Illumina Reports Q2 2026 Results: Full Earnings Call Transcript

On Thursday, Illumina (NASDAQ: ILMN ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This content is powered APIs. 5% year-over-year and EPS growth of 10%, driven by robust demand for NovaSeq X placements and increased clinical market consumables.

The company raised its 2026 guidance for revenue growth and profitability, expecting full-year organic revenue growth greater than 5% and mid-teens growth in clinical consumables. Strategic initiatives include expanding multi-omics capabilities with new product launches like StrataMap Spatial and strengthening the BioInsight platform, including the Billion Cell Atlas project. Operational highlights include over 95 NovaSeq X placements in Q2 and significant progress in transitioning customers to this platform, with 83% of volumes now on NovaSeq X.

Management emphasized ongoing cost management amidst rising memory and freight costs, and continued confidence in long-term targets with a focus on clinical market expansion and multi-omics integration. Full 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, Connor McNamara. Connor McNamara, Head of Investor Relations Hello everyone, and 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. com. Joining me today are Jacob Tyson, 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 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 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 Tyson, Chief Executive Officer Thank you, Connor, and good afternoon, everyone.

We had a great first half of 2026, including another strong quarter in Q2, and 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 technology as customers expand clinical applications. 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 cost. I want to thank our teams for their focus and commitment for our customers and shareholders. Our first half results put us in a strong position as we look ahead. We are raising our 2026 guidance for revenue growth and profitability by 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. 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. -Canada region. Strong instrument placements over the past three quarters are expanding customer capacity and will support consumables 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, but 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 gives 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 assay 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're expanding our multi-omics offerings consistent with the strategy we laid out in 2024. This summer we expanded our portfolio with the launch of 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. And in BioInsight, we're 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 datasets 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 dataset 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 comparisons 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 toward 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 Skoronsky 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. Joydeep Goswami, Chief Financial Officer 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, 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 second quarter played out for Q2. Our revenue and earnings results came in ahead of our expectations and guidance. Revenue grew 8% on an organic basis, ex-China. 31 grew 10% year over year, and we placed more than 95 NovaSeq X instruments.

5% on an organic basis, with currency and acquired revenue together contributing approximately 3 percentage points to our reported growth rate. 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.

/Canada region continuing to grow above 20%. We saw slower growth in the 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 world, and 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 and 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, and we continue to expect clinical volumes will reach 80% to 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 a reported and rest-of-world organic basis, driven by increased sales of NovaSeq X and the iSeq 100.

We made significant progress with our supply investments in the quarter, allowing us to place over 95 NovaSeq 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 the 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 a rest-of-world organic basis, microarrays and other revenue declined 4%. 2% came in slightly better than our expectations, especially given product mix from the relatively high sales of instruments in the quarter, and 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 an offset in other income. 5% for the quarter, above our guidance, driven by higher volume, and the team did an excellent job in absorbing increased inflationary effects. Looking below the line, non-GAAP net interest and other expense was $8 million in the quarter.

5%, and average diluted shares were approximately 153 million, reflecting continued share buybacks. 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 the next few quarters. Capital expenditures were $39 million, and free cash flow was $162 million.

07 per share. 8 billion remaining under current share repurchase authorizations, and we intend to continue to repurchase shares opportunistically. 6 times 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.

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 world organically in 2026.