Illumina (ILMN) Q2 FY26 earnings call: guidance and Q&A

Given strong clinical growth and NovaSeq X placements, why shouldn't 2027 revenue growth be higher than the previously outlined high single-digit target?

Management is very pleased with Q2 performance and believes clinical market momentum will continue for years, driven by elevated NovaSeq X placements. While committed to high single-digit growth for 2027, they will focus on building strong value propositions and see where it takes them, acknowledging that the 'clinical cliff' is more of a 'wave' they are surfing.

“I'm still very committed to delivering on the high single-digit growth, but we will continue to focus on building a very, very strong value proposition to our customers, and then we see where it takes us.”

asked by Puneet Souda · answered by Jacob Thaysen

Why the sequential slowdown in clinical consumables growth? And is the company 'over-earning' on consumables as customers transition from NovaSeq 6000 to X, potentially creating a future headwind?

The company continues to see volume expansion on NovaSeq X, and many NovaSeq 6000 units remain active, with some customers even purchasing new 6000s. The clinical consumables growth, though sequentially lower, is still strong at mid-teens, with U.S. growing over 20%. Regional dynamics, like the Middle East situation, contributed to some variability.

“I mean, first of all, it's still very strong. But we still continue to see U.S. running faster than 20%. So that momentum is really strong. There's been some in and outs in -- especially in the Middle East and Latin America.”

asked by Tycho Peterson · answered by Jacob Thaysen

Were there any one-offs in Q2 given the strong performance, and why is Q3 guidance stepping down from Q2's 8% Rest of World organic growth? What are the assumptions for AI-related revenues?

Q2's elevated NovaSeq X placements reflect clinical customers investing for future volume, not a one-off. Q3's lower growth is due to normal seasonality, with Q4 typically being the largest quarter. BioInsight and the Billion Cell Atlas are exciting, already generating revenue, and represent a significant long-term opportunity for AI models in biology.

“We have now delivered more than 300 million single cell to our customers in the Cell Atlas. We have added 3 more pharma partners. So we now have 6 pharma partners.”

asked by Vijay Kumar · answered by Jacob Thaysen

The Q3 guidance implies a step down, followed by a higher Q4. Is there unusual seasonality, stocking, or an extra week impacting Q4 revenue and margins?

The Q3/Q4 phasing reflects usual seasonality, with Q4 typically being the largest quarter. Q4 FY26 has one extra week, which is expected to contribute approximately 0.5 point to revenue, primarily from consumables. The variability in revenue is mostly around instrument placements, while consumables growth remains steady.

“Yes, we have 1 extra week this year in Q4, which would largely be a consumables story. You would expect maybe 0.5 point or so of revenue contribution that could come from that extra week in terms of run rate days.”

asked by Michael Ryskin · answered by Ankur Dhingra

How is Illumina managing rising memory costs, especially with stronger Q4 instrument placements and the integration of GPU-based compute for next-gen products?

Higher memory costs were already factored into Q2 results, and the company secured additional inventory for several quarters to derisk near-term price movements. Illumina's instruments do not use GPU architecture, which is a strategic cost advantage, making them less expensive than GPU-based alternatives.

“One of the unique strategic advantage we have from a cost structure perspective is that our instruments do not use the GPU architecture. Our instruments use a different architecture, which is significantly relatively less expensive and cost efficient than the GPU architectures there.”

asked by Subhalaxmi Nambi · answered by Ankur Dhingra

Are the stronger-than-expected NovaSeq X placements a function of the market waiting for competitive information or an improving funding environment?

The strong NovaSeq X placements are attributed to Illumina's value proposition, continuous innovation on the X platform, and the overall healthy market. Customers see the X as a platform worth investing in for the long term, reinforcing Illumina's leadership.

“I mean the value proposition we have with our customers. And so they feel with the conversation we have with them, they continue to see that Illumina is here to help them be successful. The innovations we continue to move on to our X platform also proves that there's a lot of leeway in that platform.”

asked by Subhalaxmi Nambi · answered by Jacob Thaysen

How broad is the clinical growth, given U.S. strength? Has there been any shift in application mix from clinical customers?

Clinical growth is broad-based across regions, with the U.S. leading. Oncology remains the primary application, with a shift towards MRD driving momentum, though therapy selection is still larger. Rare diseases and NIPT are also growing nicely. The overall opportunity in clinical NGS is still significant and expected to become standard of care.

“If you look from an application perspective, oncology continues to lead the pack here. And if you look in oncology, we are seeing a shift towards now MRD starting to drive momentum. But still from a dollar perspective, the therapy selection is still the bigger one.”

asked by Dan Leonard · answered by Jacob Thaysen