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    ILMN
    Earnings call· Mar 2025(Q1 FY25)

    ILLUMINA Q1 FY25 earnings call ILMN

    May 8, 2025 Source

    Executive summary

    Illumina Q1 FY25 — NovaSeq X Momentum and Strategic Cost Actions

    Illumina delivered Q1 FY25 results at the high end of guidance, driven by strong NovaSeq X adoption and clinical market resilience. The company is navigating significant geopolitical and funding headwinds, particularly in China and US academic research, through strategic cost reductions and pricing actions. Management remains confident in its long-term strategy to achieve high single-digit revenue growth and margin expansion ex-China, while continuing to advance its multiomics innovation pipeline.

    Highlights

    5

    • Q1 revenue and EPS were delivered at the upper end of guidance.

    • NovaSeq X placements exceeded expectations with over 60 units in Q1, following more than 90 in Q4.

    • High-throughput consumables, including NovaSeq X, saw a sequential increase, indicating strong adoption and elasticity.

    • Clinical consumables business demonstrated strength, growing mid-single digits in Q1.

    • Operating cash flow was robust at $240 million, resulting in $208 million of free cash flow.

    Concerns

    5

    • Export restrictions in China led to a $125 million reduction in revenue guidance for Greater China for FY25.

    • US funding uncertainty is impacting research customers, contributing to a 2%-4% reduction in rest-of-world revenue guidance.

    • New import tariffs are estimated to have a gross cost of approximately $85 million for FY25, reducing EPS by $0.25 at the midpoint.

    • Research business consumables were down mid-to-high single digits in Q1, with Academic & Government (A&G) market expected to decline ~15% for the rest of the year.

    • Non-GAAP gross margin was slightly lower than anticipated due to a higher mix of instruments and increased costs from software upgrades and routine service pull-forward.

    Guidance & targets

    17
    CategoryTargetConfidence
    Full-year 2025 Revenue (Greater China)
    $165 million to $185 million
    high materiality
    High
    Full-year 2025 Revenue (Rest of World)
    flat to 2% growth
    high materiality
    High
    Full-year 2025 Total Revenue
    $4.18 billion to $4.26 billion
    high materiality
    High
    Full-year 2025 Non-GAAP Operating Margin
    approximately 21.5% to 22%
    high materiality
    High
    Full-year 2025 Non-GAAP Tax Rate
    approximately 22%
    medium materiality
    High
    Full-year 2025 Non-GAAP EPS
    $4.20 to $4.30
    high materiality
    High
    Full-year 2025 EPS (Greater China contribution)
    approximately $0.35
    medium materiality
    High
    Full-year 2025 EPS (Rest of World)
    $3.90
    high materiality
    High
    Q2 2025 Total Revenue
    $1.04 billion to $1.06 billion
    high materiality
    High
    Q2 2025 Revenue (Greater China)
    $55 million and $65 million
    medium materiality
    High
    Q2 2025 Revenue (Rest of World)
    $980 million to $1 billion
    medium materiality
    High
    Q2 2025 Non-GAAP Operating Margin
    approximately 21%
    medium materiality
    High
    Q2 2025 Non-GAAP EPS
    $1.00 to $1.04
    high materiality
    High
    High-throughput revenue on NovaSeq X Series
    approximately 50%
    high materiality
    High
    High-throughput gigabits shipped on NovaSeq X Series
    approximately 75%
    high materiality
    High
    Cost Reduction Program
    $100 million
    high materiality
    High
    Tariff Impact Mitigation
    partially offset in 2025, fully mitigate in 2026
    high materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Greater China region
    Early in March, our ability to export instruments into China was restricted. We had in-country inventory to ship our instrument orders in Q1.
    		$72 million———
    Rest of the world
    Excluding China, revenue was slightly up year-over-year on a constant currency basis.
    		—slightly up——

    Operational metrics

    28
    Non-GAAP Gross Margin
    67.4%increased 30 basis points year-over-year
    Q1 FY25

    Margins were slightly lower than anticipated as we saw a higher mix of instruments business. In addition, we're in the process of rolling out software upgrades for our high-throughput instruments, which is improving their performance. As part of this upgrade, we are also pulling forward some of the routine instrument service which has had a higher cost impact than we had assumed.

    Non-GAAP Operating Expenses
    $489 million
    Q1 FY25

    This reflects our ongoing focus on cost optimization and prioritizing key growth investments.

    Cost Reduction Program
    $100 million
    FY25

    During the quarter, we initiated additional actions to reduce our full year expenses by $100 million and realized a partial benefit in Q1.

    Non-GAAP Operating Margin
    20.4%
    Q1 FY25
    Non-GAAP Other Expense
    $15 million
    Q1 FY25
    Non-GAAP Tax Rate
    22%
    Q1 FY25
    Average Diluted Shares
    approximately 159 million$1 million lower than last quarter
    Q1 FY25
    Capital Expenditures
    $32 million
    Q1 FY25
    Share Repurchases
    $200 million
    Q1 FY25

    In Q1, we repurchased approximately 1.73 million shares of Illumina stock for $200 million at an average price of $115.74 per share. These repurchases were completed in February.

    Cash, Cash Equivalents and Short-Term Investments
    approximately $1.24 billion
    Q1 FY25
    Gross Leverage
    approximately 1.8x
    Q1 FY25
    Tariff Gross Cost
    $85 million
    FY25

    For Illumina, the estimated gross cost of tariffs for 2025 is approximately $85 million.

    Tariff Impact on Q2 EPS
    $15 million
    Q2 FY25

    We expect non-GAAP operating margin of approximately 21% and non-GAAP earnings per share in the range of $1 to $1.04, both of which include the estimated $15 million in direct cost impact due to tariffs.

    Sequencing Consumables Revenue Growth
    approximately 1%year-over-year
    Q1 FY25
    Consumables Growth Impact from Research Funding Uncertainty
    approximately 1 pointyear-over-year
    Q1 FY25

    We estimate this phenomena impacted consumables growth by approximately 1 point year-over-year.

    High-Throughput Gigabits Shipped on NovaSeq X Series
    roughly 68%
    Q1 FY25
    High-Throughput Consumables Revenue on NovaSeq X Series
    approximately 43%
    Q1 FY25
    Clinical Volumes on NovaSeq X Series
    over 50%
    Q1 FY25
    Total Sequencing Gigabits Output Growth
    more than 30%year-over-year
    Q1 FY25
    Sequencing Instruments Revenue Growth
    approximately flatyear-over-year
    Q1 FY25
    Sequencing Service and Other Revenue Decline
    approximately 5%year-over-year
    Q1 FY25
    Core Services and Informatics Business Growth
    mid-single digits
    Q1 FY25

    Excluding those our core services and informatics business grew in the mid-single digits.

    Clinical Consumables Growth
    mid-single digits
    Q1 FY25

    in Q1, our clinical business has continued to demonstrate the strength, where we've talked about very strong X placements carrying over from Q4 going into Q1 as well. When I look at our consumables business in clinical, it grew mid-single digits.

    Research Consumables Decline
    mid-to-high single-digit range
    Q1 FY25

    our research business was down, I'm talking consumables in the mid- to high single-digit range.

    Research Market Decline (Academic & Government)
    close to 15%
    rest of FY25

    Our guide now assumes a mid-double digit, like close to 15-ish percent decline, especially in that ANG space for the rest of the year.

    NovaSeq X Placements
    over 60following more than 90 placements in Q4
    Q1 FY25
    NovaSeq X Placements to Clinical Customers
    approximately 60%
    Q1 FY25
    Performance Obligations (Long-range order bookings)
    double digitsyear-over-year
    Q1 FY25

    our performance obligations are up double digits year-over-year and has grown much better than what we've seen in the last couple of years.

    Industry KPIs

    7
    MetricValueDetails
    FCF conversion ROIC$208 million (FCF)USD
    Revenue EPS guidanceFY25 Revenue: $4.18B-$4.26B; FY25 Non-GAAP EPS: $4.20-$4.30USD
    China revenue exposure$165M-$185M (FY25), $72M (Q1 FY25), $55M-$65M (Q2 FY25)USD
    Pricing price realizationapproximately 1 point%
    Segment organic revenue growthslightly up (Rest of World), approximately 1% (Rest of World)%
    Instruments vs consumables services mix68% (gigabits), 43% (revenue)%
    Organic core revenue growth by end marketmid-single digits (clinical consumables), mid-to-high single-digit range (research consumables), close to 15% (A&G decline)%

    Product announcements

    4
    ProductTypeDetails
    New Spatial Offeringlaunch
    Perturb-Seq Solution (CRISPR research)launch
    Proteomics Solutionlaunch
    Constellation Mapped Reads and 5-Base Genome Technologieslaunch

    Deals & partnerships

    1
    Standard BioToolsCollaboration for proteomics solution development

    Proteomics solution developed in collaboration with Standard BioTools is in early access, with commercial launch expected in H1 2025.

    Risks & headwinds

    4
    China Export Restrictions2025 and potentially 2026 if unresolved

    Lower revenue from the region in 2025 driven by minimal instrument placements; $125 million reduction in revenue guidance for Greater China at the midpoint.

    Mitigation: Engaging with regulatory authorities; implemented $100 million cost reduction program (over $225 million annualized over 4 years) to offset impact on earnings.

    US Research Funding UncertaintyOngoing in 2025

    Weighing on customers and affecting purchasing timelines; 2% to 4% reduction in rest-of-world revenue guidance (quarterly weighted more towards research customers).

    Mitigation: Working closely with customers, offering flexible solutions to sustain research projects.

    Global Trade Dynamics / Tariffs2025 and beyond

    Estimated gross cost of tariffs for 2025 is approximately $85 million. Largest part relates to goods shipped from Singapore to U.S. and parts/subassemblies to U.S. manufacturing. Reduces FY25 EPS by $0.25 at midpoint.

    Mitigation: Actively working to minimize impact through supply chain optimization, cost measures, and pricing actions. Expect to partially offset in 2025 and more fully mitigate in 2026.

    Higher Instrument Mix and Software Upgrade CostsQ1 FY25, majority of upgrades completed by Q2

    Non-GAAP gross margin slightly lower than anticipated in Q1 due to higher mix of instruments business and higher cost impact from pulling forward routine instrument service for software upgrades.

    Mitigation: Manufacturing cost actions continue to make good progress; majority of upgrades expected to be completed by Q2.

    What to watch in Q2 FY25

    5

    China Export Restrictions Resolution

    Next quarter / H2 FY25
    CurrentExport restrictions in place, Q2 FY25 revenue guidance $55M-$65M for Greater China.
    TargetPositive resolution or further clarity on long-term presence.

    Why it matters

    A positive resolution could represent additional upside to guidance and stabilize a key market; continued restrictions would imply further revenue decline in 2026.

    More about China. We are in active dialogue with the regulatory authorities for our long-term resolution. We're taking a pragmatic view in our guidance and have taken expense actions to offset the impact on our earnings, both for this year and on a cumulative basis going forward⏳.

    Q&A highlights

    8

    What is the outlook for revenue growth rebound and margin expansion, especially considering the split between clinical and research markets, and how is Illumina managing the risk from China beyond 2025?

    Management reiterated confidence in high single-digit growth and margin expansion ex-China, with cost actions compensating for China's decline. Clinical consumables grew mid-single digits in Q1, while research consumables were down mid-to-high single digits, with a projected ~15% decline in Academic & Government (A&G) for the rest of the year.

    “There's nothing -- from that perspective outside of China, we're not seeing a significant change from a strategic perspective on what we told you already this summer, which is all about transitioning to the X, and with that, when we transition over, we will see that the volume that we are seeing in the market will translate more deeply into revenue growth.”

    asked by Doug Schenkel · answered by Jacob Thaysen

    2 min read5 chapters

    Detailed Narrative

    01

    Q1 Performance and Strategic Execution

    Illumina delivered Q1 revenue and EPS at the upper end of its guidance, demonstrating resilience despite macroeconomic challenges🌐. The NovaSeq X instruments continued to perform strongly, exceeding expectations with over 60 placements in Q1, following more than 90 in Q4. The transition to NovaSeq X is progressing well, particularly among clinical customers, and led to a sequential increase in X and overall high-throughput consumables, indicating strong adoption and elasticity.

    02

    Navigating Geopolitical and Funding Headwinds

    The company is actively addressing significant external pressures🌐, including export restrictions in China, US funding uncertainty impacting research timelines, and new import tariffs. Management has implemented a global $100 million cost reduction program for 2025, with over $225 million in total run-rate reductions annualized over four years, to protect earnings and offset these impacts. These actions are designed to ensure the core business and commitment to customers remain strong.

    03

    Innovation Pipeline and Multiomics Expansion

    Illumina's innovation pipeline remains robust, focusing on advancing the multiomics ecosystem. Key developments include a new spatial offering with a significantly larger capture area, higher resolution, and greater sensitivity, expected to launch in 2026. A new single-cell solution for CRISPR research (Perturb-Seq), accelerating drug discovery, is expected later this year. Proteomics solutions and advanced genome technologies are also in early access, with commercial launches planned for 2025 and 2026, empowering customers with deeper insights.

    04

    Revised Guidance and Financial Outlook

    Due to the China export restrictions and US research funding environment, Illumina revised its full-year 2025 revenue guidance to $4.18 billion to $4.26 billion, representing a decline of 3% to 1%. Non-GAAP EPS guidance was lowered to $4.20 to $4.30, primarily due to an estimated $85 million gross cost from new tariffs, of which approximately half is expected to be mitigated in 2025. The company will provide separate guidance for Greater China and the rest of the world for increased clarity.

    05

    Capital Allocation and Shareholder Value

    The company generated a robust $240 million in operating cash flow and $208 million in free cash flow in Q1. Illumina repurchased 1.73 million shares for $200 million at an average price of $115.74 per share, with $1.2 billion remaining on its authorization. Management plans to continue opportunistic share repurchases while prioritizing growth and value-added bolt-on acquisitions, maintaining a disciplined approach to capital deployment.

    AI-generated summary of the company’s earnings call. Not investment advice.