Q3 2022 Pacific Biosciences of California Inc Earnings Call
[music].
Hello, and welcome to the pack bio third quarter fiscal year 2022 financial results conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please limit yourself to one question and one follow up. Please note. This event is being recorded.
I would now like to turn the conference over to Todd Friedman Director of Investor Relations. Please go ahead.
Okay.
Good afternoon, and welcome to <unk> third 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 Tacb Dot com alright, as furnished on form 8-K available on the Securities and Exchange Commission website at Www Dot SEC backup.
With me today are Christian Henry President and Chief Executive Officer, and 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 progress estimate plans intentions guidance and others, including expectations regarding our revenue and onto assist us in their commercialization timeframe.
Not place undue reliance on forward looking statements because they are subject to assumptions risks and uncertainties that could cause our actual results to differ materially from those projected or discussed including that was inherent in developing and commercializing new products.
We refer you to the documents that we file with the SEC, including our most recent forms 10-Q, and 10-K and our recent press release to better understand the risks and uncertainties that could cause actual results to differ.
We disclaim any obligation to update or revise these forward looking statements except as required by law.
During the call. We will also present certain financial information on a GAAP.
non-GAAP basis management believes that non-GAAP financial measures combined with U S. GAAP financial measures provide useful information to compare our performance relative to forecast and strategic plans and benchmark our performance externally against competitors.
Conciliations between U S GAAP and non-GAAP results are presented in tables within our earnings release and.
In addition, please note that on todays that today's call is being recorded and will be available for audio replay on the investors section of our web site. 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 live call.
Finally, we will be hosting a question and answer session. After our prepared remarks, we ask that analysts. Please limit themselves to one question and one follow up question. So that we can accommodate everybody in the queue I will now turn to call over to Christian.
Good afternoon, everybody. Thanks for joining us today, as we discuss our third quarter results and business highlights.
Before I begin with my prepared remarks, I'd like to remind everyone that we are hosting our first investor day in New York City on November 15th.
Can find out more about the events in the investors section of our website.
On today's call, we will first recap the product announcements, we shared two weeks ago at the American Society for Human Genetics Conference in Los Angeles, then we will discuss our third quarter financial results and then I'll provide some commentary on our commercial activity during the quarter.
Then I'll hand, it off to Susan to walk through our quarterly financials in more detail and of course as always there will be plenty of time for Q&A.
When I joined the company in September of 2020, I outlined two important aspects of our strategy for growth.
First we needed to develop a new long read platform that offered our customers significantly higher throughput at much lower cost and second since we believe that understanding biology is becoming a more multi omics endeavor, we need to develop multi omics capabilities. So.
We could provide the right solution for our customers depending on the biological question that they are trying to answer.
At <unk> on October 20 for for fifth with the announcements of Rev. You went on so two groundbreaking new sequences. We demonstrated that we are well on our way to achieving these two critical aspects of our strategies.
Let's start with <unk>, our next generation long read sequencing or <unk>.
<unk> is expected to provide 15 times more data out, but then our current flagship sequencer the sequel to weak at the core of <unk> is a completely redesigned smart style, which has $25 million zero mode wave guides more than three times as many as the sequel to wheat.
Revenue of Dan utilizes up to 425 am smart cells in every run to enable the sequencing of up to 100 million single molecule of DNA simultaneously.
As a result, the system provides up to 360 gigabases of highly accurate hi Fi data, enabling researchers to not only see smbs and in bells, but also structural variation and important epigenetic data in every single run.
Finally, the run time it has been reduced by 20% to just 24 hours.
Randy I was designed with the customer in mind, including requiring fewer consumables and the ability to load. The next run well in existing round is in progress. In addition, the 20 fold increase in relative compute power Leverages, the latest Nvidia Gpus and enhances based calling with.
Google deep consensus onboard.
This makes it easier for our customers to start interpreting the data directly from the instrument.
We believe <unk> is poised to transform the whole genome sequencing market. This platform enables customers to take on large scale genomic genome projects with the accuracy and completeness of Hi Fi.
One <unk> system can sequence up to 1300 human genomes a year at less than $1000 per genome at 30 ex depth coverage or approximately $11 per gigabyte at list price.
And at lower coverage several thousands of genomes per year at just hundreds of dollars per genome.
And as H G. We hosted a packed booth over all three days and demo there Ravi of over 150 times.
Feedback from potential customers has been fantastic on social media, we had more than 10 million impressions over the course of the conference more than tenfold over other instrument providers.
Some comments <unk>.
Included one researcher calling it quote the most important genome sequences to launch since the alumina G. H two acts and club and another customer who is already placed a multi system order said quote it'll be a game changer in the medical genomics field end quote.
We've already booked multi unit orders from several customers and are actively discussing system orders with dozens more.
With excitement around ravioli several customers have asked about an upgrade path and we're pleased to have customer loyalty programs in place to support the trend their transition from the sequel to lead to revenue.
Okay.
It's clearly a seminal moment that we launched this paradigm shifting sequencer as Pac bio recently surpassed its 1000 sequencer shipped since the launch of the RF platform in 2011.
Over the past decade, Pacbio long reads have enabled approximately 400 instrument customers to accelerate their research by allowing them to view biology in ways others can't.
From assembling tela mirrored T la Mer Pan genomes to sequencing some of the largest most complex genomes on this planet hundreds of publications over the past few years reinforce our belief that the combined accuracy and length of Hi Fi are unmatched.
With the throughput power and attractive price point of <unk>, we are thrilled to usher in the next phase of Pac bio.
In addition to <unk>, we announced also a mid throughput short read sequencer based on the highly accurate sequencing by binding technology, we acquired through army on last year.
Also as a highly differentiated sequencer due to the incredible accuracy of the SPV chemistry internally, we've consistently demonstrated axiom accuracy at the Q40, plus levels, which we believe is more than 10 times more accurate than other recently announced chemistry.
<unk>.
The beta program has commenced and we've started shipping units to our beta partners. These partners include the broad Institute wildcard now and core Teva Agra science, who will be using their beta systems over the next few months.
We look forward to these partners, providing valuable feedback on <unk> performance in the field once the beta program is complete and we incorporate their feedback into the product we will finalize the development and begin commercial scale up activities. We expect to begin shipping also commercially in the first.
Half of 2023.
As a result of all these announcements we've suspended our financial guidance. So that we can understand the impact that revenue will have on the demand for sequel, two week. However, at our Investor Day on November 15, we expect to share our longer term financial targets and update you on market response to Rab.
And also.
Let's move on to our Q3 results.
We reported $32 3 million in revenue, representing a 7% year over year decline with changes in foreign exchange rates driving 2% of that decline.
The decline was driven by lower sequel to we see sales, we believe some customers deferred their instrument purchases in anticipation of a new product launch and that this impact was greater than we anticipated in the quarter, particularly in.
The Americas region.
Other drivers of the instrument shortfall included customers deferring purchases due to lab space issues and funding delays.
We expect that meant we expect many of the current and deferred opportunities to migrate to revenue. However, we anticipate.
Sustained, albeit lower demand for sequel to be going into the fourth quarter and into 2023.
Since equal two's launch nearly four years ago, we've advanced the platform with the Tuohy upgrade significantly reduce the secondary analysis time, and lower data storage needs by up to 90%.
Additionally, we launched new kits that reduced DNA input requirements fivefold seamlessly integrated methylation and methylation, calling on every run and released several application protocols and workflows for AAV Sars Covid, two sequencing and single cell transfer.
<unk> as you can see we built a robust ecosystem around sequel to lead it remains an extremely reliable and powerful sequencer at an attractive entry price for customers looking to do lower throughput long read sequencing.
Although we shipped fewer instruments than we were forecasting we continue to expand the sequel to a customer base with over 40% of our instrument shipments in the quarter to new pack bio customers in the past four quarters, we have on boarded approximately 65 new instrument customers.
Sequel, TUI success in attracting new users gives us confidence that the throughput economic and workflow improvements of <unk> will even further catalyze the next wave of new customers to pack bio.
In the third quarter. We were also pleased to report record consumables of $16 1 million, an increase of 10% year over year.
We saw pull through steadily increased sequentially as customers in China increased utilization in EMEA booked record consumable sales.
Outside of new sequencing prep platforms, perhaps what our customers are most excited about is our recently launched mossy kit and its game changing potential for transcriptome mix and single cell research.
This new kit Leverages Tenex genomics single cell expression technology and allows customers to achieve a 16 full throughput increase compared to regular single cell ISO seek libraries.
Despite being an important component in understanding genetic variation and disease, we still know so little about isoforms because of short read limitations in sequencing them at their full length.
With the combination of throughput and cost improvement provided by mossy, coupled with a 15 fold improvement with revenue. We believe hi Fi will be the go to technology in single cell transcript telmex.
In response to this launch a principal investigator from a major University told us that he believes that quote it is clear that in the next few years long read sequencing will become the de facto gold standard in transcriptome ex research.
Over the past couple of years, we've been broadening our collaboration to deliver customers turnkey solutions for understanding biology and.
An example is the release of the off the shelf target enrichment panels for long read hifi sequencing in collaboration with twist Bioscience.
These panels include nearly 400 or 400 gene panel covering medically relevant genes in regions that are difficult to sequence using short read methods, including jeans tied to spinal muscular atrophy, alzheimers and cardiovascular diseases.
We are also offering another plan also captured 50 pharma could genomic genes by.
<unk> targeted panels. In addition to whole genome workflows, we can address a broader set of customers across human genomics.
Further we also launched the tandem repeat genotyping tool or <unk> target too.
To allow scientists to fully characterize the sequence and methylation status of tandem repeats across the genome.
Genetic variation in tandem repeat regions has been linked to many neurological and intellectual disorders, such as ALS Huntington's disease and fragile X.
Turning to commercial highlights in our human <unk> applications, which again in Q3 represented over one third of our product revenue, we delivered additional sequel to ease to support multiple customers and their sequencing for a large population genome scale project in the United States.
Additionally, we shipped multiple sequel to even a competitive deal to a customer in the middle East planning to launch a large population scale program. We expect this customer to transition to <unk> over the next year to accelerated sample volume.
As previously mentioned, we expect some customers to continue sequencing on their sequel to platforms like DNA link in Korea, who purchased a sequel to lead to begin sequencing for the Korea disease control and prevention agency and plans to use high by viral to sequence 10000 Sars Kobe.
Two geos.
And to Vero diagnostics, a new pack bio customer who purchased the sequel II in the third quarter to support its microbiome DTC test offering and could potentially scale. This system to provide tens of thousands of tests per year.
We also expect AAV sequencing applications to continue to use the sequel to we with the addition of sequel to ease in the third quarter shipped to several customers in this application area.
Lastly, I'd like to welcome the members in the newly created scientific Advisory Board, Dr. Euan, Ashley and Doctor Jodie Puglisi of Stanford University and Dr. Shane J <unk> from the University of Washington.
These are known leaders in biology, and chemistry will provide critical feedback and direction to our product roadmap.
We had our first meeting this past week and I was delighted to hear the enthusiasm for Pac bio's, new platforms and what they believe can be accomplished in many diverse genomics applications.
Now with that I'll hand, the call over to Susan to talk about our financial results in more detail Susan.
Christian as discussed we reported $32 3 million in product and service revenue in the third quarter of 2022, which represented a decrease of 7% from $34 9 million in the third quarter of 2021.
Intuit revenue in the third quarter was $11 4 million a decrease of 28% from $15 9 million in the third quarter of 2021, we delivered 34 sequel II systems. During Q3 growing the installed base to 494 equal to in QE systems as of September 30.
<unk> 2022.
Turning to consumables revenue of $16 1 million in the third quarter grew 10% from $14 6 million in the third quarter of last year and was a record for a buyer.
They go to and chewy consumables represented approximately 90% of our total consumable revenue in the third quarter with the rest from older systems and other consumables.
Annualized pull through per system on the sequel to until we installed base in the third quarter was approximately 125000.
Consumable revenue in China, continuing to improve partially offset by newer parts of our customers being slower to ramp and certain customers dealing with sample delays.
No global supply chain constraints related to auxiliary equipment has had an impact on new instrument ramp time and one of the other reasons noted with a lack of nitrogen at the time of installation, which we're pleased to say, we will not be a requirement with our new radio platform.
Finally service and other revenue grew $4 8 million in the third quarter compared to $4 4 million in the third quarter of 2021, reflecting our growing installed base.
From a regional perspective Americas revenue of $16 7 million declined 14% compared to the third quarter of 2021, primarily driven by lower sequel, TUI placements as customers delayed purchases due to lab space limitations funding and deferred orders due to the anticipation of a potential.
New sequencer lines.
The region also experienced lower utilization at certain customers dealt with sample shortages and as newer customers take longer to ramp.
Asia Pacific revenue of $9 $6 million grew 4% over the prior year, primarily driven by a recovering in China post Lockdowns the region posted its highest consumable quarter in nearly five years.
Lower instrument asps, partially offset the growth in consumables.
Finally, EMEA revenue of $6 million was 6% lower compared to the prior year period with currency fluctuations in the pound Sterling and euro driving a 10% headwind. The region was most affected by FX, which represented approximately a 10% headwind compared to Q3 2021.
The region posted record consumables in the quarter, particularly at the large plant and animal sequencing project regained momentum.
Moving down the P&L GAAP gross profit of $13 5 million in the third quarter of 2022 represented a gross margin of 42% excluding amortization of intangible assets third quarter 2022, non-GAAP gross profit of $13 7 million, representing a gross margin of 42%.
Compared to a non-GAAP gross profit of $15 7 million or 45% in the third quarter of last year.
The decrease compared to the third quarter of last year was partially driven by lower instrument volumes and lower instrument asps.
Partially offset by higher consumable volumes.
GAAP operating expenses were $88 2 million in the third quarter of 2022, excluding change in fair value of contingent consideration of $4 3 million and amortization of intangible assets non-GAAP operating expenses were $83 8 million. This represents a 42% increase for non-GAAP operating expenses.
$59 1 million in the third quarter of last year, reflecting a full quarter of operating expenses from <unk> and increased head count.
In terms of head count we ended the quarter with 771 employees compared to 728 at the end of 2021.
Operating expenses in the third quarter included total noncash stock based compensation of $18 1 million compared to $26 6 million in the third quarter of last year.
Excluding merger related expenses non-GAAP operating expenses in the third quarter of 2021 included $15 1 million of noncash stock based compensation.
GAAP net loss in the third quarter of 2022 was $77 1 million or <unk> 34 per share excluding.
Excluding amortization of acquired intangibles and change in fair value of contingent consideration and non-GAAP net loss was $72 5 million, representing 32 per share compared to a GAAP net income at $16 5 million and a non-GAAP net loss of $47 2 million representing 23.
<unk> per share.
Now turning to our balance sheet, we ended the third quarter with $834 million in unrestricted cash and investments compared with $899 million at the end of the second quarter of 2022.
Inventory balances increased in the third quarter to $43 5 million, representing one nine inventory turns compared with $36 1 million at the end of the second quarter of 2000 accounting two representing two three inventory turns the increase in inventory primarily reflects purchased the purchases of <unk> and also inventory.
Coupled with lower than expected sequel to mirror shipments.
Accounts receivable decreased in the third quarter to $22 8 million, reflecting a DSO of 71 days compared with $27 1 million at the end of the second quarter of 2022, reflecting a DSO of 70 days.
Moving to guidance as a result of our announcement of our latest high throughput long read sequencing system expected to ship in the first quarter of 2023, we withdrew all prior 2022 financial guidance.
We look forward to connecting with you next week on November 15 at our Investor Day in New York, where we plan on providing additional details related to our longer range financial outlook.
With that I will turn the call back to Christian Christian. Thank you Susan it's been an exciting time for Pac bio in the field of genomics, we're months away from the first revenue shipments and from what we believe represents the biggest technological milestone in long read sequencing.
We hope to see you all next week as we dive deeper into our strategy products markets and financial outlook at our inaugural Investor Day, I will now turn the call back to the operator to begin operator.
Thank you very much we will now begin the question and answer session.
I ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our.
Roster.
Okay.
Today's first question comes from Tejas Savant with Morgan Stanley . Please go ahead.
Hey, guys good evening.
So maybe a question one for you.
Can you just share some early customer feedback on the on the relatively high price point for reveal.
And just some perspective on how you see the degree of.
Discounting and freedom sort of play out here over the next 12 months, particularly in light of the macro and the worsening FX headwinds.
Sure. Thanks, Hey, Jess Yeah, you know so I didn't really get a lot of pushback on the high on what you would call to be a high price point I think people saw the incredible value.
An opportunity associated with.
<unk> long read sequencing for 10, 11 Bucks a G at list.
And getting lower than that and genomes at scale. So I didn't really get any pushback hardly at all now we do have.
As with any product transition there's always.
Customers that just bought at the end of the third quarter or people that bought it in 2022, and so we were very thoughtful about that and put together pretty aggressive.
Customer loyalty discounts that would account for them.
And give them an opportunity to get into <unk> and <unk>.
Still that still get some power out of the sequel, II until <unk> as broadly available or available to them and so what that what that really did was it said if you bought in 2022, you're going to get a bigger loyalty discount than if you bought in 2021, we tried debate.
Basically recognize the newness of the system and so far we haven't had much pushback.
So on that on that on that discounting scheme and so I think in the long run you know youre going to see discounting less than what we discount the sequel to me.
But and we will but for the trade not trade ins, but for the loyalty discounts. So I want to be very clear, it's not a trade in program.
The loyalty discounts you will see customers that bought most recently.
Get a very good price.
And we're happy to do that because that was part of the strategy is to enable the market with a larger installed base. So that we could go upgrade that installed base to revenue as quickly as possible.
Got it that's helpful and.
And then one on the on the consumable client and I'm not sure how much visibility you have on there at the moment, but just curious as you think about sort of the ramp down in sequel consumables, particularly given some of these larger studies that are already in flight.
Are you thinking about the consumables line winding down for the legacy platforms and then on the other side of that can you shed some color on the on the theoretical maximum pull through of <unk> coverage in the RVO is it fair to think of it as a.
Like a low to mid single digit multiple of 175000, a year that you saw on the sequel to east.
Yeah, I would just go backwards, yes, that's probably right. It will depend obviously on how people think about coverage one of the things that we've found and we've just been doing a lot of work on this year it's understanding.
What long read coverage, you need using hi Fi relative to the traditional 30 X metrics and.
As with anything it really depends on your application, but if youre doing population scale genetics.
Kind of large projects.
You could go anywhere from you know.
Can we see some customers talking about 10, I'm talking about as high as 20 X.
So you can kind of think about an increase in scale relative to even that 30 ex paradigm, but that being said.
From a from a pull through perspective, you talked about a multiple of of sequel to me I think that's the right way to think about it when you think about what's the Max opportunity.
You can you can do the math.
Four hour run time, and so you probably think youre using using the system 50 weeks a year and you can multiply and just start with.
Start with the list price and then apply whatever whatever discount metric you want to use for a price per genome and that probably can give you.
Give you enough to do the math to figure that out.
But we expect with respect to the ramp down.
To me will be continued to be used for quite a long ways from here.
We will be scaling up Rev V L. A.
And we will have I suspect we will have we've had an incredible amount of interest already and so we will have a lot of customers.
Upgrading their systems, it's too early to kind of gauge what that ramp down in consumables.
It looked like specifically.
But that ramp down would probably occur more in the back half of next year, then than the front half.
So that's one thing to talk about and.
I think next week at the Investor Day, we will try to provide some more detailed color on that kind of how we see that playing itself out because you're right, it's going to be a bit of a nuanced thing for a few quarters here as we get the product launched and shipped and people convert their samples and then.
<unk> scale up on new projects because people are imagining things they could never do before and that's why that's why the world. So excited about radio quite frankly.
Got it and one last one for me on the omnium just on that sort of price per insight value prop that you've talked about in the past question.
Think about sort of the higher accuracy, enabling lower depth of coverage can you just share some thoughts on what that means for consumable pull through or do you expect that the sample volume will inflect enough to offset some of that dynamic there.
Well I think the sample volume will clearly have a big.
No a big impact there and I think it's too early to kind of game out.
Throughput so to speak or the pull through because it's going to really depend on how the customer decides to use the system if they use it for.
Kind of doing what they do today, but just with less coverage that will result in in more samples, but if they do it in a way that they want to find variant et cetera, even deeper.
That they can't find with any other platform that will result in more sequencing and so either way it means samples coming to the platform and a unique opportunity for us in the area that we're that we're pointing.
The answer is system and so as we as we get closer to the actual shipments we will try to provide as much color as we can and then it will be one of those things where it will get to see how our customers leverage this major advancement inaccuracy.
Very helpful. Thanks, guys I appreciate the time.
Yep.
The next question comes from Julia Qin Mr. J P. Morgan. Please go ahead.
Hi, good afternoon. Thanks for taking our question. So regarding the reveal a question I was wondering a bit more color on the order book in terms of the number of instrument orders. He played so far and what's the mix looking like between different applications Pops, each human genome in animals, and how does that compare versus your expectations.
Well I think yeah, I mean to be honest the expectations.
So far as blown my expectations away and that's just.
That's to be that's.
Honestly the truth when you think about we had 10 million social media impressions last week.
Two weeks ago at the top.
Conference.
It just showed showed me how much demand there is for long read sequencing how much demand there is for a new paradigm of of completeness and a new paradigm of seeing the whole picture those messages seem to resonate and our sales team at <unk> was extremely busy which.
Which was.
Really incredible to see we as I've said, we do have several multi unit orders already on the books I'm not going to share all the details today.
Probably we will share some more details next week at Investor day, but even then.
It's really all about this building demand curve and setting us in a whole new trajectory.
For the future of the company and and.
The early indication is that you know.
All of those all of those vaccine to be bearing themselves out.
Got it great and then in terms of the legacy platform, how should we think about the residual demand.
Is the idea that you'll still keeps equals two E.
No.
Maybe an easier entry point when you do not lead customer and how should we be thinking about the mix of the legacy business will be on the instrument mix on demand going forward.
Yeah. That's a good question Julien so we we in the prepared remarks, we tried to give you a little color there on the fact that theres still some applications where we're.
Where the sequel to me will be quite adequate and quite frankly, a great platform things like AAV and <unk> and even some of the power you get using them off kit on isoform sequencing you get really nice.
You can get really nice scientific results and so there are going to be applications, where sequel, TUI will be a very useful we do expect though that <unk> will become the predominant platform that we sell over in 2023, and but we do expect.
A.
Kind of smaller level of kind of consistent demand throughout 2023, and that's probably about as far out as I want to talk about right now for.
For the sequel to the platform. So we're definitely going to keep supporting it keep.
Keep all of our existing customers, who are using it happy and making.
Making sure the platform is robust and doing all the things that needs to do.
But there certainly is a big push in the market and the strong demand for radio.
Got it that's helpful and lastly from me could you talk about your manufacturing capacity or rather you and also effectively and how to think about the ramp in the near term.
Yeah, So actually one of the agenda items at D&O at Investor Day is is operations because I knew this question would come.
And so Mike go that far beat our SVP of manufacturing and operations will give you much more detail on that next week, but you know what you. What you can be assured of is we've had a lot of experience with <unk>.
Managing platform transitions over the years.
This team of executives and so we are appropriately scaling up.
Both revenue.
And getting ready for answer so that we can meet the demand. However, it's likely when we start at the beginning we will ship a bolus of units make sure they get into the market and our robust and doing what they need to do and then and then scale from there in other words, we don't want to ship all of the demand.
Necessarily in one quarter, we want to make sure we have a very very smooth launch and we've really worked hard on getting the supply chain ready for broad commercialization I think thats one of the key competitive advantages we have over <unk>.
Particularly the emerging sequencing companies.
To meet all of the demand in and so that's probably I don't want to say about it right now julianna.
Okay helpful. Thank you very much.
Yep.
The next question comes from Dan Brennan with Cowen. Please go ahead.
Great. Thanks.
Thanks for taking the questions look forward to next week.
I'm just wondering back to you to change asked this question touches on the radio Pulsar, obviously hear a lot more next week, but it sounds like.
The theoretical upside here is dramatically higher with you now over $1 billion potential annualized pull through and it sounds like Christian at this early juncture, saying.
Saying that the actual pull through could approximate two to threefold or several times. What you are seeing on sequel wanted people to certainly seems like a reasonable starting point I mean, not out of the gate, obviously, but as you know as the installed base start using the product.
Well I think Dan.
We're probably we're not going to comment on that today I think we have to see how.
Now.
How things unfold, obviously the math.
Being able to run for four smart cells at a time 24 hours a day seven days a week gives us an incredible opportunity and it's actually really really important to driving the gross margin story over time, because that product mix will change where consumables, we become a much larger portion.
But on today's call, we're not we're not going to speculate on.
Exactly what that number is going to look like in terms of pull through nor the relative revenue mix.
I think we've learned at least.
I've learned over the course of my career that you have to watch the consumable pull through for several quarters before you kind of have the confidence that you can nail down what that is but there is no doubt that <unk> gives us a new is an inflection point and there is also no doubt that.
Theres elasticity of demand in the market for laundry and samples and Theyre going to come from two spots that are going to come from new demand for new projects and transitioning others transitioning from short reads to long rates because of the economics.
You know are such that they can see the whole picture.
Sure economics that they can afford out of scale. They can handle so I think theres plenty of samples in the world for us to go after.
And we'll see how that transitions, you're right and as you said right at the beginning that's not really the metric. It's really when you look out four quarters from launch, let's say how are we doing at that point.
Hopefully that helps a little Dan.
Yes, definitely and then maybe just one other.
We can look at what the IRS to S. One and this one that has to happen, but in terms of the number of placements that have occurred in the pull through that's occurred but you talk about a whole new trajectories for the company I guess, it's a.
Long way of saying well you know when we look at the growth in the installed base and how each successive box expanded our installed base by kind of by a factor of maybe one of them they are twofold.
Is it fair to say like maybe the old playbook to throw it out the window. Because now you are at a point, where you really are like maybe it's not linear.
Tapping into new.
New markets and new opportunities that you really couldn't penetrate even with the RSV F for me that's true.
Yeah, I think that I do think that it is a.
A new playbook for sure.
For a couple of different reasons. The first reason is that we spent the first part of my tenure here building out a new commercial infrastructure that is prepared to hit the whole market.
Immediately as opposed to what the company has done in the past and I think that can't be underestimated all of this strategy.
All of this is very consistent with the strategy that I've laid out for everyone from the first day I got here was build a commercial infrastructure build a multi product portfolio and then collaborate with others really well. So that you can demonstrate the power of Hi Fi and this is just another part of that and so I fully expect.
The commercial organization.
To leverage that to give us a stronger inflection and it's happened in the past and I do also think that.
The market itself is so much bigger than it's ever been and so the and the interest in hi Fi in particular, because it is so accurate and provides all of the benefits.
Of completeness and structural variation in epigenetics, which are all going to be really important to disease research then translate and translational research in the actual clinical application, where we get that long term durability and so yeah I do think I think you've got to change the playbook.
Because we've changed the company pretty significantly.
Great. Thanks Christian.
Yeah.
The next question comes from Kyle mixing with Cantor. Please go ahead.
Hey, it it's complex from Canaccord. Thanks, guys for the questions I guess, just starting first with the fourth quarter and then going to the.
The new products. So on <unk>, just any qualitative comments Christian on customers that were in your <unk> or even like <unk> 23 sequel to order funnel that you think like have converted to reveal or like will convert and you pulled guidance. So in the fourth quarter could be strong could be why we don't really know for sure. If there is a shortfall how much of that do you expect will be the macro pressures versus like delayed.
Purchases.
Yes.
Yeah.
Great question, Kyle I think I'll start with the kind of the how does how does our fourth quarter funnel look today versus it did two weeks ago and I would say that <unk> has everyone is is going back to see if they can find the additional capital or many people are trying to find the additional capital.
So that they can purchase radio.
And so I think there is an impact there there still is sequel to ease in the funnel that we expect to close in the fourth quarter and.
We're pretty confident we'll close as.
As sequel to he's not Rev yields and whether they get across the goal line every quarter, it's a new adventure.
But we're but what we're seeing kind of a base level line of demand for sequel to me, but obviously predominant demand.
For <unk>, we've got.
Lots and lots of quotes in in the.
Out there already and it's a real testament to our commercial operations group. They were ready to go as soon as I got on stage.
At the Novo and we were quoting effectively that night.
Already which was which was pretty cool.
When I think about Q4 Q1 that we still have we're doing all of this under a pretty negative macro backdrop, we still have.
We still have inflation fears and interest rates have gone up a lot. So people that are leasing their systems.
That is getting more expensive for them.
<unk> continues to be challenged just all around even and as Susan pointed out in her remarks.
Erika as in Q3 wasn't it.
It wasn't really a great quarter for us in Q3 for principally macroeconomic and kind of the the whisper that new products were on the horizon and so we had to manage that we knew that day it was going to come and.
And we felt very strongly that if we could announce the new products in in early in Q4 that would give people time to get their budgets ready for next year. So there was a lot of strategy behind figuring out how to do this in Q4, if we could and.
And so that's where we are.
I think I kind of answered your question and they're pretty circuitous way, but.
It is a combo of macro factors still gonna be overhanging us I think.
In the well into next year I don't I don't I don't really see that the one bright spot is I do think China starting to open back up we talked about strong consumables there.
And there's definitely strong demand for <unk> in.
In APAC no no question about it so we'll see how that goes.
Okay that was great thanks for that and.
<unk>.
At <unk>, there was a lot of excitement and demand I guess for revenue in France up based on the last two weeks since the announcement can you just talk about like the customer types that you think review has unlocked kind of like beyond the legacy sequel to user base and then with respect to the synergies with <unk>. So like how does the dynamic that I just kind of mentioned about how kind of help you can get it.
The door. There so are any of these incremental customers like obvious users of our platform, which aren't so that wouldn't have been a touch one previously.
I think it's I think it's a little bit of everything I mean, basically we're just broadening our reach and our footprint pretty generally across the space, but I can I can take a specific example of population scale programs that are either underway or or being contemplated now.
That.
Wow, you know Ravi I should be a bigger part of that and then they ever thought maybe Pak <unk>.
Should be or if we'd be even in the in the game at all so I would say that's one really exciting area I do think that kind of continued translational research in rare and undiagnosed disease.
This gives better price points faster turnarounds.
Uh huh.
Better more data.
And so I think that there is real opportunities there and we have had a lot of customers.
Ask us about.
Two things the <unk> the ravioli sequel to the bundle because that's a short term program that we have so people can get into the sequel to me we've had some interest in that.
But also a lot of interest in the in the radio.
The radio also bundle and what's cool about that is that at.
List price, it's still cheaper than some of our competitors larger larger systems and gives you a best of breed capabilities in long and short read Tonight I don't think that's lost on customers I see I think.
They have a view of Wow, if I can get best of breed solutions and.
Then from one company is that it's actually a pretty intriguing opportunity, we'll see how it actually plays itself out as we get on so you know closer to actual shipments.
But there definitely is a lot of excitement about that.
Perfect. Okay. Thanks, Chris I appreciate it.
Yeah. Thank you Carl.
This concludes our question and answer session I would like to turn the conference back over to Todd Friedman for any closing remarks.
Thank you as a reminder, a replay of this call will be available on the Investor website section of our website. Thank you for joining US. This concludes our call today and we look forward to seeing you next week at our Investor Day in New York. Thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yeah.