Pacific Biosciences of California - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue was $39.8M, up 7% sequentially and 10% YoY, driven by strength in APAC (+53% YoY) and EMEA (+35% YoY) and consumables demand; revenue and EPS both beat Wall Street consensus, with revenue $39.77M vs $36.47M* and EPS -$0.13 vs -$0.176*. Values retrieved from S&P Global.
• Non-GAAP gross margin was 38.0% (38.3% cited on the call), ahead of internal expectations on favorable mix; non-GAAP operating expenses fell to $58.1M (down ~18% YoY), supporting a non-GAAP net loss per share of -$0.13.
• FY25 revenue guidance narrowed to $155M–$165M (midpoint maintained), non-GAAP gross margin guidance raised to 37–40%, and OpEx trimmed to $235M–$240M; Q3 revenue is expected to be roughly flat sequentially and YoY.
• Strategic adoption continued: 15 Revio and 38 Vega shipments in Q2; 60% of Vega shipments were to new PacBio customers and ~70% of Vega use cases are non-WGS, expanding the addressable market.
• Management cited lower-than-expected tariff headwinds vs last quarter and strong clinical traction (roughly 15% of consumables now in clinical customers), framing a catalyst narrative around estimate beats and improved margin guidance alongside accelerating Vega momentum.

What Went Well and What Went Wrong

What Went Well

• Consumables strength and margin mix: "Non-GAAP gross margin was 38.3%, ahead of our expectations, driven by a favorable product mix with a better than expected contribution from consumables".
• Vega broadening the customer base: “Nearly 60% of Vega shipments were to new PacBio customers… ~70% of Vega customers are using the platform for non whole genome applications”.
• International momentum: “APAC and EMEA regions combined up 45% YoY; EMEA up 35% and APAC up 53%” underpinned the beat and guidance stability.

What Went Wrong

• Instrument demand remains pressured in the U.S.: “Funding constraints, particularly with academic and government customers, continued to pressure higher CapEx purchases” (Revio instrument revenue down 4% YoY).
• Ongoing macro and NIH uncertainty: Management expects Q3 revenue to be roughly flat and highlighted “extremely dynamic” trade policy and NIH funding risks.
• Pull-through variability and prior backorders: Annualized Revio pull-through stepped down from Q1 (to ~$219K), with Spark rollout normalizing and prior reagent backorders addressed but still some residual non-material backorder.

Transcript

Speaker 2

Good afternoon and welcome to the PacBio Second Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the STAR key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press STAR, then one on your telephone keypad. To withdraw your question, please press STAR, then two. Please note, this event is being recorded. I would now like to turn the conference over to Todd Friedman, Director of Investor Relations. Please go ahead.

Speaker 1

Good afternoon and welcome to PacBio's Second Quarter 2025 Earnings Conference Call. Earlier today, we issued a press release outlining the financial results we'll be discussing on today's call, a copy of which is available on the Investors section of our website at www.pacb.com or as furnished on Form 8-K available on the Securities and Exchange Commission website at www.sec.gov. A copy of our earnings presentation is also available on the Investors section of our website. With me today are Christian Henry, President and Chief Executive Officer, and Jim Gibson, Chief Financial Officer. On today's call, we will be making forward-looking statements, including, among others, statements regarding predictions, estimates, expectations, and guidance. You should not place undue reliance on the forward-looking statements because they are subject to assumptions, risks, and uncertainties that could cause our actual results to differ materially from those projected or discussed.

Please review our SEC filings, including our most recent Forms 10-Q and 10-K, and our press release to better understand the risks and uncertainties that could cause results to differ. We disclaim any obligation to update or revise these forward-looking statements except as required by law. We will also present certain financial information on a non-GAAP basis, which is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U.S. GAAP. Reconciliations between historical U.S. GAAP and non-GAAP results are presented in our earnings release, which is available on the Investors section of our website. For future periods, we are unable to reconcile non-GAAP gross margin and non-GAAP operating expenses without unreasonable effort due to the uncertainty regarding, among other matters, certain acquisition-related items that may arise during the year.

A recording of today's call will be available shortly after the live call in the Investors section of our website. Those electing to use the replay are cautioned that forward-looking statements may differ or change materially after the completion of the live call. I'll now turn the call over to Christian.

Speaker 0

Thank you, Todd, and good afternoon, everyone. Our financial results in the second quarter demonstrate that we continue to make significant progress towards our goal of increasing the adoption of our long-read sequencing platforms and driving the company towards positive cash flows. We delivered both year-over-year and sequential revenue growth, reduced our quarterly cash burn, and we are on track to achieve the strategic initiatives that we laid out earlier this year. We reported $39.8 million in revenue, up 7% sequentially and 10% compared to Q2 of last year. This was driven by strong international growth, with revenue in our APAC and EMEA regions combined up 45% compared to Q2 of 2024. Non-GAAP gross margin was 38.3%, ahead of our expectations, driven by a favorable product mix with a better-than-expected contribution from consumables.

We ended the quarter with approximately $315 million in cash and investment, also above plan, reflecting our continued cost discipline and lower-than-expected operating expenses. Second quarter instrument revenue was $14.2 million, up sequentially and down 4% year-over-year, as funding constraints, particularly with academic and government customers, continued to pressure higher CapEx purchases. Consumables were strong during the quarter, with revenue totaling $18.9 million, up 11% year-over-year and ahead of our expectations. Annualized revenue pull-through remained within our expected range of the low to mid-200 thousands per system, with steady utilization across our installed base. Our recently launched Spark chemistry is driving growth and expanding Hi-Fi adoption. Compared to prior chemistry, it increases throughput up to 33%, lowers the cost per genome, and reduces DNA input requirements fourfold. As a result, sequencing gigabase output hit an all-time high in Q2, up approximately 66% year-over-year.

Turning to the full-year outlook, at this point, we are starting to see the impact from tariffs in China to be lower than we expected last quarter. However, it continues to be difficult to predict how tariffs will ultimately impact our business, particularly in China. Capital spending remains constrained, particularly among U.S. academic institutions, which continue to face government funding headwinds and NIH-related uncertainty. Taking these factors into account, we are maintaining the midpoint of our full-year revenue guidance and narrowing the range to $155 to $165 million, representing 1% to 7% growth over 2024. At the midpoint, this assumes mid-teens growth in consumables revenue, as revenue utilization continues to ramp across a growing installed base, partially offset by mid-teens decline in instrument revenue due to the current macroeconomic environment, including uncertainty around academic funding.

Despite these macroeconomic headwinds, we continue to see broad adoption of our Hi-Fi sequencing platforms across research, translational, and clinical markets. In the second quarter, we shipped 15 Revio systems and 38 Vega systems, bringing our cumulative totals of installed base to 297 Revio and 73 Vega systems. On the Revio side, 60% of the placements went to brand new customers, and one-third were to LDT diagnostic or hospital labs, encouraging signs that Hi-Fi is gaining share in these labs, replacing a number of legacy technologies. This is especially true in genetic and rare disease testing. A few recent examples include Variantics, a diagnostics lab based in Boston and a new to PacBio customer that is seeking to improve key genetic disease assays by using Revio and PacBio Hi-Fi sequencing in lieu of legacy sequencing technologies.

GeneDx also added another Revio to its fleet in the second quarter and plans to incorporate our pure target panels to further advance key tests. Additionally, we placed additional Revio systems into hospital systems in Northern Europe, where Hi-Fi is being used to advance the understanding and improve solve rates for rare disease at scale. Turning to Vega, the PacBio team has built a robust platform. We're extremely pleased with the system's continued momentum and strong performance in the field. In the second quarter, nearly 60% of Vega shipments were to new PacBio customers, and since launching in very late Q4 last year, Vega has brought over 40 new laboratories into the PacBio ecosystem, a number we expect to grow into the future. Importantly, Vega is not just broadening our customer base; it's also expanding the range of applications Hi-Fi can support.

We're seeing strong adoption among smaller labs and new market segments, and approximately 70% of Vega customers are using the platform for non-whole genome applications, including small amplicon sequencing, targeted panels, and microbial genomics. That's exactly the kind of accessibility and versatility we designed Vega to deliver, and it's performing exceptionally well. Customer runs consistently exceed our specifications across a range of insert sizes, with Hi-Fi read lengths and yields often surpassing expectations. At the Charles University in Prague, for example, one researcher shared how switching to Vega has significantly improved his lab's scientific output. By eliminating months of troubleshooting associated with incomplete short-read data, he's able to double his publication rate while significantly improving data quality, starting projects with complete chromosomes from the outset.

With its lower capital cost, compact footprint, and integrated analysis tools, we believe Vega is opening new segments of the genomics market to PacBio, including labs and institutions that were previously out of reach for long-read platforms. Miami University in Ohio is another great example. Researchers at the institution shared that the system was intuitive to operate, with streamlined informatics capabilities, and they plan to use the platform across a wide range of applications, including single-cell epigenetics and immunology. They also noted that Vega is more cost-effective than the leading low-throughput short-read next-generation sequencing platform, with run costs that align well with the funding models common in many academic and translational research settings. We're also seeing growing momentum in population-scale and multi-omic initiatives around the world. In July, PacBio Hi-Fi technology powered the first Arab human pan-genome, published in Nature Communication.

This study uncovered millions of previously undetected variants, reinforcing the importance of long-read accuracy when it comes to capturing genetic diversity and improving reference genomes. We believe studies like this demonstrate why highly accurate long-read sequencing is foundational to large-scale population genomics programs, especially those seeking to expand inclusion across historically underrepresented groups. We also recently announced that PacBio has joined the Thousand Genomes Long-Read Project, a major global effort that is expanding beyond its original Nanopore-only design to now include Hi-Fi-based sequencing. As part of this next phase, PacBio plans to contribute full-length isoform RNA data from roughly 1,000 samples using our ConX RNA kits and Revio systems. The program's leaders specifically selected ConX for its data quality, isoform resolution, and throughput, offering what we believe is a clear advantage over existing short-read and long-read transcriptomic methods.

With simplified prep, low RNA input requirements, and scalable output, ConX is uniquely suited for large-scale multi-population studies. This collaboration highlights how researchers are increasingly turning to Hi-Fi and ConX to drive deeper insight into gene regulation and transcript diversity at population scale. As previously mentioned, we're also seeing continued progress in clinical sequencing applications as well. Quest Diagnostics, for example, announced that its Athena Diagnostics Division is using PacBio Hi-Fi sequencing to enhance its ataxia movement disorder panel. Built on Revio and powered by our pure target chemistry, this assay can detect repeat expansions and complex variants that can be frequently missed by conventional short-read tests. It's a clear example of how Hi-Fi sequencing is making its way into routine clinical workflows, enabling more comprehensive and accurate testing. We're also expanding our clinical footprint internationally.

Recently, we announced a new agreement with Haorai Gene, a leading genomics distributor in China, with deep expertise bringing long-read sequencing into clinical use. Haorai has already played a pivotal role in advancing Hi-Fi-based testing in the region. They launched a Hi-Fi-based HLA typing product in 2022, and they've since deepened collaborations with major blood centers to expand national research efforts in rare blood classification, antigen mapping, and applications that demand the high-resolution allele-level accuracy that Hi-Fi uniquely provides. Through this partnership, we expect to further grow our clinical presence in the transfusion medicine and hematology markets in China. In translational research, we were honored to be selected by Target ALS to support the largest global ALS genomic study utilizing Hi-Fi sequencing to date.

This project is expected to use Revio to generate whole genome data from thousands of ALS patient samples, aiming to uncover the complex genetic contributors to this devastating disease and generate the largest long-read open-access database for ALS. ALS presents a challenging genetic landscape marked by structural variants, repeat expansions, and non-coding elements, many of which are invisible to traditional sequencing. We believe Hi-Fi's length and accuracy make it particularly capable of resolving these difficult regions, helping researchers discover new links between genetic variation and disease progression. Because the data from the study will be made broadly available, it has the potential to accelerate discoveries that lead to better diagnostics, new therapeutic targets, and ultimately hope for people living with ALS. Beyond Hi-Fi adoption, we're also helping define the next generation of genomic benchmark.

Earlier this week, a study published in Nature Methods introduced the Platinum Pedigree Benchmark, the most comprehensive family-based variant dataset ever released. Developed by scientists at Pacific Biosciences of California alongside collaborators at the University of Washington, University of Utah, and others, this benchmark characterizes not just simple variants, but also complex and repeat-rich regions that have traditionally been excluded from reference datasets. This resource was used to retrain Google Fit variant AI model, resulting in a 34% reduction in erroneous variant calls genome-wide, with even greater improvements in the most difficult regions. It's a powerful validation of how Hi-Fi data is improving the performance of AI-based tools and reinforcing Pacific Biosciences of California's position as a leader in sequencing accuracy.

Looking ahead, we're also making strong progress in the development of our multi-use SMRT Cell capability, a key innovation that will allow customers to run a Revio SMRT Cell, the most expensive component of our consumable, multiple times. This is a major step towards reducing the cost per genome for our customers and, at the same time, improving our own gross margin. We believe this capability will help unlock larger-scale projects, increase flexibility, and create more value for customers doing high-throughput research and clinical sequencing. We look forward to sharing more about this innovative technology at a later date. I'll now hand the call over to Jim to discuss financials before I finish with a few closing remarks. Jim?

Speaker 1

Thank you, Christian. I'll be discussing non-GAAP results, which include non-cash stock-based compensation expense. I encourage you to review a reconciliation of GAAP to non-GAAP financial measures in our earnings press release. As discussed, we reported $39.8 million in product, service, and other revenue in the second quarter of 2025, or $36 million in the second quarter of 2024. Instrument revenue in the second quarter was $14.2 million, a decrease of 4% from $14.7 million in the second quarter of 2024 due to lower Revio unit shipments, partially offset by 38 Vega systems as we commenced shipping this platform late last year. We ended the quarter with 297 cumulative Revio system shipments and 73 cumulative Vega system shipments. Alternative consumables revenue of $18.9 million in the second quarter increased 11% from $17 million in the second quarter of 2024, with annualized Revio pull-through per system of approximately $219,000.

Vega consumables continued to grow sequentially with the expansion of the installed base, and we anticipate providing an expected pull-through range at a later date once there is a larger and more established installed base. Finally, service and other revenue grew approximately 57% to $6.7 million in the second quarter, compared to $4.3 million in the second quarter of 2024, driven by an increase in Revio service contract revenue and revenue related to a large population sequencing program in Southeast Asia. From a regional perspective, America's revenue of $17.7 million decreased 15% compared to the second quarter of 2024, with the region most affected by government funding headwinds and NIH funding uncertainty. We're pleased to see Vega making progress with this customer base, as over half the systems went to academic or government customers.

For Asia-Pacific, revenue of $12.6 million increased 53% compared to the second quarter of 2024, driven by increased Revio and Vega placements and increased revenue from a population sequencing project in Southeast Asia. EMEA revenue of $9.5 million increased 35% compared to the second quarter of 2024. Building off momentum in the first quarter, the region continued to see strength in Revio placements in the hospital and clinical researcher customer base and growing demand for the Vega platform. Moving down the P&L, second quarter 2025 non-GAAP gross profit of $15.2 million represented a non-GAAP gross margin of 38% compared to a non-GAAP gross profit of $13.2 million or 37% in the second quarter of 2024, primarily due to higher consumable margins. Consumable margins improved in the quarter as a result of lower Revio consumable per unit costs.

This was partially offset by lower instrument margin as we work towards shipping our production-rate Vega systems in the second half of 2025. Non-GAAP operating expenses were $58.1 million in the second quarter of 2025, representing an 18% decrease from non-GAAP operating expenses of $71 million in the second quarter of 2024. Operating expenses in the second quarter of 2025 included non-cash share-based compensation of $11 million compared to $16.1 million in the second quarter of 2024. The decrease in both non-GAAP operating expenses and non-cash stock-based compensation was primarily due to the restructuring initiative we implemented earlier this year. Regarding headcount, we ended the quarter with 491 employees compared to 575 at the end of 2024 and 581 at the end of the second quarter of 2024.

Non-GAAP net loss was $40 million, representing $0.13 per share in the second quarter of 2025, compared to a non-GAAP net loss of $55.2 million, representing $0.20 per share in the second quarter of 2024. We ended the second quarter of 2025 with $314.7 million in unrestricted cash and investments, compared with $389.9 million at December 31, 2024, and $343.1 million at March 31, 2025. Turning to guidance, as discussed earlier, we are maintaining our revenue guidance midpoint, but narrowing the range to $155 million to $165 million, as we believe the prior downside scenario to China in 2025 has been significantly mitigated, while the upside case continues to be pressured by the academic funding environment. Like last quarter, this continues to be an extremely dynamic macro environment, especially with respect to trade policy and uncertainty surrounding future NIH funding.

Our guidance midpoint assumes consumable revenue grows in the mid-teens compared to 2024, partially offset by a mid-teens decline in instrument revenue. Consistent with the first half of 2025, we expect annual pull-through per Revio system to be in the low to mid-200 thousands. In the Americas, our guidance continues to assume significant uncertainty in the broader academic research community, especially in the near term, with accelerating activity in the clinical market anticipated to offset some of the potential headwinds. For Asia-Pacific, we continue to anticipate revenue growth in the region in 2025, though we expect a slight sequential decline in Q3 compared to Q2 due to modest tariff-related order acceleration in the first half of the year.

We continue to expect EMEA to be the fastest growing region in 2025, as population sequencing programs scale, whole genome sequencing in clinical settings grow, and we expand our customer base with Vega. Looking at Q3 revenue, we expect revenue to be roughly flat on a sequential and year-over-year basis, partially due to a sequential decline in APAC after a strong Q2. Moving down the P&L, with the first half of 2025 coming in better than we expected, and per unit cost reductions expected on Revio instrument and consumables in the Vega system in the second half, we are raising our 2025 non-GAAP gross margin guidance range and now expect it to be between 37% and 40%, and we continue to expect to exit the year above 40%. As mentioned, we are operating in an environment with trade policy uncertainty, and if the U.S.

enacts tariffs on certain countries in our supply chain, we could face incremental pressure to our cost of goods in the second half of this year. As of now, our guidance does not factor in a material increase in COGS related to tariffs. We continue to be focused on our spend, and we now expect non-GAAP operating expenses to be in the range of $235 million to $240 million. We expect to continue to realize savings in 2026, and as such, anticipate 2026 non-GAAP operating expenses to be lower than in 2025. We now expect interest and other income to be between $6 million and $8 million in 2025, and the weighted average share count or EPS for the full year to be approximately 298 million. We continue to expect our ending cash balance of cash and investments to be approximately $270 million at the end of 2025.

When excluding the $5 million licensing payment in Q1, this implies $115 million cash burn in 2025, or an improvement of $72 million in adjusted cash burn compared to 2024. We remain on track towards our plan to achieve positive cash flow by the end of 2027 and believe our $315 million in cash and investments as of June 30 will fund us through this transition. I will now hand it back to Christian for some final remarks.

Speaker 0

To close, I want to come back to the core of why we believe the company is positioned to deliver long-term value to its stakeholders. Hi-Fi technology is fundamentally different from anything else in the market. It enables researchers and clinicians to read native single DNA molecules at lengths of up to 25 kilobases with exceptional accuracy, while simultaneously detecting epigenetic modifications such as 5-methyl-C and 6-methyl-A in the same sequencing run at no additional cost. We believe no other platform matches this level of biological insight at scale. With Spark chemistry, ConX RNA kits, pure target panels, and our upcoming multi-use SMRT Cell capability, we're delivering true end-to-end solutions, reducing barriers to adoption through improved cost efficiency, higher throughput, and workflow simplicity. Together, these innovations are setting the stage for broader adoption in clinical and population-scale genomics.

We believe that we are well on the path to supporting not just tens of thousands of genomes, but ultimately hundreds of thousands to even millions of genomes. We're doing this with focus and financial discipline. By investing efficiently and narrowing our strategic priorities, we've meaningfully reduced our cash burn and are on track toward our goal of becoming cash flow positive as we exit 2027. That's the opportunity ahead. That's why we've refocused on long-read innovation, and that's why we believe PacBio is well positioned to lead the next chapter of genomic medicine. With that, I'd like the operator to begin the Q&A portion of this call.

Speaker 2

We will now begin the question and answer session. To ask a question, you may press STAR, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press STAR, then 2. At this time, we will pause momentarily to assemble our roster. The first question is from David Westenberg with Piper Sandler. Please go ahead.

Speaker 4

Hi, great job on the quarter, and thanks for taking the question here. I want to start off with the tough macro situation in the U.S. Are you seeing an impact of just instruments? Are you seeing any kind of differences in consumable behavior, either by stocking or even putting off? I just wanted to follow up on that one and just ask, you know, the Senate definitely sounds like they support NIH and will not allow the cuts to go through. Are you hearing the actual labs feeling that way, or do they really need to see the proof in the pudding here?

Speaker 0

Yeah, thanks, David, and appreciate the kind words on the quarter. We're proud of what we accomplished in Q2. It is, you know, the macro continues to be tough in the U.S., and that certainly impacts instruments. In fact, most of our Revio placements were to commercial-type providers and not academic customers in the quarter, and I think that's going to continue until we get some more clarity around NIH. Consumables is a little bit different. What we're seeing is consumable utilization across the board has been basically pretty healthy and even trending up in some modest increments here and there. What it's always difficult to know is what experiments are customers putting off because of the NIH uncertainty, and there certainly is some of that.

So far in the United States, that hasn't hurt our consumable revenue, and we think the back half of the year will continue to look strong on the consumable front. With respect to the government and NIH, I do think customers are cautious. They are skeptical of the government right now in general, because of all the upheaval. When I talk to funding bodies and administrators, the people making the decisions, there still is confusion. There still is high levels of uncertainty when funding will happen. We've heard the same thing you have, that the Senate is very supportive of the NIH. We believe that the cuts probably won't be as dire as perhaps have been outlined earlier in the year, but we will have to wait and see.

Where I want to leave this, at least with NIH, is the reality is the rest of the business across the world is growing extremely strong. We saw our international growth at 45%. In fact, EMEA individually grew 35% in the quarter, and APAC grew 53% in the quarter. These are really strong results, and they're really driven by, in EMEA, well, actually in both territories, increasing adoption and utilization of Revio, with Vega driving our ability to land and expand across a much broader array of accounts than we ever could. We're very encouraged by the portfolio right now, and we just have to figure out how to keep moving in the U.S. in this tough macro.

Speaker 4

Got it. I wanted to follow up on Vega because I think instrument revenue probably beat all of us. Can you talk about the dynamics? Before Vega, I think we had this conversation about overcapacity in the market. You did mention 60% are new to new customers. I'm curious if these were predominantly actually ones that were outsourcing to large institutions in the past, and you actually are seeing that dynamic where instead of sending it out to insourcers, they're insourcing it, and you're seeing not this kind of overcapacity. Supply and demand are more in equilibrium today than maybe a few years ago or a few quarters ago.

Speaker 0

I think that, you know, it's always, you know, when you look at the new customers, most of the time those customers probably have done some experiments that have been outsourced to get them into long reads, but not always. It's really the array of applications, microbial, small amplicon sequencing, targeted panels, things like that, where Vega is a perfect fit. They can, you know, those customers can implement it in their lab with much faster turnaround than if they were to outsource it. At $169,000 at list price, it's a great bargain. In fact, if you look at Vega compared to low-throughput short-read sequencers, leading short-read sequencers, it's actually cheaper to run Vega than it is to run those other low-throughput platforms.

We're seeing some customers saying, "Hey, I've always wanted to get into long reads, and now I'm surprised at how inexpensive it is and how easy it is to use," as I kind of pointed out in my prepared remarks. I do think there's a bit of balance in the market relative to a few quarters ago, as you kind of said. This has been the strategy that we outlined in 2021, quite frankly, that you have a suite of sequencers that meet the customers where they are with a combination of throughput, cost, and relative performance, but all of them with the hallmark of PacBio Hi-Fi, highly accurate epigenetics in every run for free and single molecule sequencing so that you can do a lot more with the product. We'll see.

Speaker 1

Thanks for the questions, Dave. Gary, we'll take the next question in the queue.

Speaker 2

Next question is from Jack Meehan with Nephron Research. Please go ahead.

Hey guys, good afternoon. I wanted to talk about clinical customer adoption. It felt like in the script you made a lot of progress on that front over the last few quarters. Is it possible to get a rough estimate of how much of your consumables are coming from clinical now and just how that growth rate compares to the overall?

Speaker 0

Yeah, I mean, right now it's roughly 15% of our consumables are coming from those clinical customers, and that's a figure that's growing. We expect to see that continue to grow. Most of these clinical customers are still in validation phase, you know, and developing their assays and preparing them for, you know, prime time. A few of them, like Quest, have launched products, which is, you know, super exciting to see. I do think 15% is, as a proportion, probably will grow over time here and will be a key driver of consumable growth overall.

When we factor in translational clinical research too, like the ALS program we're part of, that's not included in the 15%. Got it. 15% is mainly DX and LDT labs, or direct in hospitals for genetic disease. If you add in clinical research on top of that, it's a much larger figure. Got it. The Revio pull-through in the quarter, I know it can bounce around a little bit, stepped down from Q1. The guide assumes it picks up. I was just curious about the dynamics around pull-through in the quarter. Do you think any of the funding issues might have impacted that? Also, how did the Spark rollout kind of influence overall consumables revenue? Thank you.

Yeah, so if we think about, you know, pull-through, as always, it does bounce around from quarter to quarter. In the quarter, it did step down a little bit from Q1. In Q1, you know, we had the Japan impact, for example, that had a very significant bump to, if Japan was year-end, and therefore we had an inordinately high number of consumables going into Japan in the quarter. That, you know, kind of helped boost Q1. Q2, you know, we really, it was a pretty normalized quarter. I suspect that, you know, it's kind of bouncing around in the range. I don't expect it to, I do think it'll continue to bounce around in that range through the rest of this year.

Probably, you know, a key change point will be, as we were talking about before with clinical, is as these bigger customers start to use it in routine ways, I suspect that might have an impact on it. If you look at Spark, the Spark chemistry has been, you know, quite remarkable, actually. We were seeing up to a 33% improvement. That's basically lowering the cost per sample for our customers and enabling more samples to get on the system. Could that have a modest impact in the short run? Perhaps. We're seeing probably at this point, though, over 90% of our runs are with the Spark chemistry. Any pull-through impact from that will probably normalize itself out over, say, this quarter, next quarter. We're kind of, you know, seeing all of that adoption effectively happening now.

We'll start to see a normalized rate from it, if that makes any sense.

Speaker 2

The next question is from Kyle Mixon with Canaccord. Please go ahead.

Hey guys, thanks for the questions. Congrats on the quarter. I'm going to ask a multi-part question. The first is on the clinical, just to follow up to Jack. You said 33%, or I guess a third of the Revio placements were to LDT or hospital labs, and you're replacing legacy tech. I would just, you know, want to ask if these labs are typically using multiple long-read technologies. I'm curious if you're winning head-to-head or permanently displacing legacy, you know, shorter to long read. Then secondly, on the placements, I mean, the instruments were great in the quarter, as Dave said before. How are you thinking about placements going forward? Was there any, you know, pull forward, I guess, from areas besides Asia, for example, in the second quarter? Thanks.

Speaker 0

Kyle, can you repeat the second part of the question again? I didn't quite get it all written down, actually.

I just asked upfront to avoid being taken off. Just instrument placements going forward, given it was, you were ahead of expectations, at least our expectations in the second quarter. I was thinking there might have been like a pull forward or like an acceleration from 3Q to 2Q. Just thinking about like a run rate for placements going forward, if we should use the second quarter as a good basis.

Okay, fair enough. We'll start with clinical, we'll start with the clinical labs. Many of these labs are using multiple technologies, multiple sequencing technologies. Most of them certainly use short-read sequencing technologies. What's happening is that they're implementing our technology alongside the short-read sequencing technology to help them get answers that they couldn't get. We're replacing, you know, legacy molecular biology techniques such as various PCRs, Southern blot, other things. In some of the labs where we've won head-to-head, we are replacing other long-read technologies, which is exciting. In many labs, they're definitely running multiple technologies. What we're hearing from our customers is now that we've achieved the innovation with pure target and with Spark chemistry, the economics of running Revio in a clinical setting are, you know, fit within their envelopes.

The accuracy and the performance of our system and the ease of informatics is significantly better than other long-read technologies, which will help them be more efficient, save money, and get better answers to patients. We're very excited about what's happening in the clinical accounts. We've designed our products to be very robust and very easy to use with clinical aspirations. Given the track, given where most of the team has come from, you can imagine that's kind of just ingrained in what we're all about. Very excited about that. If you look at instrument placements into the back half of the year, we expect to see Vega continue to grow. We don't think we've hit the steady-state placement rate by any stretch. We do think there's a lot of opportunity there. The sales funnel continues to grow.

One of the things that we're really excited about with respect to Vega is that we're seeing the sales cycle be much faster than Revio. We're seeing lots of opportunities crop up in the first month of the quarter, for example, and close in intra-quarter, which isn't that common, quite frankly, with Revio. The velocity of sales of Vega is helping us, and I do expect to see it grow in the back half. Vega will be dependent to, I mean, Revio will be dependent on how NIH funding kind of emerges. We still see tremendous amounts of opportunity internationally. As we've said, even as we said back in February, we thought Europe would be our fastest growing region this year. We continue to believe that. A lot of that is based on rare disease work with Revio.

I think that we will see our forecasts now are kind of flattish on Revio sorts of placements as a baseline, and maybe we'll do a little better some quarters, a little lower some other quarters, if that helps.

Yeah, that was perfect.

Speaker 2

We have a next question, Gary.

Speaker 0

Yeah.

Speaker 2

The next question is from Doug Shankle with Wolfe Research. Please go ahead.

Thanks for taking the questions. My first question is just on, it's not really turning that into backlog because Dr.

Mr. Shankle, your phone is breaking up.

Speaker 0

Doug, you broke up. Can you start over for us?

Is that any better, guys?

Yes, it is, actually.

Guys, can you hear me now?

We can.

Okay, very sorry about that. Thanks for taking the questions. The first one is on, I was going to say backlog, but it's not really backlog. It's almost like the activity that's really close to officially getting an order on Vega and on Revio. I'm asking because I'm just wondering how close you are to getting orders that you think would turn into orders and ultimately revenue if we get a good, or a better than bad, or better than worst case NIH funding scenario. I'm wondering if there's any way to quantify almost the pent-up demand that exists pending resolution. I'm also wondering if that's a potential source of revenue upside this year, or if that's something we should be contemplating as we look ahead to 2026.

Yeah, Doug, that's, boy, that is a crystal ball question. No question about it. Thank you for that. Todd and I were actually just talking about that before the call, looking at the third quarter, looking at the third quarter forecast and where we are right now. What's really interesting is that the number of near forecasted opportunities is significant, much bigger than what we normally see. I think I would probably characterize, and I'm speaking principally of Vega, by the way, and I would characterize that as probably what you're trying to get to. I can't give you a number, really. I don't think that really makes sense. You are right that we're seeing a lot of opportunities that are near opportunities that are not in the official forecast, but are near the forecast.

Depending on, for example, let's say that there is a budget flush in the third quarter, some of those could probably come to fruition, which would likely be a source of upside for us. We're not anticipating any budget flush. I don't think that it, until we get some resolution on what's going on with the NIH, it's difficult to know. It certainly could be a source of opportunity. We're also seeing that even outside the U.S., because the sales funnels are improving overall. What will be interesting for us to execute on in the second half is how do we accelerate those near opportunities into real opportunities that close that may not be completely dependent on NIH. They might be dependent on other macro factors. I do think that that's a source of potential upside for 2025 and certainly sets the stage for 2026.

Okay, super helpful. One technology roadmap question. You've talked about development of reusable SMRT Cells, understanding those would help reduce costs for customers. I'm just wondering, you know, which type of customers, you know, essentially which customer class do you think would be more open to this? You know, is this something that you think could work on the research side, but as you think about clinical endeavors, is it really less relevant in that category? Thank you.

Yeah, Doug, no, we've had lots of conversations with all kinds of different customers, and customers are really excited about it, whether it's clinical customers or research customers. We think it will be a broad adoption of this capability. Now, we're going to be very thoughtful about how we roll this technology out because it is real innovation, and you know, the industry hasn't seen this before in a meaningful sort of way. We will focus on our higher volume, high throughput customers likely first because they'll get the most benefit out of it. The way we will implement the technology will be in a very automated way, so it's very customer-friendly and simple, consistent with everything we try to do here at PacBio. We do think that that will really help those higher throughput customers, both on the clinical side and on the research side.

The beautiful thing about this technology is not only does it lower the cost per sample for our customers, it substantially increases our gross margin at the same time. It's one of those unique innovations that provides a double win: lower prices and higher gross margins, which is what we're looking for.

Thanks, Doug.

Speaker 2

The next question is from Subu Nambi with Guggenheim Securities. Please go ahead.

Hey guys, thank you for taking my question. You saw a really strong performance outside the U.S., and I know you're assuming status quo with the tariff environment, but how much growth internationally is factored into your guidance with respect to tariffs, and is there any risk that outperformance internationally could be a risk to guidance?

Speaker 0

Yeah, Subu, that's a great question. We've considered, we have been thoughtful about how we think about tariffs. We're not saying tariffs, we're out of the woods on tariffs, and we've taken a pretty conservative view on that. In spite of that, we've seen substantial growth in the first half, and we think that will continue in the second half. Especially with respect to China, the situation continues to be volatile, and none of us really know where the answers are. We have built our guidance around more conservative cases than less, but perhaps not as conservative as we were last quarter is the best way to see that. The reality is we're already halfway through the year.

When you were looking into Q2, starting with Q2, if you remember when we gave the guidance then, we were still all trying to grapple with Liberation Day and what China was saying, what we were saying, and China was saying, and what the U.S. was saying about China. We think it's a little bit more clear now, but not much. We didn't overreach on that at all. We're still taking a very conservative view with our guidance.

Perfect. Thank you so much, guys.

Yeah.

Speaker 2

The next question is from Tycho Peterson with Jefferies. Please go ahead.

Hi team, this is Priya on for Tycho. Just a question on pricing. Are you able to take price to account for tariff dynamics? I know one of your competitors had called out a 5% tariff charge. I was wondering what your thoughts are on pricing there.

Speaker 0

We have not adjusted pricing for any tariff dynamics, and quite frankly, we're not really seeing any tariff impacts at this point. I think that's masked as just a price increase, not a tariff surcharge. I think if we really were seeing a significant impact from tariffs, we would certainly have to evaluate whether we either change our price or add a surcharge as others will do. At this point, I don't think we've seen any substantial impact to merit kind of evaluating that. We would if we needed to.

Awesome. Thank you.

Speaker 2

The next question is from Mason Carico with Stephens. Please go ahead.

Hey guys, a lot's been asked here, but maybe I'll just stick to one. You've highlighted how some of these larger scale projects, like the Estonia Biobank, have helped drive strength in Europe. How concentrated, I guess, is 2025 revenue in these types of initiatives? Do you see similar opportunities, similar population-scale projects on the horizon that could sustain EMEA growth into 2026?

Speaker 0

Yes, that's a great question, Mason. Thank you so much. You know, you're right. The larger scale, like the Estonia Biobank project, has helped buoy some of the growth in Europe. One thing I'll point out is in the second quarter, the European team placed Revio's into several hospitals in the Nordic region for rare disease, routine clinical rare disease, starting with translational research, but really moving into what you could consider national programs for rare disease. The growth in Europe has actually been much broader based than just the Estonia Biobank project. It has been principally in what we're seeing in rare disease in the hospital setting. This is all clinical, and it's happening throughout the Nordics and into the continent of Europe itself. We're actually pretty excited about that.

Looking at the rest of the world, there are several population-scale genomics programs that are percolating around and moving forward, whether that's the Precise Program continuing on in Singapore, programs in Thailand, programs in other parts of the world as well. These are all significant opportunities, and I wouldn't be surprised if in 2026 some of these projects actually start driving Pacific Biosciences of California's revenue growth. We haven't, I don't want to report on anything, any projects we don't have yet, but I do think that there's a lot of substantial opportunity, and these are principally outside the U.S. where there's funding available. Stay tuned on that, and I look forward to keeping you posted.

Perfect, thanks.

Yeah.

Speaker 2

The next question is from Luke Sargot with Barclays. Please go ahead.

Hey, this is Jack. I'm for Luke. Thanks for the question. You mentioned not being able to supply some customers with Spark chemistry at the end of 1Q, so you had some backorders. Have those capacity constraints been addressed, and could you quantify how much of 2Q consumable revenue was pushed out from 1Q if it was material?

Speaker 0

I think we had some backorder in Q1, and we resolved a lot of that during the quarter. A lot of it was the sequencing reagents. In 2Q, we increased the batch sizes of our production, which has helped us get our arms around delivering on time to these customers. We still have some backorder here and there, but it's not really a material push into Q3 at this point. I think we've solved the vast majority of the issues.

Great, that's helpful. Thank you.

Yes.

Speaker 2

The next question is from Todd Friedman with TD Cowen. Please go ahead.

Thanks for taking my question here. Just another one on the reusable flow cell. Are you guys still committed to scaling throughput longer term, or has the model switched to kind of consistent throughput but much higher gross margin? I've got another follow-up on kind of your unit costs.

Speaker 0

Yeah, no, so consistent with our strategy, our objective is to deliver not only lower costs and higher gross margin, but also higher throughput. Our objective is to get close to price parity with short-read sequencing, and at the same time, get close to parity with the scale of short-read sequencing too. We think the future will require both for us to achieve both of those aspects. We're starting with, you know, we have our programs in place to develop a higher throughput sequencer. You can imagine we're always working on those kinds of projects. At the same time, you know, we are developing the multi-use SMRT Cell that will enable lower prices. The combination will enable us to be successful at competing for the millions of samples that are available in the market for us to go after. We've got both going on.

That's pretty helpful. Just a quick one on kind of unit costs. You've obviously made really, really good progress here in a kind of low revenue environment. Have you changed how you guys are perceiving the long-term gross margin outlook, given the effective unit cost cuts you've been able to make in the last couple of quarters, or is this just executing on a plan you guys already had in place?

I think we haven't updated our long-term gross margin guidance, and perhaps we'll do that at another time. Of course, our objective is to dramatically increase our gross margins from here, and part of that is making fundamental innovation improvements, both on the SMRT Cell side and on the instrument side. We're making progress every quarter on driving the cost of instrumentation down and increasing the yields of SMRT Cells. We had near record yields for SMRT Cells in the second quarter, which is helping push us forward. What we're doing is putting all of the fundamental cost improvements in place, and as we scale, we'll get the economy to scale benefits, which will be a further push to help gross margins. We haven't updated the guidance for the long run. At this point, we're laser-focused on exceeding the year, exceeding 40%.

I'm sure we'll communicate at the right time the next rung on the ladder up in 2026. I do think there is substantial opportunity to significantly increase gross margin here over the next few years.

Thanks, Christian. Appreciate that.

Yeah.

Speaker 2

The next question is from Yuko Oku with Morgan Stanley. Please go ahead.

Hi, this is Jason Long for Yuko. Lots have been asked, so I'm just going to stick to one. I just want to understand the type of applications on Vega. How similar or different are those applications compared to the main ones on Revio? Are the applications similar enough where Vega customers could transition to Revio in their long run if they need higher throughput, or are some applications just more economical to run on Vega? Thank you.

Speaker 0

Yeah, that's a great question. The great thing about our technology is the applications are applicable across the instrument portfolio. Some may choose, for example, microbial applications. You 60 gigabases of sequencing, of Hi-Fi sequencing, is a substantial amount of sequencing. If they need more scale, we have multiplex technologies that will allow them to multiplex more samples and take advantage of the throughput of Revio. It really becomes what is the scale of samples that the customer is looking at and what is the flow of samples in their labs. For example, you don't really get the, and this happens with other vendors too, where it requires an incredible amount of samples to get on a flow cell, for example, in order to get the lowest price per sample that you can.

We would face some of the same things, some of the same challenges on Revio in very small genome applications. If you have a lot of samples, it'd be no problem. If you have a lot of samples consistently, it'd be even easier. It is such that the customers can easily go from Vega to Revio and Revio back to Vega, depending on what their needs are at that specific time.

Great, I appreciate the color.

Yeah.

Speaker 2

We are at the top of the hour, so we'll wrap it up here. Thank you, everybody, for all the questions. We look forward to connecting with you at our several conferences later this quarter and when we report our Q3 results next quarter. Have a good one. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.