Illumina's (ILMN) CEO Jay Flatley on Q1 2016 Preliminary Revenue Conference Call (Transcript)

| About: Illumina, Inc. (ILMN)

Illumina, Inc (NASDAQ:ILMN)

Q1 2016 Preliminary Revenue Conference Call

April 18, 2016 04:30 PM ET

Executives

Rebecca Chambers - Vice President, Investor Relations and Treasury

Jay Flatley - Chairman and Chief Executive Officer

Operator

Good day, ladies and gentlemen, and welcome to the Illumina, Inc. conference call. (Operator Instructions) As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Ms. Rebecca Chambers. Please go ahead.

Rebecca Chambers

Thank you, Operator. Good afternoon, everyone and thank you for joining today's call on short notice. During the call, Jay Flatley, Chairman and CEO, will review the preliminary financial results released after the close of the market as well as provide an update to our 2016 revenue guidance.

We will not be hosting a question and answer question session but plan to do so on our earnings call, which is scheduled for May 3. At that time, we will provide our full financial results for the first quarter, earnings guidance for 2016, and additional details on our commercial activities. This call is being recorded and the audio portion will be archived in the investor section of our Web site.

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. 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 will refer you to the documents that Illumina files with the Securities and Exchange Commission, including Illumina's most recent Forms 10-Q and 10-K.

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

Jay Flatley

Thanks, Rebecca, and good afternoon, everyone. To begin based on preliminary financial data, we expect first-quarter revenue to be approximately $572 million, an increase of 6% over the prior year period. On a constant currency basis, revenue grew 7% versus the first quarter of 2015. We do not have an earnings per share figure to announce today, but do expect non-GAAP EPS to be below the current consensus expectation, consistent with the revenue shortfall. Gross margins will be lower than normal due to the reduction in sales volume, but that difference is expected to be partially offset by lower operating expenses and stock-based compensation.

Our HiSeq X benchtop sequencing array and services portfolios performed to expectations in the quarter, our HiSeq 2500, 3000, and 4000 fell short of our projections. In particular, sales of the HiSeq 4000 were lower than anticipated, with somewhat more outsourcing to X service providers and fewer upgrades from older generation instruments than our models predicted. We are evaluating a number of potential responses to this weakness that we can implement in the near term.

Sequencing consumable shipments grew 24% year over year to approximately $300 million, as MiSeq, NextSeq, and HiSeq were at or above their respective ranges while HiSeq X utilization was below the $650,000 to $700,000 guidance range. Shipments to our clinical customers grew approximately 20% versus the prior year period, despite the expected shift of NIPT samples from our lab to in house sequencing at two large customers.

Our benchtop instrument portfolio performed well in the quarter and the pipeline remains strong. Initial MiniSeq feedback has been positive, with more than 75 orders received and lower than expected cannibalization of MiSeq. Similar to previous instrument launches, it will take several quarters to fully understand customer buying preferences across these instruments. HiSeq X orders were above our expectations and our guidance range of 20 to 30 units with shipments of 20 units. The X funnel remains strong due in part to expectations associated with the Chinese precision medicine initiative, and we continue to project shipment of 20 to 30 units per quarter for the remainder of the year.

Geographically, in spite of the slow start in Q1, we are confident that the Americas and Asia-Pacific regions will grow full year shipments in the mid teens, consistent with our projections coming into the year. This expectation is based in part on the strength of orders booked in the first quarter, as both regions built significant backlog, deliverable over the next three quarters. The book to bill ratio for the Americas was 1.4 and Asia-Pacific was 1.2, a clear indication that these markets remain robust. These positive trends will be negatively impacted by Europe, which we now expect to deliver shipment growth of low to mid single digits, significantly diluting the Company average. We continue to believe that the market potential for next generation sequencing in Europe is far greater than this outlook suggests and are clearly disappointed by this projection.

This morning, we announced a leadership change in the region and we are in advanced stages of hiring a general manager who will restore our growth trajectory in 2017, if not sooner. Additionally, we've assigned one of our most senior sales leaders from the US to work in Europe, and he is already in the region. As a result of our updated forecast for Europe, we now expect to deliver total Company revenue growth of approximately 12%, below our original expectation of 16%. Needless to say, we will look for every opportunity to control expense growth in order to partially offset the impact of the revenue shortfall on earnings. We will provide more details when we update our 2016 EPS guidance during our first quarter earnings call. Despite these disappointing results for Q1, we are resolute in our conviction that the growth prospects for sequencing are unmatched in the life sciences market. Our innovation engine continues to run at full throttle and we are well on the way to revamping our organization in Europe.

Thank you for joining us today. This concludes our call, and we will provide full first quarter results on May 3rd.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.

Question-and-Answer Session

Q -

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