Illumina, Inc.

Good day, ladies and gentlemen, and welcome to the fourth quarter 2023 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 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 fourth quarter and year end 2023. 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, after which we will host a question and answer session. Our earnings release can be found in the investor relations section of our website at Illumina.com. Participating for Illumina today will be Jacob Tyson, Chief Executive Officer, and Joydeep Goswami, Chief Financial Officer and Chief Strategy and Corporate Development Officer. Jacob will provide an update on the state of Illumina's business, and Joydeep will review our financial results, which include GRAIL. As a reminder, GRAIL must be held and operated separately and independently from Illumina pursuant to the transitional measures ordered by the European Commission, which prohibited our acquisition of GRAIL under the EU merger regulation. 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'll now turn the call over to Jacob.

Thank you, Sally. Good afternoon, everyone. As you know, I joined Illumina as CEO a little over four months ago. In this time, part of my focus has been on meeting with customers to understand their priorities, hear their feedback, and develop more collaborative relationships. Our customer thinks highly of Illumina and our solutions, and they want to work in strategic partnerships with us to move the whole NTS ecosystem forward. Now that we have announced that we will divest GRAIL, it has been easier for our customers to plan what their future looks like with Illumina. These meetings have been instructive and inspiring. During my recent trip to Europe, I was able to see firsthand how we are working with our customers, governments, and the broader genomics community to accelerate whole genome sequencing adoption safely and more effectively, and to understand rare diseases and cancers as a part of the standard of care. I've also learned about Germany's model project that aims to fully integrate comprehensive genomic testing into the healthcare system there, beginning in Q2 this year. Within the hallways of our headquarters and in several global offices, I have also been connecting with our talented employees who are committed to driving innovation and continuing to build out the genomics ecosystem. I've also had an opportunity to engage with many of you at recent investor conferences. These conversations are informing my leadership agenda and importantly, having reinforced my confidence in Illumina's core business. 2023 was a dynamic year for Illumina. Novosig X has been the most successful high throughput product launched in our history. We ended the year with 352 Novosig X shipments above the 330 to 340 we expected amid a challenging macroeconomic backdrop that we saw many of our customers remaining constrained in their purchasing decisions. In the fourth quarter, we delivered higher than expected consolidated revenue of approximately $1.12 billion. America's revenue, which is more than half of our business, was flat year-on-year, Europe revenue was up 17% year-on-year on a relatively easy prior year comparable. AMIA revenue declined 1%, although that included a 10% point impact from sanctions in Russia. Greater China revenue was down 13% year-on-year, reflecting continued geopolitical challenges and local competition in mid-throughput. As I've noted before, China and our customers there are important to Illumina. We've already taken certain pricing and other strategic actions that are beginning to yield results. We will share more specifics on our progress there over time. Globally, we expect our customers will remain cautious. And for now, we continue to expect 2024 results to look very similar to 2023. While some macro headlines are encouraging, we haven't yet seen that translate to increased investment in our industry and therefore have not reflected it in our guidance. Gergib will take you through more details in our guidance in a few minutes. While we cannot control the external environment, the management team and I remain committed to accelerating value creations across the enterprise. As you are aware, I have laid out three key priorities that I believe will position Illumina for accelerated growth and profitability as market conditions improve. My first priority, driving our top line, is centered on continuing to grow our installed base and helping customers accelerate utilization of these instruments in new and existing applications. I discussed earlier how pleased we are with the first year of Novosig X shipments. For high throughput more broadly, across the Novosig X and Novosig 6000 we placed more than 400 instruments in 2023. In 2024, we will support this growing installed base as customers launch large projects and more sequencing-intensive applications, like multiomics, liquid biopsy, and minimal residual disease, or MRD. We anticipate ongoing high-throughput instrument orders throughout 2024, primarily coming from further conversion of NOVO6 6000 customs to the X from customer fleet expansions and, long-term, from new to high-throughput customers. With that said, given the significant number of placements in 2023, we believe we will ultimately ship fewer high-throughput instruments in 2024. As you are aware, Xsleep SBS Chemistry has been the engine for our X platform, delivering significant improvements in quality, turnaround time, and cost. This quarter, we'll be making Ex-Leap available to our mid-throughput customers on their existing NextSleep 1K, 2K instruments without having to upgrade their instruments. This offering will further strengthen our leadership position around the world and drive progress in markets such as single-cell, spatial, and proteomics. As we grow in store base, we will remain focused on supporting our customers as they launch new projects. This will build momentum for consumables demand this year and going forward. Already, our efforts to develop this demand is paying off. In Q4, we saw higher than expected growth in ex-consumables sales following the late October launch of our much anticipated 25B rating kit. More recently, in January, we launched a 1.5B kit which together with the 25B and the 10B flow cells allows us to offer a full suite of products to the Novosig X customers. While we will continue to see customers reduce their inventories of Novosig 6000 consumables as they transition to the X, building pull-through on the Novosig X will drive our overall high throughput consumables growth this year. Turning to my second priority. I'm focused on delivering operational excellence by applying greater rigor throughout our P&L while sustaining innovation and growth. We have launched a multi-year effort focusing on improving our margins through greater productivity and pursuing additional areas for cost savings. In January, we took an additional action to further optimize our global workforce. Over the past year, we have made cumulative role reductions totaling approximately 12%. Our most recent actions included adjustment that we aligned with our late 2023 portfolio optimization efforts. You'll see us continue to take steps to not only manage our near-term cost, but also to build our agility to deliver more sustained growth and margins over time. Illumina is taking a highly disciplined approach to support our customers, employees, and partners, and to deliver shareholder returns throughout a range of macroeconomic environments. Moving to my third priority, which is working to resolve GRAIL as quick as possible. Since joining Illumina, I've made it an imperative to move with speed on GRAIL. In December, we announced that we would divest GRAIL with a goal of finalizing the terms of the transactions by the end of the second quarter this year. We'll continue to pursue parallel paths. The divestiture will be executed through a third-party sale or capital markets transaction, consistent with the European Commission's divestiture order. To date, we've been able to make swift progress. Grails Form 10 has been confidentially filed with the SEC, advises are actively moving the process forward on both sale and capital market path. The special committee of the board that we established in Q3 continues to help ensure this process move forward efficiently. I'm encouraged by the momentum we've entered 2024 with, and I'm committed to seeing our initiative through. For now, I will ask Judith to share more detail on our results for 2023 and our outlook for 2024.