Illumina's Q3 2025 Earnings Call: Contradictions in China Market and Regulatory Challenges, Instrument Expectations, and NovaSeq X Transition

Date of Call: October 30, 2025

Financials Results

• Revenue: $1.08B, roughly flat year-over-year, up ~2% ex China
• EPS: $1.34 per diluted share, up $0.20 YOY, +18% YOY (non-GAAP)
• Gross Margin: 69.2%, down ~130 bps YOY (tariffs accounted for ~220 bps headwind; underlying base GM up ~90 bps)
• Operating Margin: 24.5% non-GAAP, expanded 190 bps YOY

Guidance:

• Raised Greater China revenue outlook by $20M to ~$220M for 2025
• Rest of World revenue growth 0.5%–1.5% (constant currency); total company CC revenue decline now expected -0.5% to -1.5%
• Reported revenue guidance $4.27B–$4.31B for 2025
• Sequencing consumables growth (ex China) 2.5%–3%; instruments decline reiterated at -6% to -4%
• Non-GAAP operating margin raised ~60 bps to 22.75%–23%; non-GAAP EPS guidance $4.65–$4.75 (midpoint +$0.20, ~13% YOY)

Business Commentary:

* Strong Financial Performance: - Illumina reported a total revenue of $1.08 billion for Q3 2025, returning to growth of approximately 2% year-over-year, excluding China. - Non-GAAP operating margin was 24.5% and non-GAAP diluted EPS was $1.34, reflecting year-over-year expansion above guidance. - This performance was driven by the momentum of the NovaSeq X transition, particularly in clinical markets, and stabilization in research demand despite pricing headwinds.

• Clinical Market Growth:
• Clinical sequencing consumables revenue grew at a high single-digit rate year-over-year.
• This growth was fueled by new assay approvals, positive reimbursement decisions, and increased demand for sequencing-intensive tests like MRD.

• The transition to the NovaSeq X platform, delivering higher throughput, supported this growth.

• NovaSeq X Transition:

• Over 55 NovaSeq X instruments were placed, meeting the goal of 50 to 60 placements per quarter.
• The transition exceeded milestones with 78% of volumes and 51% of revenue on the X platform by Q3.

• Demand elasticity and increased content on assays allowed for volume growth despite transitional pricing effects.

• Research and Multiomics Initiatives:

• Sequencing consumables revenue was roughly flat year-over-year, with a 3% growth rate outside China, reflecting continued funding uncertainties.
• Illumina Protein Prep and 5-base solution launches were designed to extend the company's multiomics capabilities.
• These initiatives are poised to drive future growth, especially when research funding stabilizes and end markets recover.

Sentiment Analysis:

Overall Tone: Positive

• Management: "delivered another strong performance with revenue, non-GAAP operating margin and diluted EPS all above our guidance range"; "returned to growth ex China, up about 2% year-over-year"; "raising our total full-year 2025 outlook"; repeated confidence in NovaSeq X transition and clinical momentum, aiming for ~26% margin in 2027.

Q&A:

• Question from Puneet Souda (Leerink Partners LLC): If I could, I'll just wrap my questions into one. Thanks for the details on the $33 million for China that you are 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 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?
  Response: China performance encouraging but unresolved; OEM partner servicing allowed; too early to provide a '26 view.

• Question from Douglas Schenkel (Wolfe Research, LLC): 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 plausible 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 or 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 just -- Ankur, it would be great to just know how you're thinking about this.
  Response: No 2026 guide; framework plausible but management won't quantify now; expect further margin expansion toward the 26% target in 2027 via cost actions and operating leverage.

• Question from Vijay Kumar (Evercore ISI Institutional Equities): Congrats on a nice sprint here. Two quick ones, Jacob, Ankur, for both of you. On consumables, I thought the expectations for the quarter was something like 720, 725-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?
  Response: Consumables beat driven mainly by clinical demand (no pull-forward from NIH); the 500 bps margin-improvement goal remains a longer-term objective.

• Question from Tycho Peterson (Jefferies LLC): 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 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 maybe for Ankur, on the consumables for this quarter, how much of the beat 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.
  Response: Tariffs were a ~220 bps GM hit; underlying gross margins improved; management is confident in ability to grow earnings and is executing mitigation and margin levers.

• Question from Daniel Leonard (UBS Investment Bank): Apologies for that. One question on the growth in clinical consumables. That double-digit growth rate, did that include any positive lumpiness in there? Or do you view that as more run rate?
  Response: Clinical double-digit growth not driven by one-off lumpiness; reflects sustainable momentum though not guaranteed as a steady run rate.

• Question from Patrick Donnelly (Citigroup Inc.): 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're 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?
  Response: Competition is active but Illumina differentiates across data quality, workflow and total end-to-end cost; management remains confident in its competitive position.

• Question from Mason Carrico (Stephens Inc.): Assuming similar market trends next year. How sustainable is the 50 to 60x 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?
  Response: 50–60 X placements per quarter remains achievable and supported by multi-year sequencing demand; Q4 seasonally stronger.

• Question from Catherine Ramsey (Robert W. Baird & Co.): 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?
  Response: Research gigabyte output grew but below historical highs; transition largely complete reducing pricing headwinds; NIH/funding remains a potential headwind (no specific shutdown assumption highlighted).

• Question from Kyle Mikson (Canaccord Genuity Corp.): Congrats on the print and all the updates, really good. 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 time since 2021. Wondering if that's -- if this is a new run rate or will it 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 there are there other catalysts that could unlock further growth?
  Response: R&D spend being managed with improved productivity; clinical acceleration driven by X placements and new high‑intensity tests (therapy selection, MRD, genetic disease) enabled by X.

• Question from Jack Meehan (Nephron Research LLC): 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.
  Response: Management remains confident in continuing double-digit EPS expansion and sees multiple levers, but will provide 2026 specifics when guiding.

• Question from Daniel Brennan (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 will 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. academic 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 in the research customers?
  Response: X adoption is accelerating and driving revenue; reaching research-level penetration already high and will continue; academic spending recovery depends on grant predictability and likely unfolds into 2026.

• Question from Subhalaxmi Nambi (Guggenheim Securities, LLC): First, 2 quick ones for me. First, it looks to me, Ankur, that you're expecting a bit of a 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?
  Response: Q4 instrument pickup is seasonal (not assumed budget flush); forecast assumes a pickup but not last year's peak; research transition largely complete, so pricing headwinds should ease as markets recover.

Contradiction Point 1

China Market Performance and Regulatory Challenges

It highlights the ambiguity and differing perspectives on the ongoing regulatory situation in China, impacting expectations for revenue and growth strategies.

Can you clarify how China should be viewed moving forward and how recent ASHG product launches are impacting competitive pressures in the research-applied market? What are the drivers behind the double-digit growth in clinical consumables? - Puneet Souda (Leerink Partners LLC, Research Division)

2025Q3: China's performance is strong, with customers maintaining their desire to work with Illumina despite challenges. We are currently operating on a quarter-by-quarter basis due to ongoing regulatory issues. - Jacob Thaysen(CEO)

Can you explain the guidance change, specifically for instruments and China? What role do new products and the pipeline play? - Vijay Muniyappa Kumar (Evercore)

2025Q2: We have not seen any changes in customer behavior due to potential competition. ... As we look into 2026, we anticipate some recovery from China as we continue to work through the regulatory environment in that region. - Jacob Thaysen(CEO)

Contradiction Point 2

Instrument Expectations and Market Dynamics

It indicates differing expectations for instrument placements and market conditions, which are crucial for revenue forecasts and operational planning.

Is the 50-60 instruments per quarter sustainable, and will X placements remain stable if NIH funding stays flat? - Mason Carrico (Stephens Inc.)

2025Q3: We expect stronger Q4 placements, consistent with historical patterns. The 50 to 60 placements per quarter has been sustainable despite challenges, with robust sequencing demand driving further placements. - Jacob Thaysen(CEO)

Does Illumina's guidance indicate substantial revenue growth in Q4? What are the primary growth drivers? - Douglas Schenkel (Wolfe Research)

2025Q2: Given our strong pipeline and an expectation for continued high demand for oncologic therapies, we are raising our instrument guidance for the full year to 95,000 to 100,000. - Ankur Dhingra(CFO)

Contradiction Point 3

Research Market Dynamics and Customer Behavior

It highlights the differing perspectives on research market conditions and customer behavior, which impact revenue and growth strategies.

How are you planning for multiyear grants and research growth in 2026? Can Illumina grow earnings despite challenges from China and Roche? - Tycho Peterson (Jefferies LLC)

2025Q3: Grants and funding predictability are key for research spending. We believe we can grow earnings in 2026 despite headwinds. - Jacob Thaysen(CEO)

What is the pricing flexibility against new competitive threats? Can you detail the growth framework? - Kyle Alexander Mikson (Canaccord)

2025Q2: We believe the slowdown is due to macroeconomic conditions and lower expectations for the fourth quarter. Grants are flowing, but customers are cautious about spending. - Ankur Dhingra(CFO)

Contradiction Point 4

China Revenue and Market Conditions

It pertains to the company's revenue expectations and market conditions in China, which are crucial for revenue projections and investor confidence.

What is the outlook for China and competitive pressures from ASHG's recent launches on the applied research market? What are the drivers of the double-digit growth in clinical consumables? - Puneet Souda (Leerink Partners LLC, Research Division)

2025Q3: In China, sales were $227 million and down 2% year-over-year, with 90% of that decrease in consumables. Overall, the year-to-date sales were $403 million, down 7% year-over-year. - Jacob Thaysen(CEO)

How do you view the academic and government markets in 2026? Are China's current revenue levels sustainable? - Mike Ryskin (Bank of America)

2025Q1: We're assuming that China performance is going to be slightly below the prior year from a revenue standpoint. It's about $400 million in 2025 and slightly less in 2026. - Jacob Thaysen(CEO)

Contradiction Point 5

NovaSeq X Transition and Pricing Dynamics

It highlights differing views on the progress and impact of the NovaSeq X transition, which is a critical aspect of Illumina's product strategy.

How has NovaSeq X advanced in R&D and application, and are government shutdown impacts factored into Q4? - Catherine Ramsey (Robert W. Baird & Co. Incorporated, Research Division)

2025Q3: Research transitioned faster than clinical, with the pricing headwind easing. - Jacob Thaysen(CEO)

Were Q4 placements a pull-forward due to management changes, and what is the pricing impact in 2025? - Conor Noel McNamara (RBC)

2024Q4: NovaSeqX transition is progressing as expected; current mix is more favorable, leading to improved pricing dynamics. - Ankur Dhingra(CFO)