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Illumina CEO Discusses Q3 2010 Results - Earnings Call Transcript

Illumina CEO Discusses Q3 2010 Results - Earnings Call Transcript

Illumina, Inc. (

ILMN

)

Q3 2010 Earnings Call

October 26, 2010 5:30 p.m. ET

Executives

Peter Fromen – Senior Director, IR

Christian Henry – SVP, CFO & General Manager, Life Sciences

Jay Flatley – President & CEO

Analysts

Doug Schenkel – Cowen & Company

Ross Muken – Deutsche Bank

Marshall Urist – Morgan Stanley

Isaac Rowe - Illumina

TheStreet Recommends

Tycho Peterson – JP Morgan

Derik DeBruin – UBS

Quintin Lai – Robert W. Baird

Jon Groberg – Macquarie Capital

Dan Leonard – Leerink Swann

Bill Quart – Piper Jaffray

Amit Bhalla – Citi

[Inaudible] – Gleacher and Company

Paul Knight – CLSA

Amit Bhalla – Citi

Presentation

Operator

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Previous Statements by ILMN
» Illumina, Inc. Q2 2010 Earnings Call Transcript
» Illumina Q1 2010 Earnings Call Transcript
» Illumina, Inc Q4 2009 Earnings Call Transcript
» Illumina Q3 2009 Earnings Call Transcript

Good day, Ladies and Gentlemen, and welcome to the Third Quarter Illumina Earnings Conference Call. My name is Derrick, and I’ll be your operator for this call. (Operator Instructions)

I would now like to turn the conference over to Mr. Peter Fromen, Senior Director of Investor Relations. You may proceed.

Peter Fromen

Thank you, Operator. Good afternoon everyone, and welcome to our Third Quarter 2010 Earnings Call. During the call, we will review the financial results we released today, and offer our commentary on our commercial activities after which, we will hold 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 site of our website at Illumina.com.

Presenting for Illumina today will be Jay Flatley, President and Chief Executive Officer and Christian Henry, who is our Senior Vice President and General Manager of Life Sciences, as well as our 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 our expected financial results and commercial activity made during today’s call be protected under the Private Securities Litigation Reform Act of 1995.

The 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 results to differ we refer you to the documents that Illumina files at the Securities and Exchange Commission including forms 10-Q and 10-K.

Before I turn the call over to Christian, I wanted to let you know that we will participate in the City SMID Cap Conference in Las Vegas on November 16

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, the Piper Jaffray Healthcare Conference in New York on November 30

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, and the Deutsche Bank MedTools Investor Summit on December 7

th

and 8

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in Boston. For those of you unable to attend any of the upcoming conferences, we encourage you to listen to the webcast presentations, which will be available through the investor relations section of our website.

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

Christian Henry

Good afternoon, everyone, and thank you for joining us today. During today’s call, I’ll review our third quarter financial results, and Jay will provide an update of our commercial progress, and the state of our business and markets.

In the second quarter, we recorded 237 million in total revenue. This represents growth of 50% over Q3 of last year. Product revenue was 225 million representing 49% growth over Q3 of 2009 and was led by significant uptake of our sequencing products.

Our Microarray business also showed very strong growth relative to last year, and was up for the fourth consecutive quarter.

Consumable revenue for the quarter was 133 million compared to 87 million in Q3 of 2009. We saw strong demand for both Sequencing and Microarray consumables resulting in a year-over-year growth of 53%.

Annualized consumable pull-through for sequencing systems was at the high end of our projected range of 150 to $200,000 per system. Additionally, across our installed base of Microarray Scanners, annualized consumable pull-through was above our targeted range of 400 to 500K per system. And reached levels last seen in Q1 of 2009.

Our Microarray Consumable business was driven by revenue from our whole genome V chips, which grew more than 50% year over year, and 20% sequentially. This growth was largely due to the Omni 2.5, which became our bestselling array in its first full quarter of shipment.

Total instrument revenue for the quarter was $88 million, up 45% over Q3 of last year, and up 26% over last quarter. In both cases, the growth in instrument revenue was largely due to the success of the HiSeq 2000. HiSeq continues to exceed our expectations. To meet demand, we’ve significantly increased our production in the third quarter and expect to continue scaling our capacity into the fourth quarter, which will begin to decrease HiSeq lead times. In spite of the scaling, we believe it will take several more quarters to reduce the HiSeq backlog to ideal levels.

Revenue from Microarray Instruments also grew both on a year-over-year and sequential basis.

Services and other revenue, which includes genotyping and sequencing services as well as instrument maintenance contracts was $13 million compared to $8 million in the third quarter of last year. The primary driver of this year-over-year growth was the increase in maintenance contracts for our growing install base of sequencers.

Before discussing gross margins and operating expenses for the quarter, I’d like to note that we recorded a pre-tax amount of $18 million related to non-cash stock-based compensation. This impacted our EPS by a tax-adjusted amount of $0.09 pro forma diluted share for the quarter.

I want to remind you that we now include this expense in our presentation of our pro forma net income and earnings per share. However, in our discussion of gross margins, operating expenses, and operating margins, I will highlight both our GAAP expenses, which includes the stock comp expense, and other non-cash charges, and the corresponding non-GAAP figures. I encourage you to review the GAAP reconciliation of the non-GAAP measures included in today’s release.

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