Pacific Biosciences of California, Inc. Stock

Good day. And welcome to PACBio's second quarter of 2026 earnings call. All participants will be in a listen only mode for the duration of the call. And should you need any assistance today, 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. If you'd like to ask a question, you may press star then 1 on your telephone keypad to join the queue. And to withdraw a question for any reason, please press star then 2. Also, please be aware that today's call is being recorded.

I'd now like to turn the call over to Kayleen Parrish from Gilmartin Group. Please go ahead.

Good afternoon and welcome to PACBio's second quarter 2026 earnings conference call. With me today are Mark Van Owen, President and Chief Executive Officer, Jim Gibson, Chief Financial Officer, and Christian Henry, PacBio board member and advisor. 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 8K, 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. On today's call, we will make forward-looking statements including, among others, statements providing predictions, estimates, expectations, and guidance. You should not place undue reliance on 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. We review our SEC filings, including our most recent Form 10-Q and 10-K and our press releases, to better understand the risks and uncertainties that could cause results to differ. claim any obligation to update or revise these forward-looking statements, except as required by law.

It also presents 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're 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. The recording of today's call will be available shortly after the live call in the investor 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 will now turn the call over to Christian.

Thank you and good afternoon, everyone. Earlier today we announced that I am stepping down as President and Chief Executive Officer of PacBio and that Mark Van Owen will lead the company as President and Chief Executive Officer effective immediately. I will remain on the board of directors and become an advisor to Mark as he drives PacBio's strategy forward. Mark joined PacBio shortly after I did, and in that time, he has led the R&D operations and commercial organizations. His deep understanding of the genomics and clinical markets will be invaluable to the company as we move deeper into supporting clinical sequencing around the globe. Additionally, his ability to successfully lead strong teams will ensure that PacBio executes well into its future. I'm proud of what we have accomplished over the nearly six years that I have had the privilege of leading PacBio.

We have developed and launched groundbreaking new long read sequencers that have dramatically improved the scale and economics of long read sequencing. These platforms are enabling researchers and clinicians to dramatically improve their ability to understand the impact of genetic variation on disease, moving us closer to achieving our mission of enabling the promise of genomics to improve human health. Finally, I want to thank our employees, customers, and collaborators for their support. I look forward to advising Mark as he leads the company into its next phase of growth and continuing to serve on the Board of Directors. With that, I'll now turn the call over to Mark. Mark?.

Thank you and good afternoon everyone. On behalf of the team, thank you Christian for your six years of leadership. I'm honored and excited to step into this seat and I'm grateful for the support of you, our leadership team and board who have been working closely with to execute the seamless transition. Since joining in 2021 as Chief Operating Officer, I had the pleasure of leading the R&D organization that built the Revio and VEG instruments, and more recently oversaw development and rollout of the multi-use SmartNEXT chemistry. My recent commercial leadership focus has leveraged the strength of our clinical and count engagement, which has proven particularly effective in the EMEA region. Looking ahead, my priorities will be directly built on this foundation, taking what's worked in EMEA and scaling it globally, driving Sparknext adoption across accounts, and growing our understanding of disease biology and biomarker discovery by enabling greater high-fide throughput, cost efficiency, and data access. I'm entering the end of the session. by the multiple catalysts in front of us and confident in what's ahead as we take PacBio into its next phase of growth.

Part of that next phase means operating with a leaner team focused on our highest priority growth drivers. I want to address a targeted reorganization we initiated late last week. We are integrating our marketing organization more closely with the rest of our commercial organization to ensure we maximize the growth opportunities we continue to see in the clinical market. This new online structure will sharpen our focus and strengthen our support for our clinical customers. We also reviewed the broader organization to reduce management spans and layers. Importantly, I want to reiterate that none of our key R&D platform projects were impacted by this reorganization. Turning to discuss our recent performance and where I see the business going from here.

The second quarter was highlighted by the full global commercial rollout of our new Spark Next chemistry. Access to our Spark Next beta program was in high demand in Q1, and feedback was highly positive as we approached launch. I am pleased to report that customer enthusiasm for Spark Next has remained strong since full launch. In fact, in June, over a third of our install base opted into our new consumer software that facilitates usage of Spark Next, is multi-use capabilities. As a reminder, Spark Next provides significant increase in sequencing throughput per run and new customers are now able to use each smart cell up to three times. This improves the economics for our customers and enables us to compete for substantially larger projects where competitive economics are crucial to winning. Many of our high throughput customers are currently in the process of validating the new multi-use workflows in their own laboratories, and we expect to see them ramping up Spark Next usage over the coming months.

As a result, we believe SPARKnext will be a significant driver of volume in the second half of the year and beyond. Against the backdrop of the SPARC Next launch, our organization continued to execute on key priorities, including growing the evidence base of scientific validation for our HiFi platform through multiple significant publications. We believe these speak to the utility of long-lead genome sequencing for rare disease diagnostics. In addition, we continued to make progress commercially. We delivered $39 million in second quarter revenue, a step up from T1. Total revenue was roughly flat year over year, driven by growing consumers and new revenue in VEGA placements as we commenced the full rollout of SPARK Next chemistry. Another benefit of the SPARCnext economics is that we saw several customers expanding the Revio fleet with multi-system orders to take on larger projects and programs.

Additionally, we closed and shipped a significant order for several Revio systems to a new population scale customer that we expect to begin sequencing in the third quarter. Looking closer at our consumables performance in the quarter, total consumable revenue for the quarter was $20.1 million compared to $18.9 million the prior year period. We continue to see strong adoption in the clinical market as shipments to clinical customers grew 67% year-over-year and represented a mid-teens percentage of photo consumables shipments. We expect clinical shipments to continue growing as customers move to full commercialization mode across our install base. However, we now expect his symbols pulled through for the full year to be 200,000 to 225,000 per radio system due to the pace of demand we are experiencing today. The narrow range reflects the timing of customer purchases as several accounts that received large Q1 shipments are now working through existing inventory while evaluating the multi-use feature. As we continue to roll out the Spark Next transition into late 2026 and 2027, we anticipate this range increasing.

We expect to see the first wave of Spark Next consumers' reorders in the coming months as accounts work through their inventory. Long term, we expect improved cost-per-genome economics should support higher utilization. Turning to instruments, we sold 20 Revio systems in the quarter. As I previously indicated, we had several multi-unit Revium shipments this quarter. These include a single new to PACBio customer, as well as two standing PACBio customers that were looking to further expand their revenue production fleets, which we believe is a testament to the appeal of revenue technology and Sparknext economics to both new and existing customers. These deals, coupled with the Base Camp opportunity we announced in Q1, signal our entry into larger population-level genomic studies which have been unlocked with SPARCnext. Further, we are now seeing specific clinical customers exit R&D mode and move into more routine production sequencing with our HiFi technology.

Overall, 60% of revenue placements in Q2 were to new customers, and 45% of revenue placements in Q2 were sold as a part of multi-instrument purchase orders. Cumulative revenue shipments stand at 366 systems. On Vega, we sold 26 Vegas in the second quarter, compared to 38 in the prior year period. Customer conversations remain constructive, but funding uncertainty in the US continues to constrain new orders. There are two observations that speak to our continued conviction on Vega, despite these headwinds. First, Vega ASP has returned to normalized levels, demonstrating that we can drive demand and capture the Vegas system's full value in the market without the promotional pricing offered in Q1. And second, US Public Health Labs, the center we deliberately built out, purchased Vegas this quarter and we expect more consistent utilization from these accounts as they ran.

Overall, 81% of Vegas shipments in Q2 went to new customers. Cumulative Vegas shipment stands at 200 systems. Regionally, the media continued to grow, and we expect it will remain our fastest growing region in 2026. America's revenue declined on academic and government funding constraints, while Asia Pacific consumers also declined as customers worked through existing SPARK inventory in preparation for the SPARK Next transition. What's encouraging is the receptionist part next. Customers across the region are actively evaluating it ahead of stepping up to volume purchases. And we expect that evaluation activity to convert into more routine ordering as the year progresses.

As a reminder, Spark Next's core advantage is reusing smart cells multiple times. For genome, US list price drops to $345 per 20x HiFi human genome, a 30% reduction versus our previous SPARC chemistry achieved without compromising the accuracy or comprehensiveness that makes HiFi valuable. Expanded methylation detection and advances in deep consensus, our AI powered consensus algorithm developed Google further improves accuracy, run performance, and the biological information generated from each read. Spark Next has changed the map for high throughput revenue of customers who have been waiting for long reach sequencing to become economically viable at scale and feedback has been overwhelmingly positive. In the first full month of full commercial rollout, customers have found that high FI yield is near identical across the first two uses with a slight decline on the third. In June, over a third of our install base opted into our new software that facilitates usage of Spark Next. As these customers continue these evaluations, we expect to see an expansion of Spark Next usage, which will in turn enable more throughput and expand gross margins.

We anticipate over half of our install base will have adopted Spark Next software by the end of this year. end of the third quarter and the vast majority to have opted in by year end. We are also ascended to report that we will launch the SPARCnext chemistry on the Vega system later in August. This chemistry will enable higher throughput of up to 90 gigabases per run and lower the DNA input requirements. the SPARCnext chemistry across both instruments for consistency of data quality and operations. Turning to the growing validation of our differentiated technology, two recent publications reinforce that HiFi long-read sequencing delivers better, more comprehensive results than the existing standard of care, which typically requires a multi-test process. scientific validation strengthens our conviction that we can shift the standard of care paradigm entirely, benefiting patients and providers alike. On June 13th, the New England Journal of Medicine published an article called Clinical Long-Rate Genome Sequencing for Rare Disease Diagnostics by Bitter et al. which is one of the strongest pieces of evidence for a thesis on the value of long read sequencing, especially in the clinical setting. Overall, the results were compelling. Concordance between long-read genome sequencing and standard of care was 96.4%. Long-read improved or refined diagnoses in 3.4% of cases, while standard of care only caught variants that long-reads missed in 0.2% of cases.

The publication demonstrates that HiFi long-read sequencing is a clinical effective first-tier diagnostic test that improves diagnostic yield while also simplifying the laboratory workflow, reducing turnaround time, and enhancing the overall economics of rare disease diagnostics. Hundreds of millions of people globally have rare disease, and most of them spend years being specialists and being submitted to testing with little resolution to their issues. We believe a publication of this caliber in the New England Journal of Medicine also carries real weight with payers and health systems. It's the kind of evidence that accelerates the transition away from legacy diagnostic workflows to us. The second article was published in Nature Genetics entitled, Near Perfect Genome Sequencing in Medical Genetics by Saba et al. In the article, the authors proposed that long-read genome sequencing should be considered as one pillar of a broader technological convergence, encompassing diploid genome assembly, pangeome references, and AI-driven variant interpretation, turned near-perfect genome sequencing. We also highlighted the potential of near-perfect genome sequencing across post-neuropathic, pre-neuropathic, and oncological settings while also outlining a staged implementation roadmap toward this one-test paradigm.

Like the New England Journal of Medicine article, this article similarly supports the move to the one-test paradigm given the diagnostic completeness of long-read sequencing technology like HiFi. Beyond rare diseases, we also announced a preprint from the hyphysol subfertility consortium in Asia Pacific, which marks the first major study from that group. Subfertility affects around one in six couples globally, and yet the genetic evaluation most couples receive today is fragmented. Multiple sequential tests often require months or years of evaluation that frequently result in no definitive explanation. The data demonstrates that high-fibro genose sequencing can provide a complete view of reproductive genetics in a single workflow, representing another long-term clinical opportunity for us. Additionally, our collaboration to run samples for Base Camp research has been going very well. Samples are in-house and we are sequencing and delivering hundreds of samples to Base Camp each week.

We expect Base Camp to contribute more meaningfully in 2027 when the majority of the samples will be processed.

I'll now turn the call over to Jim. Jim? Thank you, Mark. I will discuss non-GAAP results, which include non-cash stock-based compensation expenses. I encourage you to review the reconciliation of GAAP to non-GAAP financial measures in our earnings press release. Unless otherwise noted, all growth rates are year-over-year. We reported total revenue of $39 million in the second quarter of 2026, compared to $39.8 million in the second quarter of 2025. The increase in revenue in the second quarter was $12.8 million, a decrease of 9% from $14.2 million in the second quarter of 2025, primarily reflecting a lower average selling price driven by customer mix, including lower price strategic revenue placements to key accounts and fewer Vegas system shipments as academic and government funding concerns. strengths, continued to pressure capital purchases. We sold 20 Revio systems, up from 15 in the prior year, and 26 Vega systems, down from 38, ending the quarter with cumulative shipments of 366 Revio systems and 200 Vega systems.

Turning to consumables, revenue of $20.1 million in the second quarter increased 6% from $18.9 million in the second quarter of 2025, with annualized revenue pull-through per system at approximately $202,000. consumables revenue increased primarily due to the growth in the installed base and continued utilization of Revio systems, particularly among clinical customers. Growth was partially offset as customers worked through existing inventory and completed Spark Next's workflow validation prior to the broader adoption. Finally, service and other revenue was $6.1 million in the second quarter, compared to $6.7 million in the second quarter of 2025, reflecting continued growth in REVIA service contracts as our installed base expanded, offset by lower revenue as we completed a population sequencing program. From a regional perspective, America's revenue of $17.6 million was down slightly compared to the second quarter of 2025, as ongoing NIH and broader academic funding uncertainty continued to weigh on capital purchasing decisions. and commercial customer activity remained resilient, and we continued expanding our Vega installed base within public health laboratories. For Asia Pacific, revenue of $7 million decreased 45% compared to the second quarter of 2025, primarily reflecting the conclusion of a significant population sequencing program, continued academic and government funding headwinds, and the lower consumables demand as customers completed SPARC Next workflow validation and work through. existing reagent inventory. EMEA revenue of $14.4 million increased 52% compared to the second quarter of 2025, reflecting continued clinical adoption as hospitals and clinical customers transitioned from pilot programs into routine production, together with growing demand for the Vega platform and a significant strategic multi-system revenue placement. supporting a large-scale national genomics initiative. Moving down the P&L, second quarter non-GAAP gross profit of $13.9 million represented a non-GAAP gross margin of 36%, compared to a non-GAAP gross profit of $15.2 million, or a gross margin of 38% in the second quarter of 2025.

Non-GAAP gross margin declined primarily due to previously discussed compute cost inflation and lower manufacturing volumes. In addition, gross margin was impacted by $1.1 million in costs associated with transitioning Vega manufacturing in-house from our contract manufacturer. These transition costs are expected to conclude by the end of 2026. Separately, cash outflows were higher due to strategic purchases of memory components to support future production. Importantly, these purchases are largely timing related, and we now expect to have sufficient memory to support operations through the end of 2026. Non-GAAP operating expenses were $56.1 million in the second quarter of 2026, a 3% decrease from $58.1 million in the second quarter of 2025. Year-over-year decline reflects continued expense discipline across the organization while maintaining investment in our highest strategic priorities.

Operating expenses in the second quarter included $8.6 million of non-cash share-based compensation compared to $11 million in the prior year period. Regarding headcount, we ended the quarter with 492 employees compared to 485 at the end of 2025 and 491 at the end of the second quarter of 2025. As Mark discussed, we recently initiated a restructuring designed to further align our cost structure with our strategic priorities. is expected to reduce our workforce by approximately 40 employees and lower our ongoing operating expense base while preserving investment in our highest priority growth initiatives. NON-GAAP NET LOSS WAS $41.9 MILLION, REPRESENTING $0.14 PER SHARE IN THE SECOND QUARTER OF 2026, COMPARED TO A NON-GAAP NET LOSS OF $40 MILLION, REPRESENTING $0.13 PER SHARE IN THE SECOND QUARTER OF 2025. WE ENTERED THE NEXT QUARTER Ended the second quarter with approximately $236.9 million in unrestricted cash, cash equivalents, and investments, compared with $279.5 million at December 31, 2025. Turning to our full-year outlook, given the dynamics that Mark cited, we are lowering our revenue expectations for 2026 to $155 to $165 million. Revised Outlook assumes consumables will remain the driver of growth, supported by continued utilization from clinical customers and the expanding of Revio and Vega installed base.

At the same time, we expect Spark Next adoption to build progressively through the second half as customers complete workflow validation and transition existing reagent inventories. academic and government funding, particularly in the Americas, and a more gradual recovery in China than we had previously anticipated. We now expect non-cap gross margin to be in the range of 35 to 37% for 2026. This revised outlook reflects temporary vega manufacturing transition costs of approximately $2.5 million, elevated compute and memory costs, a more gradual SparkNEXT adoption curve, and the margin impact of lower-priced strategic revenue placements. Turning to our cash outlook, we expect to end the year with approximately $175 million to $185 million in cash, reflecting our updated revenue outlook, continued investments in SpartanX, the temporary manufacturing costs, and working capital impacts we discussed today, and the cost reduction initiatives Mark outlined earlier. Non-GAAP operating expenses are expected to be in the range of $215 to $220 million, a reduction of $5 million from the range we guided in Q1 and down from 2025 levels. Looking ahead, we expect cash burn to step down meaningfully in 2027. In addition to the benefits of our restructuring, which we expect to reduce compensation related expenses by approximately 15 million to 20 million next year, we expect to realize approximately 15 million to 20 million of additional annual savings as we move past development spending on our high throughput platform.

While these actions significantly improve our cash profile, our outlook also reflects the continued impact of elevated compute costs and a more gradual gross margin improvement than we previously anticipated. As a result, we now expect to achieve cash flow breakeven in 2028 compared to our prior expectation of the end of 2027. Based on our current operating plan, we believe our existing cash resources provide sufficient flexibility to execute our strategic priorities, support the commercialization of our new high-throughput platform, and fund the business through cash flow breakeven.

now turn the call back to Mark for closing remarks. Thanks, Jim. I'm energized about this next chapter for PacBio. The catalysts we've built toward, including SparkNext's full rollout, expanding clinical adoption, and our entry into population-scale genomics are now converging. My focus as CEO is straightforward. Scale is driving growth, sharpen our execution, and run a leaner, more focused organization built around our highest conviction growth drivers. Our staff I've spent five years in this business and I understand both its potential and what it takes to realize it. I'm confident in our team, our technology, and our path forward.

With that, we'll open the line. Jim and I are available for questions.

We will now begin the question and answer session. Again, to ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys and to withdraw a question, please press star, then two. On today's call, we ask that you please limit yourself to only one question during Q&A. If you have additional questions, you may rejoin the queue. With that, we will pause just momentarily to assemble our roster. And our first question here will come from Kyle Mixon with Canaccord Genuity.

Please go ahead.

Hey guys, thanks for the questions. Nice quarter. Tristan, it's great working with you. You've passed several years. You know, there's been the highs and the lows, but it's been overall a really impressive job. Mark, congrats on the role. It's going to be great to see how things progress going forward. So thanks guys for everything. Back to the quarter and the questions there. So I guess on the Revios and the Vegas, interesting to see how many are still coming from new customers. I'm just curious how many are clinical customers, You know, that would be interesting to see if most of these new customers are clinical in nature and how that's kind of looking and shaping going forward.

Thanks.

Thanks Kyle. It's going to be fun working with you as well. It's really my pleasure. I'm just going to start, just a quick thank you again to Christian and to recognize his contributions to PacBio. His industry knowledge and experience really has transformed PacBio. We've got a portfolio of products. We've got the commercial scale now, workflows and service, clinical markets. and really obviously building off of that foundation. And he's going to be, continue to be a great partner to me as he becomes a member of the board or stays a member of the board and advises me through this transition. You're speaking specifically about the Revue of Indegas, and maybe I'll start with Revue, because it was a good rebound for the Revue, as you can see, we, the majority of those to new customers and some multi-system placements, which I think is a really important part of the Spark Next thesis, Kyle, to make sure that that economic is driving, you know, scaling of existing customers, as well as bringing in new customers.

In terms of the clinical adoption, the majority of those are going to clinical accounts. And so we continue to see the momentum in the business there, not just on the growth and consumables, but on the instrument platform. Likewise in the vega, we had a smaller number than last year, but I think consistent with last quarter's overall vega units The majority of these are to brand new customers to PacBio, which again, that was the idea with the data platform launch was to decentralize the high-end by sequencing expose more of the more of the glow to to our technology and so you know We continue to do that and again, Vega is predominantly still smaller targeted applications in terms of applications. I think what we noted there is the, the health labs are starting to pick up big again. So we're starting to see some momentum in wastewater testing and your non-traditional uses of HiFi genome for higher throughput whole genome type applications. So really encouraged by the big and new customer demand as well as the clinical and public health lab adoption of it.

And our next question will come from Suhu Nambi with Guggenheim. Please go ahead.

Thomas on for Subu. Thanks for taking our question. On Revio, you said you placed some boxes to customers doing population scale sequencing. You gave some comments on the consumables timing. Just thinking about those factors and some clinical accounts, can you just walk us through what you're expecting on pull through sequentially from here? just what does the second half look like in terms of third quarter, fourth quarter? Thanks so much.

Yes, on the population genome opportunity that we mentioned, we'll disclose who that is when the timing's right for that. So expect for some further updates there. On the clinical customer scaling, this is where you start to see the scaling with much faster uptake of the conservables. again driven with the SPARCnext economics here again. So we expect those to start to implement and scale through the back half of this year. In terms of the overall timing of the SPARCnext and consumables scaling, you know, we are going through this transition. You saw we were relatively flat quarter over quarter on our consumables revenue. I would expect that to continue through this next quarter and then start scaling as we get through the back end of this year.

You know, these Spark Next customers are optimizing their workflows, they're getting used to running our smart cells multiple times and hardening the validation of that. And so I expect this transition to last through this quarter and then start to scale towards the back end of the year.

And our next question will come from Jack Meehan with Opron Research. Please go ahead.

Thanks. Good afternoon, guys. And Mark, congrats on the new role. My question is for Jim. I was wondering if it was possible to talk about gross margins for memory. How much of your supply is locked in now for the second half in 2027? And can you talk about what any incremental headwinds could be if the spot pricing holds? Maybe just on the positive side, you've talked about the multi-use smart cells potentially improving pack-by-over-us margins. When do you think that's going to start to show up? Thanks.

Sure, thanks Jack. So first, let's talk about the memory impact and its implications for this quarter and going on. From the standpoint of supply, we are supplied through the end of 2026 based on our current forecast. So we have memory coverage, GPU coverage through then. We'll probably enter the market to start purchasing more memory tail end of this year. So as we're looking, and part of the reason we've adjusted our gross margin guidance down to 35 to 37% is we do expect the memory impact to persist through the rest of this year. We don't have good visibility into 27 yet. That's part of what drove some of the actions that Mark talked about in the previous session. restructuring.

Number two is the other piece that's actually impacting our margins for the rest of this year is the transition cost with the vegas. So one of the things we're really trying to do is cut costs in the long term as we insource manufacturing and bring down a number of suppliers. So part of that transition we're incurring some uninspected costs. However, it's allowing us to accelerate that transition to Vegas or in-house manufacturing. So that's something we are doing to help us look a lot better moving into 27. And then third part of your question is, as Mark mentioned, we do expect the SparkNEXT ramp to increase more in the latter half of the second half of the year, so that will be offsetting some of those persistent memory costs and those transition costs. So we're excited to get the transition behind us.

I think we're excited to see memory stabilize. I don't think we're going to necessarily see a decrease in memory, but I think one of the fluctuations in spot markets and how that's impacting our supply chain. So that's part of the reason we have some of the unanticipated impacts in the latter half of the year. But I think some of the early indicators are that's starting to stabilize. So...

Thank you. And our next question will come from Mason Carrico of Stevens. Please go ahead.

Hey, guys. Thanks for taking the question here. So, on SPARC Next, I guess, could you just talk about the early signals and signs, I guess, that you're seeing from customers on whether that 30 to 40% cost reduction is expanding sample volumes to more than offset that pricing discount and how we can We should be thinking about maybe the sequential pacing of that playing out as we get into the back half of the year.

Yes, thanks, Mason, for the question. So this SPARC Next launch is critical for us to establish both ourselves in these larger scale programs, which we're seeing the indication of with some of these multi-system review deals, but also for that gross margin expansion that you talk about. The 30% price decrease, I do expect to be a big part of that. to overcome here as we work through the growth in the back half of this year. And so, I think the timing is relatively short term. We mentioned that we've already seen a third of our customers upgrade the software to enable the Spark Next, and so the demand is there. We have seen in Asia-Pac, the drop in consumables in the second quarter was then burning down their SPARK inventory and getting ready to take on the shipments of SPARK Nexus scale. So the early indicators are there and the excitement is there as well as the opportunity for involvement in some of these larger projects.

So we look for that gap to be closed as we work through this quarter and then exit the back end of this year.

And our next question will come from Dan Brennan with TD Cohen.

Hi, Pradeep on for Dan. This transition phase with the Spark Next chemistry on Revio with the existing inventory and the... and the validation phase. Do you similarly expect that with Vega consumables a few months after launch or not so much because that's a different base of customers? Thank you.

Yes, I don't expect the same dynamic with Vega, mostly because Vega utilization is less than that of the Revio. And so I don't think you'll see the same impact on utilization with Vega. I think what you'll see with Vega is an opportunity for the Spark Next to expand the application set that Vega is used for. In this launch, we're increasing the throughput of Vega to be able to deliver 90 gigabases of yield versus the 60 with the on-market version of Vega. So we do think that that increase in data is going to enable people to start thinking about larger panels of genes, larger amplicon sets, the occasional whole genome, whether that's human or non-human genome. More than anything, I think the SPARCnext on Vega with the higher throughput and the lower DNA input requirements is going to open up the applications that we see on that and drive utilization upwards.

And our next question will come from David Westenberg with Piper Sandler. Please.

Go ahead. Hi, thanks. This is Skye on for Dave. Thanks for the question. Maybe just more generally, as the industry is shifting now towards multi-omics, can you talk about the advantage of PacBio's long-read technology? What are you seeing from your biopharma partners? What are they looking for? Where are the demands there? Thanks.

Yes, so this is where I really do believe that we are most differentiated. We have the most comprehensive clinical genome or whole genome that lets us look at, if you think about multi-nomics in the sense of different varying classes. So we're seeing a lot of interest in the repeat expansions and the structural variation that and then the diploid genomics that lead to the publications like the Near Perfect Genome paper. The methylation is starting to expand in knowledge and the reference sets around that and the methylation signatures are starting to expand the desire for the methylation that comes with our genome analysis. So in the multi-omic sense of the DNA, we're starting to see a lot of progress including that chromatin architecture. In the RNA world, the desire for isoforms and looking at the impact of isoforms across development and conditions is continuing to increase, which is driving the transcriptomics field into more of a transcriptomics rather than gene expression field. And so the combination of DNA and RNA is working really well for us.

This is, when I talk about how important it is for us to drive our data into better data sets and model training in the future. It is the comprehensiveness and the multi-omic nature of the data that makes this so attractive to people. How can they look at something that's going to be future-proofed so they can go there and use our data for AI model development as we've seen with the base deal and work there. So comprehensiveness and quality and multiomics is only becoming more and more prevalent in the conversations that we have with biopharma and or just the biology research community.

And our next question will come from Tycho Peterson of Jefferies. Please go ahead.

Hey, team. This is Lauren on for Tyco. Mark, congrats on the new role. Thanks for taking the question. Mine is around the guidance. So you lowered it since last quarter, but that's despite having the SPARCnext launch on both systems now, ramp in the back half of the year, new population scale customer, accelerating Revio placements. Could you just talk about what's not showing up? up in these positive signals that resulted the confidence to come down? Thanks.

Yes, thanks for the question. I do believe that the guidance that we provided, the $155 to $165 million, does reflect the confidence in our ability to execute. While we do see the traction and a lot of positivity, this is in the context of the SPARC Next transition, and so I think because of that, I think it's appropriate that we have this guidance range on the revenue side. The impact on the cost of compute that Jim was talking about is real and while we're looking at different ways to mitigate that and we've done some pre-purchasing of that, I do think that the guidance on the gross margin is also better reflected with just the uncertainty that we have and some of the real headwinds that he fixed there. So to me, it's the Sparknext transition headwinds and the cost of compute that we just wanna make sure that we're properly accounting for. And because of that, we've ended up lowering or extending, sorry, our expectations on class flow break even to 2028. And so I think we take a really balanced view, given the backdrop of what we're working through over the back half of this year.

And again, if you have a question or follow-up, you may press star then 1 to join the queue. Our next question will come from Luke Sergant with Barclays. Please go ahead.

Great, thanks. Mark, congratulations. Long time coming. Christian, I hope we still see you at AGBT. on the dance floor out there. I guess just on the commercial rework, what spurred the changes and what's the new look going to be like? I mean, I understand that the, You want to be more focused and agile for the clinical customers, but you guys have, you know, AI customers. Now you have POPC customers. Just, you know, what other investments are you going to need to make or, you know, what's that structure going to look like?.

Yes, thanks Luke, and I'm sure we'll say some beer pong. You know, the clinical team is doing really well, and it's really leveraging what we're seeing in Europe and the clinical traction we're getting in Europe, and how can we more effectively take that out in a really, really, really positive combined motion into a more the rest of the world. So the restructuring was a lot around the marketing organization to really focus them on the clinical workflows, the clinical marketing, how we're going to drive the understanding of the usefulness of HiFi in and around that clinical market. And so it is really a line of marketing and sales motions and sales towards that clinical opportunity. that we're really starting to see the early stages of success in Europe and expanding that. So don't expect a massive change. We're going to continue to always support the plant and animal and the research community if the research budgets start to unlock here. But it's really just the education and awareness that's required right now for us to focus on that clinical opportunity. talking about biopharma and data strategies, those are large, lumpier deals that are handled more in a business development or corporate development piece of the company.

So I don't see that as a major distraction. I really think it's just a united force making sure that we're stepping into this clinical opportunity that I see ahead for us.

And this will conclude our question and answer session, in addition to today's call. Thank you all for attending and participating in today's presentation. You may now disconnect your lines and have a great day.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Welcome to the PacBio First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Caylene Parrish with Investor Relations. Please go ahead.

Good afternoon, and welcome to PacBio's First Quarter 2026 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 make forward-looking statements, including, among others, statements providing predictions, estimates, expectations and guidance. You should not place undue reliance on 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 Form 10-Q and 10-K and our press releases 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 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're 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 will now turn the call over to Christian.

Thank you, and good afternoon, everyone. Our first quarter of 2026 was highlighted by record consumable revenue, greater than 100% year-over-year growth in consumable shipments to clinically focused accounts and significant progress on our strategic objectives, including entering our first significant AI-related project with Basecamp Research. On the other hand, instrument revenue, particularly Vega, was lower than we had expected. This was driven by continuing pressure on academic funding, particularly in the United States. Additionally, we were unable to deliver some products to the Middle East because of the conflict in the region.

I'll start by diving into our consumable performance. Once again, we achieved record consumable revenue, marking our third consecutive record quarter. In Q1, this was highlighted by more than 100% year-over-year growth in shipments to clinically focused accounts. This growth offset the fact that some customers held off consumable shipments to wait for the SPRQ-Nx commercial launch.

Overall, consumable revenue grew 9% year-over-year, and clinical shipments now represent a mid-teens percentage of total consumable shipments, doubling year-over-year. We expect clinical shipments to continue growing as customers transition from testing and validation to full commercialization. Consumable pull-through was within our expected range of $225,000 to $250,000 Revio system. Additionally, there was strong demand to participate in our SPRQ-Nx early access program during the quarter.

Turning to instruments. We shipped 15 Revio systems in the first quarter compared to 12 in the first quarter of 2025. While Revio demand remains constrained by the funding environment in the Americas, we are encouraged by the fact that half of Revio placements went to new customers globally, and we continue to see multisystem orders from clinical accounts building their capacity. We ended the quarter with cumulative Revio shipments of 346 systems.

We shipped 27 Vega systems in the first quarter compared to 28 in the first quarter of 2025. The revenue contribution from Vega was impacted by 2 primary factors: lighter demand in the United States, where academic funding remains under pressure and promotional pricing geared towards attracting new customers. Specifically, during the quarter, we launched a limited time Vega promotion to expand our Vega installed base and unlock several new accounts. We concluded the promotion at the end of the first quarter, and we expect Vega ASPs to normalize in the second quarter. The good news is that more than 85% of Vega placements went to new customers this quarter, expanding the reach of HiFi sequencing. Cumulative, Vega shipments stand at 174 systems.

From a regional perspective, EMEA was a highlight in the first quarter, delivering 17% year-over-year growth. We are seeing clinical customers who were in pilot and validation mode now make the transition into sustained production scale sequencing. That shift is creating demand for more Revio placements and is driving sustained consumable pull-through. The EMEA pipeline for Revio continues to be strong, and we believe that instrument sales in EMEA will remain an important driver for our business.

As we saw in 2025, we expect that EMEA will be the fastest-growing region in our business in 2026. In the Americas, we continue to aggressively shift our strategy to clinical and commercial accounts where the funding dynamics are more favorable. In fact, in Q1, our largest accounts are now commercial service providers and clinical accounts.

Revenue in Asia Pacific declined 16% year-over-year due primarily to our largest customers in China waiting for the commercial launch of our SPRQ-Nx kits, which are expected to ship later this month. Looking ahead, we remain confident in delivering revenue growth for the year. Although Vega demand remains softer than we anticipated, Revio opportunities are increasing with the imminent launch of SPRQ-Nx.

As I communicated previously, we believe the introduction of SPRQ-Nx makes HiFi sequencing the most affordable long-read sequencing technology. These favorable economics have been enabled by both the Multi-Use SMRT Cell and an increase in SMRT Cell yield. We will commercialize SPRQ-Nx with the ability to use the SMRT Cell 3x, and our beta customers have seen double-digit improvement in yield. In fact, the beta program has gone so well that we significantly expanded the program in the first quarter. However, as I previously indicated, some of the customers are waiting for the full launch of the new chemistry, which will occur later this month.

Ultimately, we believe that SPRQ-Nx will drive demand for both more Revio systems and more consumables, but SPRQ-Nx isn't limited to Revio. Later this summer, we expect to launch the SPRQ-Nx chemistry on the Vega platform. On Vega, SPRQ-Nx will enable significantly more throughput, and it will unlock some of the key features of the SPRQ chemistry, including lower DNA input quantities. This will immediately increase the utility of the platform and increase its value, which we believe will accelerate demand for Vega.

Now I'd like to highlight a few significant strategic developments from the first quarter and areas where we have made encouraging progress in support of our long term goals. First, we completed 2 significant strategic actions in the quarter. We closed the sale of our high-throughput short-read sequencing assets to Illumina, generating approximately $48.1 million in net cash proceeds and meaningfully strengthening our balance sheet. Additionally, we resolved outstanding litigation with personal genomics of Taiwan. Taken together, these actions sharpen our focus, strengthen our position and allow us to concentrate entirely on what we believe to be our true competitive advantage, long-read sequencing.

We are also making real progress in our clinical opportunity, which we believe remains the most compelling long-term driver of our business, with shipments to clinical accounts increasing more than 100% year-over-year. Our goal is clear: lower the barriers of adoption and enable clinicians worldwide to deliver more complete answers to patients and their families. Our core thesis is straightforward. HiFi is the only commercially available sequencing technology that we believe can comprehensively characterize substantially all classes of variants in a single assay. As a comparison, short-read approaches require multiple tests to achieve a similar result.

As demand for comprehensive genomic testing continues to grow, we're focused on expanding the clinical utility of HiFi sequencing because our system's faster time to answer, comprehensive genomic output, and altogether less expensive total testing costs can provide the insights that meaningfully change outcomes for patients. Specifically, we continue to believe that the rare disease market will be a major driver for clinical adoption of HiFi sequencing. Of the estimated 300 million people living with a rare disease, many remain undiagnosed or misdiagnosed, which we believe to be a reflection of the limitations of historic sequencing technology.

What makes the rare disease market particularly compelling from a business perspective is that we believe we are in the early phase of the adoption curve. Patients getting sequenced today represent a small fraction of those who could benefit. It is clear to our team that we are in the early innings of a very large opportunity, and we have the chance to make a big impact with HiFi technology.

We've made notable progress across our recently announced collaborations in rare disease. Ambry Genetics is on track to assess 1,000 patients in their once study. With Ambry, we believe we are proving that HiFi has the power to find what other sequencing technologies have missed. Our collaboration with n-Lorem and EspeRare continues to advance with HiFi sequencing across dozens of ultra-rare diseases. HiFi has the potential to help inform therapy recommendations, another important validation point for clinical utility beyond the initial diagnosis.

Additionally, the University of Washington program studying sudden unexplained death in childhood by sequencing across 200 families is well underway, further building our evidence base. As utilization of HiFi to sequence rare disease cases continues to expand, the ability to connect the data across customers and sites becomes a valuable tool for understanding each rare disease. This is why in late February, we announced a collaboration with DNAstack to launch the first global federated HiFi whole genome data set.

Through the HiFi Solves consortium, which includes nearly 30 clinical and research institutions across 15 countries, the collaboration enables secure international research and allows genomic insights to travel across borders. Members have connected or have committed to connect more than 10,000 HiFi whole genome sequences, which would form one of the largest and most diverse federated HiFi data sets dedicated to rare disease research. We expect that collaboration will accelerate discoveries for patients and further drive our strength in the clinical research setting.

Beyond rare disease, we're seeing a tremendous opportunity in the carrier and newborn screening markets. For example, in the fourth quarter of '25, we announced the Babies and focus project led by Eurofins Genomics U.K. to sequence at least 2,000 samples. This study aims to demonstrate that long-read whole genome sequencing provides clinically meaningful improvements within a newborn screening setting, particularly in detecting complex and structural variants. We believe that this study will generate real-world evidence at population scale that can justify adoption of long-read sequencing in newborns in national health care programs and demonstrate the value created by long-read sequencing over short-read approaches.

I'm happy to report that this is advancing as planned, and we expect 1,000 samples to be sequenced on the PacBio technology between April and September of this year. We believe this work is foundational for building the evidence base for potential inclusion of long-read sequencing in a national newborn screening program in the United Kingdom.

Before I turn the call over to Jim, I want to discuss our recently signed collaboration with Basecamp Research to deeply sequence approximately 100,000 metagenomic samples. This will be the largest project using HiFi technology in the history of PacBio and the first scaled use of HiFi for the development of a biological foundation model.

The team at Basecamp believes that model performance and biology scales disproportionately with data quality and diversity, not just model size. As a result, Basecamp is ambitiously targeting to create a Trillion Gene Atlas, which may end up expanding known genetic diversity by as much as 100-fold by sequencing up to 100-plus million species globally.

The Trillion Gene Atlas will be used to train a new class of biological foundation model, Basecamp's Eat-in model, which is already demonstrating the ability to move beyond simple prediction into generative biology, designing therapeutics directly from sequence and disease prompts, including gene insertion systems, antimicrobial peptides and cell therapies with high experimental hit rates. Basecamp selected PacBio for this groundbreaking project because HiFi technology offers the most accurate and comprehensive view of the genome, which will be critical for this new class of biological foundation model.

Additionally, with the launch of SPRQ-Nx, we now have the ability to not only sequence at scale, but also offer the economics required to meet the needs of ambitious projects like the Trillion Gene Atlas. I look forward to keeping you updated on this project as we expect sequencing to begin scaling up over the course of 2026.

I'll now hand the call over to Jim, to detail our financials. Jim?

Thank you, Christian. I'll discuss non-GAAP results, which include noncash stock-based compensation expenses. I encourage you to review the reconciliation of GAAP to non-GAAP financial measures in our earnings press release. Unless otherwise noted, all growth rates are year-over-year.

We reported total revenue of $37.2 million in the first quarter of 2026, roughly flat compared to $37.2 million in the first quarter of 2025. Instrument revenue in the first quarter was $9.7 million, a 12% decrease from $11 million in the first quarter of 2025. The year-over-year decline was primarily driven by lower Revio ASPs as we continue to prioritize placements in strategic accounts and lower Vega ASPs associated with our Q1 promotion. This dynamic was partially offset by an increase in Revio instruments shipped. In total, we shipped 15 Revio systems and 27 Vega systems, bringing cumulative shipments to 346 Revio systems and 174 Vega systems.

Turning to consumables. Revenue reached a record $21.8 million in the first quarter, up 9% from $20.1 million in the first quarter of 2025. Annualized Revio pull-through per system was approximately $229,000, reflecting consistent utilization across an expanding installed base. Finally, service and other revenue declined approximately 7% to $5.6 million in the first quarter compared to $6 million in the first quarter of 2025.

From a regional perspective, Americas revenue of $16.7 million increased by 2% year-over-year. The performance was primarily driven by growth in consumables revenue related to an increase in our installed base. For Asia Pacific, revenue of $9.7 million decreased by 16% compared to the first quarter of 2025. The year-over-year decline reflected a weaker academic funding environment and the fact that some of our Chinese service providers are waiting for the launch of SPRQ-Nx.

EMEA revenue of $10.8 million increased by 17% compared to the first quarter of 2025 despite some challenges delivering product to the Middle East. The year-over-year increase was driven by consumables demand, reflecting both account expansion and higher utilization, particularly in clinical settings where increased test volumes drove incremental pull-through.

Moving down the P&L. First quarter non-GAAP gross profit of $13.8 million represented a non-GAAP gross margin of 37% compared to a non-GAAP gross profit of $15 million or a gross margin of 40% in the first quarter of 2025. Non-GAAP gross margin decline in the quarter was impacted by 3 primary factors: First, we continue to see increased computing component costs, specifically memory, which we flagged on our Q4 call as a potential headwind in 2026 and which we believe will persist throughout the year. Second, we held a temporary Q1 promotion for Vega to drive placements, which compressed instrument margins. Third, there are unique onetime dynamics at play in Q1, including inventory adjustments and warranty-related charges.

We want to be clear. Gross margin pressure in Q1 was primarily driven by nonrecurring and timing-related factors, and we expect gross margins to improve in the second quarter. Non-GAAP operating expenses were $49.9 million in the first quarter of 2026, representing a 19% decrease from non-GAAP operating expenses of $61.7 million in the first quarter of 2025.

Operating expenses in the first quarter of 2026 included noncash share-based compensation of $3.8 million compared to $8 million in the first quarter of 2025. Regarding headcount, we ended the quarter with 492 employees compared to 485 at the end of 2025. Non-GAAP net loss was $35.9 million, representing $0.12 per share in the first quarter of 2026 compared to a non-GAAP net loss of $44.4 million, representing $0.15 per share in the first quarter of 2025. We ended the first quarter with approximately $276 million in unrestricted cash, cash equivalents and investments compared with $280 million at December 31, 2025. Our cash position reflects the January closing of the sale of intellectual property and other assets related to our short-read DNA sequencing technology to Illumina for which we received $48.1 million in net cash proceeds.

Turning to 2026 guidance. Given the dynamics that Christian cited, we are lowering the high end of our outlook for 2026 revenue by $5 million and now expect revenue in the range of $165 million to $175 million. Our revised outlook continues to assume that consumables are the primary driver of growth, supported by continued utilization from clinical customers and the ongoing expansion of the Revio and Vega installed base.

We continue to assume no meaningful recovery in academic and government funding, particularly in the Americas. We expect non-GAAP gross margin improvement in 2026 to be towards the lower end of our previously communicated range of 100 to 400 basis points. While higher consumable mix and the introduction of SPRQ-Nx remain important drivers of margin expansion, rising compute costs will temper the pace of margin improvement in the near term. Non-GAAP operating expenses are expected to be in the range of $220 million to $225 million, down from 2025 levels.

I'll now hand it back to Christian, for closing remarks.

Thanks, Jim. The first quarter certainly had its challenges. But when I look at what we have accomplished to start the year, record consumables revenue, continued sequential strength in EMEA, increasing clinical adoption, the Basecamp Trillion Gene Atlas win and the promising results of our SPRQ-Nx beta program, which will enable full commercialization later this month, I see that we are executing on the initiatives that are expected to drive meaningful sustained growth.

We are well positioned to advance the field of sequencing, making an impact for the better and delivering long-term value across stakeholders. We believe that HiFi sequencing remains the most comprehensive and accurate way to sequence the genome. We remain focused on increasing the adoption of HiFi through both increasing the throughput of the sequencers and dramatically improving the economics of leveraging the technology through SPRQ-Nx. With these improvements, we expect to continue creating new opportunities and expanding our clinical opportunity, especially.

Additionally, HiFi is increasingly becoming recognized as an obvious choice as large data sets are created to train advanced AI models for drug discovery. As a result, I'm confident in the trajectory of our business and growth as we advance through 2026. We look forward to updating you as the year continues to unfold.

With that, we will now open it up for questions. Operator?

[Operator Instructions] The first question comes from Dan Brennan with TD Cowen.

[ Pradeep ] on for Dan. What does your guide for instruments imply? And what sort of visibility do you have going forward?

Can you repeat the first part of the question for me?

Yes. What does your guide for instruments imply for the rest of the year?

Yes. So our guide for instrument, the guide for instruments continues to be strengthening Revio's and a little bit of uncertainty around the Vega platform. Vega, we're finding, particularly in the Americas, is really more sensitive to the academic and government funding environment. And as we've turned our focus to really driving clinical and commercial accounts, we're seeing more demand for the Revio system. And so on balance, we expect them to somewhat balance out, and that's why you can see in the guide, we still believe we're going to achieve -- we're going to still be in the range of the guide that we provided back in February.

From a visibility perspective, we do have funnels for both platforms of course. The platform for Revio has been improving. And Vega, particularly in the Americas, has been a bit more challenging. And so that's kind of where we sit today.

Can you discuss clinical traction, including U.S. versus outside U.S.? And what does progress in the U.S. look like and outlook for 2026 and even 2027?

Yes. So U.S. versus the U.S., if we look at clinical traction, I'll start outside the United States because really, we're seeing in EMEA, very, very strong traction with the Vega platform being really the platform for whole genome sequencing for rare disease. And we're seeing the customers in EMEA go from the validation phase to increasing full commercialization. And so we expect that to be an important core driver.

In the United States, we're actually seeing much of the same thing. And one of the things we said in our written remarks is that our biggest customers now have become the clinical and commercial accounts. And what's exciting about that is those clinical accounts -- some of them have gone commercial, but many of them are kind of ending their validation phase at this point in time. And we expect to see them ramping in full commercial production with both the carrier screening assays as well as whole genome sequencing in the rare disease setting.

So we do expect our growth prospects in clinical to continue and quite frankly, keep moving forward, both in the United States and in Europe, in particular. So very encouraging results. We also indicated that we saw over 100% growth quarter year-over-year for the clinical side of our business and consumables, which will help us all around.

The next question comes from Doug Schenkel with Wolfe Research.

This is [ Austin ] on for Doug. Just a quick one on input costs. Within cost of product sales, what is your exposure to memory pricing? And given the rise in memory chip costs, are you expecting a material gross margin headwind? And if so, how should we think about the impact on margin cadence for the rest of the year?

Yes, it's a great question. Thank you, Austin. We do -- our instruments are heavy compute instruments, both for DRAM and for storage as well as GPUs. We've mitigated some of that risk over the for 2026, but we do expect that to impact our gross margin some this year. And as Jim pointed out, we expect to be more on the lower end of gross margin growth than the higher end of gross margin growth really as a result of these input costs. So they are having an impact. There's a lot of variability there.

We're seeing prices increase pretty regularly here. And so we're managing it. But we're managing it through. We already have supply on hand, and we're also looking at R&D solutions, which take a bit longer to get into the system, but over the long run, as DRAM prices kind of normalize, those R&D solutions actually will help us with gross margin in the long run. So in the short run, we're managing it will have some impact in 2026. We still are expecting to improve our gross margins over 2025. And in the long run, R&D solutions will help us lower those costs overall.

Great. And then just one on the discounting you mentioned. Where did ASPs for Revio's and Vegas land in the quarter? And are there any similar discounting activities planned for the rest of the year? Or should we expect improving ASPs from here?

Yes. We -- there are no additional discount programs that are ongoing or going forward. That Vega was really a onetime promotion. And what we were trying to do with that promotion is get some new accounts, and we are very successful at that. 85% of the Vega sales were to brand-new customers. But we've decided to kind of back off of that discount in Q2. Revio ASPs are reasonably consistent with where they've been and Vega was certainly lower this quarter because of that promotion. We would expect Vega to return to kind of more normalized levels in Q2.

The next question comes from Kyle Mikson with Canaccord Genuity.

This is [ Alex ] on for Kyle Mikson. So I understand you're facing 2 pressured instruments, but I'd like to focus on some areas of strength and potential growth. Just to start here, congrats again on the consumables growth in the quarter. Aside from rare disease, you had your pure target panels. Any plans to launch additional pure target panels in the near term? And of course, it's no secret that you shifted a good deal of focus towards the clinical end market. Do you have any internal targets regarding where you can envision what clinical might make up as a percentage of total revenue in the medium- to long-term?

Yes. Those are great questions, and we're actually very happy with the pure target performance that we've had with the company, and that's really enabling us to get into the carrier screening market, for example. Where we're seeing the fastest growth though in clinical really is in a whole genome context in rare disease. But the pure target panel itself is great for carrier screening. We are developing variations of it, so that customers can customize their panels somewhat, which I think will help spread that opportunity out for us. And when we start to look at the long run, we do believe that a very substantial proportion of our business, perhaps as much as more than half of our consumable revenue over time will be clinically driven. And we'll reserve to figure out when does that actually occur. But we are certainly seeing that the clinical business is making up for some of the weakness in the academic segment, particularly on the consumable side, and we're very happy to see that we've got 3 sequential quarters in a row of record consumables which I think will -- not only is demonstrating the power of the platform, but it's also going to, in the long run, help our gross margins as that product mix continues to improve.

Of course, the one thing I will also say is with the imminent launch of SPRQ-Nx, SPRQ-Nx, because of its multi-use capability is one of those rare situations where we can improve the economics for the customer, but we can also increase our gross margin for consumables. And so as that product starts to take hold over the second half of the year and into 2027, that's another real opportunity for gross margin expansion. So very excited about what's going on in consumables right now.

Great. And just one more for me. This is on the upcoming ultra-high throughput sequencer. So just thinking about multiple dynamics here in the near to medium term, the launch of SPRQ-Nx and the reusable SMRT Cells. But also you have customers thinking about this ultra-high throughput sequencer as well. So how should we factor that into potential slowdown of Revio orders near the ultra-high throughput launch as well as the benefit you're going to get from the full broad commercial launch of the reusable SMRT Cells.

Moreover, do you envision yourself as a multiple product tools vendor in the long term? Or realistically, do you think maybe ultra-high throughput and Vega would become the main stage of the portfolio? And perhaps what is customer feedback on potential new sequencers indicated to you about how you think about this dynamic?

Yes. It's an interesting question. And what our strategy has been is that we believe we need that having 3 platforms in the market gives customers a lot of choice for what levels of volume that they want to pursue. What our intent is, is to keep improving the Revio platform through improvements to the reagents to the consumables, which is what we've done with the SPRQ chemistry and now with SPRQ-Nx chemistry, we will keep creating more value for those Revio customers.

That said, for those customers that want to operate at very significant scale, the ultra-high throughput system will be the way to go because it will be -- it will drive cost down for them in terms of not only the economics of the sequencing, but the logistics and everything behind that. And so over the long run, we believe that all 3 platforms will find their place in the market with the mid-throughput kind of customers being long-term Revio users. And then, for example, the larger clinical accounts all moving to the ultra-high throughput.

Vega will continue to improve as well. As I said in my written remarks, we're going to increase the throughput pretty substantially later this summer and also introduce all of the features of SPRQ, so Ultra or so low DNA input amounts, for example. And that will add value to that platform and help it become a mainstay. It is -- it will have the right level of throughput for lots of different applications like AAV and microbial and other types of applications like that. So we do think it will find its footing not only in the academic setting, but perhaps in some of the -- some aspects of the clinical market as well. So we see very strong prospects for all 3 platforms in the market going forward.

The next question comes from David Westenberg with Piper Sandler.

This is [ Peron Patel ] on for David. Maybe just one on EMEA growth. Maybe could you characterize the type of clinical applications that are driving that growth? Is it primarily rare disease germline? Or are you seeing meaningful contribution from oncology rare disease?

Yes. So we grew 17% in EMEA. So we're really pleased with how EMEA is moving forward. And it really is on the back of rare disease testing in going -- becoming first-line tests in different countries.

Structurally, Europe is a perfect market for us and for Revio for this, a single-payer health care system with a lot of innovative leaders that have really gotten behind the fact that with long-read sequencing and particularly HiFi, you can eliminate several other tests relative to short-read approaches and you can increase your diagnostic yield at the same time. And so they're demonstrating this in multiple countries now, and we're starting to see that push. That's really what really what is propelling our growth in that part of the world right now. Interestingly, they grew substantially even though we did have some challenges getting some shipments out to the Middle East, which would have counted in the EMEA scorecard. So that region is really doing quite well, and I fully expect it to be our fastest-growing region again in 2026.

The next question comes from Mason Carrico with Stephens.

Maybe first, within the 2026 guide, how much visibility do you have today into consumable revenue that's baked in maybe from the existing installed base ramping utilization versus consumables associated with maybe new placements this year?

Yes, that's a great question. And the reality is that we have -- most of our guide is predicated on existing customers and their utilization because here we are in May. And as we place new systems, there is a ramp-up time for utilization, particularly if they're going to have a meaningful contribution to consumables in 2026. So when you think about the guide, we're really taking the majority of it coming from existing customers as they grow and expand.

The launch of SPRQ-Nx is the one variable that we are evaluating, and we'll see how that unfolds over the next 2 or 3 months as we kind of get that off the ground. As I did say, some of our customers held off their shipments in March for regular SPRQ reagents in anticipation of the SPRQ-Nx launch. And so I suspect as some of those -- as we get SPRQ-Nx out to market, some of those customers perhaps will place bigger orders earlier, which will help us and get us off and moving. But overall, when we think about the visibility to the guide in consumables, it really is driven off of the existing installed base, what we know about the existing installed base expanding their utilization and then to a lesser extent, the new placements of instruments that we expect. Hopefully, that helps.

Yes. No, that's really helpful. And -- we're juggling a few tonight, so sorry if you've talked about this, but could you share any additional feedback on the Vega promotional program in Q1 and how we should be thinking about Vega placements for the balance of the year? I think you had a high percentage of new customers in Q1 for Vega. How much of that demand was driven by that promotional program?

Yes. The promotional program was successful. It's always difficult. Once you put a promotion in place, it's always difficult to know which customers would have purchased the system without the promotional price. But we did have a substantial portion of our 27 units shipped under the promotion. And where the promotion was most successful was in APAC, in particular, where that's certainly a more price-sensitive market. And so we're seeing that. But it also kind of gave us some insight that it really is a tough academic and -- academic and government tough funding environment, particularly in the Americas because even with the promotion, there wasn't that many customers that took advantage of the promotion in the United States, and it's really due to funding. And so it helped us understand that a little better.

When I think about going forward demand, I do think that the funnel allows us to kind of certainly achieve our guidance. That's why we put the guidance out the way we did. And I do think that Vega will be volatile from quarter-to-quarter. It typically is. It varies. If you look at last year, the numbers varied quite a bit. But I do expect us to start moving in a more normalized direction with respect to ASPs, and we'll see how the unit volumes react to that.

This concludes our question-and-answer session. I would like to turn the conference back over to Christian Henry, for closing remarks.

Yes. Well, I appreciate everyone's participation on today's call. We look forward to providing you updates at the various conferences this quarter and on our next call, and we appreciate your support of PacBio. So have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to PacBio's Fourth Quarter and Full Year 2025 Earnings Conference Call.

[Operator Instructions]

Please note that today's event is being recorded. I would now like to turn the conference over to Kelly Gerra with Investor Relations. Please go ahead.

Good afternoon, and welcome to PacBio's Fourth Quarter and Full Year 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 make forward-looking statements, including, among others, statements regarding predictions, estimates, expectations and guidance.

You should not place undue reliance on 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 Form 10-Q and 10-K and our press releases 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're 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 will now turn the call over to Christian.

Thank you, and good afternoon, everyone. Our fourth quarter results exceeded expectations and were highlighted by all-time record consumable revenue and strong instrument placements for both the Revio and the Vega platforms. Our strength in consumables also drove gross margins higher. We believe that the momentum we built as we exited 2025 will continue in 2026 and that we are well positioned to execute on our strategy to drive both revenue growth and gross margin expansion in 2026.

As previously announced, fourth quarter revenue grew 14% year-over-year and 16% quarter-over-quarter to $44.6 million. Our sequential step-up was driven by increased Revio and Vega sales as well as record consumables, reflecting meaningful traction across a range of clinical sequencing applications.

For the year, we recorded $160 million in total revenue, representing 4% growth over 2024. Consumable revenue drove the majority of our growth, both on a quarterly and full year basis. In Q4, consumable revenue grew 15% year-over-year, reaching another record. And in fact, 3 of the past 4 quarters were record consumable quarters.

We were especially pleased by the 55% growth in consumables for clinical and hospital customers in 2025. Our growth in the clinical market was largely driven by a combination of our whole genome sequencing applications in rare disease and targeted applications that leverage our PureTarget kit. This traction has helped offset the continued significant pressure that our customers are experiencing with regard to the academic funding environment, which has adversely impacted our instrument sales in 2025.

Turning to instruments. We shipped 21 Revio and 42 Vega systems in the fourth quarter, bringing our cumulative shipments to 331 and 147 systems, respectively. Taking a closer look at Revio, placements were impacted throughout the year due to the challenging funding environment, particularly in the Americas.

That said, we were pleased to see strong momentum in the fourth quarter with an increase in both shipments and pull-through per system compared to the third quarter.

In 2025, approximately 20% of Revio orders were for customers who bought more than one system, and these multisystem orders give us confidence that our customers believe they will be scaling up in 2026.

We also saw solid ordering trends for our Vega platform in the fourth quarter, particularly in EMEA. Some of the strength in Vega was due to orders that were delayed in the third quarter, but we are also seeing momentum in the Vega sales pipeline, which should result in placement growth in 2026. One of the key strategies behind the development of the Vega platform was to create more accessible HiFi sequencing platform so we could reach new customers.

We're pleased to see that, that strategy was working as approximately 65% of the Vega placements in 2025 were to new PacBio customers, demonstrating this instrument is successfully expanding the ecosystem for HiFi long-read sequencing users.

From a regional perspective, Americas revenue increased 3%, Asia Pacific revenue increased 4% and EMEA revenue increased 45% year-over-year in the fourth quarter. Each region benefited from higher Vega instrument shipments and Revio consumables, and we are particularly pleased with the strong growth in EMEA as more of our clinical customers shifted from pilot testing to broader clinical adoption.

As we look ahead into 2026, we believe that our growth will accelerate as clinical adoption of HiFi continues. However, we are not anticipating that the academic funding environment will improve significantly.

Considering these factors, we expect 2026 revenue to be in the range of $165 million to $180 million, representing approximately 8% growth at the midpoint of $172 million. Jim will share more details on our outlook and our underlying assumptions later on.

Now let's take a closer look at our consumable growth over the last couple of years. In 2025, we delivered 19% consumable shipment growth, supported by our human-focused markets. When looking at our performance across nonhuman markets, we have grown in the low single digits, primarily due to funding challenges in the academic segment as well as the industrial and agricultural markets, which has historically been a meaningful portion of our business.

We expect to see growth in this segment accelerate as these end markets start to recover. Within our human focus markets, we have delivered a strong 3-year CAGR of 23%, driven primarily by the launch of the Revio system, which offers greater scale than previous systems and our focus on driving the adoption of clinical applications, including the launch of our PureTarget family of products.

As I mentioned earlier, we delivered 55% growth in consumables to clinical and hospital customers in 2025. We plan to continue investing in this area in the years ahead with the initial focus on rare disease, oncology and carrier screening. Rare disease genomics represents one of the largest and most historically underpenetrated opportunities in precision medicine.

More than 300 million people globally are living with rare disease, yet for decades, a significant portion of patients have remained undiagnosed or misdiagnosed due to fundamental limitations in existing sequencing approaches. HiFi is increasingly becoming a trusted backbone for rare disease genomics because it delivers highly accurate, comprehensive views of the genome that can capture substantially all classes of variants in a single assay.

As a result, researchers and clinicians are now able to move beyond incremental improvements and meaningfully improve diagnostic yield, disease understanding and therapeutic development. Importantly, this opportunity is still in its early innings.

We believe adoption today represents only a small fraction of the potential patient population, but momentum is building as institutions validate the clinical and economic value of long-read sequencing.

I'll briefly walk through a few examples that demonstrate the value of HiFi and how it's helping these customers. At University of Washington Medicine, HiFi is being used to study sudden unexplained death in childhood with the goal of preventing the loss of hundreds of children per year. The program has begun sequencing 200 families supported by the Sudden Unexplained Death in Childhood Foundation out of a broader cohort of more than 2,000 families.

At Ambry Genetics, HiFi is being implemented in the ONCE study this quarter to assess the impact of long-read sequencing on diagnostic yields in patients with previously negative exomes and genomes. Ambry expects to enroll approximately 1,000 patients in 2026, highlighting the growing role of HiFi as a diagnostic tool.

Through our collaboration with the n-Lorem and EspeRare, HiFi is being used to comprehensively characterize the genomes of patients across dozens of ultra-rare diseases and to support the development of target antisense oligonucleotide therapies. This demonstrates HiFi's role not only in diagnosis, but enabling truly individualized treatment strategies.

And this morning, we announced the addition of HiFi to the iHope initiative, which brings long-read genomic sequencing to one of the world's largest equitable rare disease genomic testing network. With more than 1,000 patients supported annually through 25 clinical sites across 14 countries, HiFi will continue to expand the diagnostic possibilities for thousands of families worldwide.

Taken together, we believe these examples illustrate why HiFi is uniquely positioned to become the leading sequencing technology in rare disease genomics. We look forward to continuing to support our customers as these programs scale. As I mentioned, we are also focused on supporting the carrier screening market.

The Babies in Focus project aims to sequence at least 2,000 samples across selected long-read technologies. We anticipate that our service partner, Eurofins Genomics U.K. will sequence 1,000 of these samples between April and September 2026 using PacBio technology.

This work is a vital step in demonstrating the feasibility of scaling long-read sequencing for a potential national newborn screening program. We believe our performance in this cohort will help build the evidence base for the U.K.'s '26 to 2030 spending review, positioning our technology for long-term growth within the NHS. Furthermore, the contract includes an optional extension for up to 1,000 additional samples through early 2027, providing a clear path for continued participation in this landmark study.

HiFi also delivers a meaningful productivity and economic advantage by consolidating what has historically required multiple sequential tests into a single assay. Today, many rare disease patients undergo years of serial testing ranging from single gene tests and panels to exomes, short-read genomes, repeat expansions and methylation assays.

This results in long turnaround times, fragmented workflows and a significant cost for our customers. With HiFi whole genome sequencing, customers can replace many of these individual assays with one comprehensive test that captures substantially all variant classes upfront.

This reduces time to answer from years to days, simplifies laboratory workflows and lowers total testing costs meaningfully while also generating a high-value data set that can be reanalyzed as new insights emerge.

Taken together, this combination of speed, workflow efficiency and improved economics reinforce why HiFi is increasingly being adopted as a frontline solution in rare disease genomics. We're also making great progress with respect to our population sequencing initiatives.

In 2025, we saw studies like the All of Us study, which published their first data sets on long-read sequencing in October, the long-life family study that is targeting to sequence up to 7,800 samples and the Asian Pangenome Consortium, which is targeting to sequence more than 10,000 samples and creating the most comprehensive pangenome reference ever created.

We look forward to enabling many more of these large-scale studies in the future. We're also seeing rapid momentum in the scale of data being generated on our HiFi platform alongside a growing body of peer-reviewed evidence that reinforces its value.

In 2025, our customers generated more than 60% year-over-year growth in HiFi data, making HiFi one of the fastest-growing data sets in life sciences. Importantly, this growth has effectively doubled over the past 18 months and is significantly outpacing the broader market.

In parallel, cumulative peer-reviewed publications have grown to nearly 12,000 with publication growth accelerating year-over-year. We believe this combination of rapidly expanding data output and evidence is critical, particularly in areas like rare disease where diverse high-quality data sets are essential to uncover complex biology, improve diagnostic yields and ultimately drive new insights for patients.

Now I'd like to turn to SPRQ-Nx, our next-generation consumable chemistry built around the multi-use SMRT cells. We believe that SPRQ-Nx represents a fundamental step forward in our ability to deliver high-quality HiFi at a highly competitive price point.

By enabling reuse of the SMRT Cell, historically the most expensive component of our sequencing workflow, we can amortize that cost across multiple runs, lowering the price per genome for customers while simultaneously expanding our gross margins.

SPRQ-Nx is designed to deliver the most complete view of the genome with whole genome HiFi sequencing at scale for less than $300 per genome. Importantly, SPRQ-Nx also increases system throughput, delivering approximately 25% higher output per SMRT Cell as validated through customer-generated data in our beta program. This represents a major inflection point for our business as we deliver improved performance, higher throughput and better economics, all at the same time.

Today, we are pleased to share new and encouraging data from multiple customers participating in our SPRQ-Nx beta program. On the left, you can see a slide with data showing SPRQ-Nx has higher yields than SPRQ when sequencing high-quality human DNA libraries.

The SPRQ-Nx runs have longer insert lengths, which likely to contribute to the yield difference and also higher read quality. We continue to evaluate the chemistry across additional sample types, and we'll share the results as they become available.

On the right, one of our customers generated data supportive of long-read sequencing, providing a higher diagnostic yield, shorter turnaround time and fewer required tests, making HiFi a great choice for clinical use. Given the success of the early beta program, in a few weeks, we will expand the beta program to more customers, both domestically and internationally.

We look forward to launching SPRQ-Nx broadly later this year. As we look ahead to the launch of SPRQ-Nx in 2026 and its potential to further strengthen our financial profile, it's important to recognize that this progress is building on a foundation that we have already established.

Over the past few years, we have made meaningful improvements in our financial profile with improved non-GAAP gross margins and operating expenses as well as significantly lower cash burn.

Non-GAAP gross margin has improved from 27% in 2023 to 40% in 2025, representing a 1,300 basis point improvement since 2023 and 700 basis point improvement in 2025 alone. Non-GAAP operating expenses have been reduced from $355 million in 2023 to $230 million in 2025, representing a 35% reduction since 2023 and a 20% reduction year-over-year.

Cash burn, excluding financings and acquisitions, improved from $214 million in 2023 to $105 million in 2025, representing a 51% improvement since 2023 and a 44% improvement year-over-year. We ended the year with approximately $280 million in cash and investments.

These actions have significantly improved the underlying economics of the business, and we believe position us for a strong year ahead as we prepare to launch additional products and drive adoption in the long-read sequencing market.

I'd also like to take a moment to thank our team for their hard work and dedication over the last few years, which has made these transformational improvements possible. Last week, we announced the sale of our short-read sequencing assets for net proceeds of approximately $48 million. This transaction meaningfully strengthens our balance sheet and further extends our cash runway.

This action is a continuation of the strategic plan we outlined last April to sharpen our focus and concentrate our resources on our differentiated long-read sequencing portfolio. We believe this transaction positions us to execute more effectively on our mission to develop the world's most advanced sequencing technologies.

With greater flexibility to invest in the areas where we can have the biggest impact, we are now better positioned to accelerate adoption of our long-read platforms across attractive growth markets and execute with confidence as we enter our next phase of growth. We remain committed to supporting our current Onso customers through this period with ongoing commercial support and consumable supply this year.

With that, I will now turn the call over to Jim to provide more details on our financial performance and outlook for 2026. Jim?

Thank you, Christian. I'll be discussing non-GAAP results, which include noncash stock-based compensation expense. I encourage you to review a reconciliation of GAAP to non-GAAP financial measures in our earnings press release. Unless otherwise noted, all growth rates are year-over-year. Total revenue for the fourth quarter grew 14% to $44.6 million, compared to $39.2 million in the fourth quarter of 2024. Consumables revenue increased 15% to $21.6 million in the fourth quarter with annualized Revio pull-through per system at approximately $242,000.

The consumables growth was driven by an increase in our installed base as well as consistent system utilization despite the difficult funding environment. Instrument revenue increased 13% in the fourth quarter to $17.3 million, primarily driven by an increase in Vega systems, which had initially commenced shipment in Q4 2024. We ended the quarter with 331 cumulative Revio system shipments and 147 cumulative Vega system shipments.

In the fourth quarter, we placed several Revio instruments with key institutions at lower prices, and we believe these strategic accounts will ultimately drive higher utilization and above-average consumable pull-through. As a result, the ASP for Revio in Q4 was approximately $482,000, which was roughly flat compared to the third quarter.

Service and other revenue increased 11% to $5.7 million in the fourth quarter, primarily driven by an increase in service contract revenue related to Revio. From a regional perspective, Americas revenue increased 3% to $20.7 million in the fourth quarter, primarily due to an increase in Revio consumables and higher Vega instrument shipments.

Asia Pacific revenue increased 4% to $9.3 million in the fourth quarter, primarily due to increased sales related to Berry Genomics following the regulatory approval for clinical long-read sequencing in China as they enable routine clinical testing in hospitals for thalassemia as well as higher Vega instrument sales, which again partially offset lower Revio instrument shipments.

EMEA revenue increased 45% to $14.6 million in the fourth quarter. This strong growth was driven by an increase in Vega instrument shipments as well as higher Revio consumables as more of our clinical customers shifted from pilot testing to broader clinical adoption.

For the full year 2025, total revenue grew 4% to $160 million compared to $154 million in 2024. Consumables revenue increased 16% to $82 million, primarily due to an increase in our Revio installed base as well as consistent utilization and Vega consumable sales as customers started running samples on these instruments in the first quarter of 2025.

Instrument revenue decreased 18% to $53.8 million, primarily driven by lower Revio system shipments, partially offset by an increase in Vega systems as we commenced shipping this platform late last year. Service and other revenue increased 36% to $24.2 million, primarily driven by an increase in service contract revenue related to Revio.

From a regional perspective, Americas revenue decreased 8% to $72.8 million. Asia Pacific revenue increased 6% to $43.2 million and EMEA revenue increased 27% to $44 million, with similar trends to what we saw in Q4.

Moving down the P&L. Non-GAAP gross margin was 40% in the fourth quarter of 2025, compared to 31% in the fourth quarter of 2024. This significant increase was driven by product mix with consumables contributing a higher percentage of our total revenue as well as the realization of cost improvement initiatives for Revio and Vega and continued high yields for Revio SMRT Cells.

We also saw an improvement on an annual basis with full year 2025 non-GAAP gross margin of 40%, compared to 33% in full year 2024. Non-GAAP operating expenses were $56.2 million, including $8.6 million of noncash share-based compensation, compared to $68.6 million, including $14.8 million of noncash share-based compensation in the fourth quarter of 2024.

This 18% reduction year-over-year was largely driven by lower headcount due to our restructuring efforts and lower noncash share-based compensation. We have been highly disciplined in our spend as we sharpen our strategic focus on long-read sequencing, including the recent sale of our short-read assets.

On a full year basis, non-GAAP operating expenses were $229.9 million in 2025, compared to $289.2 million in 2024. Operating expenses in full year 2025 included noncash share-based compensation of $37.7 million, compared to $65.3 million in 2024.

Regarding headcount, we ended the year with 485 employees, compared to 490 at the end of the third quarter of 2025 and 16% lower compared to 575 at the end of the fourth quarter of 2024.

Non-GAAP net loss was $37.6 million in the fourth quarter of 2025, representing $0.12 per share, compared to $55.3 million in the fourth quarter of 2024, representing $0.20 per share. Non-GAAP net loss was $158.8 million in full year 2025, representing $0.53 per share, compared to $228 million in 2024, representing $0.83 per share.

We ended the year with $279.5 million in unrestricted cash, cash equivalents and investments compared with $389.9 million at the end of 2024.

Turning to our outlook for 2026. We expect full year revenue to be in the range of $165 million to $180 million, representing approximately 8% year-over-year growth at the midpoint.

At the midpoint, we assume consumables remain the primary driver of growth, supported by increasing utilization by our clinical and hospital customers as well as further expansion of the Revio and Vega installed base. While we are encouraged by the recent NIH budget updates, academic customers remain cautious given ongoing uncertainty around funding visibility and grant timing.

Our outlook assumes a continuation of the muted academic spending environment we've experienced over the last several quarters, particularly in the Americas, and we are not expecting a broad recovery in capital spending for these academic customers.

Moving down the P&L, we expect to see a 100 to 400 basis point improvement in non-GAAP gross margin in 2026. Factors that will positively impact gross margin will include higher consumables mix and the introduction of SPRQ-Nx in the second half of the year.

In spite of continued Revio and Vega cost reduction initiatives, there may be potential headwinds with the compute associated with these instruments as we are currently seeing significant volatility with the components such as memory costs.

We expect non-GAAP operating expenses to slightly improve compared to 2025 levels as we continue to tightly manage operating expenses and invest in our next-generation sequencing platform.

With improving revenue mix, expanding gross margins and disciplined cost management, we believe the company remains on a clear path towards cash flow breakeven. I'll now hand the call back to Christian for closing remarks.

Thanks, Jim. 2026 is shaping up to be an exciting year for PacBio. We're focused on enabling HiFi to become the sequencing standard of care through 5 key initiatives: First, we plan to dramatically improve the economics of HiFi and increase penetration across our key markets through the successful launch of our SPRQ-Nx chemistry and multi-use SMRT cells. Second, we plan to accelerate clinical adoption across rare disease, oncology and carrier screening, supporting new as well as our existing customers as they ramp up their utilization of HiFi.

Third, we plan to continue to enable population scale sequencing studies. We have hundreds of thousands of samples in various stages of negotiation and approval. And while these studies have long sales cycles, we expect these studies to drive our growth in the longer term.

Fourth, we are enabling the next-generation informatics by scaling multiomic HiFi data and applying AI to unlock unique biological insights. For example, several of our customers have been awarded funding through Google's AI for Science initiative, where researchers are leveraging HiFi data alongside AI to address some of the most complex challenges in biology.

We believe the depth, accuracy and completeness of HiFi data amplified by AI positions us to unlock new biological insights.

And finally, we continue to drive innovation, which is part of our core mission. We look forward to updating you on our progress across each of these initiatives as we progress through the year. Additionally, we are excited to participate in the upcoming AGBT conference in the coming weeks and hope to connect with many of you there. With that, we will now open it up for questions. Operator?

[Operator Instructions]

And today's first question comes from Tycho Peterson at Jefferies.

This is Lauren on for Tycho. A few from me. Starting with Revio pull-through, it was pretty stable year-over-year.

Maybe how should we think about pull-through progression as SPRQ chemistry lowers per sample costs? Will that lower cost drive higher utilization? Or does it risk pulling revenue forward?

On consumables, another record quarter for you guys. What gives you confidence that this growth is structurally sustainable versus being driven by a smaller cohort of power users? And then lastly, going forward, how should we think about steady state mix between Vega and Revio? And what does that imply for average system ASPs?

Well, Lauren, you gave us a lot to start off with. Thank you for the questions. We'll start with Revio pull-through. So pull-through was -- you're right, it was pretty stable from year-to-year. And my expectation is that the opportunity provided with SPRQ-Nx will lower the price per sample, but is likely to increase utilization on the systems and certainly expand our market share.

And so when you think about it, what we're trying to accomplish is through a more attractive price, the ability to win larger scale studies, which would drive both instrument sales as well as expanded utilization within those fleets of instruments and to drive kind of broader adoption across the entire base.

So at the end of the day, the focus is on driving the revenue up which would effectively have pull-through kind of in a similar range, anywhere from [ 225 to 250 ] is what we've been -- is what we've been talking about. I don't think it will change that much. You may see some short-term dislocations depending on the timing of when samples come in and which customers are adopting.

So we'll be watching out for that over the course of the year. But on balance, this is a fundamentally enabling technology that allows us to increase our footprint and drive consumable revenue up at the same time and of course, expand our gross margin because this is one of those rare occasions, where the product actually is very beneficial to customers, but it's also expanding our gross margin on consumables.

So really important. When you start to think about your second question about kind of structural growth, we certainly see that the market is going to be expanding because of the nature of HiFi first and foremost. And then now we're at a point where we have the economics in place to where we can be highly competitive with short-read technologies, other long-read technologies.

And this will enable us to expand both the Revio and the Vega sales because we'll be introducing SPRQ-Nx to Vega later in the year. We're going to first focus on Revio and then move to SPRQ-Nx. And then finally, with respect to the mix, Vega and Revio reach different parts of the market.

So Vega is the focus and the strategy with respect to Vega is land and expand, so to speak, introducing new customers to HiFi technology. The application set with Vega is in microbiology and metagenomics and different short -- smaller genomes. And so we're seeing actually really strong traction there, and it's highly competitive against other long-read competitors.

And so we're seeing some opportunities with that. And then, of course, Revio is focused on kind of the discovery market as well as kind of our clinical opportunity, particularly with respect to whole genome sequencing and then larger targeted sequencing panels like the PureTarget panel. And so I would expect us to continue scaling Vega and Revio in 2026, both growing in terms of number of units shipped year-over-year, both of them moving towards different parts of the market. And then ultimately, we'll launch a third system that will be even higher throughput for the highest scale labs. So hopefully, I captured most of your question there.

And our next question comes from Subbu Nambi with Guggenheim.

What should we expect OUS to do this year from a clinical growth perspective? And did you see any budget flush, particularly from Europe in 4Q?

Subbu, can you start with the first part of your question again? It came in a little bit garbled. I kind of got the budget flush part, but not the first part.

What do you expect like outside of the United States to do this year from a clinical growth perspective?

Okay. So clinical growth and then budget flush. I'll start with the easy one. Budget flush, we really didn't see a lot of budget flush at the end of the fourth quarter.

I mean there's always a little bit of opportunistic purchasing. I can think of one order where we were able to capture a large consumable PO from a competitor actually and in that process, got a new customer. So that was actually a really exciting win for us, but we didn't see a lot of actual budget flush.

And then with respect to clinical growth, you saw that we had really strong growth in 2025. The base was a little bit smaller. So the 55% is exciting, but it's off of a smaller base. So we have to be mindful of that. But when we look into 2026, we see very strong growth in the clinical side of our business, particularly in rare disease and whole genome sequencing and largely in -- in EMEA, we've really seen them start to move from kind of the pilot phases to actual production.

And you've seen press releases from folks like RadBoud who are expanding from 5,000 to tens of thousands of samples, and that's -- there's lots of examples of that where we're seeing that in the market.

And I think that will be a driver of clinical growth. Of course, some of that's enabled through the SPRQ chemistry. So we have to balance out the more favorable pricing with respect to accounts like that, for example. So it's kind of a bit of a balancing act there. We're also seeing strength in targeted -- our targeted portfolio as the PureTarget platform continues to -- and assay continues to gain more traction, and we're seeing some of the higher throughput targeted customers expand their fleet. We saw that in the fourth quarter, and I think that will help us scale clinical consumables in 2026.

Super helpful. And a quick follow-up, not really a follow-up, a separate question altogether. When thinking about international expansion for multi-use SMRT cells, how are you considering rollout in tandem with the U.S. if your aim is to keep elasticity contained this year?

Yes, it's a good question, Subbu. So we are -- we started the beta program just with accounts in the United States really so that we could keep tabs on the users and understand how their workflow is working and all of that.

And now we're very pleased with how it's gone. I mean we're seeing 25% increase in yield, which is amazing for customers. and then the workflow, you can see the consistency of yield from run to run from the first use to the second use.

So we're expanding -- we're expanding our program over the next couple of weeks into EMEA and ultimately APAC. And then over the course of the year, we will just continue to roll out the product as customers have the samples that are ready to go.

So we want to try to monitor and meter out this rollout so that we can get as many samples onto the systems as possible at the favorable pricing so that we can see continued consumable growth.

And so we're going to be in kind of this beta early access program until the spring, late spring, early summer. And then ultimately, it will be rolled out to everyone. So we have a good plan. The innovation is working really well. And it's -- we're going to start heading into the second phase of beta and scale-up phase over the rest of the first quarter and into the second quarter.

[Operator Instructions]

And our next question today comes from Doug Schenkel at Wolfe Research.

So you are continuing to successfully reduce OpEx spending. Where is the biggest opportunity to do that this year without hindering the pace of recovery? And just one follow-up, and I'll get back in the queue.

I think in your prepared remarks, you called out, I think you said industrial weakness. If so, is that new? And I guess to the point, if so, what is it? Is that ag or Symbio , both something else? Could you just tell us what's going on there?

Yes. Doug, so just to clarify, I don't think we called out any specific industrial weakness per se. What we're trying to say is that, that part of the business hasn't -- consistent with the academic world hasn't been very strong. And what that really is, is kind of the agricultural business. And so is that what you were referring to in your question?

Yes. That makes a lot of sense. All right. Sorry about that, Christian . Thank you for clarifying.

No, it's fine. No, I just wanted to make sure I got the question right. And then with respect to OpEx, we've worked pretty hard to take a lot of cost out of the business. And I think in 2026, that will continue. First, we'll get the full year benefit of the reductions in force that we saw in 2025. And so that will naturally give us a bit of a tailwind to start the year off.

But the next places to focus are -- we're going to be focusing on managing G&A expense, managing R&D, staying focused in R&D. So we have a few very critical programs going on, and we're going to make sure that they're very well funded, and we have all the people we need to be successful.

But we're going to be very thoughtful and mindful about adding new priorities to the equation, and that will help us save money because we'll have -- we'll be able to save on kind of non-headcount-related spend and things like that. Of course, the counterbalance is we're in the -- we are in the -- we are in the meat of developing the next-generation platforms, and that comes with a lot of expense.

So it's cost for prototypes and alphas and betas, things like that, which we'll see some of that this year. So we'll be focused on overcoming that. And then finally, $1 is a $1. So we're really focused also on the gross margin line and reducing production costs.

And so we're in-sourcing more, which allows us to leverage our overhead more effectively and therefore, reduce costs overall, which will help expand our gross margin. So it's really a concerted effort across the organization.

And I also think there's some opportunity in our marketing organization to be mindful about investing in the right events to make sure that we have the presence we need, but also make sure we get ROI on the events. We will be expanding the commercial -- the sales organization a little bit this year because I do think that there's opportunity for us.

And so that gives you a bit of a kind of a broad tour of operating expenses. We also have some ongoing litigation that we'll be spending on this year that will be incremental to last year. And this is from litigation that's been going on since 2019.

So it's long before I even got to the company. But that gives you a sense of expenses. I do think we're going to be able to do better than we did in 2025. And the focus is, of course, getting to breakeven.

And our next question today comes from Kyle Mikson at Cantor (sic) [ Canaccord ].

Kyle from Canaccord. I want to follow thought with the cost. So on -- first on the short-read divestment last week. So was there any cost taken out of the P&L from that move? I think based on the 8-K with the pro forma results, it seems like there's a tailwind to gross margin, for example.

So if you could just dive into that, it would be helpful. And then secondly, there was a slide in the earnings deck, I think it's Slide 9, comparing long read to the standard of care at a beta site, a clinical customer. You got performance better with respect to diagnostic yield, turnaround time. I'm just curious if cost improves when you go to long read from standard of care.

Yes, Kyle, great questions. It's great to catch up here. So I'll start with the short-read business. There won't be substantially more costs taken out. We covered -- in our reduction in force last year, we eliminated a lot of those costs.

We are still supporting the Onso system through the year. And so we will have costs associated with that as we support that. And then as that hits end of life, we'll have savings there, but that will likely be more in 2027.

You are right that there's a tailwind to gross margin in the sense that the Onso platform was not a very high gross margin instrument relative to the rest of our portfolio. And so -- but we didn't really sell many, if any, Onso in 2025. So on a year-over-year basis, that you're not going to see any incremental tailwind from that.

And then the long-read -- long-read business with respect to diagnostic yield, that slide is really meant to show how not only is diagnostic yield improving with long-read sequencing. And that's what we've been -- all of us have been working on for the last several years is to show the power of HiFi because it's so -- because it's such a unique data type and you get so much information.

But on top of that, customers like Radboud now are taking 6 other tests, 6, 7 other tests and combining them into 1 genome and that using one HiFi genome to answer all those questions. And so as a result, you're seeing faster turnaround time, better diagnostic yield and lower cost.

And this is going to become a much broader message that you're going to hear a lot this year as we -- especially as we launch SPRQ-Nx , not only are you getting better answers, you're actually getting better answers faster and cheaper.

And it's a real opportunity for us to go to these hospitals, clinics, labs and demonstrate that not only is it the direct comparison of short-read versus long-read sequencing or other long-read sequencing players, but it's really the holistic approach to how much does it cost to get an answer and how much we can benefit.

And so that's really exciting, and we're in the early days of demonstrating that. But now we have examples of customers that are doing that. And so we're going to amplify that and help other customers kind of achieve the same result. Very exciting for us.

And our next question today comes from David Westenberg at Piper Sandler.

So I just -- it's kind of a recurring theme about the elasticity of demand, but you cited cumulative customer gigabases growing at 60% year-over-year. It's a great number. With the promise of a sub-$300 genome with SPRQ-Nx, I want to look at the changes in dynamics. I am one of the people that does believe in elasticity of demand. It always has been in the past, but that's not always linear. So how should we think about SPRQ-Nx balancing the elasticity of demand with the price headwind over the cadence of kind of the next few years?

Yes. That's an excellent question, and it is something that we're very focused on. First thing I'll say before we get into kind of some of the nuance is that the reality is that the samples exist already in the market. So when you think about elasticity of demand, what you're really thinking about is substitution of HiFi in place of other technologies that are already existing.

And that really is -- that is a bit different because the samples are generally available on day 1. Now each customer will have a ramp phase and a conversion, time horizon. So there will be some variability. But it is different in the context of other elasticity curves that we've all seen in this space for a very long time.

That said, I think you phrased it exactly right. It's not always going to be linear. And in the short term, you may have periods where the samples aren't available yet at scale relative to the price and -- but over the course of a year, 2 years, like you've kind of mentioned, you certainly will see substantial elasticity of demand. And you'll see not only more gigabases being generated, but this will help drive more instrumentation sales and as we get to higher throughput instrumentation, very much higher levels of consumable pull-through, which will be at much substantially higher gross margin.

And so on balance, it really adds to the whole portfolio of what PacBio can deliver, starting with a better genome and enabling the customers to scale up both in discovery mode and in clinical mode with the whole genome, as I talked about in the last question.

And you see all of that coming together with the ability to substitute long-read sequencing in a whole genome context for the exome, for other short-read approaches. And all of that on balance gives us an opportunity to really generate dramatically more demand, but it will be lumpy over the course of the first part of the launch of SPRQ-Nx.

And one of the ways we're trying to manage that is by having a very controlled early access phase to make sure customers have the samples ready to go so that they can better utilize their systems and then help us drive our consumable revenue in the right direction. It's tricky, but it's a very exciting time for us because since we announced SPRQ-Nx at ASHG, the nature of the conversations has just fundamentally changed, part of the reason why we had such a nice fourth quarter, and I think the year 2026 is set up to have a strong result.

And our next question today comes from Jack Meehan at Nephron Research.

I had 2 modeling questions for you. The first is, is there any color you can share on the first quarter, just expectations for pacing in the year?

And then, Jim, on gross margins, it's good to see the traction. I wanted to see if you could give a little bit more color on the component volatility you flagged, just what's driving that and what's reflected in the guide?

Yes. So maybe, Jack, good to hear from you. I'll start with the Q1 and then, Jim, why don't you take the gross margin part of the response. With respect to Q1, we do think Q1 consistent with seasonal patterns will likely be a little bit lower than Q4, but certainly above Q1 of 2025.

And so we expect to be growing and we expect to be expanding. We think that we think we'll have -- we -- our expectation is that we'll have continued strength in Revio and Vega should be -- should get off to a good start. And I do think we are being cautious about how we're thinking about academic and government spending.

And I think although the budget has kind of improved the outlook a little bit perhaps, it's a long way from the budget to the actual dollars getting spent in -- especially with respect to acquiring new capital equipment. And so we're going to be pretty cautious in that. We do think that Europe is going to continue to be strong.

I think on this call a year ago, I said Europe was going to be our strongest region. And quite frankly, they exceeded my expectations. I would not be surprised to see Europe continue to be strong in 2026 and perhaps our strongest region again. We'll see. There's -- I was just out at the Europe and APAC sales meeting. So there's a little bit of competition, which is really good to see as a CEO there.

But I do think you'll see Q1 probably be a little bit lighter than Q4. It really does just seasonality and then we'll grow from there. And we set guidance in a place, assuming that the academic and government funding does not come back in any meaningful way.

We figured that's the best place to start. We do think our growth will be driven by the expansion of the existing clinical accounts that we've won over the course of '24 and '25 and new accounts coming into the fold. So that will be opportunities for more Revio placements and certainly some Vega placements.

We do think we're going to have a strong year with respect to Revio. We're seeing a lot of interest in the funnel growing because, quite frankly, SPRQ-Nx is enabling a new -- that price point is enabling a new level of scale that I think Revio will fit really well. So hopefully, that gives you a little bit of color on the outlook and pretty excited to get going here. I think the quarter is off to a reasonable start. And Jim, you want to talk about gross margin?

Sure. So Jack, as you pointed out, one of the things that -- when we gave our guide of 100 to 400 basis points for '26, one of the things we highlighted is the impact of some of the memory shortages that we and a number of companies are seeing right now as we look to lock in agreements with our suppliers.

As you probably know, since we provide such robust data, we do have compute as a significant component of our cost of our Revios and to a lesser extent, in our Vegas. So as you think about our guide, we did bake that impact into our guide.

I think as we think about the lower end of the guide, that would be a consistent and continuous impact on compute. We're hoping that's not the case. We're hoping that with a lot of things, it will stabilize as we get into the middle of the year, and that is baked into the 100 to 400 basis point increase.

And our next question comes from Dan Brennan with TD Cowen.

Maybe just a couple. On placements and pull-through, did you guys give color on how to think about that? That would be helpful. I know you talked about Revio pull-through being consistent, but just wondering if there's any more color across Vega and Revio.

The burn, like I know we could probably back into the burn ourselves, but is there a burn that you guys are targeting in 2026? And then the final one would just be with EMEA clinical surging and Christian, you sound like it's going to continue to be strong. What will it take to see U.S. clinical growth really accelerate?

Yes. Thank you for the question, Dan. So I think with respect to placement and pull-through, I do think we believe that the [ 225 to 250 ] range for Revio for pull-through continues to be a pretty realistic place for us to be.

We will see how SPRQ-Nx obviously impacts that from a short term. We do think placements for Revios will be consistent, if not a little bit better than 2025. And then if you look at Vega, we haven't really talked a lot about Vega pull-through, but we now have 147 systems out there.

And based on kind of what we're seeing, it's likely that pull-through kind of sits in the [ 25,000 to 40,000 ] range over time. And right now, it's about [ 25,000 ] give or take. So it's a little bit at the lower end of that range, but I do think it has a bit of upward potential.

But I think it's going to be kind of that [ 25,000 to 40,000 ]. You're going to see lots of instrument placements. We do expect instrument placements to grow in the Vega product line this year over 2025 levels. And the sales funnel support that. The other thing that's great about Vega is we've actually had much faster sales cycles and lots of many more intra-quarter leads turning into orders than -- certainly than Revio, but actually in general, at a pretty nice clip.

So we're pretty excited about that. With respect to the burn for '26, the burn for '26 will be -- we're going to be working to kind of try to keep the burn relatively consistent, but the challenges we're going to face are really around alpha, beta builds of the next-generation system driving some more spend than we otherwise would.

Some of those units will ultimately be capitalized into inventory and sold, but cash would likely go out the door this year for some of that. So I would expect burn to perhaps be just a touch higher than this year because of that.

But it will depend on how many end up getting capitalized inventory -- into inventory and sold, which will then generate revenue from, of course, but it may -- the timing, you'll have to manage that.

And then how disciplined we can be around managing operating expense so that we can balance those costs so that we keep our burn under control as we try to push towards being cash flow positive.

And then finally, with respect to EMEA and the U.S., the U.S. market is much more focused on the targeted sequencing panels.

That's where our clinical growth has been so far, at least in the U.S. markets, particularly with the bigger laboratories. And so -- and they've been mostly in research and validation mode. And so as those products start to get to market, we should see real growth there with some of the bigger players.

And then the children's hospitals continue to be the vanguard, so to speak, like Children's Mercy, for example, with respect to whole genome approaches. And I do think the recent demonstrations of favorable economics in addition to and faster turnaround time and higher diagnostic yield are driving interest in the United States.

And those accounts are -- there's definitely better funding and ability there. So it's up to us to go capitalize on that this year, and we'll see how we do.

And our final question today comes from Mason Carrico with Stephens.

So are you guys expecting multisystem placement orders to become more common in 2026? And if so, should we expect that to have an impact on ASP via discounts? Or are you able to generally maintain pricing for those orders?

Yes, it's a good question, Mason. And the truth is those are difficult and unpredictable. So I can't really give you a -- they're going to be consistent every quarter or how many we're going to get. But we -- what we do see is that clinical customers, customers that want to do whole genomes in a kind of a clinical context are generally going to buy multiple Revios because they want to have redundancy at a minimum and then they want to scale up.

One thing we did see in 2025, and I think we'll continue to see is customers adding to their capacity and scaling on the Revio system. And so we saw that in a number of different accounts in '25, and I think that will -- that will certainly continue in 2026. Both of those have an impact on ASP.

And so we are thinking holistically about driving the lifetime value of revenue for those accounts. And the faster we can get them running consumables, the more valuable those accounts are.

And so oftentimes, we will make a bit of an ASP trade-off for accelerating consumables -- and also on top of that, driving -- for customers that are adding to their fleets and expanding, obviously, our cost structure to serve those accounts goes down, which is certainly useful and the volume goes up, which gives us more of that higher gross margin consumable revenue.

So it's a long-winded answer to basically say the timing of multisystem orders will continue to be variable and we'll see how that goes over time. But I do believe we're seeing customers add to their fleet.

And those fleet additions are very positive for the company, both from a revenue perspective overall, lifetime value to customer and then improving -- driving that gross margin up and also really the operating margin associated with that particular account.

We don't talk about that a lot, but if I can have one sales rep managing $15 million of revenue out of an account versus $5 million, that obviously pays dividends for us. And so that's how we think about it, Mason. Hopefully, that helps.

And that concludes our question-and-answer session. I'd like to turn the conference back over to Christian Henry for closing remarks.

All right. Well, we thank everyone for their time today, and we hope to see some of you at AGBT in a couple of weeks here. And then we have other conferences in March that we'll be attending. And as usual, you can always reach out to us if you have questions offline. Thank you, everyone, for your attention, and have a great evening. Cheers.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful evening.

Hello, everyone, and welcome to the 44th Annual JPMorgan Healthcare Conference. My name is Max Marks, and I'm an associate on the JPM Healthcare Investment Banking team. And it is my pleasure to introduce Christian Henry, CEO of PacBio.

Thank you. Thank you, Max. Thank you to the JPMorgan team for the opportunity to present today. As Max said, my name is Christian Henry, and I'm the President and Chief Executive Officer of PacBio. I'd also like to thank all of you in the room today and listening online for your time and your attention.

Before we dive in, I am going to remind everyone that we may be making some forward-looking statements. And I would ask for you to take a look at our SEC filings on our web page for more details on the risks and uncertainties that are related to our business. But with that, let's get started.

Our mission is enabling the promise of genomics to better human health, and we achieved that mission through creating the world's most advanced sequencing technologies. In today's talk, I'd like to provide you with an overview of the fourth quarter and our 2025 revenue performance. I'd like to update you on our markets and our strategy, and I'd like to discuss some of the focus areas for us in 2026.

PacBio is at the forefront of designing and developing and manufacturing advanced sequencing solutions that empower scientists and clinical researchers to solve some of the world's most complex genetic challenges. We have a broad portfolio of products covering the entire sequencing spectrum from DNA extraction through advanced data analysis capabilities. In fact, today, we have currently more than 80 products in our portfolio with more than 60% of those products just being launched in the past 3 years. So we've been really quite busy in R&D.

And this is critical because over the past few decades, next-generation sequencing has fundamentally transformed biological and clinical research. There's no question about that. However, the sequencing methods have challenges that limit the ability to completely resolve the whole genome. And this has prevented the community from truly unlocking that power.

PacBio's native single molecule sequencing technology, HiFi, overcomes these challenges and allows you to resolve many classes of variation that just weren't possible in the past. We do this through single molecule native sequencing with very long reads up to 25 kb in length. They're highly accurate. We have very comprehensive coverage, and we're a direct single molecule sequencing technology. This enables us to resolve genetic variations such as structural variation, repeat expansions, the ability to resolve complex regions such as HLA, pharmacogenomic regions.

And all of this makes HiFi an excellent choice for clinical applications. But not only can HiFi resolve all these complex regions of the genome, we can also directly read methylation patterns with no additional library prep or input, and we continue to improve that each and every year.

Our products serve a large and growing market that we estimate to be around $9 billion in 2028 and is growing at about 7% annually. Within this market, we are specifically targeting 4 key submarkets that have where our technology and products have very specific competitive advantages, specifically rare disease, oncology and carrier screening in the clinical market and population sequencing in the discovery part of the market. This gives us a combined multibillion-dollar market opportunity, and I'm really excited to report that we now have the product portfolio and the competitive economics required to significantly increase our market penetration and drive our growth.

Speaking of growth, I'd like to talk a little bit about our 2025 preliminary results. So we anticipate reporting $160 million in revenue for the year, which represented about 4% growth. As many of you that follow the industry know, we had major headwinds in the academic markets, but we were able to grow in spite of that through growing very quickly in the clinical market. But what was especially encouraging was our fourth quarter. We grew 16% sequentially and 14% on a year-over-year basis to $44.6 million in the fourth quarter, up from $39.2 million in the fourth quarter of last year. This growth was driven by record consumables. In fact, 3 of the 4 quarters of 2025 were record consumable quarters. And of course, consumables are the engine that drives not only revenue growth, but strong gross margins.

And we'll -- we also had strong instrument placements in the quarter for both our Revio and our Vega product lines, and we're seeing very strong traction in the clinical and hospital markets specifically. We also are in a very strong financial position. At this point, we have around $280 million in cash and investments, and we significantly reduced our cash burn in 2025 down to around $110 million. This was driven because of lower operating expenses as well as higher gross margins. And I look forward to further updating you on our 2025 financial performance and our outlook for 2026 at our earnings call scheduled in February.

Now I want to spend just another minute talking a little bit about where our consumable shipment growth is coming from. We had 19% growth in consumable shipments in 2025, and we saw very strong growth in our human-focused markets, such as the clinical market. Our 3-year human CAGR is 23%, and this has been driven principally by the launch of the Revio system, which offers greater scale than previous systems and our focus on developing applications that power clinical applications such as our PureTarget family of products.

From a nonhuman perspective, the business has actually been mostly flat, and this has been due principally to funding challenges, not only within the academic segment, which many of you have heard a lot about, but also in the industrial and agricultural markets where we've historically had a very strong business.

Moving into some of the instrument performance. The Revio platform -- Revio, for those of you that are new to PacBio is our flagship sequencing platform. And in 2025, the uncertainty in the funding environment drove an overall decrease in Revio placements. However, over the course of the year, we began seeing momentum, and we finished 2025 on a very strong note with 21 placements in the fourth quarter.

And in 2025, the clinical market was actually our biggest growth segment with 20% growth and 20% of our orders in 2025 were multisystem orders. In other words, customers buying one or more Revio platforms. The reason why that's interesting is because those multisystem orders are the customers that are going to scale up consumable growth in 2026. From a pull-through perspective, we did $242,000 per system per year in the fourth quarter. This is at the high end of our stated expectations, and we are very encouraged by seeing strong growth in all 3 of our territories over the course of the fourth quarter and the year 2025.

Moving to Vega. Vega is our most accessible sequencing platform. It's a desktop system at a low -- at a very low entry price point that is very critical to our strategy because it enables customers to get into HiFi technology and start to understand the power of that technology. We launched the product at the very end of December in 2024, and we had 140 placements over the course of the year. And importantly, 65% of those placements went to new to PacBio customers and the entire product line did $24 million in shipments roughly.

Now why would someone buy a Vega system? Vega is -- has broad appeal in microbial genetics, targeted panels, HLA analysis, small genomes, basically all of the areas where a targeted portfolio of products would serve you well in an entry-type setting. This year, in 2026, we will launch our SPRQ chemistry onto the Vega system. That is our chemistry that we're leveraging and taking from the Revio system and putting it on to the SPRQ -- onto the Vega system. And the reason why that's important is that we will increase the -- we'll be able to increase the throughput and lower the cost to our customers, which will further drive demand.

Now we've talked a lot about clinical and how clinical is becoming a more important part of our business each and every year. But I want to start back in 2024 and highlight this is where our clinical journey really started. We started seeing adoption of HiFi in large clinical accounts like Quest Diagnostics and Myriad Genetics, where they began the process of leveraging our technology to replace legacy testing technologies. However, 2025 really was a transformative year for us from a clinical perspective. And I'd like to walk through a few of the examples because what you're seeing is our platform being adopted broadly across a spectrum of clinical use cases.

But first, I'll start with Berry Genomics. Last month, I was in Beijing and our long-term partner, Berry Genomics, I was with them to celebrate the launch and the approval of the first known regulatory approval of any long-read platform in the world. So they -- excuse me, Berry Genomics got the Sequel II platform approved for thalassemia testing in China. Thalassemia is a test that has hundreds of thousands of samples per year. And so we see this as a big growth opportunity for PacBio. But Berry is not just stopping there. They're expanding their menu to other important areas such as Fragile X, SMA, DMD, et cetera.

At Stanford, the Stanford Medicine Group, they're using the Revio system in a pharmacogenomic setting, and they are developing the capability to personalize prescriptions using the patient's actual genetic profile. They're leveraging this technology to also look for adverse reactions to medications and also improve the evaluation of ineffective therapies. They believe that this will improve the safety and lower cost and improve adherence. And so we're seeing that at Stanford in pharmacogenomics.

Children's Mercy has been a long-time partner of PacBio. And in 2025, Children's Mercy broadly implemented HiFi for genetic disease diagnosis as a first-line therapy. They use HiFi in this first-line way to significantly improve their diagnostic success and substantially reduce turnaround time, providing patients with answers that will drive meaningful clinical impact.

And finally, Radboud UMC in the Netherlands has rapidly expanded their use of HiFi on Revio platform as they've demonstrated they can consolidate several their current standard of care actually onto one test on the Revio platform. This improves diagnosis, reduces cost and improves the turnaround time. And in fact, the rare disease market, if you look at that market, there is over 200 -- nearly $240 million of annual revenue occurring in just in Europe alone.

So on balance, shipments to clinically focused customers in 2025 grew over 40%. So we're really encouraged to see HiFi being adopted in the clinic. So I want to spend even more time on rare disease because it's so foundational to what we're getting accomplished. Today, there's roughly -- there's more than 300 patients globally that suffer from rare disease and that we think are opportunities for HiFi. To understand and care for the nature, scientists and clinicians are turning to HiFi around the world. The comprehensiveness of our data allows our customers to interrogate and understand the diseases across a broad spectrum of areas.

And so for example, what we're really starting to see is not only the research like what's going on at the University of Washington Medicine, where they're investigating sudden unexplained death in infants with the goal to try to save hundreds of children per year to Ambry Genetics, where Ambry Genetics is implementing HiFi in the -- their one study to validate the improved diagnostic yields that you can get from our technology to just announced collaboration with n-Lorem and EspeRare, where they're establishing HiFi for use with candidates targeted for antisense nucleotide therapies.

So what you're seeing is HiFi is being used across the spectrum of rare disease, and it's because of the accuracy of the technology, the ability to see all classes of variants and now increasingly the advantages of cost that you can get from this technology. And so we're excited to be continuing to support these customers.

As I also said, a key area for us is not just the clinical market, but population sequencing. And in 2025, we saw a lot of progress along this front. We're seeing studies like the [All of Us ] study, which published their first sets of data on long-read sequencing in December -- I mean, in October, excuse me, the long-life family study that will be starting sequencing nearly 8,000 samples and the Asian pangenome consortium, which is sequencing more than 10,000 samples and creating the most comprehensive pangenome reference ever created. They're using not only single nucleotide variants and the standard variation, but they're also looking at structural variation, methylation, et cetera, creating reference genomes that will be world-class and world standard.

But not only these programs, we're engaged in projects now that are with the potential for hundreds of thousands of genomes. And this has been a result of our SPRQ-Nx chemistry, which I'll talk about in a few slides.

So what's it going to take to build -- to drive our next phase of growth? I started by demonstrating the power of HiFi and the quality of the data, the comprehensiveness because of the nature of our sequencing technology. We have increasingly seeing more real-world evidence that clinical -- clinicians and clinical researchers are demonstrating across the board. The richness of the data is delivering results, and we've seen many examples of that. And finally, it comes down to better economics. The challenge of the PacBio technology in the past has been it's incredible technology, but it's been expensive. And we've been working -- hard at work over the past several years, starting with the launch of the Revio system and now with the announcement of our SPRQ-Nx chemistry to develop capabilities that drive not only the comprehensiveness and power of the technology, but the -- but at economics that are competitive with short-read sequencing or other types of sequencing. And so we'll spend the next couple of minutes talking about that.

As I said before, it's really about the comprehensiveness and the capability. And I want to highlight the [ All of Us ] paper that came out in October. In October, the paper demonstrated that using long-read sequencing and evaluating structural variation, 50 -- over 50% of disease-driven associations were missed by short-read sequencing technologies and only with PacBio HiFi could you see these. The implications are profound in the sense that every test now, assuming the economics could get to where they need to go, should be considered for HiFi because you just see more of the genome. And we see this across the board. Many, many customers are telling us the same thing.

We're also seeing that HiFi can identify 100% of the variance. And in this example, what's happening is that the population sequencing market wants to use that variation to get new biological insight. But in the clinical market, the objective is to drive cost -- get a quick diagnosis and drive cost down. Oftentimes, a sample has to be analyzed multiple times with different technologies in order to obtain the answer the clinician is looking for.

And with HiFi, it's been shown that you can consolidate a number of different assays onto one test, which not only gets your results faster, but it simplifies the workflow and it actually saves cost. And so this is going to be an important hallmark of our push forward into the clinical market.

It all starts with data. Data, data, data. And we -- the PacBio's HiFi platform has been the fastest growth in data generated. In fact, we generated 60% -- our customers generated 60% more data in 2025 than they did in 2024. This growth in data is outpacing all of our peers. It's just doubled in the last 18 months, where some of our competitors have grown maybe in the 10% sort of range. We need this diversity for rare disease and just fundamentally understanding biological insight.

And of course, with high-quality data at scale, AI starts to enter into the conversation. PacBio has been using AI actually for a number of different years. And if you think about the AI journey in life sciences and sequencing, you can actually think about it in 3 different tiers.

In the first tier down at the bottom, it's how do you improve the quality of your hardware, the quality of the results that you're given. With the launch of the Revio system, we developed with -- in collaboration with Google, we developed deep learning algorithms and capabilities to call all of our bases better. Now we're in this middle tier where we're helping enable large HiFi training sets that will enable the top tier, the future AI applications. But not only that, we've developed federated data infrastructure that allows customers to leverage the samples and cohorts from other customers around the world so that they can get deeper insights faster with more data.

Ultimately, as the data scales, the opportunity to create multiomic foundation models that will drive deeper biological insight will result in digital diagnostics, agentic R&D, clinical and scientific copilots. Basically, there are so many different uses. And it's all -- the foundation of it is predicated on the quality and capability of HiFi data. And so we're really excited about our AI journey here powering the next generation of informatics.

Here's an example of how federated data actually works. We've created -- we've helped to create the HiFi Solves consortium and there's more than 15 members in this consortium today. It's a rare disease consortium. And it's giving people more access to larger data sets because they can ask questions of the data that they don't actually have in their database. This gives them the opportunity to look for the rare disease needle in a haystack that others may have if you don't have a big enough cohort. It actually empowers people to get started because they know they have -- the customers know they have federated data sets that they can leverage as they create their own scale and contribute to this.

This network -- we intend to have this network drive tens of thousands of samples over time, really improving the power of long-read sequencing in terms of the ability to diagnose patients.

SPRQ-Nx. Our SPRQ-Nx Chemistry was announced in October at the ASHG conference. And this is a fundamental breakthrough in our ability to drive competitive economics. We announced this product and started our beta test in November on time. What it is, it's a consumable. It's our next version of consumables, and it leverages the power of multi-use SMRT Cells. Our most expensive component in our sequencing is the substrate or the SMRT Cell itself, our semiconductor-based technology.

We've developed capabilities now where you can use that SMRT Cell multiple times, which allows us to amortize the most expensive cost over multiple runs and effectively lower our price per sample to our customers. But this is one of the rare times where not only we can lower the cost to our customers, but we can also expand our gross margins at the same time. So it's a very unique moment in our history.

This expands -- this also allows us to increase the throughput of our systems. So on our systems, the Revio platform today runs -- each run with 4 of these SMRT Cells. We've increased the throughput 25% on each SMRT Cell with every single run. And in our beta program, you can see in the chart on the right, we're seeing incredible results from our beta customers. So this is customer-driven data that you see up here.

And one of the most important things that we were looking through for in the beta was that the first run and the second run would have effectively equivalent output. And this output really drives the value proposition. The beta has gone so successful. We're expanding it internationally into an early access program starting next month. And we will continue to roll this out and expand it over the course of the year so that all of our customers can get the power of the SPRQ-Nx chemistry.

And at the end of the day, this is where the economics really come into play. We can now price whole genomes with the power of HiFi with the full resolution at $300 a genome, which is very competitive in today's market.

So in 2025, we really focused on building the commercial foundation and we continue to drive innovation. As we move into 2026, we're going to be focused on how does HiFi become the sequencing standard of care. And there's really several key elements to the plan and our strategy. First is to launch the SPRQ-Nx chemistry successfully and broadly around the world to dramatically improve the economics of HiFi. By improving the economics of HiFi with the full product solution that we already have in place, we believe that we will drive significant market penetration into those 4 key markets that I discussed earlier.

We're going to continue focusing on accelerating clinical adoption, supporting customers like Berry Genomics as they push and expand their menu, supporting other customers in rare disease such as Radboud and HiFi Solves network to drive further expansion of data and results across the world.

We're going to really drive population sequencing studies. And so as I said before, we have hundreds of thousands of samples in various stages of negotiation and approval. These studies and tests, the implementation actually takes time. They're complicated. They're usually government run. So they're -- they have long sales cycles. But the ability to use HiFi data and drive next-generation AI through these large-scale cohorts is an area that we're going to clearly focus on.

Finally, we continue to drive innovation. At the core of who PacBio is, we're a company that drives groundbreaking innovation for our customers so that they can achieve -- they can achieve their goals and really achieve our mission.

So as we kind of wrap up here, I just want to remind you, we had a very strong fourth quarter. It sets the stage for 2026. We've built the foundation. We're feeling like we've built some strong momentum. We still expect the academic funding market to be challenged, but we are making up for it in our clinical push. The depth and the quality of our data amplified by AI does position us to unlock new biological insights, which will create value for patients, customers and shareholders. And finally, our SPRQ-Nx chemistry fundamentally resets the economics of long-read sequencing. It makes it highly competitive and a compelling value proposition for customers around the world.

We look forward to continuing to grow, and we look forward to spending more time with you at our earnings call in February. Thank you for your attention.

One question that we often get is, can you walk us through how Q4 revenue performed across the major regions and what drove the differences?

Yes. So we actually had a very strong fourth quarter across the world with Europe continuing to be strong. Europe was strong all year long. It was our fastest-growing territory, growing strong double digits for the year. Americas actually had a nice comeback quarter. They've had a -- it's been a tough year in the Americas region for us because of the academic funding constraints. In fact, over the course of the entire year, we only placed a handful of Revio systems. We're starting to see some seeds of that returning to a more normalized fashion. And then Asia Pacific was on basically on target, if not just a bit above, but the real strength came from Europe, followed by the Americas.

Awesome. Yes, that makes sense. And how should investors think about the contrast between the EMEA strength and U.S. funding pressure?

I think what's going on in EMEA is that EMEA is a clinical story. And we're seeing this play out, for example, at Radboud in the Netherlands. If you saw on the slides, in the past, they were saying they would sequence up to 5,000 genomes in 2026. Now they're saying at least 5,000. So they're rapidly expanding as the test -- as the human genome testing has become their first-line test.

We're seeing strength in the Nordic countries where they're using HiFi in a rare disease context. We're seeing strength in Germany as well. And so Europe, you're seeing this clinical story play out. And in the Americas, we -- the scale of the testing in the Americas from a clinical perspective, is more on the targeted sequencing scale, looking at carrier testing. Those tests are starting to roll themselves out, which will help in -- start to help in 2026 and beyond. But the academic funding was really the story in the Americas in 2025, where the uncertainty in February that really started in February kind of manifested itself basically for a freeze for the entire year.

Got it. And you also mentioned APAC. What stood out in APAC in -- specifically during Q4?

Well, certainly, the approval of the Sequel II platform at the NMPA in China, that was a landmark deal for us. The pangenome project, the Asian pangenome projects have been an important part. And we're seeing our service providers, particularly in China, continue to scale and grow, and they are -- they've been very quite very busy. We have a concentrated customer base in China right now with those service providers. But with the launch of Vega, we're starting to see more -- we're starting to see more diversity of customers in China, which I think will serve us really well.

And what characterized Revio demand in Q4, new customers or expansions?

It was a combination, but we did see several multiunit orders and multiunit orders are important, as I said in my remarks because it's demonstration that people are in the process of scaling up, which will drive consumable revenue in the following year. And so in the fourth quarter, we saw some new customers, but we also saw some scale-ups. And so the common -- we saw a nice broadening of placements across, quite frankly, across the world and across different customer types, really still driven by those clinical accounts as opposed to the academic accounts.

Got it. And with Vega, how did Vega perform in Q4 compared with earlier in the year? And what was sort of driving the demand today?

Well, we had our best Vega quarter of the year with 42 placements. We did 32 placements in the third quarter. So we had a substantial uptick. The sales funnel continues to improve. And what's interesting is that we're starting to see intra-quarter deals come. So basically, a deal comes to us at the beginning of the quarter and closes in the quarter, which is nice because that starts to just create a flywheel and an acceleration. We saw demand for Vega around the world, diversity of different customers, even some of the academic customers. And so it was actually a very strong quarter for Vega.

At 140 placements for the year, that's a really nice first year of the product. We'll continue to improve the product in 2026, and I think we can challenge the team to grow our placements in 2026 over 2025. So I look forward to sharing more about our -- how we're thinking about our guidance specifically in February.

And with SPRQ-Nx, what is the sort of initial feedback that you're hearing? And is it already influencing buyer behavior?

Yes. Actually, it was -- our ASHG this year was the -- it was really the turning point. We actually -- once we announced SPRQ-Nx and the ability to drive the economics of the whole genome, down into a competitive range, we're seeing not only customers wanting to do bigger projects, but more customers wanting to engage with us to start. So SPRQ-Nx is already influencing Revio placements. But the early -- when you look at the feedback across the board, people see that they get all of the comprehensiveness of HiFi at a much lower price and the -- and in the beta program, the customers are finding that the workflow is straightforward. It's worked effectively out of the box. We worked really hard to make this a beta where the product just works rather than it's an experiment.

And so we -- in fact, we had -- this was a paying beta where our customers had to pay to be in the beta, which isn't typical that -- but we felt the technology was far enough along that we could do that. So very encouraged by the early results, very encouraged by the 25% boost in output which will provide even more value for our customers and help us grow.

Awesome. And with rare disease, how did rare disease perform in Q4 and also carrier screening as well?

So carriers -- we'll start with carrier screening. Carrier screening is emerging. We have several large customers that are developing carrier screening assays and the intent is for them to use the carrier screening assay alongside other short-read genome tests to eliminate all the legacy technologies. And so we have some large customers that are in the process of validating that and hopefully, they'll come to market later in '26, but '25 was really a validation year.

In spite of that, we saw significant growth because those are research programs that use substantial amounts of reagents and assays. And so we were actually quite pleased with how that's going.

And with PureTarget, how is PureTarget performing? And what role does it play in clinical traction?

Well, PureTarget is the engine that is driving initial clinical traction with the bigger customers. Now with the launch of SPRQ-Nx chemistry, we'll start to see whole genome applications in a scaled clinical context over the next year or so. But PureTarget was really our entree. It's a targeted sequencing technology that allows you to interrogate the genes that are difficult for other technologies to look at, and therefore, they get better results and less expensive results than legacy methods and they can do something that short reads can do. So PureTarget was really the foundation to get us started. And then on the rare disease side, you're seeing the whole -- mostly whole genome approaches.

And consumables, again, were a highlight, what drove that in the fourth quarter?

Well, customers are using their instruments, and they're using them a lot. We had increased levels of utilization. We had very strong pull-through. As you saw, we saw -- we had some very -- we didn't really have any stocking orders or anything like that. This was bread and butter demand. We didn't really see a year-end -- significant year-end budget flush of any kind, and particularly on the consumable side. And so this is really where we're seeing the growth. And this is why you've seen 3 of the last 4 quarters have been all-time record companies -- record consumable revenues for the company, and I think it's going to continue that way.

And where did pull through exit for the year?

For the year, Jim, you know that for the year? I know the fourth quarter was $242,000. It's probably just a bit under that for the fourth -- for the full year. So, yes.

And sort of lastly, what gives you confidence coming out of the last quarter?

Yes. I think what really gives me confidence is that we've seen the demand curve fundamentally inflect because of the SPRQ-Nx chemistry and the economics. So that's the first thing that we've seen. The second thing is that we've worked really hard in this heavy period of uncertainty, and we had a very significant gap in academic revenue coming from the United States as funding got worse and worse relative to 2024 and we were able to overcome that by driving into the clinical markets. And we've seen this momentum really building in the clinical markets. We had 40% shipment growth in clinically relevant counts during the year. And we don't see that slowing down. And so we see customers using this. And over time, the clinical market is certainly a more durable set of revenues.

Our technology has fundamental competitive advantages over others that really give us the opportunity to penetrate that multibillion -- combined multibillion dollar opportunity for us over the next several years starting with 2026.

Awesome. Thank you. Well, with that, I think we're about at time. Thank you to the PacBio team and have a great rest of the conference.

Thank you. Thank you very much everyone and thank you for your time.

Good day, and welcome to the PacBio Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Carrie Mendivil with Investor Relations. Please go ahead.

Good afternoon, and welcome to PacBio's Third 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 make forward-looking statements, including, among others, statements regarding predictions, estimates, expectations and guidance. You should not place undue reliance on 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 releases 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 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 a 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.

Thank you, and good afternoon, everyone.

Starting with our top line performance in the third quarter, revenue came in at slightly below our expectations at $38.4 million, primarily due to fewer than expected Vega shipments in Europe and lower than expected revenue on ASPs. However, our consumable revenue was well above our forecast and once again at an all-time high reaching $21.3 million, demonstrating strong progress towards our goal of increasing adoption of our long-read sequencing technology. As a result of this strength in consumables, non-GAAP gross margins were 42%, our highest level since 2022.

Looking at our regional performance. At the beginning of the year, I said we expected EMEA to be our fastest-growing region in 2025. This continues to be the case and in Q3, EMEA saw growth of 18% on a year-over-year basis. The growth in EMEA was driven by approximately 50% year-over-year increase in consumable revenue that was partially offset by the miss in Vega placements. Our strong growth in consumables was driven primarily by our commercial and clinically-focused customers.

In the Americas, the funding environment continues to be challenging, especially for academic and government research customers who are dependent on NIH and other public budgets. As a result, procurement cycles continue to be elongated. In the third quarter, we did not see a significant end of government year budget spend in this region. We are anticipating a similar funding environment in 2026.

Finally, in Asia Pacific, the funding environment continues to be challenged. However, we achieved our revenue forecast for the quarter, albeit at lower than expected ASPs. This was partially offset by exceeding our forecast for consumables in the region, and our largest customers continue to have very high utilization rates and pull-through.

Looking specifically at China, we exceeded our expectations and continue to see strength in the region. From a product perspective, we shipped 13 Revio systems and 32 Vega systems in the third quarter, bringing our cumulative shipments to 310 and 105 systems, respectively. Approximately 75% of the Revio shipments were to new customers. We placed several Revio instruments with key institutions at lower prices, which resulted in lower ASPs for the third quarter. However, we believe these strategic accounts will ultimately drive higher utilization and above average consumable pull-through.

For Vega, shipments came in below our forecast, particularly in Europe, as several instruments were stuck in procurement processes that extended beyond the end of the quarter. Encouragingly, we have already received purchase orders for some of those units that were originally forecast in Q3. Vega ASPs continue to be strong and were flat sequentially.

We're confident in the long-term opportunity of the Vega platform given its attractive price point and ability to bring new customers into the PacBio ecosystem. Importantly, approximately 60% of the Vega placements went to new-to-PacBio customers, and we continue to believe Vega will serve as both an entry point and an upsell opportunity for Revio over time.

Turning to consumables. Revenue grew 15% year-over-year to $21.3 million in Q3, another record. This performance was supported by broad adoption of our SPRQ Chemistry and steady utilization across our growing installed base. This also led to a roughly 65% increase in total gigabases of sequencing output. Revio annualized pull-through was approximately $236,000 per system, near the high end of our guided range, a sign of durable demand from our customers. Over the course of the third quarter, our sales funnel improved, particularly for Revio.

Looking forward, we expect to ship more Revio and more Vega instruments in Q4 than we did in any other quarter this year. As a result, we expect total fourth quarter to grow both year-over-year and quarter-over-quarter with approximately 10% sequential growth. Given our Q3 performance, we are narrowing our revenue guidance for the full year of 2025 to the low end of our range and now expect revenue to be between $155 million to $160 million. Jim will provide more details on our expectations for the remainder of the year shortly.

Reducing our cash burn has also been a key focus this year. And in Q3, we achieved another quarter of sequential improvement, with cash burn totaling $16 million. We continue to expect total cash burn of approximately $115 million for 2025, an improvement of more than $70 million compared to 2024. As we continue to recognize benefits from our restructuring, our improvements to gross margin and continued expense discipline, I believe we are well on our way to achieving our goal of reaching cash flow breakeven as we exit 2027.

Our team at PacBio continues to advance our core initiatives that will define the next phase of our growth. Let's start with our clinical opportunity. We are making significant advancements to deliver on our vision to lower barriers to adoption and enable clinicians worldwide to deliver more precise answers to patients and their families. Yesterday, we announced that the Sequel II CNDx system has received Class III Medical Device Registration approval from the National Medical Products Administration in China through our long-standing partnership with Berry Genomics. This marks the first known regulatory approval of a clinical-grade long-read sequencer anywhere in the world, signaling a new era for precision medicine and high-accuracy genomic testing in China. Berry plans to start by launching the Sequel II CNDx system, which will run their recently approved thalassemia test in hospitals throughout China.

Berry also intends to expand the use of HiFi technology to more clinical assays like congenital adrenal hyperplasia, fragile X syndrome, spinal muscular atrophy, Duchenne muscular dystrophy and other complex single-gene disorders and panels, and has indicated that these assays also work very well on the Vega system in clinical research applications.

High-incidence genetic disorders such as thalassemia, spinal muscular atrophy and fragile X syndrome often involve complex variant types that are difficult or impossible to detect using short-read sequencing. With the Sequel II CNDx system, Chinese clinicians will be able to access all aspects of the genome, capturing single nucleotide variants, insertions and deletions, copy number variants, structural variants, repeat expansions and, of course, methylation with exceptional accuracy.

We estimate that the potential testing market for thalassemia alone can be in the hundreds of thousands of samples per year in China. As demand for comprehensive genomic testing continues to grow, we are focused on expanding the potential clinical utility of HiFi sequencing. Earlier today, we were excited to share that the first major study demonstrating the clinical research power of HiFi genomes was published by the HiFi Solves EMEA Consortium. This study shows that PacBio HiFi sequencing, combined with Paraphase, a dedicated haplotype-based variant caller, uncovered all known clinically relevant variants present in the study population, even in the hardest to sequence regions of the genome, demonstrating its readiness to power the future of clinical discovery.

As a result, we believe researchers and clinicians will be able to save time and significant cost by turning to HiFi first. HiFi genomes revealed a complete picture of genetic variation that can truly change how rare diseases are understood and studied. We believe that these findings position HiFi as the clear path forward toward clinical-grade genomics. Beyond expanding access and demonstrating clinical utility, we've also had several recent wins expanding the use of HiFi in the clinical research setting.

First, Children's Mercy hospital launched a single test HiFi-based assay for genetic disease diagnosis. This replaces multiple legacy workflows with one comprehensive test, providing faster time to answer and more accurate results for patients and their families. Additionally, Children's Mercy is expanding the use of HiFi into pediatric oncology.

Additionally, in September, we launched the enhanced PureTarget portfolio, a family of products designed to target some of the most challenging regions of the genome. The family includes a carrier screening panel for inherited reproductive conditions, a repeat expansion disorder panel for neurological diseases and a control panel to support custom assay design and validation. These panels are available in 24 and 96 sample kit formats to meet the needs of a variety of clinical researchers. These kits enable labs to replace several specialized tests with one flexible workflow that works for both clinical and large-scale screening programs.

Several of our customers are leveraging the PureTarget portfolio to develop specific assays for carrier screening. Carrier screening is one of the most widely ordered genetic tests worldwide with millions of couples screened each year. It is a large, durable and highly relevant market because identifying carriers before or during pregnancy can have a profound impact on family planning and medical decision-making.

Importantly, many of the most medically relevant genes in carrier screening are some of the most challenging to assay with short-read sequencing due to pseudogenes, repeats or structural complexity. HiFi sequencing works to resolve these challenges, providing complete, safe and highly accurate results where legacy approaches often fall short. With our new HiFi-based PureTarget portfolio, we believe PacBio is uniquely positioned to deliver a more reliable and comprehensive standard for this essential area of genetic testing and to support our customers in making carrier screening more accessible at scale.

Beyond the clinical research setting, our technology is uniquely positioned for large population scale studies. Our HiFi technology and integrated solutions have recently been selected for several of these types of large-scale studies. A great example of this is the recently announced long-life family study, a major project led by the National Institute on Aging. This project will employ Revio systems with SPRQ-Nx chemistry to generate comprehensive genomes and epigenomes from up to 7,800 participants. The goal is to help identify genetic and epigenetic clues underlying healthy aging and exceptional longevity, making this one of the world's largest long-read studies of aging to date.

Another example is the Korean Pangenome Reference Project, which recently selected our HiFi sequencing technology as its primary platform. This study is a landmark national initiative led by the Korea Disease Control and Prevention Agency, a part of the National Institute of Health. It will generate the first large-scale telomere-to-telomere quality reference genomes representing the Korean population and integrate the data into the global Human Pangenome Reference Consortium.

Specifically, the study of more than 1,000 participants will utilize PacBio's integrated sequencing solution across the workflow, including HiFi whole genome sequencing, Kinnex full-length RNA analysis, enabling the precise transcriptome profiling and CiFi technology for chromosome-scale analysis, detecting structural variants and complex genomic features. By building a more inclusive and comprehensive reference, the initiative is expected to accelerate discovery of population-specific variants, help improve insights into unexplained diseases and support the development of precision diagnostics and therapies.

HiFi is an essential component of helping researchers explore the full spectrum of human genomic diversity in these types of large-scale studies. Another key example of how -- is a new study published by the All of Us Research Program, which is funded by the NIH to amass longitudinal health data and genome sequences of 1 million U.S. participants with the goal of advancing precision medicine research and fueling new insights into human health. Powered by PacBio technology, the study found that standard short-read sequencing only detected half of the disease-associated structural variants in their cohort. This revelation shows just how much of the human genome has remained out of view until now and fundamentally redefines what it means to truly see everything in the human genome.

Over the past several years, we've been very focused on productizing our technology and developing the sample-to-answer workflows that researchers and clinical laboratories demand. To do this, we have dramatically lowered DNA input requirements and enabled several different sample types, including saliva, buccal and even FFPE to our workflows. We've built the PacBio Compatible program to ensure robust automation solutions are available to our customers as we scale. And we've launched 2 new long-read sequencing platforms and developed a bioinformatics suite that helps our customers take advantage of HiFi technology.

With a robust end-to-end solution in place, we've turned our attention to dramatically lowering the cost of sequencing on our Revio platform through a groundbreaking new chemistry, SPRQ-Nx. Earlier this month at The American Society of Human Genetics Conference held in Boston, we unveiled our new SPRQ-Nx chemistry, marking a defining moment for PacBio. We believe that SPRQ-Nx will help dramatically lower the cost of a human genome sequencing to less than $300 per genome at scale, making our technology economically competitive with many short-read sequencing platforms.

Additionally, SPRQ-Nx is designed to improve our methylation-calling performance and adds the ability to automatically call methyl-hydroxy C, another important epigenetic marker. But we believe the most revolutionary aspect of SPRQ-Nx is the ability to use the SMRT Cell multiple times. The SMRT Cell is by far the most expensive component of our consumable. By reusing the SMRT Cell, we can reduce the cost of sequencing for our customers and improve our gross margins simultaneously, a rare win-win.

Multi-use SMRT Cells will be launched for Revio in a fully automated way, allowing for a seamless customer experience. Initially, customers will be able to reuse the SMRT Cell one additional time. And over the near term, we expect to increase the number of uses. More than 100 customers have already demonstrated interest in beta testing SPRQ-Nx on Revio. We expect to initiate the beta testing program later this month and then move to an early access phase in 2026. This is not like a typical beta test as the beta test group is paying for the consumables, a strong signal as to the underlying demand for this new chemistry. Once the early access program is complete, we plan to roll out SPRQ-Nx to all Revio customers in 2026.

We are also continuing to broaden the application of HiFi sequencing. Most notably, we announced a new partnership with EpiCypher to integrate their Fiber-seq workflow into the PacBio Compatible program. Fiber-seq enables single molecule mapping of chromatin accessibility, methylation and sequence variation in one assay, adding another dimension of epigenetic insight to HiFi and complementing our existing strengths in the genome, transcriptome and methylome sequencing.

In October, we also announced an expanded partnership with seqWell. Under this agreement, PacBio will distribute seqWell's LongPlex Kit, a scalable, easy-to-use sample preparation solution designed for HiFi sequencing. LongPlex streamlines DNA sharing and multiplexing, enabling hundreds of samples to be prepared in a single run. By reducing prep bottlenecks, this kit is designed to make long-read sequencing more accessible for low-pass whole genome sequencing, plasmid sequencing and microbial genomics.

Together with our existing workflows, LongPlex gives researchers more choice across high-throughput applications and may help accelerate the adoption of HiFi for large-scale studies. Overall, I'm excited about the progress we are making to broaden our footprint and advance our technology to create more value for customers doing high-throughput research and clinical sequencing.

I'll now hand the call over to Jim to discuss our financials before I finish with a few closing remarks. Jim?

Thank you, Christian. I will discuss non-GAAP results, which include non-cash stock-based compensation expense. I encourage you to review the reconciliation of GAAP to non-GAAP financial measures in our earnings press release.

We reported total revenue of $38.4 million in the third quarter of 2025 compared to $40 million in the third quarter of 2024. Instrument revenue in the third quarter was $11.3 million, a 33% decrease from the third quarter of 2024 and a 20% decrease from the second quarter of 2025. The year-over-year decrease was driven by lower Revio unit shipments, partially offset by 32 Vega systems as we began shipping this platform late last year.

Turning to consumables. Revenue increased to a new record of $21.3 million in the third quarter, an increase of 15% compared to the third quarter of 2024. This represented a 12% sequential increase. Annualized Revio pull-through per system was approximately $236,000, an increase compared to approximately $219,000 in the second quarter of 2025 due to increased utilization in our top accounts.

Vega consumables grew sequentially with the expansion of the installed base. As we do with the Revio, we anticipate providing an expected pull-through range for Vega as we get further into the commercial launch and have a more established installed base. Finally, service and other revenue grew approximately 25% to $5.8 million in the third quarter compared to $4.7 million in the third quarter of 2024, driven by an increase in Revio service contract revenue.

From a regional perspective, Americas revenue of $18.1 million decreased 10% year-over-year and increased 2% sequentially. The year-over-year decline was primarily driven by continued caution in academic capital spending, which weighed on Revio demand. We were encouraged by Vega's momentum as Q3 marked our highest U.S. placements to date, with 69% going to new PacBio customers.

For Asia Pacific, revenue of $9.6 million decreased 11% compared to the third quarter of 2024 and decreased 24% sequentially. The year-over-year decline reflected fewer Revio placements compared to the prior year. EMEA revenue of $10.7 million increased 18% compared to the third quarter of 2024 and increased 14% sequentially. The year-over-year increase was led by approximately 50% growth in consumables, supported by higher utilization and an expanding Revio installed base.

Moving down the P&L. Third quarter 2025 non-GAAP gross profit of $16.2 million represented a non-GAAP gross margin of 42%, compared to a non-GAAP gross profit of $13 million or 33% in the third quarter of 2024. Non-GAAP gross margin increased year-over-year due to improved product mix as consumables have higher gross margins and represented approximately 55% of total revenue in the third quarter of 2025 compared to approximately 46% in the third quarter of 2024.

We transitioned our Vega system to full-scale production and realized lower per unit manufacturing costs. Additionally, Revio SMRT Cell manufacturing yields improved and trended above historical levels in the quarter. Non-GAAP operating expenses were $53.9 million in the third quarter of 2025, representing a 14% decrease from non-GAAP operating expenses of $62.4 million in the third quarter of 2024.

Operating expenses in the third quarter of 2025 included non-cash share-based compensation of $10.1 million compared to $17 million in the third quarter of 2024. The decrease in both non-GAAP operating expenses and non-cash stock-based compensation was primarily due to the recent restructuring initiatives. Regarding headcount, we ended the quarter with 490 employees compared to 575 at the end of 2024.

Non-GAAP net loss was $36.8 million, representing $0.12 per share in the third quarter of 2025 compared to a non-GAAP net loss of $46 million, representing $0.17 per share in the third quarter of 2024. We ended the third quarter of 2025 with $298.7 million in unrestricted cash and investments compared with $389.9 million at December 31, 2024, and $314.7 million at June 30, 2025.

Turning to guidance. As Christian shared, we expect a stronger Q4 with revenue growing approximately 10% sequentially. The strength in revenue growth is expected to be driven by more Revio placements and a continuation of the strength in consumables we have seen over the course of this year. We are particularly encouraged by the durability of our consumables business and the growing momentum we are seeing in clinical applications. As a result of our Q3 performance, we are narrowing our revenue guidance for the full-year 2025 to the low end of our range and now expect revenue to be between $155 million to $160 million.

Moving down the P&L. We continue to expect to exit the year with non-GAAP gross margin above 40%. We expect our ending balance of cash and investments to be greater than $270 million at the end of 2025. When excluding the $5 million licensing payment in Q1, this implies approximately $115 million cash burn in 2025 or an improvement of more than $70 million compared to 2024. We believe, based on our current assumptions, our $299 million in cash and investments as of September 30 is sufficient to reach cash positive cash flow by the end of '27.

I'll now hand it back to Christian.

Thanks, Jim. Our focus centers on one goal, increasing adoption of HiFi long-read sequencing across the sequencing market, especially in clinical applications and large-scale whole genome projects. As we close out 2025, I believe PacBio is well positioned to deliver long-term value to our stakeholders. Our HiFi technology is fundamentally different than anything else in the market, supporting our mission to enable the promise of genomics to better human health.

With the upcoming launch of our new SPRQ-Nx chemistry with multi-use SMRT Cells, we believe we can dramatically improve the economics for long-read sequencing, which will help us penetrate the clinical market and expand our opportunity into large population scale programs. And finally, we are investing efficiently by focusing on our strategic priorities. This has resulted in meaningful reduction in our cash burn, and we are tracking toward a goal of achieving positive cash flows exiting 2027. We believe our strategy positions PacBio for long-term growth, and we are confident in our ability to lead the next era of genomics.

With that, we will now open it up for questions. Operator?

[Operator Instructions] Our first question comes from Kyle Mikson with Canaccord.

So on instruments, a little soft in the quarter, I guess. I heard all the dynamics going on. But I just wanted to break that down into the 2 products. So with Revio, ASPs looks like a little bit weaker this quarter, less than $500,000 per share versus the list price of $599,000. Maybe just talk about what that could be going forward. If you could quantify that, that would be great.

And then with Vega, interesting to see that kind of sequentially decline this early in the launch. How many placements were pushed out to future quarters due to the EMEA challenges?

Yes. Thanks, Kyle, for the questions. I'll start with Revio. Revio ASPs were lower this quarter. And my expectation is fourth quarter ASPs will actually recover. And when we look at where we placed the systems, we placed them into some very strategic accounts. So, they ended up with lower ASPs, but we believe that they will have high throughput. And so as a result, you'll see better consumable usage, which will drive revenue there. So, that's generally a smart decision.

And then with respect to Vega, we did have a shortfall in Vega. And there was roughly half a dozen or so instruments that were in Europe that were stuck in various stages of procurement. None of those are lost as opportunities. As I said in the written remarks, some of them have already gotten through and are now POs. And I don't know if they've been shipped yet or not, but they'll be shipped in Q4. And so I think that was a temporary issue with procurement processes.

I do think that the big opportunity continues to be really strong and the funnels are strong. So it's really a question of the timing from quarter-to-quarter. The one other comment I will make, we did have one Revio system that unfortunately failed installation testing, and so it didn't get recognized. It will be recognized in Q4, and that one had a much, much higher ASP. So, that would have pulled the numbers up a little bit. We'll see that in Q4, and that's really just a timing thing.

Yes, I think we're ready for the next question.

Our next question comes from Doug Schenkel with Wolfe Research.

This is Madeline Mollman on for Doug. I just wanted to touch on the gross margin. It was a little bit stronger in the quarter than I think we were expecting, and it was above your full-year guide. Can you just sort of bucket out how much of that was mix versus some of the other things you called out? It looks like maybe services gross margin was a little stronger this quarter as well. And then thinking -- how should we be thinking about gross margin as we head into 2026?

Yes. Thank you for the question, Madeline. Gross margin was really strong in the quarter, and it was above our internal forecast. Part of that is really related to the shortfall in instruments, of course, because the product mix is really the biggest contributor to pushing gross margins forward. We did see nice -- we -- our yields in SMRT Cell manufacturing are basically at all-time highs right now. We saw cost reductions -- we're seeing cost reductions on the Vega system on the Revio system as well. So the production side, we're really focused on driving costs down, and that's helping. But the biggest contributor to the outperformance in the quarter was the strength in consumables.

We had an all-time record for consumables and coupled with the production costs being better, that bodes really well for us. When we look forward into '26, we're not going to give any guidance on gross margin, but we certainly think that as consumables becomes a bigger part of the story, gross margins have a very strong chance of growing even from here. And I think that, that's really the beginning of the story.

We've made a tremendous amount of progress on the gross margin line in the last 4 or 5 quarters. And I do think we're going to continue improving as consumables continue growing and as instruments get to more normalized revenue levels, the lower production cost. One thing I will also say is in third quarter, we didn't see a major impact on tariffs in the quarter really. However, the Vega system is experiencing some tariff that it's not material enough to pass on to customers at this point, but we're watching that.

Our next question comes from Subbu Nambi with Guggenheim.

This is Thomas. You made some initial remarks on funding for '26, but just can you talk through what your assumptions are at this point for the instrument environment for next year? Just some more color on funding funnel strength and any updated feedback you've heard from customer channels would be helpful.

Well, I think I said back in September that it does seem like the environment is kind of stabilizing and settling, and we're kind of -- I think what I said was we're bouncing along the bottom a little bit here. I don't think that's really changed since we made those comments in September. And when I talk to customers, I think the funding environment is going to be challenged next year. I think that we're going to continue to see uncertainty in the academic funding environment. Although the longer we're stable, the more purchasing agents will be comfortable releasing purchasing and funding in -- particularly in the United States.

One of the things that we're doing is we're really pivoting into clinical and these other areas of our business, and we're seeing great traction there. You saw a lot of my written remarks today about that. The funding is a lot more robust there. We have a very strong product offering there now. And so I think for us, our expectation for '26 is that it will certainly in the first half continue to be challenging and perhaps all year, but we'll give more guidance and color when we get there. And to keep us growing and moving in the right direction, we're really moving a lot of our effort and focus into these clinical applications, these clinical customers and we're seeing great traction in the United States and in Europe. So, I'm excited about that progress we're making.

Next question?

Our next question comes from Luke Sergott with Barclays.

I appreciate the update there on Revio. But as you look at the consumables, and I know this is not a normal environment for you guys, but any kind of early look that you have from a Vega pull-through as we kind of think about the pace here and as you guys place a couple -- a few more instruments in 4Q, what that could look like and then -- or what you guys are looking for internally?

And then I guess on the SPRQ-Nx, bringing the cost of sequencing down there, can you talk about some of the data fidelity when you're running multiple runs on the same SMRT chip? And then from the beta testers on the SPRQ-Nx, like the -- I know that's starting in November. So, how many beta testers are you guys looking for? And any early feedback or demand that you can call out?

Yes. Great questions. You gave me a mouthful. So, let's start here at the top. When we look at Vega -- we'll start with Vega. We aren't commenting on Vega pull-through yet. I think we want to get a full year under our belt before we start seeing -- start really trying to set what the target will really be. But your expectation for a product like this based on others and my experience in the industry is somewhere between, say, $25,000 and $45,000 a year of pull-through per system. We'll see where we shake out. We haven't commented on it yet, and we're just going to wait and we'll do that next quarter, perhaps to kind of wrap up the year or sometime in 2026.

Revio, we had -- we were at the higher end of our pull-through targets that we established this year. We're seeing good utilization, steady utilization across the installed base and the high runner customers are really running their machines. And so I think that's actually very encouraging. What that means is that I would expect as we place more Revio systems that, that will be additive to our consumable revenue because we haven't seen a major drop-off in the end customer being a lower throughput customer for Revio. And so I'm actually quite encouraged by that in the $236,000 that we have this quarter. It's going to bounce around every quarter as it has this year. But I do think customers are utilizing their systems, and I think that bodes well for consumable growth in 2026.

When you look at SPRQ-Nx and data fidelity, one of the most exciting parts about this is that we're seeing very consistent levels of throughput from use to use to use and the same high-quality, very comprehensive data. So whether it's the first use or the second use, you get all the methylation, the structural variation, all of the hallmarks of what HiFi brings to the table. With each use, you get very little carryover. So, there's not a lot of carryover from run to run. That's one thing customers have asked me a little bit about and quite frankly, investors, too. And I have to remind people that when we wash -- this is a fully automated protocol on the Revio system.

And when we wash the SMRT cell for the -- get prepared for the second run, we're actually -- all we have to do is clean 25 million single molecules, whereas in other environments or other technologies that are amplification-based perhaps, for example, short-read sequencers, you're looking at billions upon billions of molecules. And so it's a very different paradigm. Also, our customers are running indexed samples almost exclusively. So, we feel very confident and comfortable about reuse, both from a throughput perspective, quality of the data and the fidelity. And so we're really excited about that.

From a beta testing perspective, in my written remarks, I indicated that there's over 100 customers that have expressed interest. We've signed the first group of customers up already, and they're going to be receiving their materials here very shortly. I don't think I want to describe how many customers because I know there's a lot of customers that really just want to get going. We're going to start with a pretty small group of customers here through year-end and then expand it as we get into early '26 and manage an early access phase. And then throughout '26, we'll expand it so that all customers can get access to this important technology.

Next question?

Our next question comes from Tycho Peterson with Jefferies.

This is [ Lauren ] on for Tycho. Just a little bit of more clarity around the SPRQ chemistry rollout. Are you guys expecting to drive kind of incremental revenue there or primarily to improve margins? And kind of what's the near-term target for pull-through for Revio as the SPRQ chemistry rolls out?

And then second, around the PureTarget HiFi assays, which can now cover difficult-to-sequence genomes. What are some of the additional clinical or research applications there in addition to carrier screening that you're targeting for expansion?

So with respect to how pull-through will be impacted by the SPRQ-Nx chemistry, we're going to wait and see what that looks like. I'm going to -- I'll probably provide more commentary when we get into January, February after the beta program is completed. So, I'm going to pause on that one. But the point of SPRQ-Nx chemistry is to drive increased adoption of our technology, more samples coming to our platform and driving revenue growth. That is the principal driver of this is revenue growth. We will see a substantial benefit in gross margin as well because the cost of the SMRT Cell is such a large component of the total consumable cost, every time you can use that SMRT Cell over, you amortize a pretty significant cost into the next run. So it really is truly a win-win situation.

Customers are going to get better pricing. We're going to get better consumable gross margin, with the entire point being increasing our market penetration by being very competitive with short-read technologies. Because most customers, when you talk to them, they would love to be using long-read sequencers in applications where they're using short reads today, but they've always been hesitant because of cost. This takes that completely off the table, gives them the ability to have a more comprehensive view of the genome, drive deeper insight at much better economics. And so I think that's going to be a really powerful growth driver for the company. But we'll comment on the specifics of what pull-through might look like. We'll do that later next year.

With respect to PureTarget, our customers are using the PureTarget in lots of different ways. They're looking at not only -- they're looking at not only carrier screening, but they're also using it for single-gene type tests where you're looking at, say, ataxias, for example, or other neurodegenerative disorders. Anywhere where you have a single-gene disorder or a multi-gene disorder where there's challenges with respect to looking at them with short reads, that's an opportunity for PureTarget. And it's a portfolio of products. It's not just one kit. It's several different kits, targeted kits that enable customers to look specifically at carrier screening or other difficult-to-sequence tandem repeat, et cetera. And so it's a pretty broad portfolio, and it really is helping drive Revio placements into clinical accounts. And it will be an important growth driver for carrier screening, for example, in 2026 revenue and beyond.

Next question?

Our next question comes from Mason Carrico with Stephens.

This is Ben on for Mason. Could you talk about how the funnel for your population scale programs has evolved? Just wondering if the multi-use announcement has potentially accelerated any existing conversations you're having or resulted in any new opportunities there? And then just as a quick follow-up on your comment of Revio ASPs reverting higher in Q4. Should we assume that ASP remains stable in 2026?

Yes. Thank you, Jason, for the -- sorry, Ben. Thank you for the questions. Yes, we have -- the excitement around reuse or multi-use and the lower pricing certainly has driven some new conversations just since ASHG on major population scale programs. And so we'll see how that goes. The funnel of programs that we've been working on continues to progress. These take a long time to get done. But I would say the funnel is expanding. And I do feel comfortable to say that some of these are actually going to get across the line here in the near term and really give us an opportunity to grow with these programs because these would be very large sequencing programs that would be completely additive to our growth and generally outside of our guidance because the timing of those are always -- they're highly variable.

So it's very difficult to provide them into our guidance. So, we'll keep you posted as we keep moving along. But they are broad in nature. They're global, and there are new opportunities that have come up even since ASHG when we made the announcement. Revio ASPs were down in the third quarter. I do think they will recover in the fourth quarter. And I do think ASPs in the first half of next year would be generally in a stable sort of range. The good news is that we've taken production costs out of the Revio system. So the impact to gross margin perhaps isn't as bad as people might think. But yes, I do think that we're going to see stability in the Revio gross margins -- I mean, in the Revio ASPs for the foreseeable future, and we'll go from there.

And the last part of your question, I actually -- I didn't get it written down. It was something else with respect to Revio, if I missed it.

No, I think you got it. It was on the ASPs heading into 2026.

Cool. Yes, I just want to make sure I answered all your questions.

Our next question comes from Dan Brennan with TD Cowen.

This is Tom on for Dan here. Maybe just one on your approach to AI. I think historically, when you've launched something, it's taken a while to get integrated into use just as yield things are ironed out, et cetera, et cetera. Are you taking any precautions or kind of what time line should we be thinking for when this is kind of ready for prime time given this is going to be a much more kind of high-throughput flow cell? And then I've got one more follow-up from there.

Yes. So, I just want to confirm the question was you really trying to understand the thinking around the SPRQ-Nx rollout and when it will truly be ready for prime time. Is that what the question was? Because you kind of cut out for part of it.

Yes. That's right. That's right.

Okay. Great. Well, yes, so I think we are taking a very measured approach to this for lots of reasons. First, we want to make sure our customers have a fantastic experience with this rollout, and we want to give them time to plan their projects so that they can take full advantage of the lower pricing and more samples can come into the market. We also want to see how the customers actually use the technology. And so that will be happening in the beta program and maybe the first part of the early access program.

The technology and the -- what we have to do with respect to the instrument? All we have to do is upgrade the software, so the firmware and the system will be upgraded. So, that part is actually really straightforward. And so we will see how the market adopts the technology and roll it into early access. And depending on how fast new samples come into the market, we will eliminate the early access part of this. It's important to note that we will continue to sell the single-use SMRT cells alongside the multi-use SMRT Cells because in some situations, customers may want to use the single-use SMRT Cells as opposed to the multi-use SMRT Cells for certain applications where perhaps they don't have as much throughput. So the customer will have flexibility in that sort of way. We will be monitoring how samples come into the technology with the whole intent of growing our consumable revenue next year.

Our next question comes from Nathan Bolanos with UBS.

We're over a month into the U.S. government shutdown, a lot of agencies have furloughed employees. I'm just curious if this has had any impact on order volumes, how you're sort of framing it for Q4 and beyond? And is there any potential uplift if we get things back up and running?

Thanks, Nathan. That's a good question. When we were thinking about -- so far, we haven't seen a material impact from the shutdown. I do think if the shutdown persists, we could see some impact. But the reality is our U.S. academic NIH-funded business has been challenged all year. So, we've been driving our revenue from lots of other sources. And so, therefore, the impact would be more muted anyways. I would expect, though, the longer it goes, maybe it doesn't have that much of an impact in Q4, but perhaps it has a bigger impact in Q1 or Q2 as just the timing of when things get started again. That said, if the government got back to work and people wanted to catch up, so to speak, you're right, that could have a positive impact. The guidance we gave for Q4 does not contemplate that positive impact, but also doesn't assume the government stays shut down for the rest of the year. But I would say that our revenue isn't as dependent on U.S. government-funded sources today as it has been in the past. So the impact is actually not as big anyway if that makes any sense.

Next question?

Our next question comes from David Westenberg with Piper Sandler.

This is Skye on for Dave. First, on revenue growth. Should we start with flat revenue growth for 2026? I know you mentioned Revio ASP kind of recovering in Q4, maybe stable in the first half of 2026. But anything there on revenue growth?

And then could you provide some more color on the geographic distribution of Revio placements and consumable sales, maybe where you anticipate placing more Revio and then the primary research applications that are driving the current demand?

So we'll start with -- we aren't going to give any real color on 2026 today. So, we'll stay tuned on that. I do think we're going to see a strong Q4. We're expecting 10% sequential growth. And I think that, that would be a nice strong year end of the year and give us some momentum going into 2026. I do think the fundamental aspects of our business, we've been increasing our instrument placements, which is likely to drive consumable growth next year. We continue to place instruments at a pretty consistent clip. And so if you just take that onto itself, you would expect that we would be growing in 2026 and not flat. But we'll give formal guidance in 2026 when we get to that point.

With respect to the geographic distribution of Revios, they're pretty broad. They're pretty balanced across the world right now. And as we kind of look out into Q4 and beyond, I think that most of the Revios are being placed into commercial and clinical type accounts, not so much NIH funded. I believe in Q3, we only had one system placed in a kind of an NIH-type funded environment. So hence, my comments -- my previous comments about government shutdowns and the impact on us. I do think that, that will continue with the -- we will -- I do think we're going to see expanded fleets in '26 as some of our clinical customers continue to scale up, launch their LDTs and start to drive volume. I think that's a real source of opportunity for us.

Our funnels have been improving in Europe as well. As I said in my written remarks, Europe has been our bright spot of the year in terms of regional growth, and we had a very strong growth quarter in Q3 despite the missing a few Vega instruments. And so I think that Europe will continue to grow into next year. And as the U.S. funding environment improves, that will certainly help us get back to a more normalized level. So, that's how I see it right now.

Our next question and last question of the call comes from Kyle Mikson with Canaccord.

I want to follow up on the -- that question, just the last question there about the kind of the growth for '26. So, I think what the Street had like mid-teens. I know you're not talking about the actual quantification of it all. But when you think about it like qualitatively, there's a few factors I would just love for your input on. You got the flat -- NIH budget could be flat, could be recession-type actions.

You got the impact of POPSEQ project, which you have a bunch of at this point. You have possible market freezing or longer sales cycles due to some competing products coming up soon, then you have -- China has removed the ban for Illumina. So wondering if that gives you any more optimism over there. If you could just comment on these things and how you're looking at it kind of exiting this year, entering next year, it would be good to hear.

Yes, Kyle. It's a nice way you framed it up. I mean the reality is that if you look at 2025, the contribution of our revenue from kind of NIH-funded sources has been really small relative to kind of historical expectation. And so any improvement in NIH is going to help drive growth at all. Even quite frankly, just certainty about keeping things flat is going to help drive growth for us. The POPSEQ programs, I do believe some of them are going to go live in 2026, and that will certainly drive our growth as well.

As the funding environment improves a little, I do think the sales cycles will shorten somewhat, not elongate further. And I also think that other sequencers that are coming on to the market are actually not going to have a significant impact on us in '26, principally from the clinical side of the world because we are already expanding rapidly with the power of long-read sequencing, replacing all of these legacy technologies in the workflow. There's no other -- there's really no other technology out there today that can do as good a job as we can of replacing all the legacy technologies in a clinical lab workflow. And what that means is that we're going to be more efficient for the lab. We have great economics already, but the economics of the lab are going to get better, not just from introducing a product, but by eliminating steps in all the other workflows. And I think that's a really big deal.

When you look at China, China, we had a very -- we continue to do well in China. I think the launch of the Berry CNDx -- Sequel II CNDx is very indicative of, that's a market that has a great opportunity for us in long-read sequencing on the clinical side, starting with the single-gene tests that Berry is launching, but we also have a very strong HLA testing business with Haorui. We have a very strong -- our service providers in China continue to run very high rates of utilization, which lends itself to expanding their Revio fleets some in 2026.

So the outlook for China for us is strong regardless of what happened with Illumina today. I would imagine that probably only helps us in terms of maybe easing the relationship or at least creating a little more certainty around the risk profile associated with doing business in China. So, I think there's a lot of -- we have made a lot of progress this year, and I think it sets us up really well for growth in '26, but we'll certainly provide a lot more detail and color as we get early into '26. Right now, our focus is finishing 2025 really strong, driving significant sequential growth of 10% or so and really preparing to make multi-use and SPRQ-Nx a really impactful launch. And I know the team is ready to do it.

So, that's where I'll leave it.

This concludes today's conference. Thank you for attending today's presentation. You may now disconnect.

Hi. My name is Yuko Oku, and I'm on the life science tools and diagnostics team here at Morgan Stanley. Before we begin for important disclosures, please see Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep. With that, it's my pleasure to host PacBio. And speaking on behalf of the company, we have Christian Henry CEO. Thank you for joining us today.

Yes. Thank you. It's great to be here, and we really appreciate the support from Morgan Stanley for this opportunity.

Well, maybe to set the stage, it's been a challenging year for life science tools and diagnostic instrument vendors like PacBio facing headwinds that are essentially outside your control. Could you elaborate on the key focus areas for you this year to help set up the business for hopefully a better environment next year?

Yes. I think that you said it, things outside of your control. And so as a CEO, what you're trying to do is you're trying to help the company understand what can we control and how can we execute against that? What can't we control? And how do we try to mitigate any risks associated with that. And so this year, we've been focused in a few key areas. First and foremost, we've been focused on driving our gross margins up and our -- and managing our expenses because we're on a march to achieve cash flow breakeven by the end of 2027, and we've made that commitment, and we're making great progress. And if you look at our cash burn in the first half of the year, it's improving every quarter. So that's an area that we're focused on.

Externally in the market, what we're really focused on is pushing our products and moving our products to customers where they have more steady demand. So that's really clinical customers. And so we're seeing in the first -- in the early part of the second quarter, we had our first LDT launched by a customer, which was really exciting. We're pushing into the clinical opportunities, particularly in a couple of different areas, rare disease and carrier testing. And so we launched the peer target -- targeted sequencing panel that allows you to look at genes that are very difficult to sequence using short-read sequencers. And that's actually really driving our business in the clinical side of the house and customers are developing LDTs based on that panel. So we're very focused there.

The other place we're very focused commercially is outside the United States. So at the beginning of the year, when we were laying out our guidance and thinking about where we thought we would have strength, it was really focused on international and particularly Europe, and that's absolutely come to pass. The first half outside the United States was very strong. In fact, in Q2, we had 53% growth in Asia, 35% growth in EMEA. And so we're trying to amplify that. And that growth is driven from growth in rare disease testing and population-scale sequencing programs in Europe. And in Asia, really an expansion of the market both from the launch of our Vega system, which we launched. We started shipping at the very tail end of December last year, but really our first full quarter of shipments was Q1.

That product is perfectly suited for the Asian market in terms of it's at a fantastic price point of $169,000 and it has a lot of power. So we're seeing a lot of growth there. And then our service providers continue to scale. We've been growing into India, in fact. So we are -- in a tough macro environment where the U.S. funding situation is highly uncertain and continues to be uncertain, we've been focusing in areas where we can -- where we see more opportunity and making that happen. Meanwhile, executing on the core of our business, improving gross margin, managing costs, focusing on driving cash flows, improving inventory utilization, all those different things that as the market comes back, it will serve us well.

Great. Well, that's a lot to dig into there.

Sure.

Okay. So starting with Americas. In the U.S. academic funding uncertainty has weighed on spending. So maybe to begin, would you tell us what you're hearing from your academic customers and do you feel that academic demand has essentially hit the bottom at this point?

Yes, it's a great question. So I do think that we are bouncing along the bottom now. Where does the -- where do we get back up to the surface, so to speak? I think I don't pretend that I can speculate to figure that out. But what we are hearing from our academic customers is that funding uncertainty is really in 3 parts. The first part is what is the budget? What is the budget allocate? What is the budget totally? So that's the NIH budget. I'm sure everyone in this room has heard as much as a 40% cut in NIH spending. That was discussed earlier this year, which sent shock waves through the academic market and slowed everything down for most of the life science tools, if not all, the life science tools companies. And then as we got deeper into the year, it does seem now that Congress is thinking about keeping the NIH budget roughly flat, maybe down a little bit, maybe up a little bit, difficult to know. That's one part of the equation.

The second part of the equation is, once there's a budget does the funding get allocated to their projects. And so there's a lot of uncertainty about how that's working, even for money that's already appropriated to be spent in this sort of way. And then the third component is once the money is allocated, how does it actually get released to the purchasing agents to buy so that they can enable buying new equipment, buying consumables, making these projects happen. And I think right now, that's really where a lot of friction is in the system is the purchasing agents are just highly uncertain. Are they going to "get paid if they make these purchase commitments" and therefore, sales cycles get extended.

There's more scrutiny at the university level, let's say, or the institutional level on whether a project gets funded even though the money was potentially appropriated to that project in advance. And so that's really slowing sales cycles down. For Revio, our flagship system, our sales cycle has expanded to -- it's just about a year now. So somewhere between 9 and 12 months is our typical sales cycle, which certainly has an impact.

You did call out EMEA and APAC ex China were standout regions for you last quarter. So given that you continue to see OUS as a source of strength, could you elaborate on the dynamics that you're seeing in those regions that will continue to support that strength you're seeing? And then also with respect to China, can you talk about what you're seeing there?

Sure. well, I think we'll start with kind of what are the dynamics that make those markets perhaps more interesting right now. For one, they are much more engaged in population sequencing scale projects. So larger scale projects, let's say, 10,000 samples or more with the objective of either understanding a pangenome or -- which a pangenome is understanding the specific genome of that population of people or -- and really, with the eye towards implementing their findings into the health care system in more of a precision medicine context. Outside the United States, many of these countries have single-payer systems, those single-payer health systems are much more -- much better suited to manage doing a large project and then getting the ROI or the benefits.

And I think that some particularly the Nordic countries, we're seeing a lot of opportunity and strength in the Nordic countries. We're seeing a lot of opportunity kind of a population sequencing. There's a large project going on in Estonia. That's going exceptionally well right now. There's also large projects, either wrapping up or being contemplated to expand in Asia. And they're all kind of in the single health payer system sort of framework which will leverage the power of the genome for a much longer period and get a better OI. So that's how you're seeing that.

Moving to your question about China. It was interesting when there was the threat of Liberation Day coming, we did see some Chinese orders for consumables in particular, ship us everything you can as fast as we can. And so we, of course, were very happy to oblige and we've successfully shipped quite a bit of product. So much so that we thought in the second quarter, perhaps that was going to be a "pull forward", but it actually hasn't transpired that way. What's actually happened is that customers in China have been utilizing their instruments and really their consumable utilization has been high enough to where it absorbed all of that and then over the course of the middle of this quarter -- second quarter towards the end, some of the at least immediate fear of tariffs subsided and we were able to ship more product in.

I do think it's a highly volatile situation. I think every time there's another conversation between leaders of the nation, I do think that there's anxiety about, well, what does that mean for the tariffs and how that's working. But for now, we're seeing effectively business as usual, particularly for consumables in China, maybe a little bit of conservatism, but not substantial. Where I would say that we are seeing perhaps challenges on the higher throughput scale product. So Vega is going well. But Revio, I think that the Revio product I do think there's anxiety about funding even in China and some of the potential aspects of long-term tariffs on consumables, which is probably having some impact, but not dramatic, not nearly as -- we're not nearly as fearful as we were back in February, March.

Got it. I think one of the things that I feel is underappreciated is not only did PacBio made significant improvements in the cost to sequence the genome but have significantly improved the workflow to drive accessibility to HiFi sequencing. Could you give us a sense for the workflow improvements that made HiFi sequencing more approachable than, let's say, 5 years ago? What areas of the workflow do you see with the greatest improvement versus other areas that need a little more work?

Well, not to make a joke out of it, but we could use 23 more minutes that we have left to talk about the improvements we've made. But I'll just -- I'll kind of summarize it that when I joined the company at the end of 2020, the company really wasn't focused on building an end-to-end workflow to support customers. And so we created a new vision for the company and really strategic plan to build the complete workflow. And that really encompassed a few different things. First, we had to find ways to reduce the amount of DNA required to do a human sequence. And so when I joined the company, it would take 15 micrograms of DNA, which for those of you that don't know, that is an incredibly large amount. And it's so much that it makes large-scale genomics just not feasible.

Well, we've gone from 15 micrograms down with our SPRQ chemistry release, which we launched at the end of last year down to 500 nanograms. That opens up the market to millions upon millions of samples. It opens the newborn screening market. It opens all kinds of different markets. So we started there. Then we moved to -- if you go to the next spot in the workflow, we had to -- as we move -- wanted to drive higher and higher throughput, we had to automate the workflows. And so using our ecosystem partners with respect to automation tools, we've developed techniques to sheer the DNA to the precise size, to make sure only long fragments of DNA happen. And it all happens -- are ready for sequencing, and it all happens on the work deck.

So we've spent a lot of effort with our ecosystem partners reducing the amount of third-party capital equipment that you would need to buy, reduce simplifying the assay such that it's all automated and it's on the automation platform and really simplifying as much as possible to get ready for sequencing. So we made a tremendous amount of progress there. We also launched several applications and most exciting is our recent launch of PureTarget. Our PureTarget application is the driver of the clinical business, as I said earlier, where you have 20-plus genes that are just very difficult to sequence. And now it's a very simple kitted solution.

We've also launched RNA sequencing, so we can look at the whole transcript, all of the isoforms that are really with short-read sequencing, you couldn't look at in the past. So that's all the front end. Then we also said we needed to have a portfolio of instruments so that we can meet the customer where they were, whether they had larger capital budgets, larger throughput needs, and so we launched the Revio platform that started shipping in, what, February of 2023, and it was announced in late 2022. The Vega system, which was -- which started shipping in December and is in its early ramp phase right now. And now we're also working on our next-generation ultra-high throughput system, which in the long run, those 3 platforms will persist in the portfolio. And so we were able to -- we've been able to do that.

And then finally, we've implemented a whole suite of bioinformatic workflows that really enable you to get the benefits of long-read sequencing. So we've been really busy. It set us up for what I'm calling Vision 2030, where we're getting ready to move into the next phase of our evolution now that we really, for the first time, have the full product portfolio, we can really attack key markets like rare disease, like parts of oncology, like carrier screening, newborn screening, population sequencing. And so we're in the best position we've ever been in as a company with a complete product, very competitive pricing, and we're poised for success as this financial environment changes.

Great. So one of the things you've touched on, clearly, you made significant progress in penetrating genome sequencing applications for Revio. In several population scale projects, but ultimately, just a fraction of total genomes will be sequenced via HiFi reads. So what is the key hurdle in your view, cost, throughput that will ultimately unlock higher fraction of genomes to be sequenced on HiFi?

Yes. It's a great question and something we think about every day. There's really probably 2 or 3 fundamental challenges that still sit in front of us. The first challenge is getting the price closer to being more competitive with short-read genomes. Today, short-read genomes are less expensive than long-read genomes, but they're also less complete. They're incomplete genomes. They don't give you all of the information, but it's the best the community has had for a long time. And so what you're doing -- what we're doing is changing the paradigm by demonstrating the comprehensive nature of a HiFi long-read genome, a new level of accuracy, a new level of completeness the ability to get the epigenetics with every single run, looking at structural variants, looking at phased genomes with every single run. We provide so much benefit, but we're overcoming the legacy tools. And so -- and we're in the process of driving the cost down. So that's the first.

The second is continuing to drive the scale of our platform up so that you can get more samples per year sequenced, particularly in these population scale programs because then the depreciation per sample goes down because you can amortize the cost of the instrument over more samples per year, which is really important, once again, going back to the economics. But then also the practical logistics of if you need 50 sequencers to do a large project, probably hard to actually make that project come to fruition. And so we're working hard on that. We talked about our kind of the future systems.

And then the third is the informatics. So like I said before, historically, all of the informatic tools were built for short-read sequencing. And folks have tried to adopt those tools for long-read sequencing. But the truth is they don't do a great job because they don't address all of the aspects of the genome that PacBio can address and they can't. And so we've had to -- we've hired a 20-person computational biology team to develop all of these workflows. They're not -- the next step we need to take is fully integrate those workflows so that a lower-level researcher can just press one button and go from the sample to report that's potentially ready for a clinician or the ability to synthesize the data, looking at the epigenetic status plus whatever omic status that they're interested for their science.

And so that -- we've put the tools in place. Now we're integrating them and you think about it as developing the GUI or the UI that allows them to integrate all this without really being a hardcore bioinformatician. So those are the 3 things.

Going back to price, this year -- later this year, we will start to roll out our ability to use a SMRT cell multiple times. And the SMRT cell, as you know, is a semiconductor-based piece of flow cell. And by being able to use it multiple times, we'll be able to dramatically lower the price per genome. And so customers that are using Revio today will be able to get prices that will be much closer to short-read sequencing. And so I think we will have effectively solved that barrier. The barrier of scale will come over the next few years as we launch next generations of system.

And then we're investing heavily in the software side of this. I do think the software stack is going to become a key differentiating factor of these technologies over the next 5 years. And because our data set is so comprehensive that we provide, we are perfectly suited for the development of large language models and other AI type tools to assist researchers and ultimately clinicians in understanding the genome.

Got it. I do want to touch on the Revio product cycle. Could you provide an update on the number of Sequel II installed base that are still utilized today? And what proportion of Sequel II installed base do you think will eventually upgrade to Revio and what proportion is likely to convert to Vega? And what is a typical proportion that never convert?

Yes. It's a tough question to ask. I think our installed base, the active installed base is probably still around 100 units, give or take. Don't give me the -- I'll give that's the rough number. I don't know the exact number off the top of my head, but it's about a 100 units. And my belief is that probably if I had to kind of divide that pie 60 of the units convert to Vega, 30 of them convert to Revio or maybe 20 and then 10 to 20 just never convert. And that -- that's based on a lot of experience. I have a lot of gray hair, so I've been doing this a long time.

But I do see -- we are seeing right now customers -- matter of fact we just had a deal closed the other day where they had a Sequel II and rather than sign the next year service contract, they said, "you know what, we're not going to pay the money for that service contract, we're going to take that money, buy Vega and move forward with the new technology, which for us is tremendous because they get a lot more power with Vega." It helps -- the more we can move everyone on to common platforms, the lower our cost structure is. So that was -- I mean that just happened last -- I think that was last week. It was last week or the week before. Those kinds of things are what's going to push that 60, so to speak, to go to Vega. The ones that are going to go to Revio are going to go to Revio because they have a project need where they need that scale.

Okay. And then on the consumable side, we've been seeing Sequel II consumable utilization declining as people start up on Revio. Do you think that we hit steady state for Sequel II pull-through at this point? When do you think we could reach that point if we haven't already?

I think we're probably in that range now, I mean, plus or minus. I think believe it or not, it's always interesting to me that we get -- you get random orders for even Sequel I, we still get orders occasionally for -- in some places. But the reality is that we're probably around the steady state now. I would imagine over the next year or 2, you would see it continue to trickle down a little bit further. But at some point, you'll always have some low level until we stop supporting the product.

Got it. Okay. And then on Revio pull-through, you're guiding to low to mid $200,000 pull-through ranges here. It's just probably hard to tease out, but do you get a sense that uncertainty in the academic funding environment essentially limiting the pull-through per instrument. And do you still see $300,000 to $400,000 pull-through over time is the right framework?

Yes. I think at this point, it's difficult for me to kind of put my hand on my heart and say, $300,000 to $400,000 is going to be the number because the reality right now is we're in the low 200s. So I don't want to perhaps set an aspirational goal. But there's a couple of things that are impacting the utilization and the pull-through. One is I do think the academic uncertainty, particularly in the United States, even though those customers are using their machines, there's certainly opportunities to improve the utilization and therefore, the pull-through. And so I think that will help us push it up. The second thing is as the bioinformatic tools get more automated, you can accelerate the cycle time. We're already seeing the impact automation is helping. First of all, it's enabling bigger projects to get even started, but it's also helping to accelerate to the next experiment.

Now we need to really focus on building out those informatics tools to do that. And then the third is really more of a blocking and tackling exercise where when you place a new instrument really helping the customer to get going as fast as they can. It's still fascinating to me to see a customer spend $1 million with you maybe buying a couple of instruments and then slowly getting trained and slowly doing the validation or because it's a lot of money, and you want to see them optimize it. So we can -- our service organization works really hard to get people trained and up to speed. But I think that the more efficient we can get there that will also accelerate. And so my belief is that we could certainly grow from the low to mid-200s as the economic climate gets better and as we continue to make some progress in these other areas.

Penetration in the clinical use cases has always been a key focus for you not only to unlock faster top line growth but more durable revenue streams as well. In 2Q, 15% of consumables came from clinical customers, tell us what clinical application are you seeing the greatest traction today? And looking forward, the clinical application that you anticipate will begin to be a meaningful driver of clinical penetration in them.

Yes. I think the most -- probably the biggest by "market share" of our consumable of that clinical portion is rare disease work across a broad swath of customers. But very quickly coming on is carrier screening as these large corporations start to -- are validating -- they're researching and validating their tests for ultimately launching those tests as LDTs. My belief is that they will be significant drivers of our revenue and probably the fastest-growing segment. Over the next couple of years, you'll see rare disease continuing to expand in more of the market that we're barely scratching the surface there. You'll see the carrier screening market really grow. And then you'll start to see the oncology market start to work for us. And that's really in areas like hereditary cancers, pediatric cancer, leukemias and blood cancers, areas where, for example in AML, structural variation has played a big impact in understanding those tumors and how to do something with those tumors.

And so I think long-read sequencing has real opportunities there. It's a bit behind where rare disease and, say, carrier screening are, but it's coming on. And in our next kind of strategic horizon, that's going to be a key focus that will help drive revenue. So I do think over the midterm, the clinical part of our business, that percentage it's running 15% now, will double or triple over the next several years here.

Okay. I do want to touch on Vega. Vega placements have been strong out of the gate with 73 installed base despite just being launched end of last year. Outside of the attractive price point of $169,000, tell us what features of Vega are resonating with customers.

I think the #1 feature is just the simplicity. It is the easiest long-read sequencer that we've ever launched for people to use. It gives remarkably reliable results. It's been from as far as quality goes, it's been the best highest quality instrument we've ever launched. People are consistently over -- well over 90% of the time getting the specified throughput out of the instrument and we really focused hard when we were developing the instrument to make sure we could deliver the throughput every single time. And we're seeing that. And the big customers really appreciate that.

I think that the throughput is in a sweet spot for looking at applications, everything from microbial applications and bacteriology and looking at small genomes AAV, all of those where you don't necessarily need a whole genome, but as you can -- because we have very strong multiplex capabilities, you could put a lot of samples on the instrument and you get tremendous value out of the gate. And then it comes with all the software tools and the ecosystem of Revio. The data is completely compatible. We launched SMRT Link Cloud. So now there's cloud capabilities, and we're just getting started with that.

So I think that there's a huge -- there's a lot of excitement about it. It's dare I say, it's a beautiful instrument. It is a striking instrument. It's maybe the first pink instrument on the market to celebrate our colors. But yes, I think customers have been very receptive. Our close times, we're seeing lots of instruments get closed intra-quarter whereas we were talking about 9 to 12 months for Revio, we're talking in many -- in some cases, 9 to 12 weeks for Vega. So it's a game changer for us.

Given that customers tend to move higher in throughput over time as they gain experience with the platform, how should we think about the degree to which Vega could facilitate Revio placements down the road? And would you share your views as a veteran the sequencing space?

Yes. So I do think an important part of our strategy was to develop a lower throughput instrument at a more accessible price point so that you can engage the community with HiFi sequencing so that they could see how powerful it is and then create -- over time create upsell opportunities. Also with some of these lower throughput customers, they're the ones that are likely to try new applications and new ideas, and so we can leverage those ideas and then bring them to the whole community through kitted solutions and really accelerate and in my past life, that's exactly what we did. And we did see -- we have seen lots of folks start from lower throughput and move up the ranks I would fully expect that with Vega as well.

And the timing is always questionable. That certainly doesn't happen in the first year. But maybe by the end of year 2 and in year 3, it is exactly the kind of thing that I would expect. People be adding -- in some cases, people will be adding to their installed base and adding more Vegas because they like that unit of throughput for their application. But in many cases, rather than buying the second or third Vega, they'll put everything together, buy a Revio or who knows, maybe even the next machine beyond Revio. It's really important to have that breadth of product offering, so you can reach the entire community so that you can maximize your opportunity.

I do want to touch on the guide. You've taken down the high end of the revenue guide, reflecting continuation of academic headwinds, brought up the lower end of the guide to reflect lower-than-expected impact from tariffs, leading to essentially no change at the midpoint from the prior revenue guide. Give us a sense for your comfort with the current guidance range? And what do you see as representing the greatest upside and downside risk today?

Yes. Well, look, it's September. It's difficult to comment specifically on how comfortable I am with the guide. And so I'll just be clear about that. But I think that when you think about fundamentally what's going on, people -- there are more customers than ever embracing HiFi and long-read sequencing than ever before. That is accelerating. The utility of multi-omic genome coming off of a HiFi system, including epigenetics and the structural variation, new applications like Fiber-seq, in other words, looking at chromatin and binding. All of those things are driving desire and that desire turns into demand as funding improves.

And so the one thing I will say is that the desire is absolutely accelerating the number of applications and opportunities is growing. There's population sequencing programs that are continue to be planned and in some cases, funded and getting ready for RFPs and actually moving forward. But the timing is always -- those are large projects, and they come when they come, and you have to keep working. So with respect to the guide, I think we try to take a philosophy of being as responsible as we can with the best information we have.

And then as the results unfold, try to understand them and make sure that the information that we convey to all of our investors is well understood, grounded in facts and then showing a vision for what the future could be. And I think we've done that so far this year. We're going to keep doing it. And I think this is a really interesting time to be part of the PacBio story because all of that innovation that we've done is really starting to push us into the applications over the next 5 years that I think will drive our growth and drive us to sustainability and hopefully, shareholder returns.

Great. Well, thank you very much, Christian.

Thank you. It's good to see you.