Q2 2021 Illumina Inc Earnings Call
Additionally, our customers the continuing to use the system at a high rate to meet demand in oncology testing genetic disease testing and population sequencing programs.
Our mid throughput platforms continue to drive growth with the record placements in Q2.
The strength of the <unk> 2000, with almost 3 times the output of <unk> $5.50 is enabling exciting new applications for customers by Cold Spring Harbor labs and single cell analysis.
Clinical customers drove new <unk> $5.50 placements.
Seek the again set a record for shipments as we see a trend toward decentralisation of clinical sequencing outside the U S.
Benched our platforms also had an excellent quarter with instrument revenue up over 50% year over year.
We shipped more might seek instruments this quarter than any prior quarter in the last 5 years.
This record demand has been driven by our core business as well as the emerging areas like pre implantation genetic screening and Covid surveillance.
Turning to our clinical and research and applied segments sequencing consumables revenue of true.
$4 million was up 82% year over year.
Driven by demand in both our clinical and research segments.
Starting with our clinical business, our focus on market access and collaborations are expanding reimbursement powering new and existing testing providers and benefiting patients around the world.
There are now over 1 billion covered lives globally across ITT WGS for rugged and CGP and oncology demonstrating the expertise and impact of Illumina as market access team to drive coverage and also the opportunity and our clinical segment.
Oncology testing, our largest market segment recorded its third consecutive quarter of outstanding year over year growth of customers.
The announced additional offerings for therapy selection and Mardi tests.
And therapy selection expanding reimbursement for comprehensive genomic profiling is fueling the shift from small to large panels.
With 74% of lives now covered for CGP and the U S and additional indications approved new customers are entering the oncology testing field on existing customers like Paris are expanding their footprint.
True side oncology 500, Illumina is are you on comprehensive genomic profiling assay achieve its 100000 sample milestone in Q2.
Added over 40 additional customers so far this year across 23 countries.
In addition over the last year <unk> testing has emerged as the key driver of future growth in the oncology segment with positive reimbursement decisions more customers and multiple approaches entering the market.
It's also exciting to see pharma invest in MRI based on clinical trials to bring proven drugs to early stage disease and improve patient outcomes.
Reproductive health consumable shipments continued to benefit from the revised <unk> guidelines.
In January we expected that <unk> will be covered for approximately 3 million pregnancies in the U S by the end of 2021.
We have already surpassed that milestone and we expect coverage to continue to expand.
We're also making progress outside the U S to ensure all expecting families have access to an ITT.
In Germany for example, national coverage will be implemented in 2022. Additionally.
Additionally, we're seeing continued growth from our CE IBD March various <unk> solution in Europe and Asia.
In Q2 next generation genomic and Thailand adopted our various seek an ICT solution version to broadening access to expanded in IPP for expectant parents in southeast Asia.
Genetic disease testing delivered another outstanding quarter, driven by reimbursement coverage, increasing across Europe, and lower sequencing prices, enabling an accelerated shift from ex genomes.
In the quarter. We also saw promising research and guidelines recognizing the diagnostic yield and cost effectiveness of whole genome sequencing for genetic disease.
In June Rady Children's hospital in the state of California, published the results of project Baby Bear a groundbreaking program that showcases the significant benefits of rapid whole genome sequencing and decreasing both times of diagnosis and healthcare spending for critically ill infants.
On than 30% of these patients had a change of care due to the diagnosis of enabled by WGS.
The rapid whole genome sequencing protocol is now available through a growing network of over 60 Hospital partners as well as other hospital networks across the country.
Turning to our research and applied segments, we saw strong year over year and sequential growth.
Momentum from population genomics programs continued to grow in Q2.
In the U S. All of that is now operating at full scale running thousands of genomes of week.
We also saw multiple initiatives ramp internationally, providing an ongoing pipeline of new pop Gen opportunities.
We expect revenue from over 30 different pop Gen initiatives in the second half of the year.
Multi omics spatial and single cell approaches are gaining traction in many of our research segments driving high intensity sequencing.
The success of a little bit of partnerships with companies such as old Inc. Nano strength and Tenex will enable novel discoveries and expanded applications to enter the clinic.
The emergence of the Delta of variance has renewed focus on and heightened awareness for genomic surveillance and the fight against COVID-19 and future pathogens.
The launch of the <unk> 96 sample of Covid seek assay and the expanded EUA for Covid seek on next week 2000. This quarter demonstrate our continued commitment to provide the workflows instrument and bioinformatics to meet this challenge.
We are now working with governments and testing labs on Covid surveillance initiatives in over 70 countries.
These efforts have driven increased COVID-19 consumable revenue in Q2 relative to Q1 and at this time, we expect the consumable revenue in the second half the remained relatively steady to the first half.
Through our philanthropic efforts, we are working to ensure the countries with high needs for Covid surveillance with limited resources also have access to our sequencing and consumables.
Earlier this week, we announced the donation of $1 million and sequencing capabilities, including 2 net seek to thousands to the molecular diagnostic reference laboratory at Sterba Hospital.
This will enable COVID-19 surveillance in Mumbai and.
An epicenter of India's devastating second wave.
Before I hand, the call over to Sam I'll provide a brief update on Graham and.
In Q2 grille launch the first of its kind of multi cancer screening test gallery.
We made this test available to our employees and are encouraged by the positive feedback we've received.
It's exciting to see the promise of genomics come to fruition and oncology screening and we're committed to supporting all companies innovating in this space.
2020, driven by continued adoption by new to the high throughput customers.
Mid throughput system shipments reached the new high.
Driven by record net seat Dx shipments and demand for next day 1000 in 2000.
Since launch 25% of <unk> 1000, 2000 have been shipped the nuclear illumina customers.
<unk> from COVID-19 surveillance testing exceeded our expectation contributing approximately $40 million on sequencing consumables revenue and $10 of incremental instrument revenue.
Sequencing service and other revenue was also higher than expected growing 41% year over year to $128 million.
Primarily due to approximately $20 million of 1 time revenue recognized from Nic's <unk> royalties received related to a patent litigation settlement.
Moving to regional results revenue for the Americas region was $589 million.
Growing 76% compared to the prior year period.
Revenue growth in the region was driven by record sequencing product revenue related to demand for clinical oncology testing and genetic disease testing.
The regional performance was also driven by strength in genetic disease research from population genomic initiatives as well as contributions from Covid surveillance testing.
EMEA delivered revenue of $320 million, representing 90% growth year over year.
And the outperformance was driven by both the recovery in research and an acceleration of the clinical business.
Including a record quarter for genetic disease testing due to the momentum from expanded market access and reimbursement.
Covid surveillance testing also contributed to the strong performance in the region.
Greater China revenue was $132 million representing growth of 67% year over year due to continued strength in sequencing led by clinical growth in the region.
Sequencing instrument shipments more than doubled year over year, driven by growing the and for next CTX in hospitals.
Given the superior ease of use accuracy and quality of outputs from Illumina sequencer.
Finally, AP Jay revenue of $85 million grew 67% year over year, driven by sequencing consumables revenue growth across clinical applications, and reproductive health and genetic disease testing as well as strong utilization by research customers.
As expected AP, Jay revenue decreased sequentially due to the timing of fiscal year end purchases and normal seasonality in Japan in the first quarter of 2021.
Moving to gross margin and operating expenses I will highlight non-GAAP results, which includes stock based compensation.
I encourage you to review the GAAP reconciliation of these non-GAAP measures, which can be found in today's release and the supplementary data available on our website.
Non-GAAP gross margin of 71, 8% improved sequentially by 130 basis points, mainly due to favorable utilization on strong demand as well as onetime revenue from the patent litigation settlement.
On a year over year basis, non-GAAP gross margin increased 320 basis points due to increased fixed cost leverage on higher volume as well as a positive impact from the patent litigation settlement.
Partially offset by product mix non-GAAP operating expenses of $471 million increased $51 million sequentially due to higher compensation related expenses and increased project related spend but were lower than expected due to the timing of certain investments shifting to the second half of 2021.
As expected non-GAAP operating expenses were up $137 million year over year due to increased performance based compensation expenses and head count growth as.
As well as additional investments to support the growth of our business.
Non-GAAP operating margin was 30% compared to 32, 1% in the first quarter of 2021.
Operating margins were better than expected due to higher revenues and favorable gross margin driven.
Driven by higher volumes on the onetime patent litigation settlement.
Non-GAAP other expense of $2 million was flat sequentially and $50 million lower year over year as expected.
The year over year decline was primarily due to lower interest income on short term investments as we repositioned our investment portfolio for the anticipated funding of the Grail acquisition.
The non-GAAP tax rate in 9% decrease from last quarter as you saw of tax expense recognized in the first quarter of 2021 on certain foreign subsidiary earnings that are no longer indefinitely reinvested.
The decrease in the non-GAAP tax rate year over year was due to a higher mix of earnings in jurisdictions with the lower tax rate.
For the second quarter GAAP net income was $185 million or $1.26 per diluted share.
And non-GAAP net income was $276 million or of $1.87 per diluted share.
Moving to cash flow on balance sheet items cash flow from operations was $253 million.
Which included $105 million in continuation payments make the Grail pursuant to the merger agreement.
DSO of 44 days compared to the 3 days last quarter driven by revenue linearity.
For 2021 on capital expenditures were $44 million cash.
Cash flow was $209 million.
We did not repurchase any common stock in the second quarter.
We ended the quarter with approximately $4.3 billion in cash cash equivalents and short term investments.
During the second quarter, we used $491 million to repay the outstanding principal of our 2021 convertible notes, which matured in June.
Our weighted average diluted share counts of the quarter was approximately $147 million.
Moving now to 2020 on guidance.
We now expect full year 2021 revenue to grow in the range of 32% to 34% or $4 to $8 billion to $4.34 billion.
At the midpoint. This represents an increase of approximately 1 point of <unk> 7 billion compared to 2020.
Cylinders are clinical markets are all growing and expanded reimbursement gives more patient access to existing genomic tests.
And evidence generation brings new genomic applications into the clinic.
In oncology more cancer patients have access to CGP for therapy selection.
And the emerging Mardi an early cancer detection tests will drive significant long term growth for sequencing.
And genetic disease testing the speed to diagnosis and treatment benefits that rapid WGS offers is catalyzing awareness and adoption and an iced tea while coverage is expanded dramatically in the U S. There are still of significant need internationally representing of tremendous growth opportunity.
Research funding and overall investor capital of deployment in life Sciences continues to be incredibly robust, which will drive innovation and you use cases for sequencing for decades to come.
Single cell spatial and multi ohmic approaches to complex problems of driving larger scale novel research and clinical solutions.
The benefit of population genomics programs and National Health systems is driving more governments to take up the initiatives further broadening the reach of sequencing across the globe.
Covid surveillance initiatives are laying the foundation for a permanent global genomic epidemiology infrastructure.
The Illumina is playing a central role on these advancements in genomics and human health I am very proud of the execution of our fantastic teams around the world.
This is an incredible time for our field and we have the most exciting technology roadmap and development that I've seen in my time of the company I'm honored to work alongside of my colleagues to fulfill aluminum instrumental role in improving human health by unlocking the power of of the genome.
Now on the night, the operator to open for Q&A.
Thank you speakers participants we will now begin the question and answer session to ask the question over the phone. Please press star 1 from your telephone keypads.
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Speakers. Our first question is from the line of Vijay Kumar of Evercore ISI Your lines now open.
Hey, guys. Congrats on the solid printed on her and thanks for taking my question Francis maybe if I could start with the 1 on the guidance question here.
You know the second half.
Revenue growth the implied revenue growth of about 20%.
In the calm suddenly going on about 500 basis points harder in the in the context of you were speaking about the.
I could backlog of instruments.
And the opportunities on the Sibelle and tried etcetera Ah maybe talk about the the second half revenue trajectory.
Why perhaps it shouldn't be a stronger.
Yeah. So thank you for Jay to that question. So I'll start by saying we are seeing tremendous momentum individuals you point out if you look at every part of our business.
Seeing.
The the businesses the those market segments expand and so we expect that to continue going into the second half of the year, but there are a number of things that that we are watching for 1 of Samuel add more color on this but there are a number of 1 type of thing that happens in Q1 that we don't expect to repeat and Q2 and both of of list of what they are kind of.
The second thing of stay out of the we're still in the midst of the pandemic and so we are keeping a watchful eye to see how the delta of variant plays out of out here in the U S and around the world and so that's loud.
That means we should.
The moderation in terms of what we expect to see individuals for the second half where it will definitely still in the middle of the pandemic and and those are the 2 factors I'd say that counter balance will be C. As in kettle of momentum in the in the markets of wearing.
Yeah, it'd be Jay maybe I could add some more specificity on the 1 time factors in the first half and thank you for the question by the way our business is really strong and really accelerating across the core market. There on 1 time factors in the first half of that I do want to call out but are important when you think about the second half. So the onetime factors I with bucket as follows you have.
Thank you 1 way out of about $20 million of stocking, we did not see any stopping in the second quarter, but we did have $20 million of the first quarter.
I would characterize roughly $55 million of Covid surveillance instruments paper.
Statement, so that $50.55 million in the first path that we are now not expecting to repeat in the second half of that's another items.
The UK biobank, which.
Terminate so basically wrapped up in the third quarter, So that's about $30 million of.
Extra revenues in the first half of that we will not having the second half and then finally, there's of $20 million in ICT settlement in the second quarter that are referred to in my prepared remarks that will not repeat the in the second half. So if you put all of these together, it's about $125 million of.
What I would call 1 time factors in the first half of the don't repeat if you exclude those from the first half.
Annualized basically we're looking at flattish second half versus the first time.
That's helpful. Sam Francis maybe if I could 1 on.
The the comment on utilization picking up on the boxes interesting given the record placements.
And healthy.
And markets budget budgetary outlooks how's.
How should we think about fiscal 22 should comps matter or perhaps of uptake and Marty.
Utilization common itself should we draw a correlation on what the consumable could look like share.
Yeah, So I'll start by saying that we're not ready to make statements about 2022, but out of give you more color on the trends. We are seeing as you point out we're seeing really strong instrument side the across the portfolio and was especially exciting of it that is you know is that instruments tend to be of lead indicator on.
The business because of the of the model that we employ and if you look at you know what I said about instruments, we have the highest overall backlog for instruments since we launched Nova sic on the high throughput side, we have the highest order volume for noticed the since we launched the product in Q1 hundred 17 on the mid throughput side, we're on track to almost.
Double the number of of next week's the reshape if you look at the average for the last few years. So it really strong momentum in the mid stupid portfolio and then even at the low end as I pointed out in the remarks, we've got the highest might seek shipment of any quarter and the last.
So low throughput mid throughput high throughput all of those businesses of showing on the man.
And the resulting in the big backlog of it we have going into the second half of the year.
Next questions from the line of Doug Schenkel of Conan company.
Your lines now open.
Thanks.
Thanks, guys I appreciate it.
The first thing I want to talk about is grill.
So recognizing what you talked about and your per care clerks that you remain committed to grill.
I think it's fair or not controversial of sadness processors, clearly knock on the way you expected it to items.
Thousands of lives and that would not be saved if we didnt buy ground just simply because we can accelerate the business. So to answer. The question. We are committed to working through this deal through that timeframe through the end of the year.
I would not read this to mean that we cant buy any other services provider.
Or anything else, we want to buy we have done the number of other acquisitions in the last 18 months. So those have gone through and.
Think we're going to continue to look for things that we believe add long term shareholder value and if it means we need to acquire them. We will continue to look for those from time to time.
In terms of what we can do better 1 of the things. We have learned is that we clearly we don't have the DC presence and we don't have employees.
The hill that are telling the illumina story to the various agencies to the other folks on the hill and it's become clear to us that we need a bigger presence there and so we're starting to build our presence there and the fantastic things that I personally have spent a lot more time over the hill on the hill in the last couple of months.
And the story of new really resonate and so when we tell the story I think people get really behind it that we want to support it and so 1 of the things we have learned and we're going to do differently. As we have more of a presence on the hill and were going to be coming the Illumina story.
More often and more clarity.
And then thank you for that perhaps the and.
Let me, let me ask on it is kind of a longer term 1.
On recognizing what we've seen in terms of recent acquisitions in the space and.
Some some of the the new public insurance.
In sequencing.
It seems fair to say that over the next few years competitive dynamics are going to intensify of debt and sequence right.
Be more short read platforms.
So it's kind of the advancements in long read tools, we're seeing that already.
And.
I think you appreciate.
I tried to say thats in the homeless way possible debt.
Coming from somebody that's focused a lot on sequencing over the last 15 years.
Sure.
<unk> seen a lot of planned technology technological threats come and go.
For me to kind of look at the landscape and conclude that hey, maybe this feels a little bit different now.
Maybe maybe mean something so.
As you kind of think about that and really think about the next few years is the playbook the same.
The new instruments, maybe as soon as next year from top to bottom of the market more flow cell density and essentially the way the same elasticity curve. The same way you have in the past or as we think about the next few years is a little bit different. Thank you.
Alright, great questions, let that stuff.
A couple of parts of the the question..1 is does it feel like the debt competition is intensifying right now on the way that it wasn't before and 2 so therefore is the playbook on the same.
In terms of competing here.
Go to each part of 1 I'll say is look in huge you'll appreciate this given the 15 years <unk> been looking at this is we've always had waves of competition right and a few years ago, we'd be talking about qiagen and thermo and you were coming from behind.
In some markets.
And because of the market is so big and we're still at the very beginning of this giant market. We fully anticipate it will continue to attract a lot of venture investment I mean, there are dozens of companies and we could have had this compensation anytime in the last decade, and I would have told you that our dozens of companies that are being funded to go after the sequencing space.
I think the especially see of difference in terms of the number of companies being started.
The the actual competitors showing up are different obviously every time.
I'd like to what you said in 1 of the notes direct from you, Doug where you said the.
The trailers literally of the dead bodies of people, who sequences look great on Powerpoint, but couple of years away from launch could never get closer than that to launching so we've seen that now we will see more competition, though going forward again, we expect that the.
Part of the playbook is the same better faster sequencing continue to be the gold standard for accuracy continue to set a relentless space in terms of innovation that our competitors have to follow continue to set the price point in the market that everybody else has to follow those parts of the competitive playbook that will be the same and the other part will be the same as continued.
To just add more and more value to the sequencer that our customers get and you've seen us do that with adequate with the hardware acceleration. That's now built into the sequence there you've seen us do that now.
By extending the bioinformatics pipeline, that's now built into the sequencer and so we continue to expand what it means to create a sequencer and you remember the move we made from the output of our sequences of the images and then it became based calls and now from our sequence. So you can get variance and thats unique in the market and now we will force everybody else to react to that so you've got to add that second.
The pipeline now to your sequencer to catch up to the alumina of giving variance.
Some part of the playbook has changed the genomics industry and Illumina is business is way more diversified than it's ever been right. A few years ago, we used to be targeting the research market and it was really a single instrument of the Hiseq guide of the EBITDA for that so you are selling sort of highest throughput sequences into.
The <unk> of the research market.
Today, that's the only 1 segment of our business around the business is really diversified almost 44, 45% of our business comes from the clinical market and the rest is a research and applied.
More than half of our business comes from outside the us and and we have a lot of cleared end to end workflows into the market and so as I look at the landscape no single competitor out there matches all the other segments of the business and so each of them have their own different sort of playbook in some cases, if you have to deliver.
Cleared end to end workflows.
In some cases it is a better faster cheaper so thats a different I think there is no single competitor I can look at Doug and say that competitor is coming after most of our business.
Thank you speakers next question is from the line of Tycho Peterson of Jpmorgan. Your line is now open.
Okay. Thanks.
Just back on the guidance question, just thinking about some of the gives and takes on the back half of the year.
On Covid, specifically as we think about some of the pop seek programs I'm wondering the highest at risk to those that are ongoing and then on the surveillance side, you said last quarter, you werent expecting when the instruments.
So much of it this quarter, so what the asset.
Actually it could be underestimating kind of the.
On the tail there on the instrument cloud rationale.
So let me 2 parts of the question on we started with Pops seek and then let's go to Covid instruments.
We are very happy with where we're at with Coca Cola. The Popsy programs right now I talked about the UK Biobank is continuing to go through of course, we expect it to sort of and towards the end of this year, but it's continuing to the sequence at the.
At full production scale all of US is now sequencing at full production scale, we talked about doing thousands of samples of the week and that pipeline seems really robust.
I don't expect much disruption over the course of the year barring something massively unexpected for what's happening on all of US. So they are running really well given that it's really exciting on pop secret now we have 30 programs that are up and running around the world and so that means we're starting to diversify.
Hi.
The revenue contribution from the Pops seek programs as they start to ramp around the world and that gives us I think a little bit more resilience in terms of if any part of the world is more impacted than the other.
There's still other parts of that will then of course I think it's the.
As of <unk>.
Really healthy.
Set up for us in terms of pop secret of the rest of the year.
Some of the covenants of its youre right.
He was here during this call a few months ago I told you that we weren't expecting any more instruments for the year. We thought the buyer is going to happen in Q1, and then the on Behold, we sold some instruments for Covid surveillance in Q2.
That's part of the business candidly Tycho is hard to predict and so what we've built into the model is no more instruments for the rest of the year and $50 million to $60 million in terms of consumables and yes, absolutely its possible, we buy the people buying more instruments, but but again that's hard to predict.
Thank you speakers next question is from the line of paying us solve on of Morgan Stanley. Your line is now open.
Hey.
Good evening.
A lot of follow up quickly on <unk> and then I have a question on China. So on <unk> I mean, there's a little bit of.
Possibility of the delay here in terms of the MVP renewal obviously.
That's been on important revenue generator for you over the years.
What's the risk share there could be of benefit of air pocket here.
Some of it but some of your larger customers heading into 2022, and then second on China. I mean recently there was some news around new by Chinese targets issued by the governments of hospital purchases.
Any thoughts on that and backing of growth obviously, the <unk> Dx following the regulatory approval. There has been a important growth driver for you in the in that geography.
Yeah. So thank you the effort towards through the the 2 questions.
For the reasons I just talked about the fact that now we have a number of pumps. The programs that we have a number of the bigger ones are already running at scale, we feel really confident in the pop seek pipeline and the revenue pipe for the rest of the year and so we've looked at any of the risks associated then we've got the the timing, but we feel really confident.
The diversity of the revenue sources on the in the.
The <unk> pipeline.
In terms of China, we were really happy with the performance we've been seeing out of China, We talked about the growth we're seeing in China, we are maintaining our.
Most of our leading position in China, our strategy, there is really paying off and it touches on the things you asked about so.
We are always follow the strategy in China that was very partner centric and so we have partners that are building their products on our instruments and selling them into into customers and those customers are those partners, our Chinese partners and so a lot of them are qualify even under the made in China.
Nations and that puts us in the really good position in China. The other thing that a couple of other things 1 of you touched on which is the other.
The Nova <unk>.
Again sort of of partner model the back and say, that's a really positive step forward for us on China and then the regulations around the <unk> in China is also very positive in terms of of what it means for the future. So we're happy with the growth. We're encouraged by some of the things we're seeing in terms of pointing to the positive momentum going forward and maybe 1.
Thing I would add on on population genomics the house.
<unk>.
With regards to the second half, but also on an ongoing basis going forward in 2022 of the really exciting thing about population genomics initiatives now of what we talked about earlier, which is the 30 or so of population genomics initiatives that are driving contribution and half of the year and beyond so.
We are I would say very diversified in that respect in terms of.
The contribution of spread across the number of them that are ongoing those are not.
<unk>.
1 of that we are waiting for the Hoffman, but they are actually ongoing and starting to drive contribution and we do have the large ones that we've talked about 1 of which is the UK biobank, which is wrapping up in the second half.
Thank you speakers next question is from the line of Derik Debruin of Bank of America. Your line is now open.
Okay.
On a couple of questions I think the first 1 would be the <unk>.
<unk> numbers are quite impressive in the.
The backlog commentary like Wyatt.
Francis what's your philosophy on <unk>.
New product introductions, I mean, it sounds like the never speak still has a lot of runway on it and I know, we can I know earlier.
I should say last year, we were or was it earlier this year and I remember we were talking about potential for the.
The next generation of note the seek or something like the average to be coming out something like that what's your philosophy now on new product introductions, given the strength of the across the portfolio.
The Big question, some part of our philosophy, Derek has not changed but actually 1 part has the I'll tell you that both the part of that Hasnt changed as well.
We will launch products into the market.
When we think the market is ready meaning that the.
Turning to absorb the price point.
The unlock additional elasticity and grow the market as a whole and so we continue to be in dialogue with our customers trying to understand where some of the demand curve is.
And when we feel that there is a.
An opportunity to expand the market through the launch of an instrument with a certain price points are of certain capability. That's when we bring the the product to market. So our technical teams of just constantly pushing the technology and then when we feel the market is ready we do the engineering to bring those technologies into that.
That has that part of the philosophy has not changed and we're going to continue to watch on the right time is to do.
To catalyze a segment of the market with the new product offering.
Has changed actually and it's really interesting.
It's been the result of of watching what happened with NEC peak of 1000, 2000, and what we've seen with next day 1000.2000 is that the 1000.2000 has dramatically expanded the mill.
Throughput market and it wasn't just an upgrade on the replacement cycle and it's quite dramatic actually if you look at the number of mid throughput instruments, we shipped over the last few years, it's been fairly steady.
This year, we are on track to almost double of that number and there are lots of people who are still buying $5 <unk> on the <unk>. What's happened is we've capitalized on open up new markets for the mid throughput instrument.
With the price points that we've put out with the 1000.2000 and that's different in the genomics market has been the floor and so now we see an opportunity even in the market segment to not just catalyze an upgrade cycle, but actually to open up other parts of that segment with an offering in that market segment and so.
That's a different philosophy that we're building into now our strategies as we think about future products.
Great that's really helpful. Sam you.
You didn't give us any sort of like pull through ranges on the installed base on your instruments could you share some color on that.
Typically what the negative pull through of the Mexico through an <unk>. Thank you.
Sure Derik, Yeah happy to with regards to the Nova Sea.
The last guidance that we shared was $1.1 million per $1.2 million per instrument that we said, we're going to be on the high end of that range. So I can tell you that for Q2, we exceeded that and now our expectation for the full year is that we will be above that range. The $1..1 per $1.2 were going to exceed that so we're not giving exact number but we were going to be above that.
$1.2 million pop and with regards to <unk>.
Next week.
The pull through on next day $5.50 at least we havent shared any flow through on next week 2000 of 1000 to earn the right now from the lifecycle of those instruments to provide them, but for negative $5.50 or were at the high end of that 100 per 150 range that we've traditionally share.
So flow through is at the high end of that with regards to might seek where within the 40% to 45000 pull through range of debt instruments and with regards to the many seek where within that the on the high end of that 20% to 25000 pull through range for that instrument.
Great. Thank you very much.
Youre welcome.
Speakers next question is from the line of Dan Arias of Stifel. Your line is now open.
Afternoon, guys. Thanks for the question Francis maybe just to your point on market readiness, and just where your customer bases.
Of a read on what percentage of your know the suite because basis, taking advantage of the <unk>.
Genomic capabilities at this point.
I guess more importantly can you share the PD.
That's a great question I.
I don't have a Henry.
Number of it gives you in terms of as a specific percentage of but how would I think about it.
I would say that with the price reduction that we put into the market lap some of which catalyzed. The elasticity. We are seeing the $600 genome is now pretty broadly available to our <unk> customers. So I would expect.
A significant number of them are actually availing themselves of that price point.
Now of course, you know that.
The.
That's not necessarily genomes that theyre running.
<unk> now used sort of a broad range of applications a lot of notice of usage in oncology for the TSA of 500 or some of these large panels, but I'd say.
A lot of them a significant percentage of the are able to use those applications at at that kind of price point, but I don't know of an exact number to give you.
Okay.
Maybe on the oncology side some of the work that we've done it showed a pretty strong response in terms of the usage of ample speak for.
The illuminate of equipment I'm guessing I'm wondering I guess, how critical you see that partnership for your cancer franchise going forward and then are there any margin implications that might be material enough to call out of that we should be mindful on there.
Yes.
The way I think about that as I say, it's nice to have part of the portfolio.
But it's not a critical part of the book.
In terms of even thinking about the the revenue for us I wouldn't do that is the big part of the revenue we make in the oncology business at all the <unk>.
We did it is we want to make sure that our customers can have the broadest options.
In terms of what they want to do but its on a meaningful contributor to our revenue in oncology.
Speakers next question is from the line of Patrick Donnelly of Citi. Your line is now open.
Hey, guys. Thanks for taking the questions.
Francis.
It might be per se I'm actually I'm, just wondering on the cadence throughout the quarter, how things picked up in the particularly the last couple of weeks of a quarter to date here have you seen any slowdown or kind of shutting down of customers in recent weeks through the Delta I'm, just trying to get a handle on lot of activity as we trended through the quarter, then again, particularly.
Recently here.
Yeah, So I'll start of the easy part, but we're not seeing any slowdown right now some of that because of the alto, we're not seeing any shutdowns.
The quarter was fast Patrick.
You can see that in terms of I think of DSO like you saw improved linearity in this quarter.
The way it felt internally as we started the quarter fast and it got faster. So it didn't there was no slowdown in the middle but what was surprising again was it started really happened.
So the the hockey stick at the end I would say was yields but not necessarily as pronounced as we had of that study for the quarter.
Yes, when you think about.
Patrick with regards to the adjusted 1 more point on your question no. We did not see that flowed on as Francis said, we are we are still on Covid year on Delta is obviously still raging so we.
We still when you think about the second half we still obviously.
Think about the potential impact of any shutdowns et cetera, but at this point, we're not seeing that in the quarter exited very strong as it started.
That's helpful. And then maybe just 1 on Mexico and that continues.
Quarter after record quarter. There can you just talk about what youre seeing on the clinical demand side, there how much of it picked up this quarter versus last quarter and expectations going forward.
Yes, I mean that has been quite a remarkable story I think I mentioned a few minutes ago. The if you look at the number of instruments were shipping in that segment. Its now all of those double what we shipped historically into that segment.
So a few things I'll point out 1 we continue to ship $5.50 and 550 Dx as with other people, who validated workflows on those instruments, they're continuing to buy.
We are seeing a good number of new to Illumina, new to that segment customers come in.
It continues to be 1 of the clinical workhorses of our portfolio of UC applications in oncology you see applications in ITT.
And that continues to be true at the.
The things we talked about in terms of the expansion we're seeing in the clinical market all of that reimbursement of that kicked in last year for oncology for an ITT all of that is driving the instrument purchases were seeing and Thats, a really great time, because as we talked about instrument purchases for us on a lead indicator of future growth and so when you place that many instruments.
The exciting for us to think about.
And so the other films that are driving the metric, but maybe maybe I can add a data point with regards to adoption and the split by customer type or not maybe customer type of but just in terms of where we're seeing the placements come from.
We're seeing roughly 25% coming from new to Illumina customers into the next day to 1000, which is really encouraging with basically expanding the pie in terms of new to Illumina customers. We're also seeing roughly 30% coming from Bankstown customers. So those customers that are either on <unk> net or many seek that are now going up the next day 2.
1000, and we're seeing also capacity upgrades as well as <unk> 550 conversion going into 2001.
But as we said as well the next day, probably 50 in fact, the Cvs is really holding very strong with continued placements in those category. While we are not seeing is of hiseq customers going really the next week 2000, instead of neuropathy. So thats something we always said we didn't expect and we are not seeing if were seeing only of really fair.
On a very small handful of customers having done that.
Question is from the line of Kyle <unk> of Canaccord Genuity. Your line is now open.
Hi, Thanks for taking the question. So I'll just ask the figure for the sake of time I'll just go on mute.
So the $90 million gigabyte CDC for the packaging centers of excellence I was wondering when that could be a tailwind for the women of just given the fundings expected in August of 'twenty 2 on that.
The first question on the second 1 I want to ask was about just the spatial and pretty much readout I'm just wondering if that's going to be a material.
Gross driver I guess.
Yes going forward is that moving the needle what do you see that and then also just on the pacing of Covid surveillance testing of the guidance for the second half of the year I mean, maybe Sam could just talk about out of it.
Yeah. So let me let me start and then I'll turn it over to Sam in terms of the CDC money in the American rescue plan impact and then all of that many of our or watching to see how that money gets allocated out we haven't really built much of that into our expectations of the course of this year because there is still work to be done in terms of how that money.
The allocated out we certainly expect some benefit from it going into the.
The following years, but we haven't built that much of it in some of colored more.
On the special and proteomics are definitely interesting they're definitely emerging.
Or maybe where single cell was a few years ago. The single cell certainly a much bigger contributor of our business today than the special or proteomics, but given the amount of interest in both we do expect those to the growth drivers for our business going forward.
Yes, so maybe first on the the.
American rescue plan on some of the funding that went in there the $1.7 billion with $400 million going into the centers of excellence out of which $90 million has now been allocated but it'll be really decided in August of 'twenty..2 how that gets allocated I think thats. The more of a long term benefit that we expect of the business. So thats the while we expect.
We will be the durable genomic epidemiology benefit the infrastructure of that gets built that we see is definitely a potential upside in future years not this year in terms of this year, Kyle just to kind of the script out what is the progression in terms of the guide in Q1, the at $55 million with 35 million of instruments.
Millions of consumables in Q2, we had $60 million with $20 million instruments of 40 million of consumables and our expectation on the second half of that we have.
Approximately 50% to $60 million of Francis earlier of sequencing consumables revenue in the second half.
We look at it is equally split between Q3 and Q4 that is higher than what we had guided to on on the Q1 call.
Just driven off of the additional utilization in placements that were seeing in.
In the first half.
Thank you participants I'll now hand, the call back over to Illumina for final remarks.
Thank you for the questions as a reminder, a replay of this call will be available in the investors section of our website.
As well as the 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 third fiscal quarter of 2021.
And that concludes today's conference.
Thank you all for joining you may now disconnect.
Okay.
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The.
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