Illumina (ILMN)

Q1 2011 Earnings Call

April 26, 2011 5:30 pm ET

Executives

Jay Flatley - Chief Executive Officer, President and Director

Christian Henry - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and General Manager of Life Sciences Business Unit

Unknown Executive -

Peter Fromen - Senior Director of Investor Relations

Analysts

Zarak Khurshid - Wedbush Securities Inc.

William Quirk - Piper Jaffray Companies

Derik De Bruin - UBS Investment Bank

Jonathan Groberg - Macquarie Research

Ross Muken - Deutsche Bank AG

Matthew Notarianni - Robert W. Baird

Tycho Peterson - JP Morgan Chase & Co

Daniel Leonard - Leerink Swann LLC

Marshall Urist - Morgan Stanley

Peter Lawson - Mizuho Securities USA Inc.

Sung Ji Nam - Gleacher & Company, Inc.

Isaac Ro - Goldman Sachs Group Inc.

TheStreet Recommends

Doug Schenkel - Cowen and Company, LLC

Unknown Analyst -

Amanda Murphy - William Blair & Company L.L.C.

Amit Bhalla - Citigroup Inc

Presentation

Operator

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Previous Statements by ILMN
» Illumina's CEO Discusses Q4 2010 Results - Earnings Call Transcript
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» Illumina Q1 2010 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Illumina Inc. Earnings Conference Call. My name is Jonathan, and I will be your operator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. At this time, I would like to hand the call off to Mr. Peter Fromen, Senior Director of Investor Relations. You may proceed, sir.

Peter Fromen

Thank you, operator. Good afternoon, everyone, and welcome to our earning call for the first quarter of 2011. During the call, we will review our financial results released today 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.

Presenting for Illumina today will be Jay Flatley, President and Chief Executive Officer; and Christian Henry, 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 will 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 with the Securities and Exchange Commission, including Forms 10-Q and 10-K.

Before I turn the call over to Christian, I want to let you know that we will participate in the Deutsche Bank Healthcare Conference in Boston the week of May 2, the Baird Growth Stock Conference in Chicago the week of May 9, the Goldman Sachs Global Healthcare Conference in Los Angeles the week of June 6, and the William Blair Conference in Chicago the week of June 13. To those of you unable to attend any of the upcoming conferences, we encourage you to listen to the webcast presentation, which will be available thru 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. Before we get started, I'd like to announce that Kevin Williams, our new Senior Director of Investor Relations, is joining us today. Kevin is an M.D. by training and have spent 10 years in the investment community as a buy-side analyst. Over the next quarter, Peter Fromen will be transitioning his Investor Relations responsibility to Kevin. I'd like to thank Peter for his efforts in building our Investor Relations function over the past 4 years. And I look forward to his continued success in his new role as Senior Director of Applications Marketing here at Illumina.

Now I will review our first quarter financial results, and then Jay will provide an update on our commercial progress and the state of our business and markets. It should be noted that we completed the acquisition of Epicentre Biotechnologies in early January. And as a result, our first quarter financial statements include 12 weeks of EPICENTRE revenues and expenses.

In the first quarter, we recorded $283 million in total revenue. This represents growth of 47% over Q1 of last year. Product revenue was $267 million, representing 54% growth over the same period in 2010, and was driven by continued success in our sequencing business. Consumable revenue for the quarter was $148 million compared to $114 million in Q1 of 2010, and $132 million in the fourth quarter of 2010. The year-over-year sequential growth was primarily the result of our expanded info base of sequencers, which generated annualized consumable revenue per systems slightly above our range of $150,000 to $200,000 per system. Annualized pull through on the HiSeq was within our projected range of $300,000 to $400,000, but was down slightly from last quarter as we believe customers drew down inventory in anticipation of the release of our new version 3 kits. These kits began initial shipments last week and delivered approximately 600 G in output per run. We expect aggregate sequencing consumable pull through to increase throughout the year, as the HiSeq becomes a greater percentage of our install base. Annualized consumable pull through of proper installed base of microarray scanners was within our target range of $400,000 to $500,000 per system.

Instrument revenue for the quarter was $114 million, up 100% over Q1 last year, largely due to the HiSeq 2000 shipments. Since we launched HiSeq in January 2010, we've scaled our capacity each quarter in an effort to meet the significant demand for the system. We continue to scale in the first quarter. And as a result, we have reduced the instrument backlog to a more desirable level. This enables us now to ship HiSeq systems within commercially reasonable lead times, which will in turn result in the generation of more consumable revenue.

In the quarter, we also saw a strong demand for our HiScan and HiScanSQ systems, which helped contribute to the strong instrument revenue. In fact, Q1 was the second-highest quarter we've had in array instrumentation, following Q4's record performance.

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