Analyst Conference Summary


conference date: April 25, 2019 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2019 (first quarter, Q1 2019)

Forward-looking statements

Overview: Continued good revenue growth, but instrument revenue declined y/y.

Basic data (GAAP):

Revenue was $846 million, down 2% sequentially from $867 million and up 8% from $782 million in the year-earlier quarter.

Net income was $233 million, up 11% sequentially from $210 million, and up 12% from $208 million year-earlier.

Diluted EPS was $1.57, up 11% sequentially from $1.41, and up 11% from $1.41 year-earlier.


Full 2019 GAAP EPS $6.29 to $6.39; non-GAAP $6.63 to $6.73.

Conference Highlights:

Francis deSouza, President and CEO, said "This was a strong start to the year, with $846 million in revenue and more than $1 billion in orders for the first time in Illumina’s history. Our growth is driven by a broad range of sequencing applications, with 14% sequencing consumable growth in the first quarter, including more than 20% growth in clinical sequencing consumables."

Sequencing instrument revenue was $105 million, down 35% from $161 million, and down 6% from $112 million year-earlier. $111 total instrument revenue (sequencing + array). Revenue was from sequencing consumables was $481 million, up 2% from $470 million, and up 14% from $422 million year-earlier. Sequencing service revenue was $113 million, up 18% from $96 million year-earlier. 40% of sequencing consumables were for clinical applications, of which 10% was for reproductive health including NIPT. 60% was for research and applied.

Launched the S Prime (SP) flow cell, enabling smaller batch sizes and lower output sequencing methods on the NovaSeq System. Also launched TruSight Oncology 500 as a Research Use Only product, empowering laboratories with comprehensive genomic profiling. Shipments exceded expectations in Q1.

$143 million microarray revenue, consisting of $75 million for consumables, $66 million for services and $6 million for instruments. That is down from $152 million year-earlier. Array instrument growth is expected to slow in 2019.

Product revenue was $667 million, down 10% sequentially from $738 million, and up 6% y/y from $628 million.

Services and other revenue was $179 million, up 39% sequentially from $129 million, and up 16% y/y from $154 million.

Non-GAAP numbers: net income $237 million, up 20% sequentially from $197 million, and up 11% from $214 million year-earlier. Diluted EPS was $1.60, up 21% sequentially from $1.32, and up 10% from $1.45 year-earlier. 70.2% non-GAAP gross margin, down from 70.9% year-earlier.

Cash, equivalents and investment balance was $3.6 billion. Long term debt was $1.1 billion. Cash flow from operations was $198 million. Free cash flow was $142 million. Capital expenditures were $56 million. Cash used to repurchase stock was $63 million. Authorized repurchase of another $550 million in shares. Expects to pay remaining March notes in cash.

Helix will be deconsolidated effective April 25, 2019.

GAAP cost of revenue was $262 million, leaving gross profit of $584 million. Operating expenses were $380 million, consisting of: $169 million for research and development; $211 million for selling, general, and administrative. Leaving income from operations of $204 million. Other income was $29 million. Income tax provision $9 million. Net loss to noncontrolling interests $9 million.


Sequencing instrument drop, second half ramp visibility? We feel really good about our pipeline to support our growth guidance. We are deeply engaged with the population genomics projects, but each deal has moving parts. Our confidence is high the deals will happen, there could be some flexibility in timing.

On guidance, on sequencing consumables, 20% growth for the year confidence? In Q1 we grew 14% y/y. In Q2 we expect to grow 12% in sequencing as a whole. We expect a significant ramp in the second half. Drivers in consumables in H2 is partly due to instrument sales, NovaSeq pullthrough number. Largest customers showing 40% growth in consumables. Clinical growth in line with 2018 growth rate.

Instruments, where the miss? We had expected a decline in sequencing instruments Q4 to Q1, we did a bit worse, NovaSeq did a bit better than expectations, but some other shipments slipped to Q2. We have good visibility of NovaSeq shipments for the rest of the year. Some customers were waiting for the change in price point, which is catalyzing a new group of customers. We expect to ship twice as many NovaSeq instruments in Q4 as we did in Q1.

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Disclaimer: My analyst call summaries may include both condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. This is journalism, not advice.

Copyright 2019 William P. Meyers