Subha Nambi: Hi, guys. Thank you for taking my questions. You reiterated guidance for the core sequencing revenue growth this year. And I apologize if I missed it, but do you still expect the mix of consumables and instruments to be the same? Or is the expected trajectory now or a bit different?
Ankur Dhingra: Yes. Great question. This is Ankur. So you’re right. We reiterated our guidance for the full year, both for revenue as well as for the operating margin. Actually, we’re off to a great start for the year as well with the Q1 performance, certainly looking at that derisking the performance a little bit. Now overall, we’ll be confirming our guidance. So the construct is still there. The — and you’ve seen the Q1 performance. Just to add a little bit more color there, if you think from a half one, half two perspective, et cetera, our instrument growth rates given how the shipments of X were last year, those growth rates have a variability during the year between half and in half two, although consumables as they’re starting now should have a more steady kind of profile. Now we saw good pricing. We’ve seen good pull-through during the quarter as well. So as of now, we’re just reiterating the overall guidance for the year.
Operator: Thank you. Your next question comes from the line of Sung Ji Nam with Scotiabank.
Sung Ji Nam: Hi. Thanks for taking the question. And also welcome to Ankur and congrats, and thank you to Joydeep. Just a quick one on the status of the jurisdictional appeal in Europe and whether the resolution of that — the timing of that, if it doesn’t happen before the end of 2Q, would you still be providing your final terms of the divestiture? Thank you.
Jacob Thaysen: Yes. So thanks for that. And overall, as you know, we are moving forward with GRAIL as fast as we can, and we have committed to provide of course, insight here by end of Q2. And I would say at this point, there’s nothing, no information, nothing that holds us back from that. So — we don’t know when the ECJ information is coming. And as I said, we’re not waiting for it. If it comes before Q2, it really doesn’t change the timeline, end of Q2.
Operator: Thank you. Your next question comes from the line of Tejas Savant with Morgan Stanley.
Tejas Savant: Hi, guys. Good evening and thanks for the time here. Just a few cleanups on the high-throughput side things, Jacob, if I may. So on the 25B flow cell, it sounds like you’re getting really good traction there. Can you give us an update on that 40% number you provided in the past and X customers who adopted 25B? Where is that number today? Second, any update on where high throughput clinical customers are in their X validation process? Any metrics you could share? Or should we think of the production workflows and clinical ramping is mainly a 2025 dynamic? And then last one, just on excess high throughput capacity. That’s a dynamic that comes up every once in a while. Is that starting to weigh on customer purchase decisions for these high throughput customers at all?
You’ve got Ultima launching as well here. So just curious as to the macro headwinds versus the digestion of that high throughput capacity that’s been added given the NovaSeq X and the 25B launch but also the competition? Thank you.
Jacob Thaysen: Yes. Overall, I think we’re very pleased with seeing where the X and also the 25B consumers where it’s going. And right now, we are — approximately half of our customers have — are using the 25B flow cell. So that’s really exciting for us, and we are encouraged by that momentum. I think many of our clinical customers, I know they’re still on running most of their — of their assays on the 6K. We are tracking very closely each of them and seeing where they are and where they’re doing from validation and when they’re going into production. So we have deeper that insight. I don’t think we at this point, we are ready to share that. But we have a very good understanding on that. But I still think there is — that is — a lot of them are still working through the validation and then they will bring on one-by-one of new types of assays that likely have higher, deeper depth or more insights for — in these assets that they had on the 6K.
Operator: Thank you. Your next question comes from the line of Mason Carrico with Stephens.
Mason Carrico: Hi, guys. Thanks for taking the questions. Sorry if these have been addressed as I joined a bit late here. Could you update us on win rates outside of China last quarter? I think you said they had stabilized in Q3 and Q4. Have you seen that stability continue throughout 2024 so far? And then second, could you give us any insight into the mix of orders coming — that are coming in terms of 6K upgrades, fleet expansions, new customers, new to high-throughput customers?
Jacob Thaysen: So I think overall, we are — of course we are following very closely, of course, where we are on the win rate. And as we also mentioned, it’s stabilized, and we are looking at that regularly and ensuring that we continue to hone in on how we can do even better. So I’m actually pleased with the performance out there. But obviously, we’re keeping a very close sight on this. As I mentioned before, we take competition very seriously. We are doing everything we can to keep our customers being very highly supported and make sure that they are successful in laboratories, which I think in the end, in the long run is the winning formula for being the preferred partner for our customers. And I think on mix of orders. I don’t know whether we normally are sharing that information.
But I think there are — at this point, there’s certainly still more research customers that have moved on to the X. And we have seen customers with multiple 6Ks that are now starting to move over to the expert. But I would say the vast majority still are in the transition phase.
Operator: Thank you. Your next question comes from the line of Rachel Vatnsdal with JP Morgan.
Rachel Vatnsdal: Great. Hey, good morning or good afternoon and thanks for taking the questions. So I want to question a little bit on the instrument placement number for the X this quarter. You mentioned 55 placements, but you also highlighted that there were a number of places that were pulled forward from 2Q into 1Q. So first, can you just quantify how many placements were pulled forward? And then just in terms of full year dynamics, you continue to highlight that the macro backdrop remains difficult. We’ve seen that really across the sector this quarter. But can you just give us in light of that assumption, what are your latest assumptions on placements for the year? Thanks so much.
Jacob Thaysen: Yes. I’d say, overall, as we mentioned that we’re — we didn’t pull anything forward. We were — there was customers that was requesting to put forward because some of their programs were running faster than anticipated. But there’s only a few, so it was not really a big change in expectations. But in the end I like that because it shows that there are a lot of interest out there and customer that has already purchased one is looking to accelerate now their transition into the X. So we are — so I’m excited about that. At this point, we’re not providing a number, but we know that as we entered into 2023, we had a very, very strong backlog, of course, as you know, coming into 2023. So — and thereby, 2023 was a very strong placement year of high throughput.
So we do expect to be lower than that as we also communicated in our original guidance. But we haven’t — we are not able to provide — or we’re not — at this point, we’re not changing really our expectation for the year.
Ankur Dhingra: The only thing I would add, Richard, for you, just in terms of our topline performance was quite better than what we were expecting. Relative to that overall achievement or overachievement only a small portion, say, about one-fourth or so came from these customers who asked to for an earlier delivery of the instrument. So relatively small portion from that phenomenon.
Operator: Thank you. Your next question comes from the line of Patrick Donnelly with Citi.
Patrick Donnelly: Hey, guys. Thanks for taking the questions. Can you just talk through the margins? 2Q, obviously, a little bit of a step down. I know you guys mentioned maybe some product cost there. But can you just give a little more color in terms of what spend picks up in 2Q and then how we should think about that metric as we work our way through the year. And then just a quick cleanup, just on the service revs, those came quite a bit higher than we were expecting. If you could just flesh out what happened there as well, that would be helpful. Thank you.
Ankur Dhingra: Yes, sure. Good question. So let me address them both. This is Ankur. So on the OpEx, as I said in my prepared remarks, yes, there is a step-up in spending from Q1 to Q2, primarily coming from two factors. One of them relates to just the timing of our merit increases in the annual stock branch cycle. So we end up getting the full impact of that cost in Q2. So that’s seasonal, typically happens every year for the company. So roughly about half of our sequential increase in the OpEx comes from that. The other half is generally around certain project-related spend, that we’ve pushed out either pushed out into Q2, or there are milestones into Q2 that will happen. In terms of going forward, as you think about your P&L for the rest of the year, I do expect the overall operating margin performance to continue to improve sequentially every quarter. So Q3 better than Q2 and then Q4 better than Q3.
Joydeep Goswami: And then on the service?
Ankur Dhingra: And then on the services side, again, very strong overall growth, about 27% year-over-year growth, two main components. One part of that is little less than half is coming from specific pharma customer services, which had the timing of that in the quarter. So that was less than half of it, but roughly half of that growth is coming from just the excellent performance in our core instrument services business.
Joydeep Goswami: You would expect that given the number of instruments we placed. And just to add to Ankur’s comments, right? We are expecting and delivered better gross margin performance, right? So that should help our operating margin. We expect to continue strong performance on gross margins. So that should help us and as revenue steps up as well. And given that we have taken measures to control our costs, we’ve reduced our headcount overall by about 12% compared to last year. That should also add benefits to the operating margin line as we go through the year.
Operator: Thank you. Your next question comes from the line of Eve Burstein with Bernstein Research.
Eve Burstein: Hi there. Thanks a lot for taking the question. Earlier this week, the FDA published a final rule exercising regulatory power over a lab developed tests. For you guys, you have the benefit of having IVD compliant machines when a lot of the companies that are emerging to challenge you don’t have those yet. However, our understanding is that, research use only machines are actually used quite a bit for FDA-approved tests. It’s a little bit harder, but it can be done. So we don’t expect this to affect you that much or give you a big competitive advantage. Is that the right way to think about it? Or could there be more upside from the role for you?
Jacob Thaysen: Yes. No, first of all, I think we are pleased for sure that we have now more of greater clarity on the FDA ruling and the direction of this. But there’s still a lot of detail that needs to be clarified. But overall, you’re right that with our positioning, both with our DX portfolio and the investment we have made into the high-quality and also helping with required documentation for our customers to go in there and get their PMAs approved. I think we’re very well positioned. You mentioned that LDTs are used for FDA approval. Well, really only if you go into a single site PMA setup. And that requires actually a lot of work for vendors like Illumina to help our customers with that with the right level of documentation and so on.
So I think it actually plays to our strength going forward, and we are committed to support this area and help our customers be successful independent on whether it’s a full PMA, single site or other types of opportunities that this new world will bring us.
Operator: Thank you. Your next question comes from the line of Conor McNamara with RBC Capital Markets.
Conor McNamara: Hi, guys. Thanks for taking the question. I know you talked about not giving too much detail on the consumable adoption with X customers. But is there any — can you quantify at all like of the 400 or so boxes placed, how many of those customers are just would you say are at scale and ordering at what your demand is versus those that are still validating or whether for economic conditions haven’t really ordered what you expect from them? And vice versa, has there been any stock orders with any of the X customers?
Jacob Thaysen: Yes, that’s a good question. And at this point, we still see that most of our customers are still in the ramp. I think there are, of course, research customers that have us very fast out and really run bigger programs. We have seen [indiscernible], we have seen single cell being some elements or areas where there’s been a lot of interest in running. And I think that we have seen some of those research customers already been on scale at least with one of the instruments they have bought and now maybe they’re starting to move on to the next one. But then again, if you look at the broader 400, I think most of the general is still that this is still in a ramp positioning. Now — yes, so that’s where we are right now.
Joydeep Goswami: And the stocking?
Jacob Thaysen: Yes, yes, go ahead, Joydeep.
Joydeep Goswami: I mean, on the stocking side, look, when we haven’t seen too much stocking on the 25B because as a standard, right, the initial shelf life is shorter, so you wouldn’t expect people to stock up too much. On the 10B side, it’s very early in that stock up phase. Again, we expect to see a little bit more as we go through the year, but not yet.
Operator: Thank you. That concludes our Q&A session. I will now hand the call back over to Salli Schwartz.
Salli Schwartz: Thank you for joining us today. As a reminder, 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 conferences and other events.
Operator: This concludes today’s call. You may now disconnect.
