Ankur Dhingra
Chief Financial Officer at Illumina
Thank you, Jacob. And good afternoon, everyone. I will give you an overview of our financial results, provide more color about revenue, expenses, earnings, and developments on our balance sheet, and then speak about our outlook going forward.
All financial information including guidance that we share on this call is for Core Illumina only, and excludes GRAIL. During the third quarter, Illumina's revenue of $1.08 billion was in line with our expectations, and the team delivered a very strong margin and earnings expansion through ongoing cost discipline and operational excellence. Cash generation remains strong and we also put cash to use across all dimensions of our capital allocation strategy.
Now I will add color to each of these items. Third quarter revenue was down 2% [Phonetic] year-over-year on both a reported and constant currency basis, with strong growth in our consumables business offset by the instruments business declining against launch-year compares. Sequencing consumables revenue was $741 million, up 7% year-over-year, driven by continued strong uptake in X consumables.
The NovaSeq X transition progressed faster than we forecasted. As of end of Q3, more than 55% of high-throughput gigabases sequenced, and more than 35% of high-throughput consumables revenue, was on the NovaSeq X series. We saw some acceleration of the transition from 6K to X this quarter - including in clinical as approximately 40% of high- throughput clinical gigabases sequenced were on the NovaSeq X series. As legacy assays transition to the X series, we have seen increased clinical volumes and increasing adoption of the 25B flow cell from clinical customers. While there will be some quarterly variations in the pace of transition based on choices our customers make, we still believe almost half of high-throughput consumables revenue could transition to the X series by the middle of 2025.
Moving to sequencing activity, total sequencing Gb output on our connected high- and mid-throughput instruments continued to grow at a rate more than 40% year-over-year, with robust growth from both clinical and research customers. Sequencing instruments revenue was $104 million for Q3, a 42% [Phonetic] year-over-year decline, slightly behind our expectations. The year-over-year decline was driven by two factors. One, lower NovaSeq X placements, as compared to significant pre-order launch-related shipments in the third quarter of 2023, and
Two, a decline in mid-throughput shipments, as capital and cashflow constraints continue to impact purchasing behavior and moderate instrument placements globally. Sequencing service and other revenue was $150 million, up 6% year-over-year, driven by an increase in revenue from strategic partnerships as well as high instrument service contract revenue on a growing installed base.
Moving to the rest of the P&L. Non-GAAP gross margin of 70.5% for the quarter increased 450 basis points year-over-year. This strong gross margin performance was driven primarily by the execution of our operational excellence initiatives that continue to improve productivity and deliver cost savings. Year-over-year improvement in gross margin was also supported by a more favorable revenue mix of sequencing consumables, making up roughly half of that improvement. While the business mix will change on quarter-to-quarter basis, the productivity improvements we have achieved are sustainable and will support our margin expansion going forward.
Non-GAAP operating expenses of $517 million were roughly flat to last quarter. This includes the additional headcount and expenses resulting from our acquisition of Fluent BioSciences. The Illumina team continues to manage expenses effectively. As I mentioned during our Strategy Update, we have several actions in play to reprioritize and reduce our expenses. As a result, non-GAAP operating margin for the quarter was 22.6%, compared to 22.5% in the prior year period. This came in well above our guidance of approximately 20%, driven by strong operational performance across gross margin and discipline in expenses.
Below the operating income line, non-GAAP other expense was $14 [Phonetic] million in Q3. During the quarter, we issued $500 million in debt at a 4.65% coupon that was used, along with cash on hand, to redeem in full the high cost $750 million delayed draw term loan, effectively de-levering and also reducing our interest rate. Non-GAAP tax rate was 21.0% for the quarter. In Q3, we received the benefit of a few one-time credits as we filed our return for last year. Putting it all together, non-GAAP net income for Q3 was $181 million, or diluted earnings per share of $1.14 per diluted share. Our non-GAAP weighted average diluted share count for the quarter was approximately 160 million shares.
Moving to cash flow and balance sheet items for the quarter. Cash flow provided by operations was healthy at $316 million; capital expenditures were $32 million and free cash flow was $284 million. During the quarter, we put cash to work in line with our stated capital allocation strategy. We acquired Fluent Biosciences, adding innovative instrument-free single-cell technology to Illumina's portfolio. We are excited about the potential for very-large single cell experiments this technology can enable.
In addition, following authorization from our Board earlier this quarter, we put a share repurchase program in place, and repurchased 770 thousand shares of Illumina stock for $98M, at an average price of $127.71 per share. And as noted, we de-levered. Taken together, these capital actions show the strength of our operational execution in the quarter. We ended the quarter with approximately $939 million in cash, cash equivalents and short-term investments.
In summary, revenue was in line with expectations; the transition of high-throughput sequencing to the NovaSeq X is going quite well; we announced breakthrough new products in low throughput; we made significant progress towards our stated goal of margin expansion; and we have been deploying our strong cash flow towards revenue growth, improved earnings, and shareholder-friendly capital actions.
Moving now to 2024 guidance. Although our overall Q3 revenue results met our expectations, we are tempering our revenue expectations for year-end business, and now expect full-year revenue to be down approximately 3%. For Q4, we expect revenue to be approximately $1.07 billion. We continue to see strong utilization levels and pull-through on our instruments but the near-term macroeconomic environment remains constrained and does not support any uptick in purchasing behavior through the end of the year.
From an instruments versus consumables perspective, the projected mix is unchanged, and we are still forecasting instruments revenue to decline in the mid-thirties % range relative to 2023. Although we are very excited about MiSeq i100, it is in early access, and we will receive minimal revenue contribution in Q4. As we had planned for, our low throughput instruments business will likely decline in Q4 with customers waiting for the new instrument. For high throughput, we still expect second half NovaSeq X shipments to be above what we delivered in the first half of 2024.
We also still forecast sequencing consumables revenue to grow towards the upper end of the low single-digit percentage range versus 2023. We saw strong uptake and Gb usage in the third quarter, setting the stage for exiting the year with solid year-over-year consumables growth. While we are disappointed in our lower revenue guidance, we are increasing our guidance for operating margin and diluted EPS, reflecting both the outperformance in Q3 and carrying forward the impact of our operational excellence initiatives into Q4. We are raising our non-GAAP operating margin guidance to a range of 21% to 21.5% for 2024. We are reducing our projected tax rate for the year to approximately 24%. And lastly, we are raising our guidance range for non- GAAP diluted earnings per share to $4.05 to $4.15 range for full year 2024.
With that, I will now turn it back over to Jacob for his closing remarks. Thank you.