Illumina Inc (ILMN) Q1 2024 Earnings Call Transcript Highlights: Navigating Challenges and ...

• Core Illumina Revenue: $1.06 billion, down 2% year-over-year.

• GRAIL Revenue: $27 million, up 35% year-over-year.

• Consolidated Revenue: $1.08 billion, down 1% year-over-year.

• Non-GAAP Net Income: $14 million.

• Non-GAAP EPS: $0.09 per diluted share.

• Free Cash Flow: $41 million.

• Core Illumina Non-GAAP Gross Margin: 67.1%, increased 190 basis points year-over-year.

• Core Illumina Non-GAAP Operating Margin: 20.6% in Q1 2024, up from 17.4% in Q1 2023.

• Sequencing Consumables Revenue: $698 million, up 1% year-over-year.

• Sequencing Instruments Revenue: $110 million, down 29% year-over-year.

• Sequencing Service and Other Revenue: $151 million, up 27% year-over-year.

• 2024 Full Year Guidance: Core Illumina revenue approximately flat from 2023, non-GAAP operating margin approximately 20%.

• Warning! GuruFocus has detected 4 Warning Signs with ILMN.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Illumina Inc (NASDAQ:ILMN) reported a strong performance in high-throughput consumables, driven by the adoption of the 25B flow cell.

• The company successfully launched the XLEAP-SBS chemistry, enhancing mid-throughput capabilities with positive customer feedback.

• Strategic partnerships and FDA approvals, such as with Pillar Biosciences, are strengthening Illumina Inc (NASDAQ:ILMN)'s position in the genomics ecosystem.

• Operational excellence initiatives are improving cost structures and margins, with a focus on streamlining real estate and adjusting pricing strategies.

• The divestment plan for GRAIL was approved by the European Commission, progressing towards resolving ownership and operational challenges.

Negative Points

• Core Illumina revenue declined by 2% year-over-year, reflecting ongoing macroeconomic challenges affecting customer purchasing decisions.

• Lower instrument placements compared to the previous year, particularly noted in the NovaSeq X shipments.

• Revenue declines were observed across several key regions: Americas down 4%, EMEA down 3%, and Greater China down 14%.

• The competitive landscape in the mid-throughput segment remains challenging, particularly with increased activities in China.

• Despite strategic initiatives, there is still significant uncertainty in the macroeconomic environment and its impact on future business performance.

Q & A Highlights

Q: Doug Schenkel from Wolfe Research asked about Illumina's long-term growth profile, operational targets, and the company's positioning to play offense given the competitive landscape and market elasticity. A: Jacob Thaysen, CEO, expressed optimism about Illumina's growth and margin expansion, highlighting ongoing customer and employee engagement, and innovations in genomics and multiomics. He emphasized the company's commitment to operational excellence and strategic focus on end-to-end workflows and new innovations.

Q: Puneet Souda from Leerink Partners inquired about the growth in the mid-throughput segment for both consumables and instrumentation, and how Illumina addresses competition in this segment. A: Jacob Thaysen, CEO, did not provide specific growth details but mentioned the introduction of XLEAP chemistry on mid-throughput systems (1K, 2K) as a significant competitive step, enhancing quality and capacity at a lower cost. He acknowledged the competitive activities, particularly in China, and Illumina's commitment to innovation and market leadership in this segment.

Q: Vijay Kumar from Evercore ISI asked about the drivers behind the sequential revenue increase forecasted in Illumina's guidance. A: Jacob Thaysen, CEO, and Ankur Dhingra, CFO, explained that the increase is expected from both instruments and consumables, driven by strong adoption of X consumables and strategic partnership revenues. They noted that the strength was consistent throughout the quarter, not just in the final weeks.

Q: Dan Brennan from TD Cowen questioned the specifics of Illumina's multiomics strategy, particularly regarding the SomaLogic partnership and other new product areas like sample-to-answer solutions. A: Jacob Thaysen, CEO, highlighted the excitement around the proteomics partnership with SomaLogic and the broader potential in multiomics. He emphasized the importance of end-to-end workflows and sample-to-answer solutions in meeting evolving customer expectations and stated that more details would be shared in an upcoming strategy update.

Q: Rachel Vatnsdal from JPMorgan asked for clarification on the number of NovaSeq X placements that were pulled forward from Q2 to Q1 and Illumina's expectations for instrument placements for the year given the challenging macro environment. A: Jacob Thaysen, CEO, clarified that only a few placements were pulled forward at the customers' requests due to faster-than-anticipated program ramp-ups. He reiterated that while 2023 was a strong year for placements due to a significant backlog, 2024 placements are expected to be lower, aligning with previous guidance.

Q: Patrick Donnelly from Citi inquired about the factors contributing to the expected step-down in margins in Q2 and the drivers behind the higher-than-expected service revenues. A: Ankur Dhingra, CFO, explained that the margin step-down in Q2 is due to seasonal increases in operating expenses, including merit increases and annual stock grant cycles. He also mentioned project-related spending shifting into Q2. Regarding service revenues, the increase was driven by specific pharma customer services and strong performance in core instrument services.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.