ILMN

Illumina, Inc. (ILMN)

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Illumina (ILMN)

Q3 2012 Earnings Call

October 23, 2012 5:00 pm ET

Executives

Marc Stapley - Chief Financial Officer, Senior Vice President and Principal Accounting Officer

Rebecca Chambers

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

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

Jonathan P. Groberg - Macquarie Research

William R. Quirk - Piper Jaffray Companies, Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Daniel Arias - UBS Investment Bank, Research Division

Amit Bhalla - Citigroup Inc, Research Division

Daniel Brennan - Morgan Stanley, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Illumina Incorporated Earnings Conference Call. My name is Chanel, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Marc Stapely, Senior Vice President and Chief Financial Officer.

Marc Stapley

Thanks, Chanel. Good afternoon, everyone, and welcome to our earnings call for the third quarter of 2012. Before we get started, I'd like to announce that Rebecca Chambers, who has just joined Illumina, is our new Senior Director of Investor Relations. Rebecca comes to us from Myriad Genetics, where she was Head of Investor Relations and Corporate Communications. We're very excited to have Rebecca joined the team. Becca?

Rebecca Chambers

Thank you, Marc. I'm very happy to have joined the team as well, and I look forward to working with our investors and analysts.

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 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 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 Marc, I wanted to let you know that we will participate in the Piper Jaffray Annual Healthcare Conference on November 28. 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 will now turn the call back over to Marc.

Marc Stapley

Thanks, Rebecca. During my section of today's call, I will review our third quarter financial results and our guidance for the rest of fiscal 2012. I will then turn the call over to Jay put the provide an update on our commercial progress and the state of our business and markets.

We're pleased to report that our positive momentum continues, as this quarter marks the fourth consecutive quarter of sequential growth in both revenue and non-GAAP EPS.

In Q3, strong sales for HiSeq and an increase in delivery of whole-genome service contracts led to revenue of $286 million, a 2% sequential increase. Included in these results is revenue of approximately $1 million from BlueGnome, the acquisition of which was announced on September 19.

Year-over-year, revenue increased 21% due to the strength of our sequencing business. Instrument revenue for the third quarter was $82 million, up 14% sequentially, due to an increase in sequencing instruments, and up 15% year-over-year. The year-over-year growth was primarily due to the impact of MiSeq, which began shipments in Q3 of last year. Consumable revenue for the quarter was $177 million, down 4% sequentially and up 22% compared to the third quarter of 2011.

Consumable revenue represented 62% of total revenue in line with Q3 last year and down slightly sequentially. The sequential decline has 2 primary components: the effect of reduced usage during the summer vacation season and the fact that Q2 was biased somewhat positively by success in our efforts to reduce reagent back orders.

Services and other revenue, which includes genotyping and sequencing services as well as instrument maintenance contracts, was $23 million for the quarter, an 8% increase sequentially and a 54% increase year-over-year. Importantly, we shipped more than twice as many whole-genome samples from our FastTrack Services lab as compared to the prior quarter, a record for our services business.

Turning now to gross margin and operating expenses. I will highlight our adjusted non-GAAP results, which exclude non-cash stock compensation expense, headquarters relocation expense and other non-cash items. I encourage you to review the GAAP reconciliation of non-GAAP measures included in today's earnings release.

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