Illumina, Inc.

Good day, ladies and gentlemen, and welcome to the fourth quarter 2021 Illumina earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would like to now pass the conference over to Sally Schwartz, Vice President of Investor Relations.

Good afternoon, everyone, and welcome to our earnings call for the fourth quarter and full year 2021. During the call today, We will review the financial results released after the close of the market and offer commentary on our commercial activities, after which we will host a question and answer session. If you have not had a chance to review the earnings release, it can be found in the Investor Relations section of our website at Illumina.com. Participating for Illumina today will be Francis D'Souza, President and Chief Executive Officer, and Sam Samad, Chief Financial Officer. Francis will provide an update on the state of Illumina's business, and Sam will review our financial results, which include GRAIL. As a reminder, pending the outcome of the European Commission's investigation into Illumina's acquisition of GRAIL, the Commission has adopted an order requiring Illumina and GRAIL to be held and operated as distinct and separate entities for an interim period. Compliance with the order is monitored by a monitoring trustee. During this period, Illumina and Grail are not permitted to share confidential business information unless legally required, and Grail must be run independently, exclusively in the best interest of Grail. Commercial interactions between the two companies must be undertaken at arm's length. This call is being recorded. and the audio portion will be archived in the investor section of our website. It is our intent that all forward-looking statements regarding our financial results and commercial activity made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from those projected or discussed. All forward-looking statements are based upon current available information, and Illumina assumes no obligation to update these statements. 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 Illumina's most recent forms 10Q and 10K. With that, I will now turn the call over to Francis.

Thank you, Sally. Good afternoon, everyone. I'm excited to share with you how our commitment to innovation is driving growth and unlocking the power of the genome. My comments will cover a few key areas, starting with our strong finish and exceptional results for 2021, followed by how our platforms and markets drove those results. I'll then conclude by highlighting a few of the many trends that will support our momentum and continued growth in 2022 and beyond. Let's start with our financial results for both the fourth quarter and full year 2021. Fourth quarter revenue of approximately $1.2 billion increased 26% year over year, with strong growth across both instruments and consumables, and across all regions. Full year 2021 revenue of more than $4.5 billion increased 40% year over year, reflecting 76% growth in sequencing instruments and 43% growth in sequencing consumables. We're seeing record demand for our instruments across the throughput spectrum and across geographies. In 2021, we shipped more than 3,200 sequencing instruments and added more than 930 new instrument customers, over 50% more than in 2020 or 2019. Delving now into each of our platforms, starting with high throughput. We shipped 384 NovaSeq units in 2021, with more than one-third of those instruments for oncology testing. Approximately 50% of NovaSeq orders in 2021 were new to high throughput or new to Illumina customers. 2021 NovaSeq consumable pull-through of more than $1.3 million per instrument was the highest ever average, even with over double the placements compared to last year. Moving to mid-throughput, in 2021, we shipped more than 1,100 NexSeq systems, surpassing 1,000 for the first time and nearly doubling 2020 shipments. This volume was driven by growing NexSeq 550 demand in clinical applications like oncology testing and reproductive health. as well as NextSeq 1000 and 2000 demand as customers expand into multi-ohmic applications. More than 20% of NextSeq 1000 and 2000 units this year were placed with new to Illumina customers, as we continue to see new customers using higher throughput applications. For low throughput, in 2021, we shipped more than 1,600 units, another record, driven in part by the addition of more than 700 new customers. Looking at our continued strong growth through the lens of our markets, our clinical markets currently include testing for oncology, reproductive health, and genetic disease. In 2021, our consumable shipments to clinical markets grew 42%, driven in particular by oncology testing, where many customers are building out comprehensive genomic profiling, or CGP, and expanding into liquid biopsy and monitoring. We continue to see expanding opportunities for our oncology products globally, including new studies launching in Europe and Asia with our research-use-only TruSight Oncology 500 assay. For example, our recent joint research project with the National Cancer Center Japan will develop personalized cancer treatments for patients with nasopharyngeal carcinoma. a cancer that occurs more frequently in Asia. And our partnership with the Jean Perrin Center at the Clermont-Ferrand University Hospital in France will assess the clinical value of CGP in patients with late-stage disease compared to the current standard of care. Also in oncology, Grail continues to see strong momentum. Grail launched the Gallery test last year as the first clinically validated multi-cancer early detection tests to be available to patients and providers. Gallery can detect more than 50 types of cancer, most of which have no current screening. It's great to see the initial market reception with multiple large employers and payers adopting Gallery and more than 1,500 prescribing partners, including participation from leading health systems like the NHS, the Mayo Clinic, and the Cleveland Clinic. The team continues to collaborate with pharmaceutical partners like AstraZeneca, Amgen, and Bristol-Myers Squibb on potential new innovations in the post-diagnostic space. Finally, the recent initiatives launched in the US and EU to beat cancer are very encouraging. The US's Cancer Moonshot National Initiative and Europe's Beating Cancer Plan highlight the increasing recognition of early detection as a critical component in the fight against cancer. Illumina is deeply committed to supporting all early detection, oncology testing and treatment initiatives to improve care and save lives. Beyond oncology, reproductive health also had a strong year in 2021. This was driven in part by a revised American College of Obstetricians and Gynecologists or ACOG, guidelines enabling genetic testing coverage for all U.S. pregnancies, as well as increasing adoption of our VeriSeq NIPT V2 product globally. Our third clinical market, genetic disease testing, saw tremendous growth and additional evidence generation in 2021, with significant publications in both the New England Journal of Medicine and JAMA Pediatrics affirming the clinical utility of whole genome sequencing, or WGS, for critically ill children. In 2022, we're already seeing an increase in coverage with California, Oregon, and Maryland Medicaid initiating coverage for WGS in the NICU setting. Expansion of programs for WGS in NICU settings are also occurring globally, including our recent project with Germany's Hanover Medical School to implement the use of WGS in NICU patients. This program contributes to a growing body of evidence from other countries, including the United Kingdom and Australia, as well as in states across the US, showing that WGS offers significant benefits for diagnosis of genetic disease in critically ill infants, along with cost efficiencies for health systems Turning to our research and applied markets, consumables grew 43% in 2021, driven by projects like All of Us, along with ongoing COVID surveillance efforts that contributed approximately $220 million in total revenue. I'd now like to spend a few minutes on three key trends that will drive long-term growth. is the continued deepening and expansion of Illumina's addressable markets. We're seeing further penetration of our existing markets through increased access and adoption. The use of sequencing is proliferating globally across applications, and new initiatives continue to integrate genomics into national healthcare systems. Our technology and genomics expertise are enabling programs like Our Future Health, the UK's largest ever health research program, that will deliver genetic analysis of DNA samples from up to 5 million volunteers. This data will be used for a variety of potential discoveries, including new signals to detect diseases earlier, new ways to better predict high-risk populations for diseases, and new personalized therapies or tools to delay diseases or change the course of their progression. We're excited to play a role in this project as the genotyping partner for the program. We also continue to support a growing global COVID surveillance network that will extend to broader pan-pathogen and genomic epidemiology work. This infrastructure is already being used to study other infectious diseases. For example, in South Africa, Dr. Tulio de Oliveira's team at CERI, the Center for Epidemic Response and Innovation, is using their fleet of sequencers to study other communicable diseases like HIV and malaria. We expect additional opportunities for epidemiology applications in the future as global funding for pathogen surveillance and research expands. And new sequencing applications and opportunities are growing and evolving rapidly. including in multiple nascent spaces like multiomics and drug development. We're supporting the spectrum of multiomic applications across our instruments, including proteomics, where our co-development partnership with Somalogic is off to a strong start. We're also catalyzing growth and drug discovery, where genomic-based methods can dramatically improve speed to market, success rates, and cost. In addition to our partnership with Nashville Biosciences, we're collaborating with the Montreal Neurological Institute Hospital, Takeda, and Roche to enable large-scale analysis of patient data and identify promising targets for drug development in neurological diseases. Programs like Our Future Health, growing applications, and increasing global access will support long-term adoption of NGS. The new markets we're opening, like drug discovery, will further enable adoption while also improving data equity and the integration of genomics into healthcare. We're experiencing this increasing demand for genomics as we enter 2022, with our instrument backlog almost twice the size it was entering 2021. A second trend is the multifaceted growth in our customer base. Our existing customers are growing their instrument fleet. We're also seeing increasing numbers of customers new to Illumina. As a result, our install base has grown to more than 20,000 instruments at the end of 2021. A third trend is the demand for even greater data generation. In 2021, an average Illumina high throughput customer generated approximately four times more data than in 2017. This will continue as customers need more complete genomic information and as NGF becomes standard in clinical settings. These shifts will increase the number of projects, number of samples per project, and the depth of sequencing per sample as multiple tests are run per patient and as samples are used for reads across high-intensity applications like multiomics. This demand for higher throughput sequencing will in turn continue to drive further growth in our sequencing consumables revenue. For 2021, between our consumables and services, more than 80% of our revenue is recurring in nature. This more predictable and profitable revenue stream provides a tremendous base to invest into the business and drive future growth. Illumina's 2021 performance and significant momentum entering 2022 demonstrate our strong position to support our customers and partners as these trends accelerate genomics in healthcare. I'll now turn the call over to Sam to highlight additional details on our results and operations, as well as discuss our guidance for 2022. Sam?