Illumina Q3 2026 Earnings Call Transcript

Illumina (NASDAQ:ILMN) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://illumina-earnings-call-q3-2026.open-exchange.net/

Summary

Illumina reported strong financial performance in Q3 2026, with revenue of $1.17 billion, up 4.7% year over year on a rest of world organic basis. Operating margin was 25%, and diluted EPS was $1.44, a 7% increase from the previous year.

The company raised its full-year guidance, expecting revenue between $4.64 and $4.66 billion, driven by increased sequencing consumable sales and strong NovaSeq X placements.

Strategically, Illumina highlighted the Billion Cell Atlas and the BioInsight platform as key initiatives, focusing on AI-ready datasets and multi-omics capabilities to enhance drug discovery and clinical applications.

Operational highlights included elevated demand for NovaSeq X, with over 80 instruments placed in Q3, and significant traction in the clinical sequencing market, which grew 14% year over year.

Management expressed confidence in achieving long-term financial targets, citing strong market conditions, particularly in the clinical sector, and ongoing innovation in AI and multi-omics as future growth drivers.

Full Transcript

OPERATOR

Good day, ladies and gentlemen. Welcome to the third 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 (Head of Investor Relations)

Hello everyone, and welcome to Illumina’s third quarter 2026 earnings call. Today we will review our financial results released after the market closed and provide prepared remarks before opening the line for Q&A. Our earnings release is available in the Investor Relations section of Illumina.com. Joining me today are Jacob Thaysen, Chief Executive Officer, and Ankur Dhingra, Chief Financial Officer. Jacob will begin with an update on Illumina’s business, followed by Ankur’s review of our financials.

As you may have seen in our press release, we recognized certain tariff refunds in the third quarter, which had a positive impact on GAAP and non-GAAP operating income margins and EPS, and a negative impact on revenue. These refunds were not contemplated in our previous guidance, and all financial measures discussed today will be on an adjusted non-GAAP basis excluding the impact of tariff refunds. Reconciliations to non-GAAP and GAAP can be found in today’s release and in the supplementary data on our website.

All revenue and revenue growth rates are presented excluding tariff refunds. Organic revenue growth also adjusts for the impact of currency and acquisitions, and Rest of World organic growth further excludes our Greater China region. This call is being recorded, and the replay will be available on our website. As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Illumina’s future events, product outlook, and financial expectations. Actual results may differ materially. 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 (Chief Executive Officer)

Thank you, Conor, and good afternoon, everyone. We had a great third quarter with strong clinical sequencing demand and elevated NovaSeq X placements driving revenue, margin, and EPS above our guidance range. Our strategy is working, and I’m proud of what our team delivered for our customers and shareholders. Our continued disciplined execution and business momentum allow us to raise our fiscal year guidance, and we remain on track to achieve our long-range financial targets.

Before I go into details on our results, I want to highlight a few ways our innovation is helping customers answer new questions about biology. Early in 2026, we introduced the Billion Cell Atlas to address one of the biggest bottlenecks in applying AI to biology: the lack of functional datasets. AI models need large amounts of data to learn from, and in biology those models only work if the data is accurate, standardized, and reproducible. But these datasets don’t exist at scale.

There is no Internet of Biology. Our Billion Cell Atlas was designed to help address these limitations. Now over halfway complete, the Atlas is advancing toward an unprecedented AI-ready perturbation dataset that helps biopharma partners connect genetic signals to cellular mechanisms, strengthening target validation, improving disease understanding, and enabling accelerated drug discovery. By working directly with biopharma, we are integrating their input to ensure the proprietary dataset is relevant and built to maximize value for both our partners and Illumina.

GSK is the latest biopharmaceutical company to join the Billion Cell Atlas consortium to accelerate drug discovery, and we are seeing growing interest from other companies seeking access to the completed Atlas. We’ve learned a lot from our partners about how to build these datasets for AI, and we see multiple opportunities to address additional bottlenecks across drug discovery and development. We see this as a large, long-term opportunity and look forward to sharing more about our strategy in the coming quarters.

Earlier this month at ASHG, we brought together our assays, sequencing platforms, and software to show how customers can benefit using the Illumina Insight ecosystem. The most compelling examples came from customers themselves, who showed how combining genomics, transcriptomics, methylation, and proteomics is helping them see biology they could not see before, with work spanning bulk, single-cell, and spatial approaches. What is resonating with customers is that we are looking at their work from start to finish, making it easier to obtain all the components they need to drive high-quality insights while bringing down the total cost of the workflow.

On the analysis side, we launched the BioInsight platform, which brings our analysis applications, AI models, and curated biological data together in one place, reducing the need for customers to assemble and manage separate software tools. Through the platform, customers can also access SpliceAI 2, our new AI model that predicts how genetic changes affect RNA splicing. In rare disease research datasets, it identified 17% more disease-relevant splice variants than other splicing models.

I’m proud of the innovation our teams continue to deliver. Our view is that the next era of life sciences innovation will be powered not only by sequencing, but also by the software, AI, and differentiated data that unlock the power of the genome. Through BioInsight, Illumina is building the base for AI biology, enabling more powerful foundational models and virtual cell models with the potential to improve our ability to understand and predict biology.

As we move nearer to predicting biology, we see a path to using those insights to move healthcare toward a more proactive future, identifying risks sooner, preventing disease where possible, and intervening earlier. Now let me expand on our financial results, starting with our performance in the quarter. Customer demand for the NovaSeq X platform remains at very high levels. In the quarter we placed over 80 instruments. This equates to approximately 360 X placements over the last four quarters, more than in our first year of launch. This demand is being fueled by broader adoption of sequencing-based diagnostics and more sequencing-intense assays. As these instruments go live, they will support additional consumables revenue for years to come.

End-market growth rates for Rest of World sequencing consumables were similar in Q3 and Q2, with clinical growth of 14% and research and applied declines of 6%. We continue to expect mid-teens clinical growth and mid- to high-single-digit declines in research and applied sequencing consumables for Rest of World for 2026. Let me now turn to our outlook for the rest of the year. We are raising our full-year revenue outlook to reflect Q3 outperformance and a stronger Q4 driven by an increase in sequencing consumable revenue on a larger NovaSeq X installed base. We are also raising our full-year margin and EPS outlooks, and now expect operating margins of approximately 25% in the second half of 2026, up about 400 basis points versus 2024. I’m extremely proud of how our teams have managed investments through a challenging environment.

With each quarter that passes, it becomes more clear our strategy is working. We are achieving what we set out to do in 2024 and capitalizing on emerging opportunities to drive growth for the years to come. I want to thank our teams for the hard work and commitment to Illumina, and our customers for the trust they place in us. I look forward to sharing our 2027 guidance during the fourth quarter earnings call, and with that I’ll turn it over to Ankur to walk through our results and updated outlook.

Ankur Dhingra (Chief Financial Officer)

Thank you, Jacob, and good afternoon, everyone. I will walk through our third quarter financial results, provide additional color on revenue, earnings, and cash flow, and then discuss our updated outlook. As Conor mentioned earlier, all of our financial metrics will be on a non-GAAP basis, excluding tariff refunds. The reconciliations are provided in our financial disclosures. On a high level, our Q3 revenue and earnings came in ahead of our expectations and guidance. Rest of world organic revenue grew 5%, operating margin was 25%, 100 basis points above our guidance, and diluted EPS of $1.44 grew 7% year over year.

Now turning to the details, during the third quarter Illumina’s revenue was $1.17 billion, up 4.7% year over year on a rest of world organic basis, with currency and acquired revenue together contributing just under 3 percentage points to our reported growth. Sequencing consumables revenue of $792 million was up 6% year over year and up 5% on an organic rest of world basis. High-throughput volume drove most of the revenue growth as the NovaSeq X install base continues to expand and clinical customers continue to bring their instruments online.

Sales in clinical markets grew 14% on rest of the world, and we continue to expect mid-teens growth for clinical consumables in 2026. Sequencing consumable sales in research and applied markets declined 6% for rest of the world, and year to date, trends have remained consistent with our outlook entering the year. Revenue has grown sequentially each of the last two quarters, and we are seeing signs research activity is stabilizing. We continue to expect mid- to high-single-digit declines for research and applied consumables in 2026.

Moving to the NovaSeq X transition, approximately 84% of high-throughput volume and 60% of revenue is now on the X. In research and applied markets, 90% or greater volume has been on the X for each of the last five quarters, signaling the conversion to X is largely complete. Thus, we expect minimal transition pricing headwinds from these customers going forward. In clinical, 78% of volume is currently on the X, and we have seen the pace of conversion slow in recent quarters.

This is the dynamic you’ve heard us talk about: certain clinical customers are keeping current on-market assays on the 6000 while adding X capacity for new tests. We anticipate clinical conversion to reach 80% to 85% in the coming quarters, and as such, we expect the year-over-year pricing headwinds from the X transition to be lower in 2027 than in 2026 as the X conversion is nearly complete. We believe these charts are becoming less relevant in showing the price and volume dynamics impacting our revenue growth.

As such, we plan to discontinue showing this slide in our quarterly earnings presentations after Q4 2026 as it relates to sequencing activity. Gigabase output growth on our connected high and mid-throughput instruments remained above 30%, showing that demand remained strong. Sequencing instruments revenue of $106 million was down 2% year over year in Q3 on a rest of world organic basis. Higher NovaSeq X placements were offset by weaker instrument sales in our Europe, Middle East, Latin America region. X placements were up year over year in both clinical and research markets. Instrument sales still account for over 90% of our X placements, though we are seeing an increasing level of interest in lease-type arrangements with certain research customers.

Demand for the NovaSeq X remains elevated, especially among some of our largest clinical customers, where we saw several multi-unit capacity expansion orders. This is a testament to the value our customers place on the Illumina ecosystem today and for years into the future. Sequencing service and other revenue of $158 million was up 8% on a rest of world organic basis. As Jacob mentioned in his prepared remarks, we are gaining traction in our Billion Cell Atlas program as we continue to deliver data, converting more of our backlog to revenue. The pipeline and interest in our programs is very strong. Microarrays and other revenue of $110 million was up 2% on a rest of world organic basis and included SomaLogic revenue that outperformed our initial deal model.

Moving to the rest of the P&L, gross margin of 69.4% was up 20 basis points year over year. Operating margin was 25% for the quarter, 100 basis points above our guidance, driven by higher revenue and disciplined investments. EPS of $1.44 per diluted share came in above the high end of our guidance range and was up 7% versus Q3 of last year. Year to date, EPS is up 12% versus 2025. Moving to cash flow and the balance sheet, our cash flow from operations was $419 million, and we generated $378 million of free cash flow in the quarter. We repurchased $9 million worth of stock in the quarter, and at quarter end we had approximately $1.8 billion remaining under our current share repurchase authorizations, and we intend to continue to repurchase shares opportunistically. We ended the quarter with approximately $1.34 billion in cash, cash equivalents, and short-term investments, $1.79 billion in total debt, and a leverage ratio of approximately 1.4 times gross debt/last 12 months EBITDA.

Overall, we had a great third quarter, allowing us to raise our full-year guidance and reinforce our confidence in the progress we are making towards our financial targets. Now turning to our full-year 2026 guidance, starting with revenue, we are raising our revenue guidance by $30 million at the midpoint to $4.64 to $4.66 billion. This reflects our Q3 outperformance and increased expectations for sequencing consumable sales in the fourth quarter.

We still expect rest of world organic growth greater than 5%. Product revenue guidance ranges are unchanged, and we expect rest of world organic sequencing consumable growth of mid-single digits and low single-digit instrument growth in 2026. We now expect operating margins of approximately 23.6%, at the high end of our previous guidance with our higher revenue expectations for the year. This equates to diluted EPS guidance of $5.40 to $5.45, an increase of $0.08 at the midpoint versus our prior guide, and represents year-over-year growth of 12% to 13%.

For our fourth quarter of 2026, we expect revenue of $1.22 to $1.24 billion and rest of the world organic growth of approximately 4.5%, similar to Q3, and we expect EPS of $1.51 to $1.56 and an operating margin of approximately 25%. We have made tremendous progress this year. Adoption of sequencing across a wide range of clinical applications continues to grow, and our rapidly growing X install base provides for a strong consumables revenue stream for years to come. Revenue and customer interest in our Billion Cell Atlas are both expanding, and we’re just getting started on the large AI-based predictive biology opportunity that lies ahead. And our strong balance sheet and cash flows give us the flexibility to invest in areas of strategic growth that complement our innovative tool set.

We are excited about our long-term outlook. In closing, I want to thank the Illumina team for their continued focus and disciplined execution throughout the year. Thank you for joining our call today. I now invite the operator to open the line for Q&A.

OPERATOR

Thank you. At this time, if you would like to ask a question, please click on the raised hand button which can be found on the black bar at the bottom of your screen. To give as many analysts as possible the opportunity to ask a question, please limit yourself to one question. If you have additional questions, please raise your hand again to be put back into the queue. We will now pause a moment to assemble the queue. Thank you. Our first question is from Tycho Peterson from Jefferies.

Please unmute your line and ask your question.

Tycho Peterson (Analyst)

Hey, thanks, guys. Want to probe a little bit on the clinical consumable numbers? So first of all, any stocking orders to call out? You had that last quarter, obviously. And then 4Q implies, I think, low double-digit clinical growth. Is that the right jumping off point as we think about next year?

Jacob Thaysen (Chief Executive Officer)

Thanks, Tycho. And first and foremost, we continue to be pleased with the overall clinical performance. We see ourselves the full year in the mid-teens. We had here Q3 looked very much like Q2 with a 14%, 15% growth in clinical. And we continue this to expect that to continue. We will serve our customers, continue to serve them. There are always puts and takes in the quarter. But we feel good about how we see also Q4 coming along.

Tycho Peterson (Analyst)

Okay, and then if I go to—

Ankur Dhingra (Chief Financial Officer)

Go ahead, Tycho, to your question on the Q4. So overall, let’s say I’m raising the guidance for Q4 consumables. Our expectations that are going up given the strong placements that we continue to have. In terms of your growth rate question, I’ll recall last year Q4 was an 11% growth rate order on the sequencing consumables. So we’re still expecting a pretty good 5%, 6% growth in Q4 overall for the consumables. So that’s still a good growth on top of one of the more unique compares throughout last year.

So that would be one of the factors there. But our expectations are improving for Q4.

OPERATOR

Thank you. Our next question is from Vijay Kumar from Evercore ISI. Please unmute your line and ask your question.

Vijay Kumar (Analyst at Evercore ISI)

Hi Jacob and Ankur, thank you for taking my question. I guess I had a two-parter, if you will, Q4 jump-off here. I think it implies something like close, like 6% for rest of the world. And my question is, with that being the jump-off, what’s the right framework for ’27? Are the LRP targets still intact, and just given the strong instrument placements so far, could instruments become a headwind next year? How do you offset it?

Jacob Thaysen (Chief Executive Officer)

Thank you, Vijay. Thanks for that. And I can’t believe we had to go into question number two before we had a question about ’27 here. But let me share a few points here. I mean, first and foremost, we will come out with a full guide in our Q4 earnings call. So you gotta wait with the details. But we are still operating in very healthy market environments, especially the clinical market is strong. And we anticipate that clinical will be a growth driver for the company for the foreseeable future.

On top of that, there is now also opportunities in what we are seeing with our multi-omics capabilities, especially when the research market is coming back. We’re very well positioned for taking advantage of that. And on top of that, the AI market is just—we’re just scratching the surface on that. But there’s no doubt there is a substantial requirement or need for large data set to really train models. We can talk more about that later also. So that’s the overall framing for how we see the future. What I will leave you with is that, and how I think about the next year, is that we have, over the last quarters in this year, each quarter we have been growing our consumables above 5%. So we think that’s a good starting point here. We also see ourselves, of course, with what we talked about when we put the strategy in place in ’24, is that we see ourselves starting to move ourselves into growth.

And the main driver was that we would make the X transition, thereby also lapse the price impact of that. We are definitely on the latter end of that, as Ankur spoke to in the prepared remarks. And then what we are seeing with the elevated placements of X is that that will, of course, continue to be a driver also for the growth. So that’s how we think about it right now. I’ll leave you with that.

OPERATOR

Thank you. Our next question is from Doug Shenkel from UBS. Please unmute your line and ask your question.

Doug Schenkel (Analyst)

Good afternoon, and thank you for taking my questions regarding NovaSeq X demand. You’ve had several quarters of solid X placements now, you know, above 80 this quarter. Are you seeing any indication that recent strength reflects, you know, pull-forward, you know, in terms of what you might have expected in the future versus your last quarter and this quarter? Or is the sustainability of the purchasing cycle still pretty strong right now? And building off of that, how would you characterize the mix of demand this quarter between capacity expansion tied to clinical volume growth versus transitions and replacements? Thank you very much.

Jacob Thaysen (Chief Executive Officer)

Thanks, Doug. First and foremost, I don’t think there was any pull-forward. I think this is the normal course of business. But overall, you know, as also mentioned, we are very pleased with the placements we have done over the last four quarters, which have outperformed the first year of X placements when we launched. And it really speaks to a few things. It speaks to that, as I mentioned, the market conditions we are in and the opportunity, especially in the clinical space, are very healthy, and the new assays being put in place are very sequencing-intensive, and I think we haven’t even seen what is coming.

There’s a lot more coming here. The intensity will continue to increase. So I think we will continue to see a strong demand for the Xs going forward. Secondly, as you probably recall, at AGBT we were showcasing the innovations that we’re bringing to the X platform. So I also think that our customers are seeing that this is the platform to bet on for the future, with much more innovation coming out both in terms of quality of sequencing, turnaround times, and capacity of sequencing, plus all the multi-omics assays that are coming on. So we feel good about where we sit and also for the future.

OPERATOR

Thank you. Our next question is from Puneet Sudha from Leerink. Please unmute your line and ask your question.

Puneet Sudha (Analyst at Leerink Partners)

Yeah, hi Jacob, thanks for the question here. So just wanted to understand the dynamic on the sequencing consumables side. Is this a function of placing a number of instruments in the clinical space and applied, and obviously research, that is driving sort of a shift—lower cost per gigabase elasticity—and that seems to be… Is that what’s playing out here in the quarter? And then I just wanted to understand on ’27, is the high single-digit framework still intact? Just want to get your thoughts there. Thank you.

Jacob Thaysen (Chief Executive Officer)

Yes, I’m not sure I fully understood the first question on how the dynamics of sequencing consumables play out.

Puneet Sudha (Analyst at Leerink Partners)

Yeah, just in terms of are you seeing sort of a, you know, lower cost per gigabase from the labs coming to you essentially, you know, just because you’re placing a new instrument that is providing them, you know, more, you know, cheaper sequencing essentially right away in the first six months.

Jacob Thaysen (Chief Executive Officer)

Well, I think how we think about it, obviously, is that with the transition from the 6000 to the X there was a price step down, obviously, but it also generated substantially more volume, and that volume continues. So it’s not only a six-month volume gain we are seeing in the logic of a fixed budget, but we actually do see, especially in the clinical space, that our customers, as we’ve talked about before, are building bigger assays, also getting a better competitive positioning, and continuing to drive growth and introduction, or further advancement, especially in the oncology space of testing.

So I think that is playing out and it will continue to play out. We feel good about how our growth is sitting with consumables, and we think that’s going to continue. I will say, of course, as with many other companies, if you come to Illumina and are willing to sign up for large volume, we are very willing to also talk about what the right price point is for that. So that’s a conversation I like to have with customers. If they come with new assays they would like to put in place that require substantially more sequencing, we are absolutely more than willing to have that conversation and find how both companies can be successful.

That works well for ’27. As we mentioned all the way back in 2024, our strategy is to walk ourselves into growth. And we were predicting mid-single-digit for ’25, and we still are on track to deliver in ’27 a high single-digit range.

OPERATOR

Thank you. Our next question is from Sabu Nambi from Guggenheim. Please unmute your line and ask your question.

Sabu Nambi (Analyst at Guggenheim Securities)

Hey guys, thank you for taking my question. I have a question. Thinking ahead to 2027, I have two questions. First, do you still believe that new products have the potential to contribute one to two points of growth? Second, recognizing that you’re going to exit 2026 at an operating margin of 25%, is that the right launch point, keeping in mind more progress towards operating improvement and improving mix as you move past pricing headwinds? Thank you.

Jacob Thaysen (Chief Executive Officer)

Yeah, so let me start with the first one, and just a reminder: we are still very much in Illumina operating in Q4, and we want to deliver Q4 before we go into details of ’27. But I will say that what we talked about in ’24—that we would add new growth drivers through both our new assays that will come out and obviously also data—is playing out well. We have come out over the last 18 months with a very, very significant multi-omics portfolio, and with the acquisition of SomaLogic we are very well positioned in that space, and that has momentum, obviously from a low base.

But this will start to actually reflect in our numbers both here in ’26, but particularly in ’27 and beyond. So we feel good about that. I think, related to our operating margin, again, if you look over the last few years we have increased or improved our margins by 400 basis points, and we feel really good about what the team has achieved over the past years. We have had a lot of headwinds that we didn’t anticipate, and I think the team have shown that we can deliver this year. Electronic component pricing, shipping costs, and obviously also some tariffs have been big headwinds, and we have been able to deliver expansion on margins.

So I feel good about where we are, and I think there is more to come in the years to come—and also in 2027.

OPERATOR

Thank you. Our next question is from Luke Sergot from Barclays. Please unmute your line and ask a question.

Luke Sergot (Analyst at Barclays)

Great, thanks. Sorry, I was muted. I just wanted to follow up on the implied growth here of, you know, the exit rate on the clinical sequencing and how to think about next year. You’ve got all the liquid biopsy players; you’re seeing strong growth in their samples, and then you have the conversion there from a lot of them converting to the X. And so, like, how does that play out with initial reagent concordance studies and then when that starts to flip on back onto the X?

Jacob Thaysen (Chief Executive Officer)

Well, I think it is playing out as we expect. I mean, what we’ve been very pleased with over the last four quarters is the elevated placements of the X. And as you know, we are in a razor–razor blade logic in the company. So the more instruments we place—nobody buys an instrument to put in the corner—they all put it there to generate more revenue. So obviously every time you place an X, that is a revenue generator for the years to come. And so with that, and with the elevated placement, we feel good about the growth opportunity in the consumables also for the years to come.

As I mentioned before, the clinical market is very healthy. I know many of you want to sit and have a conversation about whether we grow 14, 15, or 16% in clinical. The takeaway is that this is a strong market. There are still a lot of applications that are just coming online. So we feel good about that, and we see that that has legs. If you just look at a great point here, the U.S. cancer business has continued to grow very, very strongly over the last four quarters in clinical, and we don’t think that will stop.

Ankur Dhingra (Chief Financial Officer)

Yeah, that’s well covered on the clinical growth side. Luke, to your point about clinical, the only thing I would add is: still look at the number of tests that have recently come on market, the volume growth of on‑market tests, and the number of clinical trials that are still expected to read out over the next one year, implying the new tests that would be coming to the market. And that’s a very rich pipeline.

OPERATOR

Thank you. Our next question is from Dan Arias from Stifel. Please unmute your line and ask your question.

Dan Arias (Analyst at Stifel)

Yeah, hi guys. Thanks for the question here. Jacob. You hear me? Okay, thanks, Jacob. As you guys try to tap into this training‑model virtual cell AI opportunity, can you just talk about how you see genome pricing playing into that? I mean, obviously you think that the X is the box to bet on, but there are some pretty cheap genomes that are being talked about out there, pushing down to 50 bucks. So to what extent do you think that you might need to revisit the price elasticity discussion in order to make sure that you really take those large projects?

Can you win those with the current pricing scheme, or do you think it takes whatever the new 35D flow cell might bring on genome cost?

OPERATOR

Yes, go ahead.

Jacob Thaysen (Chief Executive Officer)

Yep. Well, first and foremost we feel really good where we are. I think AI models are way beyond just whole‑genome pricing. There’s a lot going into this. So let me just try to frame this a little bit. First and foremost, I think we see a big opportunity in what I would call predictive biology. But if you want to step into that new logic or world, which could have a substantial impact on everything we do in our space—and if you think about life science as a whole—this could revolutionize our understanding of biology, and it could definitely also have big disruption overall in the healthcare industry, where Illumina is very well positioned.

Because it’s not only about the price of sequencing here, it’s about the ability to develop and create large datasets that go across both the genome, the transcriptome, the methylome, and of course also the proteome. Combine that together, look at that from a bulk, single‑cell, and also a spatial context. There’s no other company in this industry that has the broad portfolio and also has the ability to create those datasets. We started with the 1‑billion‑cell—it’s a great example of a functional dataset that is not only looking at something in time, but when you try to see what is happening to a cell when you change or up‑ or down‑regulate a gene. So I think these are the types of datasets that you want to look for. So we feel good about where we are. Look, Illumina has been in a world for many years to deal with elasticity. We love elasticity. We can address any opportunity that we need to, and we see this market could be much, much bigger.

And we have both the capabilities and the innovation pipeline to be a very strong player in that—both developing the datasets ourselves, but also looking at a flywheel where, together with our customers, we create datasets, our customers can add on to those datasets, and we can create bigger and bigger datasets for training those models. So we’re excited about that, and I’m not super concerned about what others are doing right now.

OPERATOR

Thank you. Our next question is Carl Mixon from Canaccord Genuity. Please unmute your line and ask your question. Carl Mixon from Canaccord Genuity. Please unmute your line and ask your question. We’ll go to our next question, which is Dave Westenberg from Piper Sandler. Please unmute your line and ask your question.

Dave Westenberg (Analyst at Piper Sandler)

Hey, thanks, guys. Sorry to belabor the same clinical sequencing question, but I think we’re all kind of trying to get at the same thing: clinical 70% of consumables and how fast can it grow to kind of get you into that long-term high single-digit kind of growth rate. So as we’re looking at the Signatera, the Shield, etc., we want to know, even in the X transition, what kind of pricing—like discounts or kind of growth—that you can get from these customers net of that discount as we get into the ’27s, ’28s, ’29s, because we know you are kind of stuck on this X, but we also want to know, like, when we’re looking at that 20, 25, 30% volume kind of growth rate on that, you know, how much can Illumina continue to grow?

Because we are confident that you’re going to get participate. We just want to know kind of the magnitude of that participation. Thank you.

Jacob Thaysen (Chief Executive Officer)

No, thanks, Dave. That’s very specific into where we could go pricing-wise. I would leave you that is that, as I mentioned before, we work very closely with our customers. I think many of our customers are seeing, of course, opportunities to build bigger and bigger assays. That goes for therapy selection, MRD, and also, of course, now MCED coming alive. So what we are seeing is that obviously we will continue to have conversations. We will continue to make sure that both we can grow in alignment with our customers. There might always be some certain difference between the different growth rates, but what we are taking away is that when our customers are growing, we are also growing very healthy. So we believe there are more opportunities in that space. We think there are more growth opportunities for Illumina.

So I think we have proven over the last few quarters or a few years that we can step back into growth. The conversation 18 months ago was very, very different. I think all of you were questioning whether we could grow at all. Now we sit with mid-single growth in consumables. Now you’re questioning how much we can take that. I think you should see that we have a track record that shows that we can continue to expand our growth rate in those regions or consumables.

Ankur Dhingra (Chief Financial Officer)

Yeah, one thing I would add there is that last quarter we added about the overall consumables growth rate in U.S.-Canada, which is a proxy of some of the customers that you’re talking about. And within our U.S. business the growth rate within that clinical is well above the 14% that you’re talking about. So we’re reasonably well indexed that way. And always remember the big customers make up a reasonable part of our business. But Illumina’s business is global, and it both benefits and otherwise from the clinical activity across the world.

Within our U.S. business that growth rate on the clinical is well above that 14%.

OPERATOR

Thank you. Our next question is Kyle Mikson from Canaccord Genuity. Please unmute your line.

Kyle Mikson (Analyst at Canaccord Genuity)

Thanks, guys. Sorry about that before. Congrats on the quarter. Wanted to ask about—different, different way to ask about the ’27 beyond. I guess, you know, congratulations on kind of executing on the strategy day from 2024 sort of numbers and the framework and all that. But I mean, is there upside to the high single-digit growth going forward? I think, obviously, as was discussed before, you got AI, multi-omics, maybe a research inflection, clinical. I feel like that could be kind of longer term as well. So could you approach double-digit growth, perhaps while expanding operating margins to the high 20s, and what could that take really?

Jacob Thaysen (Chief Executive Officer)

Yeah, look, Kyle, I think this is absolutely not impossible. I mean, there’s definitely upside to a high single-digit growth. But remember a few things here. When we were laying out our strategy in ’24 we were in a negative growth arena, and now we have stepped ourselves into mid-single-digit growth. I think we want to also show we can do high single-digit before we go beyond that. But I do, I mean—and you can also see over the last few years—there’s been a lot of headwinds that this industry and Illumina specifically had to deal with. You can pick the one you want to talk about, but there’s been plenty. So we think that we are operating in a significant market opportunity space, particularly in clinical, and we think that is going to continue to expand over the years. We are very well positioned when the research segment is coming back with our multi-omics portfolio, where we see a lot of grants moving in that direction right now.

And then, of course, the whole AI space where there will be substantial data sets generated and looked for. And I think that is something that, with our 1 billion cell atlas, shows that we are very well committed. It’s not about just selling sequencers anymore in that space. Our customers—and the broad spectrum of customers—is looking for companies like Illumina that can actually generate those data sets. They’re much more interested in what those data sets can generate and, obviously, the models—how they can perform—rather than the sequencing itself.

So we are very well positioned, and there are certainly opportunities to grow beyond that.

OPERATOR

Thank you. Our next question is from Dan Leonard from RBC. Please unmute your line and ask a question.

Dan Leonard (Analyst at RBC Capital Markets)

Thank you. Jacob and Ankur, you talked a bunch about BioInsight. When would BioInsight become more visible in the P&L? Would that be as soon as next year, or is that a farther out event?

Jacob Thaysen (Chief Executive Officer)

Yeah. So I think, first of all, we actually established BioInsight approximately a year ago, which was a combination of our software part, which is actually doing extremely well also. And I think for those of you who visited our booth and at our symposiums at ASHG, we really presented how important software is for the ecosystem. So very excited about that. But we combined that with the data because there’s a lot of synergies between the two. You have to generate data, but you also have to develop models on top of that.

So as we mentioned in ’24 also, the data and, of course, the multi-omics business would start to generate 1% to 2% in the latter part—so here in ’27 of our strategic period—when we look into, and that is playing out very well. But I think, depending on how that AI opportunity plays out, which actually looks very, very promising, this could be substantially bigger. But maybe, Anko, you have comments on that also?

Ankur Dhingra (Chief Financial Officer)

Yeah, I think our view right now is somewhere in 2027 there should be some sort of color. We should be able to begin to add the billion cell atlas, and then the second gen—we’ve talked about it—expanding to 5 billion cells certainly would be one of the first drivers within that. Jacob mentioned we actually have a very broad spectrum of customers in discussion about the Cell Atlas and several other new bio AI-based applications that they are working on.

But we anticipate that somewhere in 2027 it does become more visible, and the whole point around the new products and BioInsight adding 1 to 2 points of growth for 2027 would certainly be an area.

OPERATOR

Thank you. Our next question is from Casey Woodring from J.P. Morgan. Please unmute your line and ask your question.

Casey Woodring (Analyst at J.P. Morgan)

Great. Thank you for taking my questions. I guess two just quick cleanups on 4Q. Could you quantify what the extra selling week means in terms of a tailwind to the quarter, and then are you expecting a budget flush? So that’s the first part. And then just there’s been some noise this week on U.S. trade restrictions on some of your Chinese competitors. Meanwhile, you know, you guys are still dealing with China regarding the unreliable entities list.

So just curious, has there been any change in your position with the Chinese authorities? And now that you’ve returned to growth year on year in the region in 3Q, you know, what are you seeing on the ground with customer comfort given geopolitical concerns? Thank you.

Jacob Thaysen (Chief Executive Officer)

Yeah, thanks, Casey. And first and foremost, we are, of course, very pleased to be back to growth in China. Our focus has been all the way through this time to work closely with our Chinese customers, continue to drive innovation, and obviously also work with the regulators in-country to make sure that we have a path for the future. We feel good. We are very committed to China and to serve our customers. We believe there’s a huge opportunity there.

We learned about this situation, as many of you did, yesterday morning, and, of course, we are trying to better understand what the impact is. That’s what I know at this point. From a budget flush perspective, we are not anticipating any specific budget flush besides what’s normal for Q4. Anko, maybe you take—

Ankur Dhingra (Chief Financial Officer)

Yeah, let me cover the Q4 question there, Casey. So Jacob covered the budget flush side, so we haven’t assumed anything meaningful there. So if there is indeed a stronger budget flush, that would be a potential upside into Q4. Now, regarding your question about the extra week, let me contextualize that for everyone. Illumina reports on a fixed number of weeks per quarter basis, usually, which means that once every four years we end up with an extra week to complete the cycle and come back into a consistent 13-week cycle.

The extra week in Q4 has always been part of our guidance throughout this year. That extra week falls during the holidays and very early part of January, so the actual impact on revenue is quite minimal. That’s not the window where we see a lot of top-line activity. So, fairly minimal impact on revenue. On the expenses side, of course, we have the cost of our people cost for one extra week. But both of those have been part of our guidance and thinking all throughout the year.

And just to be clear, our raise of consumables expectations for Q4 is entirely from the strong placements and the customer demand that we’ve seen so far.

OPERATOR

Thank you. Our next question is from Dan Brennan from TD Cowen. Please unmute your line and ask your question.

Dan Brennan (Analyst at TD Cowen)

Great. Thank you. Maybe just one on AI. I know there’s been a lot of discussion there so far, but if we think about the next, say, three-plus years or so, is the opportunity more on the service side for Illumina through BioInsight, or is it going to be substantial opportunity on the placing boxes and traditional flow cells? I’m just wondering how that splits out. And then related to that, you talk about the billion cell atlas, so is the way to think about it right now, from what you’re seeing in your pipeline and backlog, is it more going to be on single-cell and multi-omics versus traditional whole genome?

And then a quick follow-up just on Nova X pricing in the quarter—just if you can give any color on that, that’d be helpful. Thank you.

Jacob Thaysen (Chief Executive Officer)

Okay, so good question, Dan. I think how we think about the AI opportunity, as I mentioned, the industry, right, huge data set that is both reproducible and standardized. And the problem is when you have individual PIs or individual postdocs or others that are sitting and building small data sets, these are quite noisy and it’s very difficult for models to actually train well on those. We have seen many times that they are better in predicting where the data is coming from rather than predicting the biology that is what the experiments were actually telling you.

So that’s why we’re seeing a big demand and a big ask for customers that would like us to help generate large data sets that can help build those. Because we can. When we do those large data sets, obviously we also spend time on ensuring they’re reproducible, standardized, and so on. And I think there’s a big demand for that. So there’s certainly a huge opportunity for Illumina in what you can call a service business format. At the same time, we are of course in the business of placing instruments. So you could imagine there’s a lot of customers saying we can get access to the Illumina data sets. Can we augment that with our own data that we might want to keep to ourselves because of various reasons? So I think we will see a lot of demand for that also. So it’ll be a blend.

But versus how we traditionally think about it, we also think there’s a big service opportunity. This plays extremely well to where Illumina is sitting today. The capabilities we built up over the last few years in this space are probably not fully understood, but we have really become experts in how to think about or how to do perturbation for different cell lines and what it takes to build that quality. And that’s what some of our customers are really seeing a lot of benefits in.

Ankur Dhingra (Chief Financial Officer)

Yeah. Let me add just a couple more things on the BCA and the way you think about it. Jacob covered it extensively. The power of our portfolio, by having significant part of the multiomic workflows, is that the pathway where we stand today looks like combination of whole genome and proteomics, combination of single cell and transcriptomics, combination of spatial and transcriptomics. All of those combinations, based on either specific organs where the research is or specific disease pathways where the research is happening.

That combination of different multiomics would vary, but that’s what different types of data sets could be. As we’ve said, our billion cell atlas is a starting point which is helping prove causality in many areas already. But we do see a pathway for multiple combinations, as I was describing, of additional data sets that can be very meaningful and powerful going forward.

OPERATOR

Thank you. Our next question is from Dave Westenberg from Piper Sandler. Please unmute your line and ask your question.

Dave Westenberg (Analyst at Piper Sandler)

Oh, whoops. I didn’t even know I was going to be back on. Maybe I’ll just ask a quick one on China. Did I see that right? That was growth in the quarter. One was reported and one was Re Annix 7 and double digits. You know what happened there, I guess? And then secondly, you know, how should we think about China on a go-forward basis? You know, we obviously had the unreliable entity list but, you know, we also didn’t kind of expect that. And again, I’m sorry for that. It’s a bad question. I didn’t even know I was going to be back on.

Jacob Thaysen (Chief Executive Officer)

Thank you, Dave. We always like to hear from you. So thank you for the question. I think, as I mentioned before, how to think about China is that we have been committed, shown that we are committed, to find a path forward in China. I think we have good relationships there and first and foremost we are focusing on what we can control, and what we can control is to continue to support our customers, continue to drive innovations. You see a lot of interest for a lot of our innovations in China and we believe the opportunity in China is big.

I think the Chinese customers want to see Illumina playing in the market space and we will continue to do our best to have a future in China.

OPERATOR

Thank you. Our final question is from Tycho Peterson, from Jefferies. Please unmute your line and ask your question.

Tycho Peterson (Analyst)

Hey, thanks for taking the follow-up. Ankur, you called out operating leases, more operating leases. Understand that was in context of the research market, but can you maybe elaborate there and any chance it spills over to clinical?

Ankur Dhingra (Chief Financial Officer)

Yeah, so great question, Tycho. Both the entire operating leases as well as reagent rental models, we have had them on the offer for a fairly long period of time. But the demand there has been growing both in the research as well as for clinical customers as well. We haven’t seen that a whole lot with our largest clinical customers who have been in extensive capacity expansion. But when you look at the mid-sized clinical laboratories all over the world, including in the US and in Europe, that’s where we’ve seen interesting demand pick up in that space.

But that offering is available to all our customers globally.

Tycho Peterson (Analyst)

Thank you.

OPERATOR

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

Conor McNamara (Head of Investor Relations)

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.

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