Jay T. Flatley
Good morning, ladies and gentlemen. I want to welcome all of you to the annual meeting of the stockholders of Illumina Incorporated. And Jay Flatley, President and CEO, and I'll be the Chairman of the meeting. It's 10:00, and I now call the meeting to order.
This morning, our program will proceed as follows: First, we'll conduct the official business of the 2013 annual meeting. Next, we'll review the operations of the company. Following that, we will open the meeting to a question-and-answer session. Please note that stockholders who desire to ask a question may do so by presenting their question in writing where indicated on the webcast portal for this meeting. Only stockholders will be permitted to present questions, and you must have your 12-digit control number to do so. We will review and answer questions only during the question-and-answer session to be held at the conclusion of this meeting.
I'd like to begin by noting the presence at this meeting of Mr. Charles Dadswell, Senior Vice President and General Counsel; and Mr. Doug Renier [ph], representing Ernst & Young, our independent public accountants for the last fiscal year. Mr. Dadswell has been appointed to act as Inspector of Elections to examine and tabulate proxies and ballots at this meeting.
I will now turn the meeting over to Mr. Dadswell to cover the procedural portion of the meeting.
Charles E. Dadswell
Thank you, Jay. Continuing now with the procedural portion of the meeting, I'd like to mention that if there's any stockholder present via webcast who intends to vote but has not yet done so, you may vote online where indicated through the webcast portal for this meeting. You will need to have your 12-digit control number in order to vote. You may vote until 10:15 a.m. Pacific Daylight Time, in which time the polls will be closed.
We have a list of stockholders of the company as of April 2, 2013, which shows that, as of that date, 124,279,487 shares of common stock were entitled to vote at the meeting. On or about April 10, 2013, the notice of annual meeting of stockholders was mailed to all stockholders of record as of April 2, 2013.
The list of stockholders will remain available for inspection by stockholders during the meeting. After the meeting, it will be filed with the records of the company. A preliminary count of the shares represented in person or by proxy at this meeting indicates that the holders of the majority of the outstanding shares of common stock of the company as of the record date are present at this meeting in person or by proxy, thus, constituting a quorum. The meeting is therefore duly convened and open for business.
As stated in the notice of this meeting, there are 4 items to be considered and voted upon by the stockholders this year. First, to elect 3 director nominees, named in the proxy statement. Two of them will serve for 3 years ending in 2016, and one of whom will serve for 1 year ending 2014. Second, to ratify the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for fiscal year ending December 29, 2013. Third, to approve, on an advisory basis, the compensation pay to the company's executive officers as named in the proxy statement. And last, to approve an amendment to the Illumina Inc. 2005 Stock and Incentive Plan.
To expedite the flow of business at this meeting, we intend to adhere to the following order of business: Each of the matters to be acted upon by the stockholders of this meeting will be presented in the order reflected in the proxy statement.
First item is the election of directors. The Board of Directors is classified into 3 classes of directors, serving staggered 3-year terms, with one class of directors elected at each annual meeting of stockholders. At this meeting, 2 directors will be elected to hold office until the 2016 annual stockholders meeting and 1 director will be elected to hold office until the 2014 annual stockholders meeting. In each case, until their successors are elected and qualified.
Dr. Gerald Möller and Dr. David Walt have been nominated for election to serve as directors until the 2016 annual stockholders meeting, and Dr. Robert Epstein has been nominated for election to serve as a director until the 2014 annual stockholders meeting.
Dr. Epstein was appointed to the Board of Directors in November of 2012, still a newly created position. In accordance with our corporate governance guidelines, any new director appointed to fill a newly created position on the Board of Directors is assigned to a particular class of directors and is required to stand for election by our stockholders at the first annual meeting of stockholders following such appointment, whether or not the other members of the class of directors to which he or she was appointed are otherwise standing for election at such annual meeting.
At the time of his appointment, Dr. Epstein was assigned to the same class of directors composed of Mr. Daniel Bradbury and Mr. Roy Whitfield. Accordingly, Dr. Epstein is standing for election at this annual meeting to hold office for 1 year until the 2014 annual stockholders meeting and until his successor is duly elected and qualified.
The 3 candidates receiving the highest number of affirmative votes of the shares entitled to vote in this meeting will be elected directors of the company.
Second item to be voted upon is the ratification of Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year ending December 29, 2013. The vote of a majority of the shares present and entitled to vote at this meeting is required to approve this item.
The third item is to approve, on an advisory basis, the compensation paid to company's executive officers, as named in the proxy statement. The vote of the majority of the shares present and entitled to vote at this meeting is required to approve this item.
The fourth item is to approve an amendment to the Illumina Inc. 2005 Stock and Incentive Plan to increase the number of shares available for issuance by 5 million shares and to extend the termination date of the plan until June 28, 2016.
Based on the examination of the proxies reviewed and the online votes received, we've been informed that the proposed slate of directors has received sufficient votes to elect each of the nominees to the Board of Directors, and that the proposal to ratify Ernst & Young LLP as the company's independent registered public accounting firm has received sufficient votes to be approved. We've also been informed that the proposal to approve, on an advisory basis, the compensation paid to the company's executive officers, as named in the proxy statement, has been approved. And that a majority of the shares present and entitled to vote at this meeting has approved an amendment to the Illumina Inc. 2005 Stock and Incentive Plan.
We will report the actual voting results on the Form 8-K to be field with the Securities and Exchange Commission within the next 4 business days. Back to you, Jay.
Jay T. Flatley
Thank you, Chuck. Because no other stockholder gave notice of an intent to nominate directors pursuant to Section 2.13 of Illumina's bylaws, or to propose other business at this meeting, pursuant to Section 2.14 of Illumina's bylaws, this concludes the time for the presentation of nominations and proposals. Accordingly, the meeting is adjourned.
I would like to now spend a few minutes with you this morning discussing our activities, achievements and financial results during the last fiscal year and respond to any questions.
First, let me qualify my remarks by emphasizing that during the course of this discussion, we may make projections or other forward-looking statements regarding future events or the future performance the company. Actual events or results could, of course, differ materially. Moreover, we're not undertaking any obligation to provide updates in the future. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically, the company's most recent forms 10-K and 10-Q and other reports filed with the SEC. These documents contain and identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements.
So what I'd like to do now is just take a minute and give you a brief update on our performance for 2012. And I'd like to start that by describing the mission of the company, it's a mission that we updated this year, and that's to improve human health by unlocking the power of the genome.
And while that mission statement has changed in its wording a bit since the company was founded in 1998, the underlying message of unlocking and harnessing the power of the genome has not. We've been absolutely consistent in the goal and direction of this company since its founding days.
We have now the ability to deal with the full range of genomic complexity from our PCR business, which has the ability to analyze single markers, all the way to complete human genome sequencing with our flagship products in the HiSeq family. We also have a very broad range of applications that include DNA, RNA and methylation analysis.
I'd like to talk about some of the specific accomplishments that we made in 2012. We felt like we had really a very terrific year despite the challenging macroeconomic backdrop. We introduced a very broad range of new products and services, one of those that was critically important to us and really has been a star performer in our portfolio is a new feature in the HiSeq 2500 that's allowed us to sequence a complete human genome in a single day. And we call this the rapid mode. And we introduced a number of brand-new microarrays in our Infinium family during the course of the year. We also introduced a number of new Sample Prep kits, as we've continued our emphasis on back integrating into Sample Prep. And these cover both targeted panels and general purpose Sample Prep methodologies for both DNA and RNA.
BaseSpace is our cloud-based solution for managing the information that streams off our sequencers. And I'll talk specifically about that in a couple of minutes.
Additionally, we've made a number of enhancements across our services business. In the individual sequencing -- genome sequencing business, we launched the program we called that you UYG, Understanding Your Genome, which has allowed -- we've had 2 meetings and we've brought in collections of clinicians, physicians and policymakers to get sequenced and begin to understand how to apply full genome human sequencing in the clinical environment. We also launched a Cancer Analysis Service.
In terms of our management team, we added 2 new members to our board and management team. Paul Bianchi joined us a Senior Vice President of Human Resources, and we also named Dr. Robert Epstein to our Board of Directors.
Additionally, we made a very important acquisition in 2012 of a company called BlueGnome, located in the U.K. And I'll describe it in a minute. BlueGnome plays a very important role in the spectrum of our reproductive health strategy.
Let me remind you that Illumina serves very large and growing markets. Our core market opportunity has classically been in life sciences research. Today, that's about a $4 billion market overall. And from that springboard, we've taken our technology into a number of associated markets, including the consumer markets, which are young but we think, in the long run, will be a very large opportunity for us. Applied markets, such as agriculture and forensics. And a relatively new focus that we've developed over the past 2 years in reproductive health, and I'll talk a bit more specifically about our strategy there. That, today, is about $1 billion market opportunity.
And a significant factor in the growth of the company in 2012 was the beginning of the push of our technology into clinical and translational markets. Across the broad spectrum of our customers, from genome centers down to individual laboratories, there's an increasing emphasis on understanding genomic information as it applies to individual patients. And that emergence of the translational market has become a very important factor for us.
Over the last few years, as we've continued to improve our fundamental sequencing technology, we've actually broadened our focus to include both the back end and the front end services around our sequencers. On the front end, Sample Prep was an area that we, a few years back, were probably underemphasizing. And over the past couple of years, we launched a broad family of kits in the Sample Prep space, in part, fueled by our acquisition a few years back of Epicentre in Madison, Wisconsin, that provided us with this Nextera technology, which is very important in our Sample Prep methodologies. We now have a growing market share in Sample Prep, and this providing a very important new revenue source for us that's including -- included in the numbers that we report for consumables.
On the back end of our system, we've launched our BaseSpace product, and I'll talk about that in just a couple of minutes. But it allows our technology now, our information to stream off of our sequencers directly up into the cloud and provides our customers with the very simple ability to store, process, analyze, back up and share data in a cloud environment, particularly as we move our technology into clinical accounts and less-sophisticated customers, the ability to seamlessly manage their data, has become a very important feature of our technology. And of course, in addition to products, overarching this whole family, we have our services capability and our Illumina Genome Network.
We've continued, in 2012, to enhance our fundamental instrument platforms, and we've announced recently our -- portions of our future roadmap of these platforms. Our flagship product line we call HiSeq. We have 4 models in the HiSeq product line. We have now 2 different run modes: The high-output mode produces 600G in a single run, and that's equivalent to about 5 human genomes in a single run of the instrument; and as I mentioned last year, we deployed our rapid run mode on these products, which allows 1 human genome to be run in a single day. We've announced our future roadmap on the -- in the rapid mode to a total output of about 300G, and this will be accomplished, in part, by increasing our read lengths up to 250 base pairs, and to do that in a paired-end run.
Our desktop family of products is based around the MiSeq technology. We've upgraded our field base from the original launch spec of this product, which was 1.5 to 2G per run, up to 8G. That upgrade program was fully completed about 2 months ago. And we've announced the roadmap of that product, taking it by the end of the year up to 15G per instrument. And that upgrade will be performed without any hardware changes, that's purely reagent and software upgrade.
I mentioned BaseSpace, which has become a very successful addition to our product line over the past 18 months or so. The initial killer application for customers here is the ability to share data virtually instantaneously. Because of the size of our data sets, if you're geographically remote from a collaborator that you want to share data with, up until recently, you've had to ship disk drives back and forth to share those datasets. Now if both datasets are in BaseSpace, through a very simple permission process, you can instantly connect those datasets and share with any collaborator who's also on BaseSpace.
We recently announced our e-commerce functionality on BaseSpace. This now allows our App Store to go fully functional, and for third-party software developers to not only put their applications into the BaseSpace environment, but to receive revenue credit every time a customer uses those. And the model we're using here is actually quite similar to the one that Apple uses in their app store, with 70% of the revenue going to the application developer and 30% of the revenue to Illumina.
I want to talk for just a minute about our strategy in reproductive health. We think this marketplace has 6 different segments that we are focused on. The first of those is carrier screening, and we have a number of products in development here. We have a cystic fibrosis assay with our MiSeqDx system submitted to the FDA now, and we're hopeful to get approval of that in 2013.
The infertility factors box you see in the second position here is what we consider future opportunity. We are looking at the number of different products in this space that have to do with understanding the underlying genetic factors of infertility.
In the PGS/PGD space, this is the marketplace where BlueGnome was focused, and this has to do with improving the genetic diagnostics for in vitro fertilization and doing preimplantation genetic diagnostics. We closed that acquisition in the latter part of last year, and we're ramping up that business now.
A second very important acquisition that we made recently is Verinata Health located in Redwood City, California. And this has gotten us directly into the market we call NIPT, non-invasive prenatal testing. This market, we suspect, over the next 3 to 5 years, will become a $1 billion opportunity. And it's a market where Illumina is focused on not only supplying the sequencing technology to a range of other customers in this marketplace, but now through the acquisition of Verinata, we have the test technology ourselves, and we will -- we plan to put this through the FDA in the form of an in vitro diagnostic approved test.
In the long run, we think newborn screening via sequencing will become an important market for us. This is not a market that we think, in the next 2 or 3 years, will be significant, but we imagine in the long run that all babies will be sequenced at birth, their data put into their electronic medical records, and that data used for managing their health throughout their lifetime.
And the sixth box on this chart is cytogenetics. And this is an area where we've had products, classically in our product line, now augmented by the acquisition of BlueGnome and some software that they've brought to us, which allow us to improve our technology there for understanding delayed development in infants. So in total, we think we have a fully integrated strategy around reproductive health, and it's a market that we're very, very excited about.
As we look forward, we see quite a number of emerging and very large-market opportunities, perhaps the largest of all of them will be cancer. Cancer is a disease of the genome, using sequencing technology, we have the ability to understand cancers at the molecular level and to vastly improve the ability to prescribe drugs and prevent side effects. So this market is beginning to take off, and we think will be a very important part of the Illumina story over the next 5 years.
In agrigenomics, today, our business in the ag market is over $100 million, and we expect that market to continue to be very important as we sequence more crops and more animals, understand the genetic variation within those species and begin today use that understanding to improve the breeding process, to improve the productivity of creating the world's food supply.
Forensics is a market we are just entering, and we have some very important development programs in forensics. Today, that market is -- remains technology wise, employing technology from about 10 years ago, and we think it's a market that's right for transformation into next-generation sequencing.
In addition, we think population-based sequencing will become a very important market, and we're seeing the beginnings of that with the recent announcement from the U.K. of the intent to sequence 100,000 people out of the NHS. And that is one of many, many governments in large population sequencing programs that we believe will become a reality here the next 3 to 5 years.
In terms of our financial performance, we're very pleased with what the company has accomplished. You can see on Slide 13 that despite the macroeconomic challenges that exist in 2012, we continue to grow our revenue, and we've had a 4-year revenue CAGR of 19%, while growing EPS during that same time, 24%.
At the beginning of 2013, we provided Wall Street with our financial guidance for the year. That guidance was 15% year-over-year revenue growth; gross margins, approximately 70%; non-GAAP EPS in the range of $1.55 to $1.62; our estimated tax rate of 31%; stock-based compensation anticipated to be around $115 million, of course, that varies to some extent based on what happens with our actual stock price in the market; and shares outstanding of approximately 134 million.
So in conclusion, we are very excited about the prospects for our business. We believe that sequencing will become as ubiquitous as PCR and will become a fundamental tool in every molecular biology lab throughout the world. And we believe that the penetration we have of the key and emerging markets that are in the Illumina opportunity set are really only beginning, and the future of our company is very bright.
Thank you very much, and I'd now like to open up for questions.
Jay T. Flatley
It appears as if there are no questions. So at this point, we will conclude the webcast. Thank you, all, for participating.
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