Illumina, Inc.

Good day, ladies and gentlemen, and welcome to the second quarter 2024 Illumina Earnings Conference Call. At this time, all participants are in the 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 Swartz, Vice President of Investor Relations.

Hello, everyone, and welcome to our earnings call for the second quarter of 2024. 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. Providing prepared remarks for Illumina today will be Jacob Tyson, Chief Executive Officer, and Ankur Dhingra, Chief Financial Officer. Jacob will provide an update on the state of Illumina's business, and Ankur will review our financial results for Core Illumina. As a reminder, we divested GRAIL in June of this year. For a review of second quarter financial results for GRAIL and consolidated Illumina, please see our earnings release and our SEC filings. 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 Jacob.

Thank you, Sally. Good afternoon, everyone. Throughout the second quarter, I continue to meet with our customers and partners around the world. I've been hearing about all of the opportunities they're excited for and discussing the issues we're facing together in this environment. Most importantly, it has been encouraging to see our customers and partners launch the next generation of their products. Illumina is uniquely positioned to support our customers' aspirations. Ongoing progress in science and technology allows our customers to envision large-scale discovery programs that are now possible using multiomics. And customers are more empowered to move whole genome sequencing that provides significantly more insights. Furthermore, there's an opportunity to integrate genomics throughout the healthcare system to improve patient outcomes. But we also have to help our customers navigate their current realities. There are still many moving elements in the global economy, and we are taking a more measured view. I'm regularly hearing that our customers feel constrained to make significant capital outlays. We also see it in delays in our sales cycle and in orders being pushed out. For Illumina, this means we balance two important jobs. Job one is to stabilize our own base. We're doing that through continued rollout of the Novosig X series to lay the groundwork for everything our customers and we want to pursue in the future. We are also highly focused on operational excellence and optimizing the ways in which we run our business. And job two is accelerating growth. Our strategy update next week will address Illumina's vision for the future and our strategy to execute. new dimensions of technology from our R&D Vault, and our financial outlook for the next several years. For purposes of today's call, we'll focus on our second quarter results. In Q2, Illumina again delivered results ahead of expectations. With core Illumina revenue of $1.1 billion and non-GAAP operating margins of 22.2%, driven by continued execution against our strategic priorities. The ongoing transition of sequencing activity to the Novosig X Plus led to a significant step up in consumables in the quarter. We also placed another 62 Novosig X Plus instruments. With that said, we continue to see our customers actively managing their capital spent. As a result, for the remainder of the year, we are adding caution to our guide. we are taking a more prudent view on the instrument business to reflect the further extension of sales cycles. But at the same time, we have a slightly stronger view on consumables. Anchor will provide further details on our adjusted guidance shortly. Turning to our region's performance in the second quarter, America's revenue was relatively flat year over year. Year revenue was down 5%, given the significant backlog we worked through early last year following the X launch. EMEA revenue was down 8% and Greater China was down 35%. I've been talking with you about our three key priorities. I'd like to highlight the progress made by Illumina's management team during the second quarter towards those priorities. I'll start with driving our top line, which has been focused on expanding our installed base and helping our customers maximize the potential of the instruments. As I mentioned earlier, in Q2 we shipped 62 Novosig X Plus instruments, bringing our total X Plus installed base to 469 instruments. Customers continue to transition their projects onto the Novosig X Plus, and we are encouraged by their corresponding increase in sequencing activity. NovoSig X Plus average annual pull-through has topped $1 million per instrument, a milestone achievement. Moving to mid-throughput, in Q2, we introduced the XLEAP SBS chemistry to our next C1K, 2K, P1, P2, and P3 flow cells, complementing the P4 flow cell we launched earlier this year. The XLEAP launch has exceeded our expectations. More than 60% of the 1K-2K installed base now has upgraded software and leading indicator for adoption. XLEAP SBS chemistry delivers improved quality, greater usable reads, and lower turnaround times, in addition to an attractive pricing. While customers' interest in XLEAP is encouraging, translation to additional instrument uptake has been less than we expected. Our mid-throughput segment remains the most sensitive to the macroeconomic environment, and we have seen our sales cycles continue to lengthen. This is clearly driven by constrained capital spending. Our win rates have remained stable, and our pipeline has grown. We will continue to support our mid-throughput customers through this environment and are confident that bringing Xsleep to NextSeek 1K-2K is further strengthening our leadership position around the world. Turning to our second priority, delivering operational excellence. We are thrilled to have Everett Cunningham on board as Chief Commercial Officer. Everett is already driving a sharp customer focus across the business with an essential underpinning of operational excellence. As I've shared, it has been my goal to align our organization in a way that will make our customer heroes by delivering the products, services, and solutions that address their most pressing needs. Following our move to combine our marketing and commercial functions, we've implemented a new commercial organizational design. We are positioning our teams to more effectively serve our customers as their partners for innovation. Teams are equipped with the go-to-market expertise to accelerate our multi-omics capabilities and commercialize and scale our software stack across research and clinical customers. This new structure will provide the alignment needed to deliver long-term results for our customers and for the business. Additionally, earlier this year, we shared that we are implementing a portfolio optimization strategy to drive productivity improvements across our supply chain. As one recent example, we have identified a number of products that we will rationalize. in an effort to increase our focus on higher profitable offerings. We will, of course, work with our customers to provide a seamless transition to other offerings in our portfolio. We continue to make good progress towards achieving greater operating leverage this year. Moving on to my third priority, which has been working to resolve GRAIL as quickly as possible. As you know, in June we completed the spin-off of GRAIL And Grail is now an independent public company. Illumina has maintained majority 14.5% stake. Grail plays a critical role in the fight against cancer. And while it's no longer part of Illumina, we remain confident in its future. We'll continue to support Grail with our sequencing technology and suite of services. As we're continuing to deliver our priorities and activating our new strategy, I know we will be well-positioned to move forward and lead the next era of genomics growth and discovery. Now, I will ask Ankur to share more detail on our second quarter results and outlook.