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Illumina Management Discusses Q2 2012 Results - Earnings Call Transcript

We have continued our positive revenue and earnings momentum with our third consecutive quarter of sequential growth in both revenue and earnings per share. In Q2, we had record operating margins and record orders of the both the MiSeq instrument and MiSeq sequencing consumables. Second quarter 2012 revenue increased 3% sequentially to $281 million due to another successful quarter of MiSeq shipments, higher service revenue and continued growth in sequencing consumables.

Revenue for the quarter decreased 2% compared to Q2 2011 as last year's quarter included a greater number of HiSeq sales. Instrument revenue for the second quarter was $72 million compared to Q2 2011. Instrument revenue was down 32%, again primarily due to decrease in sequencing and microarray instrumentation.

Consumable revenue for the quarter was $184 million, up 6% sequentially and up 16% compared to the second quarter of 2011. Consumable revenue now represents 65% of our total revenue compared to 55% this time last year.

We are very pleased with this trend, which results from a larger install base of both HiSeq and MiSeq and a sequentially improved average annualized quarter on HiSeqs. In particular, record shipments of our [indiscernible]product including TruSeq and Nextera contributed to the sequential growth consumable revenue.

Services and other revenue, which includes genotyping and sequencing services, as well as instrument maintenance contract, was $22 million for the quarter compared to $18 million from Q2 of last year. This growth is also encouraging.

In our discussion of gross margin and operating expenses, I will highlight our adjusted non-GAAP results, which exclude non-cash stock competition expense, restructuring charges and in-process R&D charge and other non-cash items. I encourage you to review the GAAP reconciliation of non-GAAP measures included in today's earnings release.

Our adjusted gross margin for the second quarter was 70.9%. This compares to 69% in both last quarter and the second quarter of 2011. The sequential improvement was attributable primarily to a favorable mix of consumable versus instrument revenue and improved absorption. The year-over-year gross margin increase was also driven by a favorable product mix. We continue to expect gross margins of approximately 70% for the full year as improvements in consumable mix are somewhat offset by expected MiSeq care [indiscernible] reduction as our trade-in program continues to gain traction and by increasing FastTrack Services revenue.

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