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Good day, ladies and gentlemen, and welcome to the fourth quarter 2024 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 Salli Schwartz, Vice President of Investor Relations.

Hello, everyone, and welcome to our earnings call for the fourth quarter and year-end 2024. During the call today, we will review the financial results we released after the close of market and offer commentary on our commercial 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 Thaysen, 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 2024. For a review of historical financial results for Grail and Consolidated Illumina, please see our earnings release and our SEC filings. We will be discussing non-GAAP results, which include stock-based compensation. We encourage you to review the GAAP reconciliation of these non-GAAP measures which can be found in today's release and in the supplementary data available on our website. As we go through the results, please note that year-over-year refers to comparisons against the corresponding period in fiscal 2023 while sequential is as compared against the third quarter of fiscal 2024. Additionally, please note that all revenue growth rates discussed are presented on a constant currency basis to exclude the impact of foreign exchange fluctuations. 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, Salli. Good afternoon, everyone. Before we get started, I wanted to take a moment to address the recent announcement by the Chinese Ministry of Commerce, which we know is on top of mind for many of you and for us. We are in dialogue with the relevant parties and promptly seeking additional information to reach a resolution. Illumina has a long-standing presence in China where we continue to serve the local markets, including both our clinical and research customers. Wherever Illumina operates, we comply with all applicable laws and regulations. And as a reminder, China represents approximately 7% of our global revenue and we continue to see significant opportunity to bring our innovations to the healthcare ecosystem there. Now let me turn to the overall review. 2024 was a transformative year for Illumina, enabling us to enter 2025 with momentum. As I shared with you last month, we made significant progress towards our strategic goals despite market conditions. We launched our new corporate strategy to return to revenue growth in 2025 and step into high single-digit revenue growth by 2027. We deepened our focus on customers and partners to further expand the genomics ecosystem. We introduced new innovations across the sequencing workflow to support what matters most to our customers, the highest quality insight for the lowest end-to-end cost. We made strong progress with the NovaSeq X transition with research and clinical customers increasingly using the instruments for deeper and broader sequencing. We built a new leadership team and refined our organization structure, and we rolled out robust operational excellence initiatives to improve our margins and to drive double-digit to teens EPS growth. We are just at the beginning of our transformation and are confident that 2025 will bring us closer to our goals. Turning to our Q4 results, in the fourth quarter, Illumina delivered revenue of $1.1 billion, exceeding expectations and reflecting approximately 1% growth from the prior year. The transition to the NovaSeq X continues to progress well. The Q4 year-over-year revenue growth was driven primarily by consumables, as customers increased their instrument utilization. In 2024, NovaSeq X pull-through averaged $1.3 million per system. Sequentially, our results exceeded expectations due to the higher-than-anticipated shipments of the NovaSeq X Series. We placed 91 instruments during the quarter, bringing the installed base to 630. Across our regions, America's revenue, which is more than half of our business, was up 3% year-over-year on a constant currency basis. Europe revenue was up 3%, EMEA revenue was down 10%, and Greater China revenue was up 1%. We continue to focus on three key priorities to guide execution: first, deeper customer and partner collaboration; second, continuous innovation; and third, commitment to commercial and operational excellence. Our first priority, deeper customer and partner collaboration, is centered on providing a range of targeted solutions to serve the increasingly diverse needs of our customer base, to evolve the broader ecosystem and enable higher volumes of sequencing. Last month, we announced several examples of how we are partnering with leading players to broaden our reach into the intersection of technology, healthcare, and pharma. These partnerships will enable our customers to generate more detailed data and richer insights. Our recently announced collaboration with NVIDIA brings together Illumina's software capabilities and NVIDIA's advanced AI tools to enhance the analysis and interpretation of multiomics data for customers. We are also proud to take part in the Truvera genome project alongside Truvera, Regeneron, and several leading health systems across the US. Together, we are creating one of the largest genetic databases linked with phenotypic data, sequencing ten million exomes exclusively using Illumina technology. Our second priority is continuous innovation, which is underpinned by spending time with customers and partners to share insights and support their ambitions. In December, we began shipping the new single flow cell NovaSeq X, which delivers the same high-quality performance and speed as the NovaSeq X Plus but at an even more accessible price point. We also began shipping our new 25B, 100, and 200 cycle kits for the NovaSeq X, which is key for advancing multiomics applications. These kits also support our recently introduced single-cell solution, formerly known as PipSeq, from Confluent Biosciences. As we mentioned during the strategy update, our customers are increasingly focused on getting the highest quality insight for the lowest end-to-end cost. To meet this need, we continue to expand our portfolio of fully automated streamlined workflows, including with our new MySeq I 100, which accelerates sample-to-answer oncology, microbiology, and several other applications. Uptake since launch in Q4 has been strong. We placed more than 70 instruments with early access customers before year-end. Also, we have been developing a proteomics solution in collaboration with Standard BioTools. This is a fully integrated end-to-end workflow that offers great automation and ease of use compared to other on-market products. As a part of this rollout, Illumina announced a pilot proteomics program to analyze 50,000 UK Biobank samples, to generate a new collection of NGS-based proteomics data. We are also extending our early access program for our Constellation map read technology. The customers who have elected to enroll in the program have been encouraged by Constellation's ability to detect structural variants that were previously challenging to identify with short-read sequencing. As we said during our strategy update last year, we are committed to keeping customers updated on our innovation roadmap at industry conferences and events. We look forward to sharing more at the ATBT conference later this month. An equally important priority is our commitment to commercial and operational excellence. By getting closer to our customers, enhancing productivity, and optimizing investment spend, we are building a foundation that powers Illumina's long-term success. We have made great progress in building a culture where every employee is contributing to commercial and operational excellence. In Q4, we achieved additional cost savings from greater manufacturing and logistics efficiencies, contributing more than $100 million in cost savings across 2024. Our ability to improve margins even under tough market conditions showcases the essence of the new Illumina operating model. And you will see more of that going forward. Turning to 2025, our guidance does not attempt to reflect any impact from the recent China announcements, which we are promptly assessing. Our full-year guidance also assumes a consideration of the current macroeconomic and political environments. We are closely monitoring the evolving circumstances in Washington, particularly as it relates to research funding. Ultimately, we are committed to supporting our customers globally and the important work they do to advance scientific discovery using the powers of genomics. Within this context, our views for 2025 are aligned with the commentary we provided in mid-January. We continue to expect revenue to grow in the low single-digit percentage range on a constant currency basis and a non-GAAP operating margin of approximately 23%, a 170 basis points improvement from 2024. We also expect diluted EPS in the range of $4.50 to $4.65. We have a clear vision for expanding the exciting markets in which we operate and a future-defining roadmap to support our customers. We remain focused on delivering on our long-term financial targets to achieve high single-digit percentage growth by 2027, more than 500 basis points of operating margin expansion, and double-digit to teens EPS growth. As we said before, three growth drivers will help us achieve these goals: one, leading with our strong core business of sequencing as we progress the X transition; two, scaling our entry into multiomics this year and next; and three, expanding our data and services to add an additional layer of growth. Before turning to Ankur, I want to thank our employees for their commitment and performance this past year. I'm very proud of the Illumina team for staying focused on delivering innovation to support our customers and the patients they serve and driving margin improvements. I'll now ask Ankur to share more detail on our 2024 results and the outlook for 2025.

Thank you, Jacob. Good afternoon, everyone. I will give you an overview of our financial results, provide more color about revenue, expenses, earnings, and developments on our balance sheet, and then speak about our outlook going forward. All financial information, including guidance, that we shared on this call is for Core Illumina only and excludes Grail. All revenue growth rates are on a constant currency basis. During the fourth quarter, Illumina's revenue of $1.1 billion exceeded our expectations. We made significant progress towards our goals of driving customer-centric innovation, margin expansion, and EPS growth. Cash generation remains strong, and we continue to put cash to use in accordance with our capital allocation strategy. Let me add more color starting with revenue. Fourth-quarter revenue of $1.1 billion exceeded our expectations and was up 1% year-over-year. The growth was mainly driven by our high-throughput consumables business, while above-expectations performance was driven by NovaSeq X placements, including encouraging uptake from clinical customers. Sequencing consumables revenue of $698 million grew approximately 2% year-over-year, driven by continued transition of high-throughput sequencing to X and also growth in mid-throughput consumables against a modest prior year compare. As of the end of Q4, in line with the X transition cadence we've discussed, more than 65% of high-throughput gigabases shipped and approximately 40% of high-throughput consumables revenue was on the NovaSeq X series. Moving to sequencing activity, total sequencing GB output on our connected high and mid-throughput instruments grew at a rate of more than 30% year-over-year, with robust growth from both clinical and research customers. Sequencing instruments revenue of $155 million declined 3% year-over-year in Q4, driven primarily by a decline in mid-throughput shipments due to capital purchase and cash flow constraints that continue to impact our customers' purchasing behaviors, partially offset by the successful launch of the MySeq I 100. Sequencing service and other revenue of $151 million was down 1% year-over-year, mainly due to the timing of certain strategic partnership revenues last year. Instrument services contract revenue, revenue from CDX agreements, and revenue from our informatic solutions grew as we anticipated. Moving to the rest of the Illumina P&L, non-GAAP gross margins of 67.4% for the fourth quarter reflected typical Q4 seasonality of a high instruments mix of business. On a year-over-year basis, non-GAAP gross margin increased 270 basis points, primarily driven by the execution of our operational excellence initiatives that continue to improve productivity and deliver cost savings, as well as continued growth in our consumables business. Non-GAAP operating expenses of $526 million reflect both cost control measures as well as project expenditures tied to key investments. Non-GAAP operating margin was 19.7% in Q4, up 120 basis points from last year, reflecting the discipline and operational excellence measures delivering results. Our non-GAAP tax rate came in lower at 23.7% for the quarter and 23.6% for the full year 2024. Q4 non-GAAP net income was $152 million. Our non-GAAP weighted average diluted share count for the quarter was approximately 160 million. Altogether, non-GAAP EPS of $0.95 per diluted share came in above our expectations, driven by higher revenue and some benefit from a lower tax rate. Moving to cash flow and balance sheet items for the quarter, cash flow provided by operations was $364 million. Capital expenditures were $42 million, and free cash flow was $322 million. In Q4, we repurchased 134,000 shares of Illumina stock for $17 million at an average price of $129 per share. We ended the year with approximately $1.22 billion in cash, cash equivalents, and short-term investments. Jacob outlined the significant progress we've made towards the goals we have set for Core Illumina. We've also reestablished a strong cash generation profile and a robust balance sheet that positions us well for the future. Moving now to our 2025 guidance, as Jacob mentioned, we are currently assessing the recent announcement from China, and our 2025 guidance does not attempt to reflect any impact from this announcement. Our guidance also assumes a continuation of the current macroeconomic and political environments. Our overall expectations for fiscal year 2025 remain in line with our commentary from a few weeks ago. We expect constant currency revenue growth in the low single-digit percentage range, weighted towards the second half of the year, driven by the NovaSeq X transition. We expect sequencing consumables to grow in the low single digits on a constant currency basis, driven by strong sequencing activity, especially with our clinical customers. The multiomic product launches like single-cell and proteomics are attracting a lot of interest from the research community. We also remain on track for roughly 75% of high-throughput gigabases shipped to transition to the X series by the second half of 2025. For instruments, we are assuming that our customers will continue to manage their capital investments closely, and hence we are projecting instrument placements to moderate in 2025, reflecting a low single-digit decline in sequencing instrument revenues on a constant currency basis. For your modeling purposes, the usual pull-through assumptions have been included in our slides. We expect total sequencing revenue growth to be in line with total Illumina revenue growth year-over-year. Looking at the rest of the P&L, we expect a core non-GAAP operating margin of approximately 23%, an expansion of 170 basis points versus 2024. Our operating margin expectations reflect the benefit of our continued gross margin improvement and expense reduction initiatives, partially offset by the impacts of inflation and market-based merit increases. We are also lowering our non-GAAP tax rate, now expected to be approximately 22.5%. Putting it together, we expect non-GAAP diluted earnings per share in the range of $4.50 to $4.65, growing at 10% at the midpoint. We have also included in our slides other financial information that would be helpful for modeling purposes. The presentation will be posted on our investor relations website following our prepared remarks. Now moving to the first quarter of 2025, as mentioned before, our guidance does not attempt to reflect any impact from the recent China announcement. For the first quarter, we expect revenue to be flat to down 1% year-over-year on a constant currency basis, driven predominantly by a decline in sequencing instruments and timing of certain strategic partnership revenues. For the first quarter, we expect a non-GAAP operating margin of approximately 20.5% and non-GAAP earnings per share in the range of $0.93 to $0.98. I will now turn the call back to Jacob for his closing remarks.

Thanks, Ankur. I'm proud of what our team accomplished in 2024. As we begin 2025, our refreshed strategy is driving meaningful progress for customers around the world. We'll continue to deliver breakthrough innovations that push the ecosystem forward and create value for all our constituents. We look forward to engaging with many of you at upcoming conferences and events. Thank you for joining our call today. I'll now invite the operator to open the line for Q&A.

Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. To give as many analysts as possible the opportunity to ask a question, please limit yourself to a single question. If you have additional questions, please raise your hand again to be put back into the queue. We'll allow a few moments for the queue to form. Our first question will come from Vijay Kumar with Evercore. You may now unmute your audio and ask your question.

Hey, guys. Thanks for taking my question. I guess, Jacob and Ankur, high level. I know you noted China, you're not making assumptions for potential disruption. I guess, one, can you update us on what you've heard so far, what is your revenue mix in China, clinical versus research margin profile? And as you think about the guidance here, Ankur, flat to down in Q1, does it imply, like, the revenues throughout the year? It's gonna be in that low single-digit range. What is the implied exit rate here? Thank you.

Thank you, Vijay. And that was a lot of questions baked into one. So I'll try to just address China overall here. But as we mentioned, first of all, this is, of course, very relatively or it's very new news. We have known for a few days. But to contextualize it, China is a significant market with an aging population. It's a country like many others that are investing into and prioritizing healthcare and are looking at sequencing as a key component into that. So, therefore, we are seeing that. Of course, other competitors are also seeing China as a significant market opportunity. And we truly believe that Illumina, with our leading NGS technology and our innovation pipeline, is serving and will continue to serve the Chinese customers and patients very, very well. The recent announcement, as I mentioned, is really only a few days old, and we are working promptly with the relevant parties to get a resolution on this. What I can say is, as you know, the size of our business is approximately 7% of our total revenue. But at this time, we are not going into the details of our China business in more detail than the revenue.

Understood. And Ankur, maybe on the cadence.

Yeah. I think the question on the cadence overall for the year remains similar to the discussion I've had a few weeks ago. As you know, driven primarily by the high-throughput sequencing transition, our top line growth is more towards the second half of the year. As we make the transition to X and the pricing transition, pricing transition is expected to come down a little bit. So that drives higher profitability in the top line in the second half of the year. Overall, though, our focus on taking cost out as well as driving operational excellence will be visible throughout the year.

Alright. Thank you, guys.

Thanks.

Our next question will come from the line of Dan Brennan with Cowen. Please unmute your audio and ask your question.

Great. Thank you. Thanks for the quarter here as well. Maybe just a couple of parts here. Just on volumes. So I think you talked about greater than 30% volume in Q4. I think that was a bit of a detail from what you had reported in the prior quarter. Maybe just give us some color on what you're seeing in volumes and elasticity and kind of what's contemplated for 2025. Then kind of related to that, you know, you flashed the pull-through numbers on the screen. Would love to get some insight into what's contemplated in 2025 for, like, the NovaSeq to the NovaSeq X transition, kind of what you're seeing. Is it ratable? Is it accelerating? Just any color on that as it drives 2025. Thank you.

Okay, Dan. So let me start by just, again, positioning where what we see the volume is that what we are really excited about and what we've seen through 2024 is a continuation of the movement towards the X. And when our customers are moving to the X, they are really using this to increase their volume, increase their sequencing both in terms of larger assays, but also deeper sequencing. We continue to see that the customer has moved to X is driving significantly more volume than the customers that have stayed on the 6K. So that's exciting. We also, when we started to provide those volume numbers, we wanted to make sure that everybody understood that it's indicative. It's not a perfect measure for whether it's 30% or whether it's 40%. The main message here is that there's significant volume out there, and we continue to see volume grow higher than it has done on average. What we are expecting is that on the longer horizon is that volume growth should be around the mid-20% range. So we're still above that, and we can expect to continue above that for a little while here. So I'm still very pleased with where we are with the results, and it shows really strong progress, as Ankur is also talking about, towards the X, and we still believe that we will have more than 75% of our volume being on the X by midyear.

That's well covered, Jacob. And then we have put the slide out for all of the pull-through assumptions, etc. We've exited 2024 with very good pull-through overall for the year. Very pleased with the ramp-up of X now and see potential for it to keep growing next year as well. The detailed assumptions for modeling are on the slide.

Our next question will come from Puneet Souda with Leerink.

Yeah. Hi, guys. Thanks for taking my questions. Just first one, Jacob. You know, I appreciate the comments earlier on the unreliable entity list, but just that was a strong statement from China, and you obviously pointed out a number of years and your strong position in China historically, but could you elaborate a little bit just so we understand why you expect that to be reversed? There was obviously another larger software company involved here, and so it looked fairly pinpointed. So just wanted to understand that. And then on the clinical transition, Ankur, wondering if you can clarify where that 50% gigabyte shipped number could yield in 2025 or by the end of 2025. Thank you.

Yeah. Thanks, Puneet. I think in the beginning, as you mentioned, I mean, this is new information. We've only known this a few days. I don't think I've commented on timelines on this when we have more insights or even on whether it's been reversed. I don't think we have, and we will not comment on that. We are in dialogue with the relevant parties, and we would like to keep that dialogue between the parties before we have more insights here.

And, of course, on the 50%, basically, giving additional color on the transition of X. We've said at least two-thirds or over 65% of the total volume at the end of the year here in Q4 has transitioned. When you parse it out by clinical and by research, for clinical, that's about 50%. So half of the clinical volume has already transitioned to X at the end of the year.

And when do you expect that for 2025?

Well, in aggregate, I'm still at 75%. In aggregate, for the entire volume, given that 80% of research has already transitioned, most of the remainder should now come from clinical.

Okay. I'll hop back into the queue. Thank you.

Our next question will come from Doug Schenkel with Wolfe. Unmute your audio and ask your question.

Alright. Good afternoon, guys. I want to start on China and then turn to a bigger picture, longer-term question. So, you know, cutting to the chase, not providing more detail on China financials and not taking this opportunity to ring-fence things, I'm sure you understand, but that creates yet another overhang for the stock. So, Ankur, I'm wondering if you would at least be willing to talk about the levers you have identified and you have available to you at both the margin line and via initiatives like buybacks to protect your at least the low end of your EPS targets for the year if you are unable to reverse what's going on in China. So that's the first. And then longer-term, sort of related to that, Jacob and Ankur, recognizing you inherited a lot of problems from the previous leadership team, once you buy the house, you own it. This is your company. It seems like every quarter, there's something new. There's pricing. Then there's mid-throughput. Now it's China, and in a couple of weeks, we'll get some new announcements from Roche. You see what we see. In fact, you see more between the market opportunity, your network effect, the fact that you're spending almost a billion dollars in R&D per year. Do you feel comfortable you can get back to mid-single-digit revenue growth over the next one to two years and drive better than peer group EPS no matter what? Are you committed to that? Elevating this to that level? Thank you.

Yeah. Thanks, Doug. That was, again, a lot of questions baked into this. So let me just come to the essence here is that we, as you know, I've been in this job for one and a half years, so you can absolutely be certain that I feel like I have full ownership of the company and the execution of what we need to do over the next period of time. And we came out with a plan this summer stating we would step back into high single-digit growth by 2027. Also, continue to deliver double-digit to teens EPS growth and deliver on a 26% operating margin. That is our commitment, and that's what we are committing to do. And we will do the right work in order to get there.

Yeah. And thanks, Jacob. To the other part of your question, we're looking at all possible opportunities irrespective of whatever the outcome is from China. We'll keep driving margin expansion, operating margin, and operating leverage drivers forward. And we have several opportunities there as we've outlined. Our base case already looks at 170 basis points of margin expansion year-over-year. And we'll keep driving additional margin there. So not really walking off of that, but I see additional opportunities from an earnings growth perspective that we're heavily focused on this.

Our next question will come from the line of Conor McNamara with RBC. Please unmute and ask your question. It appears you're on a phone call; star six will allow you to unmute.

Thanks for that. Thanks, guys, for taking the question. I appreciate that. So just on the sequencing growth, was there any impact from in the quarter from, you know, slowdown relative to Q3 because of the higher X placements or any slowdown from, you know, customers that were looking at the single-cell X that may have slowed down consumable growth in the quarter? And then you're already at 65% conversion. So it seems to be tracking ahead of the 75% conversion that you talked about exiting Q2. So how should we think about the pricing impact early on in 2025 if that's going to be less than you laid out in your list of it? For the questions.

Yeah. Thanks, Conor. I know, Paul, we continue to be pleased with the progress we're making on the conversion, as you mentioned, and we are certainly on a good trajectory for delivering on the mid-year as we have said 75%, as you mentioned, where we are today. So we feel good about that. I think it's also we're still in a situation where you have a very high volume growth, and, of course, mix and other things can impact some of the performance quarter by quarter, but we look at trajectory, we are definitely on the right track. We did anticipate that we would see a little bit of a slowdown here in Q4. There's less working days and other things that impacted us. So we had anticipated some of that. So we feel good about where we are and that we will be on the progress to deliver. And as you mentioned also, when we are starting to lapse the main part of having the revenue on the X, then, of course, you'll see more revenue growth based on that. We now have we are growing on a different cost basis, so to say, or price basis, so to say. So we are encouraged about that, and therefore, we're also expecting that we will continue to see improvement during the year of our consumables growth.

Our next question will come from Dan Arias with Stifel. Your line is open. Feel free to unmute.

Hi, guys. Thanks for the questions here. Ankur, can you maybe just give us a sense of the extent to which you've worked your way through the production and efficiency exercises that you had teed up? I mean, how much of what you saw as an opportunity when you showed up to Illumina did you tackle and capture in 2024 versus what's sort of open to you in this year? Love to sort of understand the untapped opportunity that you have here for the next twelve months.

Yeah. Sure. So still significant opportunities in 2024. From my perspective, what we've captured is some tweaks in our manufacturing strategies, some of the lower-hanging fruit in terms of optimizing some of our teams. We have and we've started working on this. The team's already actioning. Our ability to further consolidate our manufacturing as well as our R&D capabilities in Singapore. It's a dual benefit. For us to be in Singapore, not only do we get the cost arbitrage, it also allows us to drive synergies between our R&D and the manufacturing team locally to lead to both lower R&D costs as well as a lower cost manufacturer. It also, below the line, allows me to increase my R&D base in Singapore and be able to take advantage of a tax structure which is beneficial in the long run. Some of the benefits you're beginning to see in the 2025 guide there already. Within our operating expenses, we said we've started set up an office in India. We talked about that four months ago. We have 150 people there now, and we have a very good runway and a meaningful structure identified to keep expanding our capabilities within India. And we have several plays going on within our sales and marketing as well as the R&D. Right. So lots of opportunities over the next two years, both through 2025 and through 2026, to keep optimizing just structurally our cost structure here.

Our next question will come from Rachel Vatnsdal Olson with JPMorgan. Unmute and ask her question.

Perfect. Thank you. You know, there's been a few questions on China, and you guys are trying to assess the situation given it's so early. But could you at least unpack for us what was contemplated initially in the 2025 guidance for China? You had pointed us towards this, like, $300 million business last year. So can you just give us a view on what you were expecting that to grow or decline in 2025? And then my follow-up is just on the first quarter. Can you walk us through your assumptions in terms of consumables growth? Is it gonna be up sequentially in Q1? Or what should we see on that front? Thank you.

Yeah. Thanks, Rachel. And let me start there and then have Ankur provide a little more insight also. But on China, as I mentioned also in the previous calls, we had our new head of China coming in approximately a year ago, and Jenny and the team have done a wonderful job on assessing the opportunity in China, putting some more structure around what we got and strategy about where we're gonna focus. She's made some changes to the organization, and I actually think that we are starting to see that play through in our performance also, meaning that we're starting to see we actually nice to see growth in China in Q4. And also, sequentially, it's starting to look really nicely. So we were guiding in underlying the guide here, we were expecting approximately flat growth for China in 2025.

Yeah. That's right, Jacob. Rachel, I think we've kind of said that during our strategy day. And otherwise, in the near term, we weren't anticipating any meaningful growth contribution from China. It being stable would have been good. Very good to see the Q4 growth of 1%. Now, certainly, with the announcement, we are assessing the situation while we are still supporting our customers on the ground.

Our next question will come from Tejas Savant with Morgan Stanley. Please unmute and ask your question.

Hey, guys. Can you hear me okay?

Yes. Yes, Tejas. Perfect.

So Jacob, I want to take a slightly different tack on China. I know you don't want to say too much in the specifics here, but, you know, it is an important question, and we live in the era of making deals. Right? So, you know, back in the day, there were a lot of folks who lobbied for BGI's exclusion from the US market. They got added to the military entity list and biosecure, etc. Would it make sense for that to be undone, of course, with appropriate data safeguards in place, in exchange for you guys getting unfettered access to the Chinese market? You know, we live in a different world today. You guys have other credible competitors besides BGI now. Would that be an effort that you would be in principle supportive of? And then second, sort of on the competitive landscape, a couple of high-profile sort of wins here for one of your emerging competitors. One with the UK Biobank for proteomics and the other for Chan

So let me start with the first one here on China. And on, I think, first of all, I would say that we, as I mentioned before, we always take competition very seriously. We actually, I do like competition. I think that keeps us on the toes. It keeps all of us making sure that the customer gets the best and the highest quality of service. So in the end, competition is good in the industry. And we will compete with anyone. We believe that we have the best technology. We continue to innovate. It doesn't matter whether it's in the US or China. We believe that our innovations and what Illumina stands for is providing the best solutions for our customers. Related to what is happening in Washington, we will leave that for the lawmakers to decide. It's a Capitol Hill conversation and not something that we have any influence on.

Got it. And then, the emerging vendor situation, Jacob, if you may.

I mean, again, there is competition out there. We recognize that. I think we are not going out and doing press releases on every deal we do. And so I'll leave it with that.

Got it. Fair enough. Thank you.

Our next question will come from Tycho Peterson with Jefferies. Please unmute and ask your question.

Hey. Thanks. Couple things. I just want to make sure there was no pull forward within 91 placements in the fourth quarter. It doesn't sound like you're calling that out, but I want to make sure there was nothing ahead of the new administration and, you know, some expected NIH noise. And then on the clinical momentum for X, I think you said before 20% of tests will never move over to X. Is that still your view? What are you assuming for 25B uptake? I think it's about 50% of customers. And then on the pricing dynamic, you know, you've talked about customer discussions around application-specific pricing, essentially, you know, helping customers hit a certain margin target. Where are you in that process? And I think you would have to address, Tejas's last question about the UK Biobank. You know, I understand your competitor effectively gave away that business, but, you know, there are a lot of these projects out there. The UK Biobank was a big one. How do you deal with a rational competitor in the market? Potentially that's giving away instruments.

Okay. So let me start to address the high level there on the percentage of customers that will be staying with. What we're trying to get from a modeling perspective is just saying that we have seen historically that the lion's share of customers will move to the X and to the new technology, but there will always be a fraction of customers that, for reasons that they see that their assay works well and they have a nice profitability or they don't see that they don't want to invest more in that part of the business, for example, that they stay on, you could say, the older technology for a while. So we have just seen that rule of thumb is probably around 20% will stay, and they will, of course, become smaller and smaller over time, but it's taking substantially longer to transition the last part than it did for the first, let's just say, 75 to 80%. So that's how we think about that. I think if you go to the UK Biobank, as we mentioned also here in the recent releases, we are now in a 50,000 pilot study on the UK Biobank project. That's the first step you need to take. That was actually also where we saw the other protein provider, protein assay provider, actually did a 50K project before they went for the full one. So we actually are following the same trajectory and believe we have a strong solution for that. As you're also mentioning, yes, there are new competitors in the market. In the end, we are also in an environment where competition and everyone has to eventually show that they can make money. And we have shown that. I think it's up to us to show that they can also do that. Otherwise, eventually, the bank will run dry.

And then can you just address the pricing dynamic with clinical customers? You know, these discussions around application-specific pricing, essentially helping your customers hit a margin target.

Yeah. That's right. Let me add to that, Tycho. On the application-specific pricing, we have had active discussions with quite a few of our customers and are continuing to do that for some of the emergent tests. We're having discussions with them about having a separate set of pricing that enables much higher volume of sequencing for that test and working with them to enable that as a separate line rather than discussions about bringing the pricing down for the entire portfolio. There are a set of customers who are already on board with that and are looking at launching tests over the next quarters or so based on whatever their clinical timelines are and would be part of that as a very specific category. So that's our first foray in working with this set of customers, and the initial discussions have been quite encouraging, specific to that test so far. The second set during the second and third set during this year that we're seeing will emerge is going to be with our proteomics solution as well as our single-cell solution. Which is where some of the early discussions and placement could be around the end-to-end workflow, could be around a full set of studies as well as programs. Rather than working on a per GB discussion there. So that's emerging as well.

Our next question will come from Dave Westenberg with Piper Sandler. Please unmute and ask your question.

Hi. Thanks for taking the question. I'll go a little bit different tack since what's been covered. First, I want to just maybe talk about NVIDIA. What are the customers getting in this? Can this collaboration turn into something bigger, and how would this impact kind of the network effect with Illumina and, you know, keeping on it with, you know, through familiarity with the product? And then also, I want to talk about the Truvera deal. I mean, obviously, a couple of other analysts talked about the Chan

Yeah. Thanks, Dave. And, yeah, we are certainly excited about those relationships or those collaborations also. And let's start with the NVIDIA one. With NVIDIA, as all of us know, there is a lot of capabilities and compute power put in place by NVIDIA right now for many different applications, especially within AI. And with that also, we're now moving into a space where even now with a large cohort of sequencing, but also going into multiomics, it requires a lot of compute power. And while our Dragon platform on FPGA is working very nicely, the customers that have already invested in GPU infrastructure, you'll want to make sure that the Dragon platform also is available on the GPU platforms. So that is one thing that can really drive, I think, a big network effect and really help our customers compute a huge amount of data. At the same time, NVIDIA is also providing infrastructure for building these foundational models that I think is going to be key for really modeling biology for the future and really being a key for predicting diseases and health for drug discovery and other things. This is requiring a significant amount of sequencing to build up those kinds of predictive models. And so we are now together with NVIDIA, we're allowing, we're enabling those models and that programming language on our platforms or our infrastructure so our customers can get access to that. So very exciting and certainly a huge network effect beyond genomics, but really into multiomics also. Yeah, you're right, Truvera. It's a private sector genome project, and I think we're seeing a lot of interest around that just both in the US, but around the world. We're seeing this in the Middle East, UK, Germany, other places. We're seeing that both from sequencing in sovereign countries, but we're also seeing a lot of interest for pharma to get access to much more diverse datasets. So there's a lot of activities for that specific, but generally speaking, we are seeing pharma being very interested to work closer with us on many different applications. And these are some of them, but there's much more coming on this.

Our next question will come from Subha Nambi with Guggenheim. Your line is open. Please go ahead.

Hey, guys. Thank you for taking my question. You guys have maintained R&D at just below $1 billion per year. Is that the plan moving forward? How have you reprioritized efforts since you took the lead at the company? How should we assess the success of this investment, which I know is far higher than peers as a percent of sales?

Yeah. Thanks for that, Subha. And I think we continue to believe that overall, the genomics opportunity and the multiomics opportunity that we're in still has a significant opportunity in front of us, and we're just getting started on that. And thereby, really opening up that market and really getting the benefit of that opportunity requires continued innovation and investment into R&D. So there's a logic in that, but we also, and that's why we're also going out and committing to that, that we will step back into growth because, obviously, these things are tied together. We believe that over the next three years, if we can step from where we are today into, we continue to have, and I think Illumina has been known for a very, very innovative platform. We have a roadmap for the next ten years that we believe is going to set the tone for where genomics and where multiomics is going to be and really have a significant impact not only on health but also on drug discovery going forward. So that excites us a lot. The number itself is certainly something we continue to look at. We've been working just in 2024 here a lot with the R&D team to really work on how we become more effective and efficient in how we run things. We have also taken cost out in certain places, and we continue to assess opportunities. But the idea is, of course, more to grow ourselves into a different percentage point rather than cut ourselves into that.

Our next question will come from Mason Carrico with Stephens. Please go ahead. Can see here that your line is open, Mason. We are not able to hear you. Okay. We'll move to our next person, and we'll return to you, Mason. Our next question will come from Sung Ji Nam with Scotiabank. Please go ahead.

Hi. Thanks for taking the question. Maybe kind of related to Dave's question earlier. On the project Stargate, the $500 billion AI infrastructure initiative that was announced. I know it might be early days. But, you know, Larry Ellison's commentary around kind of the aspirations, you know, of personalized cancer vaccines and tumor gene sequencing, was kind of curious if you might be able to comment on kind of the opportunities for Illumina to take a more kind of proactive approach or role in this initiative to, you know, really help shape that aspect of the project.

Yes, indeed. I think that's a great example of the opportunity ahead. And really shows the commitment that the US has to drive healthcare going forward and use new technology for that. As was also very evident in that program, genomics will play a huge role in the Stargate project. And I truly believe that Illumina is the natural partner for that. So we're excited about the opportunities ahead.

Our next question will come from Patrick Donnelly with Citi. Your line is open. Please go ahead.

Hey, guys. Thank you for taking the questions. I wanted to drill in a little bit on the consumable side. After the pre-announcement, I thought consumables would come in, you know, maybe $20 million higher than they did. Can you just talk about consumables guidance? Can you break that down, consumables and instruments? Then the last one, I hate to beat the dead horse on the China piece, but are you guys currently able to sell into China? I'm just, I just want to hear what the current situation is there. I know you're working through the regulatory piece, but what the last week has looked like. Are you able to sell or not there?

No. Thanks for that, Patrick. Let me start with the last question here. Yes. We continue to serve our customers and their patients in China, and we will do our best to continue to do so. We believe the opportunity in China is vast, and we will work through the current challenges with speed and hopefully get a resolution as fast as possible. So, Ankur, you want to talk to the consumables side?

Yeah. So on the consumable side, Patrick, as we had guided during the start of the quarter, the actual consumable results for Q4, we had guided saying that Q4 would be a step down from Q3 given the number of holidays, and the actuals laid out roughly in that same trajectory. Coming down from Q4 into Q3. Our X was very much in line overall X consumables, so no surprises there. The uptick both on the research and the clinical side, etc., direction was very much as expected. 6K was slightly lower, but in terms of an aggregate, when I'm thinking about the results for the quarter, from my perspective, they were roughly in line. I didn't see anything worrisome from a trends perspective, either on the conversion from 6K to X perspective or in terms of overall activity perspective either. So feel good about the overall trajectory as well as getting to that 75% conversion by the second half of the year.

And just the Q1 guide specifically, Ankur. Just the consumables instruments would be helpful.

Yeah. The Q1 guide, I think I've said for Q1, I'm guiding a similar uptick. So a sequential increase from Q4 into Q1 for our consumables. The Q1 consumables guide is also both sequentially as well as up year-over-year. So when you think about the growth rate for Q1, expect consumables to be positive year-over-year, but the instruments to likely be on the negative side.

And that will conclude our Q&A session. I will hand it back to Salli Schwartz for closing remarks.

Thank you for joining us today. As a reminder, a replay of this call will be available in the investor section of our website. This concludes our call, and we look forward to seeing you at upcoming conferences and other events.