Illumina Inc (ILMN) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2008 Illumina Inc, earnings conference call.

My name is Erica and I will be your coordinator for today.

(OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to your host for today's call, Mr.

Peter Fromen, Senior Director, Investor Relations.

Please proceed, sir.

Thank you, operator.

Good afternoon, everyone, and welcome to our first quarter 2008 earnings call.

During the call, we will review our financial results released today after the close of the market, offer commentary on our commercial activities and provide financial guidance for the second quarter and fiscal 2008, after which we will host a Q&A session.

If you have not had a chance to review the release, it can be accessed in the Investor Relations section of our web site at Illumina.com.

Presenting for Illumina today will be Jay Flatley, our President and Chief Executive Officer; and Christian Henry, our Senior Vice President and Chief Financial Officer.

This call is being recorded and the audio portion will be archived in the investor section of our web site.

During the call, we will be discussing our financial guidance and plans for future activity.

Our intent is for those forward-looking statements to be protected under the Private Securities Litigation Reform Act of 1995.

Forward-looking statements make during this call 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 these risk factors, we refer you to the documents that Illumina files with the Securities and Exchange Commission, including Forms 10-Q and 10-K.

Before I turn the call over to Christian, I wanted to remind you of the investment conferences in which we will be participating over the next couple of months.

On May 6, we will present at the Deutsche Bank Healthcare Conference in Boston, and the following week on May 13, we will present at the Banc of America Healthcare Conference in Las Vegas.

Moving to June, we will participate in the Goldman Sachs Healthcare Conference from the 9th to the 12th in Dana Point, California.

For those of you unable to attend any of the upcoming conferences, we encourage you to listen to the webcast presentations, which will be available through the Investor Relations section of our website.

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

Good afternoon, everyone, and thank you for joining us today.

During today's call, I will review our first quarter financial results and outline our guidance for the second quarter and the remainder of 2008.

Jay will then talk about our commercial progress and provide an update on the state of our business and markets.

In Q1, we recorded our 27th consecutive quarter of revenue growth with total revenues of $121.9 million.

This represents 69% growth year-over-year and approximately 8% sequentially.

Product revenue was $110.7 million and grew 81% over the first quarter of last year, and 9% sequentially.

Sequencing instrumentation and genotyping consumables contributed about equally to both year-over-year and sequential product revenue growth.

We generated $63.2 million of consumables revenue in the quarter compared to $38.8 million in the first quarter of 2007 and $56.2 million last quarter.

This represents year-over-year growth of 63% and sequential growth of 12%.

Strong demand for our Infinium family of Bead chips led to the growth in consumables during the quarter, although we did see a notable uptake in the contribution from sequencing kits to the overall increase.

The uptake of the Genome Analyzer and the launch this quarter of the Genome Analyzer II continued to drive growth of our total systems installed base.

Instrument revenue for the quarter was $44.5 million compared to $19.6 million in Q1 of '07 and $41.8 million last quarter.

This represented year-over-year growth of 127% and sequential growth of 6%.

Services and other revenue, which includes revenue earned from our genotyping and sequencing service offerings as well as revenue related to our instrument maintenance contracts, was $11.2 million compared to $10.9 million in Q1 of the prior year.

Before moving on to gross margins and operating expenses for the quarter, I'd like to talk about the effect of FAS 123R, which requires us to record the expense associated with stock options in our income statement.

The total impact of stock compensation expense for the quarter was a pre-tax amount of approximately $10.9 million or a tax-adjusted amount of approximately $0.11 per pro forma diluted share.

As prescribed by the standard, the expense is allocated to each P&L line, with the amounts attributable to each expense category separately identified in the financial tables accompanying today's earnings release.

In the discussion that follows I will highlight both our GAAP expenses, which includes the effect of 123R, and those corresponding non-GAAP figures.

I encourage you to review the GAAP reconciliation of non-GAAP measures, also included in today's release.

Total cost of revenue for the quarter was $46.1 million compared to $25.1 million in the first quarter of 2007.

The Q1 '08 costs include stock-based comp of $1.4 million compared to $0.9 million in the prior-year period.

Non-GAAP gross margin, which excludes stock compensation expense, was 63.3% of revenue for the quarter, compared to 65.5% last quarter and 67.4% in the first quarter of 2007.

The year-over-year decline in gross margin was driven primarily by the shift in product mix towards instrumentation and the fact that the lower gross margin sequencing products are a larger percentage of revenue.

As I've mentioned in past quarters, instruments generally carried lower gross margins and represented approximately 36% of total revenue compared to 27% in the first quarter of 2007.

The decline in gross margin relative to the fourth quarter was due to several factors.

The largest contributor to the decline was the unfavorable overhead absorption in our oligo manufacturing process.

The unfavorable absorption was due to the timing of the manufacture of oligos related to our HD Bead chips and due to lower volumes associated with our oligo collaboration.

Despite these unfavorable variances, we continue to maintain our gross margin guidance in the mid-60s for the full year.

Research and development expense were $20.6 million for the quarter compared to $16 million in the first quarter of '07 including $3.3 million and $1.9 million, respectively, of stock compensation expense.

The absolute increase in R&D dollars compared to the first quarter of '07 was attributable to the inclusion of Solexa's R&D expenses for an additional month during the first quarter of '08.

Excluding stock comp expense, R&D development -- R&D expenses were $17.3 million, or 14.2% of revenue compared to $13.9 million or 19.2% of revenue in the prior-year period.

SG&A expenses were $33.8 million for the quarter compared to $23.6 million in the first quarter of 2007, including stock compensation expense of $6.1 million and $4.8 million, respectively.

Excluding the impact of FAS 123R, SG&A was $27.7 million or 22.7% of revenue compared to $18.8 million or 26% of revenue in the prior-year period.

The decline in SG&A expense as a percentage of revenue for the first quarter relative to last year confirms the significant commercial leverage that we've been able to achieve with the acquisition of Solexa.

Our non-GAAP operating profit in the quarter was $32.2 million or 26.5% of revenue.

This compares to $15.9 million or 22% of revenue in the first quarter of last year and represents year-over-year operating profit growth of 102%.

Despite the inclusion of -- and this is in spite of the inclusion of one additional month of Solexa expenses in the first quarter of '08 compared to the prior year.

While we are extremely happy with the success of the integration to date, we believe that we still have the capability to recognize additional synergies as we align the sequencing and microarray businesses under the life science business unit.

We reported GAAP net income of $13.4 million in the first quarter or $0.21 per diluted share compared to a GAAP net loss of $298 million, or $5.58 per basic and diluted share in the prior-year period.

The GAAP net loss in the first quarter of last year was attributable primarily to the write-off of $303 million on acquired in-process research and development expense related to the Solexa acquisition.

Excluding the impact of the stock compensation expense, the amortization of intangibles and net of certain tax benefits, we're pleased to report a non-GAAP net income of $22.5 million or $0.37 per diluted share compared to $12.7 million or $0.22 per diluted share in the first quarter of '07.

This represents year-over-year net income growth of 77%.

Looking at the cash flow statement and balance sheet and excluding the $90.5 million in payments associated with the litigation settlements made in the first quarter, we generated $27.8 million in cash flow from operations compared to $14.6 million in the prior-year period.

Our strong operating cash flow performance during the quarter was due to our ability to maintain accounts receivable DSOs and inventory balances year Q4 '07 levels.

During the quarter we used approximately $7 million in cash for capital expenditures, primarily to expand BeadChip manufacturing capacity and bring up our new decoding technology online.

Depreciation and amortization expenses for the quarter were approximately $6.2 million, and on a free cash flow basis we generated $21 million or $0.34 per diluted share compared to $11.4 million or $0.20 per diluted share the first quarter of last year.

We ended the first quarter with $329 million in cash and investments.

During the quarter we recorded an unrealized loss of $2.4 million due to the temporary impairment of certain auction rate securities.

Given recent negative conditions in the global credit markets we have reclassified the balance of our high-grade AAA auction rate securities, a total of $53.5 million, from short to long-term investments.

Additionally, we reclassified our convertible senior notes to current liabilities as the stock-based conversion rate was met during the first quarter.

However, given the current trading price of the bonds, we do not believe conversion of the notes to be likely.

I will now update you on our financial guidance for the second quarter and fiscal 2008.

Consistent with our previous calls, the following guidance excludes the impact of certain non-cash charges, including the amortization of intangibles, legal settlement payments and the impact of stock-based compensation related to FAS 123R.

For additional detail, please refer to the table in our earnings release that reconciles our non-GAAP guidance to the related GAAP figures.

We expect fiscal 2008 revenues between $515 million and $535 million, representing growth between 40% and 46%.

This growth rate is at or above the high end of our long-term operating model.

This represents an increase of $12.5 million over the mid range of our 2008 guidance that we provided last quarter.

As I mentioned earlier in my remarks, we expect gross margins for the year to range in the mid-60s and to be lower in the first half of the year compared to the second half.

We expect non-GAAP earnings per share between $1.55 and $1.68 with pro forma fully diluted weighted average shares outstanding of approximately $62 million.

This represents an increase of $0.09 over the mint midpoint of our previous EPS guidance.

As a reminder, going forward we will provide a pro forma fully diluted share number that will exclude the double dilution associated with the accounting treatment for our convertible debt outstanding and the corresponding call action overlay.

The call option that Illumina owns offsets all dilution associated with the net share settlement of a note over its conversion price of $43.66.

We'll include the ongoing economic impact associated with the net share settlement of the warrants issued in conjunction with the call option overlay, which had a strike price of $62.87.

The first quarter number is included in the reconciliation to GAAP figures that accompanies today's press release.

Again, as I mentioned last quarter, please feel free to follow up with myself or Peter after today's call, and we can walk through the details of the calculation.

For the second quarter, we expect revenues to range between $127 million and $132 million, which represents year-over-year growth of 50% to 56%, well above our long-term operating model.

Excluding the impact of stock compensation expense and the amortization of intangible assets, we expect second-quarter non-GAAP earnings per share to range from $0.37 to $0.40, assuming pro forma fully diluted shares of approximately $61.5 million.

We anticipate a non-GAAP annualized tax rate of approximately 36% for 2008.

We expect the tax rate to be higher in the first half of the year and lower in the second half as we recognize some benefit from the shipment of product out of Singapore in the fourth quarter.

Over the next few years, as we generate more international income and continue to build out the Singapore manufacturing facility, we expect a further decline in our consolidated corporate rate.

We expect a pre-tax annual stock comp expense to be approximately $45 million, $0.46 per adjusted -- tax adjusted pro forma fully diluted share.

As we have emphasized in the past, this expense is highly dependent on our underlying stock price.

Now, at this point, I would like to turn the call over to Jay for some remarks on our commercial activity during the quarter before we begin the Q&A.

Good afternoon, everyone.

I'm pleased to report that we're off to a very strong start in 2008 with revenue growth of 69% over the first quarter of last year, well ahead of our internal expectations.

We grew operating profit by 102% and generated $21 million in free cash flow.

However, I'm most pleased by how well our teams met the execution challenges we faced during Q1.

During the quarter we successfully transitioned our three most important product lines to their newest generation -- the Infinium HD BeadChips, the iScan BeadChip scanner and the Genome Analyzer II.

In January we announced to the launch of the Infinium HD BeadChip family, which is the most significant new development in Illumina's microarray business since the introduction of our original Infinium BeadChip.

Toward the end of the quarter we began shipment of the first product in the family, the Human610-Quad.

As a reminder, the 610-Quad combines the content from our Hap550 and our Human CNV 370 chips to allow interrogation of more than 620,000 genetic variants across four samples on a single chip.

Our HD technology enables us to continue to improve the economies of whole genome genotyping at the industry's highest quality levels.

All indicators point to even higher call rates on the 610-Quad and on our existing Infinium chips.

In May, we will begin shipping the 1M-Duo, the second product in the HD family.

The 1M-Duo improves on the content of our flagship Human1M BeadChip with additional disease-associated SNP's and increased density of SNP's encoding region to the genome.

To manage the increased content of the Infinium HD BeadChips, we have implemented a new decoding technology in array manufacturing and completed that transition in Q1.

The new scanners we've brought online result in an increase in the rate at which we can decode an individual data point on a BeadChip by over 100%.

Last quarter I highlighted the 170% improvement that we had made during 2007 in manufacturing capacity.

The additional decoding capacity that we've implemented just in Q1 is equivalent to a 66% increase over that level.

As the 610-Quad and 1M-Duo ramp this quarter to become the majority of our chip production, the efficiency of our view new decoding technology will alleviate any capacity constraints.

Last week, we launched our next-generation analytical scanner called iScan.

This system is based on the same optomechanical architecture as our new decoding systems.

We implemented iScan in our service business over a month ago and began shipping the first instruments to customers near the end of the quarter.

The iScan system enables a six-fold increase in the throughput of Infinium HD BeadChips compared to our legacy BeadStation platform, and a tenfold improvement on our existing Infinium II BeadChips.

To give you an idea of what this means from a sample perspective, a single scanner with an autoloader can process 205 samples per day with 610 Quad compared to 3 samples on the BeadStation with the same autoloader configuration.

This translates to 2880 iSelect samples per day on an iScan, or one sample every 30 seconds.

We expect this dramatic throughput improvement to accelerate completion times of research studies and improve our customers' economic equation.

In our base array business during the quarter, we continued to see the products we introduced last year drive growth.

Once again, the 1M BeadChip represented the largest contribution to total BeadChip revenue.

The [CNV 370Duo], the Hap550-Duo and our custom iSelect format were the next leading products in the portfolio for the quarter.

The features of our array portfolio continue to demonstrate the ability to match the appropriate array format to the customers' research demands.

This utility is evidenced by the rate at which our customers publish their research in peer-reviewed journals.

Already eclipsing last year's total, we have seen 57 papers year-to-date in which customers have published their research using Illumina genotyping technology.

Yesterday we announced the launch of our HumanHT-12 BeadChip for whole genome gene expression.

This product builds off our existing expression BeadChips and lowers the total cost per sample to under $100.

The HT-12 is the industry's highest throughput and lowest cost solution for whole genome gene expression.

The economics of the HT-12 will allow researchers to augment large-scale genotyping data with gene expression data for more comprehensive genetic analysis.

Our existing expression business has continued to grow well ahead of the overall expression market and outpaced our sequential consolidated top-line growth this quarter.

In the lower complexity portion of our business, both the GoldenGate and BeadExpress consumables had a solid quarter.

Demand for GoldenGate has been particularly robust within the agricultural markets to identify genetic variants that characterize certain plant phenotypes.

BeadExpress consumables picked up notably in the quarter as instrument shipments increased.

We've completed the transfer and implementation of our BeadExpress manufacturing to our San Diego headquarters, and we're significantly scaling production to address continued traction of the platform in the market.

Turning to the Sequencing business, we continue to experience a very robust market environment.

This morning we announced the sale of 11 additional Genome Analyzers to the Beijing Genome institute, or BGI.

The sale is representative of the ongoing global expansion of the Genome Analyzer footprint, bringing BGI's total installed base to 17 units.

BGI is now the fourth genome center to scale up their capacity of Genome Analyzers to double digits.

The significant increase in sequencing capacity will enable BGI to undertake large-scale projects such as the Wang 99 project, the Giant Panda project and the Thousand Genome project.

In mid-Q1, we began shipping our second generation instrument, the Genome Analyzer II.

The GA II utilizes new optics and camera components to allow more efficient imaging over larger areas.

This has resulted in an increase in systems specifications from 1G to over 3G, while simultaneously improving system robustness.

In addition, we've added a module to the system that enables real-time quality control and will shortly provide real-time image processing to accelerate data migration and analysis.

This module, which we call IPAR, will be of particular interest to small and medium-sized labs with limited data, hardware and network resources.

I'm happy to report that last week we began full commercial shipment of our paired-end modulate for the Genome Analyzer II.

Paired-end reads will enable researchers to generate much longer-range information across the genome for detection of insertions, deletions and broader structural variation.

Paired-end reads are critical for the sequencing of novel organisms for which there is no reference but also for the full characterization of whole human genome sequencing.

We expect these system improvements and new software tools to enable routine sequencing of whole human genomes by the end of this year.

In conjunction with the 2008 AGBT Meeting recently held in Marco Island, we announced the sequencing of the first African human genome.

Using a Genome Analyzer with 200 and 2000 base pair inserts, we generated over 75 G of data or 25 times coverage of the genome on 27 sequencing runs in six weeks.

The data detected over 3.7 million SNP's, 1 million of which were novel.

These data, in addition to the substantial throughput and accuracy improvements that we've made with the GA II illustrate the power of the Illumina sequencing platform for whole human genome sequencing.

Early this year an international consortium announced the Thousand Genome project, which will sequence the genomes of at least 1000 people to better understand generic variation as it relates to human health.

This project and other global initiatives to study population diversity and the genetics of disease will surely catalyze the demand for whole human genome sequencing over the next several years.

If you stand back from all these details of our business, we continue to see overall strength of demand in the markets we serve and little to no impact of reductions in or the timing of either government grants or pharmaceuticals spending.

I wanted to take a moment to provide you with an update on the various facilities projects that we have underway.

We're on schedule to complete our new 84,000 square foot building at our San Diego headquarters in early Q3.

This facility will provide much-needed expansion space and the ability to co-locate groups that had been in separate buildings.

Last month we broke ground on a new 40,000 square foot facility in the Chesterford Research Park in the UK.

This site, when completed, will combine four separate facilities that we now operate in the park.

Finally, our Singapore manufacturing buildout is right on track, and we expect to begin manufacturing operations in the fourth quarter of this year.

I want to take a few minutes to highlight three new members of our senior management team that joined the company last month.

Joel McComb joined Illumina from GE Healthcare as our new Senior Vice President of our Life Sciences business unit with full operational responsibility for our microarray and sequencing businesses.

Joe has an extensive background as both an entrepreneur and an operational manager.

In his most recent role, Joe was President of Interventional Medicine, a $700 million division within GE Healthcare.

Prior to that, he was President of the $600 million Life Sciences Discovery Systems division of GE Healthcare, which was formed following GE's acquisition of Amersham Biosciences.

Also joining the Illumina management team last month was Greg Heath.

Greg joins Illumina from Roche Molecular Systems as our Senior Vice President and General Manager of Diagnostics and will be responsible for managing our emerging diagnostics business and overseeing the development of diagnostic content for the BeadExpress system.

Greg has over 20 years of diagnostic experience including the launch of the world's first FDA-approved microarray.

Most recently, Greg was Senior Vice President of Global Business at Roche and held positions including head of clinical genomics and Senior Vice President of global marketing and business development.

The third member joining our team last month was Mike Bouchard as our new VP of Finance.

Mike reports directly to Christian and is responsible for Illumina's financial operations.

Mike joins Illumina from Websense, where he was Vice President of Finance.

After beginning his career at Deloitte & Touche, Mike has held numerous finance positions at Gateway and Rohm & Haas.

I want to welcome Joel, Greg and Mike to the Illumina team and look forward to working with them as we build the foundation for the next leg of Illumina's growth.

To conclude, we're very pleased with our operating results for Q1 and the disciplined execution required to achieve them.

We transitioned an internally new BeadChip format and decoding technology into our array manufacturing process.

We reengineered the Genome Analyzer and launched the GA II, and we completed development and shipment of iScan, our next-generation BeadChip scanner.

Our hard work by our teams has positioned us well for another exciting year.

Thank you for your time, and we'll now open the lines for your questions.

(OPERATOR INSTRUCTIONS) Ross Muken, Deutsche Bank.

So, as we look at the quarter, I think obviously the growth is pretty astounding, that you're able to keep this sort of trajectory.

But I guess what's even more understanding is the degree to which you continue to innovate.

We obviously have several new products that will start hitting the P&L in upcoming quarters in each of your key divisions, and you highlighted it on the call, Jay.

Where are we in the innovation cycle in these markets?

Do you still think we're early in both Genotyping and Sequencing in terms of what you can deliver to the end customer?

Is that demand still insatiable in terms of driving down costs per data point and them wanting to do more and more projects as it becomes a broader tool?

I guess there's probably two components to the answer.

One is thinking about this from a technology perspective, and I guess looking at it that way I would say that our feeling is our technologies, both in the Sequencing and in the array business, continue to have enormous headroom to get better in terms of density, in terms of the overall throughput, continuing to reduce cost.

We're a long way from feeling like we are technology limited or bounded.

The other way to think about is from the market perspective.

In Sequencing it's very clear that the demand for sequencing is going to be insatiable as far out as we can see, and certainly it's going to be a highly elastic market.

So as the prices continue to go down, the kinds of organisms we're going to sequence and the amount of resequencing that is done is going to continue to increase enormously.

In the array business I suspect over the next two to five years you will begin to see some transitions there.

We definitely expect whole genome association studies to continue for at least two to four more years very robustly.

We think we're going to see follow-on, more focused studies continue and get ever-more rich in terms of converting content into diagnostic products.

And we're going to see the emergence of the new market that we've talked about, agricultural markets emerging because the price per data point now is so low and the emergence of the consumer market.

So all in all, I think it's a pretty bright opportunity in terms of both technology and the marketplace.

Without getting into specific numbers, how should we think about future growth in the two platforms relative to installments or of units placed versus throughput?

It seems like a lot of the new tools that you're putting out there continue to drive up the dollar revenue throughput per instrument, and everyone on the investor side seems to always be so focused on the installed base.

But would you say it's a balance of increasing this installed base plus increasing revenue dollars per instrument or do you think the bigger opportunity longer-term is driving more consumables in your existing installed base and in the larger customers specifically?

Think about our BeadArray product line or the Array product line.

The consumables per installed BeadStation have been relatively stable over the past year, and this sort of ranges quarter-to-quarter from 550 to the low 600,000s per installed instrument.

And while we're going to have some new dynamics with those numbers, given the launch of iScan, we think that model is about right and we would love to continue to increase that.

But on a same-store basis, if you were to look just at the BeadStations, we don't think and we're not projecting to get much above the kind of rates we're at now in terms of consumables per installed instrument.

On the Sequencing side we are still figuring out what the steady-state is, so we are probably a couple quarters away from really knowing what the consumables per instrument are going to look like.

We feel like the 150 to 200,000 per instrument is still in the right range to be thinking about.

So clearly, we're focused on increasing the installed base of the instruments themselves.

One thing that doesn't improve the consumption is the broadening of applications.

So as we put more and more applications on these platforms, particularly in the lower-throughput users, they begin to add different applications and (inaudible) put more applications on them, then the averages do go up.

iScan is going to change this a little bit because the throughput is so much higher on an iScan.

But we think in the most of the accounts, if they were to take an iScan, they wouldn't necessarily be running it at 100% the day it's installed.

So I'd caution investors to not just multiply the throughput of instrument times the $600,000 we have now.

I think the one other thing with the iScan that's so exciting is that what we're seeing is, and as Jay pointed out, the iSelect business and the agricultural markets are really starting to really pick up steam.

Having the throughput to do the massive numbers of samples required or available in those markets is really going to be an important advantage I think our system has over competing platforms.

Would you say, in terms of end market, that has been the area you have been most surprised in the uptake (multiple speakers) sort of bio applications?

I think it's gone great, but it's probably not the biggest surprise.

Our Sequencing business is doing great, and we exceeded all our estimates for Sequencing since we completed the transaction early in '07.

From a diagnostics standpoint, is there any update in terms of when we might hear a more lucid strategy as to what your plans are on that side of the business?

We're not prepared to commit yet when we will lay out for investors, and probably the answer to that question will depend a little bit on what the actual strategy is.

Depending upon what that outcome is, we may be more or less publicly early on.

So we'll probably give you an update, at least telling you when we are going to tell you, by the end of this year.

Depending upon what it is, we may actually tell you what the strategy is this year.

Doug Schenkel, (inaudible).

Any chance you could quantify the impact of the GA II rollout on revenues this quarter, either via the placement of new instruments or upgrades either in terms of revenue or on ASPs?

The GA II is a significant contributor.

That was really the predominant Genome Analyzer that we shipped during the quarter.

So we haven't given folks installed base metrics, and we may or may not, at a given point in the future.

But it was definitely a significant contributor to the $40 million plus in revenue for the quarter.

Let me clarify.

I guess what I was trying to get at is if you could quantify the impact of the increased ASP associated with the GA II versus the first Genome Analyzer?

Actually, the ASPs were not significantly impacted in the quarter because we had basically a customer transition to go through, to make sure that customers that had original Genome Analyzers, of course, in their backlog -- we actually shipped them the new Genome Analyzer at consistent pricing.

We did that really to make sure that our customers got the latest and greatest product, it will help with the service of the product, et cetera.

So I think the ASP impact will be felt more in the second quarter than the first quarter, in particular.

Is there any downtime associated with transitioning an existing GA to a GA II as part of the upgrade cycle that would slow down for any period of time that consumable utilization rate?

Not really.

The Genome Analyzer, the original instrument -- we have built an upgrade kit for it, and that takes about two days, a day and a half, to install that upgrade kit and then test it.

So maybe you lose a couple of days, but it's not that significant.

This is the second quarter where you've had a competitive system in the short read market.

Any -- specifically to the presence of ABI's solid system in the market -- affect Q1 placements any differently that it affected your placements in Q4?

I guess we say the competitive dynamic in the market has been pretty stable from Q4 to Q1.

One last question.

The gross margin number makes sense to me, given your instrument mix.

That being said, I just want to make sure there weren't any onetime events that we should be thinking about that may have depressed margins further in this quarter that we wouldn't see in subsequent quarters?

I wouldn't say there weren't any major onetime events, Doug, but there was sort of a collection of things that -- we did a lot of product transition in Q1, and there clearly were some costs associated with all of those transitions that hit the gross margin line.

If you think about it, the three biggest products we shipped, we changed them over totally, all in one quarter.

So there were some natural inefficiencies that occurred because of that.

Bill Quirk, Piper Jaffray.

Thanks very much for the color on the US spending trends.

Any comment with respect to Japan or, for that matter, any other markets outside of the US?

I guess the only color is that we haven't seen an impact.

So hopefully, that will continue.

Some of the governments are actually beginning to pour significant more money into the sequencing business, and we see that as a really interesting long-term trend.

But nothing that we've seen that has caused us to think negatively about spending rates impacting our orders.

Based on the comments you said in the prepared remarks around capacity, should we assume that we are still somewhat constrained here in the second quarter?

Obviously, it sounds like by the end of the quarter, we're going to be beyond that.

Well, to some extent, yes, I'd say that's probably characterized about right.

We will be out of the woods by the end of this quarter, but if everybody wanted their chips next week, we couldn't supply them all.

As we think about the tax rate here, obviously, frankly, it was a little higher than we were expecting for the first quarter.

We understand that that's going to step down, particularly in the fourth.

What should we be thinking about in terms of the second and third quarter?

Well, I think it's going to be in these levels where we are right now, give or take a point.

It really depends on -- it depends on where our income comes from, quite frankly, but until we really get Singapore up and running, I would expect the levels to be relatively consistent with where we were this quarter.

So, give or take a point or two in either direction.

Derik De Bruin, UBS.

Just some questions on gene expression.

Obviously, your competitor had some problems there.

I know you don't play in that same market.

Could you just talk about I guess the dynamic of gene expression outside of the (inaudible) market, you're launching some new products in this area.

Just a little bit more color on that business and -- what type or runway do you have in that business?

That market, as you know, has not been growing much, if at all, and so our strategy there is to try to push the technology into new markets to increase the growth opportunity and also to attempt to take some share.

I think we have been taking some share in that market, and I think we are also creating some new opportunities.

And certainly what we are doing with Sequencing as a tool for doing compression is helping that.

So, while that's still not a big portion of the overall Sequencing revenue, it's a very nicely growing piece of Sequencing.

The new chips that we just launched are very economical, and we're really going to position these to be add-ons to what people, researchers, are doing in the Genotyping space.

So, when you do a large-scale Genotyping study, you can add on the expression information as well and to do that with a minimal incremental cost to analyze things like quantitative trait loci.

So that, in some sense, is a new opportunity for use of gene expression.

When you look at the product development in the gene expression area, going forward, do you have plans to launch even higher-density chips in that area?

Well, we don't talk specifically about the new products coming.

I guess I'd say that over time the technology will be biased more and more towards Sequencing, is how I think you'd think about our investments in R&D on the expression side.

Along those lines, so what would -- for a typical gene expression experiment, what is the cost right now for doing it by the next-gen sequencing platform versus doing it on the MicroArray platform.

It depends on what you're looking for.

So, if you were to be thinking about doing all of the genes in a sequencing platform, you would be very competitive with what you can do today using microarrays.

If you're trying to do the entire transcriptome and look everywhere in the genome all at once, today it's certainly much more expensive than doing just a gene-based array.

But, if you were to compare it against, say, (inaudible) try to tile across the whole genome, it's probably close to being competitive with that.

Those prices, of course -- our goal is to bring the prices of doing whole transcriptome analysis down over the next couple of years to make it much more cost-efficient as we drive down the overall cost of Sequencing.

Quintin Lai, Robert W.

Baird.

This is actually [Matt] in for Quintin.

Congratulations on the quarter.

Moving to BeadExpress really quickly, could we talk a little bit about where the placements of these instruments are going?

Are they going to BeadArray customers, or customers that maybe haven't been a part of the Genotyping or next-gen sequencing?

It's a combination, so it's, I would guess probably a third of them are being sold to existing customers at BeadStations and two-thirds probably to new customers.

So we compete in the low multiplex market with companies that do mass spec and [photocytometry] as alternative methods.

The positioning of this product is that it has a very wide range of multiplex capabilities, all the way from one or a couple of markers up to 384, and it can run a whole host of applications.

So we've now started moving many of the array-based applications over, so we've moved our [dazzle] assay over to the platform, our methylation assay.

So it's now a platform that you can use to do many different things as well as develop your own applications.

So it's positioned to be a low multiplex but very broad application suite.

To that point, is there any update, then, on what the annual reagent use per instrument is for the BeadExpress?

No, we haven't given out those numbers yet.

So maybe at some point in the future, but we are not prepared to give it today.

John Sullivan, Leerink Swann.

What kind of feedback are you getting from sequencer users regarding using Genome Analyzer for finishing work in their larger Sequencing studies?

The Genome Analyzer II has been very well-received.

One thing we did was we set up what we call internally a robustness czar, someone that focuses on Sequencing and the customer experience.

So we've been tracking all of the early runs that have been done on the system in our customers' hands.

What we've found is that the system is performing very, very robustly.

Nine out of 10 runs are successful, if not even a little bit better than that.

And the quality and the quantity of throughput that has come through has been very powerful.

So I think we're off to a fantastic start with the launch of the GA II.

Just to reiterate, the paired-end read solution starting to be shipped with GA II in the recent past.

What sort of specific benefit do you think investors should expect regarding the paired-end read solution getting shipped?

What kind of work is uniquely well enabled?

First of all, it's very powerful for when you're doing human resequencing, for example, so you get better analysis of the structural variation of the genome.

That's probably one of the most interesting or important elements.

The other thing is that, as we start to launch multi-insert type products, i.e.

longer paired end reads, shorter paired end reads and having combinations, de novo sequencing is really a reality at that point on the genome analyzer.

So I would expect to see a lot of different de novo type projects, whether it's bacteria or mammalian genomes, quite frankly.

We expect, John, that virtually everybody is going to transition to paired-end sequencing and that in a typical set of runs, 95%-plus of them will be paired ends.

So there will be very few occasions when you would ever want to do a non-paired end run

And is it a significant additional revenue opportunity for you, supplying the paired end solution?

It's a reasonable revenue opportunity.

We have an early opportunity here as we take our existing installed base and sell into that, and that will happen over the next quarter or two, I would guess.

As Jay said, people are rapidly clamoring for the paired end module, so we'll see that.

But what you shouldn't do, John, is assume that because it's a paired end read that the consumables are a factor of two just because we're doing paired end because the paired end run takes longer.

I understand, it doesn't increase the capacity of the system.

Right.

The GA II did do that to some extent, because we get higher throughput of course and we can run in less than 2X -- we can a paired end run in less than 2X the time we did (inaudible).

Than GA I?

Yes.

Shifting gears for a second, can you just comment on progress and strategy, something that came up last call, progress and strategy on lowering the impact of share-based option expense?

Well, we have moved to restricted stock units as our primary vehicle of compensation expense or equity-based compensation, for people.

So we did that late last year, and so that was probably the single biggest thing we've done.

We've also basically evaluated our RSU granting program, so to speak, and reduce those share levels.

The truth is, though, it will take awhile for us to see the true benefit of that because of all these options that have been granted over time; and as they vest, you've got to take a expense as they vest.

But we have addressed it, and I think going forward it's going to look favorable for us.

What is headcount today versus maybe a year ago?

Or just give us a sense of how quickly the organization has grown.

I think we ended the quarter with over 1100 people, and a year ago -- I don't have that number right at my fingertips.

I bet I could probably find it.

I would think we were probably in the 600 range.

We added 170 or so just with the acquisition of Solexa.

Un Kwon, Pacific Growth Equities.

Could you break out your gross margins on your Sequencing business and the headroom you have to expand that?

We don't give any gross margin detail by product line, Un.

What we have said about the Sequencing business is that it's early in its life, and so we do think we have a lot of opportunity to improve the gross margins in Sequencing.

That's true on both the instrumentation and on the consumables side of the business.

On your recently launched iScan instrument, could you talk a little bit about the trade-in program that you have for your instrument?

Does that impact gross margins at all or ASP's for that line item?

Yes.

The trade-in program -- we are going to allow customers, existing customers at BeadStations, to trade in those BeadStations for iScans.

Depending upon how old your BeadStation is, you will get more or less credit for the existing instrument.

The upgrades will have some impact on gross margins because we're pricing those to encourage customers to upgrade.

We want customers to upgrade to the faster system because it gives them more capacity to run the consumables.

But those gross margin assumptions are built into the guidance we have for gross margins, in the mid-60s.

A big picture question on the market.

Given that the academic market, or the whole genome Genotyping studies are more maturing or seeing more publication, can you provide any anecdotal feedback from pharma or biotech as to how they are looking to implement either whole genome Genotyping and/or Sequencing in their clinical trials?

Are you seeing a pick up in interest, et cetera?

I don't suspect you're going to see Sequencing used in clinical trials anytime soon.

I do think that pharma is going to begin to use Genotyping more aggressively, particularly focused on an [add-me] set of SNP's.

So these are ones that have to do with metabolic uptake and there has been now a standard panel defined by a consortium of pharma companies along with a number of vendors that I think we'll get some traction because the pharma companies that use this will all be submitting the same data sets to the FDA.

So there will be increased standardization and normalization around the data.

So I expect, beginning six to 12 months from now, you are going to see some significant uptake by pharma of these add-me products.

Is it fair to assume that it would be a relatively easy for you to come up with an add-me panel as well?

There's nothing proprietary about the content?

Well, there are some SNPs that are harder to do from an IP perspective, but most don't have any IP restrictions.

Tycho Peterson, JP Morgan.

You commented a moment ago about the infrastructure buildout in terms of where you are in headcount.

Can you give us a sense of what the key priority is here?

Obviously, it's something the Street is paying attention to in terms of where you are going to be spending your time and effort in terms of building out service organizations.

So maybe some of the metrics that we can try to keep an eye on over the next couple quarters in terms of the infrastructure buildout?

I think probably the most important area is the buildout of the commercial infrastructure, and this is required to have the ability to support sequencers, in particular, very broadly around the world and to address all the sales opportunity, frankly, that we have around the world.

So we've made probably our biggest investment in infrastructure, people infrastructure, in the commercial organization.

So we now have -- I guess at the end of the last quarter we had about 200 people in direct sales and customer support roles, and now we probably have about 230 people in those roles.

We added almost 30 people quarter to quarter, either in technical support or sales.

And geographically, how do we think about -- are you opening server centers overseas, and where the emphasis is being placed?

It's probably heavily biased toward Asia right now.

So Europe was well built out.

We were a little under built out in Asia, so we've created a little more infrastructure there.

We've gone direct in Australia, as an example.

We're building out our Singapore operation, so we had a direct sales operation there but we've enlarged it, and obviously we're building out the manufacturing operations in Singapore as well, so we'll have distribution out of Singapore to Asia and also, potentially, Europe out of our Singapore site.

We are also adding some infrastructure in Europe, so we now have a general manager of our European operation who is based in the UK, and we have a distribution center in Eindhoven.

We also are largely direct in China now, but we do field deals through some distributors there, much like what we do in Japan.

On GA II rollout, Christian, I appreciate your comments earlier about the color around where these shipment placements are going.

It sounds like the majority of the shipments were GA II this quarter.

But as we think about the push here, is it mainly working through your existing backlog to try to get those customers to upgrade before these systems go out the door, or how do we think about interest essentially from new customers?

Are there a large group or a small group that may be more price sensitive that are going to hold off on an upgrade for the near-term?

I don't think price is really a factor here.

The throughput that customers are getting, relative to their CE-based products, the value proposition is very compelling.

So far, it hasn't been price that has been an issue.

If you look at where we're placing systems, this quarter almost 90% of them went outside of genome centers this quarter.

So we're getting a lot of new customers buying their first instruments, a lot of new customers -- or a lot of customers buying maybe their second instrument.

So they are scaling up.

So it looks as though you're continuing to see just a broad adoption across the markets geographically.

We're seeing a lot of demand in all of the different territories, and so it's a pretty broad-based adoption here.

In terms of the upgrade cycle, we've priced the upgrade at a pretty reasonable price that the value proposition there will be compelling.

Over the next quarter two, I suspect, we'll start working through that backlog and as those orders come in.

I don't think Tycho that -- I mean, you won't see everybody do a wholesale conversion right away, even though they see the true value proposition that Christian was just describing.

That's just because they might not have those capital dollars available.

So I think the upgrade timing will be spread over three to four quarters as people put in for follow-on grants or just request the money (inaudible) to get it.

Even though they would want it, day one, they may not be able to do it day one.

That's right.

Finally on consumer, it's obviously a lot of public press with now the [GenEx] and 23andMe launching in the UK and some other markets.

What is your outlook on that business near-term?

It sounds like some of them have at least talked anecdotally about looking at Sequencing platforms as well, in addition to a raise.

Can you comment on how you view that opportunity longer-term to maybe convert that business over to Sequencing?

We continue to be real optimistic about the consumer opportunity.

It again is going to be a market that is incredibly elastic.

So, as 23andMe is able to bring down price over time, I think the market size is going to really grow significantly because it's really their business.

We're not prepared to report on volumes or anything like that yet.

But if you are a subscriber to 23andMe or a customer of 23andMe, you would see that they have already done at least three to four updates of the content on the site.

So they are continuing to work very hard to increase the value proposition of what they bring to customers, both in the gene journals, as they call them, and also in the tools for studying ancestry.

So I think it's a very exciting opportunity.

As to Sequencing, I think Sequencing may be -- there maybe some consumer interest in Sequencing, but the numbers of people there are going to be in the tens of people.

It's not going to be a 1000-person market anytime soon, just because of the price point.

So I don't it's going to be a timely revenue opportunity for companies like 23andMe or (inaudible) to do Sequencing in the next couple of years.

Tony Butler, Lehman Brothers.

I was intrigued, Christian, by your comments that about 90% of the sales were outside of the genome centers.

But if we think in terms of penetration at -- let's just say genome centers are an average customer.

How do we actually think about saturation?

Would an average customer have 10 GA II's, two, 100?

How do you think about that in the context of the average customer?

It's a difficult sense to answer in the sense that next-generation Sequencing -- the throughput changes the game so much that it's difficult to really know what the average customer is going to ask.

There's no question that there's probably a few different classes of customers.

There's your genome centers, which could have tens to hundreds of systems, theoretically.

There's the major institutions that will have maybe the tens.

And then there's the rest of the market.

So I would guess the majority of the market outside the genome centers will have anywhere between, say, one and three Genome Analyzers is what I would guess -- kind of like the CE market is.

The one metric you could use is that, in the capillary market, there is somewhere in the neighborhood of 15,000 installed systems.

So it's pretty big numbers, if you think about the breadth of placements in that market, or using that technology.

May-Kin Ho, Goldman Sachs.

Actually, this is [Davis] (inaudible) for May-Kin.

I know that you talked about the geographic distribution.

I was wondering if you could provide a little bit more color.

In particular, I don't know if you can put numbers.

But how much of your sales are coming outside the United States and what effect, if any, currency may have had on revenues and, going forward, how we should think about ex-US markets.

Our mix has seemed to pretty stable in terms of the overall geographic mix.

It is running in the range of about two-thirds North America, about 25% Europe and the remainder rest of world.

That bounces around a little bit quarter to quarter, but if you do a moving average, that's where the business has been.

Currency has not been a big effect on us because we sell in most locations in US dollars.

Actually, basically, currency has had no effect because almost every single one of our contracts around the world right now is still in US dollars.

Now, we are moving to local pricing this year, and so that will change over time.

But for the most part, everything is in US dollars today, and so we don't see a lot of currency impact.

I guess being in US dollars today probably hasn't been the best because of -- we've seen a lot of our competitors get a revenue uplift.

But it's a double-edged sword, of course.

So that's where we are.

If I heard you right, you expect to begin manufacturing in Singapore in the fourth quarter.

I was wondering if you -- you talked a little that about this, but I was wondering if you could help us think a little bit more about the tax impact of the Singapore manufacturing would have next year.

I think we'll see how it plays itself out, but if you think about it, if we start shipping most of our ex-US demand out of Singapore, that could take several points off of our tax rate.

What I would encourage you to do is maybe look at some other companies that have implemented Singapore strategies, and you can look at their tax rates.

But I would say that we could get below, definitely below 35% as a tax rate.

But at this point, they're still models.

We have to actually execute and make it happen.

But I do think there's significant upside on the tax line by moving to Singapore, and that we'll start to see it beginning in the fourth quarter.

I would suspect, as we get through 2009, we should see a ramp that's continuing to improve.

So Singapore should be -- [exceptional] capacity to handle ex-US sales?

That's what we're gearing up to do.

That's right.

With the GA II and the iScan, I noticed that there was a slight bump in ASP there.

In terms of thinking about gross margins as you shipped these new products, how should we be thinking about that?

Well, I do think the opportunity -- as we said, the gross margins are expected to be in the mid-60s for the year, and we've put that into the guidance.

Some of the reasons why we think gross margin is going to get better from these levels is price, and some is manufacturing efficiency, and some is price improvements on the raw materials, for example, as we scale.

So the gross margin improvements are going to come from a number of different areas through the business.

It's probably not appropriate for us to break each one of them down, at least on this call.

But I guess what we've done in terms of the guidance is included all the things that Christian has talked about on the upside, but we've also factored in the fact that we are going to be doing upgrades both on the Bead Stations and on the GA II's, and those upgrade (indiscernible) will carry somewhat lower gross margins.

That's right.

That's all factored into the overall numbers that we've given.

Matthew Scalo, Canaccord Adams.

Good quarter.

Just a couple of quick questions here.

Have you guys reached 400 BeadStation's installed?

We haven't updated the installed base recently, so --

But it's greater than 300?

Yes, our last update included that number, yes.

Christian, you mentioned the integration of Sequencing and MicroArrays underneath the life science group.

Can you get me a little bit more color as far as what processes need to be accomplished, kind of time lines, maybe costs associated with it, if they're material, and any annual savings?

So, as we've looked at our business, one thing we've recognized is that the kind of technical work we're doing in the MicroArray business and the kind of technical work we're doing in the Sequencing business are very closely related in terms of the molecular biology, the underlying chemistry, how we're engineering our systems.

One way we can get a lot of synergy is by making sure that we do a better job of designing our systems to be more compatible.

So, if we are designing a set of electronics into one instrument, that we are using that same set of electronics in another instrument that may be designed in a different facility.

Having these business units more tightly coupled and under one senior VP of development will allow us to get that level of integration and improve the underlying consistency and product development.

And that's a key goal, and you'll see that over the next couple of years, I think, begin to look like a much more unified product line coming from us.

I think, fundamentally, there's probably more revenue synergies that we're really focused on.

From a cost perspective, there's cost avoidance in the sense that as we get more integrated the R&D teams can operate any project anywhere in the world at any time.

We've been focused really significantly on that.

But it's really the new product opportunities that we see and the ability to have one unified R&D team around the world that could operate in really tight coordination with each other.

Jay, did I understand you correctly when you said that we shouldn't expect an increase in annual revenue per system with the iScan, say, in the first year?

Yes.

The way this is going to work, if you think about it, the BeadStation is effectively being obsoleted.

So we're not manufacturing new BeadStations any longer.

So a customer who would have ordered a BeadStation to do some set of projects that they had will now take delivery of an iScan.

So, just because we're shipping them an iScan, as opposed to a BeadStation, and we would have shipped them a BeadStation in February and we have now shipped them an iScan in May, that inherently doesn't increase the number of chips they are going to run, directly.

It gives them higher capacity to run more chips, but there's not a direct connection between what projects they were going to run on the old technology versus the new.

Now, where it will have some impact is in the very large centers, who are capacity constrained.

So certainly, as they begin to change out their BeadStations and upgrade them to iScans, the average per operating scanner will be higher.

But then we have to get into some tricky accounting of how we count the installed base, because [will we] actually be taking units of the field.

So what we want to do is to caution people to just not assume that the consumables are going to start ramping up radically, just because we're shipping iScan.

Jonathan Groberg, Merrill Lynch.

You've often shown graphs in your presentations about growth curves.

I heard a comment earlier on about gene expression, where you feel you're at on that growth curve.

Can you maybe give your qualitative view on the Genotyping side, where you're at on that growth curve?

There's a couple of different ways to think about that, but if you use the baseball analogy, maybe we're in the third or fourth inning of Genotyping.

It's a market that I think is very well-established, the kinds of science that's being done is very well-known and consistent.

What you continue to see, however, is the emergence of new ways of -- or new kind of sub-applications in Genotyping, things like copy number variation now becoming a very big application, which -- two years ago, no one was talking about [CNV].

You see the opportunity to do IP genomic applications like methylation, and we see the emergence of the really big markets, we think, which are going to be in consumer and ag/bio.

We've talked a little bit about that.

So I think Genotyping as a market is going to be going on forever.

Our view is that it's going to be decades before Sequencing is going to replace Genotyping in most applications.

Over time, we're going to be moving to point where Genotyping is done routinely when babies are born, and that's going to be done -- we don't know whether that's five years from now or eight years from now.

But as we get over the institutional hurdles for that to be implemented, it makes great medical sense for people to have their genotype as part of their medical record from very early in life.

So I think if you think about it that way, the market is enormous.

Beyond maybe those new applications, from a research side, if you say you're kind of third or fourth inning -- and I know you don't break down the different businesses per se, but are you starting to see a plateauing of a growth rate, and potentially that declining over the next -- still growing, but the rate perhaps declining?

No; I don't think I'd say we've seen that.

Clearly, our percentage growth rates as a company are declining just because they are bigger numbers.

That's the law of large numbers for us.

But I think the market continues to be very healthy.

There's very large projects underway.

There's some very, very large projects being proposed.

As prices come down, people begin to speculate about doing things that you never would have thought of doing two or three years ago.

So I don't think we're seeing growth rates decline yet.

You mentioned 23andMe and not wanting to talk about their business, obviously.

But should that business grow, are you providing the chips at lower price points to them?

Would that have any deleterious impact on your margins, should that business really take off?

Our margins are really a mix of various customers in various stages of their business.

We give to any customer volume discount schedules.

If the chips -- if they order greater numbers of chips, the price is less.

And that's true for any customer, not just 23andMe.

That's all, of course, overlaid against the backdrop of generally decreasing prices in this market, which is the phenomenon that has really fueled the overall growth of the space.

So I think both of those factors will contribute over time to reduce costs for 23andMe, and that will be passed on to consumers as lower prices.

Of course, what we're going on the flip side is making the chips more economical to manufacture so that the gross margin dollars that we create are at least as big or bigger.

So the contract to 23andMe is not significantly different from anyone else in terms of the break points and the volume, etc.?

It's the same sort of structure.

On the Sequencing side, one having -- I know we're still calling it early on in the cycle here.

But, one, I was just curious if you expect that business to exhibit any type of seasonality as maybe you get larger here in that business.

Then two, I've heard a lot of competitors talking about their desire to get into the reagent side, seeing it as a big growth opportunity, obviously, the next-gen Sequencing and wanting to be a bigger player on the reagent side.

So I'm curious on two fronts what's happening with reagents.

One, what you can do to bar competition.

And, two, one of the things that has happened in the past is people diluting reagents.

I'm wondering now, again, if this has gotten to be a larger installed base, if you are seeing anyone trying to reduce their costs by trying to dilute the reagents there.

I think that's very unlikely.

The way we ship our reagents, and over time you'll see even more of this, is in premixed components that, if you dilute them, it's just not going to work.

We're also making improvements to our chemistry at such a fast rate that the set of reagents that a customer gets next week is going to be very different than what they are going to get five or six months from now.

So for a third party to spend a lot of energy trying to design reagents that fit into our system is going to be very difficult, and I think will, in the long run, prove to probably be futile because of the rate of change of the technology.

I would now like to turn the call back over to Peter Fromen for closing remarks.

Please proceed.

As a reminder, a replay of this call will be available in webcast format in the investor section of our website as well as through the dial-in instructions contained in today's earnings release.

Thanks for joining us today.

This concludes our call and we look forward to our next update following the close of the second quarter.

Thank you for your participation in today's conference.

This concludes the presentation.

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