Q4 2022 Pacific Biosciences of California Inc Earnings Call
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Hello, and welcome to the Parker Bio fourth quarter 2022 earnings 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 today's presentation, there will be an opportunity to ask questions to ask a question you May press.
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So withdraw from the question queue. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Todd Friedman Director of Investor Relations. Todd. Please go ahead.
Good afternoon, and welcome to pack Bio's fourth 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 on the investors section of our website www dot Tacb dot com alright furnished on form 8-K available on the secure.
You can exchange Commission website at Www Dot C C dot Gov.
With me today are Christian Henry President and Chief Executive Officer, and Susan Kim Chief Financial Officer.
Before we get begin I would like to remind you that on today's call, we will be making forward looking statements, including statements regarding predictions progress estimates plans intentions guidance and others, including expectations regarding our revenue an auto system and their commercialization timeframe.
Future availability usage accuracy coverage advantages quality or performance.
Our benefits or expected benefits of using pacbio products or technologies, including our revenue and auto systems.
You should not place undue reliance on forward looking statements because they are subject to assumptions risks and uncertainties that could cause our actual results to differ materially from those projected or discussed including those inherent in developing and commercializing. These products. We refer you to the documents that we file with the SEC, including our most recent forms 10-Q and <unk>.
In a 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 non-GAAP basis non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to.
To supplement an understanding of the company's operating results as reported under U S. GAAP 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 Rec.
Reconciliations between historical U S GAAP and non-GAAP results are presented in tables within our earnings release for future periods. We are unable to reconcile the non-GAAP gross margin and non-GAAP operating expenses without unreasonable efforts due to the items indicated in our earnings release.
In addition, please note 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.
Busters 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. So that we could accommodate everybody in the queue with that I'll turn the call over to Christian.
Thank you Todd good afternoon, and welcome to our fourth quarter results and business highlights call.
For joining us today, we have a lot of exciting news to share and I'll kick things off with an update on our performance in the fourth quarter and 2022.
I'll, then delve into some exciting developments, we've seen in the past few months and wrap up with an update on our market segmentation.
Susan will then provide a more in depth look at our financial results and our guidance, but first a quick recap on revenue are more transformative law read sequencer today.
We are just a few weeks away from broad commercial availability of <unk>, which is scheduled for next month. Currently we have dozens of instruments on the manufacturing floor in our Menlo Park facility and at this point, we don't see any serious supply chain constraints as a result, I expect that we'll ship it.
At least 25 Ravi assistance to customers prior to the end of the quarter.
We will continue our manufacturing scale up through the second quarter and I believe we will be at our planned production rate for 2023 by the end of Q2.
This is good news as the radio platform enables our customers to take on projects in the thousands to tens of thousands of samples.
With this scale, we believe <unk> will be a game changer for scientists and clinical researchers what would have taken years or even decades with long read sequencing in the past can now be completed in a fraction of the time and cost with the radio platform.
For years, the scientific community has relied on short read genome exome, yielding valuable insights into the human genome. However, despite millions of short read genomes being sequenced much of the genome remains unacceptable today and our understanding of our 20000 plus Chi.
Genes and their role in driving disease is still quite limited.
Further we now know that phenotype does not solely determined by genes as mutations in non coding regions can cause certain cancers are understanding of the impact of methylation on genetic disease is in its earliest stages and we also recognize that the importance of both sequence length.
<unk> accuracy in understanding disorders caused by tandem repeat expansions.
It's clear that to better understand the human genome researchers must be able to interrogate its full complexity with high accuracy, we expect that sequencing with the radio platform will provide researchers with the most complete and accurate view of the genome in a single assay.
With ready Oh, researchers will be able to interrogate the genome from Tela Meredith Tela mirror obtain phasing information structural variation epigenetic profiles and of course single nucleotide variance all.
All at the scale and affordability required for large projects.
The early excitement around revenue and the immense possibility for genomics support our belief that we can grow our revenue towards our goal of a compound annual growth rate of 40% to 50% through 2026.
As we work to achieve our revenue growth targets, we see 2023 as a year of product transition.
We expect many sequel, II and TUI users will migrate over to Ravi <unk> over the course of the year.
These transitions are difficult to precisely predict and as a result, we may see some temporary variability with respect to consumable revenue on the instrument side of our business. We expect to see continued strength for <unk> throughout the year. Additionally, we do expect to place a modest number of sequel, II systems and <unk>.
As a result, our initial guidance for 2023 is that we expect to achieve between $165 million to $180 million in revenue, which represents growth from 29% to 40%.
Now turning to our results in the fourth quarter Pac bio achieved revenue of $27 4 million, a 24% decrease compared to the previous year's quarter.
The decline in revenue was primarily driven by the announcement of the launch of <unk> in the fourth quarter, which impacted orders and shipments for sequel to wheat we.
We delivered 18 sequel to east.
Systems during the fourth quarter, bringing our total installed base to 512 sequel to and to E systems as of December 31.
However, what truly sets this past quarter. Apart is that we received orders for 76 radio systems, a record breaking start for Pac bio launch and far surpassing our expectations. We have seen a growing excitement around the potential of <unk> as indicated by the positive feedback we have received from our.
<unk>.
At the region recent E. G. P. T conference many customers told us how <unk> can help them scale their research and interrogate the genome at unprecedented levels.
At the plant and animal genome conference in January we saw a deep appreciation for the importance of hifi sequencing and the enthusiasm for higher output long read sequencing in the community.
We hosted a pact workshop, where researchers from Cortez are you.
UCLA and Hudson Alpha discussed how pacbio sequencing advances their work and average genomic biodiversity in plant evolution.
We are thrilled to announce that the first early access revenue as in route to researchers at the broad Institute over the next few weeks the team at the broad Institute will perform their first internal sequencing runs on the platform and in March we expect to begin full commercial shipments.
<unk> has already ordered 10 Ravi assistance to scale long read sequencing for programs like the NIH as all of Us program.
To put that in perspective 10, Ravi assistance has the equivalent sequencing power up 150 sequel to ease we look forward to supporting this project and more population scale research initiatives to come.
While on the topic of all of US I wanted to discuss a recent preprint from researchers involved in the program, which highlights the utility of long read sequencing.
The authors noted that hifi reads produced the most accurate results for both small and large variance and concluded that quote long reads have widespread value for generating complete and accurate variant call all calls and quote.
The study also showed the pack bio as best in class for calling variance even at lower coverage than other technologies.
This supports our belief that even if Pac bio genome at 10 full coverage can be more than sufficient for many research projects at.
At 10 fold coverage Arabia can sequence 12, human genomes in 24 hours or almost 4000 genomes per year at a list price of approximately $330 per genome with methylation included.
The demand for highly accurate long reads is increasing as evidenced by the recognition of long read sequencing as nature methods method of the year with innovative studies utilizing packed buyers long reads from the vertebrae genome project T linearity to Teal American source them.
And the human Pan genome reference consortium, we believe Raphael can drive further discovery with its enhanced throughput and cost effectiveness.
Our existing customers have also recognized the potential of radio to accelerate their research for example, Mohammed bin Rashid University of Medicine, and Health Sciences or M. B are you purchased sequel to ease last year and ordered multiple radios in the fourth quarter to see.
<unk> for a very large scale research project in Dubai.
And the welcome Sanger Institute, a long time user of Pac bio for plant and animal research now plans to increase its use of long reads in human applications, such as single cell transcript Omics and variant detection with the added power of revenue.
Moving onto on so our beta program is in full swing at the broad Institute Cortez, the agro science and well Wild Cornell.
Each of evaluating how answer is extraordinary accuracy can benefit their various genomic applications feedback. So far has been excellent with one partner sharing that they've been extremely impressed by answer those levels of accuracy and another saying how highly accurate reads will be transformative for many genomic.
Applications, including oncology.
We were pleased to announce that we're on schedule to begin commercialization of <unk>. So in the second quarter with a launch specification of $400 million to $500 million reads and 200 cycle and 300 cycle kits.
The expected specification for accuracy of over 90% of the bases at Q40, plus and the potential to reach Q 50, plus through improved library preparation, we believe answer will set a new standard in the industry.
The system has a competitive list price of 259000 with the 300 cycled kit listed at $1995.
We're collaborating with workflow partners across the short read ecosystem, and we will provide library prep conversion kits. So that any current short read assay can move directly onto the odds of platform.
Regarding its capabilities, we have validated answer performance through various testing methods, including the cerus seek cell free DNA control with adjuvant library prep and capture and our conversion kit.
Internal results demonstrate that answer is two times more sensitive in detecting variant allele frequency of 0.05% and is 1.4 times higher sensitivity, even when applying duplex <unk> at four times the coverage with other short read sequencing.
Technologies.
These performance metrics highlight the exceptional value that also can bring to the market offering high accuracy and sensitivity to meet the demands of various genomic applications, including cell free DNA research.
In addition to cell free DNA in collaboration with Tenex genomics also achieved 99.8% of the basis at Q30, or better for single cell RNA reads, showing the potential use of ultra high accuracy in single cell workflows.
Yeah.
We are dedicated to providing our customers with comprehensive and streamline solutions for their sequencing workflows. This includes offering a range of tools and workflows that are designed to support their success from automation to sample preparation and informatics. Our recent initiatives include expanding our mossy program.
To support new assays on the sequel to in two weeks and radio sequencing systems. These kits, which build on the success of last year's Mossy Concatenation technology for single cell isoform sequencing includes 16 S and bulk ike's ICSC and will be available later this year.
Additionally, our bioinformatics team is continuously improving interpretation tools such as the recently launched paraphrase tool that helps characterize the dark regions of the genome linked to spinal muscular atrophy.
On top of our internally developed products and tools, we're partnering throughout the ecosystem to make it more plug and play as such we recently introduced the pack Biocompatible program designed to make Pacbio sequencing more accessible which includes partners across all ends of the sequencing workflow.
From automation and sample and library prep to secondary and tertiary analysis tools.
Moving on I want to share an update on our internal market segmentation from the previous year at 2022, human genomics was the largest portion of our business accounting for nearly 40% of our revenue.
Customers. In this segment include gene Dx, who recently ordered a radio to target difficult to sequence genes and sequencing human whole genomes for rare diseases with previously inconclusive results and Radboud University has leveraged packed biotechnology to make numerous genetic discoveries and.
Plans to ramp up from hundreds to thousands of genomes using revenue.
Beyond human applications, we expect revenue to be utilized in applied markets like plant and animal genomics, which made up about 25% of our revenue in 2022 in this market customers like Cortez Agro science are utilizing pack bio study plant genomes and identify microbial infection.
Diseases that affect these plants, so they can improve crop yields and drive agricultural sustainability.
Plant and animal genomics also include research programs like the Darwin tree of life project, which recently celebrated sequencing, it's 500, Hi Fi genome.
The program aims to sequence 70000 species of eukaryotic organisms in Britain, and Ireland, and we expect revenue to enable the researchers to progress towards this goal.
Additionally, infectious disease in microbiology, which represented 20% of our revenue in 2022 includes customers like Bioengineering lab, who plans to use radio for meta genomics to discover and characterize communities of microbes for industrial in biomedical applications.
About 10% of our 2022 revenue was from oncology applications with <unk> highly accurate long reads, allowing researchers to uncovered novel isoforms, fusions and structural variance with exceptional accuracy.
Looking ahead, we expect to address more of this large market with answers potential for extraordinary sensitivity in liquid biopsy applications.
The remaining portion of our revenue comes from other emerging applications. This includes gene editing and gene therapy applications. Finally, we are pleased with the support and interest from investors in our equity raise last month and an upsized offering we raised $201 million in gross proceeds which will further bolster.
Our ability to grow our business and drive towards our goal of positive cash flows during 2026 with that I'd like to turn the call over to Susan to discuss our financials and guidance in more detail Susan Thank.
Thank you Christian as discussed we reported $27 4 million and product service and other revenue in the fourth quarter of 2022, which represented a decrease of 24% from 36 million in the fourth quarter of 2021.
<unk> revenue in the fourth quarter was $6 1 million a decrease of 62% from $16 2 million in the fourth quarter of 2021.
The decline in revenue was primarily driven by the announcement of the launch at <unk> in the fourth quarter, which impacted orders and shipments for sequel to weak wheat.
We delivered 18 sequel to eat systems during Q4 growing the installed base to 512 equal to and TUI system as of December 31, 2022.
Turning to consumables revenue of $16 7 million in the fourth quarter grew 11% from $15 1 million in the fourth quarter of last year and was a record for pet buyout.
Sequel to until we consume votes represented approximately 94% of our total consumable revenue in the fourth 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 fourth quarter was approximately 127000.
We expect sequel to Anna Sui pull through to decline throughout 2023, as we begin shipping radio and customers transition to the new system.
Finally service and other revenue was $4 6 million in the fourth quarter compared to $4 8 million in the fourth quarter of 2021.
From a regional perspective Americas revenue of 12.1 million declined 36% compared to the fourth quarter of 2021, primarily driven by lower sequel to two replacements with the recent announcement of the radio lives.
Asia Pacific revenue of 10.2 million grew 23% over the prior year. The region continued to recover with growth from both consumables and sequel, II system sales compared to the prior year period.
With the launch of radio several customers also purchased the revenue a C corp to a bundle to progress their hifi sequencing volume with plans to further expand upon the receipt of their first radio.
Finally, EMEA revenue was $5 2 million was 43% lower than the prior year period.
Also primarily driven by lower sequel to two replacements and.
In addition currency fluctuations in the pound Sterling and euro drove a 7% headwind in.
In contrast, the region posted another record consumables quarter.
Moving down the P&L GAAP gross profit of $5 1 million in the fourth quarter of 2022 represented a gross margin of 19% compared to a GAAP gross profit of $16 8 million in the fourth quarter of 2021, which represented a gross margin of 47%.
Fourth quarter 2022, non-GAAP gross profit of $5 3 million, representing a non-GAAP gross margin of 19% compared to a non-GAAP gross profit of $16 9 million or 47% in the fourth quarter of last year.
GAAP and non-GAAP gross profit in the fourth quarter reflects lost on purchase commitments and adjustments for excess inventory totaling approximately $7 1 million primarily related to a faster than expected ramp in revenue demand, which resulted in a faster than expected decline is equal to two weak demand.
Upon the launch of patio.
GAAP operating expenses were $92 2 million in the fourth quarter of 2022 compared to $81 4 million in the fourth quarter of 2021 non.
non-GAAP operating expenses were $87 6 million in the fourth quarter 2022, representing a 10% increase for non-GAAP operating expenses of $79 9 million in the fourth quarter of 2021.
Increased GAAP and non-GAAP operating expenses, primarily reflects higher sales and marketing related expenses.
In terms of head count we ended the quarter with 769 employees compared to 771 at the end of Q3 2022 and 728 at the end of last years fourth quarter.
Operating expenses in the fourth quarter included total noncash share based compensation of $16 8 million compared to $17 5 million in the fourth quarter of last year.
GAAP net loss in the fourth quarter of 2022 was 84.4 million or <unk> 37 per share compared to GAAP net loss of $69 3 million in the fourth quarter of 2021 or 31 cents per share.
non-GAAP net loss was $79 6 million, representing 35 cents per share in the fourth quarter 2022, compared to a non-GAAP net loss of $66 4 million, representing 30 per share in the fourth quarter 2021.
Now turning to our balance sheet.
We ended the fourth quarter with 772 million in unrestricted cash and investments compared with 834 million at the end of the third quarter of 2022.
Our ending cash and investments exclude gross proceeds of approximately $201 million, resulting from the sale of shares of our common stock in a follow on public offering in January 2023.
Inventory balances increased in the fourth quarter to $15 4 million, representing one six inventory turns compared with $43 5 million at the end of the third quarter of 2022, representing one nine inventory turns the increase in inventory primarily reflects purchases of radio and.
So instrument and consumables inventory.
Accounts receivable decreased in the fourth quarter to $18 8 million, reflecting a DSO of 70 days compared with $22 8 million at the end of the third quarter of 2022, reflecting a DSO of 71 days.
Moving to guidance for the full year 2023, we expect revenue in the range of 165 million to $180 million, representing a growth rate of approximately 29% to 40% compared to 2020 to.
The lower end of the range. It seems that a reduction in sequel to TUI consumables for faster than I expected ramp down more than offsets a ramp in revenue of consumable revenue later in the year.
The high end it seems consumable revenue was flat to slightly higher compared to 2020, Q and greater radio shipments in the year.
In both high and low ends of the range, we expect service revenue to decline compared to 2022 U S customers decommission their sequel to MTV.
For the first quarter of 2023, we expect to ship at least 25 instruments as we build and ramp manufacturing capacity, we expect manufacturing capacity scale through the second quarter, reaching our planned production rate for 2023 by the end of Q2.
Note that with the annual guidance in place, we do not expect to share interim backlog or order numbers on a regular basis going forward.
Moving down the P&L, we expect 2023, non-GAAP gross margin to be between 36% and 40%, which will exclude the amortization of intangible assets.
Lower margins resulted from a higher concentration of revenue weighted towards instrument with the early shipments of revenue at lower margin due to the combination of lower asps.
From customer loyalty discounts, coupled with higher costs during a new platform launch.
We expect margin expansion beyond 2023, and maintain our long term guidance of 55% to 60% plus in 2026.
We expect operating expenses to be in line with long term guidance and therefore, non-GAAP operating expenses will grow less than 5% in 2023 compared to 2022.
We expect the weighted average share count for EPS for the full year to be approximately 255 million shares reflecting the recent sale of common shares and shares expected to be issued as part of the omnium milestone later this year.
With that I will turn the call back to Christian Christian.
Susan.
During last month's J P. Morgan Healthcare conference I outlined our strategic goals for this year focusing on delivering results to our stakeholders. Our first priority is to drive widespread adoption of our <unk> sequencer by converting existing sequel, two in TUI customers and attracting new Pac bio customers.
We're off to a strong start with 76 systems in our backlog as of year end and approximately 30% of our sales pipeline consisting of new customers as of year end.
Second we aim to demonstrate the unparalleled accuracy of ASO in customers' hands and show its ability to transform research in several genomic applications as.
As discussed our internal data shows that also as accuracy and detect variance at far greater depth than Sps and beta partners are sharing that they are having an excellent user experience.
Third we're committed to continuing to develop our long read sequencing technology, including ultra high throughput and bench top systems and a next generation SBB sequencer. This.
This year marks the first step in our journey for offering multiple systems across the sequencing spectrum with revenue and also leading the way.
Next we will leverage the current infrastructure to drive towards positive cash flow as Susan shared with our Opex guidance, we're going to prioritize and focus on spending on the areas that matter. The most finally, we plan to expand our partnerships across the ecosystem and workflow to increase.
Customer adoption of SBB, and Hi Fi with the launch of the Pact Biocompatible program, we have a framework in place to onboard the best partners in the sequencing workflow.
Our long term goal is to exceed 500 million in revenue in 2026, and we believe that 'twenty 'twenty. Three is the start of a multiyear growth story towards achieving this I'll look forward to keeping you all updated on our progress throughout the year.
And with that.
Operator would you please start the Q&A portion of our call.
Yes of course, we will now begin the question and answer session.
I just got a question you May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw from the queue. Please press Star then two.
As a reminder, in the interest of time, we ask that you. Please limit yourself to one question at this time, we will pause momentarily to assemble our roster.
The first question. This evening comes from Tayo mixing with Canaccord. Please go ahead.
Hey, Krishna Susan Thanks for taking my questions.
Yeah, Hi.
Better yes.
So I guess on the guidance I'm. This is kind of a range of what we're expecting two.
Two questions about this I guess within my my one here on instruments does this kind of assume you're just straight Ronnie twenty-five revenue ratios in the first quarter I'm. Just curious if you could kind of talk about what the cadence of the orders and the shipments from the Rev Rec going forward.
And maybe like within that like you know beyond shipment, but within marsh in the recommencement of the shipments and maybe like May or June there's going to be probably like an assumption for inventory.
In terms in the second half so I'm just curious about that.
That's for instruments on consumables, maybe just pull through dynamics for sequel, too. We 127, K I think in Q I mean, how quickly could that decline could that'd be like 80 to 90 K by the end of the year and I think you mentioned, Susan <unk> pull through it could be you know you're.
You're assuming some consumables there what are you thinking about it they're curious about that thanks guys.
Alright.
A lot to unpack there Kyle and thanks, I am back in the saddle so.
I'm, sorry, I missed everyone at a G. P T last week, but let's talk about the guidance a little bit.
And how how we thought about it.
We do expect that you know on a quarter by quarter basis revenues will improve throughout the year.
No we don't give quarterly guidance on revenues, so I'm not other than to say that I do think that we're going to see us grow over the course of the year and probably going to stop there with respect to revenue and shipments.
25 is really just the start and where we're prepared to you know Purdue.
Produced and shipped more than that FERC quarter.
We're starting at 25, because we wanted to make sure we have an incredible customer experience.
With these early shipments as we scale up so I wouldn't I wouldn't assume that it's a linear.
A linear kind of outlay quarter after quarter after quarter.
But I would say that 25 is a good starting point for us too.
Really get a get the system out in the field in and start to see how it impacts.
Both consumables with sequel to we but also.
The utilization of <unk> itself with respect to the pull through dynamics as I've said, a couple of times, we arent going to know really what the pull through dynamics look like for several quarters and so the truth is we're not going to try to try to speculate or guess, what we do know is that some of our largest <unk>.
Customers are early adopters of <unk> and so that will have.
Our assumption is that they will.
Use <unk> and they will start to slow.
Slow down to usage of sequel to me. It may not go totally <unk> with those customers, but it will certainly decline as they move to the scale and cost effectiveness of <unk> and so that could have an impact on and it's likely that it will have an impact on sequel to be pulled through proper.
Over the next couple of quarters, where that ultimately settles out I think you quoted 80 to 90 K.
We don't know when we're not going to make a we're not going to try to guess at that today, we're going to see how this unfolds over over the course of the over the course of the year I do think that Rev. Yo utilization will will likely grow over the course of the year, particularly as we start to.
Ship to the larger scale customers first.
And then what we will see is we will start to see some sort of normalization of that I suspect.
Based on past experiences is probably going to take us three or four quarters to really see where that settles out. So hopefully tie all that that answers your questions and gives you a sense of how we are.
Thinking about the guidance with respect to the instruments and consumables.
Yeah that was great Christian I'll hop back in the queue.
Cool.
The next question is from Julia Qin <unk> with J P. Morgan. Please go ahead.
Hi, good afternoon.
So in terms of manufacturing capacity for around here, you've got a clean patch it named <unk> and fully ramped up by <unk>, So where do you think the supply will stand at run rate in the second half of the year and then in terms of the radial pulse to ramp I believe you previously mentioned that you expect a buyer.
About distribution in terms of the customer are kind of in a volume. So is it fair to expect that you know the lower throughput customers on board later this year or do you think that's more of a 'twenty 'twenty four and beyond dynamic.
You know Julia Thank you for the questions and its good to talk to you the.
First of all thinking about the run rate on on manufacturing.
The good news is that we have enough production capacity today to satisfy a very wide range of outcomes with respect to demand.
And you know, we're going to we're going to scale, our production and get to kind of our steady state by the end of Q2.
But that doesn't mean, we couldn't scale further in Q3 or Q4 and beyond but what we're trying to do is is not put us in a situation where we produce a lot of instruments at one time, and then and then reduce the steady state we'd much rather be a little bit more.
Kind of consistent over time, because that's how we will get the best efficiency out of the plant and that's how we will get the best the lowest Cogs and approved gross margin part of part of the art of Revo is not only the enablement of the.
This new technology for our customers, but it's also for us to drive.
Gross margin improvement both through the instrument itself over time, but also and especially because it can be a much higher pull through instrument, which will drive.
Product mix and when we think about that.
Barbell distribution as you were talking about with respect to consumables Youre right that you know typically in these markets you end up with a kind of maybe a bimodal distribution of a very high throughput customers with very high utilization and then and then lower throughput customers you know our expectation is with reveal that.
Sure. The earliest shipments will will probably be to the higher throughput and highest throughput so that will probably be more.
Mostly through Q1, and even a lot of Q2, but we're gonna.
It's really important that we that we provide this technology to all of our customers and so we're going to try really hard to be too.
To get some of our lower throughput customers, which we think will be the high throughput customers of tomorrow. The system as soon as we can.
And of course, we're going to serve our very large.
Customers in large projects because they really enable.
The the next sets of large projects to come through to build the business and so I would expect us I would expect to see a pretty broad distribution.
Distribution of customers over the course of this.
2023, and it will continue on in 'twenty four.
Okay. That's very helpful and just one follow up on that that equaled pull through if I may and I think you mentioned that you know there might be some near term volatility in equal utilization because theres an initial wave of inventory destocking, but then if customers early orders arent fulfilled in my time at all.
Have a rebound in utilization I'm. Just curious you know I had said that the you're expecting a reasonable expectation of radio supply constrained in that initial year and communicate it to these customers in an attempt to kind of get a maybe not without their inventory management of these.
These people to them and how does that kind of mean that would tie to the best case and worst case scenario.
Paul Paulsville, that's embedded in your guidance.
Yes, so we have been very clear with our customers and we are one of the things. We're trying to do is we are laser focused on our customers. It's one of our our core values and helping them understand timing of when theyre going to receive <unk> when.
When they utilize utilization of sequel to weak consumable and two in TUI consumables, we really tried to working at the grassroots level each customer so that they can optimize their.
Our experience at.
Some you know some customers that have ordered.
You know say recently.
It's likely that they're not going to get the revenue for a while so theyre going to continue to run their projects on sequel to me. So we're going to want to make sure. We we help them manage manage that transition and it could have.
Like I said in my prepared remarks, there could be some variability or volatility around the consumable revenue as we go through this transition. The good news is that by the you know really by the end of the year. This volatility is likely behind us and where we.
We're scaling our utilization on on <unk>, and you're starting to see the consumable pull through from radio we're starting to understand what those numbers look like and and have more sense, but you know the next few quarters. It is going to be transition and we're just managing that the best we can the good news is the <unk>.
Other piece of good news is that we have.
We've done a really good job on producing twenty-five am smart cells and we're in an excellent inventory position already and if you work. If most of you recall, we actually completed the twenty-five them smart cell over a year ago at this point. So we've got a lot of experience.
With it yields are already coming up in the manufacturing plant.
And so you know our ability to supply the market at really any level of demand that we're kind of seeing it.
<unk> is already in place effectively which is super exciting.
The next question comes from Tejas Savant with Morgan Stanley . Please go ahead.
Hey, guys good evening and Christian it's good to hear your voice, we missed you at a GBP, especially after the Sun went down as a lot of people told you I'm sure.
On the on the on the reveal first to kick things off.
You've got 76 orders in backlog you are shipping 25, youre in essentially a month here you've got the April Pas as well, but you know Tom Mark talked about the GBT is not particularly impactful from a number standpoint, but could we actually see you ship all of the current orders in backlog by the end of the second quarter or do you see that as more of a.
A third quarter or mid third quarter situation.
And then my second question here is on envelope. So first easy one for Susan what exactly are you baking into the guide for <unk>, perhaps you know any color on the number of shipments here in the back half and I think you showed really good data D. G. P. T. I think it was you know something like 602.
730 million reads in Ohio, then your 400 to 500 target range. So what exactly remains to be done there over the next few months other than just incorporating some of the learnings from your beta users.
Yeah.
Okay, a lot to unpack there hey, Josh. Thank you for the questions first of all I want to Oh, you're right we had 76.
Orders in backlog at the end of December but the truth is we have more orders in backlog than we did at the end of December today, So and the reason why I start by that is that the reality is is that we.
We expect to continue getting more and more orders over the course of the year and so it's you know shipping the 76 by a certain amount of time, you know I would expect us to carry backlog for for quite a while actually.
Because I do think the order.
The demand for the product is quite substantial.
Stansell and so you know what we're doing is we're working to ship. The 25 at least 25 units as what I said specifically.
This quarter to get started and then Youre right in April .
Still going to be manufacturing systems, all through April so it's not like it's.
When we say pause all we're doing is making sure the field is.
We're very satisfied with how customers are ramping up on radio it has nothing to do with anything other than that and so well it has exactly zero impact on our ability to deliver revenue in Q2, I just wanted to make that crystal clear because it does seem like some.
Some analysts have really kind of drilled into that and I don't you know what we're focused on is having an incredible launch.
And that's part of how you plan these things out to do it exceptionally well and so you know we're not I'm not I'm not really going to say when the 76 gets all all shift, but what I am going to say is that.
I do expect us to run in backlog for several quarters this year.
And that's partially because I think the order book is going to be very strong all year.
And so that that's how we think about that let's see talked about the pause.
Uh huh.
With respect to what I'll I'll pass the guidance to Susan and the sack, but just a comment on the odd so what do we have left to do you are right. We've seen some great results from our beta customers with respect to the the density what we have to do now is we're really in the phase of May.
Making sure that the.
We can produce the instrument at scale, making sure that we can.
Make sure that chemistry is hardened so that it can get to a very broad diversity of customers.
Working on making sure we get.
Production of flow cells, right. So that we can deliver to our customers consistently.
And at scale and so it's it really is theres still some software work to do.
As there always is so theres work there is a lot of work to do still to get to.
Full commercialization, but the the good news is that that Youre seeing the chemistry is starting to perform youre seeing the densities improving getting to commercial getting to commercial specifications youre seeing youre seeing the incredible accuracy, even in the hands of our beta customers. So out in the field on customer samples.
You're seeing that so all of those signs are really encouraging for us it'll just be about the ramp scale finalizing the development taking feedback from those.
Are you beta customers and integrating it into <unk>.
Into the product and.
Part of this also is making sure that that the odds of launch doesn't interfere with the revenue of watch too we want to make sure that we do both launches and exceptionally well because we think both products are.
Critical to pushing the state of the community forward and allow us to really.
Really grow and take a leadership position in this.
In this community and Susan do you want to comment on on also into the guidance sure. So I think with that backdrop. We are super excited by the positive customer feedback on also customer interest in terms of the radio also bundle.
But in terms of the year. This is a this is a bad year in terms of our guidance.
I got to provide some perspective in terms of on so what is baked into our guidance is basically a modest number of shipments.
Shipments in the year, but it's not a material contribution to the overall revenue number is this year again, it's mostly driven by Red Yep Yep.
Particularly most of the growth most of the growth exactly.
The next question comes from Dan Brennan with Cowen. Please go ahead.
Great. Thanks for thanks for taking my questions.
I guess, maybe I'll stick with one, but I guess, a multi parter if that's easier.
In terms of consumables that was really helpful to hear some color and the total guide, but how to think about consumables at the high end of the guide.
I appreciate the sequel to we roll off is a hard thing to predict like can you give us any more color within that guidance range. Like you know what are the barriers on sequel II consumables.
And then B Christian certainly can appreciate that the orders didn't stop at year end.
Discuss 76 orders from 43 countries and 30% of those from new customers that was as of the end of the fourth quarter can you just give us some color maybe about how the order book has evolved.
Since early January and I'll leave it there thanks.
Yeah, I mean, I think you know.
We're going to try to I mean realistically, we're going to try to stay out of a.
You know looking at backlogs and order books, and this and that but took to color.
What's happened since year end, we've had two very very very successful conferences, the plant and animal genome conference Hebt and if anything the funnels are strengthening.
The the perspective lots of customers or many customers have actually run samples inside of our labs now in our in our applications labs. So.
The customers are getting more confidence around.
It really is what we say it is and I think that's where that's really exciting and so the.
The.
Funnel is it continues to strengthen.
It is a global it is a global funnel and there are a lot of new customers and I think that's one thing that's really important to me is not only do we want to you know get.
Get all of our existing customers to scale up with radio, but it is really important for us to show.
New customers and see these new customers get engaged with the technology and so far I.
I think the I think we've seen a lot of that internally with our customers and and perhaps maybe most interestingly is the scale people are starting to talk about is different than ever before in the history of Pac bio.
And so people are starting people are onto plating.
10000 sample projects 20000 sample project larger scale large scale transcriptome mixed projects large scale whole genome projects.
And I think that's gonna be that that that's extremely encouraging to kind of prove out the thesis that we needed to get to higher throughput and we needed to get to.
Economics that enable that through enabled scale, we already and we continue to do it with the with the best accuracy and as that all of US preprint showed.
Quite frankly.
The.
Hi, Hifi sequencing right now is the most accurate and most complete sequence or you can get and so that that's all been really well I know that doesn't help you kind of build your model per se, but.
Anecdotally it makes us feel.
A lot better I didn't understand Dan your question really on our guidance barriers on sequel to maybe could you could you ask that question again.
Sure I think Susan talked about consumables at the high end of the guide would be flat to up with that.
Presumably you were referring to total consumables, so reveal plus sequel.
And I just wanted to clarify that and if it was I was just trying to think through.
On sequel itself within the guidance any color on how we're thinking about sequent sequel, two week consumables at the high end and the low end of the guidance.
Yeah. So yeah, Susan was talking about the total got it.
Total consumable number which which makes the total number is actually the hard number to predict right because you don't know how fast.
If our bass equal to its going to decline you do know that Ravi I was going to accelerate and it will continue to accelerate throughout.
Throughout the year, but but we don't but we don't really know yet how how that's how that will transpire exactly and so that's why you know when we think about our guidance we have contemplated that volatility.
In in the range of different outcomes I think that's probably the easiest way to put it.
The next question comes from David Western Berg with Piper Sandler. Please go ahead.
Hi, Thank you for taking the question and I Echo everybody's sentiments when I said, we really Miss June ADB T.
Thank you.
Start let's start with the I think you've got the number of 30% new to Pac bio.
Would you be willing to discuss whether they might be existing long read customers using maybe O N T. They're looking for maybe accuracy at a lower cost or if this would be short read customers that really are looking for a long reads because.
For all that it offers and then it kind of projects that theyre looking at and is there any way to describe that 30% of customers.
Yeah, you know I can't I don't I don't have the breakout in front of me. So I can't give you kind of specifics, but the reality is is that.
You know there there has been a lot of conversations in and getting the second half because I wasn't at age.
Fortunately, but at <unk>, there were lots of conversations where where customers were.
You know kind of expressing their need to move to <unk>.
From their existing long read sequencing paradigm, because they see the accuracy because they see the completeness and they and the other thing is they believe in the robustness of the platform that we bring.
To bear given there given their market experience with sequel to we and so we've seen that.
But the predominant portion will still be a shortage of customers moving to long reads and you know what everyone has to realize is that virtually every lab. That's doing sequencing has a short read sequence or today.
Or is that.
That's the predominant phenotype in the world and it's what what's happening is that they will ring a radio machine into their lab and they'll start to move projects away from short rates to long reads for exactly what you said the benefits of completeness structural variation.
Being able to see phasing straight out of the gate without any tricks epigenetics you know there's just it's just become so apparent that there's so much advantage. So looking at long reads over short reads in most applications.
That you're starting to see a lot of people.
To make that switch and move forward and I think that's I think you're going to see.
<unk> machine sitting right alongside existing short read sequencing <unk> and the RVO machines are going to be capturing more and more of the dollars in many different applications, where we clearly have significant competitive advantage and now we have the scale and the economics.
Two.
To enable our customers.
The next question comes from some G Nam with Scotia Bank. Please go ahead.
Hi, Thanks for taking my question I can totally appreciate that this is the year for Rocky L. A but given the really positive feedback on on so and also the really attractive bundle that you are offering.
We've just kind of curious what your thoughts are in terms of the the attachment rate. If you will in the outer years and also in order what what do you think might be kind of the biggest barrier in terms of customers.
You know really adapting answer at this point are they looking for more data are in you know comparing.
The answer to the other short read platform, if you could talk about those.
Yeah, I think I think you're right yeah.
There is a lot of excitement about on so because you know really for the first time in a very long time, there is significant differentiation in the short read space with with on so.
And customers see that they see the bundle pricing and offering that we have as something unique and no. One else can provide that in and so you know exactly why our strategy of becoming the only company with highly accurate long and short read technologies gives us the ability.
To talk to.
Every customer in the space and and and really ask them. What what questions are they trying to answer and provide them solutions that answer their questions and that's that's going to be really powerful not only as we get out of the gate here.
But but over the next several years in particular and what I think customers are going to be excited about is getting also into the lab to see what it can do and then watching our ability to.
Increase the power of the technology through increases in density driving more driving more reads per run, which would create more value than ever before.
And it's really that that differentiation.
I think the barriers today are probably the biggest barriers we have to get the product to market to be maybe a little tongue in cheek, but that's really what what it is I think that there is a lot of excitement.
Around the project, if we need to we need to finalize the development make it a highly robust.
And have an amazing launch and that's really what we're going to do here over the next you know as we get revenue out the door and prepare for <unk>. So and then youre going to see US continue to focus over the second half of the year and into next year on how you integrate with bundles. How you increase the performance of both Rabat Oh wait out.
Quite frankly, a and.
And and then increase our value to the customers and that's really the the plan of attack here.
I'm very enthusiastic about it I mean.
We are from a guidance perspective, we are taking a modest view because.
We want to make sure we get this right we know that Theres a lot of choice in the are in the market. We believe we have a highly differentiated offering.
But we also want to be practical and responsible about how we give our financial guidance.
The next question is from John salary beer with UBS. Please go ahead.
Yes.
Hi, Thanks for taking the question here, maybe just a question for Susan and Youre on the greater than 25 shipments in the first quarter. Do you think you can recognize those and revenue or could you remind us how the revenue recognition is on the shipment and then a follow up.
It sounds like the road for the wrap up.
<unk> revenue has been shipped out the door have you actually received in an up and running and if so any early feedback on the installation of Marin software.
Yeah, So John .
Five.
Those will be recognized as revenue because the predominance of our shipments are are the primary elements of the instruments. We delivered to customers is recognized upon delivery. So that is that is meant for revenue recognition in the quarter.
And then on the on on the radio going to the broad Ah.
It was.
We sent it via truck so the trucks, arriving that's me.
No no I think it's arriving actually in the next couple of days yeah.
And so the truck will arrive and they'll install it next week.
And then they'll you know they'll they're very very.
Capable so I wouldn't be surprised if before the end of the month, we're starting to see runs come off of.
Off of the machine, assuming the installation goes well.
The final question. This evening comes from Ross Osborne with Cantor Fitzgerald. Please go ahead.
Hi, Thanks for squeezing me in I know, it's been a long call.
Nick So just curious to hear your view on China. So the borders opening but cases, increasing realize he had strong instrument demand, but any insight into overall activity would be appreciated.
Yeah Yeah.
So right now overall activity has been pretty good we had very strong demand for <unk> in China, and I think that's going to.
That will help us with our Chinese revenue in the quarter Youre right when.
When I give guidance one of the things I do worry about is is how does China play itself out this year, because we all none of us really know how that will completely play itself out.
What buoys my confidence is the fact that we have a new product cycle and in a lot of enthusiasm and a lot of orders already for <unk>, So that will help.
But youre right bore potential closures.
Covid.
Those kinds of things, there's still headwinds that we face in the market and and you know when we were thinking about our guidance. We are trying to think through.
Through that there still are headwinds sitting out there that are that.
We're concerned with and watching but so far our view on China right now is that we.
We expect it to be operations as normal we will be shifting some radios to China this quarter.
So that will that will help and get those customers started but but right now theres nothing.
Extraordinary to report, but we are watching as as I'm sure all of our competitors and peers.
How that how that will unfold over the next several quarters.
This concludes our question and answer session I would like to turn the conference back over to Todd Friedman for any closing remarks.
Alright, Thank you all for joining us today.
We look forward to connecting with many of you later this quarter are several.
Several investor events.
And updating you on our progress this year as a reminder, a replay will be available on our website and this now concludes our call. Thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Yeah.
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