Illumina, Inc. (ILMN)

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Illumina, Inc. (ILMN)

Q2 2009 Earnings Call Transcript

July 21, 2009 5:00 pm ET


Peter Fromen – Senior Director of IR

Christian Henry – SVP and CFO

Jay Flatley – President and CEO


Ross Muken – Deutsche Bank

Doug Schenkel – Cowen & Company

Quintin Lai – Robert W. Baird

Marshall Urist – Morgan Stanley

Tycho Peterson – J.P. Morgan

Un Kwon – Wedbush Morgan Securities

Isaac Ro – Leerink

Dan Leonard – First Analysis

Zarak Khurshid – Caris & Company



Good day, ladies and gentlemen, and welcome to the second quarter 2009 Illumina, Incorporated Earnings Conference Call. My Name is Jerry [ph] and I will be your coordinator today. (Operator instructions) I would now like to turn the call over to Mr. Peter Fromen, Senior Director of Investor Relations. Sir you may proceed.

Peter Fromen

Thank you, operator, and good afternoon everyone and welcome to our second quarter 2009 earnings call. During the call, we will review our financial results released today after the close of the market, offer commentary on our commercial activity, and provide financial guidance for the third quarter and fiscal 2009. After which, we will host a question-and-answer session.

If you have not had a chance to review the earnings release, it can be found in the Investor Relations section of our website at Presenting for Illumina today, will be Jay Flatley, President and Chief Executive Officer, and Christian Henry, Senior Vice President and Chief Financial Officer. This call is being recorded, and the audio portion will be archived in the Investor Section of our website.

It is our intent that all forward-looking statements regarding financial guidance and commercial activity made during today’s call be protected under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from those projected or discussed.

All forward-looking statements are based upon current information available, and Illumina assumes no obligation to update these statements. To better understand these risk factors, we refer you to the documents that Illumina files with the Securities and Exchange Commission including forms 10-Q and 10-K.

Before I turn the call over to Christian, I want to let you know that we will be participating in a Thomas Weisel Health Care Conference in Boston from September 7th to the 9th, The Morgan Stanley Health Care Conference in New York on September 14th to the 15th, and The UBS Global Life Sciences Conference also in New York from September 21st to the 24th.

For those of you unable to attend any of the upcoming conferences, we encourage you to listen to the web cast presentations, which will be available through the Investor Relations section of our website. With that, I’ll now turn our call over to Christian.

Christian Henry

Good afternoon everyone and thank you for joining us today. During today’s call, I will review our Q2 financial results and provide guidance for the third quarter and full-year of fiscal 2009. Jay will then discuss our commercial progress and provide an update on the state of our business and our markets.

We recorded $162 million in total revenue for the second quarter, representing 15% growth over Q2 of last year. Product revenue was $153 million growing 19% over the prior year period, and was led by significant growth in our sequencing products. However, as we disclosed in a conference call earlier this month, this growth was partially offset by a decline in the microarray business, due to a slowdown in the market for genome-wide association studies.

Consumables revenue for the quarter was $97 million, compared to $82 million in Q2 of 2008. This represented year-over-year growth of 18%, and was directly attributable to growth in sequencing consumables, partially offset by lower microarray consumables. The rapidly expanding installed base of Genome Analyzers pushed sequencing consumables revenue to record levels, growing 174% from the second quarter of last year, and 20% sequentially.

Just as in Q1, the annualized consumable pull through on the Genome Analyzer during the quarter was above our anticipated range of 152,000 to 200,000 per system. Consumable pull through for the array business remained in the range of 500,000 to 600,000 per system.

We shift the record number of Genome Analyzers during the quarter, which enabled us to recognize instrument revenue of $54 million, a new high for the Company. This compares to $43 million in the second quarter of 2008, and represents year-over-year growth of 25%.

Services and other revenues, which includes genotyping and sequencing services, as well as instrument maintenance contracts was $8 million, compared to $12 million in Q2 of last year. The year-over-year decline in services was largely due to the overall decline in genome-wide associate studies, but also due to the fact that more of our genotyping service revenue has moved to our CSPro-certified customers.

As mentioned before, services revenues are not expected to grow in line with the product business because of the shift. From a gross margin perspective, however, we are relatively indifferent to this transition, as our product gross margins are similar to our internal service business.

Before discussing our gross margins and operating expenses for the quarter, I would like to note that we recorded a pretax amount of $15 million, related to non-cash stock-based compensation. This impacted our EPS by a tax adjusted amount of $0.08 per pro forma diluted share for the quarter.

In my discussion of operating expenses, I will highlight both our GAAP expenses, which include stock compensation expense and other non-cash charges and the corresponding non-GAAP figures. I encourage you to review the GAAP reconciliation of our non-GAAP measures also included in today's earnings release.

Total cost of revenue for the quarter was $50 million compared to $57 million in the second quarter of 2008. The Q2 ‘09 costs include stock-based compensation expense of $1.3 million, compared to $1.4 million in the prior year period. Excluding this expense and $1.7 million associated with the amortization of intangibles, non-GAAP gross margin was 70.6%.

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