Q2 2022 Pacific Biosciences of California Inc Earnings Call
Yes.
Welcome to the Teck Bio's second quarter of fiscal year 2022 earnings call all participants will be in a listen only mode. So they need assistance. Please signal a conference specialist by pressing the star key.
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I would like now like to turn the conference over to Mr. Tom Friedman.
I'll think bester relation.
Go ahead.
Good afternoon, and welcome to <unk> second quarter 2022 earnings Conference call.
Earlier today, we issued a press release outlining the financial results, we will be discussing on today's call a copy of which is available on the investors section of our website at www Dot P. ACB dotcom, whereas furnished on form 8-K available on the Securities and Exchange Commission website at Www SEC Gov.
With me today are Christian Henry President and Chief Executive Officer.
Suzanne Kim Chief Financial Officer.
Before we begin I'd like to remind you that on today's call, we will be making forward looking statements, including statements regarding predictions.
Estimate plan expectations intentions guidance and others.
The expectations with respect to collaborations cash flow and product and technology launches you should not place undue reliance on forward looking statements because they are subject to assumptions and risks and uncertainties and could cause actual outcomes and results to differ materially from currently anticipated results.
As well as other risks and uncertainties are more <unk>.
In our press release.
Earlier today and in our form 8-K Form 10-Q Form 10-K, and other filings with the Securities and Exchange Commission.
We disclaim any obligation to update or revise these forward looking statements except as required by law.
During the call. We are also present certain financial information on non-GAAP basis.
Management believes the non-GAAP financial measures taken in conjunction with U S. GAAP financial measures provide useful information to compare our performance relative to forecast and strategic plans to benchmark our performance externally against competitors.
Reconciliations between U S GAAP and non-GAAP results are presented in the tables within our earnings release.
In addition, please note that today's call is being recorded and will be available for audio replay on.
On the investors section of our web site shortly after the call investors'.
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 live call <unk>.
I'll now turn the call over to Christian.
Good afternoon, everybody I appreciate you joining us today.
Today's call I'll provide an update on our 22 revenue outlook.
Our results for the second quarter of 2020 to discuss some of the recent business and commercial successes and then.
And then get into our financial results and guidance in much more detail.
September will mark the <unk> anniversary of Pac bio and in that time, we have undergone a remarkable transformation first they've been able to build a talented and experienced team to lead the company and execute a strategy that will leverage our technology and commercial scale to serve our customers around the globe.
And drive growth.
We also acquired <unk>.
Sircy Lomax, adding core products and technologies to our portfolio.
As a result of these acquisitions and through our aggressive product development investments, we expect to be the first company to commercialize both highly accurate long reads and short read technologies, providing our customers with the right product for their application of interest and as a result, serving the entire genomic.
Sequencing landscape.
Additionally, we believe that our portfolio will create significant value for our customers as we provide them with the capabilities required to discover novel biology with unprecedented detail at compelling scale economics.
We have not only invested in developing new technologies. We've also continued to improve our highly accurate sequel, II platform to provide even more customer value. For example, just this past quarter, we launched the ability for our customers to look at epigenetic markers with each sequencing run for no.
Additional cost.
Compared to various short read sequencing technologies. This feature dramatically simplifies the ability to see epigenetic markers because the workflow doesn't require multiple sequencing runs with different sample preparations to capture all of the data.
We've also collaborated with leading organizations to show how highly accurate long reads can transform clinical research I think you'll agree that Pac bio today, it looks a lot different than it did two years ago.
There is no question, though that we're operating in an uncertain macroeconomic environment. These macro issues do not change our or nor our customers enthusiasm for pacbio sequencing. However, we are finding that these factors broadly play a role in customer purchasing patterns and their ability to opera.
It's scale, especially as our business is currently dependent on large capital purchases.
As a result, we have reevaluated our current outlook for the year to take these macroeconomic factors into account specifically.
Specifically, we expect EMEA to be lower than our original forecast as we see the reason to be most affected by longer purchasing cycles. In addition, foreign exchange headwinds and increased competition are expected to have a greater impact.
There than in other parts of the world.
We're also seeing that some of our larger customers in the region are ramping their utilization to pre omicron levels at a slower than anticipated pace due to staffing shortages among other things.
We believe that this has and will continue to have an impact on our consumables revenue for the remainder of the year.
In China, the second quarter was impacted by lower than we expected from Covid locked down and we expect it to take longer for our customers to ramp back to pre lockdown levels. In addition to the ongoing risk of localized lockdowns.
That could be reintroduced for.
For example, locked down that certain customer locations prevented us from installing newly acquired sequel, II systems, which had an impact on consumable revenue in China <unk>.
Excluding China, we are quite pleased with the performance of the rest of the pack.
Specially in Japan, where commercial investments made in 2021 are driving significant opportunities and growth for the region.
China returns to a more normal operating environment, we believe our strengthened commercial team will be able to drive diversified growth throughout APAC.
In the Americas recession fears volatile capital markets and a growing number of sequencing entrants are slowing purchasing patterns as well. However, the region remains mostly resilient as it posted record revenue grew over 50% compared to the second quarter of last year as we're growing.
Multiple markets from human genome to gene editing to microbiome, the strength and diversity of our customers in the U S market gives me confidence that other regional headwinds are only temporary and we will reaccelerate going into the next year and beyond.
Considering these broader issues, we have a exact reexamined our full year forecast and we are now expecting 2022 revenue to be in the range of $138 million to $145 million or about 8% year over year growth at the midpoint.
We expect an improving environment through the Dallas of the year with both third and fourth quarter growing sequentially. Both in total revenue and instruments placed in fact consumable shipments are off to a strong start for the quarter with July being the strongest month, one of any quarter. This year.
While lower than previously forecasted I wanted to reiterate that we believe this is primarily due to macroeconomic factors, particularly outside of the United States, which we do believe will be transitory our market opportunity has not changed and we remain committed to our strategy to become a multi platform company, enabling the most complete.
And accurate view of the genome I'm confident in our strategy and I am excited about our progress in developing revolutionary long and short read platforms, which we believe will be key growth key drivers of our growth.
Also our balance sheet remains strong.
At quarter end, we had $899 million in cash and investments and today I'm reaffirming our belief that even in spite of the short term economic challenges. We've seen we have the capital required on our balance sheet to execute on our current development and commercialization plans, which we believe will enable us to reach positive.
Cash flow this is a top priority for the company.
Susan will expand further on the guidance a little later, but first I'd like to highlight the results of our second quarter, we reported $35.5 million in revenue in the second quarter, representing 16% year over year growth, which was in line with our guidance for sequential growth Q2 was the sixth consecutive.
The quarter of double digit year over year growth and as I previously mentioned, our Americas region posted record revenue in Q2, we were pleased to see that about one third of our sequel to replacements were brand new.
<unk> bio instrument customers across all of our target markets.
This demonstrates that we continue to grow even amidst higher comps, a maturing product cycle and broader macro or macro economic factors.
We've continued to see momentum in human applications as well with over 40% of our revenue in the first half to customers working on human genomics compared to just over a third of our revenue in 2021.
This includes applications in genetic disease research, we're highly accurate long reads can help better understand complex genomic variation.
For example, another top tier children's hospital in the United States received its first sequel to ease in the second quarter, two accelerated studies into genetic disease, notably the customer cited our newly released methylation detection capability as a key differentiator in deciding to purchase these systems.
Additionally, we shipped sequel to ease to multiple genome centers in the second quarter in support of whole genome research initiatives in the United States and in Japan, We provided sequel to ease to a large scale service provider in support of ongoing upcoming cancer research initiatives.
In the country.
Our customers continue demonstrating the power of Pac bio hifi sequencing through numerous publications and preprint.
Notably the human Pan genome reference consortium or the H P. R. C posted several pre prints describing the first human Pan genome reference this past quarter.
Hi Fi directly assembled this reference from 47 genetically diverse individuals' the transition from the single linear reference commonly used today to a pan genome reference represents a paradigm shift in human genetics and improves variant, calling and resolution of complex <unk>.
<unk> such as tandem repeats segmental duplications and is more representative of a diverse population.
Before building this reference researchers first benchmarked, the best sequencing approaches and determined that highly accurate long reads, we're best suited technology.
Further this is a shifting.
Of the sequencing paradigm towards a fully phased six giga based genome versus the commonly used three gigabit its genome, which the H P. R. C shows hi Fi is uniquely suited to assemble.
In plant and animal genomics studies showed a sustained you use case for hi Fi as accurate long reads are best suited for assembling a highly complex genomes and a preprint last month researchers from Utah state and other universities compared long read technologies and showed that high fiery.
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And I quote hifi reads consistently outperformed all other data types for both plants and animals and may represent a particularly valuable tool for assembling complex plant genomes.
Moving to Microbiology Bio Park, a service provider in Korea purchased a sequel to me in the second quarter to advance human microbiome and drug resistance microbial research with funding from our Korean government agency.
Other emerging applications like AAV gene vector sequencing with our latest protocol on instrument workflow continued to drive placements as we delivered multiple sequel to ease.
To customers working on vector validation and research.
In the second quarter, we progressed, our product development to enable more applications better data and higher levels of automation and standardization, all while make braking, making great progress towards future product launches.
We've released custom targeted enrichment capabilities as part of our collaboration with twist Bioscience. These panels can provide customers a cost effective and high throughput way. The sequence particular genes of interest delivering comprehensive detection of single nucleotide variance structural variance and in Dallas for any genomic inner.
Paul including difficult to sequence or difficult to map regions of the genome.
We also reformatted and relaunched our nano bind extraction technology from our circular all makes acquisition to be integrated with hi, Fi, allowing for more seamless sequencing workflow.
It was only launched a few years ago most of our instrument customers have not yet used the circular mix nano bind extraction. This integration opens up the opportunity to get the differentiated product into more customers hands and fully recognize the synergies between the two technologies.
Also on the workflow side, we've partnered with Iraq in the robotic biology instrument to develop fully automated end to end workflows for Pac bio sequel to and to E. Hi, Fi long read sequencing systems by employing advanced.
Robotics.
And in the backdrop of these enhancements are field performance of smart cells continues to improve as part of our most recent chemistry and software release earlier. This year in fact, the average yield per smart sellers hitting records with over 30% more gigabases of output per cell than we saw in 2020 one.
John This on market improvement enables customers to do more sequencing with sequel II than ever before.
We made excellent progress towards the launch of new products, such as our kitted moth Isis <unk> solution, which remains on track for commercial release in the fourth quarter.
Early access customer sites have been identified and will begin using the product later this year.
The commercialized kit is expected to have higher and more robust throughput than the original Moss ice's seek method outlined in our preprint last year with reduced library preparation time, Henry you didn't use the solution will come with the smart link workflow to produce isoform level single cell data compatible with turf.
Sherri analysis tools and will enable the size and scope of experiments that have driven the breakout growth. We've seen in single cell genomics. Meanwhile, early adopters of the mass ice or seek methods, particularly in the oncology and neuro disease research space tell us that they can now see critical full length Isa.
Information missing from their short read single cell data.
If we move to our sink sequencing by binding platform development, we shared some exciting data at hebt around SBB exquisite accuracy and variant calling performance. After speaking with customers. We left the conference feeling even more invigorated about how SBB is unparallel.
Accuracy can accelerate genomic discoveries our team remains on track for commercial launch in the first half of next year.
We're in active discussions with potential beta sites and we anticipate beginning our full beta program in the next few months.
We are also engaging with potential partners across the ecosystem to ensure the system is user friendly and compatible at launch. Meanwhile, our in house systems continue to sequence incredibly well achieving accuracy scores with over 90% of the basis at or above Q40, and the system has demonstrated both.
Single and 200 base pair read lengths and two by 150 paired and read links.
And lastly, I am pleased that we reached an agreement with N V. Te in June that provides a roadmap and incentives for them to accelerate their sequencing on Pac bio a hi Fi and still leverages their expertise in our development of our ultra high throughput sequencer.
I believe these new technologies will be even more important than in VK has refocused business as they aim to deliver the most comprehensive genomes.
Turning to other organizational updates today, we unveiled our first ESG highlights report.
The report showcases our approach to environmental sustainability, social Justice and responsible governance and outlines our progress in these areas over the coming years, we expect to continue to invest in our ESG program as a key component of our long term business strategy and finally, we look for.
A word to welcoming our new Chief commercial officer, Jeff I del later this month.
I've personally worked with Jeff for over a decade, and his knowledge and experience in genomics will drive significant value across backed by them.
Now with that I'll hand, the call over to Susan to talk about our financial results in more detail Susan.
Thank you Christian asked it's Scott, we reported $35 5 million in product and service revenue in the second quarter of 2022, which represented an increase of 16% from $30 6 million in the second quarter of 2021, and 7% sequential growth compared to.
$33 2 million in the first quarter of 2022.
Instrument revenue in the second quarter was $15 6 million, an increase of 9% from $14 3 million in the second quarter of 2021.
In the second quarter, we modified our agreement with N V T and recognized $3 7 million in insurance revenue related to sequel to eat delivered to N V K in the quarter.
We delivered a total of 36 equal to in two weeks systems. During Q2 growing the installed base to 460 system as of June 32022.
Turning to consumables revenue of $14 6 million in the second quarter grew 19% from $12 2 million in the second quarter of last year and equal to and two week consumables represented approximately 86% of total consumable revenue in the second quarter with the rest from older systems and other consumer.
Oh.
Annualized pull through per system on the sequel to end two we installed base in the second quarter with approximately 120000.
When from pandemic related Lockdowns in China continued through most of the second quarter.
Additionally, new customers have been taking longer to get up to full speed and supply chain constraints have affected other inputs in customers' workflow such as servers and automation equipment.
Finally service and other revenue grew to $5 3 million in the second quarter compared to $4 1 million in the second quarter of 2021, reflecting our growing installed base.
From a regional perspective, Americas had a record quarter with revenue of $21 7 million and grew 51% compared to the second quarter of 2021.
We shouldn't speak well to lead to a growing and diverse set of customers in the quarter, including animal by them, which is implementing test by a hi Fi and has plans to leverage concatenation for 16 that sequencing in their industry, leading direct to consumer pet microbiome tests.
Human Germline applications, though are the primary driver with nearly half the region's instruments delivered to customers in this focus area.
Asia Pacific revenue of 8.1 million reflected an 18% decline over the prior year period, primarily due to China, which was 30% lower compared to the second quarter of 2021.
We were pleased to see that revenue growth in other APAC countries helped to offset some of the lower revenue in China.
Finally, EMEA revenue of $5 8 million was 12% lower compared to the prior year period and was impacted by broader macro dynamics, which slowed customers capital purchases.
In addition, the region had an FX headwind of approximately 7% when compared to Q2 2021.
Moving down the P&L GAAP gross profit of $16 2 million in the second quarter of 2022 represented a gross margin of 45, 7% excluding.
Excluding amortization of intangible assets.
Quarter 2022, non-GAAP gross profit of $16 4 million, representing a gross margin of 46, 2% compared to a GAAP and a non-GAAP gross profit of $13 8 million or 44, 9% in the second quarter of last year.
The increase compared to the second quarter of last year was primarily driven by multi instrument order at higher Asps.
As well as greater consumable and service revenue volume due to our growing installed base of sequel to two weeks in Q2 2022.
GAAP operating expenses were $84 2 million in the second quarter of 2022, excluding change in fair value of contingent consideration of $5 4 million non-GAAP operating expenses were $89 6 million.
This represents a 74% increase from non-GAAP operating expenses of $51 3 million in the second quarter of last year, reflecting growth in head count.
Operating expenses related to the acquisition of Omnium increased R&D spend and increased travel as we transition out of the pandemic remote environment.
In terms of head count we ended the quarter with 782 employees compared to 728 at the end of 2021.
GAAP and non-GAAP operating expenses in the second quarter included a total noncash stock based compensation of $18 million compared to $13 9 million in the second quarter of last year.
GAAP net loss in the second quarter of 2022, with $71 4 million or 32 cents per share.
Excluding amortization of acquired intangibles and change in fair value of contingent consideration non-GAAP net loss was $76 6 million, representing 34 cents per share compared to a GAAP and non-GAAP net loss of 41 million or <unk> 21 per share in the second quarter of 2020 one.
Now turning to our balance sheet. We ended the second quarter with 899 million in unrestricted cash and investments compared with 963 million at the end of the first quarter of 2022.
Inventory balances increased in the second quarter to $36 1 million, representing 2.3 inventory turns compared with $29 6 million at the end of the first quarter of 2022, representing 2.8 inventory turn.
Similar to last quarter the decline in inventory terms reflects our strategy of increasing safety stock levels to manage global supply chain risks to continue to ensure we have the necessary materials on hand to meet our customer demand.
Accounts receivable decreased.
<unk> in the second quarter to $27 1 million, reflecting a DSO of 70 days compared with $27 9 million at the end of the first quarter of 2022, reflecting a DSO of 71 days.
Long term deferred revenue declined approximately $23 million and current deferred revenue increased approximately $21 million for a net change of approximately $2 million in Q2, primarily as a result of a multi instrument order frenzy day in the quarter as well as future credits awarded two N V shape.
He had the amendment to the co development agreement.
Moving to guidance, we are updating our expectation for full year 2022 revenue to be approximately $138 million to $145 million or 8% growth at the midpoint.
While we continue to see increasing customer enthusiasm for our technology and product broader macroeconomic dynamics, including including rising inflation global supply chain constraints volatile capital markets and lockdown restrictions associated with COVID-19 have linked and customer sales cycles.
Clearly for capital purchases. Therefore, we expect to ship fewer instruments this year than we originally expected.
With respect to consumable revenue Lockdowns in China have led to lower than previously anticipated consumable revenue in the region as customers have difficulty accessing labs as well as lower sample volume from which to sequence.
In addition, placing insurance with more new customers has lowered our average consumable pull through and a lower than previously forecasted installed base has lowered consumable revenue estimate for the year.
On a quarterly basis, we expect the third quarter revenue to be slightly higher sequentially as we expect higher sequel to replacements and pull through to be partially offset with lower asps.
We expect non-GAAP gross margin to be 44% to 45% slightly lower than our previous guidance range, reflecting lower revenue volume and increasing costs associated with ongoing global supply chain constraints and rising inflation.
For Opex, we have significantly reduced the pace of hiring in the second half of the year relative to our previous forecast.
However, we continue to make excellent progress on our next generation platform and will continue to prioritize these investments.
As such we now expect non-GAAP operating expenses to be between $350 million and $360 million.
We expect that slowing our pace of hiring will translate into lower run rate of operating expenses entering 2023, while still giving us flexibility to make appropriate investments in R&D and commercial to fuel our growth in 'twenty three and beyond.
Interest and other expenses unchanged and expected to be approximately $15 million for the full year, reflecting interest expense and amortization of debt issuance costs for our convertible notes issued in 2021.
We expect the weighted average share count for purposes of EPS for the full year to be approximately 225 million shares.
With that I will turn the call back to Christian Christian.
Thank you Susan.
I hope you take away from our prepared remarks today is that Pac bio remains extremely well capitalized and well positioned to execute on our strategy. Despite the short term volatility and uncertainty we see in the market.
We sit in front of a huge multibillion dollar market opportunity with multiple technologies that we believe will uniquely position us to provide customers with products capable of delivering genomics insights unimaginable with the current status quo of sequencing.
We look forward to engaging with our customer set.
S H G in late October .
And with investors, we hope to connect at the many conferences wound up in Q3.
And we're hosting our first analyst day in November which will be sharing details about next month.
Now with that I'd like to turn it back to the operator to begin the Q&A.
Thank you.
Well now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
Where are you using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, well pause momentarily to assemble our roster.
Okay.
Our first question comes with Roth Osborne with Cantor Fitzgerald. Please go ahead.
It appears that Osborne has disconnected. So all our next question comes with Carl Mixon with Canaccord. Please go ahead.
Alright, great. Thanks, guys for the questions I hope you're doing well so I'm just want to talk about the guidance not a huge surprise I thought a lot of the factors that you called out Christian makes sense, but maybe you could you just break down the guidance assumptions, maybe quantitatively when you think about the macro factors like trying to walk down and so FX inflation supply chain.
Want to understand how you think how you're thinking about that maybe in the near term here and then also maybe for Susan with the product breakdown you didn't really quantify that instruments.
Pull through how could that really trend in the second half of the year as well.
Okay.
Sure Kyle so I'm not going to break down the delta in guidance based on you know I'm not going to try to ascribe a value specifically to each macroeconomic factor, but qualitatively.
What we're seeing is that the Americas is actually.
Doing extremely well.
But we did lose you know in the first if you look it back on the first half the first part of the first part of the year we had.
You know COVID-19 impacting consumable pull through which we saw the numbers have been lower than what they had been historically, but overall the Americas has done extremely well and compensated and we will continue to compensate primarily for the weakness in Europe, that's actually the area, where we have the most.
Where where you've had the most impact and it's a number of different things. It's it is absolutely the currency headwind is significant we had.
I believe over half million millions of dollars of currency impact in the quarter.
Principally driven.
And if you've looked at that on a year over year basis, principally driven from from EMEA.
We also have a COVID-19 still being in having an impact in EMEA and the.
Inflation slash fears of recession slash.
Kind of the situation in Ukraine, all of those different at.
All of those.
Three factors are just slowing the purchasing process down the good news is that.
Demand in our funnel looks very encouraging and so you know if you look at look at the balance of our written remarks on balance all things considered the company is actually doing.
I'm pretty happy with what how the company is doing but I do think Europe is going to again continue to be challenged for the rest of this year and I think that that's really the big driver and why.
Why do we think we wanted to reduce the guidance going forward.
China continues to be I think a bit choppy I do think we saw.
In the quarter, we saw some at the end of the quarter like we expected to see some improvement in China, we talked about that on our last call last quarter about the notion that we thought the lockdowns would maybe start to subside in the Jewish timeframe I think that's true, but it but what were finding it is a bit lumpy.
And I think that.
What's interesting is the knock on effect of not being able to get into the labs I talked about it in my written remarks, the whole concept that.
We had we had several instruments that we had shipped to customers in China at the end of Q1 that we just couldn't install in Q2, because they were locked down now those instruments are now installed.
People are starting to ramp back up a little bit and so you know I think the back half is encouraging but the balance of all of these factors.
Made it prudent for us to reduce our outlook for the rest of this year.
Hopefully that helps skol.
Okay.
Yes, I mean that was a great question. Susan did you want to talk about like instruments first pull through maybe how that could trend or if not its probably we can just move on.
Yes.
Oh, no I'm happy to kind of I was trying to unused.
So just to give you an idea so we talked a lot about the fact that there's a lot of enthusiasm by our customers in terms of our technology, which is great. Our pipelines continue to be strong so because mostly because of the macroeconomic dynamics that we talked about sales cycles have lengthened, having said that some of the orders that we had.
Forecasted in Q2 is pushing into Q3 for capital purchases and then in Q3 and you do have the government fiscal year end, which is going to help on the back end. So we do see that insurance placements in Q3, we expect to be sequentially higher in Q3 relative to Q2, you also have the fiscal year and associated.
With the calendar year end and so we further believe that Q4 will be higher instrument placements relative to what we had seen in Q2. So you can model that out in terms of what it means for instrument revenue.
So based off of consumable shipments, especially for what we had seen in July we're off to a great start well I don't believe that consumable pull through a return to the levels. We saw in 2021 I do believe that the second half, it's all pull through will be sequentially higher than what we had seen in the first half just based off of how we're tracking for the month of July but.
Again, probably lower than what you're used to seeing at the end of 2021.
Okay that was great. Thanks, so much guys.
I guess I guess question I'm, just thinking about like the issue that could be maybe internal or like specific <unk>, probably you didn't really mention anything there, which is obviously positive but some of your.
Peers in this sector have had some leadership changes on the commercial team in recent quarters. Those have kind of appeared to lead to consistent execution in some cases Europe could you just been pretty good. Some recent recently, but I'm just kind of wondering what gives you confidence you can basically smoothly transitioning with Jeff as the new Chief commercial officer and is there any like structure.
Our strategy change of the new kind of commercial leadership.
Now that he's been appointed pointed.
You know that's a great great question, Paul and I think the one reason why I have a lot of confidence its first I know Jeff.
And Mark knows shaft, and we've worked with Jeff for you know a very long time. So we know what kind it easier is and what kind of capabilities. He brings to the table.
And then on top of that the other thing is that you know I'm, a former chief commercial officer, Mark is a former chief commercial officer and we're still.
We were about 800 people, but we're not that big a company. We are intimately involved in all aspects of the business.
And so I think we will be important to that transition in the sense that we.
We've been we were very closely tied to what our prior C C.
I would and helping to manage the activities of the business.
To the point of even negotiating larger deals and really being engaged with the team but.
That will continue with Jeff the other thing I would say, Jeff also knows all of the general managers of the different regions. It's working with the general managers in the different regions for many years as well and so he comes in as a.
Highly respected.
Capable executive.
And he will come in and evaluate your organization as he sees it.
And we you know we may or may not make any changes I really liked the fact that we have created a scaled commercial organization that can operate all around the world we talked about.
Sales in Korea, we talked about expansion in Japan.
Our European businesses covered better than ever although the performance isn't quite what we wanted and then in Americas.
Growing at 50% and that's because we have a highly capable team and when do you think about the backdrop of.
Of emerging competition.
We're extremely well positioned there because we have great products already.
New products on the horizon.
<unk> in place until the launch products, we can launch immediately at scale and I, just think that gives us a significant leg up and Jeff has an executive is going to fit right in.
That was great I almost forgot Christian your background. He has two great sticking with enthusiastic to learn from that sounds great I'll ask a final one here just kind of lumping two thoughts and at the end here. So the first being you mentioned Christian Theres, a growing number of new sequencing entrants that pressured the Americas results.
From what I understand there is no like pure play <unk> companies that are now calling market anytime soon could you just talk about that a bit is that more on the short reads out I guess and then secondly.
<unk> was obviously pretty high this quarter and the past public labs trade in programs those dragged down ISP, what should we expect going forward I guess.
Yeah. Those are those are good those are good questions I think that.
Regardless of whether the entrance or long and short read the the excitement about you know and buzz about the sequencing industry and space is.
It is encouraging everyone to stop and look at the totality of what problems, they're trying to solve and holiday what technologies can help them solve them and so I think the emerging entrants.
Definitely creates.
Some conversations what's so great is that we've been we have what we believe is the best laundry platform in the market.
And it's the data is becoming more and more clear every day that our short read technology that will bring to market next year have some serious advantages over these emerging competitors and the existing incumbent and so we've I've been at several sales discussions just this quarter already where we're talking about.
Hum.
We're talking about bundle.
Bundled sales I want to buy the long read sequencer, because I want to do a highly accurate a whole genome sequencing I want to buy the short read sequencing because it yet.
It goes you know I can look exquisite beginning with exquisite sensitivity and therefore I you know I can find the answers the needles in a haystack and I think that's gonna service.
I do think that's going to service.
It really well and going forward.
We continue to have some trade ins from sequel, once the sequel, Twos, which impact Asps.
That'll change in any given quarter.
APAC region has been extremely successful with some promotional programs to make those conversions and I think I think our EMEA and Asia and the U S and <unk> are trying to emulate some of that so there'll be probably some of that but you're right asps in the quarter were generally pretty strong.
And.
I think that that.
That has to do somewhat with product mix as well, we're selling to commercial customers.
Some places for example in AAV they typically have.
More capacity to buy the equipment.
And so that helps so I think it's the customer mix in any given quarter that will help us.
Help or hurt the ASP.
What's really important is that we build the installed base.
As Susan pointed out we have 460 units out there now which is I think a real accomplishment in the short time that I've been the CEO and I'm looking forward to.
Cracking through the 500 barriers soon.
So hopefully that helps a little bit tough.
Perfect. Thanks Christian Thanks, Susan.
Okay.
Thank you.
The next question comes with Julia Quinn with J P. Morgan. Please go ahead.
Hi.
Hi, Thank you for taking our question this is Amy.
Calling.
I'm Julia so I have a couple of questions. So the first one is related to the guidance I wanted to go back to the China market do you guys have any idea like what's the outlook what the China market do you have any sign that when will the market be bounce back.
Yeah.
Well I know you know Julia I don't think we have a crystal ball and so therefore, we're taking more conservative views on.
China is as I think folks on the phone know.
Historically, China has been a significant part of our revenues.
As we grow globally that debt that we will be less reliant on China, but we do see you know.
Lots of opportunity going forward in the second half of the year and into next year.
You know the timing of potential Lockdowns and other.
Other other fact other macroeconomic factors I think.
We can't predict that and so we've taken a conservative view, we didnt breakout.
We're not giving guidance by region.
So I didn't want to I don't want to move down that pathway, but but we have taken a pretty.
Served a view on China, and APAC as a whole.
As we said APAC.
APAC as a whole, though is getting buoyed by improvements in Japan, and the rest of them.
The rest of APAC and what's so encouraging about that if you look at the growth in the U S plus the growth outside of China.
You know you're really starting to see a step up.
We're out of China in fragrance, we can accelerate our revenue growth and then if we can if we can see Europe returned to some sense of normalcy, then I think we're really positioned well for long term growth.
On top of that the product just keeps getting better and I think the sequel TV platform, although its been around for quite a while as I said, we've improved the output of that platform with our latest release by we're.
We're seeing what 30% improvements in.
In the in the actual output and throughput.
The system, so customers are getting more value, they're getting that now.
Alicia mobility, so for free with every single run they get.
More data than ever before and more types of data that positions us very well against competitors and.
Encourages others too.
Get engaged with us on a laundry platform 70 overall.
The outlook looks what's really you know.
Think strong for the company, but we do have to we do have to recognize that we are in a pretty uncertain environment and therefore from a guidance perspective, we would rather be.
Be thoughtful and considerate of these.
Headwinds.
And if we do a little bit better because of the headwinds are less than we'd be sure to tell you, but I think we're trying to take a.
A pretty conservative view on how the world right now.
Okay. Yeah. That's very helpful. Thank you very much. So my next question just relating to the top line. So firstly what those.
The new high throughput platform right. So what kind of updates are we going to see and when and how should we think about don't update secondly is with the shore. We are a platform. The omnium platform. So the specs look very impressive, but I'm very impressed that the.
Yeah.
So I'm just curious like based on your initial market research and marketing intelligence.
What's the customer appetite.
Pay a premium for this higher accurately here.
Basically it works.
Yeah, Okay, well, maybe I'll I'll address the the short read platform first and then I'll and then I'll talk about the long read platform you know with respect to SBB we were.
We were quite frankly are enthusiastic about the response at a GBT and how customers.
Italy came up to us.
And really we're excited about getting involved getting in the beta program seeding the data for themselves because they see you know they see this as the next paradigm in in short read sequencing accuracy matters a lot.
And you know the reality is that you can actually make us more effective because it's not about the cost per gigabit, which is the traditional way in which sequencing companies have talked about you know the consumable cost how much whats your cost per gig and the reason why they've had that as everyone.
The accuracy has kind of been in the same range.
The accuracy 15 fold better than the incumbents in the world.
The discussion needs to turn to price per answer because with higher accuracy, you need less coverage with less coverage you can you.
You can turn a mid throughput sequencing into higher throughput sequencer and therefore, you can operate at higher multiplex and lower price per answer and I think that's going to be an important message for us to drive as we get these products into the market.
And so I'm really excited about that.
In other words I don't believe our pricing is going to be.
Yeah.
Higher than others. When you look at all the factors of getting.
Getting to an answer not just processing some sequencing so.
So if you move to the short read side and of course.
Stay tuned because we'll be getting into the beta phase of our development program.
So you know in the next couple of months and so I suspect we will likely have some updates at S. J E. S. H G, which is at the end of October and we're well on our way to getting this product out the door.
Very excited about that.
If you look at the laundry side, that's equal to me as I said in the last Ah.
A couple of minutes has really made dramatic improvements over the last few years, but you are right. We do have new.
New products, and new ideas and new technologies in development.
And we haven't said publicly when those would launch.
And I'm not going to do that on this call. We will we will do that at a good time, but what I can tell you is that you know.
When I joined the company.
I said that we would embark on a strategy to drive product development. So that we can get.
Kind of on the range of orders of magnitude of improvement in terms of throughput on long read sequencing so that so.
So that our customers could operate at higher scale and leverage our long reads across.
Across larger sample cohorts and I also said that we would be going for it.
<unk>, the $1000 genome or better and I'm happy to report today that our development programs and our research is definitely showing us that we have the capabilities to do that and so we at the right time, we will we will talk about these things. These are these next generation.
Our research programs in much more detail.
And we will share. It then but for now we keep focused on the sequel to re platform. It's a great platform.
Like I said, we're not that far away from having 500 units in the installed base.
And we keep adding to it and so that's what's up.
That's gonna be front and center commercially here over the next couple of quarters.
Okay. Yeah, that's very helpful. Thank you very much.
Thank you.
Your next question comes with please Joseph with Morgan Stanley . Please go ahead.
Hey, guys.
Good evening Christian just just following up on your remarks, there on the on the product pipeline, obviously, its a point of Investor focus. Your I know you don't want to commit to a specific timeline just yet but.
Is there an interim instrument set do you think needs to be launched before you get to that sub <unk> price point or do you feel confident just given what you said about your internal effort.
But you can get there within the next version of the sequel.
Yeah, I do think I do think at a fundamental level pages that we have the we have the technology now to deliver the $1000 genome and without incremental steps.
One of the strategies here of course is to develop a multi product portfolio.
With long on the long read platform side that offers customers much more flexibility than than we have historically, so that you know customers that are sensitive to.
The capital cost offering a low capital cost offering with high value consumables customers that are doing extremely large cohorts.
Having the capability to run lots of samples with a with a reasonably sized lab at under that thousand Belo genome.
Price point, and then you know.
That middle ground, where youre doing a diversity of applications or you're looking at you're looking at.
Youre looking at lots of seats, but do you have high multiplex and you can use kind of that mid throughput system. That's still you know.
London metal to our strategy long term and the good news is that you know we're thinking much more modular than we've ever thought about before and I think that will give us a range of products.
And it capabilities and also improve.
Lower the cost of the customer, but also improve the companies.
The ability to serve those customers.
<unk> and drive growth in gross margin, which which ultimately drives us to cash flows.
Got it Super helpful.
And then one on the on the on the instrument.
Instrument and consumable side of things on the instrument side, Susan just a quick point of clarification.
$3 7 million you mentioned I think on <unk> was that for instruments placed in this quarter or was that sort of a payment for instruments in past quarters, and then on the consumable side of things question to your point around you know higher throughput applications coming through as you launch the new version of it.
Equally our.
Do you expect sort of getting back to that 175, K plus pull through range at perhaps the back half of 'twenty three is that a reasonable assumption or do you think it's really contingent on the new box being launched and getting some decent traction with customers.
Yeah, maybe I didnt want it cleaner sir.
Yeah Yeah.
Click on the $3 7 million for N V tag that is because of a handful of sequel to eat that N.
N V tape purchased in Q2 that they took delivery in Q2.
Right.
And then just with respect to you know.
Pull through expectations.
It's probably not appropriate for me to speculate on that yet, but you can imagine if we had platforms that had more.
More throughput.
And you could do more runs per year for example.
Or many more samples per year that you would be able to drive the consumable pull through number up but I'm not going to speculate as to the timing or or or the level, yet because I think it's premature in and with the sequel to me if we get specific on the sequel to Lee.
We've been running what 115, one kind of in the low.
115 120 range.
We are expecting to see that improve a little particularly as.
Some of the incidents that have shipped in the last six months I only start getting ramped up to speed.
And some of our customers that have had significant staffing challenges are finally, starting to resolve some of those and so I think it will improve but I think as Susan said, we don't necessarily expect it to get back to the levels that it was out of Q4 and that's partially because.
The mix of customers, we're reaching more customers than ever before because of our commercial scale.
And not every customer is going to be running.
Or.
24 hours a day seven days a week.
And so it will you know and as you tend to get to the towards the end of a product cycle, you're reaching youre, reaching the lower edge of those.
Of those customers so to speak that may not be high they may need the technology and want to use the technology, but they may not be thinking of the same scale of projects and so I do think it's gonna be I do think it's likely to be better in the second half than the first half, but I don't think it's going to return to.
Q3, Q4 levels of last year anytime soon.
Got it appreciate the color guys. Thank you.
Yeah.
Thank you.
Your next question comes with Dan Brennan with Cowen. Please go ahead.
Great. Thank you thanks for taking the questions.
I had one on Europe , and China, and then one on the pipeline maybe.
Christian just to start on Europe , and China, So on Europe .
Could you just unpack a little bit more of kind of what the issues are there you kind of talk about staffing competition macro utilization and things like that but could you just give us a sense of what were the kind of biggest issue if you will.
You talked about the issue of being transitory, but I believe you also talked about utilization being pressured for the year and then a similar question on China as well it sounded like you're flagging, mostly the inability to get into labs to do installations. So presumably this improve someone who can give some flavor or maybe what the exit rate is and kind of how things are pacing in July and then I.
A follow up on the pipeline.
Yeah sure. So with respect to me you know when you look at if you just kind of dive into Q2.
We had.
We had several instruments.
In the near term funnel that where you were in what we call our commit bucket.
That didn't that ultimately for whatever reason the purchasing cycles are extended and as a result, the revenue the revenue didn't happen the deal didn't go away.
But the but the deal didn't get across the finish line in June and and so you know.
That's what we mean by extended purchasing cycles and I do think that that was an.
And impact in EMEA.
EMEA another impact in EMEA has been in some of our flagship accounts, they've had significant turnover and not and as a result, havent been running the sequences as much and so that affects the consumables in other parts of.
Other parts of both.
On the on the continent and in the U K, we've had purchasing agents or tenders extend longer than we expected or purchase of purchasing folks just taking more time, because quite frankly, there's a lot of uncertainty with respect to you know their funding.
And that.
The actual cost of the sequencer because of the FX changes and they've moved so they've moved a lot in a very short window and so those are the things that have impacted us it in EMEA and that's why when you look at those each individually.
You know don't don't give me.
<unk> concerned that this is a systemic long term problem. This is a this is a problem.
Yeah.
Because of the environment, we sit in and we think it will resolve itself and in fact, you know the customer I was referring to was with.
Lots of turnover, they've actually started running near a sequencer is again in July and so we saw and I said in my general comment I'm not going to make.
July specific comments about any particular region, but we did see a strong July in our consumables and we're off to the best start.
Of any first month of any point this year. So you know that's an.
<unk> sign.
That things are going okay in China, I don't want to give you the impression the sole reason was we didn't get some systems installed.
That could have been running consumable that's more of an illustrative example of the sort.
<unk> of the Lockdowns, how they they not only impact our.
Our customers acquiring samples because most most of our business in China is through service providers, who rely on their customers to provide them with sequence with samples. So that they can take with them and the lockdowns had a pretty far reaching effect.
They weren't able to get samples from their customers. They werent, even able to go into the labs around the sequencer, our sales folks weren't able to get out into the.
Into the community to to be selling so so the impact of Covid is pretty broad.
It's not just one little piece.
Lastly, you know I think.
And maybe it was trial actually talked about supply chain, but the one thing I do want to give a shout out to us or.
Our internal supply chain folks have worked really hard to keep us with the product to ship and as you saw as Susan pointed out we have a little bit higher inventory levels than we've had and that's because.
Partially because of pricing.
You know the inflationary impact on us, but also because we have really worked hard to make sure that we have product for our customers and as a result, we're carrying a little bit more inventory.
So so you know.
I said a lot there Dan hopefully that helps you a little bit and then you said you had another question.
Yeah no. Thanks for some of that was helpful for sure maybe maybe just one on the pipeline. Obviously, you will hear more about it next year.
In terms of getting below $1000 on on a long lead genome.
How do we think about you know as the pace of the price cuts on the short reach size you know continue and we'll see what happens this fall with Illumina like is that gap really widened even though you're going to shrink. It again like is the gaps still gonna be wide enough such that that dilutes, maybe the uptake or the impact of seven and $800 and 900 O long read genome.
You know I mean, we'll have to see how the world unfolds, but I I believe very strongly that it won't and the reason is today not only is the price per genome.
Significantly different on our platform versus a short read platform.
But also the throughput is a lot lower than.
What you can do on a short read platform. So really it's a combination of not just the pricing, but the the throughput and as we as we narrow the gap on both.
Do think you see accelerated adoption.
Because one you can do the large projects using long reads to everyone. As you know we talked about the Pan genome.
You know the H BRC in my written remarks. The reality is is that the reference genome now is changing such that it will demonstrate that short reads are insufficient for whole genome sequencing.
Star and and I think that as we get the economics and throughput improve it will completely change the paradigm.
And on top of that if we can continue to deliver epigenetic information.
Sheila Meredith kilometer sequencing with with.
Smbs and inbuilt and all.
All the structural variation had very highly accurate levels.
Why you would have to do multiple assays, which isn't even if even if the short read sequencing. It was charging $100, let's say for them sequence you still have to run another sample prep to get.
To get the epigenetic data for example, and all of this is the second you do that you actually more expensive than what what what.
What we're talking about here as we kind of break through the $1000 genome barriers. So.
So I am very encouraged about the progress we're making in R&D.
The state of the market and the state of the market being the proof points of why long reads matter one of the core strategies that I had coming into the company was to do enough collaborations so that everyone can see.
Power of Hifi sequencing and the power of long reads versus short reads I think all of those proof statements are becoming overwhelming quite frankly and now it comes it's incumbent for us to get the products to market that will enable.
Unable to scale and the economics that will.
Make a dent in that short read market so to speak.
Got it thanks Krishan.
Yeah.
This concludes our question and answer session I would like now to turn the conference back over to Todd Freedom Friedman for any closing remarks. Please go ahead.
Thank you as a reminder, a replay of this call will be available in the investors section of our website. Thank you all for joining US today. This now concludes our call and we look forward to updating you on our progress in the third quarter.
Yeah.
Yeah.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect have a great day.
[music].
Thanks.
Yes.