Good day, ladies and gentlemen. Welcome to the first quarter 2019 Illumina earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Ms. Jacquie Ross, VP of Investor Relations. Ma'am, you may begin.
Thank you, Daniel. Good afternoon, everyone. Welcome to our earnings call for the first quarter of 2019. During the call today, we will review the financial results released after the close of the market and offer commentary on our commercial activity, after which we will host a question and answer session. If you have not had a chance to review the earnings release, it can be found in the investor relations section of our website at illumina.com. Participating for Illumina today will be Francis deSouza, President and Chief Executive Officer, and Sam Samad, Chief Financial Officer. Francis will provide an update on the state of our business. Sam will review our financial results. This call is being recorded. The audio portion will be archived in the investors section of our website.
It is our intent that all forward-looking statements regarding our financial results and commercial activity made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from those projected or discussed. All forward-looking statements are based upon current available information. Illumina assumes no obligation to update these statements. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Illumina files with the Securities and Exchange Commission, including Illumina's most recent Forms 10-Q and 10-K. With that, I will now turn the call over to Francis.
Thank you, Jacquie Good afternoon, everyone. Illumina had a great start to 2019, generating revenue of $846 million in the first quarter of 2019, up 8% from the same quarter a year ago. Our 10th consecutive quarter of consistent, strong execution. Additionally, this quarter represented the first time in Illumina's history that our order volume exceeded $1 billion. We continued to see strong demand for sequencing consumables with first-quarter revenue of $481 million, up 14% from the same quarter a year ago. This performance was driven by growth in a broad range of applications across our sequencing system family. Over the last year, we have been working to increase visibility into the application growth drivers of our business. As a result, we are now able to share the approximate size and growth of a number of categories within our sequencing consumable business.
We plan to update this on an annual basis with the understanding that these data points are directional. With the analysis complete, I'm pleased to share that about 40% of our sequencing consumable shipments in 2018 was associated with clinical applications. From largest to smallest, this includes testing for oncology, reproductive health, genetic disease, and other. This group includes IVD and LDT validation in addition to clinical testing and grew approximately 30% in 2018. Within clinical, oncology testing applications represented a little under 20% of our sequencing consumable shipments in 2018. Positive developments in the regulatory and reimbursement landscape are improving patient access to genomic profiling. For example, FoundationOne CDx received FDA approval in November 2017 and a national coverage decision for CMS in March of last year.
Guardant Health has reported growing adoption of Guardant360 following a favorable local coverage determination for select non-small cell lung cancer patients in September of 2018. This was the first finalized Medicare coverage policy for an NGS-based liquid biopsy assay in oncology. Tempus has also seen growing demand for its oncology testing. Tempus combines Illumina sequencing with machine learning to provide physicians a comprehensive report that highlights key findings to support clinical decision-making. In China, our partners are extending their reach beyond NIPT and developing clinical applications, including oncology. For example, Berry Genomics now offers comprehensive tumor gene detection for non-small cell lung cancer and breast cancer, as well as TMB detection for many types of cancers. Also in the first quarter, our TruSight Oncology 500 or TSO500 began shipping as a research use only product.
This comprehensive genomic profiling assay is intended to complement the lab services offered by our partners. In the future, with the availability of a globally distributable IVD kit, TSO500 will enable labs of all sizes to offer a world-class panel to their oncology patients. Reception has been strong, and shipments exceeded our expectations in the first quarter. A number of partners in the U.S., China, and the U.K. have announced that they're offering the panel. We also saw strong NextSeq shipments linked to TSO500 in several geographies. The next largest contributor within clinical is reproductive health. In total, this group represented just over 10% of sequencing consumable shipments in 2018. Reproductive health applications include NIPT in addition to a modest contribution associated with carrier and IVF screening.
NIPT revenue includes VeriSeq NIPT, as well as consumables supporting partners who offer their own NIPT or lab services. In the U.S., just over half of all pregnancies are now covered for NIPT, including 97% of high-risk pregnancies and 47% of average risk. Despite this covered population of about 2.2 million pregnancies, only 1.2 million NIPT tests were performed in 2018. This highlights both the need for greater education among physicians and pregnant families, as well as the incremental opportunity for NIPT providers. In China, our partners continue to grow their businesses, and the region remains the fastest-growing for reproductive health testing. With approximately 4 million tests conducted each year, representing about 25% of births, we remain optimistic about growth. In Europe, VeriSeq NIPT continues to perform well and delivered more than 50% revenue growth in the first quarter.
Countries with notable uptake included the Netherlands, associated with the progress of the ongoing TRIDENT study, France, now with national reimbursement for trisomy 21, and Germany, where a large lab network has adopted VeriSeq following a competitive tender process. In total, our CE-IVD VeriSeq NIPT offerings sequenced more than 100,000 samples in the first quarter, which compares to over 300,000 in all of 2018. Looking to 2019 and beyond, we expect the reimbursement landscape to continue to improve. Finally, our clinical application shipments also include genetic disease testing, which represents a little under 10% of 2018 sequencing consumable shipments. This category captures genetic disease, including neurological, cardiovascular, metabolic, and autoimmune testing. Starting with genetic diseases, the clinical benefits of whole exome and whole genome sequencing for children and adults with undiagnosed genetic diseases are being studied more frequently than ever before.
It's still early days, but hospitals such as the Institute for Genomic Medicine at Columbia University Irving Medical Center, are increasingly incorporating genetic testing. This can help patients receive a faster, more accurate diagnosis, which could lead to changing treatment. In China, the government's focus on precision medicine and life sciences has generated positive momentum for genetic disease testing. Last year, the government released its first national list of 121 rare diseases to improve resources for the diagnosis and treatment of patients with genetic disease. With growing awareness, independent clinical labs such as KingMed are providing more genetic disease testing and diagnostic services in China. Payer coverage is improving. For example, in the U.S., CMS's final clinical lab fee pricing for clinical whole genome sequencing went into effect at the end of 2018.
This prices whole genome sequencing at more than $5,000 for a single genome for patients with undiagnosed diseases. This has resulted in certain Medicaid programs covering whole genome sequencing. Additionally, the Blue Cross Blue Shield Association's Evidence Street program recently endorsed whole genome sequencing to improve clinical outcomes for children and critically ill infants with undiagnosed diseases. This positive endorsement is the first health technology assessment review for whole genome sequencing to date. Moving to research and applied, these applications represented approximately 60% of our sequencing consumable shipments in 2018 and grew approximately 18% from 2017. This category is split between genetic disease research, cancer research, cell and molecular research, and microbiology and other. Let me share a couple of examples. Researchers at the University of Copenhagen, as part of a collaboration between Illumina and the Lundbeck Foundation, are sequencing ancient DNA to understand mental health conditions such as schizophrenia.
The single-cell NGS market continues to grow rapidly in the field of cell and molecular biology research. Publications continue to grow about 40% per year and are addressing key questions in developmental biology, immunology, neurology, and cancer. Next, advancements in liquid biopsy and the desire to better understand and characterize tumors continue to fuel cancer research with the goal of improving patient outcomes. Finally, we're seeing growth among our CRO customers who are supporting discovery phase research ahead of clinical trials. Moving on, one focus area not included in these categories is population genomics. Depending on the objective of each program, population genomics revenue can be categorized as oncology or genetic disease in our research and applied category, or more likely in the future, oncology testing or genetic disease testing in our clinical category. Momentum continues to build in population genomics.
In 2019, France launched the first two pilot sites of its population genomics initiative, which is initially focused on 12 indications. In the U.S., All of Us has enrolled over 200,000 participants, which is targeting 150,000 arrays and 25,000 genomes in year one. The Million Veteran Program continues its efforts to sequence the whole genomes of 78,000 veterans. The announcement of Genomics England completing 100,000 genomes and the NHS incorporating whole genome sequencing into routine clinical care has generated strong momentum for others to ramp up their efforts. We continue to have productive conversations with population genomics initiatives around the world, most of which are still in the early planning stages. Countries in emerging markets such as Saudi Arabia, Qatar, and Brazil are now beginning to define the scope and priorities for their programs.
Sequencing system revenue of $105 million was down as we expected following our record fourth quarter of 2018. NovaSeq orders were in line with our expectations, but timing of shipments pushed a handful of systems later in the year. Most of our first quarter systems were shipped to HiSeq customers beginning their transition to NovaSeq. Approximately one-quarter of NovaSeq orders were new to Illumina or straight from desktop customers. We continue to see a broad range of customer size, location, and application. For example, one customer purchased a NovaSeq to build out a microbiome business, and another customer purchased a NovaSeq to support research on single-cell RNA, B-cell and T-cell receptors, and whole exome and genome sequencing. With the transition from HiSeq to NovaSeq progressing in line with our expectations, we have communicated to our customers that we will no longer be accepting HiSeq orders.
As a result, we have seen a number of last-time orders for refurbished HiSeq 4000s to be delivered throughout 2019. In the first quarter, we shipped six refurbished HiSeq 4000s. Separately, there were approximately 50 HiSeq decommissions in the first quarter. Our desktop family, which includes the NextSeq to the iSeq, continued to deliver strong results. NextSeq and MiSeq placements saw year-over-year growth, with NextSeq's strength in part driven by the demand for TSO500. iSeq's affordability and accessibility continues to support customers across a wide range of applications, including on-target CRISPR screening, environmental DNA sequencing, and 16S sequencing. Moving to arrays, total revenue of $147 million was up 11% sequentially. Array consumables were down 15% from the same quarter a year ago, with growth in non-DTC customers partially offsetting a larger-than-expected decline in DTC revenue.
Array service and other revenue of $66 million was up 14% from the same quarter a year ago and reflected a record number of array samples. Revenue was lower than we expected when we guided back in January. Although we continue to see growth in DTC outside the U.S., we're factoring in even greater caution around the DTC business for the rest of 2019. The growth in DTC has been impressive over the last several years, with our U.S. DTC customers creating new applications and now paving the way for the transition to higher-value, health-based offerings to extend their reach beyond their existing product portfolios. We believe the pause in growth is transitional and expect growth to resume over time.
Before I hand the call over to Sam, I'm excited to share that we have taken the next step forward in our relationship with Helix so that it can operate as an independent company with no equity or board participation from Illumina. This will allow Helix to pursue new opportunities, both in population health initiatives and for its marketplace. Former Illumina executive, Marc Stapley, has been appointed CEO, and we wish Marc and the Helix team all the very best of luck. Helix will continue to leverage Illumina technology, and as such, we look forward to sharing in their success. Sam?
Thanks, Francis. As discussed, first quarter revenue grew 8% year-over-year to $846 million, driven by 11% growth in sequencing and slightly offset by a 3% decline in microarrays revenue. In terms of geographic performance, Americas' revenue of $473 million was up 8% year-over-year, driven primarily by our sequencing business, including sequencing consumable growth associated with clinical oncology applications. EMEA revenue of $210 million was up 8% year-over-year. Growth in sequencing consumables more than offset the expected decline in sequencing services associated with GEL during the transition to the National Health Service. Our strategic focus in emerging markets such as the Middle East, Africa, and Russia is showing early promise, with a record number of sequencing systems and sequencing consumables delivered in the quarter.
Greater China grew 13% year-over-year to $88 million, or 19%, allowing for the $5 million of stocking order that we shipped in the fourth quarter of 2018. Growth was driven primarily by sequencing consumables for NIPT and oncology applications, in addition to arrays. APJ grew 7% year-over-year to $75 million, with growth driven by lab service customers and oncology applications. Moving to sequencing, consumable revenue grew 14% from the same quarter a year ago to $481 million, or 15%, allowing for the $5 million stocking order that shipped in Q4. We did not receive any stocking orders in China in Q1. From a pull-through perspective, NovaSeq pull-through was approximately $1 million per system per year in 2018, and HiSeq was approximately $300,000 per system per year. Consistent with our prior practice, these pull-through metrics reflect both system consumables and an allocation for library prep.
We do not intend to update these on a quarterly basis given the ongoing platform transition, but we'll provide pull-through as part of our annual installed base update going forward. That said, I will share that we expect NovaSeq pull-through to increase as we progress through 2019. We started shipping the S Prime flow cell in February, which offers more reads and a faster turnaround time at a lower price than HiSeq 2500. Demand has exceeded our expectations, with over 100 customers ordering S Prime in the quarter. Combined with the S1 and S2 price changes, this has opened or deepened many conversations with customers for NovaSeq conversions. Our mid-throughput sequencing consumables associated with our NextSeq system grew 30% from the same quarter a year ago.
Pull-through is once again towards the high end of our previous pull-through guidance range of $100,000-$150,000. With 10 quarters of pull-through consistently at the high end of our previous guidance range, we are revising our guidance range and now expect annual pull-through per NextSeq system in the range of $130,000-$160,000. Moving to low throughput, pull-through for MiSeq and MiniSeq was within our target ranges of $40,000-$45,000 and $20,000-$25,000, respectively. Array consumables declined $21 million sequentially and were down $13 million or 15% compared to the first quarter of 2018. Sequencing service and other revenue of $113 million was up $9 million sequentially and up 18% year-over-year. Higher revenue from oncology collaborations, including a milestone payment and non-recurring IP license revenue, more than offset the expected decline in GEL revenue.
As you know, GEL completed the 100,000 Genomes Program in late 2018, we continue to work with GEL to sequence additional patients that were recruited for the program via the NHS. Array services and other was up $41 million sequentially due to DTC seasonality and up 14% year-over-year. As Francis mentioned, this was a record quarter for DTC samples reported in array services and other, revenue was lower than expected. Combined, total consumables, services and other revenue represented 87% of total revenue in the first quarter of 2019. This compares to 83% for the full year 2018. Moving to systems, sequencing system revenue was down $56 million sequentially, following our record fourth quarter, and down 6% compared to the same period last year. Array systems were down $5 million sequentially and flat compared to the first quarter of 2018.
Combined, instrument revenue represented 13% of total revenue in the quarter, compared to 17% for the full year 2018. Moving to gross margin and operating expenses, I will highlight non-GAAP results that include 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. Please note that all subsequent references to net income and earnings per share refer to the results attributable to Illumina shareholders. Non-GAAP gross margin of 70.2% was ahead of expectations and increased more than 100 basis points compared to the fourth quarter of 2018, primarily driven by product mix and sequencing service and other revenue. Non-GAAP operating expenses of $363 million represented 43% of revenue, up from the first quarter of last year due to higher R&D investments.
Non-GAAP operating margin was therefore 27.2%, down from 29.5% in Q1 of last year. Excluding Helix, operating margin was 29.1% compared to 31.9% in Q1 of last year. The non-GAAP tax rate of 8.7% was down from last quarter, primarily due to a discrete tax benefit related to the release of tax reserves. As expected, meaningfully lower versus our previously guided full-year rate of 17%. For the first quarter of 2019, GAAP net income was $233 million, or $1.57 per diluted share, and non-GAAP net income was $237 million, or $1.60 per diluted share. Cash flow from operations was $198 million. DSO improved to 49 days from 54 days last quarter. First quarter CapEx was $56 million and free cash flow was $142 million. In the first quarter, we repurchased $63 million of stock, leaving approximately $488 million available for share repurchases under the plan.
We ended the first quarter with approximately $3.6 billion in cash equivalents, and short-term investments. The 2019 notes have been convertible since March 15th and will mature on June 15th. We expect to repay the remaining $632 million principal in cash. The premium currently approximates $128 million, for which we intend to issue stock that is already included in the diluted share count. In total, approximately 1 million shares are included in our Q1 diluted share count for the 2019 and 2021 notes. Our weighted average diluted share count for the quarter was 149 million. Before I move to guidance, I'll touch on the impact of today's Helix announcement for the second quarter and full year. As a result of the announcement, Illumina will be deconsolidating Helix from its financial reports.
At the start of the year, Illumina included approximately $19 million of revenue and approximately $0.20 of EPS dilution in our full year guidance. For the first quarter of 2019, Helix revenue was approximately $1 million, and the EPS dilution was $0.05. April impact will be reported as part of our Q2 results and is expected to include an additional $0.02 of dilution. As a result, we are increasing our full year EPS guidance by the remaining $0.13 of previously expected Helix dilution. We now expect full-year GAAP EPS in the range of $6.29-$6.39, and non-GAAP EPS in the range of $6.63-$6.73. Our plan called for an additional $18 million of Helix revenue in 2019.
At this time, we believe growth in our sequencing business can offset the loss of Helix revenue, and as a result, we are not changing our full-year revenue guidance that calls for growth of 13%-14% over 2018. Moving to second quarter guidance, we expect revenue to grow approximately 7% compared to the second quarter of last year, with higher sequencing revenue driven by systems and consumables, more than offsetting lower array revenue driven by services and other. Combined with our first quarter results, and at the midpoint of our full year guidance range, you can see that we expect to deliver approximately 46% of our full year revenue in the first half of the year and approximately 54% of full year revenue in the second half. Back-half revenue is driven predominantly by sequencing systems and consumables growth.
We continue to expect sequencing consumable revenue growth to exceed 20% for the full year, and you can see from our first quarter results and second quarter guidance that this growth is also back-end loaded. For the full year overall, we expect growth rates to be similar to those we reported in 2018, around 18% for research and applied sequencing consumables and approximately 30% for clinical consumables. It's also worth keeping in mind that sequencing consumables for our largest customers are growing faster than the overall average. Revenue from our largest sequencing consumable customers, for example, grew more than 40% year-over-year in the first quarter. We expect this group to continue to outpace total sequencing consumable growth throughout 2019. Moving to sequencing systems, excluding iSeq, we expect to ship over 1,150 systems in the second half of 2019, compared to approximately 930 systems in the first half.
This includes NovaSeq, where we expect to ship more than two times the number of NovaSeqs in the fourth quarter compared to the first quarter. Most of our sequencing consumable growth will be associated with ramping sample volumes among existing customers. At the same time, however, there are a number of specific initiatives that we expect will be scaling in the back half of the year. For example, we believe whole-genome sequencing for the All of Us program will be ramping in the second half of the year. In the U.K., we expect the National Health Service to start scaling whole-genome sequencing. There are other population genomics initiatives, including many in pilot phase, that will start or will continue to ramp in the back half.
Combined, the timing of population genomics initiatives are expected to contribute approximately $55 million of growth in the second half compared to the first half. Excluding this group, our revenue split would be closer to 47% in the first half and 53% in the second, highlighting that population genomics initiatives are amplifying the back half loading this year. For the full year, we continue to expect revenue growth in the range of 13%-14%, with strength in our sequencing business offsetting the shortfalls associated with the transition in DTC and the loss of Helix revenue. We therefore continue to expect our sequencing business to grow in the mid-teens and now expect our array business to be approximately flat year-over-year.
Reflecting the deconsolidation of Helix, we now expect full year non-GAAP gross margin to be flat to slightly down compared to the 70.1% reported for the full year 2018. We expect non-GAAP operating expenses as a percentage of revenue to improve by approximately two percentage points compared to 2018, and non-GAAP operating margin is now also expected to improve from the 27.9% reported in 2018. For the full year, we expect the tax rate to be between 16% and 17%. For the second quarter, we expect revenue to grow approximately 7% from the second quarter of 2018. We expect sequencing revenue to grow approximately 12% year-over-year, with growth in both sequencing systems and sequencing consumables. We expect arrays to decline in the mid-teens year-over-year on a percentage basis, reflecting lower array service and other revenue.
Non-GAAP gross margin is expected to be down on a sequential basis due to product mix and Q1 non-recurring revenue in sequencing service and others. Non-GAAP operating expenses are expected to increase slightly on a sequential basis as a percent of revenue due to timing of OpEx spend shifting from Q1 to Q2, partially offset by lower expenses as a result of the Helix deconsolidation. We expect other income to decline sequentially due to debt repayment. With that, I'll hand the call back to Francis for some closing remarks before we open it up for questions. Francis?
Thank you, Sam. A few closing remarks before we open it up for questions. First, we remain confident in the trajectory and speed of the multi-year NovaSeq transition. We are very pleased with the progress among our still to convert HiSeq customers and expect closer to 50% of the original install base will have started or completed their conversions by the end of the year. We are seeing momentum across a broad range of sequencing applications. Q1 saw promising data for liquid biopsy and TMB, for example. While it's early days, we are very pleased with the initial feedback and growing demand we are seeing for TSO500. Additionally, we continue to see positive coverage decisions in clinical oncology, genetic disease, and reproductive health testing.
We are also seeing momentum in population genomics with initiatives around the world looking to build on the experience of Gel to deliver powerful genomic insights for their populations. It will take time, but the path is increasingly well-defined. To best enable our sequencing and array customers in both the clinical and research markets, Illumina invested 20% in R&D for the first quarter to support the most exciting portfolio of innovations we have ever had. We remain committed to delivering the most innovative and effective platforms available, supported by a world-class service organization that delivers and serves more than 6,300 customers and 13,000 systems in 90 countries. Later this year, we expect to close the acquisition of Pacific Biosciences and look forward to sharing more information on our plans at that time.
Combining the two technologies positions us to reach more applications, accelerate the pace of genomic discovery, and bolster our innovation engine, which has been a hallmark of Illumina since our inception. We are excited about bringing together highly accurate short and long-read sequencing technologies, which will pave the path to a more perfect view of a genome. Certainly, I cannot think of a more exciting time for the PacBio team to be joining the Illumina family, and I look forward to welcoming them this summer. With that, I will open the call up for questions.
Ladies and gentlemen, if you have a question at this time, please press the star, then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that is star then one to ask a question. In the interest of time, we ask that you please limit yourself to one question. Our first question comes from Ross Muken with Evercore. Your line is now open.
Good afternoon, guys. Appreciate all the super helpful color. Starting on sort of the obvious in terms of instruments, on the sequencing side. You gave the order commentary and gave us some helpful thoughts around, Sam, sort of the four-queue versus one-queue dynamic in terms of some of the NovaSeq placements. As we just think about that second half ramp, and obviously the waiting here being a little bit atypical versus maybe last year, of the pieces you gave us or of some of the parts that are moving into the back half, how much of that do you have a very high line of sight to? How much of it would you say maybe there's sort of a moderate confidence interval? Where, if anywhere, does any sort of risk play in in terms of levels?
I'm just trying to get a sense for the sort of visibility to some of the different drivers, because it's sometimes hard for us, particularly on some of these PopGen studies, to understand the cadence. Any color just around sort of where you've got ultimate visibility versus not would be, I think, super helpful.
Sure, Ross. I'll start by saying that overall, we feel really good about our pipeline as we look at the rest of the year. We believe the pipeline is there to support the 13%-14% growth we talked about. In terms of some of the bigger deals that we talked about in the script that are in the back half of the year, as you can imagine, we are deeply engaged with a lot of the population genomics efforts underway. All of Us here in the U.S., both Genomics England Limited and the NHS in the U.K., the population deal in France and Singapore and Dubai and so on. We have teams that are deeply engaged and have been working with those initiatives now for some time.
As you can imagine, with each of those deals, there are a number of moving parts that have to be lined up, so there's always the chance that deals move a little bit. At this point, we have very high confidence that the deals will happen, and while there may be some flex in terms of the timing when they launch, we have a lot of confidence that, A, they'll happen, and B, that they'll be of the size and scale that they've been talking about. We've been deeply engaged and we have very high line of sight into those initiatives rolling out.
Thank you. Our next question comes from Doug Schenkel with Cowen and Company. Your line is now open.
Hey, good afternoon, everybody. I'd like to maybe take a different shot at trying to unpack the pacing of full-year guidance and really the logic behind it. Specifically on sequencing consumables. Sequencing consumables grew 14% in the first quarter. That was a bit better than we expected, even adjusted for some of the new ways that you're reporting sequencing this quarter, basically consolidating the other line there. That's obviously a positive. At the same time, you're guiding us to assume that sequencing consumables will grow 20% or more for the year. Mathematically, this would require 25% growth over the balance of the year in this category. Comparisons don't get easier until Q4. You guided Q2 probably a little bit below what we were looking for.
Again, recognizing all the details that are new that you provided, which are helpful, I'm just wondering if you can help us understand what gives you the continued confidence that you can get to that 20% sequencing consumables growth number for the year. You mentioned PopGen, if we fold that all into sequencing, and it may not all be there, but if all of that comes in in the second half in sequencing, which I think you said is $55 million incremental, that's six points of growth over H2 of last year. I don't think that alone is enough to get you there. What specifically are you seeing? Because that continues to be the biggest question we're getting and I think the biggest overhang for the year. Thank you.
Yeah. Let me start, Doug, by addressing that. With regards to Q1, yes, as you mentioned, we grew 14% in terms of sequencing consumables. As we look at Q2, as I mentioned in my prepared remarks, our expectation for sequencing as a whole is to grow in the, essentially the low double digits or approximately 12%. If you also exclude some of the one-time factors that we had in Q2 related to some tariff stocking, that sequencing consumable growth in the second quarter is improved by roughly three percentage points. In sequencing as a whole, we expect that business to grow by about 15% in the second quarter. Now, as you think about the ramp in the second half, obviously as we've talked about in the prepared remarks, there's a significant ramp in the second half.
You would say, traditionally we've probably been in more the 48%-52% in the second half tilting in terms of revenues. Right now we're saying it's more 46%-54%, but if you factor in the ramp from some of the population genomics initiatives, it probably normalizes closer to 47%-53%. With regards to some of the things that are going to drive that back-end loading or some of the improvements in sequencing consumables in the second half, obviously, the ramp in terms of instrument placements is back-end loaded as well, and that's going to carry with it consumable utilization. We are seeing very strong consumable utilization across our instruments. I mentioned the NovaSeq pull-through number, which was $1 million in 2018. We expect that to improve as we go forward. That's our expectation, and we see no reason to not expect that.
The other metric that I mentioned, actually another couple of metrics that I'll mention. One was around our, I would say our largest customers, and those are experiencing a 40% growth in terms of sequencing consumables across their clinical applications. That's a significant growth. We're seeing very strong utilization in those group of customers. The last one is around some of the metrics that we mentioned overall around clinical utilization and growth in sequencing consumables across clinical. For 2018, that was a growth of 30%. For Q1, that was actually a growth of over 20%, and we expect that for the full year to grow in line with what we saw in 2018. Again, we're seeing some very strong indications with the applications that we see that are growing in clinical. We feel really bullish about the second half.
Obviously, it's a steep ramp, as we talked about, we have very good indications for the achievability of it.
Thank you. Our next question comes from Tycho Peterson with JPMorgan. Your line is now open.
Hey, thanks. I want to start with instruments again. Looking at your guidance for the quarter, you did still come up a little bit short by about $6 million versus what you'd guided to. I know you said NovaSeq orders were in line with expectations, I'm just curious if you could elaborate a little bit. You called out some slippage in installations. Basically, I'm just trying to get comfortable that, it's really a timing issue as opposed to anything, in particular, around competitive pressures. Curious, Francis, if you can just talk on the reception to the S1 and S2 flow cell pricing changes, how S Prime is maybe changing the discussions with the HiSeq customers. Thanks.
Yeah, definitely. I'll start by saying that, we had expected, as we talked about, a decline in sequencing instruments shipments, about $50 million between Q4 and Q1, it came in about $56 million short. Again, given the seasonality, we did expect that decline. NovaSeq specifically, I talked about the fact that from an orders perspective, we came in slightly ahead of expectations, we had a handful of instruments that are going to be shipping later this year. They shipped out of this quarter. In terms of NovaSeq as a whole, obviously we don't give out quarterly shipment numbers, we are very happy with how the NovaSeq upgrade continues to play out, we have good visibility into the shipments for the rest of 2019.
We entered this year, as you know, with about 25% of the HiSeq customers having started their transition, only 25% had started at all the transition into NovaSeq. As you can imagine, the first wave of adopters of NovaSeq were the large service providers, the large genome centers. Coming into this year with the launch of S Prime and the adjustment in pricing for S1 and S2, really one of the stories for us of this year is the activation of the smaller high-throughput labs on that upgrade journey. That was exactly the intent of S Prime, S1, and S2. That's starting to play out. We saw that play out in the quarter.
That pricing was well-received, I talked about some of the examples of customers that were still running the legacy HiSeq systems were waiting for the price points at which they could move to the NovaSeq. Whether it was the customers that were running desktop instruments, plus some of the older HiSeq instruments, that's starting to play out. What we expect over the course of this year is to catalyze that group of customers really get at the next 25% of the HiSeq install base to get to upgrade over the course of this year. We expect the NovaSeq shipments to have a steep ramp over the course of the year. In Q4, we expect to ship twice as many instruments, for example, as we ship in Q1 of this year. We expect that ramp.
All that we think will sort of roll into a NovaSeq shipments number for the year that's flat to slightly up from last year. Very consistent with the multi-year upgrade thesis we had when we first launched NovaSeq.
Thank you. Our next question comes from Derik de Bruin with Bank of America. Your line is now open.
Thanks. This is Mike on for Derik's line. I had a quick question, just want to follow up on some of the topics that you've touched on with the NovaSeq. You mentioned particular strength in the NextSeq, and you notably upped the pull-through range on that, which granted has been running pretty high for a while. I'm just wondering if, do you think you've seen some possible trade down from the HiSeqs, customers that were sort of on the bubble of being a high throughput and a medium throughput, if instead of moving to the NovaSeq, they've decided to use the NextSeq at a higher level? Also, you noted that you're no longer accepting orders for HiSeqs. I'm wondering how that plays out into your thoughts on the NovaSeq upgrade cycle, if that could add a boost this year.
Sure. Coming into the NovaSeq upgrade cycle, as we looked at the HiSeq install base in its entirety, we always expected a small portion of them to move to the NextSeq rather than NovaSeq. We thought that would be a small portion and that the vast majority of the HiSeq install base would move to the NovaSeq. That really is how it's playing out. We're also starting to see customers that were purely desktop customers, and I mentioned one in the script, that are now buying NovaSeqs as their volume of business grows. The other dynamic that we didn't quite expect to play out as well as it did, was that we're seeing a quarter of all NovaSeq orders coming from new-to-sequencing customers. That played out a little bit better than we expected. NextSeq continues to be a workhorse instrument.
We did raise the range for its pull-through because we've seen pull-through at the high end of the previous range now for many quarters. It continues to be the workhorse in the clinical customer base. People especially like the DX availability as well. We continue to see strength in NextSeqs, and NextSeqs and MiSeq both were up year-over-year in terms of shipments of instruments.
Thank you. Our next question comes from Bill Quirk with Piper Jaffray. Your line is now open.
Great. Thanks. Good afternoon, everyone. Question regarding, just again, kind of going back to guidance. Francis, just help us think a little bit about, are you dialing anything into the expectations for items where Illumina has a little less control over the situation? Examples that come to mind would be things like ACOG endorsement for average risk or, say, the timing of oncology test approvals by some of your customers, for example. Separately, staying on the FDA for a moment, when should we anticipate the TSO500 approval? Thanks, guys.
Sure. If we look at how we built up our revenue expectation for the year, we haven't built in, really, expectations around any material changes around ACOG guidelines over the course of the year. Momentum for those guidelines to change continues to build, and we do believe that ultimately, they will be supportive of average-risk testing. We haven't built that into our expectations for the course of this year, and neither have we built in on the oncology side, any dramatic changes either in the reimbursement environment or the regulatory environment. In terms of FDA approval, we were very excited that after we launched TSO500, we got breakthrough designation by the FDA. What that means is we are on an expedited path to get approval from the FDA for TSO500. We're doing the work with them.
As you know, if you get breakthrough designation, it means that you have dedicated resources from the FDA. You can work with them on an expedited basis. You can design the data that you need with them upfront before you turn it in. We're continuing to move down that path, as quickly as we can. In addition, we're also continuing to move down the path of having TSO500 be a companion diagnostic for the therapies associated with the partnerships that we signed up. For example, the two therapies from BMS, and there we achieved an important milestone in our partnership with them in Q1. That continues to move forward well as well.
Maybe just to add one quick thing, though. As I mentioned earlier, the second-half ramp that we have and which is essentially a driver of guidance for the year and a precondition for us hitting guidance for the year, is really driven off of the sequencing consumable utilization run rates and expectations that we are seeing. When we talked about the 2018, for instance, 30% growth in sequencing consumables in clinical applications, that's the expectation for the second half. Having said this, there is a portion that I talked about in the prepared remarks, which is contingent on population genomics initiatives, and those are in various degrees. Some are underway and some will ramp in the second half. I referred to $55 million in terms of second-half versus first-half growth.
Obviously, when you have population genomics initiatives, which essentially, you have to work with different governments and involve multiple stakeholders and in some cases, regulatory approvals, there is a level of uncertainty with those. At this point, there is nothing to lead us to believe that those are not going to materialize in the second half, and we feel strongly about that.
I just wanted to comment, TSO500 RUO is available today. While we're continuing to work with the FDA on getting an IVD, TSO500 RUO is available and shipping today.
Thank you. Our next question comes from Dan Brennan with UBS. Your line is now open.
Great. Thank you for taking the question. Set a two-parter, kind of on NovaSeq as we look out to the second half of the year. Francis, could you just help us think about in terms of that S1 and S Prime opportunity amongst your 800 customers, how many of those are represented by the smaller labs that are targets for S1 and S Prime? Then, sorry, just to clarify, I apologize if you've said this already, but when we think about the doubling of placements in the fourth quarter, how much of that is actually expected to actually come from these [Pop-seq's] programs buying? Thank you.
Sure. Let me start with the NovaSeq question. Look, when we looked at the installed base of HiSeq and HiSeq X, about 850 customers, right, as we started the upgrade cycle for NovaSeq. Less than 50 of those were customers that also had the HiSeq X. So those were the customers that were the very large service providers, the very large genome centers. So, 800 out of the 850 were not of that scale. So S Prime and S1, S2 are very important to a very big part of the HiSeq install base. Until S Prime shipped, actually, if you were a HiSeq 2500 customer, and you weren't running a large degree of samples, it was hard for you to make the economic case so that you'd get payback in a reasonable time.
Now with S Prime, you can make the case where you'll see payback in the one to two-year period, depending on your sample volume. So now with the current sort of flow cell portfolio, we are making the case that resonates with that large part of the install base. As I said, one of the stories of 2019 is going to be the activation of that large segment of the HiSeq install base, to begin the upgrade. That was the first question. What was the second?
The second was around how much of the Q4 additional NovaSeq placements or the doubling of NovaSeq placements versus Q1 is related to PopGen. I believe that was the question. Listen, the expectation is, obviously, that we have a ramp in the second half in terms of instrument placements versus the first half. We talked about the Q4 versus Q1 NovaSeq placements. There is a portion of this related to some PopGen initiatives, but a lot of it is also driven by seasonality. As you know from Q4 2018, we had a record number of NovaSeq placements in Q4 2018, and
We expect a similar pattern in Q4 of 2019.
If I bookend all that, I'll say we came into this year with 25% of the HiSeq install base having begun that upgrade process. We expect to exit this year with another 25% having engaged and either completed or begun the upgrade process. A significant percentage of those will be the smaller high-throughput genome centers for whom S Prime, S1, S2, will be very important. There will be, though, other important segments. We continue to see a quarter of orders for NovaSeq coming from new to Illumina, for example, and there will be capacity adds from the larger centers that have already bought their first NovaSeq, but are adding additional NovaSeq as they move demand and samples over from their HiSeq.
You'll also start to see the effect of some of the large funding programs like TOPMed, sort of switch from being a headwind to the upgrade to NovaSeq to being more of a tailwind, and that'll play out, too.
Thank you. Our next question comes from Puneet Souda with SVB Leerink. Your line is now open.
Yeah. Hi, Francis. Thanks for taking the question, thanks for the details. My question is around PopGen specifically, in terms of what's your assumption built in here for the genome cost and how do you see that driving an increasing level of adoption into PopGen market in the longer term? I appreciate your comments around $55 million, just hoping to understand that this PopGen growth in the context of the $100 genome that you have talked about in past and anything around the timing associated with that. Just a second part of the question is largely around consumer genomics. How do you see that market evolving here? Do you see this market shifting away from more of a consumer health demand to a more robust consumer health product, where customers are demanding more accurate data, more decision-making healthcare data?
Is that what's slowing down some of the growth that you pointed out in our space? Thank you.
Sure. I'll start with the population genomics customer set, and then the potential customer set that we're talking to, and pricing associated with that. We have a pricing model that we put together that rewards customers for being higher volume customers. The level of discount you can achieve gets greater the more you commit on the instrument side and on the consumable side as well. It is a single matrix that we use with the different customers that we talk to. We're very transparent about what the pricing looks like and how different customers can achieve different tiers of discounts. Today, some of the largest customers, as you know, are already at below $1,000 a genome. There's room to give them additional discounts below what they can do today to enable those very large-scale efforts.
Even at the very largest scale, they're not yet at the stage where they're getting to a $100 genome, that's still in front of us. There are volume discounts. In terms of the dynamic playing out in the consumer business, what we are seeing in the consumer business is really the market for health applications starting to build, and the market really moving from being a pure genealogy market, where a lot of the growth was driven over the last few years, to being more of a health market. That market's in transition. Ultimately, the health market is a much bigger market than the genealogy market, we believe. We expect that growth to continue, and to resume once that transition really gets underway. That's what we believe we're seeing.
The other dynamic that's in play is that if you looked at the DTC genomics business, really over the last few years, it's been dominated by two, maybe three, players in the U.S. Right? Now we're seeing a lot more players emerge around the world. That market is going to be a lot less concentrated going forward, both in terms of geography and in terms of customers as we look at 2020 and beyond.
Thank you. Our next question comes from Patrick Donnelly with Goldman Sachs. Your line is now open.
Great. Thanks for the question, guys. Maybe just on the HiSeq transition over to Nova. Now that you're not accepting HiSeq orders anymore, perhaps accelerating the transition over to Nova, how do you ensure there's no air pocket on the consumables as an elevated number of these HiSeq users shift over to Novas and get those new systems up to speed? Then are you seeing any users with multiple HiSeq consolidate down to just one Nova, or has it been more one for one on a conversion ratio?
Our experience so far, we shared some of the data a little while ago, was that customers that have both a HiSeq and a NovaSeq, so they were HiSeq customers, they purchased NovaSeq, spend more with us on average than they did before. We did an analysis, we shared that data a little while ago. That's what we expect to continue to see, that if you are a large research customer and you get a grant, with NovaSeq, what you are looking to do is power your experiments better. You will still spend the grant money that you have, but you will just do a bigger experiment. It also has allowed people to define more ambitious experiments, either in terms of using new paradigms like single-cell RNA analysis, for example.
You're starting to see the design of bigger experiments as customers and researchers start to think about how they can use the additional power of the NovaSeq. It has not been the experience we've had so far that customers experience that air pocket in any significant way. In fact, that was our thesis going in, that there is elasticity in this market based on what our customers had told us, and that they wanted the additional power of NovaSeq to do bigger experiments. In terms of the ratios, one of the things we've said coming into the NovaSeq upgrade cycle is that it's probably not the right way to think about it in terms of a ratio of HiSeqs to NovaSeq. Probably the better way to think about it is number of customers out.
You have the 850 customers I talked about, start from that number and work out rather than taking the total number of HiSeqs and work back. That's been our experience now as it's played out, that customers fundamentally do more work with a NovaSeq than they were able to do with a HiSeq. It's not just a straight ratio that they're applying.
Thank you. Our next question comes from Dan Leonard with Deutsche Bank. Your line is now open.
Thank you. Just a quick modeling question for Sam and then a philosophical follow-up for Francis. First off, on modeling. Sam, can you disclose how much of the sequencing service revenue in the quarter was one time? You mentioned a milestone payment and a non-recurring IP payment. That would be helpful as I'm trying to assess the core run rate. Secondly, philosophically, Francis, how are you thinking about operating leverage going forward? I'm asking because SG&A came in well light of our model, was down sequentially, which is not very usual. You're deconsolidating Helix, which allowed you to raise EPS guide. Is there more operating leverage or more of an operating leverage angle to this story going forward than perhaps people appreciated?
Let me start with the modeling one, Dan Brennan. We haven't disclosed exactly how much that licensing revenue amount is, but think about it this way in terms of Q1. If you think about it sequentially from Q4, we did have a drop-off in that sequencing and other related to the gel revenues with the completion of the 100,000 project. We did expect and had a drop-off in terms of gel revenues. The drop-off wasn't as much as we expected because there are still some samples being sequenced in gel. They have collected more samples, and they're still utilizing or doing sequencing on those samples. The other two large components, I would say, is we had some milestone payments related to some of our oncology collaborations, so that was another piece of it. There was the in-licensing or the licensing IP revenues as well.
That's another piece of it. Those were the three key factors, but you would say a drop-off in terms of the gel revenues and an offsetting an increase in terms of the milestone payments and the licensing revenues. In terms of philosophy, the philosophy has not changed. Our philosophy, fairly consistently over the years, has been that over a multi-year period, you should expect leverage from our business, and that continues to be true. Having said that, at any given time, we look at what the best uses of our capital is, and if we're in the midst, for example, of an innovation cycle, you'll see us spend more against those priorities. You've seen that play out with NovaSeq. You saw that play out before with the HiSeq X and NextSeq.
Where we feel there is an opportunity to expand a market to significantly improve the size of the market because of elasticity, increase our competitive position, we will spend to do that. For example, you saw what we're doing with PacBio. That's a good example of a complementary set of technologies that we think our customers would value. Over a multi-year period, we do believe that there is operating leverage in the business. It's also good, and I guess it's appropriate that we're doing this call on DNA Day today, celebrating the 66th anniversary of the publication of the structure of the DNA molecule. 16 years, I guess, since we published the human genome.
As we reflect back on all the progress of the 66 years, it truly is remarkable how much has been achieved, but it's truly astounding how much is still in front of us. Less than 0.01% of all species have ever been sequenced even once. Less than 0.02% of people have ever been sequenced. There's still this tremendous opportunity in front of us, and so we want to make sure that we continue to deliver the innovations that allow us to capture that market.
Thank you. Our next question comes from Mark Massaro with Canaccord Genuity. Your line is now open.
Hey, thanks, guys. The beat relative to our model in the quarter was driven by services and other, in particular in microarrays. You certainly are taking a more cautious stance on arrays. I guess my first question is, with the record number of DTC samples but lower revenue than expected, can you just speak to the pricing dynamic and if you expect pricing maybe to get worse from here? Francis, I guess there's a lot left to be desired to explain why there's been sort of a dislocation in DTC. What gives you confidence that this transition will impact return to growth, say, in 2020?
Let me start with the first part of that, Mark, and thanks for the question. The beat was actually on a couple of fronts. Let me punctuate sort of the quarter. Sequencing consumables in Q1 came in better than expected. That was a part of the beat. That was a large part of the beat. Sequencing and other revenues also came in stronger than expected, and I mentioned a couple of factors there. One was related to some licensing IP revenues that came in. That was more timing driven. The other one was driven by some gel set samples still being sequenced, albeit less than what we had in 2018, but still, they have not gone down to zero. Actually, we saw some other microarray strength as well in the quarter. This is outside of DTC, but other microarray coming in better than expected.
On the other side, in terms of on the negative side, as we mentioned on the call, sequencing instruments were slightly lower than expected, and that was driven by mostly the handful of NovaSeq shipments that got pushed out, as well as DTC revenues coming in lower than expected. As Francis mentioned, yes, we did have record DTC samples processed in the quarter. As you would expect in Q1, that's usually a very strong quarter in Q1 because you have all of the samples and all of the kits that get returned to us and get sampled and processed. It was still weaker than we expected, given that it's Q1 and given that Q1 is the largest quarter. There isn't really much of a pricing dynamic playing here.
It was just, again, our expectations were that Q1 would be X, and it came in slightly lower, and hence, we're taking an even more cautious view for the year on DTC. In terms of the look forward, we've earned our way into a really fortunate position where we work very closely with the pioneers that have created, effectively, the consumer DTC space, right? It is the 23andMes and the Ancestrys and the other players that are really pioneering this category. We spend, as you can imagine, time with them and we work very closely with them to understand the dynamics of the market as they're evolving. We've done that, frankly, since those companies effectively got into DNA testing. We have their information around how the market's evolving.
They were the ones who called it to say, "Look, the market is moving from a genealogy market to a healthcare market." They were expecting the slowdown as it played out, and it's played out maybe a little bit more of a slowdown than expected, but frankly, the direction is what they said. They also are sharing the data with us on why they believe, and what they're seeing in terms of updates of health offerings and why they believe that's an exciting market going forward. Part of our planning is to work with them on their forecasts. In addition, we're seeing demand from outside the U.S. DTC customers. Even, there's this data that in terms of real customers who are signing up, we've talked about well over 100 customers now outside the U.S. in the DTC space.
They're going to continue to grow, and at some point, they will be big enough to be a material driver of the overall growth in that space. It makes intuitive sense, right? There's no reason why consumer genomics is a purely American phenomenon, why people in the U.K. or China or Japan or Australia won't also care about the same things that people care about here. We're seeing that data, and intuitively it makes sense that the same phenomenon that played out here will start to play out outside the U.S.
Thank you. Our final question comes from Jack Meehan with Barclays. Your line is now open.
Thank you. Francis, I was hoping you'd give us an update on the PacBio side. We've seen the headlines related to the U.K. CMA. Just how do you think the deal is progressing on the regulatory front? Do you think you can resolve any of the concerns, and what's the feedback been around market sizing and competition? Thanks.
Yeah, sure. We are, as you know, engaged with both the CMA and the FTC here in the U.S., and that process is going as expected. In the U.S., we've gone into the second request starting at the beginning of the year. In the U.K., we have completed our filing, and as expected, the CMA is going into its investigative phase. That is standard. I know it got covered by the press as though it was sort of an unexpected investigation. That is a standard part of the process. From our perspective, we are very comfortable with where we are in the process. We are where we expected to be, and we expect to close in the middle of the summer.
Thank you. Ladies and gentlemen, this concludes our question and answer session for today's call. I would now like to turn the call back over to Jacquie Ross for any further remarks.
Thank you. As a reminder, a replay of this call will be available as a webcast in the Investors section of our website, as well as 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 second fiscal quarter.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.