GS report on Q:
Stock rating: In-Line
Coverage view: Neutral
Small-Cap Growth
Price: US$6.55
April 21, 2004
ILMN (IL/N): Q1 better w/ strong sales &
higher margin. Turning profitable 2005.
52-Week Range US$10-2
YTD Price Change -7.09%
Market Cap US$215.4mn
ILMN reported a Q1 loss of $0.11, excluding a litigation related expense of $0.19MM,
$0.05 better than our estimate due to higher revenues and better gross margin. In Q1/04,
ILMN installed its seventh BeadLab system and started shipping its BeadStation system
for medium throughout SNP genotyping. The company also started beta testing of its
whole-genome gene expression Beadchip. We have revised our 2004 loss estimate to
$0.37 from $0.46 based on higher revenue and improving gross margin. We expect ILMN
to turn profitable in 2005 and introduce our 2005 EPS of $0.10. We continue to rate
ILMN In-Line based on its broad technologies, rapid sales growth, and increasing
dominance in the genotyping market. Risks to our view include weak demand from
service customers, slower than expected sales, dependence on financial markets and
litigation with ABI. Our coverage view remains Neutral.
1. 2004 MILESTONES
a. Sign 20 genotyping service contracts
b. Ship 20 genotyping systems, including BeadLabs and BeadStations- As of 3/31/04, shipped 3
systems (1 BeadLab and 2 BeadStations)
c. Develop a minimum of 400,000 assays for the HapMap project
d. Operating cash burn of less than $15MM- Cash reserves of $28MM as of 3/28/04
e. Ship whole-genome gene expression product- initiated beta testing during Q1/04, expect to start
shipping by mid-year
2. Q1 LOSS OF $0.11/SHARE, $0.05 BETTER
Total revenues of $10.8 million were $2.5MM higher than our forecast. Excluding $0.19MM of
interest expense related to a litigation judgment, total expenses were $14.0MM. Gross margin of
74% was better than our forecast of 64% due to efficiency and improved product mix. R&D
expenses were lower than our estimate primarily due to positive quarterly fluctuations. Other
income of ($0.5MM) was $0.9M lower than our forecast due to lower cash and interest rate levels.
The net loss, excluding the litigation charge of $0.19MM, was $4 million or $0.11 per share on
32.5 million basic shares.
3. REVISED 2004 LOSS ESTIMATE ON HIGHER REVENUES AND MARGIN; INTRODUCE
2005 EPS
We raised our 2004 revenue forecast by $5MM to $44MM (+ 56% from 2003). We have boosted
the gross margin to 71% from 66% to reflect continuing improvement in efficiency and better
product mix with commercial introduction of the Sentrix BeadChip for whole genome expression
in mid- 2004. We maintain our forecast for R&D expenses of $21.9MM but increased our SG&A
expenses to $22.3MM from $20.4MM. The net impact was a revision in our 2004 loss estimate to
$0.37 from $0.46. We expect Illumina to turn profitable in 2005 and introduced our EPS estimate
of $0.10, based on revenues of $67MM (+ 51% over 2004), gross margin of 70%, and operating
margin of 3%.
4. NEW PRODUCT LAUNCHES ON TRACK
a. BeadStation 500G. In Q4/03, Illumina launched BeadStation 500G a benchtop instrument for
genotype analysis by individual and core laboratories. The BeadStation allows 200,000 genotypes
per day when used with the new Sentrix Arrays and cost $250,000 per system. During Q1/04,
Illumina shipped its first two BeadStations.
b. Gene expression product. In January 2004, Illumina announced its intent to offer two whole
genome gene expression chips on its Sentrix BeadChip platform starting in mid-2004. One chip has
the capacity to analyze six discrete whole human genomes at once, while the other can compare up
to 8 samples in parallel against the 22,000 genes sequenced in a third party database. In the gene
expression market, Illumina intends to target middle- market customers conducting experiments on
100-1,000 genes. Relative to the SNP genotyping systems, the gene expression systems can be
installed more quickly thereby shortening the sales cycle versus the genotyping systems. In
addition, Illumina is using its oligonucleotide sales force to sell its gene expression products, which
should improve profitability.
I, Maykin Ho, PhD, hereby certify.. |
