasons that they see that their assay works well and they have a nice profitability are they don't they see that that they're they don't want to invest more in that part of the business. For example that they stay on on you because they'd be the older technology for a while.
Speaker Change: No.
Speaker Change: We have just seen that rule of thumb is probably around 20% will will stay enable it of course becomes smaller and smaller over time, but it's taking substantial longer to transition their lost the last part than it did for the first let's just say 75% to 80%. So that's how we think about that.
Speaker Change: I think if you go to the U K biobank as we mentioned also here in at the at the recent releases that we are now in a in a 50000 pilot study on the UK Biobank project started on the UK Biobank. That's the first step you need to take that was actually also aware.
Speaker Change: Where we saw them.
Speaker Change: The other protium provide a protein as a provider of exited at 50 K project before they went for the full one so we actually are following the same trajectory and believe we have a strong solution for that as you're also mentioning yes, the new competitors in the market and yet be also an environment where competition and everyone.
Speaker Change: Has to eventually show that they can make money and and we will we have shown that I think it's up to us to show that they can also do that otherwise eventually the banquet runs dry.
Speaker Change: And then can you just address the pricing dynamic with clinical customers. These discussions around application specific.
Speaker Change: Pricing essentially helping your customers.
Speaker Change: And margin target.
Speaker Change: Okay.
Tycho Peterson: Yeah, that's right, let me add to that Tycho on the application specific by saying we are we have had active discussions with quite a few of our customers.
Tycho Peterson: Continuing to do that for some of the more emerging tests.
Tycho Peterson: We are having discussions with them about having a separate set of pricing that enables much higher volume of sequencing from that test.
Tycho Peterson: And working with them to enable that as a separate line rather than.
Tycho Peterson: Have discussions about bringing the pricing down for the entire portfolio.
Tycho Peterson: There are a set of customers who are already on board with that.
Tycho Peterson: And our and Theyre looking at launching tests over the next quarters or.
Or so based on what they want their clinical timelines are.
Tycho Peterson: And we'd be part of that as a as of any specific category. So that's a first.
Tycho Peterson: In working with these set of customers and the initial discussions have been quite encouraging specific that that test so far.
Tycho Peterson: The second set during the second and third said during this year that you see.
Tycho Peterson: <unk> will emerge is going to be with or without proteomics solution as well as well as our single cell solution.
Tycho Peterson: Which is where some of the earlier discussions and placement is could be around the entire end to end workflow could be around.
Tycho Peterson: Full set of studies as well as programs rather than working on a on a part of GP discussion there so that's emerging as well.
Tycho Peterson: Thank you.
Dave Westenburg: Our next question will come from Dave Westenburg with Piper Sandler. Please on mute and ask your question Hi, Thanks for taking the question I'll go a little bit different cash and so that's been covered.
Tycho Peterson: First I want to just maybe talk about Nvidia.
Tycho Peterson: What are the customers getting a nurse can this collaboration turn into something bigger and how would this impact and a network effect with illumina and keeping customers on it with their familiarity with the product and then also I wanted to talk about the <unk> deal I mean, obviously the whole arena.
You talked about the Chan Zuckerberg and bought a bank, but it's true that is interesting because it's more on the private sector.
Tycho Peterson: Do you think there's other private sector opportunities and genome projects, what's the funnel look like that like that in genome projects and in the private sector and just given that utility that we could be seeing out of that.
Tycho Peterson: How close are we from for maybe like the dream of sequencing at birth. Thank you.
Speaker Change: Yeah. Thanks, Thanks, Dave and and Yeah. We're certainly excited about those relationships are those collaborations also and let's start with the <unk> well within VTS.
Speaker Change: It was noted that there is a lot off of.
Speaker Change: <unk> capabilities in compute power.
Speaker Change: Put in place by in video right now for many different applications, especially within AI and AR and with that also we are now moving into a space, where even now is with a large cohort of sequencing, but also going into multi omics. It requires a lot of compute power and while our dragon platform on an FPGA.
Speaker Change: It's working very nicely the customers that have already invested in the GPU infrastructure, you would want to make sure that that the Dragon platform also is available on the GPU platforms. So that is one thing that can really drive or I think a big network effect and really help our customers compute huge amount of data at the same time.
Speaker Change: Nvidia is also providing infrastructure for.
Speaker Change: Building. This foundation models that I think it's going to be key for really a modeling biology for the future and really being a key for.
Speaker Change: For for predicting.
Speaker Change: Diseases and help with drug discovery and other things. This is requiring a significant amount of sequencing to build up those kind of predictive models and so we are now together with Nvidia, we allowing and enabling that to those models and that programming language on our platforms all of our infrastructure. So our <unk>.
Speaker Change: Customers can can't get access to that so very exciting and certainly our Houston edberg effect beyond genomics, but willing to multi omics also.
Speaker Change: Yeah, you're right, it's a private sector genome project and I think you were seeing a lot of interest.
Speaker Change: Around that.
Speaker Change: Just both in U S, but around the world.
Are you seeing this in middle East U K, Germany. Other places we are seeing that both from a sequencing in sovereign countries, but we're also seeing a lot of interest fall for pharma to have good access to much more diverse.
Speaker Change: Data sets and so that's a lot of activities for that specific but generally speaking we are seeing pharma being very interested to work closer with us on many different applications.
Speaker Change: And these are these are some of them, but that's much more coming on this.
Speaker Change: Our next question will come from Cebu Namby with Guggenheim. Your line is open. Please go ahead.
Hey, guys. Thank you for taking my question.
Speaker Change: You guys have maintained R&D of just below 1 billion per year is that the plan moving forward.
Speaker Change: Have you re prioritize efforts since you took the lead at the company how should we assess the success of this investment, which I noticed far higher than peers as a percent of sales.
Speaker Change: Yeah, Thanks for that and I think we continue to believe that overall the.
Speaker Change: The genomics opportunity and the multi omics opportunity. The <unk> is still a significant opportunity in front of us and we're just getting started on that and thereby really opening up that market and really get the benefit of that opportunity require continued innovation and investment into R&D.
Speaker Change: So that's a that's a logic on that but we also and that's why we are also going out and commit to that.
Speaker Change: And that we will step back into growth because obviously these things is tied together and we believe that over the next three years. If we can step from where we are today into high single digit growth. We continue to have and I think illumina has been known for a very very innovative platform. We have a roadmap for the next 10 years.
Speaker Change: That we believe is going to set the tone for web genomics, and where <unk> is going to be and really have a significant impact not only on health, but also on on dropped discovery going forward, so that excites us a lot.
Speaker Change: The number itself is certainly something we continue to to look at we are we've been working just in 'twenty four here a lot with with the R&D team to really really work about how we become more effective and efficient in how we run things. We have also to take cost out in certain places and we'll continue to assess opportunities but the.
Speaker Change: Idea as to where to of course.
Speaker Change: Is more to grow ourself into a different percentage point, rather than cut ourself into that.
Speaker Change: Yeah.
Speaker Change: Our next question will come from Nathan <unk> with Stephens. Please go ahead.
Speaker Change: Consider that your line is open may simply are not able to hear you.
Speaker Change: Okay, well move to our next person level of attention Nathan.
Speaker Change: Our next question will come from sung <unk> Nam with Scotiabank. Please go ahead.
Speaker Change: Hi, Thanks for taking the question maybe kind of related to date David's question earlier on the project Stargate $500 billion AI infrastructure initiative that was announced I know it might be early days on that.
Speaker Change: You know Larry ounces commentary around kind of the operations.
Speaker Change: Personalized cancer vaccines and tumor gene sequencing was kind of curious.
Speaker Change: If you might be able to comment on kind of the opportunities for illumina to take a more proactive approach her role in this initiative.
Speaker Change: Really help shape the bad aspect of the project.
Speaker Change: Yes, Randy I think that's a great example of the opportunity ahead and really show the commitment that U S has to to drive healthcare going forward and use new technology for that.
Speaker Change: As was also very evident in that program genomics will be shoots and play a huge role in the Stargate project and.
Speaker Change: And I truly believe that illuminates the natural partner for that so we're excited about the opportunities ahead.
Patrick Donnelly: Our next question will come from Patrick Donnelly with Citi. Your line is open. Please go ahead.
Patrick Donnelly: Hey, guys. Thank you for taking the questions.
Patrick Donnelly: Drilling a little bit on the consumable side.
Patrick Donnelly: Even after the pre announcement, Dr consumables would come in maybe 20 million higher than they did can you just talk about what you saw as the quarter progressed, and then I didn't hear an answer on the <unk> consumables Guy just can you break that down consumables and instruments and then the last one I hate to beat a dead horse on the China piece, but if are you guys currently able.
Patrick Donnelly: To sell into China, I'm, just I just want to hear what the current situation is there I know youre working through the regulatory piece, but what the last week has looked like or are you able to sell or not there. Thank you guys.
Speaker Change: Thanks for that Patrick let me start with the last question here, Yes, we continue to serve our customers and their patients in China, and we will do our best to continue to do so we believe the opportunity in China is vast and we will work through the current chances with speed and hopefully get a resolution as fast as possible so but.
Patrick Donnelly: You want to talk to.
Speaker Change: Yeah, so on the on the consumable side.
Speaker Change: But Patrick as we had guided during during the start of the quarter. The actual consumable results for Q4.
Speaker Change: I did say that Q4 would be a step down from Q3, given the number of holidays and.
Speaker Change: And the actuals laid out roughly in that same projecting coming down from Q4 into Q3.
Speaker Change: Our ex was very much in line.
Speaker Change: Overall X consumables, so no surprises there the uptick both on the research and the clinical site et cetera are Directionally was it was very much as expected.
Speaker Change: 6K was was slightly lower but in terms of in aggregate when I'm thinking about the results for the quarter from my perspective, they were roughly in line I I didn't see anything worrisome from a from a trends perspective.
Speaker Change: Either on the conversion from six caito ex perspective or in terms of overall activity perspective, either so feel good about the overall trajectory as well as.
Speaker Change: Getting to that 75 conversions.
Speaker Change: <unk> conversion by the by the second half of the year.
Speaker Change: And just the <unk> guide specifically on the consumables instruments would be helpful. Yeah. The <unk> Guide I think Ive said for Q1.
Speaker Change: I'm guiding similar uptake so a sequential increase from Q4 into Q1 for our consumables. The Q1 consumer data is also both sequentially as well as up year over year. So when you think about the the growth rate for Q1 expect consumables to be positive year over year, but the but the instruments to.
Speaker Change: Likely be on the negative side.
Speaker Change: And that will conclude our Q&A session I will hand, it back to Sally Schwartz for closing remarks.
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 that's the way to seeing you at upcoming conferences and other events.
Sally Schwartz: And again, ladies and gentlemen that will conclude today's call. We thank you for your participation. You may now disconnect at this time and have a great day.