Illumina (ILMN) Q1 FY26 earnings call: guidance and Q&A

Given the strong Q1 beat and positive trends in instruments and clinical, why wasn't the full-year organic revenue guidance raised more significantly?

Management stated that raising guidance after only one quarter, even by $20 million (0.5 point), demonstrates confidence and positions them towards the higher end of the previously stated range. They indicated no additional cautiousness beyond what was already factored into the initial guidance.

“we are leaning in by raising both the top line and the bottom line early -- very early in the quarter. So I think we're signaling all the right things here.”

asked by Vijay Kumar · answered by Jacob Thaysen

Could you elaborate on the mix of NovaSeq X placements between clinical and research, the impact of the 6000 to NovaSeq X pricing transition on consumables, and the instrument outlook for Q2 and the full year?

Clinical NovaSeq X placements are largely incremental, not just conversions from NovaSeq 6000. Research placements are also growing. The company's innovation roadmap (spatial, TruPath, 5-Base) is driving demand. Pricing transition assumptions are already incorporated into the guidance, and the company expects to be well-positioned when the research market recovers.

“if you look into the clinical, which is more than 60% of the placements, it's much more additional incremental placement than necessarily conversion of the 6,000.”

asked by Puneet Souda · answered by Jacob Thaysen

Can you quantify the NovaSeq X backlog or unshipped units due to supply constraints, and address concerns that the 18-month roadmap might 'freeze the market' for new purchases?

The company has a very strong pipeline and performance obligations are up over 20% year-over-year, indicating robust demand. Q2 placements are expected to be similar to Q1 levels. Management believes their continuous innovation on the NovaSeq X platform, as demonstrated by the roadmap, is driving demand, not freezing the market, and they are confident in their competitive position.

“You'll see on the 10-Q, our performance obligations are up more than 20% year-over-year. And a lot of that is both in instruments and in consumables.”

asked by Tycho Peterson · answered by Ankur Dhingra

Q2 operating margin guidance is lower than expected, with investments continuing into Q3. How should investors think about the margin progression for the rest of the year and the ramp to year-end exit rates?

Q2 margins are impacted by a higher instrument mix, inflationary pressures (component costs, freight), and a full quarter of SomaLogic. However, mitigating actions are being implemented in Q2, with their effects expected to become visible in Q3 and Q4, leading to a ramp-up in operating margin in the second half of the year.

“we have a series of mitigating actions that start -- have started taking place here in Q2, but we anticipate that the effects will become visible from Q3 and into Q4.”

asked by Unknown Analyst · answered by Ankur Dhingra

Given Q1 consumables in research and applied were down 12% against an easy comp, what are you hearing from customers, and do you expect improvement in this market later in the year? Also, where is SomaLogic revenue reported?

There's alignment on NIH funding, which is a positive headline, but the translation into actual spending on tools and consumables takes time, leading to continued cautiousness. Any improvement in this market would be an upside to current guidance. SomaLogic revenue is primarily reported within microarrays.

“we do believe that when the market turns, especially in the research segment that, that market will start to grow even better for us.”

asked by Patrick Donnelly · answered by Jacob Thaysen

With the upcoming 35B flow cell, what will be the cost per genome or G quoted to customers, especially in light of competitors offering $150 price points?

Management emphasized that conversations with customers focus on elasticity and profitable growth, particularly for transitions from exome to genome, which require higher sequencing intensity. They aim for a win-win situation where aggressive pricing drives aggressive volume growth. However, they are not ready to disclose specific pricing for the 35B flow cell at this time, stating it will be announced closer to launch.

“That -- for us, that conversation is based on an elasticity game where if we go in and provide a very aggressive pricing, we also see a very aggressive volume growth.”

asked by Daniel Arias · answered by Jacob Thaysen

NovaSeq X placements increased significantly (80 units vs. typical 50-60), but Q1 instrument revenue ($118 million) was lower than expected for that volume. Is there discounting, and what's driving this step-up in demand?

The primary focus is to place NovaSeq X instruments to drive consumables pull-through, which is over $1.3 million per X. While volume discounts are offered for large orders (5-10+ units), some units are also placed through reagent or lease models, which have different revenue recognition patterns, explaining the revenue figure relative to placement volume. Demand is robust due to the platform's capabilities.

“some of the units within 83 are also go through a reagent or a lease kind of model as well, there are always some units of that kind in there as well, which, of course, have a different revenue recognition pattern.”

asked by Michael Ryskin · answered by Ankur Dhingra