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DATE

Thursday, July 30, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Head of Investor Relations - Conor McNamara
• Chief Executive Officer - Jacob Thaysen
• Chief Financial Officer - Ankur Dhingra

TAKEAWAYS

• Total Revenue -- $1.16 billion, representing a 9.5% increase year over year driven by clinical market demand and the NovaSeq X expansion.
• Rest of World Organic Revenue -- Increased 8.1% year over year, exceeding the high end of management's previous guidance.
• Non-GAAP EPS -- $1.31, growing 10% year over year or 13% excluding the dilutive impact of acquisitions.
• NovaSeq X Placements -- More than 95 units in the second quarter, bringing the total installed base higher three years after launch.
• Sequencing Consumables Revenue -- $775 million, up 5% year over year on both a reported and organic rest of world basis.
• Clinical Consumables Revenue -- Grew 15% year over year ex-China, reflecting increased adoption of sequencing-intensive applications.
• U.S.-Canada Clinical Growth -- Increased more than 20% year over year, remaining the primary driver of the clinical market performance.
• Research and Applied Consumables -- $105 million, a 7% decline year over year due to cautious customer spending and funding uncertainty.
• Sequencing Instruments Revenue -- $125 million, growing 31% year over year on both a reported and organic basis.
• NovaSeq X Transition -- 83% of total sequencing volumes and 59% of revenue have transitioned to the X platform as of the second quarter.
• Sequencing Output -- Total gigabase output on connected high and mid-throughput instruments grew more than 30% year over year.
• Sequencing Service and Other Revenue -- $154 million, up 14% year over year, supported by higher data revenue from the Billion Cell Atlas.
• SomaLogic and Microarray Revenue -- $105 million, up 21% reported, though microarrays declined 4% on a rest of world organic basis.
• Non-GAAP Gross Margin -- 68.2%, performing above expectations despite higher freight and memory costs during the quarter.
• Non-GAAP Operating Margin -- 22.5%, driven by higher volume and disciplined expense management.
• Full Year 2026 Revenue Guidance -- Raised to a range of $4.60 billion to $4.64 billion, reflecting a $50 million increase at the midpoint.
• Full Year ROW Organic Growth Guidance -- Increased to greater than 5% from the previous range of 2% to 4%.
• Full Year Non-GAAP EPS Guidance -- Raised to a range of $5.30 to $5.40 from the previous range of $5.15 to $5.30.
• Q3 2026 Revenue Guidance -- Expected between $1.14 billion to $1.16 billion, representing approximately 4.5% organic growth.
• Q3 2026 Non-GAAP EPS Guidance -- Projected range of $1.33 to $1.38 with an operating margin of approximately 24%.
• Share Repurchases -- The company repurchased 0.9 million shares for approximately $122 million at an average price of $129.07 per share.
• Cash and Liquidity -- Ended the quarter with $1.17 billion in cash and short-term investments against $1.99 billion in total debt.
• Billion Cell Atlas -- The program added three new biopharmaceutical partners, bringing the total to six since its launch.

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RISKS

• Thaysen stated, "Customers remain cautious as they navigate funding uncertainty. We saw some signs of improvements late in the quarter, but it's too early to call a recovery," regarding the 7% decline in research and applied consumables.
• Dhingra noted that the company "absorbed higher freight and memory costs in this quarter," which impacted the gross margin profile despite meeting performance targets.

SUMMARY

Management reported that second-quarter results were driven by momentum in clinical markets and a higher-than-expected rate of NovaSeq X instrument placements. The company increased its full-year guidance for revenue, organic growth, and earnings per share based on first-half performance and the expansion of its clinical installed base. Strategic focus shifted toward multiomics capabilities through the launch of new spatial biology workflows and the continued integration of SomaLogic proteomics. The company stated that while clinical demand remains a durable growth driver, research and academic markets continue to face macro-related headwinds and funding caution.

• CEO Thaysen stated that the momentum in clinical markets is expected to be "broad-based across regions and applications," with particular strength in the U.S.-Canada region.
• Dhingra indicated that the company secured additional inventory during the quarter to "de-risk any near-term movements in the memory prices" for future instrument production.
• The Billion Cell Atlas initiative reached a milestone of 300 million cells delivered to date, generating data revenue through partnerships with six biopharmaceutical companies.
• Management confirmed the launch of StrataMap Spatial, a sequencing-based spatial workflow designed to enable researchers to study tissue biology through the Illumina ecosystem.
• The company expect clinical volumes to reach 80% to 85% conversion to the NovaSeq X platform by the end of 2026, up from 78% currently.
• The 2026 fiscal year includes a 53rd week in the fourth quarter, which management expects to contribute approximately 0.5 percentage points to fourth-quarter revenue.
• CEO Thaysen noted that the whole-genome MRD research workflow is in early access, intended to reduce assay development costs and timelines for clinical customers.

INDUSTRY GLOSSARY

• MRD (Minimal Residual Disease): A clinical application used to detect very small numbers of cancer cells remaining in the body during or after treatment.
• Multiomics: An approach where data sets of different "omics" groups, such as the genome and proteome, are combined during analysis.
• Spatial Biology: A method of studying the physical location of molecules within a tissue sample to understand biological function in context.
• Proteomics: The large-scale study of proteins, which are vital parts of living organisms and the main components of physiological pathways.
• Gigabase: A unit of measure for DNA sequencing output representing one billion nucleotides.
• NGS (Next-Generation Sequencing): A high-throughput DNA sequencing technology that allows for rapid sequencing of entire genomes or targeted regions.

Full Conference Call Transcript

Operator: Good day, ladies and gentlemen. Welcome to the second quarter 2026 Illumina earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. 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.

Conor McNamara: Hello, everyone. Welcome to Illumina's second quarter 2026 earnings call. Today, we will review our financial results, released after market close, and provide prepared remarks before opening the line for questions and answers. 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 the 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 otherwise stated, 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 excludes Greater China due to our inclusion on China's unreliable entity list. This call is being recorded. 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 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.

Jacob Thaysen: Thank you, Conor. Good afternoon, everyone. We had a great first half of 2026, including another strong quarter in Q2. I couldn't be prouder of what the Illumina team delivered. Revenue grew at the fastest rate since I joined the company, driven by increasing demand for Illumina's technology as customers expand clinical applications. Our deep relationships with leading U.S. clinical customers and large installed base reinforce the durability of our position in these markets. Margins also came in above our guidance despite higher than expected costs. I want to thank our teams for their focus and commitment to our customers and shareholders. Our first half results puts us in a strong position as we look ahead.

We are raising our 2026 guidance for revenue growth and profitability while remaining committed to executing against our long-range targets. Today, I'm going to focus on three areas: our performance in the quarter and the trends we are seeing across our end markets, how we are expanding the value of our platform through new workflows and multi-omics capabilities, and the progress we are making against our long-term strategy and financial targets. Let me start with how the quarter came together. Rest of world organic revenue grew 8.1%, above the high end of our guidance, and demand for NovaSeq X remained high more than three years after launch, with more than 95 placements in the quarter.

Together with disciplined expense management, this translated into both margin and EPS above guidance. Clinical markets, which represent approximately 65% of sequencing consumables revenue, remained our primary growth driver. Rest of world clinical growth was broad-based across regions and applications, with particular strength in our U.S.-Canada region. Strong instrument placements over the past three quarters are expanding customer capacity and will support consumable growth for many quarters to come. Placements will vary from quarter to quarter, but demand remains elevated. In research and academic markets, results improved from Q1. Customers remain cautious as they navigate funding uncertainty. We saw some signs of improvements late in the quarter, but it's too early to call a recovery.

These customers remain an important source of innovation and help drive clinical adoption over time. Our expanding multi-omics portfolio give customers more ways to analyze biology and broadens how we can support these markets over time. Let me turn next to innovation. Our strategy is to deliver the highest quality insights for the lowest end-to-end cost. The updates we made this quarter advance that goal by expanding what customers can do on NovaSeq X and increasing the value of the Illumina ecosystem. Within core sequencing, NovaSeq X remains central to our approach. Customers are investing in the platform not only for what it enables today, but because they see a clear path to use it for years to come.

The roadmap we laid out earlier this year gives them confidence that the X will continue to support their workflows over time, helping sustain demand for the platform. We recently launched our whole genome MRD research workflow, a tool designed to help customers shorten asset development timelines and lower development costs. The solution runs on NovaSeq systems and is now in early access with select customers. Beyond core sequencing, we are expanding our multi-omics offerings, consistent with the strategy we laid out in 2024. This summer, we expanded our portfolio with the launch of the StrataMap Spatial, our sequencing-based spatial workflow.

This launch broadens our capabilities in spatial biology and gives researchers another way to study tissue biology through the Illumina ecosystem. We are also seeing sustained proteomics momentum following the close of our SomaLogic acquisition. Our newly branded SomaScan and SomaSeq offerings are generating strong interest and helping customers connect proteomics and genomic insights. In BioInsight, we are expanding our data and insights offerings to help pharmaceutical customers advance AI-enabled drug discovery. BioInsight brings together sequencing, perturbation tools, compute power, and AI to build high-quality multi-omics data sets and interpretation tools. These capabilities can deepen understanding of disease pathways, infer causality, and enable more predictive biological models.

One of the first key BioInsight initiatives is the Billion Cell Atlas, a genome-wide perturbation data set that deepens understanding of disease biology and generates data for AI models. We are producing this data at an unprecedented scale and with the quality and consistency needed to support biological discovery. With over 300 million cells delivered to date, biopharma interest continues to grow. We have started booking revenue from our Billion Cell Atlas, and we added three new partners subsequent to quarter end, bringing our total to six. While still early, these milestones are an encouraging sign of the opportunity ahead.

Later this year, we look forward to sharing additional BioInsight updates as we expand how customers can use biological data to accelerate discovery. Turning to our improved 2026 outlook, we are increasing our full year revenue outlook to reflect both our Q2 outperformance and our expectations for the remainder of the year. The momentum we are seeing, especially from our clinical customers, gives us greater confidence as we enter the second half. We now expect full-year rest-of-the-world organic revenue growth greater than 5%. We expect the pace of growth in the second half to remain broadly consistent with the first half, although the mix will shift.

Consumables revenue will continue to grow from a higher installed base, while instrument growth moderates against tougher comparison following several quarters of elevated NovaSeq X placements. The expanding NovaSeq X installed base will also add further consumables growth beyond 2026 and support our path towards high single-digit revenue growth in 2027. We are also raising our EPS outlook, reflecting Q2 outperformance, higher revenue expectations, and continued expense discipline. Ankur will provide the details in his remarks. Our updated guidance reinforces our progress toward the long-term financial targets we laid out in 2024, and we remain focused on achieving them. We operate in a healthy market with significant untapped opportunity.

By continuing to deliver innovative technology that improves customer workflows and expands their capabilities, we expect to maintain our leadership as the market evolves. With three consecutive quarters of growth, we enter the second half from a stronger position. Our teams are energized by the response to our recently launched end-to-end workflows. That interest confirms that we are solving the right problems and reinforces our innovation priorities. We are also strengthening the team leading this work. We recently welcomed Michael Sullivan and Julie Coletti to our management team, adding deep commercial and legal experience as we scale the business. We are equally pleased to welcome David King and Dan Skowronski to our board.

Their experience across healthcare, diagnostics, and R&D will be valuable as we advance our clinical and innovation priorities. I want to thank the entire Illumina team for their focus and commitment, and our customers for the trust they place in us. With that, I'll hand it over to Ankur to walk through the financial details before we move to Q&A.

Ankur Dhingra: Thank you, Jacob, and good afternoon, everyone. I will walk through our second quarter financial results, provide additional color on revenue, expenses, earnings, the balance sheet, and capital deployment, 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 second quarter played out. For Q2, our revenue and earnings results came in ahead of our expectations and guidance. Revenue grew 8% on organic basis ex-China, margins were ahead, and EPS of $1.31 grew 10% year-over-year. We placed more than 95 Xes. Turning to the details.

During the second quarter, Illumina's revenue of $1.16 billion was up 9.5% year-over-year, and 6.5% on an organic basis, with currency and acquired revenue together contributing approximately three percentage points to our reported growth rate. Rest of the world organic growth rate was 8.1%. Sequencing consumables revenue of $775 million was up 5% year-over-year on both a reported and organic rest of world basis. High throughput volume drove most of the revenue growth as the NovaSeq X install base continues to expand and pull through increased year-over-year. Sequencing consumables revenue in clinical markets grew 15% ex-China, with the U.S. Canada region continuing to grow above 20%.

We saw slower growth in Europe, Middle East, and Latin America region, largely due to ongoing near-term dynamics in the region. First half growth was approximately 17%, a slight acceleration versus the second half of 2025, reflecting continued adoption of sequencing-based diagnostics and more sequencing-intensive applications. We are raising our growth outlook in clinical markets towards the high end of our prior guide and now expect mid-teens growth for the year. Sequencing consumables in research and applied markets declined 7% rest of the world, year-to-date trends have remained consistent with our outlook entering the year.

Though we were encouraged by the trends in the quarter, including 9% revenue growth quarter-over-quarter, we believe it's still too early to predict the timing of an end market recovery, continue to expect mid to high single-digit declines for research and applied consumables in 2026. We made further progress in the quarter transitioning customers to the NovaSeq X. As of Q2, approximately 83% of volumes and 59% of revenue had transitioned to the platform. Despite continued transition dynamics, sequencing consumables posted strong growth. Approximately 78% of clinical volume is now on the X, we continue to expect clinical volumes will reach 80%-85% conversion by the end of 2026.

On sequencing activity, total sequencing gigabase output on our connected high and mid-throughput instruments once again grew more than 30% year-over-year, with clinical growth well above that. Sequencing instruments revenue of $125 million was up 31% year-over-year in Q2 on both reported and rest of world organic basis, driven by increased sales of NovaSeq X and the MiSeq i100. We made significant progress with our supply investments in the quarter, allowing us to place over 95 NovaSeq X instruments in Q2, as demand remains strong for the platform, especially among some of our largest clinical customers, where we saw several multi-unit capacity expansion orders, including for start of new clinical trials.

We also placed over 10 NovaSeq 6000 units as some customers plan to remain on that platform for years to come. Sequencing service and other revenue of $154 million was up 14% on both a reported and rest of world organic basis. As Jacob mentioned in his prepared remarks, we are gaining traction in our Billion Cell Atlas program, resulting in higher data revenue from biopharma customers. Microarrays and other revenue of $105 million was up 21% reported and included SomaLogic revenue, which continues to track towards the high end of our deal expectations. On rest of world organic basis, microarrays and other revenue declined 4%. Moving to the rest of the P&L.

Non-GAAP gross margin of 68.2% came in slightly better than our expectations, especially given product mix from the relatively high sales of instruments in the quarter. We also absorbed higher freight and memory costs in this quarter. Non-GAAP operating expenses were $530 million and include SomaLogic expenses. In addition, we had approximately 60 basis points of deferred compensation this quarter, which is EPS neutral with offset in other income. Non-GAAP operating margin was 22.5% for the quarter, above our guidance, driven by higher volume, as team did excellent job in absorbing increased inflationary effects. Looking below the line, non-GAAP net interest and other expense was $8 million in the quarter.

Our non-GAAP tax rate was 20.5%, and average diluted shares were approximately 153 million, reflecting continued share buybacks. Altogether, non-GAAP EPS of $1.31 per diluted share grew approximately 10% year-over-year and approximately 13% excluding the dilutive impact of acquisitions. Moving to cash flow, the balance sheet and capital allocation for the quarter. Cash flow provided by operations was $201 million for the quarter, which is below the usual trend due to timing of tax payments and higher inventory as we secured supply for critical components for next few quarters. Capital expenditures were $39 million. Free cash flow was $162 million. We repurchased 0.9 million shares of Illumina stock for approximately $122 million at an average price of $129.07 per share.

At quarter end, we had approximately $1.8 billion remaining under current share repurchase authorizations. We intend to continue to repurchase shares opportunistically. We ended the quarter with approximately $1.17 billion in cash equivalents, and short-term investments, $1.99 billion in total debt, and a leverage ratio of approximately 1.6x gross debt to last 12 months EBITDA. Overall, we had a great second quarter and first half of 2026, allowing us to raise our full-year guidance and reinforce our confidence in the progress we are making towards our long-term targets. Turning to our full-year 2026 guidance.

Starting with revenue, we're raising our rest of world organic growth guidance greater than 5%, up from our prior range of 2%-4%, raising our reported revenue guidance by $50 million at the midpoint to $4.60 billion-$4.64 billion. This reflects the Q2 beat and also our increased expectations for the second half of the year. We are also expecting to come in towards the high end of our previously stated guidance for sequencing consumables and instruments. For rest of world organic sequencing consumables growth, we now expect mid-single-digit growth, including mid-teens growth in clinical and mid to high single-digit declines in research.

This reflects a modest revenue benefit from our outperformance in X placements over the last two quarters, though most of that benefit will come in 2027, as our clinical customers typically take at least six to nine months to reach normalized consumables pull-through levels. Sequencing instruments are now expected to grow low single digits rest of the world organically in 2026. Demand for NovaSeq X remains robust, and we expect unit placements to remain at elevated levels in the second half of the year, with some moderation in year-over-year growth rates. We are maintaining our operating margin guidance of 23.4%-23.6%.

With our higher revenue expectations for the year, this equates to diluted EPS guidance of $5.30-$5.40, an increase of $0.12 at the midpoint versus our prior guide, and a year-over-year growth of 11% at the midpoint and 14% ex acquisitions. Moving to Q3 2026 guidance, we expect rest of world organic revenue growth of approximately 4.5% and reported revenue of $1.14 billion-$1.16 billion, non-GAAP EPS of $1.33-$1.38, and non-GAAP operating margin of approximately 24%. This equates to approximately 150 basis points of margin expansion sequentially, driven by higher consumable mix and the increased benefit of cost actions and improved efficiency.

Our solid half one performance and rapidly growing clinical install base provide a strong setup for continued consumable growth for years to come. We're seeing an increase in X placements to meet increasing volume demand, which will help accelerate consumable revenue growth as recent placements come online. In addition, we are beginning to see revenue contributions from our Billion Cell Atlas and our growing customer interest in our multiomics portfolio, and we still believe new products will add one to two of growth next year. Taken together, we continue making progress towards our 2027 financial targets. In closing, I want to thank the Illumina team for their continued focus and disciplined execution throughout the quarter.

We are 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.

Puneet Souda: NovaSeq X installs in the second half. Just given the backdrop of the clinical growth that you're seeing here, it appears there's really no clinical cliff. You're cruising through it. You're already above 5%, as you pointed out, for a guide for this year. Why should we not contemplate something higher than a high single-digit revenue growth for 2027 that you outlined before? Thank you.

Jacob Thaysen: Well, Puneet, thank you very much for those comments, we are definitely also very pleased with the performance we had in the quarter. First and foremost, I truly believe, I'm very convinced that the growth and the momentum we see in the clinical market will continue for years to come. The elevated placement we have had in the first half of the year speaks to that. As you know, when we place instruments, eventually we'll start to see the consumables run on those instruments, that will drive continued growth.

As we laid out, I think 18 months ago, we laid out a logic around 50-60 placements per quarter, we have clearly over the last few quarters here been running stronger than that. That really speaks to what is happening in the clinical space right now. While we do see some moderations back up and down from each quarter, we still believe that the elevation will continue into second half of the year. We feel good about that. There will of course, be a little bit ups and downs in that. Talking about the clinical cliff, I agree it's not a cliff, it's a wave, we are surfing it, as you were saying.

We think there is a lot of momentum there. Yeah, I think there's a good opportunity for continue that momentum. Talking about 2027 right now, at this point, I'm still very committed to delivering on the high single-digit growth. We will continue to focus on building a very, very strong value proposition to our customers, then we'll see where it takes us.

Tycho Peterson: Hey, thanks. Wondering if you could address a couple things, the sequential slowdown in clinical consumables. One of the debates we've been having with investors is as the customers transition to X, are you over-earning on consumables? Because at some point, the 6000s get decommissioned. How do you think about that potential headwind as customers running both in parallel eventually wears off?

Jacob Thaysen: Yeah, Tycho, thank you for that. I would start by the latter one is that we continue to see that we have an expansion of volume on the X, and we continue to see quite a number of the 6000s being in action for running the current assets. In fact, we did see some customers actually purchasing a few 6000s this quarter to continue their operations. Of course, eventually, they'll move over to X, but we don't see that as a. It's a standard part of the business. We have seen that evolution also from fundamentally HiSeq. It's only a few quarters ago, we still had HiSeq running in our portfolio.

I don't think that will be considered any true headwinds for us. From the clinical performance, the momentum continues to be high. As Ankur was mentioning, we continue to have strong confidence, and that's why we are raising our guide for the clinical consumable growth up to mid-teens, which is improvement from what we looked at in the beginning of the year. If you look into the details for the 20% growth we had last quarter down to 15% now, I mean, first of all, it's still very strong. We still continue to see U.S. running faster than 20%. That momentum is really strong. There's been some in and outs in, especially in the Middle East and Latin America.

I think we all know the situation in Middle East, and that is impacting, at least short term, the growth rate. I wouldn't put more into it than that, but I think the headline here is that mid-teens growth is strong and is still beyond what we started the year with and is still very much driving high single-digit growth for us for next year towards that.

Vijay Kumar: Hi, Jacob and Ankur. Thank you for taking my question and congrats on a nice sprint here. Just if I take a step back on the performance in the quarter, can you walk us through on phasing in the quarter? Were there any one-offs? Because when I look at your guidance for third quarter, right, 4.5% rest of the world, why is that stepping down from 8%? Why is 8% not sustainable? What are you assuming for AI-related revenues, or is that a theme that could be a bigger theme for the stock when you look at the medium term? Thank you.

Jacob Thaysen: Yeah, Vijay. Again, thank you and we are very excited about the placements we're doing right now, which we also believe is elevated. This is not a one-off. We do see that many of our clinical customers are investing into the future. They're building out the installed base. They're getting ready for the volume that they can see in their funnel. We are seeing that right now. There's a little bit of a compare that in the first part of last year, the installed base or the placements of instruments were a little bit different than the second half.

We started to see the momentum slowly starting in second half, and that's why you will see the compares in the instrument is a little bit different. We actually expect that the consumable will continue to be strong, and in fact, we do believe that momentum will continue to step up, and will be the main growth driver into next year. That is the main driver for that. If you look at AI, yeah, I mean, we are very excited about what we're doing with BioInsight. We have now delivered more than 300 million single cell to our customers in the Cell Atlas. We have added three more pharma partners, so we now have six pharma partners.

In the end, what the customers are very excited about is that data can help really, first and foremost, create insight, direct insight to their drug discovery programs. On top of that, which is really where there can be power in this, is that it starts to be the foundation for strong AI models of quality that will start to be predictable in how you think about quality. This is something we're excited about. It's still early days. We are making money already from day one on this, both on top line and bottom line. I think there is a significant opportunity over the next period of time on that.

Mike Ryskin: Hey, can you guys hear me?

Jacob Thaysen: Yes.

Ankur Dhingra: Yeah. Hey, Mike.

Jacob Thaysen: Hey, Mike.

Mike Ryskin: Wonderful. Thank you. I'll take it. All right. I'll just follow up on that 3Q, 4Q pacing through the rest of the year question. It is a little bit of a surprising step down for the third quarter. Even more importantly, 4Q's guided a little bit higher than we would've had. Is there anything unusual in terms of seasonality that you're anticipating? You can talk about any purchasing in the quarter. Obviously, you've had a lot of boxes placed. You talked about the backlog last quarter. If there was any stocking or anything like that. Also kind of tied to that, I know you've got an extra week in the fourth quarter.

Just remind us what impact that's having on your revenue assumptions for 4Q. Also, on margins and EPS, just make sure we're modeling that correctly. Thanks.

Jacob Thaysen: Thanks, Mike. Again, I want to start with the headline here is that the momentum we've had here in the first half, I think is going to speak to the opportunity ahead of us. As I was saying, our clinical customers are building out their install base now to really be ready for the growth that they're seeing. Instead of looking at a step down, I actually think that Q2 was very strong. Q3 always is a little bit lower than Q4, I think that's a normal phasing for us. I'm not too worried about that. I think this comes in as we expected. Overall, I see the underlying trend being strong. Ankur, let's get you on this.

Ankur Dhingra: Thanks, Jacob. Mike, in terms of thinking about phasing Q3, Q4, think about it as usual seasonality, from Q3, where Q4 usually is our largest quarter for the year, expected to remain so. The second part, your question about the extra week. Yes, we have one extra week this year in Q4, which would largely be a consumables story. You would expect maybe half a point or so of revenue contribution that could come from that extra week in terms of run rate days. That's part of the thinking. Now, going back to a slowdown comment, overall, from our perspective, the business is holding very well. The consumables growth story is the one that's remained steady through the year.

The variability is almost always around the instrument placements. We do expect elevated level of instrument placements to continue in the second half of the year. You know that elevated level started in the second half of the year last year.

Dan Leonard: Thanks a bunch. Hi, Jacob. Hi, Ankur. A follow-up question on the clinical growth rate. Can you discuss the breadth of the growth you're seeing in clinical, just given that the U.S. grew greater than 20? I think you mentioned your largest clinical customers were especially strong when it came to instruments. I want to understand how narrow versus broad that strength is. Separately, can you talk about whether you've seen any shift in application mix from those customers over the past couple of quarters here? Thank you.

Jacob Thaysen: Yeah. Thanks, Dan. Let me start by just positioning it again. Overall clinical, the opportunity in the clinical space, really shifting NGS into healthcare is still in front of us. I think there is a huge opportunity for really becoming standard of care in healthcare over the next period of time. I think overall, I'm very excited about that, and I think that will drive the momentum in that space for many quarters, for many years to come. The performance we have continues to be broadband.

Obviously, there are some ins and outs in this, if you look at the regional level, as you mentioned, U.S. continues to be the main driver of the growth here, all the other regions, except China, is still growing very nicely. If you look from an application perspective, oncology continues to lead the pack here. If you look in oncology, we are seeing a shift towards now MRD starting to drive momentum. Still from a dollar perspective, the therapy selection is still the bigger one. MRD is coming and later we will see MSAT also start to be a real contributor to this growth. We don't really see that really in the numbers today.

The rare diseases and screening, NIPT screening and so on is still growing very nicely, oncology is the lead of the pack at this point. Again, broad base, right now driven mostly out of, still with leading out of U.S.

Subbu Nambi: Hey, guys. Can you guys hear me?

Jacob Thaysen: Yes.

Ankur Dhingra: Hey, Subbu.

Subbu Nambi: Hey, guys. Great print. A couple of questions on memory cost. Prices are still rising and allocations continue to be strained. How are you thinking about the trajectory into second half, especially with the stronger full Q instrument placements and into 2027, particularly as you integrate more GPU-based compute for next-gen product? I have a follow-up.

Jacob Thaysen: Subbu, overall, as you have seen over the last two years, the Illumina team have actually done quite a great job in compensating for the headwinds that we've seen in front of us, both on the top line, but definitely also on our cost structure. That's been plenty over the last few years. I think last year was a good example where we delivered even 200 basis point improvement, even in a relatively flat environment. The team really knows how to deal with these headwinds. Obviously, memory cost and freight costs have definitely been a headwind we didn't anticipate to the level we have seen.

I'm really pleased with how the team has continued to operate and find ways that we can compensate for this additional cost. Those costs are real. We are, of course, also sharing some of that cost increase with our customers, we are also doing a lot of things to drive operational excellence to also compensate that way. I think we are moving on many multiples, I think that speaks to the power of the Illumina team, I'm really excited about how the team is leaning in to fix that. We feel good about that. We feel good we have a handle on that.

Obviously, there are costs that we have a good line of sight to now that we need to deal with, we have proven that we can take care of that, we will continue to do so. I think you had a follow-up?

Ankur Dhingra: Yes, Subbu, let me add just a couple of points. Thanks, Jacob. Subbu, the higher cost of memory is part of our Q2 results. You can take that as a starting point run rate. Bulk of that is already in our results for gross margin. As I mentioned in my prepared remarks, we did secure additional inventory and supply during the quarter for next several quarters to be able to address, or at least de-risk, any near-term movements in the memory prices here. The second part of your question around how does that extend into GPUs, et cetera, and new products.

One of the unique strategic advantage we have from a cost structure perspective is that our instruments do not use the GPU architecture. Our instruments use a different architecture, which is significantly relatively less expensive, and cost efficient than the GPU architectures there. As I mentioned, we've been securing supply for next several quarters here.

Subbu Nambi: Super helpful. Thank you so much for that, Ankur and Jacob. My follow-up, you had a couple of stronger than expected placement quarters. Like, come on, we are in the fourth year of instrument launch, and these are the instrument numbers. Something definitely to pause and think about. Was this at all a function of the market waiting for a more competitive information? Related, how much of this is a function of an improving funding environment? Thank you so much.

Jacob Thaysen: Yeah, Subbu, I think it speaks to, again, the opportunity. I mean, the value proposition we have with our customers. They feel, with the conversation we have with them, they continue to see that Illumina is here to help them being successful. The innovations we continue to move on to our X platform, also proves that there is a lot of lead way in that platform. It is the platform to invest in. I think it speaks to how we continue to drive innovation, and of course, also that this is a very healthy market. I think that's a combination that is winning right now.

Harrison: Hey, this is Harrison on for Mason. Thanks for taking the questions. Within this quarter's NovaSeq X placements, did the clinical/non-clinical split move at all versus recent quarters? Could you give us the latest on what you're hearing from research customers on order timing and budget releases this quarter? Has anything in the underlying order pattern shifted versus last quarter, even if the headline number doesn't move much?

Jacob Thaysen: Yeah, I think overall, we continue, of course, to see the majority of placements going into the clinical space, and we expect that to continue. Even with an improved environment in the academic research, the opportunity in clinical will continue to be the strongest one, and thereby also we expect most placement there. That said, we did place also in the academic research space. There is definitely also opportunity in that space. Underlying, I mean, overall, if you want to give-

Ankur Dhingra: Yeah, I can comment in general around the research space as well. In terms of mix of placements, it is still about 70/30, 70% being clinical, and the remainder still going into the research space. I would like to still remind you, we have a very international business and the research spans across the world, not just in the U.S. In terms of research market trends during the quarter, during the latter part of the quarter, we did see some increased activity overall in terms of funding releases in the U.S., and the increased activity in terms of requests, coding, et cetera.

I would still say, as I said in our prepared remarks, we're not assuming any meaningful improvement in that market or revenue for us for the rest of the year. Directionally, during the latter part of the quarter, there was some improvement.

Kyle Mikson: Hey, guys. Thanks for the questions. A nice quarter. This quarter, you guys talked about sort of multi-omics solutions. I think StrataMap was announced. These are all really promising. Got single-cell proteomics, et cetera. How do we track that going forward? How do we know the strategy is working? Will you break that out going forward, maybe next year? How are you accounting for all these products and the revenue contribution, I guess, in the fourth quarter, for example? Thanks.

Jacob Thaysen: Yeah, Kyle. Overall, we are excited about our portfolio. As we mentioned also in our strategy updates, which we provide in 2024, which is playing out now, our strategy is working very well. As we are saying, look, at that point, and still, we are mostly focused. Of course, the biggest opportunity is to move our customers and convert our customers over to the X platform and really make sure that becomes the platform for the future. I think that has been proven now. I think we are seeing that momentum happening. The second leg in that strategy was to start to drive into multi-omics. We believe that the future belongs to multi-omics.

Obviously, genomics and DNA sequencing will continue to be the backbone of any biological insights, you need multiple layers, both from different omics, from the genome all the way up to the proteome, also from different ways of looking at it, from bulk, single cell, also into spatial. Illumina want to provide that to our customers, not as only library preps or sequencing, but end-to-end workflows that support the challenges the customers are seeing for. Also combine that from a software perspective, you can truly get insights across the different modalities. I think that is the future. That's where the power and where we really unlock the understanding of biology. That's why we have really been doubling down on that.

What we also said in 2024 was that we expected that the growth would be here in the latter part of the strategy period here coming into the part of 2026, 2027, that we would start to see that being a 1-2 points of additional growth and incremental growth. That is playing out as we expecting. We're very excited about the StrataMap. It just came out. We are seeing a significant more interest in it than we had planned for ourselves. I think it bodes well for that platform. That's not the only one out there. TruPath is having a lot of momentum out there. I think that's going to be a really strong platform for the future.

We could keep going on the different platforms. I just want to stop there and saying there's a lot of excitement about multi-omics and what we're doing with our applications and serving our customers.

Ankur Dhingra: Yeah. In terms of giving you color, Kyle, most of the multi-omics products like Single Cell or TruPath, et cetera, show up in our consumables revenue because they're part of the consumables work stream. Then the Billion Cell Atlas or any other related BioInsight revenue will show up in our services. We'll keep talking about it like we did this quarter about the contribution from revenue from our Billion Cell Atlas.

Jack Meehan: Had a follow-up for Ankur just on the margin progression throughout the year. You did 22.4% in the quarter, going to 24% next quarter. It's a little bit of a decent step-up. I was wondering how much of this is related to mix versus maybe other factors and maybe related to that, any color you can share in terms of just revenue assumptions for consumables versus NGS instruments for the third quarter would be really helpful. Thank you.

Ankur Dhingra: Yeah, sure, Jack. Great question overall. As we recall, even at the start of the year, we had this discussion about the step-up in margin during the year. Given the situation with tariffs and all the cost actions that we had put in place with that expectation that we would see higher set of results in the back half of the year. That thesis has been playing out. If you look at Q2, at 22.5% operating margin, I mentioned we had a little bit of a deferred comp, which is EPS neutral effect. Excluding that, we're about 23% operating margin in Q2. It's 100 basis point step-up from here into Q3.

Some of it is coming from higher mix of consumables. We also have several cost actions within our gross margin mix that we anticipate to play out during the Q3 timeframe. Similarly, additional cost actions coming up in Q4 as well. We feel generally good about the pacing of actions. Most of them I'm anticipating would show up on the gross margin side of things.

Jaden: Hi, this is Jaden on for Casey. Just one on the mid and low throughput instruments. Could you walk us through how low and mid throughput instruments performed in the quarter? Then within mid throughput specifically, are you seeing customers being constrained given the end market environment, and how should we think about that going forward for the rest of the year? Thank you.

Jacob Thaysen: Let me start by addressing this by, again, positioning this that we have the broadest range of instruments in the industry where the X is really addressing the high throughput. Which is really, I would call it, production-like sequencing. While the low and mid throughput is more project-based sequencing to a large extent. Thereby, there's a different kind of drivers that will impact this. Of course, when you are in a high throughput, you see that you drive operations, then it's really driving revenue for these customers using that also. While if it is a project base, there might be a different math that goes into it.

Thereby also the mid throughput particularly is more sensitive to the macro environment, which we've seen for quite a long time now. We feel really good about the mid throughput. We continue to see good placements in that space. I actually think midterm that we will see some momentum in that space also, with the investments we're doing into that space also. We feel really excited about that. If you look into the low throughput, we came out with the MiSeq i100 a little more than one year ago. That is a very exciting instrument, and we have a lot of placements of that. We continued the momentum we started last year.

That is a market space that is working very well for us right now. It's also in a cost range where, again, you get into a place where most labs can afford the instruments and get to sequencing, and the value proposition is really strong for our customers. High-end and low throughput is very strong right now. Mid throughput is more muted because of the macro environment.

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

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