ILMN

Illumina, Inc. (ILMN)

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Illumina (ILMN)

Q4 2012 Earnings Call

January 28, 2013 5:00 pm ET

Executives

Rebecca Chambers

Jason T. Flatley - Chief Executive Officer, President and Director

Marc Stapley - Chief Financial Officer and Senior Vice President

Christian O. Henry - Senior Vice President and General Manager of Genomic Solutions

Analysts

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Doug Schenkel - Cowen and Company, LLC, Research Division

Derik De Bruin - BofA Merrill Lynch, Research Division

Amanda Murphy - William Blair & Company L.L.C., Research Division

Ross Muken - ISI Group Inc., Research Division

William R. Quirk - Piper Jaffray Companies, Research Division

Daniel Brennan - Morgan Stanley, Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Daniel Arias - UBS Investment Bank, Research Division

Vamil Divan - Crédit Suisse AG, Research Division

Amit Bhalla - Citigroup Inc, Research Division

Jonathan P. Groberg - Macquarie Research

Eric Criscuolo - Mizuho Securities USA Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Illumina Inc. Earnings Conference Call. My name is Ayiesha, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Rebecca Chambers. Please proceed.

Rebecca Chambers

Good afternoon, everyone, and welcome to our earnings call for the fourth quarter of fiscal year 2012. During the call today, we will review the financial results released after the close of the market, offer commentary on our commercial activity and provide financial guidance for 2013, 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, illumina.com.

Participating for Illumina today will be Jay Flatley, President and Chief Executive Officer; Marc Stapley, Senior Vice President and Chief Financial Officer; and Christian Henry, Senior Vice President and General Manager of our Genomic Solutions business.

This call is being recorded and the audio portion will be archived in the Investors section of our website. It is our intent that all forward-looking statements regarding our expected financial results and commercial activity made during today's earnings call will 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 the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Illumina files with the Securities and Exchange Commission, including Illumina's most recent Forms 10-Q and 10-K.

Before I turn the call over to Jay, I would like to let you know that we will participate in the Cowen Health Care Conference on March 5 and March 6. For those of you unable to attend this conference, we encourage you to listen to the webcast presentation, which will be available through the Investor Relations section of our website.

With that, I'll now turn the call over to Jay.

Jason T. Flatley

Thanks, Rebecca, and good afternoon, everyone. To begin today, I will provide an update on the state of our business and markets before turning to our commercial progress. Marc will then review our fourth quarter financial results and our guidance for fiscal 2013.

Despite uncertainty around sequestration and the general macro environment, our business has continued to accelerate. Q4 shipments were strong across all geographies, and revenue grew 24% year-over-year to $309 million. Shipments to the Americas grew 20% year-over-year, and European shipments were up 26% over the same period. Shipments to Asia continue to be strong with year-over-year growth of 12%, including 30% growth in Greater China.

While the NIH funding environment remains uncertain in light of a potential sequestration, our customers continue to display stable ordering patterns. We believe this is due in part to a larger percentage of NIH funds being granted to sequencing-based research. Additionally, the European and Asian funding environments remain stable, and Asia may even improve slightly in light of Japan's recent stimulus announcement.

Despite these positive trends, we remain focused on diversifying our customer base. In fiscal 2012, approximately 30% of revenue came from nonacademic and nongovernment segments, and our goal is to increase this to approximately 50% of revenue over the next 5 years. We believe this is possible as we accelerate the penetration of our technology into applied markets including the clinical, translational, consumer, forensic and agricultural segments.

I'd like to now turn to the specifics of the Q4 results. Total microarray revenue increased 4% year-over-year due to the impact of BlueGnome, while organic microarray revenue declined slightly. Order volume grew sequentially as a result of demand for the Infinium Omni arrays and significant interest in the recently launched Infinium HumanCore arrays. In the first 2.5 months since launch, we received orders for 325,000 samples of the HumanCore arrays, which we expect to begin shipping this quarter.

As an illustration of the high activity level that remains in the array market, in Q4, we shipped over 1 million samples worth of arrays across all of our array-based product lines, including Infinium, GoldenGate and VeraCode.

Turning now to our sequencing business. Total sequencing revenue grew 35% over the fourth quarter of 2011, driven by strong demand for consumables. In fact in the fourth quarter, sequencing consumables grew 56% year-over-year due to higher utilization per instrument, as well as growth in both the HiSeq and MiSeq install base.

Our Sample Prep business continue to gain share in the quarter and contributed significantly to sequencing consumables growth. Nextera and Nextera XT Sample Prep kits had a particularly strong quarter, and the TruSeq demand was strong from translational and clinical customers. In addition, we are further expanding our portfolio with a launch of innovative Sample Prep solutions that streamline workflows and decrease turnaround times. In the first quarter, we expect to launch the Nextera Rapid Capture Exome Kit, which will enable the fastest exome enrichment workflow for use on both the HiSeq and the MiSeq platforms. These kits will make the workflow 70% faster than the current solution.

We also plan to release TruSeq Targeted RNA kits this quarter, targeting the mid-plex real-time PCR market, which we estimate to be a $300 million market today.

Read the rest of this transcript for free on seekingalpha.com