Illumina, Inc. (ILMN)

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Illumina (ILMN)

Q2 2013 Earnings Call

July 23, 2013 5:00 pm ET


Rebecca Chambers - Senior Director, IR

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

Marc A. Stapley - Chief Financial Officer and Senior Vice President

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


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

Douglas Schenkel - Cowen and Company, LLC, Research Division

Derik De Bruin - BofA Merrill Lynch, Research Division

Ross Muken - ISI Group Inc., Research Division

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

Daniel Arias - UBS Investment Bank, Research Division

William R. Quirk - Piper Jaffray Companies, Research Division

Amit Bhalla - Citigroup Inc, Research Division

Daniel Brennan - Morgan Stanley, Research Division

Jonathan P. Groberg - Macquarie Research

Isaac Ro - Goldman Sachs Group Inc., Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Zarak Khurshid - Wedbush Securities Inc., Research Division

Peter Lawson - Mizuho Securities USA Inc., Research Division



Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Illumina Inc. Earnings Conference Call. My name is Ayisha, and I will be your coordinator for today's call. [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. You may proceed, ma'am.

Rebecca Chambers

Thank you. Good afternoon, everyone, and welcome to our earnings call for the second quarter of fiscal 2013. During the call today, we will review the financial results released after the close of the market and offer commentary on our commercial activity. 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

Participating 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.

Jay will provide a brief update on the state of our business and Marc will review our second quarter financial results.

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 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 Morgan Stanley Global Healthcare Conference in New York the week of September 9. For those of you unable to attend, we encourage you to listen to the webcast presentation, which will be available through the Investor Relations section of our website.

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

Jay T. Flatley

Thanks, Rebecca, and good afternoon, everyone. I'm pleased to report that Q2 was another exceptional quarter for the company. Our business demonstrated strong underlying trends in every geography in nearly all product lines. As a result, Q2 revenue grew 23% year-over-year to $346 million, our 7th consecutive quarter of sequential revenue growth. Total microarray revenue increased 3% year-over-year, due primarily to the impact of BlueGnome. Demand for arrays remain stable as the market trends toward large sample numbers with moderate content at a lower ASP per sample. In fact, Q2 is the third quarter in a row with Infinium orders exceeding 1 million samples due to demand for our Infinium, OmniExpressExome, Core Exome and Omni2.5 products. We will begin shipping a new custom onco array in the second half of this year to early access consortium members interested in understanding the genetic basis of cancer. The onco array is the next generation of the groundbreaking iCOGS custom array that was used by the collaborative oncological gene environment study to identify genetic variants related to breast, ovarian and prostate cancer. The onco array contains approximately 600,000 markers for use in a meta analysis of over 400,000 samples. We plan to offer this array to non-consortium customers in 2014.

The consumer market continues to show a significant elasticity below the $100 price point, generating strong demand for gene mapping services and our iSelect custom arrays. For the second quarter in a row we received a large consumer order, deliverable over several years and we continue to project close to $50 million of consumer-related revenue in 2013.

Turning now to our sequencing business, total sequencing revenue grew 33% year-over-year, driven by strong demand for consumables and HiSeq instruments. During the second quarter, sequencing consumables grew 26% over Q2 of last year as a result of our larger HiSeq and MiSeq installed base, as well as growth in our Sample Prep business.

Q2 Sample Prep shipments grew close to 50% year-over-year, with strength in both the Nextera and TruSeq product lines. While Sample Prep is a competitive field, our broad portfolio of supported applications and sample types has allowed us to gain market share as we launch new offerings in our installed base growth.

Two of our newest products, the TruSeq Targeted RNA kit and our Nextera Rapid Capture Exome are seeing significant early interest. Our focus on Sample Prep has resulted in a portfolio of products with improved ease-of-use and a more complete user experience. One of our core strategies is to provide customers with the complete capability to go from biological sample to answer, quickly and easily, minimizing the risk of errors and reducing hands-on time. To that end, we recently announced collaborations with leading vendors of robotic platforms to provide automation solutions for customers requiring high throughput Sample Prep.

A few weeks ago, we completed the acquisition of Advanced Liquid Logic or ALL. This acquisition will allow us to develop an automated and integrated solution for our low to mid throughput customers. A spinoff from Duke University, the company possesses foundational liquid handling IP, including approximately 100 issued or licensed patents and approximately 200 pending applications.

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