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Good day, ladies and gentlemen. Welcome to the First Quarter 2026 Illumina Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to Head of Investor Relations, Conor McNamara.

Hello, everyone, and welcome to Illumina's First Quarter 2026 Earnings Call. Today, we will review our financial results released after market close and provide prepared remarks before opening the line for Q&A. Our earnings release is available in the Investor Relations section of illumina.com. .

Joining me today are Jacob Thaysen, Chief Executive Officer; and Ankur Dhingra, Chief Financial Officer. Jacob will begin with an update on Illumina's business, followed by Ankur's review of our financials. We will be discussing certain non-GAAP financial measures, and a reconciliation to GAAP can be found in today's release and in the supplementary data on our website. Unless stated otherwise, all growth rates are presented on a year-over-year reported basis. organic growth adjusts for the impact of currency and acquisitions and Rest of World organic growth also adjusts for the impact from our Greater China region.

A reminder, starting in January 2026, we changed the geographical reporting segments to better align with the respective commercial organizational structure and the supplementary file on our website shows historical results with the new geographic reporting. This call is being recorded, and the replay will be available on our website. It is our intent that all forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995.

To better understand the risks and uncertainties that could cause actual results to differ, we refer you to documents that Illumina files with the SEC, including our most recent Forms 10-Q and 10-K. With that, I will now turn the call over to Jacob.

Thank you, Conor, and good afternoon, everyone. We are off to a great start in 2026 with Q1 revenue, margin and EPS all coming in above our guidance range. Our solid performance reflects disciplined execution across the organization, along with strength in our clinical markets and growth across all regions, excluding China. .

Our focus on delivering for our customers and shareholders is fueling the sustained success that positions us for continued growth well into the future. We are raising our 2026 guidance to reflect the Q1 outperformance, which we will discuss in more detail later in our prepared remarks.

I want to recognize and thank the entire Illumina team for how they have managed through a higher cost environment while maintaining strong operational performance and delivering the quality and reliability our customers expect. As it relates to Q1, I'm going to focus on 3 areas: our disciplined commercial execution, with continued momentum in clinical end markets. Product innovation and road map updates from our R&D team in the quarter and progress we're making against our long-term strategy and targets.

Overall, I'm very pleased with how the company delivered in Q1, giving us more confidence that our strategy is working. Building on momentum for 2025 our team delivered another quarter of solid performance. Highlights from the quarter include: Rest of World, organic growth of 3.5% above the high end of our guidance driven by strength in sequencing consumables and instruments. Approximately 7% growth in Rest of World sequencing consumables, including approximately 20% growth in clinical reflecting continued adoption of sequencing-based diagnostics and more sequencing intended applications.

Over 8 NovaSeq X placements in the quarter, approximately 20 more than Q1 '25 with year-over-year placements growth in both clinical and nonclinical markets. New high-volume clinical applications are being built on the NovaSeq X, as the platform becomes more embedded in clinical workflows and supports continued consumables growth over time. The successful close of the SomaLogic acquisition, with the business performing in line with our expectations on both revenue and profitability. Margins approximately 150 basis points above guidance, driven by solid revenue performance and disciplined expense management in higher cost environment.

Overall, these results reflect our consistent execution and how we dedicated resources to best capitalize on a growing and evolving market. The investments Illumina has made over the last 2 decades to make sequencing technology more accessible are driving meaningful impact with continued clinical demand. Clinical made up more than 65% of our sequence and consumables revenue in the quarter, driven by both the expansion of sequencing-based diagnostics and the increased use of more data-intensive applications.

Customers are launching new assays with ongoing progress in reimbursement, supporting broader adoption of sequencing and clinical decision-making. At the same time, demand for approaches such as comprehensive genomic profiling and whole genome sequencing is growing. This is driving higher sequencing intensity an area where the NovaSeq X is playing an increasingly central role as customers scale these applications.

We see a long runway of continued growth in our clinical business. In research and academic markets, demand remains cautious as customers navigate funding uncertainty, but we are confident in the long-term opportunity in these end markets. And we continue to invest in leading technologies, including proteomics and single cell with additional offerings in spatial underway. These markets serve as an important entry point for new technologies, helping to drive long-term clinical adoption over time.

Customer interest in our new product offerings remains robust. And as funding uncertainty start to ease, we expect to see a return to growth in research and academic markets. This quarter, we also saw our innovation strategy come through clearly in how we are expanding the value of our platform for our customers.

At AGBT, we focused on how our end-to-end workflow approach is helping customers unlock new discoveries and generate deeper insights with the quality and reliability that only Illumina can offer. Our approach is becoming an important shift in how customers evaluate solution, not just at the instrument level but across the full workflow.

We highlighted several examples of this at AGBT. We launched TruPath, enabling whole-genome sequencing with deeper insight while eliminating traditional library prep, reducing hands-on time to about 10 minutes. Customers are showing significant interest, particularly in areas like rare disease, where some are using it to simplify the standard of care by consolidating multiple types of tests into a single TruPath workflow. This is helping them get to answers faster and with greater confidence compared to traditional approach.

Several customers are already in various stages of clinical studies using TruPath, and we expect customer demand to continue increasing in the coming quarters. We also saw very high engagement around our spatial transcriptomics offering, which is a good example of how we innovate with our customers to address their needs. Early access users have shown that the offering can generate data in highly challenging sample types, such as lymphatic tissue that has previously been difficult to study.

We remain on track to launch later this year and look forward to bringing this capability to the market. At the same time, we are continuing to expand what customers can do under NovaSeq X. We introduced our 18-month road map, including new 14B and 35B flow cells, staggered flow cells run and our ability to improve data quality with Q70 performance.

These innovations on the X will offer more flexibility, increase throughput and improve overall workflow efficiency by our customers. These introductions and platform improvements are driving higher NovaSeq X placements and increased demand, even 3 years after we shipped our first X instrument. We exited the quarter with a solid backlog, giving us confidence to raise our full year instrument outlook.

As we step back and look at the quarter. The most important takeaway is that our strategy is working. We are increasing the value of the NovaSeq X through continuous innovation, which is showing up in our financial results as customers scale and expand what they run on the platform. As sequencing moves further into clinical and research settings, customers are running more samples, generating more data and relying on more sequencing-intensive applications. This is where the NovaSeq X continues to play a central role.

As we expand what customers can do on the platform, we are enabling them to do more with the systems that they already have and support more complex applications over time. It gives them confidence that they can use their X well into the future to drive their own success. As our customers succeed, the success shows up in our results. We're also extending this into data and AI with Bioinsight, which we introduced late last year to help customers accelerate discovery. A key program within Bioinsight is the Billion Cell Atlas, which we introduced earlier this year to better understand how genes drives disease through [indiscernible].

We are seeing growing interest from partners with additional companies looking to participate with hundreds of millions of cells already generated, customers are starting to see insights that can support AI-driven models for drug discovery. Turning to our outlook. Building on the strong start of this year, we are updating our outlook relative to the guidance we provided in Q4.

Importantly, the current end market dynamics we are seeing are consistent with what we expected going into 2026. Clinical continues to lead while research and applied remain more cautious. Our first quarter performance came in ahead of expectations, and we are raising our full year revenue outlook. This is driven by the strength in our business and how it carries into the rest of the year.

We are also raising our operating margin expectations and EPS outlook, reflecting the Q1 outperformance and higher revenue. We also remain on track toward our 2027 targets and the investments we are making in R&D and product innovation position us to deliver high single-digit revenue growth, continued margin expansion and double-digit to teens EPS growth for years to come.

pI want to thank the entire Illumina team, our customers and all our stakeholders for another excellent quarter. I also want to thank our 3 outgoing board members for the years of service and contribution to Illumina. I'm very proud of how Illumina has progressed since I joined the company in 2023, especially given the dynamic macro environment we have been operating in.

With that, I'll hand it over to Ankur to walk through the financial details before we move to Q&A.

Thank you, Jacob, and good afternoon, everyone. I will walk through our first quarter financial results, provide additional color on revenue, expenses, earnings and our balance sheet and capital deployment and then discuss our updated outlook.

Before I get into the details of the financial performance, let me provide a high-level view of how the first quarter played out. During the first quarter, Illumina's revenue of $1.09 billion came in $20 million above the midpoint of our guidance, driven primarily by better-than-expected instrument sales as we placed more than 80 NovaSeq X instruments in the quarter, above our targeted range of 50 to 60 per quarter. Clinical consumable sales also came in at the high end of our expectations for the quarter.

The higher revenue flowed through to margins and EPS with non-GAAP diluted EPS approximately $0.10 above the midpoint of our guidance. Now turning to the details. During the first quarter, Illumina's revenue of $1.09 billion was up 4.8% year-over-year and 1.2% on an organic basis with currency and acquired revenue each contributing just under 2 percentage points to our reported growth rate.

Rest of World organic growth was 3.5%. Sequencing consumables revenue of $726 million was up 4% year-over-year, with the rest of the world organic growth of 5%, roughly in line with our expectations. High throughput volume drove most of the revenue growth as the NovaSeq X installed base continues to expand and utilization increased year-over-year.

Clinical sequencing consumable demand continues to expand growing 20% ex China for the second consecutive quarter. Continued expansion of clinical volumes for our customers as well as adoption of information-rich sequencing-intensive tests in new trials ] is driving robust demand in clinical market applications. We see significant growth opportunities in clinical markets as we enable customers to expand their applications across the Illumina ecosystem. This includes simplified access to expanded information sets to offerings like 5-Base and TruPath. Sequencing consumables in research and applied declined 12% ex China, reflecting continued uncertainty in the funding environment during the quarter.

While macro commentary about the funding environment appears to be stable to improving, year-to-date trends have remained consistent with our expectations for 2026. As of Q1, approximately 82% of volumes and 55% of revenue have transitioned to NovaSeq X. 90% of Research in applied volume is now on the X, and we are well positioned for return to revenue growth when that market returns to a more normalized activity level.

76% of clinical volume is now on the X. And we continue to expect that majority of clinical volumes are over 80% to 85% will be on X by the end of 2026. On sequencing activity, total sequencing Gb output on our connected high and mid-throughput instruments once again grew greater than 30% year-over-year with clinical growth well above that.

Sequencing instruments revenue of $118 million was up 9% year-over-year in Q1 and up 10% on the rest of the world, organic basis, driven by increased sales of NovaSeq X. We placed over 80 NovaSeq X instruments in Q1, with demand remaining strong for the platform, especially with clinical where we saw several multiunit orders in the quarter. In fact, during Q1, we were supply constrained on the number of NovaSeq X units that were placed as the demand continues to remain very robust. High-throughput instrument placements in research also grew year-over-year.

Sequencing service and other revenue of $151 million was up 7% year-over-year and up 5% on the Rest of the world, organic basis. As we scale up BioInsight, the timing of strategic partnerships and data deals can be lumpy in this segment. Microarrays business was down 20% on Rest of world organic basis, largely due to specific large customers in direct-to-consumer segment.

Moving to the rest of the P&L. Non-GAAP gross margin of 68.2% for the first quarter was up 80 basis points year-over-year driven by cost efficiencies and higher revenue, partly offset by tariffs. Non-GAAP operating expenses were $506 million, up 3% year-over-year and largely reflect the addition of SomaLogic team. Non-GAAP operating margin was 21.9% in Q1, spending approximately 150 basis points year-over-year, reflecting increased operating leverage from our improved cost structure.

Looking below the line, non-GAAP other expense, which is largely comprised of net interest expense was $15 million, and the non-GAAP tax rate was 20.5%. And our average diluted shares were approximately $154 million, down $5 million year-over-year, reflecting share repurchases throughout the year.

Altogether, non-GAAP EPS of $1.15 per diluted share grew approximately 19% year-over-year and came in about $0.10 above the midpoint of the guidance range we provided in February.

Moving to cash flow, balance sheet and capital allocation items for the quarter. Cash flow provided by operations was $289 million for the quarter, capital expenditures were $38 million, and free cash flow was $251 million for Q1. In Q1, we repurchased 2 million shares of Illumina stock for approximately $242 million at an average price of $120.85 per share.

At quarter end, we had approximately $400 million remaining on our current share repurchase authorization, and we intend to continue to repurchase shares opportunistically. And we announced today that Illumina's Board of Directors has authorized an additional $1.5 billion in share repurchases. During the quarter, we closed the acquisition of SomaLogic on January 30 for a net cash payment of $363 million plus potential royalties and milestone payments.

Subsequent to quarter end, we paid the first milestone of $25 million for the achievement of certain 2025 targets. We ended the quarter with approximately $1.16 billion in cash, cash equivalents and short-term investments and gross leverage of approximately 1.5x gross debt to last 12 months EBITDA.

Overall, we had a great start to 2026, allowing us to raise our full year guidance and reinforce our confidence in the progress we are making towards our long-range targets. Now moving to guidance for year 2026, starting with revenue. We are raising our reported revenue guidance by $20 million to reflect our Q1 outperformance and now expect revenue of $4.52 billion to $4.62 billion. Acquired revenue is still expected to contribute 1.5 to 2 points of growth and currency is expected to add approximately 1% of growth. This places our guidance towards the upper end of previously stated growth rate targets, including 2% to 4% rest of the world organic growth.

The overall end market demand remains consistent with what we expected exiting 2025, continued strong demand growth in clinical markets and funding uncertainty in research and applied markets. For rest of the world, organic sequencing revenue growth, we continue to expect low to mid-single-digit growth in consumables, with clinical growing double-digit to mid-teens and Research & Applied declining mid- to high single digits.

We are raising our instrument guide to flat to low single-digit growth year-over-year, driven by a very strong NovaSeq X demand. As I mentioned, we were supply constrained in Q1 and have a very strong pipeline for NovaSeq instrument placements, especially in the clinical end markets. We're also increasing our profitability expectations for the year reflecting the overperformance in Q1.

Accordingly, we now expect operating margins between 23.4% to 23.6%, up 10 basis points from our prior guidance at the midpoint. This represents approximately 140 basis points of year-over-year margin expansion versus 2025, excluding the impact of acquisitions. Similarly, we are raising the top and bottom of our 2026 EPS range by $0.10 and now expect non-GAAP diluted EPS of $5.15 to $5.30. Excluding the impact of SomaLogic acquisition, this represents EPS growth of 12% at the midpoint.

Moving to Q2 '26 guidance. We expect Rest of the World organic revenue growth of 4% to 6% and reported revenue of $1.12 billion to $1.14 billion, with non-GAAP EPS of $1.20 to $1.25. Given the strong demand and pipeline for NovaSeq X, we are investing to scale the supply of NovaSeq X units and expect the team will continue to make progress through Q2 and into Q3 as well.

Our guide assumes operating margins of approximately 22% reflecting higher mix of instruments revenue and related investments, near-term inflationary pressures related to freight costs and higher cost of electronic components and a full quarter of SomaLogic as well. Regarding the inflationary pressures, we're taking several mitigating actions to fully offset the impact during the year and is reflected in implied margin improvement for the rest of the year.

Our solid Q1 performance and rapidly growing clinical installed base provides a good setup going into the second half of the year. And as these excess come online will add to consumables revenue stream. This improved outlook also gives us confidence in the progress we are making towards achieving our long-range targets for revenue, margin and EPS growth by 2027.

Excluding the impact of acquisitions, our guidance implies approximately 350 basis points of margin expansion by the end of 2026, representing meaningful progress towards the 500 basis point target by 2027. This reflects the underlying improvement in our operating model while navigating a dynamic and inflationary macro environment.

In closing, I want to thank Illumina team for their continued focus and disciplined execution throughout the quarter. We're off to a great start in 2026, and I'm extremely encouraged by the progress we've made in returning Illumina to long-term sustainable revenue and earnings growth. Thank you for joining our call today. I will now invite the operator to open the line for Q&A.

[Operator Instructions] Your first question will come from the line of Vijay Kumar with Evercore ISI.

and congrats on a clean print here. maybe a high level, my 1 question, I'll stick to the guidance here. Simplistically, you beat Q1, came in above the high end of your organic assumptions, Instruments coming in better, Clinical coming in better. You've raised Instrument guidance for the year. I'm curious why the organic for the year wasn't raised. Is there some cautiousness that you're baking in? What would those cautiousness that be? Why can't clinical sustain 20%? I'm just curious on the guide assumptions.

This is Jacob, and thank you very much, and we are -- we agree we are off to a great start here in 2026 with a strong performance in Q1. As you mentioned, we continue to see very strong momentum in the clinical business. And in fact, we do believe that, that will continue, not only in the rest of the year, but also into the coming years.

So very excited about that continued momentum. As mentioned also, we had a strong Q4 in instrument placements, and we continued that strength here into Q1 and have a strong pipeline for the coming quarters. So we feel really good about where we're sitting. We know when we are placing instruments they will start to generate revenue also our consumables revenue approximately 6 months after they installed. So there's definitely a lot of optimism on how we can see the second half of the year also. So overall, we are pleased about that. Now we are only 1 quarter into the year. So I think actually, it's that we are leaning in by raising both the top line and the bottom line as early -- very early in the quarter. So I think we're signaling all the right things here. Ankur?

Thanks, Jacob. Vijay, what I would add is we are raising the revenue guidance. It is going up by $20 million, which is roughly about 0.5 point. My comment that we're now clearly looking towards the higher end of the range rather than midpoint, reflects that still within the range that we talked about. It's The decimal points move, hence, the percentage is what it is. There's nothing else more than that.

Your next question will come from Puneet Souda with Leerink.

And congrats on the momentum here in instrumentation. That was very impressive. Just trying to understand, could you talk about within that mix, how much of it this is coming from clinical versus research. What you're seeing in the momentum and research among these customers? And what does it mean when they -- as they incorporate these instruments, there will be a transition, there will be an initial impact from 6K pricing to Nova X pricing for consumables within those labs. How are you thinking about above that impact? And is that incorporated into the guide? Maybe just give us more on this instrumentation strength you're seeing and how to think about the instrumentation for 2Q and the full year.

Yes. Thanks, Puneet. I think that was 1 question with many sub questions here. So let me try to address a few of them. Overall, as you mentioned, we are very pleased with the placements we did here in Q1. Also in Q4, we continue to see that momentum. It speaks to that our customers see that when they buy NX, we will continue to drive innovation. So they know that Illumina will be behind them and ensuring that they continue to drive new insights from those instruments, both in the clinical space and in the research space.

And we will continue to do that. I think we showed up very well at AGBT to prove what we are doing with innovations on the X platform. So our customers clearly are purchasing the X platforms to drive more business on it. Now we're seeing a lot of these placements. We're growing both the research and the clinical placements. But 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 6K.

So I think you will start to see also that drive immediately growth on the top line. From a research position, we do see that this is we continue to see large projects being one of that. We continue to see a lot of single cell projects run of that. But we're not seeing any substantial change in mix of where research is going right now. But we are excited by some of the new innovations we're coming out with over the next period of time.

[ Spatial ] is one of the ones that will drive additional upside in the end of this year and into '27. And as we also reminded ourselves is that, we are now have converted most of our access in the research business. So when this market comes back, we've not seen the price headwind as we did before. And thereby, we will see -- you can see growth coming that way.

the only thing I would add from a pricing transition perspective, no change in assumptions. As we've thought, we expect clinical transition to continue. And all of those price assumptions are already built into the guide.

Your next question will come from Tycho Peterson with Jefferies.

Ankur, sticking with instruments, can you quantify the backlog? You said you're supply constrained? I know we'll get it in the 10-Q, but you able to just say how much you couldn't ship. And then I guess as we think about the road map, Jacob, a question of freezing the market comes up. Can you maybe just talk about how we get comfortable that over the next 18 months, there isn't an issue with the road map you've laid out?

Well, I will start by saying that I think our placements of instruments shows that there's no freezing of any market that we are participating in at this point. So we feel very good about that. We also feel good about our funnel of instruments over the next period of time. And I think our road map as we presented at AGBT, where we're both innovating on the X coming out with, of course, new flow cells, but also, as I mentioned, spatial on TruPath and our 5-Base is starting to take momentum. We feel really good about both the clinical opportunity but also what we can offer into the research space when that is coming back. So we don't see any substantial change in the competitive environment as we sit here right now. We know there's a lot of noise out there. We are looking forward to compete when they finally get to the market.

Yes. And Tycho, on the instrumentation specifics, very strong demand. The pipeline is very robust. 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. I am expecting our Q2 placements could be close to the levels that we've seen in Q1 and the pipeline for the remainder of the year looks robust as well. As we mentioned, we're scaling up. The demand looks quite robust. And then I would also say, as Jacob said, quite a bit of this demand is coming from new trials and new tests.

Our next question will come from Doug Schenkel with Wolfe Research.

This is Madaline on for Doug. Just a quick 1 on the operating margin. I think Q2 operating margin came in a little bit lower than the Street. You called out some specific headwinds, including investment to scale the supply, which should continue into Q3. How should we think about the margin progression throughout the year? And what does the ramp between that Q2 margin and the year-end exit rate look like?

Yes. So Madeline, you. Let me start here. This is Jacob and just take a step back and look what Illumina has been able to achieve over the last few years. We have had a tremendous improvement in our margins. As you probably recall, in '24, we laid out our strategy of building back to high single-digit growth in '27. I think you can see now we're stepping into that with that is growth last year, and now we're starting to have mid-single-ish growth, and we will now end into high single growth for next year.

So we are under great trajectory in the top line to get to that. On the operating margin, we've also shown great progress on those elements. So there's some puts and takes in each quarter, as we mentioned, as Ankur was mentioning, there are some inflammatory pressure in the rest of the year here, which we're going to offset. So that's what you see actually reflected in our short term and also the longer-term guide. Ankur, do you want to come in here?

Yes. So Q2 specifically has a few items. The -- relative to year-over-year, we have a much higher instrument mix. We do have inflationary pressure from things like the component cost and the freight, et cetera, as well as we will have the full quarter of SomaLogic into our financials. Now having said that, we have a series of mitigating actions that starting -- have started taking place here in Q2, but we anticipate that the effects will become visible from Q3 and into Q4. Hence, we feel good about the ramp in the operating margin here in the second half versus first half.

Your next question will come from Dan Brennan with TD Cowen.

I know in the past, you've shared some color regarding the X customers that had already converted versus those that were in the middle of converting in the slide deck. And I know, Jacob, you talked about that a little bit. given where we stand today in the conversion. Can you maybe unpack a little bit the guide this year, particularly on the clinical side and how we think about kind of the context of those 2? And maybe could there be some acceleration as you see that conversion get later in the cycle?

Yes, Dan, I think there's still a distribution of different types of customers. As we have -- I think we have mentioned this also previously is that there are customers that have decided to stay on the 6K platform for a longer period of time. Those are probably the clinic -- or these are the clinical customers that have regulated assays sitting on those an FDA-approved assay that other feel that they are well served by the 6K platform or that it takes much longer time to transition it over.

So that is some of the, I would call it, laggards on the transition. For many others, they are in the progress of -- already have transition. There will always be a number of customers, a number of assays that will be sitting on the former platform at least for a while. And therefore, we're also saying that, as Ankur was mentioning in the prepared remarks that we -- by end of this year, we feel like we are fundamentally transitioned the business that will transition, then there will be a long tail of transition going forward. Overall, we see the clinical business as an opportunity for growth. We don't see any the acceleration in that business for the time being.

Our next question will come from Patrick Donnelly with Citi.

Maybe one on the research and applied markets. I think you're still talking about that down mid- to high single for the year. The consumables looked like they were down 12% in the quarter against a pretty easy comp. Can you just talk about what you're hearing from customers there. Is there an expectation for some improvement in that market as you go through the year, budgets get set, how you're feeling about that market? And then just a quick housekeeping for Ankur. Where is the SomaLogic revenue showing up in the -- is it instruments, consumables? Just want to make sure I'm tracking that.

Patrick. And let me start on the research space. I think what we are really pleased to see is that there seems to be alignment from DC around the commitment to NIH funding. And we do believe that while funding have been slow in the beginning of the year, it will pick up in -- during the year. So that's a great headline.

Now I think there is many more details into that, that we also talked about last quarter and why we are more conservative on the research business here in 2026. And that is that one thing is to have released grants, but is all the thing is to have it all translated into spending the money on actually tools and consumables. And there are definitely some cautiousness with our customers before they truly understand how those brands who are getting the grants and how many grants you're getting, there will be some cautiousness in that space for a little while.

But we do believe that, that we should see somewhat improvement in environment during the year. That said, we haven't built much of that into our guide right now. So I consider that more on an upside.

Patrick, one thing I would add on that market is, remember, we transitioned more than 90% of the volume for that end market. And our pricing compare should keep getting better for that market throughout the year as well. So that's it. On SomaLogic it's -- from a report perspective, it's in micro areas, mostly in the microarray.

Your next question will come from Subu Nambi with Guggenheim.

Sorry, this is a continuation of the question that was asked. Given you have seen 20% of clinical growth for 2 consecutive quarters now, would it be fair to assume continued momentum throughout the year? Any reason for us to believe that the guide that you're assuming on the lower end where academia is down mid-single digit, but clinical is in the low double digit. On the higher end, you're assuming academia is down low single digit, but clinical in the teens, can that actually change way beyond the higher end of your guidance?

Yes. So Subu, I think as you mentioned, we're very pleased with the momentum we have seen in clinical Clearly, over the last 2 quarters, but actually also through '25. And since we are, of course, transitioning more and more of the revenue on to the consumables business over to the X platform, the price headwind is getting behind us and we continue to see that in strong growth. So yes, at this point, we still feel like actually a mid-teens growth is a strong growth performance for the clinical market. Should it be even higher than that, that could be upside to our guide -forecast.

Based on the business, Subu and the momentum at this point, we don't -- we're not seeing any signs of potential deceleration per se, in that market. There's good momentum there.

Your next question will come from Kyle Mikson with Canaccord Genuity.

Nice quarter. Just as a follow-up to the seemingly modest kind of '26 revenue guidance increase here. Did you update the guidance range to reflect competition [ launching ] this summer. Now that we have pricing from them the [ $150 ] per genome, the attractive price for accounting applications, are you expecting more of a headwind than you gave yourself some cushion perhaps on this new range?

Well, I'm actually quite pleased with the guide increase we did. After 1 quarter, we go out and raise our guide. I think that's something to be proud of and shows again our commitment to the year and what we believe where the belief is going. As we also said last quarter, we are very confident in our position from a competitive perspective. What we're seeing in the first half, competitive wise, I think -- I don't think that dynamic is changing a lot in second half. So we feel good about where we are. We have built in how we think the business is going to develop, and that's what you see reflected in our guide.

Your next question will come from Dan Arias with Stifel.

Jacob, maybe just a follow-up to that point you were making, the 35B flow cell that's coming, obviously, that's relevant to this competitive conversation that's being had here. I imagine you have customers that are asking what an apples-to-apples cost comparison would be to that $150 price point. What is the case for G or the cost per genome that you guys are going to quote to these folks who are assessing run economics and trying to understand how things are going to shake out going forward.

Yes. So then, I think there is still a lot of opportunity in the space that we are in. If you look into the clinical space, if you think about the rare disease business going from exome into genome, that will require a 15x more sequencing intensity. When we have conversations with our customers that -- where they run a lot of exome and they want to translate into genome, we have no problem having a great conversation about elasticity and how we can drive profitable growth, both for us and, of course, continue to lower their cost per gigabase for them, but both of us have a strong win-win situation. .

And that is just 1 example, but that's a conversation we have with our customers to make sure that there's opportunities here. 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. So that's a conversation we continue to have. We see a lot about that. Under 35B pricing, we are not ready at this point to go out and talk about pricing. We'll do that when we are closer with the X launch.

Your next question will come from Catherine Schulte with Baird

Really encouraging numbers on X placements. Congrats on the strong start to the year. But could you just spend some time talking about what you're seeing on the low and mid-throughput side of the portfolio from a placement standpoint?

Yes, Catherine, that -- if we start with the low throughput. And as just a reminder, we did launch our MiSeq I100 a little more than a year ago, end of '24, I think or beginning of '25, and we saw very, very strong placements in '25, I think more than 1,000 placements. We have announced on that. And we continue to see that momentum into '26. So a lot of good progress, a lot of momentum in the MiSeq I100 business and the placements.

In the mid-throughput that has been for longer term, a little more challenging due to the macro environment that where we're seeing both the -- of course, the MiSeq I100 is taking a part of the low end of that business. And we also see customers transitioning up to the high throughput part of that business. But in the mean -- in the middle there, we're also seeing that these are the customers that are more sensitive to the macro environment. That is maybe stalling some investments and waiting for a different type of environment. They're not in -- many of them are not in production mode of sequencing and thereby, they are looking for more flexibility. So while we see good performance in that market, we do believe that when the market [ turns ] especially in the research segment, that, that market will start to grow even better for us.

Your next question will come from Casey Woodring with JPMorgan..

Yes, just 2 quick follow-ups to some of the earlier ones. Did you quantify the headwind from inflationary pressure on things like memory chips and freight that you're planning to offset this year? And then on the NovaSeq X placements. So you placed 80 in the quarter. It sounds like you expect a similar level in 2Q, just if I heard that right? And how should we think about ex placements in the back half?

Yes. So let me start here just on the highest level on how we have dealt with some of the curve balls, I would say that has been thrown towards Illumina specifically, but the market also generally speaking, over the last few years. I think if you've followed our performance and how we have dealt with different types of cost challenges that the Illumina team have done a great job on finding ways to compensate that.

We continue to drive very, very strong focus on operational discipline. And this is the engine running here. You can see that when we get this headwind in front of us, we are -- we find ways to get through this. And I think the team is quite excited about that. There's a lot of energy going into this saying that we can deliver on our commitments. So I'm very pleased with the performance from the team. Ankur, you want to talk a little bit about the...

Yes. Thanks, Jacob. And yes, that's within the range that we can action and take a lot of action towards mitigating this as well. On the Xs, yes, you're right, I mentioned about similar to Q1 levels in Q2 as well. And as it looks like right now, pipeline for the back half also looks fairly robust. So which means, all in all, for the full year, we do expect to come in reasonably above the range that we had provided at the start of the year.

Your next question will come from Jack Meehan with Nephron Research.

I wanted to keep asking about the Nova X demand. sounds like it's been robust. Is there more color you can share on the profile of the clinical customers where you're seeing demand is the strongest. Just curious if you could elaborate on things like multi-cancer MRD therapy selection, women's health, anything that stands out?

Yes, Jack, thanks for the question. It's almost like saying all of the above, meaning that we see a broad interest in the Obviously, we have also large customers, centralized labs here in U.S. [indiscernible] and you can see that in their own numbers. They see a lot of momentum in the oncology space. And we are seeing a lot of commitment to continue growing in that space. But I would say it goes from oncology, rare disease into, of course, also [ NIPT ] and across the regions. So really great performance in the clinical. And I think it really speaks to the strength and the opportunity in that space going forward.

Your next question will come from Michael Ryskin with Bank of America.

I'm going to go back to the Nova X again just because that seems to be the biggest -- the placement number is the biggest surprise for us relative to our model. Anything you could say in terms of pricing or just sort of how you're getting those out the door, where the incremental demand is coming from.

When you look at the last 2 years, you've been pretty steady at outside of 4Q, where you have a nice bonus, you're doing 50 to 60 per quarter for the last 2 years. Now you're jumping to 80 in 1Q, 80 in 2Q. But yet, your instrument revenue number in 1Q was $118 million. We would have expected with 80 placements to do a little bit closer to like $125 million, $130 million. So is there any type of discounting going on here just sort of what's driving that big step-up in demand?

Yes, let me start by answering that here. I mean, first of all, let's think about the X placements. I mean when you place an X, you do that because you have an opportunity to win a customer base buy an X from us, it's not to have it sitting in a corner, it really to drive consumables on it. And as we also mentioned, we are in -- at JPMorgan, we showed results that we are around about 1.3 million of pull-through on the xs. And we think that, that will continue to be at that level, if not above.

So our focus is to get as many access out there, so they can drive that growth in consumables over the next many, many years. So that is the most important thing for us. Secondly, we do, of course, when we have customers, which we do have, and we talked about that before, that other orders, 5 or 10 or even beyond that. Of course, we are giving them a volume discount on the X placements. And we think that is reasonable. But again, our main focus is to get xs out there and drive consumables. We're not putting them out there just to sit in the corner.

The only thing I would add that, Mike, is some of the units within [indiscernible] 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.

Our next question will come from Mason Carrico with Stephens.

A lot has been asked here, but maybe taking into account recent competitive announcements, could you just talk about where you expect Illumina to win in spatial? Is this more of a rising tides lift all boats? Or do you see clear pockets in the market where you think Illumina can stand out?

Yes. We are excited about the opportunity in spatial and we also showcased the spatial both at SSG, but at AGBT with a lot of of interest from our customers. So we do think there is a lot of value in our spatial solution. Overall, I do think, as you're saying, it's something that raises all the boats right now. I also enjoyed the launch of what 10x put out there. I'm actually quite impressed of what [indiscernible] and the team is putting out there. I'm a big fan of those -- of that. And I actually think it drives much more interest overall in spatial.

That said, this is different technologies. They're addressing somewhat a different type of customer segments. So I think there is plenty of room for more than a few customers in that space. And Illumina is here to play. We're here to -- we have developed a lot of our spatial technique together with our customers. So we have a good sense for what they're looking for. We have a good sense where our opportunity is, and I'm pretty sure we have a winner when we come here out later in the year with our spatial solutions.

Our final question will come from Kyle Mikson with Canaccord Genuity.

Follow-up. So this on the slide in the deck here about the NovaSeq x transition, you got one aspect that has the percentage of [indiscernible] consumables revenue that's -- it's been stable compared to the fourth quarter at 55%. However, the volume of Gb shipped as a percentage that NovaSeq represents, that's been increasing nicely towards that kind of 80%, 90%. So what exactly happened, I guess, in the first quarter that it kind of moderated a bit? And is that going to inflect going forward? Or should we expect 55%, maybe high like 50s to maintain going forward?

Well, there's nothing -- I don't think quarter by quarter, I think we mentioned this also in the earlier quarters is that it's a little bit dangerous to look at this number too precisely. It's a trend direction. And the quarter-by-quarter can vary a little bit up and down. So I wouldn't put too much in it. What you should see is that we continue to transition our clinical customers very nicely. And as Ankur was saying, that we believe that we have more than 85% of that transition by end of this year, which we feel is where the transition -- where we then feel that we are -- the transition is behind us.

This concludes the Q&A section of the call. I would now like to turn the call back to Conor McNamara for closing remarks.

Thank you for joining us today. A replay of this call will be available on the Investors section of our website. This concludes our call, and we look forward to seeing you at upcoming events.

This concludes today's call. We thank you for your participation. You may disconnect at this time, and have a great day.

Welcome. Day 2 of the TD Cowen Global Healthcare Conference. Wrapping up the day, terrific speaker here. We've got Jacob Thaysen, CEO of Illumina. So Jacob, welcome, and thank you for being here.

For sure. Thanks for inviting, Dan.

Awesome. A lot to talk about. I certainly think coming off of an eventful AGBT, I think it kind of makes sense probably to start there. I'm sure there's a lot of inbounds and questions you guys have been fielding as if we had. So maybe just high level for yourself, what was the message coming out of AGBT in terms of your own product road map? And also if you want to begin to speak to a little bit about Roche and the competitive landscape, and then we'll dig in?

Yes, that's certainly a lot to cover. We felt it was a really good conference. It was a really good show. We have been very much looking forward to show our road map at AGBT. What our focus were for our customers was to show that if they invest in Illumina, we will make sure that we will continue to innovate for them to be successful. And how that is translated in is that we showed different elements of our road map, particularly on the NovaSeq X that we -- it's been a tremendous success so far, but we also showed our customers we'll come up with more flow cells to both address higher capacity applications, but also lower capacity applications. Different customer segments look for different things. We also came out and showed that we will get to a Q70 scores on the quality, which is opening up for especially high-sensitivity MRD, the fact that nobody can do this today, but with the Q70 that we're going to present, we are opening up for very high-performance MRD that -- where the whole market is moving right now. We also showed that we can do faster turnaround time with the NovaSeq X platform. So I think that was very well received, especially in the research academic environment where today, there is, as you know, not a lot of funding.

So they really appreciate that we continue to extend the opportunities with the X. So what they have invested in, we continue to make them successful.

We also launched the -- what we now call the TruPath, which we had under codename constellation before. It's a technology that essentially eliminate library prep for whole genomes, but it's not only that you can do library prep in 10 minutes, you also get extended insights from your genome. So it's really a technology that combines short and long read, all the power of the short read, but also all the power of the long read. So you can imagine for germline application for hematology cancers that this is going to be the new standard of the genome.

We come out and presented this at this point for a price point of $395, which is the absolute lowest and highest quality, but the lowest cost of that type of genome. We also showed a road map that we will do multiplexing on it later. So right now, you can run 16 samples on a run, and we'll get up to approximately likely around 96 samples over the next 18 months, which will also drive down the price point that is going to be very, very attractive. So we saw a lot of customers that are very delighted about that. Effectively, if you have NovaSeq X, you can get started immediately using our TruPath genome.

So those were -- then we also showed a lot -- so yes, there was a lot happening on our spatial technology that we again are showing that the spatial we're coming out with is going to be where you can actually look at very large tissue. So instead of looking at very small tissue, which you can't really do biology on, we can now look at actually a whole slide tissues that will open up again, and we're going to price that to a point where we're starting to open up really applications. And it's a lot of excitement. In fact, we were overwhelmed with the interest that were in spatial. It's still in early access, but we see a lot of interest in that. And so we're excited to get that out here during the next 6 months.

So that was a lot of the things we presented. We saw a lot of positive feedback from customers. They really love actually the fact that we're not launching an instrument, that we are -- that what they have invested in that they can continue to and we continue to innovate on that. So that was a big part of our confidence, of course. Then of course, this is also a conference where every competitor is putting their best foot forward, and we definitely saw that. Most of our competitors are excited about coming with new instrument launches. A key -- again, a key signal we want to send is not about only sequencing anymore, it's about the highest quality with the lowest end to end.

So Roche came out, and we actually have a good relationship with Roche people also. So we're going to compete with them of course, going forward. We were I think what -- the way to characterize it is I think Roche have done a great job of going out over the last 12 months to present all the good things and all the promises around the technology. I think we're now starting to get more of the details about all the consequences of that technology, which appears to be a very, very different workflow, appears to have some challenges in how you actually have to do library prep. And of course, also the pricing model requires you to do high throughput. So it kind of limit the applications that we at least see for now. I'm sure there will be more coming up with Roche, but at this time, we feel very good about how we're going to compete against Roche both short term and long term.

Okay. Yes. So maybe we'll kind of unpack a lot of that. But I had the second question on Roche just because it has been such a focus for investors. You kind of mentioned some of the drawbacks there. But maybe can you just unpack a little bit more when you think about where NovaSeq X sits? Obviously, clinical is very entrenched and that could take time, but even on the research side, maybe where they're going to start? The profile like where do you think the AXELIOS 1 will compete? Where do you think they won't compete? And we can go from there.

Yes. I think -- I mean, there's many details here on the complexity of sequencing. This notion about that sequencing becoming commodity is not true at all. I mean -- and I would say I've been in the life science industry a long time and of that commoditization in life science tools is not really true. It's very few areas you see commoditization. So -- and sequencing is definitely far way from that. But of course, you have to go into the details to really understand it. So there's a lot of complexity on how you run. You have 1 flow cell or 1 [ chip ] with 1 lane on, so you have to think about how you mix and match your different applications. I think there are some challenges on how you do panels, which is especially in the clinical space, very important. But where we definitely saw them put a strong foot forward, it was in the, what we call, accounting application, where the Simplex read is -- we'll be able to address that market segment. From what we can see and when we understand the market and we see that, that is around -- probably around less than USD 100 million of the space that we participate in. So we feel good about that.

I think the more important part of that market is less about the cost of sequencing, but really the cost of these experiments in the accounting application that is sitting between the single cell, the bulk RNA obviously also, but -- and of course, the affinity protein part, which is probably the majority of the accounting applications is that the library prep is much more expensive than the sequencing. And thereby, you're not really getting a lot of benefit from a customer perspective to drive down the price of sequencing. Yes, of course, you save money, but it's not like you certainly can do if you drive down the price of sequencing a factor of 2 that you get twice as -- you can run twice as big experiments. You might be able to do 20% more. So the notion of just driving one parameter in that experiment is not helping for any elasticity conversation anymore. And that's what researchers want to do.

They want to go from 10,000 single cells to 100,000, from 100,000 to 1 million. And therefore, that's the reason we acquired Fluent, we acquired SomaLogic and other elements to really address the end-to-end applications. So we can drive down the cost of the whole workflow to really make sure that elasticity is working. And so we feel good about our position in that space, even though the headline is a very cost per million read.

Okay. Well, we can come back. I mean we'll have some more questions on that. I don't want to spend the first 10 minutes or 15 minutes on that, but we'll circle back a little bit more. Maybe just kind of switching over to the key tenets of your guidance this year, right, 1% to 3% organic growth ex China. Maybe from a high level, what would you characterize as some of the levers to take you outside the range, either on the upside or the downside? And would you view that the way you set the guide, like some companies will set the guide and they'll say the midpoint is at the low end or the midpoint is at the high end. So would you view that 1% to 3% fair, conservative or maybe on the aggressive side?

Yes, I would start by saying that it's interesting how the conversations are evolving, where we, of course, a year ago, had a very different conversation about NIH funding, our channels in China, tariffs and so on. And today, we have a conversation about, well, you're conservative in your growth rate. So I like that. That's a much better conversation to have than what we had last year. So I appreciate that. We also saw momentum through '25, where, of course, the first part of the year was challenging with everything that was hit from a macro perspective. And the second half, we started to see momentum in the business. So the way we have thought about '26 is to look at the second half of '25 and see that's probably a good proxy for how '26 is going to look like. There is momentum in the clinical business, but there's still some challenges in the research business. And that's how we have modeled '25, and that's how we have guided -- excuse me '26. So if you think about it right now, we have said that our guide for 2026 is, right now, we call rest of world outside of China is between 2% to 4%, with China, it's 1% to 3%.

And at this point, we believe we are -- we're always guiding for the midpoint of that. But we still believe there is -- should clinical grow faster, which it could be, we don't see any reason why clinical shouldn't continue to be in a very strong trajectory. And should the research space actually become better than what we are anticipating, that's definitely upside to our guide as we see it right now.

If you look at the bottom line, we also continue to expand the -- both the operating margin and also the EPS growth. So on the operating margin, we are -- on the core basis, before the SomaLogic acquisition, we were guiding for 150 -- approximately 150 basis point improvement, which would actually translate into, if we do another 150 basis point next year, we would actually be at a 26% operating margin. Now with SomaLogic, we are within 50 basis points of that. You've seen how we operate. We will do -- we'll work a lot to see if we can close that gap out. And EPS, we guided, at least before acquisition, to a double-digit growth, 10%, and with -- of course, with the headwind from SomaLogic a little bit lower than that. But we feel really good that we continue to grow the EPS also double-digit to teens going forward.

And on the consumable guide for clinical, I mean you get this question, Conor gets to this question, but coming off such a strong back half of the year, 20% growth in the fourth quarter, you're guiding to a healthy growth, call it like lower low double digit to mid-teens. So call it, 11%, 15%, at least what we have. But you're coming off such a strong growth rate, just conservatism, just don't want to get ahead of yourselves or, listen, you've got this transition ongoing, so maybe that truly is going to be where you land. It just feels like it might be biased to the lower end just given where you exited.

Yes. I think -- I mean the transition is still going to happen here in '26. So there's definitely still some pricing headwind. It should start to dissipate over the -- throughout the year. So it shouldn't be worse than '25. The accuracy and how we can predict the growth in clinical is still, I would say, I can't predict it more than within a few basis or within 1 percent growth point. So I think that's why we have said this is probably from a guide perspective. Could that be a little bit higher? Potentially. But we are, of course, very dependent on how the whole environment continues to evolve, how the funding is happening, the macro environment is happening. Just last week, we had another big macro event. So I think that's just why we want to keep some prudency into our guidance at this point.

And in terms of the application, obviously, oncology, women's health, you got screening kicking in now, but what application would you say is the most exciting when we think about the next couple of years for NGS consumable on the clinical side?

There's a lot to be excited about. I think that's the...

I am asking you to pick your favorite child...

No, no. But I'll come back into some of the things -- the dynamic here. But I think the point is still that we are still early -- in the early stages of the opportunity for sequencing, especially in the clinical and the health care. Sequencing is far from standard of care in health care. And eventually, we'll get there. But we also see both the -- many physicians are getting more comfortable of using, of course, genomic insights to make the right decision in their practices. We're starting to see that, that reimbursement is starting to more solidify, so you can actually get predictability on reimbursement. And you see also the more comfortable clinicians and physicians are getting around using sequencing, the more insights they are looking for. So when you previously wanted to have 20 genes looking at, now you want to have 500 genes, and eventually, you want to look at the whole genome. So you're also seeing that happening. So we see a lot of growth in the clinical space for many quarters, if not years to come, also for years to come.

If I look at the dynamic is that the oncology will still be the main growth driver in this space, at least for the foreseeable future. And where, of course, most of the business today is still in therapy selection, we're now shifting ourselves into the new type of detections like minimal residual disease and of course, also early detection of cancers. So over the next few years, it will still at least a year or 2, it will still be the therapy selection that will be the main part of the business and thereby also dollar-wise the main growth, but percentage growth, the MRD and early detection is definitely starting to kick in here over the next period of time.

And maybe just on the research side of the equation, just maybe we'll kind of love it back to some of the new competitors like you've got the ongoing pressure in the U.S., but hopefully not getting worse, right? When you think about the guide, like is anything incorporated for some of these other -- really, Roche would be the main one, but like even if they're not doing panels, they're so excited on their whole genome. So could that free some of the market? Like have you tried to think about that when you've kind of set the guide?

Yes. We, of course, think a lot about that we are in a very competitive space, and we've think about a lot how we can continue to compete and outcompete, and I feel really good about where we are from both where we are from a commercial execution perspective, but as importantly, also our innovation pipeline that continues to be very strong. And I think AGPT was a good showing of that, but much more to come.

So when we guide, we try to take as much insight in that we have around what we know about the competitive space, and that's also what is reflected in our expectations. We do believe that even in a highly competitive space, we should easily be able to grow with high single-digit growth over the next period of time as we have said in -- as our goal is in '27. We don't see the market freeze right now. We see that many of the placements we do in NovaSeq X is into the clinical. They have made their decisions. They're going to expand their fleet on this. There will be, of course, individual Call Lab and other several test technology, but that's the usual business, if they are not testing one technology, they're testing the other. So we don't see that as a big dynamic change.

I'm not seeing any freezing of the market at this point. Could that happen if something big? Who knows? But -- and that's also why we're not going out and talk about instruments in our road map this definition because we don't want to freeze the market.

Is the -- excuse me, is the 35B flow cell that you announced at AGBT, have you priced that yet?

The 35 flow cell?

Yes.

No, we have not priced that yet. We will, as you have seen, we will talk about our road maps, and we have beyond those flow cells also if we need to. But we're not going to price it before we are ready to launch it. As we did with the Constellation or TruePath, we talked about that over the last 9 to 12 months, but we priced it when we were ready to launch it. We don't see any value in coming out too early with pricing. I don't think that benefits anymore.

And kind of Q70, when is that available? And what kind of uptake do you think that could be? And is there a -- what's the financial impact from that?

Yes. So we have -- right now, we were not saying look, over the next 18 months, so there's a lot of cool stuff coming out, including the Q70. We did not put a specific time line on it, and don't take that means that everything is coming out in June '27 or something like that. It means that over the next 18 months, things will come out. We think it's going to be -- as everything nothing is -- of these library prep, it's not a pop, meaning that it's not going from 0 to huge growth from 1 day to the other, especially the technology that addresses clinical application. It takes time. The clinical customer wants to get access to it, build it into their applications, get the clinical validation on it and so on and so forth. So it will take a little bit of time to get growth, but it's something that can really change our how you think about MRD going forward. And that's why we think it will be very attractive for many of our customers.

Got it. Maybe just shifting over to some of the new products. You mentioned protein prep. You and I were just discussing spatial and single cell. Just on the protein prep side, just kind of of the 3, it feels like that 1 maybe is the biggest, but how do we think about -- I think you've kind of lumped all 3 together and get an aggregate impact. But how do we think about maybe the opportunity for protein prep now that you've enabled it on sequencing?

Well, it certainly is the biggest now because we acquired SomaLogic and thereby in itself, it comes with already a revenue base. So that's a starting point that is different from the ones that comes organically from within. We do think protein and using DNA sequencing for looking at proteins also is going to be a big opportunity. We see a lot of interest, especially in pharma right now, but for many studies where you want to look at biology, you want to look at different layers of biology. The opportunity for us is to continue to expand from now 9,500 proteins we can address to -- up to the whole podium, which is around 20,000 proteins. And no other technologies will be able to do that.

Secondly, the workflow on the cost to run the experiment, as I told before, many of the accounting the library prep is much more expensive than sequencing. So us driving down the cost of end-to-end solutions here, I think, can open up for many -- I mean, elasticity again. that could really open up for many different applications. So that's some of the things we want to work on. We also see I think some early indication a few weeks ago is that when you look into early access of cancer is that looking at one dimension might not be enough. You might have to look at both the genome, the methylome and maybe also the protium at the same time to really get that enriched information. So we see opportunities also for going smaller panels here. And finally, for the protiomics combining that with space. Right now, we look at the [indiscernible], events, you will also look at the [indiscernible] and the APTIM technology is very well suited for that. So I'm very excited about the now Illumina, together with our new team in Boulder, the SomaLogic team, are super excited what we can do there.

As I mentioned also at the conference, I think we were a little bit overwhelmed with the interest that were in spatial. And now what we are opening up that you can look at tissue full on the slide and also with the resolution we have and also that we will not go out there and come out with a 10% cheaper. We're going to change the end-to-end cost of using these experiments. We talked at the conference around at least a 4x cheaper from an insight perspective. And I think we can do even better than that also going forward. So we want to really open up to these markets so we don't do just 1 tissue and 2 ties, but you can look at hundreds, if not thousands of tissue. That's where science really steps in. And that's where we need to bring this. And we're going to do this as we did with sequencing. We're going to do that also for spatial and for [indiscernible].

Have you sized like of the Illuminate installed base, how many you think could adopt protein prep...

I mean not of this. I mean we still think the workflow is a little too complicated to really open up for the huge opportunities, so we will be working on that. But we think that, especially for the bigger experiments, that's where proteomics will come in beginning where you have really run a lot of samples where the cost of building in automation and so on will take care of that. So -- but over time, we want to bring that in so it's going to be a very little, or much smaller capital equipment investment to get into proteomics.

Will you break that out when you report or how might -- or just be like in another line like the protein prep just fold into sequencing or...

It's fall into library prep right now, but we are still considering how we're going to make sure that all of you understand how great this is going to go.

Got it. And maybe just a question on the spatial 4x cheaper. Is the idea that if you're doing a lot more samples when we do like a per sample would be cheaper? Or do you think actually the flow cell instead of selling $7,000 panel that 10x or a $4,000 panel would be 40% cheaper than that 4x cheaper than that?

Yes, we don't like for space, and we think we don't like to talk about the cost of sequencing, right? We'd like to talk about the cost of insight because that's how our customers are thinking about it. What are they looking at? And then start to have a conversation, if you look at what's the cost -- if you look at single cell, what's the cost of per cell insights? What's the cost on proteomics, is that the protein is that for sample insight? And the same for spatial. Is that per square millimeters or is that per square cell or individual cells? So I think that's a conversation we want to have with customers where we are aligning our pricing model with the insight they're trying to achieve in their experiments. That's how we think about pricing for those applications. But we need to own and have control over the whole end-to-end solution workflow in order to have that conversation.

By the way, very important, we will still keep our ecosystem open. So everyone that has a single cell or proteomic assay and so on, we would, of course, make sure that, that works on our ecosystem. We want to make sure that our customers have freedom to choose which panel, which library prep they want to choose, but we want to, of course, come up with a very, very competitive end-to-end solution from Illumina.

So it sounds like space maybe is a bigger opportunity than a single selfie or you wouldn't say that?

I think the way we think about it right now is that from single cell, especially the high-volume applications, the millions of cells is something we're excited about. I think that is something, again, we want to drive that because that drives deep insight, that changes biology. That's the direction we want to go. That's the same space, the big experiments with a lot of insights and obviously a lot of sequencing. So we like that, those applications.

Maybe just switching gears to your offering so far as a service to customers, help them deal. You've kind of talked about this goal, right? SaaS model, deal with the heavy computational load when interpreting data, and you've highlighted BioInsight can easily prep and structure complex data trade into a foundational model. Just kind of what's -- can you speak a little bit about this? BioInsight And will we hear more about this? Kind of how important is this for Illumina?

Yes. I think if you think about it over the last years, we all talked about AI, and we do that also internally for how we can optimize our company with AI. But where we sit in a very unique space is that where AI, large language model have changed, of course, our understanding of AI, but also what these models can be used for. But it only became possible because the amount of data that the Internet today have that you can train those models on. And there is a scaling law, the more data, the bigger models, the better insights you get. The same is likely going to be the case for biology. The challenge we have right now is that there's no Internet of biology. There's no big data sets out there that you can train models on. And the data that's out there is very dispersed. We don't have the right standardization. We don't know exactly how those experiments was done. And thereby, it's difficult to have high-quality input into your models. So BioInsight sit and is put in the world to create those data sets and create that so we can start to really build AI foundational model that can start to predict biology.

And Illumina is extremely well positioned. We have, of course, the scale. We have the technology to do that because you need to build -- you need to have billions of insights to do so. you need to have -- if you look at Potosi, which we're very excited about, you need, first and foremost, to being able to sequence billions of cells. You need to be able to have the compute power, which we have through Dragon. You need to have AI capabilities, which we have in the company. But also importantly, you need to have a Crisper library that is optimized across the whole genome, so we can knock in and knock out genomes across the whole genome and the whole pathway. When you have that combination, you can start to build these data sets that we're doing today.

Pharma has been very interested to get access to these data sets and actually pay for them. So we will create those data sets. We will sell it to pharma in a subscription base where we're making money in creating the data set. And at the same time, we are accumulating that data that we're starting to help building those foundation model for the individual pharma company to help in that drug discovery, but eventually also build up deep insight that can really change our outstanding of biology. And we will make sure that, that's all available for Illumina customers. So if you're part of our ecosystem as a researcher, you will get access to this data, you will get to this model, you'll be able to build your own model. If you are in a clinical customers, that data is getting you better interpretation than anyone else can provide. So you can imagine a future where you're not only buying sequencing from Illumina, you're buying insights.

And this is going to change. And I think we are very well positioned to take being a very substantial player. So that's why we put BioInsight in place and so far, so good.

Okay. So we have a couple of minutes left. I thought it would be worthwhile just to come back to Roche, if you don't mind, just to close it out and most of the questions we get. So what are we -- we're sitting here today, they had this launch and there's some missing pieces on them, a variety of things. I guess a couple of questions. First, on the whole genome market. You sized the accounting market less than $100 million. Like how big is whole genome for you today, maybe in research? And do you think that product looks viable from the specs you see there? Just so how do you think your head-to-head with them there?

Yes. We feel really good about it, especially also with TruePath, the Constellation methodology, where you're not only getting short read information now, but you're getting all the structural lung readout. So I think actually TruPort is going to change the way you think about a genome. If you look at whole genome applications, why wouldn't you like to get that? And no other technology out there can actually provide you insight that TruePath can and also with the simplicity of the workflow. If you have a NovaSeq X already, you can get going immediately. So we actually think that we're very well positioned for in the genome space, both for research in the beginning, but also for clinical applications. So we feel really good about where we are on that.

If you want to still do a short-read genome, we feel good we can address that market also well. I mean remember, it's not only the price of sequencing, it is really the insight. So the whole pipelines, the Dragon pipeline we have, the [indiscernible] also -- [indiscernible] platform we have with the Amgen for rare diseases, but also the ICI for oncology application is also what's translating all that "genome" into insight. So customers want to get that. They're not just excited about the price of the genome.

Okay. SP1 And then maybe a quick one, Ultima. Like I know Ultimate Element fine boxes just haven't really had the traction maybe people expected, although they have had some success. Anything new from them that you saw there in terms of price points or worries?

No. I think that everybody is putting the best foot forward at -- and I was talking to all of them, and so it's a good collegial environment we are in. But of course, we fight every day on the street, which we should. We feel like they're trying to do what they need to, but we feel -- continue to feel that we have a very, very strong position in the market, and we'll continue to have that.

So maybe just wrapping it up then. Obviously, we covered a lot of ground. We kind of set the message at the beginning. Maybe just in closing, what message you want to leave with investors in?

I think I want to leave you with the message that Illumina will be able to grow very strongly going forward, at least high single-digit growth even in a very competitive space. I want to leave you with that teams are competing. Illumina has the best team, both both in our R&D, but more probably also very importantly, in our commercial organization. I think some of you got exposure to some of our people here at AGPT. I feel -- I'm very proud of being a part of a company that is changing the world as we are and will change health care going forward, and we committed to that.

Terrific. Well, thanks, Jacob, for being here. Appreciate you coming to the conference.

Good day, ladies and gentlemen. Welcome to the Fourth Quarter 2025 Illumina Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the call over to Head of Investor Relations, Conor McNamara.

Hello, everyone, and welcome to Illumina's Fourth Quarter 2025 Earnings Call. Today we will review our financial results released after the market closed and provide prepared remarks before opening the line for Q&A. Our earnings release is available in the Investor Relations section of illumina.com.

Joining us on today's call are Jacob Thaysen, Chief Executive Officer; and Ankur Dhingra, Chief Financial Officer. Jacob will start with an update on Illumina's business, followed by Ankur's review of the company's financials.

We will be discussing certain non-GAAP financial measures on today's call. and a reconciliation to GAAP can be found in today's release and in the supplementary data available on our website. Please note that unless otherwise stated or when referring to end markets, all year-over-year revenue growth rates discussed in our prepared remarks are presented on a constant currency basis, excluding the impact of foreign exchange fluctuations.

In addition, all references to China refer to our Greater China region, which also includes Taiwan and Hong Kong. This call is being recorded, and the replay will be available in the Investors section of our website.

It is our intent that all forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. 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 SEC, including our most recent forms 10-Q and 10-K.

With that, I will now turn the call over to Jacob.

Thank you, Conor, and good afternoon, everyone. I am pleased to announce that our Q4 results exceeded the expectations, capped off with 20% growth in our clinical consumables revenue ex China, reflecting execution across the organization as we closed out 2025. We made tremendous progress throughout the year and the momentum we have built going into 2026 gives me high confidence that the strategy we put in place in 2024 to return to long-term growth is working.

Highlights of our 2025 achievements include: we returned to growth in 2025, with ex China revenue growth of 2% for the year and 7% in Q4; an acceleration in clinical consumables revenue growth throughout the year with mid-teens growth in the second half and Q4 growth of 20% ex China. We achieved our high-throughput transition milestones we set out to achieve. We advanced our portfolio beyond core sequencing into multiomics and data software and AI. And we expanded non-GAAP operating margins by 180 basis points and grew non-GAAP EPS by 16% year-over-year.

We generated strong free cash flow and returned approximately $740 million to our shareholders through share repurchases. All of this was achieved in a rapidly evolving market, and our team members stayed ahead of many of the dynamic developments we saw throughout the year. Our success in 2025 is a testament to the strength of the Illumina team, and I want to recognize their ongoing commitment to our customers through innovation and execution.

Now I want to expand on our success we are seeing in our clinical business, where revenue growth accelerated throughout 2025. The strength we are seeing in clinical consumables, including 20% ex China growth in Q4, is being driven primarily by 2 factors. First, adoption of sequencing-based diagnostic test is increasing, as customers launch new assays and expand reimbursement coverage in areas like minimal residual disease and early cancer detection testing. Second, we are seeing broader demand for comprehensive genomic profiling and whole genome approaches in oncology and genetic diseases, both of which require greater sequencing intensity and benefit from the power and consistency of the NovaSeq X.

As customers scale more data-intensive applications on a more powerful platform, the elasticity dynamics we've discussed in previous quarters continue to take hold. This is driving strong instrument sales. Q4 represented the second highest quarter placements since launching the NovaSeq X in 2023, while also accelerating consumables demand, supporting durable growth in our core sequencing business.

Next-generation sequencing remains vastly underutilized, and we are positioning our business to capitalize on growth as the market evolves. One example of this is the recent addition of Dr. Eric Green as our Chief Medical Officer. Eric brings extensive experience in genomics and health care policy, most recently serving as Director of the National Human Genome Research Institute at the NIH. His leadership in the field will be a catalyst for driving continued adoption of genomics and multiomics toward standard of care for patients.

I now want to talk about how our long-term strategy is working. In 2024, we set out 3 strategic growth pillars: core sequencing, scaling multiomics, and expanding our service data and software capabilities. Our continued execution on each of these pillars [ drew ] strong 2025 results, positioning the business for 2026 and beyond. Let me walk through examples of our progress for each of these strategic pillars.

Our first pillar is core sequencing, anchored by the NovaSeq X. As mentioned earlier, clinical remains our primary growth driver, and higher testing volumes with more sequencing-intensive application reinforces demand for high-throughput, high-quality sequencing on the NovaSeq X. In research, conditions continue to be measured. Customers remain cautious with the purchasing decisions, though we are seeing signs of stabilization, including greater clarity around U.S. policy and the funding environment. Longer term, we believe our research business can return to healthy growth. But for now, we assume similar end market dynamics in '26 as we saw in 2025.

Our second pillar is scaling into multiomics, where we're building a comprehensive set of integrated solutions that extend the Illumina sequencing ecosystem. This includes both internally developed capabilities and selective acquisitions where we see technologies that can meaningfully expand our long-term growth opportunity. As an example, we recently completed the acquisition of SomaLogic, an important milestone that builds on our long-standing partnership. I want to formally welcome the SomaLogic team to Illumina. And we're excited about what we will build together as we further integrate our combined capabilities.

SomaLogic's [ Aptima-based ] Affinity proteomics platform allows researchers to generate significant insight with high sensitivity high throughput and with thousands of protein markers in a single experiment. Our combined proteomics offerings will provide deep insights into protein function into actions and modifications at scale, helping to accelerate understanding of complex biology and human health.

Proteomics is the frontline [ in genomics ]. And with SomaLogic now part of Illumina, our position in this key growth market is significantly stronger. By applying the scale of NGS to proteomics, we can accelerate innovation by reducing the time and cost of protein analysis. Across genomics, proteomics, single-cell and [indiscernible], these capabilities are now being brought together through our recently launched Illumina connected multiomics. This offer addresses a long-standing challenge in the field, integrating and interpreting data across different data types, by simplifying multiomics analysis and making workflows more scalable and easier for customers to use.

Looking ahead, we remain on track to introduce our spatial transcriptomics solution in the first half of 2026, along with our Constellation mapped read technology, over the same time frame. Together, these advantages extend our ability to deliver integrated end-to-end workflows that supports customer as multiomics moves further into both research and clinical settings.

Our third strategic pillar is expanding our services, data and software capabilities. In the fourth quarter, we launched BioInsight, an important step to expand how Illumina supports discovery and drug development through data, software and AI. For the first time, 4 key enabling capabilities are converging: sequencing at scale, tools to perturb biology using [ CRISPR ] at genome-wide levels, dedicated compute power to analyze it, and AI to build predictive biological models.

BioInsight brings together our leading capabilities in these 4 areas to fundamentally change drug discovery. Instead of relying on years of iterative [ VetLab ] experiments, pharma and biotech companies can increasingly build, test and find biological models digitally, accelerating time lines and improving success rates.

Last month, we introduced BioInsight's first data product, the Billion Cell Atlas, which will be the most comprehensive map of human biology for drug discovery. Using single-cell approaches, [ CRISPR-based ] perturbation and AI, the atlas helps partners better understand disease mechanism and improve target validations. This Billion Cell Atlas was met with strong interest from biopharma partners, and we announced initial collaborations with AstraZeneca, Merck and Eli Lilly. We continue to see growing engagement from additional partners as data-driven approaches gain traction in drug discovery.

Taken together, BioInsight expands how customers generate and act on biological insight and strengthen Illumina's precision in biopharma, a growing segment of our research end markets.

The next opportunity for our customers to see how our strategy and innovation comes together will be later this month at [ AGBT ]. As this year's Gold Sponsor, we will be joined by customers and key opinion leaders who will share how our news platform enhancements and genomic and multiomics assays are being applied in real-world research and clinical settings. A key theme we'll showcase is the value of our complete end-to-end solutions for our customers.

The conversations we are having with customers have shifted from cost per gigabase to the total cost of workflow, from sample preparations through analysis and interpretation where integrated workflows and data quality matters most. This approach, continuing to innovate as the market evolves, gives customers confidence in the long-term durable value of our flagship sequencing instruments while supporting them where the field is headed, including deeper adoption of genomic and multiomics approaches.

Now let's turn to our 2026 outlook. Building on the momentum we saw in the second half of 2025, we expect organic revenue growth of 2% to 4% in 2026, excluding China, with overall demand similar to what we saw in the second half of 2025. Clinical consumables grew approximately 16% ex China in the second half of the year, and we expect robust growth continue into 2026.

Our outlook assumes double-digit to mid-teens clinical growth in 2026. We expect no fundamental change in the academic end markets in 2026, resulting in mid to high single-digit revenue declines in our research and applied consumables revenue. Instruments are expected to be roughly flat to slightly down, resulting in a total company revenue of $4.5 billion to $4.6 billion, representing reported growth of 4% to 6%.

Operating margins are expected to be 23.3% to 23.5% in 2026, up approximately 130 basis points, excluding the acquisition impact. EPS guidance is $5.05 to $5.20, including $0.18 of dilution from the SomaLogic acquisition. Excluding dilution, this represents year-over-year growth of 10%.

Before turning it over to Ankur for more details on our Q4 results and 2026 guidance, I just want to say that I'm confident that our long-term strategy is working, reinforced by the progress we made in 2025 and where Illumina stands today. Over the past year, we have advanced the strategy we laid out in 2024 and delivered meaningful progress across the business, entering 2026 with very encouraging momentum. We proved resilience and we are a stronger company today, and we remain on track toward achieving our long-term financial targets for 2027.

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 through a dynamic year and delivering for our customers and the patients they serve. With that, I'll turn it over to Ankur to walk through the financial details before we move to Q&A.

Thank you, Jacob, and good afternoon, everyone. I will give you an overview of our fourth quarter financial results, provide more color on revenue, expenses, earnings and updates on our balance sheet and capital deployment, and then discuss our outlook going forward.

Before I get into the details of the financial performance, let me provide a high-level view of how the fourth quarter played out. During the fourth quarter, Illumina's revenue of $1.16 billion came in above our expectations, driven by strength in our clinical consumables revenue, better-than-expected NovaSeq X placements and outperformance in China. We also saw a small benefit from some year-end budget purchasing. The higher revenue resulted in margins and EPS both coming in ahead of our guidance while also reflecting the benefits of the cost actions we took earlier in the year.

Now let me provide you the details. During the fourth quarter, Illumina's revenue of $1.16 billion was up 5% year-over-year on a reported basis and 4% on a constant currency basis. Greater China revenue of $55 million was ahead of expectations and represented a $25 million decline from Q4 of 2024. Excluding Greater China, Illumina revenue was up 7% year-over-year.

Sequencing consumables revenue of $755 million was up 8% year-over-year and up 11% excluding China. High-throughput volume growth drove the strength in consumables as customers across research and clinical ramped utilization of their NovaSeq X instruments.

More broadly, the clinical market maintained its momentum, growing 20% outside of China, driven by broader adoption of NGS-based testing and customers converting current assays to ones that require significantly more sequencing data such as transitions from whole exome to whole genome sequencing in oncology and genetic disease.

Consumable sales in research and applied markets were roughly flat year-over-year in the quarter, a notable improvement versus Q3, but still below historical levels due to continued uncertainty in the funding environment and year-over-year pricing dynamics related to conversion to the X. As of Q4, roughly 80% of the volumes and 55% of the revenue has transitioned to the NovaSeq X. The research transition is nearing its end as now roughly 90% of the high-throughput sequencing volumes for these customers have transitioned to X. As a result, we expect pricing headwinds from the transition to continue to dissipate for our research customers, especially in the second half of 2026.

Clinical volume is now more than 2/3 converted to the X, and we believe pricing dynamics going forward will be tied more to new applications like whole genome sequencing adoption, which drives higher volumes. Given these 2 dynamics, near complete conversion within research, clinical volume growth driven by X, we expect the conversion to be substantially complete by the end of 2026.

On 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, driven by robust strength in clinical, but more muted growth among our research customers. Sequencing instruments revenue of $154 million was approximately flat year-over-year in Q4 and up 3% ex China, driven by strong placements of NovaSeq X and the MiSeq i100. Similar to our consumable mix, over 60% of X systems placed in Q4 were to clinical customers.

In Greater China, our instruments business was down 55% due to export restrictions. Globally, we placed over 100 NovaSeq access, including about 5 on rental or lease contracts, bringing our total active installed base to 890 instruments.

Sequencing service and other revenue of $157 million was up approximately 3% year-over-year and up 4% ex China. Strategic partnerships and the timing of data deals have been lumpy in 2025, and we were pleased to see a return to growth in Q4.

Moving to the rest of the P&L. Non-GAAP gross margin of 67% for the fourth quarter was down 40 basis points year-over-year, primarily from the tariff impact of 205 basis points. Excluding tariffs, gross margins improved by 165 basis points. Sequentially, Q4 margins reflect the typical instruments-heavy quarter in Q4.

Non-GAAP operating expenses were $502 million, down 5% or $24 million year-over-year, reflecting the results of the multiyear cost reduction programs and prioritization of key growth investments. Non-GAAP operating margin was 23.7% in Q4, expanding 400 basis points year-over-year. Operating profit grew approximately 26% year-over-year, reflecting increased operating leverage from the improved cost structure.

Looking at our results below the line, non-GAAP other expense, which is largely comprised of net interest expense, was $16 million, and the non-GAAP tax rate was 19.5%. We continue to assess long-term tax structure optimization to balance U.S. R&D benefits with efficient credit utilization across jurisdictions.

Our average diluted shares were approximately 154 million, 6 million lower than Q4 of '24, reflecting share repurchases throughout the year. Altogether, non-GAAP EPS of $1.35 per diluted share grew approximately 42% year-over-year and came in above our guidance range and was higher than our initial estimate disclosed in January.

Moving to cash flow, balance sheet and capital allocation items for the quarter. Cash flow provided by operations was $321 million for the quarter and $1.1 billion for the year. Capital expenditures were $54 million and free cash flow was $267 million for Q4. For the year, CapEx was $148 million and free cash flow was $931 million.

In Q4, we repurchased 337,000 shares of Illumina stock for approximately $42 million at an average price of $124.12 per share. At quarter-end, we had $643 million remaining on our share repurchase authorization, and we intend to continue to repurchase shares opportunistically.

Subsequent to the end Q4, we closed the acquisition of SomaLogic on January 30 for an upfront payment of $350 million plus potential royalties and milestone payments subject to customary adjustments. We funded the upfront payment with cash on hand.

We ended the quarter with approximately $1.63 billion in cash, cash equivalents and short-term investments, and gross leverage of approximately 1.6x gross debt to last 12 months EBITDA.

So recapping the full year 2025, starting with revenue. We returned to growth ex China in Q3 and grew sales about 4% in the second half of the year. I'm extremely proud of the whole Illumina team for navigating through a very dynamic year to end the year on a high note. Through disciplined execution and cost optimization, we were able to expand margins nearly 200 basis points in 2025, despite approximately 200 basis points in macro-related headwinds. And finally, we grew EPS by 16%, and our 2025 EPS of $4.84 came in above the original guidance we gave at the start of the year.

The way we closed out 2025 gives me confidence about the progress we are making towards our long-range targets. And I'm excited about our momentum going into 2026.

Now moving to guidance for the year 2026, starting with revenue. We're expecting revenue of $4.5 billion to $4.6 billion, representing ex China organic growth of 2% to 4%. Organic growth excludes the impact of currency, which is expected to add roughly 1 point to our reported growth, and revenue associated with the SomaLogic acquisition which is expected to add 1.5 to 2 points of revenue growth in 2026. China sales are expected to be a 1 point headwind to total company revenue growth. On a reported basis, overall revenue is expected to be up 4% to 6%.

For rest of the world organic sequencing revenue growth, we are expecting low to mid-single-digit growth in consumables with clinical growing double digit to mid-teens driven by continued strong volumes from our clinical customers. We're excited about the significant progress our customers are making with growth in their on-market tests and new sequencing intensive whole genome approaches. We expect research declining mid to high single digits. Recent NIH budget announcements are a welcome development, and as fund flow resumes, could provide a more favorable environment relative to what we are assuming in guidance.

Instrument sales are expected to be down low single digits to flat year-over-year, and we believe our goal of placing 50 to 60 NovaSeq X instruments per quarter on average will continue through 2026. Our pull-through assumptions by platform can be found in our earnings presentation.

In China, we expect sales of $210 million to $220 million, with little or no step-up in instrument sales in the first half of the year. We will revisit our assumptions as we work with the government about our ability to import instruments into the country.

Moving to operating margins. Excluding SomaLogic, we are guiding for operating margins to expand 130 basis points next year at midpoint. SomaLogic is expected to have a 100 basis point impact to margins. All-in for 2026, we're expecting operating margins of between 23.3% and 23.5%. We've made significant progress in improving Illumina operating margins and remain focused on achieving our 2027 targets.

Now moving to EPS. Excluding SomaLogic, we're projecting EPS to grow 10% at the midpoint. SomaLogic is expected to be dilutive by $0.18 at midpoint. Hence, total Illumina 2026 EPS guidance is in the range of $5.05 to $5.20. For Q1 2026, we're expecting Rest of World organic revenue growth of 1% to 3%, equating to between $1.06 billion and $1.08 billion. We're expecting Q1 EPS of $1.02 to $1.07, including $0.04 of deal dilution. The rest of the details of our Q1 and 2026 guidance can be found in our earnings presentation.

One housekeeping item. Starting in January 2026, we changed the geographical reporting segments to better align with the respective commercial organization structure. Beginning in Q1, we will report our new geographical segments and we'll provide historical financial reconciliation for the new structure.

In closing, I want to once again express my sincere appreciation to the Illumina team for their continued focus and disciplined execution throughout the quarter. We enter 2026 with a lot of momentum, and I'm extremely encouraged by the progress we've made in returning Illumina to long-term sustainable revenue and earnings growth.

Thank you for joining our call today. I will now invite the operator to open the line for Q&A.

[Operator Instructions] Our first question will come from Doug Schenkel with Wolfe Research.

I'm just going to ask a couple of financial questions and then I'll get back in the queue. So first, on operating margin. Does guidance embed an assumption that you essentially end the year at 26% to 27% operating margin? And building off of that, is there any change to your 2027 margin target factoring in SomaLogic?

And then the second topic is really on capital deployment. The balance sheet is really clean at this point. You're generating about $1 billion of free cash flow. Clearly, the business has stabilized. How are you thinking about capital deployment? And specifically, what is your M&A criteria and priorities?

Thanks, Doug. And let me start by addressing your first question, which I believe is around our long-term targets. And we feel definitely still great about those targets. Just as a step back, in '24, we were rather presenting that we would bring the business back to high single-digit growth by '27 and also delivering 500 basis points as you bring us to 26% operating margin. We feel really good about what we have done. The last year, we have stepped ourselves into growth, and we believe we are in the right direction to deliver on the high single-digit growth in '27 in our core business. We also are seeing that we have moved substantially on our operating margins with 200 basis points last year, in really a tough environment where we had approximately 200 basis points headwinds from tariffs and other things. And now we are committing to another 130 basis points. So we are well on that trajectory.

Obviously now with the acquisition of SomaLogic, it will be, as we mentioned, also is dilutive as a starting point. We are working through the opportunities for synergies. And we will get us close to the 26% operating margin as possible in '27 also. But more, we will keep you updated [indiscernible] we're doing everything we can.

This is Ankur. And Doug [indiscernible] that next year, excluding SomaLogic, that the exit rate operating margin for 2026 is higher than the average. That's usually our cyclicality in the business. So our full year guide ex Soma is getting close to 24.5%, and exit rate in Q4 generally tends to be higher than that.

Your next question will come from Vijay Kumar with Evercore ISI.

Congrats on a nice one here. Maybe one on guidance here, Jacob or Ankur, for you guys. The organic for Q4, when you look at clinical performance, ex China 6.5%, overall company 3.5%. The guidance ex China basis, for fiscal '26, you're looking at 3%. What drives that step down from 6.5% exit rate in Q4? In Q4, clearly clinical was standard. Was there anything one-off about Q4, any pull forward of revenues, et cetera, that perhaps cause for some moderation in '26 outlook?

So thank you, first and foremost. We are super excited about how we ended out the year. Clearly, 2025 was a challenging year. So the momentum we started to build up here in the second half is really encouraging. And we truly believe that momentum is continuing into '26.

As you can see, we ended the year with very strong performance on clinical with 20% clinical consumables growth in '27 -- excuse me, in Q4 in '25 here. And we expect that momentum overall from second half to continue. So we believe that what we're building in is that we have high mid-teens growth for our clinical business. But we also start -- continue to see the challenging in the research academic environment. It is definitely a good step forward that we are now seeing line of sight to the NIH budget. But if you dig a little bit deeper, there's still a lot of uncertainties for the institutes for how grants are being distributed and who's getting -- who's actually getting these grants. So that's why we see there's still a muted environment. And I think during the year, we will see that come out better, which could continue the performance or improve our performance.

But we're not seeing any substantial step down. We know Q4 is always a strong quarter, and therefore, we feel good about how we're guiding at this point.

Vijay, let me just frame the 2% to 4% ex China. When we approach the guidance, as Jacob said, we're not seeing any change in the momentum, especially in the clinical business. Our customers continue to do very well, both from the adoption of the on-market test as well as working in new tests to the market. The way we have approached the guidance is to look at the half 2 of 2025 as we played out during our Q3 earnings call, where in Q3, our growth was 2% in China, in Q4, it's up to 7%. And so we took the average for the second half to bracket our overall guidance.

The Q3 of 2025 is what we're using as the low end, right, where clinical is still growing the double-digit rate. The research was down in the high single-digit rate as kind of the framework towards the low end. And then if research does improve, that certainly provides on an upside. Q4, just 1 quarter didn't feel like using as a base for a full year guide per se. But momentum [indiscernible].

Your next question will come from Puneet Souda with Leerink Partners.

On instrumentation, can you provide how the split was with research versus clinical? I appreciate the momentum you're seeing in the clinical side. But on the research -- on the research side, can you provide a little bit of context and how are you thinking about the overall competition just beyond the academic pressure that we have seen in the market? How much of that is baked in just on the research side, both on the mid-throughput and high-throughput end?

Yes, Puneet, thank you. And we were very pleased with the performance we had in Q4 with more than 100 instruments placed on the X instruments. And as expected, more than 60% of those placements were related to clinical. And we expect that to be the case, that dynamic to continue into '26 where clinical will be the majority of the placements of instruments.

So we are -- we continue to see that customers are building their assays on our -- on the X instruments, and we do not see any slowdown in that part of the business.

As you mentioned also, we have a mid-throughput business. That has been more, as we talked about before, have been more challenged by some of the macro trends where some of our customers be more conservative in how they have spent their funding over the past years, also in the research and academic market. So I think that market is still a little more muted than -- but not really a change from what we have seen in '25 also. So that's how we think about the business right now.

From a competitive perspective, Puneet, No, we didn't see much in Q4. As Jacob said, very strong instrument placements quarter overall across, and research as well. We're getting very good interest in the new launches. We've launched the 5 base. Our spatial is in early access, and the demand and the interest on the research side looks very good. Our thinking on the research from 2026 perspective is more based on the funding environment and the evolution of the funding environment per se.

Your next question will come from Tycho Peterson with Jefferies.

A couple of quick ones. On clinical, Jacob, you talked about a growing use of whole genome, whole exome. Can you just talk on -- delineate how much of the growth is mix versus maybe volume? So that's kind of the first question. Second is on -- so just curious if you can touch on that and thought process. How quickly could you incorporate that technology if you're planning to? And then maybe just lastly on adjacencies, a little bit more color on what you're baking in for [ spatial], Constellation and 5 base.

Okay. So thanks for that, Tycho. And if you look at the opportunity with the X and what our customers are using it for, clearly, we continue to see, as you can see, many of our clinical customers are, of course, seeing a significant uptake in volume. Many more physicians are starting to use genetic profiling for the cancers but also for monitoring diseases. So that is a strong momentum.

But we're also seeing that our customers are choosing to make large and larger panels. As you mentioned, some of them are going from exome onto whole genome. That's more in the generic space. But we're also seeing that customers are building larger panels for therapy selection. And the next thing here is to expand the [ TAM ] for MRD. So we see all that.

We're not spreading it down a bit into the pieces at this point of time. But I would say over time, I think actually the intensity, meaning the larger panels is going to be the main growth driver going forward. We see a lot of opportunities there.

But the acquisition of the IP from [ PacBio ], we saw that as a great opportunity to strengthen our portfolio. We're very bullish about our SBS technology. So we believe there's a lot of options in that still. But we felt it was a great way to keep optionality.

And then I think the last one you had was on how much we built in for the 5 base and for Constellation and others. This is still early days. We have seen a very, very strong interest for the products we've brought to market already. I don't think it's going to be meaningful here really in '26. But it will start to be meaningful, as we talked about before, in '27 and beyond where we believe 1 or 2 basis of growth -- 1% or 2% growth will come from our new assays in multiomics, both multiomics and our data [indiscernible] business.

Your next question will come from Michael Ryskin with BofA.

Great. I want to dive into some of the pieces of the 2026 guide in terms of the sequencing consumers, sequencing instruments. A little bit surprised that you've got them as [indiscernible]. So I would have thought that sequencing consumers would have been a little bit better as you -- as you said, as you're moving past some of the headwinds from the price transition. At the same time, instruments I thought could have been a little bit worse. So maybe you could just dive into some of the moving pieces there. Are you expecting something similar in terms of NovaSeq X placements this next year in the mid to high 200s range? And just maybe talk about some of the other platforms that make that up, the NextSeq, the throughput platforms, the Nova 6K. Just would love to get more color on the moving pieces there.

Mike, so thank you for the questions. And I would say, first and foremost, on the high-throughput consumables, especially in the clinical, as we mentioned, we continue to see very strong performance in that. So we don't think that is going to change. We actually think that there are potential upside in that, obviously, if the market continues to be as strong as we have seen in the last part of the year.

We do see, of course, in the consumables, if you blend consumables at both for the research segment, but also for the mid-through, there are still some headwinds in that space. So that's why you see the blend is where it is.

I would put it this way. If you think about it, the low end of the guide in the consumables is probably what we saw in Q3, and then we started to see momentum. So there's probably more in the higher end of the guide that we expect us to be for consumables. So that's how to think about it.

On the instruments, I mean, we continue to see a lot of momentum in instruments. Right now we're guiding for 50 to 60 placements, but many of our clinical customers continue to expand their placements. So we continue to believe that this is -- there's strong opportunities here.

Mike, on the instrumentation side, as I mentioned in my script, for Xs, yes, about $200 million to $240 million for the year, said on average, 50 to 60 a quarter is still quite good. The Q4 placements were phenomenal, we got quite a few multipack orders. We do look at several of our customers trying to expand their fleets, sometimes thinking about tens of Xs scenario. So good instrument demand. As you all know, we made a major software upgrade into X in the early part of 2025. The performance there has been running above the [ spec ] for a very large part of our customers. So X is performing at an extremely high level for our clinical customers and the research customers are super excited about some of these new multiomic technologies that get enabled on X. So very pleased and it's quite good so far.

Your next question will come from Kyle Mikson with Canaccord.

Congrats on an impressive fourth quarter, the clinical side especially. On that note, I know you're not splitting out clinical into the locations, but could you just speak -- just for some context, it looks like oncology was just under $1 billion in '25, then you have genetic which was just on $0.5 billion. So which of these will, I guess, grow faster in '26? So just help us frame the different drivers, split out just a bit more for us.

And then just secondly, you spoke to some of the multiomic aspects before, but maybe BioInsight, is that a needle mover this year?

Yes. Thanks, Kyle. I think overall, we, of course, are very pleased with clinical. And from the highest level. Clinical is growing on -- from all dimensions, both on the different type of applications, but also from the different regions and different customer types. So a really broad-based performance in clinical. And we expect that to continue as we've mentioned a few times here.

We are still seeing that oncology is the main driver and the main growth driver, but the rare diseases is definitely also going on a healthy speed. So I do think that over the next year or so, oncology will be the main growth driver for us and for our customers.

Your next question will come from Dan Arias with Stifel.

Jacob, I wanted to ask about messaging to customers as we get ready to be down to AGBT here. You guys have talked pretty consistently about the fact that the labs really should focus on the full workflow and that, when you look at it that way, it becomes advantageous to use Illumina products. The question is really when and where should we look to see that in action? Will you be able to lay out for people how the economics of using Fluent plus the NovaSeq plus DRAGEN gives you a better outcome? Or do people just sort of have to figure that out for themselves? Because the idea seems logical, but I don't get the sense that customers can see it or that they can do the math that has them arriving at that conclusion. Is that something that we should expect to change here?

Yes, Dan, I think actually this is the conversation we have with our customers. We are looking forward here also to the AGBT conference coming up in a few weeks, where, as I mentioned also in the prepared remarks, we have a Gold sponsorship, which gives us a great platform to speak to, not only us, but also key opinions to speak to the usage of the different technologies and how to think about them from the highest quality insight with the lowest end to end.

Obviously, a part of that is to also show that you can actually do this in a more cost-efficient way, but also creating the highest-quality insight. So it depends a little bit on the different assays. If you think about our Constellation [ read ] where you have really no hands-on in the workflow upfront and you receive a lot of insights with very little workflow, hands-on on the workflow. So I think that is one element where you can start to limit the cost of library prep out and also getting much more insight out.

So it's a good example of how to think about that, where you actually have great transparency on [indiscernible] from our end because it's really just the cost of sequencing where others have to also do library prep and other things. So that's one example, and we'll talk more about that at AGBT.

But the same goes now with the SomaLogic business we have -- we have just acquired, where we will go out there and present the cost per sample the cost per experiment, which I think will be another one that is going to be very important. So those conversations are already happening with the customers, but we will continue to educate all of you on that also.

Your next question will come from Jack Meehan with Nephron.

I wanted to build on Dan's question there, just to continue on the path of AGBT. It seems like on the competitive front, at least one competitor has talked about the $100 price point per genome. I understand you're trying to change the conversation around that. But I was just curious, like if investors see headlines like that, what does that mean for you? I'm not sure how -- we know your list pricing, but there's discounts to that. Like can you just talk about what that would mean for Illumina if we start to see those headlines?

Yes. I think we're looking forward to AGBT. I think that it will be the conference, of course, that all our competitors will put their best foot forward. We will do the same. As I've mentioned, our customers are thinking way beyond just one parameter one feature. They are more sophisticated than just looking at one element. So I think you will see also us really highlighting some of the things that our customers are really excited about from the whole workflow perspective.

That said, I would say that we feel we have the portfolio, we have the pipeline, we have the capability to compete on all parameters. So I feel really good about who we are and what we can do. And obviously, if there are opportunities for us to address market segments with a different price point, which -- where there is a significant number of elasticity, we're all for it. And we have those conversations with our customers on a regular basis, and we'll continue to do so.

Your next question will come from Casey Woodring with JPMorgan.

Great. So I guess you said you would revisit your China assumptions as you work with the government on imports. Maybe just walk us through how conversations are going there and the range of outcomes. And then my follow-up is just on BioInsight. I was hoping you could elaborate on some of the comments you made earlier there just given how much airtime AI is getting currently. Curious how you plan to monetize these capabilities over time, the level of enthusiasm you're seeing from pharma customers. And any sort of way to quantify the revenue opportunity over the next few years?

Yes. Thanks, Casey. So for the first -- thanks for the questions on China here. So we -- as just a reminder, it's still less than 5% of our business. I'm actually very pleased with what Jenny and the team have been able to do, our General Manager in China, and the Chinese team have been able to serve our customers over the past year and continue to do so. As we have also updated all of you on over the last period of time, we have had great conversations and collaboration with the Chinese regulators to ensure that we can continue to run our business in China. While we're still on UEL, we feel good about our relationship and how we can work through to be able to import or export the instruments back into China.

Now of course, when you for a long period of time have not sold an instrument, it takes time to build up a funnel again. And I think that's more the reflection of what we're seeing right now. But as Ankur mentioned also, we have a target for China. But I think if we -- if there is a way to get off the list or see improvements in that, I think there's upside to the China business. But we do believe that we have a good line of sight, at least to '26, at this point.

If you think about the BioInsight business, we're very excited about the opportunity. It's still in the early days. But we came out presenting the $1 billion -- excuse me, Billion Cell Atlas last year at JPMorgan, and it was very well received. As I mentioned also, there has been a lot of conversation with pharma companies that wants to get access to the cell atlas. It provides deep insight for the doctor's coverage, for them to choose the right targets to, to work on. So we clearly see momentum in that space.

As we mentioned also earlier, we do believe that this will, together with our multiomics business, start to create at least 1% to 2% growth in '27. But we think that that will actually be an accelerating momentum at this point. Ankur, maybe you have more to share?

Yes, on BioInsight, a couple more things. As Jacob was saying, we do think -- our intention on BioInsight is to work directly with our pharma customers and effectively adding a third customer base here. And we think, we take a 5-year view, that's a very meaningful opportunity. The Billion Cell Atlas has been received very well and the interest since the conference has been tremendous. So we're very pleased with some of the early steps that we've taken here.

The monetization strategy here would be in 2 or 3 different ways. One is around very specialized data and AI to constructions. And then over time, we see significant subscription-based models where we can help pharma companies both on the discovery as well as on the development side of things. But that's a multiyear opportunity there.

Your next question will come from Dave Westenberg with Piper Sandler. David, you may now unmute and ask your question.

My bad. So you can hear me now, right? All right. Perfect. Can you discuss the conversations you're having with academic core labs in terms of investments in instruments? I have to imagine you were -- they weren't the biggest buyers of instruments in 2025. What is the assumptions in your guidance for academic, both consumables and instruments?

And you did hire Eric Green. So is there anything he can do to spur kind of confidence in your academics? I know the NIH is slightly up. Are they going to actually believe it?

And sorry, I'm going to add one more on to Jack and Dan's question on pricing versus competitors. You are seeing much better specs, I believe, which means more output. That is a direct cost reduction to a lot of your customers in terms of cost per G, right? So even if they're getting [ 25b ] at $200, we're actually getting less than that because the output has been greater. Am I -- I just want to ask if that assumption is correct.

So Dave, thank you for your one question. I'm going to start with the first one here. We have I think over the last 18 months really built out our relationship with the academic core labs and really focusing on ensuring that we can support them also, of course, in a very tough environment. So obviously, they have been challenged with, of course, the impact from NIH funding and other types of funding. But we have done a very good job, I think, and that's also the feedback we're getting from them, to support both from, when they have opportunities to acquire instruments, we have made sure that we can place access in those types of labs also so they can get all the benefit from the Xs.

And I do think now with Dr. Eric Green on board here, there's more opportunities to help them and navigate also through a challenging situation, as we said. And you also mentioned, at least now we have better line of sight to NIH funding. But there's still some in the details, still things that need to get into place before we really start to see the different institutes, the different core labs continue to move ahead.

You are right that if you look at -- we have, and this is our -- we have a tradition for going out and deliver on par or better than our specs. This is something we're proud of and something that our customers know from Illumina is that we're not going out and commit to something we can't keep. We will actually keep it and also outperform. And I think that is something that many could learn from.

So we will continue to do so. And in the meantime, customers are enjoying those benefits.

Your next question will come from Subbu Nambi with Guggenheim.

It appears that NovaSeq 6000 pull-through is holding up a lot better than expected. Has that leveled off moving forward or is that still a material headwind?

And then my separate question is, there has been a lot of focus on U.S. clinical strength, for good reasons. But can you speak to how Europe and Asia might look this year from a growth perspective? And are there any differences you would expect from the U.S. market throughout this year?

Yes. So Subbu, let me start on the 6K. And what you are seeing is that, and we've spoken to that before, that many of our customers are transitioning [indiscernible] building their new assays on the X platform. And then they keep the NovaSeq 6K for their traditional assays that are already built. They have already validated and they want to keep that. So that's also what you're seeing there the customers that have decided to stay with assays on the platform, keep running those assay on that platform, and that's why we continue to see up pull-through.

There's, of course, customers that have shifted away from the 6K and is now moving on to the X, and they are seeing substantial growth on the X platform. So that's why we're seeing that pull-through continue to be sitting up there. But we still believe, of course, that there will be fewer and fewer 6K customers over time.

What was another question? Geography. Yes. I mean Europe has done tremendously well. I think holding up very nice growth over the past years. And we expect that to continue here into 2026. And we also expect that our APAC region and EMEA region will rebound somewhat.

Okay. Subbu, on the 6K and the transition, as you know, we've substantially -- on the research side, the transition is substantially complete and clinical is now moving into the latter part of the transition here. Our expectation is by the time we get to end of 2026, the 6K transition should be mostly substantially done from a volume perspective, similar to the trends that we have been seeing. So that's how we're thinking about it.

This concludes the Q&A section of the call. I would now like to turn the call back to Conor McNamara for closing remarks.

Thank you for joining us today. A replay of this call will be available in the Investors section of our website. This concludes our call, and we look forward to seeing you at upcoming events.

This concludes today's call. We thank you for your participation. You may disconnect at this time, and have a great day.

All right. Great. Welcome to the JPMorgan Healthcare Conference. My name is Casey Woodring, from the Life Science Tools and Diagnostics team. Pleased to be joined by Illumina, CEO, Jacob Thaysen. We'll go through the corporate presentation, then we'll do some Q&A afterwards. Jacob, the floor is yours.

Thank you, Casey, JPMorgan and to the entire team for hosting us this year again. And thank you all for joining us today. I'm Jacob Thaysen, CEO of Illumina. As a reminder, today's presentation includes forward-looking statements and non-GAAP measures. I encourage all of you to review the details in our SEC filings.

Today, I will focus on 3 key topics. First, I will start with where Illumina stands today and our return to growth, including a first look at our first -- fourth quarter 2025 results. Second, I'll discuss how Illumina's differentiated ecosystem and workflow position us well to drive continued growth, especially in the clinical markets. And finally, I will look ahead to how our strategic position us well for profitable growth, supported by disciplined execution and capital allocation.

For those of you who don't know us well, Illumina is the market leader in next-generation sequencing with highly innovative products and the largest and most diverse installed base in the industry. We serve an installed base of more than 20,000 instruments globally across clinical, research and applied markets. That scale gives us the reach across the entire life cycle from early discovery all the way into routine clinical use. Since launching our flagship of NovaSeq X in 2025 -- 2023, we have doubled our customer sequencing capacity, enabling the next phase of biological discovery and applications. Importantly, the clinical adoption of sequencing continues to grow rapidly across the world and it's a core part of patient care across oncology, genetic diseases and reproductive health areas. Roughly 60% of our sequencing consumables comes now from clinical customers. This scale and leadership supports a durable financial profile with a high level of recurring revenue and healthy margins, allowing us to continuing investments in innovations and long-term growth.

During 2025, we made tremendous progress towards our portfolio growth and financial goals. This morning, we published our preliminary financial results for the quarter which were well ahead of our expectations. Illumina's Q4 revenue grew at 4% on a constant currency basis and 7% excluding China. Q4 earnings per share were in the range of $1.27 to $1.30, equating to a full year EPS about $4.76 to $4.79. This represents earnings growth of over 15% in a year full of geopolitical changes. This strong above-expectation performance was driven both by instruments. We placed more than 95 X and also by consumables, driven by continued strong utilization of the NovaSeq X. There were signs of year-end budget utilizations as well.

Overall, clinical markets were a key driver of growth, and we expect clinical demand to remain as an important source of strength going forward. This year, we launched several new products, progressing to our end-to-end workflows and establish new business, BioInsight, which I'll talk more about later in this presentation.

I am proud of what the Illumina team delivered in 2025. We remain focused on expanding the NGS ecosystem, supporting our customers and accelerating our growth into '26 and beyond. The NovaSeq X Series made strong progress through the transition in 2025, and we achieved the milestones we set out to hit. By year-end, the NovaSeq X accounted for approximately 80% of high-throughput gigabases shipped, reflecting steady customer adoption.

As customers move to X, elasticity dynamics that we discussed are clearly taking hold with higher sequencing intensity driven by expanded content and new indications on a more powerful platform. This is most evident in clinical, where the X utilization and revenue growth both accelerated in the second half of the year, achieving 20% consumables growth ex China in Q4. We expect the transition and related volume elasticity to continue in the near future as the largest cohort of clinical customers are the transition fully to the X, all layer incremental volume onto X alongside existing NovaSeq 6000 workflows.

The progress we are making across our strategic growth pillars is now clearly showing up in our financials, and we remain on track toward our 2027 targets. In '25, we returned the company's growth, expanded margins by approximately 200 basis points and grew EPS by approximately 15%, and that was accomplished in a very dynamic year. While we were providing guidance -- while we will provide guidance for 2026 during our earnings in a few weeks, we expect to continue to make progress towards these goals. The framework we shared during our Q3 earnings call, '26, looking like second half of '25, still hold well. We expect the demand pattern adjusting for any budget utilization dynamics here in Q4 to carry out in '26 as well.

Let's look ahead and I'll share our vision for Illumina's role in health care. Over the past 20 years, our understanding of the human genome has advanced significantly. While researchers historically believe that only 2% of the genome was relevant, Illumina technology innovation has significantly expanded that understanding, enabling NGS to move into everyday clinical decision-making supporting national scale health infrastructures and accelerating breakthrough discoveries for our partners. Our success is unlocking the human genome has opened up for demand for the next wave of biological insights in areas like multiomics and deeper understanding of data through AI. We envision the NGS ecosystem to become the standard in moving health care system away from sick care to personalized health care. This will happen through routine adoption in multiomics in research and in clinical application and an acceleration of drug discovery through our improved understanding of biological at scale.

While Illumina has made sequencing much more accessible, this broad adoption requires delivering the highest quality of insights at the lowest end-to-end cost. Our customers have become more sophisticated, focused less on dollar per gigabase and much more on the total cost of workflows from sample to insights. By investing in complete end-to-end workflows, both owned and partnered, we are making it easier for customers to adopt new innovations at scale. This allows them to run higher volume experiments, generating rich data sets, extract deeper biological insights at meaningfully lower total cost per sample. In a few real-world examples, we have seen customers save 30% or more on total sample-to-answer cost relative to alternative workflows.

What's unique about Illumina is what brings all of this together in one single open ecosystem. Our customers have become much more sophisticated and face many complex challenges. To be successful, they are choosing partners that offers more than just a box. They want to work with someone that they can experience in optimizing their workflow needs by providing the most breadth of applications and the most robust reliability and services, someone who is continuously pushing the envelope through innovation. This is what makes us the partner of choice, and our Q4 results enforces this. By streamlining workflows, Illumina is enabling more robust and complex data sets.

We launched BioInsight to help customers take advantage of the data and insights that we're generating. BioInsight is expecting to further enrich this ecosystem by continuing to improve clinical interpretation and expanding utilization of data in areas like drug discovery. Our vision comes together in 3 growth pillars that define how we execute. Our foundation is core sequencing, anchored by the NovaSeq X, where we continue to see strong adoptions.

We're driving this adoption through complete application specific workflows that deliver superior results and unit economics to our customers. Second, we are deepening biological discovery through multiomics by adding more data layers per sample and running experiments at scale. We enable much deeper insights and larger experiments at lower cost. Third, we are scaling our services, data and software. We are uniquely positioned to generate and integrate large genomic and proteomic data sets. We also have the tools to translate these into insights for pharma by adopting AI. Tying all of this together is the strength of our ecosystem. Our shared platform supports multiple -- in multiple end markets, enable customers to scale research insights into clinical applications over time. We'll go through each of these pillars and how they are driving sustainable growth in our business.

Our largest market representing roughly 60% of our consumables revenue is our clinical customers. Over the last years, we have seen meaningful increase in clinical adoption across oncology, genetic and reproductive diseases with new assay approvals, broader reimbursement and increase in new clinical trials, yet we're still in the early stages of clinical adoption with less than 20% of patients receiving a relevant NGS test across disease modalities. At the same time, our clinical customers increasingly adopt larger panels and more sequencing depths to improve sensitivity and provide deeper insights for more accurate analysis. This is all powered by the NovaSeq X.

As an example, for rare genetic diseases, many are now converting assays from exome sequencing to whole genome sequencing, which require approximately 15x increase in sequencing volume. These dynamics are driven driving clinical sequencing volume growth above 30%. We see continued adoption of approved and emerging NGS test in areas like early cancer detection and MRD, plus more demand for sequencing intense assays as drivers of continued growth volume in the future.

In addition, we continue to innovate to equip our customers with next-generation assays and sequencing technologies that improve quality of insights and lower end-to-end cost of the workflows. A few examples. The 5-based genome launched last year embeds epigenetic information as a part of standard genomic runs. Applications in early detection of cancers and genetic diseases will definitely benefit from this. Our planned constellation technology, which reduces library prep and significantly expands information captured that previously were difficult to capture with short-read techniques, it's already getting rave reviews in early access. We believe this technology will lead to development of several new clinical application areas. This is on top of our continuous innovation of our sequences, including the expansion of flow cell offerings and software upgrades that have expanded the application space and continue to improve performance significantly. Our rich and robust innovation pipeline is not only meeting the expanding lease of our customers, but it's also raising the bar for what's possible.

The next area of growth comes from our product offerings in multiomics. This includes recent launches of our single cell solution, our entry into proteomics with Illumina Protein Prep developed in partnership with SomaLogic and the upcoming launch of our spatial solution. Together, these offerings allow customers to study multiple biological layers on a single integrated sequencing and software platform. They designed to scale research programs with high accuracy from millions of cells in single cell workflows to up to 9,500 proteins per sample with local efficient variations in proteomics, all while reducing per unit cost to our customers. Illumina-connected multiomics software ties all of this together, enabling customers to analyze and visualize multiomics biological data at scale.

Collectively, these solutions extend our ecosystem beyond genome, increase the value of each experiments and drive incremental sequencing demand on our platforms. And now we have just launched the BioInsight business. For the first time, 4 key enabling capabilities are converging. Sequencing at scale, tools to perturb biology using CRISPR at genome-wide levels, dedicated compute power to analyze it and AI to bring those elements together into predictive biological models. This fundamentally changed drug discovery. Instead of relying up years of iterative wet lab experiments pharma and biotech companies can increasingly build, test and refine biological models digitally, accelerating time lines and improved success rates. But training of these AI models require massive high-quality data sets, which is why we launched BioInsight. And this is enabling our drug discovery customers through our deep expertise in this area.

With our multiomics and sequencing technologies, Illumina is uniquely positioned to power and scale these proprietary data sets and associated AI models. We're starting with 5 billion cell atlas with ambitions to go well beyond that. And leading pharma partners like Merck, AstraZeneca and Eli Lilly are already engaged. Our capital allocation priorities are well aligned by driving value through innovation and execution. We are generating strong and durable cash flow, approximately $1 billion per year and had excellent free cash flow conversion of about 140%. Combined with a strong balance sheet, we have excellent capital base and flexibility in how we can allocate capital.

Our top priority remains investing in the business, continuing to fund innovation in clinical sequencing, expanding the sequencing ecosystem across multiomics and now with the launch of BioInsight also in proprietary data sets and software to support long-term growth. Second, we pursue targeted bolt-on acquisitions that strengthens our capabilities and expand the markets we serve. And third, we remain committed to return excess capital to shareholders using share repurchases in a disciplined and flexible manner. During 2025, we returned $740 million shareholders via share repurchases. Taken together, this approach allows us to invest in growth, maintain financial strength and drive long-term value creation.

To wrap it up, we feel very good about the progress we have made and where Illumina stands today. We have a strong core business, growing momentum in clinical markets and a clear strategy to expand our footprint through sequencing, multiomics, data and software. In 2025, we delivered meaningful progress, executing through a dynamic environment and strengthening the foundation for growth. Looking ahead, our priorities are clear: continue innovation for our customers, execute with discipline and deploy capital thoughtfully, all with the goal of driving long-term value creation and maximizing shareholder value.

With that, thank you again for your time today. I look forward to connecting with many of you during this conference or after our fourth quarter and full year '25 earnings call on February 5. Thank you very much.

All right. Great. Thank you for that, Jacob. Ankur, you want to come up for some Q&A?

Great. Well, maybe to start with the preannouncement, some questions there to dig into. So 4Q revenues came in above your initial expectations, and it looks like the strength came from both China and ex-China, with China revenues coming in better than expected here. So maybe just dig into how the quarter played out relative to expectations? Can you walk us through the trends you saw both inside and outside of China? And did the Chinese beat really just come from the removal of the export ban?

Yes, let's start by focusing on ex China. Ex China is 97% of our revenue. So I think that's the most important part. We were very pleased with the traction in the quarter especially in the clinical markets. We placed 95 X instruments, a lot of them into the clinical market, but certainly also into our research academic environment. As you're seeing, we continue to have momentum in the clinical space. Our customers are doing very well, and that is reflecting on our growth also. And we expect that to continue.

We also did see some level of rebound in the research academic. It's too early to call, but at least we did see some improvements in the market space. And I think that also reflects a little bit in what we call a body utilization by end of the year. But overall, very strong progress. And so if you think about our beat, it's probably 1/3 on consumables, 1/3 on instruments and 1/3 on China. Just on China, very pleased with the progress. Jenny and the team in China, our General Manager have done a fantastic job to keep the business intact and we continue to see our customers prioritize working with us. We've also spent time in Q4, working with the Chinese officials to find a path through our current situation.

Yes. Maybe turning to placements. So during the presentation, you mentioned you placed over 95 NovaSeq X instruments in the quarter. On the 3Q call, you talked about that you were not expecting placements in the quarter to be as significant as last year's 4Q, the 91 placements you saw. Looks like you surpassed that number here. So maybe just walk through what changed since 3Q and what drove that placement number higher in the quarter? And just maybe walk through any budget flush dynamics or anything else that played out?

Yes. As I mentioned, we were definitely very pleased with the placement of NovaSeq X. It really shows that the performance and the reliability and the number of things you can do on the X is really resonating our customers. And we saw many of our clinical customers also doubling down on the NovaSeq X and which is the platform they're going to scale new products on. And so we continue to see that. We're also pleased with actually replaced a good number of Xs also in the research environment. So while that is still muted, that works well. But the primary performance came from the clinical space.

Maybe turning to consumables. So in 3Q, I think you were assuming ex-China sequencing consumables growth of around 6%. In the slides today showed sequencing consumables grew around 11%. Can you walk us through what drove that better-than-expected sequencing consumables growth?

Yes. I think as you saw a fantastic performance on the consumables. We love it. This is what we have said all the way through that we are walking through the transition when the ex transition is getting above what we mentioned in Q3 with more than 50% of our revenue now on the NovaSeq X. And at Q3, we were at 75%. Now we have approximately 80% of the volume. You're starting to see the impact of the price transition be lower than actually the volume performance. So we -- the math is working and it's working according to the expectations. So we're really pleased to see the continued movement on consumables, as we said, as expected, mostly driven by clinical customers.

Very, very strong clinical volumes as well. The -- we've laid out the whole transition philosophy and the model, which is working out as Jacob was elucidating. But during Q4, we also saw clinical volumes pick up much more than what we had built in our expectations and our forecast as well. That's where bulk of the strength was.

Helpful. You typically provide a number for sequencing output, which I think was more than 30% in 3Q. How did this trend in the quarter across the customer base? And in research, particularly, I would be curious to hear your thoughts.

Yes. As you can imagine, since we had strong growth in consumables, also the volume were very strong. So we continue to have that above 30% volume growth, which we -- at least from clinical customers, we expect to -- will continue for a while. As we have mentioned, we believe that on long horizon, our -- the volume growth should be for the whole business approximately 25%. We think that is sustainable. We continue to see many customers go and build larger panels, more intense, more deeper sequencing, and that will continue to drive growth over the last long period of time. But clearly, most volume growth is coming from clinical, but academia and research growth was also growing.

One thing I would add is, meaning JPMorgan, most of you do tend to track some of our largest clinical customers and they've been announcing results. So that's been very visible. But the strength in clinical business was not just centered in the large U.S. clinical players only. The clinical strength was fairly broad-based, not just in the U.S., in Europe and the rest of the Asia as well, and the strength of the core clinical business was quite good.

Now maybe moving on from the preannouncement and stepping back here. Last year, we saw Illumina really go through a number of challenges, right, from the proposed 40% cut to the NIH budget really impacting academic and government customer confidence. We saw Chinese tariffs, the unreliable entities list. Now that some of those headwinds have eased, how do you think about the underlying health of the end market progressing as we move through 2026?

Yes. I mean, no doubt, '25 was a very interesting year, challenging year. It's a very dynamic market environment. And I think all of us here in this room hope that '26 is going to be a little more straightforward. But we will see. I think what's important there is that the Illumina team showed resilience, and we showed that we would be focusing on controlling what we can control and executing and continue delivering both improvement in our top line, but even in a very challenging market environment, continue to grow our bottom line EPS of 15% growth, in my opinion, is impressive in the market environment we've been in. So really pleased around that. As I mentioned, the geopolitical is what has been the biggest impact in 2025.

And I think we all hope that the situation in '26 is going to be more predictable. But no matter what situation we committed to continue to execute. So that said is that we believe that the clinical market will be the -- continue to drive our growth. As we mentioned, more than 60% of our consumables revenue is now from clinical, and we believe that, that will keep the momentum going. On the academic research, at least it looks like we have a little more clarity now. The sentiment is improving. I think still we will see for the quarters to come that this would be a muted environment. So while we are optimistic on the long horizon, I think still '26 is going to be muted from a research academic environment.

Okay. maybe hitting on the NovaSeq X transition here. So you've hit your milestone of over 75% of high-throughput gigabases shipped on the X and 50% of high throughput revenues attributed to the X as of last quarter. How do you see that transition pacing as we move through 2026? And then additionally, now that you've achieved your initial tracking targets, are there any new KPIs or metrics that you plan to share with us to help us track the progress on the ongoing transition?

Yes. The most important thing that we are focused on is the clinical business in terms of tracking progress there. We're looking at our customers, the number of reimbursements that are going to improve the number of new tests that are coming to the market and eventually driving the growth of the clinical business. On the X transition side, it's great to get to a point where we've passed the 75% mark now being into the 80s. And we expect that the price effect of that transition would continue to reduce over time, should be a lesser impact than going into '26 per se.

So KPIs all around our clinical growth, at least in 2026. We'll observe the research business closely, of course. And we have a lot of new technology, which has just been launched or getting launched in 2026 as well. And we've talked about the protein business. We've talked about our special business coming up, which are extremely interesting for our research customers, not just in academia, but into our pharmaceutical research companies as well. And we'll keep watching traction in that area would be the important factors.

Okay. On a related note, in 3Q, you noted that 78% of high throughput volumes and 51% of revenue are already on the NovaSeq X and that the 40 customers who had fully transitioned volume offset the pricing declines in year 1 and revenue accelerated in year 2. As the broader installed base moves through that same transition, how durable is the elasticity pattern seen from those 40 fully transitioned customers? And then how does that -- what you've seen from those customers really inform your confidence in the long-term trajectory of that transition?

Yes. Just a reminder, in Q3, we shared how the growth -- the volume growth is -- continues to be very, very strong for some of our customers. We had -- we showed 40 customers that had transitioned fully to the X. And the idea where sure, I think there's been some concern about we will see a bump -- a negative bump before we see growth. That is not the case. We are seeing customers transition and actually where the first year might be a little bit flattish than the next year is starting to really see growth. While we do not intend to continue to share the performance of individual or cohort of customers, I can tell you, we continue to see growth across the spectrum of different customers that are converting.

As mentioned, we see especially the clinical customers here. They are getting new products to the market. Each time a customer is updating a panel, they are looking to sequence much deeper. We are still in the early innings of understanding on biology. And it's very clear that our customers want to offer and physicians want to see deeper and deeper biological insights to make the right decisions for treatment decisions. And that has only gone one way. That is deeper sequencing and larger panels. And as I mentioned, just in -- if you think about it from genetic rare diseases where we have long time done maybe smaller panels or exome sequencing, DX is now making it possible cost-wise also to whole genome sequencing, which requires 15x more volume sequencing. So just one example of transition that will continue to happen over the years to come. And thereby, volume will continue to grow, we believe, over 30% in clinical.

Yes. You just brought up an interesting point. We are seeing trends in diagnostics moving towards larger panels and eventually whole genome sequencing, as you noted, how long do you think this shift will take? And what percent of current clinical customers run whole genome sequencing today? Where can that go over time? And if you can frame the financial impact to Illumina, obviously, more sequencing intensity like you called out, but just curious if you can quantify any sort of magnitude of the potential headwind over time?

Yes. From a clinical volume perspective, the whole genome still makes a small action of the overall volumes that have been sequenced. A lot of the historical tests were built on exomes and are still validated tests. The trends you're seeing recently are around the launch of new whole genome-based approach and they're becoming a part of the calculus, but it's still much, much smaller. Part of the equation as we were trying to outline during our -- in our clinical slide is we see a long runway from a sequencing volume growth perspective, both in terms of higher-intensity whole genome approaches coming to market as well as a lot of newer tests that are in various stages of clinical trials that are yet to come to the market over the next 2,3,4 years.

So that combination, we see significant volume growth in front of us. And frankly, all of that is getting enabled because of X, because of both the high throughput capacity and the quality that explains as well as the unit economics that explains to our customers.

Maybe just touching on competition here. As we approach AGBT, what are your latest thoughts on the competitive environment? And how do you foresee customers evaluating new entrants like Roche, Element more recently? You've said before, price alone isn't enough to drive competitive switch. So just maybe walk through some of the technological advantages maybe NovaSeq X provides and your latest thoughts on the competitive piece.

Yes. So first and foremost, we have been in a competitive space for long term -- time. And I think that competition is always good. It keeps us on our toes. It channels us. It makes us very focused on ensuring that we provide the best solutions to our customers. That is our focus. That will continue to be our focus. Customers are looking for partners that not only try to sell them a box and argue for a lower price, but really can help them be successful in their laboratories. That's what I talked about in the presentation about the whole ecosystem.

Customers are very sophisticated. They know what they're looking for. And they know that they need somebody that is here today, but also in the future and can continue to provide them innovation and deep insights. And I would say that if you look at the combination of the NovaSeq X, that is a very flexible instruments, but actually have extremely easy workflows and ease of use combined with our compute power in DRAGEN and our interpretation software is actually a very strong combination.

Customers do not want to pick and choose different components. They want to focus on outcomes. And the more we can provide our workflows. And the more a vendor like Illumina provider workflows, the more successful we make the customers. And of course, that makes them actually work with us as somebody I can do beyond just the box. So we continue to see that. I'm convinced we will see a lot of new things coming out of AGBT. So we continue to innovate. We spend a lot of money in innovations, and we will keep that going.

Maybe just one on China, following up on some of the prior comments there. Just what's the latest on the government approval required for customers to buy alumina in China? What are the steps? How long does it take? Maybe walk us through the process there and how we should think about it?

Yes. I guess we can never escape the China question. So let's talk about that a little bit. So just to remind everyone about the 10 months ago, where in February, where we were put on what is called the Unreliable Entity List. And a month later, we were sanctioned for place new instruments in China. That, of course, put a dent to our performance in China. But I've been very pleased, as I mentioned before, about the resiliency, both of our own team, but more importantly, of our customers. They continue to want to work with us. They know who is the innovator in the industry, and they know who is actually providing the highest quality sequencing. So I think we saw a very strong commitment from also our Chinese customers.

We are committed to China. We believe there's a huge opportunity in China, and we would like to stay in the market. But obviously, we need to be welcomed into that market also. Over the last quarters, at Q3, we announced also that we have now been allowed to import instruments in back into China for our OEM customers. That represents approximately 20% of the opportunity. And later in the quarter, I myself went to China to have conversations with Chinese officials. It was a very open and good conversation. We have now -- the sanctions have been lifted, and we start to see steady progress. But still, when we haven't been able to place instruments for a while, it takes time to build up momentum again and the funnel of instruments and so on. So we're optimistic. We still have the unreliable -- we're still on the Unreliable Entity List. That will be the ultimate goal to get that eliminated. At this point, we're working on that, but there's still no clear outcome.

Just to add, in Q4, we did -- our results were not impacted by the lifting of the sanctions. So all of the Q4 strength is all built on consumables, where our customers have continued to utilize their installed base and it was a consumable strength in China. It wasn't the -- we did not see any additional instrument imports per se.

Yes, Helpful. Maybe one just on multiomics. So over the past couple of years, we've seen Illumina really expanded footprint in multiomics, whether that's the launch of IPP, single cell products, the fluent acquisition. Could you just share a bit about how you see the portfolio evolving in the next few years and how all these pieces sort of fit together into Illumina's larger vision of the future?

Yes. So we're very excited about moving into the multiomics space. And especially since all of that is able to run our current sequencing platform. So that's the power is that you can buy one platform and then you can look at -- from the genome all the way up to the proteom. And we believe this is going to create deep insight and new understanding on biology will be created over the next years to come. I do think that we will see a lot, especially in the research -- academic research market that will adopt these technologies out the gate. And then, of course, eventually that will transition into clinical applications also. Biology is much more complicated than understand the genome. And so getting the additional layers on top of that is going to be very powerful and that's also why we announced the BioInsight business, which will help now accelerate massive amount of data crazing to really understanding biology at scale.

We still -- our humans still don't truly understand biology. It's very difficult to make an experiment on one cell, on 100 cells to really understand the whole human body, how it works. So you need to do billions of cells experiments. You need to do huge proteomic studies. You need to look at spatial on a very large capacity. But all of that data requires, first of all, a lot of sequencing, but also a lot of compute power and AI to really get the insight. And that's what we can really facilitate both with our instrument solutions but on also BioInsight that we can really accelerate that insight. That is going to change how we understand biology. That is going to change health care and it's going to change the opportunity for Illumina and for all our customers.

Okay. Yes. You mentioned BioInsight, maybe the last minute or so here, we can just kind of double-click on that. How do you envision BioInsight differentiating Illumina in the market and particularly as you -- as it brings together population sequencing, data partnerships, AI capabilities, all really under one platform?

Yes. So what we saw was a big need from our customers to do really sequencing at scale, especially looking at doing a lot of experiments that is almost cost prohibitive for everything that -- what it will take to do that. So having now both the single cell capabilities, sequencing, compute power and AI capabilities under our roof, we can really scale this into something that and individual customers can't do on their own. And that's why we're building up this consortium to really do billions of cells experiments. And we're going to be way beyond that to really create that insight, to start to build cell models that can start to be -- can start to interpret actually how drugs are performing. And that is going to be a huge shift in drug discovery over the years to come. And Illumina is absolutely beautiful center to take and help customers be successful and really start to build a huge growth opportunity and business around that.

Okay. Well, it looks like we're approaching time. So thank you, everybody, for joining us today. Thank you to the Illumina management team. Enjoy the rest of the conference.

Thank you.

Okay. Good morning, everybody. I'm Doug Schenkel. I lead Wolfe Research's Life Science Tools and Diagnostic Group. It's my pleasure to welcome Jacob Thaysen, CEO of Illumina. Jacob, thanks for being here.

For sure. Thanks for inviting us.

So from the company, not up on stage, but Ankur and Conor are here as well. So if I mess anything up, I'll look over there. But thank you guys all for joining us.

So in terms of the framework for this morning, I wanted to quickly maybe start by talking about the state of the company, how things have continued to evolve under your leadership. The second thing is I really want to focus on unpacking some of the new disclosures from Q3 on the clinical side. So I do want to spend a few minutes on how we should be thinking about the clinical transition. Third, it's kind of a hodgepodge of recent development questions as well as from a policy standpoint, what's going on in China, competitive dynamics. And then assuming we have a little bit of time left, maybe tying this together and get into how we should think about 2026 and beyond, at least as much as we can think about that as we sit here in November.

Sure. Good.

So Jacob, you've been CEO for -- I think it's just over 2 years.

Well over 2 years now, yes.

Yes. Is it 3? Is it -- You're in...

September '23, a little more than 2 years. Yes.

Yes. So...

Sometimes you feel a long time.

So we knew you well from originally Dako and then Agilent. You did a fantastic job there. When we -- when you came on board, we looked at your -- as much as we could, how you executed to plan. You consistently exceeded plan in those roles. At the same time, this is your first CEO gig.

Yes.

And you picked a doozy. I mean there's a lot of opportunity here, but there was a lot that needed to be evolved. And I think it's fair to say, just as it seemed like you're on the cusp of kind of getting to the other side of some of these dynamics, it was like whack-a-mole with policy dynamics popping up coming into this year. So you sure picked an interesting one for your first CEO gig. That being said, as we get towards the end of 2025, coming off of a really good Q3, and I'd say a good Q2 as well, how are you feeling about the outlook? Are we getting to the other side of kind of some of the challenges the company faced and some of the policy dynamics that popped up over the course of this year?

Yes. That's a good question. And first and foremost, I still very much enjoy being in Illumina. And I did know when I took the job that it would not be an easy ride. But for me, it was more important that what Illumina stands for and the opportunity in front of us is still significant. And so that thesis that I came into the company has really not changed. I also recognize that there were some changes we had to do. I mean the first one we had to do was to make sure GRAIL could be shipped off and come on to, and I think they're doing a great job now as an independent company.

The second one was to clarify what is the strategy for the company going forward, where we're now focusing more on end-to-end workflow with the highest quality insights with the lowest end-to-end cost. And then, of course, really start to execute on that and with the aim to -- where we've put out the ambition to improve or get back to high single-digit growth in '27 and also improve our margins with approximately -- with 500 basis points, so up to 26% operating margin in '27. So that is the strategy. That's what we executed on.

When we came into '20 -- and the first year was, of course, a lot to get a handle on what the business is and as I mentioned, clarify the strategy. So coming into '25, we felt that, that was kind of the year where we were more focusing on execution rather than developing strategies. But we were hit with a few hiccups in the beginning of the year, China, NIH funding, tariffs, but also, of course, new competition coming in. So yes, I think you're right now, we are -- we have been focusing on getting the ship right and now it's about execution. And I feel like knock on wood, that we have been through a challenging year and we fully in execution, continue with that. So the opportunity in front of us is still massive. We still -- sequencing is still not the standard of care in health care. And there's so many opportunity for us in front of us that we can talk more about.

One of the things that you just mentioned there, which I think is important, and it's pretty impressive given how many things that have popped up that have been out of your control. The target that you outlined, I think it was last year of getting to high single-digit revenue growth by 2027, getting over 500 basis points of operating margin expansion and growing earnings at a double-digit level.

Correct.

In spite of all the curveballs, those targets are still very much intact. Is that right?

Yes, that's correct. We are still committed to that. I think what we have modified is saying right now outside and not with China. China is still something we need to work through. So the high single-digit growth is ex China at this point.

But the hope would be, is it fair to say in any outcome in China, I mean I want to be careful about this. But just given as we exit this year, I think China is going to be down to about 2% to 3% of sales. As we fast forward a year in any scenario, growth should be accelerating.

That we would expect for sure. And you have to say China is starting to be very small. We would love to get back to grow China again for sure. But at this point, we still need to work through the situation in China.

In terms of what gets you to those targets more quickly and what the risk is? China is obviously a major toggle in another way. Are there other things we should think about that either are an opportunity to accelerate time lines or maybe represent a risk?

Yes. I think overall, I mean, when we lay out the strategy, the whole underlying logic in the strategy was that the main driver is going to be the transition to the X. And we continue to see that as the main driver. We have to -- the faster we can get through the transition, the faster we get the pricing, of course, situation behind us. We have seen over the last few years that the volume have definitely -- when I came into the company, there's a lot of questions, does elasticity still work? And it does. I mean we are seeing a massive amount of volume sequencing. We continue to grow volume very, very rapidly, and I expect that to continue to do so. So that transition to the X going through that cycle is still the main driver to get back to growth. But we're also seeing that the new innovations we're coming up with, especially in the multiomics arena, is starting to contribute to growth over the next period of time. But it's still going to be -- and we have said in -- for the high single-digit growth in '27, the contribution from those new launches is probably still in the multiomics space in 1% to 2% point that will contribute to the growth, but we expect that to be even better going beyond that time horizon. So if academic research is starting -- if that starts to turn to more positive, that will definitely accelerate the growth. We're not expecting that at this point of time. We're expecting more environment as we see it right now to continue. But if you see some uptick in that, that could happen, then that would help us with growth.

Along those lines, the framework, my word is not yours, but the one I've been using as we model things out and we talk to investors is in a "normal academic environment," that's probably a lower single-digit growth market for now. Hopefully, it's better. Then a lot of the growth comes from moving past the pricing dynamics and the X transition and really participating as an arms dealer to high-volume growth clinical. And then strategically layering in the things you've done to basically get more share of wallet, whether it's multiomics, whether it's Sample Prep. Is that a basic framework?

That's a good framework. And in the end, we believe the reason we're doing that also is that we believe that the customers and we see the customers are looking for a vendor that can supply most of those workflows. We will continue to work with the whole ecosystem. In some areas, we will compete. In other areas, we will collaborate. And even with the same product lines, if a customer wants to have a competing Sample Prep, I have no issue in collaborating with a partner to make sure that the customer gets what they want to. But there are areas also we're saying, look, we can actually -- by putting all these things together and supply them with one workflow that there's a massive advantage for the customer, and we want to be able to support them with that.

So yes, so I think you're right. I mean, the way you think about it is the right way. On top of that, we do think that pharma, it has never been separated out as a segment. We always thought about clinical and academic research or the research market. I do think pharma is starting to become a real contributor. And how I think about pharma is not just them buying a sequencer, but the pharma is really interested to look at massive samples -- massive amount of samples. It can be hundreds of thousands, not millions of genomes. Or it can be when we talk about Perturb-Seq where they want to do billions of cells. And that is extremely expensive right now. So it's something we can help accelerate by offering that type of services to multiple pharma partners at the same goal. And we start to see that as a business opportunity also, and that's why we created the BioInsight business here recently to really start to accelerate that. So I think over time, that will start to be meaningful also.

All right. Fantastic. Super helpful. I'm going to try to go through a number of questions that have popped up over the last few weeks on the new clinical disclosures. So for those of you who aren't aware on the fourth quarter call -- third quarter call, excuse me, you shared some new disclosures and presented some really helpful slides in terms of research versus clinical, taking China out of there. And then there was a third slide where you talked about almost some case studies or a case study of the first 40 clinical customers that converted -- started to convert to the X and are fully converted at this point. So those were 40 clinical customers. Those are -- and those -- that does not include like new to high-throughput sequencing. These are customers that were on the 6000 before and have moved over [indiscernible] So that's the first thing.

Correct. Yes.

So that's who are these customers? The slide didn't have percentages for growth. I don't want to admit, but we might have got a ruler out to try to look at the -- But it looks like kind of the point of that slide is in the first full year of transition, you still grow. It's probably under 5% growth, if my measuring is about right. But then as you move past that, you start to grow with volume and the growth accelerates. I know that sounds basic, but is that an important takeaway here?

That's important. This whole thing going from the 6000 to the X, obviously, customers are seeing a very strong price reduction when they go through that. And of course, I know the concern was, oh, our customers just pocketing that price reduction. And -- but what is really happening is that customers are using this opportunity because they also compete out there. Our customers are competing with each other, as you know. So they need to be competitive by putting new and better assays out there. And these assays are substantially bigger in size. They need to fit it into reimbursement cost and so on. So they see the opportunity to improve their offering to their clinical customers also, and they do that by better assays, larger assays. So that's what you see is that the first year, you have actually the volume price is almost in an equilibrium and then you start to see the volume come back, the growth coming back by -- we have now lapsed the pricing and now the volume is pure, right, the improvement. So that's what you see. First year is little small growth and then you start to really see the volume come back and the growth come back based on the volume improvements.

At this point, as we're sitting here today, how much of your clinical -- existing clinical customer base has converted?

Yes, it's still -- if you look at what we were out suggesting what we're showing is that we have now 50% of the revenue now on the X of our high throughput customers. The research customers have more or less completely moved over now. So you are -- you, of course, less than 50% of the revenue on the clinical customers. So there's still opportunities there. And -- but we see that as the clinical opportunity. And as we have seen now that customers actually will grow clinical customers, most of them will use the opportunity to expand their assays. And so we are less than 50% at this point still.

Okay. And actually, it's an aside, but I think it's an important one. And I want to ask it because it's what I've been saying, and I want to make sure I'm not saying something wrong. Going back to how we talked about research returning to normalized low single-digit growth. Part of my thesis there is it's the funding environment, but it's also for the most part, and there's going to be [indiscernible]. But if you're a research customer, at this point, consistent with what we've seen over Illumina's history, if you're going to move to the X, most of those folks have moved to the X, already.

Yes, correct.

Okay. So most of the remaining conversion is really on the clinical side?

Yes. So I would consider most of the research customers have moved over. And as you say, most of the conversion from now on is clinical.

Okay. And then of those who haven't converted. And I'm going to try to do this in an uncharacteristically succinct way. So there are -- and just correct me if I'm thinking about it wrong, there are some customers along the lines of what we talked about in research who will never convert. And that's because they don't have the volume. I guess that's probably the biggest thing. They just don't have the volume.

Yes. They don't have the volume. It makes sense for them to stay under 6000. They have good reimbursements level. They are likely even profitable in that assay. So -- and it doesn't make sense for them to make the investment to go over to the X at this point of time where they sit with the volume. So they stay on the 6000. So that's a smaller cohort of customers, at least volume-wise that is staying there. Then you have another cohort that is staying with the current assays on the 6000, but new assays, they move to the X or they develop on the X. So these customers are growing out the gate because they have the volume on the 6000, stand that growth maybe a little bit. And then you see a lot of volume coming on the X.

So that might be something like if I'm a customer that's running a panel or doing whole exome and then I'm moving to whole exome or whole genome, something where I'm sequencing wider, sequencing deeper. I keep running my old assay on the 6000. I roll out my new assay on the X, which is going to use more.

Correct.

Require more data generation, more gigs per sample. That's another cohort.

Yes. That's another cohort. And then you have the third cohort that might remind us a little bit about the second cohort that is now -- and that's probably where you say, well, I was running exome on the 6000. But I actually believe that there's a bigger market if I do whole genome. So I'm now starting to transition from exome over to genomes. But I still have some customers who want to stay in the exome. But you see that, that business is declining, but you see a massive -- you go exome, you have a much bigger assay, of course, and you start to see -- and that goes on the X and that starts to increase also. So even that customer base is actually seeing out of the gate improvements in -- from a revenue perspective. So those 2 segments are absolutely the largest of our clinical segments.

Because they're either like the first group, which is smaller, but that's sort of business as usual in the 6000. The other 2 cohorts you just described, you're either replacing or transitioning. And that's probably most emblematic of what we saw in the slides in the Q3 call. And then there is one group left, right, which is the group where there's -- the assay is essentially good enough as it is without requiring more sequencing for sample.

Yes, you could imagine maybe an NIPT assay where customers are saying, look, I do want to move to the X because I can make the -- I can get better pricing on the X. So you have a small segment that is less than 20% that have decided to say, I'm going to move to the X because I get the price advantage. But it's not a big customer base. And by the way, most of them have already moved because they saw immediately the price opportunity to go there. So I don't think that, that's going to be -- at least from what we can see, it's not going to be a big cohort going forward.

Another, I think, subtlety to this is they're not all going to move to the 25B right away, right? In terms of the most drastic change in pricing, especially on the clinical side where you think about turnaround time and the need to [ match ]. Is it fair to say that it's -- there's a high percentage of these that won't immediately move over to the 25B?

So again, if you think about those 4 cohorts, if most -- the 2 cohorts in the middle that where we see -- that's where most volume is sitting, that's where they go for the 25B. The 2 other cohorts is likely still staying on the 10B flow cell, which is more also -- have a different price point also that reminds more about the 6000 high volume. So you're right, that's what we've seen. So if you take -- if you summarize all that and you would actually see that this is a clinical opportunity. And overall, we see more the first year kind of a flattish growth and then you start to see the volume come back. So it kind of reminds about that slide we showed.

Yes. That's super helpful. Thanks for indulging me in that. Very last one on this. What's not captured here is new to sequencing, right? I mean there are new companies that pop up. So everything we're focused on here is really the kind of existing customers. But what's not captured here are -- there are new customers buying sequencing for the first time.

Correct. Yes.

Okay. I know that sounds basic, but I think it's important to just note that. Okay. Actually, I'm going to slip in a quick Roche question. First, have you seen any change in customer behavior subsequent to the announcement that over the last several quarters that Roche is moving into the market?

No, we have not. I mean there's, of course, a lot of interest in understanding -- there's always interest in new technology. And I think it's actually good for the industry that we -- that this comes in and it challenges a little bit how we do things. I absolutely enjoy competition and especially when we're winning. And so I think it stimulates everyone. It also challenge the conversation or you can say, challenge us in having a better conversation with our customers about what they're trying to achieve, which is -- so it's very stimulating to actually be in that space. I mean, Roche is the newest one. We've always had competition. And of course, it's intensified a little bit here lately, but we feel really good where we are. But I don't -- I have not seen any changes in any of our customers with respect to -- in their behaviors with respect to Roche.

There was an announcement yesterday that Roche -- I think it was yesterday that Roche and Freenome, Roche made another investment. Freenome is evaluating potentially developing their assays to go on [ Axceelios ]. Long way to go, I'm sure, between announcement and when we see if that could happen. That being said, it kind of brings to mind, and I know it was a while ago, but you were at Dako when -- I think around the time that Roche bought Ventana. When Roche bought Ventana, how did other customers react to the fact that in a way, they had kind of vertically integrated? Did that put you in a position to Dako to compete in a different way?

Yes, especially in our companion diagnostic business, where we were working or the company is still working, of course, with pharma companies where they have a drug they want to put out in the market, they need a companion diagnostic kit. And we actually saw many of the pharma companies that prefer to work with Dako at that point of time and still do and now Agilent, of course, because they are not vertically integrated. And these pharma companies, of course, suspicious around how does that information flow between a Roche diagnostic business and a pharma business.

So I think you will see some of the same here likely that there will be a lot of clinical customers that will be thinking about how do we want to work with a potential competitor also in the end. So I think that there's a huge opportunity to -- here over the next 3 to 5 years to really start to see decentralization and offer workflows for that. I think we are in a very, very strong position. My learning from my Dako days is also -- and there's something that pharma start to realize or decentralize is that installed base matters a lot. I mean if you want to have your assets out, you want to go with the ones that have the largest installed base. And here, it's going to be a huge advantage for our ecosystem going forward also when you see decentralized assays coming out. Customers want to work with the one that have most instruments out there so they can ensure that they get their assays on the full installed base as quick as possible so they can get volume. So we have a huge advantage there, and we're going to definitely play to our advantage.

One of the things we talked about earlier this morning, the team and me and you, of course, is you were in China recently. So to provide some context, obviously, that was one of the big curveballs coming into this year. There was some good news within the last few weeks where -- let me make sure I'm not messing this up and you'll correct me if I am, but you were taking -- the export ban was lifted, but then the tricky part is you're still on the unreliable entity list. So how do we kind of marry those 2 things? And essentially, I guess, what I'm getting at is what does this allow you to do that you couldn't do a month ago and sort of building off of that, how to go in China?

Yes. So if we just remind back in February, actually, when there was announcement of some tariffs coming out here from U.S., it was the immediate -- what happened immediately after was that we were put on the unreliable entity list, but with no sanctions. Then another month went by and then there were another tariffs announced. This was before, of course, the April tariffs, but before then -- and then we were sanctions that we couldn't import or export instruments into China. So we've been in a situation from approximately March to now where we have been able to serve all our customers in China, but we have not been able to put new installations in.

Now that changed -- two things happened over the last few months. What we actually mentioned in our Q3 call was that we have now been able to -- we are able to serve our OEM customers, so we can import or we can manufacture instruments in China label, but also with our white label it and serve our OEM partners there. So we have been able to do so, and we're doing that now. That's still less than 20% of our total China operations, but still it's a good step forward. It helps. Then what happened after our Q3 call was that we were -- the sanctions was lifted. So meaning that we can now go back and place instruments again in China. What is still a part of that is that customers need a permit to do so. So we are working through what that actually means. And we will get more clarity on that likely over the next quarter or so on what that actually means from placing instruments.

In all circumstances, how we think about that is that from now being able to place instrument again to actually start to place instruments, it's just going to take a time. Customers need to, of course, get through their budgets, get into their budget cycle and so on. It takes usually approximately 6 months to get that. So I think it's going to take some time into '26 before we really see that role again. But it creates more certainty of the business in China. So yes, I was in China last week and had conversations both with the -- with Mofcom there and of course, with our China team to see whether -- in the end, we would like to get off the list, and we're working towards that. But as you can imagine, there's more to it than what we can control.

All right. So stay tuned. I think -- and this will be a transition to talking about 2026 a little bit. I mean, just as I think in Excel modeling terms, given how much China has come down since even the beginning of the year, I think where China revenue was in Q1 versus where we're likely to end this year. And given what you just described in terms of even if things open up in China, it's going to take some time. It would be hard to grow in China next year, mathematically, I would think. But the hope would be off of a small base that with a better -- with a good outcome in China that it can return to growth again at some point, maybe next year, but certainly as we look ahead to 2027.

That's at least our hope. I know Jenny and our General Manager in China will do her absolute utmost to make that happen. But yes, I mean, I think it's still -- we still need to work through all the details and that. But China is a huge market. There's a huge opportunity. So there's definitely worth investing -- continue to invest in China.

We've talked a lot about puts and takes at the top line. The operating -- the operational improvement and what we've seen in the P&L and the free cash flow generation has been very impressive in a difficult time. One question I get is, given how many things have been thrown your way, have you started to eat into the opportunity too much? It doesn't sound like that's the case. It sounds like there is plenty to still optimize with.

Yes. I mean, clearly, we have been focusing on -- coming into the company, I felt there was a huge opportunity to improve the way we work. And that has been a part of the transformation of obviously, all our focus is growing the top line. But at the same time, there were a lot of opportunities to improve and be more effective and efficient in how we do things internally in the company. So -- and from decision-making to how we run projects to how we actually execute in operations. So we go through that. And I think that's what a good company is doing, continue to challenge yourself of how you do things. Instead of just adding more people to bad processes, you need to go in and fix the processes. And when you do that, what is actually going to happen eventually is that it's a more -- it's a higher -- people have more pleasure in doing their work because you're not spending time on bad processes and just covering up for that. You actually are more effective in how you do things. I mean there's a transition you have to go through, but we will continue to challenge ourselves how we do things. So there's plenty of opportunities in front of us. We haven't even started really on AI yet, I mean, on the opportunities.

Yes. And I know we're over time, but I do want to close with you were nice -- the company was nice enough to host me at your Cambridge facility where a lot of innovation comes out of. I think at points in what has been a difficult period where you are optimizing, there can always be a concern that, okay, the level of innovation is slowing. I certainly didn't see that when I went to Cambridge and when we think about Constellation, Fluent, SomaLogic, 5-base. I mean, how are you feeling about -- I'm not going to make you choose your favorite new child here, but how are you feeling about the level of innovation and ability to bring new things to the market?

No, I'm really excited. That's one of the reasons I also went to Illumina and where we have been very clear also to the market that we continue to be a very -- and we will continue to invest very highly in innovation. There's still a lot in front of us of opportunities. You will see a lot of innovations coming out over the next years. But I'm really proud of what we're coming out with also this year and next year. We talked about the 5-base, Constellation. We have spatial and of course, single cell also and now with the Fluent -- excuse me, with the SomaLogic acquisitions also, and then we came out with the proteomics assay. So a lot of exciting things.

Now it's difficult to choose between our -- the children here. But I do think if you look at the opportunities, both with Constellation and I think the 5-base really bringing methylation into standard of sequencing. I know everybody is saying, well, other companies are also going out that we can do methylation. Yes, everybody have been able to do methylation for years, but we have made it extremely simple, both from Sample Prep, but also from getting the data out and combine that in your pipeline, informatics pipeline with, of course, standard DNA variant insights. So we're making it extremely available and methylation is going to be a very important factor to look at both from screening, but also from a lot of clinical insights going forward. So that is going to be a big opportunity. I think constellation of now being able to actually look using short read but actually get structural advances out and insights that you could not do with short reads before, it's going to be a huge opportunity for the company also. So those two are, I'm super excited about because it really speaks into where the growth is going to come from the company, which is in the clinical sector here over the next period of time.

All right. Fantastic. Thank you again for being here. Really appreciate it.

Thank you. Thank you.

Good day, ladies and gentlemen. Welcome to the Third Quarter 2025 Illumina Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the call over to Head of Investor Relations, Conor McNamara.

All right. So we'll kick things off. Today we will review our financial results released after the market close and provide prepared remarks before opening the line for Q&A. Our earnings release is available in the Investor Relations section of illumina.com.

Joining us on today's call are Jacob Thaysen, Chief Executive Officer; and Ankur Dhingra, Chief Financial Officer. Jacob will start with an update on Illumina's business, followed by Ankur's review of the company's financials.

We will be discussing certain non-GAAP financial measures on today's call, and a reconciliation to GAAP can be found in today's release and in the supplementary data available on our website.

Please note that unless otherwise stated or when referring to our end markets, all year-over-year revenue growth rates discussed in our prepared remarks are presented on a constant currency basis, excluding the impact of foreign exchange fluctuations. In addition, all references to China refer to our Greater China region, which also includes Taiwan and Hong Kong.

This call is being recorded, and the replay will be available in the Investors section of our website.

It is our intent that all forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. 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 SEC, including our most recent Forms 10-Q and 10-K.

With that, I will now turn the call over to Jacob.

Thank you, Conor, and good afternoon, everyone. In the third quarter, we delivered another strong performance with revenue, non-GAAP operating margin and diluted EPS all above our guidance range. We reported total revenue of $1.08 billion, and we returned to growth ex China, up about 2% year-over-year.

Non-GAAP operating margin was 24.5% and non-GAAP diluted EPS was $1.34, both reflecting strong year-over-year expansion and above our guidance. This performance reflects the momentum we're building through the NovaSeq X transition, especially in the clinical markets, where sequencing consumables revenue grew at a high single-digit rate year-over-year.

Given this strength, we are raising our total full year 2025 outlook. We're staying disciplined as we monitor macro and funding dynamics through year-end.

In our end markets, clinical continues to accelerate. Customers are advancing new assays that demand increasing sequencing capacity and intensity. And the NovaSeq X is proving to be the ideal solution, delivering higher throughput with the same trusted accuracy and workflow as their existing NovaSeq 6000 instruments. Growing sequencing volumes are more than offsetting transitional pricing effects, driving a sequential and year-over-year increase in consumables revenue.

In research, we saw a stabilization in demand, even as many labs continue to manage spending carefully in light of regulatory and funding uncertainty. Our teams remain closely engaged with customers to help sustain their work.

We were also encouraged by the resilience of our business in China, where our revenue came in ahead of our guidance despite ongoing export restrictions. As a reminder, a fraction of our business is served by OEM partners that sell our instruments and consumables into specific customer segments. We have now received approval to serve those partners through manufacturing of select instruments local in China. While this marks a measured step forward, we have not yet reached a long-term resolution related to our operations in China, but we remain in dialogue with the relevant agencies.

Now turning to our strategy. In Q3, we made significant progress across the 3 pillars that underpin our long-term financial targets: growing our core sequencing business; scaling into multiomics; and expanding our services, data and software capabilities. Together, these pillars are shifting the conversations from cost per gigabase to delivering the highest quality biological insights at the lowest end-to-end cost.

Starting with our core sequencing business. In Q3, we had another strong quarter for the NovaSeq X, with more than 55 instruments placed, in line with our goal of 50 to 60 placements per quarter. Most importantly, we achieved the milestones we have set for our high-throughput transition to the NovaSeq X. Our goal was to reach approximately 75% of high-throughput gigabases shipped and 50% of high-throughput revenue on the X platform by year-end, and we exceeded both here in Q3.

Our results highlight the strength and elasticity of sequencing demand. NovaSeq consumables revenue growth accelerated even as conversion from the NovaSeq 6000 increased, demonstrating that our transition strategy is working. Clinical remains the primary driver, supported by new assay approvals, positive reimbursement decisions and growing demand for more sequencing-intensive tests, all trends that position us well for sustained growth. As pricing headwinds ease and research end markets stabilize, we believe these dynamics will put us back on track toward our long-term revenue growth targets.

Moving to our second pillar: scaling into multiomics. Following our announcement announced acquisition of SomaLogic in Q2, which we continue to expect will close in 2026, we launched Illumina Protein Prep in Q3. This co-developed proteomics assay brings the power of NTS to protein analysis through a simple integrated workflow that delivers scale, precision and accessibility for labs of all sizes. Illumina Protein Prep can measure up to 9,500 proteins per sample and provides highly consistent results in about 2.5 days with minimum hands-on time and at a lower cost per insight. Importantly, Illumina Protein Prep integrates with DRAGEN and our upcoming Illumina complete multiomic software suite, extending our end-to-end capabilities from sample prep through data interpretation.

Beyond proteomics, earlier this month, at ASHG, we expanded our multiomics portfolio with the launch of our 5-Base solution and integrated library prep and software offering that simultaneously reach genetic variances and DNA methylation. Using proprietary chemistry and our new DRAGEN algorithm, 5-Base preserve both variant and methylation information in a single workflow, delivering accurate single-based resolution while reducing complexity and cost.

Turning to our third pillar: expanding our services, data and software capabilities. Earlier this month, we introduced BioInsight, a new business created to accelerate the use of genomic and multiomics data in drug discovery and research. BioInsights bring together our population sequencing programs, data partnerships and software and AI capabilities under one structure, creating a more strategic platform to collaborate with governments, biopharma and research institutions. By combining advances in sequencing, economics and AI, BioInsights enable customers to generate and interpret data at greater scale, positioning Illumina to capture new opportunities in this fast-growing space. In the near term, BioInsight will focus on large-scale data generation partnerships with longer-term plans to further monetize data, software and AI-enabled services, adding another layer of growth that supports our long-term financial targets.

Together, these initiatives show how we're executing on our strategy, expanding Illumina's reach from sequencing to multiomics and from data generation to biological insights. They reflect an innovation road map that is delivering for customers today while setting the stage for what comes next. Throughout the quarter and ASHG, I met with many customers, those enthusiasm for our recent launches and upcoming solutions like Constellations were clear. These discussions are one of many ways we gather customer feedback, and we continuously integrate those insights into our road map, customer focus and understanding our core to how we operate. And my own conversations are an extension of that discipline.

We are focused on what matters most to them, making sequencing easier, more accessible and more affordable, which helps us build stronger partnerships and better solutions. As a result, customers are expanding into new sequencing-intensive applications, broadening the reach and impact of our technology.

At ASHG, these conversations reaffirmed our leadership position. built on end-to-end solutions, the quality and consistency of our data and proven reliability and service, and highlighted the trust customers place in Illumina as a long-term partner. That feedback strengthen our conviction in the path ahead and our ability to extend our leadership for years to come.

Looking ahead, we remain focused on disciplined execution and building our momentum from Q3. Clinical will continue to be our primary near-term driver of revenue growth as NovaSeq X volume more than offsets conversion pricing headwinds. We also anticipate a gradual return to growth in our research business as pricing headwinds abate and end markets stabilize. Together, these dynamics position us well going into 2026, giving us confidence in our ability to achieve high single-digit revenue growth and 20% non-GAAP operating margins by 2027, excluding Greater China.

With that, I'll turn it over to Ankur to walk through our Q3 results and outlook before we move to Q&A.

Thank you, Jacob, and good afternoon, everyone. I will give you an overview of our third quarter financial results, provide more color about revenue, expenses, earnings and capital deployment, and then speak about our outlook going forward.

Before I get into the details of the financial performance, let me give you a high-level view of how the third quarter played out. In Q3, our business outside of China returned to growth, an important milestone towards our long-term goals. We made significant progress in the NovaSeq X transition, with over 75% volume and over 50% revenue now transitioned to X.

High-throughput consumables had strong growth in our clinical business driven by continued expansion of X. Revenue exceeded the top end of our guidance range, was roughly flat globally and grew approximately 2% year-over-year ex China. Non-GAAP operating margin expanded by 190 basis points to 24.5% and non-GAAP diluted EPS of $1.34 grew $0.20 year-over-year.

Now let me provide you details of our financial performance. Third quarter revenue of $1.08 billion was roughly flat year-over-year on both a constant currency and reported basis and ahead of the top end of our guidance range. Revenue excluding China, which makes up 95% of our revenue, grew approximately 2% year-over-year. Greater China revenue was $52 million.

Sequencing consumables revenue was $747 million, roughly flat year-over-year and up about 3%, excluding China, both on reported and constant currency basis. High-throughput volumes continue to grow as customers across research and clinical take advantage of the NovaSeq X instruments.

In clinical, momentum remained strong, with double-digit revenue growth outside of China driven by broader adoption of comprehensive genomic profiling and growing use of sequencing-intensive applications like MRD. In research and applied, consumable sales declined high single digits outside of China, reflecting continued funding uncertainty and pricing dynamics tied to the X transition.

To give investors better visibility into these dynamics, we have added new disclosures for revenue outside China, showing instruments and consumables revenue and also consumables revenue growth by clinical and research segments. This can be found on Slide 10.

The X transition progressed significantly in Q3. Roughly 78% of volumes and 51% of revenue in Q3 was sequenced on X. 91% of research volumes were sequenced on X. At clinical, X transition has progressed to roughly 64% of volumes in the quarter. Our customers are taking advantage of excess capabilities to increase content on their assays, expand into new indications and taking whole genome-based approaches, as you may have seen with several product launches and approvals in the last few months across therapy selection, MRD and genetic disease indications.

Now that we have achieved this transition milestone, we thought it would be helpful to illustrate the conversion patterns with our clinical customers. On Slide 12, we look at the 40 customers that have fully transitioned to X as of Q3. And we see how elasticity of demand played out. For this group of customers, volume offset price in year 1 and then revenue and volume both accelerated in year 2.

We continue to be in deep dialogue with our clinical customers about their growth trajectory and their 6000 to X transition plans. These plans support a view of continued revenue growth in 2026 and beyond. Specifically, business with our largest customers is projected to go faster than the overall company average rate, at least over our strategic plan period. Taken together, with the range of new assays coming to market and these discussions with our customers, gives us confidence that clinical demand will remain strong as the X transition advances.

On 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, driven by robust strength in clinical, but a more muted growth from our research customers.

Moving to sequencing instruments. Revenue of $107 million was up approximately 3% year-over-year in Q3, and 6% ex China on both a reported and constant currency basis, driven by the broad adoption of the MiSeq i100 in the low throughput space. NovaSeq X placements were strong at over 55 in Q3. In line with recent trends, over 50% of Xs placed in Q3 were to clinical customers. In Greater China, our instruments business was down approximately 54% due to restrictions on exportation of instruments into China.

Sequencing service and other revenue of $147 million was down approximately 3% year-over-year, below our expectations. The decrease was mainly due to the timing of certain strategic partnership revenues.

Moving to the rest of Illumina P&L. Non-GAAP gross margin of 69.2% for the third quarter. Tariffs impacted gross margins by roughly 220 basis points on a year-over-year basis. Non-GAAP operating expenses were $484 million, which is down approximately 6% on or $33 million year-over-year, reflecting results of multiyear cost reduction programs while prioritizing key growth investments.

Non-GAAP operating margin was 24.5% in Q3, expanding 190 basis points year-over-year. Non-GAAP operating profit grew approximately 9% year-over-year, reflecting increased operating leverage from the improved cost structure.

Looking at our results below the line, non-GAAP other expense, which is largely comprised of net interest expense, was $13 million, and non-GAAP tax rate was slightly higher than expectations at 18.6%. We continue to assess long-term tax structure optimization to balance U.S. R&D benefits with efficient credit utilization across jurisdictions.

Our average diluted shares were approximately 154 million, roughly 3 million lower than last quarter, driven by an increased level of share repurchases, net of dilution from employee equity awards. Altogether, the non-GAAP earnings per diluted share of $1.34 grew 18% year-over-year and came in well above our guidance range.

Moving to cash flow, balance sheet and capital allocation items for the quarter. Cash flow provided by operations was a robust $284 million. Capital expenditures were $31 million, and free cash flow was $253 million. In Q3, we repurchased approximately 1.24 million shares of Illumina stock at an average price of $97.10 per share, for a total of $120 million. At quarter-end, we had $684 million remaining on our share repurchase authorization, and we intend to continue to repurchase shares opportunistically.

Additionally, last quarter, we entered into a definitive agreement with Standard BioTools to acquire SomaLogic and other specified assets. We are working with regulatory authorities to obtain clearance, and still expect the deal to close in the first half of 2026.

We ended the quarter with roughly $1.28 billion in cash, cash equivalents and short-term investments, and gross leverage of approximately 1.6x gross debt to last 12 months EBITDA.

Now moving to guidance for the year 2025. As you may have seen in the press release, we are increasing our guidance for 2025. Starting with revenue. We're raising our revenue guidance for Greater China region by $20 million to approximately $220 million for the year. For rest of the world, we're projecting revenue growth between 0.5% and 1.5% on a constant currency basis, unchanged at midpoint. Hence, we now anticipate total Illumina constant currency revenues to decline in the range of minus 0.5%, minus 1.5%. On a reported basis, that equates to illuminate revenue in the range of $4.27 billion to $4.31 billion, up $20 million at the midpoint relative to last guidance.

Now shifting into our product assumptions for rest of the world excluding China. We now expect sequencing consumables growth between 2.5% and 3%, towards the higher end of our prior guidance of 1% to 3%. This increase reflects strong performance in driven by sequencing consumable volume growth from our clinical customers. We are reiterating our guidance range for sequencing instruments, decline of minus 6% to minus 4%. The offset is in services related timing of certain strategic partnership revenues.

Moving down the P&L. Reflecting our strong execution and results as well as increased revenue expectation from China, we are increasing our non-GAAP operating margin guidance by approximately 60 basis points at the midpoint to a range of 22.75% to 23%. We now expect full year 2025 non-GAAP tax rate to be approximately 20.5%. And our full year 2025 weighted average shares outstanding of roughly 156 million shares to reflect our Q3 repurchases.

Bringing it all together, we're raising our non-GAAP diluted EPS guidance by $0.20 at the midpoint to a range of $4.65 to $4.75, reflecting 13% growth year-over-year at midpoint. This guidance implies that for Q4 2025, we expect our year-over-year revenue growth in rest of the world ex China to step up to the 4%, and China contributing $33 million in Q4.

As we close out 2025, we are quite encouraged by the momentum we've built, from the successful NovaSeq X transition and the continued strength of our clinical business to the progress we've made preparing for multiomics launches across single-cell, spatial and proteomics.

Looking ahead to 2026, we see 3 key trends. First, in clinical, we expect dynamics similar to this year: strong volume growth and continued transition to X. Second, in research and applied, we anticipate conditions to remain muted, consistent with the latter half of 2025, with pricing headwinds easing now that 91% of high-throughput volume has transitioned to X. And third, our planned 2026 multiomics launches will begin contributing to growth as and when research end markets recover. Altogether, we expect the end markets in 2026 to look similar to the second half of 2025. We'll provide detailed 2026 guidance when we report our Q4 results.

In closing, I want to once again express my sincere appreciation to the Illumina team for their continued focus and disciplined execution throughout this year. This quarter was extremely encouraging as we returned to growth and made significant progress towards our short and long-term goals.

Thank you for joining our call today. I'll now invite the operator to open the line for Q&A.

[Operator Instructions] Our first question comes from Puneet Souda with Leerink.

If I could, I'll just wrap my questions into one. Thanks for the details. On the $33 million for China that you're implying versus the full year, I'm just trying to understand, how should we think about China in sort of '26? You seem to be isolating China as you are moving forward. Maybe if you could provide some color there.

And then a bigger question here is what's competitively has been announced at ASHG, is that leading to any freezing on the research and applied side of the market? I appreciate you providing more color on the clinical.

And then the last part, if I may. Clinical growth, 12%, thank you for that. How should we expect that for the full year and '26, if you could.

Puneet, this is Jacob. So thanks for that 1 question, which I think had a few smaller parts. But let me start with the China setup. First of all, I'm very pleased with the performance in China. As you know, we still haven't resolved the situation in China, but we made a good step forward here by now being able to serve our OEM partners. They can serve their customers in China, so I'm -- with instruments. So I'm really pleased about that.

I'm also very happy to see how Jenny, our General Manager in China, and the Illumina team continues to serve our customer in a challenging environment. They've shown really resilience in this.

And of course, what we're also seeing, and we continue to be very presently surprised about, is how well or how much our customers do want to continue to work with Illumina. They continue to see the high quality and innovations, and they want to see us stay in the market. We are taking this right now quarter-by-quarter. It will be too early for us to go in and give you a view on '26. But clearly, again, we need to find a way to resolve the situation, and we continue to work with the regulators in China to find a solution for that.

Your next question will come from Doug Schenkel with Wolf Research.

Two questions. So the first, as I think about 2026, based on how you described trends in your prepared remarks, there's 3 things that really jump out to me. One, it seems possible that research revenue could be flat to down low singles next year in a somewhat stable funding environment given the state of the transition to the X. Two, clinical revenue should grow, but maybe mid-single digits to high-single digits as volumes grow and customers continue to transition to the X. Keeping in mind the slide that you presented on 3-year precedent with clinical customers. And then third, China could be a 50 to 100 basis point headwind to growth.

So like when I pull those 3 things together, mathematically, it gets me to low single-digit revenue growth, at least as a starting point for next year. I'm just wondering if that's a reasonable framework.

And then the second thing is, operationally, you have managed to expand margin about 50 basis points year-to-date in a period where total revenue is down a couple of points, including a close to 25% year-over-year decline in high-margin China revenue. So it's been really impressive. I'm just wondering, what does this mean as the margin outlook -- for the margin outlook as the environment normalizes? Because on one hand, you could argue, you already pulled forward a lot of operating levers to get to these levels. On the other hand, the fact that you've accelerated operating efforts the way you have could lead to pretty material flow-through when revenue starts to pick up again. So I'd just, Ankur, it would be great to just know how you're thinking about this.

All right. Doug, thank you for the questions. And let me start again. On '26, as I said before, we're not going to go in and give guidance. We do think it's highly appropriate to wait until we have a better sense for how what will happen over the next quarter here and how the market evolves and also the regulatory space, of course, from a China perspective.

That said, I think that the framework you're putting out looking at clinical being the driver of growth in next year also, where we are seeing more muted environment for research -- and I think we are -- we're seeing it more like a second half environment, as we see it right now, it's stabilizing, but still soft. And then we think there will be some contribution from some of our new launches of our multiomic products here.

How we think about it right now, we are not taking -- I wouldn't take China into the consideration at this point of time for -- in our framework. That's too early to see where this is -- where China is going.

I would say overall on the -- how we are operating the company and how disciplined the team has been on executing, I feel good about the opportunity we have to further expand our margins. And I feel really good about, as I mentioned in my prepared remarks, moving towards our goal of 26% in '27 and above going forward.

Yes. On the margin side, good question, Doug, very pleased with the performance, especially as some of the result of the actions that we've been taking coming through here in this quarter as well. And we're pleased with 190 basis point operating margin expansion during the quarter. So we've taken a lot of cost structure actions. Looking forward, there are still several plays that are yet to reflect the full benefit in our P&L, especially in our gross margins where we continue to work with optimizing our manufacturing footprint.

And on the OpEx side, our sense is we've put in a lot of structural plays [ in move ]. Some of those have to play out. But at the same time, we are making growth investments as well. So going forward, I do anticipate additional margin expansion coming both from cost action, but also most certainly much stronger operating leverage given where we are from a cost structure perspective.

Your next question will come from Vijay Kumar with Evercore ISI.

Congrats on a nice print here. Two quick ones, Jacob, Ankur, for both of you. On consumables, I thought the expectations for the quarter was something like [ 7 27], [ 7 25-ish ] given China headwinds. I recognize China came in better. Was there any pull forward in academic and government segments? Like how would you -- when you look at the consumables growth of 3% rate, what was -- what is macro versus this transition impact? If you could just parse that out.

And Ankur, for you, I think in the past you've said 500 basis points of margin expansion. Is that still relevant given -- off of current levels given you guys have executed in margins?

So Vijay, thanks for the question. And yes, we are excited about Q3. We think -- and consumables were definitely a highlight of the quarter, also it continues to see momentum. What you're seeing is how the quarter played out. There has not been any pull forward either from China or what we have seen from NIH. We're very pleased to see that the grants are starting to flow again. But it did not -- there was no catch-up effect from actually spending from NIH customers, so to say, grand receivers. So we're not seeing that at this point of time. But we are, of course, hopeful that more will happen. But I think it will take time for this to stabilize even further.

Yes. So the only thing I would add, bulk of the overperformance rest of the world came from clinical side there on the consumables side. So very robust demand there.

And then on the margin expansion, the 500 basis point was the goal we had set ourselves when we had the Analyst Day last year, with a starting point where our base was much closer to about 21% or so. So we're marching towards, in aggregate, getting to that 500 basis points over time. But as I've said, the business, the way it is at close to 69%, 75%, 70% gross margin, we do have long-term opportunity in that space, but we'll talk about it once we achieve our first milestone and then go from there.

Your next question will come from Tycho Peterson with Jefferies.

A couple of quick ones. So as we think about research being muted next year per your comments, how are you thinking about multiyear grants? And then on the flip side, allowing for labs to potentially tap into indirect funds for capital equipment and also pent-up demand? So that's the first question.

I also understand you don't want to talk about '26 a lot, but can you grow earnings in your view, given China and Roche headwinds?

And then -- and maybe for Ankur, on the consumables for this quarter, how much was China and tariff surcharges. And then what -- you didn't really explain gross margins, down 130 basis points year-over-year. Can you maybe touch on that? Was that all pricing? And what are the levers that you're implementing to offset? You said there's some GM levers coming.

Okay. So the first question was? Research. So I think still there's a lot of in and outs on both single-year grants and multiyear brands. I think what we're seeing right now is that while grants has been granted, we have not seen many of the researchers done to spend the money yet. And I think if you think about an academic researchers right now, usually, they might get several grants during the year. So it's not the 1 grant that drives and necessarily decision. It's the predictability of the grants coming also. And I think that's a little bit what we are still and what the market on the academic market is still waiting to see, is the new predictability. Can they expect that grants are also flowing in '26?

So I think there is a little bit of that uncertainty that has to play through before we start to see a more normal situation. So we'll definitely be ready to respond, and I'm actually quite pleased with our lineup in multiomics. Also that will be very relevant for this type of customers when the funding is coming back.

We are very confident and believe we can grow our earnings also in '26. And I think we have proven that here in '25. It's been a lot of headwinds for many different angles. And I think you can definitely see that we have been able to do so. So that brings my confidence for what we can do in '26 also very high.

Okay. Let me address the other 2 parts there. One, on the gross margin side, down 130 basis points. Almost 220 basis points is from tariffs, which we'll talk about we're working towards mitigating some of those. The remainder base gross margin was up about 90 basis points accordingly. So the base business is continuing to do very well, and we are working towards, over time, find a way to mitigate the impact coming from tariffs.

Your question about the beat on consumables. So roughly half and half in China and outside China. Most of the outside China is in clinical. The surcharge was exactly where we guided it to be. It came in right at the forecast.

Your next question will come from Dan Leonard with UBS.

One question on the growth in clinical consumables, a double-digit growth rate. Did that include any positive lumpiness in there? Or do you view that as more a run rate?

Dan, thanks for that question. We are very pleased again with the performance for Q3 and also definitely the clinical performance. As you also saw in the prepared remarks, but also in the slide, that we had a very strong movement going from 44% of revenue in the high-throughput, on the X now up to 51%, and at the same time, also moving a lot of volume. So I think it really speaks to that when we are -- even with the shift and the transitioning that we can grow and even when we have a fast transitioning. .

That's what you're seeing. It's -- there's no specific lumpiness in this. I wouldn't count on that this is the run rate from now on, but I do believe that we'll continue to have strong growth in the clinical space.

Your next question will come from Patrick Donnelly with Citi.

Maybe one, I know Roche has been mentioned a few times. Would love just your guys' perspective on the competitive environment. Jacob and Ankur, I know you were both up at ASHG, talking to a lot of customers seeing the product. So can you just give us your perspective on the competitive landscape what factor that plays into '26? And just how you're thinking about any pressure or freezing that could offer to the market, particularly on the clinical side?

Yes. Thanks for the question. As I mentioned before, we've always had competition in this space. We definitely have a lot of competition right now, and I love it. I think competition is great for us and how we think how we push ourselves and how we thereby also become a better partner for our customers. What I also see out there is that most of our competition -- competitors are trying to compete and differentiate on one dimension only.

But [ in balance, yes, ] you also mentioned here, we have been in conversation with many of our customers, and our customers are much more sophisticated than looking at one single dimension. They are actually looking at multi-dimension as highest quality of data combined with the best workflow and lowest end-to-end cost. And as I see it, and I think also our customer is -- it resonates with our customers, is that Illumina is really the only one that delivering across all these dimensions, and continue to innovate also. So I feel really good where we are and the competitive situation.

Your next question will come from Mason Carrico with Stephens.

Assuming similar market trends next year, how sustainable is the 50 to 60 Xs per quarter moving forward? What does the pipeline look today? And maybe assuming we get a flattish NIH budget, do you think X placements could remain stable around these levels?

Yes, Mason, so thanks for that question. We started the year coming out and guided towards a 50, 60 placements per quarter. And remember, in '26 -- '25 when we provided this guidance, what happened afterwards was, of course, our challenging situation in China combined with the challenges in NIH funding. And yet, we have still been able to deliver on that algorithm.

And I would also expect here that Q4 will look stronger than the average of the year, which is we usually do. We always have a stronger instrument placements in Q4. So I think and what I see is that I don't see no reason why -- any reason why that trend wouldn't continue into next year. But at this point, it's too early to actually give you specifics on exactly how we think about that range.

Yes. Mason, from an end markets perspective, if you look at the overall sequencing demand, we still see significant number of sequencing-intensive applications that are both in the clinical as well as in research space that are building and continuing to build traction and momentum here. So we do see a several year further expansion of the sequencing ecosystem, which should translate into X placements as well.

Your next question will come from Catherine Schulte with R.W. Baird.

Maybe in research and -- maybe in research and applied, it looks like the NovaSeq X transition is almost complete there. Just curious, how has the gigabyte output looked in that customer group this year just as we try to think about underlying activity levels? And then related, are you baking in any government shutdown impact for the fourth quarter?

Yes, Catherine, I'll start by, first, looking at the transition here, and we're very pleased. But also as expected, that the NovaSeq X would transition much faster in the research and academic environment. As you can -- as you might know is that what is happening there is that when a researcher have finished up their project on the 6000, when they get the new project, they can immediately start on the X and do a bigger single-cell project or whatever they are working on in that particular research environment. That's very different from the clinical space where you have to validate and you have to make sure that it works on the new platform before move over.

So we're very used to and we expected that research and applied would move much faster. And now with the transition done, we see that that pricing headwind is, of course, reducing. So we are -- we are of course encouraged about the future. That said, there is still, of course, concerns about NIH funding, and that will be muted for the time being.

So maybe, Ankur, you can...

So Catherine, in terms of actual Gb volume growth, the -- as you may have probably worked through with our -- where our research revenue growth in consumables has been, the Gbs have grown both in clinical and in research during the quarter. Clinical was much, much stronger. The growth rate in research has come down relative to what the historical growth rates have been, but it is still growing. Now the overall funding environment has played out where the actual demand in that space and the activity has become muted, but the Gb still grew, albeit below the 30% kind of number that we've talked about.

Your next question will come from Kyle Mikson with Canaccord.

Congrats on the print and all the updates. Really good print here. Yes. Ankur, for you, on the quarterly R&D expenses declined a bunch quarter-over-quarter. It's like the lowest dip, below $230 million for the first half since 2021. Wondering if that's -- if this is a new run rate, we'll grow from here. And how much of it relates to the recent or the upcoming launches of new products as well as your efforts to remain competitive, obviously, too.

And then just one quick one on the clinical. That looks like it's accelerating. What's specifically driving that? And are there other catalysts that could unlock further growth?

Yes, Kyle. So let me start on this, it's Jacob, on the R&D. And I'm very pleased with how Steve and the R&D team is driving a disciplined execution of the R&D and the portfolio. But we also, at the same time, we're very disciplined on how we spend our money and how we think about OpEx going forward. And I think that's the result you're seeing.

But what I'm really pleased about is that I continue to see improved productivity in the R&D organization also. So I'm excited about what we have in our portfolio and what will come out over the next few years. Some of that we have talked about, a lot we haven't really shared as of yet. So much more to come.

Yes. Thanks, Jacob. On the -- on your second question, Kyle, the -- okay. The clinical acceleration during the year. Think about it in 2 ways. We've talked about the number of X placements and more than 50% of the Xs being placed in the clinical over the last several quarters and a significant number placed during the last quarter, talk about the validation of Xs in the clinical takes a little bit longer than what it has in the research environment.

So the -- what we believe we are seeing the effect of is a lot of our large customers launching and getting approval for several new tests in some -- even in early detection, definitely in therapy selection, also in MRD. And in genetic disease. Even if you just line up the number of tests that have been approved in the last 2, 3 quarters alone, you will see the significant new activity that is getting added, right?

And a lot of these larger highly intensive tests have been enabled on X given the amount of sequencing intensity some of these new tests take. So we think it's -- the clinical market is building momentum, and there is legs to this momentum going forward as well. The eventual growth rates in itself will pan out the way they will pan out, but there's a lot of good fundamental momentum building in that business.

Yes. And also a reminder, we did a lot of X placements in Q4 and Q1 in '25 year, and Q4 in '24. And that's playing out now. You can see that many of those went into the clinical space, and that's where you start to see volume coming from also these placements.

Your next question will come from Jack Meehan with Nephron Research.

You've given a lot of very helpful comments around 2026 framing thoughts. In the past, you've talked about a goal of double-digit EPS growth. I was just curious with the building blocks that you've laid out for us, just your confidence that you think you can deliver on that next year?

Jack, good to hear from you. And yes, we continue to -- as I mentioned also in the call, we continue to -- of course, we were not guiding when we were at our -- or our investor setup here last summer. We were not providing too much detail on the EPS, as far as I recall. It was more on the operating margin where we said we were going to -- where we're going from 500 basis points up to 26%. But with that also comes, of course, strong EPS growth.

So we're confident we can continue to grow the EPS in that range you were talking about also here. Now we're not -- it's too early again for us to give specific guidance for next year, but we believe we can continue to do so. And I think we have proven very well in very tough environments that we've seen both in '24 and here in '25 that we have expanded the EPS. And our aim is to continue to do so in the same level. Ankur?

Yes. Thanks, Jacob. Jack, yes, we still have several levers that we continue to work on from an overall earnings expansion perspective. The -- clearly, getting the OpEx cost structure to a level where we have much stronger operating leverage was an important point, and we feel we're getting close to that. So keeping discipline on that spending is one crucial aspect.

We still continue to work on several of the programs that we've kind of outlined before. And the results of some of those are yet to play out in the P&L. We've talked about setting up our core centers of excellence in Singapore. We've talked about centers of excellence in India. We've talked about continuing to work on the gross margin on our instruments. These are all levers that we continue to play and still have additional value to be [ primed]. And on top of that, as we return to growth and with a better cost structure, there should be a better operating leverage too.

So in short, yes, our focus is to continue to expand our earnings going forward. We'll talk about the specifics, of course, for 2026 when we get to the guide.

Your next question will come from Tom Stevens with TD Cowen.

Great. This is Dan Brennan. Congrats on the quarter. Maybe just a couple. So I know a few questions have been asked on the X transition. But the 900 basis points of like sequential increase of volume on the X, from 55% to 64%, like could we see another 900 basis points in 4Q? And Kind of how do we think about getting to the research kind of level for the X, which is 90%? Like how long would that take, do you think?

And then B, in terms of research, can you just break down a little bit like what you're actually seeing from your U.S. economic and government customers? Like what have those trended year-to-date in the third quarter? And if we do get a flat budget or even like a CR, do you think that would be enough to see like a nice uptick in spending? Or what are you hearing from customers about what will allow them to spend more, the research customers?

Yes, Dan, thanks for that. I think at the last earnings call we had a lot of conversations with all of you about why the transition was slowing, and now we have a conversation about why it's accelerating. I mean, first and foremost, what's important is that revenue accelerated with the acceleration of the conversion. So we're very pleased with that, and we continue to see that that trend will continue.

I will caution, over-interpret the acceleration quarter by quarter. The trend is what we want to look at. So where we are in a quarter from now, we will take that and see that. But it's 1 quarter, it's too early to say whether it's -- how much we are accelerating, whether that's a new line we should go after. But overall, I'm very encouraged where we are. And more importantly, I'm encouraged about that we continue to grow through an accelerated conversion.

If you look into the academic environment, as I mentioned before, we're pleased to see that the grants are flowing. I think it's -- from now on, it's more getting predictability in the grant flowing and the predictability that the researchers can actually expect to get also future grants. Because they are not planning their spending based on 1 grant. They're spending on what is expected to come over the next few quarters. So I think that's the next -- this was a great checkmark that we now see that NIH is spending. The next check mark is, of course, we need to have the budget approved, or at least the CR. And finally, of course, we need to see that the grants are flowing regularly.

So I think that's the steps we have to go through. How long time that's going to take? I don't know exactly, but it's going to move into '26, for sure.

Our next question will come from Subbu Nambi with Guggenheim.

First -- 2 quick ones from me. First, it looks to me, Ankur, that you're expecting a bit of step-up in Q4 instrument revenue outside China, up to $125 million. Do I have that right? It would still be down year-over-year, but it's a decent sequential step-up. So what are you assuming relative to historical norms when it comes to budget flush?

And second, as a follow-up to Catherine's question, is that the right way to think about research customers that most of the X transition is done? I ask because, unlike clinical, which you did a nice job addressing in the slides, I would think you get to the other side of the transition and start growing again more quickly. Is that right?

So Subbu, let me start here on overall. I think there's nothing uncommon in having a very strong Q4 in instrument placements. That is the usual way we look at it. So I don't consider that as a budget flush, but it's very normal in the Q4, and we saw that last year and we've seen the other years also in Q4 is usually stronger. And that's not an Illumina thing, I think that's a life science -- at least what I know, a life science tools industry phenomenon. So we're expecting that also for Q4, but we are not building in any specific time of flush -- budget flush. Ankur?

Yes. Subbu, good questions. So Jacob's addressed the Q4 instruments. Certainly anticipating and the forecast assumes a pickup up there, not as big as the 91 placements that we had in Q4 last year. That's not what we're assuming in our forecast, but if that happens, that will be a nice upside overall.

In terms of the research market looking forward, you have it right in the sense vast majority of the volumes in the research market have transitioned to X, implying that as and when those markets return to growth or even in a stable environment, the actual pricing headwind should start to dissipate from that and resulting into a better revenue performance or revenue growth performance.

We're also pleased with the series of multiomics that are getting launched. We feel we're very well positioned as and when those markets return as well. So yes, thinking about the right way.

This concludes the Q&A section of the call. I would now like to turn the call back to Conor McNamara for closing remarks.

Thank you for joining us today. A replay of this call will be available on the Investors section of our website. This concludes our call. We look forward to seeing you in upcoming events.

This concludes today's call. We thank you for your participation. You may disconnect at this time, and have a great day.

Good day, ladies and gentlemen. Welcome to the Second Quarter 2025 Illumina Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the call over to Interim Head of Investor Relations, Brian Blanchett.

Hello, everyone, and welcome to Illumina's Second Quarter 2025 Earnings Call. Today, we will review our financial results released after market close and provide commentary before opening for Q&A. Our earnings release is available in the Investor Relations section of illumina.com. .

Speaking today are Jacob Thaysen, Chief Executive Officer; and Ankur Dhingra, Chief Financial Officer. Jacob will provide an update on Illumina's businesses, followed by Anukur's review of the company's financials.

All financial information shared on this call relates to core Illumina. For historical consolidated financials, please refer to our earnings release and SEC filings. Please note that all year-over-year revenue growth rates discussed during the prepared remarks, are presented on a constant currency basis to exclude the impact of foreign exchange fluctuations. We encourage you to review the GAAP reconciliation of our non-GAAP measures, which can be found in today's release and in the supplemental data available on our website.

This call is being recorded, and the audio will be archived in our Investors section of our website. It is our intent that all forward-looking statements regarding the financial results and commercial activity made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. To better understand the risks and uncertainties that could cause actual sales to differ, we refer you to the documents that Illumina files with the Securities and Exchange Commission, including our most recent Forms 10-Q and 10-K.

With that, I will now turn the call over to Jacob.

Thank you, Brian, and good afternoon, everyone. In the second quarter, despite a year-over-year decline, we delivered revenue at the high end of our guidance range at approximately $1.06 billion. At the same time, the team's strong execution drove profitability above expectations with non-GAAP operating margin of 23.8% and a non-GAAP EPS of $1.19. Together, these results reflect meaningful progress across the business and reinforce our view that the underlying fundamentals remain robust. .

In Q2, we saw ongoing adoption of our NovaSeq X platform with greater than 50 placements, increased high-throughput consumable sales, especially among NovaSeq X users as the transition continues to progress. Continued advancement of our innovation road map with key updates to our multi-omic strategy, reflecting disciplined execution of our long-term capital deployment plan. We are encouraged by the strength we are seeing in the clinical markets, which now accounts for roughly 60% of total sequencing consumables.

Clinical has proven more resilient and in some areas, is exceeding expectations, reinforcing our confidence in the durability of clinical demand. We're seeing this momentum across multiple clinical applications. In oncology, adoption continues to grow for comprehensive genomic profiling, and we are seeing increased interest in sequencing-intensive applications like minimal residual disease, which sets us up well for future clinical growth.

In generic disease testing, growth continues to be driven by expanding national genome programs and broader adoption of whole genome and whole exome sequencing for rare diseases. In reproductive health, we are seeing growth in NIPT sample volumes, particularly in the U.S. as more customers complete validation and ramp up clinical testing. We continue to believe the long-term clinical opportunity remains significant with NDS adoption increasing as genomics become standard of care for therapy selection, early detection, monitoring and expands into other disease types.

While clinical demand has been encouraging, the research environment, particularly in the U.S., remains constrained amid ongoing NIH funding uncertainty. As expected, Demand from this segment remained soft in Q2, with some labs delaying projects or holding off on hiring due to concerns about the future grant availability. In the meantime, we are actively working with our customers to help them navigate this period.

Separately, in China, our ability to export instruments is still restricted. We continue to engage with regulators to identify solutions that support our long-term sustainable presence in the country, and we will keep you updated on any material developments. As we navigate these near-term market dynamics, our focus remains on disciplined execution and laying the foundation for long-term success. The focus underpins our commitment to achieving our financial targets and delivering high single-digit revenue growth and expanding non-GAAP operating margin to 26% by 2027.

We are advancing towards these targets by delivering across our 3 key drivers: growing our core sequencing business, including continued progress the NovaSeq X transition. Scalable entry into multiomics to complement our sequencing platforms and expanding our services, data and software offerings to provide more integrated customer solutions. Together, these priorities support our broader strategy and vision for the industry of shifting from cost per gigabase model to delivering the highest quality biological insight at the lowest end-to-end cost.

Now I'd like to focus on the progress we're making in our multiomics driver, which is centered on delivering differentiated solutions that integrate with our sequences. We've already announced our capabilities in single cell, CRISPR-based [indiscernible] and spatial analysis. And in June, we took another step forward in proteomics with our announced acquisition of SomaLogic on standard Bio tools. This acquisition expands our presence in affinity-based proteomics, a small but fast-growing segment of the broader proteomics market. and builds on the exclusive commercial relationship we have had with [indiscernible] since 2021.

SomaLogic is a key player in high throughput proteomics. The [indiscernible] assay can analyze over 9,500 unique human proteins from small biological samples, delivering deep, actionable insights for drug discovery, diagnostics and health monitoring. What sets their technology apart is its proprietary SOMAmer binding reagents, highly precise affinity reagents that bind to specific proteins with unmatched sensitivity, scalability and replicability. This approach delivers broader coverage than other methods while reducing the time and cost of deeper proteomics analysis.

Bringing SomaLogic into Illumina builds on our existing long-standing partnership. As our collaboration progressed, our conviction in that technology deepened and we saw a clear opportunity to accelerate innovation by integrating their capabilities into our innovation engine. With Illumina's expertise in product development and global commercial reach, we will scale that technology faster, expand customer adoption and achieve greater operational efficiencies. SomaLogic is a strong strategic fit for Illumina.

Their technology, when paired with our platforms, offer a highly scalable and cost-efficient solution for proteomics discovery. By more deeply integrating peromixs in our ecosystem, we're expanding our ability to deliver greater biology insights through our end-to-end workflows. This enhances the value proposition of the NovaSeq X and creates the potential to extend SomaLogic technology into other multi-omic applications such as single cell and special.

With this addition, we are advancing Truebord's a more comprehensive multiomics portfolio, spanning DNA, RNA, methylation and now proteomics. We expect the transaction to close in the first half of 2026. After obtaining the necessary regulatory approvals, we are looking forward to welcoming the SomaLogic team to Illumina and expanding the impact of proteomics together.

As we advance key elements of our multi-omic strategy, we're also seeing strong momentum across our recent platform launches. One example is the MiSeq I100 plus our latest benchtop sequencer. Since launching late last year, we placed more than 500 instruments and are now seeing customers order additional units after just a few months of use. Customer feedback on the MiSeq I100 platform remains very positive. Customers are calling it a game changer, highlighting faster turnaround times, ease of use and room temperature shipping and storage reagents, all features that make sequencing more accessible for lapse operating in a wide range of resource settings.

This reduces reliance on centralized labs shortens diagnosis turnaround time and gives customers greater autonomy for running oncology, infectious disease and other clinical applications. These features are especially attractive to lapse adopting NDS for the first time as well as those in emerging markets. The MiSeq I100 platform currently supports 18 proven workflows including 9 fully integrated from library prep through analysis. This level of integration reflects a broader shift in how we approach innovation, grounded in deeper customer insights and close collaboration throughout development.

MiSeq I100 sets a new standard for the future of Illumina innovation, optimizing for complete end-to-end workflows that lower barriers to adoption and deliver high-quality insights at scale. Before I hand it over to Ankur, I want to briefly share our views on the remainder of 2025. We are encouraged by the momentum in our Q2 results, the progress of our innovation road map, and we remain focused on disciplined execution.

However, we continue to approach the second half of the year with caution. Given the ongoing funding uncertainties in the U.S. research market. That said, we are raising our guidance for total company revenue growth as well as total reported revenue non-GAAP operating margin and non-GAAP EPS, reflecting strong execution and operating discipline across the organization.

I will now turn it over to Ankur to provide more detail on our results and outlook before we move into Q&A.

Thank you, Jacob, and good afternoon, everyone. I will give you an overview of our second quarter financial results. provide more color about revenue, expenses, earnings and developments on our balance sheet and capital deployment and then speak about our outlook going forward.

Before I get into the details of the financial performance, let me provide a high-level view of how the second quarter played out. In Q2, we made further progress on our long-range goals and delivered results exceeding our expectations for the quarter.

Revenue, although lower year-over-year, came in at the high end of our guidance range, driven by strength in high throughput consumables. We saw strong organic margin expansion and EPS of $1.19, which well exceeded the top of our guidance range. As expected, research customers, especially the U.S. academic and government customers continue to manage their budgets tightly in the face of funding constraints. The trends in Q2 were generally in line with what we saw in the later part of Q1.

On the other hand, our clinical customers continue to invest in expanding their portfolio and scaling current on-market tests. Our Greater China business was slightly better than the guide and our customers in Greater China continue to be very engaged and supportive Illumina's differentiated technology. Sales of consumables have held up well, and we remain in discussion with development authorities.

Now let me provide you details of the financial performance. Second quarter revenue of $1.06 billion was down approximately 3% year-over-year on both constant currency and reported basis. Greater China revenue of $63 million was slightly ahead of expectations and represented a $12 million decline from the second quarter of 2024. Excluding Greater China, Illumina revenue was down approximately 2% on a constant currency basis.

Sequencing consumables revenue of $740 million was approximately flat year-over-year and up approximately 6% sequentially on a reported basis. High throughput consumables grew both sequentially and year-over-year, including a greater than 10% sequential growth in NovaSeq x consumables revenue. Strong growth in the clinical segment which now represents roughly 60% of our total sequencing consumables is primarily driven by broader adoption of comprehensive genomic profiling and increased momentum in sequencing-intensive applications like MRD which sets us up well for future growth.

The X transition continues to progress as we've reported over 80% of the sequencing volumes for our research customers have already transitioned to X. With these customers continuing to face budget constraints. Our clinical customers continue with the transition, working through validation and balancing that investments between on-market tests versus development of new tests.

The clinical X transition has progressed to roughly 55% in the quarter. In Q2, roughly 69% of high throughput gigabase is shipped and approximately 44% of high throughput consumables revenue was on the NovaSeq X Series. We continue to make progress on the high throughput transition from what we previously disclosed. And at the current pace, we anticipate that towards the end of 2025, approximately 50% of high throughput revenue and approximately 75% of GPs shipped to be a NovaSeqX-Series. We expect this to be driven by the clinical segment as customers scale on the NovaSeq X.

About 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, driven by robust strength in clinical, but more muted growth from our research customers. Although not a predictor of near-term revenue, GB output on connected instruments provides us a directional view of underlying applications demand and levels of utilization of our connected instruments and consumables.

Sequencing instruments revenue of $96 million was down approximately 18% year-over-year in Q2. As we saw the effect of constrained budgets from our high and mid-throughput research customers. The funnel pipeline is held, but we saw extended decision times amongst our customers. Approximately 60% of the excess placed in Q2 were to clinical customers.

On the low throughput side, MiSeq I100 launch continues to progress quite well. and our customers have had positive reviews for the platform and are excited about the MiSeq 100 base model launch next month.

In Greater China, our instruments business was down approximately 40% due to restrictions on exportation. Sequencing service and other revenue of $136 million was down approximately 5% year-over-year in line with expectations. The decrease was mainly due to the timing of certain strategic partnership revenues last year related to the AGD consortium.

Excluding those items, our core services and informatics business grew high single digits. Moving to the rest of Illumina P&L. Non-GAAP gross margin was 69.4% for the second quarter, which increased 200 basis points quarter-over-quarter and remained stable year-over-year.

We experienced favorable product mix in our sequencing business driven by high consumables revenue mix. Additionally, our ongoing operating excellence action plan initiatives contributed to improved gross margin performance this quarter. Tariffs had a partial impact this quarter with a net impact of approximately 110 basis points on our gross margin in Q2.

Non-GAAP operating expenses were $484 million which is down approximately 6% or $32 million year-over-year. This reflects the effect of actions we've taken towards a long-range commitment of expanding margins while prioritizing key growth investments. As a result of our discipline, we did not experience the typical seasonal rise in OpEx that occurs post Q1. Non-GAAP operating margin was 23.8% in Q2, which increased 160 basis points year-over-year.

Operating profit grew approximately 4% year-over-year on lower revenue, reflecting increased operating leverage from the improved cost structure. Looking at our results below the line, non-GAAP other expense, which is largely comprised of net interest expense was $10 million and non-GAAP tax rate was 22.2%. Note that the recent tax legislation had no impact on our Q2 tax rate as it was enacted after quarter end.

Our average diluted shares were approximately $157 million, approximately $2 million lower than last quarter, driven by an increased level of share repurchases, net of dilution from employee equity awards. Altogether, non-GAAP EPS of $1.19 per diluted share grew 9% year-over-year and came in well above our guidance range.

Moving to cash flow, balance sheet and capital allocation items for the quarter. Cash flow provided by operations was a robust $234 million. Capital expenditures were $30 million and free cash flow was $204 million. 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.

Additionally, we entered into a definitive agreement with standard Bio tools under which Illumina will acquire SomaLogic and other specified assets for $350 million in cash payable at closing, plus up to $75 million in near-term performance-based milestones and royalties. We expect the deal to close in the first half of 2026 subject to regulatory approvals.

We remain hyper focused on maximizing our growth opportunities through capital allocation initiatives with high conviction in their contribution margins to a long-term strategic plan. We ended the quarter with approximately $1.16 billion in cash, cash equivalents and short-term investments in gross leverage of approximately 1.7x gross debt to last 12 months EBITDA.

Now moving to guidance for the year 2025. As you may have seen in the press release, we have raised our operating margin and EPS expectations for 2025 and are holding rest of the world constant currency revenue growth at the range we provided in May. We've also increased our revenue expectations from China. Let me provide further details. Starting with revenue. We're raising our revenue guidance for the Greater China region by $25 million at the midpoint to approximately $200 million for the year.

Although we remain restricted to export instruments into the country, we have seen resilience in consumables purchases and strong customer support that we believe will extend at least in part through Q3. For the rest of the world, we are reiterating our revenue guidance of growth between 0% to 2% on constant currency. Hence, we now anticipate total Illumina constant currency revenue decline to be in the range of minus 0.5% to minus 2.5%.

Including FX changes, we now expect reported Illumina revenue in the range of $4.23 billion to $4.31 billion. Now shifting into our product assumptions. For rest of the world, we now expect sequencing consumables growth between 1% and 3%, up from flat to 2%, driven by strong sequencing activity from our clinical customers and aligning our guidance with our reported revenue to include the impact of pricing actions. With lowering our expectations for the rest of the world's sequencing instruments to decline between 4% and 6% year-over-year, including the impact of pricing actions. This decrease is largely due to conservatism from our research customers that we saw towards the end of Q2, although we still expect demand for NovaSeq X instruments to slightly increase and low throughput growth driven by placements of the MiSeq I100, we have seen weakness in the throughput.

Now moving down the P&L. As previously communicated, the Illumina team is making good progress on our operational excellence initiatives and lowering our cost base. Our cost discipline as well as increased revenue driven migrated China outperformance and favorable FX rates has allowed us to raise our operating margin guidance by approximately 50 basis points to a range of 22% to 22.5%.

Furthermore, earlier this month, new legislation were passed that allows U.S.-based R&D spend to be tax deductible. Given the scale of Illumina's large U.S. R&D base, we anticipate this will having a positive effect on our tax rate for 2025 and beyond. We now expect our '25 tax rate to be approximately 20%. Given our increased level of share repurchases, we now expect FY '25 [indiscernible] of approximately 157 million shares. Bringing it all together, these developments have allowed us to raise our EPS guidance by $0.25 at the midpoint to a range of $4.45 to $4.55. Approximately $0.10 of this improvement is from tax changes, approximately $0.10 from China and the remainder from FX and operating margin improvements.

To summarize, at the midpoint, our revised FY '25 guidance reflects an increase in revenue of $50 million, an increase in op margin of 50 basis points and an increase in EPS of $0.25. Now moving to the third quarter of 2025. For the third quarter, we expect revenue outside the Greater China region to grow between 1% and 2% year-over-year on a constant currency basis. and revenue in Greater China region between $35 million and $45 million. Together, we anticipate total Illumina constant currency revenue decline to be in the range of 1.5% to 2.5%. We expect non-GAAP operating margin of approximately 22%, non-GAAP tax rate to be approximately 16%, [indiscernible] of approximately 155 million shares and non-GAAP earnings per share in the range of $1.15 to $1.19.

For Q4, this implies an uptick in revenue, roughly half coming from usual seasonality in instrument purchases. We expect the remainder to come from a combination of data service offerings like AGD and new products like our proteomic solution. In closing, I want to express my continued appreciation to the Illumina team for their relentless focus on execution and delivering another quarter of progress towards our short- and long-term goals, which is allowing us to raise the guidance for the year. Thank you for joining our call today. I will now invite the operator to open the line for Q&A.

[Operator Instructions]

Our first question will come from Vijay Kumar with Evercore.

Congrats on the French here and the execution. Just maybe my one question is on the guide change. If you could just give us a bridge here, right? It looks like instruments came down by $25 million, China up $25 million, maybe some was FX. What else -- like did consumables change? Is there anything else changing on micro arrays? I think you mentioned new products here, Ankur. And maybe, Jacob, you can talk about new products and pipeline. How big of a deal is this? I feel like Street has not given enough attention on pipeline, but could this be more meaningful next year?

Vijay, thank you very much, and thank you for your acknowledgment of our great quarter here. So you're absolutely right. We have a lot in our pipeline. And in fact, I did see the feedback from our early access customers here recently on both Constellation on 5 base and on our spatial solutions. And I would say we have got very, very strong feedback from all 3 products.

Our customers are very happy to get access to this before. As you reminder, earlier, we will probably more be launching it and get feedback from customers. Now we're engaging with them very early so we can get feedback on it, but they can also start to be excited about it and start to think about publication, but also making grants. So that is something that we believe will start to have an impact here already in '26. So we do believe that this will be an addition of growth starting from '26 and onwards. Ankur?

Yes. Thanks, Jacob. And thanks Vijay as well. So to your question about the ins and outs for the guide here, let me tell you -- let me parse it into 2 different ways based on the question you were asking. So one is the guide is up because of FX as well as increase in China in aggregate. The -- if you think about it from the rest of the world perspective, we are reducing our expectations on the instrumentation side based on just what we've seen in Q2 overall and primarily coming from the research market and the way we've seen the pipeline work through during the quarter.

But at the same time, the offset for that instrumentation is in consumables for the rest of the world. So we are increasing our expectations for the consumables business, which came in quite well in Q2 and as we see the pipeline for the rest of the year as well. The second part on your question was around services. There are 2 parts to that. One is we've talked about the data services business. If you recall last year, for the full year, we had about, say, $80 million to $90 million full year business in that data services side coming from our EGD consortium, which was slightly heavily weighted towards the first half of the year last year, which is, if you recall, I made a commentary during our earnings call last quarter to say that comparison becomes favorable for us in the back half of this year. We are anticipating some business in that space and potentially some of the new services that we're looking to launch here in the back half of the year. And if all goes well, we will talk about it when we get to our '26 guidance about what we anticipate from those services.

Your next question will come from Subu Nambi with Guggenheim.

Have you guys seen any change in customer behavior in anticipation of competition? How are you preparing for that possibility? As we look at the Roche platform, one attribute that seems hard for you to match based on the current engineering is probably turnaround time. So building off of Vijay's question, is there something in the pipeline that would allow you to be more competitive with a high throughput platform when it comes to turnaround time?

Yes. So Subu, we definitely spend a lot of time thinking about competition. But I would say we spend even more time thinking about our customers and how we continue to serve them every day. And this is something that I saw coming into this company is that I think we could do a better job on engaging with our customers, as I mentioned before, engaging them on early access to our technology, sharing the road map and other things. So that's kind of what our main focus is to make sure that we are always supporting our customers.

Now we continue to innovate. We have the largest focus and the largest budget in this industry with -- from an R&D perspective. And as you can anticipate also, we have a lot of things going on. We have been out there speaking openly about what we are working on in the multiomics space. But clearly, we are not sharing everything we are doing also on our instrumentations to address what we believe are the main growth markets going forward. So this particularly is in the clinical space, also in the decentralized space.

We are looking to the attributes. We are working a lot with our customers to understand also what are the attributes they're looking for. And you're right, there are customer base that are looking for fast turnaround time. This is a niche market in the NICU where you need to have a very fast result out and you will compromise maybe in the ease of use or even the quality of sequencing.

But if you look for the vast majority, here, we are looking in where an overnight run is more than reasonable and you can get all the information you want out. So that's the market we are focusing on, and our technology is very powerful to support that part of the business. And in the end, our focus will be the highest quality insight for the lowest end-to-end, independent on what customer we are addressing.

Your next question will come from Puneet Souda with Leerink.

So just wondering, did you see any pull forward from the customers in the quarter we were hearing some of the customers were stocking ahead of the tariffs in EBIT during May and April as well. And then just wondering, when you think about the customers on the clinical side, what are you hearing from some of your larger customers, the clinical transition rate here is slow, but this is more in line with what you had expected for the X transition, I mean. Just trying to understand what are some of the larger customers with large fleets of x -- large fleet of 6,000 telling you about transition to x. I think the question there is, could that transition happen aggressively in the second half? And what are you hearing from those customers?

Yes. So let me start to address the first one about whether we saw any pull forward. We didn't. We saw to that extent, a normal quarter. What we do see is that we have increased backlog that in the beginning when we launched the X, obviously, many customers needed to test out and started to validate and it was unclear what volume they -- and when they would shift that over. So in that sense, it was more from hand to mouth so to say, from an order perspective. .

Now many of our customers feel very comfortable in running the X and running that in manufacturing mode or in production mode. And that also means that they can better plan which is now showing up in a higher -- in a higher backlog. So that is where we expect it to be. As you mentioned, we continue to see the transition to the X happening. But again, if you go down, if you dig down into the individual customer level, -- there are, of course, each customer have the plans. They want to validate. They want to make sure they can -- and you can see many of our clinical customers are growing very rapidly. So they do not want to compromise that growth. So they are very, you can say, -- they have a very clear program for when they want to move it over. And there's no cliff happening where everything is moved over in 1 quarter or another quarter. but it will happen for our customers saying, now it's time for us to shift over.

And then you will see the -- that customer rapidly move over an assay or and a number of assays, so we expect that to happen fluently here. That will be maybe a quarter that will be a little higher, maybe a quarter, that would be a little over from a transition perspective, but we don't see any clip happening anytime soon here at all.

Our next question will come from Doug Schenkel with Wolfe.

I believe your guidance implies the company will generate about 2 points of revenue growth in the fourth quarter, excluding China, which would be the highest rate in at least 2 years, assuming I have that right. So -- my first question is, well, do I have that right? And if so, what's the significance of that in the context of thinking of some of the pricing issues and other things that you've been working through over the last couple of years.

And then secondly, building off of that, and if I may, just make 3 key observations heading into the question. One, exiting 2025, global research will be under 40% of sales, which still could decline given the NIH backdrop in 2026. Even recognizing some of the good news we got out of the Senate today. But on a weighted basis, even recognizing maybe it's not going to be as bad as feared, that could be a 2- to 3-point headwind next year.

Second, China could remain under pressure, but China could be down to around 2% of sales exiting the year. So whether it's a good guy or a bad guy, it's getting small -- and then third, a clear good news, a clear good guy is clinical will be over 60% of sales growing double digits with much higher volume offset by some pricing. So on a weighted basis, that could grow 6 points you got maybe a 2- to 3-point growth headwind when it comes to the research end market. Mathematically, when I blend these things, it seems like you should be able to grow core revenue low single digits and maybe even mid-single digits, excluding China next year. Is this a reasonable framework as we sit here today? And is there anything else you'd want us to contemplate as we're updating our models, whether it's upside contribution from pipeline, some caution when it comes to competition. Anything would be helpful on all of these fronts.

Yes. Thanks, Doug. And that was a long question to really ask me whether I'm providing some guidance on '26, which I think is a little too early. We are very much focusing on executing here on on the business here for '25 and -- but we do see good momentum. And what I will leave you with here is that we are -- as we mentioned also last year, when we put out our strategy is that we expect ourselves, and we expect that the X transition is the main driver for growth over the next period of time. And it will be the one that that we thereby start to step into growth. And thereby, we expect '26 to look better than '25 and '27 look better than '26, that's kind of in the logic of things. .

As you also mentioned that, of course, in and out. But our main growth driver will be going forward also in the clinical space. And I think that is very much supported by the evidence of all our clinical customers of the result they are showing and we continue to see that the X will be the main driver of this. We also expect that multiomics will still start to add some at least 1% point of growth here coming into '26, '27, probably more '27 level. So that's where we are today, but we are -- we do believe that the future is very exciting. The markets we are serving are large, yes, there will be ins and outs. And we will be focusing on our our -- the business that we can fully control, which is, of course, more than 95% of our business which is outside China.

Your next question will come from Eve Burstein with Bernstein.

Following up on one of your answers, you said that you didn't see any pull forward in advance of tariffs. But what about the China consumables? How much of that, if any, was pulled forward maybe in advance of from current customers worried about potentially not being able to buy more consumables in the not-so-distant future. And to that point, is it fair to say that your guidance increase for China could be quite specific to 2025 and not necessarily a sign of an improving outlook for 2026.

Yes. Look, Yes, so let me go back and talk about China, even though I do not like to spend too much time on a very small part of our business. But just to put it in context here is that we I'm very pleased with what I see, Jenny, our General Manager in China and the Chinese team, what they're doing. They're doing amazing job to support our customers out there. And I think it speaks volume also that we continue to see a lot of interest from our customers. And I think the feedback we're getting from customers is that they really want us to stay in China based on the high quality we provide, the innovations and, of course, the ecosystem that is very important for the Chinese customers also. So we do see a lot of interest for them.

But as you also mentioned, overall, under the current circumstances, the situation is unsustainable. So we continue to work very diligently with the regulators to get a resolution. From a pull-forward perspective, I think we saw some of that maybe in the first quarter. But I don't -- we don't see that right now. I think we're more into a natural run rate for the business, and that's also what we have. So we feel good about how we have guided for China.

Yes, Eve, I would add only a couple of things. So thanks, Jacob. Pull forward in the rest of the world outside China, really not much of a pull forward. We did see good orders. Just a reminder, but our largest part of the business, which is high throughput consumables and X, there is a limited shelf life. So the pull forward really cannot be significant. We saw orders for future shipping but not necessarily a pull forward in shipments during Q2.

And to your second part about China, as Jacob said, we are in discussion, but the raise of guidance in China for Q3, you're right, we're not thinking about it for the for the long term. It is for the current quarter. Our working model there, as Jacob was saying, is we're in discussion with the authorities to get to a constructive resolution here for the long run.

Your next question will come from David Westenberg with Piper Sandler.

Congrats on a good quarter here. So I want to stay with the clinical cliff. I know that clinical has been a great market actually for you the last 3 years relative to academics. So -- but maybe there is a little bit of some uncertainty from some investors. So can you talk about spending patterns that you've seen from clinical customers and maybe even isolate some that have had it since the very beginning, the first year and what their spending has looked like as we look now into Q3? And if there's any granularity in terms of customer transition patterns like their entire fleet versus a portion of their fleet and how that's kind of impacting spending in clinical.

And secondly, and just in this transition, you've also mentioned this is critical. It only went from 43% to 44% of the volume on X. If you have a big jump in in the back half of the year driven by clinical, why wouldn't that see a revenue drop there?

Okay. Dave, thanks, at. So overall, let me start with just positioning this a little bit, and then we can have Ankur digging further into the details. But you're absolutely right that the clinical part of our business is very strong. And I truly believe this has continued to be a strong market for us for the foreseeable future, which is quite [indiscernible] there. The markets are very attractive. We continue to see a lot of opportunities in the oncology space. As we all know, there's a lot going on, on the therapy selection is part of it. But -- and we're just opening up for the [indiscernible] and of course, in the end screening will also be meaningful eventually.

So that's a long horizon on the opportunity in the clinical oncology space. And actually, in the genetic disease testing area also rare diseases and others where we see a lot of interest, both to expand rare disease testing for broader part of the population. Rare disease is not a strategy we think and then also shifting into newborn screening, which is going to be a large opportunity going forward. So we absolutely agree that there is big opportunities in the clinical space and will be a main driver for the Illumina going forward.

Now as you mentioned down into the details about what the transition looks like. I'll start by saying that overall, most customers, if they have been on the 6-K, they are making a decision that when they shift over to the X that mostly most of the time, they are not only just trying to reduce the cost of the test actually trying to expand the test. This is a very and highly competitive environment. So for many of our customers, it's about to stay competitive. And the way you do that is to provide even better assays for your customers. And that is by expanding them and providing more insights.

Secondly, there are customers that will stay on the 6-K until the end of life, so to say, for the assay, where they feel like they maybe have 2 years more end of life, and it's simply from a from a financial perspective, it doesn't make sense for them to spend the energy and the investment to shift it over to the X. So that's on the highest level of the transition. Ankur, do you have the.

No, I think that's fairly good, Jacob. The -- it's not an overnight change. It takes validation, and it's a step-by-step process. And Dave, you've -- we've seen in the past as well, the transition quarter-to-quarter has not been a linear line. It is lumpy, some moves in a quarter, some doesn't. So I'm not reading a whole lot into this or to say that we certainly have a big material change coming here within the next couple of quarters either.

Our goal still has been that overall, the volume, 75% of the volume shifts to X in the back half of the year or in the half 2 of this year based on what we see in this quarter, it might be more towards latter part of Q4. But then again, it will be lumpy quarter to quarter.

Your next question will come from Tycho Peterson with Jefferies.

Understanding your instrument guidance overall here, how do you think -- how should we think about the trajectory of X placements for the rest of the year. I'm asking because with excess as a percentage of high throughput revenues, it only increased by 1%. You went from 43% to 44% this past quarter. So how do we get comfortable? You can hit 50% by the end of the year. And then can you also comment on what percentage of customers are now getting 30B reads. I know you introduced software to enable that, but that would have, I would think, some implications on consumable -- and then just on operating margins, you were much better than expected. Was that all tariff unwind or from the cost-out programs or both?

Tycho, were you asking about the 10 B reads or sorry, what was that.

Yes. The version 1.3 software release from last year. But the main question is about X placements.

Yes. So let me start there on the X placement is a reminder also that -- I would like to remind you also that we have very strong placements in Q4 with more than 90 placements and also into Q1, where we also had 60 placements. So -- many of those customers that purchased and where we installed X are still using that, especially in the clinical space, where we had the vast majority of instruments being placed are still using and bringing them into the production.

So you ask you will likely see that also have a meaningful impact here in the second half of the year. Now this won't be a cliff at all, but it will be also you will continue to see the shift of of the X transition. For the rest of the year, we -- as we guided before, we still believe that there on an average basis, that's between [indiscernible] instrument being placed per quarter. And there is an opportunity potential to see more instruments being placed in the fourth quarter depending on how we see budgets coming to [indiscernible] here. On the [indiscernible] itself, you're right that with the 1.3 release of our software, we did a lot of work to improve, and we will continue to do that on our customer experience. And a part of that was also to improve some of the yield in the 25B, but we are not committing to [indiscernible] at this point.

And then I'll cover the operating margin side, Tycho, bulk of the operating margin improvement was based on the cost actions that we -- some of them from last year and then some based on the actions we took in the early part of the year here beginning to get reflected in the P&L. The tariff side, we've started to work on it and beginning to see a pathway towards reducing the impact of tariffs. Not much of that was in our Q2 results per se. We think in the latter half of the year and certainly, early '26, we'll begin to see some of those benefits begin to come through. But not in Q2, as I said during my call, we expect our OpEx to kind of run at that lower level, reflecting almost over $100 million annualized improvement in our OpEx right now based on what you're seeing in Q2. So that's a structural change that we have gone through in our cost structure, which obviously should set us up well for much better operating leverage going forward as revenue returns to growth. .

Your next question will come from Kyle Mikson with Canaccord.

Thanks for the question. Nice quarter. on the growth framework. Jacob, you talked about in the past, I think like volume growth in the 20% to 30% range, price decreases as well in the mid-teens. I just was wondering if you could size how much of that volume growth will be from clinical risk research. I know there were some data points and assumptions that were talked about earlier. I just would love to hear your thoughts on that. .

And then second, do you have the cushion to push price lower if you have to, if and when new competitive threats enter the fold, i.e. that the Roche kind of [indiscernible]?

Yes. So we continue to see, as we mentioned also in the prepared remarks, we continue to see strong volume growth with our customers. And if you dig a little bit deeper into into this quarter. I think it should be obvious also that clinical was stronger than the research segment. So that was as anticipated because of all the [indiscernible] with NIH and other types of funding right now. But I think that's -- while it's been a little more -- a little bigger difference this time around, I think we do expect that we will see clinical growth be stronger on the long horizon, simply because the opportunity there is larger.

While we do actually think that when we see multiomic starting to really take off that, that will also start to improve on the research side of things. But that might be a few -- a little further ahead in our strategic planning period here. I think on the pricing perspective, we are still very stable and we are within the expected range of the pricing decline we are seeing on what we can do on pricing, look, I mean, we want to make sure we always understand our customer and what they can -- what they need in order to optimize their performance.

And we, of course, we are also having a conversation about if there are new applications that can be opened up by differentiating in pricing. So that is something we always will have with our customers. I think there's a saying out there that there might be other -- there might be competition that have a lower pricing -- but in most circumstances, Illumina had the best cost structure. So we will always be able to compete if we choose to do so on pricing.

Your next question will come from Dan Arias with Stifel.

I was having some on [indiscernible] issues. So, apologies if you touched on this already, but can you just talk a little bit about [indiscernible] growth from here and high throughput? Do you think you can stay in that 30% range in 3Q and 4Q? And if so, does that mean that we can still feel okay about that framework for 2026 that you've laid out sort of mid-20s GB growth and then a mid-teens pricing headwind as an offset.

Okay. Yes, good question, Dan. So we usually get that as part of the script, I talk about 2 things. One, generally to talk about the connected instruments, -- and when we look at our runs on those connected instruments in high throughput, that was above 30% overall. The dynamic that we saw during the quarter was clinical, as we've been talking about, remain quite strong, but we did see some slowdown on the research side, especially in the U.S. broader research side of the things, which was as anticipated, given everything that's going on in that space from a funding environment perspective. .

Looking forward, do I anticipate that it can stay above the 30% mark. We think so. I think the clinical specifically and also at least rest of the world outside China, although China hasn't been connected, staying above 30%. There's still several structural support that is coming in terms of especially MRD being a very attractive space. We've also seen during the quarter a good movement on the reimbursement side in the genetic disease side of tests and otherwise. So we are seeing the adoption of whole genome gaining traction even from a reimbursement perspective. So they're not good structural developments, especially on the clinical side of things that can drive the GB growth.

On the research side of things, I think our play with the proteomics should be a net new incremental from a sequencing perspective. So as we close the deal or we launched the IPP here that tool also attempts to bring some of the proteomics into the sequencing side of the business. It has always been heavily on the mass spec side as a market. But as we bring that into the sequencing ecosystem, that's another additional area that we're adding into the sequencing ecosystem.

But then just to take a step at this also just to highlight is that I think we mentioned this before, and I still stay with this is that the opportunity in this space is tremendous. And the activity in this space continues to be very, very strong. So I don't see why there would be any reason for not continuing with a very strong growth. [indiscernible], this will shift a little bit quarter-to-quarter. But if you look at the long horizon, the opportunity in this space is very, very solid. And we're seeing that in both, as we mentioned before, oncology genetic disease testing. But the -- the next thing that will happen is that you will look into new areas that we haven't really focused on right now, cardiovascular, neuro diseases and other things. So -- this is -- this will be a long term with a very strong growth opportunity.

Your next question will come from Dan Brennan with TD Cowen.

Maybe just a couple. Maybe on the mid-throughput, I think Ankur, you made a comment when you updated the guide about the throughput trends, maybe not as robust. Can you speak to that, the market maybe competition -- and then on the earnings raise for the R&D expensing, is that just on a go-forward basis? Or is that retroactive to the beginning of the year? And just wondering if you kind of baked in the full amount -- and then the final point would just be, can you just remind us on the broader U.S. economic kind of customer base? I know you've given us some color in the past. What's kind of assumed now in the full year guide from a revenue standpoint year-over-year and kind of how has that changed with the updated guide? .

So then I'll start talking about the mid throughput here. And just to put it in perspective, most of our high throughput customers, when they purchase an X, they do that to run high volume and with high utilization. And they do that in a production like [indiscernible]. So they know when they buy one that they want to run it every day in and out. When you look into the mid-throughput segment, which are much stronger associated with the research space. I think we have approximately 75% of that business, the [indiscernible] business sitting there. These are more project-based. And thereby also, there's a consideration when they are some conservative built in for the different companies or even from the academic institutions, they are pushing out the decision to acquire new instruments. And we are seeing that, that the decision-making process is taking longer time.

We're also seeing that even though they still on the project, we're also seeing that some of that is being outsourced to service providers. So the business is still there, but it shows up in the high throughput segment. And we do anticipate when the macroeconomic -- macro environment will change that we'll see some of those customers go back and run back to in-source some of their testing because they feel and they want to keep their samples in-house.

So at the same time, the MiSeq I100s has been super successful here, the launch we placed more than 500 instruments from the from the start of our launch in beginning or late 2024. And obviously, it is in the low throughput area, but it also with the capacity that can be done in the MiSeq I100 is pushing into the, I would call it, low end of the mid through area. So we're also seeing dynamic coming from that end. And then finally, you're right, this space is where we see most competition. But that hasn't really changed. The dynamic in that space hasn't changed over the past quarter. So I wouldn't attribute any of the [indiscernible] you see right now specifically to competition. So that's high level how I see things right now. Ankur?

Yes, sure. So I'll address the second part of the question there on the academia customer base. So our guide and expectations for that market -- part of the market remain unchanged. And so what we saw in Q2 from a business trend perspective was somewhat similar to what we saw towards the latter part of Q1. So our expectation there. I believe we said 15% decline for the year for that part of the business. In last call, it's still the same.

This concludes the Q&A section of the call. I would now like to turn the call back to Brian Blanchett for closing remarks.

Thank you for joining us today. A replay of this call will be available in the Investors section of our website. This concludes our call, and we look forward to seeing you at our upcoming events. Thank you.

This concludes today's call. We thank you for your participation. You may disconnect at this time, and have a great day.