Illumina, Inc. (ILMN) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals a mixed performance: strong non-GAAP operating margin and EPS growth, but revenue declines in key areas like sequencing instruments and Greater China. The Q&A indicates positive feedback on future products and stable pricing, but also highlights challenges with research budgets and China. Guidance adjustments reflect these challenges, leading to a neutral sentiment.
Key Financial Performance
Revenue $1.06 billion, down approximately 3% year-over-year on both constant currency and reported basis. Decline attributed to constrained budgets from research customers, particularly in the U.S., and restrictions on instrument exports to China.
Non-GAAP Operating Margin 23.8%, increased 160 basis points year-over-year. Improvement driven by strong execution, cost discipline, and favorable product mix in sequencing business.
Non-GAAP EPS $1.19, grew 9% year-over-year. Growth attributed to strong organic margin expansion and cost management.
Sequencing Consumables Revenue $740 million, approximately flat year-over-year and up approximately 6% sequentially. Growth driven by high-throughput consumables and strong clinical segment demand, which now represents roughly 60% of total sequencing consumables.
Sequencing Instruments Revenue $96 million, down approximately 18% year-over-year. Decline due to constrained budgets from high- and mid-throughput research customers and restrictions on exports to China.
Sequencing Service and Other Revenue $136 million, down approximately 5% year-over-year. Decline due to timing of certain strategic partnership revenues last year.
Greater China Revenue $63 million, down $12 million year-over-year. Decline attributed to restrictions on instrument exports.
Non-GAAP Gross Margin 69.4%, stable year-over-year and increased 200 basis points quarter-over-quarter. Improvement due to favorable product mix and operational excellence initiatives.
Free Cash Flow $204 million, reflecting strong cash flow provided by operations of $234 million and capital expenditures of $30 million.
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Operating Highlights
NovaSeq X platform: Ongoing adoption with greater than 50 placements and increased high-throughput consumable sales.
MiSeq i100 Plus: Over 500 instruments placed since launch, with positive customer feedback highlighting faster turnaround times, ease of use, and room temperature shipping and storage of reagents.
Clinical markets: Accounts for roughly 60% of total sequencing consumables, showing resilience and exceeding expectations in areas like oncology, genetic disease testing, and reproductive health.
China market: Revenue of $63 million, slightly better than expected, despite restrictions on instrument exports.
Operational excellence initiatives: Improved gross margin performance and reduced operating expenses by 6% year-over-year.
Cost discipline: Lowered cost base and raised operating margin guidance to 22%-22.5% for FY 2025.
Multiomics strategy: Advancing with the acquisition of SomaLogic to expand into proteomics, enhancing capabilities in DNA, RNA, methylation, and proteomics.
Shift to integrated solutions: Focus on end-to-end workflows, reducing barriers to adoption and delivering high-quality insights at scale.
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Risk or Challenges
NIH funding uncertainty: The research environment in the U.S. remains constrained due to ongoing NIH funding uncertainty, leading to soft demand from this segment. Some labs are delaying projects or holding off on hiring due to concerns about future grant availability.
Export restrictions in China: Illumina's ability to export instruments to China is restricted, impacting their operations in the region. Although consumables sales have held up, the restrictions on instruments remain a challenge.
Research customer budget constraints: Research customers, especially in the U.S., are managing budgets tightly due to funding constraints, leading to extended decision times and delayed purchases of high- and mid-throughput instruments.
Dependence on clinical market growth: While the clinical market has shown resilience, Illumina's heavy reliance on this segment for growth could pose risks if clinical demand slows down in the future.
Regulatory approvals for SomaLogic acquisition: The acquisition of SomaLogic is subject to regulatory approvals, which could delay the integration and realization of expected benefits from the acquisition.
Tariff impacts: Tariffs had a partial impact on gross margins, with a net impact of approximately 110 basis points in Q2.
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Guidance & Outlook
Revenue Guidance: Illumina has raised its revenue guidance for the Greater China region by $25 million at the midpoint to approximately $200 million for the year. Total Illumina constant currency revenue decline is now expected to be in the range of -0.5% to -2.5%. Reported revenue is anticipated to be between $4.23 billion and $4.31 billion.
Sequencing Consumables Growth: For the rest of the world, sequencing consumables growth is expected to be between 1% and 3%, up from the previous guidance of flat to 2%, driven by strong sequencing activity from clinical customers.
Sequencing Instruments Revenue: Expectations for sequencing instruments revenue have been lowered to a decline between 4% and 6% year-over-year, including the impact of pricing actions. This is due to conservatism from research customers.
Operating Margin Guidance: Operating margin guidance has been raised by approximately 50 basis points to a range of 22% to 22.5% for FY 2025.
Tax Rate: The FY 2025 tax rate is now expected to be approximately 20%, reflecting the positive impact of new U.S. legislation allowing R&D spend to be tax deductible.
Earnings Per Share (EPS) Guidance: EPS guidance for FY 2025 has been raised by $0.25 at the midpoint to a range of $4.45 to $4.55.
Q3 2025 Revenue Guidance: For Q3 2025, revenue outside Greater China is expected to grow between 1% and 2% year-over-year on a constant currency basis. Revenue in Greater China is expected to be between $35 million and $45 million. Total constant currency revenue decline is anticipated to be in the range of -1.5% to -2.5%.
Q3 2025 Operating Margin and EPS: Non-GAAP operating margin for Q3 2025 is expected to be approximately 22%, with non-GAAP EPS in the range of $1.15 to $1.19.
NovaSeq X Transition: By the end of 2025, approximately 50% of high-throughput revenue and 75% of gigabases shipped are expected to be on the NovaSeq X series, driven by clinical segment scaling.
Proteomics Expansion: The acquisition of SomaLogic is expected to close in the first half of 2026, expanding Illumina's presence in proteomics and integrating it into its multiomics portfolio.
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Shareholder Return Plan
Share Repurchase Program: In Q2, we repurchased approximately 4.5 million shares of Illumina stock for $380 million at an average price of approximately $85 per share. We intend to continue to repurchase incremental shares over the course of the year as part of our approximate $800 million authorization remaining at the end of the quarter.
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Key Q&A
Q:What was the reason for the guide change in the earnings report?
A:The guide change was due to FX and an increase in China, offset by reduced expectations on the instrumentation side, primarily from the research market. However, consumables expectations increased due to strong performance in Q2 and a positive pipeline for the rest of the year.
Q:What feedback has been received on new products in the pipeline?
A:Early access customers provided very strong feedback on products like constellation, 5-base, and spatial solutions. These products are expected to contribute to growth starting in 2026.
Q:How is the company preparing for competition, particularly regarding turnaround time?
A:The company focuses on customer engagement, early access to technology, and innovation. They are addressing attributes like fast turnaround time for niche markets like NICU but prioritize high-quality insights for the majority of customers who find overnight runs reasonable.
Q:Did the company see any pull-forward from customers in the quarter?
A:No, the company did not see any pull-forward. They observed a normal quarter with increased backlog as customers transitioned to the X platform.
Q:What is the significance of the implied revenue growth in Q4 excluding China?
A:The implied 2 points of revenue growth in Q4 excluding China would be the highest rate in at least 2 years. This reflects the company's focus on clinical growth, which is expected to offset declines in research and China.
Q:Was there any pull-forward in China consumables due to tariffs?
A:The company did not observe significant pull-forward in China consumables. They believe the current guidance increase for China is specific to 2025 and not indicative of an improving outlook for 2026.
Q:What are the spending patterns of clinical customers and their transition to the X platform?
A:Clinical customers are transitioning to the X platform gradually, with some staying on the 6000 for financial reasons. The transition is not linear and varies by customer, with 75% of volume expected to shift to X in the second half of the year.
Q:What is the trajectory of X placements for the rest of the year?
A:The company expects 50-60 X placements per quarter on average, with potential for more in Q4 depending on budgets. The transition to X is ongoing, with no immediate cliff expected.
Q:What is the company's outlook on pricing and competition?
A:The company remains stable within the expected range of pricing decline and is confident in its ability to compete on pricing due to its cost structure. They are open to adjusting pricing to optimize customer performance and open new applications.
Q:What is the outlook for mid-throughput instruments and the academic customer base?
A:Mid-throughput instruments are seeing delayed decision-making and some outsourcing to service providers. The academic customer base is expected to decline by 15% for the year, with no significant changes in competition dynamics.
Q:Review of Unclear Management Responses
A:Management avoided providing direct guidance for 2026, instead emphasizing the focus on executing the 2025 business strategy. They also used vague language when discussing the long-term outlook for China and the potential impact of competition on pricing.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Ankur
Co
Head Investor
Interim Head
Investor Relations
LLC Research
MiSeq platform
NovaSeq
Research Division
Securities
SomaLogic Illumina
Thaysen
adoption
affinity
analysis
customer
demand
development
disease
feature lab
insight
margin
market
momentum
monitoring
multiomics
proteomics
reagent
release
road map
solution
term
testing
turnaround
uncertainty
workflow
ILMN Transcript
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Illumina, Inc. (ILMN) Q3 2025 Earnings Call Transcript
Unknown10-30
The earnings call reflects mixed signals: positive EPS growth, cost management, and clinical market expansion, but offset by China headwinds and lack of specific future guidance. Sequencing consumables and instruments showed growth, but research markets remain cautious. The Q&A highlighted uncertainties in regulatory issues, competition, and research funding. Despite raised revenue and EPS guidance, the lack of clarity for 2026, especially in China, tempers optimism. Overall, the sentiment is balanced, leading to a neutral prediction for the stock price movement.
Illumina, Inc. (ILMN) Q2 2025 Earnings Call Transcript
Unknown8-1
The earnings call reveals a mixed performance: strong non-GAAP operating margin and EPS growth, but revenue declines in key areas like sequencing instruments and Greater China. The Q&A indicates positive feedback on future products and stable pricing, but also highlights challenges with research budgets and China. Guidance adjustments reflect these challenges, leading to a neutral sentiment.
ILMN Slides
Illumina Q2 2025 slides: Revenue dips 3% while EPS grows 9% amid NovaSeq X transition2025-10-30
Illumina Q2 2025 slides: revenue declines 3% while margins expand, SomaLogic acquisition announced2025-07-31
Illumina Q1 2025 slides: Revises guidance downward amid China restrictions and tariff impacts2025-05-08
ILMN Report
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