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Illumina Inc. (NASDAQ:ILMN)

Q4 2013 Earnings Conference Call

January 28, 2014 5:00 PM ET

Executives

Rebecca Chambers – SVP of IR

Jay Flatley – CEO

Marc Stapley – SVP and CFO

Analysts

Tycho Peterson – JPMorgan Chase & Co.

Doug Schenkel – Cowen and Company

Derik De Bruin – BofA Merrill Lynch

Daniel Brennan – Morgan Stanley

Ross Muken – ISI Group

Dan Arias – UBS

Amanda Murphy – William Blair & Company

Isaac Ro – Goldman Sachs

Dan Leonard – Leerink Partners

Amit Bhalla – Citigroup

Bill Quirk – Piper Jaffray & Co.

John Groberg – Macquarie Research Equities

Zarak Khurshid – Wedbush Securities

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year 2013 Illumina Incorporation Earnings Conference Call. My name is Sean, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Rebecca Chambers. Please proceed.

Rebecca Chambers

Thank you, and good afternoon everyone. Welcome to our earnings call for the fourth quarter and fiscal year 2013. During the call today, we will review the financial results released after the close of 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, Chief Executive Officer; Marc Stapley, Senior Vice President and Chief Financial Officer; and Francis deSouza, President. Jay will provide a brief update on the state of our business, and Marc will review our fourth quarter and fiscal year 2013 financial results, as well as detail our guidance for 2014. 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 activities 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 filed with the Securities and Exchange Commission, including Illumina's most recent forms 10-Q and 10-K.

Before I turn the call over to Jay, I would like to let you know that we will participate in the Kellen Healthcare Conference in Boston the week of March 3, and the Morgan Stanley Technology, Media, and Telecom conference in San Francisco on March 6. For those of you unable to attend, 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 over to Jay.

Jay Flatley

Thanks Rebecca, and good afternoon, everyone. Before moving on to my prepared remarks, I would like to thank Christian Henry for his contribution to investor events over the last eight years, including our earnings calls. As many of you are aware, Christian has recently transitioned into his new role as Chief Commercial Officer, and he is spending time today with customers, one of his highest priorities.

With this new role, we expect his participation in investor meetings and calls to be limited. He's passing that baton to Francis deSouza, who recently joined the team as President. Francis has met many of you already at the events we've attended this month, and we will look forward to his contribution to the Q&A section of our future earnings calls.

The fourth quarter successfully closed a spectacular year for the Company. Through our investments in 2013, we laid the foundation for a series of new products and entries into new markets. This allowed us to announce 12 new platforms and products two weeks ago, make a number of key acquisitions including NextBio, and increase the size and scope of our commercial activities.

We appointed several senior leaders, including Dr. Richard Klausner as Chief Medical Officer, Bob Ragusa as Senior Vice President of Operations, and Francis deSouza in the role of President. The re-organization we announced in October has been fully implemented, bringing improved market focus and a more balanced structure. I am exceptionally proud of what the team accomplished in 2013, and I look forward to seeing what we together with our customers can achieve in 2014.

For the past few years we've talked about diversifying our customer base, which we've measured by the percentage of shipments to commercial, non-profit, and hospital customers. I'm pleased to share that we've successfully reached this goal in the fourth quarter, as approximately 50% of shipments were to these non-traditional segments.

Funding for academic customers in the US has also improved recently, as the NIH budget is set to increase more than 3% in 2014, and we continue to see strong double-digit growth in the fraction of grants allocated to sequencing.

Turning now to specific results in Q4, our financial results were incredibly strong as we delivered our ninth consecutive quarter of sequential revenue growth. Revenue grew 25% year-over-year to $387 million, as a result of positive underlying trends across all geographies and product lines.

This quarter, total microray revenue increased 10% year over year, due to growth in array consumables and instruments, as well as genotyping services. The strength in genotyping services and instruments was due in part to an increase in consumer samples.

Consumable demand was driven by a record number of Infinium samples shipped; BlueGnome's IVF portfolio of products, which grew 60% Q4 over Q4; as well as our new Onco array that began shipping in October. For the full year, arrays grew 3% as demand for consumer and IVF products reinforced the market trend toward large sample studies at lower complexity and ASP per sample.

Turning now to our sequencing business, our results clearly demonstrate the early penetration of NGS into reproductive health, oncology, and other clinical markets, and our improving competitive position. Sequencing revenue grew 32% year over year in the fourth quarter, driven by impressive demand for consumables and sequencing services. Sequencing consumables grew 37% over Q4 of last year, due to higher utilization of HiSeq instruments, and our larger install base, as well as growth in our Sample Prep business.

Q4 Sample Prep shipments grew more than 50% year over year as Nextera shipments hit a record level. Strength here was driven by demand for Nextera XT, our library prep solution for small genomes. In 2013, Sample Prep shipments grew close to 55%, and we believe there continues to be extensive opportunities for growth in this area.

Turning now to instruments, Q4 instrument revenue grew 11% compared to the fourth quarter of 2012, as a result of demand for both sequencing and array instruments. Again this quarter, we saw significant demand for sequencing instruments, as we received orders for more than 100 HiSeqs and close to 300 MiSeqs. Shipments were lower than orders for both platforms, as demand exceeded our production capacity, but fully within normal quarter-to-quarter variation.

Two HiSeq trends that we have noted throughout 2013 were again the case in Q4. Approximately 90% of HiSeqs ordered were 2500s, and many current customers remain capacity constrained. As a result, approximately 60% of the orders in the quarter were from existing HiSeq customers, as they scaled their facilities to undertake larger projects. Of the new customers, over 40% were from commercial and hospital markets.

In the fourth quarter, we saw strong demand for MiSeq, as we continued to take share and saw solid results from the trade-in program. Our new long-read reagent kits are opening new demand for applications such as 16S sequencing. The clearance of MiSeq DX also drove demand, and we received orders for eight MiSeq DX instruments, including molecular pathology labs looking to transition current cystic fibrosis testing to NGS.

Non-academic customers again accounted for more than 50% of MiSeq orders in Q4, the vast majority of which were commercial, translational, and clinical customers. In addition to cystic fibrosis testing, many of these customers are interested in our TruSight content panels. To date, over 300 customers have purchased TruSight kits, and we believe half these customers are in the early phases of validation.

Our TruSight 1 kit has been a particular interest, as it represents the industry's broadest sequencing panel, covering over 4,800 genes associated with known clinical phenotypes. This product was launched in October, and we've already seen significant interest. Close to 70 customers have placed orders in the first few months since launch, which is the best initial market reaction we've ever seen for a targeted sequencing assay.

Moving now to FastTrack Services, our turnaround time decreased significantly, and we're now committing to delivering genomes within eight weeks of receiving samples. This turnaround time enabled us to ship more than 5,000 genomes this quarter, and new record, and more than twice the number of genomes sequenced in the prior-year period.

This quarter saw orders for more than 12,000 genomes, another new record, which included the 10,000-whole-genome order from the University of Cambridge and Genomics England, Ltd. This project is one of the first of many population projects being discussed, which we believe are going to be critical to accelerating the discovery of new associations of human variation and disease.

Additionally, with the announcement of the HiSeq X10 system, we've standardized our pricing in FastTrack Services. This pricing structure provides clarity, as sequencing on the HiSeq X10 systems is a more economical approach to whole genome sequencing than sending samples to our internal services lab. While this new pricing model is expected to result in our services business growing at a slower rate than we have seen previously, we believe customers will be motivated to run projects on their own systems.

We remain focused on delivering complete sample-to-answer workflows, enabling new markets to embrace NGS technology through a variety of applications. One component of this strategy is to focus on improving the ease of use and user experience of our Sample Prep products.

As a first step, we recently introduced our NeoPrep push-button library prep system with a radically simpler workflow to go from DNA or RNA to libraries ready for sequencing. Based on digital microfluidics technology from our ALL acquisition, NeoPrep will be available this summer offering an important step on the path to integrated sample-to-answer solutions.

Our focus on integrated solutions was reinforced with the recent launch of BaseSpace Onsite and BaseSpace Core Apps. Initial customer feedback on BaseSpace Onsite has been very positive. A number of customers have cited the simple user interface and installation as transformative to their ability to bring next-generation sequencing into their labs. BaseSpace Onsite includes access to our new Core Apps, as does the cloud version of BaseSpace.

These highly optimized apps transform sequenced data processing into a simple push-button process for the most frequently used applications, including RNASeq, exome analysis, whole genome sequencing, and tumor normal analysis. The combination of BaseSpace, BaseSpace Onsite, and NextBio serves our entire sample-to-answer workflow and are critical components of this strategy.

I'd like to briefly share some of the customer feedback on our new platform announcements. Shortly after introducing NextSeq, we embarked on a 60-city global road show to demonstrate the innovation, speed, flexibility, and simplicity of the platform. Additionally, we hosted two live webinars last week that had nearly 500 participants, a third of which were potential new customers.

Other indications of interest in NextSeq have been incredibly positive. Web traffic has easily surpassed both the MiSeq and HiSeq launches, with close to 20,000 visits to our NextSeq overview page, and 10,000 visits to our detailed NextSeq instrument selector, all in the first two days post-announcement.

Interest in the HiSeq X10 continues to be exceptional. Last week the New York Genome Center purchase the fourth X10 to support their mission of offering state-of-the-art technology to accelerate life-saving discoveries. Today I'm pleased to announce that Decode Genetics, now owned by Amgen, has purchased the fifth X10 to focus on population-scale research into the understanding of genetics and disease.

In addition to NYGC and Decode, we've spoken with many additional customers who are interested in purchasing the system. We are evaluating the extent to which we can ramp our supply chain to provide more systems this year, and will provide more information to you over the next several quarters. The demand we've seen for the $1,000-genome reinforces our view that there is, as far out as we can see, an insatiable demand for whole-genome sequencing.

In summary, over the last month, you've seen the results of our investments, commitment to innovation, and ability to move fast and embrace change. With the introduction of our new sequencing platforms and applications, we are extremely well positioned to address opportunities of every scale.

We believe we have large, untapped market opportunities, which will be enriched by the results of sequencing large populations that further unlock the clinical utility of the genome. We remain inspired by our customers for what they are accomplishing with our technology, and look forward to even greater progress in 2014. I will now turn the call over to Marc, who will provide a detailed overview of our fourth-quarter results.

Marc Stapley

Thanks Jay. As Jay mentioned, the fourth quarter marked another solid performance for Illumina to close out a remarkable 2013. Revenue for the year was $1.42 billion, which represents an increase of 24% over 2012, reflecting strong demand across the entire product portfolio. We posted many new records in the fourth quarter, which contributed to this strong result, including record shipments of sequencing core consumables, Sample Prep, Fast Track service genomes, and Infinium samples, all of which led to record revenue.

Fourth-quarter revenue was $387 million, an increase of 25% year over year, which included 22% organic revenue growth. The fourth quarter also marked our second-highest order quarter ever, with record orders of HiSeq 2500, near record orders of MiSeq, and orders of whole genome services being the highest we have ever booked.

Globally, demand for our products remained strong during the fourth quarter. Shipments in the Americas grew 31% year over year, and Europe saw a 19% increase over the same period. In APAC, shipments grew 28% year over year, driven by continued strength in Japan, which saw shipment growth of more than 85%, due to better-than-expected year-end funding, and demand from clinical research customers.

Instrument revenue grew 11% year over year to reach $89 million in the fourth quarter. This increase was primarily driven by demand for sequencing instruments, and as Jay mentioned, both HiSeq and MiSeq orders exceeded shipments in the quarter. Consumable revenue in the quarter was $244 million, an increase of 25% compared to the fourth quarter of 2012, primarily due to our growing installed base, as well as higher demand for sequencing consumables and Sample Prep.

Consumable revenue represented 63% of total revenue, flat compared to the prior-year period, and higher than the 60% seen in Q3. This was primarily due to the strength in sequencing consumables, as well as instrument shipments being constrained this quarter.

Annual HiSeq pull-through per instrument was above our projected range of $300,000 to $350,000 in Q4, higher year-over-year, and up sequentially. At this time, we are not modeling a change to our projected HiSeq quarterly range, as we believe Q4 included a small amount of year-end spending, particularly in Europe. MiSeq utilization was in our annual projected quarterly range of $40,000 to $ 45,000, a range that we view as stable going forward.

Services and other revenue, which includes genotyping and sequencing services, instrument maintenance contracts, and revenue from verified sales, grew more than 65% versus Q4 2012, to equal $51 million. This improvement was driven primarily by the ongoing growth in our extended maintenance contracts associated with a larger sequencing installed base, an increase in genomes processed year over year, revenue from Verify, and demand for our genotyping services.

Turning now to gross margin and operating expenses, I will highlight our adjusted non-GAAP results, which exclude legal contingencies, non-cash stock compensation expense, and other 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 fourth quarter reached the highest level we've seen since our entry into sequencing, at 71.4%. This compared to 70.2% in the third quarter. The sequential expansion was primarily due to a higher mix of consumables, and low warranty costs associated with the improved performance of our reagents and instruments. Year over year in Q4, gross margins expanded close to 300 basis points, as a result of higher sequencing instrument margins, a higher mix of sequencing consumables, and improved warranty costs.

Adjusted research and development expenses for the quarter were $66 million, or 17% of revenue, compared to $61 million, or 17.2% of revenue in the third quarter. The sequential increase in R&D expense was primarily due to the impact of head-count additions, accrued bonuses, and the acquisition of NextBio, as well as other items related to the offshore investments in our new products.

Adjusted SG&A expenses for the quarter were $86 million, or 22.2% of revenue, compared to $74 million, or 20.6% of revenue, in the previous quarter. The sequential increase was primarily due to commission and bonus payments arising from the year-end performance, the additional head count to support our planned commercial growth, and the acquisition of NextBio.

Adjusted operating margins were 32.3%, compared to 32.4% in the third quarter, and 33.1% reported in the fourth quarter of last year. Adjusted operating margins were slightly lower year over year due to the impact of acquisitions, as well as increased investment in R&D and SG&A to support our long-term growth.

In the fourth quarter we recognized approximately $500,000 of adjusted other income. Our non-GAAP tax rate for the quarter was 32.6%, compared to 28.9% in the fourth quarter of last year, which included the catch-up as a result of Singapore manufacturing exceeding our full-year internal expectations in 2012.

Non-GAAP net income was $65 million for the quarter, and non-GAAP EPS was $0.45. This compared to non-GAAP net income and EPS of $57 million and $0.42, respectively, in the fourth quarter of 2012. We reported GAAP net income of $81 million, or $0.56 per diluted share in the fourth quarter, compared to $72 million, or $0.53, per diluted share in the prior-year period. Current period results include a pre-tax gain of $55 million for the sale of our minority investment in Oxford Nanopore, and $6 million recorded in cost of goods to reflect the ongoing royalty on B-chip sales associated with the Citrix litigation, plus interest.

We generated cash flow from operations of $127 million during the fourth quarter. Capital expenditures were $27 million, resulting in $100 million of free cash flow, a new milestone. We ended the quarter with $1.17 billion in cash and short-term investments. Q4 inventory was $154 million, lower than the third quarter despite sequential revenue growth, reflecting the constraints in sequencing instrument production. DSO decreased to 56 days, compared to 60 days last quarter, as a result of more linear shipments throughout the fourth quarter.

Turning now to our expectations for 2014, we project 15% to 17% total Company revenue growth, and non-GAAP EPS of $2 to $2.06. As outlined during our Investor Day, we expect revenue to ramp during the year, starting from the first quarter that could be flat sequentially. As a result, embedded in this guidance is an expectation for EPS growth to be slower than revenue growth in the first half, as we fully absorb the 2013 investments, including acquisitions, and the higher share count due to the increase in stock price. In the second half, we expect the rate of EPS growth to exceed the rate of revenue growth.

This guidance also includes assumptions of approximately 70% gross margin, stock-based compensation expense of $128 million, and full-year weighted average non-GAAP diluted shares outstanding of $148 million, which assumes a stock price of $114. Given our outstanding warrants and convertible debt, at today's closing stock price of about $144, our non-GAAP diluted share count outstanding would be about $151 million shares.

We are projecting a full-year pro forma tax rate of 29.5%, which includes the 2014 federal R&D tax credit, which has not been enacted. If the tax credit is not passed, our tax rate would increase by more than 200 basis points. For modeling purposes, we feel it is appropriate to assume the tax credit is passed in Q4. At that time, we will record the full-year impact. Therefore, at this point we expect our Q1 tax rate to be approximately 32%.

In summary, 2013 was a year of solid results, but also a year where we laid the foundation for extended growth through strategic investments and acquisitions. We continue to drive the market development and adoption of the most innovative and extensive sequencing portfolio. We remain focused on building our business and our capabilities to address the approximately $20-billion market opportunity that we see ahead of us.

Thank you for your time. We will now move to the Q&A session. To allow full participation, please ask one question plus a related follow-up, as necessary. Operator, we will now open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question comes from the line of Tycho Peterson of JPMorgan. Please proceed

Tycho Peterson – JPMorgan Chase & Co.

Hey, thanks for taking the question and congrats on the quarter. Maybe just starting off with the HiSeq X Ten you talked about potential additional demand here. Can you maybe talk to how quickly you think you could ramp production? And as you talk to some initial customers any early thoughts on consumable pull through? I mean we're kind of picking in the range of 1 million to 1.2 million but just curious on your thoughts.

Jay Flatley

Well, we’ve talked to lots of customers about it, so the interest has been extremely high. We are evaluating right now what our supply chain looks like and there’s as I mentioned previously two key components that we're watching most carefully.

One is the supply of cameras, which is an outsourced item. We're feeling like we’ll be able to pull some of those in.

The second is the internal production of our pattern flow cells, and this is in early stages of manufacturing. So we actually won't know probably fir at least a quarter how fast we can ramp those and clearly on any new production item of this complexity, there is some initial yield considerations that we have to take into account.

So we're monitoring all of those factors and we think within the next one to two quarters, we will have a lot more information about what we’d be able to produce in the back half.

In terms of reagent consumption, the numbers you cited are sort of the theoretical numbers that someone could consume. We don't actually know what any actuals might be. Customers haven't given us any specific guidance on what they plan to do, but I think it's relatively safe to assume that customers aren't going to pay $10 million for a system like this and then only use it half time. So we expect the utilization rates on average to be relatively high.

Tycho Peterson – JPMorgan Chase & Co.

And then do you feel like they're prepared to deal with the backend Informatics I mean if they're pulling up 18,000 genomes per year per cluster, how do they handle the backend data analysis?

Jay Flatley

Well, that's actually one of the criteria that we're using for making sure these customers are qualified is that we’re working with them to be sure that they have that capability. And if they don't, which would probably be customers beyond the initial five, then we would be prepared to help them with either BaseSpace or BaseSpace Onsite potentially connected with NextBio as well. But customers who don't have that kind of capability would tend to not be in the initial set of systems that we would sell.

Tycho Peterson – JPMorgan Chase & Co.

Okay and just last follow-up, you talked about soliciting additional customer feedback on NextSeq can you talk about the relative positioning versus HiSeq and MiSeq, and has anything kind of change from your initial expectations in terms of how it could cannibalize some of the other systems are not?

Jay Flatley

No. I think the way we feel today is pretty much what we thought when we launched this that it pretty much hits a white space in the middle part of our product line between the HiSeq and the MiSeq both from a pricing perspective as well as a throughput perspective, so we think it's largely an incremental system sale. But it will cannibalize to some extent MiSeq’s customers coming up and some HiSeq customers coming down. Difficult to predict exactly what that pattern will look like, and as we start getting the first initial orders, we will be able to start tracking that to know if any customers in our pipeline converted from either MiSeq or HiSeq to go to a NextSeq. So it’s going to us probably a couple months to have some actual data on that.

Operator

Okay, thank you. Your next question comes from the line of Doug Schenkel of Cowen and Company. Please proceed.

Doug Schenkel – Cowen and Company

Hello. Good afternoon. Thanks for taking the questions. I guess my first one is a quick follow-up to one of Tyco’s first questions. Do you have a sense for how X Ten placements at sites that already have 2000s and/or 2500s will impact utilization of those existing HiSeq? Do you expect that there is going to be any impact in the existing installed base at those sites or how folks are using those instruments?

Jay Flatley

There could be a bit Doug. We don't think it will be large. If you recall it in the X Ten, you can only run complete human genomes and if we look across all the samples that are run on our systems globally, we estimate that only 10% to maybe at most 15% of the samples run our whole human genomes. So most of the capacity on the 2500s is used for other applications and that will continue to be the case.

You know clearly, there'll be some customers who are running whole genomes that will pull those on to X Tens because of the cheaper price, but our hope is that that then gives them capacity on the existing 2500s to fill it with other samples where they may have been capacity constraint.

Doug Schenkel – Cowen and Company

Okay. And then on the NextSeq – just curious especially within clinical and translational customers, how much of a hurdle is the use of you know essentially dark spaces as part of the two-color encoding approach? How much of a hurdle is that overcome in getting those folks to adopt the instruments and to the extent that that is a hurdle? Could you share a little bit of what your strategy is to overcome this?

Jay Flatley

Well, clearly that was a critical factor in our product develop activities over the past couple of years on the system, and we needed to ensure so quite some time ago that we could demonstrate equivalent performance with two channel chemistry as we do with four channel chemistry, and we are absolutely satisfied that we've done that. We have an outstanding data to show the correlation on RNA-based experiments , you know, R- squares of 99%. The metrics on complete human genome sequencing are essentially equivalent with what we get off the HiSeq part of the product line ,so we actually convinced ourselves that the chemistry is equivalent.

I think in a clinical setting what they care most about is the data. They care less about the underlying technology. I think in some ways our academic customers will be more intrigued by what the differences are in the potential nuances of two-channel chemistry and that will be fun to explore with them in some sense but we don't expect any pushback on this as long as the data that we can demonstrate stands up to the data that we've had in R&D and expect that to be the case.

Doug Schenkel – Cowen and Company

Okay and one last one – when one looks at the specs and the various sequencing products you are now marketing or about to market, it just doesn't leave a lot of white space for the existing and soon to be launched short read competitors. And you know in fact I think you could argue that you really went after those guys pretty aggressively with the new products and product enhancements. And you know I think you could argue that these also seem increasingly well suited to replace technologies beyond sequencing an existing markets.

So I guess the question is is this the time to get even more aggressive with trade-in programs for competitive sequencers? And might it get were aggressive with programs to incentivize new customers to convert to Illumina sequencing from non-NGS approaches in the near-term?

Jay Flatley

Well, I think you’ve seen us do some things that you know clearly reflect our intent to broaden the applicability of our product line both to other – to bring forward other technologies or to replace other technologies as well as to improve our competitive position. We've filled out the product line we think quite well in terms of the spectrum and instruments we have from a price and a performance perspective. The trade-in programs I mentioned in my script were very successful last quarter and particularly with 454 because that product is now obsolete product that companies – that product shut down. And we are putting in a trade in program with NextSeq as well so I think that product is suited particularly well in some portions of the market to be successful with the trade-in program and we'll see how that turns out here over the next quarter or two.

Operator

Thank you. The next question we have comes from Derik De Bruin of Bank of America Merrill Lynch. Please proceed.

Derik De Bruin – BofA Merrill Lynch

Hi. Good afternoon.

Marc Stapley

Hey there.

Jay Flatley

Hey, Derek.

Derik De Bruin – BofA Merrill Lynch

Hey. So, on your genomic services, you said you don't expect those volumes to be as strong internally going through. I guess could you just give us a little bit more color in terms of how you see that whole genome sequencing services businesses evolving over the next couple years with that? And I guess I'm sort of thinking when you go back to the X Ten how many whole human genomes to factor are going to be sequenced over the next couple of years. I'm trying to get a sense of the demand and volume for both internal and external.

Jay Flatley

Yes. To be clear what we expect is we expect the growth rate in the services business to slowdown.

Derik De Bruin – BofA Merrill Lynch

Okay.

Jay Flatley

And we think that's because there are going to be some service providers who by X10s. We think. And will have to watch who buys X10s and how fast we install them of course and whether we start offering broad service capabilities.

If they do that and depending upon what their markup look like, they would have the ability to sequence more cheaply than what we’re going to price our internal services at so that will I think re-invert the pricing model back to the way it should look and that's clearly our hope here.

Now, there's going to be some time phasing of this because it'll take us a while to get these X10s in place and for them to develop their business and for them to ramp up and so I think we're going to continue to have a nice services businesses here. But we wanted to caution people is to not extrapolate from the 5000 number…

Derik De Bruin – BofA Merrill Lynch

Got it.

Jay Flatley

From the 2500 to the 5000 to the 12,000 orders that we booked and to keep that curve going up at that rate and that’s what the cautionary statement was about.

Derik De Bruin – BofA Merrill Lynch

Okay. That's what I thought, I just wanted to make sure on that. On the NeoPrep, could you just give a little bit more detail in terms of how that fits into the overall Sample Prep universe, with some of the other competing products out there either Access Array or Rainstorm, or some of the other ones out there. I'm just curious if you could talk about sort of the NeoPrep's place in the ecosystem of Sample Prep, and what assays are going to be, or what Sample Prep protocols you are going to be putting on it?

Jay Flatley

Yes. Well, we’re going to put the top six protocols on it this year, so we are going to have when it starts shipping in the summer, I think the plan is to have three or four ready right then, and then by the end of the year we'll have a couple more. That will we think hit somewhere in the range of 80% to 90% of all the Sample Prep protocols that our customers use.

The great thing about this instrument is that it's an instrument tailored for one specific task, and it does it extraordinarily well. That's why we're able to price it under $50,000, and why it can be so incredibly simple to use for our customers.

I think what it would compete with in the market place are more general-purpose instruments that necessarily have to be more complicated, we think, because they have to do a lot of different things to support diverse types of Sample Prep from other types of companies. We think it's an ideal box to fit into our product line, and is really just the beginning of what we're going to do overall in terms of integrating full sample-to-answer solutions.

Derik De Bruin – BofA Merrill Lynch

Great. Thank you very much.

Operator

Thank you. The next question we have comes from the line of Daniel Brennan of Morgan Stanley. Please proceed.

Daniel Brennan – Morgan Stanley

Thanks for taking the questions. Jay, I just wanted to go back to the Cancer Panel, which you unveiled at the recent Investor Day. Maybe can you provide a little more context on the Cancer Panel, like how is that panel going to fit into the current competitive landscape? Do you deem a certain customer segment not being served well with this? Will this accelerate growth? Maybe a little more color, trying to think about how it fits in?

Jay Flatley

We think there's going to be multiple sub-segments of the oncology market, in terms of what the panels will look like. Rick talked a bit about two of those. One of them will be a very low complexity panel that we are referring to as the actionable genome panel. That would include only those genes that have very specific therapeutic decisions that would result from sequencing those genes. These would typically be reimbursed, and we would get that approved through the FDA. That's one part of the market that we would be going after.

I think the other part that he talked about is a panel that we will use more for companion diagnostic tests that will be used in clinical trials by pharmaceutical companies. I think there's then sort of a middle part of the market, which is where foundation medicine lives, and that's in the higher complexity panels, 240 or 250 genes I think they have on their panel. That, of course, has everything that our other panels would have plus a whole lot more, and can deal with more rare cases where you don't know exactly what you are looking for.

I think on their panel are included all the known oncogenes, plus a whole lot of other things that people speculate may be related to particular cancers. There will be some group of customers of ours in that sector that will serve that market segment. Then there'll be the customers that sequence exomes, and then those that sequence whole genomes. We sort of see a full spectrum of offerings here in the market place.

Daniel Brennan – Morgan Stanley

Okay, great. And then one for Marc. Marc, can you talk about the guidance for this year, the top-line guidance, which certainly after the strength that you saw last year accelerating growth from commercial customers, the host of new products being launched? Any color you can provide, how we think about that 15% to 17%, which just seems to have a real conservative bias to it?

Marc Stapley

Yes, Dan, I think if you go back to the chart that I shared and also the statements I made around – we could see a slower start to the year and a ramp throughout 2014, even potentially with Q1 being flat sequentially. That's largely driven by, as I said before, the product transitions that we are going to have to go through, and seeing how those really do flesh out with our customers. Our timing, also you have the timing of the X10 installations that we're able to do, based on the constraints that we have around manufacturing those, and supply and so on.

I think if you think about that revenue growth trend and how that might look, I think you can see how we get to the 15% to 17%. We clearly have a larger range this year than we normally would in terms of internal estimates, and that's because we are in this transition year. We'll have a little bit more clarity as the quarters go on.

Daniel Brennan – Morgan Stanley

Great, thanks a lot.

Operator

Thank you. The next we have comes from the line of Ross Muken of ISI Group. Please proceed.

Ross Muken – ISI Group

Good afternoon, guys.

Jay Flatley

Sure.

Ross Muken – ISI Group

I guess in all the myriad of product releases that you had, what were you most surprised with in terms of feedback from customers with the various enhancements, or new introductions, and some of the more substantial launches, whether it was around the NextSeq or the X10?

Jay Flatley

I'd say there was one thing that surprised me, and that is how fast customers were able to come up with $10 million to buy X10s. We knew this was going to be a very potent product, and there would be tremendous demand, meaning people who would want to have access to it if they could. What surprised me is how fast people have actually been able to push the button and move forward with this, so that's probably the standout part of this for me.

I think that it's important that NextSeq not get lost in the noise of that, because NextSeq is an incredibly important product that we think will sell in very high volumes and hits a real sweet spot in the market, particularly if you think about what's happening with NIH budgets now going up this year. For a customer who doesn't do sequencing at all it's a perfect platform, because it flexes all the way from a full human genome down to targeted panels, and it's at a beautiful price point. I think it's a really important product in the lineup.

Ross Muken – ISI Group

I guess how does the discussion go with sort of the incremental X10 customer around the glide path of where that instrument's going, whether it's if they are interested in exome or targeted, et cetera, how you're thinking about rolling out maybe incremental capabilities over time?

Jay Flatley

Yes. What we are telling those customers is that we currently have no plan to do anything other than whole human genomes; that clearly over time, as we begin to validate other applications on the platform and optimize the kits and the flow cells, we may decide to deploy other applications. But right now they shouldn't be buying it with that in mind. Because it's really dedicated today to whole human genomes.

Ross Muken – ISI Group

Got it. Thanks Jay.

Operator

Thank you. The next question we have comes from the line of Dan Arias of UBS. Please proceed.

Dan Arias – UBS

Good afternoon, guys, thanks. Maybe just a quick follow-up on the X10 comments. Jay, do you guys intend to continue to take orders there if a 2015 shipment date is okay with the customer, or are you kind of taking a pause from formal bookings as you look at your capacity?

Jay Flatley

We will continue to take orders to some point. If it gets to be – I guess it's a great problem to have, but if got so we had such a huge black backlog that we couldn't actually tell a customer when they would get a unit, then we probably would stop taking orders. But as long as we have a predictable flow of instruments and reagents, even if they might get their first system in Q4 or Q1 of next year, we would probably continue to book the orders and get them into the queue.

Dan Arias – UBS

Okay. One of the things that you didn't focus on, on Analyst Day, was Moleculo. Can you just sort of update us with what you are doing there? What we should look for in terms of potentially porting that into kit form?

Jay Flatley

Yes, the kit development is well under way and we plan to launch that near the end of Q1 into the early part of Q2. We are on track with what we had said with respect to that kit. Remember, we always mentioned at the time we bought that, that we have other internal programs around long reads as well. Those projects and products are potentially complimentary to Moleculo, and those programs remain. Our development team is continuing to work on the whole long-read capabilities of our systems.

Dan Arias – UBS

So if one were a betting man, you would say that maybe Marco Allen was an opportunity to perhaps here about that?

Jay Flatley

Well, we've already talked about it. I don't think we necessarily would launch it there, unless we are ready to ship it. I think probably the next time you'll hear from us is when we actually start shipping it.

Dan Arias – UBS

Okay.

Jay Flatley

There's not much more news to tell you in advance of that.

Operator

Okay. Thank you. The next question we have then comes from the line Amanda Murphy of William Blair. Please proceed.

Amanda Murphy – William Blair & Company

Hi, thank you. I had another question on the X10. It seems like some of the government-funded centers – and I know you've sold a few here to those guys already – but it seems like you may be in a bit of a bind in that many of them are capacity constrained, but sort of have maybe not capital around to buy an X10 and then also fund it from a reagent perspective.

I'm curious – I know it's a bit early, but have you had any conversations with those types of customers, or do you have any thoughts on how they might be a bit more creative with funding to be able to buy an X10? It also seems like many of them don't necessarily want to outsource, they want to own the data. I'm curious if you have any thoughts on that?

Jay Flatley

Yes. We're having conversations with all of them. I think to my earlier comment there's no lack of interest in getting access to an X10, in fact to the contrary. Some of them may not have enough money to do it right now, and we'll look to figure out ways to raise that money. I think clearly the NIH is excited by what we did here, and so they may decide to do some allocations.

This is purely speculative on my part. This isn't a prediction. But they could appeal to the NIH for some incremental funds to be in the game at this level with the $1,000 genome. Clearly there is potential for philanthropic ways of raising money to do programs such as this. Each of them in their own way are going to try to become creative enough to try to get access to this technology, and we'll just have to see how many of them are successful.

Amanda Murphy

Okay. In terms of the legacy HiSeq install base, do you have any perspective at this point on what percentage of those might upgrade – you know, the ones that can't access the terra-based reagent kit?

Jay Flatley

How many would upgrade to 2500?

Amanda Murphy

Yes. Just thinking about the ones that shipped a year ago or so that can't necessarily use the terra-based, and maybe have to buy a new platform. I'm curious – I don't know if thinking about it as a percentage of install base is the right way to do it?

Jay Flatley

Yes. It's really hard to tell, Amanda, because you'll have some of those customers who will continue to use that, and they do some outsourcing to somebody who has an X10. There's some that may say I want to buy a couple of NextSeqs to complement my system. There could be some who decide to upgrade to get the 1T pricing and access. Over a period of years, maybe 20% to 40%. Some number in that range, probably.

Amanda Murphy

Got it. Okay, thanks very much.

Operator

Thank you. The next question we have comes from the line of Isaac Ro of Goldman Sachs. Please proceed.

Isaac Ro – Goldman Sachs

Hey, guys. Thanks for taking the question.

Jay Flatley

Sure.

Isaac Ro – Goldman Sachs

I know it's a little early with the new two-die technology to think about long-term implications for the margins, but it does seem like that should help you guys generate even better margins on the consumables. Just trying to think about how to pace that through the numbers. Obviously it's still pretty new, but over time I would assume this will be chemistry that works across all of the platforms that you offer. Any kind of paced out long-term view you can offer on the margin impact would be great?

Jay Flatley

Clearly, one of the reasons we did it is because it reduces the cost profile. Clearly, it does that on the instrument, because we now only need two optical channels, so that was a key driver. It does, to some extent, raise the reagent volumes, which were critical in a platform like this, to get the full HiSeq capability into a single cartridge with lower reagent volumes.

To the extent that you speculate about it going across the other systems, it would require brand-new optics. This isn't something that in its current form we just plug directly into a HiSeq. It would need to be a new generation of those systems to take advantage of the two-channel chemistry.

The last thing I would say is that we ought to make sure that we are clear that this is two-channel not two-die. We actually do use four dies here, it's just that they're detected in two channels. There's – it's slightly different than you what might think of as two-die chemistry. It's four dies in two channels.

Isaac Ro – Goldman Sachs

That's helpful. One more on technology. With the NeoPrep, just trying to get a little bit of a sense of what some of the hurdles are to meeting your launch target this summer? I think I was probably a little surprised by how quickly you guys were able to talk about that product, given how recent the ALL acquisition was. Any key milestones you guys are working on to reach your target would be great? Thank you.

Jay Flatley

Yes. One of the most important things we need to do is to move over all the applications onto the platform, so the instrument is obviously working and working well in our hands and in our development labs, or else we would not have spoken about it. But what we need to do now is put all of the robustness into the applications and make sure that the cartridges are optimized for these applications and do extensive testing.

Obviously, we're going through all of the iterations that we typically do in product design, from pilots into – and then starting to ramp production in the second quarter. We're going through a pretty routine phase of our development. Most of the – I'd say all of the uncertainty is gone in the instrument itself, and now it's really about porting applications over.

Isaac Ro – Goldman Sachs

Got it. Okay, thank you.

Operator

Thank you. The next question we have comes from the line of Dan Leonard of Leerink. Please proceed.

Dan Leonard – Leerink Partners

Thank you. I wanted to follow-up on your discussion of trade-ins earlier. Are you offering any trade-in deals on legacy Illumina boxes, especially now that it appears you are discontinuing older HiSeq models?

Jay Flatley

We don't have any specific programs to trade those in, but if somebody came to us and said I've got two really old legacy instruments. Can I get a little bigger discount? We might give them a little bigger discount. That's generally how we treat those customers. We want to treat them well, because they've been good customers for us, but we don't have any specific trade-in programs.

Dan Leonard – Leerink Partners

Got it. My follow-up question – Jay, could you speak to – it sounds like your – you have a lot of incoming interest on the X10. Could you speak to that interest by customer type? The reason I'm asking is because I want to assess if big pharma or biotech could be a meaningful customer type since you announced the announced the Amgen/Decode order.

Jay Flatley

Yes. It's coming from multiple segments of the market, so clearly we've had some academic labs. We have interest in sort of what we call the nations-type programs, where a country might buy it, or some representative of a country might buy it, to begin to sequence some subset of the population. We clearly have sparked some interest in the pharma and biotech industry. Now to the extent they actually decide to go do this is an open question. We haven't talked about any of those that have crossed the finish line. We're not sure.

But I think at $1,000 this has catalyzed the imagination of many of our customer types. Our hope is that we have sort of a second Renaissance in genomic discovery begin to happen on the back of the X10. I think it really has that potential broadly. Stay tuned, and we're obviously working hard to try to satisfy the demand that's coming in, but it's a broad set of customers that have interest.

Dan Leonard – Leerink Partners

Okay, thank you.

Operator

Thank you. The next question we have comes from the line of Amit Bhalla of Citigroup. Please proceed.

Amit Bhalla – Citigroup

Hi. Jay, I was hoping you could give us a little more color on the performance of Verinata in the quarter. Also, when you think about 2014, maybe a little bit of color on the cadence of the consumer array component of the business, given that they're – one of your customers is in limbo right now.

Jay Flatley

Yes. The Verinata business was good in the quarter. We don't report the exact numbers, because obviously we supply to everyone in this industry. In total we think that continues to be a growing market and a great opportunity.

The next big milestones to think about here will certainly be number one, the extent to which this begins to move into average risk categories after data becomes published, and we expect to begin to see that before the middle of next year. I think that will significantly broaden out the market for all of our customers.

I think obviously the second thing we're working on very hard is the IBD approval on the 2500. Hopefully – we're hoping to have a milestone this year to actually have that submitted into the FDA. I'm sorry, the second part of your question was about?

Rebecca Chambers

Consumer cadence.

Jay Flatley

Cadence of consumer, yes. I think the company you referenced is sort of evaluating their options right now. I guess you would have to talk to them about what they expect to be doing over the next couple of quarters.

We think that there are many other consumer opportunities that are somewhat different than the business model that particular company has. We are pretty optimistic that there's going to be a very large number of consumer samples happen in 2014. Matt, who runs our new Nest team, the new and emerging market business unit, is pretty confident that we will do more consumer samples in 2014 than we've ever done in total before. That's going to take us closing some – a couple big deals to make that happen, but we're pretty confident about those.

Amit Bhalla – Citigroup

Jay, as a follow-up on NextSeq, is there anything about installation and installation times that we should be aware of as these start to go out into the field and start to generate data and consumable revenue?

Jay Flatley

By that do you mean how fast can we get service people there to install them or how easy are they to install?

Amit Bhalla – Citigroup

Both.

Jay Flatley

Both. Well, this instrument was designed to be much easier to install to start with, and so our hope is that compared to either a MiSeq or a HiSeq, that these will go in much more quickly. It does require one of our people to be on site at least for now to do the installation.

The reason we think it's going to be a whole lot better is because the optics are essentially solid-state in the system in comparison to the other products. Very often on the other products after the rough handling these get in the belly of airplanes and being dropped off the back of trucks, we have to readjust the optics. With NextSeq, that should not be the case. It will be faster, and therefore we think our service team will be more efficient in getting larger numbers of these installed quickly.

We've obviously planned and forecasted out that demand into our services organization, and one of the investments that we've been making that you see appearing in the SG&A line is to build out our service organization so that we're ready to handle the flood of new products that we're putting into the market.

Marc Stapley

One of the assumptions that we make whenever we launch a new product is the initial installation is always going to be a little higher and it will run down over time. The same really applies to the reliability and the warranty part of it. That's why, for example, you saw in this quarter a stronger gross margin as we had some better warranty experience in our existing instruments, and we expect somewhat of a similar trend will be probably less marked on NextSeq for the reasons that Jay mentioned about how it was designed from the ground up.

Amit Bhalla – Citigroup

Great, thanks.

Operator

Thank you. The next we have comes from the line of Bill Quirk of Piper Jaffray. Please proceed.

Bill Quirk – Piper Jaffray & Co.

Thanks. Good afternoon, everybody. First question for Jay.

Jay Flatley

Hey, Bill.

Bill Quirk – Piper Jaffray & Co.

Hi, hi. First question recognizing that paying about $10 million for an X10 then not using it doesn't make a whole lot of sense. Also considering the amount of demand that you are seeing, as well as the supply constraints, can you just talk a little bit about how you are prioritizing the placements? For example, are you putting any minimum reagent commitments into the contracts, or capital commitments, that sort of thing?

Jay Flatley

No. We're not doing that. We are of course evaluating two very important characteristics of any customer that wants one of these. One is do they have the sample collection, which does directly relate to their ability to buy and consume the reagents; and do they have the informatics capability to both handle, store, and analyze the data. Those are two threshold considerations that we look at as customers come forward.

We also want to be sure that these customers generally know how to run a sequencing center, because we're not really at the point where this is an absolute turnkey installation. I think after some period of time we may get to that where we attach some professional services to this and we can actually train people from scratch if they don't have anything, if they're starting from zero. But that's not where we want to install the initial system. So that's a third criteria that we use. After that, it's largely first-come, first-serve. Whoever gets their purchase orders in first would get into the queue first.

Bill Quirk – Piper Jaffray & Co.

Okay, got it. Marc, how should we think about the timing of revenue recognition here? I'm guessing that since it's a new product you are going to want to probably have a little tighter or more stringent revenue rec then you would if say you're shipping the tenth HiSeq to another – to an existing customer?

Marc Stapley

Not really in terms of – other than us being able to feel very confident that that instrument performs relative to the specs that we put out there, which we obviously are. We should be able to recognize revenue on installation, without any real difference in the way we do it today on any HiSeq that we sell. You've got to remember it's an evolution of a product, versus a completely new product. I'd say the same applies to the NextSeq, as well. We should have sufficient installations of that to be able to recognize revenue at a normal rate.

Bill Quirk – Piper Jaffray & Co.

Okay, perfect. Thanks guys.

Marc Stapley

Okay.

Operator

Thank you. The next question we have comes from the line of John Groberg of Macquarie. Please proceed.

John Groberg – Macquarie Research Equities

Hey. Thanks a million for taking the question. Jay, I think someone asked this at the Investor Day, but I have just been thinking more about it, and I just wanted to maybe have you flesh it out a little more. But if I think about where you sit from a technology perspective, at the high end, in terms of the existing throughput, there's not a lot of competition for you at the moment.

Thinking about all the directions that you could've gone in terms of maybe higher quality long reads, that there is an unmet need for – just your thought about why now in introducing the X10 capability. I'm curious strategically how that thought process went about?

Jay Flatley

Yes, a couple things. One is that we've had the technological capability to deliver this largely in our back pocket, so it was a question of how we applied R&D resources that could have been applied in many different ways, as you mentioned there. I think the reason we selected this path is because as I said in my remarks, we think the demand for whole human genome sequencing is there, and there's a real thirst to do this at a massive scale. There's just been a historic problem with the price point.

One of the things we think is most important in the long run to opening up clinical sequencing and therefore the real world of personalized medicine is improving the clinical UTI utility of the genome. Today, after all the work we and everybody in the industry's been doing over the last 15 years, we've still only scratched the surface about understanding what the genome really means. All of the analysis now that are done by the brilliant scientists in our field say that the way you break through that barrier is by sequencing very large sample sets, and by that, the numbers pencil out to be hundreds of thousands of samples.

The current technology, meaning the 2500, was not going to get there, because people couldn't get enough money to sequence enough samples to break through that utility barrier, and HiSeq X does it. I think what you're seeing in terms of the market reaction is a sense that there really is an opportunity now to redo the discovery programs that were done or attempted to be done 10 or 15 years ago, but now with a set of tools it's up to the task. That's really what it's all about.

John Groberg – Macquarie Research Equities

Maybe just as a quick follow-up, forgetting about cannibalization of instrumentation, but if I just think about samples. What's your expectation that people do more whole human genomes as you're talking about? What does that replace, or do you not think it replaces anything that they are currently doing?

Jay Flatley

We think it's largely incremental, John. As I mentioned earlier, today our customers only sequence 10% to 15% of their samples at the whole human genome level. Some of that will move on to X10s. We think the fraction of samples done at whole genomes as a percentage of the total samples will now go off dramatically.

I think it begins to push people towards whole genome sequencing, which is where we think the market needs to go to get the full scientific benefit of what this technology can provide, and to have visibility into the entire genome without a hypothesis up front. I think those are the driving forces that we're seeing, and there's plenty of samples out there. There's no lack of samples at the unit numbers we are talking about here.

John Groberg – Macquarie Research Equities

Okay, thanks a lot.

Operator

Thank you. The next question we have comes from the line of Zarak Khurshid of Wedbush Securities. Please proceed.

Zarak Khurshid – Wedbush Securities

Good afternoon. Thanks for taking the questions, guys.

Jay, as we try to understand the faster growing parts of your business, I was wondering if you could give us a flavor for how fast the sales to consumer is focused on clinical cancer applications is growing, versus maybe the broader business, and if you could give us a sense for how that has tracked kind of versus last year, that would be great?

Jay Flatley

By that do you mean – when you say cancer to consumers, are you talking about the foundation medicine type market, that market, or…

Zarak Khurshid – Wedbush Securities

No, more sales across all customers. Yes, focused on anything pertaining to cancer in the clinic.

Jay Flatley

Yes. Well, the growth rates are almost meaningless at this point because we're starting off such low numbers over the last couple of years, so growth rates aren't really the way to think about it. If you try to analyze the numbers of samples being done, it's still pretty small in terms of what we think will be done over the next few years.

Foundation medicine is getting great traction. I think as we get more standardization, better reimbursement, and more clinical actionable panels into the market, that the sample numbers will go up dramatically. I think these discovery programs are going to help enormously in terms of figuring out what the right companion diagnostic looks like, and what any remaining characteristics of the genome are that might apply to oncology. All those factors make us really optimistic about the rate of adoption.

I was at the Precise [ph] Medicine Conference yesterday, and it's hugely focused on the rapid up-spring in oncology testing. Stanford, they're starting to test everybody that comes in with a panel product, and this is starting to happen in all the major cancer centers. I think we're only a few years away from the point where everyone who has cancer gets it tested genomically one way or another, with one kind of panel, or exome, or genome.

Zarak Khurshid – Wedbush Securities

Understood, that's great. As a follow-up, as we think about the translational research side of the business, obviously it's been a nice performer. Is there a way that you can help us get our arms around that market as a whole in terms of the size and potential and importance of that sub-sector within the broader research business?

Jay Flatley

It's really hard for us to break it apart. One of the reasons we changed our business unit structure was recognizing the fact that there's this sort of blending between research translational and clinical work. We don't have a good way to estimate that portion, because many labs do all three things in the same place. It's pretty difficult for us to come up with a number.

Zarak Khurshid – Wedbush Securities

Okay, thanks.

Operator

Thank you. I'd now like to turn the call back to Rebecca Chambers for closing remarks.

Rebecca Chambers

Thank you. As a reminder, a replay of this call will be available as a web cast in the Investor section of our website, as well as through the dial-in instructions contained in today's earnings release. Thank you for joining us today. This concludes our call, and we look forward to our next update following the close of the first fiscal quarter.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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