Illumina, Inc.

Good day, ladies and gentlemen, and welcome to the third quarter 2022 Illumina earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Sally Schwartz, Vice President of Investor Relations.

Hello, everyone. And welcome to our earnings call for the third quarter of 2022. During the call today, we will review the financial results released after the close of the market and offer commentary on our commercial activity, after which we will host a question and answer session. If you had 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 Joydeep Goswami, Chief Strategy and Corporate Development Officer, as well as Interim Chief Financial Officer. Francis will provide an update on the state of Illumina's business and Joydeep 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 an independent 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 10-Q and 10-K. With that, I will now turn the call over to Frances.

Thank you, Sally. Good afternoon, everyone. Illumina delivered revenue of $1.1 billion in the third quarter, up 1% year-over-year and 3% on a constant currency basis, and in line with our expectations despite deepening macroeconomic challenges. Looking at our Q3 performance across platforms, in high throughput, we shipped 65 NovaSeq 6000s in Q3, down from the prior year in line with our expectations. We had a fantastic customer response to the NovaSeq X series launch at the Illumina Genomics Forum, where we reached more than 12,000 viewers in our innovation roadmap sessions. Labs are excited by NovaSeq X's industry-leading power, efficiency, and cost-effectiveness. And they love, in their words, its unexpected and revolutionary sustainability breakthroughs, including ambient shipping and a 90% reduction in packaging weight and waste. Customer traction for NovaSeq X is exceeding our expectations. We already have an advanced pipeline of more than 170 instruments, in addition to 50 orders that we have already received. Our manufacturing scaling is proceeding well, and we expect to ship 40 to 50 NovaSeq X units in Q1 2023 and over 300 units in the year. At the Illumina Genomics Forum, we also launched the NovaSeq 6000DX, the first-ever FDA-registered and CE-marked IVD high-throughput sequencer. We're excited to now provide DX offerings across the throughput spectrum. In mid-throughput, we saw record NexSeq 1K, 2K shipments, which were up 40% year-over-year. This increase was driven by accelerated adoption of multi-omics, primarily in cancer research and cellular and molecular biology, both by new and existing customers. And as part of our ongoing innovation roadmap, our launch of XLEAP SBS chemistry on NextSeq 1K-2K remains on track for 2024. Finally, low throughput shipments were up 13% year over year. These instruments continue to provide a great entry point to sequencing. This continued demand for our sequencing platforms across the throughput spectrum will contribute to a larger install base and drive future consumables revenue. We're also receiving positive feedback from early access customers of Illumina Complete Long Reads and Complete Long Reads with Enrichment, and we're expanding to additional customer sites. Customers appreciate Illumina's unique ability to deliver a high-quality, cost-effective, and complete view of the genome on a single platform, enhancing utility across our install base. Shifting to our market segments, clinical sequencing consumable shipments were up 5% year over year. driven by continued growth in oncology testing and genetic disease testing. Sequencing run activity by our clinical customers remained robust. As expected though, lab expansion delays and consumables inventory deleveraging have persisted due to broader macro dynamics. Oncology testing consumables grew 9% year over year, as our larger customers continue to shift towards high throughput applications Our decentralized clinical testing customers ramped up business, and new customers came online. Our market-leading TruSight oncology assay, TSO500, grew 17% year-over-year, as large customers took advantage of the assay's utility, reimbursement, and proficiency. TSO500 adoption continues to grow, with total accounts approaching 500. Also in oncology, Grail continued to make good progress in Q3. delivering clinical results and signing up a broad range of customers across the healthcare ecosystem, including health systems and life insurance providers. Grail announced a first-of-its-kind partnership with Carom Health, the first digital health company connecting employers and employees to centers of excellence through a value-based care platform. The partnership provides gallery as part of Carom's oncology offering to self-insured employers. Also, John Hancock, the U.S. Division of Manulife, with over 1.5 million life insurance participants, recently became the first life insurance carrier to offer Gallery. The GRAIL team expanded its clinical sales force in Q3 and is seeing test orders increase. Evidence for Gallery's efficacy also continues to grow. In September at ESMO, GRAIL presented compelling final results from its Pathfinder study. The study demonstrated that when added to standard of care screening, Gallery multi-cancer early detection testing more than doubled the number of cancers detected compared to standard screening alone. In fact, Gallery detected more cancers than all U.S. Preventative Services Task Force recommended single cancer screenings combined. And Gallery's positive predictive value of about 40% is significantly higher than commonly used screening tests. like the annual screen for colorectal cancer, which has a PPV of 8.7%, or the biannual mammography screen with a PPV of 4.4%. Gallery is the only multi-cancer early detection test available on the market. An analysis of the first 38,154 Gallery commercial test results in a real-world setting shows high concordance with the Pathfinder study results. In addition, Pathfinder study participants' experience with the gallery test has also been positive, with 97.1% of participants reporting a high level of satisfaction with the test. In genetic disease testing, sequencing consumable shipments grew 11% year-over-year. National health system funding for rare diseases is increasing in multiple geographies, including EMEA and China. And evidence generation continues to grow. For example, in September, Genetics in Medicine published a study from Karolinska Institute indicating that genome sequencing is a sensitive first-line test for neurodevelopment disorders. We're also seeing customer excitement around the potential for Novaseq-X to create efficiencies for both whole genome and whole exome sequencing. Turning to our research and applied markets, sequencing consumable shipments were down 8% year over year. as customers continue to manage inventory and capital spend, and due to expected headwinds from COVID surveillance and the completion of the UK Biobank project in Q3 2021. We continue to support our customers through these dynamics and at the same time are making ongoing progress in facilitating genomic-based drug discovery. As this area continues to grow, we will partner with a range of pharmaceutical companies, like our recent collaboration with AstraZeneca to help accelerate genomics and find promising drug targets based on omic insights. In our infectious disease and microbiology markets, we are broadening genomic opportunities across disease states. For example, we recently announced a partnership with Genoscreen to help countries impacted by tuberculosis to more effectively detect and combat multidrug-resistant strains. TB claims more than 1.5 million lives each year. And for the first time in a decade, deaths are on the rise after the pandemic. We hope that with this work, we can help vulnerable populations and make progress towards eliminating TB worldwide. Turning now toward the end of 2022 and entering 2023, we expect the macroeconomic challenges we have previously discussed to persist into 2023 and feel that it's prudent to adjust our near-term guidance accordingly. JoyDeep will address our revised FY22 guidance shortly. Despite the near-term challenging macroeconomic environment, we remain confident in our long-term growth trajectory. Customers around the world continue to share their excitement for our latest innovations. We're staying focused on supporting them and advancing our innovation roadmap to accelerate the genome era. I'll now turn the call over to JoyDeep for more detail on the quarter and our year-end outlook.