So therefore, the thing about just talking cost per gigabase is kind of the — maybe the old way of looking at it in the future way we look at a little more comprehensive. So I feel really good about that. where we are. And that said, we will now with — in the mid throughput with the XLEAP-SBS chemistry be available. We are we are coming out with a more attractive pricing, quality and more capacity on our 1K and 2K instrument. So I’m really excited about that and again, driving elasticity based on that new price point. So you will see us really move the nuts on many more elements than just one pricing element.
Operator: Our next question comes from Eve Burstein with Bernstein Research.
Eve Burstein: Hi, there. Thanks a lot for taking the questions. I want to ask about next seat placement. So there, you ended the year with 885 placements, and that’s comfortably above where you were pre pandemic, but it’s also below where you’ve been for the last two years. So how much of this do you attribute to just changing needs, obviously, post-pandemic, how much do you attribute to the capital purchase and cash flow constraints that you talked about? And how much do you attribute to competitive dynamics, which you also talked about? And then how should we think about what normalized demand here looks like going forward?
Joydeep Goswami: Yes. So I think the major factors I would put two, maybe three, right? And then there’s a sub factor. So — the major factors, as you rightly pointed out, coming out of COVID in ’21 and ’22, we had a real uptick in the amount of mid-throughput instruments and low-throughput instrument sales, right? And that has normalized a little bit as the COVID threat frankly has reduced. We also, at the same time, did see in 2023 some of the macroeconomic conditions that led to more conservatism at our customers and more convergence in the purchases on capital come through. The third factor in mid throughput especially was also China, right? So if you’re looking at an overall number, we did get impacted in China for competition and for macroeconomic reasons as we have repeatedly stated in our 2023 earnings calls.
As far as competition goes, I mean, clearly, that was a factor in China, but that does not seem to be a huge factor in the rest of the world, right? And we did see our — we track our competitive win rates fairly closely, and we did see that stabilize in Q3 and in Q4.
Operator: And moving on to Dan Brennan with TD Cowen.
Dan Brennan: Great. Thanks for the question, guys. On the X pull-through, we were coming up around $1 million in the fourth quarter and some quick math. We arrived at something like maybe $850,000 in 2024. So any comment on those numbers that they seem reasonable? And if so, could you just speak to like what would drive the assumption for that kind of sequential step down? Thank you.
Jacob Thaysen: So thanks, Dan. And I think you’ve done more math than that than we have at this point since it’s still way too early in — way early innings here to start to look at pull-through from the X. So we haven’t really done that math as of yet. And we will provide that math when we think we are more in a stable situation where it makes sense. Any other comments on that, Joydeep?
Joydeep Goswami: No. I think I’ll reiterate, look, it is early. I think Jacob stated earlier that many customers are just going through validation, especially on the 25B. So I will disagree with them that we haven’t done the math, but the math is not relevant, and we don’t want to confuse you. When this stabilizes, right, we will absolutely come out with a number. But so far, what we have seen has been encouraging to us.
Operator: And we have a question from Dan Leonard with UBS.
Dan Leonard: Thank you. Jacob, I’m curious if you could elaborate further on the health of your diagnostics markets following your customer listening tour. And with looming FDA regulation of LDTs, how does that impact demand for your products or not?
Jacob Thaysen: Yes. No, I think that’s a good question, something also. I really was eager to understand better coming into Illumina. As you know, I have a background in IBD and I have a lot of passion for cancer diagnostic, but really fighting cancer. And I think how we think about it, of course, that we serve a lot of clinical customers out there that is using the Illumina ecosystem and build companies on top of that, primarily into the LDT space. And then we have our own offerings in other LDT, but in all places also IBD on especially the TSO 500 and the NIPT and other places where — and if you look into our TSO 500 business, it’s been growing really fast over the last period of time. And it’s more than $100 million now, and we expect to have a high double-digit growth also into this year, and we don’t see any end to that right now.
So I’m really bullish around where we can bring that. And we are, of course, looking into a strategic review right now on how does that fit into the overall core business strategy. But clearly, we would also like to play in that space going forward. It wasn’t another — was there a second part of that question?
Joydeep Goswami: Regulation impact?
Jacob Thaysen: Yes. Okay. So I think the second part was the impact of the regulation. I mean, of course, we’re monitoring that very, very deeply right now. And there’s, of course, again, a conversation with our customers and be helping some customers make sure they are ready for that. Our — the larger customers can, of course, go through a single-site PMA which help them. But there’s also a change maybe in the leveling of the different — so some of the Class III products are considered being brought down to Class II products right now. It’s still kind of on the table for consideration. But if that happens, that will certainly also reduce the requirement for getting through clinical trials and so on. So I think there’s still a lot of moving elements. But what I can tell you is that I think Illumina is very well positioned to support the markets going forward, almost independent on where FDA is landing on this one.
Joydeep Goswami: I’d just add, Jacob, that we are about the only company that has — even in our REO products, ISO 13485 classification on all our instruments and most of our consumables, and we have, obviously, the path to IBD should our customers want it, right? So we’re well positioned to serve whichever direction they want to go in.
Operator: And our next question will come from Kyle Mikson with Canaccord.
Kyle Mikson: Hey, guys. Thanks for the questions. Just following guidance. So it seems like you probably had the opportunity to kind of establish an outlook that was softer than what you said in November. Could set a low bar, you kept the range, though, risks clearly remain. How much like visibility or confidence do you have? Enhance conservatism are you kind of baking in compared to prior years? And you listed some of what are the most material swing factors and kind of risks that we should consider in 1Q and then first half versus second-half? And if I could just ask one for you, Joydeep, on 6000 pull-through. The $700,000, $800,000 seems like possibly aggressive compared to how HiSeq kind of decline in its years, post the 2000 launch. So just kind of walk through what you’re thinking about in terms of the decline, I guess, or deterioration in 6000 pull-through? Thanks.
Joydeep Goswami: Let me address the 6000 piece first, maybe an easier one, right? So remember when HiSeq was — well, NovaSeq 6000 was introduced. We didn’t have as many clinical customers, right? So now we have clinical about 50% of our Conn’s revenue is coming from clinical customers who have these validated assays, right, where you’re not going to change platforms in the short term. So the overall reduction in pull-through will be more mitigated compared to what you saw with HiSeq. Jacob, do you want to comment on the overall guidance or you want to me too?
Jacob Thaysen: You can continue.
Joydeep Goswami: So I think overall, look, we have repeatedly said, right, we see this as a prudent approach to the overall forecast, right? And while there have been some signs in some markets that the macroeconomic conditions might be turning, we have not assumed this in our forecast. And the only place we have been pessimistic and of course, has been in China, right, where the recent news also seems to corroborate that piece. As far as the puts and takes, look, it’s a lot about adoption of the X, right. So we’re spending an ordinate amount of time making sure that our X customers can transition quickly, can adopt and get on with their assays as quickly as possible. And we will continue to do that. And of course, if the if the markets pick up, we are very well positioned then to benefit from any of the upside.
On the flip side, it’s further macroeconomic headwinds that further reduce our customers’ ability to bring on the X or to spend on consumables will affect us as well. Jacob, I don’t know if there’s anything else you want to add.
Jacob Thaysen: I think we are good.
Operator: And our next question will come from Rachel Vatnsda with JPMorgan.
Rachel Vatnsda: Hey, good afternoon. Thanks for taking the questions. I just want to follow-up to your answer on Patrick’s question earlier. You mentioned that the gross margin line in 4Q was lighter due to that consumables mix shift from 6000 to X. So can you just walk us through that dynamic a little bit more? Is this just a function of the Xs ramping, so there’s less volume leverage at this point? Or is there something where as consumables are structurally lower margins? And then how should we think about that consumables mix impacting gross margin throughout ’24 as well?
