Q4 2019 Earnings Call
[music].
Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the Pacific Buyside Census, California fourth quarter 2019 earnings Conference call.
At this time all participants are in listen only mode meter, we will conduct a question answer session and instructions will follow what that time, if anyone should require assistance.
During the conference. Please press Star then zero and you touched him telephone.
Mike or this conference call may be recorded I would now like to Kinda conference over to Trevin Bard. Thank you. Please go ahead.
Good afternoon, and welcome to the Pacific Biosciences fourth quarter in fiscal 2019 conference call.
Earlier today, we issued a press release outlining the financial results will be discussing in today's call a copy of which is available on the investor section of our website at Www Dot P. H C b dotcom or alternatively, a furnished on form 8-K available on the Securities and Exchange Commission.
Site at Www Dot that's easy Dot Gov.
With me today, Mike Hunkapiller, our Chief Executive Officer, Susan Burns, our Chief Financial Officer, and then gone, our Vice President Finance and Treasurer.
Before we begin I'd like to remind you that on today's call we mean.
We maybe making forward looking statements, including plans and expectations relating to our financial projections products and other future event.
Should not place undue reliance on forward looking statements because they are subject to assumptions risks and uncertainties and may differ materially from actual result.
These risks and I'm sorry.
Certainties are more fully described in our Securities and Exchange Commission filings, including our most recently filed reports on forms 8-K 10-K form 10-Q.
Specific bio sciences undertakes no obligation to update forward looking statement.
In addition, please note that today's call is being recorded.
And we'll be available for audio replay on the Investor section of our website. Shortly after the call investors electing to use the audio replay are cautioned that forward looking statements made on today's call may differ or change materially after the completion of the life call with that I'd like to turn the call over to Mike.
Thanks Robin.
Good afternoon, and thank you for joining us today.
It's been close to your half since our last earnings conference call as we grow under contract. We went up for most of that period.
Since we agreed to terminate the contract with Illumina at the beginning of this year, we're resuming regular quarterly earnings calls going forward.
I'll start excuse me with some highlights of our Q4 and full year 2019 financial results.
We generated $27.9 million and product and service revenue for the fourth quarter up 43% for Q4 2018.
This represents the highest water.
Our history.
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Driven by sales of our sequel to system consumables, which I will describe in more detail shortly.
For the year or product and service revenue grew 16% from 78.6 million in 2018 to 90.9 million in 2019.
Instrument revenue for the fourth.
Quarter was $15.3 million up 134% from Q4 2018.
For the year instrument revenue was $45.1 million up 58% from 2018.
The growth in instrument revenue was driven by strong sales of our new sequel to system. We ended the year.
Installed base of 114 or the sequel to systems.
Consumable revenue for the fourth quarter was $9.3 million down 6% from Q4, 2018, but up 35% sequentially from Q3 2019.
The year, our consumable revenue totaled 32.
$2.6 billion down 14% compared with 2018.
Our consumable sales this past year were heavily impacted by customers decreasing usage of their older sequel, one systems in favor of acquiring sequel to systems, while we expect more customers to move from sequel want a sequel to this year.
The headwind to consumables revenue growth should be less pronounced as sales a sequel to consumables already comprised over half of our total consumables revenue in the fourth quarter of 2019.
Gross margin for the fourth quarter was 46% up from 29% in Q4 2018 and up.
32% in Q3 2019.
This represents the highest quarterly gross margin in our history, excluding periods way rightsize collaboration revenue from Roche at 100% margin.
Per the terms of the merger agreement with Illumina received $18 million from alumina during the fourth quarter.
We recorded as other income as a result, we came within $100000 breaking even for the quarter.
We maintained a balance of cash and investments at the end of the year close to $50 million Ben will provide more details our cash position going forward later in the call.
Now I'll provide.
A few comments regarding the termination of our remote to deliver.
We originally signed the merger agreement on November 1st 2018, I spent the better part of 14 months, providing information to an answering questions from the antitrust authorities in the U.S. and the United Kingdom.
The review process was taking.
Longer than either we or alumina originally expected.
For the end of 2019, having already spent close to $20 million on outside legal and professional fees ourselves relating to the merger we did not know how much longer it could take nor do we protect with much certainty what the eventual outcome would be.
But this is mine instead of continuing.
Turning to pursue clearance with both regulatory bodies on January 2nd we agree with Illumina to terminate the merger agreement.
We received the 98 million dollar reverse termination fee from alumina that same day and we've been receiving from alumina. The continuation advances that were previously described.
Amended merger agreement.
In total but he.
Q1. This year, we would have received $150 million from aluminum in conjunction with the merger agreement and the termination of the agreement.
Well, we were disappointed that the merger could not be completed today, we were at a good financial position to continue driving the business forward.
Meanwhile, during this past year, we maintained.
The focus on running pack bio it was an independent company and we are proud to many accomplishments we achieved during that time.
I like to highlight some of those accomplishments here.
The launch of the sequel to system was a success by a number of measures.
At the start of last year, we began with an early access program with five customers that's.
Smoothly progressed with general commercial launch in mid April.
Well the end of December we had an installed base of 114 sequel to systems, which represents the fastest ramp up a new system and pack Bios history.
What are the most important measure success for us will system reliability, we want to customers who experienced a.
Highly reliable system from the start with minimal downtime and we exceeded our targets and customer expectations.
Early access customers, we have lots of experience breaking in new products commented on how seems it was for them to integrate their sequel to systems into their sequencing operations.
Common message from them.
Was that quote it worked right out of the box unquote, which was a pleasant surprise.
Some of these sophisticated users of sequencing systems, who had experienced significant issues with the initial launch of our earlier Rs and sequel, one systems.
The sequel to systems performance as measured by sequencing Neil.
For smart sell as also matched or exceeded our initial projections and expectations of our customers.
But he ended 2019.
Users on average, we're generating 15 times the amount of data for smart sell compared with yields on their previous sequel once systems.
Several customers had been.
Pleased with the quality and throughput of data that they have already purchased additional systems within just a few months after receiving their first sequel to.
Units.
The only drawback we've had from our successful launch of the sequel to is it dramatically Cannibalized our sales sequel, one consumables.
For the fourth quarter of 2000.
18.
Sequel, one sales contributed only 10% of our instrument sales and less than 40% of our consumable sales.
Well the rapid decrease since equal one consumable sales limited our overall revenue growth in 2019 <unk>.
The increase performance of the sequel to systems is allowing us to access a broader set of larger.
Your customer sequencing projects, then we could have with the sequel one.
Sequel to consumable sales have exceeded or early projections as noted earlier have now eclipse sequel, one consumable sales.
[noise] the benefit to customers of increasing our system throughput because it brings down the cost of sequencing with our technology.
That's allowing smart sequencing to play a significant role in many larger well funded projects.
The Wellcome Trust Sanger Institute, which is heading the Darwin tree of life project is targeting to sequence 66000 species of plants and animals in the United Kingdom.
But the power of the sequel to systems, they are setting up their.
Our pipeline to start doing so in volume.
We're working closely with the single singer group to approve the sample preparation protocols used to prepare sequencing libraries for smart sequencing.
One of these improved protocols has been used to produce reference levels and noble assemblies from individual specimens as small as a single tidy.
Correct, such as a mosquito.
Other programs, including those at Hudson Alpha U.S.D.A. Jackson Labs, this though genetics and add a road in China focused on a variety of human plant and animal projects have also significantly expanded their sequencing programs based on the sequel to systems.
Increased performance.
Moreover, we have begun to see greater use of our technology in larger scale human whole genome projects, both for the generation of high quality reference genome assemblies.
And for the study a structural variance president and large populations.
In conjunction with the introduction of the sequel to system last year.
We also began promoting pack bio's, hi Fi sequencing protocol for generating highly accurate long reach and it is quickly becoming a standard method for creating high quality de Novo genome Assembly is [noise].
The results from a number of other applications to smart sequencing.
Hi Fi sequencing reads our.
Based on the ability to smart sequencing sequencing to sequence many times around circuit or DNA molecules generated in our sample preparation protocols.
This allows generation of a highly accurate consensus sequence for an individual DNA molecule by another big was comparison of the repetitive read passes around the.
Circle, even though the individual passes made themselves contain errors the circular consensus sequencing or Ccs method.
Used to obtain hi Fi reads has always been available with smart sequencing and it's been used to sequence shorter fragments with high single molecule accuracy and several applications.
Our improvements and sample prep methods sequencing chemistry and software.
Now allow the Ccs method to generate high five reads from single molecule DNA fragments up to 20000 base pairs and links.
An average accuracy over 99.9%.
This.
She is comparable to that obtained with short read sequencing methods that operate on DNA fragments, only 200 base pairs law and much higher than the typical 90% accuracy on individual reads from traditional long read data.
Starting with Hutch, such high accuracy long reads make subsequent analyses such as the no.
Assembly much faster acquiring far less compute time in cost and it produces more complete more contiguous final assemblies, and starting with lower accuracy, but much longer reach.
Moreover uses the hi-fi reads can produce consensus assemblies that are highly accurate the base pair level.
For the 99.999% our Q 50 without the need to Polish was short read that.
Very sequencing projects involve DNA fragments of just a few thousand base pairs long.
Examples include analysis of Metagenomes bacterial populations.
Evolving viruses and tumor.
I still its targeted gene panels and transcript isoform samples.
These cases, hi Fi raised with an average accuracy of greater than Q 50.
Can be obtained allowing discrimination of rare molecules with even a single base pair sequence varian and a large population of molecules with normal are closely related.
Latest sequences.
Another highlight for this past year is that we engaged with very genomics in China to obtain regulatory clearance for enter distribute.
Our sequel to system and consumables for clinical applications in China.
Urgent all makes us had previous success with the similar partnership than it has with Illumina.
Very obtain clearance in China for Illumina, sequencer, which it sells for clinical applications, such as and I P. T.
It was in the process of attaining clearance for a sequel to systems for analyses student to our smart technology.
Very has been an important customer pack bio for several years, providing sequencing services in.
China with both our sequel, one and now our sequel to systems, we're looking forward to working with them to bring pack bio products into clinical sequencing applications in China.
Even though we began full commercial launch of the sequel to system less than 10 months ago, we were able to really sample prep sequencing chemistry and analysis.
Software upgrades in Q4 2019 that added to its initial performance.
This year, we plan to similar collection of upgrades to extend his performance parameters even more.
These include chemistry improvements that should allow higher sequencing throughput longer read lengths and faster analysis times. We're also.
We're working to streamline our sample prep protocols and to minimize even further the amount of starting sample DNA required to generate the sequencing libraries.
I have continued to work with the saying here to develop a sample prep protocol that could allow referenced quality genome assemblies.
Using as little as 100 Peaker grams of DNA.
Picogram reference is a millions and millions of a gram.
Just capabilities should enable such high quality assemblies from a host of tiny organisms that scientists did not think a minimal to long rate long read sequencing. We're also working with bio informatics experts from several academic and commercial.
Fusions to continued development of analysis software to take full advantage of our high five read characteristics.
Anticipating successful completion of our acquisition by alumina, we accomplished our results in 2019 without significant expansion of our sales and marketing organizations with the.
Actual success with the sequel to system, we feel that we need to expand our investment in our commercial organization in order to take better advantage the wider opportunities it opens up.
Predicting the timing of the results of this expansion is somewhat difficult because it takes time to both hire and train sales personnel to sell sophisticated sequencing systems.
Such as the sequel to.
And the shorter term, we're still assessing the potential impact of the Corona virus outbreak centered in China on our business.
Recall that China, historically represented roughly a quarter of our total revenue base that may be largely inaccessible until the outbreaks of sides and normal.
Commerce resumes. Nevertheless, we feel encouraged that the dedicated efforts of our remarkable employee base and our cash resources. We're positioned for long term continued expansion of our business. We feel strongly that are smart sequencing technology is still early in the development those capabilities and we are excited by our future opportunities as.
We continued to move it for.
That concludes my initial remarks, I'll now turn it over to Susan to provide more details on our financial results.
Thank you, Mike and good afternoon, everyone.
I would again my remarks today, that's a financial overview of our fourth quarter that ended December 31st 2019.
[noise] I will then provide details of our operating results for the quarter.
In 2019 full year, but the comparison to Q4 as 2018 and 2018 full year respectively.
I will conclude my remarks with a brief discussion of our balance sheet.
Starting with our fourth quarter.
2019, and 2019 annual financial highlights.
During the quarter, we recognize revenue of $27.9 million and incurred a net loss of $91000.
We ended the quarter with $49.1 million in cash.
Investment.
Turning to revenue.
$27.9 million product service and other revenue in Q4 2019.
$8.4 million higher or 43% above the 19.5 million product service and other revenue recorded.
In Q4 of 2018.
Total annual product service and other revenue in 2019 was $90.9 million up 16% compared to the $78.6 million recognized in the year that's 2018.
Breaking down the revenue.
[noise] <unk> revenue recognized in Q4.
2019 was.
$15.3 million up $8.8 million or 134% above the $6.5 million recognized in Q4 of 2018.
Kelly instrument revenue was $45.1 million than 2019.
Up 58%.
Compared to the $28.5 million recognized in 2018.
Consumable revenue in the fourth quarter of 2019 was $9.3 million <unk>.
With $9.9 million reported in the fourth quarter of 28.
For the year total revenue was $32.6 million in 2019, compared with $37.9 million in 2018.
Decline and they can decline and.
Consumable revenue in 2018 to 2019. This is primarily a consequence of our customer bases transition a sequel want to see core tier.
Service and other revenue was 3.4 million in the quarter compared to 3.1 million in Q4 of 2018.
For the full year of 2019 service revenue was $13.1 million and an increase of $800000 or 7% from the $12.3 million recognized in 2018.
With regard to charge to gross profit and margin.
Thank you for a 29.
We generated gross profit $12.9 million, resulting in gross margin of approximately 46%.
This compares to gross profit a $5.7 million and 29% gross margin in Q4 2018.
Total gross profit for the year.
2019 was $34.6 million with a gross margin of 38%.
In 2018 gross profit was $25.1 million with the gross margin of 32%.
Moving to operate.
Okay senses in the fourth quarter of 29.
<unk> totaled $3.8 million compared to $36.4 million in Q4 of 28.
We incurred 1.2 million and legal and professional fees associated with the planned merger with Illumina. During Q4 2019 compared to 4.7 million during Q4.
2018.
Total operating expenses for 29 team well $135.1 million $9 million higher than a $126.1 million incurred in 2018.
We incurred $14.1 billion in legal and professional fees.
Associated with a planned merger during the year 2019, compared with $4.7 million and 28.
Non cash stock based compensation.
But in operating expenses were $3.5 million in Q4 2019 versus $6.3 million in Q4.
For 2018.
Breaking down our operating expenses R&D expenses in the quarter a $14.3 million.
In $2 million from the $16.3 million incurred in Q4 of 2018.
Most of this decrease was related to the higher chip development costs.
For the sequel to system incurred in 2018.
R&D expenses for the year $59.6 million in 20.
Hi team down $3 million from $62.6 million incurred in 2018.
Sales general and administrative expenses in the quarter or.
$16.5 million compared to $20.1 million in Q4 2018.
<unk> expenses were $75.5 million and 2019 compared with $63.5 million in 2018.
The increase in Ftn expenses from.
2018 to 2019 as probably merely as result of an increased legal and professional fees associated with the planned merger.
Finally in Q4 20 night team, we recorded a favorable $17.8 million of net other income.
Compared to an unfavorable.
Level 100000 dollar.
Other.
Thank you for 28.
Result, this was the result of the $18 million gain related to the continuation advances we see from alumina and Q4 2019 year to date, we have recorded a favorable.
$18.8 million in net other income compared to an unfavorable 1.6 million and net other expense in 2018.
Turning to our balance sheet.
As I mentioned, the beginning of my comments, our balance of unrestricted cash and investments.
$49.1 million at the end of the fourth quarter.
Compared with $49.2 million at the end of the third quarter.
[noise] inventory balances were reduced in Q4 to $13.3 million compared with 15.1 million at the end of Q3.
Accounts receivable increased in Q4 to $15.3 million from 10 million.
Million dollars at the end of Q3.
This concludes my remarks on the financial results for the quarter I'd like to turn the call a richer Ben.
Thank you Susan.
I'll be providing our financial outlook for 2020.
I'll start by mentioning that we're in the process.
Developing our sales and commercial plans.
In the wake of the recent termination of our merger agreement with Illumina.
We plan on adding to our commercial resources.
Drive revenue growth.
However, it will take some time to bring on new team members.
And it typically takes more time to bring new people up to speed.
Our goal is to drive consistent revenue growth in the long term.
We're not providing revenue growth estimates for the year at this time as our plans are still fairly fluid.
Furthermore, the effect of the Corona virus outbreak has added uncertainty around or sales into China.
I will provide more color on this later in my prepared remarks.
That said I will provide guidance on what we're seeing in the near.
Sure.
Starting with revenue in the near term we were pleased with our fourth quarter revenue, which was driven by strong sequel to system placements.
Our system sales can vary substantially quarter to quarter as many of our customer many of our customers face the timing of their capital purchases on budget cycle.
Government funding and competitive factors.
Based on these factors, we expect our Q1 2020 system sales to be sequentially lower than what we achieved in Q4.
However, we are targeting significant growth in Q1 system sales compared with Q1 of last year.
With regard to consumables.
While we were pleased to see nice sequential growth in the fourth quarter.
The declines in sales a sequel, one consumables were overtaken by the growth in a sequel to consumable.
For Q1, 2020, however, we expect our consumable sales to be sequentially lower than our Q4 consumable sales.
On a.
Formal conditions.
The lunar new year holiday traditionally causes seasonal declines in our Asia shipments.
Due to the Corona virus outbreak, we're expecting a more pronounced negative impact to our sales in China This quarter.
Many businesses in China or temporary temporarily closed at this time.
The lunar new year.
Holiday in many Chinese regions has been extended through February night.
The full impact of the quota virus on our sales into China is yet to be determined.
Overall for Q1 2020, despite the headwind on our consumable sales were expecting growth in total revenues as compared to Q1 of 2019.
Given by the system sales I mentioned earlier.
Beyond Q1, we are targeting our consumable revenues to grow sequentially quarter to quarter.
Driven by expected growth in a sequel to consumable.
Moving on to gross margin. So we're pleased to see the improvement in our gross margin during the fourth quarter.
The higher revenue for the quarter had a positive impact on gross margin as our fixed costs were absorbed across the higher or excuse me a larger revenue base, that's compared to previous quarters.
With lower sequential revenue expected in the first quarter, our gross margin for Q1 is likely to be lower than what we recorded in Q4.
Once quarterly revenues come back up gross margin should follow.
Overall for the year, we expect our gross margin percentage to be in the mid Fortys.
Now moving to operating expense last year, we recorded a total of $135 million in operating expense.
As part of that total.
Approximately.
$18 million in legal and professional fees associated with the planned merger with Illumina.
And we do not expect these expenses to recur this year.
However, as I mentioned earlier, we're planning to make investments in our sales and commercial areas over the course of the here.
In addition, our patent infringement case against Oxford Nanopore.
For the scheduled to go to trial next month in the U.S District Court in Delaware.
As a result, our operating expenses for Q1, maybe sequentially higher than what we were a quarter for Q4.
Finally regarding our cash we ended the year with $49 million and cash in investments on a hand.
On January 2nd we received $98 million from alumina connection with the merger termination.
From which we expect to pay our financial advisor associated fees of approximately $10 million.
We have also received $28 million so far this quarter from alumina and are scheduled to receive an additional $6 million.
First in March in connection with the previous terms of the merger agreement.
Earlier this month, we paid off the $16 million in debt to Deerfield that have matured as scheduled.
At the end of Q1, we expect to have cash and investment on hand of over $125 million.
That concludes our.
Prepared remarks, and we want to open the call up for questions.
[noise], ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the Q Nice press the funky.
Your first question comes from Bill Quirk of Piper Sandler Your line is now open.
Hi, Good afternoon essence, Rachel on for Bill Thanks for taking the questions and congrats on the quarter. So how should we think about placements for 2020, and then going off is that how should we think about consumables pacing.
Over the course with the or.
And then I have a fall off as well.
Oh, Yeah. This is Dan.
So as I mentioned placements can vary quarter to quarter I think they have in the past.
No reason to believe that that's not going to happen again.
In the near term.
As I mentioned, we expect.
We expect Q1 placements to be lower than Q4, which is not that unusual from a.
Seasonality perspective.
Beyond that of as I mentioned before we are.
Still working on extending our commercial organization and so we're not necessarily.
Giving specific guidance on on total revenues for the year and in particular on placements for the here.
Got it. Thank you and then what percent of sequel ones do you expect will be upgraded or treated in for sequel to.
I would.
Say that.
I would say most of the sales and a 114 installs that we had in 2019 were to existing customers and so that gives you a sense that weather.
A customer.
As upgrading or just buying an additional system.
A lot of those folks did so in the first year Oh, we expect that to continue into this year, but we also expect.
Maybe a larger percentage over sales to be going to new customers. This year.
I don't have at the top of my head.
The the number of.
Remaining customers, who asked equal ones, who have not yet, but a physical too.
But it's it's still a substantial number we we focused on the customers that we knew had the sample requirements.
Quickly as quickly as possible.
Justify the increased throughput that you've got off to sequel to and those have done very well with it and even once in certain areas, who had a fair number sequel ones have more or less shut down their sequel ones as they've converted over to.
And almost equivalent number now of sequel twos.
So David dramatically expanded their output.
We see that happening.
In a continued way a lot of those customers, who now have more sequel twos and they had sequel one good thing.
With the a lot of the remaining sequel, one customers they were relatively lower usage.
So one of the reasons that we got hit pretty hard last year in terms of sequel, one consumable sales going down people them minutes. They saw the improved throughput.
Of.
The sequel to systems. They just basically shut down a lot of their older Watts and now is they've begun to ramp up there.
Number of.
Apples and larger projects, we're getting quite reasonable pull through for each instrument and already and all of those cases, the number of sequel Twos as I said has exceeded what they had with sequel ones and so.
We would look both for getting new customers as well as to continue to expand the operations at.
The older receivable, one larger customers in particular.
Thank you again, ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone.
[noise].
Next question comes from Doug Schenkel of Cowen. Your line is now open.
Hey, this is Chris on for Doug today, Thanks for taking my questions I appreciate predicting the timing of the commercial organization expansion is difficult, but can you give us any parameters on a size in the investment required to address the sequence you.
You opportunity and related like are you actively and discussion or open to the possibility of entering into a commercial partnership for the larger companies that could support shows effort.
[noise] I can go first and then.
My second.
So as to the.
First part of the question.
No we haven't specific quantified the you know the investment.
We certainly have open requisitions now to add to the sales team and and we expect that to be pretty much something that that goes on throughout the year because as I mentioned before takes a.
Got to hire people.
So we'll be adding as a go along I don't have exact number for you.
Or.
With regard to partnerships, so I'll turn it over to Mike here, but one thing I will mention is c.
The termination agreement that we had with aluminum.
Does not preclude us from working with.
You know any third third parties, including with Illumina. So so we are no longer sort of I guess constrained in any way to partner with other folks.
I mean, one of the things that we did.
As we will try to do a long time ago somewhat different scenario.
As go after areas like China.
Where a distributor.
[noise] partner, However, you want to define them Oh in China is essential to get into their clinical market, where you have to operate through a Chinese entity.
We're that deal is not exclusive so we're free to discuss.
Even similar deals in China.
And it's been pointed out the termination agreement put no constraints on us relative to other kinds of partnerships distribution deals or whatever.
With third parties, even outside of China.
That that it.
Could include Aluminite could not and so we'll look very carefully whether it makes sense to do some of those things from an economic perspective, whether they add to what we can do.
As we also get a sense of how fast we're able to ramp up in our own commercial organization.
Which weve.
The gun earnestly to.
But.
Some plans in place and we've started as been pointed out I'm already to put out a substantially increased set of a job openings. Both in the sales organization somewhat in the marketing organization goes along with that.
As well as in the field support people that on the science side are a key part of our ability to sell into this the sequencing market.
Okay, maybe a related follow up question, while we know York helpful to run the company as a stand alone entity.
Typically speaking we have to imagine there.
We're sorry, certain instances, where that was probably a bit difficult given the illumina situation. So with that mine how would you describe to stay other commercial team today.
I guess really is there any concern in terms of recent turnover if any.
Well, we did as a commercial organization.
Overall as a separate entity because we were legally required to do so right not that we didnt have some some what if planning going on with Illumina ahead of time that you're committed to do.
But we made it very clear in both organizations not just an hours that we were separate companies.
Until we weren't and so we did our best to continue going.
As we would have done in dependently of the the merger deal.
And so and our team did an amazing job of doing that we introduced a major new product with essentially no.
No hiccups.
I would have performed very well as we went through the numbers, you're seeing that and we continue to do that our turnover rates.
You know last year were the lowest we've ever had and a year.
And we're now looking to expand not to contract so.
We feel.
That you know there maybe individuals who are looking really forward maybe to moving to San Diego I don't know, but we're still.
Planning on being able to expand organization in the areas where on the commercial side it would make a bigger impact and that's one there's been pointed.
Well you have to go out with some degree of.
Caution in terms of the timing that you could do that it's not just the can hire people, but certain areas like Europe, they're frequently under.
You know legal constraints, but how fast they can move a company, even when you hire them and so that.
The timing of that is always difficult to predict and then you have to layer on being able depending on who the your are under their background is the trading period required to get them up to speed to sell the technology that they may not have been selling.
So.
We feel comfortable that we can do that we've had good we've been able to.
Higher sales reps, even last year.
In certain areas. So it's certainly possible for us to do that.
Okay and maybe for my last question do you just provide a bit more detail on the mid Fortys gross margin assumption I think that was for the full year really what are the key components to the expansion you expect in 2000.
20, and how how should we think about their revenue variability. Thanks.
Yeah. So the main lever there is the topline I'm trying to give a hint there by saying that in Q1 gross margin is likely to be lower than gross margin percentage that we had in Q4.
Because the top line is also expect to be lower.
The biggest lever for us quite frankly is the ability to absorb fixed cost with topline growth and.
You know the fast way for US increase gross margin is to increase the topline.
Did the Inc. The incremental.
And on additional sales.
This in the pass is greater than 50%.
And and so the more we can grow that the top line the faster we can pull up to the gross margin you saw that we got to 46%. This past quarter and you know the key to get it to over 50 would be just keep on going.
During that top line.
There are kinda, let me no more questions at this time I will now turn to called back to management.
[noise].
Okay. So in closing we remain steadfast in our commitment to bringing the unique advantages of our smart technology and products to our customers the scientific community.
We believe the smart sequencing provides the industry's most complete an accurate picture of genomes due to a superior performance and sequencing accuracy uniformity of.
Coverage long read lengths and ability to characterize DNA based modifications were excited about her new sequel to system and the overwhelmingly positive feedback we've received from customers who are using it.
I'd like to acknowledge the team at packed bio did a fantastic job designing and building the sequel to products and the folks who are continuing to markets.
So and support them.
Thank you for joining us and we look forward to talking again in three months time.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
[music].